BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Alan Lowenthal, Chair
2011-2012 Regular Session
BILL NO: AB 450
AUTHOR: Wieckowski
AMENDED: June 28, 2011
FISCAL COMM: Yes HEARING DATE: July 6, 2011
URGENCY: No CONSULTANT:Kathleen Chavira
SUBJECT : California State University audits.
SUMMARY
This bill requires that the California State University
Trustees' policies and procedures for the acquisition of
specified services ensure that the service contractor fully
discloses to the CSU campus, auxiliary, or other CSU unit
all discounts, rebates, allowances and incentives received
from suppliers, and that the contractor pay the full amount
of these to the CSU campus. The bill also requires that
these requirements be placed in agreements upon their
renewal, extension, or amendment, or be part of any new
service agreement.
BACKGROUND
Current law authorizes the California State University
(CSU) trustees to enter into agreements with any public or
private agency, officer, person, or institution,
corporation, association, or foundation for the furnishing
of services, facilities, materials, goods, supplies, or
equipment by or for the trustees.
Current law requires the trustees to prescribe policies and
procedures for the acquisition of services, facilities,
materials, goods, supplies, or equipment. (Education Code �
89036)
Current law requires the CSU trustees to establish an
internal audit staff, whose duties include, but are not
limited to, auditing, reviewing, cost and systems analysis,
analyzing, and recommending operating procedures for the
CSU. Current law also requires these staff to perform
audits, at least once every five years, of the activities
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of the CSU pursuant to specified sections of the Government
Code. (Education Code � 89045)
ANALYSIS
This bill :
1) Requires that the policies and procedures for the
acquisition of services ensure that a service
contractor fully disclose to the CSU, auxiliary or
other CSU unit all discounts, rebates, allowances, and
incentives received by the service contractor from its
suppliers.
2) Requires a service contractor that receives a
discount, rebate, allowance, or other incentive from
any supplier, to disclose and pay to the CSU campus
the full amount of the discount, rebate, allowance, or
other incentive received on the basis of purchases
made on behalf of the CSU and its auxiliaries and
units.
3) Requires that language stating this requirement be
included in agreements entered into by the CSU
trustees for food, janitorial, laundry maintenance,
window cleaning, or landscape services.
4) Requires that all discount, rebate, allowance, or
other incentives received be paid to the CSU,
auxiliary or other CSU unit during a mutually agreed
upon time fame and be available for review as part of
any audit conducted pursuant to specified law.
5) Requires that changes to comply with these provisions
be implemented upon the renewal, extension or
amendment of existing agreements or as part of any new
service agreement.
6) Defines various terms, for purposes of the bill,
including service contractor, to include a contractor
that provides food, janitorial, laundry maintenance,
window cleaning, or landscape services.
STAFF COMMENTS
1) Source of the bill . According to the author, the New
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York Attorney General reached an out of court
settlement of $20 million with a third party food
services contractor on behalf of the State University
of New York and local school districts. The Attorney
General found that contractors had adopted a business
model that involved overcharging for food by not
disclosing that part of the food costs paid for
rebates back to them from the suppliers. The author
is concerned that there is no specific law or policy
that relates to the disclosure or crediting of rebates
on service contracts and that some of the CSU campuses
have contracts with food service companies similar to
those in the State University of New York. According
to information provided by the author, these "add-ons"
increase the cost ultimately borne by the public
sector for these contracts.
2) Is there a problem ? It is unclear whether similar
practices are a part of food service contracting
within the CSU. According to information provided by
the author, CSU currently relies on contract food
service providers, including some involved in the New
York Attorney General lawsuit, to operate the
cafeterias and/or concessions on at least seven
campuses statewide. This bill would require the CSU
policies and procedures for acquisition of various
services to ensure disclosure of any rebates, etc.,
and to require that those be paid to the affected CSU
campus.
3) Too far reaching ? This bill's provisions are based
upon model contract language which the California
Department of Education provides to school districts
that participate in the National School Lunch Program.
The United States Department of Agriculture has
issued regulations and provided the prototype language
to assist districts in ensuring that costs under the
program (and allowed use of federal dollars) must be
net of all discounts, rebates and applicable credits.
This bill, however, extends disclosure and repayment
of rebate requirements beyond contracts for food
services to include janitorial, laundry, maintenance,
window cleaning and landscape services. There is some
reason for concern that food service contracts entered
into by the CSU may engage in the practices of concern
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that are outlined in this bill. It is unclear,
however, why the CSU alone should be subject to
requirements in areas outside of food service
contracts for which there is no apparent issue/concern
or similar restrictions. Staff recommends the bill be
amended to limit its provisions to food service
contracts.
4) Expanded auditing requirements . This bill requires
that any rebates paid to a CSU entity be available for
review as part of any audit conducted pursuant to
specified law. It is unclear whether this type of
information would already be required to be reported
under existing auditing requirements, or whether the
specific audits affected by the bill are the
appropriate processes for disclosure of this
information. To the extent these requirements go
beyond current auditing requirements, related costs
could increase.
5) Related legislation . SB 736 (Cannella) which would
delete some of the existing auditing requirements
which the CSU must meet was heard and passed by this
committee in April 2011 and passed this committee by a
vote of 9-0. SB 763 is currently awaiting action in
the Assembly Higher Education Committee. That bill
would have reduced auditing requirements in an effort
to save the CSU approximately $1.6 million.
SUPPORT
SEIU United Service Workers West
OPPOSITION
California State University