Report 2012-110 Recommendation 11 Responses

Report 2012-110: Special Interest License Plate Funds: The State Has Foregone Certain Revenues Related to Special Interest License Plates and Some Expenditures Were Unallowable or Unsupported (Release Date: April 2013)

Recommendation #11 To: Emergency Management Agency

To make certain that money from the special plate funds pay only for allowable and supportable activities, Cal EMA should maintain documentation to support its charges to the antiterrorism fund. For example, it should ensure that employees submit signed time reports to support the time they spend on antiterrorism-related activities.

Annual Follow-Up Agency Response From November 2017

We have provided information to substantiate the costs in numerous responses and do not agree with the State Auditor's interpretation of the information. Therefore, we cannot implement the recommendation, as the process used to capture and document costs complies with law and policy.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

We stated on page 31 and 32 of the report that Cal OES (formerly Cal EMA) did not adequately support expenditures for salaries and indirect cost distributions we reviewed. While Cal OES has demonstrated how it allocates its overhead expenses, it has not demonstrated that those overhead expenses it paid using the Antiterrorism Fund money are directly related to antiterrorism activities, as required by law. As such, we disagree with Cal OES' assertion that it has substantiated the costs.

Annual Follow-Up Agency Response From October 2016

We have provided information to substantiate the costs in numerous responses and do not agree with the State Auditor's interpretation of the information. Therefore, we will not implement the recommendation, as the processes used to capture and document costs complies with law and policy.

Cal OES uses Program Cost Account (PCA) codes to charge specific positions and hours to different funding sources. Support staff performing administrative functions bill their hours to the PCA code for distributed administration. A portion of distributed administration costs are billed to the antiterrorism fund in accordance with California Vehicle Code Section 5066(e).

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

Annual Follow-Up Agency Response From October 2015

The State Auditor found that while Cal OES has demonstrated how it allocates its overhead expenses, Cal OES has not demonstrated that those overhead expenses paid using antiterrorism fund money are, as required by California Vehicle Code Section 5066(e), exclusively for purposes directly related to fighting terrorism.

Cal OES maintains documentation on charges to the antiterrorism fund. California Vehicle Code Section 5066(e) states that within the definition of "exclusively for purposes directly related to fighting terrorism," "[e]ligible activities include, but are not limited to, hiring support staff to perform administrative tasks...and hazardous materials and other equipment expenditures." The overhead expenses in question are the support staff performing administrative tasks. The law explicitly allows those costs to be paid from the antiterrorism fund. In addition, trailer bill language effective 7/1/13 eliminated the 5 percent administrative cap. Therefore, unless Cal OES administers funds passed onto grantees, there is no limit to administrative costs related to antiterrorism funds. Cal OES uses Program Cost Account (PCA) codes to charge specific positions and hours to different funding sources. Support staff performing administrative functions bill their hours to the PCA code for distributed administration. A portion of distributed administration costs are billed to the antiterrorism fund in accordance with California Vehicle Code Section 5066(e).

It should also be noted, in the Governor's Budget for 2013-14, the Governor proposed the replacement of $500,000 General Fund appropriated to Cal OES and used by the California Specialized Training Institute with $500,000 antiterrorism funds to provide courses within the Criminal Justice Section that are related to Terrorism training. The Legislature approved that budget change proposal.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

We stated on page 31 and 32 of the report that Cal OES (formerly Cal EMA) did not adequately support expenditures for salaries and indirect cost distributions we reviewed. Notwithstanding its response above, Cal OES has not demonstrated that the activities captured by the administrative overhead PCA that it allocated to accounts paid for from the Antiterrorism Fund are directly related to antiterrorism activities. While the Antiterrorism Fund may pay for an indirect allocation of time spent, for example, by executive or administrative office staff participation in an antiterrorism training exercise, which is directly related to antiterrorism, it may not pay for an indirect allocation of those same individuals' activities in coordinating an emergency response to mudslides, which is not directly related to antiterrorism.

Annual Follow-Up Agency Response From October 2014

The State Auditor found that Cal OES did not adequately support expenditures for salaries and indirect cost distributions paid for through fees generated from Vehicle Code section 5066 which must be used for antiterrorism activities.

The Vehicle Code section 5066 (e) defines antiterrorism activities. It specifically states, "Eligible activities include, but are not limited to, hiring support staff to perform administrative tasks. . . and other equipment expenditures." Therefore, pursuant to this statute, Cal OES is entitled to use Antiterrorism Funds to pay for support staff to perform administrative tasks. By statutory definition, these costs are directly related to antiterrorism activities.

There is nothing in the statute that prohibits charging a portion of the administrative costs that Cal OES incurs for antiterrorism activities. The five (5) percent limitation only applies to efforts supporting local antiterrorism. (Vehicle Code Section 5066(c)(1)(A).) Cal OES is focused on statewide antiterrorism activities.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

We stated on page 32 and 33 of the report that Cal OES (formerly Cal EMA) did not adequately support expenditures for salaries and indirect cost distributions we reviewed. While Cal OES has demonstrated how it allocates its overhead expenses, it has not demonstrated that those overhead expenses it paid using antiterrorism fund money are, as required by Vehicle Code Section 5066 (e), exclusively for purposes directly related to fighting terrorism.

1-Year Agency Response

The State Auditor would like documentation on how Cal OES distributes indirect costs. Cal OES uses the California State Accounting and Reporting System (CalSTARS), an automated organization and program cost accounting system. The attached documents show the three Program Cost Accounts (PCA) Cal OES uses in 2013-14 fiscal year (Exhibits A, B, and C). Exhibit D shows the distribution of the Cal OES Administrative charges and identifies the three PCAs (02340, 02341, 04034) used for the antiterrorism fund within the cost distribution ranges. Exhibit D shows those costs will be documented in CalSTARS reports under the object code 427- Indirect Distributed Administration Costs.

Exhibit D also shows the administrative costs (PCA 99650), which are all costs associated with the PCA 99650. Those costs are distributed to the various benefiting Cal OES programs, including the antiterrorism fund, in proportion to the salaries and wages of the benefiting programs (e.g. OD/AO ranges 00300-09900, Permanent Salaries, Temporary Help, and Overtime).

Exhibits E and F show the State Administrative Manual sections relating to the allocation of indirect costs including the method of distributing the costs based on salaries and wages of the benefited programs is acceptable.

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

We stated on page 31 and 32 of the report that Cal OES (formerly Cal EMA) did not adequately support expenditures for salaries and indirect cost distributions we reviewed. While Cal OES has demonstrated how it allocates its overhead expenses, it has not demonstrated that those overhead expenses it paid using the Antiterrorism Fund money are directly related to antiterrorism activities, as required by law. Specifically, Cal OES did not demonstrate that those expenses within PCA 99650 that it distributed to PCAs 02340, 02341, and 04034 were directly related to antiterrorism activities, and thus were eligible for payment from Antiterrorism Fund money. As such, we rate Cal OES' status for this recommendation as partially implemented.

6-Month Agency Response

The California Office of Emergency Services (Cal OES) has implemented procedures to assure it retains signed time reports for staff working on antiterrorism activities. Cal OES now uses an electronic process in our Lotus Notes database to submit and authorize time reports for staff. This new process ensures all time reports are maintained, accessible and authorized through electronic signatures. The time reports also document and support employees' time spent on specific project activities, including antiterrorism activities, if applicable. The internal procedures for the electronic process have been provided to the State Auditor.

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

We stated on page 31 and 32 of the report that Cal OES (formerly Cal EMA) did not adequately support expenditures for salaries and indirect cost distributions we tested. While Cal OES provided us documentation of its processes to assure it has signed time sheets, it did not address how Cal OES would document the fund's share of indirect cost distributions.

60-Day Agency Response

Cal EMA has implemented procedures to assure it retains signed time sheets for staff working on antiterrorism related activities.

California State Auditor's Assessment of 60-Day Status: Pending

Cal EMA was not able to provide the documents to support its implementation of the procedures to assure it maintains documentation supporting charges it makes to the antiterrorism fund.

All Recommendations in 2012-110

Agency responses received after June 2013 are posted verbatim.