BILL ANALYSIS SENATE COMMITTEE ON EDUCATION Gloria Romero, Chair 2009-2010 Regular Session BILL NO: SB 1473 AUTHOR: Wyland AMENDED: April 12, 2010 FISCAL COMM: No HEARING DATE: April 21, 2010 URGENCY: No CONSULTANT:Kathleen Chavira SUBJECT : School facility bond performance audits. KEY POLICY ISSUE Should constitutionally required performance audits required of local bond initiatives enacted with a 55 percent vote threshold be conducted in accordance with Government Auditing Standards? SUMMARY This bill requires that the constitutionally required performance audit established by initiative measure (Proposition 39, November 2000) be conducted in accordance with 2007 Government Auditing Standards issued by the Comptroller General of the United States. BACKGROUND Article XI, section 18 of the California Constitution, as amended by voter initiative measure (Proposition 39, November 2000) authorizes a school district, community college district, or county office of education to incur bond indebtedness for the construction, reconstruction, rehabilitation, or replacement of school facilities, with the approval of 55 percent of the voters of the district or county. Article XIII A provides that this vote threshold only applies if, among other things, the local bond measure includes a specific list of school projects to be funded and requires the authorizing board to conduct annual, independent financial and performance audits until all bond funds have been spent to ensure they are used exclusively for the projects listed in the measure. Current law provides that a Citizen's Oversight Committee be SB 1473 Page 2 established to, among other things, receive and review copies of the constitutionally required annual independent financial and performance audits. (Education Code 15278) Current law requires every county superintendent of schools to provide for an audit of all funds under his or her jurisdiction and control and the governing board of each local educational agency to either provide for an audit of its books and accounts or make arrangements with its county superintendent of schools to provide for the audit. Current law also requires the audit fully comply with the Government Auditing Standards issued by the Comptroller General of the United States. (EC 14020) ANALYSIS This bill requires that the annual independent performance audit required as the result of the passage of Proposition 39 be conducted in accordance with the 2007 revision of Government Auditing Standards issued by the Comptroller General of the United States. STAFF COMMENTS 1) Need for the bill . According to the author, while Proposition 39 required, and the Education Code currently requires both annual financial and annual performance audits for funds connected to bonds issued under the provisions of Proposition 39, the standards and methodologies to use with the performance audits have never been defined. 2) Government Auditing Standards . Government Auditing Standards (the "Yellow Book") contains standards for audits of government organizations, programs, activities, and functions, and of government assistance received by contractors, nonprofit organizations, and other nongovernmental organizations. These standards, often referred to as Generally Accepted Government Auditing Standards (GAGAS), are to be followed by auditors and audit organizations when required by law, regulation, agreement, contract, or policy. These standards pertain to auditors' professional qualifications, the quality of audit effort, and the characteristics of professional and meaningful audit reports. On July 27, SB 1473 Page 3 2007, the Comptroller General of the United States issued the 2007 revision of Government Auditing Standards, which supersedes the 2003 revision and updates the January 2007 revision. 3) Technical amendment . To help ensure that Government Auditing Standards (the "Yellow Book") continue to meet the needs of the audit community and the public it serves, the Comptroller General of the United States appointed the Advisory Council on Government Auditing Standards to review the standards and recommend necessary changes to the Comptroller General of the United States. When the Comptroller General issues a revised standard, the electronic version of Government Auditing Standards is immediately codified with a periodic codification of the standards into the printed book format. This specifically references the 2007 auditing standards. Staff recommends the bill be amended to delete the reference to the 2007 standards and instead require the performance audit be "conducted in accordance with Government Auditing Standards issued by the Comptroller General of the United States" to ensure consistency with current law references and the application of the most recent audit standards applicable. 4) Similar legislation . AB 125 (Ma, 2007) would have authorized the independent performance audit required by Proposition 39 to include reviews of the compliance by a school district or a community college district with specified information. The bill was vetoed by the Governor, whose veto message read, in pertinent part: This bill is unnecessary since it simply provides legislative authorization to include the specified issues for districts to review in its annual, independent performance audits of local general obligation bonds. Nothing in current law prohibits a district from including these elements today, even in the absence of this measure. SUPPORT Board of Governors of the California Community Colleges California Association of School Business Officials (CASBO) SB 1473 Page 4 California League of Bond Oversight Committees (CALBOC) Howard Jarvis Taxpayers Association OPPOSITION None received.