What you need to know about Ohio's internal audit bill.
House Bill 166 and its companion bill Senate Bill 146 are supported by The Ohio Society of CPAs, along with members of the Association of Certified Fraud Examiners and The Institute of Internal Auditors.
WHAT THE LEGISLATION DOES
Establishes the Office of Internal Auditing within the Office of Budget and Management and the position of Chief Internal Auditor
The Office of Internal Auditing will coordinate internal auditing plans for 26 agencies in Ohio. The goal is to improve operations in the areas of risk management, internal controls and governance.
Upon request from the Office of Internal Auditing, each state agency must provide access to all records and documents necessary for the performance of an internal audit.
Establishes the State Audit Committee
The State Audit Committee will consist of the Director of Budget and Management, two public members appointed by the House Speaker and two public members appointed by the Senate President. The committee would include:
* One public member who is a financial expert
* One public member who is an active, inactive or retired CPA
* One public member who is familiar with governmental financial accounting
* One public member who is a representative of the public
The definition of "financial expert" parallels the definition in the Sarbanes-Oxley Act.
Prescribes the duties and functions of the Office of Internal Auditing, State Audit Committee and Chief Internal Auditor
The State Audit Committee would fulfill the following:
* Ensure that the internal audits conducted by the Office of Internal Auditing conform to the Institute of Internal Auditors' international standards for the professional practice of internal auditing and to the Institute's code of ethics
* Review the process the Office of Budget and Management uses to prepare its annual budgetary financial report and the state's comprehensive annual financial report
* Review unaudited financial statements submitted to the Auditor of State and communicate with external auditors as required by government auditing standards
* Ensure that the Office of Internal Auditing's annual internal audit plan identifies the internal audits of state agencies or divisions of those agencies scheduled for the next fiscal year
The Chief Internal Auditor must prepare an annual report and submit it to the Governor, the Senate President, the House Speaker and the Auditor of State. The Office of Budget and Management must make the report available to the public by posting it on its Web site before each July 1.
Any preliminary or final report of an internal audit's findings or recommendations produced by the Office of Internal Audit and all work papers of the internal audit are subject to the Public Records Act once the final report of the findings and recommendations is submitted to the State Audit Committee, the Governor and the state agency involved.
Requires the Office of Internal Auditing to conduct internal audits according to an annual plan and to make reports of those audits
Audit plans must include an annual internal audit plan that uses risk management techniques and identifies specific audits to be conducted during the year. The programs also must include periodic audits of each agency's major systems and controls, including the systems and controls pertaining to accounting, administration and electronic data processing.
Transfers state employees who perform internal audit functions to the Office of Internal Auditing
Authorizes employees in the classified and unclassified civil service to report employment-related wrongdoing to the Office of Internal Auditing
This item ensures protection for "whistleblowers."
The legislation will benefit Ohio taxpayers most by weeding out fraud, waste and abuse in state agencies at the earliest stage.
Since the committee members are not compensated, there is concern from some corners that it will be difficult to attract and retain skilled individuals. Supporters contend that there are talented individuals willing to donate their time and expertise in the name of public service, citing the number of individuals who have already expressed interest.
The House version of the bill (HB 166) was passed out of the House State Government and Elections Committee on June 21 after having four hearings. Ohio Society member Heinz Ickert, CPA, CFE, a shareholder from Rea & Associates in Dublin, testified in support of the bill, along with members from the Association of Internal Auditing. The goal is to pass the legislation through either chamber as soon as possible and then focus on moving it through the other chamber. While details are not final, the planned effective date would be July 1, 2009.
SUPPORT FROM OHIO SOCIETY MEMBER
"From my experience in fraud detection and deterrence, confirmed by surveys, conducted by the Association of Certified Fraud Examiners, I can unequivocally state that a strong internal audit function is the greatest single tool in detecting fraud," Ickert said during testimony in support of the legislation. "By centralizing the internal audit function of the state of Ohio, this bill will result in increasing the independence of the internal audit function by reducing the likelihood of bias introduced at the department or agency level."
For more information on internal audit legislation, contact Barb Benton, vice president, governmental affairs, at email@example.com or 800.686.2727, ext. 324. Find related stories at www.ohioscpa.com by searching "internal audit bill." To read a summary of the legislation, go to http://www.legislature.state.oh.us/bills.cfm?ID=127_HB_166.
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