BILL ANALYSIS                                                                                                                                                                                                    �




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                          SB 186 (Kehoe)
          
          Hearing Date: 05/26/2011        Amended: 04/06/2011
          Consultant: Mark McKenzie       Policy Vote: G&F 5-0
          
















































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          BILL SUMMARY: SB 186 would authorize the State Controller (SCO) 
          to perform discretionary audits of local agencies.  
          Specifically, this bill would:
                 Authorize the SCO to perform an audit or investigation 
               of a county, city, special district, joint powers agency, 
               or redevelopment agency, if the SCO has credible 
               documentation indicating that the local entity is not in 
               compliance with financial requirements in state law, local 
               charters, or local ordinances.
                 Require the SCO to prepare a report of the results of 
               the audit or investigation that includes any documentation 
               that supports the decision to conduct the audit, and submit 
               a copy to the legislative body of the local entity subject 
               to the audit.
                 Require the SCO to communicate any findings of fraud or 
               illegal activity to appropriate authorities, including the 
               county grand jury.
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                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund
           SCO audit staff                   up to $2,329          up to 
          $2,247                 Local
                                                                 
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          STAFF COMMENTS:  SUSPENSE FILE.  AS PROPOSED TO BE AMENDED. 

          Existing law requires cities, counties, special districts, joint 
          powers authorities, and redevelopment agencies to report 
          specified fiscal information to the SCO each year, which is 
          subsequently compiled in an Annual Financial Transactions 
          Report.  If local agencies' reports are not made in the time, 
          form, and manner required, or if there is reason to believe that 
          a report is false, incomplete, or incorrect, the SCO is required 
          to appoint a qualified accountant to make an investigation and 
          to obtain the information required.  The accountant must report 
          the results of the investigation to the Controller and file a 
          copy of the report with the legislative body of the county, 
          city, or district in which the investigation is conducted.  
          Existing law requires the local government to pay any costs 
          incurred by the SCO associated with these investigations, 








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          including contracts with accountants.  The SCO does not have 
          discretion to audit local governments' financial affairs outside 
          the scope of information connected to the Annual Financial 
          Transactions Report, unless the investigation is concerned 
          specifically with disbursements of state or federal funds.

          SB 186 would expand the authority of the SCO to conduct 
          discretionary audits of counties, cities, special districts, 
          joint powers authorities, and redevelopment agencies, if there 
          is sufficient documentation indicating the local entity is not 
          in compliance with financial requirements in law.  The SCO 
          anticipates a staffing increase of 17 auditor 


          positions as a result of the expanded authority provided by this 
          bill, at a total cost of approximately $2.33 million in 2012-13 
          and $2.25 million in 2013-14 and ongoing.  These staffing levels 
          are based on the following projected annual increase in audit 
          workload:
           New audits: 16 audits of cities and counties, and 20 audits of 
            special districts and redevelopment agencies.
           New investigations of specific issues: 24 investigations of 
            cities and counties, and 60 investigations of special 
            districts and redevelopment agencies.
           New financial transaction reports prepared, reviewed, and 
            audited: 12 reports on cities and counties, and 80 reports on 
            special districts and redevelopment agencies.
          The SCO projections represent a fairly robust audit program.  
          Actual costs would be dependent upon the level of staffing 
          approved by the Legislature in the annual budget process.  The 
          SCO currently has 8 auditor positions dedicated to discretionary 
          audits.
          
          Proposed author amendments would specify that the discretionary 
          audits or investigations would only take place if the SCO 
          determines that sufficient funds are available for those 
          purposes. 

          Proposed committee amendments would require local agencies to 
          cover the costs of any SCO audits, and sunset the audit 
          authority after five years.












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