BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 617| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 617 Author: Calderon (D), et al. Amended: 9/8/11 Vote: 21 SENATE GOVERNMENTAL ORGANIZATION COMM : 13-0, 04/12/11 AYES: Wright, Anderson, Berryhill, Calderon, Cannella, Corbett, De León, Evans, Hernandez, Padilla, Strickland, Wyland, Yee SENATE APPROPRIATIONS COMMITTEE : 9-0, 05/09/11 AYES: Kehoe, Walters, Alquist, Emmerson, Lieu, Pavley, Price, Runner, Steinberg SENATE FLOOR : 37-0, 05/16/11 AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon, Cannella, Corbett, Correa, De León, DeSaulnier, Dutton, Emmerson, Evans, Fuller, Gaines, Hancock, Harman, Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu, Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio, Runner, Simitian, Steinberg, Vargas, Wolk, Wright, Yee NO VOTE RECORDED: Strickland, Walters, Wyland ASSEMBLY FLOOR : Not available SUBJECT : State government: financial and administrative accountability SOURCE : Author CONTINUED SB 617 Page 2 DIGEST : This bill updates state government accounting practices by requiring state agencies to implement ongoing monitoring of internal accounting and financial controls. Assembly Amendments (1) revise various provisions of the Administrative Procedure Act, (2) require each state agency to prepare a standardized regulatory impact analysis, as specified, with respect to the adoption, amendment, or repeal of a major regulation, as defined, that is proposed on or after January 1, 2013, (3) require the that the agency submit the analysis to the Department of Finance (DOF) for review and comments, as specified, (4) require the DOF, in consultation with other state entities, to adopt regulations for conducting the standardized regulatory impact analyses, as specified, (5) require, on or before November 1, 2013, DOF to submit these adopted regulations to the Senate and the Assembly Governmental Organization Committee and publish the adopted regulations in the adopted regulations in the State Administrative Manuel, (6) add a co-author. ANALYSIS : Existing law establishes the Financial Integrity and State Managers Accountability (FISMA) Act of 1983 to strengthen accounting practices and administrative controls in state agencies. This bill updates state government accounting practices by requiring state agencies to implement ongoing monitoring of internal accounting and financial controls. Specifically, this bill: 1.Enacts legislative findings that active oversight of accounting practices is critical to prevent and detect fraud and errors at state agencies and to ensure efficient use of public funds. 2.Requires that each state agency head develop processes to monitor internal accounting and financial controls. 3.Describes elements of a satisfactory system of internal accounting and financial control, including a plan of organization that assigns accounting duties, limits access to state agency assets to authorized personnel, describes recordkeeping procedures, and includes an SB 617 Page 3 effective system of internal review. 4.Requires that the head of each state agency conduct a biennial report on the adequacy of the agency's systems of internal accounting and monitoring practices and submit the report to the Legislature, State Auditor, State Controller, State Treasurer, the Attorney General, the director of the Department of Finance, the Governor and the State Library. 5.Allows the director of the Department of Finance, in consultation with the State Auditor and State Controller, to establish and modify recommended practices to guide state agencies in conducting ongoing monitoring of accounting practices. 6.Adds a requirement that any state agency proposing to adopt, amend or repeal a major regulation conduct an economic impact analysis that assesses the proposed regulation's impact on: The creation or elimination of jobs; The creation of new business or elimination of new business; The competitive advantages or disadvantages to California businesses; The increase or decrease in investment in the state; The incentives for innovation in products, materials or processes; and, The benefits to the health, safety and welfare of Californians. 1.Adds a requirement that the Department of Finance adopt, by January 1, 2013, regulation describing the process for agencies to conduct a standardized economic impact analysis. 2.Adds a requirement that agencies submit economic impact analyses to the Department of Finance for review. 3.Adds a definition for major regulation as any proposed adoption, amendment or repeal of a regulation that will have an impact on California businesses in an amount SB 617 Page 4 exceeding $50 million. Background According to the author's office, since enactment of FISMA in 1983, both state and federal law regarding corporate financial accounting has evolved but the laws requiring the state to practice similar internal accountability and controls have not. The author's office notes that FISMA's stated purpose is clear - to promote sound state governmental operations via a mandate for strong and effective systems of internal accounting and agency administrative control. However, in the 28 years since FISMA was adopted, business and financial accounting has witnessed significant change. The author's office contends that Californians today are keenly concerned for efficiency and accountability at all levels of government however current state law has not yet incorporated the lessons on improving ongoing financial oversight which were gained over the past decade as a result of the Enron financial collapse. The author's office notes that after the Enron financial debacle, Congress passed the Sarbanes-Oxley "Corporate and Auditing Accountability and Responsibility Act." Among its reforms, Sarbanes-Oxley introduced the element of ongoing monitoring of internal accounting and administrative controls as vital to ensure they remain fully effective in large organizations. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Assembly Appropriations Committee, this bill will result in minor absorbable costs for state government with possible savings on an ongoing basis. SUPPORT : (Verified 9/8/11) California Asian Pacific Chamber of Commerce California Association of Bed & Breakfast Inns California Building Industry Association California Business Properties Association SB 617 Page 5 California Chamber of Commerce California Construction and Industrial Materials Association California Farm Bureau Federation California Grocers Association California Hotel & Lodging Association California Independent Oil Marketers Association California League of Food Processors California Manufacturers & Technology Association California New Car Dealers Association California Professional Association of Specialty Contractors California Restaurant Association California Retailers Association Chemical Industry Council of California Consumer Specialty Products Association Industrial Environmental Association International Fragrance Association - North America Los Angeles Chamber of Commerce National Federation of Independent Business - California Pacific Merchant Shipping Association Western States Petroleum Association PQ:nl 9/8/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****