AB 557

Under current law, a savings bank or savings and loan association (S&L

association) may be organized under the laws of this state and, when so organized,

is subject to supervision and control of the Division of Banking (division) in the

Department of Financial Institutions.

Current law requires each savings bank to have its books, records, and accounts

annually audited by an independent certified public accountant (CPA) not connected

with the savings bank. The CPA must conduct the audit to produce a certified

financial statement and the division may require additional information to be

included in an audit report. The CPA must deliver an audit report to an independent

audit committee of the savings bank's board of directors, which committee must in

turn present the conclusions of the audit report at the next meeting of the board of

directors and, among other things, provide the audit report to all members of the

board of directors. Within 60 days after receiving the audit report, the savings bank

must file with the division a copy of the audit report and other information, including

financial statements, but this filing date may be extended for an additional 60 days.

The audit report filed with the division must be certified by the CPA conducting the

audit. If a savings bank fails to cause an audit to be made, the division must order

an audit to be made by an independent CPA at the savings bank's expense. A savings

bank must also file annually with the division a report of its activities containing

specified information, including a copy of a statement of its condition and operations

as of the end of the savings bank's most recent fiscal year.

Current law also requires each S&L association to be annually audited in a

manner satisfactory to, and in accordance with the policies established by, the

division. The S&L association's board of directors must designate the auditors,

which must be independent CPAs in this state. An S&L association must promptly

file with the division a copy of the audit report. However, in lieu of these

requirements, the S&L association's board of directors may request the division to

conduct an audit of the books and accounts to check the assets of the association and

to determine losses, although the division may refuse the request. The division may

also, at any time, make or cause to be made an audit of any S&L association, with

the cost to be paid by the association.

This bill repeals all of the foregoing audit and report requirements and replaces

them with new requirements applicable to both savings banks and S&L associations.

Under the bill, the board of directors of a savings bank or S&L association must do

one of the following: 1) hire a CPA or other qualified person to conduct a

comprehensive annual audit of the records, accounts, and affairs of the savings bank

or S&L association; or 2) appoint an auditing committee of one or more capable

persons to annually audit the records, accounts, and cash of the savings bank or S&L

association and to verify customer accounts, with verification procedures conducted

according to the savings bank's or association's auditing program or the rules of the