Audit Results
The California Department of Motor Vehicles (Motor Vehicles) has not fully implemented two of the three recommendations from our April 2013 report that we reviewed. Specifically, it did not always charge the correct fees for special interest license plate (special plate) transactions consistent with state law. In two of 25 instances we reviewed, Motor Vehicles charged fees for special plates that were lower than the fees required by state law. Additionally, Motor Vehicles did not advertise 12 special plate fees in its publications consistent with state law. However, Motor Vehicles did fully implement the third recommendation we reviewed when it updated its automated systems for charging administrative fees for its costs in administering special plate programs after estimating the cost and benefits of doing so. We provide a summary of the status of the three recommendations that we reviewed during this follow‑up audit in Table 2.
| Recommendation | Status |
|---|---|
| The California Department of Motor Vehicles (Motor Vehicles) should assess the extent to which it has charged fees for special interest license plates (special plates) that are not consistent with those prescribed in statutes and take appropriate action. | Not Fully Implemented |
| Motor Vehicles should ensure that the fees it lists in its application for special plates, as well as any other publications, are supported by the appropriate statutes. | Not Fully Implemented |
| Motor Vehicles should periodically assess the cost and benefits of updating its automated systems to reflect current per‑plate administrative costs. If Motor Vehicles determines that doing so is cost‑effective, it should update its automated systems to reflect the up‑to‑date administrative costs for all these plates. | Fully Implemented |
Sources: Selected recommendations made in the report by the California State Auditor (state auditor) titled Special Interest License Plate Funds: The State Has Foregone Certain Revenues Related to Special Interest License Plates and Some Expenditures Were Unallowable or Unsupported, Report 2012‑110 (April 2013) and the state auditor’s analysis of Motor Vehicles’ actions related to the recommendations.
Motor Vehicles Still Has Not Consistently Ensured That It Charges the Correct Fees for Some Special Plates
In our April 2013 report we reported that Motor Vehicles potentially collected fees from some plate holders that were inconsistent with the fees prescribed in state law. Specifically, for certain types of transactions related to all special plates, with the exception of regular personalized plates, Motor Vehicles had listed fees that were as much as $49 less than those the law prescribes. For example, the law specified a fee of $99 for the original issuance of a personalized Olympic Training Center special plate. However, Motor Vehicles’ application showed an initial issuance fee of $50 for this plate, which was $49 less than the law prescribed. As a result, we reported that it potentially undercharged some plate holders by a total of nearly $10.2 million during fiscal years 2010–11 and 2011–12.4
Motor Vehicles has not fully implemented our recommendation that it assess the extent to which it had charged fees for special plates that are not consistent with those prescribed in statutes and take appropriate action. According to the Registration Policy and Automation Branch (registration branch) chief, following the release of our report in April 2013, Motor Vehicles compared fees for special plate transactions we identified in the report with the fees it was charging, and its staff including its legal counsel, examined the fee inconsistencies we found. During this follow‑up audit, we reviewed 25 special plate fees charged by Motor Vehicles as of June 2015 and identified two instances in which the charged fees did not match the corresponding fees required by state law. Specifically, although state law requires a fee of $53 for transferring a personalized Olympic Training Center plate from one vehicle to another, Motor Vehicles only charged $15 for that transaction. Similarly, although state law requires a fee of $98 to convert a personalized plate to a personalized Collegiate special plate, Motor Vehicles only charged $65 for that transaction.
During this follow‑up audit, Motor Vehicles initially did not believe that fees of $53 and $98, respectively, were the correct fees for these transactions. Subsequently, however, Motor Vehicles reexamined its position and now agrees that these are the correct fees and indicated that it will begin charging the correct fees by March 31, 2016.
Motor Vehicles Is Still Not Advertising Special Plate Fees Accurately
In addition to charging incorrect fees for some special plates, Motor Vehicles does not always advertise the correct fees for special plates. In our April 2013 report we noted that Motor Vehicles listed in its application for special plates certain fees for various plates that differed from the fees specified in state law. Motor Vehicles informs vehicle owners of the fees associated with special plates by publishing a special plate fee list (fee list) in several different forms, including its website and as an appendix to its vehicle industry registration procedures manual. It also includes annual fees from the fee list on an insert advertising available special plates that it includes with the registration renewal notices mailed to vehicle owners.
Motor Vehicles has not fully implemented our recommendation that it ensure that the fees it lists in its application for special plates, as well as any other publications, agree with the appropriate statutes. Although Motor Vehicles eliminated the fee list from the paper version of its application, it has not ensured that the fees in its publications, such as its online fee list, are consistent with those prescribed by law. We identified 12 instances of 129 published fees we reviewed as of June 2015 that did not agree with the fees prescribed by state law.
For example, Motor Vehicles made nine of the 12 errors during a fee list update in August 2014 when, according to the registration branch chief, an analyst in the registration branch attempted to ensure consistency of the fees among the different publications and requested changes to the published fees based on information that the analyst believed to be accurate. However, the analyst incorrectly added fees for those advertised transactions. These nine errors occurred because Motor Vehicles’ Publishing and Online Information Branch (publishing branch), which processes such requested changes, did not follow its regular procedures for making changes to its publications, which require written approvals by the manager authorizing the service request for the change and the managers in divisions affected by the requested changes.
Instead, according to the acting deputy director of the Communication Programs Division (communication division), Motor Vehicles used an alternate publication revision procedure. A manager of the communication division’s publishing branch stated that the procedure only required its staff to notify managers affected by requested changes, but did not require approval of the changes by those managers. The acting deputy director stated that the communication division used this procedure because it was trying to maximize the efficient use of its resources when implementing what it considered to be minor publication changes—those not affecting substantive language or policy content. However, the acting deputy director stated that Motor Vehicles stopped using the process that led to the errors we identified in order to improve internal communication and transparency among all program areas potentially affected by requested changes and to further ensure the accuracy of its external publications. Beginning in February 2015 Motor Vehicles requires that all revisions to external publications follow the regular procedures and be approved by multiple parties.
Most of the advertising errors we noted reflected higher costs for the special plates, which may reduce the number of individuals willing to purchase those plates, and thus negatively affect revenues for the special plate programs. Although we also noted the 12 fees that Motor Vehicles incorrectly advertised were for special plate transaction types with a low volume in fiscal year 2013–14—only 222 transactions out of roughly 1.1 million, it is important that Motor Vehicles fully implement our recommendation that it advertise special plate fees consistent with applicable state law. The volume of transactions could change in the future, and advertising errors on special plate transactions may dissuade individuals who are considering purchasing special plates from doing so.
Motor Vehicles Has Updated Its Automated Systems to Reflect Current Administrative Service Fees
In our April 2013 report we concluded that Motor Vehicles had not accurately charged for its costs for administering the special plates programs. Specifically, during fiscal years 2009–10 through 2011–12, it overcharged the California Environmental License Plate Fund more than $6.3 million and undercharged the costs related to other special plate funds by a net of $1.1 million during the same period. State law allows Motor Vehicles to recover administrative costs by collecting administrative service fees (administrative fees) from transaction fees related to those special plates before transferring revenues to the designated fund for each special plate program. In that report, we also noted the registration branch chief could not explain why Motor Vehicles did not update the administrative fees for these other special plates, but he noted that in prior years programming changes for fees were more complicated than today. He further explained that this likely meant that only essential changes were initiated, as the cost of making a change in some instances outweighed any benefit, especially for smaller special plates with few transactions. We recommended that Motor Vehicles periodically assess the cost and benefits of updating its automated systems to reflect current per‑plate administrative costs, and that if Motor Vehicles determines that updating its automated systems is cost‑effective, it should ensure that it updates those systems to reflect the up‑to‑date administrative costs for all these plates.
Motor Vehicles fully implemented our recommendation as of December 2014. Specifically, in September 2013 Motor Vehicles’ Information Systems Division estimated the costs to update its automated systems. This estimate documented the different components of its cost estimates, including estimates of costs related to its servers and hardware, based on input from information technology managers. Motor Vehicles estimated that the programming changes necessary to update its administrative fees would cost approximately $52,000.
In May 2013 the registration branch estimated the benefits of updating its automated systems to reflect the up‑to‑date administrative costs. As part of determining the benefits of updating its automated systems, Motor Vehicles estimated the difference between its administrative costs and its administrative fees in use at the time of the analysis. Specifically, Motor Vehicles compared the administrative fees its automated systems collected with the amount it would have collected if it had updated the systems with its most recent administrative costs. Motor Vehicles’ calculations show that the administrative fees it collected from special plate transactions for the 12 months ending April 2013 totaled nearly $31,000 more than it should have collected to cover its costs of more than $1.1 million to administer the special plate programs during that same period. Its analysis also showed that the cost to administer each special plate program has changed since Motor Vehicles last updated the administrative fees for each special plate, and the difference between the administrative fees in use and Motor Vehicles’ cost to administer the special plate programs was significant for some of the special plates. According to the registration branch chief, these differences contributed to Motor Vehicles’ decision to update its automated systems so it recovers its administrative costs from each fund correctly.
As a result of the outdated administrative fees in its automated systems, Motor Vehicles collected more in administrative fees for some special plates than it should have, and it collected less than it should have for others. For example, Motor Vehicles’ analysis shows that it overcollected administrative fees for the Have a Heart, Be a Star, Help our KIDS special plate by more than $24,000, and similarly overcollected fees for the Lake Tahoe Conservancy special plate by more than $15,000 for the 12 months ending April 2013. Conversely, it undercollected administrative fees for the California Coastal Commission special plate by more than $25,000 during that same period. When Motor Vehicles collects incorrect administrative fees, the revenues paid to funds benefitting from the special plate sales are also incorrect. To address the outdated administrative fees, Motor Vehicles updated its automated systems to reflect current fees in December 2014.
As we discussed in the Introduction, Motor Vehicles performs a special plate cost analysis every two years. According to a budget officer, the Budget and Fiscal Analysis Branch will continue to calculate the per‑plate administrative costs biennially, and he stated its next calculation is expected to be complete in August 2015. Also, the registration branch chief told us that moving forward Motor Vehicles will assess the value of updating the administrative fees in its automated systems for existing plate programs when it calculates those per‑plate administrative costs. He also stated that several factors will determine whether Motor Vehicles will update the programmed administrative fees, such as the return on investment, the resources available at the time, anticipated future workload, and other necessary programming changes.
Conclusion
This audit focused on relevant actions Motor Vehicles has taken related to selected recommendations we made in our April 2013 report regarding efforts to ensure that it charges fees, as well as advertises fees, for special plate transactions that are consistent with state law, and to update its automated systems to reflect current per‑plate administrative costs. During this follow‑up audit, we noted conditions that indicate a need for an additional recommendation to Motor Vehicles. We believe that by fully implementing the recommendations from our prior report and fully implementing the additional recommendation we present in this report, Motor Vehicles can ensure that it fulfills its responsibility of accurately charging and advertising fees for special plate transactions.
Recommendation
To ensure it charges fees for special plates that are consistent with state law, Motor Vehicles should begin charging the correct fees for transferring an Olympic Training Center plate and to convert a personalized plate to a personalized Collegiate plate by March 31, 2016.
We conducted this audit under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on the information specified in the Scope and Methodology section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions.
Respectfully submitted,
ELAINE M. HOWLE, CPA
State Auditor
Date:
July 30, 2015
Staff:
Tammy Lozano, CPA, CGFM, Audit Principal
Richard D. Power, MBA, MPP
Sam Harrison
Derek J. Sinutko, PhD
Legal Counsel:
J. Christopher Dawson, Sr. Staff Counsel
For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255.
Footnotes
4 This amount is from Report 2012‑110 and is based on unaudited data from Motor Vehicles. Go back to text