Types of Audits
The Bureau of State Audits (BSA) performs both mandated and discretionary audits of state and local governments at legislative direction.
Mandated audits are required by statute, such as the state’s annual financial audit (Government Code Section 8546.3), and are at times required in the annual budget bill and trailer bills. Mandated audits are the highest priority for the Bureau of State Audits. At present, approximately one-third of the BSA's time is consumed by mandated audits.
Joint Rule 37.4 (b) states that any bill requiring action by the BSA must contain an appropriation for the cost of any study or audit.
Discretionary audits are requested by members of the Legislature through the Joint Legislative Audit Committee (JLAC). Resources for discretionary audits vary, but at present approximately one half of the BSA's resources are devoted to discretionary audits. This equates to approximately thirty to thirty-five audits per year, depending on their complexity.
There are two basic types of discretionary audits -- performance and financial. Both performance and financial audits can address compliance issues, which include determining whether an entity or program is complying with applicable laws and regulations.
Performance audits are an independent, objective assessment by the BSA of the performance of a government organization, program, activity or functions in order to provide information to improve public accountability and facilitate decision-making.
Financial statement audits provide reasonable assurance that a governmental entity's financial statements accurately present its financial position in accordance with generally accepted accounting principles. Financial-related audits determine whether financial information is presented in accordance with established or stated criteria, whether the entity has adhered to specific financial compliance requirements, and whether the entity’s internal control structure for financial reporting or safeguarding assets is sufficient.
How to Formulate and Submit an Audit Request
The legislative audit request process begins with a letter. Any member of the Legislature, or committee of the Legislature, can make an audit request by submitting a letter to the Chair of the JLAC. This letter sets out the objective and potential scope of the requested audit. In writing the letter, attention should be paid to detailing the subject matter of the audit and the questions that the requestor wants answered by the audit: "To get the right answer, you must ask the right questions."
Government auditing encompasses more than checking and verifying accounts, transactions, and financial statements. It also includes an evaluation of whether an agency's performance is supported by adequate and reliable evidence and data, whether an agency's activities are in compliance with legislatively-established objectives, and whether resources are being used efficiently, effectively, and economically. When formulating questions to be addressed in an audit, it helps to read the underlying statutes to clearly establish the statutory mandate on which these questions will be based.
When formulating an audit request, it is useful to consider the following general questions:
- How successful is the program in accomplishing the intended results?
- Could the program objectives be achieved at less cost?
- Have performance standards been developed and, if so, what are they?
- Are there alternative programs or approaches and should they be examined to determine whether objectives can be achieved more effectively or more economically?
- Are there legislatively required internal or external evaluations or program studies, such as cost benefit studies, that may analyze alternative approaches, and were these studies completed?
- Does management have the capacity and practice of engaging in internal reviews or audits to monitor program operations, identify program and management problems, and ensure fiscal integrity?
These questions should assist the requestor in focusing on the "why" or goal of the audit request. A well-written audit request provides the State Auditor with clear direction and results in findings that are useful to policymakers.
JLAC Committee staff can assist legislative staff in the development of audit requests, and can be reached at (916) 319-3300. The State Auditor's special assistant can also be helpful to legislative staff and can be reached at (916) 445-1253 ext. 292. Legislative staff are strongly encouraged to consult with the JLAC staff or the State Auditor’s office to determine, among other things, the feasibility of the audit idea before finalizing an audit request letter.
Audit requests must be submitted several weeks before the next scheduled JLAC hearing. Staff should check the Senate and Assembly Files for submission deadlines and hearing dates. The deadline is for the request to be in the JLAC offices by 5:00pm on the deadline day. A postmark of the deadline day will not suffice. Therefore, JLAC staff strongly recommends that an audit request be hand-delivered to the office [Legislative Office Building: 1020 N Street, Room 107] or sent via facsimile [(916) 319-2352].
When an audit request is finalized, the letter is submitted to the JLAC Chair. The JLAC Chair reviews the request, acknowledges its receipt, and forwards it to the State Auditor. After receiving an audit request from the JLAC Chair, the State Auditor prepares a written analysis of the proposed scope and objectives, and estimates the cost. This written analysis is confidential until the hearing and is provided to the JLAC members before the hearing. Copies of the analyses are available to the public just prior to the start of the hearing.
Since the JLAC is a joint committee, it requires a majority of members (four) from each house to establish a quorum and approve an audit request.
On average, once an audit is approved by the JLAC, it takes approximately six months for the Auditor to conduct and complete her work. This is an average timeframe, as discretionary audits can be conducted in a more expedited manner should circumstances exist that require this of the State Auditor.
Once JLAC approves an audit, state law precludes the State Auditor or any of her staff from discussing or disclosing any aspect of the audit, including the audit approach or potential findings, until it is released publicly. All of the State Auditor's reports are transmitted within 24 hours of completion to the Legislature, appropriate committees and subcommittees, and the Governor. At that time the reports are also made available to the public.
To check the status of these requests and other pending audits, you can visit the Bureau of State's website at: http://www.bsa.ca.gov/bsa/index.html and click on the "Work in Progress" link.