Amended in Senate April 6, 2015

Senate BillNo. 481


Introduced by Senator Hueso

February 26, 2015


An act to amend Section 1236 of the Government Code, relating to local government.

LEGISLATIVE COUNSEL’S DIGEST

SB 481, as amended, Hueso. begin deleteInternal auditors: end deletebegin insertLocal government: auditors: end insertindependence.

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.begin delete A willful violation of these provisions is a crime.end deletebegin insert Those standards generally provide, among other things, that auditors should be independent of the activities they audit. Existing law makes every willful omission to perform any duty enjoined by law upon any public officer, or person holding any public trust or employment, where no special provision is made for the punishment of that delinquency, a crime.end insert

begin delete

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.

end delete
begin insert

This bill would prohibit the general counsel of the city, county, city and county, or district, or the employees of the general counsel from having direct oversight over the city, county, city and county, and district employees that conduct audits or that conduct audit activities of those respective agencies. This bill would also prohibit all city, county, city and county, and district employees that conduct audits or that conduct audit activities of those respective agencies from being required to report to the general counsel or any employees of the general counsel.

end insert
begin insert

This bill would require that all city, county, city and county, and district employees that conduct audits or that conduct audit activities of those respective agencies be considered to conduct their work under conditions that ensure independence, if the head of the auditing unit, branch, or group for which the employee works meets specified criteria.

end insert

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:

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P2    1

SECTION 1.  

Section 1236 of the Government Code is amended
2to read:

3

1236.  

(a) A city, county, city and county, and district employee
4who conducts audits or who conducts audit activities of those
5respective agencies shall conduct his or her work under conditions
6that ensure independence. The employee shall not work under the
7direct oversight of the general counsel or employees of the audited
8agency.

9(b) A city, county, city and county, and district employee who
10conducts internal audit under the direction of the audited agency’s
11management shall be considered independent for the purposes of
12subdivision (a) if all of the following conditions are met:

P3    1(1) The head of the auditing unit, branch, or group for which
2the internal auditor described in subdivision (a) works, meets all
3of the following criteria:

4(A) He or she is answerable directly to the head, deputy head,
5or governing board of the governmental agency being audited, and
6is given direct access to that person or persons, as applicable.

7(B) He or she is required to report the audit results to the head
8or deputy head of the agency being audited, or to the governing
9board of that agency.

10(C) He or she is organizationally placed outside of the staff or
11line-management function of the unit or function being audited.

12(D) He or she is, as much as practicable, administratively
13situated in a manner that provides insulation from political or other
14pressures that could affect his or her ability to conduct audits and
15report findings, opinions, and conclusions objectively without fear
16of political or other reprisal.

17(2) The internal auditor conducts his or her work under the
18 general and specified standards prescribed by the Institute of
19Internal Auditors or the Government Auditing Standards issued
20by the Comptroller General of the United States, as appropriate.
21The standards generally provide as follows:

22(A) That auditors should be independent of the activities they
23audit.

24(B) That audits should be performed with proficiency and due
25professional care.

26(C) That the scope of the audit should encompass the
27examination and evaluation of the adequacy and effectiveness of
28the organization’s system of internal control and the quality of
29performance in carrying out assigned responsibilities.

30(D) That audit work should include planning the audit,
31examining and evaluating information, communicating results,
32and following up.

33(E) That the chief auditor should properly manage the auditing
34department.

35(c) Nothing in this section is intended to limit the rights or
36obligations of auditors to conduct audits and audit activities in
37accordance with other laws and regulations that may apply to a
38particular entity, as appropriate.

end delete
39begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 1236 of the end insertbegin insertGovernment Codeend insertbegin insert is amended
40to read:end insert

P4    1

1236.  

(a) All city, county, city and county, and district
2employees that conduct audits or that conduct audit activities of
3those respective agencies shall conduct their work under the general
4and specified standards prescribed by the Institute of Internal
5Auditors or the Government Auditing Standards issued by the
6Comptroller General of the United States, as appropriate. The
7standards generally provide as follows:

8(1) That auditors should be independent of the activities they
9audit.

10(2) That audits should be performed with proficiency and due
11professional care.

12(3) That the scope of the audit should encompass the
13examination and evaluation of the adequacy and effectiveness of
14the organization’s system of internal control and the quality of
15performance in carrying out assigned responsibilities.

16(4) That audit work should include planning the audit, examining
17and evaluating information, communicating results, and following
18up.

19(5) That the chief auditor should properly manage the auditing
20department.

21(b) Nothing in this section is intended to limit the rights or
22obligations of auditors to conduct audits and audit activities in
23accordance with other laws and regulations that may apply to a
24particular entity, as appropriate.

begin insert

25(c) The general counsel of the city, county, city and county, or
26district, or the employees of the general counsel shall not have
27direct oversight over the city, county, city and county, or district
28employees that conduct audits or that conduct audit activities of
29the respective agency. All city, county, city and county, and district
30employees that conduct audits or that conduct audit activities of
31those respective agencies shall not be required to report to the
32general counsel or any employees of the general counsel.

end insert
begin insert

33(d) All city, county, city and county, and district employees that
34conduct audits or that conduct audit activities of those respective
35agencies shall be considered to conduct their work under
36conditions that ensure independence if the head of the auditing
37unit, branch, or group for which the employee works meets all of
38the following criteria:

end insert
begin insert

P5    1(1) He or she is answerable directly to the head, deputy head,
2or governing board of the governmental agency being audited,
3and is given direct access to that person or persons, as applicable.

end insert
begin insert

4(2) He or she is required to report the audit results to the head
5or deputy head of the agency being audited, or to the governing
6board of that agency.

end insert
begin insert

7(3) He or she is organizationally placed outside of the staff or
8line-management function of the unit or function being audited.

end insert
begin insert

9(4) He or she is, as much as practicable, administratively
10situated in a manner that provides insulation from political or
11other pressures that could affect his or her ability to conduct audits
12and report findings, opinions, and conclusions objectively without
13fear of political or other reprisal.

end insert
14

SEC. 2.  

No reimbursement is required by this act pursuant to
15Section 6 of Article XIII B of the California Constitution because
16the only costs that may be incurred by a local agency or school
17district will be incurred because this act creates a new crime or
18infraction, eliminates a crime or infraction, or changes the penalty
19for a crime or infraction, within the meaning of Section 17556 of
20the Government Code, or changes the definition of a crime within
21the meaning of Section 6 of Article XIII B of the California
22Constitution.



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