BILL ANALYSIS
AB 2521
Page 1
Date of Hearing: April 20, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 2521 (Torrico) - As Introduced: February 19, 2010
As Proposed to be Amended
SUBJECT : COURTS: AUDITS
KEY ISSUE : SHOULD THE STATE CONTROLLER BE REQUIRED TO PERFORM
ANNUAL FINANCIAL AUDITS OF THE TRIAL COURTS AND THE
ADMINISTRATIVE OFFICE OF THE COURTS?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
The bill, sponsored by Service Employees International Union
(SEIU), seeks to increase accountability and transparency of the
judiciary by requiring the Controller to conduct annual
financial audits of all funds and accounts under the
jurisdiction and control of each of the trial courts and the
Administrative Office of the Court (AOC). To enhance government
accountability, the results of these audits will be reported
annually to the Legislature, the Judicial Council and the
Department of Finance. The author writes that this bill is
necessary to "increase good government transparency and
independent oversight of taxpayer funds which support the
judiciary. . . . In this time of severe cutback, maximum
transparency is paramount to maintain the public's trust in
government services."
The bill is supported by various labor organizations. It is
opposed by the Judicial Council, unless it is funded. The
Judicial Council also raises some concern about the scope of the
trial court audits, but does not oppose the policy objectives of
the bill.
SUMMARY : Requires the Controller to audit annually the finances
of the trial courts and the Administrative Office of the Courts
(AOC). Specifically, this bill :
1)Requires the State Controller, in addition to any other
required audit, to perform an audit of each trial court on or
before December 15, 2012 and annually thereafter. Requires
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the audit to include a review of all funds and accounts under
the jurisdiction and control of the trial court. Requires
that this audit be in addition to any other audit regularly
conducted by the Controller. Requires the Controller, in
consultation with the Judicial Council and the trial courts,
to develop an audit template and guide for these audits.
Requires the audits to be paid for by each trial court.
2)Requires the Controller to compile all the trial court audit
findings and report these results to the Legislature, the
Judicial Council and the Department of Finance by April 1st of
each year.
3)Requires the Controller, beginning February 1, 2012 and
annually thereafter, to perform an audit of the AOC, including
a review of all funds under the jurisdiction and control of
the AOC and the Judicial Council. Requires the AOC to
reimburse the Controller for any costs incurred by the audit.
4)Requires the Controller to report the results of the AOC audit
to the Legislature, the Judicial Council and the Department of
Finance by April 1st of each year.
5)Allows the Judicial Council to inspect, review and perform
comprehensive oversight and analysis of all court financial
records, wherever they may be located, and investigate
allegations of financial impropriety or mismanagement.
Provides that this authority shall not substitute for, or
conflict with, the authority of the Controller to conduct
annual financial audits of the trial courts pursuant to #1,
above.
EXISTING LAW :
1)Allows the Judicial Council to regulate the budget and fiscal
management of the trial courts. Requires the Judicial
Council, in consultation with the Controller, to maintain
appropriate regulations for recordkeeping and accounting by
the courts to ensure the fiscal affairs of the court are
managed efficiently, effectively and responsibly; and all
funds collected by the courts and all revenues and
expenditures of court operations are known. Allows Judicial
Council to delegate this authority to the AOC. (Government
Code Section 77206. Unless stated otherwise, all further
statutory references are to this code.)
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2)Allows the Controller, at the request of the Legislature, to
perform financial and fiscal compliance audits of the reports
of court revenues and expenditures. Requires the Controller
to report the results of these audits to the Legislature and
the Judicial Council. (Id.)
3)Allows the Judicial Council, or its representative, to perform
audits and reviews of all court financial records. (Id.)
4)Provides that all salaries and expenses incurred by the
Judicial Council shall be paid by funds appropriated for use
by the Judicial Council. Provides that the salary and
expenses of the Judicial Council shall be approved in a manner
the Judicial Council directs and shall be audited by the
Controller, as provided. (Section 68506.)
5)Provides the Judicial Council with the ultimate responsibility
to adopt a budget and allocate funding for the trial courts
to, among other things, promote implementation of statewide
policies and promote immediate implementation of efficiencies
in order to guarantee equal access to the courts. (Section
68502.5.)
6)Requires the State Auditor to examine and report annually upon
the financial statements otherwise prepared by the executive
branch of the state so that the Legislature and the public
will be informed of the adequacy of those financial statements
in compliance with generally accepted accounting principles.
(Section 8546.3.)
COMMENTS : This bill, sponsored by SEIU, seeks to establish
regular, independent audits of the trial courts and the AOC.
The author writes that this bill is necessary to "increase good
government transparency and independent oversight of taxpayer
funds which support the judiciary. . . . In this time of severe
cutback, maximum transparency is paramount to maintain the
public's trust in government services."
History of Trial Court Funding : Originally, trial courts were
county entities. Before state funding was instituted, trial
courts were required to seek appropriations from both the board
of supervisors in their counties and the state. Frequently, the
state and the county operated on different fiscal-year systems
and used different budgeting systems. Courts usually had to
compete for scarce dollars, and the economic health of their
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particular communities affected their success. The Trial Court
Realignment and Efficiency Act of 1991 and later the
Lockyer-Isenberg Trial Court Funding Act of 1997, AB 233
(Escutia/Pringle), Chap. 850, Stats. 1997, created a more stable
funding base for the state's trial courts by requiring the state
to assume the full responsibility for funding the courts. In
transferring responsibility for funding the courts from the
counties to the state, the Legislature recognized that such
funding is necessary to provide stable and adequate funding,
uniform standards and procedures, economies of scale, and
structural efficiency. It also enhanced equal access to justice
by removing disparities resulting from the varying ability of
individual counties to meet the operating needs of the courts.
The Current Budget Crisis Has Forced Dramatic Cutbacks to Court
Operations : As a result of the state budget crisis, all
government entities have been struggling to provide critical
services in the wake of reduced funding, and the courts are no
exception. To contend with dramatic funding cuts, courts have
reduced staff, reduced service levels and even closed one day a
month. In the midst of these dramatic and unprecedented
reductions, it is more important than ever to ensure that
pertinent government entities, affected employees and of course
the public have accurate financial information on which to base
difficult budget decisions.
Current Court Audits : Existing law gives the AOC the authority
to audit all the trial courts. According to the Judicial
Council, the AOC currently performs a comprehensive audit of all
trial courts every four years. These comprehensive audits,
reports the Judicial Council, are more in-depth than the
financial audits contemplated by this bill, testing financial
components at a highly detailed level and also reviewing each
court's compliance with required rules and standards. These
comprehensive audits are labor intensive and can take months to
complete, but the Judicial Council believes they are important
to the fiscal and operational integrity of the courts.
In addition to these audits, the Bureau of State Audits also
does an annual financial audit of all state entities, including
the courts. This audit includes a review of financial
statements, internal controls over financial reporting and
compliance with federal program requirements. However, since
the courts are a comparatively small part of the overall state
budget, the courts make up only a very small part of the
Auditor's full statewide audit.
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The Controller also, at the request of the Legislature, may
perform financial and fiscal compliance audits of the reports of
court revenues and expenditures. Currently, the Controller
audits the fees, fines and forfeitures collected by each trial
court on a four to five year cycle.
In addition, the Judicial Council has informed the Committee
that it is currently seeking to enter into an agreement with the
Department of Finance, Office of State Audits to perform
periodic audits of the AOC. These audits reportedly would
include reviewing (1) the reliability and integrity of financial
and operating information; (2) the systems established to ensure
compliance with laws and regulations; (3) the safeguarding of
assets; and (4) the economy and efficiency with which resources
are acquired, protected and employed. It is anticipated that
this audit would be quite similar to the Controller audit of the
AOC proposed by this bill.
This Bill Establishes Independent Annual Audits for the Trial
Courts and the AOC : This bill seeks to increase accountability
and transparency of the judiciary by requiring the Controller to
conduct annual financial audits of all funds and accounts under
the jurisdiction and control of each of the trial courts and the
AOC.
Under this bill, the Controller, in consultation with the
Judicial Council and the trial courts, will develop an audit
template and an audit guide for the audits of the trial courts.
The template and guide should ensure that each trial court is
audited in the same way, reviewing the same information. The
first round of trial court audits will be completed by December
15, 2012 and then annually thereafter. Under the terms of the
bill, as proposed to be amended, the Controller will then
compile the audit findings and report the results to the
Legislature, the Judicial Council and the Department of Finance
by April 1st of each year. The bill requires each trial court
to pay for its own audit.
The bill also requires the Controller to conduct an audit of all
funds under the control or jurisdiction of the AOC by February
1, 2012 and then annually thereafter. Like the trial court
audits, the results of the AOC audit are to be sent to the
Legislature, the Judicial Council and the Department of Finance
by April 1st of each year. The AOC is required to pay for this
audit.
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The Judicial Council will continue to be able to inspect, review
and perform comprehensive oversight and analysis of all court
financial records and investigate allegations of financial
impropriety or mismanagement. However, in order to prevent
duplicative or overlapping functions, the bill specifies that
the Judicial Council's authority cannot substitute for, or
conflict with, the Controller's authority to conduct annual
financial audits of the trial courts.
Judicial Council Raises Some Concerns About the Uncertainty of
the Scope of the Annual Audits : While the Judicial Council
opposes the bill unless it is adequately funded, an issue more
appropriate for the Appropriations Committee, the Judicial
Council does not oppose the policy objectives of the bill. The
Judicial Council does, however, raise concerns about the unclear
scope of these annual audits. Explains Judicial Council:
The Judicial Council does not oppose the policy objectives
of the bill, and in fact supports the need for transparency
and accountability for the use of public funds. . . .The
Judicial Council has concerns, however, about the lack of
clarity on the scope of the audits proposed. To the extent
these audits would involve extensive fieldwork or other
audit work resulting in State Controller spending weeks or
months at each trial court or significantly impacting staff
time, the Judicial Council believes annual audits to be
excessive and unduly burdensome. The workload on trial
court staff simply to assist in the audit could be
significant, diverting court staff from other work and
functions they need to perform. At a time with unparalleled
vacancy rates and staff doing more with less, significant
additional workload would be untenable. According to the
sponsor of AB 2521, local school districts, cities, and
counties are audited annually. The type of annual audits
these entities undergo are generally referred to as
financial statement opinion audits (as required, for
example under Government Code section 25250 et seq. for
counties). To the extent the bill is envisioning the
Controller performing an audit along these lines, which
would not involve significant work in the courts, or a
substantial devotion of court staff resources, the council
would not object to these annual audits. The same concerns
exist with regard to the proposed annual audit of the AOC.
The Judicial Council looks forward to working with the
author, sponsor, committee staff, and the Controller to
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provide the necessary specificity as to the scope of the
audits.
ARGUMENTS IN SUPPORT : In support of the bill, SEIU writes:
This bill is an effort to establish government transparency
and independent oversight of taxpayer funds which support
the judiciary. At present, there are no mandates for the
trial courts or the AOC to undergo independent, regular and
comprehensive financial audits. . . .
In this dire economic time taxpayers especially want to
know and deserve to know how tax dollars are being used and
if those dollars are being used wisely and prudently.
Fiscal transparency is a major underpinning of the American
system of government which ought to be applied to the
judiciary if meaningful trust with the public is to be
established. AB 2521 would simply bring the judiciary into
the basic framework for government accountability and
transparency.
REGISTERED SUPPORT / OPPOSITION :
Support
Service Employees International Union (sponsor)
American Federation of State, County and Municipal Employees
(AFSCME), AFL-CIO
California Official Court Reporters Association
Laborers' International Union of North America Local 777
Laborers' International Union of North America Local 792
Professional and Technical Engineers, IFPTE Local 21
San Diego County Court Employees Association
Opposition
Judicial Council (unless funded)
Analysis Prepared by : Leora Gershenzon / JUD. / (916) 319-2334