BILL ANALYSIS Ó SB 543 Page 1 Date of Hearing: July 5, 2011 ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER PROTECTION Mary Hayashi, Chair SB 543 (Price) - As Amended: June 23, 2011 SENATE VOTE : 37-1 SUBJECT : Business and professions: regulatory boards. SUMMARY : Extends the sunset date of a number of boards, committees and commissions within the Department of Consumer Affairs (DCA) and makes programmatic and administrative changes to some of these entities. Specifically, this bill : 1)Adds the Board for Professional Engineers, Land Surveyors, and Geologists (BPELSG) to the list of specified boards whose licensing applicants must submit a full set of fingerprints for the purposes of conducting criminal history record checks. 2)Extends the operation of the California Board of Accountancy (CBA) and related provisions until January 1, 2016, and subjects CBA to review by the appropriate policy committees of the Legislature. 3)Provides that any restatement of a financial statement that is included in any report filed with the United States Securities and Exchange Commission (SEC) shall be exempt from existing law requiring an accountant licensee to report to CBA any restatement of a financial statement and related disclosures by a client audited by the licensee. 4)Extends the operation of CBA's peer review program and the peer review oversight committee to January 1, 2016. 5)Extends to January 1, 2015, the date by which CBA must submit a report to the Legislature and the Governor regarding peer review requirements, and adds the following components to the report: a) The number of peer review reports completed and the number of reports submitted to CBA as required by existing law; SB 543 Page 2 b) The number of enforcement actions that were initiated as a result of an investigation conducted pursuant to existing law; c) The number of firms that were recommended to take corrective actions to improve their practice through the mandatory peer review process, and the number of firms that took such corrective actions following these recommendations; d) The extent to which mandatory peer review of accounting firms enhances consumer protection; e) The cost impact on firms undergoing mandatory peer review and the cost impact of mandatory peer review on the firm's clients; f) A recommendation as to whether the mandatory peer review program should continue; and, g) A recommendation as to whether the preparation of nondisclosure compiled financial statements on another comprehensive basis of accounting should continue to be a part of the mandatory peer review program. 6)Extends the operation of the California Architects Board (CAB) and related provisions until January 1, 2016, and removes the July 1, 2012, sunset date of CAB's authority to implement an intern development program, granting CAB permanent authority to do so. 7)Extends the operation of the Landscape Architects Technical Committee (LATC) and related provisions until January 1, 2016. 8)Extends the operation of the Professional Fiduciaries Bureau (PFB), until January 1, 2015, and subjects PFB to review by the appropriate policy committees of the Legislature. 9)Provides that existing law requiring licensure as a professional fiduciary does not apply to an enrolled agent who is providing fiduciary services that are ancillary to the primary services of an enrolled agent, and those services are provided at the request of a client with which the enrolled agent has an existing professional relationship. However, an enrolled agent who is soliciting clients for fiduciary SB 543 Page 3 services or holding himself or herself out as a professional fiduciary must a hold a professional fiduciary license. 10)Authorizes the PFB to enter into a settlement agreement with a licensee or applicant instead of issuing an accusation or statement of issues against the licensee or applicant. The settlement must identify the factual basis for the action taken and the statutes or regulations violated. Any settlement executed pursuant to this provision shall be considered discipline and a public record and shall be posted on the PFB's internet website. 11)Extends the operation of BPELSG and related provisions until January 1, 2016, and subjects BPELSG to review by the appropriate policy committees of the Legislature. 12)Deletes a requirement that an applicant to use the title "structural engineer" pass a California-specific exam. 13)Changes references to the "Professional Engineer's and Land Surveyor's Fund" to the "Professional Engineer's, Land Surveyor's, Geologist's, and Geophysicist's Fund." 14)Extends the operation of the Contractors' State License Board (CSLB) and related provisions until January 1, 2016, and subjects CSLB to review by the appropriate policy committees of the Legislature. 15)Extends the operation of the State Board of Guide Dogs for the Blind (BGDB) and related provisions, including a pilot project to resolve disputes between guide dog users and guide dog schools, until January 1, 2014, and subjects BGDB to review by the appropriate policy committees of the Legislature. 16)Deletes the $450 cap on the examination fee for registration as a geologist, maintaining the BPELSG's authority to set the fee at an amount equal to the actual cost of administering the examination. 17)Extends the operation of the State Athletic Commission (Commission) and related provisions until January 1, 2014, and subjects the Commission to review by the appropriate policy committees of the Legislature. SB 543 Page 4 18)Extends to July 30, 2012, the date by which the Commission must provide a report to the Governor and the Legislature on the condition of the Neurological Examination Account and the Boxers' Pension Fund. EXISTING LAW 1)Provides for the licensing and regulation of various professions and businesses by numerous boards, committees, bureaus, and a commission within DCA under various Business and Professions Code (BPC) licensing acts. 2)Requires licensing applicants of specified boards to submit a full set of fingerprints for the purposes of conducting criminal history record checks, and authorizes the licensing boards to obtain and receive, at their discretion, criminal history information from the Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI). 3)Establishes the CBA and its authority to appoint an executive officer until January 1, 2012. 4)Requires an accountant licensee to report to the CBA the occurrence of certain events taking place after January 1, 2003, including any restatement of a financial statement and related disclosures by a client audited by the licensee. 5)Establishes peer review requirements that an accountancy firm must meet every three years to renew its registration, as specified, until January 1, 2014. 6)Requires the CBA, by January 1, 2013, to provide the Legislature and the Governor with a report regarding the peer review program, with specified components. 7)Establishes CAB and its authority to appoint an executive officer until January 1, 2012, and authorizes CAB to implement an intern development program until July 1, 2012. 8)Establishes LATC under CAB until January 1, 2012. 9)Establishes the PFB until January 1, 2012. 10)Provides that no person shall act or hold himself or herself out as a professional fiduciary unless that person is licensed SB 543 Page 5 as a professional fiduciary in accordance with the Professional Fiduciaries Act (Act), or are exempt from the Act. Those exempt from the Act include: attorneys, CPAs acting within their scope of practice, and enrolled agents acting within their scope of practice. 11)Authorizes the PFB to impose disciplinary action, including license denial, suspension, probation, or revocation, and requires the PFB to provide on the internet information regarding any enforcement action. 12)Establishes BPELSG and its authority to appoint an executive officer until January 1, 2012. 13)Prohibits use of the title "structural engineer" by any person unless he or she is a licensed civil engineer in California and has been deemed qualified as a structural engineer according to rules and regulations established by BPELSG. 14)Specifies that an applicant to use the title "structural engineer" must pass a written exam that incorporates a national exam by a nationally recognized entity approved by BPELSG and must pass a supplemental California specific exam that tests the applicant's knowledge of state laws, rules and regulations, and seismicity and structural engineering unique to this state. 15)Creates the Professional Engineer's and Land Surveyor's Fund. 16)Establishes CSLB and its authority to appoint an executive officer until January 1, 2012, and subjects CSLB to review by DCA, limited only to unresolved issues identified by the Joint Committee on Boards, Commissions and Consumer Protection. 17)Establishes the BGDB and a pilot project for arbitration of disputes between dog users and dog schools over continued custody and use of dogs until January 1, 2012. 18)Establishes the Geologists and Geophysics Fund. 19)Requires applicants for registration as a geologist to pay an exam fee set by the BPELSG, not to exceed $450. 20)Establishes the Commission until January 1, 2012, and SB 543 Page 6 requires the Commission to provide a report to the Legislature by July 30, 2010, on the condition of the Neurological Examination Account and the Boxers' Pension Fund. FISCAL EFFECT : Unknown COMMENTS : Purpose of this bill . According to the author's office, "Under current law, each of the boards, committees and commissions (in this bill) will expire on January 1, 2012. SB 543 makes necessary statutory changes to the Business and Professions Code to extend the sunset date of (these entities and) will ensure that consumers continue to be protected by oversight of the professionals licensed by (these entities) while also implementing changes to better promote the protection of the public." Background . This bill extends the operations of several entities within DCA that have shown to be effective and efficient regulatory bodies, protecting both the professions they oversee and California consumers. The entities whose operations have been extended include: CBA, CAB, LATC, PFB, BPELSG, CSLB, BGDB, and the Commission. This bill also makes a number of changes to some of these regulatory entities and the programs they administer. According to background information provided by the author's office, these changes are necessary for several reasons. BPELSG indicates that its applications for in-training certificates and for professional licensure require all applicants to state whether or not they have been convicted of a crime, because current law allows BPELSG to deny certification or licensure if the applicant has been convicted of a crime substantially related to the qualifications, functions, and duties of the professional practice. However, BPELSG does not have the legal authority to obtain criminal history information to verify if the information provided on the applications is correct. Since BPELSG has no legal authority to independently verify the truthfulness of an applicant's response, it must rely solely on the information provided by the applicant on the applications. This current process does not adequately protect consumers. Additionally, BPELSG can take disciplinary action against a licensee if the licensee has been convicted of a crime SB 543 Page 7 substantially related to the qualifications, functions, and duties of the professional practice. However, BPELSG is not able to proactively monitor whether its licensees have been convicted of crimes because it is not able to obtain criminal history information directly. BPELSG must wait for someone to submit a complaint and provide the conviction information. Again, this current process does not adequately protect consumers. This bill clarifies that BPELSG is one of the boards, bureaus, divisions, and programs under DCA that may obtain both state and federal criminal history information. AB 270 (Correa) Chapter 231, Statutes of 2002, required all restatements to be reported to the CBA. A restatement is a revision to one or more of a company's financial statements and can be made for many reasons. CBA licensees currently submit restatements related to non-profit organizations, governmental entities, and SEC registrants. Since that time, more than 2,300 restatements have been reported to the CBA. Of those, approximately 1,300 have also gone to the SEC. Not a single restatement received by the CBA has resulted in an enforcement action. Through exchange agreements, the SEC and the Public Company Accounting Oversight Board (PCAOB) shares with CBA enforcement actions they have taken against licensees, including those resulting from restatements. The Accountancy Act allows CBA to take action against any licensee sanctioned by the SEC or PCAOB. Approximately 20% of CBA's disciplinary actions result from information received through the SEC or PCAOB. This bill exempts from the CBA's reporting requirement a restatement or related disclosures that are already submitted to the SEC. The CBA would continue to receive restatements from non-profit and governmental audits that stem from errors in audits or financial statements of these entities, as these restatements are not filed with the SEC. These restatements will continue to be reviewed by CBA's Enforcement Program as they could potentially contain evidence of wrong-doing. AB 138 (Hayashi), Chapter 312, Statutes of 2009, established a comprehensive mandatory peer review program for CPAs in California. AB 138 required firms providing audit, attest, or compilation (accounting and auditing) services to undergo a systematic review (peer review) to ensure that work performed conforms to professional standards. Peer review is required for SB 543 Page 8 these firms every three years as a condition for license renewal. To ensure the effectiveness of mandatory peer review, AB 138 required the CBA to establish a Peer Review Oversight Committee (PROC), the purpose of which is to engender confidence in the peer review program from consumers and the profession. The PROC is authorized to request any information and materials deemed necessary to ensure that peer reviews are administered in accordance with the standards established by the CBA in regulation. The PROC will use these materials when performing peer review program provider site visits and participating in peer review program provider's peer review report acceptance meetings. AB 138 also required the CBA to submit a report to the Legislature and Governor by January 1, 2013, detailing the impact of peer review on small business and the benefit to consumers that utilize those small business services. Both the peer review program and the PROC will sunset on January 1, 2014. This bill extends the sunset of the peer review program and the PROC to January 1, 2016. It also extends the due date for the report until January 1, 2015, so it can be considered along with the next proposed sunset extension for the CBA, and expands the report to require a more comprehensive study on the progress and the performance of the peer review program. In 2004, CAB adopted a structured internship requirement as a prerequisite for licensure as a means of exposing interns to a full range of the necessary areas of practice. The program, which sunsets July 1, 2012, is working well. This bill grants CAB permanent authority to implement the intern development program. When the Legislature enacted SB 1550 (Figueroa), Chapter 491, Statutes of 2006, establishing the Professional Fiduciaries Act, the law created a limited exemption for a person who is enrolled as an agent to practice before the Internal Revenue Service acting within the scope of practice as an enrolled agent, as specified. In 2009, the PFB issued a licensing advisory that any activities of an enrolled agent that are not within the scope of practice SB 543 Page 9 pursuant to the federal regulations would fall outside the exemption. The California Society of Enrolled Agents (CSEA) has expressed great concern with the PFB's interpretation of the exemption. Last year, CSEA sponsored AB 276 (Hayashi) to amend the law to clarify the exemption. That bill was held in the Assembly Appropriations Committee. CSEA indicates that most enrolled agents offer fiduciary services only rarely, when they have been asked by long-term clients to act as trustees. Relationships have been built and private and confidential materials have already been shared. This bill reflects a narrowly-crafted clarification to the existing exemption in the Professional Fiduciaries Act for an enrolled agent, who is providing fiduciary services that are ancillary to the primary services of an enrolled agent, and those services are provided at the request of a client with which the enrolled agent has an existing professional relationship. However, an enrolled agent who is soliciting clients for fiduciary services or holding himself or herself out as a professional fiduciary must be licensed as a professional fiduciary. The Administrative Procedures Act (APA) requires an agency to file an accusation or statement of issues against a licensee before the regulatory agency can reach a stipulated settlement with the licensee. While many licensees will not agree to a stipulated settlement without the pressure of a filed formal accusation, it is the experience of a number of regulatory boards that there are instances in which a licensee is willing to agree to a stipulated settlement earlier on in the investigation stage of the enforcement process in order to minimize the cost of an administrative hearing, or in order to expedite the resolution of a disciplinary matter. This bill authorizes the PFB to enter into a stipulated settlement agreement with a licensee or applicant prior to the PFB's issuance of an accusation or statement of issues against the licensee. The BPELSG Structural Engineers Technical Advisory Committee recommended to the BPELSG in April of 2009 that a new 16-hour National Council of Examiners for Engineering and Surveying (NCEES) Structural examination be administered in California for structural licensing beginning in April 2011, and that the legislative requirement for a California specific structural SB 543 Page 10 examination be eliminated. The requirement for a California specific examination for structural engineering is unnecessary since the 16-hour NCEES Structural Examination has been considered as testing for all the material previously provided in the state specific examination. Reliance on the national exam can also greatly facilitate comity licensing, as all other states will be using this new examination as the only requirement for structural licensing. This bill eliminates the requirement for a state specific structural engineering examination, so that BPELSG no longer has to create a "take-home" multiple choice examination to meet the current statutory requirement. BPELSG indicates that the Geologist and Geophysicist Program can increase its revenue by increasing the exam fee for the Professional Geologist's exam. Raising the examination fees to match the amount the Program spends on purchasing the examination will not only increase its revenue, it will bring the Program into compliance with current statute. This bill removes the $450 cap on fees charged for exam fees. Staff comments . This bill extends the sunset dates on the CBA as well as the CBA's peer review program. Given that the sunset review process allows the Legislature to review all operations of the CBA, including its peer review program, it appears to be redundant to also maintain a separate sunset on the peer review provisions. The Committee may wish to consider deleting the sunset dates in Business and Professions Code Sections 5076 and 5076.1 to eliminate this redundancy. Support . CSEA writes, "The PFB was established to protect vulnerable Californians from financial abuse by unlicensed, unregulated fiduciaries. It was recognized that three categories of professionals who sometimes provide fiduciary services to their clients already have strict licensing requirements and codes of ethics. Consequently, exemptions were extended to Attorneys, CPAs and Enrolled Agents from having to be additionally licensed as Professional Fiduciaries when providing incidental fiduciary services to their clients. The exemption language used for Enrolled Agents was vague and caused some confusion. On this basis, clarifying the limited exemption for EA's is appropriate." Opposition . The American Council of Engineering Companies (ACEC) of California states, "The list of licensees that require SB 543 Page 11 fingerprinting is unique in that the overwhelming number of those professions that require the check are those that either interact directly with consumers or patients in vulnerable or at risk settings or have access to highly confidential personal information (nurses, doctors, psychiatrists, other medical professionals), have a fiduciary interaction with consumers (accountants, fiduciaries), or a law enforcement type interaction with consumers (investigative services). Engineers, geologists, and land surveyors fall into none of these categories. In fact, the vast majority of professional time for these disciplines is spent in the office or in the field on construction sites such as development and infrastructure settings. There is very little personal interaction with consumers, no access to consumer personal information , no access to consumer financial information, and certainly no law enforcement role being played by licensees of BPELSG." ACEC also expresses concerns with the cost impact for BPELSG in complying with this licensure requirement. Related Legislation . SB 538 (Price) makes a number of changes to the Nursing Practice Act. This bill is pending in Assembly Business, Professions and Consumer Protection Committee. SB 539 (Price) extends the sunset date of the Board of Vocational Nursing and Psychiatric Technicians (BVNPT), expands requirements for employers of licensed vocation nurses (LVNs) and psychiatric technicians (PTs) to report specified information to the BVNPT, and makes other changes. This bill is pending in Assembly Appropriations Committee. SB 540 (Price) extends the sunset date of the Dental Board of California and makes a number of other programmatic changes. This bill is pending in Assembly Business, Professions and Consumer Protection Committee. SB 541 (Price) authorizes the boards and bureaus within the Department of Consumer Affairs, as well as the State Board of Chiropractic Examiners and the Osteopathic Medical Board, to continue to utilize expert consultants without having to go through the formal contracting process. This bill is pending in Assembly Appropriations Committee. SB 706 (Price) makes numerous enforcement enhancements to the Department of Real Estate and the Office of Real Estate Appraisers. This bill is pending in Assembly Business, SB 543 Page 12 Professions and Consumer Protection Committee. REGISTERED SUPPORT / OPPOSITION : Support California Society of Enrolled Agents California Landscape Contractors Association Contractors State License Board Engineering and Utility Contractors Association Golden State Builders Exchange Professional Fiduciary Association of California State Board of Guide Dogs for the Blind Opposition American Council of Engineering Companies Analysis Prepared by : Angela Mapp / B.,P. & C.P. / (916) 319-3301