BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 736|
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THIRD READING
Bill No: SB 736
Author: Cannella (R)
Amended: 4/26/11
Vote: 21
SENATE EDUCATION COMMITTEE : 9-0, 4/13/11
AYES: Lowenthal, Runner, Alquist, Hancock, Huff, Liu,
Price, Simitian, Vargas
NO VOTE RECORDED: Blakeslee, Vacancy
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : California State University financial statement
and
compliance
SOURCE : California State University
DIGEST : This bill deletes the requirement that the
Trustees of the California State University conduct
individual campus financial statement and compliance audits
and, instead, requires that the currently required
systemwide audits be conducted in compliance with generally
accepted accounting principles and include specified
campus-level information.
ANALYSIS : Current law authorizes the California State
University (CSU), in conjunction with the State
Controller's office, to establish a system to draw from
funds appropriated to the university to make direct payment
CONTINUED
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to its vendors. Any amounts drawn in excess of 10 percent
of the total appropriation to the CSU in a fiscal year
require the approval of the Director of the Department of
Finance (DOF).
As a condition of this authority, the CSU is required to:
1.Maintain records of these payments for three years and to
make those records available to the Controller for post
audit review, as needed.
2.Contract with one or more public accounting firms to
annually conduct systemwide, and at least 10 individual
campuses, financial statement and compliance audits.
3.Include the results of these audits in a statutorily
required biennial report on the adequacy of the CSU's
internal accounting and administrative control systems.
The campus audits are required to be conducted on a
rotating basis, and each campus must be audited at least
once every two years. The financial statement audits are
required to test compliance with procurement procedures and
the integrity of the payments made
In order to ensure compliance with the Financial Integrity
and State Manager's Accountability Act of 1983, current law
requires that the head of each state agency biennially
conduct an internal review and prepare a report on the
adequacy of the agency's systems of internal accounting and
administrative control, as specified, and that copies of
these reports be submitted to the Legislature, the State
Auditor, the Governor, the Director of DOF, and to the
State Library where they must be available for public
inspection.
This bill:
1.Deletes the requirement that the Trustees conduct
individual campus financial statement and compliance
audits.
2.Requires that the annual systemwide financial statement
audit be conducted in accordance with generally accepted
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accounting principles
3.Requires that each campus' statement of net assets,
statement of revenues, expenses, changes in net assets,
and statement of cashflows be included as an addendum to
the annual system wide audit.
4.Requires summary information on transactions with
auxiliary organizations for each campus to be included in
the addendum to the annual systemwide audit.
4.Requires that any additional information necessary be
provided upon request, to the extent available.
Comments
History . Current law, authorizing a direct vendor payment
system was established by AB 2613 (Aguiar), Chapter 934,
Statutes of 1996. AB 2613 also required the Bureau of
State Audits (BSA) to evaluate CSU's system and report
findings and recommendations to the Legislature no later
than January 1, 2001. The BSA review found few problems,
all of which were isolated rather than systemic and the
authority was made permanent by the deletion of the sunset
date in AB 1689 (Assembly Jobs, Economic Development, and
the Economy Committee), Chapter 169, Statutes of 2001.
Generally Accepted Accounting Principles. This bill
specifically authorizes the preparation of financial
statements according to generally accepted accounting
principle standards. Generally accepted accounting
principles are the minimum standards or rules organizations
must follow in determining what financial information
should be included in the general-purpose financial
statements and how the information should be presented.
The primary organizations responsible for setting
accounting standards are the Governmental Accounting
Standards Board (GASB), the Financial Accounting Standards
Board (FASB), and the Federal Accounting Standards Advisory
Board (FASAB). For state and local governments, generally
accepted accounting principles are established primarily by
the GASB, while the FASAB serves as the main
standard-setting body for the federal government.
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Is the detailed campus information necessary ? According to
the Senate Education Committee, among other things, campus
financial statements include summary information on
transactions with related entities, including payments made
to and from auxiliary organizations for salaries, services,
and University gifts-in-kind. This detailed information is
not currently provided in the systemwide financial
statements, and under the bill's current provisions, would
be discontinued. According to the CSU, this information is
available in the independent audit required of any
auxiliary as required under Education Code § 89900(a).
Similar Legislation
AB 450 (Wieckowski), 2011-12 Session, also proposes changes
to the reporting requirements associated with the authority
to make direct vendor payments. Unlike this bill, it
proposes, among other things, to expand accountability by
increasing the maintenance of vendor payment records from
three to five years, requiring that audits determine
compliance procurement procedures and integrity of
payments, and to expand auditing of campuses from once
every two years to annually. (In Assembly Appropriations
Committee)
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/10/11)
California State University
ARGUMENTS IN SUPPORT : Current law requires the CSU to
contract with a public accounting firm to conduct
systemwide and individual campus audits. According to the
CSU, these audits were mandated as a condition of granting
the CSU the unique authority to pay its vendors directly,
without going through the Controller's Office. According to
the author's office, the campus audits, with few
exceptions, contain the same information as the annual
systemwide audits and cost the CSU system $2 million every
year.
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CPM:cm 5/10/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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