BILL ANALYSIS                                                                                                                                                                                                    



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          SENATE THIRD READING
          SB 1473 (Wyland)
          As Amended  August 9, 2010
          Majority vote

           SENATE VOTE  :   34-0
           
           EDUCATION           8-0                                         
           
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          |Ayes:|Brownley, Nestande,       |     |                          |
          |     |Ammiano, Arambula,        |     |                          |
          |     |Carter, Eng, Miller,      |     |                          |
          |     |Torlakson                 |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |     |                          |
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           SUMMARY  :  Consistent with the provisions contained in  
          Proposition 39 of 2000 in regards to local general obligation  
          bonds, requires the annual, independent financial and  
          performance audits to be conducted in accordance with the  
          Government Auditing Standards issued by the Comptroller General  
          of the United States (U.S.) for financial and performance  
          audits. 

           EXISTING LAW  :

          1)Authorizes, under Section 1 of Article XIII A of the  
            California Constitution, school districts, community college  
            districts, or county offices of education to pass a general  
            obligation bond by a 55% vote, provided that the local  
            initiative includes the following accountability measures:

             a)   A requirement that the proceeds from the sale of the  
               bonds be used only for the construction, reconstruction,  
               rehabilitation, or replacement of school facilities,  
               including the furnishing and equipping of school  
               facilities, or the acquisition or lease of real property  
               for school facilities, and not for any other purpose;

             b)   Provide a list of the specific school facilities  
               projects to be funded and certification that the school  
               district board, community college board, or county office  
               of education has evaluated safety, class size reduction,  








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               and information technology needs in developing that list;

             c)   A requirement that the school district board, community  
               college board, or county office of education conduct an  
               annual, independent performance audit to ensure that the  
               funds have been expended only on the specified projects;  
               and,

             d)   A requirement that the school district board, community  
               college board, or county office of education conduct an  
               annual, independent financial audit of the proceeds from  
               the sale of the bonds until all of those proceeds have been  
               expended for the school facilities projects.

          2)Authorizes school districts, community college districts, and  
            county offices of education to levy a 55% vote ad valorem tax  
            pursuant to limits specified in the proposition.

          3)Requires the governing board of a school district or a  
            community college district to establish and appoint members to  
            an independent citizens' oversight committee within 60 days of  
            the date that the governing board enters the election results  
            on its minutes.  

          4)Requires each county superintendent of schools to provide for  
            an audit of all funds under his or her jurisdiction and  
            control.  Requires governing board of each local educational  
            agency (LEA) to either provide for an audit of the books and  
            accounts of the LEA or make arrangements with the county  
            superintendent of schools to provide for that auditing.   
            Requires the audit to comply fully with the Government  
            Auditing Standards issued by the Comptroller General of the  
            U.S.

           FISCAL EFFECT  :  According to the Legislative Counsel, this bill  
          is nonfiscal.

           COMMENTS  :  Proposition 39 was passed by voters in 2000.  Among  
          others, the Proposition, a Constitutional Amendment, reduced the  
          voting threshold for the passage of local general obligations  
          bonds from two-thirds to 55% provided that the local bond  
          initiative meets the following accountability measures:

          1)The initiative identifies a list of the specific school  
            facilities projects that will be funded by bond proceeds; 








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          2)A requirement that the school board, community college board,  
            or county office of education conduct an annual, independent  
            performance audit to "ensure that the funds have been expended  
            only on the specific projects listed;" and,

          3)A requirement that the school board, community college board,  
            or county office of education conduct an annual, independent  
            financial audit of the proceeds from the sale of the bonds  
            until all of those proceeds have been expended for the school  
            facilities projects.

          AB 1908 (Lempert), Chapter 44, Statutes of 2000, a companion  
          bill to Proposition 39, requires each district, within 60 days  
          of the passage of a local bond with 55%, to appoint a citizens'  
          oversight committee to monitor and review expenditures to ensure  
          compliance with Proposition 39 requirements, and to keep the  
          public informed about bond expenditures.  Both the financial  
          audit and performance audits must be reviewed by the independent  
          citizens' oversight committee.  

          This bill requires the financial and performances audit to be  
          conducted in accordance with the generally accepted government  
          auditing standards (GAGAS), informally known as the "Yellow  
          Book", issued by the comptroller general of the U.S. who heads  
          the U.S. Government Accountability Office (GAO).  The GAGAS  
          contains standards for audits of government organizations,  
          programs, activities, and functions, and of government  
          assistance received by contractors, nonprofit organizations, and  
          other nongovernment organizations.  The standards pertain to  
          auditors' professional qualifications and outline the processes  
          and parameters to achieve quality audits.  

          School districts are already conducting the Proposition 39  
          financial audits using the GAGAS standards when done in  
          conjunction with the annual financial audit required through  
          Education Code section 41020.  According to the author, school  
          districts and their local bond oversight committees are confused  
          with regard to the standard to follow in carrying out the  
          mandatory performance audit, since existing law does not specify  
          an accounting standard.  Currently, some districts have one  
          auditor conduct both the financial and performance audits,  
          others commission for extensive audits that review multiple  
          aspects of a district's facilities program, and some are  
          presenting the financial audit as both the financial and  








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          performance audits.  Supporters of the bill argue that  
          conducting one audit that counts as both a financial and  
          performance audit does not comply with Proposition 39  
          requirements and does not provide the accountability the  
          initiative intended.    
                                                                            
                                                                            
                                                              
          According to the GAO, "Performance audits entail an objective  
          and systematic examination of evidence to provide an independent  
          assessment of the performance and management of a program  
          against objective criteria?."  

          The GAGAS outlines several types of performance audits that  
          serve different objectives, including the following:

          1)Program effectiveness and results audits are frequently  
            interrelated with economy and efficiency objectives.  Program  
            effectiveness and results determine the extent to which the  
            intended results or benefits are being achieved, the  
            effectiveness of the entity, program, activity or function,  
            and whether the entity has complied with law and regulations  
            applicable to the program.  Economy and efficiency objective  
            addresses the costs and resources used to achieve program  
            results;

          2)Internal control audits relate to an assessment of the  
            component of an organization's system of internal control that  
            is designed to provide reasonable assurance of achieving  
            effective and efficient operations, reliable financial and  
            performance reporting, or compliance with applicable laws and  
            regulations; 

          3)Compliance audits relate to compliance criteria established by  
            laws, regulations, contract provisions, grant agreements, and  
            other requirements that could affect the acquisition,  
            protection, use, and disposition of the entity's resources and  
            the quantity, quality, timeliness, and cost of services the  
            entity produces and delivers; and, 

          4)Prospective analysis audit objectives provide analysis or  
            conclusions, about information that is based on assumptions  
            about events that may occur in the future along with possible  
            actions that the audited entity may take in response to the  
            future events.








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          The GAGAS performance audit standards described above may  
          require a more extensive evaluation of local bond funds than  
          that required by Proposition 39.  This bill requires the GAGAS  
          standards to be used to be consistent with Proposition 39  
          requirements.  Since Proposition 39 simply requires a  
          performance audit to ensure that funds were spent only on the  
          projects for which the ballot initiative indicated the funds  
          would be used, the GAGAS standard for compliance audits appear  
          to be most consistent with the Proposition 39 requirement.  


           Analysis Prepared by  :    Sophia Kwong Kim / ED. / (916) 319-2087  



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