BILL ANALYSIS �
AB 1538
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Date of Hearing: April 10, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 1538 (Cook) - As Amended: March 28, 2012
SUBJECT : Recovery audits.
SUMMARY : Requires the State Controller (Controller) to award
public contracts to private sector consultants that provide
semiannual recovery audits of state agencies. Specifically,
this bill :
1)Requires the Controller to contract with one or more
consultants to conduct semiannual recovery audits of payments
made by state agencies to vendors, in order to detect and
recover overpayments to vendors and to recommend improved
state agency accounting operations.
2)Specifies that a contract under this bill may provide
reasonable compensation for services provided, including
compensation determined by the application of a specified
percentage of the total amount recovered due to the
consultant's audit activities or recommendations, as a fee for
services.
3)Specifies a contract may permit or require the consultant to
pursue a judicial action , as specified, to recover an
overpaid amount.
4)Prohibits a recovery audit of a payment during the 180-day
period after payment is made to allow time for the performance
of any existing state payment auditing procedures
5)Authorizes the Controller or a state agency whose payments are
being audited pursuant to this bill to provide any
confidential information necessary for the performance of the
audit or the recovery of an overpayment, to the extent that
the Controller or state agency is not prohibited from doing
so, as specified.
6)Specifies that a person acting under a contract authorized by
this bill is subject to all prohibitions against the
disclosure of confidential information applicable to the
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Controller or state agency, as specified.
7)Specifies a person acting under a contract authorized by this
bill who discloses confidential information in violation of
this subdivision is subject to the same sanctions and
penalties that would apply to the Controller or applicable
state agency for that disclosure, as specified.
8)Authorizes the Controller to require semiannual recovery
audits be performed on payments to vendors made by each state
agency that has total expenditures during a fiscal year
exceeding $50 million.
9)Requires state agencies to provide the recovery audit
consultant with all information necessary for the audit.
10)Authorizes the Controller to exempt from the mandatory
recovery audit process a state agency that has a low
proportion of its expenditures made to vendors, as specified.
11)Requires state agencies to pay, from recovered moneys
appropriated for the purpose, the recovery audit consultant
responsible for obtaining a reimbursement from a vendor.
12)Requires a state agency to expend or return to the federal
government any federal money that is recovered through a
recovery audit conducted under this bill, in accordance with
the rules of the federal program through which the agency
received federal money.
13)Requires the Controller to provide copies of any report
received from a consultant contracted under this bill to the
Director of Finance (DOF) and the State Auditor no later than
one week after the date the Controller receives the
consultant's report.
14)Requires the Controller, before January 2 of each year, to
issue a report to the Legislature, as specified, summarizing
the contents of all reports received pursuant to this bill
during the immediately preceding fiscal year, until January 1,
2017, at which time this requirement is deemed inoperative.
15)Defines "overpayment" to mean a duplicated payment made to a
vendor for a single invoice, the amount of a discount
available from a vendor that was not applied, and the amount
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of any of the following:
a) A late payment penalty that was improperly applied by
the vendor;
b) Excess shipping costs that were incorrectly computed or
incorrectly included in an invoice;
c) Payment for a good or service that the vendor did not
provide; or,
d) State sales tax.
EXISTING LAW :
1)Prescribes the duties of the Controller, including auditing
all claims against the state and the disbursement of state
money, for correctness, legality, and for sufficient
provisions of law for payment.
2)Establishes the Bureau of State Audits (BSA), which is headed
by the State Auditor and has specified statutory duties,
including the performance of statutorily mandated audits and
audits requested by the Legislature.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author, "Every year
millions of dollars are wasted by the State of California due to
erroneous payments from agencies to vendors. Erroneous payments
waste taxpayer dollars and divert resources from their intended
beneficiaries.
"This bill would require the Controller to contract with
consultants to provide semiannual audits of contracts between
agencies and vendors. The audits would be performed for any
state agency with expenditures exceeding $50,000,000 in a fiscal
year, unless expected by regulation. It would help recover and,
more importantly, prevent erroneous contract payments."
Background . Recovery auditing is a method used to identify and
correct erroneous payments. Erroneous payments are either
disbursement errors or contract compliance errors. Disbursement
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errors are easier to identify and are commonly due to human
error. During a recovery audit, electronic information is mined
and compared based on a variety of data entry fields. Matches
or duplicates between fields are noted as possible errors and
are researched. Upon documenting a valid erroneous payment, the
vendor is contacted and requested to correct the error by either
reimbursing the funds or crediting the payor's account.
Under existing law, there are several governmental entities
tasked with conducting expenditure audits including DOF, the
Controller, and at the request of the Legislature, the BSA.
This bill requires the Controller to contract with private
sector consultants to conduct semiannual recovery audit
services. Despite authorizing the Controller to exempt agencies
it determines through the regulatory process to have few
expenditures to vendors, this requirement does not allow the
Controller any discretion to determine whether a contract for
recovery audit services is necessary, or could duplicate
existing audit efforts and/or unduly interfere with state agency
operations. Further, it is possible that this bill would be a
violation of Section 19130 of the Government Code which
prohibits contracting out state services that public employees
are capable of performing. It is also noted that this bill
lacks any requirement for competitive bidding and award of
contracts for recovery audit services, as is the traditional
method of precluding favoritism in the award of public
contracts.
Previous legislation . AB 461 (Cook) of 2008, requires the State
Controller to contract out for private consulting services to
conduct semiannual recovery audits of state agencies to detect
and recover state overpayments to its vendors and to make
recommendations to improve state agency accounting operations.
This bill was held in the Assembly Business and Professions
Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
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Analysis Prepared by : Rebecca May / B.,P. & C.P. / (916)
319-3301