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SB 2270 Requires Mandatory Audit Rotation and Applying Low Bid Requirements to Audit Services

February 25, 2016 | Legislative briefs

Please see the information below provided to the IGFOA by the IML. IGFOA members are encouraged to provide observations, comments, or concerns about the provisions of SB 2270. Please send them to Execdir@igfoa.org by March 9, 2016.

Analysis of SB 2270

Mandatory Rotation of Auditing Services

SB 2270 (Senator Stadelman, D-Rockford) is intended to establish a policy requiring local governments, schools, public universities and community colleges to rotate auditors no less frequently than every five years. The general practice of rotating auditors is sound public policy and can protect taxpayers from potential corruption and abuse. An analysis of the provisions of the bill can be reviewed below. SB 2270 was assigned to the Senate Local Government Committee on February 3. The IML would appreciate any feedback if it is believed that the provisions within SB 2270 are somehow problematic.

5-Year Contract Limitation Period 
The bill would amend the Governmental Account Audit Act to prohibit a unit of local government from contracting with or appointing a licensed public accountant or a licensed public accounting firm after the accountant or firm has provided auditing services for five consecutive years. Because the bill prohibits the renewal of a contract with an accountant or auditing firm after the five-year period concludes, audit providers are effectively rotated at least every five years.

Applicability of the Audit Rotation Requirement 
Several statutes are amended to cross-reference and incorporate the five-year audit rotation requirement proposed within the Governmental Account Audit Act. These statutes include the Counties Code, Municipal Code, Park District Code, School Code, Board of Higher Education Act and Public Community College Act.

Lowest Responsible Bidder Requirement 
Under current law, auditing services are not subject to bidding requirements. SB 2270 would require that a licensed public accountant or a licensed public accounting firm could only be hired if the accountant or firm is the lowest responsible bidder following an advertisement for bids. If the lowest responsible bidder is the prior accountant or firm, then that accountant or firm must be denied the contract.

There are two allowable exceptions to the lowest responsible bidder requirement. They are as follows:

Exception One: 
An otherwise disqualified firm can be retained if the lead (or coordinating) audit partner, or the audit partner responsible for reviewing the audit, has not served as the lead or coordinating auditor in each of the five previous fiscal years. The bill therefore makes it permissible to remain with a firm as long as they are the lowest responsible bidder and can rotate the personnel leading the audit process.

Exception Two: 
The lowest responsible bidder restriction can also be waived by the Illinois Comptroller if the local government can demonstrate that no other licensed public accountant or firm is located within a reasonable distance or is able or willing to perform the audit. Such evidence would involve the receipt of only one bid following an advertisement for bids.

The Comptroller could also waive the requirement for an audit partner rotation, but would be prohibited from doing so unless the licensed public accounting firm has less than three licensed public accountants employed and no individual licensed public accountant within a reasonable distance is able or willing to perform the audit.

By: Joe McCoy 
Legislative Director 
Illinois Municipal League

February 25, 2016

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