Senate Bill No. 1226

Introduced by Senators Beall and Huff

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

(Coauthor: Assembly Member Salas)

February 18, 2016

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

LEGISLATIVE COUNSEL’S DIGEST

SB 1226, as introduced, Beall. Regional centers: audits and reviews.

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 either an independent audit or an independent review report 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 only an independent review report of its financial statements relating to payments made by regional centers if it receives payments between $250,000 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 independent review report that have an impact on regional center services. The bill would also 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 audit requirement if the audit resulted in an unmodified opinion, an unmodified opinion with additional communication, 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:

SECTION 1.  

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

4652.5.  

(a) (1) An entity begin delete receiving end delete begin insert that receives end insert payments
from one or more regional centers shall contract with an
independent accounting firm begin delete for an end delete begin insert to obtain an independent end insert audit
or begin insert independent end insert review begin insert report end insert of its financial statements begin insert relating
to payments made by regional centers end insert subject to all of the
following:

(A)  begin delete When end delete begin insert If end insert the amount received from the regional center or
regional centers during the entity’s fiscal year is more than or equal
to two hundred fifty thousand dollars ($250,000) but less than begin delete five
hundred thousand dollars ($500,000), end delete begin insert two million dollars
($2,000,000), end insert the entity shall obtain an begin delete independent audit or end delete
independent review report of its financial statements for the period.
Consistent with Subchapter 21 (commencing with Section 58800)
of Title 17 of the California Code of Regulations, this subdivision
shall also apply to work activity program providers receiving less
than two hundred fifty thousand dollars ($250,000).

(B)  begin delete When end delete begin insert If end insert the amount received from the regional center or
regional centers during the entity’s fiscal year is equal to or more
than begin delete five hundred thousand dollars ($500,000), end delete begin insert two million dollars
($2,000,000), end insert the entity shall obtain an independent audit of its
financial statements for the period.

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

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

(b) An entity subject to subdivision (a) shall provide copies of
the independent audit or independent review report required by
subdivision (a), and accompanying management letters, to the
vendoring regional center within begin delete 30 days after completion of the
audit or review. end delete begin insert nine months of the end of the fiscal year for the
entity. end insert

(c) Regional centers begin delete receiving end delete begin insert that receive end insert the audit or review
reports required by subdivision (b) shall review and require
resolution by the entity for issues identified in the report that have
an impact on regional center services. Regional centers shall take
appropriate action, up to termination of vendorization, for lack of
adequate resolution of issues.

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

(e) For purposes of this section, an independent review of
financial statements begin delete must end delete begin insert shall end insert be performed by an independent
accounting firm and shall cover, at a minimum, all of the following:

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

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

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

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

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

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

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

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

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

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

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

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

begin insert

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

end insert begin insert

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

end insert begin insert

(A) If the independent audit for the prior year resulted in an
unmodified opinion or an unmodified opinion with additional
communication, the regional center shall grant the entity a
two-year exemption.

end insert begin insert

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

end insert begin insert

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

end insert