BILL ANALYSIS
Bill No: AB
1447
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
AB 1447 Author: John A. Perez
As Amended: June 4, 2009
Hearing Date: July 8, 2009
Consultant: Art Terzakis
SUBJECT
State Compensation Insurance Fund: audits
DESCRIPTION
AB 1447 clarifies that the State Compensation Insurance
Fund (SCIF) is a state agency for purposes of the Bureau of
State Audits (BSA) and its audit, evaluation and
investigatory jurisdiction and imposes a requirement that
all SCIF advertising include a disclaimer indicating it is
self-supported and not funded by the State of California.
Specifically, this measure:
1. Adds a new provision to the Government Code that
declares the SCIF is a state agency for purposes of the
provisions of the Government Code establishing the BSA
and its duties and authority, as specified.
2. Modifies an existing provision of the Insurance Code to
require that all SCIF advertising include the following
disclaimer: "The State Compensation Insurance Fund is
self-supported and is not funded by the State of
California."
EXISTING LAW
Existing law establishes the BSA under the direction of the
Milton Marks "Little Hoover" Commission on California State
Government Organization and Economy and requires the BSA to
be independent of the executive branch and legislative
control in order to be free of organizational impairments
to independence.
AB 1447 (John A. Perez) continued
Page 2
Existing law 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.
Existing provisions of the Insurance Code establish that the
SCIF is not subject to statutory provisions made applicable to
state agencies unless the section specifically names the fund
as an agency to which the provision applies. Exception is made
specifically for, among others, provisions of the Government
Code relating to the State Auditor.
Existing law requires any advertising of the SCIF to include a
disclaimer stating that the SCIF is not a branch of the State
of California.
BACKGROUND
The State Compensation Insurance Fund (SCIF) was created by
statute in 1914 to act as a workers' compensation insurer
for the state and to serve as the workers' compensation
insurer of last resort in the private market, and is now
the largest workers' compensation insurer in the country.
Although created by the Legislature, it is operated as a
private non-profit enterprise, and is supposed to be
"neither more nor less than self-supporting". The State of
California is not liable for any obligations of SCIF. It
is not subject to competitive bidding, public record or
open meeting laws, although its 8,100 employees are civil
servants and its five member board is appointed by the
Governor.
There have been in recent years controversies arising
between the Department of Insurance (DOI) and SCIF. SCIF
for many years insisted it was not subject to the same
scrutiny and regulation by the DOI as other insurers
because it was legislatively created. At the same time, it
has avoided the normal scrutiny of other state entities
because of its exemption from open government requirements.
Senate Bill 37 (Maddy) Chapter 12, Statutes of 1993,
(Government Code 8543), created the BSA as part of the
Executive Branch. To assure its independence, the BSA is
free from the control of the Executive and Legislative
AB 1447 (John A. Perez) continued
Page 3
branches; the Milton Marks "Little Hoover" Commission
oversees its administrative operations. The BSA, under the
direction of the State Auditor, performs an annual
examination (single audit) of the State's general-purpose
financial statements as prepared by the State Controller's
Office. The federal government, as a condition of
receiving federal funds, requires this audit. The single
audit also includes a review of major federal programs for
compliance with federal laws and regulations, and
recommendations to improve the State's financial systems
and internal control.
The BSA also conducts financial and performance audits as
directed by statute, and other government audits requested
by the Joint Legislative Audit Committee (JLAC). The BSA
has the explicit authority to audit any entity that
receives state funds. Consequently, it sometimes audits at
the local government level.
Purpose of AB 1447: The author's office notes that the
people of California are best served when state agencies
conduct their operations openly and transparently.
Additionally, the author's office points out that the State
Auditor's primary responsibility is to ensure that
government agencies are conducting their business in a
manner that reflects the faith and trust the citizens of
California have placed in their civil servants.
The author's office contends that despite its unique
relationship with the state, the SCIF is not defined as a
state agency for the purpose of being subject to audits by
the BSA. Thus, this measure is intended to make it
explicit that for purposes of the BSA's jurisdiction, the
State Compensation Insurance Fund is a "state agency"
subject to BSA audits. Additionally, the author's office
points out that while AB 1447 specifies that the SCIF is an
agency for purposes of audit jurisdiction, there is no
intention to imply that the State of California has any
financial responsibility for SCIF operations. Accordingly,
this measure amends an existing provision of law to provide
that all SCIF advertising include the disclaimer that the
SCIF is self-supported and not funded by the State of
California.
AB 1447 (John A. Perez) continued
Page 4
Staff Comments: The Omnibus Audit Accountability Act of
2006, (SB 1452 -- Speier) attempted to clarify that SCIF
was subject to audits by the State Auditor by amending the
Insurance Code. However, analysis of the legislation states
that, without expressly classifying SCIF as a "state
agency" pursuant to provisions of the Government Code, the
State Auditor believed that her office lacked the authority
to actually carry out an audit.
PRIOR/RELATED LEGISLATION
AB 567 (Villines) 2009-10 Session. Would create a
"Clearinghouse for Government Innovation and Improvement
Program" within the BSA to solicit recommendations from the
public for improving state operations and make specified
modifications to the California Whistleblower Protection
Act including certain other changes to the operations of
the BSA. (Pending in Senate Judiciary Committee)
AB 540 (Monning) 2009-10 Session. Would require the BSA to
provide the Department of Finance with the BSA's budget for
each fiscal year. Also, would require the Department of
Finance to include the budget, without modification, in the
Governor's annual budget. (Pending on Senate floor)
AB 539 (Monning) 2009-10 Session. Would clarify existing
law and codify current practices related to the BSA.
(Pending on Senate floor)
SB 1452 (Speier) Chapter 452, Statutes of 2006. Updated
the auditing standards for state and local agencies and set
up a process whereby the Legislature would be informed when
auditor recommendations are being ignored or not
implemented by state agencies. Also, it protected auditors
from intimidation while providing them with a process to
have audit expectations reported to agency counsel if audit
findings are suppressed by management.
SB 521 (Wyland) 2007-08 Session. Among other things, would
have transferred audit and evaluation duties within the
Department of Finance to the BSA and renamed the BSA as the
Bureau of State Audits and Evaluations (BSAE). (Held in
this committee at author's request)
SUPPORT: None on file as of July 3, 2009.
AB 1447 (John A. Perez) continued
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OPPOSE: None on file as of July 3, 2009.
FISCAL COMMITTEE: Senate Appropriations Committee
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