SB 481, as introduced, Hueso. Internal auditors: independence.
Existing law requires, with certain exceptions, that all city, county, city and county, and district employees who conduct audits or that conduct audit activities of those respective agencies, conduct their work under the general and specified standards prescribed by the Institute of Internal Auditors or the Government Auditing Standards issued by the Comptroller General of the United States, as appropriate. A willful violation of these provisions is a crime.
This bill would recast these provisions to prohibit these internal audit employees from working under the direct oversight of the general counsel or employees of the agency that they audit. The bill would require these employees to conduct their work under conditions that ensure their independence, as prescribed, including, but not limited to, the requirement that the head of the auditing unit, branch, or group for which he or she works be answerable directly to the head, deputy head, or governing board of the governmental agency being audited, is given direct access to that person or persons, as applicable, and is required to report the audit results to head, deputy head, or governing board.
By expanding the definition of an existing crime, this bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.
The people of the State of California do enact as follows:
Section 1236 of the Government Code is amended
2to read:
(a) begin deleteAll end deletebegin insertAend insertbegin insert end insertcity, county, city and county, and district
4begin delete employees that conductend deletebegin insert employee who conductsend insert audits orbegin delete that begin insert
who conductsend insert audit activities of those respective agencies
5conductend delete
6shall conductbegin delete theirend deletebegin insert
his or herend insert work underbegin delete theend deletebegin insert conditions that ensure
7independence. The employee shall not work under the direct
8oversight of the general counsel or employees of the audited
9agencyend insertbegin insert.end insert
10(b) A city, county, city and county, and district employee who
11conducts internal audit under the direction of the audited agency’s
12management shall be considered independent for the purposes of
13subdivision (a) if all of the following conditions are met:
14(1) The head of the auditing unit, branch, or group for which
15the internal auditor described in subdivision (a) works, meets all
16of the following criteria:
17(A) He or she is answerable directly to the head, deputy head,
18or governing board of the governmental agency being audited,
19and is given direct access to that person or persons, as applicable.
20(B) He or she is required to report the audit results to the head
21or deputy head of the agency being audited, or to the governing
22board of that agency.
23(C) He or she is organizationally placed outside of the staff or
24line-management function of the unit or function being audited.
25(D) He or she is, as much as practicable, administratively
26situated in a manner that provides insulation from political or
27other pressures that could affect his or her ability to conduct audits
28and report findings, opinions, and conclusions objectively without
29fear of political or other reprisal.
30begin insert(2)end insertbegin insert end insertbegin insertThe internal auditor conducts his or her work under theend insert
31
general and specified standards prescribed by the Institute of
32Internal Auditors or the Government Auditing Standards issued
P3 1by the Comptroller General of the United States, as appropriate.
2The standards generally provide as follows:
3(1)
end delete
4begin insert(A)end insert That auditors should be independent of the activities they
5audit.
6(2)
end delete
7begin insert(B)end insert That audits
should be performed with proficiency and due
8professional care.
9(3)
end delete
10begin insert(C)end insert That the scope of the audit should encompass the
11examination and evaluation of the adequacy and effectiveness of
12the organization’s system of internal control and the quality of
13performance in carrying out assigned responsibilities.
14(4)
end delete
15begin insert(D)end insert That audit work should include
planning the audit,
16examining and evaluating information, communicating results,
17and following up.
18(5)
end delete
19begin insert(E)end insert That the chief auditor should properly manage the auditing
20department.
21(b)
end delete
22begin insert(c)end insert Nothing in this section is intended to limit the rights or
23obligations of auditors to conduct audits and audit activities in
24accordance with other laws and
regulations that may apply to a
25particular entity, as appropriate.
No reimbursement is required by this act pursuant to
27Section 6 of Article XIII B of the California Constitution because
28the only costs that may be incurred by a local agency or school
29district will be incurred because this act creates a new crime or
30infraction, eliminates a crime or infraction, or changes the penalty
31for a crime or infraction, within the meaning of Section 17556 of
32the Government Code, or changes the definition of a crime within
33the meaning of Section 6 of Article XIII B of the California
34Constitution.
O
99