BILL ANALYSIS �
Bill No: AB
1248
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2013-2014 Regular Session
Staff Analysis
AB 1248 Author: Cooley
As Amended: May 24, 2013
Hearing Date: June 25, 2013
Consultant: Paul Donahue
SUBJECT
Controller: internal control guidelines; local agencies
DESCRIPTION
Requires the State Controller (Controller) to develop
internal control guidelines applicable to local agencies to
prevent and detect fraud. Specifically, this bill :
1)Requires the Controller to develop the internal control
guidelines based on standards adopted by the American
Institute of Certified Public Accountants (AICPA) and
with input from any local agency and organizations
representing the interests of local agencies, including,
but not limited to, the League of California Cities, the
California State Association of Counties, the California
Special Districts Association, and the California State
Association of County Auditors.
2)Requires the Controller to post the completed internal
control guidelines on the Controller's Internet Web site,
by January 1, 2015, to assist a local agency, as defined
by this bill, in establishing a system of internal
controls to safeguard assets and prevent and detect
financial errors and fraud.
3)Requires the Controller, with input from the agencies
listed in 2) above, to update the internal control
guidelines, as he or she deems necessary, and maintain a
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current version on the Internet Web site.
4)Defines, for purposes of this bill, "local agency" to
mean a city, county, city and county, special district,
or any other local governmental entity, except a school
district.
EXISTING LAW
Existing law authorizes the Controller to render service
pertinent to financial, budgetary and taxation problems and
procedures for any county, city, city and county, any other
political subdivision of the state, upon terms and
conditions as may be agreed upon between the Controller and
the governing body of such county, city, city and county,
or other political subdivision or district.
Under existing law, the officer of each local agency who
has charge of the financial records is required to furnish
to the Controller a report of all the financial
transactions of the local agency during the next fiscal
year.
Existing law requires the Controller to receive every audit
report prepared by any local public agency pursuant to the
Act and to review those reports for compliance with federal
law before forwarding them to the designated state agency.
BACKGROUND
This bill requires the State Controller to develop internal
control guidelines to prevent and detect financial errors
and fraud based on standards adopted by the AICPA and with
input from any local agency and organizations representing
the interests of local agencies, and to post the guidelines
on the Controller's Web site. This bill is sponsored by
State Controller John Chiang.
Purpose : According to the author's office, "[a]lthough the
economic recession has been especially difficult for local
governments, leading to economic failures and bankruptcies
across the state, results of audits conducted by the State
Controller show that not all of these failures were due to
the economic downturn. The State Controller found that in
addition to economic and demographic factors, lack of
internal controls - or checks and balances - at the local
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government level allowed for fiscal and administrative
errors and mismanagement. While the poor economy created
difficulties for these local governments, the seeds of
financial problems had already taken root because of the
lack of proper internal controls."
AB 1248 authorizes the State Controller to work with local
governments and interested stakeholder groups to develop a
set of "best practices" - internal controls designed to
prevent and detect financial errors and fraud in local
government agencies.
Recent audit history : In a series of recent audits of the
City of Bell's finances, the Controller found that the
independent auditor failed to comply with 13 of 17
fieldwork auditing standards and reported no significant
deficiencies in any of the city's funds.
More recently, the Controller found a number of
deficiencies in his "Hercules Administrative and Internal
Accounting Controls Review Report" issued in September
2012, which states in part:
"We found the City of Hercules' administrative
and internal accounting control deficiencies to
be serious and pervasive; in effect,
non-existent. We noted there was no oversight by
the City Council over the city's financial and
operational activities. From January 1, 2007,
through December 31, 2010, the City Council
adopted 40 ordinances, 679 city resolutions, and
360 Redevelopment Agency resolutions. With the
exception of one city ordinance, every ordinance,
city resolution, and RDA resolution was adopted
unanimously. In essence, the City Council
approved all requests submitted by the former
City Manager?As a result, the potential for
waste, abuse, and misappropriation of public
funds is very high."
PRIOR/RELATED LEGISLATION
SB 186 (Kehoe), 2011-2012 Session. Would have expanded the
Controller's authority to perform discretionary audits of
local agencies to ensure compliance with local ordinances
and state law. (Held in Assembly Appropriations)
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AB 162 (Smyth), 2011-2012 Session. Would have required
that, if an audit of a local agency reveals certain
financial irregularities, the findings be sent separately
to the Controller immediately after the audit has been
concluded. AB 162 also would have required the Controller
to prepare and transmit a report on those findings and the
Controller's recommendations to the Assembly and Senate
Committees on Local Government. (Not Heard)
AB 187 (Lara), Chapter 451, Statutes of 2011. Authorizes
the State Auditor to establish a high-risk local government
agency audit program to identify, audit, and issue reports
on any local government agency, including any city, county,
or special district, or any publicly created entity that
the State Auditor identifies as being at high-risk for the
potential of waste, fraud, abuse, or mismanagement or that
has major challenges associated with its economy,
efficiency, or effectiveness.
AB 253 (Smyth), 2011-2012 Session. Would have established
the Committee on City Accounting Procedures, specified the
membership of the Committee, and required the Controller,
in consultation with the Committee, to prescribe uniform
accounting and reporting procedures for cities. (Held in
Senate Governance and Finance Committee)
SB 449 (Pavley), 2011-2012 Session. Would have authorized
the Controller to review the finances of cities, counties,
special districts, and redevelopment agencies, and would
have allowed the Controller to convene a local agency
financial review committee to provide assistance to local
agencies that seek help in averting or managing a financial
problem. (Failed passage in Assembly Local Government
Committee)
SUPPORT:
State Controller John Chiang
OPPOSE:
None on file
FISCAL COMMITTEE: Senate Appropriations Committee
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