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: SB 486 (DESAULNIER) Page 2 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. SB 486 (DESAULNIER) Page 3 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, SB 486 (DESAULNIER) Page 4 2013.) SUPPORT: Automobile Club of Southern California OPPOSED: None received.