It is enacted by the General Assembly as follows:

SECTION 1. Title 35 of the General Laws entitled "Public Finance" is hereby amended by adding thereto the following chapter:

{ADD 35-20-1. Short title. -- ADD} {ADD This chapter shall be known and may be cited as the "Public Corporation Financial Integrity and Accountability Act of 1995". ADD}

{ADD 35-20-2. Policy. -- ADD} {ADD (a) The legislature hereby finds that:

(1) Fraud and errors in public and quasi-public programs are more likely to occur from a lack of effective systems of internal accounting and administrative control in the state-authorized public corporations.

(2) Effective systems of internal accounting and administrative control provide the basic foundation upon which a structure of public accountability must be built.

(3) Effective systems of internal accounting and administrative control are necessary to assure that public and quasi-public state assets and funds are adequately safeguarded, as well as to produce reliable financial information for the state.

(4) Systems of internal accounting and administrative control are necessarily dynamic and must be continuously evaluated and, where necessary, improved.

(5) Reports regarding the adequacy of the system of internal accounting and administrative control of each public corporation are necessary to enable the executive branch, the legislature, and the public to evaluate the corporation's performance of its public and quasi-public responsibilities and accountability.

(b) The legislature declares that:

(1) Each public corporation must maintain effective systems of internal accounting and administrative control as an integral part of its management practices.

(2) The systems of internal accounting and administrative control of each state agency shall be evaluated on an ongoing basis and, when detected, weaknesses must be promptly corrected.

(3) All levels of management of the public corporation must be involved in assessing and strengthening the systems of internal accounting and administrative control to minimize fraud, errors, abuse, and waste of public and quasi-public funds. ADD}

{ADD 35-20-3. Corporation responsibilities. -- ADD} {ADD The chairs and chief executive officers of public corporations are responsible for the establishment and maintenance of a system or systems of internal accounting and administrative control within their respective corporations. This responsibility includes documenting the system, communicating system requirements to employees, and assuring that the system is functioning as prescribed and is modified, as appropriate, for changes in conditions. ADD}

{ADD 35-20-4. Internal accounting controls. -- ADD} {ADD (a) Internal accounting and administrative controls are the methods through which reasonable assurances can be given that measures adopted by public corporations to safeguard assets, check the accuracy and reliability of accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies are being followed. The elements of a satisfactory system of internal accounting and administrative control, shall include, but are not limited to, the following:

(1) A plan of organization that provides segregation of duties appropriate for proper safeguarding of public corporation assets.

(2) A plan that limits access to public corporation assets to authorized personnel who require these assets in the performance of their assigned duties.

(3) A system of authorization and recordkeeping procedures adequate to provide effective accounting control over assets, liabilities, revenues, and expenditures.

(4) An established system of practices to be followed in performance of duties and functions in each of the public corporations.

(5) Personnel of a quality commensurate with their responsibilities.

(6) An effective system of internal review.

(b) Public corporations shall follow these standards of internal accounting and administrative control in carrying out the requirements of this chapter. ADD}

{ADD 35-20-5. Definitions. -- ADD} {ADD As used in this chapter:

(a) "Governor" means the governor of Rhode Island.

(b) "Controller" means the state controller of Rhode Island.

(c) "Director" means the director of administration.

(d) "Public corporation" means any body corporate and politic created or to be created pursuant to statute, including without limitation the Rhode Island industrial recreational building authority, the Rhode Island port authority and economic development corporation and any subsidiaries thereof, the Rhode Island industrial facilities corporation, the Rhode Island public buildings authority, the Rhode Island health and educational building authority, the board of governors for higher education, the Rhode Island housing and mortgage finance corporation, the Rhode Island solid waste management corporation, the Rhode Island public transit authority, the Rhode Island student loan authority, the water resources board corporate, the Narragansett Bay water quality management district commission, the Rhode Island health and educational building corporation, the Rhode Island depositors economic protection corporation, the Rhode Island convention center authority, the Rhode Island turnpike and bridge authority, their successors and assigns. Cities, towns, and any corporation created by a city or town pursuant to statute, and fire and water districts, are not public corporations under this chapter. ADD}

{ADD 35-20-6. Annual report. -- ADD} {ADD (a) To ensure that the requirements of this section are fully complied with, each public corporation shall prepare and submit a report on the adequacy of the corporation's systems of internal accounting and administrative control by December 31 of each year.

(b) The report, including the state agency's response to report recommendations, shall be signed by the chair and/or the chief executive office of the corporation and addressed to the governor. Copies of the reports shall be forwarded to both houses of the legislature, the auditor general, and the director. Copies of these reports shall also be forwarded to the state library where they shall be available for public inspection.

(c) By September 30, 1995, the director, in consultation with the auditor general and the controller, shall establish a system of reporting and a general framework to guide the public corporations in performing evaluations on their systems of internal accounting and administrative control. The director, in consultation with the auditor general and the controller, may modify the format for the report or the framework for conducting the evaluations from time to time as deemed necessary.

(d) Any material inadequacy or material weakness in systems of internal accounting and administrative control which prevents the chair and/or chief executive officer of the corporation from stating that the systems of internal accounting and administrative control provided reasonable assurances that each of the objectives specified above was achieved, shall be identified and the plans and schedule for correcting any the inadequacy described in detail.

(e) The annual report of each public corporation shall also include financial statements relating to the operation, properties, income, expenditure, assets and liabilities, including outstanding bonded indebtedness, of the corporation. ADD}

{ADD 35-20-7. Subsidiaries prohibited. -- ADD} {ADD (a) Except as expressly authorized by law, no public corporation shall have the right to exercise or perform any of its powers and functions through any subsidiary or any other separate corporation or entity. Except as expressly authorized by law, no public corporation shall direct, require, or permit any of its directors, officers or employees to create any subsidiary organizations.

(b) In any case in which a public corporation is expressly authorized by law to create or to act through a subsidiary or other separate corporation or entity, no such subsidiary or other separate corporation or entity shall have the power to issue bonds, notes or other securities; without the authorization of the legislature. In accordance herewith, University Heights Housing Corporation for the purpose of financing and/or rehabilitating University Heights and RIH Equity Corporation for the purpose of financing investments in low-income housing tax credit eligible properties, which are subsidiaries of Rhode Island Housing and Mortgage Finance Corporation are specifically authorizes to issue debt for their corporate purposes; provided, however, that nothing herein shall prohibit a wholly owned subsidiary of a public corporation from issuing notes or other evidences of indebtedness where the only payee or obligee on such instruments is the subsidiary's parent public corporation; and provided further, however that nothing herein shall prohibit a wholly owned subsidiary of a public corporation from issuing notes or other evidences of indebtedness in connection with its purchase or lease of business equipment or other personal property used by the subsidiary in the ordinary course of its usual and regular business. ADD}

SECTION 2. This act shall take effect upon passage.