Statutorial Establishment

Background

Senate Bill 37 passed the Legislature with significant bipartisan support and was signed by the Governor on May 7, 1993. As Chapter 12, Statutes of 1993, it creates the Bureau of State Audits to replace the former Auditor General's Office that closed due to budget reductions in December 1992. The bill transferred all of the Auditor General's powers, duties, and responsibilities to the Bureau of State Audits. While the Auditor General's Office had been in the Legislative Branch of State government, the new Bureau of State Audits is in the Executive Branch. To assure its independence, the law frees the bureau from the control of the Executive and Legislative branches. The State Auditor is solely responsible for exercising the bureau's powers and duties and its administrative operations are overseen by a state commission. In August 1993, Kurt R. Sjoberg was appointed California's first State Auditor.

Bureau of State Audits' Statute

In establishing the Bureau of State Audits, the Legislature recognizes the need for state managers to be held accountable for spending public funds and operating government programs. To assure accountability, the Legislature believes that governmental audits by the State Auditor are an important cornerstone in the system of checks and balances expected by the people of California.

Government Code, Section 8543, et seq creates the Bureau of State Audits headed by the State Auditor. To be free from influence of existing state control agencies that could be the subject of audits, the bureau is exempt from oversight by executive branch agencies. To provide for administrative oversight, the Milton Marks Commission on California State Government Organization and Economy (an independent 13-member body known as the Little Hoover Commission) distributes reports issued by the State Auditor and annually obtains an audit by an independent CPA of the bureau's operations.

By law, the State Auditor's salary is equivalent to the salary paid to state agency secretaries and he/she shall be repaid all actual expense incurred in the discharge of his/her duties. The State Auditor appoints a Chief Deputy State Auditor who carries out the duties assigned by the State Auditor and acts for the State Auditor in his/her absence. All other bureau employees are civil servants in accordance with Article VII of the California Constitution.

Government Code, Section 8521.5 states:

"The Legislature finds that our system of government is a complex structure of interlocking relationships among all levels of government for managing public funds and programs. Officials and employees who manage and administer these programs must be accountable for their activities to the public. The Legislature recognizes that governmental audits are an important cornerstone in the system of accountability expected by the people of California. One of the most important aspects of public accountability is whether the use of state funds and resources complies with the Legislature's statutory mandates. Under the direction of the Milton Marks Commission on California State Government Organization and Economy, the State Auditor shall meet the needs of state government for periodic audits of organizations, programs, and services. The State Auditor shall conduct an independent audit for use by the executive and legislative branches of state government to promote sound fiscal and administrative policy for the government of the state, fulfill the condition for the receipt of billions of dollars in federal grant funds, and provide an independent financial audit report that is relied upon by underwriters, bond-rating companies, and potential investors."

Powers

The State Auditor is directed by statute to perform the following types of audits:

  • Financial audits
  • Compliance audits
  • Performance audits
  • Contract audits
  • Investigative audits

To undertake these audits, the State Auditor is given full access to all records of state and local agencies, special districts, public contractors, and school districts. General powers include the ability to subpoena records, take depositions, and administer oaths. The State Auditor's duties, responsibilities, and powers are described below.

The State Auditor has access and authority to examine and reproduce any and all books, accounts, reports, vouchers, correspondence files, and other records, bank accounts, and money or other property, of any agency of the State, whether created by the California Constitution or otherwise, and any public entity, including any city, county, and school or special district, for any audit or investigative audit. Any officer or employee who fails or refuses to permit access and examination and reproduction of the requested records is guilty of a misdemeanor.

Other powers are conferred to the State Auditor regarding access to records during the State's annual financial audit and compelling the assistance of state agencies during an investigation. In all cases, information obtained by the State Auditor that is legally confidential must be protected from release. It is a misdemeanor for the State Auditor or his employees or contractors to knowingly release confidential information to the public.

In connection with any audit or investigation, the State Auditor may administer oaths, certify official acts and issue subpoenas for the attendance of witnesses, the production of documents and the making of oral or written sworn statements.

The State Auditor's audit and investigative powers are found in the Government Code, sections 8545.2, 8545.3, 8545.4, 8546.4, and 8547.6.

Duties and responsibilities

The State Auditor conducts financial and performance audits as directed by statute, and other government audits requested by the Joint Legislative Audit Committee. The State Auditor also administers the "California Whistleblower Protection Act," and may investigate alleged violations of state or federal law or regulation by state agencies or employees. Specifically, the State Auditor reports annually on California's general purpose financial statements and fulfills the audit requirements of the federal Single Audit Act of 1984. Because of its $60 billion budget the State would be the seventh or eighth largest economy in the world if it were a nation. As a result, California's statewide single audit is the largest governmental audit in the United States. Additionally, the State Auditor performs dozens of other audits mandated by various statutes and conducts audits requested by the Legislature. Legislative requests are first approved by the Joint Legislative Audit Committee and then prioritized based on the availability of funds.

To fulfill its investigative responsibilities, the State Auditor operates a toll-free telephone hotline and investigates such violations as corruption, malfeasance, theft of government property, fraud, gross inefficiency, and willful omission to perform duty. All investigations are confidential and the identity of the whistleblower is never revealed. Investigative reports of substantiated allegations are released to the public once the corrective action has been taken by the employing state agency. Public release of the investigative report provides a deterrent to similar misconduct by others. However, since appropriate punishment has already been imposed, the names of the wrongdoers are not released to avoid unnecessary ridicule.

Finally, all state and local contracts greater than $10,000 are subject to audit by the State Auditor for a period of three years after final contract payment. Every public contract is to contain a provision stating that the contracting parties shall be subject to examination and audit, however, failing to include such a provision does not preclude the State Auditor from conducting the audit. The State Auditor's duties and responsibilities are found in the Government Code, sections 8521.5, 8543.1, 8546.1, 8546.3, 8546.4, 8546.7, and 8547.4.

Organizational Independence

Recognizing the importance of audit independence, the statute creating the Bureau of State Audits specifically states: "In order to be free of organizational impairments to independence, the bureau shall be independent of the executive branch and legislative control (Government Code Section 8543)."

To achieve this mandate, the bureau was organized to fulfill the independence requirements of the Government Auditing Standards issued by the U.S. Comptroller General. Specifically, the second general standard for government auditing states, in part:

"In all matters relating to the audit work, the audit organization and the individual auditors, whether government or public, should be free from personal and external impairments to independence, should be organizationally independent, and should maintain an independent attitude and appearance." (Chapter 3, page 4)

Furthermore, the Government Auditing Standards presume that a government auditor is independent if the audit organization's head is:

"Appointed by the chief executive but are confirmed by, report the results of their audits to, and are accountable to a legislative body of the level of government to which they are assigned." (Chapter 3, page 10)

Nomination and appointment

Under California law, the Legislature, through its bipartisan, bicameral Joint Legislative Audit Committee, nominates three qualified individuals to be State Auditor after a majority vote of the committee membership from each house of the Legislature. This list is then submitted to the Governor who appoints the State Auditor to a four-year term. The State Auditor is chosen without reference to party affiliation and solely on the ground of fitness to perform the duties of the office. Prior to selection, the State Auditor must possess a combination of education and experience in auditing and management to be deemed qualified to serve.

Specifically, Government Code Section 8543.2 states:

"The head of the bureau is the State Auditor, who shall be appointed by the Governor from a list of three qualified individuals submitted by the Joint Legislative Audit Committee by a vote of at least a majority of the committee membership from each house of the Legislature. The term of any individual appointed as the State Auditor shall be four years. Any vacancy in the office shall be filled in the same manner provided by this subdivision for full term."

Reporting results of audits to the Legislature

All of the State Auditor's reports are transmitted within 24 hours of completion to the Legislature, appropriate committees and subcommittees of the Legislature and the Governor by the Little Hoover Commission. At that time they are also made available to the public. The Government Code, section 8546.1, provides:

"The State Auditor shall complete any audit in a timely manner and in accordance with the 'Government Auditing Standards' published by the Comptroller General of the United States. Immediately upon completion of the audit, the State Auditor shall transmit a copy of the audit report to the commission. Not later than 24 hours after delivery to the commission, the commission shall deliver the report to the Legislature, appropriate committees or subcommittees of the legislature, and the Governor. Once transmitted to these parties, the report shall be made available to the public."

Accountable solely to the Legislature

The State Auditor is accountable solely to the California Legislature. The statute provides that a State Auditor may only be removed from office for cause by a majority vote of both houses of the Legislature. Neither the Governor, the Little Hoover Commission, nor any other body may remove a State Auditor.

Government Code, Section 8543.6, states:

"The State Auditor may be removed for cause at any time by concurrent resolution of the Legislature. A State Auditor removed pursuant to this section may not be reappointed to the office."

Audit Standards Followed

All audits performed by the State Auditor must follow the Government Auditing Standards published by the Comptroller General of the United States. Additionally, financial audits must be performed in accordance with the standards of the American Institute of Certified Public Accountants and the Government Auditing Standards. Since the Government Auditing Standards are statutorially mandated, the State Auditor and the Bureau of State Audits must assure the following:

  • Staff are professionally trained auditors who meet continuing education requirements.
  • Audits are independently conducted and free of any conflict of interest or impairment.
  • Due professional care is taken on all audits and reports.
  • Quality control and external peer review programs are in effect.
  • Field work and reporting standards for financial and performance audits are followed, including adequate planning, evidence, internal control, and supervision.

The State Auditor's audit standards requirements are found in the Government Code, sections 8546, 8546.1, and 8546.4.

Funding State Audits

The expenses of the State Auditor are paid for from the State Audit Fund in the State Treasury. The State Audit Fund is continuously appropriated for the State Auditor's expenses, meaning that expenditures can be made without regard to fiscal year. This allows the State Auditor to operate even if a state budget has not yet passed for a specific fiscal year so long as there is a balance in the fund. Revenues to the State Audit Fund come from an annual appropriation from the Budget Act in the amount necessary to reimburse the fund for the cost of audits to be performed, payments from other state and local agencies for contracted audit work, and reimbursements from other funds mandated by law. Further, when the fund was established in May 1993, the unallocated funds in the former Auditor General Fund were transferred to the State Audit Fund. Only the State Auditor can incur expenses and certify payments against the State Audit Fund. Also, the expenditures from the fund are limited to direct and indirect costs of conducting audits and related expenses incurred by the State Auditor.

Specifically, Government Code, Section 8544.5, states:

"(a) There is hereby established in the State Treasury the State Audit Fund. Notwithstanding Section 13340, the State Audit Fund is continuously appropriated for the expenses of the State Auditor. There shall be appropriated annually in the Budget Act to the State Audit Fund, from the General Fund, the amount necessary to reimburse the State Audit Fund for the cost of audits to be performed. 'Cost of audits' means all direct and indirect costs of conducting the audits and any other related expenses incurred by the State Auditor in fulfilling his or her statutory responsibilities.

(b) Upon certification by the State Auditor of estimated costs on a monthly basis, the Controller shall transfer the amount thus certified from the General Fund to the State Audit Fund. The Controller shall thereafter issue warrants drawn against the State Audit Fund upon receipt of claims certified by the State Auditor."