BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 481| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- VETO Bill No: SB 481 Author: Hueso (D) Amended: 6/18/15 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 SENATE FLOOR: 29-0, 4/30/15 AYES: Allen, Anderson, Beall, Block, Cannella, De León, Fuller, Galgiani, Hall, Hancock, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Nielsen, Pan, Pavley, Roth, Wieckowski, Wolk NO VOTE RECORDED: Bates, Berryhill, Gaines, Hernandez, Moorlach, Morrell, Nguyen, Runner, Stone, Vidak SENATE FLOOR: 38-0, 8/20/15 AYES: Allen, Anderson, Bates, Beall, Berryhill, Block, Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Nielsen, Pan, Pavley, Roth, Runner, Stone, Vidak, Wieckowski, Wolk NO VOTE RECORDED: Hall, Nguyen ASSEMBLY FLOOR: 75-0, 7/16/15 - See last page for vote SUBJECT: Local government: auditors: independence SOURCE: Author SB 481 Page 2 DIGEST: This bill prohibits local agency employees who work on internal audits from 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 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 SB 481 Page 3 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 confidential. This bill 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. Background Audits provide essential accountability and transparency over government programs. Given their importance, the public's ability to access these reports is paramount. Employees who perform audits must choose from two sets of professional auditing standards. 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 conducting internal audits under the direction of a 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 Com.:YesLocal: Yes SB 481 Page 4 SUPPORT: (Verified7/21/15) City of Berkeley City Auditor Ann-Marie Hogan City of Calexico City of El Centro City Manager Ruben A. Duran City of San Diego City Auditor Eduardo Luna El Centro Chamber of Commerce and Visitors Bureau Imperial County Board of Supervisors OPPOSITION: (Verified7/21/15) None received GOVERNOR'S VETO MESSAGE: I am returning Senate Bill 481 without my signature. This bill prohibits the general counsel of a city, county, or district from having direct oversight of internal audit staff. I commend the author's objective to secure the public's access to local agency audits. However, there may be legitimate reasons for local agencies to have their general counsels oversee certain audits and I believe it is most appropriate to allow local governments to determine the level of oversight that best meets their unique civic needs. ASSEMBLY FLOOR: 75-0, 7/16/15 AYES: Achadjian, Alejo, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gray, Grove, SB 481 Page 5 Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, O'Donnell, Olsen, Perea, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins NO VOTE RECORDED: Travis Allen, Gordon, Obernolte, Patterson, Rendon Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119 11/4/15 14:10:05 **** END ****