Report 2023-124 Recommendation 3 Responses

Report 2023-124: Local Streets and Roads Program: State Agencies and Cities Are Generally Following Requirements as They Attempt to Improve Conditions (Release Date: April 2024)

Recommendation #3 To: Controller's Office, State

To ensure that it holds cities and counties accountable to state law and that they are not supplanting local spending with program funds, by October 2024, the State Controller should begin auditing cities and counties that it identifies as at risk of not meeting the maintenance-of-effort requirement. It should withhold program funds in the amount prescribed by law from cities and counties that it concludes have not complied with the requirement.

1-Year Agency Response

The State Controller's Office (SCO) is conducting audits of cities and counties identified at risk of not meeting the Road Maintenance and Rehabilitation Program (RMRP) Maintenance of Effort (MOE) requirements in accordance with generally accepted government auditing standards. The SCO began five audits of the RMRP MOE requirements during fiscal year 2024-25. Of the five audits, the SCO has issued one final audit report, issued two draft reports with final reports expected to be issued in May 2026, and substantially completed fieldwork for two additional audits with final reports expected to be issued in July 2026. If audit results conclude that a city or a county has not complied with Streets and Highways Code (SHC) section 2036(a), the SCO will withhold program funds in the amount prescribed by SHC section 2036(3).

To further expand the RMRP MOE audit coverage, the SCO incorporated the RMRP maintenance-of-effort requirements into the audit scope of 21 Gas Tax audits.

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

Annual Follow-Up Agency Response From April 2025

The State Controller's Office (SCO) Division of Audits began conducting audits of cities and counties identified as at risk for not meeting the maintenance-of-effort requirements. The SCO has started three audits during fiscal year 2024-25. These audits are currently active audits. The audits are being conducted in accordance with generally accepted government auditing standards. If audit results conclude that a city or a county has not complied with Streets and Highways Code (SHC) section 2036(a), the SCO will withhold program funds in the amount prescribed by SHC section 2036(3).

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

Although the SCO has provided our office with the job start letters associated with its audits, until we see evidence of the audits being conducted, we are not assessing this recommendation as fully implemented.

6-Month Agency Response

The State Controller's Office's (SCO) Division of Audits began conducting audits of cities and counties identified as at risk for not meeting the maintenance-of-effort requirements. The SCO began two-audits in August 2024 and plans to complete an additional two audits during fiscal year 2024-25. The audits are being conducted in accordance with generally accepted government auditing standards. If audit results conclude that a city or county has not complied with Street and Highway Code Section 2036(a), the SCO will withhold program funds in the amount prescribed by Streets and Highway Code Section 2036(3). Due to ongoing significant resource limitations, the SCO continues to seek the critical resources essential for conducting these audits.

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

60-Day Agency Response

The State Controller's Office is committed to ensuring that cities and counties are held accountable to state law and are not supplanting local spending with program funds. The State Controller's Office will continue to pursue resources to perform the Maintenance of Effort audits and is optimistic that the California State Auditor's Report will assist the State Controller's Office in supporting our continued requests for resources.

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

All Recommendations in 2023-124

Agency responses received are posted verbatim.