SF564

Purpose

This bill changes when cities must have annual audits or audits at longer intervals, based on how much money the city collects in total from government and enterprise funds, and whether the city’s clerk and treasurer offices are combined.

Main provisions

• Audit trigger based on revenue
  • If a city has combined annual revenue from all governmental and enterprise funds that exceeds a specified threshold, the city must have an annual audit of its financial affairs conducted by the state auditor or a certified public accountant, using minimum procedures set by the state auditor.
  • If the same revenue is at or below that threshold, the city must have an audit by the state auditor or a certified public accountant at least once every five years, with each five-year audit covering a one-year period randomly chosen by the auditor.
• Audit entities and standards
  • Audits must be performed by the state auditor or a certified public accountant.
  • Audits must follow minimum procedures prescribed by the state auditor.
• How the threshold works
  • The bill lists the dollar amounts used to determine which audit schedule applies. These amounts are set in the statute and are adjusted over time for inflation using the implicit price deflator for state and local expenditures, as published by the U.S. Department of Commerce.
  • The base amounts referenced include specific figures (e.g., around 150,000 and 500,000) and then an ongoing inflation adjustment starting after the year 2005.

Significant changes to existing law

• Introduces a revenue-based test for how often city audits must occur, replacing a one-size-fits-all audit cycle.
• Ties audit frequency to the combined revenues of government and enterprise funds.
• Requires that the clerk and treasurer offices be considered in determining audit requirements.
• Applies inflation indexing to the revenue threshold so the requirement adjusts over time.

Practical impact

• Smaller cities with lower combined governmental and enterprise fund revenues may be audited less frequently (every five years).
• Larger cities with higher combined revenues must undergo annual audits.
• City financial oversight becomes more scalable based on city size and revenue, rather than a uniform audit requirement for all cities.

Relevant Terms - audit - annual audit - five-year audit - state auditor - certified public accountant - minimum procedures - audit standards - clerk and treasurer - government funds - enterprise funds - combined revenue - inflation adjustment - implicit price deflator - United States Department of Commerce