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