BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 481| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 SB 481 Page 2 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 SB 481 Page 3 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 SB 481 Page 4 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 **** END ****