SB 1226, as amended, 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 from one or more regional centers to obtain an independent audit or independent review report of its financialbegin delete statements, as specified, andend deletebegin insert statements end insertbegin insertbased upon the amount it receives from the regional center or regional centers during the entity’s fiscal year.end insert
This bill would, commencing January 1, 2018, instead require the entity to obtain an independent review report of an independent audit of its financial statements based upon the amount it receives from the regional center or regional centers during each state fiscal year.
end insertbegin insertExisting lawend insert 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.
This 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 tobegin delete analyze the reports, as specified, and biannually report its findings to the Legislature.end deletebegin insert
compile data, by regional center, on vendor compliance with audit requirements and opinions resulting from audit reports and to annually publish the data in a performance dashboard.end insert
Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.
The people of the State of California do enact as follows:
Section 4652.5 of the Welfare and Institutions
2Code is amended to read:
(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
10hundred thousand dollars ($500,000), but less than two million
11dollars ($2,000,000), the entity shall obtain an independent review
12report of its financial statements for the period. Consistent with
13Subchapter 21 (commencing with Section 58800) of
Chapter 3 of
14Division 2 of Title 17 of the California Code of Regulations, this
15subdivision shall also apply to work activity program providers
16receiving less than five hundred thousand dollars ($500,000).
17(B) If the amount received from the regional center or regional
18centers during the entity’s fiscal year is equal to or more than two
19million dollars ($2,000,000), the entity shall obtain an independent
20audit of its financial statements for the period.
21(2) This requirement does not apply to payments made using
22usual and customary rates, as defined by Title 17 of the California
23Code of Regulations, for services provided by regional centers.
24(3) This requirement does not apply to state and local
25governmental agencies, the
University of California, or the
26California State University.
27(b) An entity subject to subdivision (a) shall provide copies of
28the independent audit or independent review report required by
P3 1subdivision (a), and accompanying management letters, to the
2vendoring regional center within nine months of the end of the
3fiscal year for the entity.
4(c) Regional centers that receive the audit or review reports
5required by subdivision (b) shall review and require resolution by
6the entity for issues identified in the report that have an impact on
7regional center services. Regional centers shall take appropriate
8action, up to termination of vendorization, for lack of adequate
9resolution of issues.
10(d) (1) Regional centers shall notify the department of all
11qualified opinion reports or reports noting significant issues that
12directly or indirectly impact regional center services within 30
13days after receipt. Notification shall include a plan for resolution
14of issues.
15(2) A regional center shall submit copies of all independent
16audit reports that it receives to the department for review. The
17department shallbegin delete analyze the reports to determine if they are begin insert
compile data, by regional center,
18effective in preventing fraud and improving accounting practices
19among entities that receive payments from one or more regional
20centers. The department shall biannually report its findings to the
21Legislature. These reports shall be submitted pursuant to Section
229795 of the Government Code.end delete
23on vendor compliance with audit requirements and opinions
24resulting from audit reports and shall annually publish the data
25in the performance dashboard developed pursuant to Section 4572.end insert
26(e) For purposes of this section, an independent review of
27financial statements shall be performed by an independent
28accounting firm and shall cover, at a minimum, all of the following:
29(1) An inquiry as to the entity’s accounting principles and
30practices and methods used in applying them.
31(2) An inquiry as to the entity’s procedures for recording,
32classifying, and summarizing transactions and accumulating
33information.
34(3) Analytical procedures designed to identify relationships or
35items that appear to be unusual.
36(4) An inquiry about budgetary actions taken at meetings of the
37board of directors or other comparable meetings.
38(5) An inquiry about whether the financial statements have been
39properly prepared in conformity with generally accepted accounting
40principles and whether any events subsequent to the date of the
P4 1financial statements would have a material effect on the statements
2under review.
3(6) Working papers prepared in connection with a review of
4financial statements describing the items covered as well as any
5unusual items, including their disposition.
6(f) For purposes of this section, an independent review report
7shall cover, at a minimum, all of the following:
8(1) Certification that the review was performed in accordance
9with standards established by the American Institute of Certified
10Public Accountants.
11(2) Certification that the statements are the representations of
12management.
13(3) Certification that the review consisted of inquiries and
14analytical procedures that are lesser in scope than those of an audit.
15(4) Certification that the accountant is not aware of any material
16modifications that need to be made to the statements for them to
17be in conformity with generally accepted accounting
principles.
18(g) The department shall not consider a request for adjustments
19to rates submitted in accordance with Title 17 of the California
20Code of Regulations by an entity receiving payments from one or
21more regional centers solely to fund either anticipated or
22unanticipated changes required to comply with this section.
23(h) (1) An entity required to obtain an independent review
24report of its financial statement pursuant to subparagraph (A) of
25paragraph (1) of subdivision (a) may apply to the regional center
26for, and the regional center shall grant, a two-year exemption from
27the independent review report requirement if the regional center
28does not find issues in the prior year’s independent review report
29that have an impact on regional center services.
30(2) An entity required to obtain an independent audit of its
31financial statements pursuant to subparagraph (B) of paragraph
32(1) of subdivision (a) may apply to the regional center for an
33exemption from the independent audit requirement, subject to both
34of the following conditions:
35(A) If the independent audit for the prior year resulted in an
36unmodified opinion or an unmodified opinion with additional
37communication, the regional center shall grant the entity a two-year
38exemption.
39(B) If the independent audit for the prior year resulted in a
40qualified opinion and the issues are not material, the regional center
P5 1shall grant the entity a two-year exemption. The entity and the
2
regional center shall continue to address issues raised in this
3independent audit, regardless of whether the exemption is granted.
4(3) A regional center shall annually report to the department
5any exemptions granted pursuant to this subdivision.
6
(i) This section shall remain in effect only until January 1, 2018,
7and as of that date is repealed, unless a later enacted statute, that
8is enacted before January 1, 2018, deletes or extends that date.
begin insertSection 4652.5 is added to the end insertbegin insertWelfare and Institutions
10Codeend insertbegin insert, to read:end insert
(a) (1) An entity that receives payments from one or
12more regional centers shall contract with an independent
13accounting firm to obtain an independent audit or independent
14review report of its financial statements relating to payments made
15by regional centers, subject to both of the following:
16
(A) If the amount received from the regional center or regional
17centers during each state fiscal year is more than or equal to five
18hundred thousand dollars ($500,000), but less than two million
19dollars ($2,000,000), the entity shall obtain an independent review
20report of its financial statements for the period. Consistent with
21Subchapter 21 (commencing with Section 58800) of Chapter 3 of
22Division 2 of Title 17 of the California
Code of Regulations, this
23subdivision shall also apply to work activity program providers
24receiving less than five hundred thousand dollars ($500,000).
25
(B) If the amount received from the regional center or regional
26centers during each state fiscal year is equal to or more than two
27million dollars ($2,000,000), the entity shall obtain an independent
28audit of its financial statements for the period.
29
(2) This requirement does not apply to payments made using
30usual and customary rates, as defined by Title 17 of the California
31Code of Regulations, for services provided by regional centers.
32
(3) This requirement does not apply to state and local
33governmental agencies, the University of California, or the
34California State University.
35
(b) An entity subject to
subdivision (a) shall provide copies of
36the independent audit or independent review report required by
37subdivision (a), and accompanying management letters, to the
38vendoring regional center within nine months of the end of each
39state fiscal year.
P6 1
(c) Regional centers that receive the audit or review reports
2required by subdivision (b) shall review and require resolution by
3 the entity for issues identified in the report that have an impact on
4regional center services. Regional centers shall take appropriate
5action, up to termination of vendorization, for lack of adequate
6resolution of issues.
7
(d) (1) Regional centers shall notify the department of all
8qualified opinion reports or reports noting significant issues that
9directly or indirectly impact regional center services within 30
10days after receipt. Notification shall include a plan for resolution
11of
issues.
12
(2) A regional center shall submit copies of all independent
13audit reports that it receives to the department for review. The
14department shall compile data, by regional center, on vendor
15compliance with audit requirements and opinions resulting from
16audit reports and shall annually publish the data in the
17performance dashboard developed pursuant to Section 4572.
18
(e) For purposes of this section, an independent review of
19financial statements shall be performed by an independent
20accounting firm and shall cover, at a minimum, all of the following:
21
(1) An inquiry as to the entity’s accounting principles and
22practices and methods used in applying them.
23
(2) An inquiry as to the entity’s procedures for recording,
24classifying, and summarizing
transactions and accumulating
25information.
26
(3) Analytical procedures designed to identify relationships or
27items that appear to be unusual.
28
(4) An inquiry about budgetary actions taken at meetings of the
29board of directors or other comparable meetings.
30
(5) An inquiry about whether the financial statements have been
31properly prepared in conformity with generally accepted
32accounting principles and whether any events subsequent to the
33date of the financial statements would have a material effect on
34the statements under review.
35
(6) Working papers prepared in connection with a review of
36financial statements describing the items covered as well as any
37unusual items, including their disposition.
38
(f) For purposes of this section, an independent review report
39shall cover, at a minimum, all of the following:
P7 1
(1) Certification that the review was performed in accordance
2with standards established by the American Institute of Certified
3Public Accountants.
4
(2) Certification that the statements are the representations of
5management.
6
(3) Certification that the review consisted of inquiries and
7analytical procedures that are lesser in scope than those of an
8audit.
9
(4) Certification that the accountant is not aware of any material
10modifications that need to be made to the statements for them to
11be in conformity with generally accepted accounting principles.
12
(g) The department
shall not consider a request for adjustments
13to rates submitted in accordance with Title 17 of the California
14Code of Regulations by an entity receiving payments from one or
15more regional centers solely to fund either anticipated or
16unanticipated changes required to comply with this section.
17
(h) (1) An entity required to obtain an independent review
18report of its financial statement pursuant to subparagraph (A) of
19paragraph (1) of subdivision (a) may apply to the regional center
20for, and the regional center shall grant, a two-year exemption from
21the independent review report requirement if the regional center
22does not find issues in the prior year’s independent review report
23that have an impact on regional center services.
24
(2) An entity required to obtain an independent audit of its
25financial statements pursuant to subparagraph (B) of paragraph
26(1) of
subdivision (a) may apply to the regional center for an
27exemption from the independent audit requirement, subject to both
28of the following conditions:
29
(A) If the independent audit for the prior year resulted in an
30unmodified opinion or an unmodified opinion with additional
31communication, the regional center shall grant the entity a
32two-year exemption.
33
(B) If the independent audit for the prior year resulted in a
34qualified opinion and the issues are not material, the regional
35center shall grant the entity a two-year exemption. The entity and
36the regional center shall continue to address issues raised in this
37independent audit, regardless of whether the exemption is granted.
38
(3) A regional center shall annually report to the department
39any exemptions granted pursuant to this subdivision.
P8 1
(i) This section shall become operative on January 1, 2018.
O
97