BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
503 (Kehoe)
Hearing Date: 5/11/2009 Amended: 4/20/2009
Consultant: Bob Franzoia Policy Vote: G O 8-4
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BILL SUMMARY: SB 504 would require the State Controller's Office
(SCO), on or before April 30, 2010, and on or before April 30,
annually thereafter, to choose one or more bond projects funded
from certain bond acts to be the subject of an audit, pursuant
to certain procedures. The SCO would be required to annually
assign ten auditor positions to conduct the audits.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Infrastructure construction Up to $350 Up to $700
Up to $700* Bond**
audits
* Decreasing as audit needs and number of construction projects
decreases. Average costs likely around $700 annually.
** From Propositions 1B, 1C, 1D, and 1E bond funds set aside for
administrative expenses.
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
This bill provides that the department or agency responsible for
the project being audited shall reimburse the SCO for the actual
cost of conducting the audit from the proceeds of bonds
allocated for administrative purposes for that project. The SCO
indicates the cost of the audit would be predetermined with the
administering agency, similar to an interagency agreement.
Disagreements with the administering agency should be the
unusual, as the SCO and the administering agency would pre-agree
on the amount and ensure it was within the administration
budget. The central focus of the audit will be on the local
agency where the project occurs, not the state agency.
The fiscal impact of this bill on bond funds depends in part on
the manner in which the SCO would initiate an audit. When a
department or agency is going to use all five percent of its
administrative allocation, the audit would result in a cost that
would come as a reduction of administrative expenses and a shift
of funds dedicated to administration, depending on the cost of
each audit, to one or more audits.
When a department or agency would not otherwise expend all five
percent of its administrative set aside, this bill would result
in a potential reduction of funds, the amount of the audit, for
construction. This is because all un-used administrative funds
are directed to construction. All savings identified by an
audit would result in a potential increase of funds for
construction.
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SB 503 (Kehoe)
When an audit of an ongoing project identified savings, the bond
funds may be spent more efficiently than would have otherwise
occurred absent an audit.
There is significant variance in how audit costs are calculated.
An "upper end" estimate of time and cost for one audit of the
type proposed by the bill would be 600 hours (4 months) and
$50,000 (including expenses). Audit costs will likely rang from
$20,000 to $50,000. Using an average of the range, or $35,000,
costs would be $1.05 million. In general, an audit costing
$50,000 would likely show more savings as the auditor is on the
project longer and identifying more savings or cost avoidance.
Based on its experience, the SCO has estimated a full year cost
of $701,052. This would fund eight Associate Management Auditor
positions at an average cost of $504,786, two Senior Management
Auditors at an average cost of $151,668 and support and
equipment costs of $44,598.
With one auditor doing three audits in a 12 month period, the
SCO would do up to 30 audits annually. These projections are
based on local agency, project-level audits, not at the state
administrator level. For comparison, Caltrans has an
interagency agreement with the SCO for 12 full-time auditors
annually to work on 1B bond oversight.
The SCO is projecting, based on past SCO performance,
savings/deferred cost of at least $15 million annually for the
duration of the bonds. If ten percent of this estimated savings
is realized, all costs would be offset by savings.
Staff recommends the bill be amended to provide for up to ten
auditors.