BILL ANALYSIS Ó
AB 2676
Page 1
Date of Hearing: April 30, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2676 (Rendon) - As Amended: March 25, 2014
Policy Committee: Local
GovernmentVote:9 - 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill expands the State Controller's authority to address
local government financial or administrative issues through
audits and investigations. Specifically, this bill:
1) Authorizes the Controller, until January 1, 2020, to
conduct an audit or investigation if the Controller makes
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, 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.
3) Prohibits the Controller from initiating or conducting
an audit or investigation of a local agency if the
situation involves a pending policy or administrative
decision regarding budget adoption, contract negotiations,
unpaid claims, litigation or if the local agency is in
bankruptcy proceedings.
AB 2676
Page 2
4) Requires the Controller to waive the costs to the local
agency of the investigation if the investigation determines
that the financial report under question did not contain
materially false, incomplete, or incorrect information.
5) Increases the penalties for an officer of a local agency
who fails to file a financial transactions report within 20
days of receipt of a written notice from the Controller.
FISCAL EFFECT
Costs to the State Controller's Office depending on the number
of audits or investigations conducted, but would likely be in
the range of several hundred thousand dollars, partially offset
by reimbursements from the audited entities.
The bill states the Controller can undertake the new activities
only if sufficient funds are available within the Controller's
existing budget. The Controller's Office has noted they have
received numerous complaints since the situations in the City of
Bell and Modoc County have surfaced. If there are widespread
problems and existing resources are used, there will be cost
pressure to augment the Controller's budget in future years.
COMMENTS
1) Purpose . The State Controller's Office, sponsor of the
bill, notes that local agencies failing to comply with the
law requiring financial transaction reports is a persistent
problem. Each year, the SCO estimates it assesses an
average of $251,000 in penalties on local agencies for late
filings or failing to file their financial disclosures.
Because current fines are relatively low, non-filers often
find it easier to pay the fine than comply with the law.
Some local government agencies have not filed for over
three years.
The Controller's Office further notes that since uncovering
the financial problems of the City of Bell and the Modoc
County, the office has received numerous complaints, raising
concerns that a growing number of local governments in
California are facing severe financial distress. This bill
gives the Controller the authority to quickly respond to
concerns about financial mismanagement or violations of state
law, and is designed to help hold local agencies accountable
AB 2676
Page 3
for their fiscal affairs.
2) Existing Law . The officer of each local agency who has
charge of the agency's financial records is required to
provide a financial transactions report to the Controller
within 90 days of the close of each fiscal year. Local
agencies include cities, counties, districts, and some
redevelopment agencies. The Controller can assess
penalties of up to $5,000 for filing late or failing to
file (less for smaller agencies). According to data from
the Controller's Office, 18 agencies failed to file their
reports for fiscal year 2011-12 and over 70 failed to file
for 2010-11.
3) Previous Legislation . This bill is substantially
similar to AB 941 (Rendon, 2103) and SB 186 (Kehoe, 2012).
Both bills were held on this committee's Suspense File.
AB 1035 (Muratsuchi, 2013) increased the penalty amounts local
agencies must pay for failing to file their financial reports
with the Controller. That bill was held in Senate Governance
and Finance and ultimately amended to be used for another
purpose.
Analysis Prepared by : Jennifer Swenson / APPR. / (916)
319-2081