1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 FEBRUARY 23, 2016 10 11 12 13 14 ITEM P 15 OTHER ADMINISTRATIVE MATTERS 16 ITEM P1 17 EXECUTIVE DIRECTOR'S REPORT 18 4. UPDATE ON RESOLUTION OF STATE CONTROLLER'S 19 OFFICE (SCO) BOARD OF EQUALIZATION REVIEW 20 21 22 23 24 25 26 27 REPORTED BY: Gloria Apiecionek 28 CSR NO. 12776 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Sen. George Runner (Ret.) Vice Chairman 6 7 Fiona Ma, CPA Member 8 9 Diane L. Harkey Member 10 11 Yvette Stowers Appearing for Betty T. 12 Yee, State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief, Board Proceedings Division 16 17 For Board of Equalization Staff: Cynthia Bridges 18 Executive Director 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 February 23, 2016 4 ---oOo--- 5 MR. HORTON: Ms. Richmond? 6 MS. RICHMOND: Our next matter is Item P, 7 Other Administrative Matters. Item P1 is the 8 Executive Director's Report. P1.4 Update on 9 Resolution of State Controller's Office Board of 10 Equalization Review. 11 MR. HORTON: Welcome to the Board of 12 Equalization, Ms. Bridges. Please introduce 13 yourself for the record and commence at your 14 convenience. 15 Ms. BRIDGES: Good afternoon, Mr. Chairman, 16 Members. My name is Cynthia Bridges, Executive 17 Director. 18 I am here today to provide an update on the 19 resolution of the State Controller's office Board of 20 Equalization review and to provide an update on 21 actions taken to resolve the State Controller's 22 Office Review Report on the BOE's internal 23 accounting and administration controls. 24 Let me begin by commending the diligent 25 work of staff who, acting under the direction of the 26 Board, have prepared a draft invitation for bid for 27 a CPA consulting firm to review the corrective 28 actions taken by the BOE to resolve the issues 3 1 raised in the State Controller's review and to make 2 recommendations for improving the BOE's financial 3 management practices going forward. 4 The draft IFB has been reviewed and 5 approved by both Board Member Ma and 6 Deputy Controller Stowers whom the Board directed to 7 serve as the reviewing committee. 8 Upon their approval, the draft IFB was 9 transmitted to all Board Members last Tuesday for a 10 three-day review, the period of which concluded 11 yesterday, Monday, February 22nd. Upon this review 12 and if there are no objections, the IFB can be 13 issued immediately so that a CPA consultant 14 responsive to the IFB may be selected by the 15 reviewing committee and begin its review. 16 As indicated in the draft IFB, barring any 17 unforeseen difficulties, a consulting firm may be 18 selected by April 13th, 2016, with the final report 19 containing the consulting firm's findings and 20 conclusions to be submitted to the Board for review 21 upon completion of the CPA firm's formal review. 22 Regarding the actions taken to date by 23 staff to resolve the findings in the State 24 Controller's review, I am pleased to report that 25 there has been substantial completion of the 26 corrective actions, which are required to resolve 27 the issues raised in the State Controller's review. 28 Again, with the permission of the Board, I 4 1 would like to submit for the record a status review 2 report matrix which outlines the specific corrective 3 actions taken to address all of the findings of the 4 State Controller's review. 5 I am pleased to report that, as indicated on 6 the matrix, all corrective actions will have been 7 completed or will be in progress for all of the SCO 8 findings by the end of April 2016. 9 The BOE's Administration Department, 10 Financial Management Division Accounting Section 11 has worked tirelessly on these corrective actions. 12 Meetings are ongoing between BOE staff and the staff 13 from the State Controller's office to review the 14 BOE's account true-up corrective actions in detail, 15 including any fund reconciliations which have been 16 identified in the review in either the retail 17 sales tax fund, the diesel fuel tax, or resulting 18 from data received from the DMV or the FTB. 19 The function of this review by the State 20 Controller's office is to provide feedback to BOE 21 staff to assure that the true-up process is 22 acceptable. Once these true-up corrective actions 23 have been reviewed by the State Controller's office 24 and the anticipated third-party review by the CPA 25 consulting firm, pending fund distributions can be 26 made to the General Fund. 27 These reconciliations will be done in 28 consultation with the State Controller's office to 5 1 reflect precise, detailed accounting reviews to 2 ensure both accuracy and transparency. 3 This is particularly important to ensure 4 that the State Controller's office can make any fund 5 adjustments to the General Fund or to other funds 6 which have been identified in the SCO review and 7 which have been pending. 8 To further ensure accuracy and 9 transparency, the reviews of the CPA consulting firm 10 will provide an additional level of confidence so 11 that these adjustments identified in the SCO review 12 can proceed without further unnecessary delay. This 13 is important because we want to ensure that all BOE 14 stakeholders, including taxpayers, the public at 15 large, the Department of Finance, the Legislature, 16 and the State Controller's office have a complete 17 and transparent review of any revenue reallocations, 18 large or small, which likely will be required as a 19 result of these corrective actions. 20 Of course, these corrective actions must be 21 viewed in light of ongoing systemic issues facing 22 the Board, such as legacy accounting and Information 23 Technology Systems and the need to treat the Board's 24 financial operations, fiduciary obligations, and 25 reporting responsibilities as integrated processes. 26 In this regard, the SCO's review has been 27 instructive and will provide an excellent basis for 28 recommendations which may be provided by the CPA 6 1 consulting firm. As we continue to resolve the 2 findings raised in the SCO review, staff will 3 schedule meetings with each Board Member to get your 4 perspective and guidance and to answer any questions 5 which you may have. 6 We anticipate that a draft report to the 7 State Controller's office describing the BOE's 8 long-term plan to address any underlying issues 9 identified in the SCO review will be prepared in 10 draft form by April 15th, 2016. 11 Once final, this report will be transmitted 12 to the State Controller's office by mid-May to 13 complete the six-month process of assessing the 14 State Controller's office review, putting in place 15 corrective actions, vetting these corrective actions 16 with the State Controller's office, and developing a 17 long-term plan to address any of the underlying 18 issues which were identified. 19 During this time, the CPA firm selected by 20 the Board's reviewing committee will likely also 21 provide useful guidance on long-term plans to 22 resolve underlying financial management issues and 23 challenges facing the Board. We certainly look 24 forward to their participation, and this concludes 25 my report. 26 MR. HORTON: Thank you very much. 27 Discussion, Member Ma? 28 MS. MA: Thank you very much. So to 7 1 Member Stowers, I'm just -- I just want to confirm 2 that the BOE has been working closely with your 3 office or the Controller's office, resolving some of 4 these issues. 5 MS. STOWERS: Absolutely, they have been 6 working with the State Controller's office audit 7 team. The Division Chief is a Mr. Brownfield? 8 MS. BRIDGES: Yes. 9 MS. STOWERS: Good. And he has been 10 communicating back to our Administrative Chief, 11 George Lucas (phonetic), who has been communicating 12 with me. We've got lots of layers. 13 MS. MA: Okay. Good. 14 MS. STOWERS: But they are definitely 15 working together. 16 MS. MA: Okay. 17 MS. STOWERS: And they have been pleased 18 with the progress to date. 19 MS. MA: Good. 20 Ms. BRIDGES: In fact, if I may interject, 21 some of the staff were actually in, meeting with some 22 of our FMD staff today, reviewing the process, the 23 new process that had been proposed for the true-up 24 adjustment. 25 MS. MA: Okay. And I don't know if this is 26 part of the CPA review, but I'm kind of concerned 27 that our internal processes didn't catch many of the 28 issues that were addressed in the Controller's 8 1 audit. So I don't -- we don't have to discuss it 2 today, but I really do think we need to have people 3 in place that are actually reviewing and have the 4 capability of understanding, you know, the funds, 5 the transfers, what should or shouldn't go in there. 6 And I'm not sure -- I haven't -- I'm not 7 sure who in our organization is in charge of that, 8 but we should have -- I know we have an internal 9 audit team. But none of them are CPAs. So there 10 should be some sort of mechanism so that we don't 11 have these type of issues in the Controller's audits 12 continuing each year. 13 MS. STOWERS: May I -- let me say I agree 14 with you a hundred percent, Ms. Ma, but I do believe 15 that the Acting Chief, Julia Findley, has been 16 addressing a lot of that. She is one of the few 17 CPAs that we have in FMD, if not the only one, and 18 she has started monthly or weekly meetings with 19 everyone from the fund allocation to -- basically 20 what I say, from the time the money hits the door 21 until the money goes out. So they are meeting on a 22 regular basis and breaking down those silos. 23 MS. MA: Uh-huh. 24 MS. STOWERS: But I do think that we do 25 definitely need to look at a plan where we can get 26 more qualified accountants into FMD and keep them 27 there so that -- it seems like it's been -- and I 28 may be speaking out of turn, but it's been more you 9 1 go there for a while and then you move out to 2 something else, whether you're moving into the audit 3 series or the compliance series, but they're not 4 staying put in FMD, and mainly because there's 5 limited promotion opportunities for them. 6 MS. MA: Well, I think we need to adjust that 7 as well. 8 MS. STOWERS: I think that's a theme. Yeah. 9 MS. MA: And just for the record, FMD stands 10 for? 11 MS. STOWERS: Financial Management 12 Division. 13 MS. MA: Okay. All right. Well, I guess 14 we'll hear a lot more about that. 15 And then the RFP that's going to go out, 16 has that hit the street yet? 17 MS. BRIDGES: It will tomorrow. 18 MS. MA: Okay. And then what's the timelines? 19 MS. BRIDGES: Right now it is anticipated 20 that the -- it will hit the street tomorrow. There 21 will be written questions submittal deadline 22 March 3rd, answers to the questions March 10th, 23 final date to submit bids March 16th, and the bid 24 opening is scheduled for March 17th at 10:00 o'clock 25 a.m., with a proposed award and execution date April 26 13th. 27 MS. MA: April what? 28 MS. HARKEY: 13th. 10 1 MS. BRIDGES: 13th. 2 MS. MA: And then who sits on this bid 3 award committee? 4 MS. BRIDGES: That is something I will be 5 discussing with the reviewing members unless, of 6 course, the Board wishes to weigh in on that. 7 MR. HORTON: No. We're okay with the 8 reviewing members. 9 MS. BRIDGES: Okay. With the reviewing 10 members. 11 MR. HORTON: We're good. 12 MS. HARKEY: I just want -- I want 13 to thank Ms. Bridges for all of her efforts. I 14 think that this was -- we had a lot underway. There 15 was a lot of news press, a lot of press about this, 16 but I think there were a lot of -- a lot of the 17 implementations were already taking place. And I do 18 believe that we're on pretty good footing, and I 19 know that CROS is going to make a lot of this a 20 heck of a lot easier because it will be -- you know, 21 instead of just combining the whole silos, it'll all be 22 integrated. And that's why we have such a pressure 23 to get CROS up and running because it really -- I 24 want it up and running before it's antiquated. 25 We just -- we have a lot of programs and a 26 lot of different, different needs. And we have to 27 integrate it all and be sure it all gets out, but 28 there was never at any time any potential for 11 1 litigation against the Board or issues with regard 2 to the processes. So I think -- I think I want to 3 thank you very much for your diligence. 4 MS. BRIDGES: Thank you. And we will be 5 contacting you as early as next week to schedule 6 some meetings, just to provide you with a little bit 7 more detail about a lot of the corrective actions 8 that we've taken and some of the pending 9 allocations. 10 MS. HARKEY: Okay. Great. 11 MS. BRIDGES: Thank you. 12 MR. HORTON: Yeah. This is another classic 13 example of our issues with recruitment and retention 14 as it relates to the FMD. It is a fabulous training 15 ground for the most part, and so we certainly need 16 to heighten our expectations and staffing in that 17 area. 18 I want to commend the review committee, 19 Member Ma and Member Stowers, for their engagement, as 20 well as Ms. Bridges for her involvement in this 21 process. It is a very complicated all-inclusive 22 process. We would love to be able to narrow it down 23 to one department, but it's not the case. It is a 24 very complicated issue, but yet still very simple. 25 And also all of the staff over the years, 26 they have actually recognized and identified many of 27 these problems and corrected many of those problems. 28 To the extent that they have not been, certainly we 12 1 want to continue to address those issues and 2 particularly very much would like to learn about the 3 systemic issues and the institutional issues and how 4 we begin to address those. 5 There are some things that are not -- that 6 regardless of the number of people that we put in 7 place, it's not going to address the problems, 8 certainly may identify it, but there are just some 9 basic institutional systemic issues that we have 10 with the antiquated organization that we have here, 11 the ISIS systems, and all of these other systems we 12 have out here. 13 I believe every State agency in the State 14 of California faces the exact same problem that we 15 face. So I would recommend that they all begin to 16 sort of take a look at trying to fix their computer 17 systems so that they -- 18 MS. HARKEY: Our high tech State is very 19 low tech. 20 MR. HORTON: -- come up to speed. It's not 21 as high tech as we're concerned. 22 Thank you very much, Ms. Bridges. We 23 appreciate your effort in this regard. 24 MS. BRIDGES: Thank you. 25 MR. HORTON: Members, we will receive the 26 file. 27 ---oOo--- 28 13 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Los Angeles ) 6 7 I, Gloria A. Apiecionek, Certified 8 Shorthand Reporter for the State of California, 9 certify that on Tuesday, February 23, 2016, I 10 recorded verbatim, in shorthand, to the best of my 11 ability, the proceedings in the above-entitled 12 hearing; that I transcribed the shorthand writing 13 into typewriting; and that the preceding pages 1 14 through 14 constitute a complete and accurate 15 transcription of the shorthand writing. 16 17 Dated March 4, 2016 18 19 20 21 __________________________________ 22 GLORIA A. APIECIONEK, CSR #12776 23 Certified Shorthand Reporter 24 25 26 27 28 14