BILL NUMBER: AB 229 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 21, 2011
AMENDED IN ASSEMBLY APRIL 14, 2011
AMENDED IN ASSEMBLY APRIL 13, 2011
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. 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 state or
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 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 on the financial and compliance
audits of local agencies annual financial audit
reports of local agencies , and to review and monitor the
audit reports performed by independent auditors
annual financial reports of local agencies, including certain
reports prepared 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 oversight activity. The requirement
that the Controller report to the Legislature would be repealed on
December 31, 2015. This bill would authorize the Controller to
perform quality control reviews of audit working papers of the annual
financial reports of local agencies to determine whether the audits
meet certain criteria. This bill would provide that if the Controller
makes specified findings, the Controller shall refer the case to the
California Board of Accountancy and take certain disciplinary
actions as the case is pending.
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
53890, including those reports prepared in compliance with the
federal Single Audit Act of 1984 (P.L. 98-502; 31
, as amended (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 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 maintained by the Controller which shall
be published by the Controller not later than December 31 of each
year.
(1) In determining 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 (b) of this section and subdivision (a) of Section
12410.7, and the Controller referred the matter to the California
Board of Accountancy for consideration of disciplinary action
pursuant to subdivision (d) of Section 12410.9. In that instance, if
the certified public accountant or public accountant had been
included in the directory, the certified public accountant or public
accountant shall be removed from the directory until such time as the
board makes a determination on the matter. If the board suspends, or
revokes, the certified public accountant or public accountant's
license, or prohibits the licensee from performing audits of local
agencies, the certified public accountant or public accountant shall
be excluded from the directory until such time as he or she is in
good standing with the board.
(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 annual financial audit reports of local agencies,
including those reports prepared by independent auditors in
compliance with the Federal Single Audit Act, as amended (31 U.S.C.
Sec. 7501 et seq.) and the audit guide . 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, 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 state or 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 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 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) The Controller on an annual basis shall review and
monitor the audit reports performed by independent auditors
annual financial audit reports of local agencies,
including those reports prepared in compliance with the Federal
Single Audit Act, as amended (31 U.S.C. Sec. 7501 et seq.) and the
audit guide . The Controller shall determine whether the audit
reports conform with the reporting provisions of 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 of the annual financial audit reports of
local agencies, including those reports prepared in compliance with
the Federal Single Audit Act, as amended (31 U.S.C. Sec. 7501 et
seq.) and the audit guide, 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 Controller finds that the audit was conducted in a
manner that constitutes unprofessional conduct as defined pursuant to
Section 5100 of the Business and Professions Code, or that there
were multiple and repeated failures to disclose noncompliant acts,
the Controller shall refer the case to the California Board of
Accountancy. In that instance, the independent auditor shall be
prohibited from performing an audit of a local agency until such time
as the board resolves the matter. 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 the period
during which the independent auditor is not in good standing with the
board, in addition to any other penalties that the California Board
of Accountancy may impose.