Special District Audits
The Grand Jury reviewed compliance by special districts with their reporting requirements. Government Code requires each special district to file an annual audit report with the County Auditor and the State Controller. Special districts must also file an annual Financial Transaction Report with the State Controllers Office. The Grand Jury discovered that several special districts are not complying with the auditing requirement.
The Grand Jury Recommends that the Auditor/Treasurer:
The Grand Jury requests that Auditor/Treasurer respond within 60 days and the Board of Supervisors respond within 90 days from the official filing date of this report as required by Penal Code 933(c).
Authority to Investigate
Penal Code Section 925 authorizes the Grand Jury to review the operation of county government. As required by Penal Code Section 916, at least twelve Grand Jurors voted to review the County Auditors role in special district financial audits.
Method of Review
Members of the Grand Jury conducted interviews with the following people:
Additionally, members of the Grand Jury reviewed:
The Grand Jury also contacted the Accounting and Reporting Division and the Division of Audits of the State Controllers Office.
Description of Issues
By law, all special districts must file two financial reports. One report is filed with the county auditor and the State Controller. This report is the districts audit report. The other report is the Financial Transaction Report required by the State Controllers Office. Both these documents contain information about a special districts financial affairs.
The Grand Jury reviewed how the Auditor/Treasurer ensures that special districts comply with their audit requirements. By law, county auditors are required to perform an audit or hire a CPA to audit all special districts failing to meet their reporting deadline.
The Grand Jury learned that of the thirty-three special districts in the county five are not meeting their audit responsibilities. These districts gave different reasons for not complying. While most knew about the annual financial transaction report filed with the State Controller, they either misunderstood or were unaware of the requirements for annual audits. For small districts with limited resources, annual audits are costly.
The Grand Jury learned that special districts can obtain approval to file multi-year audit reports. Multi-year audit reports span two or five years. District boards wanting to use multi-year audits must vote unanimously to request the Board of Supervisors for approval. The Board must unanimously approve the request. Multi-year audit reports list financial information by year for several years in one report. This approach can save districts money. It is of greater benefit to districts with small budgets.
Regardless of the audit period, the Auditor/Treasurer must by law act to ensure districts meet their audit obligation. In doing so, the Auditor/Treasurer has two options:
In addition to an audit, special districts must file an annual financial transaction report with the State Controllers Office. Information from this report is consolidated in a report published yearly by the state entitled, "Financial Transactions Concerning Special Districts of California." Failure to file requirements for this report can result in fines ranging from $1,000 to $5,000.
The County Auditor stated that in his opinion special districts could not afford these fines. After one district was fined $1,000, the County Auditor offered to assist districts having trouble with this report. The County Auditor told the Grand Jury that providing this service is not difficult.
During its investigation, the Grand Jury found other sources of information in Sacramento for special districts. These are:
State Controllers Annual Report on the Financial Transactions Concerning Special Districts of California, 1993-94 and 1994-95 Fiscal Years
Office of the State Controller, Division of Audits, pamphlet entitled "Minimum Audit Requirements and Reporting Guidelines for California Special Districts," July 1991