BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 481 |Hearing | 4/15/15 |
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|Author: |Hueso |Tax Levy: |No |
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|Version: |4/8/15 |Fiscal: |NYes |
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|Consultant|Weinberger |
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LOCAL AGENCIES' INTERNAL AUDITS
Prohibits local agency employees who work on internal audits
from reporting to, or being directly overseen by, a local
agency's general counsel.
Background and Existing Law
Local government employees who conduct audits or audit
activities of their respective local government must 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. State law enumerates the following general standards for
local governments' internal audits and audit activities:
Auditors should be independent of the activities they
audit.
Audits should be performed with proficiency and due
professional care.
The scope of the audit should encompass the examination
and evaluation of the adequacy and effectiveness of the
organization's system of internal control and the quality
of performance in carrying out assigned responsibilities.
Audit work should include planning the audit, examining
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and evaluating information, communicating results, and
following up.
The chief auditor should properly manage the auditing
department.
These internal audit standards do not limit the rights or
obligations of auditors to conduct audits and audit activities
in accordance with other laws and regulations that may apply to
a particular entity.
The California Public Records Act (CPRA) requires public records
to be open to inspection during office hours and gives every
person a right to inspect public records, with specific
exceptions. One exception to the CPRA's disclosure requirements
applies to records that are subject to the "attorney client
privilege," which allows communications between a public agency
and its lawyers to be kept confidential.
Generally, the final reports of local agencies' internal audits
are public records that are open to inspection pursuant to the
CPRA. However, advocates for government transparency and
accountability worry that local officials sometimes invoke
attorney-client privilege to avoid publicly releasing
potentially embarrassing or controversial internal audit
reports. They want legislators to prohibit local agencies'
organizational structures from making internal audit employees
answerable to an agency's general counsel.
Proposed Law
Senate Bill 481 prohibits the general counsel of a city, county,
city and county, or district, or the general counsels'
employees, from having direct oversight over city, county, city
and county, or district employees who conduct audits or audits
activities of the respective agency. SB 481 prohibits all city,
county, city and county, or district employees who conduct
audits or audit activities of those respective agencies from
being required to report to the general counsel or any employees
of the general counsel.
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State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Audits provide essential accountability
and transparency over government programs. Given their
importance, the public's ability to access these reports is
paramount. Currently, there are two sets of professional
auditing standards that employees who perform audits must choose
from. One standard, known as the yellow book, is published by
the US Government Accountability Office. The other standard,
known as the red book, is published by the Institute of Internal
Auditors. Statute authorizes internal auditors to follow either
standard. However, both standards fail to preserve complete
transparency of internal audit reports. Some local governments
are reporting their internal auditors' reports to their General
Counsel. By doing so, those reports are being classified as
attorney-client privileged communications, which limits public
disclosure of the audit reports. Neither the red book nor the
yellow book prohibits this practice. SB 481 augments the
auditing standards that apply to local governments' internal
audits to prevent local officials from using the attorney-client
privilege to conceal audit information from members of the
public.
2. No exceptions ? The public has a fundamental right to
scrutinize information about the manner in which governments
conduct the people's business. Clearly, public officials should
not be allowed to invoke the attorney-client privilege
opportunistically to prevent the release of information that
officials simply don't want the public to know. However, by
prohibiting any local government internal audit activities from
being conducted under the auspices of a general counsel, SB 481
may prevent local governments from performing internal audits
that may justifiably be privileged communications. For example,
should a local agency be prevented from having its general
counsel's office conduct an internal audit of personnel policies
and practices to determine whether they expose the agency to
potential legal liabilities? The Committee may wish to consider
amending SB 481 to specify definitions or criteria that
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distinguish between legitimate and illegitimate applications of
the attorney-client privilege to internal audits.
Support and
Opposition (4/9/15)
Support : El Centro Chamber of Commerce & Visitor's Bureau;
Imperial County; San Diego City Auditor Eduardo Luna.
Opposition : Unknown.
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