BILL ANALYSIS SB 1473 Page 1 SENATE THIRD READING SB 1473 (Wyland) As Amended August 9, 2010 Majority vote SENATE VOTE : 34-0 EDUCATION 8-0 ----------------------------------------------------------------- |Ayes:|Brownley, Nestande, | | | | |Ammiano, Arambula, | | | | |Carter, Eng, Miller, | | | | |Torlakson | | | |-----+--------------------------+-----+--------------------------| | | | | | ----------------------------------------------------------------- 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, SB 1473 Page 2 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; SB 1473 Page 3 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 SB 1473 Page 4 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. SB 1473 Page 5 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 FN: 0005729