BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 1345|
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THIRD READING
Bill No: AB 1345
Author: Lara (D)
Amended: 6/6/12 in Senate
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 8-0, 6/13/12
AYES: Wolk, Dutton, DeSaulnier, Fuller, Hernandez, Kehoe,
La Malfa, Liu
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 74-0, 1/26/12 - See last page for vote
SUBJECT : Local government: audits
SOURCE : State Controller John Chiang
DIGEST : This bill imposes additional requirements on
audits of local governments. This bill requires an audit
for any local agency to be made by a certified public
accountant or public accountant, licensed by, and in good
standing with, the California Board of Accountancy.
ANALYSIS : The federal Single Audit Act of 1984 requires
that state and local public agencies, which receive federal
funds from a variety of sources, perform a single,
jurisdiction-wide specific audit. The objective is to save
time and expense on the part of the state and local
entities, while giving the federal agencies involved a more
consistent source of information.
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State law requires the State Controller to receive audit
reports prepared by any local public agency in compliance
with the federal Single Audit Act of 1984. After the
Controller receives these reports, he or she must ascertain
the report's compliance with the federal act and transmit
the report to the appropriate state agency (AB 4334
(Waters), Chapter 861, Statutes of 1988).
State law prohibits a public accounting firm from providing
audit services to a local educational 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 educational agency in each of the
six previous fiscal years. An appeals panel can waive this
requirement if the panel finds that no otherwise eligible
auditor is available to perform the audit (AB 2834
(Migden), Chapter 1128, Statutes of 2002).
This bill requires an audit for any local agency to be made
by a certified public accountant or public accountant,
licensed by, and in good standing with, the California
Board of Accountancy.
Beginning in the 2013-14 fiscal year, this bill prohibits a
local agency from employing a public accounting firm to
provide audit services to the 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 for six consecutive fiscal
years. The Controller can waive this requirement if he or
she finds that another eligible public accounting firm is
not available to perform the audit. This bill specifies
that, for the purposes of calculating the six consecutive
fiscal years, the local agency must not take into account
any time that a public accounting firm was employed by that
local agency prior to the 2013-14 fiscal year.
This bill requires that audit reports prepared in
compliance with the federal Single Audit Act for any city,
county or special district, as defined by state law, must:
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Be submitted to the State Controller within nine months
after the end of the period audited or pursuant to
applicable federal or state law.
Comply with the Government Auditing Standards issued by
the Comptroller General of the United States.
If a local agency does not submit an audit report to the
Controller by the specified due date, this bill allows the
Controller to appoint a qualified certified public
accountant or public accountant to complete the report and
to obtain the information required. This bill requires the
Controller to notify a local agency of its failure to
submit the audit report and give the local agency a
reasonable amount of time to submit the report before
appointing a certified public accountant or public
accountant. The Controller's costs, including a contract
with, or the employment of, the certified public accountant
or public accountant, in completing the audit must be borne
by the local agency and must be a charge against any
unencumbered funds of the local agency.
This bill requires the Controller to refer any matters of
unprofessional conduct, as defined in state law, and
multiple and repeated failures to disclose noncompliant
acts to the California Board of Accountancy.
Comments
The City of Bell's independent auditor failed to report
financial abuses such as excessive salaries, illegal loans,
and questionable fees. In a series of audits of Bell's
finances, the Controller found that the independent auditor
failed to comply with 13 of 17 fieldwork auditing standards
and reported no significant deficiencies in any of the
city's funds. These failures suggest a lack of proper
checks and balances in the local government audit process.
To ensure that local governments' independent auditors
remain independent, this bill requires local governments to
comply with the same audit partner rotation requirements
that the 2002 Migden bill applied to school districts. The
bill also enacts reforms, including:
Requiring local governments' audits to conform to
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recognized government standards and procedures.
Establishing deadlines by which local agencies must
submit audits to the Controller for review.
This bill strengthens local governments' independent audit
processes and provides safeguards to protect taxpayers
against local agencies' misusing public funds.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 6/26/12)
State Controller John Chiang
American Federation of State, County, and Municipal
Employees
California Board of Accountancy
ASSEMBLY FLOOR : 74-0, 1/26/12
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Cook, Dickinson, Eng,
Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines,
Galgiani, Garrick, Gatto, Gordon, Grove, Hagman, Hall,
Hayashi, Roger Hern�ndez, Hill, Huber, Hueso, Huffman,
Jeffries, Jones, Knight, Lara, Logue, Bonnie Lowenthal,
Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell,
Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel
P�rez, Portantino, Silva, Skinner, Solorio, Swanson,
Torres, Valadao, Wagner, Wieckowski, Williams, Yamada,
John A. P�rez
NO VOTE RECORDED: Davis, Donnelly, Gorell, Halderman,
Harkey, Smyth
AGB:do 6/26/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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