H.B. 799
GENERAL ASSEMBLY OF NORTH CAROLINA
Apr 18, 2023
SESSION 2023 HOUSE PRINCIPAL CLERK
H D
HOUSE BILL DRH40406-STa-13A
Short Title: Local Government Audits. (Public)
Sponsors: Representative Winslow.
Referred to:
1 A BILL TO BE ENTITLED
2 AN ACT TO REQUIRE THAT ANNUAL AUDITS OF UNITS OF LOCAL GOVERNMENT
3 AND LOCAL SCHOOL ADMINISTRATIVE UNITS BE CONDUCTED BY AN
4 ACCOUNTANT CERTIFIED BY THE STATE AUDITOR AND TO APPROPRIATE
5 FUNDS TO THE COUNCIL OF STATE GOVERNMENTS TO ASSIST LOCAL
6 GOVERNMENTS WITH FINANCIAL RECORD KEEPING.
7 The General Assembly of North Carolina enacts:
8 SECTION 1. G.S. 159-34 reads as rewritten:
9 "§ 159-34. Annual independent audit; rules and regulations.
10 (a) Each unit of local government and public authority shall have its accounts audited as
11 soon as possible after the close of each fiscal year year. The audit shall be conducted by a certified
12 public accountant or by an accountant accountant, who shall be certified by the Commission State
13 Auditor as qualified to audit local government accounts. When specified by the secretary, the
14 audit shall evaluate the performance of a unit of local government or public authority with regard
15 to compliance with all applicable federal and State agency regulations. This audit, combined with
16 the audit of financial accounts, shall be deemed to be the single audit described by the "Federal
17 Single Audit Act of 1984".
18 (a1) The auditor shall be selected by and shall report directly to the governing board. The
19 State Auditor shall solicit bids for conducting the audit by sealed bid. The governing board shall
20 select the auditor from those sealed bids based on solely cost and time for completion of the audit
21 and without information as to identity of the bidder.
22 (a2) The audit contract or agreement shall comply with all of the following:
23 (i) (1) be Be in writing, writing.
24 (ii) (2) include Include the entire entity in the scope of the audit, except that an audit
25 for purposes other than the annual audit required by this section should include
26 an accurate description of the scope of the audit, audit.
27 (iii) (3) require Require that a typewritten or printed report on the audit be prepared
28 as set forth herein,
29 (iv) (4) include Include all of its terms and conditions, and conditions.
30 (v) (5) be Be submitted to the secretary for his approval as to form, terms, conditions,
31 and compliance with the rules of the Commission.
32 (a3) As a minimum, the required report shall include the financial statements prepared in
33 accordance with generally accepted accounting principles, all disclosures in the public interest
34 required by law, and the auditor's opinion and comments relating to financial statements. The
35 audit shall be performed in conformity with generally accepted auditing standards. The finance
36 officer shall file a copy of the audit report with the secretary, and shall submit all bills or claims
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 General Assembly Of North Carolina Session 2023
1 for audit fees and costs to the secretary for his approval. Before giving his approval the secretary
2 shall determine that the audit and audit report substantially conform to the requirements of this
3 section. It shall be unlawful for any unit of local government or public authority to pay or permit
4 the payment of such bills or claims without this approval. the approval of the secretary.
5 (a4) Each officer and employee of the local government or local public authority having
6 custody of public money or responsibility for keeping records of public financial or fiscal affairs
7 shall produce all books and records requested by the auditor and shall divulge such information
8 relating to fiscal affairs as he may request. may be requested. If any member of a governing board
9 or any other public officer or employee shall conceal, falsify, or refuse to deliver or divulge any
10 books, records, or information, with an attempt thereby to mislead the auditor or impede or
11 interfere with the audit, he that individual is guilty of a Class 1 misdemeanor.
12 (b) The Local Government Commission has authority to issue rules and regulations for
13 the purpose of improving the quality of auditing and the quality and comparability of reporting
14 pursuant to this section or any similar section of the General Statutes. The rules and regulations
15 may consider the needs of the public for adequate information and the performance that the
16 auditor has demonstrated in the past, and may be varied according to the size, purpose or function
17 of the unit, or any other criteria reasonably related to the purpose or substance of the rules or
18 regulation. The State Auditor shall establish a process for certified public accountants and
19 accountants to become certified to conduct annual audits under this section. Any certified public
20 accountant or accountant certified to conduct annual audits may be removed for cause.
21 (c) Notwithstanding any other provision of law, except for Article 5A of Chapter 147 of
22 the General Statutes pertaining to the State Auditor, all State departments and agencies shall rely
23 upon the single audit accepted by the secretary as the basis for compliance with applicable federal
24 and State regulations. All State departments and agencies which provide funds to local
25 governments and public authorities shall provide the Commission with documents that the
26 Commission finds are in the prescribed format describing standards of compliance and suggested
27 audit procedures sufficient to give adequate direction to independent auditors retained by local
28 governments and public authorities to conduct a single audit as required by this section. The
29 secretary shall be responsible for the annual distribution of all such standards of compliance and
30 suggested audit procedures proposed by State departments and agencies and any amendments
31 thereto. Further, the Commission with the cooperation of all affected State departments and
32 agencies shall be responsible for the following:
33 (1) Procedures for the timely distribution of compliance standards developed by
34 State departments and agencies, reviewed and approved by the Commission
35 to auditors retained by local governments and public authorities.
36 (2) Procedures for the distribution of single audits for local governments and
37 public authorities such that they are available to all State departments and
38 agencies which provide funds to local units.
39 (3) The acceptance of single audits on behalf of all State departments and
40 agencies; provided that, the secretary may subsequently revoke such
41 acceptance for cause, whereupon affected State departments and agencies
42 shall no longer rely upon such audit as the basis for compliance with
43 applicable federal and State regulations.
44 (d) Notwithstanding the requirement that the auditor is selected by and reports directly to
45 the governing board in subsection (a) of this section, the Commission may require the governing
46 board of a unit of local government or public authority that has been the subject of an
47 investigative audit with findings by the State Auditor, upon receipt of the investigative audit
48 report in accordance with G.S. 147-64.6(c)(14), to select the certified public accountant to
49 conduct the annual audit required by this section from a list of three certified public accountants
50 provided by the Commission. The Commission may instruct the Secretary to issue a request for
51 proposals when selecting a certified public accountant under this subsection. Upon exercise of
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1 this authority granted by this subsection, the certified public accountant shall report directly to
2 the Commission and governing board, shall comply with all rules of the Commission, and shall
3 be paid by the governing board. The Commission may exercise the authority granted by this
4 subsection for up to three fiscal years after the release of the investigative report with findings
5 by the State Auditor.
6 (e) The secretary shall report annually to the Commission and the General Assembly a
7 list of units of local government and public authorities failing to complete and report to the
8 Commission, in a timely fashion, two or more consecutive annual audits as required by this
9 section."
10 SECTION 2. G.S. 115C-447 reads as rewritten:
11 "§ 115C-447. Annual independent audit.
12 (a) Each local school administrative unit shall have its accounts and the accounts of
13 individual schools therein audited as soon as possible after the close of each fiscal year by a
14 certified public accountant or by an accountant accountant, who shall be certified by the Local
15 Government Commission State Auditor as qualified to audit local government accounts. The
16 auditor who audits the accounts of a local school administrative unit shall also audit the accounts
17 of its individual schools.
18 (a1) The auditor shall be selected by and shall report directly to the board of education.
19 The State Auditor shall solicit bids for conducting the audit by sealed bid. The board of education
20 shall select the auditor from those sealed bids based on solely cost and time for completion of the
21 audit and without information as to identity of the bidder.
22 (a2) The audit contract shall be in writing, shall include all its terms and conditions, and
23 shall be submitted to the Secretary of the Local Government Commission for his approval as to
24 form, terms and conditions. The terms and conditions of the audit contract shall include the scope
25 of the audit, and the requirement that upon completion of the examination the auditor shall
26 prepare a typewritten or printed report embodying financial statements and his the auditor's
27 opinion and comments relating thereto. The financial statements accompanying the auditor's
28 report shall be prepared in conformity with generally accepted accounting principles. The auditor
29 shall file a copy of the audit report with the Secretary of the Local Government Commission, the
30 State Board of Education, the board of education and the board of county commissioners, and
31 shall submit all bills or claims for audit fees and costs to the Secretary of the Local Government
32 Commission for his approval. It shall be unlawful for any local school administrative unit to pay
33 or permit the payment of such bills or claims without this approval. approval of the Secretary.
34 (a3) Each officer, employee and agent of the local school administrative unit having
35 custody of public money or responsibility for keeping records of public financial or fiscal affairs
36 shall produce all books and records requested by the auditor and shall divulge such information
37 relating to fiscal affairs as he may request. may be requested. If any member of a board of
38 education or any other public officer, employee or agent shall conceal, falsify, or refuse to deliver
39 or divulge any books, records, or information, with an intent thereby to mislead the auditor or
40 impede or interfere with the audit, he the individual is guilty of a Class 1 misdemeanor.
41 (a2) The State Auditor shall have authority to prescribe the manner in which funds
42 disbursed by administrative units by warrants on the State Treasurer shall be audited.
43 (b) When the State Board of Education finds that incidents of fraud, embezzlement, theft,
44 or management failures in a local school administrative unit make it appropriate to review the
45 internal control procedures of the unit, the State Board of Education shall so notify the unit. If
46 the incidents were discovered by the firm performing the audit under subsection (a) of this
47 section, the board of the local school administrative unit shall submit the audit together with a
48 plan for any corrective actions relative to its internal control procedures to the State Board of
49 Education and the Local Government Commission for approval and shall implement the
50 approved changes prior to the next annual audit. Where the firm preparing the audit under
51 subsection (a) of this section identifies significant problems with internal control procedures the
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1 local school administrative unit shall submit the audit together with a plan for any corrective
2 actions relative to its internal control procedures to the State Board of Education and the Local
3 Government Commission for approval and shall implement the approved changes prior to the
4 next annual audit.
5 (c) If the incidents were not discovered by the firm performing the audit under subsection
6 (a) of this section, the State Board of Education and the Local Government Commission shall
7 employ an audit firm to review the internal control procedures of that local school administrative
8 unit. Upon completion of this review, the audit firm shall report publicly to the State Board of
9 Education, the Local Government Commission, and the board of the local school administrative
10 unit. If the State Board of Education determines that significant changes are needed in the internal
11 control procedures of the local school administrative unit, the local board shall submit a plan of
12 corrective actions to the State Board of Education and the Local Government Commission for
13 approval and shall implement the approved changes prior to the next annual audit. The local
14 school administrative unit shall pay the cost of this audit.
15 (d) The Commission has authority to issue rules and regulations for the purpose of
16 improving the quality of auditing and the quality and comparability of reporting pursuant to this
17 section or any similar section of the General Statutes. The rules and regulations may consider the
18 needs of the public for adequate information and the performance that the auditor has
19 demonstrated in the past and may be varied according to the size, purpose, or function of the unit,
20 or any other criteria reasonably related to the purpose or substance of the rules or regulations.
21 The State Auditor shall establish a process for certified public accountants and accountants to
22 become certified to conduct annual audits under this section. Any certified public accountant or
23 accountant certified to conduct annual audits may be removed for cause.
24 (e) The Secretary shall report annually to the Commission and the General Assembly a
25 list of local school administrative units failing to complete and report to the Commission, in a
26 timely fashion, two or more consecutive annual audits as required by this section."
27 SECTION 3. There is appropriated the sum of three million five hundred fifty-two
28 thousand dollars ($3,520,000) to the North Carolina Association of Regional Council of
29 Governments recurring to create a financial administration program. This program shall provide
30 the resources to employ 32 additional finance professionals in the 16 regions to assist small local
31 governments and public authorities with returning to a compliant status, with priority for local
32 governments and public authorities with limited means and those local governments or public
33 authorities on the Unit Assistance List published by the Local Government Commission
34 annually.
35 SECTION 4. This act becomes effective July 1, 2023, and applies to annual audits
36 conducted on or after that date.
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Statutes affected:
Filed: 159-34, 115C-447
Edition 1: 159-34, 115C-447
Edition 2: 159-34, 115C-447