BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 898|
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CONSENT
Bill No: SB 898
Author: Cannella (R), et al.
Amended: 5/6/14
Vote: 21
SENATE GOVERNMENTAL ORGANIZATION COMMITTEE : 10-0, 4/22/14
AYES: Correa, Berryhill, Cannella, De Le�n, Galgiani,
Hernandez, Lieu, Padilla, Torres, Vidak
NO VOTE RECORDED: Vacancy
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : State government: state funds
SOURCE : Author
DIGEST : This bill requires each state agency, department, and
entity to provide the State Treasurer's Office (STO) with its
employer identification number to be used to monitor those state
bank accounts and money authorized to be outside the centralized
State Treasury System (STS).
ANALYSIS :
Existing law:
1.Requires the State Controller to submit specified fiscal
reports, including, among others, an annual report to the
Governor relating to the state's revenues and expenditures
during the preceding fiscal year and a quarterly report to the
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Legislature on the General Fund that compares state revenues
and expenditures for that quarter with the Budget Act, and
other expenditures authorized pursuant to statute.
2.Provides that, all money in the possession of or collected by
any state agency or department is state money and is subject
to provisions governing its deposit and handling in trust
accounts. Also provides for the STS to deposit state money
held by state agencies prior to expenditure.
3.Allows state agencies to seek approval from the Department of
Finance (DOF) to open outside accounts that have benefits and
efficiencies not available through the STS, such as the
ability to process credit card receipts.
This bill requires each state agency, department, and entity to
provide the STO with its employer identification number to be
used to monitor those state bank accounts and money authorized
to be outside the centralized STS.
Background
California State Auditor (CSA) Report . In an October 2013
report titled Accounts Outside the State's Centralized Treasury
System, the CSA discovered that of the roughly $55 billion in
the possession or control of the state, 14% or $9.3 billion, was
maintained in nearly 1,400 bank accounts outside the STS. The
STS was established to safeguard and maximize the return on
state money with control agencies such as DOF, the State
Controller, and the State Treasurer all contributing to
safeguarding these assets. Certain departments, agencies, and
other entities may need to establish outside accounts because
they must deal with funds held in trust for others or for the
purpose of operational efficiencies. To do so requires either
express statutory authority or authorization from DOF, and
subjects the agency to certain monitoring and reporting
requirements.
The CSA's review of outside accounts noted the following key
findings:
Most of the money in outside accounts is held in accounts
authorized by statute and a large number of these accounts
with large balances have been established to hold money in
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trust for others.
While holding state money in outside accounts provides for
quick electronic funds transfers and allows for efficiently
processing credit card transactions, there is an increased
risk of mismanagement and the potential for higher costs
related to these accounts.
Outside accounts are subject to fewer statewide controls and
there is risk that banks holding money in outside accounts for
state agencies may not maintain the required level of
collateral. Additionally, a state agency with outside
accounts may also incur higher bank fees than necessary.
The control agencies do not adequately track which state
agencies have outside accounts nor do they adequately ensure
that all agencies report on such accounts and, therefore,
failed to identify some omissions.
Although state agencies generally complied with requirements
for establishing outside accounts, they did not always
completely or accurately report outside accounts as required -
some failed to report the balances of these accounts.
With the exception of the Department of Forestry and Fire
Protection (CAL FIRE), the state agencies tested had
established proper controls over the handling of revenue.
However, CAL FIRE established an outside account without
statutory authority or DOF approval, circumvented its
accounting and budgeting processes, and did not follow state
policies for equipment purchases.
Comments
According to the author's office, this bill is intended to
implement one of the legislative recommendations made by the CSA
and help remedy the identified problems cited in the review of
outside accounts.
The author's office references two instances in which the CSA
discovered state accounts that existed outside of the state's
Centralized Treasury System. The first instance involved the
Department of Parks and Recreation which had been sitting on
nearly $54 million in unaccounted money, $22 million of which
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could have been used to prevent the threatened closure of an
estimated 70 parks. The second instance involved CAL FIRE which
had $3.7 million from unaccounted legal settlements rather than
depositing the money in the state's General Fund - CAL FIRE had
neither statutory authority nor DOF approval to do so.
The author's office states that this bill will ensure that the
STO has the statutory authority to monitor outside accounts so
that scandals like those referenced above do not occur again.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/5/14)
State Treasurer's Office
Save Our River Parks Committee
ARGUMENTS IN SUPPORT : The STO points out that, in recent
years, several instances of unauthorized outside bank accounts
have come to light as a result of mistakes or ignorance of state
laws and regulations, but they could have been discovered much
earlier or avoided altogether if state fiscal control agencies,
including the STO, had access to the unique identification
number used to establish these accounts. The STO also notes
that agencies with established outside bank accounts use their
own employer identification number which generally is not
commonly made available to the state's control agencies, and
thus cannot be tracked. The STO emphasizes that such practices
put the state's money at risk because it is not likely
adequately collateralized and may be missing from the state's
accounts altogether. Furthermore, the STO points out that it
has taken steps to administratively require that these employer
identification numbers be submitted to the STO - this bill will
simply codify this process, ensuring that compliance will be
ongoing.
Save Our River Parks Committee cites the CSA's relatively recent
discovery that the Department of Parks and Recreation maintained
a $54 million hidden account as a primary reason for their
support of this bill which promotes transparency in state
government.
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MW:e 5/6/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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