BILL NUMBER: SB 37 CHAPTERED 05/07/93 BILL TEXT CHAPTER 12 FILED WITH SECRETARY OF STATE MAY 7, 1993 APPROVED BY GOVERNOR MAY 7, 1993 PASSED THE ASSEMBLY MAY 3, 1993 PASSED THE SENATE MARCH 29, 1993 CONFERENCE REPORT NO. 1 PROPOSED IN CONFERENCE MARCH 23, 1993 AMENDED IN ASSEMBLY FEBRUARY 11, 1993 AMENDED IN ASSEMBLY FEBRUARY 8, 1993 INTRODUCED BY Senators Maddy and Roberti DECEMBER 8, 1992 An act to amend Sections 3513, 3527, 8501, 10500, 10528, and 13332.16 of, to amend the heading of Chapter 6 (commencing with Section 8501) of Division 1 of Title 2 of, to add Sections 8521.5, 8522.5, and 8542 to, to add Chapter 6.5 (commencing with Section 8543) to Division 1 of Title 2 of, to repeal Sections 10506.5, 10507, 10529, 10532, and 10534 of, and to repeal Article 3 (commencing with Section 10540) of Part 2 of Division 2 of Title 2 of, the Government Code, relating to the Auditor General, making an appropriation therefor, and declaring the urgency thereof, to take effect immediately. LEGISLATIVE COUNSEL'S DIGEST SB 37, Maddy. Bureau of State Audits. Existing law creates, under the direction of the Joint Legislative Audit Committee, the Office of the Auditor General, whose primary duties are to examine and report annually upon the financial statements prepared by the executive branch of the state and to perform any other related assignments, including performance audits, that may be requested by the Legislature. The Auditor General is selected by concurrent resolution of the Legislature, and serves until a successor is selected or until removal by concurrent resolution. Existing law establishes in the State Treasury the Auditor General Fund, which is continuously appropriated for the expenses of the Auditor General. The Budget Act of 1992 appropriated $5,000,000 to the Office of the Auditor General, but provided that this amount could only be expended if Proposition 159 on the November 3, 1992, general election ballot was adopted by the voters. That ballot measure failed passage. Existing law provides for a 13-member Commission on California State Government Organization and Economy, commonly known as the Little Hoover Commission, whose purpose is to promote economy, efficiency, and improved service in the transaction of the public business in the executive branch of state government and to make the operation of all state agencies and all expenditures of public funds more directly responsive to the wishes of the people by specified means. This bill would create the Bureau of State Audits in state government under the direction of the Little Hoover Commission and headed by the State Auditor. The duties of the bureau would be to examine and report annually upon the financial statements prepared by the executive branch of the state, to perform other related assignments, including performance audits, that are mandated by statute, and to administer the Reporting of Improper Governmental Activities Act. The bureau would also be required to conduct audits of state and local government requested by the Joint Legislative Audit Committee to the extent that funding is available. The State Auditor would be appointed by the Governor to a 4-year term from a list of 3 qualified individuals submitted by the Joint Legislative Audit Committee. This bill would continue in existence the Office of the Auditor General under the direction of the Joint Legislative Audit Committee, and its duties would be limited to the performance of special audits and investigations of public entities, including performance audits, that are requested by the Legislature. This bill would abolish the Auditor General Fund and make the balance in the fund available for transfer to the State Audit Fund, which the bill would create as a continuously appropriated fund for the expenses of the State Auditor. The bill would also make available for transfer to the State Audit Fund the unexpended portion of the $5,000,000 appropriation to the Office of the Auditor General contained in the Budget Act of 1992. This bill would revise the criteria required by legislative members for appointment to, and replacement on, the commission by the Speaker of the Assembly and the Senate Committee on Rules, and would change the name of the commission to the Milton Marks Commission on California State Government Organization and Economy. The bill would declare that it is to take effect immediately as an urgency statute. Appropriation: yes. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 3513 of the Government Code is amended to read: 3513. As used in this chapter: (a) "Employee organization" means any organization which includes employees of the state and which has as one of its primary purposes representing these employees in their relations with the state. (b) "Recognized employee organization" means an employee organization which has been recognized by the state as the exclusive representative of the employees in an appropriate unit. (c) "State employee" means any civil service employee of the state, and the teaching staff of schools under the jurisdiction of the State Department of Education or the Superintendent of Public Instruction, except managerial employees, confidential employees, supervisory employees, employees of the Department of Personnel Administration, professional employees of the Department of Finance engaged in technical or analytical state budget preparation other than the auditing staff, professional employees in the Personnel/Payroll Services Division of the Controller's office engaged in technical or analytical duties in support of the state's personnel and payroll systems other than the training staff, employees of the Legislative Counsel Bureau, employees of the Bureau of State Audits, employees of the board, conciliators employed by the State Conciliation Service within the Department of Industrial Relations, and intermittent athletic inspectors who are employees of the State Athletic Commission. (d) "Mediation" means effort by an impartial third party to assist in reconciling a dispute regarding wages, hours and other terms and conditions of employment between representatives of the public agency and the recognized employee organization or recognized employee organizations through interpretation, suggestion and advice. (e) "Managerial employee" means any employee having significant responsibilities for formulating or administering agency or departmental policies and programs or administering an agency or department. (f) "Confidential employee" means any employee who is required to develop or present management positions with respect to employer-employee relations or whose duties normally require access to confidential information contributing significantly to the development of management positions. (g) "Supervisory employee" means any individual, regardless of the job description or title, having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibility to direct them, or to adjust their grievances, or effectively to recommend this action, if, in connection with the foregoing, the exercise of this authority is not of a merely routine or clerical nature, but requires the use of independent judgment. Employees whose duties are substantially similar to those of their subordinates shall not be considered to be supervisory employees. (h) "Board" means the Public Employment Relations Board. The Educational Employment Relations Board established pursuant to Section 3541 shall be renamed the Public Employment Relations Board as provided in Section 3540. The powers and duties of the board described in Section 3541.3 shall also apply, as appropriate, to this chapter. (i) "Maintenance of membership" means that all employees who voluntarily are, or who voluntarily become, members of a recognized employee organization shall remain members of that employee organization in good standing for a period as agreed to by the parties pursuant to a memorandum of understanding, commencing with the effective date of the memorandum of understanding. A maintenance of membership provision shall not apply to any employee who within 30 days prior to the expiration of the memorandum of understanding withdraws from the employee organization by sending a signed withdrawal letter to the employee organization and a copy to the Controller's office. (j) "State employer," or "employer," for the purposes of bargaining or meeting and conferring in good faith, means the Governor or his or her designated representatives. (k) "Fair share fee" means the fee deducted by the state employer from the salary or wages of a state employee in an appropriate unit who does not become a member of and financially support the recognized employee organization. The fair share fee shall be used to defray the costs incurred by the recognized employee organization in fulfilling its duty to represent the employees in their employment relations with the state, and shall not exceed the standard initiation fee, membership dues, and general assessments of the recognized employee organization. SEC. 2. Section 3527 of the Government Code is amended to read: 3527. As used in this chapter: (a) "Employee" means a civil service employee of the State of California. The "State of California" as used in this chapter includes such state agencies, boards, and commissions as may be designated by law that employ civil service employees, except the University of California, Hastings College of the Law, and the California State University. (b) "Excluded employee," means all managerial employees, as defined in subdivision (e) of Section 3513, all confidential employees, as defined in subdivision (f) of Section 3513, and all supervisory employees, as defined in subdivision (g) of Section 3513, and all civil service employees of the Department of Personnel Administration, professional employees of the Department of Finance engaged in technical or analytical state budget preparation other than the auditing staff, professional employees in the Personnel/Payroll Services Division of the Controller's office engaged in technical or analytical duties in support of the state's personnel and payroll systems other than the training staff, employees of the Legislative Counsel Bureau, employees of the Bureau of State Audits, employees of the Public Employment Relations Board, conciliators employed by the State Conciliation Service within the Department of Industrial Relations, and intermittent athletic inspectors who are employees of the State Athletic Commission. (c) "Supervisory employee organization" means an organization which represents members who are supervisory employees under subdivision (g) of Section 3513. (d) "Excluded employee organization" means an organization which includes excluded employees of the state, as defined in subdivision (b), and which has as one of its primary purposes representing its members in employer-employee relations. Excluded employee organization includes supervisory employee organizations. (e) "State employer" or "employer," for purposes of meeting and conferring on matters relating to supervisory employer-employee relations, means the Governor or his or her designated representatives. SEC. 3. The heading of Chapter 6 (commencing with Section 8501) of Division 1 of Title 2 of the Government Code is amended to read: CHAPTER 6. THE MILTON MARKS COMMISSION ON CALIFORNIA STATE GOVERNMENT ORGANIZATION AND ECONOMY SEC. 4. Section 8501 of the Government Code is amended to read: 8501. There is in the state government a Milton Marks Commission on California State Government Organization and Economy, hereafter in this chapter referred to as the "commission." The commission shall be comprised of thirteen members as follows: (a) Nine members of the public, appointed for terms of four years pursuant to this section. Not more than five of these members shall be registered as members of the same political party, and none shall hold public office in the executive branch of the state government. Any public member who is absent for three consecutive regular meetings of the commission may be removed by the appointing authority unless the member is excused from those meetings by the chairman of the commission. In the event of removal, or upon the resignation or death of the member, the respective appointing authority shall designate another person to fill the balance of the unexpired term. (b) Five members shall be appointed by the Governor. However, the terms of these members shall be staggered so that the terms of three members shall commence on January 1, 1978, and the terms of two members shall commence on January 1, 1980. To achieve the staggering of terms, the Governor shall designate the terms of the present members of the commission who have been appointed by the Governor. (c) Two members of the public shall be appointed by the Senate Committee on Rules. However, the terms of these members shall be staggered so that the term of one member commences on January 1, 1979, and the term of the other member commences January 1, 1981. To achieve the staggering of terms, the Senate Committee on Rules shall designate the terms of the present members of the commission who have been appointed by the Senate Committee on Rules. (d) Two members of the public shall be appointed by the Speaker of the Assembly. However, the terms of these members shall be staggered so that the term of one member commences January 1, 1979, and the term of the other member commences January 1, 1981. To achieve the staggering of terms the Speaker of the Assembly shall designate the terms of the present members of the commission who have been appointed by the Speaker of the Assembly. (e) Two Members of the Senate of the State of California appointed by the Senate Committee on Rules. These members shall serve at the pleasure of the appointing authority but shall not be registered with the same political party. If a member, while serving on the commission, registers with the same political party as the other member, the Senate Committee on Rules shall replace one of the members with a new member who is not registered with the same political party as the remaining member. (f) Two Members of the Assembly of the State of California appointed by the Speaker of the Assembly. These members shall serve at the pleasure of the appointing authority but shall not be registered with the same political party. If a member, while serving on the commission, registers with the same political party as the other member, the Speaker of the Assembly shall replace one of the members with a new member who is not registered with the same political party as the remaining member. SEC. 5. Section 8521.5 is added to the Government Code, to read: 8521.5. The Legislature finds that our system of government is a complex structure of interlocking relationships among all levels of government for managing public funds and programs. Officials and employees who manage and administer these programs must be accountable for their activities to the public. The Legislature recognizes that governmental audits are an important cornerstone in the system of accountability expected by the people of California. One of the most important aspects of public accountability is whether the use of state funds and resources complies with the Legislature's statutory mandates. Under the direction of the Milton Marks Commission on California State Government Organization and Economy, the State Auditor shall meet the needs of state government for periodic audits of organizations, programs, and services. The State Auditor shall conduct an independent audit for use by the executive and legislative branches of state government to promote sound fiscal and administrative policy for the government of the state, fulfill the condition for the receipt of billions of dollars in federal grant funds, and provide an independent financial audit report that is relied upon by underwriters, bond-rating companies, and potential investors. SEC. 6. Section 8522.5 is added to the Government Code, to read: 8522.5. The commission shall review final reports and make recommendations to the Legislature and the Governor concerning the results of state audits and the revenues and expenditures of the state, its departments, subdivisions, agencies, and other public entities. SEC. 7. Section 8542 is added to the Government Code, to read: 8542. With respect to the Bureau of State Audits, the commission shall do all of the following: (a) Review reports completed by the bureau and make recommendations to the Legislature, the Governor, and the public concerning the operations of the state, its departments, subdivisions, agencies, and other public entities. (b) Oversee the activities of the bureau to ensure its compliance with subdivision (d) of Section 8544.5 and Section 8546. The State Auditor shall report to the commission on its contracting activities, its affirmative action plan, and its compliance with provisions of the State Administrative Manual. (c) Review the annual audit of the State Audit Fund. SEC. 8. Chapter 6.5 (commencing with Section 8543) is added to Division 1 of Title 2 of the Government Code, to read: CHAPTER 6.5 STATE AUDITOR Article 1. General Provisions 8543. There is hereby created in state government the Bureau of State Audits under the direction of the Milton Marks Commission on California State Government Organization and Economy. In order to be free of organizational impairments to independence, the bureau shall be independent of the executive branch and legislative control. 8543.1. The duties of the Bureau of State Audits are to examine and report annually upon the financial statements prepared by the executive branch of the state and to perform other related assignments, including performance audits, that are mandated by statute. 8543.2. (a) The head of the bureau is the State Auditor, who shall be appointed by the Governor from a list of three qualified individuals submitted by the Joint Legislative Audit Committee by a vote of at least a majority of the committee membership from each house of the Legislature. The term of any individual appointed as the State Auditor shall be four years. Any vacancy in the office shall be filled in the same manner provided by this subdivision for a full term. (b) As the head of the bureau, the State Auditor may establish constituent parts of the bureau to carry out the powers and duties of the bureau unless otherwise specified by law. (c) The bureau has a Chief Deputy State Auditor. 8543.3. The State Auditor shall be chosen without reference to party affiliation and solely on the ground of fitness to perform the duties of the office. Prior to selection, the State Auditor shall possess a combination of education and experience in auditing and management necessary to perform the duties of the office. 8543.5. The Chief Deputy State Auditor shall be appointed by the State Auditor. The Chief Deputy State Auditor shall carry out those duties prescribed by the State Auditor and shall act for the State Auditor when the State Auditor is absent or unable to serve or when the office of the State Auditor is vacant. The tenure of any incumbent Chief Deputy State Auditor shall expire on any date that an individual is appointed State Auditor, but any incumbent Chief Deputy State Auditor may be reappointed pursuant to this section. 8543.6. The State Auditor may be removed for cause at any time by concurrent resolution of the Legislature. A State Auditor removed pursuant to this section may not be reappointed to the office. 8543.7. (a) The annual salary for the State Auditor shall be equal to that of agency secretaries of the executive branch of government pursuant to Section 11550. (b) The State Auditor shall be repaid all actual expenses incurred or paid by him or her in the discharge of his or her duties. 8544. Consistent with the provisions of Section 19825, the State Auditor may employ and fix the compensation, in accordance with Article VII of the California Constitution, of those professional assistants and technical, clerical, deputy state auditors, and other officers and employees as he or she deems necessary for the effective conduct of the work under his or her charge. In establishing and adjusting classes of positions, and establishing and adjusting salary ranges for each class of position, to provide for the continued ability to attract and maintain qualified individuals within the Bureau of State Audits, consideration shall be given to the following: the level of education, experience, knowledge, and ability required of the employees in the bureau is generally higher than that of state service generally, due to the unique duties and responsibilities imposed on the bureau and the relatively small number of employees. When fixing compensation for employees, the State Auditor shall consider prevailing rates for comparable service in other public employment and private business. 8544.1. As of the effective date of this chapter, the Auditor General or Acting Auditor General pursuant to Section 10504 shall act as the Acting State Auditor pursuant to this chapter until an appointment is made pursuant to Section 8543.2 or the expiration of 90 days, whichever occurs first. The office of Auditor General or Acting Auditor General shall be deemed vacant as of the effective date of this chapter until a successor is selected pursuant to Section 10504. The State Personnel Board shall authorize temporary appointment authority under Section 5 of Article VII of the California Constitution and Section 19058 to the individual serving as the State Auditor and shall authorize appointments and conduct examinations necessary to accomplish the prompt filling of employee positions in the Bureau of State Audits. The State Auditor may contract with the board or another appointing authority for the purpose of designing, publicizing, or administering examinations. All persons employed by the Office of the Auditor General on or after January 1, 1991, may participate in departmental promotional examinations for the bureau for a period of one year beginning on the effective date of this chapter. The Department of Personnel Administration shall assist the bureau in its formation, as necessary. 8544.2. Persons employed by the Bureau of State Audits pursuant to Section 8544.1 shall be allowed to enroll in civil service employee benefit programs. 8544.3. All persons employed by the Bureau of State Audits pursuant to Section 8544.1 who were members of the Public Employees' Retirement System as of November 3, 1992, shall retain their existing classification within the system and shall be considered state miscellaneous members as defined in Section 20014. 8544.4. The permanent office of the State Auditor shall be in Sacramento, where he or she shall be provided with suitable and sufficient offices. When in his or her judgment the conduct of the work requires, he or she may maintain offices at other places in the state. 8544.5. (a) There is hereby established in the State Treasury the State Audit Fund. Notwithstanding Section 13340, the State Audit Fund is continuously appropriated for the expenses of the State Auditor. There shall be appropriated annually in the Budget Act to the State Audit Fund, from the General Fund, the amount necessary to reimburse the State Audit Fund for the cost of audits to be performed. "Cost of audits" means all direct and indirect costs of conducting the audits and any other related expenses incurred by the State Auditor in fulfilling his or her statutory responsibilities. (b) Upon certification by the State Auditor of estimated costs on a monthly basis, the Controller shall transfer the amount thus certified from the General Fund to the State Audit Fund. The Controller shall thereafter issue warrants drawn against the State Audit Fund upon receipt of claims certified by the State Auditor. (c) As of the effective date of this chapter, all unallocated funds in the Auditor General Fund pursuant to former Section 10507 shall be available for transfer to the State Audit Fund pursuant to subdivision (b). The amount of funds provided in Item 8855-011-001 of Chapter 587 of the Statutes of 1992 (Budget Act of 1992) shall be available for transfer to the State Audit Fund pursuant to subdivision (b) without regard to Provision 1 of that item. (d) To ensure adequate oversight of the operations of the bureau, the Milton Marks Commission on California State Government Organization and Economy shall annually obtain the services of an independent public accountant to audit the State Audit Fund and the operation of the bureau to assure compliance with state law, including Section 8546. The results of this audit shall be submitted to the commission and shall be a public record. (e) In order to ensure that audits of the Milton Marks Commission on California State Government Organization and Economy are conducted in conformity with government auditing standards, any audit of the commission that is required or permitted by law shall be conducted by the independent public accountant selected pursuant to subdivision (d). 8544.6. Expenditures of the Bureau of State Audits are defined as "administrative costs" defined in Section 11270. 8545. The State Auditor shall not destroy any papers or memoranda used to support a completed audit sooner than three years after the audit report is released to the public. All books, papers, records, and correspondence of the bureau pertaining to its work are public records subject to Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 and shall be filed at any of the regularly maintained offices of the State Auditor, except that none of the following items or papers of which these items are a part shall be released to the public by the State Auditor, his or her employees, or members of the commission: (a) Personal papers and correspondence of any person receiving assistance from the State Auditor when that person has requested in writing that his or her papers and correspondence be kept private and confidential. Those papers and correspondence shall become public records if the written request is withdrawn or upon the order of the State Auditor. (b) Papers, correspondence, or memoranda pertaining to any audit or investigation not completed, when in the judgment of the State Auditor, disclosure of those papers, correspondence, or memoranda will impede the audit or investigation. (c) Papers, correspondence, or memoranda pertaining to any audit or investigation that has been completed, which papers, correspondence, or memoranda are not used in support of any report resulting from the audit or investigation. 8545.1. It is a misdemeanor for the State Auditor or any employee or former employee of the bureau to divulge or make known in any manner not expressly permitted by law to any person not employed by the bureau any particulars of any record, document, or information the disclosure of which is restricted by law from release to the public. This prohibition is also applicable to any person or business entity that is contracting with or has contracted with the State Auditor and to the employees and former employees of that person or business entity or the employees of any state agency or public entity that has assisted the State Auditor in the course of any audit or investigative audit or that has been furnished a draft copy of any report for comment or review. 8545.2. (a) Notwithstanding any other provision of law, the State Auditor during regular business hours shall have access to and authority to examine and reproduce, any and all books, accounts, reports, vouchers, correspondence files, and other records, bank accounts, and money or other property, of any agency of the state, whether created by the California Constitution or otherwise, and any public entity, including any city, county, and school or special district for any audit or investigative audit. Any officer or employee of any agency or entity having these records or property in his or her possession or under his or her control shall permit access to, and examination and reproduction thereof, upon the request of the State Auditor or his or her authorized representative. (b) For the purposes of access to and examination and reproduction of the records and property described in subdivision (a), an authorized representative of the State Auditor is an employee or officer of the agency or public entity involved and is subject to any limitations on release of the information as may apply to an employee or officer of the agency or public entity. For the purpose of conducting any audit or investigation, the State Auditor or his or her authorized representative shall have access to the records and property of any public entity being audited or investigated to the same extent that employees or officers of that agency or public entity have access. No provision of law providing for the confidentiality of any records or property shall prevent disclosure pursuant to subdivision (a), unless the provision specifically refers to and precludes access and examination and reproduction pursuant to subdivision (a). This subdivision does not apply to records compiled pursuant to Part 1 (commencing with Section 8900) or Part 2 (commencing with Section 10200) of Division 2. (c) Any officer or person who fails or refuses to permit access and examination and reproduction, as required by this section, is guilty of a misdemeanor. 8545.3. It is a misdemeanor for the State Auditor or any employee of the State Auditor to release any information received pursuant to Section 10850 of the Welfare and Institutions Code or that is otherwise prohibited by law to be disclosed. 8545.4. (a) In connection with any audit or investigative audit conducted by the State Auditor, the State Auditor or his or her designee, may do any of the following: (1) Administer oaths. (2) Certify to all official acts. (3) Issue subpoenas for the attendance of witnesses and the production of papers, books, accounts, or documents, or for the making of oral or written sworn statements, in any investigative interview conducted as part of an audit or investigative audit. (b) Any subpoena issued under this section extends as process to all parts of the state and may be served by any person authorized to serve process of courts of record or by any person designated for that purpose by the State Auditor or his or her designee. The person serving this process may receive compensation as allowed by the State Auditor or his or her designee, not to exceed the fees prescribed by law for similar service. 8545.5. (a) The superior court in the county in which any investigative interview is held under the direction of the State Auditor or his or her designee has jurisdiction to compel the attendance of witnesses, the making of oral or written sworn statements, and the production of papers, books, accounts, and documents, as required by any subpoena issued by the State Auditor or his or her designee. (b) If any witness refuses to attend or testify or produce any papers required by the subpoena, the State Auditor or his or her designee may petition the superior court in the county in which the hearing is pending for an order compelling the person to attend and answer questions under penalty of perjury or produce the papers required by the subpoena before the person named in the subpoena. The petition shall set forth all of the following: (1) That due notice of the time and place of attendance of the person or the production of the papers has been given. (2) That the person has been subpoenaed in the manner prescribed in Section 8545.4. (3) That the person has failed and refused to attend or produce the papers required by subpoena before the State Auditor or his or her designee as named in the subpoena, or has refused to answer questions propounded to him or her in the course of the investigative interview under penalty of perjury. (c) Upon the filing of the petition, the court shall enter an order directing the person to appear before the court at a specified time and place and then and there show cause why he or she has not attended, answered questions under penalty of perjury, or produced the papers as required. A copy of the order shall be served upon him or her. If it appears to the court that the subpoena was regularly issued by the State Auditor or his or her designee, the court shall enter an order that the person appear before the person named in the subpoena at the time and place fixed in the order and answer questions under penalty of perjury or produce the required papers. Upon failure to obey the order, the person shall be dealt with as for contempt of court. Article 2. Powers and Duties 8546. It is the intent of the Legislature that the Bureau of State Audits have the independence necessary to conduct all of its audits in conformity with "Government Auditing Standards" published by the Comptroller General of the United States and the standards published by the American Institute of Certified Public Accountants, free from influence of existing state control agencies that could be the subject of audits conducted by the bureau. Therefore, all of the following exclusions apply to the office: (a) Notwithstanding Section 19790, the State Auditor shall establish an affirmative action program which shall meet the criteria and objectives established by the State Personnel Board and shall report annually to the State Personnel Board and the commission. (b) Notwithstanding Section 12470, the State Auditor shall be responsible for maintaining its payroll system. In lieu of audits of the uniform payroll system performed by the Controller, the office shall contract pursuant to subdivision (d) of Section 8544.5 for an annual audit of its payroll and financial operations by an independent public accountant. (c) The State Auditor is delegated the authority to establish and administer the fiscal policy of the bureau in conformity with the provisions of the State Administrative Manual without oversight by the Department of Finance. (d) Notwithstanding Section 11032, the State Auditor may approve actual and necessary traveling expenses for travel outside the state for officers and employees of the bureau. (e) Notwithstanding Section 11033, the State Auditor or officers and employees of the bureau may be absent from the state on business of the state upon approval of the State Auditor or Chief Deputy State Auditor. (f) Sections 11040, 11042, and 11043 shall not apply to the Bureau of State Audits. The State Auditor may employ legal counsel under those terms that he or she deems necessary to conduct the legal business of, or render legal counsel to, the State Auditor. (g) The provisions and definitions of Section 11342 shall not be construed to include the Bureau of State Audits. The State Auditor may adopt regulations necessary for the operation of the bureau pursuant to the provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Division 3), but these regulations shall not be subject to the review or approval of the Office of Administrative Law. (h) The State Auditor shall be exempt from all contract requirements of the Public Contract Code that require oversight, review, or approval by the Department of General Services or any other state agency. The State Auditor may contract on behalf of the State of California for goods and services that he or she deems necessary for the furtherance of the purposes of the bureau. 8546.1. The State Auditor shall conduct financial and performance audits as directed by statute. The State Auditor may conduct these audits of any state agency as defined by Section 11000, whether created by the California Constitution or otherwise, and any local governmental agency, including any city, county, and school or special district. However, the State Auditor shall not audit the activities of the Milton Marks Commission on California State Government Organization and Economy or the Legislature to assure compliance with government auditing standards. The State Auditor shall conduct any audit of a state or local governmental agency that is requested by the Joint Legislative Audit Committee to the extent that funding is available and in accordance with the priority established by the committee with respect to other audits requested by the committee. Members of the Legislature may submit requests for audits to the committee for its consideration and approval. Any audit request approved by the committee shall be forwarded to the State Auditor as a committee request. The State Auditor shall complete any audit in a timely manner and in accordance with the "Government Auditing Standards" published by the Comptroller General of the United States. Immediately upon completion of the audit, the State Auditor shall transmit a copy of the audit report to the commission. Not later than 24 hours after delivery to the commission, the commission shall deliver the report to the Legislature, appropriate committees or subcommittees of the Legislature, and the Governor. Once transmitted to these parties, the report shall be made available to the public. 8546.3. The State Auditor shall examine and report annually upon the financial statements otherwise prepared by the executive branch of the state to the end that the Legislature and the public will be informed as to the adequacy of those financial statements in compliance with generally accepted accounting principles applied on a basis consistent with that of the preceding fiscal year. In making that examination, he or she is authorized to make the audit examination of accounts and records, accounting procedures, and internal auditing performance as he or she may determine to be necessary to disclose all material facts necessary to proper reporting in accordance with the statement of purposes set forth in Section 8521.5. 8546.4. (a) The State Auditor shall annually issue an auditor's report based upon the general purpose financial statements included in the Controller's annual report that is submitted to the Governor pursuant to Section 12460. The auditor's report shall be in accordance with the "Government Auditing Standards" published by the Comptroller General of the United States and the standards published by the American Institute of Certified Public Accountants. (b) The State Auditor, in the performance of this annual audit, may examine all the financial records, accounts, and documents of any state agency as defined by Section 11000. (c) The State Auditor shall rely, to the maximum extent possible, upon the audits performed by the Controller, the Department of Finance, internal auditors of state agencies, and independent contractors. The Director of Finance shall be responsible for coordinating and providing technical assistance to the internal auditors of state agencies. Nothing in this article is intended to reduce or restrict the operations of internal auditors whose review of internal financial and administrative controls of state agencies is essential for coordinated audits. (d) State agencies receiving federal funds shall be primarily responsible for arranging for federally required financial and compliance audits. State agencies shall immediately notify the Director of Finance, the State Auditor, and the Controller when they are required to obtain federally required financial and compliance audits. The Director of Finance, the State Auditor, and the Controller shall coordinate the procurement by state agencies, including any negotiations with cognizant federal agencies, of federally required financial and compliance audits. (e) To prevent duplication of the annual audit conducted by the State Auditor pursuant to subdivision (a), except for those state agencies that are required by state law to obtain an annual audit, no state agency shall enter into a contract for a financial or compliance audit without prior written approval of the Controller and the Director of Finance, which approval shall state the reason for the contract and shall be filed with the State Auditor at least 30 days prior to the award of the contract. No funds appropriated by the Legislature shall be encumbered for the purpose of funding any contract for an audit that duplicates the annual financial audit conducted by the State Auditor. (f) Notwithstanding any other provision of this article, nothing in this section shall be construed to limit, restrict, or otherwise infringe upon the constitutional or statutory authority of the Controller to superintend the fiscal concerns of the state. (g) Notwithstanding any other provision of this article, nothing in this section shall be construed to limit, restrict, or otherwise infringe upon the statutory authority of the Director of Finance to supervise the financial and business policies of the state. 8546.5. The Director of Finance, in coordinating the internal auditors of state agencies, shall ensure that these auditors utilize the "Standards for the Professional Practices of Internal Auditing." The State Auditor, in conjunction with the annual audit of state financial statements, shall test compliance with this section and report to the Legislature, the Governor, and respective governmental entities on the significant variances from the general and specific standards for the professional practice of internal auditing. 8546.6. The State Auditor, in connection with any audit or investigation conducted pursuant to this chapter, shall be deemed to be a department head for the purposes of Section 11189. 8546.7. Notwithstanding any other provision of law, every contract involving the expenditure of public funds in excess of ten thousand dollars ($10,000) entered into by any state agency, board, commission, or department or by any other public entity, including a city, county, city and county, or district, shall be subject to the examination and audit of the State Auditor, at the request of the public entity or as part of any audit of the public entity, for a period of three years after final payment under the contract. Every contract shall contain a provision stating that the contracting parties shall be subject to that examination and audit. The failure of a contract to contain this provision shall not preclude the State Auditor from conducting an examination and audit of the contract at the request of the public entity entering into the contract or as part of any audit of the public entity. It is the intent of the Legislature that the Regents of the University of California include in contracts involving the expenditure of state funds in excess of ten thousand dollars ($10,000) a provision stating that the contracting parties shall be subject to the examination and audit of the State Auditor, at the request of the regents or as part of any audit of the university, for a period of three years after final payment under the contract. The examinations and audits under this section shall be confined to those matters connected with the performance of the contract, including, but not limited to, the costs of administering the contract. 8546.8. Unless the contrary is stated or clearly appears from the context, any reference to the Auditor General, the Office of the Auditor General, or the Joint Legislative Audit Committee in any statute or contract in effect on the effective date of this chapter, other than Chapter 4 (commencing with Section 10500), with respect to the performance of audits, shall be construed to refer to the State Auditor, the Bureau of State Audits, and the Milton Marks Commission on California State Government Organization and Economy, respectively. Article 3. Reporting of Improper Governmental Activities 8547. This article shall be known and may be cited as the "Reporting of Improper Governmental Activities Act." 8547.1. It is the intent of the Legislature that state employees and other persons should disclose, to the extent not expressly prohibited by law, improper governmental activities. 8547.2. For the purposes of this article: (a) "Employee" means any individual appointed by the Governor or employed or holding office in a state agency as defined by Section 11000. (b) "Improper governmental activity" means any activity by a state agency or by an employee that is undertaken in the performance of the employee's official duties, whether or not that action is within the scope of his or her employment, and that (1) is in violation of any state or federal law or regulation, including, but not limited to, corruption, malfeasance, bribery, theft of government property, fraudulent claims, fraud, coercion, conversion, malicious prosecution, misuse of government property, or willful omission to perform duty, or (2) is economically wasteful, or involves gross misconduct, incompetency, or inefficiency. For purposes of Sections 8547.4, 8547.5, 8547.10, and 8547.11, "improper governmental activity or activities" includes any activity by the University of California or by an employee, including an officer or faculty member, that otherwise meets the criteria of this subdivision. (c) "Person" means any individual, corporation, trust, association, any state or local government, or any agency or instrumentality of any of the foregoing. (d) "State agency" is defined by Section 11000. "State agency" includes the University of California for purposes of Sections 8547.5 to 8547.7, inclusive. 8547.3. (a) An employee may not directly or indirectly use or attempt to use the official authority or influence of the employee for the purpose of intimidating, threatening, coercing, commanding, or attempting to intimidate, threaten, coerce, or command any person for the purpose of interfering with the right of that person to disclose to the State Auditor matters within the scope of this article. (b) For the purpose of subdivision (a), "use of official authority or influence" includes promising to confer, or conferring, any benefit; effecting, or threatening to effect, any reprisal; or taking, or directing others to take, or recommending, processing, or approving, any personnel action, including, but not limited to, appointment, promotion, transfer, assignment, performance evaluation, suspension, or other disciplinary action. (c) Any employee who violates subdivision (a) may be liable in an action for civil damages brought against the employee by the offended party. (d) Nothing in this section shall be construed to authorize an individual to disclose information otherwise prohibited by or under law. 8547.4. The State Auditor shall administer the provisions of this article and shall investigate and report on improper governmental activities. 8547.5. Upon receiving specific information that any employee or state agency has engaged in an improper governmental activity, the State Auditor may conduct an investigative audit of the matter. The identity of the person providing the information that initiated the investigative audit shall not be disclosed without the written permission of the person providing the information unless the disclosure is to a law enforcement agency that is conducting a criminal investigation. 8547.6. The State Auditor may request the assistance of any state department, agency, or employee in conducting any investigative audit required by this article. If an investigative audit conducted by the State Auditor involves access to confidential academic peer review records of University of California academic personnel, these records shall be provided in a form consistent with university policy effective on August 1, 1992. No information obtained from the State Auditor by any department, agency, or employee as a result of the State Auditor's request for assistance, nor any information obtained thereafter as a result of further investigation, shall be divulged or made known to any person without the prior approval of the State Auditor. 8547.7. (a) If the State Auditor determines that there is reasonable cause to believe that an employee or state agency has engaged in any improper governmental activity, he or she shall report the nature and details of the activity to the head of the employing agency, or the appropriate appointing authority. If appropriate, the State Auditor shall report this information to the Attorney General, the policy committees of the Senate and Assembly having jurisdiction over the subject involved, and to any other authority that the State Auditor determines appropriate. (b) The State Auditor shall not have any enforcement power. In any case in which the State Auditor submits a report of alleged improper activity to the head of the employing agency or appropriate appointing authority, that individual shall report to the State Auditor with respect to any action taken by the individual regarding the activity, the first report being transmitted no later than 30 days after the date of the State Auditor's report and monthly thereafter until final action has been taken. (c) Every investigative audit shall be kept confidential, except that the State Auditor may issue any report of an investigation that has been substantiated, keeping confidential the identity of the individual or individuals involved, or release any findings resulting from an investigation conducted pursuant to this article that is deemed necessary to serve the interests of the state. (d) This section shall not limit any authority conferred upon the Attorney General or any other department or agency of government to investigate any matter. 8547.8. (a) A state employee or applicant for state employment who files a written complaint with his or her supervisor, manager, or the appointing power alleging actual or attempted acts of reprisal, retaliation, threats, coercion, or similar improper acts prohibited by Section 8547.3, may also file a copy of the written complaint with the State Personnel Board, together with a sworn statement that the contents of the written complaint are true, or are believed by the affiant to be true, under penalty of perjury. The complaint filed with the board, shall be filed within 12 months of the most recent act of reprisal complained about. (b) Any person who intentionally engages in acts of reprisal, retaliation, threats, coercion, or similar acts against a state employee or applicant for state employment for having disclosed improper governmental activities, is subject to a fine not to exceed ten thousand dollars ($10,000) and imprisonment in the county jail for up to a period of one year. Any state civil service employee who intentionally engages in that conduct shall be disciplined by adverse action as provided by Section 19572. If no adverse action is instituted by the appointing power, the State Personnel Board shall invoke adverse action as provided in Section 19583.5. (c) In addition to all other penalties provided by law, any person who intentionally engages in acts of reprisal, retaliation, threats, coercion, or similar acts against a state employee or applicant for state employment for having disclosed improper governmental activities shall be liable in an action for damages brought against him or her by the injured party. Punitive damages may be awarded by the court where the acts of the offending party are proven to be malicious. Where liability has been established, the injured party shall also be entitled to reasonable attorney's fees as provided by law. However, any action for damages shall not be available to the injured party unless the injured party has first filed a complaint with the State Personnel Board pursuant to subdivision (a) of this section, and the board has failed to reach a decision regarding any hearing conducted pursuant to Section 19683. (d) This section is not intended to prevent an appointing power, manager, or supervisor from taking, directing others to take, recommending, or approving any personnel action or from taking or failing to take a personnel action with respect to any state employee or applicant for state employment if the appointing power, manager, or supervisor reasonably believes any action or inaction is justified on the basis of evidence separate and apart from the fact that the person has disclosed improper governmental activities as defined in subdivision (b) of Section 8547.2. 8547.9. Notwithstanding Section 19572, if the State Personnel Board determines that there is a reasonable basis for an alleged violation, or finds an actual violation of Section 8547.3 or 19683, it shall transmit a copy of the investigative report to the State Auditor. All working papers pertaining to the investigative report shall be made available under subpoena in a civil action brought under Section 19683. 8547.10. (a) A University of California employee, including an officer or faculty member, or applicant for employment may file a written complaint with his or her supervisor or manager, or with any other university officer designated for that purpose by the regents, alleging actual or attempted acts of reprisal, retaliation, threats, coercion, or similar improper acts for having disclosed improper governmental activities, together with a sworn statement that the contents of the written complaint are true, or are believed by the affiant to be true, under penalty of perjury. The complaint shall be filed within 12 months of the most recent act of reprisal complained about. (b) Any person who intentionally engages in acts of reprisal, retaliation, threats, coercion, or similar acts against a University of California employee, including an officer or faculty member, or applicant for employment for having disclosed improper governmental activities, is subject to a fine not to exceed ten thousand dollars ($10,000) and imprisonment in the county jail for up to a period of one year. Any university employee, including an officer or faculty member, who intentionally engages in that conduct shall also be subject to discipline by the university. (c) In addition to all other penalties provided by law, any person who intentionally engages in acts of reprisal, retaliation, threats, coercion, or similar acts against a university employee, including an officer or faculty member, or applicant for employment for having disclosed improper governmental activities shall be liable in an action for damages brought against him or her by the injured party. Punitive damages may be awarded by the court where the acts of the offending party are proven to be malicious. Where liability has been established, the injured party shall also be entitled to reasonable attorney's fees as provided by law. However, any action for damages shall not be available to the injured party unless the injured party has first filed a complaint with the university officer identified pursuant to subdivision (a), and the university has failed to reach a decision regarding that complaint within the time limits established for that purpose by the regents. (d) This section is not intended to prevent a manager or supervisor from taking, directing others to take, recommending, or approving any personnel action or from taking or failing to take a personnel action with respect to any university employee, including an officer or faculty member, or applicant for employment if the manager or supervisor reasonably believes any action or inaction is justified on the basis of evidence separate and apart from the fact that the person has disclosed improper governmental activities. 8547.11. (a) A University of California employee, including an officer or faculty member, may not directly or indirectly use or attempt to use the official authority or influence of the employee for the purpose of intimidating, threatening, coercing, commanding, or attempting to intimidate, threaten, coerce, or command any person for the purpose of interfering with the right of that person to disclose to a University of California official, designated for that purpose by the regents, or the State Auditor matters within the scope of this article. (b) For the purpose of subdivision (a), "use of official authority or influence" includes promising to confer, or conferring, any benefit; effecting, or threatening to effect, any reprisal; or taking or directing others to take, or recommending, processing, or approving, any personnel action, including, but not limited to, appointment, promotion, transfer, assignment, performance evaluation, suspension, or other disciplinary action. (c) Any employee who violates subdivision (a) may be liable in an action for civil damages brought against the employee by the offended party. (d) Nothing in this section shall be construed to authorize an individual to disclose information otherwise prohibited by or under law. SEC. 9. Section 10500 of the Government Code is amended to read: 10500. It is the desire of the Legislature to create the Office of the Auditor General, whose primary duties shall be to perform performance audits as may be requested by the Legislature. The authority of the office under the direction of the Joint Legislative Audit Committee is confined to examining and reporting and is in no way to interfere with adequate internal audit to be conducted by the executive branch of the government or the state audit or other audits required by statute to be performed by the State Auditor. The Legislature also finds that a significant portion of the state budget consists of subventions to local governments and, therefore, it is necessary for the Legislature to establish independent fiscal oversight capability necessary to determine funding priorities and to evaluate the efficiency and necessity of state-supported local programs and state programs administered by local governments. SEC. 10. Section 10506.5 of the Government Code is repealed. SEC. 11. Section 10507 of the Government Code is repealed. SEC. 12. Section 10528 of the Government Code is amended to read: 10528. The Auditor General shall make special audits and investigations, including performance audits, of any state agency whether created by the California Constitution or otherwise, and any public entity, including any city, county, and special district which receives state funds, as requested by the Legislature or any committee of the Legislature. SEC. 13. Section 10529 of the Government Code is repealed. SEC. 14. Section 10532 of the Government Code is repealed. SEC. 15. Section 10534 of the Government Code is repealed. SEC. 16. Article 3 (commencing with Section 10540) of Chapter 4 of Part 2 of Division 2 of Title 2 of the Government Code is repealed. SEC. 17. Section 13332.16 of the Government Code is amended to read: 13332.16. This article shall not apply to appropriations to the Legislature, the Legislative Counsel Bureau, the Bureau of State Audits, the California Commission on Uniform State Laws, or the California Law Revision Commission. SEC. 18. This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are: In order to establish the Bureau of State Audits as soon as possible to ensure the timely completion of fiscal audits of state programs that are mandated by federal or state law, it is necessary for this act to take effect immediately.