BILL ANALYSIS Ó
Bill No: SB
898
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Lou Correa, Chair
2013-2014 Regular Session
Staff Analysis
SB 898 Author: Cannella
As Introduced: January 13, 2014
Hearing Date: April 22, 2014
Consultant: Art Terzakis
SUBJECT
State Government: state funds
DESCRIPTION
SB 898 requires each state agency, department, and entity
to provide the Treasurer's Office with its employer
identification number to be used to monitor those state
bank accounts and money authorized to be outside the
centralized State Treasury System.
EXISTING LAW
Existing law requires the Controller to submit specified
fiscal reports, including, among others, an annual report
to the Governor relating to the state's revenues and
expenditures during the preceding fiscal year and a
quarterly report to the Legislature on the General Fund
that compares state revenues and expenditures for that
quarter with the Budget Act, and other expenditures
authorized pursuant to statute.
Under existing law, all money in the possession of or
collected by any state agency or department is state money
and is subject to provisions governing its deposit and
handling in trust accounts. Existing law also provides for
the State Treasury System to deposit state money held by
state agencies prior to expenditure.
Existing law allows state agencies to seek approval from
SB 898 (Cannella) continued
Page 2
the Department of Finance to open outside accounts that
have benefits and efficiencies not available through the
State Treasury System, such as the ability to process
credit card receipts.
BACKGROUND
California State Auditor Report: In an October 2013 report
titled Accounts Outside the State's Centralized Treasury
System, the California State Auditor discovered that of the
roughly $55 billion in the possession or control of the
State, 14% or $9.3 billion, was maintained in nearly 1,400
bank accounts outside the State Treasury System. The
Treasury System was established to safeguard and maximize
the return on state money with control agencies such as the
Department of Finance, the State Controller, and the State
Treasurer all contributing to safeguarding these assets.
Certain departments, agencies, and other entities may need
to establish outside accounts because they must deal with
funds held in trust for others or for the purpose of
operational efficiencies. To do so requires either express
statutory authority or authorization from the Department of
Finance, and subjects the agency to certain monitoring and
reporting requirements.
The California State Auditor's review of outside accounts
noted the following key findings:
Most of the money in outside accounts is held in
accounts authorized by statute and a large number of
these accounts with large balances have been
established to hold money in trust for others.
While holding state money in outside accounts
provides for quick electronic funds transfers and
allows for efficiently processing credit card
transactions, there is an increased risk of
mismanagement and the potential for higher costs
related to these accounts.
Outside accounts are subject to fewer statewide
controls and there is risk that banks holding money in
outside accounts for state agencies may not maintain
the required level of collateral. Additionally, a
state agency with outside accounts may also incur
higher bank fees than necessary.
SB 898 (Cannella) continued
Page 3
The control agencies do not adequately track which
state agencies have outside accounts nor do they
adequately ensure that all agencies report on such
accounts and, therefore, failed to identify some
omissions.
Although state agencies generally complied with
requirements for establishing outside accounts, they
did not always completely or accurately report outside
accounts as required - some failed to report the
balances of these accounts.
With the exception of the California Department of
Forestry and Fire Protection (Cal Fire), the state
agencies tested had established proper controls over
the handling of revenue. However, Cal Fire
established an outside account without statutory
authority or Department of Finance approval,
circumvented its accounting and budgeting processes,
and did not follow state policies for equipment
purchases.
Purpose of SB 898: According to the author's office, this
measure is intended to implement one of the legislative
recommendations made by the California State Auditor and
help remedy the identified problems cited in the review of
outside accounts.
The author's office references two instances in which the
California State Auditor discovered state accounts that
existed outside of the state's Centralized Treasury System.
The first instance involved the Department of Parks and
Recreation which had been sitting on nearly $54 million in
unaccounted money, $22 million of which could have been
used to prevent the threatened closure of an estimated 70
parks - most of those closures did not occur due to valiant
fundraising efforts by nonprofits and private citizens
throughout the state. The second instance involved Cal
Fire which had $3.7 million from unaccounted legal
settlements rather than depositing the money in the state's
General Fund - Cal Fire had neither statutory authority nor
Department of Finance approval to do so.
The author's office states that this measure will ensure
that the Treasurer's Office has the statutory authority to
SB 898 (Cannella) continued
Page 4
monitor outside accounts so that scandals like those
referenced above do not occur again.
Arguments in Support: Writing in support, the Treasurer's
Office points out that, in recent years, several instances
of unauthorized outside bank accounts have come to light as
a result of mistakes or ignorance of state laws and
regulations, but they could have been discovered much
earlier or avoided altogether if state fiscal control
agencies, including the Treasurer's Office, had access to
the unique identification number used to establish these
accounts. The Treasurer's Office also notes that agencies
with established outside bank accounts use their own
employer identification number which generally is not
commonly made available to the state's control agencies,
and thus cannot be tracked. The Treasurer's Office
emphasizes that such practices put the State's money at
risk because it is not likely adequately collateralized and
may be missing from the state's accounts altogether.
Furthermore, the Treasurer's Office points out that it has
taken steps to administratively require that these employer
identification numbers be submitted to the Treasurer's
Office - this measure would simply codify this process,
ensuring that compliance will be ongoing.
Also writing in support, the Save Our River Parks Committee
of Livingston, CA cites the California State Auditor's
relatively recent discovery that the Department of Parks
and Recreation maintained a $54 million hidden account as a
primary reason for their support of this measure which
promotes transparency in state government.
RELATED LEGISLATION
AB 1583 (Allen) 2013-14 Session. Would require the State
Controller to prepare and submit to the Legislature and the
Department of Finance an annual report on bank accounts and
savings and loan association accounts outside the Treasury
System, as specified. (Pending in Assembly Appropriations
Committee)
SUPPORT: As of April 17, 2014:
California State Treasurer's Office
Save Our River Parks Committee (Livingston, CA)
SB 898 (Cannella) continued
Page 5
OPPOSE: None on file as of April 17, 2014.
FISCAL COMMITTEE: Senate Appropriations Committee
**********