BILL ANALYSIS                                                                                                                                                                                                    Ó






           SENATE TRANSPORTATION & HOUSING COMMITTEE       BILL NO: SB 486
          SENATOR MARK DESAULNIER, CHAIRMAN              AUTHOR:  desaulnier
                                                         VERSION: 4/15/13
          Analysis by:  Eric Thronson                    FISCAL:  yes
          Hearing date:  April 30, 2013



          SUBJECT:

          Transportation Agency:  Office of Legal Compliance and Ethics

          DESCRIPTION:

          This bill creates the Office of Legal Compliance and Ethics  
          within the Transportation Agency to oversee the California  
          Department of Transportation and report its findings  
          periodically to the California Transportation Commission, the  
          governor, and the Legislature.  

          ANALYSIS:

          Existing law creates the Transportation Agency within state  
          government.  Among other departments, the agency oversees the  
          Department of Transportation (Caltrans) and California  
          Transportation Commission (CTC).  The Secretary of the agency is  
          generally responsible for the sound fiscal management of each  
          department, office, or other unit within the agency. 

          Within Caltrans is the Division of Audits and Investigations  
          (A&I), which is responsible for internal audits of Caltrans  
          programs and policies, external audits of third party contracts,  
          and investigations of administrative complaints, such as  
          incidences of ethics policy violations, conflicts of interest,  
          incompatible or criminal activities, fraudulent or corrupt  
          practices, and other employee misconduct.  The Director of A&I  
          is a member of Caltrans' executive management team and reports  
          directly to the Chief Deputy Director and Director of Caltrans.

           This bill  redirects a portion of the staff from Caltrans' A&I  
          division and with that staff creates the Office of Legal  
          Compliance and Ethics (OLCE) within the Transportation Agency to  
          oversee Caltrans and report its findings periodically to the  
          CTC, the governor, and the Legislature.  

          Specifically, OLCE responsibilities include:




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           Independently and objectively investigating Caltrans to detect  
            serious breaches of departmental policy, including fraud,  
            waste, abuse, and any criminal acts.
           Conducting internal audits of Caltrans to identify potential  
            improvements in efficiency and performance.
           Recommending ethics policies for both Caltrans and the CTC and  
            tracking the status of ethics training programs.
           Other duties as assigned.

          Further, this bill requires the governor to appoint the director  
          of OLCE for a six-year term, subject to Senate confirmation.   
          The governor may not remove the director from office except for  
          good cause.  The bill requires the director to develop the  
          budget for OLCE from the savings realized through the reduction  
          of staff in Caltrans' A&I Division due to the division's  
          transferred workload to OLCE.

          Finally, this bill requires the OLCE director to report  
          quarterly on OLCE activities at a public hearing of the CTC.  In  
          addition, the bill requires OLCE to report annually a summary of  
          its findings to the governor and the Legislature, as well as  
          post the summary to OLCE's website.
          
          COMMENTS:

           1.Purpose  .  According to the author, this bill will instill some  
            discipline and improve Caltrans' management of the state  
            transportation system by creating an entity outside of  
            Caltrans to conduct audits and investigations and report its  
            findings to the CTC, the Legislature, and the public.  In an  
            organization as large as Caltrans, the author suggests, it is  
            nearly impossible to keep track of every employee or ensure  
            that each dollar is spent efficiently and effectively. Recent  
            media investigations and state audit reports have created a  
            picture of questionable practices and mismanagement within  
            Caltrans, such as failure to comply with department inspection  
            protocols, inability to track staff time by project, and  
            inappropriate use of state resources.  Studies show that, in  
            general, people perform better if they believe their actions  
            may be reviewed and evaluated and that there will be  
            consequences for poor performance.  The author contends that  
            this bill introduces accountability to Caltrans, and brings  
            sunlight to the audits and investigations conducted within  
            Caltrans by requiring reports be made publically in CTC  
            hearings.





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           2.Federally-recommended audit safeguards  .  According to the US  
            Government Accountability Office (GAO), audits provide  
            essential accountability and transparency over government  
            programs.  Government auditing should provide an independent,  
            objective, nonpartisan assessment of the stewardship,  
            performance, and cost of government policies, programs, and  
            operations.  The GAO's Government Auditing Standards state  
            that the ability of audit organizations within government to  
            perform work and report the results objectively can be  
            affected by the placement of the audit function within  
            government.  The GAO recommends a number of statutory  
            safeguards to mitigate this potential threat to the  
            independence of an auditing entity, including:
                 Requiring the audit organization to report to a  
               legislative body or other independent governing body on a  
               recurring basis.
                 Preventing the audited entity from abolishing the audit  
               organization, removing the head of the audit organization,  
               or interfering with the scope, timing, and completion of  
               the audit.
                 Giving the audit organization sole authority over the  
               selection, retention, advancement, and dismissal of its  
               staff.
                 Providing statutory access to records and documents  
               related to the agency, program, or function being audited  
               and access to individuals as needed to conduct the audit.
            
            This bill implements the GAO-recommended safeguards above.   
            One GAO recommendation not included in this bill, however,  
            involves non-audit services.  As noted above, this bill  
            requires OLCE to perform other duties as assigned.  The GAO  
            recommends that, before an auditor agrees to provide a  
            non-audit service, the auditor should determine whether  
            providing such a service would create a threat to the office's  
            independence.  The committee may wish to amend the bill to  
            clarify that OLCE shall perform other duties assigned as long  
            as the director determines such duties do not pose a threat to  
            OLCE's independence.
          3.  Committee of second referral  .  The Rules Committee referred  
            this bill to the Governmental Organization Committee and to  
            the Transportation and Housing Committee.  This bill passed  
            the Governmental Organization Committee on April 9 by a 9 to 2  
            vote.
               
          POSITIONS:  (Communicated to the committee before noon on  
          Wednesday,                                             April 24,  




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          2013.)

               SUPPORT:  Automobile Club of Southern California

               OPPOSED:  None received.