BILL ANALYSIS Ó
Bill No: AB
187
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2011-2012 Regular Session
Staff Analysis
AB 187 Author: Lara
As Amended: June 22, 2011
Hearing Date: June 28, 2011
Consultant: Art Terzakis
SUBJECT
State Auditor: high-risk local government audit program
DESCRIPTION
AB 187 grants the State Auditor the authority to establish
a high-risk local agency audit program. Specifically, this
measure:
1. Permits the State Auditor to establish a high-risk
local government agency audit program to identify,
audit, and issue reports on any local government
agency that the Auditor identifies as being at high
risk for the potential of waste, fraud, abuse, or
mismanagement or that has major challenges associated
with its economy, efficiency or effectiveness.
2. Allows the State Auditor to consult with the State
Controller, Attorney General or other state agencies
that have oversight responsibilities over the local
entity for purposes of identifying high risk local
entities.
3. Stipulates that the State Auditor shall: (a) be
responsible for the state costs associated with the
high-risk local audit program; (b) conduct the program
as funds permit; (c) only conduct the program to the
extent that it does not interfere with duties related
to mandated audits and audits approved by the Joint
Legislative Audit Committee (JLAC).
4. Requires the State Auditor to notify JLAC upon
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identifying a high risk local government and upon
starting any audit under this program. Also, requires
the State Auditor to provide JLAC, at a public
hearing, with annual updates of all audits in
progress, and remove a local government agency from
the program, if that entity has taken significant
corrective measures for deficiencies.
5. Requires the State Auditor to release audit reports
at least once every two years for high risk local
agencies, including recommendations for improvement.
6. Makes it explicit the Auditor shall only conduct
these high-risk local audits to the extent the
Legislature appropriates sufficient funds to cover the
state cost.
EXISTING LAW
Senate Bill 37 (Maddy) Chapter 12, Statutes of 1993,
(Government Code 8543), created the Bureau of State Audits
(BSA) as part of the Executive Branch. To assure its
independence, the BSA is free from the control of the
Executive and Legislative branches; the Milton Marks
"Little Hoover" Commission oversees its administrative
operations. The BSA, under the direction of the State
Auditor, performs an annual examination (single audit) of
the State's general-purpose financial statements as
prepared by the State Controller's Office. The federal
government, as a condition of receiving federal funds,
requires this audit. The single audit also includes a
review of major federal programs for compliance with
federal laws and regulations, and recommendations to
improve the State's financial systems and internal control.
The BSA also conducts financial and performance audits as
directed by statute, and other government audits requested
by the Joint Legislative Audit Committee (JLAC). The BSA
has the explicit authority to audit any entity that
receives state funds. Consequently, it sometimes audits at
the local government level. In addition, the BSA
administers the "Reporting of Improper Governmental
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Activities Act," which includes a hotline for anonymous
reporting.
Existing law authorizes the State Auditor to establish a
high-risk government agency audit program for the purpose
of identifying, auditing, and issuing reports on any agency
of the state that the State Auditor identifies as being at
high risk for the potential of waste, fraud, abuse, and
mismanagement or that has major challenges associated with
its economy, efficiency, or effectiveness
BACKGROUND
Purpose of AB 187: The author's office points out that
currently, the State Auditor's high-risk audit program only
applies to state government and does not give the Auditor
the authority to include local government high-risk
assessments. Yet the State Auditor's general jurisdiction
for audit work includes all levels of state and local
government. Omitting local governments from the high-risk
program could hamper the ability of the State Auditor to
provide state-wide oversight and government transparency.
The author's office emphasizes that AB 187 is simply
intended to increase oversight within all levels of
government and allow the State Auditor to identify and
examine local governments during the course of the
high-risk audit program to determine if there are any areas
that are at risk of fraud, waste or mismanagement.
Arguments in Opposition: Writing in opposition, the State
Association of County Auditors argues that AB 187 does not
contain detail or guidelines regarding the criteria for
being identified as a "high risk" agency, or how,
specifically, to remove this designation. The Association
is also concerned that AB 187 does not provide local
agencies with an ability to appeal or respond to an
impending audit in a public forum prior to the commencement
of the audit, or prior to the audit findings being made
public.
Also writing in opposition, the Friant Water Authority,
which operates and maintains the Friant-Kern Canal, states
that AB 187 appears to be an overreaction to the City of
Bell and similar local government scandals. The Friant
Water Authority believes that "AB 187 is unnecessary and is
actually duplicative of the grand jury function that is
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already available - and used widely - within local
communities throughout the State."
The Committee also received correspondence from the League
of California Cities (League) and the California State
Association of Counties (CSAC) expressing various concerns
with AB 187.
The League claims that it supports transparency and
accountability at all levels of government but believes
that AB 187 grants the State Auditor overly broad and
potentially costly authority to audit local agencies. The
League suggests that audits be authorized when there is
evidence of and not the potential for fraud or abuse.
Additionally, the League suggests that AB 187 provide
objective, clear, reasonable, narrow, and compelling
criteria for triggering an audit so that local agencies can
clearly identify the specific situations that would lead
the state to intervene.
CSAC is concerned that AB 187 sets up a process that is new
and unfamiliar to most local agencies - which in turn would
create uncertainty as to how an agency is identified as a
high-risk agency and the extent of the audit activities.
CSAC claims that specific criteria for meeting the
high-risk category would at least provide local agencies
with an understanding of the potential for audit by the
State Auditor, especially since the costs of complying with
an audit could be substantial.
Both the League and CSAC point out that AB 187 is but one
of many bills introduced to provide greater state oversight
and transparency for local government entities in light of
the scandal in the City of Bell and they are concerned that
these bills could create overlapping and duplicative
oversight authority.
PRIOR/RELATED LEGISLATION
SB 186 (Kehoe) 2011-12 Session. Would, until January 1,
2017, expand the State Controller's authority to perform
audits or investigations of counties, cities, special
districts, joint powers agencies, and redevelopment
agencies, if the Controller has reason to believe,
supported by documentation, that a local government is
violating specified financial requirements. The audited
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agencies would be responsible for the cost of the audit.
(Pending in Assembly Local Government Committee)
SB 449 (Pavley) 2011-12 Session. Would authorizes the
State Controller, if sufficient funds are available, to
review the finances of cities, counties, special districts,
and redevelopment agencies, and provide financial
consultant expertise until January 1, 2017. (Pending in
Assembly Local Government Committee)
AB 229 (Lara) 2011-12 Session. Among other things, would
require the Controller to receive every annual financial
audit report prepared for any local agency, as specified,
including reports prepared in compliance with the federal
Single Audit Act of 1984 and required under any law to be
submitted to any state agency, and, after ascertaining its
compliance with that federal act, to transmit the report to
the designated state agency. (Pending in this Committee)
SB 1314 (Wyland) 2007-08 Session. Would have transferred
audit and evaluation duties within the Department of
Finance to the Bureau of State Audits (BSA) and renamed the
BSA as the Bureau of State Audits and Evaluations (BSAE)
with responsibility for auditing the performance of state
programs and managers and for recommending actions to
correct any inefficiencies or ineffectiveness that may
exist. (Held in this Committee at Author's Request)
SB 1452 (Speier) Chapter 452, Statutes of 2006. Updated
the auditing standards for state and local agencies and
enacted the Omnibus Audit Accountability Act of 2006 which
established a process whereby the Legislature would be
informed when auditor recommendations are being ignored or
not implemented by state agencies.
SB 1437 (Speier) Chapter 251, Statutes of 2004. Authorized
the State Auditor to establish a high-risk government
agency audit program for the purpose of identifying,
auditing, and issuing reports on any state agency that the
auditor identifies as high risk for the potential of waste,
fraud, abuse, and mismanagement, or that has major
challenges associated with its economy, efficiency, or
effectiveness.
SB 37 (Maddy) Chapter 12, Statutes of 1993. Created the
Bureau of State Audits under the direction of the Little
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Hoover Commission. Many of the duties and power of the
Office of Auditor General were passed to the Bureau of
State Audits. This was done in response to the passage of
Proposition 140 which had the effect of greatly reducing
the size and scope of the Auditor General's office.
SUPPORT: As of June 24, 2011:
California State Auditor
California Taxpayers Association
OPPOSE: As of June 24, 2011:
Friant Water Authority
State Association of County Auditors
FISCAL COMMITTEE: Senate Appropriations Committee
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