Report 98020 Summary - January 1999

Department of Rehabilitation: The Business Enterprise Program for the Blind Is Financially Sound, but Opportunities for Improvement Exist

RESULTS IN BRIEF

The federal Randolph-Sheppard Act and the California Welfare and Institutions Code govern how the Depart- ment of Rehabilitation (department) administers the Business Enterprise Program for the Blind (program). The program provides participants the opportunity to be self- supporting by establishing vending facilities throughout the State and training qualified blind people to operate their own vending businesses. It also provides a voluntary pension plan for program participants. Federal grant money, the State's General Fund, vendor fees and contributions, and vending machine commissions fund the program. The department accounts for the receipt and use of vendor fees in the Vending Stand Account-Special Deposit Fund (vending stand fund) and the receipt and use of vending machine commissions in the Vending Machine Trust Fund (vending machine fund).

Our review finds that the vending stand and vending machine funds are financially sound. However, two issues need attention. First, compared to its average annual costs, the surplus in the vending stand fund appears excessive. Specifically, as of June 30, 1997, the vending stand fund's assets exceeded its liabilities by $4,357,000; the unreserved portion of this surplus was sufficient to pay more than two years' worth of its average annual costs.

Additionally, although income from commissions has increased since our last audit because of the department's stepped-up collection efforts, the department can increase this income more than 35 percent if it establishes contracts for all vending machines on state and federal property. As of June 30, 1997, the department had contracts for only 1,161 of the 3,287 vending machines from which it should be receiving commissions.

RECOMMENDATIONS

To improve its financial management of the program, the department should do the following:

AGENCY COMMENTS

Although the department believes its vending stand fund surplus is not excessive, it plans to implement our recommendation to determine whether its surplus is appropriate. Additionally, the department believes that we overstated our estimate of the potential increase in vending machine commissions. Nonetheless, the department states that, although it is unable to dedicate additional staff to contracting at this time, it will continue to review the issue. Our comments follow the department's response.