CSA
Summary
Read the report at California State Auditor ↗
Vehicle License
Fee Adjustment:
The Department of Motor Vehicles
Effectively Captured the Information
Needed to Calculate the Adjustment
September 2005
2005-125.1
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September 30, 2005 2005-125.1
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 Department of Motor Vehicles’ (DMV) capture of information needed for the
State to calculate the fiscal year 2005-06 vehicle license fee adjustment.
The report concludes that the DMV captured sufficient information to appropriately compute that it
would have collected $6.5 billion in vehicle license fees had the 2 percent vehicle license fee rate
remained in effect during fiscal year 2004-05. Specifically, the DMV made changes to its information
systems to effectively bill and account for the correct vehicle license fee rate and offset. In addition,
our review of 39 transactions for vehicle license fee collections and offsets revealed that the changes
the DMV made to its information systems worked as intended. Finally, the DMV recorded the vehicle
license fee information in sufficient detail to determine the date it collected the fees and the year for
which it assessed them.
Respectfully submitted,
ELAINE M. HOWLE
State Auditor
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CONTENTS
Summary 1
Introduction 3
Audit Results
The Department of Motor Vehicles Appropriately
Accounted for Vehicle License Fees and Offsets
for Fiscal Year 2004–05 11
The DMV Determined That Its Vehicle License
Fee Collections Would Have Totaled $6.5 Billion
in Fiscal Year 2004–05 13
Response to the Audit
Business, Transportation and Housing Agency,
Department of Motor Vehicles 17
SUMMARY
RESULTS IN BRIEF
The Department of Motor Vehicles (DMV) assesses, bills,
Audit Highlights . . . and collects vehicle license fees from vehicle owners.
For many years state law set the vehicle license fee
Our review of the Department rate at 2 percent of the market value of a vehicle. However,
of Motor Vehicles’ (DMV) the Legislature amended statutes to require a reduction in
capture of information needed
the vehicle license fees that vehicle owners paid from 1999
by the State to calculate the
fiscal year 2005–06 vehicle through 2004. For example, from July 1, 2001, through
license fee adjustment found December 31, 2004, state law required a 67.5 percent reduction
that:
to the 2 percent rate, meaning that vehicle owners in the
þ The DMV captured State paid vehicle license fees at the rate of 0.65 percent of
sufficient information to their vehicles’ market value.
appropriately compute
that it would have collected
Because state law requires the State Controller’s Office
$6.5 billion in vehicle
license fees during fiscal (controller’s office) to allocate money collected from vehicle
year 2004–05 had the license fees to cities and counties, the reduction in vehicle
2 percent vehicle license
license fees paid would have resulted in significant revenue
fee rate remained in effect
losses for local governments. However, state law in effect
during the fiscal year.
during the period required the State to offset, or make up for,
þ The DMV made changes the reduction in the vehicle license fees by making transfers
to its information systems
from the General Fund. Legislation enacted in 2004 eliminated
to effectively bill and
account for the correct the General Fund offset to the vehicle license fee rate
vehicle license fee rate and effective January 1, 2005, and concurrently reduced the rate
vehicle license fee offset.
to 0.65 percent of the market value of a vehicle. In addition,
þ Based on our review of the legislation altered the funding source for compensating
39 transactions and local governments for the loss of vehicle license fee revenues,
significant adjustments switching from the General Fund to local property taxes. The
related to vehicle license fee
legislation also required the controller’s office to calculate and
collections and offsets, the
changes the DMV made report by October 15, 2005, the vehicle license fee adjustment
to its information systems for fiscal year 2005–06. As used in state law, the term vehicle
worked as intended and it
license fee adjustment is the compensation local cities and
appropriately accounted for
counties receive from local property taxes. We will issue in
the collections and offsets
during fiscal year 2004–05. October 2005 our report on the calculation of the vehicle license
fee adjustment the controller’s office is required to make.
þ The DMV recorded
the vehicle license fee
information in sufficient The DMV captured sufficient information to compute that it
detail to determine the would have collected $6.5 billion in vehicle license fees had the
date that it collected
2 percent rate remained in effect during fiscal year 2004–05.
the fees and the year for
This calculation consisted of $4.4 billion in vehicle license fee
which it assessed them.
reductions and $2.1 billion in vehicle license fees the DMV
actually collected during the fiscal year. We use the term vehicle
California State Auditor Report 2005-125.1 11
license fee reduction to refer to the difference between the fees the
DMV would have collected from vehicle owners if they had paid
vehicle license fees at a rate of 2 percent and the fees it actually
collected in fiscal year 2004–05.
We found that the DMV made changes to its information systems
to effectively bill and account for the correct vehicle license fee
rate and the vehicle license fee offset. In addition, our review
of 39 transactions for vehicle license fee collections and offsets
revealed that the changes the DMV made to its information systems
worked as intended. We also determined through our review of
the transactions and significant adjustments to the vehicle license
fees and offsets that the DMV appropriately accounted for the
collections and offsets during fiscal year 2004–05. Finally, the DMV
recorded the vehicle license fee information in sufficient detail to
determine the dates on which it collected the fees and the years for
which it assessed them.
AGENCY COMMENTS
Both the DMV and the Business, Transportation and Housing
Agency were pleased with the results of our review. n
22 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 33
INTRODUCTION
BACKGROUND
The annual vehicle license fees that vehicle owners in
California pay are an important source of revenue for
cities and counties. The Department of Motor Vehicles
(DMV) collects the fees, and the State Controller’s Office
(controller’s office) allocates the fees to local governments based
on their populations. Under current law, cities and counties
must use about 75 percent of vehicle license fee revenues for
health and welfare realignment programs but have discretion in
the use of the remainder.
The rate for vehicle license fees that owners paid remained stable
for many years at 2 percent of the market value of their vehicles,
but recently the Legislature amended state law to reduce that rate.
To fully compensate cities and counties for the resulting reduction
in revenues, the law originally required the State to transfer
amounts from the General Fund. These transfers are known as
vehicle license fee offsets. However, in 2004 the Legislature enacted
other changes to state law that repealed the requirement that
General Fund transfers be used to make up for the lost revenues.
Instead, according to the amended state law, each county must
make up for the lost revenue by reducing the amount of local
property tax revenue it otherwise would allocate to the county
Educational Revenue Augmentation Fund (ERAF).
Since the early 1990s every county must allocate a specific
amount of its local property tax revenue to the county ERAF
for local educational agencies to use to augment state funding
for public education. The 2004 changes to state law require
counties to reduce their ERAF allocations, except in fiscal years
2004–05 and 2005–06, by essentially the same amounts they
would have received if the State were still providing money
from the General Fund. Each county must allocate the amount
of the ERAF allocation reduction—known as the vehicle license
fee adjustment—to local governments to compensate for the
revenues they lost as a result of the lower vehicle license fees
that vehicle owners paid. In addition, to make up for the
reduced amount of money available in county ERAFs, state law
requires adjustments be made to the percentage of General Fund
money the State appropriates for funding public education so
local educational agencies experience no net fiscal effect.
22 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 33
Because the vehicle license fee adjustment for fi scal year 2005–06
will play an important role in the calculation of the adjustment
in subsequent years, an accurate calculation of the amount of
the adjustment is particularly crucial. Section 97.70(c) of the
Revenue and Taxation Code states that for fi scal year 2006–07
and each fi scal year thereafter, county auditors will use the prior
year’s vehicle license fee adjustment as one component of the
current year’s adjustment calculation. Thus, the adjustment to
be determined by October 15, 2005, will serve as the foundation
for the calculation of the vehicle license fee adjustment to be
transferred from property taxes in future years.
STATE LAW REQUIRES THE COLLECTION OF VEHICLE
LICENSE FEES AND THEIR ALLOCATION TO CITIES AND
COUNTIES
In 1935 the Legislature established the vehicle license fee in
lieu of a property tax on vehicles. The State, through the DMV,
annually assesses, bills, and collects vehicle license fees for most
vehicles subject to registration in California.1 Vehicle license fees
are assessed in addition to other fees, such as vehicle registration
fees, air quality fees, and commercial vehicle weight fees. State
law requires the vehicle license fee to be based on the vehicle’s
market value, which is derived from the purchase
price of the vehicle, and requires the market value
The State Uses Two Funds to to be annually depreciated by specifi c percentages.
Deposit License Fees
The California Constitution requires vehicle
Currently
Authorized license fees to be allocated to cities and counties
Fund Percentage as provided in state law. Statutes require the
controller’s offi ce to allocate the vehicle license fees
Local Revenue Fund—
Vehicle License Fee that the DMV collects to cities and counties on the
Account 74.9% basis of population, after the deduction of expenses
to enforce, administer, and allocate the vehicle
Transportation Tax Fund—
license fees collected. As shown in the text box, the
Motor Vehicle License
State uses specifi c accounts within two funds—
Fee Account 25.1%
the Local Revenue Fund and the Transportation Tax
Source: Revenue and Taxation Code, Fund—to deposit the collected vehicle license fees
Section 11001.5(a)(1). in statutorily required percentages before making
allocations to cities and counties.
1 Certain vehicles, such as those owned or leased by government entities and trailers
in the permanent trailer identifi cation plate program, are exempt from paying vehicle
license fees.
44 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 55
The controller’s office allocates the vehicle license fees to cities
and counties in two monthly payments. According to the
statutes, cities and counties must use vehicle license fees
allocated from the Local Revenue Fund for health and welfare
realignment programs. State law does not specify the use of
vehicle license fees allocated to cities and counties from the
Transportation Tax Fund.
THE LEGISLATURE REDUCED THE AMOUNTS VEHICLE
OWNERS PAID, OFFSETTING THE REDUCTION WITH
GENERAL FUND PAYMENTS
Beginning in 1949 state law required a 2 percent rate for vehicle
license fees, meaning that each vehicle license fee assessed,
billed, and collected was 2 percent of the vehicle’s current
market value. However, the Legislature amended the law in
recent years to provide tax relief to vehicle owners by reducing
the vehicle license fees they paid, even though the Legislature
retained the 2 percent rate in law. This reduction in vehicle
license fees paid would have resulted in significant revenue
losses for local governments if the State allocated to them only
the actual amounts it collected in vehicle license fees from
vehicle owners. Therefore, the Legislature included in state
law the requirement that the money needed to offset, or make
up for, the reduction in paid vehicle license fees be transferred
from the General Fund to the Transportation Tax Fund and the
Local Revenue Fund. Table 1 shows the operative dates of these
amendments to state law, offset percentages, and vehicle license
fee rates paid by vehicle owners.
TABLE 1
Amendments to State Law Required Offsets to the Reduction
in the Rate of the Vehicle License Fee Paid
Vehicle License Fee
Operative Date of the Offset Rate Vehicle Owners
Amendment Percentage Actually Paid
January 1, 1999 25.0% 1.50%
January 1, 2000 35.0 1.30
July 1, 2001 67.5 0.65
Source: Chapter 322, Statutes of 1998, as amended.
44 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 55
For fiscal years 1998–99 through 2003–04, the transfers the
State made from the General Fund ranged from $482 million
to $3.8 billion. As a result of these transfers, cities and counties
continued to receive the same revenues they would have
received if vehicle owners had paid their vehicle license fees
at the 2 percent rate. However, the law stated that within
90 days of finding that there was insufficient money available
for transfer from the General Fund to provide the full amount
needed for the offsets, the State must reduce or eliminate the
vehicle license fee offset.
In June 2003 the director of the Department of Finance (Finance
director), who has authority over the State’s financial and
business policies, triggered the elimination of the offset when he
made the finding that the General Fund did not have sufficient
money to transfer the full amount needed to fund the offset.
As a result of the Finance director’s finding, the 67.5 percent
offset was eliminated effective June 2003, and the vehicle license
fee rate that vehicle owners paid was returned to 2 percent of
the market value of their vehicles, effective October 1, 2003.
However, in a November 2003 Executive Order, the governor
stated that the Finance director’s determination of insufficient
funds was in error, reinstated the offset, and directed the DMV
to provide refunds to any taxpayers who had paid vehicle license
fees at the 2 percent rate.
During the period between the elimination and reinstatement
of the offset in 2003, the State stopped making General Fund
transfers to cities and counties, causing a gap in funding to
local governments. To rectify the loss of funding, state law
requires the controller’s office to transfer from the General
Fund, by August 15, 2006, an amount equal to the offsets not
transferred during the funding gap. The State has appropriated
nearly $1.2 billion for transfer to cities and counties in fiscal
year 2005–06 to pay for the gap in funding.
STATUTORY CHANGES IN 2004 ALTERED THE
SOURCE OF FUNDS USED TO COMPENSATE LOCAL
GOVERNMENTS
Among the actions taken by the Legislature to implement
additional changes in the laws governing vehicle license fees was
the enactment of Chapter 211, Statutes of 2004 (Chapter 211),
which the governor approved in August 2004. Effective
January 1, 2005, Chapter 211 reduced the vehicle license fee rate
to 0.65 percent of the market value of a vehicle, repealed the
66 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 77
General Fund offset to the vehicle license fee, and established an
alternative funding source for compensating cities and counties.
Table 2 shows how the statutory change in the vehicle license
fee rate and offset affected the vehicle license fee assessed by
the DMV and paid by a vehicle owner as of January 1, 2005.
Using the example of a vehicle with a market value of $20,000,
the table shows that although the vehicle license fee rate was
reduced and the offset eliminated, the amount each vehicle
owner paid did not change.
TABLE 2
The Statutory Change in the Vehicle License Fee Rate and
Offset Did Not Affect the Amounts Vehicle Owners Paid
July 1, 2001, Through On or After
December 31, 2004 January 1, 2005
Market value of vehicle (a) $20,000 $20,000
Vehicle license fee rate (b) 2.00% 0.65%
Vehicle license fee required by
statute and billed (c) = (a) x (b) $400 $130
Offset rate in effect (d) 67.5% None
Offset amount (e) = (c) x (d) $270 $0
Vehicle license fee paid by vehicle
owner (c) – (e) $130 $130
Source: Chapter 211, Statutes of 2004.
In addition to eliminating the vehicle license fee offset,
Chapter 211 altered the source of funds used to compensate local
governments for the loss in revenues related to the reduction in
vehicle license fees. Beginning in fiscal year 2004–05, Chapter 211
eliminated the General Fund transfers to cities and counties but
added a section to the Revenue and Taxation Code requiring
county auditors to reduce the property tax revenues they allocate
to the county ERAFs by an amount essentially equivalent to
revenues they would have received from vehicle license fees if the
State had continued paying offsets with General Fund money.
Since the early 1990s county auditors have been required to
allocate certain property tax revenues to the county ERAFs for
use by local educational agencies—county offices of education,
school districts, and community college districts. Although
reducing the property tax revenue that each county must
contribute to its ERAF reduces the amount of property tax
revenue available for local educational agencies to use, state law
now requires the State to adjust the percentage of General Fund
66 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 77
money that it appropriates for local educational agencies so
there is no net fi scal effect on those entities. This General Fund
money is made available to local educational agencies as part of
the allocations they receive from the State each year. Chapter
211 also required the counties, cities, special districts, and
redevelopment agencies to contribute a share of their property
tax revenues in fi scal years 2004–05 and 2005–06 to the county
ERAFs to be used for funding public schools. The $1.3 billion
the local governments contribute each year reduces the General
Fund allocation the State has to make available to public schools
in those years.
Section 97.76(b) of the Revenue and Taxation Code requires
the controller’s offi ce to determine by October 15, 2005,
the vehicle license fee adjustment for each city, county, and
combined city and county for fi scal year 2005–06
and notify each county auditor of these amounts.
Formula for the Fiscal Year 2005–06 Section 97.70(c) of the Revenue and Taxation Code
Vehicle License Fee Adjustment specifi es the calculation of the vehicle license fee
adjustment as shown in the text box. That section
[(A) – (B)] + {[(A) – (B)] x (C)}
also requires the vehicle license fee adjustment for
where: fi scal year 2005–06 to be increased or decreased
by the difference between the vehicle license fee
(A) = The fees that would have been
deposited in the Transportation Tax adjustments calculated for fi scal years 2004–05
Fund’s Motor Vehicle License Fee
and 2005–06. County auditors will use the vehicle
Account in fi scal year 2004–05 and
allocated to local governments if the license fee adjustments to transfer suffi cient
vehicle license fee rate was 2 percent of property tax revenues to the local governments
the market value of a vehicle. 2
in their counties to maintain vehicle license fee
(B) = The actual fees allocated from the revenues as if the collections and allocations
Transportation Tax Fund’s Motor Vehicle
had continued at the historical 2 percent rate.
License Fee Account in fi scal year
2004–05 to local governments. Moreover, in each subsequent year county auditors
will calculate the current year’s transfers from
(C) = The percentage change in property
values in cities and counties from the county ERAFs by using the prior year’s vehicle
prior fi scal year to the current fi scal year license fee adjustments, modifi ed by the percentage
(growth factor).
change in property values. Our report on the
calculation of the vehicle license fee adjustment
Source: Revenue and Taxation Code, Section 97.70.
that the controller’s offi ce is required to make will
be issued in October 2005.
2 Section 97.70(c) of the Revenue and Taxation Code requires the amount of fees deposited
to be at the rate in effect on January 1, 2004, when the Transportation Tax Fund’s Motor
Vehicle License Fee Account received 71.9 percent of the vehicle license fees.
88 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 99
SCOPE AND METHODOLOGY
The Joint Legislative Audit Committee requested the Bureau of
State Audits to verify that the calculation of the vehicle license
fee adjustment for fiscal year 2005–06 is accurate and fully
complies with state law. To obtain an understanding of the
vehicle license fee adjustment, we reviewed current and prior
state laws relevant to the calculation of the adjustment and to
the assessment, collection, and reporting of vehicle license fees.
To determine whether the DMV captured information regarding
vehicle license fees collected in sufficient detail to determine
the dates it collected fees and the years it assessed them, we
reviewed the DMV’s accounting records, including its vehicle
license fee offset reports and revenue reports.
To assess the reliability of the vehicle license fees that the DMV
collects and reports, we used the DMV’s information systems
to obtain data relating to the vehicle license fees that vehicle
owners owed at the statutorily set rates, the vehicle license fees
that the DMV collected, and the vehicle license fee offsets. We
assessed the reliability of the vehicle license fees collected and
reported and the vehicle license fee offsets used to determine
the vehicle license fee adjustment by interviewing key staff to
identify pertinent system controls. We also reviewed the DMV’s
process to change the information systems it uses in relation
to vehicle license fees and offsets to determine whether the
DMV effectively made changes as the law changed. In addition,
our assessment included tracing a sample of vehicle license fee
collection and offset data to source documents and verifying
the appropriateness of significant adjustments to the DMV’s
calculations. Further, we reviewed the DMV’s procedures for
reporting vehicle license fees and offsets at the beginning and
end of fiscal year 2004–05 to ensure that it accounted for the
fees and offsets it remitted in the appropriate fiscal year.
In our assessment of the reliability of the vehicle license fees
that the DMV collects and reports, we determined that the
accuracy of the market value of vehicles on which the DMV
bases the vehicle license fees it assesses was not within the scope
of our audit. Accordingly, we did not conduct tests of either the
market value of the vehicles or the depreciation schedule the
DMV uses to annually adjust the market value of vehicles. State
law specifies the depreciation percentages the DMV uses.
88 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 99
We will issue in October 2005 our report on the calculation
of the vehicle license fee adjustment the controller’s office is
required to make. n
1100 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 1111
AUDIT RESULTS
THE DEPARTMENT OF MOTOR VEHICLES
APPROPRIATELY ACCOUNTED FOR VEHICLE LICENSE
FEES AND OFFSETS FOR FISCAL YEAR 2004–05
Because the Department of Motor Vehicles (DMV) bills
for and collects vehicle license fees from vehicle owners,
its information will serve as the primary source for the
State Controller’s Office (controller’s office) to use in calculating
the statutorily required vehicle license fee adjustment for
fiscal year 2005–06. We found that the DMV plans to report
to the controller’s office the appropriate vehicle license fees
it would have collected if the 2 percent vehicle license fee
rate had remained in effect. In addition, the DMV will report
the appropriate vehicle license fee reduction—the difference
between the vehicle license fees it would have collected at the
2 percent rate and the vehicle license fees it actually collected
during fiscal year 2004–05. To do this, the DMV changed its
information systems to bill and account for the correct vehicle
license fee rate and the vehicle license fee offset. In addition, it
recorded the vehicle license fee information in enough detail to
determine the date it collected the fees and the years for which
it assessed the fees.
The invoices the DMV sends to vehicle owners in the State to
register their vehicles include detailed information about vehicle
license fees and other fees. After vehicle owners pay the fees,
the DMV’s information systems capture data from the invoices
and use the data to produce daily and monthly reports. Those
reports formed the basis of the vehicle license fee reduction and
collections the DMV reported to the controller’s office for fiscal
year 2004–05. In addition to the amounts shown on the invoices
for vehicle license fees collected, the DMV’s information systems
also capture the offset amounts reported daily by the DMV’s field
offices and then categorize the collections and offsets by the year
in which the DMV assessed the fees. Each day the DMV reports
its vehicle license fee collections and offsets to the controller’s
office, and each month the DMV reconciles its vehicle license fee
collections to the records of the controller’s office.
Our review found that the DMV effectively modified its
information systems to implement the statutorily required
changes related to vehicle license fees billed and collected in
1100 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 1111
fiscal year 2004–05. Most importantly, to comply with the
provisions of Chapter 211, Statutes of 2004, the DMV changed
the vehicle license fee rate charged to vehicle owners from
2 percent of the market value of a vehicle with a 67.5 percent
offset for vehicle registrations due before January 1, 2005,
to a rate of 0.65 percent of the market value of a vehicle for
registrations due on or after January 1, 2005. This change to the
DMV’s information systems meant that the bills the DMV sent
to vehicle owners contained sufficiently detailed information to
ensure that the DMV could account for the fees when vehicle
owners made payments. Consequently, as vehicle owners paid
the fees, the DMV’s systems correctly captured the vehicle
license fee offsets related to the fees that were due to the DMV
before January 1, 2005, even when vehicle owners paid the fees
after that date. Further, the DMV’s systems calculated the correct
rate for vehicle license fees that were due to the DMV on or after
January 1, 2005, even when the fees were paid before that date.
Our test of a sample of When we tested a sample of individual transactions of vehicle
39 individual transactions license fees paid to ensure that the system changes took effect
of vehicle license fees as intended, we found that the DMV appropriately accounted
paid found that the DMV for the vehicle license fees it collected and vehicle license fee
appropriately accounted offsets in fiscal year 2004–05. Specifically, in our review of
for the vehicle license fees 30 transactions for vehicle license fee offsets related to vehicle
it collected and vehicle license fees due before January 1, 2005, and collected by the
license fee offsets in fiscal DMV during the fiscal year, we found that all of the transactions
year 2004–05. appropriately accounted for vehicle license fee offsets. In
addition, among vehicle license fees that were due on or after
January 1, 2005, and collected by the DMV, all nine transactions
we reviewed were appropriately accounted for and reported.
Further, all the vehicle license fee and offset transactions we
reviewed were included in the daily collections and offsets
the DMV reported to the controller’s office. Finally, we found
that each month the DMV reconciled its vehicle license fee
collections to the records of the controller’s office.
Our review also revealed that the DMV appropriately reconciled
data in its information systems related to vehicle license fee
offsets and collections with the related data in its accounting
system. The reconciliation was important because it served as
a bridge between the individual transactions we reviewed and the
offsets and related collections the DMV reported to the controller’s
office. The collections data included in the DMV’s accounting
system formed the basis of the vehicle license fee collections
received by the controller’s office during fiscal year 2004–05 and is
consistent with the flow of vehicle license fee revenues between the
DMV and the controller’s office in prior years.
1122 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 1133
THE DMV DETERMINED THAT ITS VEHICLE LICENSE FEE
COLLECTIONS WOULD HAVE TOTALED $6.5 BILLION IN
FISCAL YEAR 2004–05
The DMV plans to report to the controller’s office that the DMV
would have collected $6.5 billion in vehicle license fees had the
2 percent rate remained in effect during fiscal year 2004–05. At
the same time, the DMV intends to report that its calculation of
the vehicle license fee reduction for fiscal year 2004–05 totaled
$4.4 billion. The vehicle license fee reduction represents the
difference between the fees the DMV would have collected if
vehicle owners had paid fees at the 2 percent rate and the fees it
actually collected in fiscal year 2004–05 using the lower vehicle
license fee rate of 0.65 percent. Table 3 on the following page
presents the detail by month of the total vehicle license fee
reduction the DMV calculated for fiscal year 2004–05.
As Table 3 shows, the DMV’s vehicle license fee reduction has
two components. The first component is the monthly totals of
the vehicle license fee offsets related to fees the DMV collected
that were due to it before January 1, 2005. Because the DMV
calculated the offset amounts and included them on the bills
it sent vehicle owners, the DMV was able to accumulate those
amounts in its information systems as it processed paid vehicle
license fees. The second component is the total of the
vehicle license fees the DMV collected that were due to it on or
after January 1, 2005, which is multiplied by a factor to calculate
the additional fees the DMV would have collected if the
2 percent rate had remained in effect. The table also indicates
The DMV maintains that the DMV maintains data to identify when it collected the
data to identify when it fees and the year for which it assessed the fees. In particular,
collected the fees and the the table identifies the offsets related to fees the DMV collected
year for which it assessed each month during fiscal year 2004–05 that were due to it in
the fees. fiscal year 2004–05 and in prior fiscal years.
Further, Table 3 shows the vehicle license fees the DMV collected
each month that were due to it on or after January 1, 2005.
We found that as amounts due on or after January 1, 2005, the
DMV’s accounting records include some fees it collected
during fiscal year 2004–05—largely from July through
September 2004—at the 2 percent rate that had been in effect for
a short period in fiscal year 2003–04. To the vehicle owners who
paid those fees in fiscal year 2004–05, the DMV subsequently
made refunds that it also includes in its accounting records. The
net effect of including both the collection and refund amounts
in the accounting records is that those fees are recorded at
the 0.65 percent rate. We have retained them in the column
1122 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 1133
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1144 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 1155
reflecting fees due on or after January 1, 2005, because those
transactions also need to have the multiplying factor applied to
them to correctly calculate the vehicle license fee reduction.
Table 3 also shows that the DMV made adjustments to reduce
the offsets and fees it collected during fiscal year 2004–05.
Thus, the table identifies that the DMV would have collected
$6.5 billion during fiscal year 2004–05 if the 2 percent vehicle
license fee rate had remained in effect. That $6.5 billion
comprises the $4.4 billion vehicle license fee reduction and the
$2.1 billion the DMV actually collected in vehicle license fees
during fiscal year 2004–05.
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: September 30, 2005
Staff: Nancy C. Woodward, CPA, Audit Principal
Russ Hayden, CGFM
Michelle J. Baur, CISA
Theresa M. Carey, CPA, CFE
Alicia Jenkins
Toufic Tabshouri
Leonard Van Ryn, CIA
1144 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 1155
Blank page inserted for reproduction purposes only.
1166 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 1177
Agency’s comments provided as text only.
Business, Transportation and Housing Agency
September 19, 2005
Elaine M. Howle
State Auditor
Bureau of State Audits
555 Capitol Mall, Suite 300
Sacramento, CA 95814
Dear Ms. Howle:
Attached is the Department of Motor Vehicles (Department) response to your draft report, Vehicle
License Fee Adjustment: The Department of Motor Vehicles Effectively Captured the Information
Needed to Calculate the Adjustment (#2005-125). I am pleased that your review of the Department
accounting records and information systems reports verified that the Department correctly
calculated and reported the vehicle license fees collected and vehicle license fee offset amounts for
fiscal year 2004–05. Moreover, I appreciate that your audit found that the Department appropriately
reported to the State Controller’s Office the vehicle license fees it would have collected if the two
percent vehicle license fee rate had remained in effect, and that it recorded the vehicle license fee
information in enough detail to determine the date it collected the fees and the years for which it
assessed the fees.
As your report notes, many changes to the vehicle license fees and offsets have occurred within
the past few years. Thank you for acknowledging that the Department appropriately modified
the information systems to comply with and implement the statutorily required changes, and for
providing me with the opportunity to respond to your audit report. If you need additional information,
please do not hesitate to contact me, or Michael Tritz, Deputy Secretary for Audits and Performance
Improvement within the Business, Transportation and Housing Agency, at (916) 324-7517.
Sincerely,
(Signed by: Sunne Wright McPeak)
SUNNE WRIGHT McPEAK
Secretary
Attachment
1166 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 1177
State of California Department of Motor Vehicles
Business, Transportation and Housing Agency
Memorandum
Date: September 16, 2005
To: Sunne Wright McPeak, Secretary
Business, Transportation and Housing Agency
980 9th Street, Suite 2450
Sacramento, CA 95814
From: Joan M. Borucki, Director
Department of Motor Vehicles
2415 First Avenue
Sacramento, California 95818
Subject: Vehicle License Fee Adjustment Audit - Report No. 2005-125
We have received and reviewed the draft report entitled Vehicle License Fee
Adjustment: The Department of Motor Vehicles Effectively Captured the Information
Needed to Calculate the Adjustment. We note with pleasure that the Bureau found
that the Department of Motor Vehicles appropriately accounted for the vehicle
license fees and offsets, that our systems provided accurate and timely reports,
and that our procedures ensured appropriate processing and reconciliation of our
complex revenue transactions.
If you have any questions regarding this memo, please contact Richard Bon Smith,
Chief of Audits, at (916) 657-6480.
(Signed by: Joan M. Borucki)
JOAN M. BORUCKI
Director
1188 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 1199
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
1188 California State Auditor Report 2005-125.1 California State Auditor Report 2005-125.1 1199