BILL ANALYSIS
AB 540
Page 1
Date of Hearing: April 14, 2009
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
AB 540 (Monning) - As Introduced: February 25, 2009
SUBJECT : State Auditor: Bureau of State Audits: budget.
SUMMARY : Requires the Bureau of State Audits (BSA) to provide
the Department of Finance (DOF) with the BSA's proposed budget
for each year and requires DOF to include the BSA's proposed
budget in the Governor's Budget without modification.
EXISTING LAW :
1)Establishes the BSA under the direction of the Milton Marks
"Little Hoover" Commission on California State Government
Organization and Economy.
2)Requires the BSA to be independent of the executive branch and
legislative control in order to be free of organizational
impairments to independence.
3)Provides that the BSA shall be free from influence of existing
control agencies that could be the subject of audits.
4)States that the duties of the BSA are to examine and report
annually upon the financial statements prepared by the
executive branch of the state and to perform performance
audits, as mandated.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of the bill . According to the author's office, the bill
requires "the DOF to include the BSA's proposed budget in the
Governor's Budget without modification. This bill clarifies
existing law that the BSA proposes its budget to the Legislature
for approval and modification at the discretion of the
Legislature. A long-standing memorandum of understanding (MOU)
between DOF and BSA has interpreted this provision in that
manner."
Background . The California State Auditor is the State's
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independent external auditor that provides independent,
nonpartisan, accurate, and timely assessments of California
government's financial and operational activities in compliance
with generally accepted government auditing standards. The
California State Auditor's Office reports its findings to the
legislature and recommends actions to improve government
operations.
On February 21, 1994, the DOF and the BSA signed a MOU that
clarifies their relationship on the preparation of budget. The
MOU states that the DOF will "advise and assist the Bureau on
budget issues, preparation and format, and include the Bureau's
budget as submitted in the annual Governor's Budget." In
January 2008, State Auditor Elaine Howle submitted a letter to
DOF to express that she was "disappointed to learn of (DOF's)
decision to ignore the MOU?relating to the presentation of
(BSA's) proposed budget in the Governor's Budget without
modification." The State Auditor's letter also raised concerns
about the "appearance that an executive branch agency that is
audited by the BSA can control the bureau's budget and thereby
affect (its) independence."
Each year, the BSA conducts the Single Audit of California
(Single Audit) as required by federal law as a condition to
California receiving over $70 billion in annual federal funding.
Federal law specifically requires that the Single Audit be
conducted by an independent auditor who follows audit standards.
If the BSA does not comply with the independence standard, the
BSA must disclose that to the federal government when
transmitting the Single Audit. This would require that the BSA
provide the same disclosure in the opinion accompanying
California's annual audited financial statements that bond
rating companies rely on. The State Auditor has expressed that
the alteration of BSA's budget may affect the acceptance of the
BSA's audits by the federal government, bond ratings, and other
entities.
Support . According to the sponsor, the BSA, "In addition to
clarifying the DOF's role with respect to our proposed budget,
this bill would codify a long-standing MOU between the DOF and
(the BSA) office that interprets the Government Code in this
manner. We believe this amendment is necessary to ensure that
my office's independence is safeguarded. The exemptions from
the executive branch controls are essential in fulfilling the
independence requirements of Government Auditing Standards that
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(the BSA) office must abide by and to ensure acceptance of our
audits by the federal government, bond rating companies, and
others. Federal law conditions the receipt of billions of
dollars of federal funds on an annual audit performed by an
independent auditor. (The BSA) office is statutorily mandated
to conduct this annual audit."
According to the American Federation of State, County and
Municipal Employees, "When the DOF receives the BSA's budget,
they incorporate many of the budget's items into the Governor's
Budget. This allows the DOF to edit information that they do
not feel is pertinent. The DOF's budget is then transferred to
the Governor, who did not receive the BSA's budget to compare to
what the DOF's budget states. This leaves the Governor, and
later the State Legislature, without the full picture of what is
needed in crafting a budget. By requiring that the Bureau of
State Audit's budget is included unchanged in all steps of the
process, pertinent information remains intact as it moves
through the budgetary process to be decided upon by the
legislature.
REGISTERED SUPPORT / OPPOSITION :
Support
Bureau of State Audits (sponsor)
American Federation of State, County and Municipal Employees
(AFSCME)
Opposition
None on file.
Analysis Prepared by : Joanna Gin / B. & P. / (916) 319-3301