BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                        SB 481|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
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                                   THIRD READING 


          Bill No:  SB 481
          Author:   Hueso (D)
          Amended:  4/8/15  
          Vote:     21  

           SENATE GOVERNANCE & FIN. COMMITTEE:  5-0, 4/15/15
           AYES:  Hertzberg, Beall, Hernandez, Lara, Pavley
           NO VOTE RECORDED:  Nguyen, Bates

          SENATE APPROPRIATIONS COMMITTEE:  Senate Rule 28.8

           SUBJECT:   Local government:  auditors:  independence


          SOURCE:    Author


          DIGEST:  This bill prohibits local agency employees who work on  
          internal audits from reporting to, or being directly overseen  
          by, a local agency's general counsel.


          ANALYSIS:   


          Existing law:


          1)Requires 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  








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            General of the United States. 


          2)Enumerates the following general standards for local  
            governments' internal audits and audit activities:


             a)   Auditors should be independent of the activities they  
               audit.


             b)   Audits should be performed with proficiency and due  
               professional care.


             c)   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.


             d)   Audit work should include planning the audit, examining  
               and evaluating information, communicating results, and  
               following up.


             e)   The chief auditor should properly manage the auditing  
               department.


          3)Declares that 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.


          4)Requires public records to be open to inspection during office  
            hours and gives every person a right to inspect public  
            records, with specific exceptions.


          5)Creates an exception for records that are subject to the  
            "attorney client privilege," which allows communications  
            between a public agency and its lawyers to be kept  







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            confidential.


          This bill:


          1)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.  


          2)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.


          Comments


          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.  This bill 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.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  







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          Com.:YesLocal:   Yes


          SUPPORT:   (Verified4/27/15)


          Berkeley City Auditor Ann-Marie Hogan
          City of Calexico
          City of El Centro
          El Centro Chamber of Commerce & Visitor's Bureau
          Imperial County
          San Diego City Auditor Eduardo Luna


          OPPOSITION:   (Verified4/27/15)


          None received







          Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119
          4/28/15 15:31:08


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