BILL ANALYSIS Ó SB 584 Page 1 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; SB 584 Page 2 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 SB 584 Page 3 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. SB 584 Page 4 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 SB 584 Page 5 Vicenti, Lloyd & Stutzman LLP Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087