BILL ANALYSIS Ó SB 467 Page 1 Date of Hearing: July 7, 2015 ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS Susan Bonilla, Chair SB 467 (Hill) - As Amended July 1, 2015 SENATE VOTE: 40-0 SUBJECT: Professions and vocations. SUMMARY: Requires the Department of Consumer Affairs (DCA) to receive approval of the Legislature to levy any pro rata charges against any of the boards, bureaus, or commission for administrative expenses of the DCA; requires the Attorney General (AG) to submit specified reports and information to the Legislature annually; provides that the Director or the DCA, through its Division of Investigation (DOI), must work with the health care boards to implement "Complaint Prioritization Guidelines" as specified; extends until January 1, 2020 the provisions establishing the California Accountancy Board (CBA) and the term of the executive officer; and allows the CBA to provide for certain practice restrictions on the license of an accountant for disciplinary reasons; extends the sunset date for the Contractors State License Board (CSLB) from January 1, 2016 until January 1, 2020, and updates and strengthens the financial requirements placed on contractors. EXISTING LAW: SB 467 Page 2 1)Specifies that there is in the state government, in the Business, Consumer Services, and Housing Agency, a DC. (Business and Professions Code (BPC) § 100) 2)Specifies that the entities under DCA are established for the purpose of ensuring that those private businesses and professions deemed to engage in activities which have potential impact upon the public health, safety, and welfare are adequately regulated in order to protect the people of California. (BPC § 101.6) 3)Specifies the powers and duties of the Director of the DCA. (BPC § 310) 4)Provides that a charge for the estimated administrative expenses of the DCA, not to exceed the available balance in any appropriation for any one fiscal year, may be levied in advance on a pro rata share basis against any boards, bureaus, commissions, divisions, and agencies, at the discretion of the Director and with the approval of the Department of Finance. (BPC § 201 (a)(1)) 5)Requires the DCA to submit a report of the accounting of the pro rata calculation of administrative expenses to the appropriate policy committees of the Legislature on or before July 1, 2015, and on or before July 1 of each subsequent year. (BPC § 201 (a)(2)) 6)Requires the DCA to conduct a one-time study of its current system for prorating administrative expenses to determine if that system is the most productive, efficient, and cost-effective manner for the DCA and the agencies comprising SB 467 Page 3 the DCA and that the study shall include information as specified. (BPC § 201 (b)) 7)Requires the Director of the DCA to submit to the Governor and the Legislature on or before January 1, 2003, and annually thereafter, a report of programmatic and statistical information, as specified, regarding the activities of the DCA and its constituent entities for the previous fiscal year. (BPC § 312) 8)Requires the Office of Administrative Hearings (OAH) to submit a report to the DCA, the Governor, and the Legislature on or before January 1, 2016, and on or before January 1 of each subsequent year that includes specified statistical information regarding cases referred to each office of OAH. (BPC § 312.1) 9)Specifies that it shall be the duty of the Director to receive complaints from consumers concerning various violations of the Business and Professions Code relating to businesses and licensed professions, unfair or deceptive acts or practices by any person in the conduct of any trade or commerce, and the production, distribution, sale and lease of any goods or services undertaken by any person which may endanger the public health, safety or welfare. (BPC § 325) 10)Requires the Director to transmit any valid complaint to the appropriate local, state or federal agency whose authority provides the most effective means to secure the relief and it shall be the continuing duty to the Director to discern patterns of complaints and to ascertain the nature and extend of action taken with respect to the probably violations or pattern of complaints. (BPC § 326) SB 467 Page 4 11)Provides that in order to ensure that its resources are maximized for the protection of the public, the Medical Board of California (MBC) shall prioritize its investigative and prosecutorial resources to ensure that physicians and surgeons representing the greatest threat of harm are identified and disciplined expeditiously and that cases be given the highest priority as specified. (BPC § 2220.05 (a)) 12)Provides that the MBC may by regulation prioritize other cases that are not designated as high priority cases. (BPC § 2220.05 (b)) 13)Provides that the California Board of Accountancy (CBA) within the DCA is responsible for the licensure and regulation of accountants and is required to designate an executive officer and repeals these provisions on January 1, 2016. (BPC § 5000 et seq.) 14)Provides that a person shall be deemed to be engaged in the practice of public accountancy if he or she performs certain acts, makes certain representations, and renders accounting services to the public and clients for compensation. (BPC § 5051) 15)Provides that the CBA, after notice and hearing, may revoke, suspend, or refuse to renew any permit or certificate granted by the CBA, or may censure the holder of that permit or certificate for unprofessional conduct that includes, but is not limited to, one or any combination of criminal acts, specified false statements or omissions, dishonesty, fraud, gross negligence or repeated negligent acts in performance of professional standards, and other acts or violations as specified. (BPC § 5100) SB 467 Page 5 16)Provides for the licensure and regulation of more than 300,000 contractors under the Contractors State License Law (Contractors Law) by the CSLB within the DCA). The CSLB is under the direction of the registrar of contractors (Registrar). (Business and Professions Code (BPC) § 7000 et seq.) 17)Establishes the CSLB until January 1, 2016 to license and regulate the practice of contracting. (BPC § 7000.5) 18)Authorizes CSLB to appoint, with DCA director approval, a registrar of contractors as executive officer and secretary of the Board until January 1, 2016. (BPC § 7011) 19)Requires that all applicants, and all licensees at renewal, demonstrate, as evidence of financial solvency, that his or her operating capital exceeds $2,500. (BPC § 7067.5) 20)Requires a licensed contractor to file or have on file a contractor's bond in the sum of $12,500. (BPC § 7071.6(a)) THIS BILL: 1) Requires the DCA to receive approval of the Legislature to levy in advance a charge for the estimated administrative expenses of the DCA on a pro rata share basis against any of the boards, bureaus, commissions, divisions, and agencies for the estimated administrative expenses of the DCA. 2) Requires the AG to submit a report to the DCA, the Governor, and the appropriate policy committees of the Legislature on or before January 1, 2018 and on or before January 1 of each SB 467 Page 6 subsequent year, that includes, at a minimum, specific statistical information regarding accusation matters referred to the AG for each constituent entity within the DCA represented by the Licensing Section and Health Quality Enforcement Section of the Office of the AG. 3) Extends until January 1, 2020 the provisions establishing the CBA and the term of the Executive Officer. Provides that the CBA, after notice and hearing may, for unprofessional conduct, permanently restrict or limit the practice of a licensee or impose a probationary term or condition on a license, which prohibits the licensee from performing or engaging in any of the acts or services as provided for in the practice of accountancy, and that unprofessional conduct shall include, but not be limited to, those grounds for discipline or denial as specified. 4) Allows a licensee to petition the CBA as provided for reduction of penalty or reinstatement of the privilege to engage in the service or act restricted or limited by the CBA. 5) Provides that the authority of sanctions provided are in addition to any other civil, criminal, and administrative penalties or sanctions provided by law, and do not supplant, but are cumulative to, other disciplinary authority, penalties or sanctions. 6) Specifies that failure to comply with any restrictions or limitation imposed by the CBA is grounds for revocation of the license. 7) Extends CSLB and the authorization to appoint a Registrar until January 1, 2020. 8) Deletes the existing requirement that contractors maintain $2,500 in capital. 9) Increases the existing surety bond requirement from $12,500 SB 467 Page 7 to $15,000. FISCAL EFFECT: According to the Senate Appropriations Committee Analysis dated May 11, 2015, this bill will result in the following: Board of Accountancy: projected expenditures of approximately $14.1 million annually, supporting 98.8 PY, until January 1, 2020, partially offset by annual fee revenues of approximately $5.4 million in 2015-16, based on the proposed 2015-16 budget. Annual fee revenues will increase to approximately $11 million annually beginning July 1, 2016. The AG's Office indicates that it would incur significant increased workload and costs of approximately $1.45 million in 2015-16 ($537,000 General Fund and $911,000 Legal Services Revolving Fund - LSRF), $1.8 million in 2016-17 ($268,000 General Fund and $1.534 million LSRF), and $1.534 million ongoing (LSRF). AG costs from the LSRF would be reimbursed from the funds of the boards and bureaus that refer cases to the AG. Unknown impact on the funds and accounts of individual boards and bureaus as a result of transferring the authority to the Legislature for setting pro-rata charges on boards and bureaus to cover DCA's administrative expenses. There should not be a net overall impact to the charges, but the change will likely result in losses to some funds and gains to others. Board of Contractors: projected expenditures of SB 467 Page 8 approximately $63 million annually, until January 1, 2020, partially offset by annual fee revenues of approximately $55-56 million, based on the proposed 2015-16 budget. COMMENTS: Purpose. This bill is sponsored by the author. According to the author, this bill is "?necessary to extend the sunset date of the (CBA) in order to ensure continued oversight of accountancy profession. This measure would require approval of the Legislature for the administrative pro rata charges of the DCA against any of its boards, bureaus, commissions, divisions, and agencies (boards) for the estimated administrative expenses of the DCA. With current pro rata costs incurred by most boards, and the potential for additional costs because of the BreEZe project and the potential for fee increases for many of these boards, the Legislature needs to give careful consideration to pro rata costs charged to the boards, rather than just the Department of Finance. This bill will also establish and enhance mandatory reporting requirements for the AG's office and require health care boards to prioritize complaints to assist policy makers in determining how best to solve the long standing problem of delayed disciplinary action. Also, this bill is necessary to extend the sunset date of CSLB in order to ensure continued oversight of the contractors industry." The Department of Consumer Affairs (DCA). The mission of DCA is to "protect and serve the interests of California consumers." By statute, consumer protection is the primary purpose for all of the regulatory programs located within DCA, which includes 26 boards, nine bureaus, two committees, one program, and one commission. Collectively, these entities regulate more than 100 SB 467 Page 9 types of businesses and 200 different industries and professions. For example, doctors, auto mechanics, private security companies, and beauty salons are all regulated by the DCA. As regulators, these entities perform two basic program functions: licensing and enforcement. Licensing entails ensuring only those who meet minimum standards are issued a license to practice, and enforcement entails investigation of alleged violations. During the March 2015, Sunset Review Hearing, and in the Senate Committee's Background Paper on the DCA, several issues were raised relating to the administration and operations of the DCA. This bill addresses some of those issues raised during the Sunset Review process regarding the DCA, including 1) Legislative oversight of pro rata charges which are charged to the boards, 2) prioritization of disciplinary cases, and 3) specific enforcement reporting requirements for the AG's Office. Pro Rata. According to the DCA's "Response to Sunset Review Issues" report dated April 23, 2015 "While the BreEZe project represents a significant cost to the DCA, the cost is a relatively small portion of each board and bureau's special fund expenditures, and thus is not the sole reason for any specific fee increase by any program within the DCA. According to the Senate Business, Professions & Economic Development analysis dated April 27th 2015, 18 of the 39 boards and bureaus are projected to have less than 3 months in reserve. And if these projections are accurate then these 18 programs could be seeking fee increases next fiscal year. However, according to the DCAs response, they believe 17 are being closely monitored as being projected to drop under the three month reserve. And of the 17, five are planning to raise fees to address their projected insolvency. SB 467 Page 10 SB 1243 (Lieu), chapter 395, statutes of 2014, required the DCA to conduct a onetime study of the pro rata charges. SB 1243 required the study to consider whether some of the services should be outsourced or if the DCA boards could elect to opt-out of some of the administrative services. DCA was asked to explain the board and bureau's involvement with the calculation and payment of pro rata and what happens when a board does not agree with DCA pro rata assessment. The DCA responded that "every January, the DCA's budget office meets with each board and bureau to present the proposed budget for the next fiscal year and to address the various budget adjustments made to their individual budgets. The DCA outlines the services provided as well as the methodology for distributing costa (i.e. by position count, usage or combination of the two to the boards and bureaus). At this meeting, and at any time throughout the year, questions and concerns related to the allocation of pro rata are discussed and concerns are addressed as needed. The DCA has not had instances where a board or bureau did not concur with the DCA pro rata methodology." Since this information is known directly to the boards then the same information should be available to the legislature as to provide more transparency of the pro rata. This bill will require pro rata charges for the boards, bureaus, and commissions are approved by the Legislature. DCA contends that "additional legislative approval of the DCA's pro rata assessment is not necessary as that authority already exists through the current budget process" while that is true the budget process only looks at their current numbers and overall budget, they do not have full authority or knowledge of the pro rata charges to change or make recommendations. Consumer Protection Enforcement Initiative (CPEI). During the SB 467 Page 11 sunset review hearing, an issue was raised about the length of time the DCA's investigations process took to complete. Raised from those discussions were the relationship between the AG's office and the Office of Administrative Hearings (OAH). The AG's office must use the OAH to schedule and conduct the disciplinary hearings. The OAH is required to provide data for performance measures to review the length of time it takes to complete the complaint process. When completed, these performance measures provide an overview of the investigation process and allow the DCA and the Legislature to gauge the effectiveness of the Consumer Protection Enforcement Initiative (CPEI). Missing from the performance measures is the information about the prosecution process once it arrives in the AG's office. Another essential part of the CPEI was enhancing the use of non-sworn investigative staff to conduct less complex investigations for the health care boards. The DCA issues "Complaint Prioritization Guidelines" for boards to utilize in prioritizing their respective complaint and investigative workloads. These guidelines established three categories of complaint identification: Urgent, High and Routine. Cases categorized as urgent or high would be investigated by sworn staff at the DCA's Department of Investigation (DOI). These guidelines coupled with training were designed to free up sown staff so that they could work on complex investigations. CPEI staffing enhancements were approved by the Legislature with this model in mind. It does not appear these guidelines are being followed by the boards under the DCA. However, at least two of the boards have set their own prioritization requirements for complaints, one of them being the Medical Board. The DCA should work more closely with the boards to make sure these guidelines are being implemented. To address this issue, this bill will require that the DCA, through the DOI, implement "Complaint Prioritization Guidelines" for boards to utilize in prioritizing their complaint and investigative workloads and to SB 467 Page 12 determine the referral of complaints to the division and those that are retained by the health care boards for investigation. Accountancy Board (CBA). The CBA is a public majority board and is composed of 15 members: seven Certified Public Accountants (CPAs) and eight public members who cannot be licensees of the CBA, or registered by the CBA. The CBA enforces the Accountancy Act which defines the practice of public accountancy as the process of recording classifying, reporting and interpreting the financial data of an individual or an organization. In California, the accounting profession's licensed practitioners are CPAs and Public Accountants (PA). As accounting practitioners, CPAs and PAs are proprietors, partners, shareholders and staff employees of public accounting firms. They provide professional services to individuals, private and public companies, financial institutions, nonprofit organizations, and local, state and federal government entities. CBA's regulatory authority over CPAs, PAs, and accounting firms is guided by CBA's statutory mandate to protect the public. The CBA was last reviewed by the Senate Business, Professions and Economic Development Committee in 2011. At that time, the Committee raised nine issues with several recommendations. On November 1, 2014, the CBA submitted its required sunset report to the Committees. In this report, the CBA described actions it has taken since its prior sunset review to address the issues and recommendations raised by the Senate Business, Professions and Economic Development Committee. The CBA addressed all of the nine issues raised by the Committee and attempted to comply with the recommendations of the Committee. As a result of the CBA's recent sunset review, the Senate committee raised an issue pertaining to the CBA's inability to restrict, limit or place on probation a license rather than SB 467 Page 13 revoke. The CBA has the authority to revoke, suspend, or refuse to renew any permit or certificate, or censure the holder of that permit or certificate due to unprofessional conduct. In 2005 the legislature took steps to clarify the meaning of dishonesty, fraud and gross negligence contained in the provision (BPC § 5100). They also added the following to professional conduct: unlawful practice of public accountancy in another state and the imposition of any discipline, penalty, or sanction on a license by the Public Company Accounting Oversight Board or the United States Securities and Exchange Commission. This provision, however, does not provide the CBA or an Administrative Law Judge (ALJ), the authority to consider including permanent practice restrictions. Currently, practice restrictions may only be imposed beyond the probationary term when specifically agreed to by the licensee via a stipulated settlement. In some instances, to protect the public, permanent practice restrictions may be warranted. However, if the licensee is unwilling to agree to such terms via a stipulated settlement, the only recourse for the CBA is to seek revocation of the license. This bill would allow the CBA, and the ALJ, to include permanent practice restrictions as part of a disciplinary order, as opposed to seeking a complete license revocation. Allowing the licensee to retain a license and be able to practice and earn income in such areas where competency is not compromised. Contractors State Licensing Board (CSLB). Under current law BPC § 7067.5 requires that all applicants and all licensees at renewal, demonstrate, as evidence of financial solvency, that his or her operating capital exceeds $2500. The applicant shall provide answers to questions contained in a standard form questionnaire as required by the Registrar relative to financial ability and signed under the penalty of perjury. The financial SB 467 Page 14 information required by the Registrar shall be confidential and not a public record, but where relevant, shall be admissible as evidence in any administrative hearing or judicial action or proceeding. The Registrar may destroy any financial information which has been on file for a period of at least three years. The financial information obtained by the Registrar is unverifiable by the CSLB. If needed, this bill will delete this code section and increase the surety bond by $2,500, thereby, increasing the bond from $12,500 to $15,000. Surety bonds. BPC § 7071.6 requires that applicants or licensees have on file, at all times, proof of a $12,500 surety contractor bond. This requirement is precedent to the issuance, reinstatement, reaction, renewal, or continued maintenance of a license. Surety bonds are a pledge made by an individual or company that guarantees another individuals' or company's performance according to a contract's terms. With the deletion of BPC § 7067.5 the surety bond will be increased from $12,000 to $15,000 to provide greater consumer protection. ARGUMENTS IN SUPPORT: California Society of Certified Public Accountants writes in support, they "support the CBA as the regulator of the CPA profession in California and its efforts to ensure consumers receive quality accounting services from licensees they can trust." ARGUMENTS IN OPPOSITION: None on file. REGISTERED SUPPORT: California Society of Certified Public Accountants SB 467 Page 15 REGISTERED OPPOSITION: None on file. Analysis Prepared by:Robert Boykin / B. & P. / (916) 319-3301