2023 Indiana Code › Title 5. State and Local Administration › Article 11. Accounting for Public Funds › Chapter 1. State Board of Accounts Created › 5-11-1-24.4. Opt Out of State Board of Accounts Examination; Selection of Certified Public Accountant to Perform Examination; Examination Report

Sec. 24.4. (a) This section applies only to an audited entity (excluding a college or university (as defined in IC 21-7-13-10)) that has:
(1) an internal control officer; and
(2) an internal control department;
established by the legislative body of the audited entity. However, the requirements of this section do not apply to a consolidated city that hires an internal auditor or an independent certified public accountant, or both, as authorized under IC 36-3-4-24 to examine the books and records of the consolidated city.
(b) An audited entity may request in writing that the state board of accounts authorize the audited entity to:
(1) opt out of examinations by the state board of accounts; and
(2) engage a certified public accountant to conduct the examinations.
The request must be approved by resolution adopted by the legislative body for the audited entity.
(c) The state board of accounts shall, not more than sixty (60) days after receiving a written request under subsection (b):
(1) acknowledge receipt of the request; and
(2) notify the requesting audited entity that the request is:
(A) approved; or
(B) disapproved.
(d) The state board of accounts shall approve a request under subsection (b) by an audited entity if the state examiner determines that:
(1) within the last six (6) years, the state board of accounts has not issued an examination or special investigation report critical of the audited entity's internal controls and there have been no reports under section 9.5 of this chapter;
(2) the audited entity filed the written request under subsection (b) with the state board of accounts more than one hundred eighty (180) days before the beginning of the audited entity's fiscal year;
(3) the audited entity selects the certified public accountant in accordance with the selection procedure under this section;
(4) the certified public accountant selected by the audited entity is:
(A) licensed in Indiana; and
(B) qualified to conduct examinations in accordance with the government auditing standards adopted by the state board of accounts;
(5) the certified public accountant's examination shall:
(A) be conducted in accordance with the guidelines established by the state board of accounts; and
(B) make findings regarding the audited entity's compliance with the uniform compliance guidelines established by the state board of accounts;
(6) the certified public accountant's examination is paid for by the audited entity; and
(7) the certified public accountant's examination of the audited entity includes:
(A) all associated component units;
(B) audits required or necessary for federal financial assistance;
(C) findings of noncompliance with state law and uniform compliance guidelines as required by IC 5-11-5-1; and
(D) a separate report in accordance with the guidelines established by the state board of accounts for any items of noncompliance identified.
(e) The audited entity must use the following selection procedures:
(1) The legislative body of the audited entity shall establish an audit committee to facilitate the selection of a certified public accountant. The audit committee shall be composed of the following three (3) members:
(A) One (1) member of the legislative body appointed by the legislative body.
(B) One (1) certified public accountant appointed by the legislative body who is not the fiscal officer or an employee of the audited entity.
(C) One (1) person appointed by the executive of the audited entity who is qualified due to an involvement with financial matters, and who is not the fiscal officer or an employee of the audited entity.
Each member shall be appointed for a three (3) year term and shall serve without compensation. However, a member appointed under clause (A) who ceases to hold the office of legislative body member ceases to be a member of the audit committee. A member may not have a contractual relationship, financial interest, or political affiliation with the certified public accountant selected.
(2) The audit committee established under subdivision (1) shall do the following:
(A) Establish factors to evaluate the audit services provided by a certified public accountant, including:
(i) experience;
(ii) ability to perform the required services;
(iii) capability to follow the guidelines and standards adopted by the state board of accounts;
(iv) ability to timely complete all necessary components of the examination; and
(v) any other factors considered necessary by the audit committee.
(B) Publish notice of a request for proposals under IC 5-3-1 that includes:
(i) a brief description of the audit requirements;
(ii) a time frame;
(iii) application procedures;
(iv) evaluation criteria; and
(v) any other items considered necessary by the audit committee.
(C) Evaluate the proposals submitted by qualified certified public accountants. If compensation is a factor established under clause (A), it may not be the sole factor used to evaluate proposals.
(D) Rank and recommend in order of preference not fewer than three (3) certified public accountants considered most highly qualified on the factors established under clause (A). If fewer than three (3) certified public accountants respond to the request for proposals, the audit committee shall recommend the remaining qualified certified public accountants in order of preference.
(3) The legislative body of the audited entity shall select a qualified certified public accountant from the list recommended by the audit committee and shall negotiate a contract with the certified public accountant using one (1) of the following methods:
(A) If compensation is a factor established under subdivision (2)(A), the legislative body shall:
(i) select; or
(ii) document the reason for not selecting;
the highest ranked certified public accountant.
(B) If compensation is not a factor established under subdivision (2)(A), the legislative body shall negotiate a contract with the highest ranked qualified certified public accountant. If unable to negotiate a satisfactory contract with the highest ranked qualified certified public accountant, the legislative body shall:
(i) formally terminate negotiations; and
(ii) negotiate with the second highest ranked certified public accountant.
Negotiations with the other ranked certified public accountants shall be undertaken in the same manner. The legislative body may reopen formal negotiations with any of the top three (3) ranked certified public accountants but may not negotiate with more than one (1) certified public accountant at a time.
(C) The legislative body may select a certified public accountant recommended by the audit committee and negotiate a contract using an appropriate alternative negotiation method for which compensation is not the sole or predominant factor.
(D) In negotiations with a certified public accountant, the legislative body may allow a designee, who is not the fiscal officer of the audited entity, to conduct negotiations on its behalf.
(4) If the legislative body is unable to negotiate a satisfactory contract with any of the recommended certified public accountants, the audit committee shall recommend additional certified public accountants, and negotiations shall continue in accordance with this section until an agreement is reached.
(5) The procurement of audit services shall be evidenced by a written contract embodying all provisions and conditions. For purposes of this section, an engagement letter signed and executed by both parties shall constitute a written contract. The written contract shall include the following provisions:
(A) Specification of services to be provided and fees or other compensation for the services.
(B) Invoices for fees or other compensation shall be submitted in sufficient detail to demonstrate compliance with the terms of the contract.
(C) Specification of the contract period and conditions under which the contract may be terminated or renewed.
(D) The certified public accountant shall perform the examination in accordance with:
(i) the guidelines and standards adopted by the state board of accounts;
(ii) auditing standards generally accepted in the United States; and
(iii) if applicable, government auditing standards, 2 CFR 200, and any other guidelines required by the industry.
(E) If the certified public accountant discovers or suspects instances of fraud, abuse of public funds, or the commission of a crime, the certified public accountant shall notify the state board of accounts:
(i) immediately; and
(ii) before disclosing the discovery or suspicion to the audited entity.
(F) The certified public accountant shall deliver the completed examination report to the state board of accounts:
(i) at the same time as the audited entity; and
(ii) not later than thirty (30) days after completion of the examination.
The report shall be in a readable format prescribed by the state board of accounts.
(G) All work papers supporting the examination report shall be available for review by the state board of accounts.
(6) If a legislative body of an audited entity renews a written contract with a certified public accountant that was entered into in accordance with this section, the legislative body may renew the contract without complying with the selection procedures in this subsection.
(f) The certified public accountant must deliver the completed examination report to the state board of accounts not later than thirty (30) days after completion of the examination. The state board of accounts shall review the examination report and may:
(1) ask questions of the certified public accountant;
(2) review the examination work papers; and
(3) take any other actions necessary to verify that the guidelines and standards adopted by the state board of accounts have been satisfied.
(g) If the certified public accountant's examination:
(1) satisfies the guidelines and standards adopted by the state board of accounts, the state examiner shall publicly file the examination report under IC 5-11-5-1; or
(2) fails to satisfy the guidelines and standards adopted by the state board of accounts:
(A) the state board of accounts shall perform the audit; and
(B) the audited entity shall reimburse the state board of accounts for the actual and direct cost of performing the examination.
(h) An audited entity that requests a certified public accountant under this section shall reimburse the state board of accounts for all direct and indirect costs incurred by the state board of accounts for any technical assistance and support requested by the audited entity.
(i) An audited entity may terminate the use of a certified public accountant engaged under this section if:
(1) the termination is approved by resolution adopted by the legislative body of the audited entity; and
(2) written notice of the termination is provided to the state board of accounts more than one hundred eighty (180) days before the beginning of the audited entity's fiscal year.
(j) The state board of accounts may terminate its approval of the use of a certified public accountant engaged under this section if any requirement under this article is no longer met.
(k) Conducting an examination of an audited entity by a certified public accountant does not prohibit the state board of accounts from conducting a compliance review of the audited entity or an examination under section 9.5 of this chapter on the schedule determined by the state board of accounts.
As added by P.L.181-2015, SEC.16. Amended by P.L.241-2017, SEC.2; P.L.11-2023, SEC.20; P.L.59-2023, SEC.9.