CSA
Summary
Read the report at California State Auditor ↗
California
Public Utilities
Commission:
It Cannot Ensure That It Spends Railroad
Safety Program Fees in Accordance With
State Law
May 2004
2003-121
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May 12, 2004 2003-121
The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814
Dear Governor and Legislative Leaders:
As requested by the Joint Legislative Audit Committee, the Bureau of State Audits presents its audit report
concerning the California Public Utilities Commission’s (commission) use of fees paid by railroad corporations.
The California Public Utilities Code (code) dictates how the commission must spend Railroad Safety Program
fees, which it collects from railroad corporations to cover the cost of regulating their industry. According to the
code, the commission can only spend the fees on the salaries and per diem and travel expenses of (1) railroad
safety employees directly involved in inspecting railroads and enforcing rail safety regulations, (2) employees
who perform clerical and support functions directly associated with railroad safety inspections, and (3) legal
personnel who actually pursue violations of rail safety regulations beyond the formal complaint level. In 1999,
the code was amended to allow the commission to also recover a portion of its overhead costs while state
personnel actually occupy the above positions and perform the duties related to these three activities.
This report concludes that the commission cannot ensure that the fees collected from railroad corporations
are spent only on the direct labor charges of Railroad Safety Program employees because it does not have an
effective method to track the time they spend working on railroad safety activities. The commission also lacks
policies and procedures to ensure that employees charge only allowable travel-related expenses to the Railroad
Safety Program. Further, the commission has no formal process to update its cost allocation plan (plan) nor does
it maintain its accounting system’s cost allocation table, which contains the basis of the allocation of costs that
cannot practically be charged directly to the programs that benefit from these costs. By failing to update its plan
and table, the commission cannot ensure that it appropriately charges indirect costs to all its various programs,
including the Railroad Safety Program. Without an effective system to track direct and indirect costs, the
commission cannot establish reliable budgets and set appropriate fees for the Railroad Safety Program.
Respectfully submitted,
ELAINE M. HOWLE
State Auditor
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CONTENTS
Summary 1
Introduction 5
Audit Results
The California Public Utilities Commission Does
Not Have an Effective Method to Track the Time
Its Employees Spend on Railroad Safety Activities 9
The Commission Cannot Ensure That It Charges
Only Allowable Travel-Related Expenses to the
Railroad Safety Program 12
Inaccuracies in Its Cost Allocation Plan and
Table Have Caused the Commission to
Incorrectly Charge Indirect Costs to the
Railroad Safety Program 13
Without a System to Track Direct and Indirect
Costs, the Commission Cannot Establish
Reliable Budgets and Set Appropriate Fees 15
Recommendations 16
Appendix
The Status of the California Public Utilities
Commission on Implementing the Department
of Finance’s Recommendations for Improving the
Commission’s Timekeeping System 19
Response to the Audit
California Public Utilities Commission 21
SUMMARY
RESULTS IN BRIEF
The California Public Utilities Code (code) dictates how
the California Public Utilities Commission (commission)
must spend Railroad Safety Program fees, which it collects
Audit Highlights . . . from railroad corporations to cover the cost of regulating their
industry. According to the code, the commission can only
Our review of the California
spend the fees on the salaries and per diem and travel expenses
Public Utilities Commission
of (1) railroad safety employees directly involved in inspecting
(commission) revealed that:
railroads and enforcing rail safety regulations, (2) employees
þ The commission does
who perform clerical and support functions directly associated
not have an effective
with railroad safety inspections, and (3) legal personnel who
method to track the time
its employees spend on actually pursue violations of rail safety regulations beyond the
railroad safety activities. formal complaint level. In 1999, the code was amended to allow
the commission to recover a portion of its overhead costs while
þ The commission cannot
state personnel actually occupy the above positions and perform
ensure that it charges only
allowable travel-related the duties related to these three activities.
expenses to the Railroad
Safety Program.
However, the commission uses a timekeeping system that
þ Inaccuracies in its cost does not track the actual time its employees spend working
allocation plan and on railroad safety activities. As a result, some inspectors
table have caused the
inconsistently report their hours, and the commission uses
commission to incorrectly
estimates to determine the direct labor expenditures of clerical,
charge indirect costs to the
Railroad Safety Program. supervisory, and legal staff who work on activities related to the
Railroad Safety Program. In fiscal years 2002–03 and 2003–04,
þ Without a system to track
errors in those estimates resulted in overcharges to the Railroad
direct and indirect costs,
Safety Program.
the commission cannot
establish reliable budgets
and set appropriate fees. The commission has been trying to upgrade its timekeeping
system since as early as the spring of 2002 to allow its employees
to record the actual time they spend on projects or activities and
to integrate its timekeeping system with its accounting system.
However, the commission has experienced delays and does not
expect to complete the upgraded system until September 2004.
Thus, it cannot ensure that the fees it collects are spent only on
the direct labor charges of Railroad Safety Program employees.
The commission also lacks adequate policies to ensure that its
employees charge only allowable travel-related expenses to the
Railroad Safety Program. Specifically, the commission does not
always require inspectors to report the proper program cost
California State Auditor Report 2003-121 11
account codes or the percentage of time they spend traveling
for Railroad Safety Program inspections on their travel expense
claims. Further, when inspectors do report percentages of
their travel time, the commission’s accounting staff disregard
them when processing inspectors’ claims. Consequently, the
commission cannot ensure that all travel-related expenses
charged to the Railroad Safety Program are allowed.
Weaknesses in its compliance with State procedures prevent the
commission from ensuring that it equitably distributes indirect costs
to programs and funding sources. The commission has no formal
process to update its cost allocation plan (plan) as required by the
State Administrative Manual, nor does it maintain its accounting
system’s cost allocation table (table), which contains the basis of
the allocation of expenditures that cannot practically be charged
directly to its programs that benefit from the expenditures. Since
fiscal year 1999–2000, the commission has been using an informal
process to update the plan that does not include obtaining
management approval of proposed changes. For example, in
July 2002, the commission merged two divisions affecting the
Railroad Safety Program when creating its current Consumer
Protection and Safety Division. However, the commission did
not update its plan to incorporate changes resulting from this
reorganization. As a result, errors occurred in the allocation of
indirect costs to the Railroad Safety Program.
Because the commission does not adequately track the direct
and indirect costs of the Railroad Safety Program, it cannot
establish reliable budgets and set appropriate fees. Lacking
data on actual expenditures, the commission does not know
if the fees its sets and collects adequately cover Railroad Safety
Program expenses or if the fees are excessive. Further, when the
commission establishes its budget and sets fees for the Railroad
Safety Program in subsequent years, it cannot effectively
determine how much to credit or charge railroad corporations.
RECOMMENDATIONS
To properly determine the costs of administering the Railroad
Safety Program and set appropriate fees, the commission should
do the following:
• Move quickly to fully implement upgrades to its timekeeping
system to allow employees to record the actual time
they spend on railroad safety activities and to enable the
commission to reconcile expenditures to funding sources.
22 California State Auditor Report 2003-121 California State Auditor Report 2003-121 33
• Establish procedures requiring inspectors to identify the
program cost account codes to be charged for their travel
expenses on their travel expense claims. Additionally, the
commission should require its accounting staff to enter
all valid codes shown on the travel expense claim into the
accounting system.
• Develop policies and procedures to ensure that it maintains
its plan and table for indirect charges in accordance with
the State Administrative Manual. Specifically, it should
periodically review and update the plan and table to ensure
that the allocation bases are appropriate. Further, it should
ensure that management reviews and approves any changes
to the plan.
AGENCY COMMENT
The commission stated that it has initiated a plan of action to
implement the recommendations. n
22 California State Auditor Report 2003-121 California State Auditor Report 2003-121 33
Blank page inserted for reproduction purposes only.
44 California State Auditor Report 2003-121 California State Auditor Report 2003-121 55
INTRODUCTION
BACKGROUND
In addition to regulating all privately owned utilities, the
California Public Utilities Commission (commission)
enforces safety and service standards for freight and
passenger transportation companies, such as railroads,
limousines, and chartered buses. In July 2002, the commission
merged its Rail Safety and Carriers Division with its Consumer
Services Division when creating its current Consumer Protection
and Safety Division. The new division has three programs that
address the commission’s rail safety responsibilities: Railroad
Safety, Highway-Rail Crossing Safety, and Rail Transit Safety.
Staff with the Railroad Safety Program inspect train tracks,
equipment, and repair facilities, among other things. Staff with
the Highway-Rail Crossing Safety Program oversee the safety of
all public and private intersections of highways and railroads
in the State. Finally, staff with the Rail Transit Safety Program
oversee the safety of light rail, rapid rail, and cable cars. The
commission believes the reorganization consolidates common
functions, activities, and leadership into a single unit without
changing the commission’s programs or management structure.
The Figure on the following page illustrates the effect of the
changes on the Railroad Safety Program.
Until fiscal year 1983–84, general taxes funded most of the
commission’s activities. However, in 1983, the California Public
Utilities Code (code) was amended to allow the commission
to set and collect fees from privately owned utility and
transportation companies to cover the cost of regulating their
industries. The code requires the commission to establish fees
equal to the amount it establishes in its authorized budget for
the same year. The commission must forward its budget proposal
to the Department of Finance (Finance) for approval. Finance
must notify the Joint Legislative Budget Committee of any
budget change larger than $100,000 or 10 percent of the amount
budgeted, whichever is less.
After establishing the budget, the commission drafts a fee
resolution and submits it to Finance for approval. According
to the commission, it bills the State’s two largest railroad
corporations roughly 96 percent of the authorized budget based
on an allocation plan proposed by the railroad corporations in
44 California State Auditor Report 2003-121 California State Auditor Report 2003-121 55
66 California State Auditor Report 2003-121 California State Auditor Report 2003-121 77
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the early 1990s. The commission bills the remaining 4 percent
of the budget to other railroad corporations, each of which pays
the higher of a percentage of the gross revenue they earned
in the State or a minimum amount of $500. The percentage
the commission uses is based on the amount of gross revenue
reported by corporations in the previous calendar year.
The code also dictates how the commission must spend Railroad
Safety Program fees. Specifically, the commission can only spend the
fees for the salaries and per diem and travel expenses of (1) railroad
safety employees directly involved in inspecting railroads and
enforcing rail safety regulations, (2) employees who perform clerical
and support functions directly associated with railroad safety
inspections, and (3) legal personnel who actually pursue violations
of rail safety regulations beyond the formal complaint level. On
October 10, 1999, the code was amended to allow the commission
to recover a portion of its overhead costs while state personnel
actually occupy the above positions and perform the duties
associated with these three activities.
SCOPE AND METHODOLOGY
The Joint Legislative Audit Committee (audit committee)
requested the Bureau of State Audits to determine whether
the commission uses Railroad Safety Program fees according
to requirements specified in the code. Specifically, the audit
committee asked us to examine the laws, rules, and regulations
relevant to the Railroad Safety Program and to examine the
policies and procedures the commission uses to set and collect
fees, account for revenues and expenditures, and develop the
annual budget. In addition, the audit committee asked us to
determine whether a sample of expenditures included only
allowable costs that were valid and properly recorded. Finally,
the audit committee asked us to review the commission’s cost
allocation plan (plan) to determine whether it allocated
indirect costs appropriately.
To understand the use of fees paid by railroad corporations, we
reviewed the code. We also reviewed relevant laws and procedures
relating to the State’s budget and accounting process. Finally, we
interviewed key staff with the Railroad Safety Program.
To determine if the commission sets and collects fees in
accordance with the code, we reviewed the commission’s
relevant processes. We also verified that the commission
66 California State Auditor Report 2003-121 California State Auditor Report 2003-121 77
submitted its fee resolution to Finance for approval. Further,
to verify that the commission collects the appropriate fees, we
reviewed the billing statements it sent to railroad corporations to
ensure that they agreed to the Finance-approved fee resolution
for fiscal year 2002–03. Finally, for a sample of the railroad
corporations, we verified that the gross revenue they reported to
the commission was accurate.
To determine if the commission accounts for revenues
properly, we selected a sample of deposits and traced them
through the commission’s accounting system. To evaluate
whether the commission spent the fees it collected in
accordance with the code, we reviewed its process for
tracking direct labor and travel-related expenses for railroad
safety personnel. For example, we interviewed staff in the
commission’s Legal and Administrative Law Judges divisions to
determine how they charged time related to pursuing violations
of railroad safety regulations. We also tested a sample of travel
expense claims to determine if the expenses were allowable
and properly recorded. Finally, we reviewed the commission’s
implementation plan for upgrading its timekeeping system. In
the Appendix, we summarize the progress the commission has
made in increasing the usefulness of its timekeeping system.
To determine if the commission’s process for developing its
annual budget for the Railroad Safety Program is reasonable, we
interviewed the commission’s staff. We examined supporting
documentation for key amounts in the commission’s budget.
We also analyzed expenditure data to determine if there were
significant variances between the commission’s budget and the
expenditures recorded in its accounting system.
Finally, to determine if the commission allocates indirect costs
appropriately, we reviewed the reasonableness of its plan. We
selected a sample of indirect charges and verified that the
commission made allocations to the appropriate accounts and
funds and used the appropriate bases of allocation. n
88 California State Auditor Report 2003-121 California State Auditor Report 2003-121 99
AUDIT RESULTS
THE CALIFORNIA PUBLIC UTILITIES COMMISSION DOES
NOT HAVE AN EFFECTIVE METHOD TO TRACK THE
TIME ITS EMPLOYEES SPEND ON RAILROAD SAFETY
ACTIVITIES
California’s Public Utilities Code (code) dictates how the
California Public Utilities Commission (commission)
spends the fees it collects from railroad corporations
to support specific activities of the Railroad Safety Program.
However, the commission’s timekeeping system does not track
the actual time its employees spend working on railroad safety
activities. Thus, the commission cannot ensure that the fees
it collects are only spent on the salaries of the railroad safety
employees performing the inspection and enforcement activities
specified in the code.
The code explicitly requires the commission to limit the
expenditure of Railroad Safety Program fees to specific activities
that program employees actually perform. According to our
legal counsel, the Legislature’s reference to “expenditures for
employees occupying and actually performing services” in
specific activities evidences its intent that the commission
spend the fees collected from railroad corporations only
on the actual costs related to the specified Railroad Safety
Program activities. In Sinclair Paint Company v. State Board of
Equalization, a company challenged fees levied by the State
against paint companies to prevent childhood lead poisoning,
claiming the fees represented an unconstitutional tax.1 The
California Supreme Court found that the fees were reasonably
characterized as regulatory fees because they were charged in
connection with regulatory activities, did not exceed the
reasonable cost of providing services, and were not levied for
unrelated revenue purposes. In view of the court’s finding
and the Legislature’s intent, the commission’s accounting
records should be sufficient to demonstrate that the fees are
charged in connection with the specified railroad safety
regulatory activities, do not exceed the reasonable costs of
providing the services, and are spent for the purposes for which
they were levied.
1 Sinclair Paint Company v. State Board of Equalization (1997) 15 Cal. 4th 866.
88 California State Auditor Report 2003-121 California State Auditor Report 2003-121 99
According to the code, the commission must spend Railroad Safety
Program fees it collects on the salaries of employees who are directly
involved in inspecting railroads and enforcing rail safety regulations;
however, the commission cannot demonstrate that it spends fees
only for these purposes. Although inspectors prepare weekly time
sheets, which a program technician enters in the commission’s
timekeeping system, this information is not recorded in the
commission’s accounting system, the California State Accounting
and Reporting System (CALSTARS). Instead, inspectors also prepare
monthly CALSTARS time sheets, which the commission uses to
update its accounting records. However, in reviewing the monthly
CALSTARS time sheets for six inspectors, we found that the hours
charged to the Railroad Safety Program by five inspectors did not
agree with those input into the commission’s timekeeping system.
Thus, we are unable to determine if the commission accurately
charged hours to the Railroad Safety Program.
The code also requires the commission to spend Railroad Safety
Program fees on expenditures for clerical and support employees
directly associated with railroad safety inspections. However,
the commission does not know the actual time spent by the
employees performing these functions. The former manager
of the Railroad Safety Program told us he estimated the time
clerical support staff spend on railroad safety inspections. For
example, in the Los Angeles office, one staff person provides
clerical support to its Railroad Safety and Highway-Rail Crossing
Safety programs. According to the former program manager,
because roughly the same number of staff is in each program, he
charged 50 percent of this employee’s time to each program.
Using a similar method, for one clerical support employee and
two supervising inspectors, the commission charged 85 percent
of their time to the Railroad Safety Program and the remaining
15 percent to the Highway-Rail Crossing Safety Program. Because
it did not require these employees to track the time they spent
on railroad safety inspections, the commission could not ensure
The commission’s that it charged the correct amount of time to the Railroad Safety
timekeeping system does Program for these employees.
not separately track the
time employees in its legal Another code requirement calls for the commission to spend
divisions spend working Railroad Safety Program fees on legal staff who actually pursue
on each of the three violations of railroad safety regulations beyond the informal
railroad safety programs. complaint level. However, the commission’s timekeeping
system does not separately track the time employees in its
Legal and Administrative Law Judges divisions (legal divisions)
spend working on each of the commission’s three rail safety
1100 California State Auditor Report 2003-121 California State Auditor Report 2003-121 1111
programs. The system is designed to capture only the proceeding
or project, industry category, and task or work category of
the work-hours these employees enter. This information is
not sufficient to allow the commission to identify the specific
programs to charge.
Lacking data on actual work-hours for staff in the legal divisions,
the commission charges hours to the various programs based on
its estimates of the time that employees in the legal divisions
spend working on program activities. The commission bases
its estimates on the number of formal matters filed in the
prior year, which is not a clear indicator of the amount of time
employees spend pursuing specific activities. During fiscal year
2002–03, the commission identified errors in the estimates
for staff in the legal divisions. Specifically, the commission
charged the Railroad Safety Program for 0.03 percent of the
Legal Division’s staff time instead of 0.003 percent, which
resulted in an overcharge of roughly $219,000. Additionally, the
commission charged the Railroad Safety Program for 2 percent
of the Administrative Law Judges Division’s staff time when
none of their time should have been charged; consequently, an
overcharge of roughly $156,000 occurred.
Further, the commission cannot ensure that it does not charge
hours to the Railroad Safety Program for employees who are
not involved in inspecting railroads and enforcing rail safety
regulations. The commission recently discovered that in fiscal
year 2002–03, it charged the Railroad Safety Program for
salary expenses totaling almost $495,000 for 11 employees
in the Consumer Protection and Safety Division who did not
Between July 2003 and have positions in the Railroad Safety Program. Although the
February 2004, the commission identified and corrected these errors for fiscal year
commission incorrectly 2002–03, it did not take sufficient steps to ensure that errors
charged the Railroad of this type would not reoccur. In fact, we found that between
Safety Program July 2003 and February 2004, the commission incorrectly
$281,000 for staff in its charged the Railroad Safety Program $281,000 for staff in its
legal divisions. legal divisions. On April 6, 2004, the commission told us that
it plans to adjust its accounting records for this error. The
commission also plans to adjust its accounting records for the
effect this error has on its allocation of indirect costs.
The commission acknowledges that its timekeeping system and
accounting records do not demonstrate sufficiently that the fees
it collects for the Railroad Safety Program are spent only for the
purposes specified in the code. Since the spring of 2002, the
commission has been trying to upgrade its timekeeping system
1100 California State Auditor Report 2003-121 California State Auditor Report 2003-121 1111
to enable employees to record the actual time they spend on
specific projects or activities. Additionally, the commission plans
to integrate its timekeeping system with CALSTARS to reconcile
expenditures to funding sources. However, because of project
delays, the commission does not expect to complete the system
upgrade until September 2004. For example, the commission
has not completely developed a convention for naming and
numbering projects or tasks because it did not anticipate
the complexity involved in establishing the convention. By
providing details such as the date, the name of the railroad
corporation, and the program cost account code for a particular
task, the proposed convention would allow railroad safety
employees to track the actual time they spend inspecting train
tracks, equipment, or repair facilities and enforcing railroad
safety regulations.
THE COMMISSION CANNOT ENSURE THAT IT CHARGES
ONLY ALLOWABLE TRAVEL-RELATED EXPENSES TO THE
RAILROAD SAFETY PROGRAM
Because of weaknesses in its method of processing travel expense
claims submitted by railroad safety inspectors, the commission
cannot ensure that all travel-related expenses charged to the
Railroad Safety Program are allowable.
The code allows the commission to spend Railroad Safety
Program fees on travel-related expenses for railroad safety
inspectors. The commission requires its employees, including
inspectors, to indicate the unit and the program cost account
code to be charged for any travel expenses they incur. The
commission’s fiscal office enters the travel expense claims
into the accounting system and charges the appropriate
programs. However, according to the budget control officer for
the Consumer Protection and Safety Division, inspectors are
instructed to report only one unit and program cost account
code on their travel expense claims unless the dollar amount of
the claim is large. For large claims, the inspectors must note the
percentage split to be charged to the various programs.
In our review, however, we found two travel expense claims
For five travel expense exceeding $1,000 for which all travel expenses were charged
claims, the commission to the Railroad Safety Program, although the inspectors’ time
overcharged the Railroad sheets indicated time spent on other programs. One inspector
Safety Program more had indicated that 80 percent be charged to the Railroad Safety
than $800. Program and 20 percent to another program. Together, the claims
1122 California State Auditor Report 2003-121 California State Auditor Report 2003-121 1133
resulted in an overcharge of more than $500 to the Railroad
Safety Program. We also found three travel expense claims for
less than $1,000 that resulted in an overcharge to the Railroad
Safety Program totaling more than $300 because the travel
expense claims did not indicate the percentage splits shown
on the inspectors’ time sheets. A member of the commission’s
accounting staff told us that it is too time consuming to allocate
costs among several programs and that the inspectors frequently
do not report splits on their claims.
By failing to require inspectors to report the proper program
cost account codes on their travel expense claims and not
directing its accounting staff to charge programs according
to the indicated percentages, the commission cannot ensure
that only allowable travel-related expenses are charged to the
Railroad Safety Program.
INACCURACIES IN ITS COST ALLOCATION PLAN
AND TABLE HAVE CAUSED THE COMMISSION TO
INCORRECTLY CHARGE INDIRECT COSTS TO THE
RAILROAD SAFETY PROGRAM
Although the commission has developed a cost allocation
plan (plan) as required by State accounting procedures, it has
not established a formal process for periodically reviewing
and updating it and its CALSTARS cost allocation table (table).
Consequently, both the plan and table contain inaccuracies that
have caused the commission to improperly charge
the Railroad Safety Program for indirect costs.
Required Elements of a
Cost Allocation Plan A plan describes the method of distributing
operating expenses or equipment costs that cannot
The State Administrative Manual requires that
practically be charged directly to the programs
plans contain the following information:
that benefi t from the accumulated costs. The State
• The frequency of allocating various costs to Administrative Manual requires state agencies to
programs.
document certain information in their plans, as
• The rationale for selecting an allocation base.
outlined in the text box. To evaluate the continued
• The frequency of evaluating the allocation base accuracy of the allocation bases, the commission
to determine its continued accuracy.
needs to update the plan periodically. Without a
• Anticipated changes in allocation bases.
formal process for performing updates regularly,
the commission cannot ensure that it correctly
Source: State Administrative Manual, Section 9202.
charges costs to all its programs, including the
Railroad Safety Program.
1122 California State Auditor Report 2003-121 California State Auditor Report 2003-121 1133
According to the manager of the Budget and Fiscal Services
Unit, within its Management Services Branch, the commission
has been using an informal process to make changes to its plan
since fiscal year 1999–2000 without obtaining management
approval. He also stated that the commission last reviewed and
updated its plan in fiscal year 2000–01. Moreover, in July 2002,
the commission merged divisions to create its current Consumer
Protection and Safety Division but did not update its plan to
incorporate changes resulting from the reorganization.
The commission’s failure to consider the effects of its
reorganization and update the plan resulted in errors in its
allocation of indirect costs to the Railroad Safety Program.
Specifically, the commission did not change its CALSTARS
table to reflect all the unit codes it established during its
reorganization. The Department of Finance requires agencies
that use CALSTARS to input their approved plans into the
table, which contains data that are the basis of the allocation
of expenditures and encumbrances in CALSTARS. Therefore, if
the commission does not maintain its plan and table, it cannot
ensure the equitable distribution of indirect costs to programs
and/or funding sources, including the Railroad Safety Program
fees. For example, as part of the reorganization, the commission
added five payroll codes to identify units in the Railroad Safety
Program. The commission was not aware of its omission of
these codes from the table until we raised the concern, nor did
it initiate changes to the table until April 2004. The commission
plans to adjust its accounting records for this error. Meanwhile,
it has no way of knowing the effect this error has on the
Railroad Safety Program.
We also found that the commission does not always allocate
rent for its Los Angeles office in accordance with the plan.
Specifically, the plan requires this expense to be charged to its
Executive, Consumer Protection and Safety, and Water divisions.
However, during fiscal years 2002–03 and 2003–04, the
commission charged the rent directly to the Executive Division,
The commission using a program cost account code that allocates the rent to
understated office most of its units. We estimate that the commission understated
rent expense to the costs to the Railroad Safety Program in fiscal year 2003–04 by
Railroad Safety Program almost $71,000 because of this error. The commission told us
by almost $71,000. that its accounting staff erroneously used the incorrect program
cost account code and that it plans to adjust its accounting
records before the end of the fiscal year.
1144 California State Auditor Report 2003-121 California State Auditor Report 2003-121 1155
Finally, the commission’s plan and table contain outdated
information. Specifically, the plan and table indicate that the rent
for a building located in Sacramento and not owned by the State
should be allocated to the Legal Division, Executive Division,
Office of Ratepayer Advocates, and Consumer Protection and
Safety Division. However, since only the Consumer Protection
and Safety Division’s employees occupy the space, that division
charges the rent expense directly to its units.
Until the commission establishes procedures to periodically
evaluate the accuracy of its plan and table, it cannot ensure that
it appropriately charges indirect costs to its various programs,
including the Railroad Safety Program.
WITHOUT A SYSTEM TO TRACK DIRECT AND INDIRECT
COSTS, THE COMMISSION CANNOT ESTABLISH
RELIABLE BUDGETS AND SET APPROPRIATE FEES
The code requires the commission to set fees that will
adequately cover the costs of the Railroad Safety Program.
However, because the commission’s budget is not based on
actual expenditures, it does not know whether the fees it sets
and collects from railroad corporations adequately cover costs or
are excessive.
In creating its budget for the Railroad Safety Program, the
commission’s program manager provides the commission’s
budget officer with a list of staff members and the percentage of
time each member spends on Railroad Safety Program activities.
The budget officer uses this information to determine the
estimated salary and benefit costs for these staff. Additionally,
the budget officer includes the amount set in the prior fiscal
year for operating overhead expenditures, unless the number of
staff has since changed. To arrive at the final budget, the budget
officer adjusts the proposed budget for the current year by any
excess or deficiency of fees resulting from his comparison of
the final expenditure amounts reported in CALSTARS. However,
we found that the commission sometimes makes unsupported
adjustments to the expenditure amounts shown in CALSTARS.
Specifically, the commission adjusted its budget for fiscal year
2003–04 by $44,000 based on estimated expenditures of
$3.3 million for fiscal year 2001–02 instead of the $4.2 million
shown in CALSTARS. Also, in developing the fiscal year 2003–04
budget, the budget officer eliminated the total allocated overhead
1144 California State Auditor Report 2003-121 California State Auditor Report 2003-121 1155
costs of $900,000 because they appeared too high, and he believed
they were likely overstated due to higher costs incurred by the
Executive Division. Specifically, the Executive Division entered into
a specialized contract to obtain expertise in corporate restructuring,
an issue that was not related to the Railroad Safety Program.
However, the commission inappropriately passed on the contract
costs of roughly $1.5 million to various programs, including the
Railroad Safety Program.
The commission’s budget officer told us that he typically
charges overhead costs of $300,000 annually to the Railroad
In trying to adjust Safety Program. Consequently, in trying to adjust for the
for an error it made, contract costs, the budget officer inappropriately eliminated
the commission at least $300,000 of overhead costs. This adjustment, coupled
inappropriately with the commission’s inability to demonstrate sufficiently
eliminated at least that it charges only allowable activities to the Railroad Safety
$300,000 of overhead Program, calls into question the amount of fees it charges
costs for the Railroad railroad corporations. Without accurate expenditure data, the
Safety Program commission cannot effectively determine how much to credit or
expenditures. charge railroad corporations when it establishes the budget and
sets fees for the Railroad Safety Program.
RECOMMENDATIONS
To properly determine the costs of administering the Railroad
Safety Program and set appropriate fees, the commission should
do the following:
• Move quickly to fully implement upgrades to its timekeeping
system to allow employees to record the actual time
they spend on railroad safety activities and to enable the
commission to reconcile expenditures to funding sources.
• Ensure that it determines the effect that incorrectly charging
hours for staff in its legal divisions and omitting payroll
codes has on the allocation of indirect costs to the Railroad
Safety Program, and adjust its accounting records for fiscal
year 2003–04.
• Establish procedures requiring inspectors to identify the
program cost account codes to be charged for their travel
expenses on their travel expense claims. Additionally, the
commission should require its accounting staff to enter
all valid codes shown on the travel expense claim into the
accounting system.
1166 California State Auditor Report 2003-121 California State Auditor Report 2003-121 1177
• Develop policies and procedures to ensure that it maintains
its plan and table for indirect charges in accordance with
the State Administrative Manual. Specifically, it should
periodically review and update the plan and table to ensure
that the allocation bases are appropriate. Further, it should
ensure that management reviews and approves any changes
to the plan.
We conducted this review under the authority vested in the California State Auditor by
Section 8543 et seq. of the California Government Code and according to generally accepted
government auditing standards. We limited our review to those areas specified in the audit
scope section of this report.
Respectfully submitted,
ELAINE M. HOWLE
State Auditor
Date: May 12, 2004
Staff: Joanne Quarles, CPA, Audit Principal
Ana Clark
Renee Davenport
Barbara Henderson
1166 California State Auditor Report 2003-121 California State Auditor Report 2003-121 1177
Blank page inserted for reproduction purposes only.
1188 California State Auditor Report 2003-121 California State Auditor Report 2003-121 1199
APPENDIX
The Status of the California
Public Utilities Commission on
Implementing the Department
of Finance’s Recommendations
for Improving the Commission’s
Timekeeping System
The Department of Finance (Finance) has been reviewing
the timekeeping system of the California Public Utilities
Commission (commission) and issued a management letter
dated February 2003 that contains several recommendations to
improve the usefulness of the system. Table A.1 on the following
page presents Finance’s recommendations and the commission’s
anticipated completion dates.
1188 California State Auditor Report 2003-121 California State Auditor Report 2003-121 1199
2200 California State Auditor Report 2003-121 California State Auditor Report 2003-121 2211
1.A ELBAT
s’ecnaniF
fo
tnemtrapeD
eht
gnitnemelpmI no noissimmoC
seitilitU
cilbuP
ainrofilaC eht fo sutatS ehT
metsyS
gnipeekemiT
s’noissimmoC eht
gnivorpmI
rof snoitadnemmoceR
4002
yraurbeF
fo
sa
sutatS
noitatnemelpmI
snoitadnemmoceR tnemelpmI
ot nalP s’noissimmoC
snoitadnemmoceR s’ecnaniF
ylluf
si
noitadnemmocer
siht
taht
setacidni
noissimmoc
ehT
ti ssecorp tnempoleved eht ni ylrae
taht setacidni
noissimmoc
ehT
s’noissimmoc eht morf sevitatneserper htiw puorgkrow
a etaerC
.detnemelpmi
.metsys gnipeekemit elgnis a no
eerga ot spuorgkrow
dehsilbatse
dna ,tinu ygolonhcet noitamrofni ,srosivrepus ,sreganam
,srotcerid
dna detpecca yllasrevinu a gnipoleved ni htiw
krow ot ecnaniF
.metsys gnikcart
daolkrow lufesu
si
noitadnemmocer
siht
taht
setacidni
noissimmoc
ehT
wen eht fo troppus s’tnemeganam
taht setacidni
noissimmoc
ehT
yb detroppus eb lliw taht metsys a tnemelpmi
dna poleveD
.detnemelpmi
yllaitrap
lla yb noitapicitrap lluf gnidulcni
yb tcejorp eht
otni
tliub si metsys
ot tneuqesbus dna ,gnirud ,erofeb tnemeganam
noissimmoc
sa noitacilppa eht gnipoleved fo ssecorp
eht ni tnemeganam
noisivid
.noitatnemelpmi
eht ,yllanoitiddA .rotcerid evitucexe eht
yb ecnailpmoc
thgisrevo
sa llew
ylluf si ti ecno metsys eht fo sweiver cidoirep
eludehcs
ot snalp
noissimmoc
.stcejorp dna krow fo sepyt wen serutpac
ti taht erusne
ot
detnemelpmi
*.detnemelpmi
yllaitraP
seeyolpme lla taht gnirusne rof elbisnopser
eb lliw rotcerid
evitucexe ehT
htob ,metsys eht fo esu eht ni noitapicitrap tnecrep
001 erusnE
ot snalp osla noissimmoc ehT .metsys eht
fo tnemeriuqer
eht
htiw ylpmoc
.yllaudividni dna
yllanoitazinagro
metsys eht fo esu eht ni noitapicitrap tnecrep
001 gniriuqer
ycilop a eussi
.ffats
sti ot gniniart
edivorp
lliw dna
*.detnemelpmi
yllaitraP
si sksat fo yranoitcid ediw-noissimmoc
sti taht setats
noissimmoc
ehT
dna gniman dradnats ediw-noissimmoc evitaroballoc
a tnemelpmI
.nigeb nac metsys
eht taht
os etelpmoc
tsomla
.stcejorp/sksat rof noitnevnoc metsys
gnirebmun
*.detnemelpmi
yllaitraP
gnidrocer rof stamrof gnizidradnats etanidrooc
ot snalp
noissimmoc
ehT
,yliad a rehtie no emit ffats gnidrocer rof stamrof
ezidradnatS
eht yfitrec dna yfirev sreganam dna
srosivrepus gnivah
htiw emit ffats
.sisab ylhtnom
ro ,ylkeew
.steehs
emit ’seeyolpme
fo ycarucca
*.detnemelpmi
yllaitraP
dna ,eludom yrtne atad eno ylno eb lliw
ereht taht setats
noissimmoc
ehT
detamitse eht naht rehtar dedrocer eb dekrow emit
lautca eriuqeR
.snoisivid lla htiw dehcaer
neeb ydaerla
sah tnemeerga
.ffats emos yb tupni gnieb yltnerruc
era taht sruoh
ylluf
si
noitadnemmocer
siht
taht
setacidni
noissimmoc
ehT
repeeketag a sedulcni ngised metsys
eht taht setats
noissimmoc
ehT
fo ycarucca eht yfitrec dna yfirev sreganam dna
srosivrepus evaH
.detnemelpmi
.weiver rosivrepus retfa seirtne ffats tcejer
ro tsop rehtie
lliw
taht noitcnuf
.steehs
emit ’seeyolpme
*.detnemelpmi
yllaitraP
emitrevo gnitsixe sti mrofnoc lliw metsys
eht taht setats
noissimmoc
ehT
sruoh emitrevo eht tneserper yletarucca ot denrae
emitrevo kcarT
stcejorp cfiiceps rof sruoh emitrevo erutpac
ot ffats
wolla
lliw dna ycilop
.tcejorp cfiiceps a no tneps sruoh latot eht
ro/dna dekrow
.sksat dna
*.detnemelpmi
yllaitraP
ot eludom a evah lliw metsys wen
eht taht setats
noissimmoc
ehT
ro yltnenamrep dengissaer seeyolpme fo seitivitca
eht kcarT
.seitivitca kcart
.noisivid rehtona
ot yliraropmet
*.detnemelpmi
yllaitraP
yrtne atad eno evah lliw metsys wen
eht taht setats
noissimmoc
ehT
tneverp ot steehs emit s’htnom suoiverp eht
ot ssecca tcirtseR
steehs emit s’htnom suoiverp eht
ot ssecca tcirtser
lliw
taht eludom
.sruoh dedrocer
gnignahc
.snoisivid
ssorca
yltnetsisnoc
*.detnemelpmi
yllaitraP
htiw noitargetni/daolpu atad detamotua
eht taht setats
noissimmoc
ehT
eht ,secruos gnidnuf ot serutidnepxe fo noitailicnocer
elbane
oT
metsys dna snoitcirtser ytiruces fo esuaceb
weiver rednu
llits
si SRATSLAC
eht htiw metsys gnipeekemit eht etargetni dluohs
noissimmoc
eht ot sdrocer krow lla eit ot snalp noissimmoc
eht ,revewoH
.seitilibapac
.)SRATSLAC( metsyS gnitropeR dna gnitnuoccA
etatS ainrofilaC
tegdub rof secruos gnidnuf dna sedoc
tnuocca tsoc
margorp
SRATSLAC
.sesoprup
noitailicnocer
e
b
lliw
d
o
ire
p
g
n itro
p
e
r-e
m
it
ts
rfi
e
h t
s
tc
e jo rp n o is s im m o c e h T .e s u n i s i m e ts
y s e h t e c n o
d e tn
e m e lp m i y .n o
llu
f e
is
iv
iD
b lliw n y te fa S o d ita d n n a n eo m m itc e oto c e rP r s re ihm t ,n o is o C u s n s im e h m o c e t ro f 4 h0
t o 0 2 t g re nb idm ro c e tp
ce
AS
*
Agency’s comments provided as text only.
California Public Utilities Commission
505 Van Ness Avenue
San Francisco, CA 94102-2198
April 29, 2004
Elaine M. Howle
State Auditor
Bureau of State Audits
555 Capitol Mall, Suite 300
Sacramento, CA 95814
Dear Ms. Howle:
Thank you for the opportunity to comment on your report (May 2004, 2003-121) on the audit of the
Railroad Safety Program User Fees. We have reviewed the four recommendations contained in
the report and have initiated a plan of action to implement each recommendation. The following is the
current status of our efforts:
• Development of a work tracking system linked to our CalStars accounting system to
improve timekeeping accuracy is an ongoing effort and initial implementation is anticipated
by September 2004.
• Procedures are currently being developed to ensure accurate identification of program
cost accounts by inspectors and internal controls are being developed to ascertain proper
accounting for these costs.
• Procedures will be developed to regularly review our cost allocation plan and a process
will be implemented to consider changes for presentation to management for review and
approval.
• Accounting adjustments to address audit findings related to legal staff costs allocations and
omitted payroll codes impacting direct costs will be addressed and reconciled in the current
fiscal year.
We will continue to direct our efforts to satisfy the recommendations contained in your report and
provide your office periodic progress reports.
Sincerely,
(Signed by: William Ahern)
William Ahern
Executive Director
2200 California State Auditor Report 2003-121 California State Auditor Report 2003-121 2211
cc: Members of the Legislature
Office of the Lieutenant Governor
Milton Marks Commission on California State
Government Organization and Economy
Department of Finance
Attorney General
State Controller
State Treasurer
Legislative Analyst
Senate Office of Research
California Research Bureau
Capitol Press
2222 California State Auditor Report 2003-121