BILL ANALYSIS Ó
SB 898
Page 1
SENATE THIRD READING
SB 898 (Cannella)
As Amended August 18, 2014
Majority vote
SENATE VOTE :35-0
BANKING & FINANCE 12-0
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|Ayes:|Dickinson, Allen, |
| |Achadjian, Bonta, Chau, |
| |Gatto, Harkey, Linder, |
| |Perea, Rodriguez, Weber, |
| |Williams |
| | |
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SUMMARY : Requires every state agency, department, and entity to
provide its employer identification number (EIN) to the
California State Treasurer (Treasurer). Specifically, this
bill :
1)Allows the Treasurer to use the EINs to monitor state money
deposited outside the centralized State Treasury System (STS).
2)Requires a bank or financial institution, upon request from
the Treasurer to provide the following information associated
with an EIN to assist the Treasurer in monitoring accounts and
state money deposited outside of the centralized STS:
a) The account number;
b) Account balance;
c) Account owner of record;
d) Account type;
e) Account opening date;
f) Account closing date; and,
g) Account purpose, if known.
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EXISTING LAW :
1)Creates the STS to deposit state money held by state agencies
prior to expenditure. [Government Code Section 16305]
2)Provides that all money in the possession of or collected by
any state agency or department, except for money in the Local
Agency Investment Fund is referred to as state money.
[Government Code Section 16305.2]
3)Requires the California State Controller (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.
4)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 or 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.
5)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.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, negligible costs to the Treasurer and other state
agencies and departments.
COMMENTS : According to the author of this bill, this bill is
needed:
Because the Treasurer cannot track outside accounts
directly, it must rely on agencies to truthfully
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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
[Cal Fire] 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:
1)Roughly $55 billion of state money is held in accounts within
banks that have an agreement with the Treasurer to participate
in STS.
2)Roughly 14% or $9.3 billion is in nearly 1,400 bank accounts
outside of the treasury system.
3)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.
4)The treasury system was established to safeguard and maximize
the return on state money with control agencies such as the
DOF, the Controller, and the Treasurer all contributing to
safeguarding these assets.
5)While holding state money in outside accounts provides for
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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.
6)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.
7)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.
8)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.
9)With the exception of 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 STS
In 1949, the California Legislature created the centralized STS
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) oversee all banking aspects of the STS. The
goal of the CTSMD is to maximize the earning of interest
consistent with 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
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
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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
This bill requires a bank or financial institution, upon request
from the Treasurer to provide specified information associated
with an EIN to assist the Treasurer in monitoring accounts and
state money deposited outside of the centralized STS. In
addition, the measure will require state agencies to provide the
Treasurer with EINs. The recent amendments taken on SB 898
provides clarity as to what the Treasurer can do with the EINs
to ensure the recent mishaps in regards to state money in
outside accounts is prevented from occurring in the future.
The State Administrative Manual (SAM) references statewide
policies, procedures, requirements and information related to
outside accounts. It is a uniform approach to statewide
management policy which should be followed. Although SAM lays
out references for outside accounts under sections 19462, 19463
and 7930, this bill will legislatively ensure clarity exists in
regards to the Treasurer's authority as it relates to monitoring
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 STS.
State departments that have statutory authority to deposit state
moneys in banks outside the STS 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 STS must request approval of
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bank, savings and loan association, or credit union accounts to
be maintained outside the STS. 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 STS 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.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
FN: 0005025