BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1248|
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CONSENT
Bill No: AB 1248
Author: Cooley (D)
Amended: 5/24/13 in Assembly
Vote: 21
SENATE GOVERNMENTAL ORGANIZATION COMMITTEE : 11-0, 6/25/13
AYES: Wright, Nielsen, Berryhill, Calderon, Cannella, Correa,
De León, Galgiani, Hernandez, Lieu, Padilla
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 78-0, 5/30/13 - See last page for vote
SUBJECT : State Controller: internal control guidelines
applicable to local
agencies
SOURCE : State Controller John Chiang
DIGEST : This bill requires the State Controller to develop
internal control guidelines applicable to local agencies to
prevent and detect fraud.
ANALYSIS :
Existing law:
1. Authorizes the State Controller to render service pertinent
to financial, budgetary and taxation problems and procedures
for any county, city, city and county, any other political
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subdivision of the state, upon terms and conditions as may be
agreed upon between the State Controller and the governing
body of such county, city, city and county, or other
political subdivision or district.
2. Requires the officer of each local agency who has charge of
the financial records is required to furnish to the State
Controller a report of all the financial transactions of the
local agency during the next fiscal year.
3. Requires the State 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.
This bill requires the State Controller to develop internal
control guidelines applicable to local agencies to prevent and
detect fraud. Specifically, this bill:
1. Requires the State Controller to develop the internal control
guidelines based on standards adopted by the American
Institute of Certified Public Accountants 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 State Controller to post the completed internal
control guidelines on the State Controller's Internet Web
site, by January 1, 2015, to assist a local agency, as
defined, in establishing a system of internal controls to
safeguard assets and prevent and detect financial errors and
fraud.
3. Requires the State Controller, with input from the agencies
listed in #1 above, to update the internal control
guidelines, as he/she deems necessary, and maintain a 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.
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Background
Recent audit history . In a series of recent audits of the City
of Bell's finances, the State 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 State 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."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/13/13)
State Controller John Chiang (source)
California Taxpayers Association
ARGUMENTS IN SUPPORT : According to the author's office,
although 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
government level allowed for fiscal and administrative errors
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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. This bill 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.
ASSEMBLY FLOOR : 78-0, 5/30/13
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,
Cooley, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon,
Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández,
Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal,
Maienschein, Mansoor, Medina, Melendez, Mitchell, Morrell,
Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson,
Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas,
Skinner, Stone, Ting, Wagner, Waldron, Weber, Wieckowski,
Wilk, Williams, Yamada, John A. Pérez
NO VOTE RECORDED: Holden, Vacancy
MW:d 8/13/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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