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First Substitute H.B. 142

Representative Ben C. Ferry proposes the following substitute bill:


             1     
AUDIT REQUIREMENTS FOR POLITICAL

             2     
SUBDIVISIONS

             3     
2004 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Sponsor: Ben C. Ferry

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies provisions relating to the state auditor's analysis of financial
             10      statements of political subdivisions, interlocal organizations, and other local entities.
             11      Highlighted Provisions:
             12          This bill:
             13          .    codifies certain accounting term definitions;
             14          .    establishes four levels of accounting reports relating to political subdivisions,
             15      interlocal organizations, and other local entities;
             16          .    modifies the duties of the state auditor with regard to accounting reports;
             17          .    recodifies provisions of Title 51, Chapter 2 into a new chapter; and
             18          .    makes technical corrections.
             19      Monies Appropriated in this Bill:
             20          None
             21      Other Special Clauses:
             22          None
             23      Utah Code Sections Affected:
             24      AMENDS:
             25          10-5-123, as enacted by Chapter 34, Laws of Utah 1983



             26          10-6-122, as enacted by Chapter 26, Laws of Utah 1979
             27          17-36-39, as enacted by Chapter 22, Laws of Utah 1975
             28          17-53-225, as enacted by Chapter 133, Laws of Utah 2000
             29          53A-3-403, as last amended by Chapter 315, Laws of Utah 2003
             30          53A-3-404, as last amended by Chapters 221 and 315, Laws of Utah 2003
             31      ENACTS:
             32          51-2a-101, Utah Code Annotated 1953
             33          51-2a-102, Utah Code Annotated 1953
             34          51-2a-201, Utah Code Annotated 1953
             35          51-2a-202, Utah Code Annotated 1953
             36          51-2a-203, Utah Code Annotated 1953
             37          51-2a-301, Utah Code Annotated 1953
             38          51-2a-401, Utah Code Annotated 1953
             39          51-2a-402, Utah Code Annotated 1953
             40          51-2a-403, Utah Code Annotated 1953
             41      REPEALS:
             42          51-2-1, as last amended by Chapter 8, Laws of Utah 2002, Fifth Special Session
             43          51-2-2, as last amended by Chapter 235, Laws of Utah 1989
             44          51-2-3, as last amended by Chapter 169, Laws of Utah 1997
             45          51-2-3.5, as enacted by Chapter 235, Laws of Utah 1989
             46          51-2-4, as enacted by Chapter 85, Laws of Utah 1955
             47          51-2-5, as last amended by Chapter 176, Laws of Utah 1979
             48          51-2-6, as last amended by Chapter 235, Laws of Utah 1989
             49          51-2-7, as enacted by Chapter 260, Laws of Utah 1977
             50          51-2-8, as last amended by Chapter 133, Laws of Utah 2001
             51     
             52      Be it enacted by the Legislature of the state of Utah:
             53          Section 1. Section 10-5-123 is amended to read:
             54           10-5-123. Fund records maintained -- Pre-audit of claims -- Certifications on
             55      voucher -- Bids received and advertisement records -- Time for keeping.
             56          (1) The town clerk shall maintain the general books for each fund of the town and all



             57      subsidiary records relating thereto, including a list of the outstanding bonds, their purpose,
             58      amount, terms, date, and place payable.
             59          (2) The town clerk shall preaudit all claims and demands against the town before they
             60      are allowed, and shall prepare the necessary checks in payment. The town clerk shall certify on
             61      the voucher or check copy, as appropriate, that:
             62          [(1)] (a) the claim has been preaudited and documented;
             63          [(2)] (b) the claim has been directly approved by the council;
             64          [(3)] (c) the claim is within the lawful debt limit of the town; and
             65          [(4)] (d) the claim does not overexpend the appropriate departmental budget
             66      established by the council.
             67          (3) Whenever any town is required by law to receive bids for purchases, construction,
             68      repairs, or any other purpose requiring the expenditure of funds, that town shall keep on file all
             69      bids received, together with proof of advertisement by publication or otherwise, for:
             70          (a) at least three years following the letting of any contract pursuant to those bids; or
             71          (b) three years following the first advertisement for the bids, if all bids pursuant to that
             72      advertisement are rejected.
             73          Section 2. Section 10-6-122 is amended to read:
             74           10-6-122. Purchasing procedures and file of bids received and proof of
             75      advertisement -- Time for keeping.
             76          (1) All purchases or encumbrances thereof by a city shall be made or incurred
             77      according to the purchasing procedures established by each city by ordinance or resolution and
             78      only on an order or approval of the person duly authorized to act as a purchasing agent for the
             79      city.
             80          (2) Whenever any city is required by law to receive bids for purchases, construction,
             81      repairs, or any other purpose requiring the expenditure of funds, that city shall keep on file all
             82      bids received, together with proof of advertisement by publication or otherwise, for:
             83          (a) at least three years following the letting of any contract pursuant to those bids; or
             84          (b) three years following the first advertisement for the bids, if all bids pursuant to that
             85      advertisement are rejected.
             86          Section 3. Section 17-36-39 is amended to read:
             87           17-36-39. Independent audits.


             88          Independent audits are required for all counties as provided in Title 51, Chapter [2] 2a.
             89          Section 4. Section 17-53-225 is amended to read:
             90           17-53-225. County legislative body may adopt Utah Procurement Code --
             91      Retention of records.
             92          (1) A county legislative body may adopt any or all of the provisions of Title 63,
             93      Chapter 56, Utah Procurement Code, or the rules promulgated pursuant to that code.
             94          (2) Whenever any county is required by law to receive bids for purchases, construction,
             95      repairs, or any other purpose requiring the expenditure of funds, that county shall keep on file
             96      all bids received, together with proof of advertisement by publication or otherwise, for:
             97          (a) at least three years following the letting of any contract pursuant to those bids; or
             98          (b) three years following the first advertisement for the bids, if all bids pursuant to that
             99      advertisement are rejected.
             100          Section 5. Section 51-2a-101 is enacted to read:
             101     
CHAPTER 2a. ACCOUNTING REPORTS FROM POLITICAL

             102     
SUBDIVISIONS, INTERLOCAL ORGANIZATIONS,

             103     
AND OTHER LOCAL ENTITIES ACT

             104     
Part 1. General Provisions

             105          51-2a-101. Title.
             106          This chapter is known as the "Accounting Reports from Political Subdivisions,
             107      Interlocal Organizations, and Other Local Entities Act."
             108          Section 6. Section 51-2a-102 is enacted to read:
             109          51-2a-102. Definitions.
             110          As used in this chapter:
             111          (1) "Accounting reports" means an audit, a review, a compilation, or a fiscal report.
             112          (2) "Audit" means an examination that:
             113          (a) analyzes the accounts of all officers of the entity having responsibility for the care,
             114      management, collection, or disbursement of moneys belonging to it or appropriated by law or
             115      otherwise acquired for its use or benefit;
             116          (b) is performed in accordance with generally accepted government auditing standards;
             117      and
             118          (c) conforms to the uniform classification of accounts established or approved by the


             119      state auditor or any other classification of accounts established by any federal government
             120      agency.
             121          (3) "Audit report" means:
             122          (a) the financial statements;
             123          (b) the auditor's opinion on the financial statements;
             124          (c) a statement by the auditor expressing positive assurance of compliance with state
             125      fiscal laws identified by the state auditor;
             126          (d) a copy of the auditor's letter to management that identifies any material weakness in
             127      internal controls discovered by the auditor and other financial issues related to the expenditure
             128      of funds received from federal, state, or local governments to be considered by management;
             129      and
             130          (e) management's response to the specific recommendations.
             131          (4) "Compilation" means information presented in the form of financial statements that
             132      are the representation of management without the accountant undertaking to express any
             133      assurances on the statements.
             134          (5) "Fiscal report" means providing information detailing revenues and expenditures of
             135      all funds using forms provided by the state auditor.
             136          (6) "Governing board" means:
             137          (a) the governing board of each political subdivision;
             138          (b) the governing board of each interlocal organization having the power to tax or to
             139      expend public funds;
             140          (c) the governing board of any local mental health authority established under the
             141      authority of Title 62A, Chapter 15, Substance Abuse and Mental Health Act;
             142          (d) the governing board of any substance abuse authority established under the
             143      authority of Title 62A, Chapter 15, Substance Abuse and Mental Health Act;
             144          (e) the governing board of any area agency established under the authority of Title
             145      62A, Chapter 3, Aging and Adult Services;
             146          (f) the governing board of any nonprofit corporation that receives at least 50% of its
             147      funds from federal, state, and local government entities through contracts;
             148          (g) the governing board of any other entity established by a local governmental unit
             149      that receives tax exempt status for bonding or taxing purposes; and


             150          (h) in municipalities organized under an optional form of municipal government, the
             151      municipal legislative body.
             152          (7) "Review" means performing inquiry and analytical procedures that provide the
             153      accountant with a reasonable basis for expressing limited assurance that there are no material
             154      modifications that should be made to the financial statements for them to be in conformity with
             155      generally accepted accounting principles.
             156          Section 7. Section 51-2a-201 is enacted to read:
             157     
Part 2. Accounting Reports

             158          51-2a-201. Accounting reports required.
             159          (1) The governing board of an entity whose revenues or expenditures of all funds is
             160      $350,000 or more shall cause an audit to be made of its accounts by a competent certified
             161      public accountant.
             162          (2) Unless otherwise required by the state auditor under Section 51-2a-301 , the
             163      governing board of an entity whose revenues or expenditures of all funds is at least $200,000
             164      but less than $350,000 shall cause a review to be made of its accounts by a certified public
             165      accountant.
             166          (3) Unless otherwise required by the state auditor under Section 51-2a-301 , the
             167      governing board of an entity whose revenues or expenditures of all funds is at least $100,000
             168      but less than $200,000 shall cause a compilation to be made of its accounts by a certified public
             169      accountant.
             170          (4) Unless otherwise required by the state auditor under Section 51-2a-301 , the
             171      governing board of an entity whose revenues and expenditures of all funds is less than
             172      $100,000 shall cause a fiscal report to be made on forms provided by the state auditor.
             173          Section 8. Section 51-2a-202 is enacted to read:
             174          51-2a-202. Reporting requirements.
             175          (1) The governing board of each entity required to have an audit, review, compilation,
             176      or fiscal report shall ensure that the audit, review, compilation, or fiscal report is:
             177          (a) made at least annually; and
             178          (b) filed with the state auditor within six months of the close of the fiscal year of the
             179      entity.
             180          (2) If the political subdivision, interlocal organization, or other local entity receives


             181      federal funding, the audit, review, or compilation shall be performed in accordance with both
             182      federal and state auditing requirements.
             183          Section 9. Section 51-2a-203 is enacted to read:
             184          51-2a-203. Audit reports -- Preservation.
             185          (1) The governing body of each political subdivision and each interlocal organization
             186      or other local entity required to submit an accounting report shall:
             187          (a) file and preserve all accounting reports; and
             188          (b) file copies of all accounting reports with the state auditor.
             189          (2) Copies of the accounting reports are open to inspection during regular office hours
             190      by any interested persons, where the accounting reports are filed.
             191          (3) The state auditor shall have access to all accounting report work papers created
             192      under this chapter.
             193          Section 10. Section 51-2a-301 is enacted to read:
             194     
Part 3. State Auditor Duties

             195          51-2a-301. State auditor responsibilities.
             196          (1) Except for political subdivisions that do not receive or expend public funds, the
             197      state auditor shall adopt guidelines, qualifications criteria, and procurement procedures for use
             198      in the procurement of audit services for all entities that are required by Section 51-2a-201 to
             199      cause an accounting report to be made.
             200          (2) The state auditor shall follow the notice, hearing, and publication requirements of
             201      Title 63, Chapter 46a, Utah Administrative Rulemaking Act.
             202          (3) The state auditor shall:
             203          (a) review the accounting report submitted to him under Section 51-2a-201 ; and
             204          (b) if necessary, conduct additional inquiries or examinations of financial statements of
             205      the entity submitting that information.
             206          (4) The governing board of each entity required by Section 51-2a-201 to submit an
             207      accounting report to the state auditor's office shall comply with the guidelines, criteria, and
             208      procedures established by the state auditor.
             209          (5) Each fifth year, the state auditor shall:
             210          (a) review the dollar criteria established in Section 51-2a-201 to determine if they need
             211      to be increased or decreased; and


             212          (b) if the auditor determines that they need to be increased or decreased, notify the
             213      Legislature of that need.
             214          (6) (a) The state auditor may require a higher level of accounting report than is required
             215      under Section 51-2a-201 .
             216          (b) The state auditor shall:
             217          (i) develop criteria under which a higher level of accounting report may be required;
             218      and
             219          (ii) provide copies of those criteria to entities required to analyze and report under
             220      Section 51-2a-201 .
             221          Section 11. Section 51-2a-401 is enacted to read:
             222     
Part 4. Penalties for Noncompliance

             223          51-2a-401. Withholding allocated state funds from entity that does not comply
             224      with the accounting report requirements.
             225          (1) The state auditor shall withhold allocated state funds sufficient to pay the cost of
             226      the accounting report from any political subdivision, interlocal organization, or other local
             227      entity that does not comply with the accounting report requirements of Section 51-2a-201 .
             228          (2) (a) If no allocated state funds are available for withholding, the local entity shall
             229      reimburse the state auditor for any cost incurred in completing the accounting reports required
             230      under Section 51-2a-402 .
             231          (b) The state auditor shall release the withheld funds when the accounting report
             232      requirements are met either voluntarily or by action under Section 51-2a-402 .
             233          Section 12. Section 51-2a-402 is enacted to read:
             234          51-2a-402. Accounting reports of entity not complying with the report
             235      requirements.
             236          (1) The state auditor shall make, or shall cause an accounting report to be made, of any
             237      entity that does not comply with the accounting report requirements as provided in Title 51,
             238      Chapter 2a, Part 2, Accounting Reports.
             239          (2) The state auditor shall contract with a licensed certified public accountant to
             240      complete the accounting report.
             241          Section 13. Section 51-2a-403 is enacted to read:
             242          51-2a-403. General Fund reimbursed for accounting report of nonappropriated


             243      activities -- Amount of reimbursement.
             244          (1) The General Fund shall be reimbursed by the entity for which an audit, review, or
             245      compilation are in whole or in part performed, whenever the state auditor or legislative auditor
             246      general is required by law or constitutional provision to perform that audit, review, or
             247      compilation or cause that audit, review, or compilation to be made for any office, department,
             248      division, board, agency, commission, council, authority, institution, hospital, school, college,
             249      university, or other instrumentality of the state or any of its political subdivisions for
             250      nonappropriated activities including associated students' accounts, auxiliary enterprise funds,
             251      nonprofit corporations, contracts with the federal government, federal grants-in-aid, and federal
             252      assistance programs.
             253          (2) (a) The reimbursement amount shall be a pro rata share of that auditor's total cost,
             254      based upon a time-spent factor.
             255          (b) An audit includes an audit of state-appropriated funds.
             256          (i) If state-appropriated funds are not involved in the accounting report, the
             257      reimbursement may not be less than the average hourly cost of the operations of that auditor's
             258      office nor more than the average rate attainable from certified public accounting firms
             259      performing similar services for this state.
             260          (ii) Reimbursement charges may be negotiated with that auditor's office within these
             261      limitations.
             262          Section 14. Section 53A-3-403 is amended to read:
             263           53A-3-403. School district fiscal year -- Statistical reports.
             264          (1) A school district's fiscal year begins on July 1 and ends on June 30.
             265          (2) (a) The district shall forward statistical reports for the preceding school year,
             266      containing items required by law or by the State Board of Education, to the state superintendent
             267      not later than November 1 of each year.
             268          (b) The reports shall include information to enable the state superintendent to complete
             269      the statement required under Subsection 53A-1-301 (3)(d)(v).
             270          (3) The district shall forward the [opinion on the statistical report of the auditors
             271      employed] accounting report required under Section [ 51-2-1 ] 51-2a-201 to the state
             272      superintendent not later than October 15 of each year.
             273          (4) The district shall include the following information in its report:


             274          (a) a summary of the number of students in the district given fee waivers, the number
             275      of students who worked in lieu of a waiver, and the total dollar value of student fees waived by
             276      the district;
             277          (b) a copy of the district's fee and fee waiver policy;
             278          (c) a copy of the district's fee schedule for students; and
             279          (d) notices of fee waivers provided to a parent or guardian of a student.
             280          Section 15. Section 53A-3-404 is amended to read:
             281           53A-3-404. Annual financial report -- Audit report.
             282          (1) The annual financial report of each school district, containing items required by law
             283      or by the State Board of Education and attested to by independent auditors, shall be prepared as
             284      required by Section [ 51-2-1 ] 51-2a-201 .
             285          (2) [The] If auditors are employed under Section [ 51-2-1 ] 51-2a-201 , the auditors shall
             286      complete their field work in sufficient time to allow them to verify necessary audit adjustments
             287      included in the annual financial report to the state superintendent.
             288          (3) (a) (i) The district shall forward the annual financial report to the state
             289      superintendent not later than October 1.
             290          (ii) The report shall include information to enable the state superintendent to complete
             291      the statement required under Subsection 53A-1-301 (3)(d)(v).
             292          (b) The State Board of Education shall publish electronically a copy of the report on
             293      the Internet not later than December 15.
             294          (4) The completed audit report shall be delivered to the school district board of
             295      education and the state superintendent of public instruction not later than November 30 of each
             296      year.
             297          Section 16. Repealer.
             298          This bill repeals:
             299          Section 51-2-1, Audits of political subdivisions, interlocal organizations, and other
             300      local entities required.
             301          Section 51-2-2, When audits must be made.
             302          Section 51-2-3, Audit reports -- Contents -- Preservation.
             303          Section 51-2-3.5, State auditor responsibilities.
             304          Section 51-2-4, File of bids received and proof of advertisement -- Time for


             305      keeping.
             306          Section 51-2-5, Withholding allocated state funds from entity that does not comply
             307      with audit requirements.
             308          Section 51-2-6, Audit of entity not complying with audit requirements.
             309          Section 51-2-7, General fund reimbursed for audits of nonappropriated activities
             310      -- Amount of reimbursement.
             311          Section 51-2-8, Entities exempt from audit requirements -- Report required.


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