BILL ANALYSIS �
Bill No: SB
617
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2011-2012 Regular Session
Staff Analysis
SB 617 Author: Calderon
As Introduced: February 18, 2011
Hearing Date: April 12, 2011
Consultant: Art Terzakis
SUBJECT
State Government: financial accountability
DESCRIPTION
SB 617 recasts and updates various provisions within the
Financial Integrity and State Manager's Accountability
(FISMA) Act of 1983 in order to incorporate best practices
in financial accounting: Specifically, this measure:
1. Renames FISMA as the State Government Fraud
Prevention, Detection and Financial Integrity
Monitoring and Accountability Act of 2011.
2. Expands upon existing legislative findings, as
specified, and declares that active oversight
processes, including regular and ongoing monitoring
processes, for the prevention and early detection of
fraud and errors in program administration are vital
to the appropriate and efficient use of public
resources.
3. Adds the requirement that effective, independent,
and objective ongoing monitoring of the internal
accounting and administrative controls be included
within each state agency's system of internal
accounting and control.
4. Stipulates that state agency heads must implement
systems and processes to ensure the independence and
objectivity of the monitoring of internal accounting
SB 617 (Calderon) continued
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and administrative control as an ongoing activity.
5. Requires the Director of Finance to establish a
framework of recommended practices to guide state
agencies in conducting active ongoing monitoring of
processes for internal accounting and administrative
control.
6. Sunsets on January 1, 2014, an existing reporting
requirement that directs state agencies to report on
the adequacy of their systems of internal accounting
and administrative control.
7. Makes other minor, conforming and clarifying
changes.
EXISTING LAW
Under the FISMA, heads of state agencies and departments
are responsible for establishing and maintaining a system
or systems of internal accounting and administrative
control within their organizations.
Under the FISMA, organization management is responsible for
documenting the system, communicating the system
requirements to employees, assuring that the system is
functioning as designed and modifying the system as changes
in conditions warrant.
BACKGROUND
The Financial Integrity and State Manager's Accountability
(FISMA) Act of 1983 (Government Code Sections 13400 through
13407) was enacted to reduce the waste of resources and
strengthen accounting and administrative control. FISMA
requires each state agency to maintain effective systems of
internal accounting and administrative control, to evaluate
the effectiveness of these controls on an ongoing basis,
and to biennially review and prepare a report on the
adequacy of the agency's systems of internal accounting and
administrative control.
Purpose of SB 617: According to the author's office, since
enactment of FISMA in 1983, both state and federal law
regarding corporate financial accounting has evolved but
SB 617 (Calderon) continued
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the laws requiring the state to practice similar internal
accountability and controls have not.
The author's office notes that FISMA's stated purpose is
clear - to promote sound state governmental operations via
a mandate for strong and effective systems of internal
accounting and agency administrative control. However, in
the 28 years since FISMA was adopted, business and
financial accounting has witnessed significant change.
The author's office contends that Californians today are
keenly concerned for efficiency and accountability at all
levels of government however current state law has not yet
incorporated the lessons on improving ongoing financial
oversight which were gained over the past decade as a
result of the Enron financial collapse. The author's
office notes that after the Enron financial debacle,
Congress passed the Sarbanes-Oxley "Corporate and Auditing
Accountability and Responsibility Act." Among its reforms,
Sarbanes-Oxley introduced the element of ongoing monitoring
of internal accounting and administrative controls as vital
to ensure they remain fully effective in large
organizations.
The author's office emphasizes that SB 617 is simply
intended to update FISMA to include this element of ongoing
monitoring as vital to effective oversight and
accountability. The author's office also notes that SB 617
does not specify the form monitoring must take. Under the
existing Act, it is up to the Director of Finance, with
input from the State Auditor, the State Controller, and the
Treasurer, to recommend suitable controls. SB 617 maintains
this pattern by deferring to these agencies to recommend a
suitable monitoring framework.
How Does Monitoring Benefit the Governance Process?
Unmonitored controls tend to deteriorate over time. When
monitoring is designed and implemented appropriately,
organizations benefit because they are more likely to:
Identify and correct internal control problems on a
timely basis;
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Produce more accurate and reliable information for
use in decision-making;
Prepare accurate and timely financial statements;
and,
Be in a position to provide periodic certifications
or assertions on the effectiveness of internal
control.
Over time effective monitoring can lead to organizational
efficiencies and reduced costs associated with reporting on
internal control because problems are identified and
addressed in a proactive, rather than reactive, manner.
PRIOR/RELATED LEGISLATION
AB 1806 (Budget Committee) Chapter 69, Statutes of 2006.
Among other things, amended FISMA by requiring that
organization management conduct an internal review and
prepare a report on the adequacy of their organization's
system of internal control on a biennial basis.
SUPPORT: None on file as of April 8, 2011.
OPPOSE: None on file as of April 8, 2011.
FISCAL COMMITTEE: Senate Appropriations Committee
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