BILL ANALYSIS Ó
SB 490
Page 1
Date of Hearing: August 19, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
SB 490
(Beall) - As Amended June 18, 2015
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill raises the threshold amount required for a provider of
Regional Center services to obtain an independent audit from
$500,000 to $2 million and the threshold for a lesser review
from $250,000 to $500,000. It also requires a regional center to
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grant a two-year exemption to the annual audit requirement if
there were no issues in the audit or review that impacted
regional center services, and makes other changes to existing
audit requirements.
FISCAL EFFECT:
The existing requirements for independent audits/reviews for
regional center service providers were established in the
developmental services trailer bill (SB 74, Committee on Budget
and Fiscal Review, Chapter 9, Statutes of 2011). The audits
were intended to ensure adequate accounting procedures and
internal controls, identify poor billing practices, errors in
billings and inappropriate transactions that would otherwise be
billed to the regional centers. The 2011 Budget Act assumed that
better financial record keeping would reduce billing by vendors
to regional centers, yielding savings. The budget assumed a 1%
reduction in costs, which equaled about $22 million to the
General Fund.
Because these savings are, in practice, cost avoidance they are
difficult to quantify, and therefore it is difficult to quantify
the state fiscal impact of relaxing the audit requirements. This
bill would result in approximately 833 vendors (38%) no longer
being reviewed and could result in potential erosion of state
savings. Assuming that only 10% of the anticipated savings
occurred, this bill could result in a cost to the state of
$836,000 (GF), measured in foregone savings.
COMMENTS:
1)Purpose. According to the author, the current review and audit
requirements are overly financially burdensome for the vendors
required to obtain them without quite resulting in the
intended results or reaching the estimated savings target
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attached to the requirements in SB 74. The author further
states that there are a number of ambiguities in SB 74 that
this bill seeks to clarify, including through ensuring that
only monies paid by regional centers to a provider should be
subject to an audit or review.
2)Background. The Department of Developmental Services (DDS) is
responsible for coordinating care and services for about
250,000 people with developmental disabilities. The vast
majority of these people are served by 21 regional centers,
which are non-profit entities that contract with the state.
The regional centers, in turn, contract with a variety of
vendors to provide direct services to the developmentally
disabled.
A report by the Bureau of State Audits in 2010 found that
regional centers were not appropriately monitoring
expenditures by vendors. In response to the report, SB 74
imposed new auditing requirements on regional center vendors.
SB 74 requires vendors that receive payments of more than
$500,000 per year to obtain an independent fiscal audit.
Regional center vendors that receive payments between $250,000
and $500,000 per year are required to obtain either an
independent audit or an independent financial review. The 2011
Budget Act assumed that these additional auditing requirements
would reduce inappropriate billing for services and save the
state General Fund about $22 million per year.
DDS estimates that increasing the threshold for audit reviews
from $250,000 to $500,000 would eliminate the requirement for
38 percent of providers to conduct an audit review or audit.
In 2013-14, 2,214 entities were required to obtain an in-depth
review or audit at the $250,000 threshold; doubling that
threshold would reduce the number to 1,381. Additionally, if
the threshold for audits were raised from $500,000 to $2
million, as proposed in this bill, it would result in nearly
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70 percent of providers being eliminated from the audit
requirement: Only 410 vendors would be required to obtain an
independent audit from a total of 1,381 currently eligible
vendors.
3)Prior Legislation.
a) SB 1259 (Emmerson) 2012, would have authorized two-year
exemptions from audit requirements similar to provisions of
this bill. The bill was held on the Senate Appropriations
Suspense File.
b) SB 74 (Committee on Budget and Fiscal Review) Chapter 9,
Statutes of 2011, established the audit and review
requirements, among other provisions.
Analysis Prepared by:Jennifer Swenson / APPR. / (916)
319-2081