Senate BillNo. 490


Introduced by Senators Beall and Huff

(Coauthors: Senators Anderson, Bates, Cannella, Hall, Nguyen, Pavley, Stone, Vidak, and Wolk)

(Coauthors: Assembly Members Chu and Salas)

February 26, 2015


An act to amend Section 4652.5 of the Welfare and Institutions Code, relating to developmental services.

LEGISLATIVE COUNSEL’S DIGEST

SB 490, as introduced, Beall. Regional centers: audits.

Under existing law, the Lanterman Developmental Disabilities Services Act, the State Department of Developmental Services is authorized to contract with regional centers to provide services and supports to individuals with developmental disabilities. Existing law requires an entity that receives payments between $250,000 and $500,000 per year from one or more regional centers to obtain an independent audit or review of its financial statements and requires an entity that receives payments that are equal to or more than $500,000 per year to obtain an independent audit. Existing law exempts payments made using usual and customary rates for services provided by regional centers from these requirements.

This bill would instead require an entity to obtain an independent audit or review report of its financial statements relating to payments made by regional centers if it receives payments between $500,000 and $2,000,000 from one or more regional centers and would authorize these entities to apply for, and require the regional center to grant, a 2-year exemption from this requirement if the regional center does not find issues in the audit or review that have an impact on regional center services. The bill would also instead require an entity to obtain an independent audit if it receives payments that are equal to or more than $2,000,000 and would authorize these entities to apply for, and require the regional center to grant, a 2-year exemption from the requirement if the audit resulted in an unqualified opinion, an unqualified opinion with explanatory language, or a qualified opinion with issues that are not material and pervasive. The bill would require a regional center to notify the department of any exemption it grants to an entity that receives a qualified opinion report. The bill would also exempt social security benefit payments from these requirements.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

Section 4652.5 of the Welfare and Institutions
2Code
is amended to read:

3

4652.5.  

(a) (1) An entitybegin delete receivingend deletebegin insert that receivesend insert payments
4from one or more regional centers shall contract with an
5independent accounting firmbegin delete forend deletebegin insert to obtainend insert anbegin insert independentend insert audit or
6review of its financial statementsbegin insert relating to payments made by
7 regional centersend insert
subject to all of the following:

8(A) begin deleteWhen end deletebegin insertIf end insertthe amount received from the regional center or
9regional centers during the entity’s fiscal year is more than or equal
10tobegin delete two hundred fifty thousand dollars ($250,000)end deletebegin insert five hundred
11thousand dollars ($500,000)end insert
but less thanbegin delete five hundred thousand
12dollars ($500,000),end delete
begin insert two million dollars ($2,000,000),end insert the entity
13shall obtain an independent audit or independent review report of
14its financial statements for the period. Consistent with Subchapter
1521 (commencing with Section 58800) of Title 17 of the California
16Code of Regulations, this subdivision shall also apply to work
17activity program providers receiving less than two hundred fifty
18thousand dollars ($250,000).

19(B) begin deleteWhen end deletebegin insertIf end insertthe amount received from the regional center or
20regional centers during the entity’s fiscal year is equal to or more
21thanbegin delete five hundred thousand dollars ($500,000),end deletebegin insert two million dollars
22($2,000,000),end insert
the entity shall obtain an independent audit of its
23financial statements for the period.

24(2) This requirement does not apply to payments made using
25usual and customary rates, as defined by Title 17 of the California
P3    1Code of Regulations, for services provided by regionalbegin delete centers.end delete
2begin insert centers or social security benefit payments.end insert

3(3) This requirement does not apply to state and local
4governmental agencies, the University of California, or the
5California State University.

6(b) An entity subject to subdivision (a) shall provide copies of
7the independent audit or independent review report required by
8subdivision (a), and accompanying management letters, to the
9vendoring regional center within 30 days after completion of the
10audit or review.

11(c) Regional centersbegin delete receivingend deletebegin insert that receiveend insert the audit or review
12reports required by subdivision (b) shall review and require
13resolution by the entity for issues identified in the report that have
14an impact on regional center services. Regional centers shall take
15appropriate action, up to termination of vendorization, for lack of
16adequate resolution of issues.

17(d) Regional centers shall notify the department of all qualified
18opinion reports or reports noting significant issues that directly or
19indirectly impact regional center services within 30 days after
20receipt. Notification shall include a plan for resolution of issues.

21(e) For purposes of this section, an independent review of
22financial statementsbegin delete mustend deletebegin insert shallend insert be performed by an independent
23accounting firm and shall cover, at a minimum, all of the following:

24(1) An inquiry as to the entity’s accounting principles and
25practices and methods used in applying them.

26(2) An inquiry as to the entity’s procedures for recording,
27classifying, and summarizing transactions and accumulating
28information.

29(3) Analytical procedures designed to identify relationships or
30items that appear to be unusual.

31(4) An inquiry about budgetary actions taken at meetings of the
32board of directors or other comparable meetings.

33(5) An inquiry about whether the financial statements have been
34properly prepared in conformity with generally accepted accounting
35principles and whether any events subsequent to the date of the
36financial statements would have a material effect on the statements
37under review.

38(6) Working papers prepared in connection with a review of
39financial statements describing the items covered as well as any
40unusual items, including their disposition.

P4    1(f) For purposes of this section, an independent review report
2shall cover, at a minimum, all of the following:

3(1) Certification that the review was performed in accordance
4with standards established by the American Institute of Certified
5Public Accountants.

6(2) Certification that the statements are the representations of
7management.

8(3) Certification that the review consisted of inquiries and
9 analytical procedures that are lesser in scope than those of an audit.

10(4) Certification that the accountant is not aware of any material
11modifications that need to be made to the statements for them to
12be in conformity with generally accepted accounting principles.

13(g) The department shall not consider a request for adjustments
14to rates submitted in accordance with Title 17 of the California
15Code of Regulations by an entity receiving payments from one or
16more regional centers solely to fund either anticipated or
17unanticipated changes required to comply with this section.

begin insert

18(h) (1) An entity required to obtain an independent audit or
19independent review of its financial statement pursuant to
20subparagraph (A) of paragraph (1) of subdivision (a) may apply
21to the regional center for, and the regional center shall grant, a
22two-year exemption from the independent audit or independent
23review requirement if the regional center does not find issues in
24the prior year’s independent audit or independent review that have
25an impact on regional center services.

end insert
begin insert

26(2) An entity required to obtain an independent audit of its
27financial statements pursuant to subparagraph (B) of paragraph
28(1) of subdivision (a) may apply to the regional center for an
29exemption from the independent audit requirement, subject to all
30of the following conditions:

end insert
begin insert

31(A) If the independent audit for the prior year resulted in an
32unqualified opinion or an unqualified opinion with explanatory
33language, the regional center shall grant the entity a two-year
34exemption.

end insert
begin insert

35(B) If the independent audit for the prior year resulted in a
36qualified opinion and the issues are not material and pervasive,
37the regional center shall grant the entity a two-year exemption.
38However, the entity and the regional center shall continue to
39address issues raised in this independent audit, regardless of
40whether the exemption is granted.

end insert
begin insert

P5    1(3) A regional center shall notify the department of any
2exemption it grants to an entity that receives a qualified opinion
3report.

end insert


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