H.F. _____ Section 1. Section 11.6, subsection 1, paragraph a, Code 1 Supplement 2011, is amended to read as follows: 2 a. (1) Except for entities organized under chapter 28E 3 having gross receipts of one hundred thousand dollars or less 4 in a fiscal year, the financial condition and transactions of 5 all government subdivisions shall be audited at least once each 6 year annually , except that cities having a population of seven 7 hundred or more but less than two thousand shall be examined at 8 least once every four years and budgeted gross expenditures of 9 one million dollars or more in a fiscal year shall be subject 10 to a required fiscal year examination for that fiscal year 11 according to procedures established by the office of auditor 12 of state , and cities having a population of less than seven 13 hundred two thousand and budgeted gross expenditures of less 14 than one million dollars in a fiscal year shall be subject 15 to periodic examination by the auditor of state according to 16 procedures established by the auditor of state, and may be 17 examined as otherwise provided in this section . The audit of 18 school districts shall include an audit of all school funds 19 including categorical funding provided by the state, the 20 certified annual financial report, the certified enrollment as 21 provided in section 257.6 , supplementary weighting as provided 22 in section 257.11 , and the revenues and expenditures of any 23 nonprofit school organization established pursuant to section 24 279.62 . Differences in certified enrollment shall be reported 25 to the department of management. The audit of school districts 26 shall include at a minimum a determination that the laws of 27 the state are being followed, that categorical funding is not 28 used to supplant other funding except as otherwise provided, 29 that supplementary weighting is pursuant to an eligible 30 sharing condition, and that postsecondary courses provided in 31 accordance with section 257.11 and chapter 261E supplement, 32 rather than supplant, school district courses. The audit of 33 a city that owns or operates a municipal utility providing 34 local exchange services pursuant to chapter 476 shall include 35 -1- LSB 5366YC (6) 84 aw/sc 1/ 4

H.F. _____ performing tests of the city’s compliance with section 388.10 . 1 The audit of a city that owns or operates a municipal utility 2 providing telecommunications services pursuant to section 3 388.10 shall include performing tests of the city’s compliance 4 with section 388.10 . 5 (2) Subject to the exceptions and requirements of 6 subsections 2 and 3, and subsection 4 , paragraph “a” , 7 subparagraph (3), audits or required fiscal year examinations 8 shall be made as determined by the governmental subdivision 9 either by the auditor of state or by certified public 10 accountants, certified in the state of Iowa, and they shall 11 be paid from the proper public funds of the governmental 12 subdivision. However, a periodic examination of a city shall 13 be conducted by the auditor of state or by a certified public 14 accountant employed by the auditor of state pursuant to section 15 11.32, and shall be paid from examination fees collected 16 pursuant to subsection 10A. 17 Sec. 2. Section 11.6, Code Supplement 2011, is amended by 18 adding the following new subsection: 19 NEW SUBSECTION . 10A. a. The auditor of state shall 20 adopt rules in accordance with chapter 17A to establish and 21 collect a periodic examination fee from cities that are not 22 required to have an audit or required fiscal year examination 23 conducted pursuant to subsection 1 during a fiscal year. Such 24 fees are due on March 31 each year. However, cities that 25 pay a filing fee for an audit or examination pursuant to 26 subsection 10 during the fiscal year are not required to pay 27 the examination fee. The funds collected shall be maintained 28 in a segregated account for use by the office of the auditor of 29 state in performing periodic examinations conducted pursuant 30 to subsection 1. Notwithstanding section 8.33, any fees 31 collected by the auditor of state for these purposes that 32 remain unexpended at the end of the fiscal year shall not 33 revert to the general fund of the state or any other fund but 34 shall remain available for use for the following fiscal year 35 -2- LSB 5366YC (6) 84 aw/sc 2/ 4

H.F. _____ for the same purpose. 1 b. The auditor of state shall provide an annual report by 2 January 15 of each year to the general assembly’s standing 3 committees on government oversight, advising the general 4 assembly on the status of the account created in this 5 subsection and on the status of the required fiscal year 6 examinations and periodic examinations of cities. 7 Sec. 3. IMPLEMENTATION OF ACT. Section 25B.2, subsection 8 3, shall not apply to this Act. 9 EXPLANATION 10 This bill relates to the examination of city finances 11 for cities with populations of less than 2,000. Current law 12 requires that cities with populations of 700 or more but less 13 than 2,000 be examined once every four years. Current law 14 states that cities for which an audit is not required may be 15 audited or examined as determined by the city or upon petition 16 of taxpayers. 17 The bill requires that cities with a population of less 18 than 2,000 and with budgeted gross expenditures of $1 million 19 or more submit to a required fiscal year examination by the 20 auditor of state or a certified public accountant chosen by the 21 city for that budgeted fiscal year. The bill provides that 22 such examinations shall be conducted by procedures adopted by 23 the auditor of state and shall be paid from the proper funds of 24 the governmental subdivision. 25 The bill further requires that cities with a population of 26 less than 2,000 and with budgeted gross expenditures of less 27 than $1 million submit to periodic examinations by the auditor 28 of state or a certified public accountant employed by the 29 auditor of state. The bill states that such examinations shall 30 be conducted according to procedures adopted by the auditor of 31 state. The bill retains the requirement that cities for which 32 an audit is not required shall be audited upon petition of its 33 taxpayers. 34 The bill requires that the auditor of state establish and 35 -3- LSB 5366YC (6) 84 aw/sc 3/ 4

H.F. _____ collect a periodic examination fee that shall be paid by all 1 cities not subject to an annual audit or required fiscal year 2 examination, and provides that such fees shall be maintained in 3 a segregated account and are not subject to reversion to the 4 general fund of the state or any other fund. The bill requires 5 that the cost of conducting the periodic examinations under the 6 bill shall be paid by the auditor of state from this segregated 7 account. 8 The bill also requires that the auditor of state report by 9 January 15 of each year to the general assembly’s standing 10 committees on government oversight on the status of the 11 segregated account created for the conduct of periodic 12 examinations and on the status of the required fiscal year 13 examinations and periodic examinations of cities. 14 The bill may include a state mandate as defined in Code 15 section 25B.3. The bill makes inapplicable Code section 25B.2, 16 subsection 3, which would relieve a political subdivision from 17 complying with a state mandate if funding for the cost of 18 the state mandate is not provided or specified. Therefore, 19 political subdivisions are required to comply with any state 20 mandate included in the bill. 21 -4- LSB 5366YC (6) 84 aw/sc 4/ 4