BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 503|
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THIRD READING
Bill No: SB 503
Author: Kehoe (D)
Amended: 1/12/10
Vote: 21
SENATE GOVERNMENTAL ORG. COMMITTEE : 8-4, 4/28/09
AYES: Wright, Calderon, Florez, Negrete McLeod, Oropeza,
Padilla, Wiggins, Yee
NOES: Harman, Benoit, Denham, Wyland
NO VOTE RECORDED: Vacancy
SENATE APPROPRIATIONS COMMITTEE : 8-1, 1/21/10
AYES: Kehoe, Cox, Corbett, Denham, Leno, Liu, Price, Yee
NOES: Walters
SUBJECT : State General Obligation Bond Law: audits
SOURCE : The State Controllers Office
DIGEST : This bill requires the State Controllers Office
(Controller) to select one or more projects funded from any
state general obligation bond act approved after January 1,
2010 to be the subject of an audit. This bill requires any
entity that is to be audited, prior to contracting with the
Controller for an audit, to determine it is able to pay the
estimated cost of the audit from bond proceeds. This bill
prohibits the Controller from conducting the audit if those
proceeds are not available. This bill requires the
Controller to assign up to five auditor positions to
conduct the audits.
CONTINUED
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ANALYSIS : The State General Obligation Bond Law sets
forth the procedures for the issuance and sale of bonds
governed by its provisions and for the disbursal of the
proceeds of the sale of those bonds. Existing law provides
for various oversight and reporting requirements for the
expenditure of state funds, including the proceeds of
bonds.
Existing law, Government Code Section 12410, states in
pertinent part, "The State Controller (Controller) shall
audit all claims against the state, and may audit the
disbursement of any state money [including bond proceeds],
for correctness, legality, and for sufficient provisions of
law for payment."
The Controller is the voter-elected chief fiscal officer
for California. Under professional government auditing
standards, the Controller's Office is organizationally
independent from all state agencies.
This bill:
1. Requires the State Controller to select one or more
projects funded by any state general obligation bond act
approved by the voters on or after January 1, 2010, to
be subject to an audit or audits, as specified in (#6)
below.
2. Stipulates that, when conducting an audit, the
Controller shall audit the bond project in order to
ensure that the project is implemented in an efficient,
cost-effective, and timely way and that bond proceeds
are spent in a manner that is legal and consistent with
the provisions of the authorizing measures.
3. Provides that, based on these audits, the Controller
shall make recommendations to the Legislature and
responsible departments and agencies about how to
improve implementation of bond projects.
4. Provides that the Controller shall be given access to,
and is authorized to examine, any record of any agency,
contractor, subcontractor, vendor, or other individual
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or entity receiving, directly or indirectly, bond
proceeds if the record is related to the use of those
proceeds.
5. Provides that the department or agency responsible for
the project being audited shall reimburse the Controller
for the actual cost of conducting the audit from the
proceeds of bonds allocated for administrative purposes
for that project. Prior to contracting with the
Controller to conduct any audit, the entity responsible
for the project to be audited shall determine that it is
able to pay the estimated cost of conducting the audit
from the proceeds of bonds for administrative purposes
for that project. If the entity is unable to pay the
estimated cost of conducting the audit from the
proceeds of bonds for administrative purposes for that
project, the Controller shall not conduct the audit.
Also, makes it explicit that the Controller may only use
those funds allocated for the particular project being
audited and not funds allocated for any other project.
6. Requires the Controller, by April 30 of each year, to
prepare an audit plan for the following fiscal year
specifying projects that will be subject to an audit,
the agencies to be audited and an estimated completion
date of the audits. Also, requires the Controller to
assign five auditors to conduct these audits and permits
the Controller to hire additional auditors if necessary
and request funding for those additional positions
through the annual Budget Bill.
7. Contains a provision that addresses redundancy with
respect to existing audit functions of the Controller
(that pertain to specified provisions of the Public
Resources Code) in order to eliminate duplication and
streamline the audit process.
8. States Legislative intent that the savings to the state,
as a result of implementing recommendations from the
audits, will fully offset the costs of conducting the
audits.
Background
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In January 2007, the Governor issued Executive Order
S-02-07 which directs government agencies that spend bond
funds to institute a three part accountability structure
that includes: (1) Front-End Accountability - creating a
strategic plan with performance standards for projects
prior to the expenditure of funds; (2)In-Progress
Accountability - Documenting ongoing actions to ensure that
the projects or other activities funded from bond proceeds
remain within the identified scope and cost. Additionally,
each department must make semi-annual reports to the
Department of Finance to ensure that bond-funded projects
and activities are being executed in a timely fashion and
achieving their intended purposes; (3) Follow-up
Accountability - Auditing completed projects to determine
whether the expenditures are in line with the goals laid
out in the strategic plan.
To enforce these requirements, the Executive Order requires
each department to submit this three-part accountability
structure to the DOF for review, which in turn is required
to approve the accountability structure prior to the
expenditure of bond proceeds. The Executive Order requires
DOF to establish a website to provide the public with
readily accessible information on how the proceeds of state
general obligation bonds and lease-revenue bonds are being
utilized.
State Treasurer Bill Lockyer and State Controller John
Chiang responded to the Governor's Executive Order on Bond
Accountability by stating, "The Governor has taken an
important first step toward providing the accountability we
must have to keep faith with the people's trust. To finish
the job, we need independent oversight and robust citizen
participation for Californians to be certain their money is
spent with maximum efficiency and effectiveness." The
Treasurer and Controller proposed the creation of an
11-member Citizens' Bond Oversight Commission, with a
minimum of eight qualified public citizens to review and
report on all aspects of the bond expenditures and provide
independent oversight. However, no such bill was
introduced during the 2007-08 legislative Session.
The Governor's Strategic Growth Plan also has a section on
accountability which notes:
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"To assure that public funds are utilized as efficiently as
possible and in a manner consistent with the stated intent
of already authorized and proposed future bond measures,
firm accountability requirements will govern the
expenditure of funds. Prior to any funding being expended
from existing or future bonds, the responsible state
agencies must develop performance and outcome measures for
each program and project that would be funded from the
bonds. Regular audits will be conducted to ensure that
funds are being allocated according to those outcome
criteria and that the implemented programs and projects did
in fact achieve the intended outcomes. It is imperative
that the public be able to access this information. The
voters have an absolute right to know how the bonds they
authorized are being spent. Therefore, outcome and
performance criteria, as well as audit results, will be
made readily available to the public."
Comments
This bill authorizes the Controller to assign five auditors
to the 1B-1E bond acts of 2006 and authorize the audit
costs to be paid from the bond fund being audited. The
fiscal impact will have no additional costs, but rather an
expansion of the purposes for which administrative funds
could be expended. This bill contains language stating it
is the intent of the Legislature that savings to the state
from implementing recommendations made as a result of
audits required by this bill fully offset the costs of
conducting the audits.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee analysis:
Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11
2011-12 Fund
General obligation $0 $0 Up to
$350 Bond*
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audits bond
*From bonds approved after January 1, 2010
SUPPORT : (Verified 1/25/10)
The State Controller's Office (source)
Cal-Tax
California Teachers Association
ARGUMENTS IN SUPPORT : Writing in support of this bill,
the Controller indicates that "the cost associated with
this bill is relatively insignificant when compared to the
amount of bond expenditures to be disbursed. Over the last
four fiscal years, the State Controller's Office has had an
average 13:1 audit exception to audit cost ratio. Given
the enormous scope of funding overseen by the ten auditors,
savings are expected to yield an even higher average
exception rate."
Additionally, the author's office contends that this
proposal has an inherent sunset in that when all the bond
funds are expended, the audits will end. For some of the
bonds, 1D for example, the funds are allocated rapidly and
will be exhausted soon. In comparison, it may take some
bond funds much longer to be appropriated or allocated
though those amounts would likely be smaller.
Also writing in support of this bill, the California
Taxpayers' Association (Cal-Tax) indicates that "this
legislation will provide greater accountability in the use
of taxpayer money for bond projects." Additionally,
Cal-Tax states "this bill would provide necessary
oversight, giving Californians more confidence that the
bond money they have authorized is indeed going to its
intended use."
TSM:do 1/25/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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