THE GOVERNOR AND LEGISLATURE OF THE
STATE OF CALIFORNIA
We have examined the accompanying statement of securities accountability of the State of California’s State Treasurer’s Office as of December 31, 2017, and the related notes. The State Treasurer’s Office is responsible for presenting the statement in accordance with the criteria set forth in Note 1. Our responsibility is to express an opinion on the statement based on our examination.
Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the examination to obtain reasonable assurance about whether the statement is presented in accordance with the criteria, in all material respects. An examination involves performing procedures to obtain evidence about the statement. The nature, timing, and extent of the procedures selected depend on our judgment, including an assessment of the risks of material misstatements of the statement, whether due to fraud or error. We believe that the evidence we obtained is sufficient and appropriate to provide a reasonable basis for our opinion.
In our opinion, the statement referred to above is presented in accordance with the criteria set forth in Note 1, in all material respects.
Our report is intended solely for the purpose of providing information required by Section 13299.1 of the California Government Code and is not intended to be and should not be used for any other purpose.
CALIFORNIA STATE AUDITOR
MICHAEL S. TILDEN, CPA
Deputy State Auditor
Sacramento, California
Date:
June 25, 2018
Staff:
Theresa Farmer, CPA
Conor Bright, CPA
Greg Lucido, CPA, CIA
Logan Blower
| ACCOUNT TITLE | SECURITIES IN THE STATE TREASURER'S OFFICE VAULT | SECURITIES ON DEPOSIT WITH BANKS AND TRUST COMPANIES | TOTALS | Pooled Money Investment Account (Note 2) | - | $67,775,241,987 | $67,775,241,987 |
|---|---|---|---|
| Individual State Investment Accounts | |||
| California State University, Dormitory Construction Fund | - | $720,905,468 | $720,905,468 |
| Central Valley Water Project Construction Fund | - | 1,175,599,313 | 1,175,599,313 |
| Central Valley Water Project Revenue Fund | - | 60,381,200 | 60,381,200 |
| Department of Water Resources Electric Power Fund | - | 1,418,420,000 | 1,418,420,000 |
| General Obligation Refunding Escrow | - | 5,143,552,829 | 5,143,552,829 |
| Public Buildings Construction Fund | - | 3,201,768,554 | 3,201,768,554 |
| State Compensation Insurance Fund* | - | 17,830,455,901 | 17,830,455,901 |
| State Lottery Fund | - | 934,012,000 | 934,012,000 |
| Total Individual State Investment Accounts | $30,485,095,265 | $30,485,095,265 | |
| Collateral to Secure Deposits or Investments Held in Banks | |||
| Agency Bank Deposits | - | $646,763,111 | $646,763,111 |
| Employment Development Department—Escrow | - | 7,993 | 7,993 |
| Human Resources, Department of—Deferred Compensation | - | 3,975,862 | 3,975,862 |
| State Treasurer's Office—Demand Deposits | 530,000,000 | 194,528,786 | 724,528,786 |
| State Treasurer ’s Office—Fiscal Agents | - | 26,748,112 | 26,748,112 |
| State Treasurer ’s Office—Time Deposits | 2,626,541,363 | 3,571,480,216 | 6,198,021,579 |
| Total Collateral to Secure Deposits or Investments Held in Banks | $3,156,541,363 | $4,443,504,080 | $7,600,045,443 |
| Pledges Received by State Agencies† | |||
| Business Oversight, Department of—Division of Corporations | 1,216,000 | - | $1,216,000 |
| Business Oversight, Department of—Division of Financial Institutions | 777,442,000 | $46,650,789 | 824,092,789 |
| Consumer Affairs, Department of | 20,626,795 | - | 20,626,795 |
| Employment Development Department | 255,827,986 | - | 255,827,986 |
| Insurance, Department of* | 266,426,557 | 10,827,085,100 | 11,093,511,657 |
Note: The accompanying notes are an integral part of this statement.
* The State Treasurer’s Office accounts for investments and pledges in stock based on the number of shares rather than their value. Therefore, these investments and pledges are excluded from the statement of securities accountability.
See Note 5 for additional information.
† A portion of the pledges contained in the State’s vault matured prior to December 31, 2017. In certain cases, these pledges still hold value.
NOTES TO THE STATEMENT OF SECURITIES ACCOUNTABILITY
Note 1—Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of securities accountability was prepared for the purpose of providing information required by Section 13299.1 of the Government Code. The statement of securities accountability presents securities owned by or pledged to the State directly. The State Treasurer’s Office must account for all securities held in the treasury or other depositories. It does not account for securities owned by or pledged to the University of California, securities in other depositories owned by or pledged to the Public Employees’ Retirement System, the State Teachers’ Retirement System, the Legislators’ Retirement System, or the Judges’ Retirement System. The securities for which the State Treasurer’s Office is accountable are categorized as follows:
- Pooled Money Investment Account (PMIA), which consists of securities that are purchased with money from various state and local funding sources. Government Code, Section 16480.1, authorizes the State’s Pooled Money Investment Board to designate the amount of money available to make such investments. Additionally, Section 16480.2 expresses the intent that such investments realize the maximum return consistent with safe and prudent treasury management. Earnings on PMIA securities are credited to the State’s General Fund, the Surplus Money Investment Fund, the Local Agency Investment Fund, the Fish and Game Preservation Fund, the Public Employees’ Retirement Fund, and the State Teachers’ Retirement Fund. • Individual state investment accounts, which consists of securities that are purchased for state funds other than the PMIA.
- Collateral to secure deposits or investments held in banks, which consists of securities pledged by banks to protect holdings that the State has on deposit with them.
- Pledges received by state agencies, which consists of securities pledged to the State by certain businesses to protect consumers, guarantee contractor performance, and ensure payment of obligations.
Valuation of Securities
For the purpose of the statement of securities accountability, the State Treasurer’s Office values securities as follows:
Securities in the State Treasurer’s Office Vault
- Bonds, letters of credit, certificates of deposit, money transmitter bonds, and surety bonds are valued at par value or face value.
- Real estate mortgage notes are valued at the original principal balances.
Securities on Deposit With Banks and Trust Companies
- Bills, notes, bonds, strips, commercial paper, and certificates of deposit, are valued at par value or face value. • Asset-backed securities are valued at the outstanding principal balances.
- Real estate mortgage notes are valued at the original principal balances.
The accompanying statement of securities accountability is not intended to report securities at fair value in accordance with accounting principles generally accepted in the United States of America.
Note 2
Pooled Money Investment Account—Securities
The State Treasurer’s Office reported a total value of $67,775,241,987 for the securities in the PMIA as of December 31, 2017. In its statement of cash accountability as of December 31, 2017, the State Treasurer’s Office reported a total value of $67,498,500,118 for these securities. The difference between the two values results because the State Treasurer’s Office values the PMIA securities in the statement of securities accountability according to the methods described in Note 1, but it values the same securities at book value for the statement of cash accountability.
Note 3
Personal Property
In addition to securities, state agencies deposit personal property in the vault of the State Treasurer’s Office. The following table lists entities having personal property in the vault as of December 31, 2017.
| ENTITY | NUMBER OF ITEMS |
|---|---|
| Motor Vehicles, Department of | 2,148 |
| State Controller’s Office | 1,577 |
| State Treasurer’s Office | 14 |
Each item or sealed package of personal property is counted individually. However, because personal property items are not securities, they are excluded from the statement of securities accountability.
Note 4
General Safekeeping Securities
In addition to securities the State Treasurer’s Office holds in the vault related to collateral requirements and pledges, it also separately holds certain securities in the vault for general safekeeping. The securities consist of shares of preferred and common stock that departments deposit with the State Treasurer’s Office. Each preferred and common stock share in general safekeeping is counted individually. Because the State Treasurer’s Office has chosen to account for these items based on their number rather than their value, these items are excluded from the statement of securities accountability. The following table lists entities having items on deposit for general safekeeping in the State Treasurer’s Office vault as of December 31, 2017.
| ENTITY | NUMBER OF ITEMS |
|---|---|
| California State Library—Preferred and Common Stock | 3,659 |
| Developmental Services, Department of—Common Stock | 270 |
| Education, Department of—Preferred and Common Stock | 5,211 |
Note 5
Common Stock Held in Outside Depositories
Each share of common stock held by outside depositories is counted individually. Because the State Treasurer’s Office has chosen to account for these items based on their number rather than their value, these items are excluded from the statement of securities accountability. As of December 31, 2017, outside depositories held 8,461,017 shares of common stock within investment accounts for the State Compensation Insurance Fund and 826,636 shares of common stock for pledges received by the Department of Insurance.