BILL ANALYSIS �
AB 450
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ASSEMBLY THIRD READING
AB 450 (Wieckowski)
As Amended May 2, 2011
Majority vote
HIGHER EDUCATION 6-3 APPROPRIATIONS 12-5
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|Ayes:|Block, Brownley, Fong, |Ayes:|Fuentes, Blumenfield, |
| |Galgiani, Lara, | |Bradford, Charles |
| |Portantino | |Calderon, Campos, Davis, |
| | | |Gatto, Hall, Hill, Lara, |
| | | |Mitchell, Solorio |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Donnelly, Achadjian, |Nays:|Harkey, Donnelly, |
| |Miller | |Nielsen, Norby, Wagner |
| | | | |
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SUMMARY : Requires the California State University (CSU) service
contractors to disclose and credit manufacturer rebates to CSU
campuses. Specifically, this bill :
1)Provides that policies and procedures developed by the CSU
Trustees for the acquisition of services shall specify that
any direct or indirect rebates from a third party shall be
fully disclosed and credited to the campus or other unit of
the CSU, and be available for review as part of any audit, as
specified.
2)Provides the CSU Trustees, in conjunction with the State
Controller (Controller), the right to examine, at reasonable
times and upon reasonable notice, the books, records and other
compilations of data of the services contractor that relate to
the provisions and requirements of all service contracts,
including records related to any rebates received by a
contractor from a third party as a consequence of, or
incidental to, a contract.
3)Defines "services contractor" to include those providing food,
janitorial, laundry, maintenance, window cleaning or landscape
services.
4)Defines "rebate" to include any return of monetary value
AB 450
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including, but not limited to, any volume discounts,
allowances, or discount purchase incentives.
EXISTING LAW :
1)Provides the CSU Trustees broad powers to establish policies
and procedures governing the acquisition of services,
facilities, materials, goods, supplies, or equipment.
Requires the policies to include a competitive means for
obtaining best value while complying with legislative intent
regarding competitive bids or proposals as expressed in the
California Public Contracts Code (Education Code �89036).
2)Authorizes the CSU Trustees to establish a process that allows
a campus to make payments directly to vendors and provides the
CSU Trustees authority to draw from appropriated funds
amounts necessary to make payments of obligations of the
university directly to vendors. Provides that payments in
excess of 10% of the fund total must be approved by the
Director of Finance (Government Code �12400.1).
3)Requires the CSU Trustees to contract with one or more public
accounting firms to conduct systemwide and individual campus
annual financial statement and compliance audits. Requires
audits to test compliance with procurement procedures and the
integrity of the payments made (Government Code �12400.1).
4)Requires every contract involving the expenditure of public
funds in excess of $10,000 by any public entity to be subject
to the examination and audit of the State Auditor for a period
of three years after final payment under the contract.
Requires every contract to contain a provision stating that
the contracting parties shall be subject to that examination
and audit (Government Code �8546.7).
FISCAL EFFECT : According to the Assembly Appropriations
Committee, to the extent the Controller conducts the authorized
audits of services contractors, CSU would be required to
reimburse the Controller for these services. Based on previous
costs of Controller audits of vendor payments, conducting just
three audits in one year would cost $150,000. The above costs
could be much more than offset by recovering of rebates.
COMMENTS :
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Background : According to the sponsor, food manufacturers
commonly give rebates for purchases from large food service
companies such as Sodexo, Chartwells, and Aramark. In 2010,
after significant controversy surrounding the amounts of those
rebates, the U.S. Department of Agriculture (USDA) enacted
regulations requiring contractors under the federally-subsidized
school meals program to disclose all discounts, rebates and
other applicable credits received by the contractor and to
credit those rebates back to the school. The regulations are
designed to ensure that the limited school meals program
resources are used as efficiently as possible and that federal
agencies are only paying "net costs." After concerns were
raised that large food service vendors were not returning all of
the rebates received, the New York Attorney General conducted an
investigation revealing that, over a five-year period beginning
in 2004, Sodexo received significant rebates from suppliers
without acknowledging or passing the savings on to these
schools-in violation of the contracts between Sodexo and the
schools as well as state and federal laws. In July of 2010,
Sodexo agreed to pay New York $20 million to settle complaints.
While federal regulations are in place to prohibit contractors
from pocketing rebates from food manufacturers in California's
federally-subsidized K-12 district meals programs, there appears
to be no federal or state laws governing this practice in
California's higher education segments.
Purpose of this bill : According to the author, "There is no
specific law or policy in this area related to rebates nor are
there laws relating to the ability of the CSU Trustees or the
State Controller to examine a service contractor's books or
records to determine if the contractor is receiving off-invoice
rebates from its suppliers. This bill will allow CSU to
determine if for example, food service companies are receiving
rebate payments for their food purchases on behalf of the
university and whether these rebate payments are being credited
back to the campus. The audit provisions will allow CSU to
discover if off-invoice rebates exist which may point to receipt
of rebates from suppliers to the contractor."
Analysis Prepared by : Laura Metune / HIGHER ED. / (916)
319-3960
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FN:
0000864