Report 2011-118/2011-613 Recommendation 7 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 #7 To: Municipal Finance Authority, California

As suggested by the Government Finance Officers Association guidance, California Communities and Municipal Finance should include provisions in their contracts prohibiting consultants from engaging in activities on behalf of the issuers that produce a direct or indirect financial gain to the consultants, other than the agreed-upon compensation, without the issuer's informed consent.

1-Year Agency Response

Without the informed consent of the CMFA, the consultants to the CMFA shall not engage in activities on behalf of the CMFA that produces a direct or indirect financial gain to the consultants other than the previously agreed upon compensation. The Board of the CMFA, on February 1, 2013, approved an amendment to the professional services agreement with its consultants. The amended agreement states that the consultants shall not engage in activities on behalf of the CMFA that produces a direct or indirect financial gain to the consultants other than the previously agreed upon compensation, without the informed consent of the CMFA.

The Dodd-Frank Act requires that any consultant, acting as a municipal advisor, owes a fiduciary duty to its municipal client. Sierra Management, as a municipal advisor to the CMFA, voluntarily restricts itself to serve only the CMFA and no other financing authority. Sierra's single purpose focus on the CMFA ensures that the CMFA receives an undivided commitment for its programming.

  • Completion Date: February 2013
  • Response Date: August 2013

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

On February 1, 2013, Municipal Finance amended its professional services agreement with Sierra to address the recommendation.


6-Month Agency Response

The Board of the CMFA, on February 1, 2013, approved an amendment to the professional services agreement with its consultants. The amended agreement states that the consultants shall not engage in activities on behalf of the CMFA that produces a direct or indirect financial gain to the consultants other than the previously agreed upon compensation, without the informed consent of the CMFA.

  • Response Date: March 2013

California State Auditor's Assessment of 6-Month Status: Fully Implemented

See one-year response


60-Day Agency Response

Municipal Finance indicated that it is reviewing proposed contract language that would prohibit its consultants from engaging in activities on its behalf that produces a direct or indirect financial gain to the consultants without its informed consent. Municipal Finance added further that Sierra Management voluntarily restricts itself to serve Municipal Finance and no other financing authority. (See 2013-406, p. 33)

  • Response Date: November 2012

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.


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