Chapter 5. The State Leadership Accountability Act of California Government Code >> Division 3. >> Title 2. >> Part 3. >> Chapter 5.

This act shall be known and may be cited as the State Leadership Accountability Act.

(a) The Legislature finds all of the following:
  (1) Active oversight processes, including regular and ongoing monitoring processes, for the prevention and early detection of fraud and errors in program administration are vital to public confidence and the appropriate and efficient use of public resources.
  (2) Fraud and errors in state programs are more likely to occur from a lack of effective systems of internal control in state agencies when active monitoring measures are not maintained to ensure that controls are functioning properly.
  (3) Effective systems of internal control provide the basic foundation upon which a structure of public accountability must be built.
  (4) Effective systems of internal control are necessary to ensure that state resources are adequately safeguarded, monitored, and administered.
  (5) Systems of internal control are necessarily dynamic and must be routinely monitored, continuously evaluated, and, where necessary, improved.
  (6) Reports regarding the continuing adequacy of the systems of internal control of each state agency are necessary to enable the executive branch, the Legislature, and the public to evaluate each state agency's performance of its public responsibilities and accountability.
  (b) The Legislature declares all of the following to be the policies of the state:
  (1) Each state agency must maintain effective systems of internal control as an integral part of its management practices.
  (2) The systems of internal control of each state agency shall be evaluated on an ongoing basis through regular and ongoing monitoring processes and, when detected, weaknesses must be promptly corrected.
  (3) All levels of management of state agencies must be involved in assessing and strengthening the systems of internal control to minimize fraud, errors, abuse, and waste of government funds. Monitoring processes should be designed to ensure objectivity of persons tasked with monitoring. Objectivity means allowing those tasked with monitoring to maintain integrity, impartiality, a questioning state of mind, and the ability to accurately and fairly assess circumstances and draw sound conclusions.
  (4) It shall be the responsibility of the Department of Finance, in consultation with the Controller and the California State Auditor, to establish guidelines for how the objectivity of the persons tasked with monitoring processes are to be maintained. Those guidelines should include establishing monitor training programs, identification of appropriate chain-of-command reporting relationships, and recommended best practices for professional development and the conduct of objective monitoring, including, but not limited to, practices for the regular dissemination of strategies and lessons learned from successful efforts to strengthen state administration via interagency cooperation.

Agency heads are responsible for the establishment and maintenance of a system or systems of internal control, and effective and objective ongoing monitoring of the internal controls within their state agencies. This responsibility includes documenting the system, communicating system requirements to employees, and ensuring that the system is functioning as prescribed and is modified, as appropriate, for changes in conditions.

(a) As used in this chapter, "internal control" means a process, including a continuous built-in component of operations, effected by a state agency's oversight body, management, and other personnel that provide reasonable assurance that the state agency's objectives will be achieved. The following five components of internal control, if effectively designed, implemented, and operated in an integrated manner, constitute an effective internal control system:
  (1) "Control environment" means the foundation for an internal control system that provides the discipline and structure to help a state agency achieve its objectives.
  (2) "Risk assessment" means an assessment of the risks facing the state agency as it seeks to achieve its objectives and provides the basis for developing appropriate risk responses.
  (3) "Control activities" means the actions management establishes through policies and procedures to achieve objectives and respond to risks in the internal control system.
  (4) "Information and communication" means the quality of vital information used and communicated to achieve the state agency's objectives.
  (5) "Monitoring" means the activities management establishes and operates to assess the quality of performance over time and promptly resolve the findings of audits and other reviews.
  (b) The elements of a satisfactory system of internal control, shall include, but are not limited to, the following:
  (1) A plan of organization that provides segregation of duties appropriate for proper safeguarding of state agency assets.
  (2) A plan that limits access to state agency assets to authorized personnel who require these assets in the performance of their assigned duties.
  (3) A system of policies and procedures adequate to provide compliance with applicable laws, criteria, standards, and other requirements.
  (4) An established system of practices to be followed in performance of duties and functions in each of the state agencies.
  (5) Personnel of a quality commensurate with their responsibilities.
  (6) An effective system of internal review.
  (7) A technology infrastructure to support the completeness, accuracy, and validity of information processed.
  (c) Agency heads shall follow the standards established by this section of internal control in carrying out the requirements of Section 13402.
  (d) Monitoring systems and processes are vital to the following:
  (1) Ensuring that routine application of internal controls do not diminish their efficacy over time.
  (2) Providing timely notice and opportunity for correction of emerging weaknesses with established internal controls.
  (3) Facilitating public resources and other decisions by ensuring availability of accurate and reliable information.
  (4) Facilitating production of timely and accurate financial reports, and the submittal, when appropriate, of recommendations for how greater efficiencies in support of the state agency's mission may be attainable via the consolidation or restructuring of potentially duplicative or inefficient processes, programs, or practices where it appears such changes may be achieved without undermining program effectiveness, quality, or customer satisfaction.
  (e) It shall be the responsibility of the Department of Finance, in consultation with the Controller and the California State Auditor, to establish guidelines for the management of state agencies on how the role of monitoring should be staffed, structured, and its reporting function standardized so it fits within an efficient and normalized state agency administrative framework.
  (f) Agency heads shall implement systems and processes to ensure the objectivity of the monitoring of internal control as an ongoing activity in carrying out the requirements of Section 13402.

As used in this chapter:
  (a) "Agency head" means the individual responsible for the overall operations of a state agency.
  (b) "State agency" means every entity included in subdivision (a) of Section 11000 and the California State University. The Department of Finance shall make the final determination whether a state entity is a state agency for purposes of being subject to the provisions of this chapter.

(a) To ensure that the requirements of this chapter are fully complied with, each agency head that the Department of Finance determines is covered by this section shall, on a biennial basis but no later than December 31 of each odd-numbered year, conduct an internal review and prepare a report on the adequacy of the state agency's systems of internal control, and monitoring practices in accordance with the guide prepared by the Department of Finance pursuant to subdivision (d).
  (b) The report, including the state agency's response to review recommendations, shall be signed by the agency head and addressed to the agency secretary, or the Director of Finance for a state agency without a secretary. An agency head shall submit a copy of the report and related response, pursuant to a method determined by the Department of Finance, to the Legislature, the California State Auditor, the Controller, the Department of Finance, the Secretary of Government Operations, and to the State Library where the copy shall be available for public inspection. A copy of the report shall be posted on the agency's Internet Web site within five business days after acceptance by the Department of Finance.
  (c) The report shall identify any material inadequacy or material weakness in a state agency's systems of internal control that prevents the agency head from stating that the state agency's systems comply with this chapter. Concurrently with the submission of the report pursuant to subdivision (b), the state agency shall provide to the Department of Finance a plan and schedule for correcting the identified inadequacies and weaknesses, that shall be updated every six months until all corrections are implemented.
  (d) The Department of Finance in consultation with the California State Auditor and the Controller, shall establish, and may modify from time to time as necessary, a system of reporting and a general framework to guide state agencies in conducting internal reviews of their systems of internal control.
  (e) The Department of Finance in consultation with the California State Auditor and the Controller, shall establish, and may modify from time to time as necessary, a general framework of recommended practices to guide state agencies in conducting active, ongoing monitoring of processes for internal control.

(a) The head of the internal audit staff of a state agency, as specified by the Director of Finance, or, in the event there is no internal audit function, a professional accountant, if available on the staff, designated as the internal control person by the agency head shall receive and investigate any allegation that an employee of the state agency provided false or misleading information in connection with the review of the state agency's systems of internal control or in connection with the preparation of the biennial report on the systems of internal control, and monitoring practices.
  (b) If, in connection with any investigation under subdivision (a), the head of the internal audit staff or the designated internal control person determines that there is reasonable cause to believe that false or misleading information was provided, he or she shall report in writing that determination to the agency head.
  (c) The agency head shall review any matter referred to him or her under subdivision (b), shall take the disciplinary or corrective action as he or she deems necessary, and shall forward a copy of the report, indicating the action taken, to the Department of Finance within 90 days of the date of the report.

Because sound internal controls and the regular and ongoing monitoring of those internal controls significantly inhibits waste of resources and thereby creates savings, the Department of Finance and state agencies shall carry out the provisions of this chapter by using existing resources.