BILL ANALYSIS �
SB 736
Page 1
Date of Hearing: July 5, 2011
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Marty Block, Chair
SB 736 (Cannella) - As Amended: June 28, 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 publically provided upon
request.
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. 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
SB 736
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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
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.
Additional oversight of CSU expenditures : Existing law provides
for a number of oversight procedures for CSU expenditures of
public funds, including requiring that payments in excess of 10%
of the CSU fund total be approved by the Director of Finance,
requiring 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, and requiring
every contract to contain a provision stating that the
contracting parties shall be subject to that examination and
audit.
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.
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CSU argues that members of the public are authorized to use the
Public Records Act to acquire information.
Reconsideration : This bill failed passage in this Committee on
June 21, 2011, and reconsideration was granted. Since that time
the author has amended the bill in an attempt to address
concerns raised by the Committee and the opponents. The recent
amendments:
1)Clarify that the statement of net assets required to be
provided by each CSU campus as an addendum to the statewide
CSU annual financial statement audit shall include assets,
liabilities, and net assets.
2)Requires that the campus-specific financial statements be
subjected to the auditing procedures applied in the audit of
the system-wide financial statements.
3)Requires that any additional information provided upon request
by the CSU shall also be made publicly available.
REGISTERED SUPPORT / OPPOSITION :
Support
California State University (Sponsor)
Opposition
California Faculty Association
Analysis Prepared by : Laura Metune / HIGHER ED. / (916)
319-3960