BILL ANALYSIS �
SB 736
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Date of Hearing: June 21, 2011
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Marty Block, Chair
SB 736 (Cannella) - As Amended: April 26, 2011
SENATE VOTE : 38-1
SUBJECT : California State University: trustees.
SUMMARY : Deletes provisions requiring biennial campus audits of
California State University (CSU) revolving fund expenditures
and instead requires CSU to contract with a public accounting
firm to provide an annual system-wide financial statement audit
that includes each campus' statement of net assets, statement of
revenues, expenses, and changes in net assets, and statement of
cash flows. Additionally, requires the inclusion of an addendum
summarizing information on transactions with auxiliary
organizations for each campus. Finally, provides that
additional information shall be provided upon request.
EXISTING LAW
1)Provides the CSU Trustees broad powers to establish policies
and procedures governing the acquisition of services,
facilities, materials, goods, supplies, or equipment.
Requires the policies to include a competitive means for
obtaining best value while complying with legislative intent
regarding competitive bids or proposals as expressed in the
California Public Contracts Code (Education Code �89036).
2)Authorizes the CSU Trustees to establish a process that allows
a campus to make payments directly to vendors and provides the
CSU Trustees authority to draw from appropriated funds
amounts necessary to make payments of obligations of the
university directly to vendors. Provides that payments in
excess of 10% of the fund total must be approved by the
Director of Finance (Government Code �12400.1).
3)Requires the CSU Trustees to contract with one or more public
accounting firms to conduct system-wide and individual campus
annual financial statement and compliance audits. Requires
audits to test compliance with procurement procedures and the
integrity of the payments made (GC �12400.1).
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4)Requires every contract involving the expenditure of public
funds in excess of $10,000 by any public entity to be subject
to the examination and audit of the State Auditor for a period
of three years after final payment under the contract.
Requires every contract to contain a provision stating that
the contracting parties shall be subject to that examination
and audit (GC �8546.7).
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS : Background : AB 2613 (Aguair), Chapter 934, Statutes
of 1996, authorized the CSU to pay its vendors directly,
reducing delays in payments and eliminating duplicative
administrative processes in the State Controller's Office. To
ensure the direct vendor pay program's integrity and compliance
with procurement procedures, AB 2613 required a system-wide
annual financial statement and compliance audit along with
independent audits every other year of each of the 23 campuses.
According to the CSU Chancellor's Office, campus audits cost
approximately $2 million annually. The CSU Chancellor's Office
also indicates that not a single issue or concern relative to
vendor payments has been raised through these audits.
Additionally, AB 2613 also required the Bureau of State Audits
(BSA) to evaluate CSU's system of direct payment and report
findings and recommendations to the Legislature by January 1,
2001. The BSA review found few problems, all of which were
isolated rather than systemic and the CSU authority was made
permanent by the deletion of the sunset date in AB 1689 (Chapter
169, Statutes of 2001).
Purpose of this bill : This bill is intended to help CSU save
millions of dollars each year by eliminating duplicative and
redundant campus reports and instead requiring the specific
campus-specific addendums to be submitted with annual
system-wide audits. The CSU Chancellor's Office argues that the
campuses have produced these reports for numerous years and have
not had a single issue raised through the reports. The CSU
believes they have demonstrated successful management of the
direct vendor pay authority and that the continued publications
of individual campus reports are no longer necessary.
Campus specific information : This bill removes the requirement
for campus-based financial audits and instead requires annual
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disclosure, within the annual system wide financial statement
audit, of campus' statement of net assets, statement of
revenues, expenses, and changes in net assets, and statement of
cash flows. Additionally, this bill requires the inclusion of
an addendum summarizing information on transactions with
auxiliary organizations for each campus.
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.
Arguments in opposition : The California Faculty Association
(CFA) opposes this bill, arguing that eliminating the campus
reports eliminates the only campus transparency mechanism.
While this bill may save money in the short run, CFA argues "an
unnoticed deficiency allowed to fester for years on end could
wipe out any financial savings and significantly damage the CSU
system reputation." CFA is requesting amendments to require
campus' financial statements included in the system-wide audit
to be verified by independent audit. Committee staff notes that
this requirement might eliminate any cost savings associated
with this bill. Further, according to CSU, the campus financial
statements are used by the auditing firm to complete the
system-wide audit, thus providing the auditing firm the
opportunity to review any discrepancies. CFA has also requested
amendments authorizing any member of the public to request
additional information regarding campus' financial statements.
CSU argues that members of the public are authorized to use the
Public Records Act to acquire information.
REGISTERED SUPPORT / OPPOSITION :
Support
SB 736
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California State University (Sponsor)
Opposition
California Faculty Association
Analysis Prepared by : Laura Metune / HIGHER ED. / (916)
319-3960