BILL NUMBER: AB 229 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MARCH 14, 2011
INTRODUCED BY Assembly Member Lara
FEBRUARY 2, 2011
An act to amend Section 12410.5 of, to add Sections 12410.6,
12410.7, and 12410.9 to, and to add and repeal Section 12410.8 of,
the Government Code, relating to audits.
LEGISLATIVE COUNSEL'S DIGEST
AB 229, as amended, Lara. The Controller: audits.
Existing law requires the Controller to superintend the fiscal
concerns of the state. Existing law requires the Controller to
receive every audit report prepared by any local public
agency to comply with the federal Single Audit Act of
1984 .
This bill would require the audit reports prepared in this
regard to be submitted to the Controller to receive
every annual financial audit report prepared by any local government
within 9 months of the end of the audit
period audited or within a longer
timeframe authorized by the Controller in accordance
with applicable federal law. This bill would authorize the
Controller to appoint a qualified certified public accountant to
complete an audit report if it is not submitted by the local agency
within the required timeframe, with associated costs to be borne by
the local agency, as specified . This bill would require
an the audit conducted
pursuant to this provision to fully
comply fully with the Government Auditing Standards issued
by the Comptroller General of the United States. This bill would
require the audits to be made by a certified public accountant that
is licensed by the California Board of Accountancy and selected by a
local government agency from a directory of
accountants to be published by the Controller by December 31 of each
year . The Controller would be required to use specified
criteria to determine those certified public accountants that are to
be included in the directory.
This bill would require the Controller to develop a plan to review
and report the financial and compliance audits of cities,
counties, and special districts local agencies. This
bill would require the Controller, in consultation with specified
entities, to propose and adopt the content of an audit guide .
This bill would also require the Controller to report to the
Legislature by January 31 of each year the results of its
the controller's oversight activity. The
requirement that the Controller report to the Legislature would be
repealed on December 31, 2015.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds that financial
audits provide an independent assessment of, and reasonable assurance
about, whether local agencies' reported financial condition,
results, and use of resources are presented fairly in accordance with
recognized standards. Accordingly, it is the intent of the
Legislature to promote accountability over local government funding
by establishing a process for reviewing and reporting on financial
and compliance audits conducted of local agencies. It is further the
intent of the Legislature that the Controller shall have oversight
responsibilities for implementing and ensuring compliance with this
act.
SECTION 1. SEC. 2. Section 12410.5
of the Government Code is amended to read:
12410.5. (a) The Controller shall receive every annual financial
audit report prepared for any local government
agency, as defined in Section 53980, including those
reports prepared in compliance with the federal Single Audit Act of
1984 (P.L. 98-502; 31 U.S.C. Sec. 7501 et seq.) and required under
any law to be submitted to any state agency, and shall, after
ascertaining its compliance with that federal act, transmit the
report to the designated state agency.
(b) It is the intent of the Legislature to promote accountability
over local government funding by establishing a new program to review
and report on financial and compliance audits of cities, counties,
and special districts. It is further the intent of the Legislature
that the Controller shall have the primary responsibility for
implementing and overseeing the program. Financial audits provide an
independent assessment of, and reasonable assurance about, whether an
entity's reported financial condition, results, and use of resources
are presented fairly in accordance with recognized criteria.
Reporting on financial audits that are performed in accordance with
government auditing standards also includes reports on internal
control, compliance with laws and regulations, and provisions of
contracts and grant agreements as they relate to financial
transactions, systems, and processes. Compliance audits shall be
defined in generally accepted auditing standards as a
program-specific audit or an organization-wide audit or an entity's
compliance with applicable compliance requirements. Financial and
compliance audits conducted under this chapter shall fulfill federal
single audit requirements.
(c)
(b) An audit conducted for any
local agency submitted to the Controller pursuant to this
section shall comply fully with the Government Auditing Standards
issued by the Comptroller General of the United States.
(d) The audits
(c) An audit for any local agency
submitted to the Controller pursuant to this section shall be
made by a certified public accountant, licensed by the California
Board of Accountancy, and selected by the local government
agency , as applicable, from a directory of
certified public accountants deemed by the Controller as qualified to
conduct audits of local governments agencies
which shall be published by the Controller not later than
December 31 of each year. The certified public accountant shall
possess individual education, examination, and experience
qualifications that have been determined by the board to be
substantially equivalent to the qualifications under Section 5093 of
the Business and Professions Code, and that are in accordance with
subdivision (b) of Section 27 of Article 4 of Division 1
of Title 16 of the California Code of Regulations necessary
to perform the full range of accounting services, including signing
attest reports on attest engagements.
(1) In determining that certified public accountants shall be
included in the directory, the Controller shall use the following
criteria:
(A) The certified public accountants or public accountants shall
be in good standing as certified by the California Board of
Accountancy.
(A)
(B) The certified public accountants or public
accountants, as a result of a quality control review conducted by the
Controller pursuant to Section 12410.9, shall not have been found to
have conducted an audit in a manner constituting noncompliance with
subdivision (c) of that section .
(B) The certified public accountants or public accountants shall
be in good standing as certified by the Board of Accountancy.
(2) It is the intent of the Legislature to ensure that auditors
and audit organizations maintain their independence in appearance and
in fact by rotation of public accounting firms. Beginning with the
2011-12 fiscal year, a local government
agency shall be prohibited from using the same public
accounting firm to perform an annual financial and compliance audit
for more than five consecutive years. The Controller may waive this
requirement if he or she finds that no qualified auditor is otherwise
available to perform the audit.
(e)
(d) The governing board of each city, county,
and special district local agency shall include
all of the following in their its
contracts for audits:
(1) A provision to withhold 10 percent of the audit fee until the
Controller certifies that the audit report conforms to the reporting
provisions of subdivision (a) of Section 12410.7.
(2) A provision to withhold 50 percent of the audit fee for any
subsequent year of a multiyear contract if the prior year's audit
report was not certified as conforming to the reporting provisions of
subdivision (a) of Section 12410.7. This provision shall include a
statement that a multiyear contract shall be null and void if a
public accounting firm or independent auditor is declared ineligible
pursuant to subdivision (d) of Section 12410.9. The amount withheld
shall not be payable unless payment is ordered by the board or the
audit report for that subsequent year is certified by the Controller
as conforming to the reporting provisions of subdivision (a) of
Section 12410.7.
(3) A provision that will provide the Controller access to audit
working papers.
SEC. 2. SEC. 3. Section 12410.6 is
added to the Government Code, to read:
12410.6. (a) The Controller shall develop a plan to review and
report on financial and compliance audits of cities,
counties, and special districts local agencies .
The Controller, in consultation with the Department of Finance,
the Legislative Analyst's Office, state agencies,
and representatives of the League of California Cities, the
California State Association of County Auditors, and the California
Society of Certified Public Accountants, shall propose the content of
and adopt an audit guide.
(b) The audit reports shall be submitted to the Controller
in accordance with Public Law 104-156 within nine
months after the end of the period audited, or within a
longer timeframe authorized by the Controller. in
accordance with applicable federal law.
(c) If the audit reports required by subdivision (b) of
Section 12410.5 have not been filed by a local
government with the Controller's office on or before the due date
established under subdivision (b), the Controller's office shall
determine the most advantageous method of obtaining the required
audited financial statements. submitted by a local
agency to the Controller on or before the due date established by
this section, the Controller shall appoint a qualified certified
public accountant to complete the report and to obtain the
information required. Any cost incurred by the Controller pursuant to
this subdivision, including contracts with, or the employment of,
the certified public accountants in compiling the audit report shall
be borne by the local agency and shall be a charge against any
unencumbered funds of the local agency.
SEC. 3. SEC. 4. Section 12410.7 is
added to the Government Code, to read:
12410.7. (a) To determine the practicability and effectiveness of
the audits and audit guide, the Controller on an annual basis shall
review and monitor the audit reports performed by independent
auditors. The Controller shall determine whether the audit reports
conform with the reporting provisions of subdivision (b) of Section
12410.9 and shall notify each local government
agency , and the auditor of each local government
agency regarding each determination.
(b) The independent auditor shall correct his or her audit report
within 30 days of notification of any deficiency. The Controller may
suspend the independent auditor from performing any local
government agency audits if the auditor does not
correct his or her audit report within 30 days of the Controller's
notification.
SEC. 4. SEC. 5. Section 12410.8 is
added to the Government Code, to read:
12410.8. (a) The Controller shall report to the Legislature by
January 31 of each year the results of its
the Controller's oversight activity, including the results of
its the Controller's quality control
reviews.
(b) A report submitted pursuant to subdivision (a) shall be
submitted in compliance with Section 9795.
(c) Pursuant to Section 10231.5, this section is repealed on
December 31, 2015.
SEC. 5. SEC. 6. Section 12410.9 is
added to the Government Code, to read:
12410.9. (a) The Controller may perform quality control reviews
of audit working papers to determine whether audits are performed in
conformity with government audit standards and the local
government agency audit guide. The Controller
shall communicate the results of his or her reviews to the Department
of Finance, the independent auditor, and the local
government agency for which the audit was
performed, and shall review his or her findings with the independent
auditor.
(b) Prior to the performance of any quality control reviews, the
Controller shall develop and publish guidelines and standards for
those reviews. Pursuant to the development of those guidelines and
standards for those reviews, the Controller shall provide an
opportunity for public comment. The Controller shall update the
guidelines and standards for any changes in audit standards.
(c) The Controller is responsible for selecting audits for review
based on criteria , including, but not limited to,
disciplinary actions by the California Board of Accountancy, results
of the Controller's review and monitoring of the audit reports, the
extent of findings in the audit reports issued by the independent
auditor, the number of audits of local government
agencies performed annually by the independent auditor,
the independent auditor's experience in performing audits of local
governments agencies , the complexity
of state and federal programs administered by the local
government agencies , and requests or leads from
other sources.
(d) If the quality control review of the Controller indicates that
the audit was conducted in a manner that may constitute
unprofessional conduct as defined pursuant to Section 5100 of the
Business and Professions Code, including, but not limited to, breach
of fiduciary responsibility of any kind, gross negligence, repeated
negligent acts resulting in a material misstatement in the audit or
failure to disclose noncompliant acts, the Controller shall refer the
case to the California Board of Accountancy. If the California Board
of Accountancy finds that the independent auditor conducted an audit
in an unprofessional manner, the Controller may prohibit the
independent auditor from performing any audit of a local
government agency for a period of three years,
in addition to any other penalties that the California Board of
Accountancy may impose. In any matter that is referred to the
California Board of Accountancy, the Controller may suspend the
independent auditor from performing any local government
agency audit pending final disposition of the
matter by notice and an opportunity to respond to that suspension.
The independent auditor shall be given credit for any period of
suspension if the California Board of Accountancy prohibits the
independent auditor from performing audits of the local
education agency under subdivision (c). In any event, the
Controller shall not suspend an independent auditor under this
subdivision for a period of more than three years.