BILL NUMBER:  S4660

 TITLE OF BILL :  An act to amend the general municipal law, in
relation to the writing of responses to audit findings and
recommendations

 PURPOSE OR GENERAL IDEA OF BILL :

To improve the efficacy of audits of municipal corporations,
industrial development agencies (IDAs), districts, agencies by
requiring written responses to reports of examination by the Office of
the State Comptroller, reports of external audits performed by
independent public accountants or management letters prepared in
conjunction with such 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 i ). 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, §§ 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 1998 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
A3112 Sweeney - Passed Assembly; 01/30/06
3/17/08 - Passed Assembly

 FISCAL IMPLICATIONS FOR STATE 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.