BILL ANALYSIS Ó
SB 1226
Page 1
SENATE THIRD READING
SB
1226 (Beall and Huff)
As Amended August 18, 2016
Majority vote
SENATE VOTE: 39-0
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+-----------------------+---------------------|
|Human Services |7-0 |Bonilla, Grove, | |
| | |Arambula, Lopez, | |
| | |Maienschein, | |
| | | | |
| | | | |
| | |Mark Stone, Thurmond | |
| | | | |
|----------------+-----+-----------------------+---------------------|
|Appropriations |20-0 |Gonzalez, Bigelow, | |
| | |Bloom, Bonilla, Bonta, | |
| | |Calderon, Chang, Daly, | |
| | |Eggman, Gallagher, | |
| | |Eduardo Garcia, | |
| | |Holden, Jones, | |
| | |Obernolte, Quirk, | |
| | |Santiago, Wagner, | |
| | |Weber, Wood, Chau | |
SB 1226
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SUMMARY: Requires regional centers to submit, and the
Department of Developmental Services (DDS) to compile and
publish data related to, all vendor independent audit reports.
Specifically, this bill:
1)Requires a regional center to submit copies of all independent
audit reports received to DDS for review.
2)Requires DDS to compile data, by regional center, on vendor
compliance with audit requirements and opinions resulting from
audit reports, and further requires DDS to publish this data
annually on the performance dashboard, as specified.
3)Requires, as of January 1, 2018, that the amount of money a
vendor receives from a regional center in the state's fiscal
year, versus an entity's fiscal year as required by current
law, be used to determine if a vendor is required to submit a
review or audit report.
4)Clarifies that, as of January 1, 2018, the period of time for
which a vendor shall obtain either the independent review
report or the independent audit of its financial statements,
as applicable and specified, is the entity's fiscal year that
includes the last day of the most recent state fiscal year.
FISCAL EFFECT: According to the Assembly Appropriations
Committee August 3, 2016, analysis, this bill may result in
minor and absorbable fiscal impact to DDS to review and
summarize data received from regional centers to include on the
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performance data dashboard.
COMMENTS:
Developmental services: Developmental disabilities are
disabilities that originate before an individual attains 18
years of age and that are expected to continue indefinitely as a
substantial disability for that individual. Developmental
disabilities include intellectual disabilities, cerebral palsy,
epilepsy, and autism spectrum disorders, as well as those
disabling conditions similar to an intellectual disability that
require care and management similar to that required by
individuals with an intellectual disability.
Guidance for the delivery of services and supports to
Californians with developmental disabilities is found in the
Lanterman Act (Welfare and Institutions Code (WIC) Section 4500
et seq.). This Act entitles individuals with developmental
disabilities (often referred to as "consumers") to treatment and
habilitation services and supports in the least restrictive
environment; services are designed to enable all consumers to
live more independent and productive lives in the community.
The developmental services system is administered by DDS and a
network of 21 regional centers across the state, which are
private nonprofit entities established pursuant to the Lanterman
Act, that contract with DDS to carry out many of the state's
responsibilities under the Act. These 21 regional centers serve
over 300,000 consumers, providing services such as residential
placements, supported living services, respite care,
transportation, day treatment programs, work support programs,
and various social and therapeutic activities. Another
approximately 980 consumers live at one of California's three
Developmental Centers - and one state-operated, specialized
community facility - which provide 24-hour habilitation and
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medical and social treatment services.
Individuals with developmental disabilities receive services
that are outlined in an individual program plan (IPP) which is
based on that individual's needs and choices and is developed by
an IPP team that includes, among other individuals, the
consumer, his or her legally authorized representative, and one
or more representatives from the regional center. The Lanterman
Act requires that the IPP promote community integration and
maximize opportunities for each consumer to develop
relationships, be part of community life, increase control over
his or her life, and acquire increasingly positive roles in the
community. The IPP must prioritize those services and supports
that allow minors to live with their families and adults to live
as independently as possible in the community.
Vendorization of community-based services: The 21 regional
centers receive an operations budget from DDS to carry out
activities related to eligibility determination and development
of IPPs. Regional centers also receive funds to purchase over
150 different types of services from vendors; services and
supports are aimed at supporting individuals to live in the
community and can include in-home care, housing, transportation,
activity programs, and employment programs. (Regional centers
are the payer of last resort and therefore typically pay for
services only in instances where a consumer does not have
private health insurance or cannot be referred to "generic"
services; the majority of regional center consumers are enrolled
in Medi-Cal.)
"Vendorization" is the process by which service providers are
identified, selected, and utilized, based on qualifications and
requirements, to provide services to consumers. Through this
process, regional centers are able to verify that an applicant
vendor complies with all necessary requirements and regulations
prior to providing services; the regional center with the
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catchment area in which the service is located vendors that
services provider. The vendoring regional center is then
responsible for verifying that the applicant vendor meets all
necessary licensing, and other, requirements; the regional
center will also determine the appropriate vendor category for
the service to be provided. If an applicant meets all necessary
requirements, a regional center is required to vendor that
applicant - however, this does not obligate the regional center
to purchase services from that vendor. Other regional centers
are also able to utilize the services of a provider vendored by
another regional center. There are currently over 44,000
vendors that provide services paid for by regional centers in
California.
Vendor audits and reviews: In August 2010, the California State
Auditor's Office released a report entitled, "Department of
Developmental Services: A More Uniform and Transparent
Procurement and Rate-Setting Process Would Improve the
Cost-Effectiveness of Regional Centers." This report found,
among other things, that regional centers were not appropriately
monitoring expenditures of vendors and that they did not always
document why certain vendors were selected, how rates were set,
or how contracts were procured. This report brought about
heightened interest in oversight of vendor expenditures.
SB 74 (Senate Committee on Budget and Fiscal Review), Chapter 9,
Statutes of 2011, adopted, among other things, audit
requirements for regional center vendors. Those vendors
receiving between $250,000 and $499,999 in annual regional
center funding were required to obtain an independent audit or
independent review report of their financial statements for the
fiscal year, with some exceptions. Those vendors receiving
$500,000 or more annually did not have the option of submitting
to a less-stringent independent review and instead were required
to obtain an independent audit report. These new audit and
review requirements were envisioned to bring about savings
(approximately 1% of regional center purchase of service costs)
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due to the identification, and correction of, poor billing
practices and inappropriate spending of regional center funds;
DDS also indicated that these new requirements enabled the
department to prioritize its own audits, focusing on those
vendors who had issues needing addressed.
Recent legislation - AB 1 X2 (Thurmond), Chapter 3, Statutes of
2015-16 Second Extraordinary Session - changed some of these
audit and review requirements. In June 2015, the Governor
convened a special legislative session to address, among other
things, funding rate increases for community service providers
of services for individuals with developmental disabilities.
One result of that special session was the passage of AB 1 X2,
signed by the Governor on March 1 of this year, which
appropriated $287 million General Fund to regional centers and
community services providers in 2016-17 in additional to
leveraging an estimated $186 million in federal funding. Among
the changes adopted by this bill were changes to vendor audit
requirements. AB 1 X2 raised the dollar thresholds triggering
reviews and audits, and removed the option for vendors in the
lower tier to obtain independent audits, instead only requiring
independent review reports; now, those vendors receiving between
$500,000 and less than $2 million in annual regional center
funding are required to obtain an independent review report, and
those vendors receiving $2 million or more annually must obtain
an independent audit report (these vendors are also now able to
apply for a two-year exemption from the audit requirement). The
2016-17 State Budget includes $1 million ($0.7 million of which
is General Fund) to permanently establish within DDS and retain
funding for seven limited-term auditor positions in the Vendor
Audit Section.
While independent review reports are similar to audits, they are
substantially smaller in scope and do not result in an opinion
being issued; the purpose of the review is to analyze an
organization's financial data and gather information from its
management in order to express limited assurances that the
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organization is in conformity with Generally Acceptable
Accounting Principles (GAAP). The review results in a Certified
Public Accountant either issuing a clean report or issuing no
report due to needed modifications.
Audit reports are completed by independent accounting
professionals in order to assess the financial status and
stability of an organization, and whether financial records have
been maintained in accordance with GAAP. An audit can result in
any one of the following opinions:
1)An unqualified opinion, also known as a "clean" or
"unmodified" opinion, is the best possible opinion to receive
as the result of an audit. It is issued when it has been
determined that an organization's financial records are
presented fairly and free of any misrepresentations; this type
of opinion also indicates that the financial records have been
maintained in accordance with GAAP;
2)A qualified opinion is issued when no misrepresentations are
identified, but an organization's financial records have not
been maintained in accordance with GAAP; this type of opinion
indicates the reason that the audit report is not unqualified;
3)An adverse opinion is issued when it is determined that the
audited financial statements do not fairly represent the
organization's financial position and do not adhere to the
GAAP. Often, an auditor will work with the organization to
resolve or correct issues so the published audit opinion can
be either qualified or unqualified; or
4)A disclaimer of opinion is provided when an auditor chooses
not to issue an opinion, due to significant uncertainties in
the appropriateness of the materials, significant limitations
in the scope of the audit, or if the auditor feels he or she
cannot complete an impartial or independent audit of the
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organization.
According to a survey conducted by the Association of Regional
Center Agencies (ARCA) in April 2015, an average of 52% of
vendors complied with audit requirements; of those complying,
99% had unqualified opinions. According to the sponsors of this
bill, financial review costs can range from $2,000 to $4,000,
while the cost for impacted vendors to have an audit conducted
is often between $6,000 and $14,000.
Need for this bill: According to the author, "[This bill] helps
address a primary concern about the SB 74 audit requirements-
they are a burdensome cost to vendors and are not an effective
way to identify fraud. Because the cost to perform audits and
financial reviews are borne by vendors and reducing fraud is
important, it is critical for the Legislature to understand if
the audits are accomplishing what they were intended to do or if
they are a waste of money. With [this bill], vendors can focus
on providing core services to those in need."
PRIOR LEGISLATION:
AB 1 X2 (Thurmond), Chapter 3, Statutes of 2015-16 Second
Extraordinary Session, among other things, raised the dollar
thresholds triggering reviews and audits, respectively, and
removed the option for vendors in the lower tier to obtain
independent audits, instead only requiring independent review
reports.
SB 490 (Beall) of 2015, would have increased audit and financial
review thresholds for regional center vendors. It was held on
the Assembly Appropriations Committee suspense file.
SB 74 (Committee on Budget and Fiscal Review) Chapter 9,
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Statutes of 2011, established vendor audit and review
requirements, among other provisions.
Analysis Prepared by:
Daphne Hunt / HUM. S. / (916) 319-2089 FN:
0004427