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Auditor’s report to target laggard state agencies

California’s state auditor intends to give the Legislature a detailed rundown of state agencies that have failed to respond in a timely way to the auditor’s findings of financial or operational shortcomings. The report, due for release in mid-January, comes at a critical time as the governor and lawmakers struggle to balance a red-ink budget.

“This should ensure that our recommendations don’t fall off the radar,” State Auditor Elaine Howle said in a comment provided through her staff. The report is not a conventional audit but, rather, a review of state agencies that have been identified by the auditor as wanting since 2005. About 20 state agencies are listed — all of whom failed to respond in a timely way to Howle’s recommendations.

“This is the first time we’ve ever done this,” added Howle, who rarely comments in advance on her reports and never discusses audits before their release. Howle, who heads the Bureau of State Audits, is responsible for auditing state operations on behalf of the Legislature.

The report also is likely to add a dimension to California’s annual budget wrangle, which often consumes the Capitol for half a year — and sometimes much longer. The state currently faces at least a $14 billion shortage, prompting a declaration of fiscal emergency by the governor and a scramble in the Capitol to find a way of balancing the books.

Traditionally, the governor proposes a budget in January, and the legislative analyst — the Legislature’s nonpartisan fiscal adviser — reviews it in February. Lawmakers hold hearings and write their versions of the budget. In May, the governor’s budget-writing office, the Department of Finance, rewrites the governor’s budget to reflect incoming tax revenue from the April 15 income tax deadline. Lawmakers then consider the new budget, fold in the latest numbers and try to send the final budget to the governor by June 15. The governor then has two weeks to sign the budget, which goes into effect for the new fiscal year on July 1.

The deadlines, rarely met, don’t reflect the partisan battles in each house. Democrats control the Assembly and Senate, but they don’t have the two-thirds votes needed to pass the budget. Therefore, they must court Republicans. Gov. Arnold Schwarzenegger, meanwhile, is a Republican but is seen by some GOP lawmakers as a closet Democrat with uncertain negotiating leverage.

Schwarzenegger has the power of the line-item veto over the budget, but his ability to shape the document before it reaches his desk is uncertain.

As lawmakers consider cuts, agencies with a lackluster record in operations or fiscal responsibility are all but certain to get a close look. That means Howle’s report is likely to play a significant role in the agencies’ budgeting.

The report stems from a new law, signed by Schwarzenegger and authored by former state Sen. Jackie Speier, D-San Francisco, that requires the subjects of audits to demonstrate at regular intervals that they are responding to the audit’s conclusions. The responses must be submitted within 30 days of the audit’s publication, then be updated within six months and then again within one year. Howle’s report identifies those agencies that have failed to respond properly for at least a year.

Among other things, Speier’s bill, SB1452 of the 2005–06 legislative session, requires the Bureau of State Audits to report each year to the Legislature by Jan. 15 the names of state entities that failed to meet the auditor’s compliance rules. The bill also reaffirms and expands the auditor’s authority to audit state agencies — including the State Compensation Insurance Fund, the nearly century-old, quasi-governmental pool that provides workers’ compensation insurance to those who are unable to get it on the private market. Much of the discussion over Speier’s bill last year related to SCIF, although the legislation’s scope goes far beyond the fund.

SCIF has long maintained that it is not subject to some of the reporting and disclosure rules that apply to other areas of government. Speier’s bill expands the auditor’s authority over all state agencies — including SCIF — and specifically notes that the state’s whistleblower law applies to SCIF, an issue that had been hard fought in the Capitol behind the scenes.

“The reason that bill was so opposed by the fund is that it was subjecting the fund to an audit,” said Speier, who while in the Legislature headed key committees, including Insurance and Government Oversight. “They even hired a lobbyist to try and kill the bill. But we wanted to hold them (the fund) accountable.”

Howle regularly audits state operations at the direction of the Legislature. The audits are assigned by the Joint Legislative Audit Committee, a 14-member committee, controlled by Democrats, that is composed of seven members each from the Assembly and Senate. The audits of many of state government’s biggest agencies take place at regular intervals, while other audits often are assigned on a case-by-case basis.

Among Howle’s pending audits is an examination of the state’s financial condition, due in the spring, and a report on the Insurance Department’s controversial takeover and asset-sale of Executive Life, due next month.


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