TOPIC: Internal Auditors OFFICE: Auditor STATE: DATE: 02 ...€¦ · OFFICE: Auditor STATE: VT...

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TOPIC: Internal Auditors OFFICE: Auditor STATE: VT DATE: 02/04/2010 QUESTION / ISSUE: Conversations have started in Vermont about possibly reorganizing the internal audit function. The Office of State Auditor is interested in how the internal audit function is organized in other states. Specifically, they are interested in your response to the following questions: 1. Does your state have an internal audit function? 2. If yes, does your state have a statute requiring an internal audit function? If available, please

provide the statute citation. 3. What is the nature of the relationship, if any, between the State Auditor’s Office and the state’s

internal audit function? 4. If the internal audit function resides within state agencies:

a. Does internal audit report to agency management (i.e. agency head) or to an entity independent of management (i.e. an audit committee)?

b. What is the nature of the internal audit function being performed, such as risk assessments, internal control documentation, performance audits, and fraud investigations?

5. If the internal audit function is consolidated into a single statewide function: a. Does internal audit report to a central administrative agency head or to an entity independent

of management? b. What is the nature of the internal audit function being performed, such as risk assessments,

internal control documentation, performance audits State Comments Colorado 1. Colorado does not have a centrally organized internal audit function. However,

many of the primary departments in state government have some type of internal auditor or internal audit function. The internal audit functions vary significantly from agency to agency in their size and scope. For example, the Colorado Department of Public Health and Environment has only one internal auditor, whereas the Colorado Department of Transportation has a well-established internal audit unit with many staff.

2. There may be some provisions for internal audit in the various departments' statutes; however, as discussed above, there is no centrally organized/authorized internal audit function. I/we do not have statutory citations available.

3. Where an internal audit function exists at an agency, it typically serves as our liaison to the agency during an audit. Occasionally, we will get suggestions and information from the internal auditors that helps us target our audit planning and audit work. We do look at the work of internal auditors if they have performed any audits in an area we are looking at.

4. a. The organization of the internal audit units varies greatly from organization to organization. Some agencies such as the Colorado Department of Transportation and the University of Colorado have independent internal audit functions that report to a governing commission or board of regents. In other agencies, such as the Colorado Department of Public Health and Environment and the Colorado Department of Revenue, the internal audit function reports to management. b. I/we do not have this type of information. I would guess that the functions being performed are as varied as the internal audit units themselves. More established internal audit units likely provide coverage of all of these areas than would an internal audit function staffed by one auditor.

5. Not applicable to Colorado. Florida 1. Yes

2. Section 20.055, Florida Statutes, governs the Inspector General for each state agency.

3. The Auditor General’s office conducts Quality Assessment Reviews once every three years for each Inspector General as defined in Section 20.055, Florida Statutes. This serves as the internal audit function’s external peer review.

4. a. The Inspector General for each agency reports to agency management (i.e.

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State Comments agency head or governing body). b. Inclusive of all items listed.

5. N/A Kansas 1. Some individual agencies have internal auditors (transportation, social services,

revenue are the ones I know of). In addition, the Medicaid agency has an IG. There’s no overarching executive-branch internal audit function.

2. N/A 3. We have good relationships with the various agency internal auditors. If we

receive an allegation about agency misspending, for example, we’ll often forward it to them. No official/structural/reporting relationship.

4. a. Individual agencies do it differently. The social services agency auditors report to a committee and the Medicaid IG reports to the finance and audit committee of the agency’s board of directors. The Department of Revenue internal auditor reports to the agency head. I don’t know about KDOT, or whether other agencies have internal audit functions. b. Again, individual agencies do it differently; there’s no consistent requirement across agencies.

5. N/A Louisiana 1. Each department has an internal audit function if their revenues exceed $30

million. The Executive department also has an OIG. 2. Each year, the appropriation bill (house bill 1) includes language requiring the

internal audit function for agencies exceeding $30 million in revenues. 3. The work of the internal auditors is considered during our audits, risk

assessments, performance projects as well as fraud examinations. 4. a. Agency head

b. Since the function is decentralized, the best answer would be all of the above. Maryland 1. Many of the larger state agencies have either an internal audit or inspector general

position. However, every state agency does not have one. The Maryland Department of Budget and Management does have an Audit Compliance Unit. Although not a true IA unit, it does have statewide responsibility, and will conduct field reviews of Executive Branch agencies’ efforts to implement OLA audit recommendations.

2. No. A quick search through Maryland Annotated Code did not disclose a statute requiring an IA function at any state agency, although the Department of Human Resources OIG does have a citation in state law governing its audits of Local Departments of Social Services. There is however, one OIG specifically established by statute within the Department of Health and Mental Hygiene.

3. Primary relationship between the OLA and the internal audit functions includes: a. IAs and OIGs will often follow-up on OLA audit findings after the issuance of

the OLA audit reports to assist their respective agencies in implementing related recommendations. Also during the course of the audit, they will sometimes act as liaisons between the OLA and the agency’s staff to ensure OLA receives necessary and requested documents, etc.

b. IAs and OIGs attend OLA audit entrance and exit conferences where the OLA audit scope and findings are discussed, respectively.

c. There is a statewide Internal Audit Forum, an organization of IAs and OIGs from various state agencies, established under the auspices of the DBM Audit Compliance Unit. They usually meet monthly to discuss relevant issues impacting their operations and the state. Additionally, OLA has given several presentations at these meetings of common OLA audit issues/findings that we believe they should be aware of. The thought is that if OLA can get the IAs and OIGs to understand these audit issues, it will make correction and implementation of recommended actions more effective and might prevent exceptions from developing if they proactively look for these problems themselves before the next OLA audit.

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State Comments 4. IA functions reside within state agencies (note that many IAs and OIGs perform

similar work, many conducting audits/reviews of agency operations and investigations of fraud, etc.): a. OLA knows of no state IA or OIG that reports to an audit committee. In fact,

some of them don’t report to agency heads, but to deputy agency heads or CFO equivalents. (In the past, OLA has taken exception to such arrangements.)

b. The level of professionalism between the various IAs and OIGs varies. Generally, some type of risk assessment / internal control review is conducted and documented, although when OLA has reviewed such work-papers, frequently they are found to be lacking and cannot be relied on. Performance audits (GAGAS definition) are conducted periodically, and fraud investigations can be conducted (most commonly at agencies with benefit programs, TANF, Medicaid or licensing responsibilities).

5. Not applicable Michigan 1. The state of Michigan does have a statewide internal audit function assigned

within the State Budget Office. 2. Yes, please see the attached Executive Reorganization Order and Internal Audit

Charter. Michigan Compiled Law sections 18.1486-1487 established the internal auditor positions and the Governor consolidated them via Executive Order into the State Budget Office in 2007 (see MCL section 18.46 in the Executive Reorganization Order)

3. The two organizations have established a good working relationship. The State Auditor's Office is located within the Legislative Branch and the internal audit function is within the executive branch. The state auditor's office tries to rely on the work of the internal auditors as much as possible. The internal auditors also aid the state auditor by obtaining SAS 70 audits from state agencies and the state internal auditors conduct biennial internal control evaluations which are shared with the state auditor.

4. a. See Question 5. b. See Question 5.

5. a. The Head of Internal Audit reports to the Deputy State Budget Director. (See the attached Internal Audit Charter). b. Please see the attached Internal Audit Charter for details listing the duties and responsibilities of the Office of Internal Audit Services.

Minnesota This is a better question for the Legislative Auditor in Minnesota. Our office oversees local units of government.

New Hampshire

1. No, however a few state agencies do have the function, including the Governor's Office of Economic Stimulus (OES) created as a result of ARRA.

2. N/A 3. No formal relationship to any internal auditors. 4. a. Agency head

b. Varied, but risk assessments and internal control reviews probably dominate. Not aware of any performance audits being performed.

5. N/A North Carolina

1. Yes. 2. Yes. See attachment. 3. As noted in the law, there is a statewide internal audit council that provides

general oversight of the internal audit function. The State Auditor is an advisory (non-voting) member of the council.

4. a. Though the law requires agency internal auditors to report to the agency head, internal auditors at agencies with governing boards (primarily universities) still report to audit committees. The internal auditor council is expected to pursue a law change to require internal auditors report to the agency head, deputy agency head, or the governing board or subcommittee thereof (deputy head being added

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State Comments to be consistent with Yellow Book). b. All of the items listed plus consulting engagements as defined in IIA standards.

5. a. An internal audit group was established under the Office of State Budget and Management to provide internal audit services to smaller state agencies. Administratively, the group reports to the State Budget Director but also reports directly to the statewide internal audit council. The council approves annual audit plans, evaluates performance measures, etc. b. All of the items listed plus consulting engagements as defined in IIA standards.

Ohio 1. Yes. In November 2007, House Bill 166 (127th Ohio General Assembly) was passed to create the Office of Internal Audit within the Office of Budget and Management. The bill required that the Office of Internal Audit (OIA) conduct the internal audits of certain state agencies according to an annual plan, and report the findings and recommendations of the audit to an independent state audit committee. See their web site at http://obm.ohio.gov/SectionPages/InternalAudit/Home/Default.aspx . However, this function covers only 21 state agencies.

2. Yes, Ohio Rev. Code Sec. 126.45/HB 166 (see attached). 3. The internal audit function at OBM is relatively new, with their first reports issued

in the fall and winter of 2009 (state fiscal year 2010). Since the AOS is currently auditing state fiscal year 2009 activity, we have not yet evaluated the OIA work in conjunction with our testing. However, the AOS has met with OIA on multiple occasions to discuss their testing plan and has shared working papers from prior audits with them for current projects. We have also participated in the State Audit Committee meetings to provide a status of our testing and our results. We hope to develop a good working relationship with them and to consider their work when assessing risks and developing our testing in future years.

4. Most state agencies who had “internal auditors” have reclassified these staff to more appropriate titles since the majority of them functioned primarily in a program monitoring capacity. There are still a handful of internal audit functions operating separately in certain agencies (such as the Ohio Department of Education) which are not included within the scope of OIA. a. They report to the agency head. b. Varies by agency, but could include all these functions.

5. Office of Internal Audit within the State’s Office of Budget and Management a. They report to an independent audit committee. b. OIA could include all these functions – see their plan at the web site

referenced above. Oklahoma 1. Yes, at the individual agency level.

2. There is no overall state requirement for an internal audit function. However, there are a few agencies/entities within the state of Oklahoma that are required by statute to have an internal audit function. One example is our boards of regents responsible for the Oklahoma State System of Higher Education. They are required by 70 O.S.§3909.D to have a “sufficient number of internal auditors to meet the board’s fiduciary responsibilities”. In addition, there are multiple agencies within the state of Oklahoma that have an internal audit function on a voluntary basis.

3. All state agencies, commissions, boards, etc. with internal audit functions are required to submit a copy of their internal audit reports to the State Auditor’s office. Our office may also consider the work of and cooperate with internal audit functions during the course of our audits.

4. a. Varies b. Varies 5. N/A

Texas 1. Texas state agencies and higher education institutions of a certain size are required to have an internal audit function.

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State Comments 2. See Texas Government Code Chapter 2102 INTERNAL AUDITING.

http://www.statutes.legis.state.tx.us/Docs/GV/htm/GV.2102.htm 3. Internal auditors are required to submit annual reports and reports of periodic

audits. The State Auditor is required by Texas Government Code 2102 to prescribe the form and content of the internal auditor’s annual report (Sec. 2102.009). For small agencies that do not meet the size requirements to have an internal audit function, the statute requires an annual risk assessment and report (Sec. 2102.013). The State Auditor is required to prescribe the form and timeframe for the annual risk assessment and report. The statute further requires the State Auditor to evaluate the agencies’ annual risk assessments (Sec. 2102.014).

4. a. The state agency’s governing board or agency head (in the absence of a governing board) appoints the internal auditor (Sec. 2102.006). The internal auditor reports directly to the governing board or the agency head (in the absence of a governing board) (Sec. 2102.007). b. According to statute, the duties of the internal auditor include conducting economy and efficiency audits and program results audits, and may include consulting services. Some internal auditors may look into allegations of fraud. The internal auditor’s work is based on an annual plan and risk assessment.

5. This question does not apply to internal audit in Texas state government. Virginia 1. Yes, Virginia has an internal audit function. The internal audit function resides

within selected individual agencies. Additionally, Virginia has a Division of State Internal Audit (DSIA) within the Department of Accounts. DSIA is responsible for operating the State Employees Fraud, Waste, and Abuse Hotline and offers training to the individual internal audit functions within the other state agencies.

2. Virginia has no statute requiring an agency to have an internal audit function. However, Virginia does have a statute that creates an Internal Audit Department as a standalone agency, but this department has not been funded since 2002 and therefore does not physically exist.

3. As a result of each agency being able to create and develop their own internal audit function, the relationship between the Auditor of Public Accounts and the individual internal audit functions within each agency varies. For each agency audit, we complete an evaluation of their internal audit function as required by SAS No. 65, AU Section 322 International Standards for the Professional Practice of Internal Auditing, Nos. 1000 and 1300 to determine if we can rely upon their work. For most of our engagements we cannot rely on the work of the internal audit function because of them not following International Standards for the Professional Practice of Internal Auditing or not conducting work that supports our audit objectives. However, we do review all reports from an agency’s internal audit function as part of the planning phase of our audits.

4. a. There are 37 internal audit functions in Virginia (14 at institutions of higher education and 23 at state agencies). All 14 of the internal audit functions at institutions of higher education report to an audit committee of their school’s Board of Visitors. For the 23 internal audit functions at individual state agencies, their reporting depends on the governance structure of their agency. For the 4 agencies with boards, the internal audit function reports to the agency’s board. For all of the remaining agencies, all except one, the internal audit function reports to the agency’s head. In the one exception, the internal audit function reports to a deputy of the agency head. b. Again, because each agency can create and develop their own agency’s internal audit function, the nature of the internal audit function depends on the agency’s needs. Our Office issued an analysis of Commonwealth audit resources and Inspector General functions in October 2009, this report can be found at: http://www.apa.virginia.gov/reports/OIG_Oct09%20(Electronic).pdf. Additionally, we are in the process of drafting a report that will provide a further analysis of the internal audit functions in Virginia, which should be released by March 2010. To be

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State Comments placed on the distribution list for this report, provide your email address to George Strudgeon at [email protected].

5. a. As stated previously, Virginia does not have a single statewide consolidated internal audit function. However, Virginia does have a Division of State Internal Audit (DSIA) within the Department of Accounts, an executive branch agency. DSIA is responsible for operating the State Employees Fraud, Waste, and Abuse Hotline and offering training to the other individual internal audit functions within the other state agencies.

b. While Virginia’s Division of State Internal Audit (DSIA) operates the State Employees Fraud, Waste, and Abuse Hotline, it does not directly investigate most hotline complaints, but refers the complaints to the respective agency or institution’s Internal Audit Director or a designated agency fraud hotline coordinator and reports matters to the Commonwealth’s Comptroller and the Secretary of Finance. The agency or institution Internal Audit Director or a designated agency fraud hotline coordinator conducts the investigation, works with management and law enforcement officials, and reports their findings and outcome of the investigation to DSIA. For more information on DSIA please read our October 2009 report entitled: Analysis of Commonwealth Audit Resources and Inspector General Functions at: http://www.apa.virginia.gov/reports/OIG_Oct09%20(Electronic).pdf

EXECUTIVE REORGANIZATION ORDER (EXCERPT)E.R.O. No. 2007-22

18.46 Transfer of powers and duties of internal auditors of principal departments under MCL18.1486 and 18.1487 to office of the state budget director; transfer of powers and duties ofprincipal departments to appoint and supervise internal auditor under MCL 18.1486 tostate budget director.WHEREAS, Section 1 of Article V of the Michigan Constitution of 1963 vests the executive power of the

State of Michigan in the Governor;WHEREAS, Section 2 of Article V of the Michigan Constitution of 1963 empowers the Governor to make

changes in the organization of the executive branch or in the assignment of functions among its units that theGovernor considers necessary for efficient administration;

WHEREAS, Section 53 of Article IV of the Michigan Constitution of 1963 limits the duties of thelegislative Auditor General to the conduct of post audits of financial transactions and accounts of this stateand state entities and performance post audits thereof;

WHEREAS, under Section 485 of The Management and Budget Act, 1984 PA 431, MCL 18.1485, eachprincipal department within the executive branch is required to establish and maintain its own internalaccounting and administrative control system and appoint its own internal auditor;

WHEREAS, the Department of Management and Budget is required to minimize the duplication ofactivities among state agencies, between state agencies and businesses, to effect a better organization andconsolidation of functions among state agencies, and to establish, administer, operate, or provide centralizedservices when advantageous to this state;

WHEREAS, consolidation of internal audit functions within the Department of Management and Budgetwill promote a more unified approach to internal audit functions within the executive branch of stategovernment and improve the effectiveness of financial controls;

WHEREAS, consolidating state internal audit functions will increase administrative efficiencies;WHEREAS, there is a continuing need to reorganize functions amongst state departments to ensure

efficient administration and effectiveness of government;NOW THEREFORE, I, Jennifer M. Granholm, Governor of the State of Michigan, by virtue of the power

vested in the Governor by the Michigan Constitution of 1963 and Michigan law, order the following:I. DEFINITIONSAs used in this Order:A. "Department of Management and Budget" means the principal department of state government created

under Section 121 of The Management and Budget Act, 1984 PA 431, MCL 18.1121.B. "Office of the State Budget Director" means the office created within the Department of Management

and Budget under Section 321 of The Management and Budget Act, 1984 PA 431, MCL 18.1321.C. "State Budget Director" means the individual appointed by the Governor pursuant to Section 321 of The

Management and Budget Act, 1984 PA 431, MCL 18.1321.II. TRANSFERS TO OFFICE OF THE STATE BUDGET DIRECTORA. All the authority, powers, duties, functions, responsibilities, rule-making authority, personnel,

equipment, and budgetary resources of internal auditors within principal departments of this state underSections 486 and 487 of The Management and Budget Act, 1984 PA 431, MCL 18.1486 and 18.1487, aretransferred to the Office of the State Budget Director. The transfers under this paragraph shall not beconstrued to inhibit the head of a principal department, elected or appointed, from supervising the powers,duties, and functions of that principal department.

B. All of the authority, powers, duties, functions, responsibilities of a principal department of this state toappoint and supervise an internal auditor for a principal department under Section 486 of The Managementand Budget Act, 1984 PA 431, MCL 18.1486, are transferred to the State Budget Director. The State BudgetDirector may appoint an internal auditor to serve as the internal auditor for one or more principal departments.

C. The Office of the State Budget Director shall operate an internal audit services center to assistdepartments and agencies within the executive branch with accounting functions and may developstandardized policies and procedures for the performance of accounting functions.

III. ADMINISTRATION OF INTERNAL AUDIT FUNCTIONSA. Each internal auditor appointed by the State Budget Director shall be a member of the classified state

civil service. Each internal auditor shall report to and be under the general supervision of the State BudgetDirector.

B. A person shall not prevent or prohibit an internal auditor from initiating, carrying out, or completing anyaudit or investigation. An internal auditor shall be protected pursuant to the Whistleblowers’ Protection Act,Rendered Thursday, February 11, 2010 Page 1 Michigan Compiled Laws Complete Through PA 3 of 2010

Legislative Council, State of Michigan Courtesy of www.legislature.mi.gov

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1980 PA 469, MCL 15.361 to 15.369.C. An internal auditor appointed by the State Budget Director under Section II.B shall do all of the

following:1. Receive and investigate any allegations that false or misleading information was received in evaluating a

principal department’s internal accounting and administrative control system or in connection with thepreparation of the biennial report on the system.

2. Conduct and supervise audits relating to financial activities of a principal department’s operations.3. Review existing activities and recommend policies designed to promote efficiency in the administration

of a principal department’s programs and operations.4. Recommend policies for activities to protect this state’s assets under the control of a principal

department, and to prevent and detect fraud and abuse in the principal department’s programs and operations.5. Review and recommend activities designed to ensure that a principal department’s internal financial

control and accounting policies are in conformance with the accounting directives issued by the Office of theState Budget Director pursuant to Sections 421 and 444 of The Management and Budget Act, 1984 PA 431,MCL 18.1421 and 18.1444.

6. Provide a means to keep the State Budget Director and the head of a principal department fully andcurrently informed about problems and deficiencies relating to the administration of the principaldepartment’s programs and operations, and the necessity for, and progress of, corrective action.

7. Conduct other audit and investigative activities as assigned by the State Budget Director.8. Prepare biennial reports for principal departments required under Section 485(4) of The Management

and Budget Act, 1984 PA 431, MCL 18.1485.D. Each internal auditor appointed by the State Budget Director under Section II.B shall adhere to

appropriate professional and auditing standards in carrying out any financial or program audits orinvestigations.

E. Each internal auditor appointed by the State Budget Director under Section II.B shall reportimmediately to the State Budget Director and the principal department head if the internal auditor becomesaware of particularly serious or flagrant problems, abuses, or deficiencies relating to the administration ofprograms or operations of a principal department or agencies within the department.

IV. IMPLEMENTATION OF TRANSFERSA. The State Budget Director and the directors of all principal departments within the executive branch of

state government shall jointly identify the program positions and administrative function positions that will betransferred to the Office of the State Budget Director under this Order. The State Budget Director and thedirectors of all principal departments shall make every effort to develop the agreements specifying thepositions to be transferred by the effective date of this Order. In the event of a failure to reach an agreementon positions to be transferred under this Order, the State Budget Director shall develop a writtenrecommendation specifying the positions to be transferred and submit the recommendation to the Governorfor consideration and approval. All transfers to the Office of the State Budget Director shall be consistent withthis Order and documented by a memorandum of understanding between the director of each principaldepartment affected by this Order and the State Budget Director.

B. For the purpose of implementing this Order or facilitating the performance of internal audit functions,the Office of the State Budget Director may enter into a written agreement, including a service levelagreement, with any other department or agency regarding the performance of internal audit functions.

C. The State Budget Director shall provide executive direction and supervision for the implementation ofall transfers to the Office of the State Budget Director under this Order.

D. The State Budget Director shall immediately initiate coordination with department and agencies withinthe executive branch of state government to facilitate the transfers under this Order. Each principaldepartment affected by the transfers under this Order shall issue, after consultation with the State BudgetDirector, a memorandum of record identifying any pending settlements, issues of compliance with applicablefederal and state laws and regulations, or other obligations to be resolved by the transferring departmentrelated to the transfers under this Order.

E. Departments, agencies, and state officers within the executive branch of state government shall fully andactively cooperate with the Office of the State Budget Director in the implementation of this Order. The StateBudget Director may request the assistance of other departments, agencies, and state officers with respect topersonnel, budgeting, procurement, telecommunications, information systems, legal services, and other issuesrelated to implementation of the transfers under this Order, and the departments and agencies shall provide theassistance requested.

F. The State Budget Director shall administer the functions transferred under this Order in such ways as topromote efficient administration and shall make internal organizational changes as may be administrativelyRendered Thursday, February 11, 2010 Page 2 Michigan Compiled Laws Complete Through PA 3 of 2010


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necessary to complete the realignment of responsibilities under this Order.G. The State Budget Director may delegate within the Office of the State Budget Director a duty or power

conferred on the State Budget Director by this Order or by other law, and the individual to whom the duty orpower is delegated may perform the duty or exercise the power at the time and to the extent that the duty orpower is delegated by the State Budget Director.

H. All records, property, grants, and unexpended balances of appropriations, allocations, and other fundsused, held, employed, available or to be made available to any entity for the authority, activities, powers,duties, functions, and responsibilities transferred under this Order to the Office of the State Budget Directorare transferred to the Office of the State Budget Director.

V. MISCELLANEOUSA. The State Budget Director shall determine and authorize the most efficient manner possible for handling

financial transactions and records in this state’s financial management system necessary to implement thisOrder.

B. All rules, orders, contracts, and agreements relating to the functions transferred under this Orderlawfully adopted prior to the effective date of this Order shall continue to be effective until revised, amended,repealed, or rescinded.

C. Any suit, action, or other proceeding lawfully commenced by, against, or before any entity affected bythis Order, shall not abate by reason of the taking effect of this Order. Any suit, action, or other proceedingmay be maintained by, against, or before the appropriate successor of any entity affected by this Order.

D. The invalidity of any portion of this Order shall not affect the validity of the remainder of the Order,which may be given effect without any invalid portion. Any portion of this Order found invalid by a court orother entity with proper jurisdiction shall be severable from the remaining portions of this Order.

In fulfillment of the requirements under Section 2 of Article V of the Michigan Constitution of 1963, theprovisions of this Order are effective October 1, 2007 at 12:01 a.m.

History: 2007, E.R.O. No. 2007-22, Eff. Oct. 1, 2007.

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THE MANAGEMENT AND BUDGET ACT (EXCERPT)Act 431 of 1984

18.1486 Internal auditor; appointment; member of state classified executive service;supervision; protection; duties; professional and auditing standards.Sec. 486. (1) Each principal department shall appoint an internal auditor. Each internal auditor shall be a

member of the state classified executive service.(2) Except as otherwise provided by law, each internal auditor shall report to and be under the general

supervision of the department head.(3) A person may not prevent or prohibit the internal auditor from initiating, carrying out, or completing

any audit or investigation. The internal auditor shall be protected pursuant to the whistleblowers' protectionact, 1980 PA 469, MCL 15.361 to 15.369.

(4) The internal auditor of each principal department shall:(a) Receive and investigate any allegations that false or misleading information was received in evaluating

the principal department's internal accounting and administrative control system or in connection with thepreparation of the biennial report on the system.

(b) Conduct and supervise audits relating to financial activities of the principal department's operations.(c) Review existing activities and recommend policies designed to promote efficiency in the administration

of that principal department's programs and operations as assigned by the department head.(d) Recommend policies for activities to protect the state's assets under the control of that principal

department, and to prevent and detect fraud and abuse in the principal department's programs and operations.(e) Review and recommend activities designed to ensure that principal department's internal financial

control and accounting policies are in conformance with the department of management and budgetaccounting division directives issued pursuant to sections 421 and 444.

(f) Provide a means to keep the department head fully and currently informed about problems anddeficiencies relating to the administration of that principal department's programs and operations and thenecessity for and progress of corrective action.

(g) Conduct other audit and investigative activities as assigned by the department head.(5) Each internal auditor shall adhere to appropriate professional and auditing standards in carrying out any

financial or program audits or investigations.History: Add. 1986, Act 272, Imd. Eff. Dec. 19, 1986;Am. 1999, Act 8, Imd. Eff. Mar. 22, 1999.

Popular name: Act 431

Popular name: DMB



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THE MANAGEMENT AND BUDGET ACT (EXCERPT)Act 431 of 1984

18.1487 Internal auditor; reports; plan to correct problems, abuses, or deficiencies; publicdisclosure of information.Sec. 487. (1) Each internal auditor shall report immediately to the department head if the internal auditor

becomes aware of particularly serious or flagrant problems, abuses, or deficiencies relating to theadministration of programs or operations of that principal department or its state agencies. If criminal activityis suspected, the department head shall immediately submit a report to the governor, attorney general, and theauditor general in accordance with reporting requirements established pursuant to section 484.

(2) Within 60 days after the receipt of a report filed pursuant to subsection (1), the department head shallsubmit a plan to correct the problems, abuses, or deficiencies to the director. Within 30 days after the receiptof the plan to correct, the director shall submit copies of the plan to correct to the auditor general and thesenate and house appropriations committees.

(3) This section shall not be construed to authorize the public disclosure of information which is part of anongoing criminal investigation or which is specifically prohibited from public disclosure by any otherprovision of law.

History: Add. 1986, Act 272, Imd. Eff. Dec. 19, 1986.

Popular name: Act 431

Popular name: DMB



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MichiganOfficeof the StateBudgetOfficeof InternalAudit Services

Internal Audit Charter

MissionThe Office of Internal Audit Services(OIAS) is responsible to provide independent, objective assuranceand consulting services to State departments and agencies that are designed to improve the operationsof the State of Michigan. OIASwill assist the State in obtaining its objectives by bringing a systematic,disciplined approach to examine, evaluate, and improve the effectiveness of the risk management,internal control, and governance processes.

LeQal AuthoritvPublicAct 431 of 1984 (the Managementand Budget Act), as amended, MCL18.1486-18.1487, requireseach principal department and agency to appoint an internal auditor and proscribes the duties,responsibilities, and standards for the position. Executive Order 2007-31, MCL18.46, transferred theauthority, responsibility, duties, functions, and resources for performing internal audit functions to theState Budget Director. The Director has delegated the responsibility and authority to perform thesefunctions to OIAS, as specified within this Charter.

OrQanization and SupervisionThe OIAS Director reports administratively and functionally to the Deputy State Budget Director. TheOIAS Director supervises and manages all personnel and other resourcesassigned to the Office. TheOIAS Director consults with the State department and agency heads in planning assuranceand consultingactivities to ensure that their needs for internal audit servicesare identified and addressed, asappropriate, on an ongoing and/or emergent basis.

IndependenceAll internal audit activities shall remain free of any influence from any entity in the State, includingmatters of audit selection, scope, procedures, frequency, timing, or report content. Such independenceis necessaryto ensure that all activities and reporting is performed in an objective and unbiased manner.

Internal auditors shall have no direct operational responsibility or authority over any of the activities theyreview. Accordingly, they shall not develop nor install systems or procedures, prepare records, or engagein any other activity that would normally be audited or reviewed by OIAS.

Standards for PracticeOIAS staff shall conduct themselves in accordance with The Institute of Internal Auditors' (IIA) Code ofEthics. The IIA's International Standards for the ProfessionalPractice of Internal Auditing (Standards)and applicable Michigan state laws and regulations shall govern the operating procedures for OIAS. TheIIA 5 PracticeAdvisories will be adhered to by the Office, as applicable.

Scope Of Authoritv and ResponsibilitvOIAS'sscope of authority and responsibility encompassesthe examination and evaluation of theadequacy and effectiveness of the State's system of internal controls and quality of performance inachieving its stated goals and objectives. The scope includes:

. Reviewing the reliability and integrity of financial and operating information and the means usedto identify, measure, and report such information.Reviewing the internal control systems established to ensure compliance with policies, plans,procedures, laws, and regulations that could have a significant impact on the State's operationsand reporting on the State's compliance with them.Reviewing the means of safeguarding assets and, as appropriate, verifying the existence of suchassets.

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Page 1 of 3

MICHIGAN

MichiganOfficeof the StateBudgetOfficeof InternalAuditServices


. Reviewing specificoperations and providing consulting servicesat the request of the StateBudget Director, department and agency heads, or other management staff, as appropriate.Assisting with the investigation of financial or operating irregularities or suspected fraud withindepartments or agencies.

.The OIAS Director and internal audit staff are responsibleto:

. Develop and implement a risk assessmentmethodology that includes input from appropriateagency personnel. Use results from the risk assessmentto formulate a flexible audit plan andsubmit for agency review and comment. Obtain audit plan approval from the Office of the StateBudget. Communicate significant changes to the approved plan with those same parties.Implement the approved audit plan and consider any special projects requested by the Office ofthe State Budget or department and agency heads.Assist agency and department managers with the development of evaluation tools, appropriateuse of such tools, relevant training, technical assistance,and other consulting services to helpimprove the State's risk management, internal control, and governance processes.Maintain sufficient knowledge, skills, expertise, and professionalcertifications to meet therequirements of this Charter.Safeguard the documents and confidentiality of the information during an audit or review in thesame prudent manner used by those employees normally accountable for the documents orinformation.Assist department and agency managers, as requested, in the investigation of significant,suspected fraud or misconduct issues.

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.The OIAS Director and internal audit staff are authorized to:

. Have unrestricted accessto all functions, records, property, and personnel relevant to theperformance of audit activities.Allocate resources,set frequencies, select subjects, determine scope of activities, and apply thetechniques required to accomplishOIAS objectives.Obtain all necessaryassistancefrom personnel in units of the State department and agencies inwhich internal audit activities are conducted.

.

.The completion of internal audit activities does not in any way relieve State of Michiganemployees frombeing held accountable for properly performing the responsibilitiesassigned to them.

ReportinQA written report, when applicable, will be prepared by the Director of OIAS on the results of auditactivities. Copiesof such reports will be provided to the State Budget Director and affected departmentor agency heads. For each audit recommendation, an audit report will contain department or agencyresponses, including planned or completed corrective actions and corresponding timelines for completion.

Effective DateThisCharteriseffectiveuponapproval,as indicatedbelow,andremainsin effectuntil supersededbyasubsequentapprovedAuditCharterof the Officeof InternalAuditServicesor its successoragency.

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MICHIGAN

Michigan Officeof the State BudgetOffice of Internal Audit Services


Submitted,April 17, 2008:

~~~£Director, Office of Internal Audit Services

Approved and Effective as of April 30, 2008:

~ %/~Narfcy DUJX:an

De~ty ~tate Budget Director

Ci}wc(~ ~/O~State Budget Director

Page 3 of 3

MICHIGAN

GENERAL ASSEMBLY OF NORTH CAROLINA SESSION 2007

SESSION LAW 2007-424 HOUSE BILL 1401

AN ACT TO ENACT THE NORTH CAROLINA INTERNAL AUDIT ACT. The General Assembly of North Carolina enacts:

SECTION 1. Chapter 143 of the General Statutes is amended by adding a

new Article to read: "Article 79.

"Internal Auditing. "§ 143-738. Definitions; intent; applicability.

(a) For the purposes of this section: (1) 'State agency' means each department created pursuant to Chapter

143A or 143B of the General Statutes, the Judicial Branch, The University of North Carolina, and the Department of Public Instruction.

(2) 'Agency head' means the Governor, a Council of State member, a cabinet secretary, the Chief Justice of the Supreme Court, the President of The University of North Carolina, and the Superintendent of Public Instruction.

(b) This Article applies only to a State agency that: (1) Has an annual operating budget that exceeds ten million dollars

($10,000,000); (2) Has more than 100 full-time equivalent employees; or (3) Receives and processes more than ten million dollars ($10,000,000) in

cash in a fiscal year. "§ 143-739. Internal auditing required.

(a) Requirements. – A State agency shall establish a program of internal auditing that:

(1) Implements an effective system of internal controls that safeguards public funds and assets and minimizes incidences of fraud, waste, and abuse.

(2) Ensures programs and business operations are administered in compliance with federal and state laws, regulations, and other requirements.

(3) Reviews the effectiveness and efficiency of agency and program operations and service delivery.

(4) Periodically audits the agency's major systems and controls, including: a. Accounting systems and controls. b. Administrative systems and controls. c. Electronic data processing systems and controls.

(b) Internal Audit Standards. – Internal audits shall comply with current Standards for the Professional Practice of Internal Auditing issued by the Institute for Internal Auditors or, if appropriate, Government Auditing Standards issued by the Comptroller General of the United States.

(c) Appointment and Qualifications of Internal Auditors. – Any internal auditor employed by a State agency shall at a minimum have a bachelor's degree from an accredited college or university and:

NORTH CAROLINA

Session Law 2007-424 SL2007-0424

(1) Certification or licensure as a certified public accountant, certified internal auditor, certified fraud examiner, certified information systems auditor, professional engineer, or attorney; or

(2) A minimum of five years' experience in internal or external auditing, management consulting, program evaluation, management analysis, economic analysis, industrial engineering, or operations research.

(d) Director of Internal Auditing. – The agency head shall appoint a Director of Internal Auditing who shall report to the agency head and shall not report to any employee subordinate to the agency head. "§ 143-740. Council of Internal Auditing.

(a) The Council of Internal Auditing is created, consisting of the following members:

(1) The State Controller who shall serve as Chair. (2) The State Budget Officer. (3) The Secretary of Administration. (4) The Attorney General. (5) The Secretary of Revenue. (6) The State Auditor who shall serve as a nonvoting member. The State

Auditor may appoint a designee. (b) The Council shall be supported by the Office of State Budget and

Management. (c) The Council shall:

(1) Hold its first meeting before November 1, 2007, and thereafter at the call of the Chair or upon written request to the Chair by two members of the Council.

(2) Keep minutes of all proceedings. (3) Promulgate guidelines for the uniformity and quality of State agency

internal audit activities. (4) Recommend the number of internal audit employees required by each

State agency. (5) Develop internal audit guides, technical manuals, and suggested best

internal audit practices. (6) Administer an independent peer review system for each State agency

internal audit activity; specify the frequency of such reviews consistent with applicable national standards; and assist agencies with selection of independent peer reviewers from other State agencies.

(7) Provide central training sessions, professional development opportunities, and recognition programs for internal auditors.

(8) Administer a program for sharing internal auditors among State agencies needing temporary assistance and assembly of interagency teams of internal auditors to conduct internal audits beyond the capacity of a single agency.

(9) Maintain a central database of all annual internal audit plans; topics for review proposed by internal audit plans; internal audit reports issued and individual findings and recommendations from those reports.

(10) Require reports in writing from any State agency relative to any internal audit matter.

(11) If determined necessary by a majority vote of the council: a. Conduct hearings relative to any attempts to interfere with,

compromise, or intimidate an internal auditor. b. Inquire as to the effectiveness of any internal audit unit. c. Authorize the Chair to issue subpoenas for the appearance of

any person or internal audit working papers, report drafts, and any other pertinent document or record regardless of physical form needed for the hearing.

NORTH CAROLINA

SL2007-0424 Session Law 2007-424 Page 3

(12) Issue an annual report including, but not limited to, service efforts and accomplishments of State agency internal auditors and to propose legislation for consideration by the Governor and General Assembly."

SECTION 2. This act is effective when it becomes law. In the General Assembly read three times and ratified this the 2nd day of

August, 2007. s/ Beverly E. Perdue President of the Senate s/ Joe Hackney Speaker of the House of Representatives s/ Michael F. Easley Governor Approved 10:15 a.m. this 23rd day of August, 2007

NORTH CAROLINA

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HB 166 As Enrolled

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(127th General Assembly) (Substitute House Bill Number 166)

AN ACT

To amend sections 124.341 and 5703.21 and to enact sections 126.45 to 126.48 of the Revised Code to create an Office of Internal Auditing within the Office of Budget and Management, to establish the State Audit Committee, and to prescribe their respective and interrelated functions.

Be it enacted by the General Assembly of the State of Ohio:

SECTION 1. That sections 124.341 and 5703.21 be amended and sections 126.45, 126.46, 126.47, and 126.48 of the Revised Code be enacted to read as follows:

Sec. 124.341. (A) If an employee in the classified or unclassified civil service becomes aware in the course of employment of a violation of state or federal statutes, rules, or regulations or the misuse of public resources, and the employee's supervisor or appointing authority has authority to correct the violation or misuse, the employee may file a written report identifying the violation or misuse with the supervisor or appointing authority. In addition to or instead of filing a written report with the supervisor or appointing authority, the employee may file a written report with the office of internal auditing created under section 126.45 of the Revised Code.

If the employee reasonably believes that a violation or misuse of public resources is a criminal offense, the employee, in addition to or instead of filing a written report with the supervisor or, appointing authority, or the office of internal auditing, may report it to a prosecuting attorney, director of law, village solicitor, or similar chief legal officer of a municipal corporation, to a peace officer, as defined in section 2935.01 of the Revised Code, or, if the violation or misuse of public resources is within the jurisdiction of the inspector general, to the inspector general in accordance with section 121.46 of the Revised Code. In addition to that report, if the employee reasonably believes the violation or misuse is also a violation of Chapter 102., section 2921.42, or section 2921.43 of the Revised Code, the employee may report it to the appropriate ethics commission.

(B) Except as otherwise provided in division (C) of this section, no officer or employee in the classified or unclassified civil service shall take any disciplinary action against an employee in the classified or unclassified civil service for making any report authorized by division (A) of this section, including, without limitation, doing any of the following:

(1) Removing or suspending the employee from employment;

(2) Withholding from the employee salary increases or employee benefits to which the employee is otherwise entitled;

(3) Transferring or reassigning the employee;

(4) Denying the employee promotion that otherwise would have been received;

(5) Reducing the employee in pay or position.

(C) An employee in the classified or unclassified civil service shall make a reasonable effort to determine the accuracy of any information reported under division (A) of this section. The employee is subject to disciplinary action, including suspension or removal, as determined by the employee's appointing authority, for purposely, knowingly, or recklessly reporting false information under division (A) of this section.

(D) If an appointing authority takes any disciplinary or retaliatory action against a classified or unclassified employee as a result of the employee's having filed a report under division (A) of this section, the employee's sole and exclusive remedy, notwithstanding any other provision of law, is to file an appeal with the state personnel board of review within thirty days after receiving actual notice of the appointing authority's action. If the employee files such an appeal, the board shall immediately notify the employee's appointing authority and shall hear the appeal. The board may affirm or disaffirm the action of the appointing authority or may issue any other order as is appropriate. The order of the board is appealable in accordance with Chapter 119. of the Revised Code.

(E) As used in this section:

The online versions of legislation provided on this website are NOT official. The official version of bills are available from the LSC Bill Room located at the north end of the Ground Floor of the Statehouse. Enrolled bills are the final version passed by the Ohio General Assembly and presented to the

Governor for signature. The official version of acts signed by the Governor are available from the Secretary of State's Office in the Continental Plaza,

180 East Broad St., Columbus.

Page 1 of 5Laws, Acts, and Legislation

2/9/2010http://www.legislature.state.oh.us/bills.cfm?ID=127_HB_166

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(1) "Purposely," "knowingly," and "recklessly" have the same meanings as in section 2901.22 of the Revised Code.

(2) "Appropriate ethics commission" has the same meaning as in section 102.01 of the Revised Code.

(3) "Inspector general" means the inspector general appointed under section 121.48 of the Revised Code.

Sec. 126.45. (A) As used in sections 126.45 to 126.48 of the Revised Code, "state agency" means the administrative departments listed in section 121.02 of the Revised Code, the department of taxation, and the bureau of workers' compensation.

(B) The office of internal auditing is hereby created in the office of budget and management to conduct internal audits of state agencies or divisions of state agencies to improve their operations in the areas of risk management, internal controls, and governance. The director of budget and management, with the approval of the governor, shall appoint for the office of internal auditing a chief internal auditor who meets the qualifications specified in division (C) of this section. The chief internal auditor shall serve at the director's pleasure and be responsible for the administration of the office of internal auditing consistent with sections 126.45 to 126.48 of the Revised Code.

The office of internal auditing shall conduct programs for the internal auditing of state agencies. The programs shall include an annual internal audit plan, reviewed by the state audit committee, that utilizes risk assessment techniques and identifies the specific audits to be conducted during the year. The programs also shall include periodic audits of each state agency's major systems and controls, including those systems and controls pertaining to accounting, administration, and electronic data processing. Upon the request of the office of internal auditing, each state agency shall provide office employees access to all records and documents necessary for the performance of an internal audit.

The director of budget and management shall assess a charge against each state agency for which the office of internal auditing conducts internal auditing programs under sections 126.45 to 126.48 of the Revised Code so that the total amount of these charges is sufficient to cover the costs of the operation of the office of internal auditing.

(C) The chief internal auditor of the office of internal auditing shall hold at least a bachelor's degree and be one of the following:

(1) A certified internal auditor, a certified government auditing professional, or a certified public accountant, who also has held a PA registration or a CPA certificate authorized by Chapter 4701. of the Revised Code for at least four years and has at least six years of auditing experience;

(2) An auditor who has held a PA registration or a CPA certificate authorized by Chapter 4701. of the Revised Code for at least four years and has at least ten years of auditing experience.

(D) The chief internal auditor, subject to the direction and control of the director of budget and management, may appoint and maintain any staff necessary to carry out the duties assigned by sections 126.45 to 126.48 of the Revised Code to the office of internal auditing or to the chief internal auditor.

Sec. 126.46. (A)(1) There is hereby created the state audit committee, consisting of the following five members: one public member appointed by the governor; two public members appointed by the speaker of the house of representatives, one of which may be a person who is recommended by the minority leader of the house of representatives; and two public members appointed by the president of the senate, one of which may be a person who is recommended by the minority leader of the senate. Not more than two of the four members appointed by the speaker of the house of representatives and the president of the senate shall belong to or be affiliated with the same political party. The member appointed by the governor shall be a person who is external to the management structure associated with the preparation of financial statements of state government and shall have the program and management expertise required to perform the duties of the committee's chairperson.

Each member of the committee shall serve a three-year term, except for the initial members. With respect to the initial appointments of the members, the first member appointed by the speaker of the house of representatives shall serve a one-year term, the second member appointed by the speaker of the house of representatives shall serve a three-year term, the initial members appointed by the president of the senate shall serve two-year terms, and the initial member appointed by the governor shall serve a three-year term. Members may be reappointed to serve one additional term.

The committee shall include one member who is a financial expert; one member who is an active, inactive, or retired certified public accountant; one member who is familiar with governmental financial accounting; and one member who is a representative of the public.

Any vacancy on the committee shall be filled in the same manner as provided in this division, and, when applicable, the person appointed to fill a vacancy shall serve the remainder of the predecessor's term.

(2) Members of the committee shall receive reimbursement for actual and necessary expenses incurred in the discharge of their duties.

(3) The member of the committee appointed by the governor shall serve as the committee's chairperson.

(4) Initial appointments of committee members shall be made not later than thirty days after the effective date of this section.

(5) Members of the committee shall be subject to the disclosure statement requirements of section 102.02 of the Revised Code.

(B) The state audit committee shall do all of the following:

(1) Ensure that the internal audits conducted by the office of internal auditing in the office of budget and



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management conform to the institute of internal auditors' international standards for the professional practice of internal auditing and to the institute of internal auditors' code of ethics;

(2) Review and comment on the process used by the office of budget and management to prepare its annual budgetary financial report and the state's comprehensive annual financial report required under division (A)(9) of section 126.21 of the Revised Code;

(3) Review and comment on unaudited financial statements submitted to the auditor of state and communicate with external auditors as required by government auditing standards;

(4) Perform the additional functions imposed upon it by section 126.47 of the Revised Code.

(C) As used in this section, "financial expert" means a person who has all of the following:

(1) An understanding of generally accepted accounting principles and financial statements;

(2) The ability to assess the general application of those principles in connection with accounting for estimates, accruals, and reserves;

(3) Experience preparing, auditing, analyzing, or evaluating financial statements presenting accounting issues that generally are of comparable breadth and level of complexity to those likely to be presented by a state agency's financial statements, or experience actively supervising one or more persons engaged in those activities;

(4) An understanding of internal controls and procedures for financial reporting; and

(5) An understanding of audit committee functions.

Sec. 126.47. (A) The state audit committee created by section 126.46 of the Revised Code shall ensure that the office of internal auditing in the office of budget and management has an annual internal audit plan that identifies the internal audits of state agencies or divisions of state agencies scheduled for the next fiscal year. The chief internal auditor of the office of internal auditing shall submit the plan to the state audit committee for review and comment before the beginning of each fiscal year. The chief internal auditor may submit a revised internal audit plan for review and comment at any time the director of budget and management believes there is reason to modify the previously submitted plan for a fiscal year.

(B) To determine the state agencies or divisions of state agencies that are to be internally audited, the office of internal auditing, in the formulation of an annual or revised internal audit plan, and the state audit committee, in reviewing a submitted annual or revised internal audit plan, shall consider the following factors:

(1) The risk for fraud, waste, or abuse of public money within an agency or division;

(2) The length of time since an agency or division was last subject to an internal audit;

(3) The size of an agency or division, and the amount of time and resources necessary to audit it;

(4) Any other factor the state audit committee determines to be relevant.

(C) All internal audits shall be conducted only by employees of the office of internal auditing.

(D) After the conclusion of an internal audit, the chief internal auditor shall submit a preliminary report of the internal audit's findings and recommendations to the state audit committee and to the director of the state agency involved. The state agency or division of the state agency covered by the preliminary report shall be provided an opportunity to respond within thirty days after receipt of the preliminary report. The response shall include a corrective action plan for any recommendations in the preliminary report that are not disputed by the agency or division. Any response received by the office of internal auditing within that thirty-day period shall be included in the office's final report of the internal audit's findings and recommendations. The final report shall be issued by the office of internal auditing within thirty days after the termination of the thirty-day response period. Copies of the final report shall be submitted to the state audit committee, the governor, and the director of the state agency involved. The state audit committee shall determine an appropriate method for making the preliminary and final reports available for public inspection in a timely manner.

Any suspected fraud or other illegal activity discovered by the office of internal auditing during the conduct of an internal audit shall be reported immediately to the state audit committee, the director of the state agency in which the fraud or illegal activity is suspected to have occurred, and the auditor of state.

(E) The chief internal auditor shall prepare an annual report and submit the report to the governor, the president of the senate, the speaker of the house of representatives, and the auditor of state. The office of budget and management shall make the report available to the public by posting it on the office's web site before the first of July of each year.

Sec. 126.48. Any preliminary or final report of an internal audit's findings and recommendations which is produced by the office of internal auditing in the office of budget and management and all work papers of the internal audit are confidential and are not public records under section 149.43 of the Revised Code until the final report of an internal audit's findings and recommendations is submitted to the state audit committee, the governor, and the director of the state agency involved.

Sec. 5703.21. (A) Except as provided in divisions (B) and (C) of this section, no agent of the department of taxation, except in the agent's report to the department or when called on to testify in any court or proceeding, shall divulge any information acquired by the agent as to the transactions, property, or business of any person while acting or claiming to act under orders of the department. Whoever violates this provision shall thereafter be disqualified from acting as an officer or employee or in any other capacity under appointment or employment of the



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department.

(B)(1) For purposes of an audit pursuant to section 117.15 of the Revised Code, or an audit of the department pursuant to Chapter 117. of the Revised Code, or an audit, pursuant to that chapter, the objective of which is to express an opinion on a financial report or statement prepared or issued pursuant to division (A)(7) or (9) of section 126.21 of the Revised Code, the officers and employees of the auditor of state charged with conducting the audit shall have access to and the right to examine any state tax returns and state tax return information in the possession of the department to the extent that the access and examination are necessary for purposes of the audit. Any information acquired as the result of that access and examination shall not be divulged for any purpose other than as required for the audit or unless the officers and employees are required to testify in a court or proceeding under compulsion of legal process. Whoever violates this provision shall thereafter be disqualified from acting as an officer or employee or in any other capacity under appointment or employment of the auditor of state.

(2) For purposes of an internal audit pursuant to section 126.45 of the Revised Code, the officers and employees of the office of internal auditing in the office of budget and management charged with conducting the internal audit shall have access to and the right to examine any state tax returns and state tax return information in the possession of the department to the extent that the access and examination are necessary for purposes of the internal audit. Any information acquired as the result of that access and examination shall not be divulged for any purpose other than as required for the internal audit or unless the officers and employees are required to testify in a court or proceeding under compulsion of legal process. Whoever violates this provision shall thereafter be disqualified from acting as an officer or employee or in any other capacity under appointment or employment of the office of internal auditing.

(3) As provided by section 6103(d)(2) of the Internal Revenue Code, any federal tax returns or federal tax information that the department has acquired from the internal revenue service, through federal and state statutory authority, may be disclosed to the auditor of state or the office of internal auditing solely for purposes of an audit of the department.

(C) Division (A) of this section does not prohibit any of the following:

(1) Divulging information contained in applications, complaints, and related documents filed with the department under section 5715.27 of the Revised Code or in applications filed with the department under section 5715.39 of the Revised Code;

(2) Providing information to the office of child support within the department of job and family services pursuant to section 3125.43 of the Revised Code;

(3) Disclosing to the board of motor vehicle collision repair registration any information in the possession of the department that is necessary for the board to verify the existence of an applicant's valid vendor's license and current state tax identification number under section 4775.07 of the Revised Code;

(4) Providing information to the administrator of workers' compensation pursuant to sections 4123.271 and 4123.591 of the Revised Code;

(5) Providing to the attorney general information the department obtains under division (J) of section 1346.01 of the Revised Code;

(6) Permitting properly authorized officers, employees, or agents of a municipal corporation from inspecting reports or information pursuant to rules adopted under section 5745.16 of the Revised Code;

(7) Providing information regarding the name, account number, or business address of a holder of a vendor's license issued pursuant to section 5739.17 of the Revised Code, a holder of a direct payment permit issued pursuant to section 5739.031 of the Revised Code, or a seller having a use tax account maintained pursuant to section 5741.17 of the Revised Code, or information regarding the active or inactive status of a vendor's license, direct payment permit, or seller's use tax account;

(8) Releasing invoices or invoice information furnished under section 4301.433 of the Revised Code pursuant to that section;

(9) Providing to a county auditor notices or documents concerning or affecting the taxable value of property in the county auditor's county. Unless authorized by law to disclose documents so provided, the county auditor shall not disclose such documents;

(10) Providing to a county auditor sales or use tax return or audit information under section 333.06 of the Revised Code.

SECTION 2. That existing sections 124.341 and 5703.21 of the Revised Code are hereby repealed.

SECTION 3. (A) It is the intent of the General Assembly in the enactment of section 126.45 of the Revised Code that the primary internal audit function of state agencies as defined in that section will be carried out by the Office of Internal Auditing of the Office of Budget and Management.

(B) Before May 1, 2008, the Director of Budget and Management, in consultation with the Director of Administrative Services and the State Audit Committee created in section 126.46 of the Revised Code, shall develop a plan to commence operations of the Office of Internal Auditing. The plan shall do all of the following:

(1) Identify those existing employees within state agencies as defined in section 126.45 of the Revised Code who perform the function of an internal auditor and who will be transferred to the Office of Internal Auditing;

(2) Establish funds and appropriation authority that is necessary for the efficient and effective operation of the Office of Internal Auditing;



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(3) Provide for a method to assess charges against the various state agencies for which the Office of Internal Auditing conducts internal auditing programs under sections 126.45 to 126.48 of the Revised Code so that the total amount of these charges is sufficient to cover the costs of the operation of the Office of Internal Auditing;

(4) Provide for the appropriate reduction in the appropriation authority of the state agencies from which existing employees who perform the function of internal auditor are transferred.

(C) The Controlling Board shall approve the plan before the Office of Budget and Management implements it.

(D) Subject to the layoff and displacement provisions of Chapter 124. of the Revised Code, all state agency employees who are identified by the plan as performing duties necessary to comply with sections 126.45 to 126.48 of the Revised Code shall be transferred, upon the approval of the Controlling Board, to the Office of Internal Auditing and shall retain their positions, compensation, and associated fringe benefits.

SECTION 4. Section 5703.21 of the Revised Code is presented in this act as a composite of the section as amended by both Am. Sub. H.B. 530 and Am. Sub. S.B. 7 of the 126th General Assembly. The General Assembly, applying the principle stated in division (B) of section 1.52 of the Revised Code that amendments are to be harmonized if reasonably capable of simultaneous operation, finds that the composite is the resulting version of the section in effect prior to the effective date of the section as presented in this act.

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