BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 584
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          Date of Hearing:   June 12, 2013

                           ASSEMBLY COMMITTEE ON EDUCATION
                                Joan Buchanan, Chair
                    SB 584 (Wyland) - As Amended:  April 15, 2013

           SENATE VOTE :   32-0
           
          SUBJECT  :   School facilities:  financial and performance audits

           SUMMARY  :  Requires the State Controller, on or before January 1,  
          2015, in consultation with the State Allocation Board (SAB), the  
          Department of Finance (DOF), and the California Department of  
          Education (CDE), to submit content to the Education Audit  
          Appeals Panel (EAAP) to be included in the audit guide,  
          Standards and Procedures for Audits of California K-12 Local  
          Educational Agencies, beginning in the 2015-16 fiscal year, that  
          is related to the financial and performance audits required for  
          school facility projects pursuant to Proposition 39 of 2000.  

           EXISTING LAW  :

          1)Authorizes, under Section 1 of Article XIII A of the  
            California Constitution, school districts, community college  
            districts, or county offices of education to pass a general  
            obligation bond by a 55% vote, provided that the local  
            initiative includes the following accountability measures:

             a)   A requirement that the proceeds from the sale of the  
               bonds be used only for the construction, reconstruction,  
               rehabilitation, or replacement of school facilities,  
               including the furnishing and equipping of school  
               facilities, or the acquisition or lease of real property  
               for school facilities, and not for any other purpose;

             b)   Provide a list of the specific school facilities  
               projects to be funded and certification that the school  
               district board, community college board, or county office  
               of education has evaluated safety, class size reduction,  
               and information technology needs in developing that list;

             c)   A requirement that the school district board, community  
               college board, or county office of education conduct an  
               annual, independent performance audit to ensure that the  
               funds have been expended only on the specified projects;  








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               and,

             d)   A requirement that the school district board, community  
               college board, or county office of education conduct an  
               annual, independent financial audit of the proceeds from  
               the sale of the bonds until all of those proceeds have been  
               expended for the school facilities projects.

          2)Requires the annual, independent financial and performance  
            audits for the preceding fiscal year to be submitted to the  
            citizens' oversight committee by March 31 of each year and  
            requires the audits to be conducted in accordance with the  
            Government Auditing Standards issued by the Comptroller  
            General of the United States for financial and performance  
            audits.

          3)Requires each county superintendent of schools to provide for  
            an audit of all funds under his or her jurisdiction and  
            control.  Requires governing board of each local educational  
            agency (LEA) to either provide for an audit of the books and  
            accounts of the LEA or make arrangements with the county  
            superintendent of schools to provide for that auditing.   
            Requires the audit to comply fully with the Government  
            Auditing Standards issued by the Comptroller General of the  
            United States.

           FISCAL EFFECT  :  According to the Senate Appropriations  
          Committee, pursuant to Senate Rule 28.8, negligible state costs.

          COMMENTS  :  In 2000, voters passed Proposition 39, a  
          Constitutional Amendment which, among others, gave districts the  
          opportunity to seek approval of a local education bond based on  
          a 55% vote rather than a 2/3 vote, provided that the local bond  
          initiative meets the following accountability measures:

          1)The initiative identifies a list of the specific school  
            facilities projects that will be funded by bond proceeds; 

          2)A requirement that the school board, community college board,  
            or county office of education conduct an annual, independent  
            performance audit to "ensure that the funds have been expended  
            only on the specific projects listed;" and,

          3)A requirement that the school board, community college board,  
            or county office of education conduct an annual, independent  








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            financial audit of the proceeds from the sale of the bonds  
            until all of those proceeds have been expended for the school  
            facilities projects.

          Both the financial audit and performance audits must be reviewed  
          by an independent citizens' oversight committee.  AB 1908  
          (Lempert), Chapter 44, Statutes of 2000, a companion bill to  
          Proposition 39, requires each district, within 60 days of the  
          passage of a local bond with 55% to appoint a citizens'  
          oversight committee to monitor and review expenditures to ensure  
          compliance with Proposition 39 requirements, and to keep the  
          public informed about bond expenditures.  SB 1473 (Wyland),  
          Chapter 294, Statutes of 2010, requires the audits to be  
          conducted in accordance with the generally accepted government  
          auditing standards (GAGAS), informally known as the "Yellow  
          Book", issued by the comptroller general of the United States,  
          and SB 423 (Wyland), Chapter 237, Statutes of 2011, requires the  
          audits to be submitted to the citizens' oversight committee by  
          March 31 of each year.

          This bill requires the Controller, in consultation with the SAB  
          (the ten-member body that oversees state education bond funds),  
          DOF and CDE, to develop content on the audit of the Proposition  
          39 financial and performance audits for submission to the EAAP  
          to be included in the audit guide of financial and performance  
          audits of LEAs, beginning in the 2015-16 fiscal year.  The audit  
          guide - Standards and Procedures for audits of California K-12  
          Local Educational Agencies - is adopted by the EAAP, 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), based on  
          content proposed by the Controller in consultation with the DOF  
          and the CDE.  This bill would incorporate the financial and  
          performance audits of local education bonds passed with a 55%  
          vote within the audit guide.

          The author states, "While there is a clearly laid out and  
          functional process for non-Propositional 39 school audits, there  
          are currently no explicit guidelines crafted specifically for  
          constitutionally required financial and performance audits." 

          Vicenti, Lloyd & Stutzman, LLP opposes this bill and argues that  
          it makes sense to have a clearly defined audit guide for K-12  
          annual district financial and compliance audits because the  
          Education Code provides uniformity for expenditures of funds.   








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          However, "the needs of a Prop 39 audit differ from District to  
          District and even differ within the same District over time,  
          making a performance audit more appropriate.  A performance  
          audit under GAGAS can take a variety of forms and should be  
          designed to meet the objectives of the audited organization.   
          Every District in California has different objectives to be  
          addressed, especially as General Obligation Bond activities  
          differ greatly based on the life cycle of the bond.  Each phase  
          - planning, construction, equipping, etc - of a project is  
          different.  Complying with a "one-size fits all" audit guide  
          does not meet the needs of the COC [citizens' oversight  
          committee], the Board of Education or any other users of the  
          audit reports."      

           Related legislation  .  SB 581 (Wyland), also on this Committee's  
          June 12, 2013 agenda, requires a school district to provide the  
          citizens' oversight committee a response to any findings,  
          recommendations and concerns raised in the Proposition 39  
          financial and performance audits of local education bond funds  
          within three months of receiving the audits and requires the  
          draft and final audits to be submitted to the citizens'  
          oversight committee at the same time they are submitted to  
          school or community college districts.  

           Prior related legislation  .  SB 423 (Wyland), Chapter 237,  
          Statutes of 2011, requires the Proposition 39 financial and  
          performance audits for the preceding fiscal year to be submitted  
          to the citizens' oversight committees by March 31 of each year.   


          SB 1473 (Wyland), Chapter 294, Statutes of 2010, requires the  
          annual, independent financial and performance audits required by  
           Proposition 39 to be conducted in accordance with the  
          Government Auditing Standards issued by the Comptroller General  
          of the United States, to the extent required by Proposition 39.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California League of Bond Oversight Committees (co-sponsor)
          Howard Jarvis Taxpayers Association (co-sponsor)
           
            Opposition 
           








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          Vicenti, Lloyd & Stutzman LLP

           Analysis Prepared by  :    Sophia Kwong Kim / ED. / (916) 319-2087