Requires written responses to reports of examination by the office of the state comptroller and reports of external audits

Summary of provisions

Section one of this bill would modify the current requirement for public notice of the filing of an audit report. Instead of language stating that the audited local entity or activity could, in its discretion, prepare a response, the notice would have to expressly state the requirement to respond, in writing, to the audit report.

Section two of the bill would require a written response by the governing board to audits of municipal corporations, industrial development agencies, districts, agencies. Presently, the governing boards, in their discretion, may provide such a written response, but are not required to do so. A response would be required for a report of examination prepared by the Office of the State Comptroller or an external audit report or management letter prepared by an independent public accountant. Governing boards would have to submit to the State Comptroller, and file in the office of the local clerk, a written response to the report or letter within 90 days after presentation of the report or letter to the governing board. The bill clarifies that the response must address any adverse opinion on the fair representation of financial statements.

In the case of entities subject to examination by the Commissioner of Education, the audit response would also be filed with the Commissioner. The bill deletes the requirement for a response by an IDA to be provided to the Commissioner of Education and instead, requires IDAs to file a copy of any response with the Commissioner of the Department of Economic Development.

In addition, section two of the bill continues the provisions, presently applicable to the discretionary audit response. The response must be in such form as the State Comptroller may prescribe, and must provide, with respect to each finding and recommendation, a statement of corrective actions taken or proposed to be taken. If no corrective action is taken or proposed, the response would contain an explanation of the reasons therefore. The response would also include a statement of the status of corrective actions taken with respect to unresolved findings and recommendations contained in previous reports or management letters.

Section three of this bill would address the State Comptroller's authority to enforce the audit response requirement. If the required response is not provided, the State Comptroller could give notice of the failure to provide a written response to the governing board, and the board would be required to make the notice a part of the official record of proceedings of its next meeting. In addition, the Comptroller could administer an oath to, and compel the appearance and attendance of, any officer or employee of the municipal corporation, industrial development agency, district, agency for the purpose of ascertaining the reasons for the failure to respond and the status of any corrective action or proposed corrective action.

Section four of the bill provides for an effective date of January 1 following enactment and extends application of the act to all audit reports filed after the effective date.

Justification

Audit reports and management letters are important tools in the efficient management of local governments. They are utilized most effectively, however, when local officials promptly focus on audit findings and recommendations and, as appropriate, address any deficiencies in an effective manner. Written, public responses also help foster greater accountability to the taxpayers of the local governments. In recognition of these principles, Executive Law § 170 currently requires State agencies to respond to audits by the Comptroller, and the Federal. Single Audit Act requires local governments subject to that Act to respond to federal single audits (31 USC, § 7502 D. In addition, the U.S. General Accounting Office's Government Auditing Standards stress the benefit of, and the auditee's responsibility for, effective resolution of audit findings and recommendations (U.S. General Accounting Office, Government Auditing Standards, SS 6.12, 6.13). Chapter 376 of the Laws of 1988 amended GML § 35 to expressly authorize the governing boards of municipal corporations, districts, agencies to provide written responses to audits performed of those entities. The 1988 amendment also requires public notice of an audit, including a statement that the governing board may respond to the audit. Although this amendment represented a good first step and served to encourage the practice of responding to audits, many governing boards still do not prepare audit responses on a routine basis. During 1999 and 2000, for example, the Office of the State Comptroller received written audit responses, pursuant to section 35, from only 63% of the local government entities audited. This has been a source of frustration to taxpayers. For example, in 1995, a homeowners' association on Long Island comprised of 16 civic organizations unanimously passed a resolution urging the State Legislature to pass legislation "to insure that... recommendations of the Comptroller's Office which are made after audits of such taxpayer funded organizations as local libraries, school districts, police and fire departments, etc. will not be ignored to the detriment and frustration of local communities and taxpayers." This proposal would ensure that audit recommendations are not ignored by requiring a response from the local governing board. Often, it is only upon a subsequent audit or follow-up review that it is determined whether findings and recommendations of the previous audit have been addressed. A 1996 audit (96M - 297) of a village, for instance, cites criticism in a prior report of examination of lack

of inventory control over unsold garbage bag tags which the village board of trustees failed to address. An inventory system could have detected substantial discrepancies identified in the subsequent audit. Specifically, our auditors found that village officials were unable to account for garbage bag tags which had a sales value in excess of $121,000. In addition, in 1999 an audit of a village (98M 185) disclosed that certain revenues aggregating approximately $9,700 were not accounted for. Although our previous audit report (94M - 318) had indicated certain internal control weaknesses relating to revenue and cash receipts, a corrective action plan was not prepared addressing the weaknesses and the situation leading to the unaccounted for revenues went uncorrected or undetected until noted in the subsequent audit. The preparation of audit responses entails the devotion of time and effort by local officials. However, the benefits and efficiencies accruing to the local government and its taxpayers through the response to audit findings and recommendations far outweigh any increased administrative burden.

Prior legislative history

A.11116 Rules (Sweeney) - Passed Assembly; 06/17/04 A.3112 Sweeney - Passed Assembly; 01/30/06 3/17/08 - Passed Assembly 2009-10 - A.2731 Passed Assembly 2011-12 - 8.3312 Referred to Local Government

FISCAL IMPLICATIONS FOR ST ATE AND LOCAL GOVERNMENTS:; None to the State. Any additional administrative cost to local governments should be outweighed by increased efficiencies achieved through addressing or responding to audit comments.

Effective date

This act shall take effect on the first of January next succeeding the date on which it shall have become a law and shall apply to reports of examination, reports of external audits and management letters filed, after the effective date, which the clerk or, if there is no clerk, the secretary of the municipal corporation, industrial development agency, district, agency or activity.