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California Department of Food and Agriculture Poor Management Threatens the Success of the Pet Lover’s Specialized License Plate Program Report Number: 2019-121

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• Food and Agriculture Used a Significantly Flawed Selection Process in Awarding $330,000 to Grant Applicants
• The Pet Lover’s Program Is at Risk of Failure, but Food and Agriculture Has Not Responded Adequately

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Food and Agriculture Used a Significantly Flawed Selection Process in Awarding $330,000 to Grant Applicants

Key Points

• Food and Agriculture did not verify applicants’ grant eligibility, resulting in two awards to ineligible entities totaling $35,000.
• Food and Agriculture relied on a single reviewer to rank each grant application, which may have disadvantaged some applicants, depending on who reviewed their application. Further, the department did not award grants to some of the highest-ranked applicants.

Food and Agriculture Failed to Verify That Grant Applicants Were Eligible and Funded Two Ineligible Entities

Food and Agriculture failed to ensure that entities that applied for Pet Lover’s program grants in fiscal year 2018–19 were eligible, even though it performs an initial review of applications through which it could verify eligibility. After it receives grant applications, Food and Agriculture performs an administrative review of all applications. However, Food and Agriculture does not have written policies or procedures to govern its administrative reviews for the Pet Lover’s program beyond an administrative review criteria sheet. This sheet provides a checklist for its staff to verify that grant applications meet basic requirements; if those requirements are met, staff then recommend that the department accept or reject the application. However, Food and Agriculture’s administrative review checklist does not specify all of the eligibility requirements grant applicants must meet. Moreover, even though ensuring eligibility is an important initial step in reviewing grant applications, its review of the 51 applications it accepted in fiscal year 2018–19 did not include verifying that applicants were eligible for grant funding. State law sets eligibility requirements for grant recipients (see the text box). For example, grant recipients must be registered with the Veterinary Board and must be overseen by a manager licensed by the Veterinary Board. However, when we reviewed the documentation that Food and Agriculture provided, we found that it did not attempt to contact the Veterinary Board to verify that the entities it offered grants to satisfied either of these requirements, and it made an incomplete attempt to verify that they met the requirement concerning rabies reporting. Food and Agriculture did ensure that grant applicants met the third requirement—that they be operated by an appropriate entity.

Because it did not conduct a complete eligibility verification in fiscal year 2018–19, Food and Agriculture ultimately awarded grants to two entities that were ineligible for funding. We independently determined the eligibility of the 11 entities Food and Agriculture awarded grants to that year and found that two entities—the city of Turlock Animal Services and the city of Lake Elsinore—were neither registered with the Veterinary Board nor overseen by a manager who was licensed by the Veterinary Board. As a result, these entities were ineligible under state law for Pet Lover’s program grants. Although Food and Agriculture indicated that it attempted to verify the eligibility of the grant recipients and acknowledged that it made a mistake in determining the eligibility of those two entities, as we noted above, its attempts to verify the eligibility of the entities to which it offered grants were insufficient. Nevertheless, Food and Agriculture granted these two entities a total of $35,000—funding that it should have directed to eligible entities. Although we informed Food and Agriculture of this issue in early January 2020, it did not issue notices of suspension to require those entities to gain eligibility or have their grant awards terminated until mid-February 2020. Regardless of the outcome of that process, Food and Agriculture must address this gap in its review process to ensure that it does not continue to make awards to ineligible entities.

Food and Agriculture’s Flawed Application Scoring Process Resulted in Questionable Scores and Award Decisions

Food and Agriculture used a deficient process for evaluating and scoring applications that could have unduly reduced opportunities for certain applicants. After the administrative review of applications, Food and Agriculture used a panel of reviewers to perform a technical and qualitative review of the 51 grant applications that had passed the administrative review. The department eventually based its grantee selections on the results of those technical and qualitative reviews. Food and Agriculture provided the reviewers with guidelines for evaluating the applications as well as parameters for the scores. Specifically, it set the maximum score for each application at 50 points, based on the reviewer’s evaluation of five areas of the application, including project purpose, awareness, work plan, evaluation and performance monitoring plan, and budget narrative. Food and Agriculture assigned each of the four reviewers between 12 and 13 grant applications for review. Once a reviewer scored an application, that application received no further review from other reviewers. Consequently, Food and Agriculture relied on only one person’s opinion of each application when it determined which applications to select for grant awards.

As a result of the single-reviewer approach, Food and Agriculture cannot ensure that it identified the most qualified grant applicants. An application process that relies on only a single reviewer is less robust than one where multiple reviewers evaluate each application, because a single-reviewer approach is susceptible to inconsistency among reviewers. Such a process risks that the applications scored by some reviewers will receive either an overly harsh or unacceptably light level of review. In fact, during the application review, there was a significant disparity in scores between one of the reviewers and the other three. Therefore, the grant applications evaluated by the low-scoring reviewer may have received lower scores than they might have if the other reviewers had also evaluated them. Figure 2 shows the disparity in application scores. Because of the reliance on one reviewer for each application, Food and Agriculture increased the risk that an individual reviewer’s approach could unduly hurt or help applicants assigned to that reviewer.

Figure 2
One Reviewer’s Application Scores Were Significantly Lower, Resulting in Some Applicants Being Disadvantaged

When we asked about the flaws in its single-reviewer approach, Food and Agriculture acknowledged that the process was not optimal. Under optimal circumstances, it would ensure that there are multiple reviewers for each grant application, as it does for the other specialized license plate program it manages—the California Agriculture (CalAg) plate program. The department explained that it took the single-reviewer approach because only four individuals applied to perform qualitative reviews, and it was operating under a compressed time frame of only four weeks to review grant applications. However, we see problems with this explanation. Specifically, the compressed time frame Food and Agriculture refers to, which was actually less than four weeks, was self-imposed. State law authorized the department to begin overseeing the Pet Lover’s program on January 1, 2018, yet it did not release its request for grant applications until mid-January 2019, more than one year later. According to Food and Agriculture, this delay occurred because it did not receive budgetary authority until July 2018, and after receiving budget authority, it incorporated time into the process to allow the public to comment on its proposed grant application. However, it was aware that it was receiving responsibility for the program several months earlier, as evidenced by a budget proposal it filed in January 2018 to obtain funding for administering the program. Additionally, it did not request public comment on its grant application until December 2018—six months after it received budget authority. Therefore, in our judgment Food and Agriculture set its own time frame when implementing the program. Had it begun soliciting grant applications earlier, it would have had ample time to ensure multiple reviews of each application.

The scoring process notwithstanding, Food and Agriculture also did not select the highest-scoring grant applications when it made grant award decisions, which creates additional questions about the fairness of its award process. As Table 3 shows, Food and Agriculture’s selection methodology resulted in it selecting some grant applications that received scores significantly lower than those of some of the applications it did not select. The department does not have policies and procedures governing its grant selection process for the Pet Lover’s program, and it did not document why it selected those grant applicants. Food and Agriculture asserted that because each application received only a single qualitative review, it endeavored to select the two highest-scoring applications from each reviewer and the next two highest-scoring applications from the two reviewers with the highest average scores. However, Food and Agriculture did not consistently follow this approach. Specifically, we found that the department did not select the Sacramento SPCA even though it was the highest-scoring application from one of its reviewers and received a higher score than three applications that did receive grant awards.

Table 3
Food and Agriculture Awarded Grants to Lower‑Scoring Applications

GRANT APPLICATION SCORE	SELECTED FOR GRANT AWARD
50	Yes
50	Yes
48	Yes
48	Yes
48	Yes
48	No
48	No
47	Yes
46	No
46	No
46	Yes
46	Yes
45	No
44	Yes
44	No
44	No
43	No
43	No
43	No
43	No
42	No
42	No
42	No
42	No
42	No
41	No
40	No
40	No
39	Yes*
39	Yes*

When we brought the Sacramento SPCA application to the attention of Food and Agriculture’s staff, they were unaware they had not selected the highest-ranked application from each reviewer. Because the department did not document the reason for its ultimate selection of grant applications, it was unable to explain this oversight, stating only that it was an error in the selection process. Moreover, Food and Agriculture did not take any action to address this deficiency until nearly two months after we brought it to its attention. Specifically, it did not contact the Sacramento SPCA until mid-February 2020 to rectify this mistake by offering it a grant of $49,000.

Although Food and Agriculture’s past grant process was flawed, it is making changes for Pet Lover’s program grants it will award for fiscal year 2019–20. Food and Agriculture broadened its outreach to recruit volunteer application reviewers, and stated in February 2020 that it has forwarded a list of 10 reviewers to Food and Agriculture’s secretary for approval. Further, according to the grant manager, Food and Agriculture expects to have three teams of at least three reviewers each and expects each team to review about 12 applications. If Food and Agriculture follows through with its plan for multiple reviewers, it should be well positioned to have a more fair and equitable grant process for fiscal year 2019–20. Nevertheless, Food and Agriculture has not yet adopted written policies and procedures for its grant-making process. Without formal policies and procedures guiding its efforts, Food and Agriculture risks repeating some of the mistakes of the past. When it does not take proactive steps to ensure that it is making grant awards in a fair and defensible manner, Food and Agriculture risks losing the public’s trust in its handling of the money from the registration fees they paid for a Pet Lover’s plate. A decline in public trust and support can lead to decreased program support and revenue and subsequent decreased funding for free or low-cost spay or neuter services.

Recommendations

In order to ensure a fair and defensible grant award process for the Pet Lover’s program, Food and Agriculture should immediately adopt and begin following policies and procedures that direct its staff to do the following:

• Verify and document that grant applicants are eligible for funding from the Pet Lover’s program before forwarding the applications to the technical review panel.
• Have multiple reviewers score each application that progresses to a technical review.
• Select the highest-ranked applications to receive grant awards, and document the reasons for these selections.

To correct its error in making grants to ineligible entities, by June 2020 Food and Agriculture should complete efforts to either cancel those contracts and recoup unspent funds from the two ineligible organizations or work with those organizations to ensure that they meet eligibility requirements.

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The Pet Lover’s Program Is at Risk of Failure, but Food and Agriculture Has Not Responded Adequately

Key Points

• If Food and Agriculture does not increase participation in the Pet Lover’s program, revenue for the program will continue to decline, likely reducing access to free or low-cost spay or neuter services.
• Although it has overseen the Pet Lover’s program since January 2018, Food and Agriculture has engaged in minimal marketing and promotional activities to encourage California vehicle owners to purchase Pet Lover’s plates.

Access to Free or Low‑Cost Spay or Neuter Services May Be Significantly Reduced if Pet Lover’s Plate Enrollment Does Not Increase

If Food and Agriculture cannot increase the number of registered plates, the Pet Lover’s program may fail. Revenue for the Pet Lover’s program comes primarily from the fees persons pay when they register for a Pet Lover’s plate for the first time or when they renew. Because the DMV incurs higher administrative costs for new registrations, plate renewals deliver the most funding. Therefore, to sustain the grant awards to provide free or low-cost spay or neuter services at their current level or increase them, Food and Agriculture must build a strong base of these specialized plates in circulation so that it can fund grants from plate renewal fees.

However, plate registration activity in the Pet Lover’s program in the last few years has been declining, even before Food and Agriculture took over the program in January 2018. Initial registrations have declined in each year of the program since fiscal year 2013–14. Further, revenue for the program has declined, as Figure 3 shows, since fiscal year 2015–16. Although it is reasonable to assume that initial registrations will fluctuate year by year, building a larger base of registered plates is critical to maintaining a high level of funding from one year to the next. Without a large base of consumers renewing their Pet Lover’s plates, funding for the program will continue to decline. As we discuss in the next section, Food and Agriculture has conducted only minimal marketing to encourage the purchase of Pet Lover’s plates, which may have contributed to the decline in plate registrations and, thus, decreased funding available for low-cost spay or neuter services.

Figure 3
Pet Lover’s Revenue Continued to Decline With Food and Agriculture’s Oversight of the Program

Source: Analysis of revenue documents from Food and Agriculture, DMV, and the Veterinary Board.

Program revenue declined by 8 percent between fiscal years 2017–18 and 2018–19. This is of particular concern because continued declines will lead to decreased grant funding for free or low-cost spay and neuter services. For example, as Figure 3 shows, this 8 percent decline represents almost 500 fewer spayed or neutered animals. As Table 2 in the Introduction shows, revenue for fiscal year 2018–19 was less than the amount of funding that Food and Agriculture granted through awards in that year. If grant awards continue to exceed revenue, the Pet Lover’s program fund balance will continue to dwindle. Moreover, if the declining revenue trends continue, Food and Agriculture will need to reduce grant funding, which would likely result in reduced access to free or low-cost sterilization services.

Unless Food and Agriculture increases revenue by marketing the Pet Lover’s program to increase initial registrations and renewals, we estimate that the program will have to significantly reduce the amount of grant funding it offers within the next five years. As Figure 4 shows, if the rate of decline of the program’s revenue remains constant and current expenditure levels do not change, expenditures will exceed the fund balance in fiscal year 2022–23, and the program will exhaust its fund balance in fiscal year 2024–25. Thus, without additional revenue, Food and Agriculture will have to decrease the amount of Pet Lover’s program grant funding it provides to eligible entities that offer free or low-cost animal sterilization services. We analyzed the 11 grant contracts that Food and Agriculture entered into for the Pet Lover’s program in fiscal year 2019–20, and found that 10 included estimates on the number of cats and dogs they would spay or neuter. Based on those estimates, we found that, on average, the Pet Lover’s program results in the spaying or neutering of about 180 cats and dogs for every $10,000 it offers in grants—meaning it would result in sterilizing roughly 6,000 cats and dogs if grant awards remain at $330,000, as we describe in the Introduction. Based on our estimates, in fiscal year 2024–25, Pet Lover’s program revenue would be only about $227,000—meaning that Food and Agriculture would have to decrease its grant awards by more than $103,000 and Pet Lover’s grant recipients would spay or neuter about 1,800 fewer animals.

Figure 4
The Pet Lover’s Program Could Be Insolvent in Fiscal Year 2024–25

Source Analysis of financial records from Food and Agriculture.

Note: This projection assumes that expenditures will remain constant and revenue will decline at a constant rate.

The availability of new Pet Lover’s plates is also at risk. As we describe in the Introduction, if the number of outstanding and valid specialized plates for a particular program drops below 7,500, state law generally requires the DMV to notify the sponsoring agency of that fact and inform it that if that number remains below 7,500 one year from the date of the DMV notification, the DMV will no longer issue new or replacement plates for that particular program. According to recent data from the DMV, the Pet Lover’s plate has approximately 7,800 enrollees; however, initial plate purchases have been declining since the DMV began issuing the plates in 2013. Therefore, if the decline in plate enrollment continues, the Pet Lover’s program will drop below this important statutory threshold.

According to the DMV, it has never stopped issuing new or replacement plates for other specialized license plate programs that have fallen below the 7,500 threshold. As Table 1 in the Introduction shows, three specialized plates—the Collegiate, CalAg, and Breast Cancer Awareness plates—currently have fewer than 7,500 plate owners. However, consistent with the DMV’s statements, all three of these specialized plates remain available for purchase. When we asked the DMV why these plates are still available, the DMV acknowledged that state law requires it to cancel plates with insufficient enrollment. However, the DMV also explained that the State benefits from the continued existence of those specialized license plate programs whose circulation has fallen below the legally mandated threshold. According to DMV data, even the specialized plate with the lowest circulation, the Collegiate license plate, generated about $30,000 in revenue from 2019 renewals. If the Pet Lover’s program revenue fell to $30,000, it could still offer grants that would sterilize roughly 540 animals. Consequently, this continued benefit emphasizes the potential value of a legislative change to revise the law that otherwise prohibits the DMV from issuing or replacing specialized plates for a particular program if the number of outstanding and valid plates for that program falls below 7,500. Instead, the Legislature could allow the DMV or the sponsoring agency to determine when to eliminate a specialized license plate program if it is no longer financially viable or no longer supports the purposes of the program. This legislative change would allow Californians to continue to benefit from the services funded by the sales and renewals of specialized plates.

If revenue for the Pet Lover’s program continues to decline, the programs or entities receiving grant funds may need to reduce services. For example, one current grant recipient plans to focus its Pet Lover’s funding on subsidizing low-cost spay or neuter services for the 10 zip codes in its city that have the highest number of stray dogs and cats. This recipient estimated that it could provide an additional 600 spay or neuter services with its grant award to help end pet overpopulation and reduce euthanasia rates. Without financial support from the Pet Lover’s program, grantees may not be able to provide those services to as many animals, undermining the State’s policy that no treatable animal be euthanized if it can be adopted into a suitable home.

Food and Agriculture Has Performed Very Little Outreach or Marketing Activity to Support the Pet Lover’s Program

Although it assumed authority for the Pet Lover’s program in January 2018, Food and Agriculture performed only minimal activities to promote and market the program in 2018 and 2019. For example, Food and Agriculture did not ensure that the Pet Lover’s plate remained on promotional flyers with information about all of the specialized plates shown in Table 1 that the DMV sends with vehicle renewal registration packets. From 2014 through 2017, the Veterinary Board ensured that the Pet Lover’s plate appeared on these promotional flyers. The flyers include a photo of each specialized plate, a short description of the programs or services that revenue from the plates supports, and an application for purchasing one of the specialized plates. To continue this practice, Food and Agriculture needed to verify that the previous year’s text and logo were accurate, complete an order form, and pay around $33,000—about 1 cent for each flyer—to the Office of State Publishing to cover the cost of printing the flyers; this is the same process other specialty license plate programs followed.

Food and Agriculture stated it did not have the budget authority for the flyers until July 1, 2018; however, it could have done more to ensure the plate remained on the flyer for 2018. When we spoke to the California Coastal Commission (Coastal Commission), which coordinates the DMV flyer printing process, it stated that it does not reach out to specialized license plate programs until February or March. Further, because the flyers begin printing around the end of the fiscal year, the Coastal Commission is able to work with programs to bill for the flyers in the current or next fiscal year. Therefore, given this flexibility in billing and Food and Agriculture’s acknowledgment of the urgent need to encourage new plate registrations and plate renewals, we expected that Food and Agriculture would have done all it could to ensure that the Pet Lover’s plate remained on the DMV flyers, but it did not do so. Given that the DMV expected to mail about 30 million of these flyers in 2019, this marketing tool might have been the most cost-effective method for Food and Agriculture to reach potential plate purchasers. Food and Agriculture did eventually place the Pet Lover’s plate on the current DMV flyer.

When we asked Food and Agriculture why it did not do more to market or publicize the Pet Lover’s program, the grant manager indicated that Food and Agriculture had been focused primarily on awarding Pet Lover’s grants. The deputy secretary for legislative affairs added that Food and Agriculture was also focused on hiring staff to manage the program, and responding to stakeholder concerns about ensuring that Food and Agriculture awarded grants for fiscal year 2018–19. Nevertheless, had Food and Agriculture taken action to keep the plate on the DMV flyer, it might have increased enrollment in the program, which would have created additional funding for grant recipients.

There are other promotional activities that would likely benefit the program. As Figure 5 illustrates, Food and Agriculture has not conducted a full range of marketing and promotional activities for the Pet Lover’s plate, in contrast with the marketing and promotional activities of four other state specialized license plate programs—including another plate for which Food and Agriculture is responsible. The officials of other plate programs indicated that marketing was a key to successfully maintaining revenue for their plate programs. For example, the Coastal Commission stated that digital marketing is the most cost-effective method, especially on social media platforms, as that strategy provides the opportunity and flexibility to tailor advertising to targeted audiences. The California Department of Public Health also echoed this sentiment and indicated that it is currently focusing on reinventing the Have a Heart, Be a Star, Help Our Kids plate social media campaign.

Figure 5
Food and Agriculture Has Failed to Adequately Market or Promote the Pet Lover’s Program

Additionally, state law allows Food and Agriculture to use part of the funds collected from the issuance of the Pet Lover’s plate to contract with an eligible nonprofit organization to perform marketing and promotional activities. We spoke with the sponsoring agencies for three other specialized license plate programs, and they all reported hiring, at some point during the course of their plate’s history, a contractor to conduct market research, develop marketing campaigns, and create marketing and promotional materials. Each agency recommended hiring a contractor to perform marketing to improve the success of the program if there are the resources to do so. Although this may be a costly option, we believe the benefits would far outweigh the costs, as it would likely generate increased purchases and renewals of the Pet Lover’s plate.

As we noted above, Food and Agriculture stated that its promotional and marketing activities have been lacking because its primary focus has been on awarding grants—at the request of stakeholders—and on hiring staff to manage the program. This explanation seems to further emphasize the importance of using a nonprofit organization as a partner for marketing and outreach. Documentation that Food and Agriculture provided us noted some collaboration with a nonprofit organization for advice and consultation in developing and implementing the grant program, as state law requires. However, it did not seek assistance from a nonprofit organization for marketing and outreach as state law allows. After we asked Food and Agriculture if it planned to contract for marketing activities in the future, the grants manager stated that he had hoped to issue a request for proposals in early 2020 to procure a partner to perform marketing of the Pet Lover’s program in fiscal year 2020–21. However, he had not yet done so as of late February 2020.

Although a focus on awarding grants is understandable, if Food and Agriculture had identified and implemented other marketing strategies, in addition to having a website for the Pet Lover’s plate, it might have increased the accessibility of spay or neuter programs by increasing revenue in the Pet Lover’s program. In addition, it would have protected against the risk that the recent decline in program revenue would continue and that it would be unable to fund the services that the program is intended to support. To ensure that it can continue to provide support toward the State’s goals for reducing animal overpopulation, it is important that Food and Agriculture begin marketing the Pet Lover’s program immediately.

Recommendations

Legislature

To ensure the continued benefits of the specialized license plate programs, the Legislature should revise state law to allow a specialized license plate program to continue, regardless of the number of plates, unless the DMV or the agency determines that the program is no longer financially viable or no longer supports the purposes of the program.

Food and Agriculture

To ensure that the Pet Lover’s program remains viable, Food and Agriculture should immediately begin using marketing and promotional strategies similar to those used by other specialized license plate programs to encourage vehicle owners to purchase the Pet Lover’s plate, and should continue to ensure that the Pet Lover’s plate remains on DMV flyers.

To improve the effectiveness of marketing of the Pet Lover’s program, by August 2020 Food and Agriculture should contract with an eligible nonprofit organization, as state law allows, to carry out additional marketing and promotional activities for the program.

We conducted this audit under the authority vested in the California State Auditor by Government Code 8543 et seq. 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 our audit objectives 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 based on our audit objectives.

Respectfully submitted,

ELAINE M. HOWLE, CPA
California State Auditor

March 26, 2020

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