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:
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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
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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)
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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)
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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
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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
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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
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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
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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.
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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
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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
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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
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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
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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
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REGISTERED OPPOSITION:
None on file.
Analysis Prepared by:Robert Boykin / B. & P. / (916)
319-3301