Appendix A

Short-Term Uses of Veterans Home Properties

Table A shows the short-term uses of the Yountville veterans home that we were able to identify for October 2016 through July 2018. However, this table cannot be considered an exhaustive list. As described in the body of our report, CalVet did not consistently license short-term uses of its properties. This list is compiled from CalVet records of uses of its property.

Table A
Third-Party Uses of the Yountville Veterans Home Property From October 2016 Through July 2018
LICENSEE	USE	DATE(S) OF USE	FEE
Cinema Napa Valley	Film festival	November 7-14, 2016	$2,000
Friends of the Lincoln Theater	Volvo informational event	February 13-14, 2017	2,000
Yountville Live	Parking for festival	March 15-19, 2017	2,000
Community Building Partners	Volunteer renovation project	May 10-24, 2017	Fee waived in exchange for renovation work at the home
Suscol Intertribal Council	Pow wow	July 8-9, 2017	1,600
American Legion	Baseball tournament	July 23-August 7, 2017	Fee waived in recognition of past contributions by the Legion to the home
Veterans of Foreign Wars District 16	Picnic for home residents	August 13, 2017	—
Eagle Cycling Club	Bicycle ride	August 19-20, 2017	4,460
ALS Association	Bicycle ride and walk	September 22-23, 2017	2,100
ZD Wines	Bicycle ride and festival	October 14, 2017	400
Yountville Live	Parking for festival	March 14-18, 2017	10,000
Community Building Partners	Volunteer renovation project	April 1-May 7, 2018	Fee waived in exchange for renovation work at the home
Ride Napa Valley	Bicycle ride	April 20-21, 2018	Fee waived in exchange for 20 rider packets and 20 tickets
Healing Walk Napa Valley	Walk	April 28-29, 2018	190
National MPS Society	5k run and picnic	April 29, 2018	1,800
American Diabetes Association	Bicycle ride	May 3-6, 2018	9,492
ZD Wines	Bicycle ride and festival	May 12, 2018	400
Napa Valley Education Foundation	Run and walk	May 19, 2018	2,400
Napa County Election Division	Polling location	June 1-6, 2018	Fee waived in exchange for allowing residents to use polling booths
Native Sons and Daughters of the Golden West Chapter	Community picnic	July 15-16, 2018	Fee waived in exchange for free meals for the home residents
American Legion	Baseball tournament	July 21-August 6, 2018	2,000

Source: Analysis of third-party use agreements collected from CalVet headquarters and Yountville and supporting documents.

Note: This table contains all short-term uses we were able to identify that had a written agreement.

Appendix B

Scope and Methodology

The Audit Committee directed the California State Auditor to examine CalVet’s leases and other third-party uses of state property at the veterans homes. Specifically, we were directed to review how CalVet and DGS establish leases of veterans home property and comply with state law. Table B lists the objectives that the Audit Committee approved and the methods we used to address them.

Table B
Audit Objectives and the Methods Used to Address Them
AUDIT OBJECTIVE		METHOD
1	Review and evaluate the laws, rules, and regulations significant to the audit objectives.	Reviewed and evaluated relevant laws, rules, and regulations.
2	Determine the number of active leases of state-owned property at the veterans homes and identify the value of those leases.	Interviewed CalVet and DGS staff and reviewed supporting documentation, including lease and short-term use agreements as well as maps and floor plans, to determine the number of leases and other agreements for the use of the veterans home property that existed at each veterans home and the value of those leases and agreements.
3	Evaluate the processes used to establish leases of state property within the veterans home system by performing the following:
	a. Identify the current processes used by CalVet and DGS to pursue, renew, recommend, and approve leases of properties and determine whether these processes comply with legal requirements.	Interviewed CalVet staff regarding current processes for leasing veterans home property. Reviewed CalVet’s new leasing policy that it published during our audit in December 2018. Interviewed CalVet staff and reviewed CalVet’s employee housing policy and documentation regarding its review and approval of employee housing leases. Interviewed DGS staff and reviewed DGS’s policies and procedures to document the current processes it uses to lease veterans home properties and compared the policies and procedures to requirements in state law and regulation.
	b. Determine the local administrator’s role at each veterans home in negotiating, recommending, monitoring, and approving leases and other third‑party uses.	Interviewed CalVet staff to determine the role that home administrators had in establishing and managing leases of home property before May 2018. Reviewed CalVet’s May 2018 memorandum to its veterans home administrators. Interviewed staff at CalVet and the eight veterans homes to confirm their understanding of the administrator’s current role in approving uses of the veterans home properties.
4	Review active leases of state property within the veterans home system to determine the following:
	a. How active leases were pursued, renewed, recommended, and approved. Evaluate the processes used by CalVet and DGS to establish and approve the terms of the lease agreement.	Reviewed 11 active leases and supporting documentation to determine and evaluate the process that CalVet and DGS used to review and approve leases of veterans home properties, including whether the leases complied with state law and best practices. Reviewed 10 employee housing leases and supporting documentation to evaluate the terms contained in the leases as well as CalVet’s process for approving employee applications for housing.
	b. Whether CalVet or DGS have determined that the rates charged on the leases of state property compare reasonably to similar market rates. Identify assumptions used in the market comparison.	For the leases selected under Objective 4(a), reviewed supporting documentation and interviewed staff at CalVet and DGS to identify the methods used to establish the rental rates, including the frequency of assessing the value of leased property. Contracted with two real estate appraisers to assess the market value of the theater, museum, and golf course at Yountville and compared the results of those assessments to the current rent charged for those properties. For employee housing leases, reviewed market value appraisals that CalVet had obtained in January 2013 and June 2018 for employee housing units and compared those assessed values to the rates that CalVet had established for those units.
	c. How often CalVet or DGS assesses the value of the leased properties.
	d. Whether there are variations in lease terms—including the rates of increase, duration, and renewals—and the reasoning for such variation.	Documented the terms of the active leases of veterans home properties, including the duration, rent, rate of rent increase, and renewal options as shown in Table 1. Interviewed CalVet and DGS staff to determine reasons for variation in lease terms. CalVet and DGS were unable to explain the reasoning for the variation in the lease terms due to the length of time that has passed since many were established. Reviewed terms contained in the leases for 10 employee housing units reviewed under Objective 4(a), including the presence of key terms, rental rates, and whether the employee had received priority housing.
	e. Whether the lease terms and conditions include in-lieu payments. If so, determine how the in-lieu payments were determined.	Reviewed leases in which DGS reduced rental payments in exchange for services or improvements and interviewed staff at DGS to determine the methods that DGS used to establish the amount of the rent reduction.
5	Review active leases to determine how the leased properties are being used.
	a. Identify whether unsanctioned uses of leased property are occurring.	Interviewed staff at CalVet, reviewed records of events that occurred at Yountville, and conducted Internet research to identify uses of leased property at Yountville. Reviewed the terms of the associated leases to determine whether the terms of the leases authorized the uses. Determined that uses of leased property were generally consistent with the terms of the leases, with the exception of hot air balloon launches from the golf course property. We reviewed uses for special events that extended beyond leased property under Objective 7.
	b. Determine whether certain uses of leased property, such as paid event parking and special outdoor events, are approved by the property manager and incorporated in the lease terms.
6	Evaluate CalVet’s and DGS’s oversight of active lease agreements.
	a. Determine the extent to which CalVet and DGS ensure that lessees are complying with the terms and conditions of leases.	Interviewed staff at CalVet, DGS, and Yountville to identify policies and procedures associated with monitoring compliance with lease terms.
	b. Evaluate how CalVet tracks and reports lease payments to determine if it is complying with relevant state laws and regulations.	Interviewed staff at CalVet and DGS and reviewed lease payment tracking documentation to determine how the departments track lease payments. Reviewed 15 leases and the payments that CalVet and DGS collected from the lessees during fiscal years 2015–16 through 2017–18 to determine whether CalVet and DGS records indicated that the lessees had made all required payments. Reviewed documentation and interviewed staff at CalVet and DGS to determine whether CalVet and DGS had taken action to enforce payment compliance for any leases. Reviewed CalVet’s reports to the Legislature on its revenues deposited to the General Fund for fiscal years 2015–16 through 2017–18 to determine whether the reports complied with state law by including lease payment revenue.
	c. Evaluate the method by which the proceeds from the lease agreements have been reinvested into the veterans homes in accordance with state law, and determine whether this requirement has ever informed decisions about lease terms.	Interviewed CalVet and DGS staff and reviewed documentation to determine where CalVet and DGS deposit lease payment revenues, including whether the payments were made to the General Fund or the morale fund in accordance with state law. Reviewed leases and supporting documentation and interviewed staff at CalVet and DGS to determine the methodologies used to set rental rates for the 10 leases selected for review under Objective 4(a) that DGS approved.
7	Determine the extent to which third parties use veterans home property without having lease agreements in place. Identify the terms of these arrangements and the authority under which the parties in these arrangements operate.	Interviewed staff at CalVet and the veterans homes, reviewed documentation, and conducted Internet research to identify uses of veterans home property. Reviewed documentation and interviewed staff at CalVet regarding the four entities using property without a lease. Interviewed staff at CalVet headquarters and Yountville to identify and evaluate policies and procedures for approving short-term uses of the veterans home property by third parties. Reviewed and evaluated a selection of 12 agreements for the short‑term use of the veterans home, along with supporting documentation, including whether those agreements contained key terms to protect the State’s interests, the fees CalVet charged, and whether the agreements appeared to be in the best interests of the home.
8	Review and assess any other issues that are significant to the audit.	We did not identify any additional areas.

Sources: Analysis of the Audit Committee's audit request number 2018-112 and information and documentation identified in the table column titled Method.