BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           2266 (Bradford)
          
          Hearing Date:  08/02/2010           Amended: 06/30/2010
          Consultant:  Dan Troy           Policy Vote: ED 7-0
          _________________________________________________________________ 
          ____
          BILL SUMMARY:   AB 2266 would modify requirements for the  
          maintenance and destruction of original school district  
          documents pursuant to the State Controller's development of a  
          "trusted system" in coordination with the Secretary of State.  
          _________________________________________________________________ 
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2010-11      2011-12       2012-13     Fund
           SCO                    $840                             General

          Audit findings         Potential loss of savings, likely  
          General*
                                 in the millions                  
                                            
          * Counts toward meeting the Proposition 98 minimum funding  
          guarantee
          _________________________________________________________________ 
          ____

          STAFF COMMENTS: This bill meets the criteria for referral to the  
          Suspense File.

          Current law allows the governing board of a school district to  
          make photographic, microfilm, or electronic copies of records,  
          as specified.  Current law allows for the destruction of  
          original records if they have been copied and are permanently  
          maintained, except that no original document that is basic to a  
          required audit may be destroyed prior to the beginning of the  
          second fiscal year succeeding the completion of the audit.  

          This bill would require the State Controller, in coordination  
          with the Secretary of State, to develop record and retention  
          standards, policies or regulations consisted with the applicable  
          use of a "trusted system" that will permit the district to  
          reproduce a record that is basic to a required audit, that is a  
          nonerasable optical image reproduction in which alterations are  










          not permitted by the technology.  As of January 1, 2013, this  
          bill would eliminate the requirement to retain original  
          documents required for an audit for any time period, as long as  
          they can be reproduced in a photographic, microfilm, or  
          electronic form.   

          The Controller's Office (SCO) reports significant costs to  
          develop the system required in the bill.  As developing a  
          "trusted system" system that could potentially meet all required  
          audit regulations would require significant expertise on  
          information technology that is not currently available on staff,  
          the SCO indicates one-time costs of over $800,000 to develop a  
          system.  It is staff's understanding that the author is  
          considering alternatives to reduce or eliminate these costs by  
          removing the SCO from the process.

          The more significant long-term issue is the reliability of  
          documentation maintained for auditing purposes.  While it may be  
          possible to utilize trusted systems that ensure 
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          AB 2266 (Bradford)

          copies of original documents are not altered, allowing the  
          destruction of original documentation prior to the completion of  
          required audits may compromise the audit integrity.  Auditors  
          require access to original documentation in order to assure the  
          accuracy and integrity of contemporaneous record keeping.   
          Statewide summary information available from the SCO for the  
          2008-09 fiscal year indicate that there were 136 audit findings  
          regarding attendance accounting requirements that year, 46  
          findings regarding independent study, and 19 findings concerning  
          instructional time requirements, among many other findings.   
          While determining the ultimate cost of all of these findings is  
          difficult due to the appeals process and negotiated payment  
          plans, loosening the laws requiring the maintenance of original  
          documentation may make it difficult for auditors to determine  
          when districts have inappropriately claimed state funding.   
          Given that one unit of average daily attendance is worth over  
          $5,000 in funding, the potential loss to the state could be in  
          the millions on an annual basis.  

          Further, current government auditing standards require review of  
          original documentation. To the extent auditors are not able to  
          issue unqualified audit opinions as to the accuracy of the  
          information, districts may not be able to receive funding for  
          federal or state programs.  If verification requires more  










          investigation on the part of the auditor, the costs borne by the  
          districts for the audit could increase.  This may offset savings  
          on storage costs that districts might hope to achieve.