BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 898|
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UNFINISHED BUSINESS
Bill No: SB 898
Author: Cannella (R), et al.
Amended: 8/18/14
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
SENATE FLOOR : 35-0, 5/8/14 (Consent)
AYES: Anderson, Beall, Berryhill, Block, Cannella, Corbett,
Correa, De Le�n, DeSaulnier, Evans, Fuller, Galgiani, Hancock,
Hernandez, Hill, Hueso, Huff, Jackson, Lara, Leno, Lieu, Liu,
Mitchell, Monning, Morrell, Nielsen, Padilla, Pavley, Roth,
Steinberg, Torres, Vidak, Walters, Wolk, Wyland
NO VOTE RECORDED: Calderon, Gaines, Knight, Wright, Yee
ASSEMBLY FLOOR : 74-0, 8/20/14 - See last page for vote
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 (EIN) to be used to monitor state
money deposited outside the centralized State Treasury System
CONTINUED
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(STS); and requires a bank or financial institution to provide
the STO with specified account information relating to EINs.
Assembly Amendments add coauthors, and make clarifying and
technical changes.
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
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:
1.Requires each state agency, department, and entity to provide
the STO with its EIN to be used to monitor state money
deposited outside the centralized STS.
2.Requires a bank or financial institution to provide to the
STO, upon request, specified account information relating to
EINs to assist the STO in monitoring accounts and state money
deposited outside of the STS.
Background
California State Auditor (CSA) Report . In an October 2013
report titled Accounts Outside the State's Centralized Treasury
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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
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.
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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 STS. 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 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 8/20/14)
California Bankers Association
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,
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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 EIN 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 EINs 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.
ASSEMBLY FLOOR : 74-0, 8/20/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Ch�vez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon,
Gorell, Gray, Hagman, Hall, Harkey, Roger Hern�ndez, Holden,
Jones, Levine, Linder, Logue, Lowenthal, Maienschein, Medina,
Melendez, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan,
Perea, John A. P�rez, V. Manuel P�rez, Quirk, Quirk-Silva,
Rendon, Rodriguez, Salas, Skinner, Stone, Ting, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, Atkins
NO VOTE RECORDED: Grove, Jones-Sawyer, Mansoor, Patterson,
Ridley-Thomas, Vacancy
MW:e 8/20/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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