BILL ANALYSIS
SB 1473
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Date of Hearing: June 16, 2010
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
SB 1473 (Wyland) - As Amended: April 28, 2010
SENATE VOTE : 34-0
SUBJECT : School facilities bond proceeds: performance audits
SUMMARY : Requires the annual, independent performance audit
required by Proposition 39 of 2000 to be conducted in accordance
with the Government Auditing Standards issued by the Comptroller
General of the United States.
EXISTING LAW :
1)Authorizes, under Section 1 of Article XIII A of the
California Constitution, school districts, community college
districts, or county offices of education to pass a general
obligation bond by a 55% vote, provided that the local
initiative includes the following accountability measures:
a) A requirement that the proceeds from the sale of the
bonds be used only for the construction, reconstruction,
rehabilitation, or replacement of school facilities,
including the furnishing and equipping of school
facilities, or the acquisition or lease of real property
for school facilities, and not for any other purpose;
b) Provide a list of the specific school facilities
projects to be funded and certification that the school
district board, community college board, or county office
of education has evaluated safety, class size reduction,
and information technology needs in developing that list;
c) A requirement that the school district board, community
college board, or county office of education conduct an
annual, independent performance audit to ensure that the
funds have been expended only on the specified projects;
and,
d) A requirement that the school district board, community
college board, or county office of education conduct an
annual, independent financial audit of the proceeds from
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the sale of the bonds until all of those proceeds have been
expended for the school facilities projects.
2)Authorizes school districts, community college districts, and
county offices of education to levy a 55% vote ad valorem tax
pursuant to limits specified in the proposition.
3)Requires the governing board of a school district or a
community college district to establish and appoint members to
an independent citizens' oversight committee within 60 days of
the date that the governing board enters the election results
on its minutes.
4)Requires each county superintendent of schools to provide for
an audit of all funds under his or her jurisdiction and
control. Requires governing board of each local educational
agency (LEA) to either provide for an audit of the books and
accounts of the LEA or make arrangements with the county
superintendent of schools to provide for that auditing.
Requires the audit to comply fully with the Government
Auditing Standards issued by the Comptroller General of the
United States.
FISCAL EFFECT : According to the Legislative Counsel, this bill
is nonfiscal.
COMMENTS : Background . Proposition 39 was passed by voters in
2000. Among others, the Proposition, a Constitutional
Amendment, reduced the voting threshold for the passage of local
general obligations bonds from two-thirds to 55% provided that
the local bond initiative meets the following accountability
measures:
1)The initiative identifies a list of the specific school
facilities projects that will be funded by bond proceeds;
2)A requirement that the school board, community college board,
or county office of education conduct an annual, independent
performance audit to "ensure that the funds have been expended
only on the specific projects listed;" and,
3)A requirement that the school board, community college board,
or county office of education conduct an annual, independent
financial audit of the proceeds from the sale of the bonds
until all of those proceeds have been expended for the school
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facilities projects.
Both the financial audit and performance audit must be reviewed
by an independent citizens' oversight committee. AB 1908
(Lempert), Chapter 44, Statutes of 2000, a companion bill to
Proposition 39, requires each district, within 60 days of the
passage of a local bond with 55% to appoint a citizens'
oversight committee to monitor and review expenditures to ensure
compliance with Proposition 39 requirements, and to keep the
public informed about bond expenditures.
According to the author, school districts and their local bond
oversight committees are confused with regard to the standard to
follow in carrying out the mandatory performance audit, since
existing law does not specify an accounting standard.
Currently, some districts have one auditor conduct both the
financial and performance audits, others commission for
extensive audits that review multiple aspects of a district's
facilities program, and some are presenting the financial audit
as both the financial and performance audits. Supporters of the
bill argue that conducting one audit that counts as both a
financial and performance audit does not comply with Proposition
39 requirements and does not provide the accountability the
initiative intended.
This bill requires the performance audit to be conducted in
accordance with the generally accepted government auditing
standards (GAGAS), informally known as the "Yellow Book", issued
by the comptroller general of the United States (U.S.), who
heads the U.S. Government Accountability Office (GAO). The
GAGAS contains standards for audits of government organizations,
programs, activities, and functions, and of government
assistance received by contractors, nonprofit organizations, and
other nongovernment organizations. The standards pertain to
auditors' professional qualifications and outline the processes
and parameters to achieve quality audits.
Performance Audit . According to the GAO, "Performance audits
entail an objective and systematic examination of evidence to
provide an independent assessment of the performance and
management of a program against objective criteria?."
The GAGAS outlines several types of performance audits that
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serve different objectives, including the following:
1)Program effectiveness and results audits are frequently
interrelated with economy and efficiency objectives. Program
effectiveness and results determine the extent to which the
intended results or benefits are being achieved, the
effectiveness of the entity, program, activity or function,
and whether the entity has complied with law and regulations
applicable to the program. Economy and efficiency objective
addresses the costs and resources used to achieve program
results;
2)Internal control audits relate to an assessment of the
component of an organization's system of internal control that
is designed to provide reasonable assurance of achieving
effective and efficient operations, reliable financial and
performance reporting, or compliance with applicable laws and
regulations;
3)Compliance audits relate to compliance criteria established by
laws, regulations, contract provisions, grant agreements, and
other requirements that could affect the acquisition,
protection, use, and disposition of the entity's resources and
the quantity, quality, timeliness, and cost of services the
entity produces and delivers; and,
4)Prospective analysis audit objectives provide analysis or
conclusions, about information that is based on assumptions
about events that may occur in the future along with possible
actions that the audited entity may take in response to the
future events.
The GAGAS performance audit standards described above may
require a more extensive evaluation of local bond funds than
that required by Proposition 39. Proposition 39 simply requires
a performance audit to ensure that funds were spent only on the
projects for which the ballot initiative indicated the funds
would be used. As such, the GAGAS standard for compliance audit
appears to be most consistent with the Proposition 39
requirement. Staff recommends clarifying that the GAGAS
standard used to perform Proposition 39 performance audit shall
be consistent with Proposition 39 objective to ensure that funds
are spent only on the projects for which the ballot initiative
indicated the funds would be used.
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Should the GAGAS standard be applied to the financial audit too?
According to the California Association of School Business
Officials, school districts are already conducting the
Proposition 39 financial audits using the GAGAS standards when
done in conjunction with the annual financial audit required
through EC 41020. However, to ensure that there is no
misinterpretation that because this bill only addresses the
performance audit that the Legislature then does not intend to
apply the GAGAS standards to financial audits, staff recommends
applying the GAGAS standards to both the financial and
performance audits.
Staff recommends a technical amendment to change the placement
of this provision in the Education Code. The bill proposes to
insert the requirement in the section related to citizens'
oversight committees in Article 2 of Chapter 1.5. Staff
recommends relocating the provision to Article 3 of Chapter 1.5
relating to bond accountability.
Arguments in Support . The Board of Governors of the California
Community Colleges states that "without specifying GAGAS in law,
quite a few K-14 districts have resorted to using 'attestation'
or 'agreed upon procedures' agreements with their audit firms to
do their performance audits with varying success. In some
highly publicized cases, these 'agreed upon procedures'
agreements have resulted in a decided lack of oversight of
Proposition 39 local bonds. By specifying the use of GAGAS,
these types of agreements will no longer be allowed. SB 1473
would establish a more reasonable standard that would address
the concerns of taxpayer associations without adding onerous
requirements."
Previous related bill : AB 125 (Ma), vetoed by the Governor in
2007, would have authorized the independent performance audit
required by Proposition 39 to include reviews of the compliance
by a school district or a community college district with its
bond ballot language, design and construction costs and
schedules, design and construction budgets, program and
construction management costs, construction change orders, claim
procedures and results, payment procedures, and bidding and
procurement procedures. The Governor's veto message stated that
the bill was unnecessary and that there was nothing to prohibit
a school district from including the proposed elements in the
audits.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Association of School Business Officials
Board of Governors of the California Community Colleges
Howard Jarvis Taxpayers Association
Opposition
None on file
Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087