BILL NUMBER: AB 229 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MARCH 30, 2011
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 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 within 9 months of the end of the
period audited or 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 the audit to 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 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 local agencies
, and to review and monitor the audit reports performed by
independent auditors, according to specified criteria . 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 the controller's
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that the Controller report to the Legislature would be repealed on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.
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 agency, as defined in Section
53980 53890 , 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) An audit 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.
(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 agency, as applicable, from a directory of
certified public accountants deemed by the Controller as qualified to
conduct audits of local 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 Title 16 of the
California Code of Regulations necessary to perform the full range of
accounting services, including signing attest reports on attest
engagements. of each year.
(1) In determining that which
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.
(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.
(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 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. subdivision (b) of
this section and subdivision (a) of Section 12410.7. The Controller
shall establish an appeals process for certified public accountants
or public accountants who are removed from the directory but not
referred to the California Board of Accountancy pursuant to
subdivision (b) of Section 12410.7 or subdivision (d) of Section
12410.9.
(2) Commencing with the 2011-12 fiscal year, it shall be unlawful
for a public accounting firm to provide audit services to a local
agency if the lead audit partner, or coordinating audit partner,
having primary responsibility for the audit, or the audit partner
responsible for reviewing the audit, has performed audit services for
that local agency in each of the six previous fiscal years. The
Controller may waive this requirement if he or she finds that no
otherwise eligible auditor is available to perform the audit.
(d) The governing board of each local agency shall include all of
the following in 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. 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 local agencies. The
Controller, in consultation with the Department of Finance, 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 , and adopt, an audit guide.
(b) The audit reports shall be submitted to the Controller within
nine months after the end of the period audited, or in accordance
with applicable federal law.
(c) If the audit reports required by Section 12410.5 have not been
submitted by a local agency to the Controller on or before the due
date established by this section, the Controller shall
may 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
completing the audit shall be borne by the local
agency and shall be a charge against any unencumbered funds of the
local agency.
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
12410.7. (a) 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
government auditing standards and the audit guide and
shall notify each local agency, and the auditor of each local 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 agency
audits if the auditor does not correct his or her audit report within
30 days of the Controller's notification.
(c) (1) Within 30 days from the date of receipt of written
notification that the Controller refuses to certify an audit report
as conforming to the reporting provisions described in subdivision
(a), an independent auditor or audit firm having a portion of an
audit fee withheld pursuant to paragraph (1) or (2) of subdivision
(d) of Section 12410.5 may file an appeal in writing with the
California Board of Accountancy.
(2) The board shall complete an investigation of the appeal within
90 days of the filing of the appeal and, on the basis of the
investigation, do one of the following:
(A) (i) Order the Controller to provide notification that the
audit report conforms to the reporting provisions described in
subdivision (a).
(ii) If the board orders the Controller to provide notification
that the audit report conforms to the reporting provisions described
in subdivision (a), the Controller shall notify the contracting local
agency, which shall then release the portion of the audit fee being
withheld in accordance with paragraph (1) or (2) of subdivision (d)
of Section 12410.5.
(B) Schedule the appeal for a hearing, in which case the final
action on the appeal shall be completed by the board within one year
from the date of the filing of the appeal.
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 the Controller's oversight
activity, including the results of 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. 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 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 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 agencies performed annually by the
independent auditor, the independent auditor's experience in
performing audits of local agencies, the complexity of state and
federal programs administered by the local 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 or repeated 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 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 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 agency under subdivision (c). In any
audits of local agencies. In any event, the
Controller shall not suspend an independent auditor under this
subdivision for a period of more than three years.