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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                                        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









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          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









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          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  
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            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


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