GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1997

H	1 

HOUSE BILL 1146

Short Title:  Agency Inspectors General.	(Public)

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Sponsors: Representative Hardaway.

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Referred to:  State Government, if favorable, Judiciary II.

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April 21, 1997

A BILL TO BE ENTITLED
AN ACT TO CREATE THE POSITION OF INSPECTOR GENERAL IN EACH STATE AGENCY TO REDUCE FRAUD, WASTE, AND ABUSE, AND TO ENACT A WHISTLE-BLOWER STATUTE TO PROTECT STATE EMPLOYEES WHO REPORT FRAUD, WASTE, AND ABUSE.
The General Assembly of North Carolina enacts:
Section 1.  Chapter 143 of the General Statutes is amended by adding two new Articles to read:
"ARTICLE 71.
"Inspectors General.
"§ 143-681.  Agency inspectors general.
(a)	For the purposes of this section:
(1)	'State agency' means each department created pursuant to Chapter 143A or 143B of the General Statutes, the Judicial Branch, and The University of North Carolina.
(2)	'Agency head' means the Governor, a Council of State member, a cabinet secretary, the Chief Justice of the Supreme Court, and the President of the University of North Carolina.
(b)	The Office of Inspector General is hereby established in each State agency to provide a central point for coordination of and responsibility for activities that promote accountability, integrity, and efficiency in government. It shall be the duty and responsibility of each inspector general, with respect to the State agency in which the office is established, to:
(1)	Advise in the development of performance measures, standards, and procedures for the evaluation of State agency programs.
(2)	Assess the reliability and validity of the information provided by the State agency on performance measures and standards, and make recommendations for improvement, if necessary.
(3)	Review the actions taken by the State agency to improve program performance and meet program standards and make recommendations for improvement, if necessary.
(4)	Provide direction for, supervise, and coordinate audits, investigations, and management reviews relating to the programs and operations of the State agency, except that when the inspector general does not possess the qualifications specified in subsection (d) of this section, the director of auditing shall conduct such audits.
(5)	Conduct, supervise, or coordinate other activities carried out or financed by that State agency for the purpose of promoting economy and efficiency in the administration of, or preventing and detecting fraud and abuse in, its programs and operations.
(6)	Keep such agency head informed concerning fraud, abuses, and deficiencies relating to programs and operations administered or financed by the State agency, recommend corrective action concerning fraud, abuses, and deficiencies, and report on the progress made in implementing corrective action.
(7)	Ensure effective coordination and cooperation between the State Auditor, federal auditors, and other governmental bodies with a view toward avoiding duplication.
(8)	Review, as appropriate, rules relating to the programs and operations of such State agency and make recommendations concerning their impact.
(9)	Ensure that an appropriate balance is maintained between audit, investigative, and other accountability activities.
(c)	(1)	The inspector general shall be appointed by the agency head. For agencies under the direction of the Governor, the appointment shall be made after notifying the Governor in writing, at least seven days prior to an offer of employment, of the agency head's intention to hire the inspector general.
(2)	Each inspector general shall report to and be under the general supervision of the agency head and shall not be subject to supervision by any other employee of the State agency. The inspector general shall be appointed without regard to political affiliation.
(3)	An inspector general may be removed from office by the agency head. For agencies under the direction of the Governor, the agency head shall notify the Governor, in writing, of the intention to terminate the inspector general at least seven days prior to the removal. For State agencies under the direction of the Governor and Cabinet, the agency head shall notify the Governor and Cabinet in writing of the intention to terminate the inspector general at least seven days prior to the removal.
(4)	The agency head shall not prevent or prohibit the inspector general or director of auditing from initiating, carrying out, or completing any audit or investigation.
(d)	To ensure that State agency audits are performed in accordance with applicable auditing standards, the inspector general or the director of auditing within the inspector general's office shall possess the following qualifications:
(1)	A bachelors degree from an accredited college or university with a major in accounting, or with a major in business which includes five courses in accounting, and five years of experience as an internal auditor or independent postauditor, electronic data processing auditor, accountant, or any combination thereof. The experience shall at a minimum consist of audits of units of government or private business enterprises, operating for profit or not for profit;
(2)	A masters degree in accounting, business administration, or public administration from an accredited college or university and four years of experience as required in subdivision (1) of this subsection; or
(3)	A certified public accountant license issued pursuant to law or a certified internal audit certificate issued by the Institute of Internal Auditors or earned by examination, and four years of experience as required in subdivision (1) of this subsection.
(e)	In carrying out the auditing duties and responsibilities of this Article, each inspector general shall review and evaluate internal controls necessary to ensure the fiscal accountability of the State agency. The inspector general shall conduct financial, compliance, electronic data processing, and performance audits of the agency and prepare audit reports of his or her findings. The scope and assignment of the audits shall be determined by the inspector general; however, the agency head may at any time direct the inspector general to perform an audit of a special program, function, or organizational unit. The performance of the audit shall be under the direction of the inspector general, except that if the inspector general does not possess the qualifications specified in subsection (d) of this section, the State Auditor shall perform the functions listed in this subsection.
Such audits shall be conducted in accordance with the current Standards for the Professional Practice of Internal Auditing and subsequent Internal Auditing Standards or Statements on Internal Auditing Standards published by the Institute of Internal Auditors, Inc., or, where appropriate, in accordance with generally accepted governmental auditing standards. All audit reports issued by internal audit staff shall include a statement that the audit was conducted pursuant to the appropriate standards.
Audit workpapers and reports shall be public records to the extent that they do not include information which has been made confidential and exempt from the provisions of Chapter 132 of the General Statutes pursuant to law. However, when the inspector general or a member of the staff receives from an individual a complaint or information that falls within the definition provided in the Whistle-Blower's Act, the name or identity of the individual shall not be disclosed to anyone else without the written consent of the individual, unless the inspector general determines that such disclosure is unavoidable during the course of the audit or investigation.
The inspector general and the staff shall have access to any records, data, and other information of the State agency he or she deems necessary to carry out his or her duties. The inspector general is also authorized to request such information or assistance as may be necessary from the State agency or from any federal, State, or local government entity.
At the conclusion of each audit, the inspector general shall submit preliminary findings and recommendations to the person responsible for supervision of the program function or operational unit who shall respond to any adverse findings within 20 working days after receipt of the tentative findings. Such response and the inspector general's rebuttal to the response shall be included in the final audit report.
The inspector general shall submit the final report to the agency head and to the State Auditor.
The State Auditor, in connection with any audit of the same agency pursuant to law, shall give appropriate consideration to internal audit reports and the resolution of findings therein. The Joint Legislative Commission on Governmental Operations may inquire into the reasons or justifications for failure of the agency head to correct the deficiencies reported in internal audits that are also reported by the State Auditor and shall take appropriate action. The State Auditor shall also review a sample of each agency's internal audit reports at least once every three years to determine compliance with current Standards for the Professional Practice of Internal Auditing or, if appropriate, generally accepted governmental auditing standards. If the State Auditor finds that these standards have not been complied with, the State Auditor shall include a statement of this fact in the audit report of the agency.
The inspector general shall monitor the implementation of the State agency's response to any audit of the State agency conducted by the State Auditor pursuant to law. No later than six months after the State Auditor publishes a report of the audit of the State agency, the inspector general shall report to the agency head on the status of corrective actions taken. A copy of such report shall be filed with the Joint Legislative Commission on Governmental Operations.
The inspector general shall develop long-term and annual audit plans based on the findings of periodic risk assessments. The plan, where appropriate, should include postaudit samplings of payments and accounts. The plan shall show the individual audits to be conducted during each year and related resources to be devoted to the respective audits. The State Controller may utilize audits performed by the inspectors general.  For State agencies under the Governor, the audit plans shall be submitted to the Governor's Chief Inspector General. The plan shall be submitted to the agency head for approval. A copy of the approved plan shall be submitted to the State Auditor.
(f)	In carrying out the investigative duties and responsibilities specified in this section, each inspector general shall initiate, conduct, supervise, and coordinate investigations designed to detect, deter, prevent, and eradicate fraud, waste, mismanagement, misconduct, and other abuses in State government. For these purposes, each State agency shall:
(1)	Receive complaints and coordinate all activities of the agency as required by the Whistle-Blower's Act.
(2)	Receive and consider the complaints which do not meet the criteria for an investigation under the Whistle-Blower's Act and conduct, supervise, or coordinate such inquiries, investigations, or reviews as the inspector general deems appropriate.
(3)	Report expeditiously to the State Bureau of Investigation or other law enforcement agencies, as appropriate, whenever the inspector general has reasonable grounds to believe there has been a violation of criminal law.
(4)	Conduct investigations and other inquiries free of actual or perceived impairment to the independence of the inspector general or the inspector general's office. This shall include freedom from any interference with investigations and timely access to records and other sources of information.
(5)	Submit in a timely fashion final reports on investigations conducted by the inspector general to the agency head, except for whistle-blower's investigations, which shall be conducted and reported pursuant to the Whistle-Blower's Act
(g)	Each inspector general shall, not later than September 30 of each year, prepare an annual report summarizing the activities of the office during the immediately preceding State fiscal year. The final report shall be furnished to the agency head. Such report shall include, but need not be limited to:
(1)	A description of activities relating to the development, assessment, and validation of performance measures.
(2)	A description of significant abuses and deficiencies relating to the administration of programs and operations of the agency disclosed by investigations, audits, reviews, or other activities during the reporting period.
(3)	A description of the recommendations for corrective action made by the inspector general during the reporting period with respect to significant problems, abuses, or deficiencies identified.
(4)	The identification of each significant recommendation described in previous annual reports on which corrective action has not been completed.
(5)	A summary of each audit and investigation completed during the reporting period.
(h)	Each agency inspector general shall, to the extent both necessary and practicable, include on his or her staff individuals with electronic data processing auditing experience.

"ARTICLE 72.
"Whistle-Blower's Act.
"§ 143-691.  Adverse action against employee for disclosing information of specified nature prohibited; employee remedy and relief.
(a)	This Article may be cited as the 'Whistle-Blower's Act.'
(b)	It is the intent of the General Assembly to prevent agencies or independent contractors from taking retaliatory action against an employee who reports to an appropriate agency violations of law on the part of a public employer or independent contractor that create a substantial and specific danger to the public's health, safety, or welfare. It is further the intent of the General Assembly to prevent agencies or independent contractors from taking retaliatory action against any person who discloses information to an appropriate agency alleging improper use of governmental office, gross waste of funds, or any other abuse or gross neglect of duty on the part of an agency, public officer, or employee.
(c)	As used in this Article, unless otherwise specified, the following words or terms shall have the meanings indicated:
(1)	'Agency' means any State, regional, county, local, or municipal government entity, whether executive, judicial, or legislative; any official, officer, department, division, bureau, commission, authority, or political subdivision therein; or any public school, community college, or The University of North Carolina.
(2)	'Employee' means a person who performs services for, and under the control and direction of, or contracts with, an agency or independent contractor for wages or other remuneration.
(3)	'Adverse personnel action' means the discharge, suspension, transfer, or demotion of any employee or the withholding of bonuses, the reduction in salary or benefits, or any other adverse action taken against an employee within the terms and conditions of employment by an agency or independent contractor.
(4)	'Independent contractor' means a person, other than an agency, engaged in any business and who enters into a contract with an agency.
(5)	'Gross mismanagement' means a continuous pattern of managerial abuses, wrongful or arbitrary and capricious actions, or fraudulent or criminal conduct which may have a substantial adverse economic impact.
"§ 143-692.  Actions prohibited.
(a)	An agency or independent contractor shall not dismiss, discipline, or take any other adverse personnel action against an employee for disclosing information pursuant to the provisions of this section.
(b)	An agency or independent contractor shall not take any adverse action that affects the rights or interests of a person in retaliation for the person's disclosure of information under this section.
(c)	The provisions of this section shall not be applicable when an employee or person discloses information known by the employee or person to be false.
(d)	The information disclosed under this section must include:
(1)	Any violation or suspected violation of any federal, State, or local law, rule, or regulation committed by an employee or agent of an agency or independent contractor which creates and presents a substantial and specific danger to the public's health, safety, or welfare.
(2)	Any act or suspected act of gross mismanagement, malfeasance, misfeasance, gross waste of public funds, or gross neglect of duty committed by an employee or agent of an agency or independent contractor.
(e)	The information disclosed under this section must be disclosed to any agency or federal government entity having the authority to investigate, police, manage, or otherwise remedy the violation or act, including, but not limited to, the Office of the Chief Inspector General, an agency inspector general or the employee designated as agency inspector general under Article 71 of this Chapter, and the whistle-blower's hotline created under this Article. However, for disclosures concerning a local governmental entity, including any regional, county, or municipal entity, special district, community college, or school administrative unit or any political subdivision of any of the foregoing, the information must be disclosed to a chief executive officer or other appropriate local official.
(f)	This Article protects employees and persons who disclose information on their own initiative in a written and signed complaint; who are requested to participate in an investigation, hearing, or other inquiry conducted by any agency or federal government entity; who refuse to participate in any adverse action prohibited by this section; or who initiate a complaint through the whistle-blower's hotline; or employees who file any written complaint to their supervisory officials or employees who submit a complaint to the Chief Inspector General in the Executive Office of the Governor or to the employee designated as agency inspector general under Article 71 of this Chapter. The provisions of this section may not be used by a person while he or she is under the care, custody, or control of the State Prison System or, after release from the care, custody, or control of the State Prison System, with respect to circumstances that occurred during any period of incarceration. No remedy or other protection under this Article applies to any person who has committed or intentionally participated in committing the violation or suspected violation for which protection under this Article is being sought.
"§ 143-693.  Remedies.
(a)	Any employee of or applicant for employment with any State agency, who is discharged, disciplined, or subjected to other adverse personnel action, or denied employment, because he or she engaged in an activity protected by this section may file a complaint, which complaint must be made in accordance with the State Personnel Act. The complainant may elect to pursue the administrative remedy available under the State Personnel Act or bring a civil action within 180 days after receipt of the notice.
(b)	Within 60 days after the action prohibited by this section, any local public employee protected by this section may file a complaint with the appropriate local governmental authority, if that authority has established by ordinance an administrative procedure for handling such complaints.  The administrative procedure created by ordinance must provide for the complaint to be heard by a panel of impartial persons appointed by the appropriate local governmental authority. Upon hearing the complaint, the panel must make findings of fact and conclusions of law for a final decision by the local governmental authority. Within 180 days after entry of a final decision by the local governmental authority, the public employee who filed the complaint may bring a civil action in any court of competent jurisdiction. If the local governmental authority has not established an administrative procedure by ordinance or contract, a local public employee may, within 180 days after the action prohibited by this section, bring a civil action in a court of competent jurisdiction. For the purpose of this paragraph, the term ‘local governmental authority' includes any regional, county, or municipal entity, special district, community college, or school administrative unit or any political subdivision of any of the foregoing.
(c)	Any other person protected by this section may, after exhausting all available contractual or administrative remedies, bring a civil action in any court of competent jurisdiction within 180 days after the action prohibited by this section.
(d)	In any action brought under this section, the relief must include the following:
(1)	Reinstatement of the employee to the same position held before the adverse action was commenced, or to an equivalent position or reasonable front pay as alternative relief.
(2)	Reinstatement of the employee's full fringe benefits and seniority rights, as appropriate.
(3)	Compensation, if appropriate, for lost wages, benefits, or other lost remuneration caused by the adverse action.
(4)	Payment of reasonable costs, including attorneys fees, to a substantially prevailing employee or to the prevailing employer if the employee filed a frivolous action in bad faith.
(5)	Issuance of an injunction, if appropriate, by a court of competent jurisdiction.
(6)	Temporary reinstatement to the employee's former position or to an equivalent position, pending the final outcome on the complaint, if an employee complains of being discharged in retaliation for a protected disclosure and if a court of competent jurisdiction determines that the disclosure was not made in bad faith or for a wrongful purpose or occurred after an agency's initiation of a personnel action against the employee which includes documentation of the employee's violation of a disciplinary standard or performance deficiency. This paragraph does not apply to an employee of a municipality.
(e)	It shall be an affirmative defense to any action brought pursuant to this section that the adverse action was predicated upon grounds other than, and would have been taken absent, the employee's or person's exercise of rights protected by this section.
(f)	This Article does not diminish the rights, privileges, or remedies of an employee under any other law or rule or under any employment contract."
Section 2.  This act becomes effective July 1, 1997.