Report 2011-118/2011-613 Recommendation 3 Responses

Report 2011-118/2011-613: Conduit Bond Issuers: Issuers Complied With Key Bond Requirements, but Two Joint Powers Authorities' Compensation Models Raise Conflict-of-Interest Concerns (Release Date: August 2012)

Recommendation #3 To: Municipal Finance Authority, California

To be better informed about the compensation of their consultants, including any potential conflicts of interest, California Communities and Municipal Finance should require the consulting firms that staff their organizations to disclose the amount and structure of compensation provided to individual consultants, including disclosing whether any of this compensation is tied to the volume of bond sales.

1-Year Agency Response

No consultant retained by the CMFA compensates any of its employees that provide services directly or indirectly to the CMFA on a commission basis or pursuant to any other method of compensation that is based on the volume of bonds sales by the CMFA.

The Board of the CMFA, on February 1, 2013, approved an amendment to the professional services agreement with its consultants. Consistent with the Fair Political Practices Commission reporting requirements of a public official or employee, the amended agreement requires all consultants to disclose the amount of compensation provided to individual employees, including disclosing whether any of this compensation is tied to the volume of bond sales.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

As it indicated in its one-year response, Municipal Finance has amended its contract with Sierra to require Sierra to annually provide a written statement as to whether any of the amounts paid to its employees was directly tied to the volume of bond sales. The amended contract also requires Sierra's consultants to annually disclose their gross compensation amounts within ranges, such as less than $1,000, between $1,001 and $10,000, between $10,001 and $100,000, or greater than $100,001. Further mitigating the risks for conflicts of interest, in July 2013 Municipal Finance engaged an executive director who receives a fixed annual compensation to review and make recommendations to the board on all proposed bond transactions. Under the new structure, Sierra no longer makes recommendations to the board on proposed bond transactions.

6-Month Agency Response

No consultant retained by the CMFA compensates any of its employees that provide services directly or indirectly to the CMFA on a commission basis or pursuant to any other method of compensation that is based on the volume of bonds sales by the CMFA.

The Board of the CMFA, on February 1, 2013, approved an amendment to the professional services agreement with its consultants. Consistent with the Fair Political Practices Commission reporting requirements of a public official or employee, the amended agreement requires all consultants to disclose the amount of compensation provided to individual employees, including disclosing whether any of this compensation is tied to the volume of bond sales.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

See one-year response evaluation

60-Day Agency Response

Municipal Finance stated that a subcommittee of its board members is reviewing proposed contract language that will prohibit its consultants from compensating their employees on a commission basis or any other method that is based on the volume of bonds sales. Municipal Finance indicated that the proposed contract language will also require all consultants to disclose the amount of compensation provided to individual employees. (See 2013-406, p. 32)

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2011-118/2011-613

Agency responses received after June 2013 are posted verbatim.