BILL ANALYSIS Ó
SB 481
Page 1
SENATE THIRD READING
SB
481 (Hueso)
As Amended June 18, 2015
Majority vote
SENATE VOTE: 29-0
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Local |9-0 |Maienschein, | |
|Government | |Gonzalez, Alejo, | |
| | |Chiu, Cooley, Gordon, | |
| | |Holden, Linder, | |
| | |Waldron | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |14-0 |Gomez, Bigelow, | |
| | |Bloom, Bonta, | |
| | |Calderon, Chang, | |
| | |Eggman, Gallagher, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
| | |Jones, Quirk, Rendon, | |
| | |Weber, Wood | |
| | | | |
SB 481
Page 2
| | | | |
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SUMMARY: Prohibits the general counsel of a local government
from having direct oversight over that local government's
auditors. Specifically, this bill:
1)Prohibits the general counsel of a 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, or district employees that conduct audits or that
conduct audit activities of the respective agency.
2)Provides that no reimbursement is required by this act,
pursuant to California Constitution Article XIII B, Section
6, because the only costs that may be incurred by a local
agency or school district will be incurred because this act
creates a new crime or infraction, eliminates a crime or
infraction, or changes the penalty for a crime or infraction,
within the meaning of Government Code Section 17556, or
changes the definition of a crime within the meaning of
California Constitution Article XIII B, Section 6.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, negligible state costs.
COMMENTS:
1)Bill Summary. This bill prohibits the general counsel of a
city, county, or district, or his or her employees, from
having direct oversight over those agencies' employees who
conduct audits. This bill is sponsored by San Diego City
Auditor Eduardo Luna.
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2)Author's Statement. According to the author, "SB 481 seeks to
ensure transparency of government audit reports and the
independence of internal auditors... This bill is a response
to an existing practice that limits public access to audit
reports. Some organizations require their internal auditors
(to) be supervised by their general counsel. This structure,
which requires an auditor to regularly report to the general
counsel, weakens the independence and transparency of an
auditor's work. Such a structure makes it easier for
organizations to render a report inaccessible to the public.
They can do this by claiming that a particular audit report is
a privileged communication between an attorney and client.
Once something is deemed a client-privileged communication,
the public no longer has access to it.
"Audits provide essential accountability and transparency over
government programs and it is important that the public has
access to them. This bill would address this issue by
prohibiting a general counsel from having direct supervision
over an auditor and ensure the public's access to these audit
reports."
3)Background. Existing law requires city, county and district
auditors to conduct their work under standards prescribed by
the Institute of Internal Auditors or the Government Auditing
Standards issued by the Comptroller General of the United
States.
The Institute of Internal Auditors (IIA) is an international
professional association that publishes Standards for the
Professional Practice of Internal Auditing, also known as the
Red Book, for use in all types of organizations where internal
auditors are found. The Red Book includes statements of basic
requirements for the professional practice of internal
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auditing and for evaluating the effectiveness of its
performance. The requirements are internationally applicable
at organizational and individual levels.
The United States Government Accountability Office (GAO) is an
independent, nonpartisan agency that works for Congress and
investigates how the federal government spends taxpayer
dollars. The head of the GAO is the Comptroller General of
the United States. The GAO publishes Generally Accepted
Government Auditing Standards, also known as the Yellow Book,
which provide a framework for conducting high quality audits
with competence, integrity, objectivity, and independence.
The Yellow Book is for use by auditors of government entities,
entities that receive government awards, and other audit
organizations performing Yellow Book audits.
According to the 2011 revision of the Yellow Book, "Government
auditing is essential in providing accountability to
legislators, oversight bodies, those charged with governance,
and the public. Audits provide an independent, objective,
nonpartisan assessment of the stewardship, performance, or
cost of government policies, programs, or operations,
depending upon the type and scope of the audit."
The Yellow Book explains that a government audit organization
can be structurally located within or outside the audited
entity. "Audit organizations that are external to the audited
entity and report to third parties are considered to be
external audit organizations. Audit organizations that are
accountable to senior management and those charged with
governance of the audited entity, and do not generally issue
their reports to third parties external to the audited entity,
are considered internal audit organizations."
However, "Some government audit organizations represent a
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unique hybrid of external auditing and internal auditing in
their oversight role for the entities they audit. These audit
organizations have external reporting requirements consistent
with the reporting requirements for external auditors while at
the same time being part of their respective agencies. These
audit organizations often have a dual reporting responsibility
to their legislative body as well as to the agency head and
management."
Neither the Red Book nor the Yellow Book prohibits audits from
being reported to a general counsel.
4)California Public Records Act. 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.
5)Policy Considerations. The Legislature may wish to consider
the following:
a) Prevalence. The author and sponsor have provided two
examples of local agencies where the auditor reports
directly to the agency's general counsel. The Legislature
may wish to ask the author or sponsor to provide examples
showing that these reporting relationships have resulted in
curtailed independence for those auditors or where this
reporting relationship led to the denial of a CPRA request
based on attorney-client privilege. The Legislature may
wish to consider whether, absent a prevalent statewide
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problem, this bill is necessary.
b) Attorney-Client Privilege. The Senate Governance and
Finance Committee, in its analysis of this bill, noted the
following: "?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 distinguish between legitimate and illegitimate
applications of the attorney-client privilege to internal
audits."
6)Arguments in Support. City of San Diego City Auditor Eduardo
Luna, sponsor of this measure, writes, "Audits provide
essential accountability and transparency over government
programs. Given its importance, the public's ability to
access these reports are paramount. However, certain
practices limit the public's access to these audit reports.
One such practice is the transmittal of internal audit reports
to the organization's General Counsel. When reports are
issued to the General Counsel, those reports are then
classified as attorney-client privileged communications,
thereby limiting public disclosure. SB 481 is a good
government bill and will ensure the public has access to the
audit reports by prohibiting employees who perform audits from
reporting organizationally to the General Counsel."
7)Arguments in Opposition. None on file.
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Analysis Prepared by:
Angela Mapp / L. GOV. / (916) 319-3958 FN:
0001164