BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Carol Liu, Chair
2013-2014 Regular Session
BILL NO: SB 584
AUTHOR: Wyland
INTRODUCED: February 22, 2013
FISCAL COMM: Yes HEARING DATE: April 3, 2013
URGENCY: No CONSULTANT:Kathleen Chavira
SUBJECT : Financial and Performance Audits.
SUMMARY
This bill requires the Controller, as specified, to submit
content related to audits for school facility projects for
inclusion in the 2015-16 audit guide for K-12 local
educational agencies and expands the requirements to be met
by school districts for participation in the School Facility
Program.
BACKGROUND
Current law requires the Controller, in consultation with the
Department of Finance (DOF), the State Department of
Education (SDE), and representatives of specified
organizations, to propose the content of a guide for the
required annual financial and compliance audits of school
districts, offices of county superintendents of schools, and
other local education agencies. Current law also requires
the Controller to submit the proposed audit guide to the
Education Audit Appeals Panel for review and possible
amendment, and subsequent adoption by the Panel, pursuant to
the rulemaking procedures of the Administrative Procedure
Act, by July 1 of the fiscal year to be audited (and any
supplement, as authorized, before March 1 of the audit year).
(Education Code � 14502.1)
Article XI, section 18 of the California Constitution, as
amended by voter initiative measure (Proposition 39, November
2000) authorizes a school district, community college
district, or county office of education to incur bond
indebtedness for the construction, reconstruction,
rehabilitation, or replacement of school facilities, with the
approval of 55 percent of the voters of the district or
county. Article XIII A provides that this vote threshold
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only applies if, among other things, the local bond measure
includes a specific list of school projects to be funded and
requires the authorizing board to conduct annual, independent
financial and performance audits until all bond funds have
been spent to ensure they are used exclusively for the
projects listed in the measure. Current law provides that a
Citizen's Oversight Committee be established to, among other
things, receive and review copies of the constitutionally
required annual independent financial and performance audits.
(EC � 15278)
Current law requires that the independent financial and
performance audits required by Proposition 39 be conducted in
accordance with the Government Auditing Standards issued by
the Comptroller General of the United States and be submitted
by March 31 each year. (EC �15286)
Current law requires a district that has received funds under
the School Facilities Program (SFP) to annually submit a
summary report of expenditure of state fund and district
matching funds until these are expended and then requires the
submission of a final report to the State Allocation Board
(SAB). The SAB is authorized to require an audit of these
reports or other district records to ensure expenditures are
in accordance with program requirements. The SAB is also
authorized to require repayment to the program and requires
the Controller to deduct the repayment from the school
district's apportionment, as specified.
(EC �17076.10)
ANALYSIS
This bill :
1) Requires the Controller, in consultation with the State
Allocation Board (SAB), Department of Finance (DOF) and
State Department of Education (SDE), to submit content
related to the financial and performance audits required
for school facility projects under Proposition 39 and
the bill's provisions, to the Education Audits Appeal
Panel for inclusion in the
2015-16 audit guide for K-12 local educational agencies.
2) Expands the requirements for school districts under the
SFP.
Specifically it:
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a) Requires school districts receiving funds or
apportionments to annually submit independent
financial and performance audits on the expenditure
of these funds to the SAB.
b) Prohibits a school district that fails to
comply with this requirement from receiving funds
or apportionments from the School Facility Program
(SFP).
STAFF COMMENTS
1) Need for the bill . According to the author, this bill
is intended to respond to a perceived request for better
guidelines for ensuring that all educational entities,
both local districts and state, are "operating on the
same page" when it comes to preparing audits and funding
projects.
2) Related SAB activity . In February 2009, the State
Allocation Board established an Audit Sub-Committee to
study and bring recommendations to the SAB defining the
auditing authority of the Office of Public School
Construction in order to avoid potential redundancies
and limit inefficiencies within the SFP Expenditure
Audit Program. In addition, the Subcommittee was to
recommend an audit appeals process that ensured
transparency, consistency and equity in the SAB's appeal
process.
In November 2010, the State Allocation Board (SAB)
reviewed and adopted most of the recommendations of the
Audit Sub-Committee. Adopted audit policies included:
a) Performance of audits in accordance with the
Governmental Auditing Standards.
b) Training of Office of Public School
Construction staff on internal controls, cash
management and multi-fund accounting to allow for a
better working knowledge of local program
administration.
c) Coordination with the State Department of
Education (SDE) to assure that financial
documentation for audits was an integrated part of
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the California School Accounting Manual and did not
impose additional accounting burdens on local
educational agencies.
d) Defining the scope of the SAB audit as a
compliance audit whose purpose was to ensure
compliance with the laws and regulations of the SFP
program.
3) Confusing jurisdiction ? Current law provides that a
local education agency that is required to repay
apportionments or a penalty arising from an audit
exception, may appeal a finding to the Education Audit
Appeals Panel.
(EC � 41344, 41344.1.) As noted in the background of
this analysis, the SAB is authorized to require an audit
of state and district matching expenditure reports or
other district records to ensure expenditures are in
accordance with SFP requirements. Any appeal of these
audit findings is currently brought to the SAB for
review. Would this bill result in the Education Audit
Appeals Panel reviewing a SFP audit appeal? Given that
the SAB has fiduciary responsibility for state bond
funds, and the extensive work done to review and develop
compliance audit policies internal to the SAB, should an
external entity be granted jurisdiction over disputes on
the appropriate use of state bond funds?
It appears that there may be a need to establish more
consistent audit guidelines for the local financial and
performance audits conducted in conformance with
Proposition 39 requirements. However, to ensure that
there is no jurisdictional confusion over a dispute of
SFP audit findings staff recommends the bill be amended
to clarify that the additional content for the audit
guide is for the purpose of conducting the local
financial and performance audits required by Proposition
39.
4) Technical amendment . It appears to be the intent that
the audit guide maintains the newly required content
ongoing, beginning in 2015. As currently drafted the
bill authorizes the submission and inclusion of content
only for the audit guide issued for 2015-16. Staff
recommends the bill be amended to clarify that the newly
required content is to be included beginning in 2015-16.
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5) Appropriate use of state bond funds ? This bill appears
to create a new function for the State Allocation Board
as a clearinghouse for the constitutionally required
Proposition 39 audits (which are intended to monitor
whether local bond funds were used on the specific
projects authorized by local voters). Currently, a
portion of the state authorized bond monies are provided
to the SAB to administer their oversight of local
educational agencies' use of state funds pursuant to the
State Facilities Program and state bond program
requirements. Do the staff resources exist to support
or respond to inquiries on the unique local bond
proposals authorized by numerous districts throughout
the state? Is it appropriate to use state bond funds to
staff a clearinghouse for oversight of the use of
locally approved bonds?
Current law already provides that independent audits be
conducted, posted and delivered to the local bond
oversight committees and extends various powers at the
local level to intervene if these requirements are not
met. It is unclear what purpose is served by the
creation of yet another level of government oversight.
Staff recommends the bill be amended to eliminate the
provisions requiring the submission of the Proposition
39 required annual independent financial and performance
audits to the State Allocation Board (delete Section 2).
6) Related legislation . SB 581 (Wyland) requires that the
annual independent financial and performance audits
required under Proposition 39 be electronically filed by
the auditor with the State Allocation Board, establishes
requirements to be met by auditor, and exempts K-12 and
community college districts with an ADA of 2,500 or less
from the independent auditor requirements. SB 581 is
scheduled to be heard by this committee on April 17,
2013.
7) Prior legislation . SB 1204 (Wyland, 2012) would have
required that the annual independent financial and
performance audits required as the result of the passage
of Proposition 39 be submitted to the Controller and the
county superintendent of schools and that the Controller
post the audit on its Internet web site and that the
County Superintendent of schools review the audit during
its statutorily required audit of the school districts
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books and accounts. The scheduled hearing for SB 1204
was cancelled at the request of the author.
SUPPORT
California League of Bond Oversight Committees
Howard Jarvis Taxpayers Association
OPPOSITION
California Federation of Teachers
Coalition for Adequate School Housing
County School Facilities Consortium