Summary of Agency Response and
California State Auditor's Comments
CDFA Response
The CDFA stated that beginning in 2011, it lost $32 million in General Fund support for its Fairs and Expositions branch and was forced to eliminate 30 positions, including its auditor positions. It further stated that in 2015 it began to receive small amounts of additional funding that enabled it to redevelop and strengthen its oversight role, including adding one auditor position, and it continues to explore options to increase funding. Although we understand that CDFA's funding was reduced significantly, it could have elected to use some of the remaining funds that the Legislature allocated to it to audit and provide other oversight of the district agricultural associations.
In response to our recommendation that it conduct biannual compliance audits, CDFA responded that since it added the auditor position in 2015, it has directed the auditor to prioritize the most sensitive and critical compliance audits. The association is scheduled for an audit in fiscal year 2019–20, and CDFA stated that it will continue to evaluate available resources so it can conduct biannual audits for all district agricultural associations.
In response to the recommendation that it consider exercising its authority over the association, CDFA stated that it was premature to assume the rights, duties, and powers of the board of the association. Instead, it informed us that effective immediately, its Fairs and Expositions branch will take the following actions with regard to the association:
- Require the board to attend a training course presented by CDFA's Fairs and Expositions branch. It stated that it required the CEO to attend this training course in May 2019.
- Preapprove all board meeting notices and agendas and attend the association's regularly scheduled monthly board meetings and other board meetings as appropriate.
- Review all existing association policies and procedures and assist the board in drafting any policies and procedures necessary for proper management and operation of the association and its employees.
- Review the association's monthly financial statements before each board meeting to identify budget and revenue shortfalls as required for those district agricultural associations in the watch program.
- Ensure that the CEO and board have access to and review the CDFA policies, procedures, accounting guidelines, and online training resources.
- Work with the CEO and board to ensure they are knowledgeable about in-state and out‑of‑state travel requirements. It will also review the CEO's and board's travel plans.
We agree that these are important actions to take; however, the Fairs and Expositions branch should have taken them once it put the association on its watch program in 2013. Because the association has been on the watch program for six years, we disagree that it is too premature for more stringent action and oversight.
Regarding our third recommendation, CDFA reported that its Fairs and Expositions branch will obtain full access to the Department of Motor Vehicles' Employer Pull Notice Program for all permanent state employees hired by all district agricultural associations. It further stated that once the program is accessible, either its staff or properly trained association staff will alert the association's CEO and board when an employee has driving violations or a suspended license so the CEO and board may take appropriate action.
In response to our final recommendation, CDFA reported that it has reviewed the association's response and will work with the CEO and board to ensure they properly and promptly implement the recommendations directed to the association. CDFA stated that it will provide monthly updates to us about the association's implementation of our recommendations.
Association Response
The association stated that because of the Fairs and Expositions branch's 2011 reduction in staffing, the association's workforce was "stretched" and it could no longer provide adequate training about policies and procedures. It stated that it later contracted with the California Fair Services Authority (CFSA) to assist with training in accounting practices to ensure compliance with state accounting procedures. Under a joint power authority with CDFA, CFSA provides accounting, payroll, purchasing, computer, employee benefits, management, and insurance services to California's fairs. The association also stated that since 2013, it has operated on guidance it received from the California Department of Justice that its board has the authority to approve staff and board travel as long as it properly provides notice on the agenda for a board meeting. Although we agree that the board has the authority to approve certain proposed travel assignments if it provides notice on its agenda, the association must still seek approval from the Governor's Office for out-of-state travel and must comply with the ban on travel to certain states.
In June 2019, the association reported the following for each of our recommendations:
Recommendation: Take appropriate disciplinary action against the CEO, the maintenance supervisor, and all other permanent and temporary employees who engaged in the improper governmental activities that we identified.
Response: The association did not report any planned disciplinary action against the CEO. Instead, it reported that it had cautioned the CEO to prioritize training and directed him to reinforce to staff their responsibilities to safeguard state resources properly and report time worked accurately. It reported that the remaining employees would receive appropriate discipline with guidance from CDFA's human resources staff, but it did not identify the progress it had made in those efforts, despite having received our draft report on April 17, 2019.
Recommendation: Recoup the money from the CEO, the deputy manager, and the maintenance supervisor for their inappropriate purchases.
Response: The association stated that the CEO and the board would work with CDFA to come up with a fair and equitable method for determining the amount and manner of reimbursement to the State for any inappropriate expenditures. However, because our recommendation includes potential collections from the CEO, it is inappropriate for the association to allow him to participate in any decisions that involve his own interests.
Recommendation: Recoup the actual costs from the maintenance supervisor for his personal use of a state vehicle.
Response: The association stated that, based on our report, it concluded that the maintenance supervisor used a state vehicle for clearly personal use "on a few occasions," and it sought guidance from CDFA because it did not know how to recoup the cost to the State without knowing the number of occasions or the miles driven related to the misuse. However, we are puzzled by the association's conclusion that the misuse occurred on only a few occasions because, as this report describes, we obtained credible evidence that the maintenance supervisor misused a state vehicle for commuting purposes on a daily basis for several years.
Recommendation: Recoup all travel expenses from employees and board members who exceeded the allowable travel reimbursement amounts for lodging and meals or who improperly traveled to banned states.
Response: The association stated that it would work with CDFA to determine a method for recouping travel expenses that exceeded the state allowance, but it did not report any progress on these efforts within 60 days of receiving a draft of this report. The association also did not indicate whether it plans to collect funds associated with travel to banned states, but it explained that it was operating with the understanding that its board could approve out‑of‑state travel and that its CEO was unaware of the travel ban to certain states until he received a memo from CDFA in July 2018.
Recommendation: Develop appropriate controls for the propane tank, including securing access to the propane tank key. The association should consider installing a meter and creating, maintaining, and auditing a propane usage log.
Response: The association reported that during a gas line repair in late 2018, the CEO decided to remove all the propane tanks because the cost to purchase new tanks with meter devices would have been excessive. It stated that it now purchases propane in small quantities as needed and that the CEO has advised all staff that personal use of propane is prohibited.
Recommendation: Train all staff who have purchasing authority on relevant state laws and CDFA and association accounting policies. This training should specifically focus on requiring the submission of itemized receipts and preventing inappropriate or illegal purchases.
Response: The association reported that in January 2019, the CEO trained all staff with purchasing authority regarding accounting policies and submission of itemized receipts.
Recommendation: Establish an appropriate segregation of duties between credit card holders and those who reconcile the credit card statements.
Response: The association informed us that starting in March 2019, the CEO implemented a process through which accounting staff who do not hold credit cards reconcile the association's monthly credit card statements.
Recommendation: Formally adopt, train staff on, and follow the Fairs and Expositions branch's accounting procedures manual as well as CDFA's Controlled Substances and Alcohol and Incompatible Activities policies.
Response: The association stated that the CEO will recommend that the board adopt the Fairs and Expositions branch's accounting procedures manual, but its response did not mention whether it will adopt CDFA's policies and provide staff training on these procedures and policies. It also stated that the CEO is aware that the storing of alcohol by employees on state grounds is prohibited and that when we informed him that alcohol was in the maintenance department, he immediately oversaw its removal. It further stated that the CEO advised all staff members that they were prohibited from consuming alcohol on association property during their work hours, and it reported that the CEO now frequently conducts random inspections to ensure compliance. However, the association stated that it will continue to allow staff to consume alcohol while on the fairgrounds as private citizens on their own time unless CDFA's Secretary advises otherwise. Thus, the association's response fails to address the problem of employees "hanging out" after work hours and drinking on state grounds after work, regardless of any public association events. Moreover, since the conclusion of our fieldwork, we have received credible information that the CEO continues to allow employees to drink on the fairgrounds.
Recommendation: Implement the State Administrative Manual sections pertaining to inventory control and vehicle usage.
Response: The association stated that the CEO has implemented internal controls requiring all employees to sign out state vehicles and complete daily vehicle mileage logs. It further stated that the CEO is implementing inventory controls to align with the requirements in the State Administrative Manual.
Recommendation: Require employees and board members to submit travel expense claims for their travel expenses (except airfare and car rental), and ensure that future travel-related expenses and reimbursements adhere to all applicable state laws and the Governor's Executive Order B‑06-11.
Response: The association reported that since the CEO received written notification from CDFA in July 2018 regarding the travel ban, it has adhered to the directive. However, the association's response fails to address the other travel laws that it violated that we identify in our report, as well as our recommendation that employees and board members submit travel expense claims.
Respectfully submitted,
ELAINE M. HOWLE, CPA
California State Auditor
August 20, 2019