Second Substitute S.B. 93

Representative Steve Eliason proposes the following substitute bill:


             1     
INTERNAL AUDIT AMENDMENTS

             2     
2014 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Howard A. Stephenson

             5     
House Sponsor: Steve Eliason

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill amends and enacts provisions related to the auditing of state agencies and local
             10      education agencies.
             11      Highlighted Provisions:
             12          This bill:
             13          .    requires a local school board or charter school governing board to establish an audit
             14      committee;
             15          .    requires a school audit committee to establish an internal audit program;
             16          .    defines terms;
             17          .    directs certain state agencies to establish internal audit programs;
             18          .    amends the powers and duties of an audit committee;
             19          .    amends the powers and duties of an agency internal audit director; and
             20          .    makes technical corrections.
             21      Money Appropriated in this Bill:
             22          None
             23      Other Special Clauses:
             24          None
             25      Utah Code Sections Affected:


             26      AMENDS:
             27           63I-5-102 , as renumbered and amended by Laws of Utah 2008, Chapter 382
             28           63I-5-301 , as renumbered and amended by Laws of Utah 2008, Chapter 382
             29           63I-5-401 , as renumbered and amended by Laws of Utah 2008, Chapter 382
             30      ENACTS:
             31           53A-30-101 , Utah Code Annotated 1953
             32           53A-30-102 , Utah Code Annotated 1953
             33           53A-30-103 , Utah Code Annotated 1953
             34      REPEALS AND REENACTS:
             35           63I-5-201 , as last amended by Laws of Utah 2012, Chapters 212 and 365
             36           63I-5-302 , as renumbered and amended by Laws of Utah 2008, Chapter 382
             37     
             38      Be it enacted by the Legislature of the state of Utah:
             39          Section 1. Section 53A-30-101 is enacted to read:
             40     
CHAPTER 30. INTERNAL AUDITS

             41          53A-30-101. Title.
             42          This chapter is known as "Internal Audits."
             43          Section 2. Section 53A-30-102 is enacted to read:
             44          53A-30-102. Definitions.
             45          As used in this part:
             46          (1) "Audit committee" means a standing committee:
             47          (a) appointed by the local school board or charter school governing board with the
             48      following number of members as applicable to the local school board or charter school
             49      governing board:
             50          (i) for a board of a local education agency that consists of seven or more members,
             51      three members of that board; or
             52          (ii) for a board of a local education agency that consists of six or fewer members, two
             53      members of that board; and
             54          (b) composed of people who are not administrators or employees of the local education
             55      agency.
             56          (2) "Audit director" means the person who directs the internal audit program.


             57          (3) "Audit plan" means a prioritized list of audits to be performed by an internal audit
             58      program within a specified period of time.
             59          (4) "Internal audit" means an independent appraisal activity established within a local
             60      education agency as a control system to examine and evaluate the adequacy and effectiveness
             61      of other internal control systems within the local education agency.
             62          (5) "Internal audit program" means an audit function that:
             63          (a) is conducted by a local school board or charter school governing board independent
             64      of the local education agency offices or other operations;
             65          (b) objectively evaluates the effectiveness of the local education agency governance,
             66      risk management, internal controls, and the efficiency of operations; and
             67          (c) is conducted in accordance with the current:
             68          (i) International Standards for the Professional Practice of Internal Auditing; or
             69          (ii) The Government Auditing Standards, issued by the Comptroller General of the
             70      United States.
             71          (6) "Local education agency" means a school district or charter school.
             72          Section 3. Section 53A-30-103 is enacted to read:
             73          53A-30-103. Internal auditing program -- Audit committee -- Powers and duties.
             74          (1) A local school board or charter school governing board shall establish an audit
             75      committee.
             76          (2) (a) The audit committee shall establish an internal audit program that provides
             77      internal audit services for the programs administered by the local education agency.
             78          (b) A local education agency that has fewer than 10,000 students is not subject to
             79      Subsection (2)(a).
             80          (3) (a) A local school board or charter school governing board shall appoint the audit
             81      director, with the advisement of the audit committee, if the local school board or charter school
             82      governing board hires an audit director.
             83          (b) If the local school board or charter school governing board has not appointed an
             84      audit director and the school board or governing board contracts directly for internal audit
             85      services, the local school board or charter school governing board shall approve a contract for
             86      internal audit services, with the advisement of the audit committee.
             87          (4) The audit committee shall ensure that copies of all reports of audit findings issued


             88      by the internal auditors are available, upon request, to the audit director of the State Board of
             89      Education, the Office of the State Auditor, and the Office of Legislative Auditor General.
             90          (5) The audit committee shall ensure that significant audit matters that cannot be
             91      appropriately addressed by the local education agency internal auditors are referred to either the
             92      audit director of the State Board of Education, the Office of the State Auditor, or the Office of
             93      Legislative Auditor General.
             94          (6) The audit director may contract with a consultant to assist with an audit.
             95          (7) The audit director of the State Board of Education and the Office of the State
             96      Auditor may contract to provide internal audit services.
             97          Section 4. Section 63I-5-102 is amended to read:
             98           63I-5-102. Definitions.
             99          As used in this chapter:
             100          [(6)] (1) "Agency governing board" is any board or commission that has policy making
             101      and oversight responsibility over the agency, including the authority to appoint and remove the
             102      agency director.
             103          [(1)] (2) "Agency head" means a cabinet officer, an elected official, an executive
             104      director, or a board or commission vested with responsibility to administer or make policy for a
             105      state agency.
             106          [(2)] (3) "Agency internal audit director" or "audit director" means the person
             107      [appointed by the agency head, with the approval of the audit committee if one has been
             108      established, to direct the internal audit function for the state agency.] who:
             109          (a) directs the internal audit program for the state agency; and
             110          (b) is appointed by the audit committee or, if no audit committee has been established,
             111      by the agency head.
             112          [(3)] (4) "Appointing authority" means:
             113          (a) the governor, for state agencies other than the State Tax Commission;
             114          (b) the Judicial Council, for judicial branch agencies;
             115          (c) the Board of Regents, for higher education entities; [and]
             116          (d) the State Board of Education, for the State Office of Education[.]; and
             117          (e) the four tax commissioners, for the State Tax Commission.
             118          [(4)] (5) "Audit committee" means a standing committee [whose] composed of


             119      members who:
             120          (a) are appointed by an appointing authority[:];
             121          [(a) from members of the agency governing board; and]
             122          (b) (i) [from individuals who] do not have administrative responsibilities within the
             123      agency [who]; and
             124          (ii) are not an agency contractor or other service provider; and
             125          (c) have the expertise to provide effective oversight of and advice about internal audit
             126      activities and services.
             127          [(5)] (6) "Audit plan" means a prioritized list of audits to be performed by [the] an
             128      internal audit [organization] program within a specified period of time.
             129          (7) "Higher education entity" means the board of regents, the institutional councils of
             130      each higher education institution, and each higher education institution.
             131          (8) "Internal audit" means an independent appraisal activity established within a state
             132      agency as a control system to examine and evaluate the adequacy and effectiveness of other
             133      internal control systems within the agency.
             134          (9) "Internal audit program" means an audit function that:
             135          (a) is conducted by an agency, division, bureau, or office, independent of the agency,
             136      division, bureau, or office operations;
             137          (b) objectively evaluates the effectiveness of agency, division, bureau, or office
             138      governance, risk management, internal controls, and the efficiency of operations; and
             139          (c) is conducted in accordance with the current:
             140          (i) International Standards for the Professional Practice of Internal Auditing; or
             141          (ii) The Government Auditing Standards, issued by the Comptroller General of the
             142      United States.
             143          [(9)] (10) "Judicial branch agency" means each administrative entity of the judicial
             144      branch.
             145          [(10)] (11) (a) "State agency" means:
             146          (i) each department, commission, board, council, agency, institution, officer,
             147      corporation, fund, division, office, committee, authority, laboratory, library, unit, bureau, panel,
             148      or other administrative unit of the state; and
             149          (ii) each state public education entity.


             150          (b) "State agency" does not mean:
             151          (i) a legislative branch agency;
             152          (ii) an independent state agency as defined in Section 63E-1-102 ;
             153          (iii) a county, municipality, school district, local district, or special service district; or
             154          (iv) any administrative subdivision of a county, municipality, school district, local
             155      district, or special service district.
             156          Section 5. Section 63I-5-201 is repealed and reenacted to read:
             157          63I-5-201. Internal auditing programs -- State agencies.
             158          (1) (a) If a director of an agency serves in the governor's cabinet, the director or the
             159      governor shall establish an internal audit program for the respective agency.
             160          (b) The governor may, by executive order, require a state agency not described in
             161      Subsection (1)(a) to establish an internal audit program.
             162          (c) The governor shall ensure that each state agency that reports to the governor has
             163      adequate internal audit coverage.
             164          (2) (a) The Office of the Court Administrator shall establish an internal audit program
             165      under the direction of the Judicial Council, including auditing procedures for courts not of
             166      record.
             167          (b) The Judicial Council may, by rule, require other judicial agencies to establish an
             168      internal audit program.
             169          (3) (a) Dixie State University, the University of Utah, Utah State University, Salt Lake
             170      Community College, Southern Utah University, Utah Valley University, Weber State
             171      University, and Snow College shall establish an internal audit program under the direction of
             172      the Board of Regents.
             173          (b) The State Board of Regents may issue policies requiring other higher education
             174      entities or programs to establish an internal audit program.
             175          (4) The State Office of Education shall establish under the direction of the State Board
             176      of Education an internal audit program that provides internal audit services for each program
             177      administered by the State Office of Education.
             178          (5) Subject to Section 32B-2-302.5 , the internal audit division of the Department of
             179      Alcoholic Beverage Control shall establish an internal audit program under the direction of the
             180      Alcoholic Beverage Control Commission.


             181          Section 6. Section 63I-5-301 is amended to read:
             182           63I-5-301. Audit committee -- Powers and duties.
             183          (1) (a) Each appointing authority may establish an audit committee to monitor the
             184      activities of the agency internal audit [organization] program.
             185          (b) An audit committee may serve more than one state agency internal audit program.
             186          (2) The appointing authority shall ensure that audit committee members have the
             187      expertise to provide effective oversight of and advice about internal audit activities and
             188      services.
             189          (3) If an audit committee has been established, the audit committee shall:
             190          (a) [consent to the appointment or removal of] appoint, evaluate, and, if necessary,
             191      remove the agency internal audit director [as proposed by the agency head];
             192          (b) prepare and adopt formal policies that define:
             193          (i) the purpose of the agency's internal audit program; and
             194          (ii) the authority and responsibility of the agency's internal auditors;
             195          (c) ensure that policies adopted under Subsection (3)(b):
             196          (i) do not place limitations on the scope of the internal audit program's work; and
             197          (ii) clarify that an auditor does not have authority or responsibility for an activity that
             198      the auditor audits;
             199          (d) ensure that:
             200          (i) the audit director employs a sufficient number of professional and support staff to
             201      implement an effective internal audit program;
             202          (ii) compensation, training, job tenure, and advancement of internal auditing staff is
             203      based upon job performance;
             204          (iii) the audit director and staff collectively possess the knowledge, skills, and
             205      experience essential to the practices of the profession and are proficient in applying internal
             206      auditing standards, procedures, and techniques;
             207          (iv) the internal audit program has employees who are qualified in disciplines
             208      necessary to meet the audit responsibilities, including accounting, business management, public
             209      administration, human resource management, economics, finance, statistics, electronic data
             210      processing, or engineering;
             211          (v) internal audit staff are free of operational and management responsibilities that


             212      would impair their ability to make independent audits of any aspects of the agency's operations;
             213          (vi) the audit director and the internal audit staff have access to all personnel and
             214      records, data, and other agency information that the audit director or staff consider necessary to
             215      carry out their assigned duties; and
             216          (vii) that the audit director and the director's employees have the necessary access to
             217      the agency head, agency management, and agency staff;
             218          [(b)] (e) consent to the internal auditing policies proposed by the agency head;
             219          [(c)] (f) review and approve the annual internal audit plan, modifications to the internal
             220      audit plan, risk assessment, and budget;
             221          [(d)] (g) review internal and external audit reports, follow-up reports, and quality
             222      assurance reviews of the internal audit office; and
             223          [(e)] (h) periodically meet with the agency internal audit director to discuss pertinent
             224      matters, including whether there are any restrictions on the scope of audits.
             225          Section 7. Section 63I-5-302 is repealed and reenacted to read:
             226          63I-5-302. Agency head -- Powers and duties.
             227          If an agency has an internal audit program, and the agency's appointing authority has
             228      not established an audit committee, the agency head shall assume the audit committee powers
             229      and duties described in Subsection 63I-5-303 (3).
             230          Section 8. Section 63I-5-401 is amended to read:
             231           63I-5-401. Duties and powers of the agency internal audit director.
             232          (1) The agency internal audit director [may] shall:
             233          (a) furnish independent analyses, appraisals, and recommendations that may,
             234      depending upon the audit scope, identify:
             235          (i) the adequacy of the state agency's systems of internal control;
             236          (ii) the efficiency and effectiveness of agency management in carrying out assigned
             237      responsibilities; and
             238          (iii) the agency's compliance with applicable laws, rules, and regulations;
             239          (b) submit audit reports directly to the agency head and to the audit committee, if one
             240      has been established;
             241          (c) conduct internal audits of state agency programs, activities, and functions that may
             242      consist of one or more of the following objectives:


             243          (i) to verify the accuracy and reliability of agency records;
             244          (ii) to assess compliance with management policies, plans, procedures, and regulations;
             245          (iii) to assess compliance with applicable laws, rules, and regulations;
             246          (iv) to evaluate the efficient and effective use of agency resources; and
             247          (v) to verify the appropriate protection of agency assets;
             248          (d) prepare audit reports of findings;
             249          (e) review and evaluate internal controls over the state agency's accounting systems,
             250      administrative systems, electronic data processing systems, and all other major systems
             251      necessary to ensure the fiscal and administrative accountability of the state agency;
             252          (f) develop audit plans containing the information required by Subsection (2) to be
             253      based on the findings of periodic risk assessments;
             254          (g) upon request, make a copy of the approved audit plan available to the state auditor,
             255      legislative auditor, or other appropriate external auditor to assist in planning and coordination
             256      of any external financial, compliance, electronic data processing, or performance audit;
             257          (h) determine the scope and assignment of the audits;
             258          (i) perform an audit of a special program, activity, function, or organizational unit at
             259      the direction of the agency head or, if one has been established, an audit committee;
             260          (j) maintain the classification of any public records consistent with Title 63G, Chapter
             261      2, Government Records Access and Management Act;
             262          (k) be subject to the same penalties as the custodian of those public records for
             263      violating Title 63G, Chapter 2, Government Records Access and Management Act; and
             264          (l) identify in the audit report any abuse, illegal acts, errors and omissions, or conflicts
             265      of interest.
             266          (2) (a) The audit plan required by this section shall:
             267          (i) identify the individual audits to be conducted during each year;
             268          (ii) identify the related resources to be devoted to each of the respective audits;
             269          (iii) ensure that internal controls are reviewed periodically as determined by the agency
             270      head or the audit committee, if one has been established; and
             271          (iv) ensure that audits that evaluate the efficient and effective use of agency resources
             272      are adequately represented in the plan.
             273          (b) The agency internal audit director shall submit the audit plan to the agency head


             274      and the audit committee, if one has been established, for approval.
             275          (3) The agency internal audit director shall ensure that:
             276          [(a) audits are conducted in accordance with professional auditing standards such as
             277      those published by the Institute of Internal Auditors, Inc., the American Institute of Certified
             278      Public Accountants and, when required by other law, regulation, agreement, contract, or policy,
             279      in accordance with Government Auditing Standards, issued by the Comptroller General of the
             280      United States;]
             281          [(b)] (a) all reports of audit findings issued by internal audit staff shall include a
             282      statement that the audit was conducted according to the appropriate standards;
             283          [(c)] (b) public release of reports of audit findings comply with the conditions specified
             284      by the state laws and rules governing the state agency;
             285          [(d)] (c) copies of all reports of audit findings issued by the internal audit staff are
             286      available, upon written request, to the Offices of the Legislative Auditor General and the Office
             287      of the State Auditor [upon request]; and
             288          [(e)] (d) significant audit matters that cannot be appropriately addressed by the agency
             289      internal audit office are referred to either the Office of Legislative Auditor General or the
             290      Office of the State Auditor.
             291          (4) The agency internal audit director may contract with consultants to assist with
             292      audits.


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