BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 783|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: AB 783
Author: Daly (D)
Amended: 7/16/15 in Senate
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 5-1, 7/15/15
AYES: Hertzberg, Nguyen, Beall, Lara, Pavley
NOES: Moorlach
NO VOTE RECORDED: Hernandez
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 74-0, 5/22/15 (Consent) - See last page for
vote
SUBJECT: County auditors
SOURCE: Author
DIGEST: This bill gives responsibility for internal audits, in
Orange County, to the independently-elected auditor-controller,
rather than the county board of supervisors.
ANALYSIS:
Existing law:
1)Makes county auditors the chief accounting officers for
counties, allocating property tax revenues and performing
audits on county departments, special districts, and joint
powers authorities.
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Page 2
2)Permits counties to 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.
3)Allows counties to consolidate the two offices into the office
of the county auditor-controller.
4)Requires county auditor-controllers to perform specified
audits, but county boards of supervisors can also request
other audits.
5)Gives charter counties have constitutional authority to assign
the auditor-controller's statutory duties to other officers or
structures (Article XI, Section 4).
This bill:
1)Requires, in any county with both an elected
auditor-controller and a population exceeding 3 million
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; this bill requires this audit to
be filed with the board of supervisors.
2)Requires further, in any county with both an elected
auditor-controller and a population exceeding 3 million
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.
3)Requires a county auditor or auditor-controller to be the
chief auditor of the county.
4)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.
5)Prohibits a board of supervisors from creating or operating a
separate auditing unit outside of the county auditor, except
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Page 3
if the separate auditing unit was established before 1981, and
prohibits the board from transferring any auditing unit away
from the county auditor.
6)Requires, in a county with an elected auditor-controller and a
population exceeding 3 million, that the county
auditor-controller must be the sole county officer with the
authority to maintain a whistleblower hotline, as defined.
7)Requires, in a county with an elected auditor-controller and a
population exceeding 3 million 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.
Background
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.
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Page 4
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, Chapter 250). In 2014, the Legislature
repealed this enabling legislation as part of a Budget Trailer
Bill (SB 854, Senate Budget and Fiscal Review Committee, Chapter
28). Following the repeal of AB 2523, the Orange County 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
want the Legislature to change state law to require Orange
County to assign its internal audits to the elected
Auditor-Controller.
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 this 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
AB 783
Page 5
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 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 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 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
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Page 6
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)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 this 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.
5)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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
SUPPORT: (Verified8/19/15)
Orange County Auditor-Controller Eric H. Woolery, CPA
OPPOSITION: (Verified8/19/15)
None received
ASSEMBLY FLOOR: 74-0, 5/22/15
AYES: Achadjian, Travis Allen, Baker, Bigelow, Bloom, Bonilla,
Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau,
AB 783
Page 7
Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly,
Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
Irwin, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,
Nazarian, Obernolte, Patterson, Perea, Quirk, Rendon,
Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark
Stone, Thurmond, Ting, Wagner, Wilk, Williams, Wood, Atkins
NO VOTE RECORDED: Alejo, Jones, O'Donnell, Olsen, Waldron,
Weber
Prepared by:Toren Lewis / GOV. & F. / (916) 651-4119
8/20/15 13:53:34
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