SB 1226, as amended, Beall. Regional centers: audits and reviews.
begin insertUnder 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 from one or more regional centers to obtain an independent audit or independent review report of its financial statements, as specified, and requires regional centers to 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.
end insertbegin insertThis bill would also require a regional center to submit copies of all independent audit reports that it receives to the department for review. The bill would require the department to analyze the reports, as specified, and biannually report its findings to the Legislature.
end insertUnder 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.
end deleteThis 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.
end deleteVote: majority.
Appropriation: no.
Fiscal committee: begin deleteno end deletebegin insertyesend insert.
State-mandated local program: no.
The people of the State of California do enact as follows:
begin insertSection 4652.5 of the end insertbegin insertWelfare and Institutions
2Codeend insertbegin insert is amended to read:end insert
(a) (1) An entity that receives payments from one or
4more regional centers shall contract with an independent accounting
5firm to obtain an independent audit or independent review report
6of its financial statements relating to payments made by regional
7centers, subject to both of the following:
8(A) If the amount received from the regional center or regional
9centers during the entity’s fiscal year is more than or equal to five
P3 1hundred thousand dollars ($500,000), but less than two million
2dollars ($2,000,000), the entity shall obtain an independent review
3report of its financial statements for the period. Consistent with
4Subchapter 21 (commencing with Section 58800) of Chapter 3 of
5Division 2 of Title 17 of the California Code of
Regulations, this
6subdivision shall also apply to work activity program providers
7receiving less than five hundred thousand dollars ($500,000).
8(B) If the amount received from the regional center or regional
9centers during the entity’s fiscal year is equal to or more than two
10million dollars ($2,000,000), the entity shall obtain an independent
11audit of its financial statements for the period.
12(2) This requirement does not apply to payments made using
13usual and customary rates, as defined by Title 17 of the California
14Code of Regulations, for services provided by regional centers.
15(3) This requirement does not apply to state and local
16governmental agencies, the University of California, or the
17California State University.
18(b) An entity subject to
subdivision (a) shall provide copies of
19the independent audit or independent review report required by
20subdivision (a), and accompanying management letters, to the
21vendoring regional center within nine months of the end of the
22fiscal year for the entity.
23(c) Regional centers that receive the audit or review reports
24required by subdivision (b) shall review and require resolution by
25the entity for issues identified in the report that have an impact on
26regional center services. Regional centers shall take appropriate
27action, up to termination of vendorization, for lack of adequate
28resolution of issues.
29(d) begin insert(1)end insertbegin insert end insertRegional centers shall notify the department of all
30qualified opinion reports or reports noting significant issues that
31directly or indirectly
impact regional center services within 30
32days after receipt. Notification shall include a plan for resolution
33of issues.
34
(2) A regional center shall submit copies of all independent
35audit reports that it receives to the department for review. The
36department shall analyze the reports to determine if they are
37effective in preventing fraud and improving accounting practices
38among entities that receive payments from one or more regional
39centers. The department shall biannually report its findings to the
P4 1Legislature. These reports shall be submitted pursuant to Section
29795 of the Government Code.
3(e) For purposes of this section, an independent review of
4financial statements shall be performed by an independent
5accounting firm and shall cover, at a minimum, all of the
following:
6(1) An inquiry as to the entity’s accounting principles and
7practices and methods used in applying them.
8(2) An inquiry as to the entity’s procedures for recording,
9classifying, and summarizing transactions and accumulating
10information.
11(3) Analytical procedures designed to identify relationships or
12items that appear to be unusual.
13(4) An inquiry about budgetary actions taken at meetings of the
14board of directors or other comparable meetings.
15(5) An inquiry about whether the financial statements have been
16properly prepared in conformity with generally accepted accounting
17principles and whether any events subsequent to the date of the
18financial statements would have a material
effect on the statements
19under review.
20(6) Working papers prepared in connection with a review of
21financial statements describing the items covered as well as any
22unusual items, including their disposition.
23(f) For purposes of this section, an independent review report
24shall cover, at a minimum, all of the following:
25(1) Certification that the review was performed in accordance
26with standards established by the American Institute of Certified
27Public Accountants.
28(2) Certification that the statements are the representations of
29management.
30(3) Certification that the review consisted of inquiries and
31analytical procedures that are lesser in scope than those of an audit.
32(4) Certification that the accountant is not aware of any material
33modifications that need to be made to the statements for them to
34be in conformity with generally accepted accounting principles.
35(g) The department shall not consider a request for adjustments
36to rates submitted in accordance with Title 17 of the California
37Code of Regulations by an entity receiving payments from one or
38more regional centers solely to fund either anticipated or
39unanticipated changes required to comply with this section.
P5 1(h) (1) An entity required to obtain an independent review
2report of its financial statement pursuant to subparagraph (A) of
3paragraph (1) of subdivision (a) may apply to the regional center
4for, and the regional center shall grant, a two-year exemption from
5the independent review report requirement
if the regional center
6does not find issues in the prior year’s independent review report
7that have an impact on regional center services.
8(2) An entity required to obtain an independent audit of its
9financial statements pursuant to subparagraph (B) of paragraph
10(1) of subdivision (a) may apply to the regional center for an
11exemption from the independent audit requirement, subject to both
12of the following conditions:
13(A) If the independent audit for the prior year resulted in an
14unmodified opinion or an unmodified opinion with additional
15communication, the regional center shall grant the entity a two-year
16exemption.
17(B) If the independent audit for the prior year resulted in a
18qualified opinion and the issues are not material, the regional center
19shall grant the entity a two-year exemption. The entity and the
20
regional center shall continue to address issues raised in this
21independent audit, regardless of whether the exemption is granted.
22(3) A regional center shall annually report to the department
23any exemptions granted pursuant to this subdivision.
Section 4652.5 of the Welfare and Institutions
25Code is amended to read:
(a) (1) An entity that receives payments from one or
27more regional centers shall contract with an independent accounting
28firm to obtain an independent audit or independent review report
29of its
financial statements
relating to payments made by regional
30centers subject to all of the following:
31(A) If the amount received from the regional center or regional
32centers during the entity’s fiscal year is more than or equal to two
33hundred fifty thousand dollars ($250,000) but less than two million
34dollars ($2,000,000), the entity shall obtain an independent review
35report of its financial statements
for the period. Consistent with
36Subchapter 21 (commencing with Section 58800) of Title 17 of
37the California Code of Regulations, this subdivision shall also
38apply to work activity program providers receiving less than two
39hundred fifty thousand dollars ($250,000).
P6 1(B) If the amount received from the regional center or regional
2centers during the entity’s fiscal year is equal to or more than two
3million dollars ($2,000,000), the entity shall obtain an independent
4audit of its financial statements for the period.
5(2) This requirement does not apply to payments made using
6usual and customary rates, as defined by Title 17 of the California
7Code of Regulations, for services provided by regional centers or
8social security benefit payments.
9(3) This requirement does not apply to state and local
10governmental agencies, the University of California, or the
11California State University.
12(b) An entity subject to subdivision (a) shall provide copies of
13the independent audit or independent review report required by
14subdivision (a), and accompanying management letters, to the
15vendoring regional center within
nine months of the end of the
16fiscal year for the entity.
17(c) Regional centers that receive the audit or review reports
18required by subdivision (b) shall review and require resolution by
19the entity for issues identified in the report that have an impact on
20regional center services. Regional centers shall take appropriate
21action, up to termination of vendorization, for lack of adequate
22resolution of issues.
23(d) Regional centers shall notify the department of all qualified
24opinion reports or reports noting significant issues that directly or
25indirectly impact regional center services within 30 days after
26receipt. Notification shall include a plan for
resolution of issues.
27(e) For purposes of this section, an independent review of
28financial statements shall be performed by an independent
29accounting firm and shall cover, at a minimum, all of the following:
30(1) An inquiry as to the entity’s accounting principles and
31practices and methods used in applying them.
32(2) An inquiry as to the entity’s procedures for recording,
33classifying, and summarizing transactions and accumulating
34information.
35(3) Analytical procedures designed to identify relationships or
36items that appear to be unusual.
37(4) An inquiry about budgetary actions taken at meetings of the
38board of directors or other comparable meetings.
39(5) An inquiry about whether the financial statements have been
40properly prepared in conformity with generally accepted accounting
P7 1principles and whether any events subsequent to the date of the
2financial statements would have a material effect on the statements
3under review.
4(6) Working papers prepared in connection with a review of
5financial statements describing the items covered as well as any
6unusual items, including their disposition.
7(f) For purposes of this section, an independent review report
8shall cover, at a minimum, all of the following:
9(1) Certification that the
review was performed in accordance
10with standards established by the American Institute of Certified
11Public Accountants.
12(2) Certification that the statements are the representations of
13management.
14(3) Certification that the review consisted of inquiries and
15analytical procedures that are lesser in scope than those of an audit.
16(4) Certification that the accountant is not aware of any material
17 modifications that need to be made to the statements for them to
18be in conformity with generally accepted accounting principles.
19(g) The department shall not consider a request for adjustments
20to rates submitted in accordance with Title 17 of the California
21Code of Regulations by an entity receiving payments from one or
22more regional centers solely to fund either
anticipated or
23unanticipated changes required to comply with this section.
24(h) (1) An entity required to obtain an independent review report
25of its financial statement pursuant to subparagraph (A) of paragraph
26(1) of subdivision (a) may apply to the regional center for, and the
27regional center shall grant, a two-year exemption from the
28independent review report requirement if the regional center does
29not find issues in the prior year’s independent review report that
30have an impact on regional center services.
31(2) An entity required to obtain an independent audit of its
32financial statements pursuant to subparagraph (B) of paragraph
33(1) of subdivision (a) may apply to the regional center for an
34exemption from the independent audit requirement, subject to all
35of the following conditions:
36(A) If the independent audit for the prior year resulted in an
37unmodified opinion or an unmodified opinion with additional
38communication, the regional center shall grant the entity a two-year
39exemption.
P8 1(B) If the independent audit for the prior year resulted in a
2qualified opinion and the issues are not material and pervasive,
3the regional center shall grant the entity a two-year exemption.
4The entity and the regional center shall continue to address issues
5raised in this independent audit, regardless of whether the
6exemption is granted.
7(3) A regional center shall notify the department of any
8exemption it grants to an entity that receives a qualified opinion.
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