BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Alan Lowenthal, Chair
2011-2012 Regular Session
BILL NO: SB 736
AUTHOR: Canella
AMENDED: March 21, 2011
FISCAL COMM: Yes HEARING DATE: April 13, 2011
URGENCY: No CONSULTANT:Kathleen Chavira
SUBJECT : California State University financial statement
and compliance
audits.
SUMMARY
This bill deletes the requirement that the Trustees of the
California State University (CSU) conduct individual campus
financial statement and compliance audits and instead,
requires that the currently required systemwide audits be
conducted in compliance with generally accepted accounting
principles (GAPP) and include specified campus-level
information.
BACKGROUND
Current law authorizes the CSU, in conjunction with the
Controller's office, to establish a system to draw from
funds appropriated to the university to make direct payment
to its vendors. Any amounts drawn in excess of 10 percent
of the total appropriation to the CSU in a fiscal year
require the approval of the Director of Finance.
As a condition of this authority, the CSU is required to:
1) Maintain records of these payments for three years
and to make those records available to the Controller
for post audit review, as needed.
2) Contract with one or more public accounting firms
to annually conduct systemwide, and at least 10
individual campuses, financial statement and
compliance audits.
3) Include the results of these audits in a
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statutorily (Government Code �13405) required biennial
report on the adequacy of the CSU's internal
accounting and administrative control systems.
The campus audits are required to be conducted on a
rotating basis, and each campus must be audited at least
once every two years. The financial statement audits are
required to test compliance with procurement procedures and
the integrity of the payments made. (Government Code
�12440.1)
In order to ensure compliance with the Financial Integrity
and State Manager's Accountability Act of 1983 current law
requires that the head of each state agency biennially
conduct an internal review and prepare a report on the
adequacy of the agency's systems of internal accounting and
administrative control, as specified, and that copies of
these reports be submitted to the Legislature, the State
Auditor, the Governor, the Director of Finance, and to the
State Library where they must be available for public
inspection.
(Government Code �13405)
ANALYSIS
This bill :
1) Deletes the requirement that the Trustees conduct
individual campus financial statement and compliance
audits.
2) Requires that the annual systemwide financial
statement audit be conducted in accordance with
generally accepted accounting principles (GAAP).
3) Requires that each campus' statement of net assets,
statement of revenues, expenses, changes in net
assets, and statement of cashflows be included as an
addendum to the annual system wide audit.
4) Requires that any additional information necessary be
provided upon request, to the extent available.
STAFF COMMENTS
1) Need for the bill . Current law requires the CSU to
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contract with a public accounting firm to conduct
systemwide and individual campus audits. According to
the CSU, these audits were mandated as a condition of
granting the CSU the unique authority to pay its
vendors directly, without going through the
Controller's Office. According to the author, the
campus audits, with few exceptions, contain the same
information as the annual systemwide audits and cost
the CSU system $2 million every year.
2) History . Current law, authorizing a direct vendor
payment system was established by AB 2613 (Chapter,
Statutes of1996). AB 2613 also required the Bureau of
State Audits (BSA) to evaluate CSU's system and report
findings and recommendations to the Legislature no
later than January 1, 2001. The BSA review found few
problems, all of which were isolated rather than
systemic and the authority was made permanent by the
deletion of the sunset date in AB 1689 (Chapter 169,
Statutes of 2001).
3) Generally accepted accounting principles (GAAP) . This
bill specifically authorizes the preparation of
financial statements according to GAAP standards.
Generally accepted accounting principles are the
minimum standards or rules organizations must follow
in determining what financial information should be
included in the general-purpose financial statements
and how the information should be presented. The
primary organizations responsible for setting
accounting standards are the Governmental Accounting
Standards Board (GASB), the Financial Accounting
Standards Board (FASB), and the Federal Accounting
Standards Advisory Board (FASAB). For state and local
governments, GAAP is established primarily by the
GASB, while the FASAB serves as the main
standard-setting body for the federal government.
4) Is the detailed campus information necessary ? Staff
notes that, among other things, campus financial
statements include summary information on transactions
with related entities, including payments made to and
from auxiliary organizations for salaries, services,
and University gifts-in-kind. This detailed
information is not currently provided in the
systemwide financial statements, and under the bill's
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current provisions, would be discontinued. According
to the CSU, this information is available in the
independent audit required of any auxiliary as
required under Education Code � 89900(a). However,
staff notes that these reports are lengthy individual
reports for organizations as varied as associated
students groups and research foundations, and that
they do not provide the easily accessible summary
information contained in the campus financial
statement notes. It is unclear what other
campus-based information may be lost by the
elimination of the individual campus financial
statement and compliance audits.
The bill currently requires an addendum to the
systemwide audit to include specified campus
information. Staff recommends the bill be amended on
Page 2, line 28 to add, "In addition, summary
information on transactions with auxiliaries for each
campus shall also be included in the addendum" and to
delete "to the extent available" on line 29 in order
to ensure that the Controller and Director of Finance
maintain access to any information necessary for their
oversight functions.
5) Similar legislation . AB 450 (Wieckowski) also
proposes changes to the reporting requirements
associated with the authority to make direct vendor
payments. Unlike this bill, it proposes, among other
things, to expand accountability by increasing the
maintenance of vendor payment records from three to
five years, requiring that audits determine compliance
procurement procedures and integrity of payments, and
to expand auditing of campuses from once every two
years to annually. AB 450 is currently scheduled to
be heard by the Assembly Higher Education Committee on
April 12, 2011.
SUPPORT
California State University
OPPOSITION
None received.
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