Bill Text: CA SB1226 | 2015-2016 | Regular Session | Amended

California Senate Bill 1226 (Prior Session Legislation)

NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Regional centers: audits and reviews.

Spectrum: Slight Partisan Bill (Republican 5-2)

Status: (Passed) 2016-09-21 - Chaptered by Secretary of State. Chapter 429, Statutes of 2016. [SB1226 Detail]

Download: California-2015-SB1226-Amended.html
BILL NUMBER: SB 1226	AMENDED
	BILL TEXT

	AMENDED IN SENATE  MARCH 28, 2016

INTRODUCED BY   Senators Beall and Huff
   (Coauthors: Senators  Anderson,  Bates, 
Hall,  Nguyen, Stone, and Vidak)
   (Coauthor: Assembly Member Salas)

                        FEBRUARY 18, 2016

   An act to amend Section 4652.5 of the Welfare and Institutions
Code, relating to developmental services.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 1226, as amended, Beall. Regional centers: audits and reviews.

   Under existing law, the Lanterman Developmental Disabilities
Services Act, the State Department of Developmental Services is
authorized to contract with regional centers to provide services and
supports to individuals with developmental disabilities. Existing law
requires an entity that receives payments from one or more regional
centers to obtain an independent audit or independent review report
of its financial statements, as specified, and requires regional
centers to notify the department of all qualified opinion reports or
reports noting significant issues that directly or indirectly impact
regional center services within 30 days after receipt.  
   This bill would also require a regional center to submit copies of
all independent audit reports that it receives to the department for
review. The bill would require the department to analyze the
reports, as specified, and biannually report its findings to the
Legislature.  
   Under existing law, the Lanterman Developmental Disabilities
Services Act, the State Department of Developmental Services is
authorized to contract with regional centers to provide services and
supports to individuals with developmental disabilities. Existing law
requires an entity that receives payments between $250,000 and
$500,000 per year from one or more regional centers to obtain either
an independent audit or an independent review report of its financial
statements, and requires an entity that receives payments that are
equal to or more than $500,000 per year to obtain an independent
audit. Existing law exempts payments made using usual and customary
rates for services provided by regional centers from these
requirements.  
   This bill would instead require an entity to obtain only an
independent review report of its financial statements relating to
payments made by regional centers if it receives payments between
$250,000 and $2,000,000 from one or more regional centers, and would
authorize these entities to apply for, and require the regional
center to grant, a 2-year exemption from this requirement if the
regional center does not find issues in the independent review report
that have an impact on regional center services. The bill would also
require an entity to obtain an independent audit if it receives
payments that are equal to or more than $2,000,000 and would
authorize these entities to apply for, and require the regional
center to grant, a 2-year exemption from the audit requirement if the
audit resulted in an unmodified opinion, an unmodified opinion with
additional communication, or a qualified opinion with issues that are
not material and pervasive. The bill would require a regional center
to notify the department of any exemption it grants to an entity
that receives a qualified opinion report. The bill would also exempt
social security benefit payments from these requirements. 
   Vote: majority. Appropriation: no. Fiscal committee:  no
  yes  . State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

   SECTION 1.    Section 4652.5 of the  
Welfare and Institutions Code   is amended to read: 
   4652.5.  (a) (1) An entity that receives payments from one or more
regional centers shall contract with an independent accounting firm
to obtain an independent audit or independent review report of its
financial statements relating to payments made by regional centers,
subject to both of the following:
   (A) If the amount received from the regional center or regional
centers during the entity's fiscal year is more than or equal to five
hundred thousand dollars ($500,000), but less than two million
dollars ($2,000,000), the entity shall obtain an independent review
report of its financial statements for the period. Consistent with
Subchapter 21 (commencing with Section 58800) of Chapter 3 of
Division 2 of Title 17 of the California Code of Regulations, this
subdivision shall also apply to work activity program providers
receiving less than five hundred thousand dollars ($500,000).
   (B) If the amount received from the regional center or regional
centers during the entity's fiscal year is equal to or more than two
million dollars ($2,000,000), the entity shall obtain an independent
audit of its financial statements for the period.
   (2) This requirement does not apply to payments made using usual
and customary rates, as defined by Title 17 of the California Code of
Regulations, for services provided by regional centers.
   (3) This requirement does not apply to state and local
governmental agencies, the University of California, or the
California State University.
   (b) An entity subject to subdivision (a) shall provide copies of
the independent audit or independent review report required by
subdivision (a), and accompanying management letters, to the
vendoring regional center within nine months of the end of the fiscal
year for the entity.
   (c) Regional centers that receive the audit or review reports
required by subdivision (b) shall review and require resolution by
the entity for issues identified in the report that have an impact on
regional center services. Regional centers shall take appropriate
action, up to termination of vendorization, for lack of adequate
resolution of issues.
   (d)  (1)    Regional centers shall notify the
department of all qualified opinion reports or reports noting
significant issues that directly or indirectly impact regional center
services within 30 days after receipt. Notification shall include a
plan for resolution of issues. 
   (2) A regional center shall submit copies of all independent audit
reports that it receives to the department for review. The
department shall analyze the reports to determine if they are
effective in preventing fraud and improving accounting practices
among entities that receive payments from one or more regional
centers. The department shall biannually report its findings to the
Legislature. These reports shall be submitted pursuant to Section
9795 of the Government Code. 
   (e) For purposes of this section, an independent review of
financial statements shall be performed by an independent accounting
firm and shall cover, at a minimum, all of the following:
   (1) An inquiry as to the entity's accounting principles and
practices and methods used in applying them.
   (2) An inquiry as to the entity's procedures for recording,
classifying, and summarizing transactions and accumulating
information.
   (3) Analytical procedures designed to identify relationships or
items that appear to be unusual.
   (4) An inquiry about budgetary actions taken at meetings of the
board of directors or other comparable meetings.
   (5) An inquiry about whether the financial statements have been
properly prepared in conformity with generally accepted accounting
principles and whether any events subsequent to the date of the
financial statements would have a material effect on the statements
under review.
   (6) Working papers prepared in connection with a review of
financial statements describing the items covered as well as any
unusual items, including their disposition.
   (f) For purposes of this section, an independent review report
shall cover, at a minimum, all of the following:
   (1) Certification that the review was performed in accordance with
standards established by the American Institute of Certified Public
Accountants.
   (2) Certification that the statements are the representations of
management.
   (3) Certification that the review consisted of inquiries and
analytical procedures that are lesser in scope than those of an
audit.
   (4) Certification that the accountant is not aware of any material
modifications that need to be made to the statements for them to be
in conformity with generally accepted accounting principles.
   (g) The department shall not consider a request for adjustments to
rates submitted in accordance with Title 17 of the California Code
of Regulations by an entity receiving payments from one or more
regional centers solely to fund either anticipated or unanticipated
changes required to comply with this section.
   (h) (1) An entity required to obtain an independent review report
of its financial statement pursuant to subparagraph (A) of paragraph
(1) of subdivision (a) may apply to the regional center for, and the
regional center shall grant, a two-year exemption from the
independent review report requirement if the regional center does not
find issues in the prior year's independent review report that have
an impact on regional center services.
   (2) An entity required to obtain an independent audit of its
financial statements pursuant to subparagraph (B) of paragraph (1) of
subdivision (a) may apply to the regional center for an exemption
from the independent audit requirement, subject to both of the
following conditions:
   (A) If the independent audit for the prior year resulted in an
unmodified opinion or an unmodified opinion with additional
communication, the regional center shall grant the entity a two-year
exemption.
   (B) If the independent audit for the prior year resulted in a
qualified opinion and the issues are not material, the regional
center shall grant the entity a two-year exemption. The entity and
the regional center shall continue to address issues raised in this
independent audit, regardless of whether the exemption is granted.
   (3) A regional center shall annually report to the department any
exemptions granted pursuant to this subdivision. 
  SECTION 1.    Section 4652.5 of the Welfare and
Institutions Code is amended to read:
   4652.5.  (a) (1) An entity that receives payments from one or more
regional centers shall contract with an independent accounting firm
to obtain an independent audit or independent review report of its
financial statements relating to payments made by regional centers
subject to all of the following:
   (A) If the amount received from the regional center or regional
centers during the entity's fiscal year is more than or equal to two
hundred fifty thousand dollars ($250,000) but less than two million
dollars ($2,000,000), the entity shall obtain an independent review
report of its financial statements for the period. Consistent with
Subchapter 21 (commencing with Section 58800) of Title 17 of the
California Code of Regulations, this subdivision shall also apply to
work activity program providers receiving less than two hundred fifty
thousand dollars ($250,000).
   (B) If the amount received from the regional center or regional
centers during the entity's fiscal year is equal to or more than two
million dollars ($2,000,000), the entity shall obtain an independent
audit of its financial statements for the period.
   (2) This requirement does not apply to payments made using usual
and customary rates, as defined by Title 17 of the California Code of
Regulations, for services provided by regional centers or social
security benefit payments.
   (3) This requirement does not apply to state and local
governmental agencies, the University of California, or the
California State University.
   (b) An entity subject to subdivision (a) shall provide copies of
the independent audit or independent review report required by
subdivision (a), and accompanying management letters, to the
vendoring regional center within nine months of the end of the fiscal
year for the entity.
   (c) Regional centers that receive the audit or review reports
required by subdivision (b) shall review and require resolution by
the entity for issues identified in the report that have an impact on
regional center services. Regional centers shall take appropriate
action, up to termination of vendorization, for lack of adequate
resolution of issues.
   (d) Regional centers shall notify the department of all qualified
opinion reports or reports noting significant issues that directly or
indirectly impact regional center services within 30 days after
receipt. Notification shall include a plan for resolution of issues.
   (e) For purposes of this section, an independent review of
financial statements shall be performed by an independent accounting
firm and shall cover, at a minimum, all of the following:
   (1) An inquiry as to the entity's accounting principles and
practices and methods used in applying them.
   (2) An inquiry as to the entity's procedures for recording,
classifying, and summarizing transactions and accumulating
information.
   (3) Analytical procedures designed to identify relationships or
items that appear to be unusual.
   (4) An inquiry about budgetary actions taken at meetings of the
board of directors or other comparable meetings.
   (5) An inquiry about whether the financial statements have been
properly prepared in conformity with generally accepted accounting
principles and whether any events subsequent to the date of the
financial statements would have a material effect on the statements
under review.
   (6) Working papers prepared in connection with a review of
financial statements describing the items covered as well as any
unusual items, including their disposition.
   (f) For purposes of this section, an independent review report
shall cover, at a minimum, all of the following:
   (1) Certification that the review was performed in accordance with
standards established by the American Institute of Certified Public
Accountants.
   (2) Certification that the statements are the representations of
management.
   (3) Certification that the review consisted of inquiries and
analytical procedures that are lesser in scope than those of an
audit.
   (4) Certification that the accountant is not aware of any material
modifications that need to be made to the statements for them to be
in conformity with generally accepted accounting principles.
   (g) The department shall not consider a request for adjustments to
rates submitted in accordance with Title 17 of the California Code
of Regulations by an entity receiving payments from one or more
regional centers solely to fund either anticipated or unanticipated
changes required to comply with this section.
   (h) (1) An entity required to obtain an independent review report
of its financial statement pursuant to subparagraph (A) of paragraph
(1) of subdivision (a) may apply to the regional center for, and the
regional center shall grant, a two-year exemption from the
independent review report requirement if the regional center does not
find issues in the prior year's independent review report that have
an impact on regional center services.
   (2) An entity required to obtain an independent audit of its
financial statements pursuant to subparagraph (B) of paragraph (1) of
subdivision (a) may apply to the regional center for an exemption
from the independent audit requirement, subject to all of the
following conditions:
   (A) If the independent audit for the prior year resulted in an
unmodified opinion or an unmodified opinion with additional
communication, the regional center shall grant the entity a two-year
exemption.
   (B) If the independent audit for the prior year resulted in a
qualified opinion and the issues are not material and pervasive, the
regional center shall grant the entity a two-year exemption. The
entity and the regional center shall continue to address issues
raised in this independent audit, regardless of whether the exemption
is granted.
   (3) A regional center shall notify the department of any exemption
it grants to an entity that receives a qualified opinion.