California’s Government Code Title 2, Division 3, Part 3, Chapter 5 provides “The State Leadership Accountability Act,” which contains Sections 13400 – 13407. Section 13400 specifies the Act’s title.
Section 13401 provides six legislative findings, including that active oversight processes for the prevention and early detection of fraud and errors in program administration are vital to public confidence and the appropriate and efficient use of public resources.
Section 13401 also provides four legislative declarations, including that each state agency must maintain effective systems of internal control as an integral part of its management practices, and that it is the responsibility of the Department of Finance (DOF) to establish guidelines for how the objectivity of the persons tasked with monitoring processes are to be maintained.
Section 13402 specifies that agency heads are responsible for the establishment and maintenance of a system of internal control, and effective and objective ongoing monitoring of the internal controls within their state agencies. Section 13403 defines the terms “internal control,” “control environment,” “risk assessment, “control activities,” “information and communication,” and “monitoring.”
Section 13403 also specifies the required elements of a satisfactory system of internal control. In addition, agency heads are required to follow the standards established by this section of internal control, and monitoring systems and processes are vital to a number of requirements. It is the responsibility of the DOF to establish guidelines for the management of state agencies on how the role of monitoring should be staffed, structured, and its reporting function standardized so it fits within an efficient and normalized state agency administrative framework.
Section 13404 defines the terms “agency head” and “state agency.” Section 13405 requires each agency head to conduct an internal review, on a biennial basis, and prepare a report on the adequacy of the state agency’s systems of internal control and monitoring practices.
In addition, an agency head is required to submit a copy of the report and related response to the Legislature, the California State Auditor, the Controller, the Department of Finance, the Secretary of Government Operations, and to the State Library where the copy shall be available for public inspection.
This report must identify all inadequacies or weaknesses in a state agency’s systems of internal control that prevents the agency head from stating that the state agency’s systems comply with this chapter. The state agency must provide to the DOF a plan and schedule for correcting the identified inadequacies or weaknesses.
In addition, the DOF must establish a system of reporting and a general framework to guide state agencies in conducting internal reviews of their systems of internal control. The DOF must also establish a general framework of recommended practices to guide state agencies in conducting active, ongoing monitoring of processes for internal control.
Section 13406 requires the head of the internal audit staff of a state agency to receive and investigate any allegation that an employee of the state agency provided false or misleading information in connection with the review of the state agency’s systems of internal control or in connection with the preparation of the biennial report on the systems of internal control, and monitoring practices.
Section 13407 provides that, because sound internal controls and the regular and ongoing monitoring of those internal controls significantly inhibits waste of resources and thereby creates savings, the DOF and state agencies must carry out the provisions of this chapter by using existing resources.