The Bureau of State Audits investigates the financial stewardship and effectiveness of state government agencies. That includes financial accounting, such as an annual financial examination required under the state Budget Act. Other reviews, such as the federally-mandated Single Audit, evaluate state entities' administration of federal grants, both through traditional accountancy and by appraising how well the state is meeting the goals of federally subsidized programs. Finally, performance audits examine whether state agencies and programs are accomplishing what they were created to do, whether they are obeying the law, and whether state resources are being used properly.

Sometimes performance audits are broad in scope, as in the questioning of California’s High Speed Rail program. Sometimes, they’re very specific, as in a critique on the Department of Corrections’ $600,000 delay in reassigning an “incompetent” psychiatrist.

The current Bureau of State Audits has been in place since 1993, but its roots reach back to 1955. In that year, state lawmakers established the Office of the Auditor General, with authority to conduct independent financial audits at the state and local level. The auditor general was recommended by a joint legislative committee and confirmed for an indefinite term by the state Assembly and Senate.

In 1969, legislators informally agreed to broaden the scope of the auditor's investigative power, authorizing manage­ment and performance investigations. A 1972 law formalized that policy, assigning the auditor general to examine and report annually upon the financial statements prepared by the state government's executive branch and to perform any other related assignments, including performance audits, requested by the legislature.

The agency, most of whose investigators had degrees in accounting or business administra­tion, drew praise for fair and painstaking work. Its audits – exposing government waste, track­ing expenditures and evaluating the performance of executives – were credited with saving taxpayers $6 for every $1 spent on audits.

But in November 1990, former Los Angeles County Supervisor Pete Schabarum proposed and California voters passed Proposition 140, which limited legislative terms and imposed a 38% cut in the Legislature's budget. In response, legislators made deep cuts in their office and committee staffs and eliminated funding for their independent advisers, including the auditor general.

Starting in July 1991, when the cuts took effect, the Office of the Auditor General survived by selling its services to other government agencies that were required by the federal Single Audit Act and state law to be audited. Without such audits, these agencies would have lost $16 billion in federal grants annually.

In 1992, the Legislature placed Proposition 159 on the ballot, asking voters to establish the auditor general as a state constitutional office and to exempt it from the legislative spending limitations.

In a May 2011 interview, former Acting Auditor General Kurt Sjoberg recalled that he and his staff worked hard to get Proposition 159 passed. He remembered holding a backyard barbecue at his home to raise campaign funds, and he traveled throughout the state in his motor home, appealing to newspaper editorial boards to support the measure.

But Schabarum opposed Proposition 159, arguing that lawmakers should find funding for the watchdog agency by firing political appointees and cutting their own perquisites. The measure was defeated on November 3, 1992.

On November 4, the Office of the Auditor General closed its doors.

Six months later, legislators overwhelmingly approved a new agency, the Bureau of State Audits, under the Milton Marks “Little Hoover” Commission on California State Government Organization and Economy. Like its predecessor, the bureau was charged with conducting audits of state and local government. The legislation also added a duty to administer reports under the state's Improper Governmental Activities Act. According to the new organization, the state auditor was to be appointed by the governor for a four-year term from a list of three candidates nominated by the Joint Legislative Audit Committee. Gov. Pete Wilson signed the legislation establishing the bureau of state audits on May 10, 1993, and Sjoberg – who had been serving as acting director of the old Office of the Auditor General for more than four years – was appointed the first state auditor. The Bureau of State audits has continued in the same form since that time.

Section 8543 of the California Government Code requires that the office be sufficiently independent to meet government auditing standards and those promulgated by the American Institute of Certified Public Accountants. The law provides that the office be free of influence of existing state control agencies that could be the subject of our audits.

Eliminating a "Watchdog" (by Asher Friedberg, International Journal of Government Auditing, July 1994

Decision '92 : Special Voters’ Guide to State and Local Elections: The State Propositions (Los Angeles Times)

California Spurns Its Own Watchdog (New York Times)

California State Senate Bill 37, 1993 (Maddy) (California Legislative Information)

Auditor General's Office Is Restored (Los Angeles Times)

The Effectiveness of Legislative Program Review, Richard E. Brown, 1979, Page 15

The Bureau of State Audits is charged with financial audits, which seek to determine whether a state entity's books balance, and performance audits, which evaluate whether the entity is performing its assigned role under the law. The bureau also investigates allegations of wrongdoing by public employees and organizations.

The bureau has been called a watchdog, with a key role in keeping government honest and efficient. From the beginning of 2003 through the end of 2010, it identified $1.3 billion in potential cost recoveries, cost savings, increased revenues, lost revenues and funds wasted.

The California Government Code stipulates that the bureau must have the independence necessary to meet government auditing standards set forth by the United States General Accounting Office and the American Institute of Certified Public Accountants. It grants the bureau access to all records of state and local agencies, special districts, public contractors, school districts and other public entities, an authority that can extend to subpoena power. The law makes refusal to furnish requested documents a misdemeanor.

The Legislature, through a joint committee of seven state senators and seven assembly members, receives and prioritizes audit requests from individual legislators. Under the California Whistleblower Protection Act, the bureau also investigates allegations of illegal acts, gross misconduct, incompetence or inefficiency by state employees. The bureau receives more than 4,000 such allegations annually.

While it lacks enforcement power, the bureau regularly reports on its findings and makes recommendations to state departments or the Legislature on preventing improper governmental activity in the future. At least twice annually, the state auditor makes a public report summarizing the results of recent investigations and provides updates on what state departments have done or failed to do to fix problems.

A 2008 state voter initiative assigned the state auditor to administer the application and selection process for a redistricting commission for the state Assembly, the state Senate and the Board of Equalization. That work was completed following the 2010 federal census, and a link on the bureau's website directs visitors to the new California Citizens Redistricting Commission website.

The board conducts financial and compliance audits establish whether the organization, project or individual under review has presented financial information completely and accurately, in accordance with Generally Accepted Accounting Principles. They also check on financial transactions to determine whether they're lawful and follow regulations.

The state Government Code subjects any contract exceeding $10,000 by a public entity to audit by the bureau for a period of three years after final contract payment.

The bureau's biggest and most comprehensive audit each year is California's Single Audit, which the federal government requires as a condition of the $76 billion in funding it sends to California annually. The Single Audit includes an audit of California's financial statements and review of internal controls over financial reporting. The Single Audit also verifies compliance with federal program requirements.

The board also conducts performance audits comprise about three quarters of the bureau’s work. Among the issues they address are the extent to which a department's leaders are achieving program or organizational goals, whether resources are allocated and used effectively, and the results of the state entity's activities and their impact on recipients.

These reviews also may include studies requested by the legislature, including assessing advantages or disadvantages of legislative proposals and analyzing budget proposals or budget requests.

Under the California Whistleblower Protection Act, the bureau investigates allegations of illegal acts, gross misconduct, incompetence or inefficiency by state employees. The bureau receives more than 4,000 such allegations annually and operates a hotline for tipsters. It reports on its findings at least twice each year.

A little more than half of the Bureau of State Audit's annual budget ($26.8 million in 2012-13) comes from the state General Fund; most of the rest is reimbursement from other departments via the Central Service Cost Recovery Fund. Nearly 90% of the bureau's operating budget is devoted to audits and 10% supporting investigations.

3-Year Budget (pdf)

A String of Dismissals

There have been six state auditors. The first three left office under a cloud. William Merrifield, the first auditor general, was forced to retire early. A Nov. 30, 1972, report in the Oxnard, Calif., Press-Courier quotes Assemblyman Vincent Thomas, D-San Pedro, chairman of the Joint Legislative Audit Committee at the time, as claiming that Merrifield's reviews were too narrow. But the next auditor general, Harvey Rose, tangled with Thomas' successor, Assemblyman Bob Wilson, D-San Diego. On July 1, 1975, The Press-Telegram of Long Beach quoted Wilson as calling Rose’s work “inaccurate and sensational.” In the same article, Rose rejected the claim and charged Wilson with using the auditing staff “to do his political work.” Also on July 1, the Oakland Tribune quoted Rose as dismissing Wilson's claims he'd taken unauthorized pay increases as “an absolute lie.” On Feb. 10, 1976, The Bakersfield Californian reported that the the Legislature had agreed to settle Rose's defamation and breach of contract lawsuit for $12,000 and to announce a formal vindication. The excitement wasn't over, though: On January 12, 1979, the Los Angeles Times reported that legislators fired Rose’s successor, John H. Williams, following allegations that he had attempted to use his office for personal gain.

State Auditor General Dismissed (The Oxnard Press-Courier, November 30, 1972)

Ousted Auditor, Lawmaker Clash Over ‘Added Pay’ (Long Beach Press-Telegram, July 1, 1975)

Auditor Fired: Legislative Feud Boils (Oakland Tribune, Jul 1, 1975)

Resigned Auditor: Feuders Fire Parting Shots (Oakland Tribune, July 17, 1975)

Ex-State Official Settles for $12,000 (Bakersfield Californian, February 10, 1976)

State Auditor General Fired by Lawmakers (Los Angeles Times, January 12, 1979)

Hospital Records Showdown

When hospitals affiliated with UC-San Francisco and Stanford University merged in 1997, officials predicted the combined operation would be financially healthy. Supporters included State Auditor Kurt Sjoberg, who predicted that the merger would lead to a $120 million improvement in UCSF Stanford Health Care's finances over four years.

Stanford Medical Center and Lucile Salter Packard Children's Hospital were private business, while UCSF Medical Center and UCSF/Mount Zion Hospital were state property. Stanford University insisted that the merged institutions must by governed by a private nonprofit corporation, and University of California regents acquiesced.

Then, in July 1997, administrators acknowledged losing millions of dollars each month.

State legislators called for an audit, but UCSF Stanford's administrators cited the earlier agreement and insisted that the four-hospital system was a private organization, outside the auditor's review authority.

Sjoberg answered with a threat of subpoenas and possible criminal prosecutions if the UCSF Stanford didn't turn over its records. The San Francisco Chronicle reported that Sjoberg based his position on the fact that three UC regents – themselves subject to state audit – served on UCSF Stanford board of directors.

Meanwhile, the four Bay Area legislators who had originally sought the financial review vowed that unless the hospital system backed down on the records issue, they'd block UCSF Stanford's request for a state financial bailout.

Hospital officials turned over their books.

After that, the confrontation faded into anticlimax. Sjoberg's audit appeared to validate UCSF Stanford's earlier explanations that administrators had failed to integrate faculty medical staffs and clinical programs as originally planned. Further, merger costs had hit $79 million, more than double the $36 million cost promised. And instead of cutting employees, UCSF Stanford Health Care had added 1,000 people to the payroll. As a result, instead of making $65 million in its first two years, the hospital system expected to lose $46 million, and losses were projected to hit $185 million without immediate cost cutting.

By the time the audit was completed, the hospital system had hired a new management consultant and cuts were underway. A hospital union president faulted the review for using administrators' reports instead of interviewing workers and patients, and the chair of the UCSF faculty association disputed the administrators' contention that faculty members had impeded integration of hospital staffs.

Still, the ruckus and UCSF Stanford's capitulation on access to its books reinforced the Bureau of State Audits' prerogatives.

Criminal Charges Threatened if Hospital Spurns State Audit (by Sabin Russell, San Francisco Chronicle)

UCSF Stanford Gives In, OKs State Audit (by Tanya Schevitz, San Francisco Chronicle)

State Audit on UCSF Stanford Derided (by Ulysses Torassa, San Francisco Chronicle)

Oracle Software Hearings

In May 2001, Governor Gray Davis' administration signed a $95 million contract with Oracle Corp. for a software and technical support package to serve all of California's state agencies, from parks to probation. A consulting firm had assured Davis administration officials that the deal could save taxpayers $111 million. But it later emerged that the consultant had a business relationship with Oracle and stood to gain financially if the deal went through. Further, shortly after the contract was signed, an Oracle sales representative gave $25,000 to Davis's re-election campaign.

State Auditor Elaine Howle reported that the $95 million contract could end up costing taxpayers $41 million in unnecessary charges. She questioned why the license agreements allowed for 270,000 “end users,” 40,000 more licenses than the total number of state employees at the time.

But Oracle had hired Kurt Sjoberg, Howle's predecessor and former boss, as a private auditor. His study claimed Howle's staff underestimated California's future database needs because they based their projections on purchases made when the state was buying less software due to Y2K fears. The Oracle deal could have saved taxpayers from $110 million to $160 million, Sjoberg argued.

Sjoberg would later say “there was nothing more highly charged” than his public disagreement with Howle. But it was a dispute expressed in arcane testimony on statistical methods and spending projections, not the name-calling of the Bob Wilson-Harvey Rose era. One news article reported that audience members struggled to stay awake during the Joint Legislative Audit Committee hearing.

A month after Howle and Sjoberg testified, the Davis administration killed the Oracle contract.

Auditors at Odds on Contract (by Robert Salladay, San Francisco Chronicle)

Auditors Debate Merits of Oracle Software Deal (by Jenifer Warren, Los Angeles Times)

State, Oracle Agree to Undo Software Agreement (by Robert Salladay, San Francisco Chronicle)

The state auditor has authority to track state entities believed to be at high risk of waste, fraud and abuse. But the state can audit cities, counties or special districts only when it's invited or after the local agencies submit reports that inadvertently provide evidence that they've misused state or federal funds.

Assemblyman Ricardo Lara, D-Bell Gardens, says the case of Bell, Calif., proves waiting for an invitation or for fortuitous clues can lead to a lot of damage. Eight current and former Bell officials are accused of bilking taxpayers out of roughly $5.5 million over several years through excessive salaries and perks and illicit loans of public money.

Lara, chairman of the Joint Legislative Audit Committee, has introduced a bill to extend the state's “high risk” monitoring authority to local government. AB 187 would give the state auditor the power to publicly identify, audit and report upon the activities of local agencies determined to be especially prone to corruption.

Lara Introduces Bill to Expand Audit Program to Local Government Agencies (Assemblyman Lara press release)

Prompted by Bell Scandal, Bills Would Give California More Power to Probe Fiscal Abuse (by Patrick McGreevy, Los Angeles Times)

Redistricting and Diversity

In 2008, California voters approved Proposition 11, taking the power to map state electoral districts for the state Assembly and Senate and the Board of Equalization away from the Legislature and assigning it to a citizens' commission. Gov. Arnold Schwarzenegger advocated the measure as a way to depoliticize the district-setting process after each decennial census and to break legislative deadlock by sending more moderates to Sacramento.

The measure gave the state auditor responsibility for collecting applications to join the commission and choosing its members. Opponents didn't question the auditor's fairness at the time. But they warned that Caucasians were far more likely to apply for the positions than members of other racial and ethnic groups, and any commission created under Prop. 11's rules wouldn't reflect California's diversity.

Commission Makeup is Fair

State Auditor Elaine Howle traveled the state, collaborating with groups such as the National Association of Latino Elected and Appointed Officials and the Asian Pacific American Legal Center to encourage people to apply. Over 24,000 of the nearly 31,000 applicants were identified as tentatively eligible and asked to submit supplemental applications. In the end, three-quarters of applicants were non-Hispanic whites, according to the state Auditor's office. California's population is 42% non-Hispanic white.

The selection began with Howle and her staff choosing eight candidates at random, and those eight selected six more commissioners. The commission includes four Asian Americans, three Caucasians, three Hispanic or Latino members, two African Americans, one Pacific Islander and one member of the Choctaw Indian Tribe. The panel consists of five Democrats, five Republicans, and four independent or minor-party voters. Three votes from each bloc are required to approve maps.

Blogger Mickey Kaus, who admits he is highly receptive to any complaint that Democrats are stacking the political deck, expressed skepticism that they could pull it off considering the statutory requirements for the commission’s diverse makeup. But more importantly, he argued, it wouldn’t make any difference even if they did. “The worst the panel could do is decide to protect all incumbents, which is basically the status quo. … And even random changes in the current arrangement would seem to be an improvement.”

The Commission Has Been Hijacked

“Where are all the white conservatives?” asked the blog called Uncoverage. It claimed the commission was skewed to left-wing radicals and complained that the law firm chosen by the commission to advise it and do the heavy lifting is politically biased in favor of Democrats.

Capitol Weekly said the commission “has now descended into a cesspool of corruption, and the promise of fair new districts has been compromised by brutal partisan politics instigated by the commission itself.” And it blames the auditor who put it together. Tony Quinn, writing for the conservative online newspaper, said he observed first-hand Auditor Howle “eliminating white and conservative applicants from the pool” of prospective commission members in the name of giving representation to “underrepresented minorities.” Quinn said he thought that was a legitimate objective, but that it eventually became the only goal. “The result was a pool of weak Republican candidates and highly ideological Democrats.” He said there was a total absence of any tax group activists, crime fighters “or any of the usual suspects on the political right.”

The commission may also have been hijacked by smart people. All 14 commissioners have advanced academic degrees.

California Redistricting Effort Is Out of the Backroom but Not Free of Politics (by Shane Goldmacher, Los Angeles Times)

Critics Say Redistricting Panel Needs Diversity (by Marisa Lagos, San Francisco Chronicle)

Surge of Interest in Redistricting Panel (by Marisa Lagos, San Francisco Chronicle)

Replacement Picked for Redistricting Panel (by Jim Sanders, Sacramento Bee)

California “Citizens’” Redistricting Commission Is Hijacked by Leftists (Uncoverage: The Right Idea)

California Redistricting Panel Tilts Left, GOP Critics Say (by Jim Sanders, Sacramento Bee)

Redistricting: Partisanship Clouds Creation of Fair Political Boundaries (by Tony Quinn, Capitol Weekly)

Has California’s Shiny New Independent Redistricting Commission Already Been Captured by the Left? (by Mickey Kaus, Kaus Files)  

Mary Noble, 2000 (acting)

Kurt Sjoberg, 1993–2000 (State Auditor)

Kurt Sjoberg, 1989–1992 (Acting Auditor General)

Thomas Hayes, 1979–1989 (Auditor General)

John Williams, 1976–1979 (Auditor General)

Harvy Rose, 1973–1975 (Auditor General)

William Merrifield, 1956–1972 (Auditor General)