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.