BILL ANALYSIS �
AB 941
Page 1
Date of Hearing: May 1, 2013
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
AB 941 (Rendon) - As Amended: April 23, 2013
SUBJECT : Controller: reports.
SUMMARY : Expands the State Controller's authority to perform
audits or investigations of counties, cities, and special
districts if the Controller makes specified findings that any of
these local government entities is violating financial
requirements in state law, state grant agreements, local
charters, or local ordinances. Specifically, this bill :
1)Authorizes the State Controller (Controller), until January 1,
2019, to conduct an audit or investigation if the Controller
makes specified findings that a county, city, or special
district is not complying with the financial requirements in
state law, state grant agreements, local charters, or local
ordinances, and if the Controller determines that sufficient
funds exist within his or her budget to conduct the audit or
investigation.
2)Requires the Controller to prepare a report of the results of
the audit or investigation that shall include detailed
documentation of the material basis for the findings included
in the audit or investigation. A copy of the report shall be
filed with the legislative body of the city, county, or
special district subject to the audit or investigation, and a
finding of illegal acts or fraud shall be communicated to the
appropriate authorities, including the county grand jury.
3)Requires the Controller, before conducting an audit or
investigation, to consult with the local agency and make
written findings that explain the legal and factual basis
supporting the decision to conduct the audit or investigation.
The Controller must give the local agency a reasonable
opportunity to respond to these findings.
4)Requires the Controller, in cases in which he or she seeks to
audit or investigate compliance with financial requirements in
local charters or local ordinances, to first share with the
local agency documentation of evidence relied upon in
determining the need for the audit or investigation and
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provide the local agency the opportunity to conduct its own
audit or investigation of the matter in a reasonable period of
time. If the local agency elects to conduct an audit or
investigation, the local agency shall provide the results to
the Controller promptly upon completion. If the Controller
subsequently proceeds with his or her own audit or
investigation, he or she shall make specific written findings
concerning the evidence relied upon in determining the need
for the audit or investigation and confirming that each issue
to be audited or investigated has not been or is not likely to
be addressed by local means, as specified.
5)For purposes of the requirement described above,
"documentation" means a writing, photograph, photostat, email
or facsimile transmission, or any other means of recording
upon a tangible thing in any form of communication or
representation, including letters, words, pictures, sounds, or
symbols, or combinations thereof, or a record thereby created,
regardless of the manner in which the record has been stored.
6)Prohibits the Controller from auditing or investigating
compliance with the financial requirements in local charters
or local ordinances if the matter involves a pending policy or
administrative decision, such as adoption of a budget,
negotiations of labor or other contracts, or a pending
decision on an unpaid claim, as specified; or, the matter is
the subject of actual or completed litigation.
7)Prohibits the Controller from initiating or conducting an
audit or investigation of a local agency that falls within the
date the local agency has initiated the neutral evaluation
process pursuant to current law governing bankruptcy
proceedings for local agencies and the date that process has
been completed.
8)Requires the Controller to waive the costs of the
investigation if the investigation determines that the
financial report filed by the county, city, or special
district did not contain materially false, incomplete, or
incorrect information. The Controller may establish a payment
program, with interest, for up to five years to assist a local
agency to pay for costs of the investigation that cannot be
waived.
9)Authorizes the Controller, at the written request of the
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governing body, chief administrative officer, or chief
executive of a local agency, to convene a local agency
financial review committee (LAFRC) to provide assistance to
the local agency in reviewing and assessing its financial
condition and related internal controls to avert or manage a
serious financial problem. The request must include a
description of the factors that warrant the need for review
and assessment.
10)Requires the local agency to reimburse the Controller for any
costs incurred by the Controller in conducting a review
pursuant to this bill. The Controller may establish a payment
program for up to five years, with interest, for the local
agency to pay for the costs of a LAFCR review.
11)Requires a LAFRC to be chaired by the Controller and both
state and local government representatives selected by the
Controller. The Controller must allow at least two local
government representatives to serve on the LAFRC, selected as
follows:
a) If the local agency is a city, representatives selected
by the League of California Cities;
b) If the local agency is a county, representatives
selected by the California State Association of Counties;
and,
c) If the local agency is a special district,
representatives selected by the California Special
Districts Association.
12)Requires the Controller to use the services of a consultant
that has extensive financial management and accounting
experience with local agencies in the state to assist the
LAFRC in evaluating and assisting the local agency.
13)Requires the LAFRC, in consultation with the local agency
requesting assistance, to provide a written report to the
local agency, which may include its recommendations and an
assessment of the local agency's financial practices and
conditions and internal controls related to its financial
condition.
14)Provides that assistance provided pursuant to LAFRC
provisions shall not include direct financial payments or
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loans to local agencies that are not otherwise authorized by
statute.
15)Requires the Controller to suspend all activities under LAFRC
provisions if the local agency notifies the Controller that it
has initiated the neutral evaluation process pursuant to
current law governing bankruptcy proceedings for local
agencies, unless the local agency requests that the activities
be continued.
16)Defines, for purposes of LAFRC provisions, "local agency" to
mean a city, county, city and county, or special district.
17)Clarifies the definition of joint powers authorities (JPAs)
that must submit financial reports to the Controller to
include a public entity, agency, commission, or board provided
for by a joint powers agreement pursuant to the Joint Exercise
of Powers Act that is separate from the parties to the
agreement.
18)Repeals outdated code sections regarding required financial
reports of redevelopment agencies (RDAs), and clarifies that
successor agencies to former RDAs are subject to the same
reporting requirements as cities, counties and special
districts.
19)Increases the forfeiture amounts for an officer of a local
agency, except a JPA that issues conduit revenue bonds, who
fails or refuses to make and file his or her report within 20
days after receipt of a written notice of the failure from the
Controller, as follows:
a) Increases, from $1,000 to $2,500, for a local agency
with total revenue, in the prior year, of less than
$100,000, as reported in the Controller's annual financial
reports;
b) Increases, from $2,500 to $5,000, for a local agency
with total revenue, in the prior year, of at least $100,000
but less than $250,000, as reported in the Controller's
annual financial reports;
c) Increases, from $5,000 to $10,000, for a local agency
with total revenue, in the prior year, of at least
$250,000, as reported in the Controller's annual financial
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reports;
d) Requires that, if an officer of a local agency fails or
refuses to make and file his or her report within 20 days
after receipt of a written notice for two consecutive
years, the forfeiture specified above shall be doubled;
and,
e) Requires that, if an officer of a local agency fails or
refuses to make and file his or her report within 20 days
after receipt of a written notice for three consecutive
years, the forfeiture specified above shall be tripled.
20)Provides that, notwithstanding any amount forfeited, an
agency shall be required to file the financial transactions
report.
21)Requires that, upon satisfactory showing of good cause to the
Controller, the forfeiture shall not be imposed.
22)Imposes increased forfeiture amounts for JPAs that issue
conduit revenue bonds for failing to report to the Controller,
maintaining a separate code section for these types of JPAs
but imposing identical increases in forfeiture amounts as
those described above for other local agencies.
EXISTING LAW :
1)Requires the officer of each local agency who has charge of
the financial records to furnish to the Controller a report of
all the financial transactions of the local agency during the
next preceding fiscal year.
2)Defines local agency to mean "any city, county, any district,
and any community redevelopment agency required to furnish
financial reports" pursuant to specified sections of existing
law.
3)Requires the report to be furnished within 90 days after the
close of each fiscal year and to be in the form required by
the Controller
4)Requires the report to contain specified contents and requires
the report to contain additional information for cities.
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5)Provides that an officer of a local agency who fails or
refuses to make and file his or her report within twenty days
after receipt of a written notice of the failure from the
Controller shall forfeit to the state:
a) $1,000 in the case of a local agency with total revenue,
in the prior year, of less than $100,000, as reported in
the Controller's annual financial reports;
b) $2,500 in the case of a local agency with total revenue,
in the prior year, of at least $100,000 but less than
$250,000, as reported in the Controller's annual financial
reports; and,
c) $5,000 in the case of a local agency with total revenue,
in the prior year, of at least $250,000, as reported in the
Controller's annual financial reports.
6)Provides for similar forfeiture amounts for JPAs that issue
conduit revenue bonds, and additionally requires fines to be
doubled in the second or more consecutive year of
non-compliance and requires an independent financial audit by
the Controller in the third or more consecutive year of
non-compliance.
FISCAL EFFECT : Unknown
COMMENTS :
1)This bill expands the Controller's authority to investigate or
audit local governments that might not be complying with
financial requirements in state law, state grants, local
charters or local ordinances. It allows a local agency to
conduct its own investigation before the Controller can
conduct an audit or investigation. The bill also increases
penalties for local agencies that fail to file their annual
financial transaction reports with the Controller, and
authorizes the Controller to convene a local agency financial
review committee to create a financial recovery plan for a
local agency at the request of the agency. This bill is
sponsored by State Controller John Chiang.
2)According to the author's office, "The City of Bell, in AD 63,
was just one example of how the failure of some local
officials to conduct the public's business transparently and
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responsibly can lead to financial consequences that ultimately
burden other local agencies and the state. Unfortunately,
circumstances such as those in the City of Bell are only
discovered when the local government entity is in danger of a
major financial crisis, such as defaulting on private debt.
"According to the State Controller's Office (SCO), local
agencies failing to comply with laws requiring financial
transaction reports is a persistent problem. Each year, the
SCO estimates that it assesses an average of $251,000 in
penalties from these local agencies for filing their financial
disclosures late or failing to file at all. Since current
fines are low, these non-filers find it easier to pay the fine
than go through the trouble of complying with the law. In more
egregious cases, there are local government agencies that have
not complied for over three years."
3)Existing law requires the officer of each local agency, who
has charge of the financial records of the agency, to furnish
to the Controller a report of all the financial transactions
of the local agency during the next preceding fiscal year,
within 90 days of the close of each fiscal year. "Local
agency," for purposes of these financial reports, includes any
city, county, district, and specified community redevelopment
agencies. Under current law, the State Controller's Office
can assess penalties of up to $5,000 for local governmental
agencies that file late annual financial transactions reports
or agencies who fail to file the report at all. The
Controller's Office maintains a list of those that do not
file, and those that file late, including cities and special
districts. Eleven local agencies failed to file their annual
transactions reports between 2008 and 2011, and eighteen local
agencies failed to file for fiscal year 2011-12, according to
data supplied by the Controller's Office.
4)This bill is substantially similar to SB 186 (Kehoe and
DeSaulnier, 2012), which this Committee approved on a 9-0 vote
on June 27, 2012. SB 186 was held in the Assembly
Appropriations Committee.
5)Both this bill and AB 1035 (Muratsuchi), which this Committee
approved on a 8-0 vote on April 10, change the forfeiture
amounts local agencies must pay for failing to file their
financial reports with the Controller's Office. The author
and sponsor may wish to consider chaptering amendments to
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resolve this conflict.
6)Support arguments : The sponsor states that this bill gives
the Controller's office the authority to quickly respond to
concerns about mismanagement or violations of state law
affecting local, state and federal funding.
Opposition arguments : Opponents could argue that this bill
over-extends the Controller's authority.
REGISTERED SUPPORT / OPPOSITION :
Support
State Controller John Chiang [SPONSOR]
Bell Chamber of Commerce
Bell Women's Club
City of Cudahy
Glendale City Employees Association
Organization of SMUD Employees
Peace Officers Research Association of California
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
Opposition
None on file
Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958