BILL ANALYSIS Ó
SB 898
Page 1
Date of Hearing: June 23, 2014
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Roger Dickinson, Chair
SB 898 (Cannella) - As Amended: May 6, 2014
SENATE VOTE : 35-0
SUBJECT : State government: state funds.
SUMMARY : Requires every state agency, department, and entity
to provide its employer identification number to the Treasurer.
Specifically, this bill :
1)Allows the Treasurer to use the employer identification
numbers to monitor state money and state bank accounts that
are outside the State Treasury System (STS).
EXISTING LAW
1)Creates the STS to deposit state money held by state agencies
prior to expenditure. [Government Code, Section 16305]
2)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.
3)Provides that all money belonging to the state received from
any source by any state agency shall be accounted for to the
Controller at the close of each month, or more frequently if
required by the Controller or the Department of Finance (DOF),
in such form as he/she prescribes, and on the order of the
Controller be paid into the Treasury and credited to the
General Fund, provided that amounts received as partial or
full reimbursement for services furnished shall be credited to
the applicable appropriation.
4)Allows state agencies to seek approval from the DOF to open
outside accounts that have benefits and efficiencies not
available through the STS, such as the ability to process
credit card receipts.
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FISCAL EFFECT : Unknown.
COMMENTS :
According to the Author of SB 898, this measure is needed,
"Because the Treasurer cannot track outside accounts
directly, it must rely on agencies to truthfully report
balances and other information about their outside
accounts, including their existence. Recently it was
discovered that the Department of Parks and Recreation had
been sitting on nearly $54 million in surplus money for as
long as 12 years. In 2012, 70 state parks were to close in
order to save $22 million dollars over two fiscal years.
Most of those closures did not happen because of
near-heroic fundraising by non-profits across the state,
but the surplus money could also have prevented cutbacks in
hours, staffing, and services system wide. Following the
scandal with the Parks Department, it was revealed that the
California Department of Forestry and Fire Protection hid
$3.6 million from legal settlements rather than depositing
them in the state's General Fund. Cal Fire had neither
statutory authority nor finance approval to do so."
California State Auditor Report
On October 15, 2013, the California State Auditor released a
report titled, "Accounts Outside the State's Centralized
Treasury System: Processes Exist to Safeguard Money, but
Controls for These Accounts Need Strengthening." This report
outlined important information such as:
Roughly $55 billion of state money is held in accounts within
banks that have an agreement with the State Treasurer to
participate in California's Centralized Treasury System.
Roughly 14% or $9.3 billion is in nearly 1,400 bank accounts
outside the treasury system.
Most of the money in outside accounts, approximately $8.9
billion is held in accounts authorized by statute. A large
number of these accounts with large balances have been
established to hold money in trust for others.
The treasury system was established to safeguard and maximize
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the return on state money with control agencies such as the
DOF, the State Controller and the State Treasurer all
contributing to safeguarding these assets.
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.
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 DOF approval, circumvented its
accounting and budgeting processes, and did not follow state
policies for equipment purchases.
California's Centralized Treasury System
In 1949, the California Legislature created the Centralized
Treasury System (CTS) thereby requiring agencies of the State to
deposit their money in trust with the Treasurer. The legislation
also requires the Treasurer to safeguard the money and make safe
and prudent investments.
The Centralized Treasury and Securities Management Division
(CTSMD) oversees all banking aspects of the CTS. The goal of the
CTSMD is to maximize the earning of interest consistent with
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safe and prudent treasury management, and to ensure that the
depository banks provide the State with proper and adequate
security for the deposit of state monies. The State Treasurer
maintains demand bank accounts with eight banks for the purpose
of providing necessary statewide depository coverage for the
remittance of funds collected by the various State agencies.
These eight banks are: Bank of America, Bank of the West,
Citibank, JP Morgan Chase, Union Bank of California, U. S. Bank,
Wells Fargo Bank; and, WestAmerica Bank.
The CTSMD manages the cash flow of all State funds, forecasts
cash balances, revenue, expenditures and the amounts available
for daily investments, ensures accurate and timely agency
deposits, administers and executes the wire transfer of funds,
reconciles State accounts with depository banks and redeems all
State items submitted by presenting banks for payments.
Outside Accounts
State departments and agencies can be authorized either by
statute or by approval from DOF to deposit moneys not under the
control of the State Treasurer in banks outside of the CTS.
State departments that have statutory authority to deposit state
moneys in banks outside the CTS without DOF approval but must
adhere to the conditions prescribed by the Director of Finance
and must notify the Treasurer by letter stating the name and
location of the bank, amount, source, and purpose of the funds
to be deposited, and the type and term of the deposit
arrangement.
State departments that do not have statutory authority and
desire to open accounts outside the CTS must request approval of
bank, savings and loan association, or credit union accounts to
be maintained outside the CTS. The request is required to be
sent to DOF. If and when outside accounts are deemed
necessary, departments are encouraged to establish the account
outside the CTS with one of the State Treasurer's Office
approved depository banks.
All departments with accounts outside the treasury must submit
the, Report of Accounts Outside the State Treasury, Year-End
Report No. 14 stating the balance as of June 30, of each year.
Related Legislation
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AB 1583 (Allen) requires the California State Controller's
Office to collect additional information from state agencies
that maintain bank accounts outside of the state treasury system
and to annually prepare and submit this information in a report
to the DOF and the Legislature. Pending in the Senate
Appropriations Committee.
Recommended Amendments
1)On page 2, line 6, delete "and state bank accounts that are"
and insert "deposited"
2)On page 2, line 7, insert "centralized" before "State"
3)Add Assemblymember Rocky Chavez and Assemblymember Travis
Allen as well as Senator Huff as co-authors.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Treasurer
Save Our River Parks Committee
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081