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