BILL ANALYSIS �
SB 186
Page 1
Date of Hearing: June 29, 2011
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
SB 186 (Kehoe) - As Amended: May 31, 2011
SENATE VOTE : 27-11
SUBJECT : The Controller.
SUMMARY : Expands, until January 1, 2017, the State Controller's
authority to perform audits or investigations of counties,
cities, special districts, joint powers authorities, and
redevelopment agencies, if the State Controller has reason to
believe, supported by documentation, that a local government is
violating specified financial requirements. Specifically, this
bill :
1)Expands, to include joint powers authorities (JPAs) and
redevelopment agencies (RDAs),
the Controller's authority to appoint a qualified accountant
to make an investigation of that JPA or RDA, if the JPA or
RDA's reports are not made in the time, form, and manner
required, or there is reason to believe that a report is
false, incomplete or incorrect.
2)Allows, if the Controller has reason to believe that any
county, city, special district, JPA, or RDA is not complying
with the financial requirements in state law, local charters,
or local ordinances, the Controller to perform an audit or
investigation of the issue.
3)Provides that the basis for the decision to conduct an audit
or investigation shall be supported by credible documentation,
as defined, including input from the local agency, as well as
a determination by the Controller that sufficient funds are
made available to conduct the audit or investigation.
4)Provides that the Controller shall prepare a report of the
results of the audit or investigation that shall include
documentation used as the basis for the decision to perform
the audit or investigation.
5)Requires a copy of the report to be filed with the legislative
body of the county, city, special district, JPA, or RDA,
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subject to the audit or investigation.
6)Provides that any finding of illegal acts or fraud shall be
communicated to the appropriate authorities, including the
county grand jury.
7)Defines, for purposes of the bill, "documentation" to mean any
handwriting, typewriting, printing, photostating,
photographing, photocopying, transmitting by electronic mail
or facsimile, and every other means of recording upon any
tangible thing any form of communication or representation,
including letters, words, pictures, sounds, or symbols, or
combinations thereof, and any record thereby created,
regardless of the manner in which the record has been stored.
8)States that costs incurred by the Controller related to
provisions of the bill shall be borne by the county, city,
special district, JPA or RDA and shall be a charge against any
unencumbered funds of the county, city, special district, JPA
or RDA.
9)Repeals these provisions that expand the State Controller's
authority to perform audits or investigations, as specified,
as of January 1, 2017, unless a statute enacted before January
1, 2017, deletes or extends that date.
10)Re-enacts provisions similar to existing law after the bill's
provisions sunset on January 1, 2017.
EXISTING LAW :
1)Requires the Controller to compile and publish reports of the
financial transactions of local governments, including
counties, cities, special districts, JPAs and RDAs.
2)Allows, if the county, city, or district reports are not made
in the time, form, and manner required or there is reason to
believe that a report is false, incomplete, or incorrect, the
Controller to appoint a qualified accountant to make an
investigation and to obtain the information required.
3)Specifies that the accountant appointed shall report to the
Controller the results of investigation, and a copy shall be
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filed with the legislative body of the county, city, or
special district, the accounts of which were investigated.
4)Provides, if a similar investigation has to be made of the
accounts of any county, city, or special district, for two
successive years, a certified copy of the results of the
investigation last made shall be transmitted to the grand jury
of the county that was investigated or in which the city or
special district investigated is situated, or, if the special
district is situated in more than one county, in the county in
which any portion of the special district is situated.
5)Requires any costs incurred by the Controller, including
contracts with, or employment of, certified public accountants
or public accountants, in compiling specified financial
reports to be borne by the county, city, special district, or
RDA, and to be a charge against any unencumbered funds of the
county, city, special district, or RDA.
FISCAL EFFECT : According to the Senate Appropriations
Committee, the State Controller's office anticipates a staffing
increase of 17 auditor positions as a result of the expanded
authority provided by the bill, at a total cost of approximately
$2.33 million in 2012-13 and $2.25 million in 2013-14 and
ongoing.
COMMENTS :
1)This bill, sponsored by State Controller John Chiang, builds
upon existing law by expanding the Controller's authority to
audit the finances and internal controls of counties, cities,
special districts, JPAs, and RDAs, if the Controller has
reason to believe that a local agency is not complying with
specified financial requirements and if the Controller decides
to conduct an audit or investigation and has credible
documentation to justify the decision. These audits seek to
ensure compliance with state laws, grant agreements, and local
ordinances. Additionally, the bill expands the Controller's
current authority to appoint a qualified accountant to conduct
an investigation to include JPAs and RDAs if reports by those
entities are not made in the time, form, and manner required
or there is reason to believe that a report is false,
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incomplete, or incorrect. The Controller currently has the
authority to appoint an accountant to conduct an
investigation, but only for counties, cities and special
districts.
The Controller notes that his office has the authority to
audit local agencies with regard to their use of state and
federal funds, but his office has no authority to audit
general local government activities, which includes local
taxes and bonds. The new authority to conduct an audit or
investigation based on credible documentation will sunset on
January 1, 2017.
2)In the Controller's audit of the City of Bell, millions of
dollars in illegally levied taxes, fees, and assessments were
exposed. The lack of internal controls was found to have
enabled excessive employee compensation, unlawful contracting
practices, self-dealing, and other abusive expenditures of
taxpayer dollars. The Controller believes that this bill will
help to restore the public's trust in government activities.
3)The League of California Cities has concerns about some of the
terminology used in this bill. For instance, the League
believes that the language allowing the Controller to perform
an audit if the Controller "has reason to believe" a local
agency is not complying with specified financial requirements
is unclear and subjective. As well, the League is concerned
with the bill's provisions that require the basis for the
Controller's decision to conduct an audit or investigation to
be supported by "credible documentation." The bill defines
what "documentation" includes; however, there is larger policy
concern about how to determine whether information is
"credible." The Committee may wish to ask the author and
sponsor to address these issues.
4)This bill is part of the Controller's package of bills in
response to the scandals in the City of Bell, and includes AB
187 (Lara), AB 229 (Lara), AB 253 (Smyth), and AB 276 (Alejo),
several of which were heard by this Committee on April 27,
2011. SB 449 (Pavley), another bill sponsored by the
Controller, will be heard on the same date as this bill, and
authorizes the State Controller to conduct preliminary
financial reviews and audits of local governments that may be
experiencing serious financial problems.
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The Committee may wish to consider how this bill, along with
SB 449 (Pavley), and AB 187 (Lara), which allows the State
Auditor the discretionary authority to audit "high risk" local
agencies, can be implemented together. Is there a duplication
of state resources between the three bills?
5)Support arguments: The American Federation of State, County
and Municipal Employees (AFSCME) argues that "in a time of
fiscal crisis?one clear necessity is for the development of
greater legislative oversight." AFSCME writes that this bill
would furnish much-needed oversight to ensure that local
governments are run legally.
Opposition arguments: The League of California Cities notes
that the state already has substantial authority to examine
local governmental financial practices, and believes that any
new authority must contain clear criteria and should only be
granted when there are documented insufficiencies in its
existing authority.
REGISTERED SUPPORT / OPPOSITION :
Support
State Controller John Chiang �SPONSOR]
American Federation of State, County and Municipal Employees
(AFSCME)
Opposition
League of California Cities �unless amended]
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958