SB3794 97TH GENERAL ASSEMBLY

LRB097 20441 HLH 65939 b

97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
SB3794

Introduced 2/10/2012, by Sen. Linda Holmes - Thomas Johnson

SYNOPSIS AS INTRODUCED:

New Act

Creates the External Auditing and Standards Board Act. Provides that the Board shall consist of 8 members, and sets forth the membership of the Board. Provides that the Board shall assist the Legislative Audit Commission, the Office of the Auditor General, and the Governor in improving the timeliness, transparency, and process of financial reporting by State agencies. Provides that the Board has certain powers, including the power to suspend or dismiss an internal auditor of any State agency who is deemed unqualified by the Board based on current best practices and qualifications. Requires the Board to develop a certification program for all internal and external auditors. Requires the Board to submit certain reports to the Governor, the General Assembly, and the State agency.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning State government.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the External Auditing and Standards Board Act.

Section 5. Findings. The General Assembly finds that:

(a) Over the last 9 years, the Auditor General's audits of the State's financial statements have repeatedly concluded that the State of Illinois does not have adequate controls to ensure that information reported by individual State agencies is fairly stated and compliant with generally accepted accounting principles (GAAP).

(b) In February of 2011, the Auditor General's Management Audit of the State's Financial Reporting System found that the State's financial reporting system is comprised of over 250 disparate financial reporting systems that are antiquated, costly to operate, and, for over 80% of those systems, not compliant with GAAP. The Management Audit also found that only slightly more than half of the financial systems were interrelated, requiring manual intervention to convert data from one system so that it can be used in another system. These systems have resulted, and will continue to result, in untimely financial reporting of the true financial position of the State. Additionally, the Management Audit highlights how the deficiencies in these systems continues to limit the effective oversight of State finances, adversely affecting the State's bond rating, and jeopardizing federal funding.

(c) The Management Audit also contained a section on the standard challenges faced by other states that attempted to transition from a collection of decentralized systems to a centralized financial reporting system. The challenges listed include a lack of experience defining the functional requirements of financial systems, lack of communication, poor or no quality assurance processes, and inadequate training and education.

(d) In order to properly facilitate any standardized system initiation and address the immediate need to produce GAAP-compliant financial reports in a timely manner requires clarifying governance structure and utilizing best practices in project management.

(e) Implementing a modern, agile process for the uniform collection and assembly of financial information so that the State can produce timely GAAP-compliant financial reports through a centralized system, is desirable and necessary for the State but will require changes to the structure and internal management of State government.

Section 10. Definitions. As used in this Act:

"Auditor General" means the Auditor General of the State of Illinois.

"Board" means the External Auditing and Standards Board created under Section 10 of this Act.

"Comptroller" means the Comptroller of the State of Illinois.

"External auditor" means an auditor employed by the Board.

"Internal auditor" means an auditor employed by a State agency under the Fiscal Control and Internal Auditing Act.

"Licensed Certified Public Accountant" has the meaning provided in Section 0.03 of the Illinois Public Accounting Act.

"Registered Certified Public Accountant" has the meaning provided in Section 0.03 of the Illinois Public Accounting Act.

"Schedule of Expenditures of Federal Awards" and "SEFA" mean the supplemental information required by the federal Office of Management and Budget, Circular A-133.

"State agency" means all departments, officers, commissions, boards, institutions, and bodies politic and corporate of the State that are required to submit financial reporting information to the Office of the Auditor General, the Office of the Comptroller, or the federal government. The term does not include: the judicial branch, including, without limitation, the several courts of the State, the offices of the clerk of the Supreme Court and the clerks of the Appellate Court, and the Administrative Office of the Illinois Courts; the legislature or its agencies, committees, or commissions; or any unit of local government.

Section 15. External Auditing and Standards Board; creation.

(a) There is created the External Auditing and Standards Board. The Board shall assist the Legislative Audit Commission, the Office of the Auditor General, and the Governor in improving the timeliness, transparency, and process of financial reporting.

(b) The Board shall be composed of the following 8 members:

(1) the Auditor General, or his or her designee;

(2) the Comptroller, or his or her designee;

(3) one member of the general public representing State employees unions, appointed by the Governor; and

(4) five members of the general public, each licensed or registered as a certified public accountant, one appointed by each of the following: the Governor, the President of the Senate, the Minority Leader of the Senate, the Speaker of the House of Representatives, and the Minority Leader of the House of Representatives.

(c) The public members of the Board shall serve for a term of 2 years and may be reappointed; the Auditor General and Comptroller shall serve during their respective terms of office. A vacancy on the Board shall be filled for the remainder of the unexpired term, in the same manner and by the same officer who made the original appointment.

(d) The members of the Board shall elect from their number a chairperson and such other officers as they may choose. The Board shall meet at least 2 times each year and at other times at the call of the chairperson.

(e) The members of the Board shall serve without compensation, but may be reimbursed for actual expenses from funds appropriated for that purpose.

Section 20. Powers. The External Auditing and Standards Board shall have the following powers:

(1) to have a corporate seal, and to alter that seal at pleasure, and to use it by causing it or a facsimile to be affixed or impressed or reproduced in any other manner;

(2) to use the services of the Office of the Comptroller necessary to carry out the Board's purposes;

(3) to receive and expend funds appropriated to it by the General Assembly;

(4) to employ personnel that are necessary to fulfill the Board's purposes and to make expenditures for that purpose within the appropriations for that purpose; the Board shall employ and train external auditors, who shall be assigned to specific State agencies to ensure that those agencies comply with generally accepted accounting principles (GAAP) for governments as promulgated and established by the Governmental Accounting Standards Board (GASB);

(5) to maintain an office or offices at such place or places in the State as it may determine;

(6) to request information, and to make any inquiry, investigation, survey, or study that the Board may deem necessary to enable it effectively to carry out the provisions of this Act;

(7) to engage in any activity or operation that is incidental to and in furtherance of efficient operation to accomplish the Board's purposes;

(8) to adopt, revise, amend, and repeal rules with respect to its operations, properties, and facilities as may be necessary or convenient to carry out the purposes of this Act, subject to the provisions of the Illinois Administrative Procedure Act;

(9) to freeze spending of federal moneys for programs with a delayed Schedule of Expenditures of Federal Awards (SEFA);

(10) to suspend or dismiss an internal auditor of any State agency who is deemed unqualified by the Board based on current best practices and qualifications;

(11) to require remedial training or continuing education for its employees or for employees of a State agency;

(12) to consult with other states and private businesses that have successfully modernized and streamlined their financial reporting systems; and

(13) to use current State resources that are already available inside of State government, and to use current financial reporting principles and practices, including, but not limited to, principles and practices of the Auditor General and the Comptroller.

Section 25. Reports.

(a) As soon as possible after each initial member of the Board is appointed, the Board shall review the internal auditing practices of each State agency. Upon completion of its review, the Board shall generate a report for each State agency, which shall contain the following information:

(1) the identity, tenure, and qualifications of all agency personnel whose job description directly or indirectly includes the audit of public funds of the State;

(2) whether the agency is or has been delinquent in the submission of any comprehensive annual financial report and the number of days during which the report was delinquent;

(3) whether the agency is or has been delinquent in the submission of any Schedule of Expenditures of Federal Awards (SEFA); and

(4) any errors in any financial report published by the agency.

(b) In addition, the Board shall publish an annual report on the status of each agency's financial reporting. The report shall, at a minimum, confer a letter grade in each of the following categories:

(1) timeliness of financial reports;

(2) transparency in operations; and

(3) technology and interagency communication.

(c) The Board shall submit the reports created under subsections (a) and (b) to the Governor, the General Assembly, and the applicable State agency.

(d) Within 6 months after the effective date of this Act, the Board shall submit a best practices report to the Governor and each State agency. The report shall contain, but not be limited to, the following information:

(1) recommendations of statewide software and hardware to be implemented for financial reporting, with the goal of adopting one centralized statewide system for all State agencies for external and internal auditors;

(2) certification and continuing education requirements;

(3) personnel requirements;

(4) transparency and accountability;

(5) cost;

(6) ease of training;

(7) adaptability to current systems.

Section 30. Training and certification.

(a) The Board shall compile, create, and institute a required standard curriculum for the certification of all internal and external auditors. The curriculum shall be based on the following: (i) generally accepted accounting principles (GAAP); (ii) minimum required accounting skills; (iii) the use of approved computer software and reporting functions; and (iv) any other component the Board deems necessary. The curriculum shall include classroom instruction and a certification examination administered by the Board. All internal and external auditors are required to successfully complete the certification and examination within one year after the Board adopts the curriculum or within 6 months after being hired, whichever occurs later.

(b) In addition, the Board shall require each auditor to complete a continuing education program developed by the Board and administered not less frequently than every 2 years.

(c) The Board shall develop a process for waiver applications for those auditors whose prior training and experience as auditors may qualify them for a waiver. The Board may issue a waiver at its discretion, based solely on the prior training and experience of an auditor.

Section 35. Rights under Personnel Code and collective bargaining agreements. The rights of State employees, the State, and its agencies under the Personnel Code and applicable collective bargaining agreements and retirement plans are not affected by this Act. Any rights of State employees affected by this Act shall be governed by the existing collective bargaining agreements.

Section 40. Cooperation. All State agencies must render full cooperation to the Board and its employees.