BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 783 |Hearing |7/15/15 |
| | |Date: | |
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|Author: |Daly |Tax Levy: |No |
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|Version: |6/30/15 |Fiscal: |Yes |
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|Consultant|Lewis |
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County auditor-Controllers
Gives responsibility for internal audits, in Orange County, to
the independently-elected auditor-controller, rather than the
county board of supervisors.
Background and Existing Law
County auditors serve as the chief accounting officers for
counties, allocating property tax revenues and performing audits
on county departments, special districts, and joint powers
authorities. Counties may also create the office of county
controller, who is responsible for the county's bookkeeping and
check writing. Absent a designation to the contrary, the office
of county controller is held, ex officio, by the county auditor.
State law permits counties to consolidate the two offices into
the office of the county auditor-controller. Existing law
requires county auditor-controllers to perform specified audits,
but county boards of supervisors can also request other audits.
Most county auditor-controllers are elected officials but county
supervisors can convert the position to an appointed one with
majority voter approval. The county auditor is appointed in
eight counties. General law counties may consolidate the
auditor-controller's duties with those of the tax collector and
treasurer, within the elective or appointive office of the
director of finance. Charter counties have constitutional
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authority to assign the auditor-controller's statutory duties to
other officers or structures (Article XI, Section 4).
Orange County's auditor-controller is elected. The combined
auditor-controller office came into being in 1982, when the
Board of Supervisors consolidated the formerly independent
functions into a single Office of Auditor-Controller. Today,
the county's Auditor-Controller is responsible for conducting
independent audits of county departments, as well as basic
bookkeeping and check writing.
In 1994, Orange County became the largest municipality in U.S.
history to file for bankruptcy as a result of the mismanagement
of county investments. In the wake of the bankruptcy,
investigators concluded that county auditors were too close to
their colleagues at the county Treasurer-Tax Collector's office,
and had failed to oversee the latter's questionable investments.
A subsequent Grand Jury report partly blamed the Orange County
Board of Supervisors for failing to recognize the fiscal
anomalies that led to the calamity, and recommended separating
the internal audit function from the Office of the Auditor
Controller to give the Board greater oversight over county
finances. In response, the Board of Supervisors created an
additional internal auditing unit separate from the
Auditor-Controller in 1995. This new unit, the Orange County
Internal Audit Department, was tasked with performing
discretionary audits at the request of the Board of Supervisors.
In 1998, the Legislature authorized the Orange County Board of
Supervisors to also assign statutorily-required audits to the
Internal Audit Department, rather than to the Auditor-Controller
(AB 2523, Ackerman, 1998). In 2014, the Legislature repealed
this enabling legislation as part of a budget trailer bill (SB
854, Senate Budget and Fiscal Review Committee). Following the
repeal of AB 2523, the OC Board of Supervisors is still
assigning the county's internal audits to the Internal Audit
Department.
The Office of the Auditor-Controller and the author of this bill
assert that Orange County's dual auditor arrangement established
after the county's bankruptcy is no longer necessary, and that
having a non-elected auditor chosen and employed by the Board of
Supervisors could lead to potential conflicts of interest. They
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want the Legislature to change state law to require Orange
County to assign its internal audits to the elected
Auditor-Controller.
Proposed Law
Assembly Bill 783 requires, in any county with both an elected
auditor-controller and a population exceeding 3,000,000 people,
that the auditor-controller, and not the board of supervisors,
must examine and audit, or cause to be audited, the financial
accounts and records of all officers having responsibility for
the care, management, collection, or disbursement of county
money; the bill requires this audit to be filed with the board
of supervisors.
AB 783 further requires, in any county with both an elected
auditor-controller and a population exceeding 3,000,000 people,
that the authority of the board of supervisors to supervise the
official conduct of county officers must not be construed to
affect the independent auditing and accounting functions of the
auditor-controller and prohibits the board of supervisors from
obstructing his or her auditing and accounting functions.
This bill requires a county auditor or auditor-controller to be
the chief auditor of the county.
The bill further grants the auditor or auditor-controller, as
part of his or her supervisory powers, the authority to audit,
rather than review, departmental and countywide internal
controls.
AB 783 prohibits a board of supervisors from creating or
operating a separate auditing unit outside of the county
auditor, except if the separate auditing unit was established
before 1981, and would prohibit the board from transferring any
auditing unit away from the county auditor.
AB 783 also requires, in a county with an elected
auditor-controller and a population exceeding 3,000,000, that
the county auditor-controller must be the sole county officer
with the authority to maintain a whistleblower hotline, as
defined.
AB 783 requires, in a county with an elected auditor-controller
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and a population exceeding 3,000,000 people, that the
auditor-controller must conduct a statutorily required audit of
a tax collector's records and accounts related to redemption of
tax defaulted property. Alternatively, the auditor-controller
can retain the services of an independent certified public
accountant or licensed public accountant to perform the audit,
in accordance with specified standards.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill. AB 783 originates from a desire to give
the Orange County Auditor-Controller the same rights and
responsibilities as Auditor-Controllers in California's other 57
counties. While AB 783 applies to any county with a population
of 3 million or greater that has an elected auditor-controller,
currently only Orange County meets these criteria. Orange
County is currently using a makeshift internal audit structure
devised as a short-term fix during a time of crisis. Even
before it was repealed, AB 2523 only allowed county supervisors
to reassign county officers' audit duties for a period of two
years, after which the reassignment would have to be
reauthorized. Proponents of the bill argue that, 17 years after
Orange County's bankruptcy, the county continues to use the same
audit structure as Detroit and Stockton, which have since
eclipsed Orange County as the nation's largest municipal
bankruptcies. Out of California's 20 most populous counties, 15
have elected auditor-controllers, and in 19 of those 20
counties, the internal audit function is assigned to the
auditor-controller. By restoring the internal audit function to
the elected Auditor-Controller, AB 783 brings Orange County back
in line with other counties' accounting practices and eliminates
the potential of conflicts of interest inherent to the current
structure, in which the Director of the Internal Audit
Department relies upon the Board of Supervisors for his or her
employment contract rather than being elected by the voters.
2. Appearance of impropriety vs. actual wrongdoing. While the
fact that the county Internal Audit Department reports to the
Board of Supervisors could result in at least the appearance of
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a conflict of interest, it is unclear that the current
arrangement has resulted in fraud, failure to comply with the
U.S. Government Accountability Office's Government Auditing
Standards or the Institute of Internal Auditor's (IIA)
professional auditing standards, or any other wrongdoing.
Similarly, state law has required county supervisors to conduct
periodic audits of county officers' use of public funds since at
least 1883. This statutory requirement remains largely
unchanged today, codified in Government Code Section 25250.
Existing law permits county supervisors to employ an independent
certified public accountant (CPA) or licensed public accountant
for this purpose. It is unclear whether a change to state law
is necessary if the present structure of Orange County's
Internal Audit Department does not give rise to an actual
conflict of interest, and the Department is in compliance with
all applicable auditing standards.
3. The right tool for the job? Discussions about the internal
audit responsibilities of the Internal Audit Department and the
Office of the Auditor-Controller are ongoing at the local level.
Last year, the Auditor-Controller and Internal Audit Department
provided the Board of Supervisors with competing position papers
on the subject of who should have responsibility over internal
audits. Last fall, the Board of Supervisors took up a motion to
consolidate the internal audit functions of the Internal Audit
Department into the Office of the Auditor-Controller, but that
measure failed on a 3-2 vote.
Orange County voters approved a charter in 2002. Even if AB 783
is enacted, as a charter county, Orange County's voters have
constitutional authority to assign the Auditor-Controller's
statutory duties to other officers or structures. State law
also allows the Board of Supervisors to convert the Office of
the Auditor-Controller to an appointed position. It is unclear
why the Legislature should decide a matter that can be addressed
by the Orange County Board of Supervisors or Orange County
voters.
4. Unintended consequences. AB 783 prohibits a board of
supervisors, in a county of 3 million people or more, from
obstructing an elected auditor-controller from carrying out
his/her auditing and accounting functions. A narrow reading of
the bill could unintentionally suggest that county supervisors
in a less populous county may in fact obstruct the
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auditor-controller from doing his/her job. Furthermore, it is
unclear that what exactly constitutes "obstruction" in this
context, and whether existing law permits a county board of
supervisors to obstruct an elected county auditor-controller in
the first place. To avoid unintended consequences and
redundancy, the Committee may wish to consider an amendment
defining the term "obstruct" and clarifying its application, or
deleting the bill's references to "obstruction" altogether.
5. Mandate. Because this bill increases the duties of local
officials in a county with an elected auditor-controller and a
population of 3 million or greater, the Office of Legislative
Counsel has determined that this bill imposes a state-mandated
local program. The California Constitution requires the state
to reimburse local agencies and school districts for certain
costs mandated by the state. This bill provides that, if the
Commission on State Mandates determines that the bill contains
costs mandated by the state, reimbursement for those costs shall
be made pursuant to Part 7 of Division 4 of Title 2 of the
Government Code.
6. New bill, prior votes not relevant . As passed by the
Assembly, AB 783 contained provisions amending the Government
Code's requirements for the attestation of subpoenas issued by
the legislative bodies of cities. The Senate Governance and
Finance Committee never heard that version of the bill. The
June 30th amendments deleted AB 783's contents and inserted the
current language related to county auditor-controllers.
Assembly Actions
Not relevant to the June 30, 2015 version of the bill.
Support and
Opposition (7/9/15)
Support : Orange County Auditor-Controller Eric H. Woolery, CPA.
Opposition : Unknown.
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