BILL ANALYSIS                                                                                                                                                                                                    




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  AB 117                      HEARING:  7/3/13
          AUTHOR:  Cooley                       FISCAL:  Yes
          VERSION:  1/14/13                     TAX LEVY:  No
          CONSULTANT:  Ewing                    

            INDEPENDENT MONITORING OF STATE AGENCIES' ACCOUNTING AND  
                            ADMINISTRATIVE CONTROLS
          

          Directs the Department of Finance to develop guidelines to  
          maintain independence and objectivity of staff charged with  
          assessing adequacy of internal accounting and  
          administrative controls.  


                           Background and Existing Law  

          The Financial Integrity and State Manager's Accountability  
          Act (FISMA) of 1983 (AB 1840, Baker, 1983) established the  
          statutory responsibility of managers to implement and  
          monitor systems of internal accounting and administrative  
          control.  Under FISMA, all levels of management are  
          responsible for assessing and strengthening internal  
          controls to minimize fraud, errors, abuse, and waste of  
          public funds.  Internal control systems must include a  
          staffing and organizational plan, access controls for  
          accounting, recordkeeping and expenditure systems, and  
          systems of internal review.  

          FISMA requires the director of each department, every two  
          years, to prepare a report on the adequacy of internal  
          controls, including recommendations for improvement.  Each  
          department director is required to submit those reports,  
          along with the director's response to any recommendations,  
          to the agency Secretary, which oversees the department, and  
          the Department of Finance.  Copies are to be submitted to  
          the Legislature, the Governor, the Bureau of State Audits,  
          and the State Library where they are made available to the  
          public.  

          Where internal weaknesses are identified, departments are  
          required to provide a plan and schedule for corrective  
          action, with updated reporting every six months until  
          deficiencies are addressed (AB 1806, Committee on Budget,  




          AB 117 -- 1/14/13 -- Page 2



          2006).

          FISMA directs the Department of Finance, in consultation  
          with the Auditor and the Controller, to develop a framework  
          for departments to comply with the Act.  In 2011, the  
          Legislature updated FISMA, calling for more active  
          monitoring systems and structures, greater independence and  
          objectivity among employees charged with that monitoring,  
          and periodic updates to the state's internal reporting  
          system and framework for internal reviews (SB 617,  
          Calderon, 2011). 
          Some officials are concerned that the existing system for  
          assessing the adequacy of internal controls is not  
          sufficiently rigorous and needs greater independence and  
          objectivity to preserve the public's interest. 


                                   Proposed Law  

          Assembly Bill 117 directs the Department of Finance, in  
          consultation with the Controller and State Auditor, to  
          establish guidelines on how to maintain the independence  
          and objectivity of persons charged with monitoring the  
          strength of internal controls, including staffing  
          requirements, the use of training programs, identifying  
          chain-of-command reporting relationships, and identifying  
          best practices in professional development, and independent  
          monitoring.  

          AB 117 also declares that monitoring systems are vital to  
          the development of recommendations to improve program  
          efficiency, through consolidation or restructuring, without  
          undermining effectiveness, quality or customer  
          satisfaction.


                               State Revenue Impact
           
          Unknown.


                                     Comment  

           Purpose of the bill  .  Assembly Bill 117 directs the  
          Department of Finance to update its guidelines under the  
          Financial Integrity and State Manager's Accountability Act  





          AB 117 -- 1/14/13 -- Page 3



          to ensure that state employees charged with assessing the  
          adequacy of internal accounting and administrative controls  
          have the independence and objectivity needed to improve  
          internal controls and protect the public's interests.  AB  
          117 directs the department to identify strategies,  
          including staffing, reporting and chain-of-command  
          provisions, training and use of best practices, to ensure  
          that administrative controls are appropriate and reliable  
          and periodic monitoring results in enhancements to those  
          controls when and where warranted. 


                                 Assembly Actions  

          Assembly Accountability and Administrative Review13-0
          Assembly Appropriations                  17-0
          Assembly Floor                           76-0


                         Support and Opposition  (6/27/13)

           Support  :  State Controller John Chiang.

           Opposition  :  Unknown.