New Law Allows State Controller to Set Fiscal Guidelines for Local Agencies

AB 1248, Assemblyman Ken Cooley’s (D-Rancho Cordova) transparency bill, was signed into law by Governor Brown on Wednesday.

The law requires the state controller to sit down with local agencies in order to develop control measures and auditing practices in an effort to prevent accounting errors and fraud.

According to the Legislative Counsel’s Digest, this bill would specifically “require the Controller, on or before January 1, 2015, to develop internal control guidelines applicable to a local agency.”

The process of establishing these metrics is not strictly limited to the Controller’s say in the matter, but rather includes “input from any local agency and organizations representing the interests of local agencies.”

According to Cooley, the need for this law stems from a greater statewide demand for more accountability.

“For many local governments currently battling insolvency, the seeds of their financial distress were sown long before the Great Recession,” said State Controller John Chiang. “Poor checks-and-balances can sap communities of their fiscal health to the point where a downturn in the economy can be catastrophic.”

Chiang recently audited the City of Stockton and concluded that city leaders ignored plenty of warning signs that could have helped prevent the city from declaring bankruptcy. Until Detroit filed for bankruptcy earlier this year, Stockton was the largest city in the United States to have sought protection for their financial insolvency.

“Recent audits produced by my office demonstrate how weak internal controls can set-up local governments for failure, in such forms as bankruptcy, default, and corruption.” Chiang said. “This bill calls for the State and local governments to work together to develop stronger fiscal management practices aimed at protecting communities against self-dealing, misuse of taxpayer monies and other abuses of public trust.”

Under AB 1248, internal control standards include separation of powers between budgeting and check-writing, avoiding potential conflicts of interest in hiring or contracting, and other measures designed to protect the integrity of a local government’s finances.

“AB 1248 is a bill that is designed to strengthen public confidence in that layer of government that most frequently touches their lives – local government. These guidelines will create a highly visible yard stick by which administrative practices may be measured, giving much needed guidance to citizens and public officials,” said Assemblyman Ken Cooley.

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