As Reported by the Senate Finance and Financial Institutions Committee

127th General Assembly Regular Session 2007-2008

Sub. H. B. No. 166

Representative Schindel 

Cosponsors: Representatives Adams, Bubp, Combs, DeWine, Flowers, Gibbs, Seitz, Stebelton, Widener, Zehringer, Aslanides, Bacon, Batchelder, Blessing, Coley, Collier, Daniels, Dolan, Evans, Fessler, Hagan, J., Hite, Hottinger, Huffman, Hughes, McGregor, R., Patton, Schneider, Setzer, Uecker, Wachtmann, Wagner, Wagoner, Widowfield 

Senators Niehaus, Cates, Miller, D., Gardner, Faber, Padgett 

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A BILL

To amend sections 124.341 and 5703.21 and to enact

1

sections 126.45 to 126.48 of the Revised Code to

2

create an Office of Internal Auditing within the

3

Office of Budget and Management, to establish

4

the State Audit Committee, and to prescribe

5

their respective and interrelated functions.

6

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:

Section 1. That sections 124.341 and 5703.21 be amended and	7
sections 126.45, 126.46, 126.47, and 126.48 of the Revised Code	8
be enacted to read as follows:	9

Sec. 124.341.  (A) If an employee in the classified or	10
unclassified civil service becomes aware in the course of	11
employment of a violation of state or federal statutes, rules, or	12
regulations or the misuse of public resources, and the employee's	13
supervisor or appointing authority has authority to correct the	14
violation or misuse, the employee may file a written report	15
identifying the violation or misuse with the supervisor or	16
appointing authority. In addition to or instead of filing a	17
written report with the supervisor or appointing authority, the	18
employee may file a written report with the office of internal	19
auditing created under section 126.45 of the Revised Code.	20

If the employee reasonably believes that a violation or	21
misuse of public resources is a criminal offense, the employee, in	22
addition to or instead of filing a written report with the	23
supervisor or, appointing authority, or the office of internal	24
auditing, may report it to a prosecuting attorney, director of	25
law, village solicitor, or similar chief legal officer of a	26
municipal corporation, to a peace officer, as defined in section	27
2935.01 of the Revised Code, or, if the violation or misuse of	28
public resources is within the jurisdiction of the inspector	29
general, to the inspector general in accordance with section	30
121.46 of the Revised Code. In addition to that report, if the	31
employee reasonably believes the violation or misuse is also a	32
violation of Chapter 102., section 2921.42, or section 2921.43 of	33
the Revised Code, the employee may report it to the appropriate	34
ethics commission.	35

(B) Except as otherwise provided in division (C) of this	36
section, no officer or employee in the classified or unclassified	37
civil service shall take any disciplinary action against an	38
employee in the classified or unclassified civil service for	39
making any report authorized by division (A) of this section,	40
including, without limitation, doing any of the following:	41

(1) Removing or suspending the employee from employment;

42

(2) Withholding from the employee salary increases or	43
employee benefits to which the employee is otherwise entitled;	44

(3) Transferring or reassigning the employee;

45

(4) Denying the employee promotion that otherwise would have	46
been received;	47

(5) Reducing the employee in pay or position.

48

(C) An employee in the classified or unclassified civil	49
service shall make a reasonable effort to determine the accuracy	50
of any information reported under division (A) of this section.	51
The employee is subject to disciplinary action, including	52
suspension or removal, as determined by the employee's appointing	53
authority, for purposely, knowingly, or recklessly reporting false	54
information under division (A) of this section.	55

(D) If an appointing authority takes any disciplinary or	56
retaliatory action against a classified or unclassified employee	57
as a result of the employee's having filed a report under division	58
(A) of this section, the employee's sole and exclusive remedy,	59
notwithstanding any other provision of law, is to file an appeal	60
with the state personnel board of review within thirty days after	61
receiving actual notice of the appointing authority's action. If	62
the employee files such an appeal, the board shall immediately	63
notify the employee's appointing authority and shall hear the	64
appeal. The board may affirm or disaffirm the action of the	65
appointing authority or may issue any other order as is	66
appropriate. The order of the board is appealable in accordance	67
with Chapter 119. of the Revised Code.	68

(E) As used in this section:

69

(1) "Purposely," "knowingly," and "recklessly" have the same	70
meanings as in section 2901.22 of the Revised Code.	71

(2) "Appropriate ethics commission" has the same meaning as	72
in section 102.01 of the Revised Code.	73

(3) "Inspector general" means the inspector general appointed	74
under section 121.48 of the Revised Code.	75

Sec. 126.45.  (A) As used in sections 126.45 to 126.48 of the	76
Revised Code, "state agency" means the administrative departments	77
listed in section 121.02 of the Revised Code, the department of	78
taxation, and the bureau of workers' compensation.	79

(B) The office of internal auditing is hereby created in the	80
office of budget and management to conduct internal audits of	81
state agencies or divisions of state agencies to improve their	82
operations in the areas of risk management, internal controls, and	83
governance. The director of budget and management, with the	84
approval of the governor, shall appoint for the office of internal	85
auditing a chief internal auditor who meets the qualifications	86
specified in division (C) of this section. The chief internal	87
auditor shall serve at the director's pleasure and be responsible	88
for the administration of the office of internal auditing	89
consistent with sections 126.45 to 126.48 of the Revised Code.	90

The office of internal auditing shall conduct programs for	91
the internal auditing of state agencies. The programs shall	92
include an annual internal audit plan, reviewed by the state audit	93
committee, that utilizes risk assessment techniques and identifies	94
the specific audits to be conducted during the year. The programs	95
also shall include periodic audits of each state agency's major	96
systems and controls, including those systems and controls	97
pertaining to accounting, administration, and electronic data	98
processing. Upon the request of the office of internal auditing,	99
each state agency shall provide office employees access to all	100
records and documents necessary for the performance of an internal	101
audit.	102

The director of budget and management shall assess a charge	103
against each state agency for which the office of internal	104
auditing conducts internal auditing programs under sections 126.45	105
to 126.48 of the Revised Code so that the total amount of these	106
charges is sufficient to cover the costs of the operation of the	107
office of internal auditing.	108

(C) The chief internal auditor of the office of internal	109
auditing shall hold at least a bachelor's degree and be one of the	110
following:	111

(1) A certified internal auditor, a certified government	112
auditing professional, or a certified public accountant, who also	113
has held a PA registration or a CPA certificate authorized by	114
Chapter 4701. of the Revised Code for at least four years and has	115
at least six years of auditing experience;	116

(2) An auditor who has held a PA registration or a CPA	117
certificate authorized by Chapter 4701. of the Revised Code for at	118
least four years and has at least ten years of auditing	119
experience.	120

(D) The chief internal auditor, subject to the direction and	121
control of the director of budget and management, may appoint and	122
maintain any staff necessary to carry out the duties assigned by	123
sections 126.45 to 126.48 of the Revised Code to the office of	124
internal auditing or to the chief internal auditor.	125

Sec. 126.46.  (A)(1) There is hereby created the state audit	126
committee, consisting of the following five members: one public	127
member appointed by the governor; two public members appointed by	128
the speaker of the house of representatives, one of which may be	129
a person who is recommended by the minority leader of the house of	130
representatives; and two public members appointed by the	131
president of the senate, one of which may be a person who is	132
recommended by the minority leader of the senate. Not more than	133
two of the four members appointed by the speaker of the house of	134
representatives and the president of the senate shall belong to	135
or be affiliated with the same political party. The member	136
appointed by the governor shall be a person who is external to	137
the management structure associated with the preparation of	138
financial statements of state government and shall have the	139
program and management expertise required to perform the duties	140
of the committee's chairperson.	141

Each member of the committee shall serve a three-year term,	142
except for the initial members. With respect to the initial	143
appointments of the members, the first member appointed by the	144
speaker of the house of representatives shall serve a one-year	145
term, the second member appointed by the speaker of the house of	146
representatives shall serve a three-year term, the initial members	147
appointed by the president of the senate shall serve two-year	148
terms, and the initial member appointed by the governor shall	149
serve a three-year term. Members may be reappointed to serve one	150
additional term.	151

The committee shall include one member who is a financial	152
expert; one member who is an active, inactive, or retired	153
certified public accountant; one member who is familiar with	154
governmental financial accounting; and one member who is a	155
representative of the public.	156

Any vacancy on the committee shall be filled in the same	157
manner as provided in this division, and, when applicable, the	158
person appointed to fill a vacancy shall serve the remainder of	159
the predecessor's term.	160

(2) Members of the committee shall receive reimbursement for	161
actual and necessary expenses incurred in the discharge of their	162
duties.	163

(3) The member of the committee appointed by the governor	164
shall serve as the committee's chairperson.	165

(4) Initial appointments of committee members shall be made	166
not later than thirty days after the effective date of this	167
section.	168

(5) Members of the committee shall be subject to the	169
disclosure statement requirements of section 102.02 of the Revised	170
Code.	171

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

172

(1) Ensure that the internal audits conducted by the office	173
of internal auditing in the office of budget and management	174
conform to the institute of internal auditors' international	175
standards for the professional practice of internal auditing and	176
to the institute of internal auditors' code of ethics;	177

(2) Review and comment on the process used by the office of	178
budget and management to prepare its annual budgetary financial	179
report and the state's comprehensive annual financial report	180
required under division (A)(9) of section 126.21 of the Revised	181
Code;	182

(3) Review and comment on unaudited financial statements	183
submitted to the auditor of state and communicate with external	184
auditors as required by government auditing standards;	185

(4) Perform the additional functions imposed upon it by	186
section 126.47 of the Revised Code.	187

(C) As used in this section, "financial expert" means a	188
person who has all of the following:	189

(1) An understanding of generally accepted accounting	190
principles and financial statements;	191

(2) The ability to assess the general application of those	192
principles in connection with accounting for estimates, accruals,	193
and reserves;	194

(3) Experience preparing, auditing, analyzing, or evaluating	195
financial statements presenting accounting issues that generally	196
are of comparable breadth and level of complexity to those likely	197
to be presented by a state agency's financial statements, or	198
experience actively supervising one or more persons engaged in	199
those activities;	200

(4) An understanding of internal controls and procedures for	201
financial reporting; and	202

(5) An understanding of audit committee functions.

203

Sec. 126.47.  (A) The state audit committee created by	204
section 126.46 of the Revised Code shall ensure that the office of	205
internal auditing in the office of budget and management has an	206
annual internal audit plan that identifies the internal audits of	207
state agencies or divisions of state agencies scheduled for the	208
next fiscal year. The chief internal auditor of the office of	209
internal auditing shall submit the plan to the state audit	210
committee for review and comment before the beginning of each	211
fiscal year. The chief internal auditor may submit a revised	212
internal audit plan for review and comment at any time the	213
director of budget and management believes there is reason to	214
modify the previously submitted plan for a fiscal year.	215

(B) To determine the state agencies or divisions of state	216
agencies that are to be internally audited, the office of internal	217
auditing, in the formulation of an annual or revised internal	218
audit plan, and the state audit committee, in reviewing a	219
submitted annual or revised internal audit plan, shall consider	220
the following factors:	221

(1) The risk for fraud, waste, or abuse of public money	222
within an agency or division;	223

(2) The length of time since an agency or division was last	224
subject to an internal audit;	225

(3) The size of an agency or division, and the amount of time	226
and resources necessary to audit it;	227

(4) Any other factor the state audit committee determines to	228
be relevant.	229

(C) All internal audits shall be conducted only by employees	230
of the office of internal auditing.	231

(D) After the conclusion of an internal audit, the chief	232
internal auditor shall submit a preliminary report of the internal	233
audit's findings and recommendations to the state audit committee	234
and to the director of the state agency involved. The state agency	235
or division of the state agency covered by the preliminary report	236
shall be provided an opportunity to respond within thirty days	237
after receipt of the preliminary report. The response shall	238
include a corrective action plan for any recommendations in the	239
preliminary report that are not disputed by the agency or	240
division. Any response received by the office of internal auditing	241
within that thirty-day period shall be included in the office's	242
final report of the internal audit's findings and recommendations.	243
The final report shall be issued by the office of internal	244
auditing within thirty days after the termination of the	245
thirty-day response period. Copies of the final report shall be	246
submitted to the state audit committee, the governor, and the	247
director of the state agency involved. The state audit committee	248
shall determine an appropriate method for making the preliminary	249
and final reports available for public inspection in a timely	250
manner.	251

Any suspected fraud or other illegal activity discovered by	252
the office of internal auditing during the conduct of an internal	253
audit shall be reported immediately to the state audit committee,	254
the director of the state agency in which the fraud or illegal	255
activity is suspected to have occurred, and the auditor of state.	256

(E) The chief internal auditor shall prepare an annual report	257
and submit the report to the governor, the president of the	258
senate, the speaker of the house of representatives, and the	259
auditor of state. The office of budget and management shall make	260
the report available to the public by posting it on the office's	261
web site before the first of July of each year.	262

Sec. 126.48.  Any preliminary or final report of an internal	263
audit's findings and recommendations which is produced by the	264
office of internal auditing in the office of budget and management	265
and all work papers of the internal audit are confidential and are	266
not public records under section 149.43 of the Revised Code until	267
the final report of an internal audit's findings and	268
recommendations is submitted to the state audit committee, the	269
governor, and the director of the state agency involved.	270

Sec. 5703.21.  (A) Except as provided in divisions (B) and	271
(C) of this section, no agent of the department of taxation,	272
except in the agent's report to the department or when called on	273
to testify in any court or proceeding, shall divulge any	274
information acquired by the agent as to the transactions,	275
property, or business of any person while acting or claiming to	276
act under orders of the department. Whoever violates this	277
provision shall thereafter be disqualified from acting as an	278
officer or employee or in any other capacity under appointment or	279
employment of the department.	280

(B)(1) For purposes of an audit pursuant to section 117.15 of	281
the Revised Code, or an audit of the department pursuant to	282
Chapter 117. of the Revised Code, or an audit, pursuant to that	283
chapter, the objective of which is to express an opinion on a	284
financial report or statement prepared or issued pursuant to	285
division (A)(7) or (9) of section 126.21 of the Revised Code, the	286
officers and employees of the auditor of state charged with	287
conducting the audit shall have access to and the right to examine	288
any state tax returns and state tax return information in the	289
possession of the department to the extent that the access and	290
examination are necessary for purposes of the audit. Any	291
information acquired as the result of that access and examination	292
shall not be divulged for any purpose other than as required for	293
the audit or unless the officers and employees are required to	294
testify in a court or proceeding under compulsion of legal	295
process. Whoever violates this provision shall thereafter be	296
disqualified from acting as an officer or employee or in any other	297
capacity under appointment or employment of the auditor of state.	298

(2) For purposes of an internal audit pursuant to section	299
126.45 of the Revised Code, the officers and employees of the	300
office of internal auditing in the office of budget and management	301
charged with conducting the internal audit shall have access to	302
and the right to examine any state tax returns and state tax	303
return information in the possession of the department to the	304
extent that the access and examination are necessary for purposes	305
of the internal audit. Any information acquired as the result of	306
that access and examination shall not be divulged for any purpose	307
other than as required for the internal audit or unless the	308
officers and employees are required to testify in a court or	309
proceeding under compulsion of legal process. Whoever violates	310
this provision shall thereafter be disqualified from acting as an	311
officer or employee or in any other capacity under appointment or	312
employment of the office of internal auditing.	313

(3) As provided by section 6103(d)(2) of the Internal Revenue	314
Code, any federal tax returns or federal tax information that the	315
department has acquired from the internal revenue service, through	316
federal and state statutory authority, may be disclosed to the	317
auditor of state or the office of internal auditing solely for	318
purposes of an audit of the department.	319

(C) Division (A) of this section does not prohibit any of the	320
following:	321

(1) Divulging information contained in applications,	322
complaints, and related documents filed with the department under	323
section 5715.27 of the Revised Code or in applications filed with	324
the department under section 5715.39 of the Revised Code;	325

(2) Providing information to the office of child support	326
within the department of job and family services pursuant to	327
section 3125.43 of the Revised Code;	328

(3) Disclosing to the board of motor vehicle collision repair	329
registration any information in the possession of the department	330
that is necessary for the board to verify the existence of an	331
applicant's valid vendor's license and current state tax	332
identification number under section 4775.07 of the Revised Code;	333

(4) Providing information to the administrator of workers'	334
compensation pursuant to sections 4123.271 and 4123.591 of the	335
Revised Code;	336

(5) Providing to the attorney general information the	337
department obtains under division (J) of section 1346.01 of the	338
Revised Code;	339

(6) Permitting properly authorized officers, employees, or	340
agents of a municipal corporation from inspecting reports or	341
information pursuant to rules adopted under section 5745.16 of the	342
Revised Code;	343

(7) Providing information regarding the name, account number,	344
or business address of a holder of a vendor's license issued	345
pursuant to section 5739.17 of the Revised Code, a holder of a	346
direct payment permit issued pursuant to section 5739.031 of the	347
Revised Code, or a seller having a use tax account maintained	348
pursuant to section 5741.17 of the Revised Code, or information	349
regarding the active or inactive status of a vendor's license,	350
direct payment permit, or seller's use tax account;	351

(8) Releasing invoices or invoice information furnished under	352
section 4301.433 of the Revised Code pursuant to that section;	353

(9) Providing to a county auditor notices or documents	354
concerning or affecting the taxable value of property in the	355
county auditor's county. Unless authorized by law to disclose	356
documents so provided, the county auditor shall not disclose such	357
documents;	358

(10) Providing to a county auditor sales or use tax return or	359
audit information under section 333.06 of the Revised Code.	360

Section 2. That existing sections 124.341 and 5703.21 of the	361
Revised Code are hereby repealed.	362

Section 3.  (A) It is the intent of the General Assembly in	363
the enactment of section 126.45 of the Revised Code that the	364
primary internal audit function of state agencies as defined in	365
that section will be carried out by the Office of Internal	366
Auditing of the Office of Budget and Management.	367

(B) Before May 1, 2008, the Director of Budget and	368
Management, in consultation with the Director of Administrative	369
Services and the State Audit Committee created in section 126.46	370
of the Revised Code, shall develop a plan to commence operations	371
of the Office of Internal Auditing. The plan shall do all of the	372
following:	373

(1) Identify those existing employees within state agencies	374
as defined in section 126.45 of the Revised Code who perform the	375
function of an internal auditor and who will be transferred to the	376
Office of Internal Auditing;	377

(2) Establish funds and appropriation authority that is	378
necessary for the efficient and effective operation of the Office	379
of Internal Auditing;	380

(3) Provide for a method to assess charges against the	381
various state agencies for which the Office of Internal Auditing	382
conducts internal auditing programs under sections 126.45 to	383
126.48 of the Revised Code so that the total amount of these	384
charges is sufficient to cover the costs of the operation of the	385
Office of Internal Auditing;	386

(4) Provide for the appropriate reduction in the	387
appropriation authority of the state agencies from which existing	388
employees who perform the function of internal auditor are	389
transferred.	390

(C) The Controlling Board shall approve the plan before the	391
Office of Budget and Management implements it.	392

(D) Subject to the layoff and displacement provisions of	393
Chapter 124. of the Revised Code, all state agency employees who	394
are identified by the plan as performing duties necessary to	395
comply with sections 126.45 to 126.48 of the Revised Code shall be	396
transferred, upon the approval of the Controlling Board, to the	397
Office of Internal Auditing and shall retain their positions,	398
compensation, and associated fringe benefits.	399

Section 4.  Section 5703.21 of the Revised Code is presented	400
in this act as a composite of the section as amended by both Am.	401
Sub. H.B. 530 and Am. Sub. S.B. 7 of the 126th General Assembly.	402
The General Assembly, applying the principle stated in division	403
(B) of section 1.52 of the Revised Code that amendments are to be	404
harmonized if reasonably capable of simultaneous operation, finds	405
that the composite is the resulting version of the section in	406
effect prior to the effective date of the section as presented in	407
this act.	408