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S.B. 203 Enrolled

             1     

AUDIT PROCESS AMENDMENTS

             2     
2012 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Stuart C. Reid

             5     
House Sponsor: Brad J. Galvez

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies the responsibilities of the legislative auditor general and the state
             10      auditor in reporting compliance with audit recommendations.
             11      Highlighted Provisions:
             12          This bill:
             13          .    requires the Legislative Management Committee to refer audit reports to an
             14      appropriate legislative committee when an entity has not implemented previous
             15      audit recommendations;
             16          .    requires the legislative auditor general, after completing a subsequent audit of a
             17      state agency, to report to the Legislative Management Committee when the agency
             18      has not implemented previous audit recommendations;
             19          .    requires the legislative auditor general to report to a meeting of a legislative
             20      committee when a state agency has not implemented audit recommendations;
             21          .    requires the state auditor to notify the Legislative Management Committee when an
             22      entity has not implemented previous audit recommendations; and
             23          .    makes technical corrections.
             24      Money Appropriated in this Bill:
             25          None
             26      Other Special Clauses:
             27          None
             28      Utah Code Sections Affected:
             29      AMENDS:


             30          36-12-8, as last amended by Laws of Utah 2001, Chapter 9
             31          36-12-15, as last amended by Laws of Utah 2008, Chapters 142 and 382
             32          67-3-1, as last amended by Laws of Utah 2011, Chapter 342
             33     
             34      Be it enacted by the Legislature of the state of Utah:
             35          Section 1. Section 36-12-8 is amended to read:
             36           36-12-8. Legislative Management Committee -- Research and General Counsel
             37      Subcommittee -- Budget Subcommittee -- Audit Subcommittee -- Duties -- Members --
             38      Meetings.
             39          (1) There is created within the Legislative Management Committee three
             40      subcommittees having equal representation from each major political party. The
             41      subcommittees, their membership, and their functions are as follows:
             42          (a) The Research and General Counsel Subcommittee, comprising six members, shall
             43      recommend to the Legislative Management Committee a person or persons to hold the
             44      positions of director of the Office of Legislative Research and General Counsel and legislative
             45      general counsel.
             46          (b) The Budget Subcommittee, comprising six members, shall recommend to the
             47      Legislative Management Committee a person to hold the position of legislative fiscal analyst.
             48          (c) The Audit Subcommittee, comprising four members, shall:
             49          (i) recommend to the Legislative Management Committee a person to hold the position
             50      of legislative auditor general; and
             51          (ii) (A) review all requests for audits;
             52          (B) prioritize those requests; [and]
             53          (C) hear all audit reports and refer those reports to other legislative committees for
             54      their further review and action as appropriate[.]; and
             55          (D) when notified by the legislative auditor general or state auditor that a subsequent
             56      audit has found that an entity has not implemented a previous audit recommendation, refer the
             57      audit report to an appropriate legislative committee and also ensure that an appropriate


             58      legislative committee conducts a review of the entity that has not implemented the previous
             59      audit recommendation.
             60          (2) The members of each subcommittee of the Legislative Management Committee
             61      shall be appointed from the membership of the Legislative Management Committee by an
             62      appointments committee comprised of the speaker and the minority leader of the House of
             63      Representatives and the president and the minority leader of the Senate.
             64          (3) Each subcommittee of the Legislative Management Committee shall meet as often
             65      as necessary to perform its duties. They may meet during and between legislative sessions.
             66          Section 2. Section 36-12-15 is amended to read:
             67           36-12-15. Office of Legislative Auditor General established -- Qualifications --
             68      Powers, functions, and duties.
             69          (1) There is created an Office of Legislative Auditor General as a permanent staff
             70      office for the Legislature.
             71          (2) The legislative auditor general shall be a licensed certified public accountant or
             72      certified internal auditor with at least five years experience in the auditing or public accounting
             73      profession, or the equivalent, prior to appointment.
             74          (3) The legislative auditor general shall appoint and develop a professional staff within
             75      budget limitations.
             76          (4) (a) The Office of the Legislative Auditor General shall exercise the constitutional
             77      authority provided in Article VI, Sec. 33, Utah Constitution.
             78          (b) Under the direction of the legislative auditor general, the office shall:
             79          (i) conduct comprehensive and special purpose audits, examinations, and reviews of
             80      any entity that receives public funds;
             81          (ii) prepare and submit a written report on each audit, examination, or review to the
             82      Legislative Management Committee, the audit subcommittee, and to all members of the
             83      Legislature within 75 days after the audit or examination is completed; and
             84          (iii) as provided in Section 36-24-101 :
             85          (A) monitor all new programs and agencies created during each Annual General


             86      Session or Special Session of the Legislature;
             87          (B) provide each new program and agency created with a list of best practices in setting
             88      up their program or agency, including:
             89          (I) policies;
             90          (II) performance measures; and
             91          (III) data collection;
             92          (C) send each new program and agency:
             93          (I) within one year after its creation, a survey instrument requesting a self evaluation
             94      that includes policies, performance measures, and data collection; and
             95          (II) within two years after its creation, a survey instrument requesting a self evaluation
             96      that includes policies, performance measures, and data collection; and
             97          (D) (I) using the new program or agency's response to the self evaluation survey
             98      instruments, recommend to the legislative audit subcommittee that the office conduct an audit
             99      of those new programs and agencies created on which questions have arisen as a result of the
             100      response to the survey instrument and provide a limited scope audit report on those new
             101      programs or agencies on which it receives direction to audit to the legislative interim
             102      committee and to the legislative appropriations subcommittee with oversight responsibility for
             103      that program or agency on or before the November interim meeting; and
             104          (II) include within this limited scope audit report a recommendation as to whether the
             105      program or agency is fulfilling its statutory guidelines and directives.
             106          (5) The audit, examination, or review of any entity that receives public funds may
             107      include a determination of any or all of the following:
             108          (a) the honesty and integrity of all its fiscal affairs;
             109          (b) the accuracy and reliability of its financial statements and reports;
             110          (c) whether or not its financial controls are adequate and effective to properly record
             111      and safeguard its acquisition, custody, use, and accounting of public funds;
             112          (d) whether or not its administrators have faithfully adhered to legislative intent;
             113          (e) whether or not its operations have been conducted in an efficient, effective, and cost


             114      efficient manner;
             115          (f) whether or not its programs have been effective in accomplishing intended
             116      objectives; and
             117          (g) whether or not its management control and information systems are adequate and
             118      effective.
             119          (6) The Office of Legislative Auditor General may:
             120          (a) (i) notwithstanding any other provision of law, obtain access to all records,
             121      documents, and reports of any entity that receives public funds that are necessary to the scope
             122      of its duties; and
             123          (ii) if necessary, issue a subpoena to obtain access as provided in Subsection (6)(a)(i)
             124      using the procedures contained in Title 36, Chapter 14, Legislative Subpoena Powers;
             125          (b) establish policies, procedures, methods, and standards of audit work for the office
             126      and staff;
             127          (c) prepare and submit each audit report without interference from any source relative
             128      to the content of the report, the conclusions reached in the report, or the manner of disclosing
             129      the results of the legislative auditor general's findings; and
             130          (d) prepare and submit the annual budget request for the office.
             131          (7) To preserve the professional integrity and independence of the office:
             132          (a) no legislator or public official may urge the appointment of any person to the office;
             133      and
             134          (b) the legislative auditor general may not be appointed to serve on any board,
             135      authority, commission, or other agency of the state during the legislative auditor general's term
             136      as legislative auditor general.
             137          (8) The following records in the custody or control of the legislative auditor general
             138      shall be protected records under Title 63G, Chapter 2, Government Records Access and
             139      Management Act:
             140          (a) Records that would disclose information relating to allegations of personal
             141      misconduct, gross mismanagement, or illegal activity of a past or present governmental


             142      employee if the information or allegation cannot be corroborated by the legislative auditor
             143      general through other documents or evidence, and the records relating to the allegation are not
             144      relied upon by the legislative auditor general in preparing a final audit report.
             145          (b) Records and audit workpapers to the extent they would disclose the identity of a
             146      person who during the course of a legislative audit, communicated the existence of any waste
             147      of public funds, property, or manpower, or a violation or suspected violation of a law, rule, or
             148      regulation adopted under the laws of this state, a political subdivision of the state, or any
             149      recognized entity of the United States, if the information was disclosed on the condition that
             150      the identity of the person be protected.
             151          (c) Prior to the time that an audit is completed and the final audit report is released,
             152      records or drafts circulated to a person who is not an employee or head of a governmental
             153      entity for their response or information.
             154          (d) Records that would disclose an outline or part of any audit survey plans or audit
             155      program.
             156          (e) Requests for audits, if disclosure would risk circumvention of an audit.
             157          (f) The provisions of Subsections (8)(a), (b), and (c) do not prohibit the disclosure of
             158      records or information that relate to a violation of the law by a governmental entity or
             159      employee to a government prosecutor or peace officer.
             160          (g) The provisions of this section do not limit the authority otherwise given to the
             161      legislative auditor general to classify a document as public, private, controlled, or protected
             162      under Title 63G, Chapter 2, Government Records Access and Management Act.
             163          (9) The legislative auditor general shall:
             164          (a) be available to the Legislature and to its committees for consultation on matters
             165      relevant to areas of the legislative auditor general's professional competence;
             166          (b) conduct special audits as requested by the Legislative Management Committee;
             167          (c) report immediately in writing to the Legislative Management Committee through its
             168      audit subcommittee any apparent violation of penal statutes disclosed by the audit of a state
             169      agency and furnish to the Legislative Management Committee all information relative to the


             170      apparent violation;
             171          (d) report immediately in writing to the Legislative Management Committee through
             172      its audit subcommittee any apparent instances of malfeasance or nonfeasance by a state officer
             173      or employee disclosed by the audit of a state agency; and
             174          (e) make any recommendations to the Legislative Management Committee through its
             175      audit subcommittee with respect to the alteration or improvement of the accounting system
             176      used by any entity that receives public funds.
             177          (10) If the legislative auditor general conducts an audit of a state agency that has
             178      previously been audited and finds that the state agency has not implemented a recommendation
             179      made by the legislative auditor general in a previous audit, the legislative auditor general shall,
             180      upon release of the audit:
             181          (a) report immediately in writing to the Legislative Management Committee through its
             182      audit subcommittee that the state agency has not implemented that recommendation; and
             183          (b) shall report, as soon as possible, that the state agency has not implemented that
             184      recommendation to a meeting of an appropriate legislative committee designated by the audit
             185      subcommittee of the Legislative Management Committee.
             186          [(10)] (11) (a) Prior to each annual general session, the legislative auditor general shall
             187      prepare a summary of the audits conducted and of actions taken based upon them during the
             188      preceding year.
             189          (b) This report shall also set forth any items and recommendations that are important
             190      for consideration in the forthcoming session, together with a brief statement or rationale for
             191      each item or recommendation.
             192          (c) The legislative auditor general shall deliver the report to the Legislature and to the
             193      appropriate committees of the Legislature.
             194          [(11)] (12) (a) No person or entity may:
             195          (i) interfere with a legislative audit, examination, or review of any entity conducted by
             196      the office; or
             197          (ii) interfere with the office relative to the content of the report, the conclusions


             198      reached in the report, or the manner of disclosing the results and findings of the office.
             199          (b) Any person or entity that violates the provisions of this Subsection [(11)] (12) is
             200      guilty of a class B misdemeanor.
             201          Section 3. Section 67-3-1 is amended to read:
             202           67-3-1. Functions and duties.
             203          (1) (a) The state auditor is the auditor of public accounts and is independent of any
             204      executive or administrative officers of the state.
             205          (b) The state auditor is not limited in the selection of personnel or in the determination
             206      of the reasonable and necessary expenses of the state auditor's office.
             207          (2) The state auditor shall examine and certify annually in respect to each fiscal year,
             208      financial statements showing:
             209          (a) the condition of the state's finances;
             210          (b) the revenues received or accrued;
             211          (c) expenditures paid or accrued;
             212          (d) the amount of unexpended or unencumbered balances of the appropriations to the
             213      agencies, departments, divisions, commissions, and institutions; and
             214          (e) the cash balances of the funds in the custody of the state treasurer.
             215          (3) (a) The state auditor shall:
             216          (i) audit each permanent fund, each special fund, the General Fund, and the accounts of
             217      any department of state government or any independent agency or public corporation as the law
             218      requires, as the auditor determines is necessary, or upon request of the governor or the
             219      Legislature;
             220          (ii) perform the audits in accordance with generally accepted auditing standards and
             221      other auditing procedures as promulgated by recognized authoritative bodies;
             222          (iii) as the auditor determines is necessary, conduct the audits to determine:
             223          (A) honesty and integrity in fiscal affairs;
             224          (B) accuracy and reliability of financial statements;
             225          (C) effectiveness and adequacy of financial controls; and


             226          (D) compliance with the law.
             227          (b) If any state entity receives federal funding, the state auditor shall ensure that the
             228      audit is performed in accordance with federal audit requirements.
             229          (c) (i) The costs of the federal compliance portion of the audit may be paid from an
             230      appropriation to the state auditor from the General Fund.
             231          (ii) If an appropriation is not provided, or if the federal government does not
             232      specifically provide for payment of audit costs, the costs of the federal compliance portions of
             233      the audit shall be allocated on the basis of the percentage that each state entity's federal funding
             234      bears to the total federal funds received by the state.
             235          (iii) The allocation shall be adjusted to reflect any reduced audit time required to audit
             236      funds passed through the state to local governments and to reflect any reduction in audit time
             237      obtained through the use of internal auditors working under the direction of the state auditor.
             238          (4) (a) Except as provided in Subsection (4)(b), the state auditor shall, in addition to
             239      financial audits, and as the auditor determines is necessary, conduct performance and special
             240      purpose audits, examinations, and reviews of any entity that receives public funds, including a
             241      determination of any or all of the following:
             242          (i) the honesty and integrity of all its fiscal affairs;
             243          (ii) whether or not its administrators have faithfully complied with legislative intent;
             244          (iii) whether or not its operations have been conducted in an efficient, effective, and
             245      cost-efficient manner;
             246          (iv) whether or not its programs have been effective in accomplishing the intended
             247      objectives; and
             248          (v) whether or not its management, control, and information systems are adequate and
             249      effective.
             250          (b) The auditor may not conduct performance and special purpose audits,
             251      examinations, and reviews of any entity that receives public funds if the entity:
             252          (i) has an elected auditor; and
             253          (ii) has, within the entity's last budget year, had its financial statements or performance


             254      formally reviewed by another outside auditor.
             255          (5) The state auditor shall administer any oath or affirmation necessary to the
             256      performance of the duties of the auditor's office, and may subpoena witnesses and documents,
             257      whether electronic or otherwise, and examine into any matter that the auditor considers
             258      necessary.
             259          (6) The state auditor may require all persons who have had the disposition or
             260      management of any property of this state or its political subdivisions to submit statements
             261      regarding it at the time and in the form that the auditor requires.
             262          (7) The state auditor shall:
             263          (a) except where otherwise provided by law, institute suits in Salt Lake County in
             264      relation to the assessment, collection, and payment of its revenues against:
             265          (i) persons who by any means have become entrusted with public money or property
             266      and have failed to pay over or deliver the money or property; and
             267          (ii) all debtors of the state;
             268          (b) collect and pay into the state treasury all fees received by the state auditor;
             269          (c) perform the duties of a member of all boards of which the state auditor is a member
             270      by the constitution or laws of the state, and any other duties that are prescribed by the
             271      constitution and by law;
             272          (d) stop the payment of the salary of any state official or state employee who:
             273          (i) refuses to settle accounts or provide required statements about the custody and
             274      disposition of public funds or other state property;
             275          (ii) refuses, neglects, or ignores the instruction of the state auditor or any controlling
             276      board or department head with respect to the manner of keeping prescribed accounts or funds;
             277      or
             278          (iii) fails to correct any delinquencies, improper procedures, and errors brought to the
             279      official's or employee's attention;
             280          (e) establish accounting systems, methods, and forms for public accounts in all taxing
             281      or fee-assessing units of the state in the interest of uniformity, efficiency, and economy;


             282          (f) superintend the contractual auditing of all state accounts;
             283          (g) subject to Subsection (8), withhold state allocated funds or the disbursement of
             284      property taxes from any state taxing or fee-assessing unit, if necessary, to ensure that officials
             285      and employees in those taxing units of the state comply with state laws and procedures in the
             286      budgeting, expenditures, and financial reporting of public funds; and
             287          (h) subject to Subsection (9), withhold the disbursement of tax money from any county,
             288      if necessary, to ensure that officials and employees in the county comply with Section
             289      59-2-303.1 .
             290          (8) Except as otherwise provided by law, the state auditor may not withhold funds
             291      under Subsection (7)(g) until a taxing or fee-assessing unit has received formal written notice
             292      of noncompliance from the auditor and has been given 60 days to make the specified
             293      corrections.
             294          (9) The state auditor may not withhold funds under Subsection (7)(h) until a county has
             295      received formal written notice of noncompliance from the auditor and has been given 60 days
             296      to make the specified corrections.
             297          (10) The state auditor shall:
             298          (a) establish audit guidelines and procedures for audits of local mental health and
             299      substance abuse authorities and their contract providers, conducted pursuant to Title 17,
             300      Chapter 43, Parts 2, Local Substance Abuse Authorities and 3, Local Mental Health
             301      Authorities, Title 51, Chapter 2a, Accounting Reports from Political Subdivisions, Interlocal
             302      Organizations, and Other Local Entities Act, and Title 62A, Chapter 15, Substance Abuse and
             303      Mental Health Act; and
             304          (b) ensure that those guidelines and procedures provide assurances to the state that:
             305          (i) state and federal funds appropriated to local mental health authorities are used for
             306      mental health purposes;
             307          (ii) a private provider under an annual or otherwise ongoing contract to provide
             308      comprehensive mental health programs or services for a local mental health authority is in
             309      compliance with state and local contract requirements, and state and federal law;


             310          (iii) state and federal funds appropriated to local substance abuse authorities are used
             311      for substance abuse programs and services; and
             312          (iv) a private provider under an annual or otherwise ongoing contract to provide
             313      comprehensive substance abuse programs or services for a local substance abuse authority is in
             314      compliance with state and local contract requirements, and state and federal law.
             315          (11) The state auditor may, in accordance with the auditor's responsibilities for political
             316      subdivisions of the state as provided in Title 51, Chapter 2a, Accounting Reports from Political
             317      Subdivisions, Interlocal Organizations, and Other Local Entities Act, initiate audits or
             318      investigations of any political subdivision that are necessary to determine honesty and integrity
             319      in fiscal affairs, accuracy and reliability of financial statements, effectiveness, and adequacy of
             320      financial controls and compliance with the law.
             321          (12) (a) The state auditor may not audit work that the state auditor performed before
             322      becoming state auditor.
             323          (b) If the state auditor has previously been a responsible official in state government
             324      whose work has not yet been audited, the Legislature shall:
             325          (i) designate how that work shall be audited; and
             326          (ii) provide additional funding for those audits, if necessary.
             327          (13) The state auditor shall:
             328          (a) with the assistance, advice, and recommendations of an advisory committee
             329      appointed by the state auditor from among local district boards of trustees, officers, and
             330      employees and special service district boards, officers, and employees:
             331          (i) prepare a Uniform Accounting Manual for Local Districts that:
             332          (A) prescribes a uniform system of accounting and uniform budgeting and reporting
             333      procedures for local districts under Title 17B, Limited Purpose Local Government Entities -
             334      Local Districts, and special service districts under Title 17D, Chapter 1, Special Service
             335      District Act;
             336          (B) conforms with generally accepted accounting principles; and
             337          (C) prescribes reasonable exceptions and modifications for smaller districts to the


             338      uniform system of accounting, budgeting, and reporting;
             339          (ii) maintain the manual under Subsection (13)(a) so that it continues to reflect
             340      generally accepted accounting principles;
             341          (iii) conduct a continuing review and modification of procedures in order to improve
             342      them;
             343          (iv) prepare and supply each district with suitable budget and reporting forms; and
             344          (v) prepare instructional materials, conduct training programs, and render other
             345      services considered necessary to assist local districts and special service districts in
             346      implementing the uniform accounting, budgeting, and reporting procedures; and
             347          (b) continually analyze and evaluate the accounting, budgeting, and reporting practices
             348      and experiences of specific local districts and special service districts selected by the state
             349      auditor and make the information available to all districts.
             350          (14) (a) The following records in the custody or control of the state auditor are
             351      protected records under Title 63G, Chapter 2, Government Records Access and Management
             352      Act:
             353          (i) records that would disclose information relating to allegations of personal
             354      misconduct, gross mismanagement, or illegal activity of a past or present governmental
             355      employee if the information or allegation cannot be corroborated by the state auditor through
             356      other documents or evidence, and the records relating to the allegation are not relied upon by
             357      the state auditor in preparing a final audit report;
             358          (ii) records and audit workpapers to the extent they would disclose the identity of a
             359      person who during the course of an audit, communicated the existence of any waste of public
             360      funds, property, or manpower, or a violation or suspected violation of a law, rule, or regulation
             361      adopted under the laws of this state, a political subdivision of the state, or any recognized entity
             362      of the United States, if the information was disclosed on the condition that the identity of the
             363      person be protected;
             364          (iii) before an audit is completed and the final audit report is released, records or drafts
             365      circulated to a person who is not an employee or head of a governmental entity for their


             366      response or information;
             367          (iv) records that would disclose an outline or part of any audit survey plans or audit
             368      program; and
             369          (v) requests for audits, if disclosure would risk circumvention of an audit.
             370          (b) The provisions of Subsections (14)(a)(i), (ii), and (iii) do not prohibit the disclosure
             371      of records or information that relate to a violation of the law by a governmental entity or
             372      employee to a government prosecutor or peace officer.
             373          (c) The provisions of this Subsection (14) do not limit the authority otherwise given to
             374      the state auditor to classify a document as public, private, controlled, or protected under Title
             375      63G, Chapter 2, Government Records Access and Management Act.
             376          (15) If the state auditor conducts an audit of an entity that the state auditor has
             377      previously audited and finds that the entity has not implemented a recommendation made by
             378      the state auditor in a previous audit, the state auditor shall notify the Legislative Management
             379      Committee through its audit subcommittee that the entity has not implemented that
             380      recommendation.


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