The recent Senate Bill 448 requires the State Controller to compile and publish a list of special districts and report "inactive" districts to the Local Agency Formation Commission (LAFCO). The "inactive" determination is made from the district's Financial Transactions Report (or absence thereof?). LAFCO in turn starts proceedings to dissolve the district unless it determines that the district is not "inactive" as defined. A district is not inactive if it had financial transactions in the previous year, has assets or liabilities, or has debts, contracts, etc. (as every fire district certainly has).
This bill has caused concern because it is thought that this requires the small districts to perform annual audits, which can cost more than their tax allocations. While California law does require the County Auditor to audit special districts, this has not been done for many small districts in Modoc. SB-448, however, specifies that the determination is to be made based on the annual Financial Transactions Report not the audit. See the detailed analysis of below.
The Fort Bidwell Fire Protection District should seek legal advice on the following issues, possibly by a lawyer with government specialty, or even by request for determination to the Attorney General.
When the above issues are resolved, the recommendation is to:
A proposed alternative would be to consolidate the Surprise Valley Fire Districts to reduce the audit cost. However, the process is uncertain, may itself cost money, and the above issues still have to be resolved. And of course, an analysis of cost would have to be made to see if any savings would actually materialize.
26909(a)(1): "The county auditor shall either make or contract with a certified public accountant or public accountant to make an annual audit of the accounts and records of every special district within the county for which an audit by a certified public accountant or public accountant is not otherwise provided."
While it is the Auditor's obligation to perform the audit, apparently the District could provide an audit but is not obligated to do so.
SB-448 adds under Auditor's Duties 26909 (a)(2)(B) requiring any audit to be filed with the Controller and in most cases with LAFCO.
26909(b) "A special district may, by unanimous request of the
governing board of the special district and with unanimous approval
of the board of supervisors, replace the annual audit required by
this section with one of the following, performed in accordance with
professional standards, as determined by the county auditor:
(1) A biennial audit covering a two-year period
(2) An audit covering a five-year period if the special district's annual revenues do not exceed an amount specified by the board of supervisors.
(3) An audit conducted at specific intervals, as recommended by the county auditor, that shall be completed at least once every five years."
The audit allowed by 26909(b)(3) is somewhat indefinite. Can the Auditor recommend an annual audit every five years. Apparently this audit need not cover the entire five years because 26909(b)(2) already provides that. That might be the least expensive alternative.
By 26909(c) as above for (b) allows an annual "financial review " "as determined by the county auditor".
The Auditor has not established, and probably will not soon establish, such a review, this does not seem a timely option. But it may prove more cost effective. Compare to 26909(b)(3) audit.
SB-448 Section 3 removes provision for an "agreed-upon procedures engagement" or a "financial compilation" beginning January 1, 2027. It does so by amending (c)(1), removing 26909 (c)(1(C), deleting paragraph (d), and amending (f).
GOV 56879(a) "On or before November 1, 2018, and every year thereafter, the Controller shall create a list of special districts that are inactive, as defined in Section 56042, based upon the financial reports received by the Controller pursuant to Section 53891."
53891(a) "The officer of each local agency who has charge of the financial records shall furnish to the Controller a report of all the financial transactions of the local agency during the preceding fiscal year. The report shall contain underlying data from audited financial statements prepared in accordance with generally accepted accounting principles, if this data is available. The report shall be furnished within seven months after the close of each fiscal year and shall be in the form required by the Controller. A local agency shall submit to the Controller information on annual compensation, as described in subdivision (l) of Section 53892, for the previous calendar year no later than April 30th."
Note that the inactive determination is to be made based on the 53891 reports not the 26909(a) audit. The financial transaction report must be based on "audited financial data", but not if none is available. Possibly the annual compensation report could also be used.
56879(b) "The commission shall initiate dissolution of inactive districts by resolution within 90 days of receiving notification from the Controller pursuant to subdivision (a), unless the commission determines that the district does not meet the criteria set forth in Section 56042."
56042 "'Inactive district' means a special district that meets
all of the following:
(a) The special district is as defined in Section 56036.
(b) The special district has had no financial transactions in the previous fiscal year.
(c) The special district has no assets and liabilities.
(d) The special district has no outstanding debts, judgments, litigation, contracts, liens, or claims."
Every fire protection district in Modoc has previous year transactions, assets, liabilities, etc., so none could properly be dissolved. However, dangerously, 56879(c) appears to remove various appeal rights (if that is even Constitutional).
Commissioner, Fort Bidwell Fire Protection District