CSA
Summary
Read the report at California State Auditor ↗
California
Community
Colleges:
The Chancellor’s Office
Inadequately
Controlled Its Economic
Development
Program and, Along With
the Department
of Education, Circumvented
State Contracting
Procedures
Table of Contents
Summary
Introduction
25
Chapter 1
The Chancellor’s Office Lacks
Adequate Control
Over the Economic Development
Program
Recommendations
Chapter 2
The Chancellor’s Office and the
Department of Education Used
Fiscal
Agents To Circumvent State
Controls
To Develop the State Plan
Recommendations
Appendix A
Description of Economic
Development
Program Initiatives Funded by the
Chancellor’s Office
Appendix B
Chronology of Key Events in
Preparation
of the Vocational Education
Needs
Assessment and State Plan
Responses to the Audit
Chancellor’s Office of the
California Community Colleges
California State
Auditor’s Comments
on the Response by the
Chancellor’s Office of
the
California Community
Colleges
26
Department of Education
California State
Auditor’s Comments
on the Response by the
Department of Education
Summary
Th eD Cidh annocte lelonrs’us rOef tfhicaet
T
andc tohme Dmeupnairttym cenotl loefg es he Board of Governors of the California Community Colleges
AEduucdcoaitmti oHpnli:ige dh lwigithh tasll ... (board) was established to provide statewide leadership to
grant requirements. California’s community colleges. The Legislature appropriates
C ircumvented state funds to the board for the support of the Chancellor’s Office and for
The Chancellor’s
various local assistance programs administered by the community
controls by using
Office:
college districts, such as the Economic Development Program. The
fiscal agents.
mission of the Economic Development Program is to advance
Did not always use
California’s economic growth and competitiveness through quality
Submitted erroneous
a competitive
education and services. To accomplish this mission, the Chancellor’s
and misleading
process to award
Office awards grants to various community colleges throughout the
ignrfaonrmtsa ttoio n to the
State to support the community colleges’ efforts to provide education,
Dcoempamrtumneintyt of
training, and technical services to California business and industry.
Gcoelnleergaels S. ervices.
Our review focused on the Chancellor’s Office’s procedures for
awarding Economic Development grants and monitoring and reviewing
Does not adequately
grant expenditures. Specifically, we noted the following concerns:
monitor and review
grant expenditures.
The Chancellor’s Office’s annual Economic Development Program
Funding Plans state that it uses a competitive process to award
Incurred
grants to community colleges. However, for 33 of the 53 grants we
unnecessary costs
reviewed for fiscal years 1992-93 and 1993-94, the Chancellor’s
of $15,500 by paying
Office could not provide evidence that it used a competitive basis to
its deputy
award the grants.
chancellor through
an
The Chancellor’s Office did not adequately monitor and review grant
interjurisdictional
contract. expenditures to ensure that community colleges were complying with
grant requirements. Specifically, the Chancellor’s Office did not
ensure that community colleges submitted required financial reports
and did not adequately review the reports that it did receive.
27
Community colleges did not always spend funds in accordance with
the approved budget. For example, Chaffey College used a portion of
its fiscal year 1993-94 grant to purchase computer equipment costing
$41,000. However, the approved grant did not authorize any funds
for the purchase of equipment.
Community colleges did not always comply with other grant
requirements. For example, four of the five community colleges we
tested did not provide adequate matching funds for at least one of the
grants they received.
The State Center Community College (State Center) may have
incurred excessive travel costs. For example, State Center exceeded
its per diem rate for meals in at
least 51 instances. As a result, State Center paid approximately
$10,000 more for meals than per diem rates allow.
The Chancellor’s Office inappropriately used Chaffey College as a
fiscal agent to pay contractors who were working at State Center.
The Chancellor’s Office inappropriately used an interjurisdictional
exchange contract, thereby incurring additional costs to the State of
approximately $15,500. Specifically, the Chancellor’s Office
continued to pay its deputy chancellor through an interjurisdictional
exchange contract with State Center from July 1991 through
June 1994, even though he had been appointed to an exempt position
in July of 1991.
We were also asked to determine whether the Chancellor’s Office used
federal funds for the program in accordance with the Vocational Education
State Plan (state plan). The state plan addresses Vocational Education
programs rather than Economic Development programs; however, because
our initial review of contracts that the Chancellor’s Office and the
Department of Education (department) issued to obtain assistance in
preparing the state plan raised concerns, we expanded the scope of our
audit. Specifically, we examined the process that the Chancellor’s Office
and the department used to obtain the services of community colleges and
a private contractor to prepare the state plan for 1994-96. During this
review, we noted the following concerns:
The Chancellor’s Office and the department circumvented state
controls by using fiscal agents to obtain the services of The Resource
Group (contractor) to prepare both the Vocational Education needs
assessment and state plan. The Chancellor’s Office and the department
paid these fiscal agents approximately $62,000 in administrative
28
fees. Furthermore, the $1.2 million paid to the contractor exceeded the
budget for the needs assessment and the state plan by approximately
$120,000.
The Chancellor’s Office and the department submitted erroneous and
misleading information to the Department of General Services as
support for its requests for approval of contracts and amendments.
The Chancellor’s Office allowed the contractor to begin work prior to
approval of its sole-source contract and the department allowed the
contractor to perform services without having any formal agreement
with either the department or its fiscal agent.
Employees at two of the entities that the Chancellor’s Office and the
department used as fiscal agents, Chaffey College and East San Gabriel
Valley Regional Occupational Program, had recently been employed by
the contractor. Therefore, by using them as fiscal agents, the
Chancellor’s Office and the department may have caused them to
violate the common law doctrine against conflicts of interest.
By using fiscal agents, the Chancellor’s Office and the department
lacked control over payments made for the needs assessment and the
state plan. Therefore, the two agencies cannot ensure that the amounts
paid to the contractor were appropriate or reasonable.
The board has adopted new policies regarding approval and use of grants
and contracts at the Chancellor’s Office. Specifically, in September
1995, the board adopted a policy stating that contracts must be reviewed
by it if amended in such a way as to make them exceed either $100,000 or
three years in duration, or if they involve consulting services over
$50,000.
The board also adopted a policy that requires the Chancellor’s Office to
seek board approval before entering into any grants which exceed
$100,000 or three years in duration. Although the revised policy
improves control over the process for awarding grants, it includes a
provision that states that the new procedures shall not apply to grants
distributed on an allocation formula basis that has been reviewed and
approved by the board. Since many of the grants awarded by the
Chancellor’s Office are distributed based on an allocation formula basis,
including grants for the Economic Development Program, those grants
would be exempt from the revised board policies. Therefore, the board
should reconsider the provision in its policy that excludes these grants.
In addition, the Chancellor’s Office has created a Grants and Contracts
processing unit as part of the Fiscal Division. This unit processes grant
awards, verifies and logs quarterly and final fiscal reports, and reconciles
29
fiscal data with the accounting unit. Specialists in the Economic
Development and Vocational Education Division monitor the
programmatic aspects of the grants. Finally, the Grants and Contracts
unit maintains the master files for audit purposes.
The Superintendent of Public Instruction of the Department of Education
has implemented new policies regarding approval and use of contracts at
the department. Specifically, in January 1995, the superintendent issued a
policy stating that effective immediately she will review all proposed
contracts. In addition, she stated that requests to extend contracts beyond
the original ending date must be accompanied by a full explanation of the
reason for the extension and a summary of the work completed to date.
The superintendent also stated that effective April 1, 1995, contracts not
fully executed by the starting date will receive personal review by her as
to the reasons for the delay. Furthermore, the superintendent discouraged
the use of sole-source contracts, stating that any requests for such
contracts will be closely reviewed and approved by her. Finally, she
stated that it will no longer be acceptable to circumvent appropriate
contracting procedures through Budget Act language that mandates a
specific contractor.
Recommendations
To ensure adequate control over Economic Development Program funds,
the Chancellor’s Office should:
Comply with its policy of using a competitive process to award
Economic Development grants;
Monitor and review grant expenditures to ensure that community
colleges are complying with grant requirements; and
Require community colleges to comply with the State’s per diem
policy for travel expenses.
The Chancellor’s Office should also reimburse the State for the amount of
unnecessary costs incurred as a result of its inappropriate use of an
interjurisdictional exchange contract.
The Chancellor’s Office and the department should:
Discontinue the use of fiscal agents to circumvent state controls;
Comply with state requirements for awarding contracts and submit
complete and accurate information to the Department of General
Services when requesting approval of contracts;
30
Ensure that the Department of General Services has approved its
contracts before allowing contractors to commence work; and
Determine whether the amounts paid to the contractor for the needs
assessment and the state plan were appropriate and, if necessary,
recover any overpayments.
Agency Comments
The Chancellor’s Office agrees with many of the findings in the report and
it plans to give serious consideration to our recommendations. However,
the Chancellor’s Office disagrees with our conclusion that by paying the
deputy chancellor through a contract with State Center it circumvented the
state budget process and it created a conflict of interest by allowing the
deputy chancellor to approve grants to State Center. In addition, the
Chancellor’s Office did not agree that State Center incurred excessive
travel costs. Finally, with respect to payments for the state plan, the
Chancellor’s Office disagrees with our conclusion that it can neither
assure that it received the services it paid for, nor that the costs paid for the
services were reasonable.
The department generally supports the recommendations for ensuring
compliance with state contracting requirements. However, the
department disagrees with our final recommendation suggesting that it
determine whether amounts paid to the contractor were appropriate.
31
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32
Introduction
T
he Board of Governors of the California Community Colleges
(board) was established to provide statewide direction,
coordination, and leadership to the public community college
segment of California higher education. The board seeks to ensure the
most prudent use of public funds and to improve district and campus
programs through informational and technical services. The Legislature
appropriates funds to the board for the support of the Chancellor’s Office
and for various local assistance programs administered by the community
college districts, such as the Economic Development Program. During
fiscal year 1994-95, the Economic Development Program received
approximately $6,973,000 in state funds.
In 1988, the Chancellor’s Office established the Economic Development
Program to support local community colleges’ efforts to provide
education, training, and technical services to California business and
industry. In 1991, the Legislature codified the mission of the program by
amending the California Government Code, Section 15739.32, to include
the Economic Development Program. The mission of the Economic
Development Program, in part, is to advance California’s economic
growth and global competitiveness through quality education and services
focusing on continuous workforce improvement, technology deployment,
and business development.
To accomplish the mission of the Economic Development Program, the
Chancellor’s Office established a series of continuing and annual program
initiatives such as Centers for Applied Competitive Technologies,
Statewide Coordination Network, and Workplace Learning Resource
Centers. Each year the Chancellor’s Office distributes information to the
community colleges describing the initiatives and the amount of available
funding. Appendix A provides a description for each of the program
initiatives funded by the Chancellor’s Office during fiscal years 1992-93
and 1993-94, the period of our review.
33
In its 1995-96 expenditure plan for the Economic Development Program,
the Chancellor’s Office stated that it initially awards grants for continuing
initiatives based on responses to Requests for Qualifications (RFQ). The
RFQ has prescriptive criteria, a specific scope of work, and requires a site
visit as part of the review process. However, after the Chancellor’s
Office awards the initial grant, community colleges receive continuous
funding for the initiative based on their performance and the availability of
funds. The Chancellor’s Office also states that it uses a Request for
Application (RFA) process to award funds for annual initiatives.
The Chancellor’s Office develops the requests through the collaborative
efforts of government agencies and representatives of business, industry,
and labor. Community colleges must submit responses to RFQs or
RFAs to be eligible to receive initial funding for any of the initiatives.
The Chancellor’s Office uses teams from state and local agencies and
private sector businesses to review and evaluate the responses. The
review teams recommend funding for responses that meet or exceed
specific criteria and that receive the highest ratings.
Scope and Methodology
The purpose of this audit was to evaluate the Chancellor’s Office’s
administration of the Economic Development Program (program).
Specifically, we reviewed the process that the Chancellor’s Office used to
award grants and contracts to the community colleges to determine if it
complied with applicable laws and regulations and its own policies for
awarding grants for the various initiatives in the program. In addition, we
evaluated any controls that the Chancellor’s Office had established to
distribute the funds and whether those controls are consistent with state
and federal laws and regulations. Finally, we evaluated hiring and
employment practices used by the Chancellor’s Office for staff employed
to administer the program to determine compliance with applicable laws
and regulations.
To determine the process that the Chancellor’s Office used to award grants
for the various program initiatives, we interviewed staff in the Economic
Development Division and at the community colleges at which we
conducted site visits. In addition, we reviewed expenditure plans that
described the process that the Chancellor’s Office used to solicit proposals
from the various community colleges and to review and evaluate those
proposals.
To determine how the Chancellor’s Office controls program funds, we
reviewed the policies and procedures used to distribute the funds. We
interviewed staff at the Chancellor’s Office and various community
colleges to gain an understanding of the procedures used to track and
report expenditures and to monitor grantees. We also reviewed quarterly
34
and yearly expenditure and progress reports that the community colleges
submitted to the Chancellor’s Office. Finally, we visited five community
college districts and reviewed invoices, timesheets, and other
documentation supporting the expenditures for the grants that the
Chancellor’s Office had awarded to the respective districts.
To examine whether the Chancellor’s Office followed appropriate hiring
and employment practices for staff employed to administer the program,
we determined whether personnel assigned to the program were state or
contract employees. In addition, we reviewed the activities of all
employees whose salaries and expenses were being paid with program
funds to ensure that the work these employees performed was directly
related to the respective program initiatives.
Finally, we reviewed an Interjurisdictional Exchange contract that the
Chancellor’s Office entered into with State Center Community College to
determine whether the Chancellor’s Office complied with state laws, rules,
and regulations regarding the use of such agreements. To determine
whether the payments that the Chancellor’s Office made for the contract
were appropriate, we reviewed the documentation supporting the
payments.
We were also asked to determine whether the Chancellor’s Office used
federal funds for the program in accordance with the Vocational Education
State Plan (state plan). The state plan addresses Vocational Education
programs rather than Economic Development programs; however, because
our initial review of contracts that the Chancellor’s Office and the
Department of Education issued to obtain assistance in preparing the state
plan raised concerns, we expanded the scope of our audit. Specifically,
we examined the process that the Chancellor’s Office and the Department
of Education used to obtain the services of community colleges and
private contractors to complete the state plan for 1994-96 to determine
compliance with applicable laws and regulations. We also interviewed
staff at the community colleges and a regional occupation program to
determine how these local agencies were selected and how they selected
subcontractors.
35
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36
Chapter 1
The Chancellor’s Office Lacks Adequate Control
Over the Economic Development Program
Chapter Summary
T
he Chancellor’s Office lacks adequate control over Economic
Development Program funds. Specifically, we found that the
Chancellor’s Office did not always comply with its own procedures
for awarding Economic Development grants. Additionally, it does not
adequately monitor the community colleges to ensure that they are
complying with grant requirements. For example, the community
colleges did not always spend funds in accordance with the approved grant
budget. The expenditures recorded in some community colleges
accounting records did not always agree with the expenditures reported to
the Chancellor’s Office. Some community colleges did not provide
adequate matching funds, as required by the grant agreements, and some
did not obtain approval from the Chancellor’s Office prior to awarding
subcontracts. Also, the community colleges did not use a competitive
process to award their subcontracts.
We noted that the Economic Development grants allowed the community
colleges to reimburse travel costs at district rates, which in some cases
were well in excess of the State’s rates. In addition, State Center
Community College District (State Center) incurred excessive travel costs.
The Chancellor’s Office may not be maximizing Economic Development
funds. Instead of recovering unspent funds by withholding them from
future apportionments, it has extended the time frame for completion of
project activities. This denies other community colleges the opportunity
to receive grants from this unspent money.
The Chancellor’s Office also circumvented the state budget process and
incurred additional costs by paying the salary of its deputy chancellor
through a contract with State Center. Specifically, the Chancellor’s
Office reimbursed State Center for the deputy chancellor’s salary from
June 1990 through June 1994 even though the Chancellor had appointed
him to an exempt state position in July 1991. In addition, because the
deputy chancellor was an employee of State Center before his
37
appointment, the Chancellor’s Office created a conflict of interest when it
allowed him to approve grants that it awarded to State Center.
The Chancellor’s Office Does Not
Adhere to Its Own Procedures
The Economic Development Program consists of a series of continuing
and annual program initiatives established to advance economic
development in the State of California. According to its Economic
Development Funding Plans (funding plan), the Chancellor’s Office uses a
competitive bidding process to award grants for continuing initiatives in
the first year. Once funded, the grants are continued without competitive
bid, based on performance and the availability of funding. In contrast, the
Chancellor’s Office uses a competitive bid process to award grants for its
annual initiatives. The actual number of grants funded for annual
initiatives depends on the availability of funds and the number of
applications received.
During fiscal years 1992-93 and 1993-94, the period of our review, the
annual funding plan, which must be approved by the California
Community Colleges Board of Governors, stated that to be eligible for
funding colleges must submit a response to a Request for Qualifications
(RFQ) for continuing programs. In addition, for annual programs,
colleges had to submit either a response to a Request for Proposal (RFP)
or an Application for Funding. Review teams rank the RFQs and RFPs
according to criteria common to all funding requests. The Chancellor’s
Office awards grants, contingent upon the availability of funding, to the
community colleges who receive the highest rank. Applications for
Funding are reviewed by Chancellor’s Office staff who negotiate new
program activities and objectives on an annual basis and recommend the
program to the chancellor for funding.
We found that the Chancellor’s Office did not always comply with its own
procedures when awarding grants for the Economic Development
Program. Specifically, the Chancellor’s Office could not provide
Chancellor’s Office did evidence that it used a competitive process to award 8 of the 28 grants we
not always use a
tested. Four of the 8 grants were for the initial year the community
competitive process to
colleges received the continuing program grant, and 4 grants were for
award grants.
annual programs. Thirteen of the remaining 20 grants were for
continuing initiatives for which the Chancellor’s Office had awarded the
funds in a prior fiscal year; therefore, the bid and review process did not
apply. The other 7 grants, for annual initiatives, were competitively bid.
Because only 15 of the 28 grants we selected required the Chancellor’s
Office to use a competitive process to award the grants, we selected an
additional sample of 25 grants for programs that started in either fiscal
38
year 1992-93 or 1993-94. Although all of these grants should have been
awarded using a competitive process, the Chancellor’s Office could not
provide evidence that it used a competitive process to award any of these
grants.
For example, Los Rios Community College District (Los Rios) received a
grant, totaling approximately $96,000, for fiscal year 1992-93 to act as the
northern coordinator for the Regional Economic Development and
Contract Education Technical Support initiative. Although this is a
continuing initiative, fiscal year 1992-93 was the first year that it was
awarded to Los Rios; therefore, the award should have been based on a
competitive bid. However, neither Los Rios nor the Chancellor’s Office
could provide evidence of a competitive bid process. The Chancellor’s
Office sent a letter to Los Rios in May 1992, prior to awarding the grant,
requesting it to submit an annual program plan that “would serve in lieu of
a proposal.” According to the specialist of the Economic Development
Program, annual program plans are requested only after the first year of a
continuing initiative, and proposals must be submitted by colleges to
initially receive a grant for continuing initiatives. Since fiscal year
1992-93 was the first year the grant was awarded to Los Rios, the
Chancellor’s Office should have requested a proposal rather than an
annual program plan.
The Chancellor’s Office sent similar letters in May 1992 to Rio Hondo
College to act as the southern coordinator for the Regional Economic
Development and Contract Education Technical Support initiative, and to
Fullerton College for the Statewide Workplace Learning Resource
All community colleges Leadership and Technical Assistance initiative. Since these are
may not have a fair continuing initiatives and neither college had received the grant prior to
chance to compete for fiscal year 1992-93, the Chancellor’s Office should have used a
Economic Development competitive process to award the grants. By not awarding the Economic
funds.
Development Program funds using a competitive bidding process, the
Chancellor's Office has no assurance that the most qualified colleges
receive the monies. Additionally, by subjectively selecting the recipient
college, the Chancellor's Office cannot ensure that all community colleges
have a fair and equitable chance to receive Economic Development funds.
During our review we also noted that the Chancellor’s Office did not
follow its own guidelines for mailing RFPs and RFQs to the community
colleges. Delays in mailing the RFPs or RFQs may cause subsequent
delays in awarding the grants to the community colleges. According to
its funding plan for fiscal year 1992-93, the Chancellor’s Office intended
to mail the RFPs and RFQs to the community colleges by January 31,
1992. We reviewed four annual initiatives for which the Chancellor’s
Office had the bid and review documents on file, and in all four cases the
Chancellor’s Office had not mailed the RFPs until March 6, 1992. For
five of the six continuing initiatives that we tested for fiscal year 1992-93,
39
the Chancellor’s Office did not send letters to the colleges requesting the
annual program plan until May 23, 1992.
The fiscal year 1993-94 funding plan stated that RFPs and
RFQs would be mailed by February 5, 1993. However, the Chancellor’s
Late mailings of RFPs Office did not mail the RFPs for both of the annual initiatives to be
and RFQs caused reviewed until at least March 26, 1993. The Chancellor’s Office did not
delayed grant awards. mail letters requesting the annual program plans for the six continuing
initiatives we reviewed until May 5, 1993. These letters required the
community colleges to submit their annual program plans by May 25,
1993.
Because the Chancellor’s Office did not mail the RFPs and RFQs in a
timely manner, it was not able to review the proposals and award the
grants prior to the start date. As a result, some community colleges began
work before the Chancellor’s Office approved their grant. The
community colleges began work before the Chancellor’s Office approved
their grant for 12 of
the 28 grants that we reviewed. For example, State Center received a
grant totaling approximately $600,000 for fiscal year 1992-93. While
State Center started work on July 1, 1992, the Chancellor’s Office did not
approve the grant until November 2, 1992. Similarly, in 1993, State
Center began work on its Locally-Based Statewide Coordination Network
grant on July 1, 1993, even though the Chancellor’s Office did not
approve the grant until September 15, 1993.
The Chancellor’s Office Does Not
Adequately Monitor Grant Expenditures
The Chancellor’s Office does not adequately monitor and review
Economic Development expenditures incurred by grant recipients.
Specifically, the Chancellor’s Office does not ensure that community
colleges submit the required financial
reports or that submitted reports are adequately reviewed. The
Chancellor’s Office also does not review supporting documentation for
expenditures or subcontracts entered into by the community colleges.
Because it lacks adequate controls over grant expenditures, the
Chancellor’s Office has no assurance that community colleges are
spending funds in accordance with grant requirements. Because it does
not
40
adequately oversee its grantees, the Chancellor’s Office cannot ensure
that the amounts reported in the fiscal reports submitted by community
colleges are accurate.
The Community Colleges Did Not
Provide Sufficient Matching Funds
The terms and conditions of the Economic Development grants require
community colleges to provide matching funds equal to the amount of
Economic Development funds they receive. The grants do not allow the
community colleges to count Economic Development funds received from
other community colleges as matching funds. Because they do not
require supporting documentation for matching funds claimed by the
Four of the five community colleges, the Chancellor’s Office cannot ensure the
community colleges community colleges are providing sufficient matching funds, as required.
reviewed failed to provide
from $32,000 to As Table 1 shows, four of the five community colleges we tested did not
$327,000 in matching provide a sufficient amount of matching funds. For example, Chaffey
funds.
College received a grant totaling $121,000 in fiscal year 1992-93.
Although the terms and conditions of the grant required Chaffey College
to provide funds in an amount equal to the grant funds, it did not provide
any matching funds.
Table 1
Grant Dollars Not Matched
(Rounded to Thousands)
Number
of Grants Amount of
Number of Not Sufficiently Total Amount Grant Funds
Grants Matched of Grant Not Matched
College Reviewed Funds Spent
Chaffey 2 2 $ 327,000 $327,000
El Camino 2 0 1,600,000 0
Los Rios 3 2 246,000 32,000
Rio Hondo 2 1 125,000 67,000
State Center 2 1 600,000 39,000
Furthermore, the community colleges inappropriately reported some
amounts as matching funds. In fiscal year 1992-93, State Center received
a grant totaling $599,830 and reported matching funds of $740,000;
however, we question the method it used to determine the amount of
in-kind matching funds. State Center claimed $3,000 for each individual
who attended a series of one-day California Supplier Improvement
Program meetings as matching funds. State Center calculated the $3,000
41
by assuming that each person who attended the meetings had an annual
salary of $100,000 and that each meeting represented approximately
3 percent of the individual’s annual workload.
We believe that State Center’s methodology resulted in inflated totals.
For example, based on a work year of 1,920 hours (160 hours per month),
3 percent of an individual’s time represents approximately 58 hours.
Therefore, State Center’s claim that each one-day meeting represents
3 percent of the attendee’s time is grossly overstated. Some individuals
State Center’s
were listed as having attended multiple meetings. For example, one
methodology for
calculating in-kind individual was listed as having attended six different meetings. Using
matching funds is State Center’s rate of 3 percent per meeting, this person spent 18 percent
seriously flawed, and of his annual workload donating time to State Center. Using the estimate
Rio Hondo College of 1,920 working hours in a year, 18 percent of this individual’s time
overstated its matching equals 346 hours, or 43 days. Based on the documentation provided to us
funds by $67,000. by State Center, this individual attended six one-day meetings. Because
we feel that State Center’s methodology for calculating in-kind matching
funds is seriously flawed, we believe that State Center inappropriately
included $105,000 in its matching funds for fiscal year 1992-93.
State Center also included in its fiscal year 1992-93 matching fund
calculation $13,900 from Chaffey College and $51,500 from Rio Hondo
College. These amounts were paid from Economic Development grants
at those colleges; therefore, State Center inappropriately used $65,400 of
Economic Development funds from grants the Chancellor’s Office
awarded to other community colleges as matching funds for its grant.
Additionally, we determined that Rio Hondo College overstated the
amount of matching funds for one of its Contract Education Technical
Support grants by $67,000. In fiscal year 1993-94, Rio Hondo College
included in-kind matching funds for conferences conducted by the grant’s
project director. Specifically, Rio Hondo College included $50 per hour
for each person who attended the conferences. However, Rio Hondo
College could not demonstrate how by merely attending these seminars
the individuals contributed toward the grant objectives. Rio Hondo
College also included as matching funds $50 per hour for certain
telephone calls made by the project director. Speaking at conferences and
conferring with private businesses and community colleges about the
Economic Development program are part of the required duties of the
project director.
42
The RFPs and RFQs state that actual auditable resources dedicated to the
projects will be considered as a match. These may take the form of
dollars, equipment, facilities, and personnel time. We believe that the
community colleges should include only those services that can be
identified as having directly contributed toward the fulfillment of the grant
requirements. By not requiring the community colleges to provide the
required amount of matching funds, the Chancellor’s Office is not
ensuring that the community colleges are maximizing the effectiveness of
the Economic Development Program and, thus, maximizing the use of
state resources. Furthermore, by not contributing the required amount of
matching funds, the community colleges are not providing additional
resources that could benefit the program.
The Chancellor’s Office Does Not
Ensure That Community Colleges
Submit Required Reports
The terms and conditions of the Economic Development grants require the
community colleges to submit quarterly progress and fiscal reports to the
Chancellor’s Office. They must also submit both a final fiscal and a final
narrative report within 30 days of completing the project. Finally, the
grants require the community colleges to submit progress reports every
90 days for performance extended beyond June 30. Our review revealed
that the Chancellor’s Office does not ensure that the community colleges
submit all required reports and does not adequately review the reports that
it does receive.
We attempted to obtain and review the required reports for 28 grants
awarded in fiscal years 1992-93 and 1993-94. The Chancellor’s Office
Chancellor’s Office could could not provide us all four quarterly progress reports for 16 of 28
not provide evidence of grants. It also could not provide evidence that it had received all four
receiving all progress quarterly fiscal reports for 17 of the 28 grants. According to the
and fiscal reports. Economic Development Program specialist, the Chancellor’s Office
received all required reports; however, it did not file them appropriately
due to lack of available staff. As a result, it could not locate many of the
reports.
In addition to the reviews we conducted at the Chancellor’s Office, we
also attempted to review the progress and fiscal reports during our site
visits to five community colleges. However, contrary to the Chancellor’s
Office assertion that it had received all of the required reports, we
determined that three of the five colleges did not submit all of them. For
example, Chaffey Community College submitted only 5 of 18
43
required reports for the two grants we reviewed. Additionally, Rio
Hondo submitted only 15 of 28 required reports for the four grants it
received in fiscal years 1992-93 and 1993-94.
The Community Colleges Do Not
Comply With All Grant Requirements
The Economic Development grant agreements establish certain
requirements that the community colleges must adhere to when spending
the grant funds. For example, the grant agreements require the
community colleges to limit travel expenditures to those necessary for the
performance of the grant. Community colleges are also required to obtain
written approval from the Chancellor’s Office before entering into
subcontracts and provide evidence that cost was considered when
awarding subcontracts. Finally, community colleges must adhere to the
approved budget when spending grant funds. We found that the
community colleges do not always comply with these grant requirements.
State Center Community College District
Travel Costs Appear Excessive
The terms and conditions of the Economic Development grants allow
community colleges to reimburse staff for travel expenditures in
accordance with policies adopted by the respective college’s governing
board. However, they also require the community colleges to limit travel
expenditures to those necessary for the performance of the grant. Our
review of travel expenditures charged to the Economic Development
Program showed that State Center may be incurring excessive travel and
related costs. We reviewed a sample of 44 invoices totaling
approximately $67,000 for conferences and staff meetings held at various
hotels. The travel costs included approximately $38,000 for meals,
$20,000 for lodging, $5,000 for conference room fees, and $4,000 for
miscellaneous items, such as equipment rentals and photocopies.
44
Figure 1
Travel Expenditures for
Staff Meetings and Conferences
by Category
Miscellaneous
6%
Conference
Rooms
7%
Lodging Meals
30% 57%
Source: Percentages based on 44 invoices reviewed at State Center Community
College.
As shown in Figure 1, State Center spent 57 percent of these conference
and staff meeting expenditures for meals. While we agree that periodic
conferences and staff meetings are important, we found that some of the
costs for the meals at these conferences appear excessive and exceed
amounts established in State Center’s own travel policy. Although
conferences differ from individual travel, the district should prudently
spend state grant funds. The policy provides that travel expenditures will
be reimbursed in accordance with the State’s per diem policy. For
example, the State’s reimbursement rate for lunch is the lesser of actual
cost or $9.50. However, State Center paid $731 for a lunch for 27 people
who attended a conference at the Westin Hotel, a cost of $27 per person.
In another instance, State Center paid $848 for a luncheon attended by 31
people, a cost of approximately $27 per person, at a conference conducted
at the Hyatt Islandia in San Diego. The State’s reimbursement rate for
dinner is the lesser of actual cost or $17, but at the same conference State
Center paid $1,231 for a dinner attended by 45 people, again at a cost of
approximately $27 per person.
Of the 258 travel invoices we reviewed, which included conferences, for
fiscal years 1992-93 and 1993-94, State Center paid for meals in excess of
45
state per diem rates in 51 instances (20 percent). As a result, State Center
paid approximately $10,000 more for meals than it would have had it
complied with its travel policy.
Furthermore, we noted five instances totaling approximately $1,700 where
State Center inappropriately paid for lodging expenditures. For example,
State Center paid travel costs totaling $914 for both the deputy chancellor
and vice chancellor from the Chancellor’s Office. These costs should
have been paid by the Chancellor’s Office.
Although State Center’s per diem policy requires the district to comply
with the State’s regulations for reimbursing travel costs, the
reimbursement rates at the remaining four community colleges exceed the
Grant funds would be
state rates. The grant agreements we reviewed require the community
maximized if community
colleges to comply with district travel rates rather than state per diem
colleges were required to
rates. Because the program is funded with state resources, we believe
follow state travel
the Chancellor’s Office should modify its grant agreements to require the
rates.
community colleges to comply with the State’s per diem policy for all
travel-related expenditures. This would provide added assurance that grant
funds are used effectively and that the cost of travel funded with state
resources is reasonable.
The Community Colleges Do Not
Follow Subcontracting Requirements
The Economic Development grants require community colleges to obtain
written approval from the Chancellor’s Office before entering into
subcontracts, except when those subcontracts are specifically identified in
the grants. In addition, the grants require the community colleges to
select subcontractors using procedures that will ensure that cost is given
substantial weight and that the selected subcontractor is the best qualified
party available. One method that the community colleges could use to
ensure both of these requirements are met is to solicit bids from multiple
vendors.
As Table 2 indicates, four of the community colleges we tested failed to
obtain written approval from the Chancellor’s Office before entering into
subcontracts. For example, State Center entered into six subcontracts in
fiscal year 1992-93 and six subcontracts in fiscal year 1993-94; however,
they did not obtain written approval in any of these instances.
In addition, the four community colleges failed to use the proper selection
process, which includes obtaining competitive bids when entering into
subcontracts. Chaffey College, for example, entered into a total of 10
subcontracts in fiscal years 1992-93 and 1993-94 and in each instance
46
awarded sole-source subcontracts to vendors rather than solicit
competitive bids.
Table 2
Grants for Which Community Colleges Did
Not Obtain Prior Approval and Did Not Use
Competitive Process To Hire Subcontractors
Number
for Which
Number Total Amount Hired Colleges Did
of Amount Paid to Number of Without Not Use
Community Fiscal Grants of Subcontractors Subcontractors Prior Competitive
College Year Reviewed Grants Reviewed Reviewed Approva Bids
l
Chaffey 1992-93 1 $121,086 $103,000 5 5 5
1993-94 1 206,084 108,600 5 5 5
El Camino 1992-93 1 811,000 78,048 1 1 1
1993-94 1 811,000 130,000 6 6 6
Los Rios 1992-93 1 245,940 78,601 2 1 2
State Center 1992-93 1 599,830 253,122 6 6 6
1993-94 1 499,830 198,469 6 6 6
Furthermore, State Center failed to obtain written agreements with four of
its subcontractors during fiscal years 1992-93 and 1993-94 and paid them
$49,977 and $131,014, respectively.
By not obtaining the required approvals from the Chancellor’s Office for
subcontracts and by not using procedures to ensure that cost is given
substantial weight in the selection process, the community colleges cannot
ensure that the costs incurred were reasonable and competitive nor that the
most qualified vendor was selected. Additionally, by not ensuring all
contracts are written agreements, State Center created a risk that public
funds would be gifted should the contractor fail to complete the activities
for which it was being paid.
47
The Community Colleges Do Not Always
Stay Within the Approved Grant Budget
The Economic Development grants state that the Chancellor’s Office will
pay costs as specified in the budget and expenditure plan. The grant
agreements also state that changes in individual budget categories, such as
All five community salaries or equipment, cannot be made without either prior written
colleges we reviewed approval from the Chancellor’s Office or a formal grant amendment,
exceeded budget depending on the amount of the change. Our review of 14 grants at five
category limits without community colleges found that, while overall budgets were not exceeded,
approval from the all five colleges exceeded the approved budget in one or more categories
Chancellor’s for 10 of the 14 grants. As shown in Table 3, the community colleges
Office.
exceeded their budget authority by as much as 263 percent for certain
expenditure categories.
Table 3
Amount and Percentage Actual
Expenditures Exceeded
Budgeted Amounts
Number of Percent
College Categories by Which
Awarded That Amount Categories
Each Exceeded Total Budget Budget Exceeded
Grant Budget for Categories Exceeded Budget
Chaffey 2 $ 4,843 $ 12,774 263%
Chaffey 5 0 59,794 *
El Camino 1 656,477 34,680 5
El Camino 4 411,000 124,998 30
Los Rios 1 79,750 9,990 12
Rio Hondo 2 63,737 3,347 5
Rio Hondo 3 49,605 2,685 5
Rio Hondo 1 0 1,880 *
State Center 5 318,010 30,228 9
State Center 6 152,271 15,492 10
* Colleges spent funds for which no amounts were budgeted.
None of the community colleges we tested obtained written approval from
the Chancellor’s Office to exceed their budget for a particular category.
For example, Chaffey College used $41,000 of funds from a grant it
received in fiscal year 1993-94 to purchase computer equipment for State
Center. However, the approved budget for the grant did not authorize any
funds for the purchase of equipment. Similarly, in fiscal year 1992-93,
State Center received a grant totaling $599,830 that included a budget of
$268,680 for consultants, but it actually spent $284,068 in this category;
however, it did not obtain prior approval from the Chancellor’s Office to
exceed its budget for consulting contracts.
48
In addition to exceeding certain categories within their budget, the
community colleges did not always spend grant funds in compliance with
the grant agreements. Specifically, two of the five community colleges
we visited inappropriately spent grant funds on projects that were not
related to the purpose of the Economic Development grant they had
received. For instance, Chaffey College spent approximately $4,000
from its fiscal year 1992-93 Economic Development marketing grant to
purchase a computer for its accounting office. According to the dean of
economic development at Chaffey College, the college received
permission from the Chancellor’s Office to purchase the computer. We
also determined that Chaffey College spent $65,000 (54 percent) of the
$121,086 marketing grant that it received for fiscal year 1992-93 to pay
for consulting services from October 1993 to June 1994, even though the
grant term ended on September 30, 1993.
We also found that expenditures that were reported in the fiscal reports
were not always supported by accounting records at the community
Not all grant colleges. Specifically, for 5 of 12 final fiscal reports that we reviewed,
expenditures were the expenditure amount reported did not agree with the respective
supported in community community college’s accounting records. For example, for fiscal year
college accounting 1993-94, the amount of expenditures in State Center’s accounting records
records. was approximately $3,500 less than what they reported to the Chancellor’s
Office.
Further, the two grants awarded to El Camino included funding for the
National Institute of Standards and Technology program, and its final
fiscal reports do not separately identify the amount of Economic
Development expenditures. El Camino also does not separately account
for Economic Development expenditures in its own accounting records.
Therefore, we did not attempt to reconcile the two final fiscal reports
submitted by El Camino for fiscal years 1992-93 and 1993-94 to their
accounting records for the Economic Development Program. However,
we did attempt to determine whether the Economic Development
expenditures were appropriately recorded in the accounting records.
Based on our review, we determined that El Camino could not identify
Economic Development expenditures totaling $26,500 in its fiscal year
1992-93 and $44,100 in its fiscal year 1993-94 accounting records.
Because the Chancellor’s Office did not ensure that it received and
reviewed the required reports, it was not aware that the community
colleges exceeded their line-item budgets without obtaining prior written
approval. By not adequately monitoring and reviewing grant
expenditures, the Chancellor’s Office cannot ensure that the community
colleges are spending the grant funds appropriately or that the community
colleges are correctly reporting expenditures.
49
The Use of Consultants by
State Center and Chaffey
College Was Excessive
According to the program specialist for the Economic Development
Program, the necessary expertise to effectively administer the program is
available at the various community colleges throughout California.
Rather than attempt to operate the program at the state level, the
While community
Chancellor’s Office grants program funds to community colleges that
colleges receive grants
have demonstrated expertise in a particular area of the program.
for their expertise, many
However three of the five community colleges we reviewed spent more
instead hired consultants
than 39 percent of their grant funds on consultants. As noted in Figure 2,
to do the work.
during fiscal years 1992-93 and 1993-94, State Center spent
approximately $526,169 (48 percent) of the $1,099,286 grant funds it
received on consultants. Consultants included the project director, the
database manager, and at least 10 employees hired through a temporary
personnel agency.
Figure 2
Amount of Grant Funds Awarded
and Amount Spent on Consultants
Fiscal Years 1992-93 and 1993-94
Total Grants Awarded
Consulting Fees
$1,800,000
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$-
State Center Chaffey El Camino Los Rios Rio Hondo
The Chancellor's Office also used Chaffey College as a fiscal agent to pay
for consultants working at the direction of
State Center. Chaffey College received grant funds totaling
approximately $330,000 during fiscal years 1992-93 and 1993-94,
$237,300 (73 percent) of which was spent on consultants. However,
50
according to the dean of economic development at Chaffey College, all of
the consultants worked for State Center in Fresno, and none of them
provided any services to Chaffey College. The dean further stated that
the college’s only responsibility was to pay invoices submitted by the
consultants and to prepare the quarterly and final
progress reports for the grants. State Center was responsible for
developing the grant proposal and selecting the consultants. For its fiscal
agent services, Chaffey College received approximately $15,000 in
administrative fees during fiscal years 1992-93 and 1993-94.
The use of these consultants directly conflicts with the Chancellor’s Office
philosophy of distributing funds to community colleges because they have
the expertise to operate the programs. We believe that the Chancellor’s
Office should have awarded the grants to a more qualified college.
Chancellor's Office May Not Be Maximizing
Economic Development Grants
The Chancellor's Office may not be maximizing its use of Economic
Development funds. For example, it extended the original grant term to
allow the grantee additional time to spend the funds rather than recover
unspent grant funds and use them for other Economic Development
initiatives. The Economic Development grant agreements specify that
funds not spent at the end of the grant period may revert to the State.
Chancellor’s Office’s According to the vice chancellor of the Vocational Education and
policy of extending Economic Development Division, to recover unspent grant funds the
unspent grant funds Chancellor’s Office either bills the entity for the remaining balance of
denies other colleges the unused funds or, in the case of community college districts funded through
opportunity to obtain the apportionment process, the amount is withheld from future
grants. apportionments. Economic Development Program grants may also be
amended to extend the time frame for completion of project activities or to
allow for new activities. This policy, however, allows the community
colleges to retain grant funds for an indefinite period of time, and reduces
the incentive for a community college to complete its projects on time.
Additionally, the policy denies other community colleges the opportunity
to receive grants using unspent grant funds collected by the Chancellor’s
Office.
During our review of 14 grants at five community colleges, we found five
instances where the community college had excess funds at the end of the
original grant term. For example, in fiscal year 1992-93, Chaffey College
received a grant
totaling approximately $121,000. Of this amount, $107,000 (88 percent)
remained unspent at June 30, 1993. Rather than reduce the amount of the
subsequent year’s grant, the Chancellor's Office extended the grant term to
September 30, 1993, and Chaffey College used the $107,000 to pay for
51
fiscal year 1993-94 expenditures. The Chancellor's Office awarded
Chaffey College approximately $206,000 for its fiscal year 1993-94 grant
and did not deduct the $107,000 left over from the previous year. As a
result, Chaffey College had not used approximately $143,000 of its fiscal
year 1993-94 grant by June 30, 1994. Again, rather than reduce the
amount for the next fiscal year’s grant, the Chancellor's Office extended
the grant term for the fiscal year 1993-94 grant to June 30, 1995.
Los Rios received a grant in fiscal year 1993-94 for approximately
$105,000 and had spent only $86,000 by June 30, 1994, the end of the
grant term. The Chancellor's Office extended the grant through June 30,
1996, rather than offset subsequent grants awarded to Los Rios. As of
June 30, 1995, the $19,000 in excess funds had not yet been used by
Los Rios.
The Chancellor’s Office Inappropriately
Used a Grant Instead of a Contract
Rio Hondo College was awarded grants in fiscal years 1992-93 and
1993-94, each totaling approximately $116,000 to prepare the Economic
Development Program Evaluation and Annual Report (annual report).
According to the Chancellor’s Office’s legal counsel, it uses grants to
award funds when the activities benefit the local districts and are not
defined as a legal responsibility of the Chancellor’s Office. Conversely, a
contract would be required if the activities are primarily the legal or
statutory responsibility of the Chancellor’s Office. We asked the legal
counsel to review the grants awarded to Rio Hondo College for the annual
report to determine whether the use of a grant was appropriate.
According to the legal counsel, because the Government Code,
Section 15379.23, states that the Board of Governors is to submit an
annual report to the governor and the Legislature, the preparation of the
annual report is the primary responsibility of the Chancellor’s Office.
Therefore, the legal counsel concluded that the Chancellor’s Office should
have used a contract rather than a grant to award the funds to complete the
annual report. Because it used a grant, the Chancellor’s Office
unnecessarily curtailed competition for the production of the annual report
and Rio Hondo College may not have been the most qualified vendor
available to perform the services.
Further, community colleges receive grant funds monthly based on a
percentage established by the Chancellor’s Office. Because the
Chancellor’s Office inappropriately used a grant to award the annual
report project to Rio Hondo College, the funds were distributed through
this apportionment process. As a result, Rio Hondo College received the
entire fiscal year
1993-94 grant amount of $116,000 by June 30, 1994, even though the
52
grant did not require the work to be completed until June 30, 1995. If the
Chancellor’s Office would have used a contract, Rio Hondo College
would not have received the funds until the work was complete.
The Chancellor’s Office Circumvented
the State Budget Process and
Incurred Additional Costs
The Chancellor’s Office circumvented the state budget process by
inappropriately using an interjurisdictional exchange contract. It entered
into a contract with State Center in May 1990 to obtain the services of the
president of Fresno City College to provide the leadership skills necessary
to operate the Economic Development Program. The terms of the
contract included a provision that required the Chancellor’s Office to pay
an automobile and housing allowance to the president. On June 30, 1991,
the president resigned from his position at Fresno City College and on
July 1, 1991, the former president was officially appointed as the deputy
chancellor of the California Community Colleges. However, despite the
appointment, the Chancellor’s Office executed a second contract with
State Center in July 1991 to continue paying the deputy chancellor. The
terms of the second contract stated that in addition to providing leadership
for the Economic Development Program, the former president would also
act as deputy chancellor for the Chancellor’s Office of the California
Community Colleges. This contract was subsequently amended to
continue through June 1994.
Because the former president was officially appointed as the deputy
By paying its deputy chancellor in July 1991, the Chancellor’s Office should not have awarded
chancellor through a the second contract. According to the Chancellor’s Office, it continued to
contract with State
pay the deputy chancellor through its contract with State Center so that it
Center the Chancellor’s
could show the related expenditures as contract expenditures rather than
Office incurred $15,500
personnel service expenditures. However, because it continued to pay the
of unnecessary costs. deputy chancellor through the contract with State Center, the Chancellor’s
Office incurred unnecessary costs of approximately $15,500 which would
not have been paid if it had paid the deputy chancellor through the State’s
payroll system.
Additionally, the Chancellor’s Office created a conflict of interest by
allowing the deputy chancellor to approve grants with State Center while
continuing to pay him through the contract with State Center. For
example, the deputy chancellor approved the fiscal year 1993-94
Economic Development grant awarded to State Center. Although we
noted that the
grant awarded to State Center included the signature of the vice chancellor
of fiscal affairs, because of the deputy chancellor’s relationship with State
Center, he should not have approved the grants. As a result, the
53
Chancellor’s Office risked the possibility that State Center received
contracts that it otherwise might not have received.
Corrective Action Taken by
the Board of Governors and
the Chancellor’s Office
The Board of Governors (board) of the California Community Colleges
has adopted new policies regarding approval
and use of grants and contracts at the Chancellor’s Office. In
September 1995, the board adopted a policy stating that contracts must be
reviewed by the board if amended in such a way as to make them exceed
$100,000 or three years in duration, or if they involve consulting services
over $50,000. The policy also requires that more complete and timely
information be presented to enable the board to decide whether or not to
Board of Governors has
approve contracts. It also requires that the board be given “early
adopted new policies for
warning” about the intent to contract.
approval and use of
grants and contracts;
On November 16, 1995, the board adopted a policy which requires the
however, Economic
Chancellor’s Office to seek board approval before entering into any grants
Development Grants are
which exceed $100,000 or three years in duration. The requirement for
exempt from these new
board approval applies to any amendment that results in the original grant
policies.
exceeding these limits. The policy also requires that after January 1,
1996, all grants be awarded using either a competitive process or
allocation formulas approved by the board. Grants for the performance
of functions that are ongoing in nature must be awarded in cycles of one to
five years in length. Moreover, the policy requires that, to the extent that
the grantee contracts with a private or public entity to perform certain
parts of the grant, the grantee shall be required to disclose the intended
purpose
54
and amount of such subcontracting, agree to follow locally applicable
competitive bidding processes in doing such subcontracting, and agree to
name the subcontractors chosen.
Although the revised policy improves control over the process for
awarding grants, it includes a provision that states that the new procedures
shall not apply to grants distributed on an allocation formula basis that has
been reviewed and approved by the board. However, since many of the
grants awarded by the Chancellor’s Office are distributed based on an
allocation formula basis, including grants for the Economic Development
Program, this provision would result in those grants being exempt from
the revised board policies. Therefore, the board should reconsider the
provision in its policy that excludes these grants.
In addition, the Chancellor’s Office has created a Grants and Contracts
processing unit as part of the Fiscal Division. This unit processes grant
awards, verifies and logs quarterly and final fiscal reports, reconciles fiscal
data with the accounting unit, and maintains the master files for audit
purposes. Specialists in the Economic Development and Vocational
Education Division monitor the programmatic aspects of the grants.
Conclusion
The Chancellor's Office did not maintain adequate control
over its Economic Development Program. Specifically, the Chancellor's
Office did not always use a competitive bid process to award Economic
Development funds to community colleges, as its policy requires.
Therefore, the Chancellor's Office cannot ensure that the most qualified
colleges received the funds. The Chancellor's Office also did not
adequately monitor and review grant expenditures. As a result, the
community colleges did not always comply with the grant requirements.
For example, the community colleges did not always provide matching
funds in an amount equal to the grant funds, as required, and did not
always spend funds in accordance with the approved grant budget. We
also noted that the Chancellor’s Office inappropriately used a community
college as a fiscal agent to pay consultants who were working
at the direction of another community college. Finally, the Chancellor's
Office circumvented the State’s budget process and incurred additional
costs because of its inappropriate use of an interjurisdictional exchange
contract.
55
Recommendations
To properly administer the Economic Development Program and control
funds for the program, the Chancellor's Office should:
Ensure that it complies with its policy by using a competitive process
to award Economic Development grants;
Monitor and review grant expenditures to ensure that funds are being
spent in accordance with the grant requirements. Procedures should
include reviewing reports submitted by community colleges,
performing periodic site visits to review supporting documentation for
expenditures and matching information, and reemphasizing grant
requirements to the community colleges;
Require the community colleges to use a competitive process to award
subcontracts;
Modify the terms and conditions of the grants to restrict travel costs to
state per diem rates;
Ensure that it follows its own procedures by using contracts rather than
grants to award funds when it has the legal or statutory responsibility
to perform the activities; and
Implement procedures to ensure that it is maximizing
the use of Economic Development funds. Specifically, the
Chancellor's Office should consider reducing the amount of grant
funds awarded to community colleges by the amount of unspent funds
remaining from prior grants.
Finally, the Chancellor's Office should reimburse the State for the amount
of unnecessary costs incurred from its inappropriate use of an
interjurisdictional exchange contract.
Chapter 2
The Chancellor’s Office and the
Department of Education Used Fiscal
Agents To Circumvent State Controls
To Develop the State Plan
56
Chapter Summary
B
oth the Chancellor’s Office of the California Community Colleges
(Chancellor’s Office) and the Department of Education
(department) circumvented state controls by using fiscal agents to
obtain the services of a contractor, The Resource Group
(contractor), to prepare the Needs Assessment and State Plan for
Vocational Education. Specifically, the Chancellor’s Office awarded a
contract for $220,000 to Chaffey College with the stipulation that the
community college use the funds to pay the contractor and also directed
Monterey Peninsula College to issue a $43,643 payment to the contractor.
Similarly, the department awarded a $300,000 contract to the Los Rios
Community College District (Los Rios) and a $300,000 grant to East
San Gabriel Valley Regional Occupation Program (East San Gabriel) with
the understanding that these entities would use the funds to pay the
contractor. By using the fiscal agents, the Chancellor’s Office and the
department incurred an additional $62,000 in administrative costs that
were paid to the fiscal agents. Further, expenditures of approximately
$805,000 were not subjected to the State’s normal review and internal
controls.
The Chancellor’s Office and the department submitted documents to the
Department of General Services (DGS) that contained misleading
information as support for requests for approval of contracts and contract
amendments. Furthermore, the Chancellor’s Office allowed the
contractor to begin work on the state plan before DGS had approved its
contract, and the department allowed the contractor to perform services
without any formal agreement with either the department or its fiscal
agent. Finally, because they used fiscal agents to pay the contractor, the
Chancellor’s Office and the department had no assurance that the amounts
paid to the contractor were appropriate. Appendix B presents a
chronology of activities related to the development of the Needs
Assessment and State Plan for Vocational Education.
Background
The State of California receives funding for vocational education
programs from the federal government under the Carl D. Perkins
Vocational and Applied Technology Education Act of 1990 (Perkins Act).
The department and the Chancellor’s Office use the funds to develop and
expand the academic and vocational skills of students in grades K-12 and
at the community colleges. During fiscal year 1993-94, the State received
$108 million in vocational education funds.
57
The Code of Federal Regulations, Title 34, Section 403.30, requires the
State to submit a Vocational Education State Plan (state plan) that outlines
the objectives and activities of its vocational education programs. Section
403.32(b) requires the State to include an assessment of its vocational
education programs as part of the state plan. This assessment is designed
to demonstrate the need for vocational education and the activities planned
to meet those needs. The results of the assessment are to be the basis for
completing the state plan.
Since both the department and the Chancellor’s Office receive funds to
administer vocational education programs in the State, the State Board of
Education and the Board of Governors for the California Community
Colleges developed a Memorandum of Understanding that delineates the
roles and responsibilities of the two agencies as they pertain to the
administration and operation of vocational education program services. A
description of the process that the two agencies should follow to develop
the state plan is included in the Memorandum of Understanding.
In March 1993, representatives of the Chancellor’s Office and the
department met with the contractor’s president to discuss the needs
assessment for California’s Vocational Education programs. On March
25, 1993, the contractor’s president submitted a memorandum to the
representatives of both agencies proposing a workplan and budget for
completing the needs assessment. The workplan outlined seven major
objectives and a projected budget of $335,000. The president also stated
that both agencies must be willing to commit to a start date of April 1,
1993, to complete the project by the end of September. On March 31,
1993, the assistant superintendent and state director for the
Career-Vocational Education Division of the department notified the
contractor that both the department and the Chancellor’s Office wished to
obtain its services to perform the needs assessment.
The Chancellor’s Office and the
Department Used Fiscal Agents To
Circumvent State Contracting Requirements
The Chancellor’s Office used Chaffey College and Monterey Peninsula
College as fiscal agents to obtain the services of the contractor for the
work it performed on the needs assessment. Fiscal agents are not subject
to state controls. By using fiscal agents, departments can specify the use
of funds without subjecting them to state review or oversight. According
to the dean of economic development at Chaffey College, the vice
chancellor of the Vocational Education Division in the Chancellor’s
Office asked him if Chaffey College would enter into a $220,000 contract
and use the funds to pay the contractor for its work on the Vocational
Education needs assessment. Chaffey College agreed to act as the fiscal
58
agent and in August 1993 executed a consultant services agreement with
the contractor. Chaffey College paid the contractor $211,540 and
retained the remaining $8,460 as an administrative fee.
In May 1993, the Chancellor’s Office directed Monterey Peninsula
College to pay the contractor $43,643 using funds from a $110,000
contract it had awarded to the college in November 1992. The purpose of
By using fiscal agents, the contract was for Monterey Peninsula College to provide technical
departments can specify support for planning, assessment, development of standards and measures
use of funds without of performance, and priority-setting activities to assist the Chancellor’s
subjecting them to state Office to meet the requirements of the Perkins Act. Since the indirect
review or oversight. cost for the contract was 8 percent, we determined that the administrative
fee for Monterey Peninsula College to issue the payment to the contractor
was approximately $3,500.
The department also used fiscal agents to obtain the services of a
contractor. Specifically, it awarded a $300,000 contract to Los Rios with
the understanding that Los Rios would use the funds to pay the contractor
for the needs assessment. According to the project director, who is an
employee of Los Rios, he prepared requisitions for payments that the
district made to the contractor at the direction of the department. During
our review, we noted that the contractor sent two invoices directly to the
department rather than to Los Rios. The department forwarded these
invoices to Los Rios for payment. In total, Los Rios paid the contractor
$275,000 and retained $25,000 as its administrative fee.
59
The department also awarded a grant totaling $300,000 to East San
Gabriel. The superintendent of East San Gabriel stated that in March
1994 the department asked East San Gabriel to apply for funds for the
development of the state plan under the Perkins Act. The superintendent
further stated that the department asked East San Gabriel to use the grant
funds to subcontract the work to the contractor. Finally, the
superintendent stated that East San Gabriel did not have any role in
selecting the contractor. Of the $300,000 that it received from the
department, East San Gabriel paid the contractor $275,000 and retained
the remaining $25,000 as its administrative fee.
By using fiscal agents to pay the contractor, the department incurred
additional administrative costs of $50,000. While we recognize that the
department would have incurred administrative costs had it paid the
contractor directly, we question whether those costs would have totaled
In total, the State paid
$50,000. While Los Rios and East San Gabriel issued a total of seven
fiscal agents nearly
payments to the contractor, the department issued six payments to the
$62,000 to issue 12
fiscal agents, four to Los Rios and two to East San Gabriel. Since the
checks to one contractor. department incurred costs to administer its agreements with the fiscal
agents and to issue six payments to them, we do not believe that the
department would have incurred the additional $50,000 in administrative
costs that it paid to the fiscal agents had it contracted directly with the
contractor.
The Public Contract Code, Section 10380, states that DGS is responsible
for determining the conditions under which a contract may be awarded
without competition and the methods and criteria that must be used to
determine the reasonableness of the contract costs. The State
Administrative Manual (SAM), Section 1236, states that contracts may be
awarded without competitive bids or proposals if DGS agrees that there is
only a single source for the services. Section 1236 further states that
agencies must submit an application for sole-source exemption that
includes a market survey and justification of contract costs. The Public
Contract Code, Section 10373, requires state agencies to secure at least
three competitive bids or proposals for each consulting services contract.
However, the section also states that the work or services of a state or
local agency, such as a community college, are specifically exempt from
the requirement of acquiring competitive bids.
By using the community colleges as fiscal agents, the Chancellor’s Office
and the department circumvented state controls to obtain the services of a
specific contractor. Although DGS approved the department’s contract
with Los Rios, the terms of the contract indicated that the community
60
college district was to perform the work. By contracting with Los Rios,
the department was able to select the contractor without obtaining
approval of a sole-source contract from DGS.
The Chancellor’s Office and the department paid nearly $62,000 in
administrative costs in addition to the $805,000 that the fiscal agents paid
to the contractor on behalf of the two agencies. By circumventing the
competitive bidding process, the two agencies cannot assure that they used
the most qualified contractor or that the amount paid to the contractor was
reasonable.
Chancellor’s Office’s and Department
of Education’s Use of Fiscal Agents
May Have Created Conflicts of Interest
By using fiscal agents, the Chancellor’s Office and the department may
have caused employees at Chaffey College and at East San Gabriel to
violate the common law doctrine against conflicts of interest. For
example, by reviewing a sample of “Statements of Economic Interests” for
key personnel at the Chancellor’s Office, the department, and the
community colleges, we determined that the dean of economic
development at Chaffey College had worked as a consultant for the
contractor during calendar year 1992. In August 1993, Chaffey College
entered into a consultant services agreement for which it paid the
contractor $211,540. In addition, our review of the workplan the
contractor prepared for the department disclosed that the superintendent of
East San Gabriel was listed as a consultant to the contractor.
As previously discussed, the Chancellor’s Office awarded a contract for
$220,000 to Chaffey College with the stipulation that the college use the
funds to pay the contractor. The dean of economic development at
Chaffey College was named in the contract as the project director.
During our review of invoices and requisitions for payment at Chaffey
College, we noted that the dean of economic development approved all the
payments the college made to the contractor. The dean of economic
development had worked as a consultant for the contractor in 1992 and he
approved all the payments that Chaffey College made to the contractor for
a contract that it awarded to the contractor in August 1993. Therefore, we
believe the Chancellor’s Office’s use of Chaffey College as a fiscal agent
may have caused him to violate the common law doctrine against conflicts
of interest. We also noted that the president of The Resource Group was
a member of the Community Advisory Committee for Chaffey College’s
Economic Development Center.
The contractor listed the superintendent of East San Gabriel as an
employee in the packet it submitted to the department outlining the scope
of work for the state plan. The superintendent stated that she worked for
61
the contractor drafting a portion of the state plan and informed the
department of this fact in December 1993. Regardless, at the request of
the department, in April 1994, only four months after she had worked for
the contractor, the superintendent entered into an Educational Services
Agreement with the contractor for preparation of the state plan. The
agreement stated that the department designated East San Gabriel as the
fiscal agent for the project, that all funds for the project would be allocated
to East San Gabriel, and that East San Gabriel would forward funds to the
contractor. All the invoices the contractor submitted for payment were
addressed to the superintendent. We believe that, because the
superintendent worked for the contractor just prior to entering into a
contract with them, the department may have caused her to violate the
common law doctrine against conflicts of interest.
According to the California Attorney General’s Office, conflicts of interest
by public officials can violate both common law and statutory
prohibitions. Common law is a body of law that has been made by
precedential court decisions. The basic prohibition in the common law is
that a public officer is impliedly bound to exercise powers conferred on
him with disinterested skill, zeal, and diligence, and primarily for the
benefit of the public. In addition, a California Attorney General Opinion
states that the fundamental policy is that a public office is a public trust
created in the interest and for the benefit of
the people; therefore, public officers are obliged to
discharge their responsibilities with integrity and fidelity. Although the
employees at Chaffey College and East San Gabriel did not violate any
statutory prohibitions, because they both had recently worked for the
contractor, they lacked the independence necessary to ensure that the best
interests of the State are protected; therefore, they may have violated the
common law doctrine against conflicts of interest.
The Chancellor’s Office Submitted
Erroneous and Misleading Information
to the Department of General Services
In February 1994, the Chancellor’s Office awarded a contract totaling
$220,000 to Chaffey College to prepare the needs assessment. According
to the contract budget, Chaffey College could subcontract out $66,000 of
the work. The staff counsel at DGS, who reviewed the contract in
January 1994, raised concerns about the amount of work to be
subcontracted out. Additionally, she inquired about whether Chaffey
College intended to use a competitive bid process to award the
subcontracts. In a memorandum to DGS dated February 14, 1994, the
Chancellor’s Office stated that the subcontracts were necessary to have
access to a proprietary data base developed by the contractor. The
Chancellor’s Office also stated that the policy at Chaffey College requires
62
contracts exceeding $25,000 to be competitively bid. The Chancellor’s
Office further stated that since Chaffey College had an existing contract
with the contractor for an amount less than $25,000 and because funds
from the Chancellor’s Office contract would be used to augment the
existing contract, competitive bidding by Chaffey College was not
required. DGS approved the contract on February 23, 1994.
We reviewed both the contract between the Chancellor’s Office and
Chaffey College and the contract between Chaffey College and the
contractor. In August 1993, Chaffey College awarded a contract totaling
$167,600 to the contractor to prepare the needs assessment. According to
the dean of economic development at Chaffey College, the contract was
awarded to the contractor at the request of the vice chancellor of the
Vocational Education Division in the Chancellor’s Office. The dean of
economic development also stated that Chaffey College awarded the
Despite knowing that
contract based on verbal approval from the vice chancellor that the
subcontractors had
Chancellor’s Office would award a contract to Chaffey College to pay for
already been paid
the subcontract. On February 22, 1994, at the direction of the vice
$168,693, the
chancellor, Chaffey College increased the amount of its contract with the
Chancellor’s Office
contractor by $42,847.
submitted a contract to
DGS indicating that
By December 1993, Chaffey College had already paid the contractor
payments to
$168,693 for work on the needs assessment. This amount included a
subcontractors would not
finance charge of $1,093 due to late payment. On February 18, 1994, the
exceed $66,000.
contractor submitted an additional invoice for $42,847 to Chaffey College.
When the Chancellor’s Office submitted its contract to DGS in
January 1994 to reimburse Chaffey College, it had full knowledge that
$168,693 had been paid to the contractor. Therefore, the Chancellor’s
Office submitted erroneous information to DGS by stating in the contract
budget that the amount to be paid to subcontractors would not exceed
$66,000.
In early February 1994, the vice chancellor of the Vocational Education
Division sent a memorandum to the contracts manager for the
Chancellor’s Office requesting an augmentation of the contract with
Chaffey College. She stated in her memorandum that when she received
the State Plan Guide from the U. S. Department of Education (USDE) in
November 1993, she realized the process to complete the state plan had
only begun and the Chancellor’s Office did not have sufficient resources
to complete it by the federal deadline. Consequently, she asked Chaffey
College to determine whether the contractor could be retained to complete
the state plan. She further indicated that by the end of December 1993,
the contractor had prepared a draft copy of the state plan and distributed
copies of it throughout the State. She stated that the contractor was
currently in the process of revising the state plan based on comments
received at public hearings. She concluded her memorandum by stating
that, without the help of Chaffey College and the contractor, the
63
vocational education funds for the State would have been jeopardized;
however, the project had a cost overrun of approximately $400,000. As a
result, the Chancellor’s Office needed to provide the funds to pay the
contractor for the work it had already done on the state plan and for
revising and submitting it to the USDE before May 1, 1994.
On the advice of its legal unit, the Chancellor’s Office decided to pursue
approval of a sole-source contract with the contractor rather than amend
its existing contract with Chaffey College. On March 25, 1994, the
Chancellor’s Office submitted a request to DGS seeking approval of a
$400,000 sole-source contract with the contractor. In its request, the
Chancellor’s Office stated that the purpose of the sole-source contract was
to obtain the professional services of the contractor to develop, revise, and
submit the state plan to the USDE on or before May 1, 1994. As required
by the SAM, Section 1236, the Chancellor’s Office submitted a Request
for Exemption From Competitive Bidding that included a justification for
the sole-source contract. The Chancellor’s Office also included a copy of
a market survey to document its attempts to identify other firms that could
provide the services. At the request of DGS, the Chancellor’s Office
made revisions to the contract, and it was approved on May 16, 1994.
We determined that, because the Chancellor’s Office did not disclose to
DGS that the contractor had already completed a substantial portion of the
state plan, the information in its justification for the sole-source contract
was misleading. The justification submitted on March 25, 1994, stated
that time constraints required the Chancellor’s Office to obtain the
professional services of a firm that has the experience and expertise to
complete the state plan accurately and on time. While work had been
ongoing within the Chancellor’s Office since October 1993, according to
the justification, it could not meet the May 1, 1994, deadline without
external professional services. As previously mentioned, the contractor
actually started working on the state plan as early as November 1993 and
delivered a draft copy of the state plan to the Chancellor’s Office on
January 3, 1994, nearly three months prior to the date the Chancellor’s
Office submitted its request for the sole-source contract to DGS.
64
We also determined that the vice chancellor of the Vocational Education
Division conducted the market survey component of the sole-source
justification after the vendor had already been selected and had begun
The Chancellor’s Office
work on the state plan. In addition, in the portion of the sole source
requested approval of a
justification that documented the market survey, the Chancellor’s Office
$400,000 sole-source
stated that it was unable to identify another firm that had the knowledge
contract nearly three
and experience or the time and resources required to complete the state
months after the
contractor had completed plan under the extremely tight time constraints. However,
a draft copy of the state in the memorandum she sent to the contracts manager
plan. in February 1994, the vice chancellor wrote that in November 1993 she
had asked Chaffey College if the contractor could prepare the state plan.
Because the Chancellor’s Office had already selected a vendor and the
draft had been delivered to the Chancellor’s Office on January 3, 1994, the
market survey that it submitted to DGS on March 25, 1994, was irrelevant.
In the contract that it submitted to DGS, the Chancellor’s Office indicated
that the term would be March 30, 1994, through August 31, 1994, even
though it had already received the draft copy of the state plan. Therefore,
the Chancellor’s Office requested approval of the sole-source contract
with full knowledge that the contractor had already been working on the
state plan. Although minor revisions were made to the state plan in June
1994, a draft copy was actually sent to the USDE on April 12, 1994.
When the Chancellor’s Office submitted its request for approval of the
sole-source contract on March 30, 1994, it was aware that the contractor
had nearly completed the project and the information submitted with the
sole-source justification was misleading.
The Department of Education Submitted
Misleading Information to DGS but
Subsequently Withdrew Its Request for
Approval of a Contract Amendment
The department also submitted misleading information to DGS in an
attempt to amend an existing contract that it had with Los Rios. In its
request, the department stated that the purpose of augmenting the contract
was to add $432,000 to fund a set of activities and deliverables necessary
to complete the state plan. However, the staff counsel at DGS raised
several concerns regarding the amendment, and the department
subsequently withdrew its request.
Specifically, the department submitted its request for the amendment to
DGS on January 31, 1994, even though it had already received a draft of
the state plan on January 3, 1994. On February 14, 1994, the DGS staff
counsel who reviewed the request asked the department to clarify certain
provisions in the amendment. The staff counsel asked the department to
explain why all of the additional funding was budgeted for subcontractors
and why it needed to contract with Los Rios if the district was not doing
65
the bulk of the work. The staff counsel also asked the department to
explain how Los Rios selected the subcontractors. On March 7, 1994, the
department submitted additional information to DGS describing the
purpose of the contract amendment; however, the staff counsel still
expressed reservations regarding the amendment. On April 6, 1994, the
department withdrew the amendment. On April 12, 1994, six days later,
the department awarded a $300,000 grant to East San Gabriel and
submitted a draft copy of the state plan to the USDE. According to the
superintendent of East San Gabriel, the department asked it to use the
grant funds to pay the contractor for the state plan.
We also noted that on October 21, 1993, the department received an
invoice from the contractor for work it had done on the state plan. The
When it submitted its department forwarded the invoice to Los Rios and directed the district to
request for a contract pay it. The district paid the $100,000 invoice on November 5, 1993.
amendment, the Because the department received an invoice from the contractor in
department failed to October 1993 for work done on the state plan and because it received a
inform DGS that the draft copy of the state plan from the contractor on January 3, 1994, we
contractor had been
believe the department had clearly directed the contractor to work on the
working on the state plan
state plan before it submitted its request for the amendment to DGS on
for more than three
January 31, 1994. Despite the fact that the department withdrew the
months.
amendment, we found that the information the department submitted to
DGS was misleading.
Knowingly misrepresenting the facts in a contract or a contract
amendment is a violation of law. Specifically, the Government Code,
Section 6203, states that officers authorized by law to make or give any
certificate or other writing are guilty of a misdemeanor if they make and
deliver as true any certificate or writing containing statements that the
officers know to be false.
66
The Department of Education and
the Chancellor’s Office Cannot Assure
That Payments for Projects
Were Appropriate or Reasonable
Because they used fiscal agents to pay the contractor, both the department
and the Chancellor’s Office lacked control over the payments made for the
needs assessment and the state plan. As Table 4 shows, the projected
budget for the needs assessment was $335,000; however, the two agencies
paid the contractor $430,183 for the project. The two agencies paid
$775,000 to the contractor for the state plan even though in its proposals,
the contractor stated that it would charge a fixed fee of $750,000.
Because the contractor submitted most of the invoices to the fiscal agents,
neither the department nor the Chancellor’s Office can assure that they
received the services they paid for, nor can they assure that the costs they
paid for the services were reasonable.
Table 4
Budgeted Amounts for Needs
Assessment and State Plan
and Amounts Paid to Contractors
Amount Paid
Budgeted to the Amount
Department Project Cost Contractor Over Budget
Chancellor’s Office Needs assessment $ 167,500 $ 260,183 $ 92,683
Department of Education Needs assessment 167,500 170,000 2,500
Subtotal 335,000 430,183 95,183
Chancellor’s Office State plan 400,000 400,000 0
Department of Education State plan 350,000 375,000 25,000
Subtotal 750,000 775,000 25,000
Total Costs $1,085,000 $1,205,183 $120,183
For example, the $260,183 that the Chancellor’s Office paid for the needs
assessment exceeded the projected budget by $92,683. Three different
community college districts paid a portion of this total; Chaffey College
paid $211,540, Monterey Peninsula paid $43,643, and Los Rios paid
$5,000. As stated earlier, the Chancellor’s Office asked Chaffey College
to enter into a contract with the stipulation that the community college use
the funds to pay the contractor and directed Monterey Peninsula to issue
the $43,643 payment to the contractor.
67
Los Rios used $5,000 from a contract that the Chancellor’s Office had
awarded it to pay an invoice from the contractor. However, the invoice
represented charges for services that the contractor performed on behalf of
the department, not the Chancellor’s Office. Therefore, the Chancellor’s
Office paid for a portion of the department’s costs for the needs
assessment. Because the Chancellor’s Office used fiscal agents to pay the
contractor for the needs assessment, the payments were not subjected to
objective review by the fiscal agents nor to the State’s normal review,
such as that by the State Controller’s Office, the Department of General
Services, and other fiscal and contracting controls it must follow when
processing payments through its own accounting office. Therefore, the
Chancellor’s Office cannot assure that it received the services it paid for,
nor can it assure that the costs paid for the services were reasonable.
Chaffey College cannot
assure that it did not pay
In addition to the amount by which the payments exceeded the projected
for the same services
budget, we also determined that the Chancellor’s Office may have paid for
twice.
the same services more than once. During our review of invoices the
contractor submitted to Chaffey College for the needs assessment, we
identified two for which the contractor included charges for the same
activities. Specifically, the contractor submitted an invoice totaling
$50,000 to Chaffey College on October 2, 1993, and on October 22, 1993,
it submitted another invoice for $36,243. Some of the activities listed on
the second invoice were the same activities listed on the October 2, 1993,
invoice. Because Chaffey College paid the second invoice in full without
questioning whether it had already paid for some of the activities listed on
the invoice, it cannot assure that it had not paid for the same services
twice.
The Department of Education and the
Chancellor’s Office Allowed the
Contractor To Commence Work
Prior to Approval of Their Agreements
The department authorized the contractor to begin working on the needs
assessment while it arranged an agreement with Los Rios to pay for the
work. It did not ensure that Los Rios executed a formal contract with the
contractor. Furthermore, while it was still in the process of preparing a
contract with Los Rios, the department instructed the district to pay the
contractor using funds from another contract that the district had received
from the department.
68
During our review of payments that Los Rios made to the contractor, we
noted that it issued the first payment, totaling $50,000, on June 10, 1993.
The department did not issue a contract to Los Rios for the needs
assessment until September 17, 1993. Representatives of Los Rios stated
that the department directed the district to use funds from a Tech-Prep
contract to pay the contractor until DGS approved the contract. After
DGS approved the contract that the department intended to award to Los
Rios to pay for the needs assessment, the district issued three more
payments to the contractor totaling $220,000. However, even though the
department awarded the contract to Los Rios with the stipulation that the
district use the funds to pay the contractor for the needs assessment,
neither the department nor the district had any type of contractual
agreement with the contractor. By permitting Los Rios to issue progress
payments without the benefit of a formal contract, the department created
a risk that public funds would be gifted should the contractor fail to
complete the needs assessment.
The Chancellor’s Office also allowed the contractor to commence work
prior to approval of its sole-source contract. In March 1994, the
Chancellor’s Office elected to pursue approval of a sole-source contract
with the contractor for $400,000 for the state plan. Although DGS did
not approve the contract until May 16, 1994, the Chancellor’s Office
allowed the contractor to begin working on the state plan as early as
November 1993. We noted that the contractor submitted its first invoice,
totaling $284,500, to the Chancellor’s Office on May 17, 1994, one day
The contractor submitted after DGS approved the sole-source contract. As discussed earlier, the
an invoice for $284,500 contractor submitted a draft copy of the state plan to both the Chancellor’s
to the Chancellor’s Office Office and the department on January 3, 1994, and a revised draft of the
one day after DGS state plan was submitted to the USDE on April 12, 1994.
approved the sole-source
contract. Although minor revisions were made to the state plan in June 1994, by
June 3, 1994, the contractor had billed a total of $725,000 (94 percent) of
the $775,000 that the department and the Chancellor’s Office paid for
work on the state plan. Therefore, the contractor had completed a
substantial portion of the work on the state plan before June 1994.
By allowing the contractor to begin work before approval of the contracts,
both the department and the Chancellor's Office exposed the State to
potential monetary liability. In addition, by permitting Los Rios to issue
progress payments to the contractor without the benefit of a formal
contract, the department created a risk that public funds would be gifted
should the contractor fail to complete the work.
The Public Contract Code, Section 10360, states that consulting services
contracts are not effective until approved by DGS. In addition, Section
10371 states that, except in an emergency, consulting services contracts
must not begin prior to formal approval by DGS and no payments can be
69
made before approval of the contract. Further, the SAM, Section 1209,
states that agencies must submit each contract to DGS early enough to
allow DGS sufficient time to review and comment on the contract prior to
the commencement of work.
According to the Chancellor’s Office, the tight time constraints, lack of
staff, and lack of internal expertise precluded it from completing the needs
assessment and the state plan internally; therefore, they had to seek outside
help. The department stated that field concerns over the lack of
participation by service providers and practitioners in the development of
the 1991 plan required the department and the Chancellor’s Office to
establish a broadly collaborative, statewide development process. The
department further stated that this monumental coordination effort
necessitated the use of professional services with expertise to complete the
Both agencies contend
projects in a timely manner.
that they used fiscal
agents to assure that the
Both agencies also indicated that the state plan submitted in 1991 had
state plan was submitted
significant problems which resulted in funding being delayed to
on time rather than
jeopardize $250 million in California; therefore, they wanted to make sure the state plan for 1994-96
federal funds. was accurate, complete, and in the proper format. The agencies stated that
failure to meet the May 1, 1994, deadline would jeopardize nearly $250
However, we believe million in federal vocational education funds for California.
they had sufficient time to
develop the plan without Although we agree that the preparation of the state plan is a complex
violating state contracting project that requires a large investment of time and resources, we believe
procedures. that if the two agencies had begun the process of developing the state plan
earlier, they could have met the deadline for submitting the plan to the
USDE without violating state contracting procedures. Both agencies
knew that the state plan for 1994-96 had to be submitted to the USDE by
May 1, 1994. The Code of Federal Regulations, Title 34, Section
403.33(c), states that the final state plan must be submitted to the USDE
by May 1 of the year preceding the first fiscal year the plan is to be in
effect. In addition, Section 403.30 requires states that wish to participate
in the State Vocational and Applied Technology Program to submit an
initial state plan covering a three-year period and subsequent plans to
cover two years. California submitted its initial state plan, covering fiscal
years 1991-92 through 1993-94, to the USDE in 1991; therefore, the
subsequent plan would cover fiscal years 1994-95 and 1995-96.
Since the same two agencies prepared and submitted the initial state plan
in 1991, they had experience in preparing it and could have started the
planning process for the 1994-96 state plan early enough to allow
adequate time for completion. In addition, the Memorandum of
Understanding between the two agencies that describes the process for
developing the state plan specifically states that to meet the May 1
deadline, the process must begin 18 to 24 months prior to the deadline.
70
In addition to time constraints, the Chancellor’s Office stated that the
USDE did not distribute the final draft of the State Plan Guide and State
Plan Checksheet to states until February 22, 1994; therefore, it had to get a
substantial amount of work done in a short period of time. However, the
transmittal memorandum that the USDE sent with the State Plan Guide
and State Plan Checksheet pointed out that it had sponsored four
workshops in the fall of 1993 where earlier drafts of the documents were
made available to the participants. The USDE also stated that the most
significant changes would be in the State Plan Checksheet, which is an
internal document used by the USDE when it reviews state plans. The
USDE said the checksheet was provided to the states as a courtesy and not
as guiding information to develop their plan. The State Plan Guide lists
the regulations that must be addressed in the state plan, and only minor
changes were being made to it.
Corrective Action Taken by
the Department of Education
The Superintendent of Public Instruction has implemented new policies
regarding approval and use of contracts at the department. Specifically,
in January 1995, the superintendent issued a policy stating that effective
immediately the superintendent will review all proposed contracts. In
addition, she stated that requests to extend contracts beyond the original
Effective January 1995,
ending date must be accompanied by a full explanation of the reason for
the Superintendent of
the extension and a summary of the work completed to date. The
Public Instruction’s policy
superintendent also stated that effective April 1, 1995, contracts not fully
is to review all proposed
executed by the starting date will receive personal review by the
contracts.
superintendent as to the reasons for the delay. Furthermore, she
discouraged the use of
sole-source contracts, stating that any requests for such contracts will be
closely reviewed and approved by her. Finally, the superintendent stated
that it will no longer be acceptable to circumvent appropriate contracting
procedures through Budget Act language that mandates a specific
contractor.
Conclusion
The Chancellor's Office and the department circumvented state controls by
using Los Rios and East San Gabriel, Monterey Peninsula College, and
Chaffey College as fiscal agents to obtain the services of a contractor to
prepare the needs assessment and state plan for Vocational Education.
Because they used fiscal agents to circumvent state contracting
procedures, the Chancellor’s Office and the department paid $62,000 in
administrative fees in addition to the amounts they paid to the contractor.
71
The Chancellor's Office and the department submitted documents that
included erroneous and misleading information to DGS as support for
requests for approval of contracts and amendments. In two instances,
employees at two of the entities used as fiscal agents had recently been
employed by the contractor and therefore the Chancellor’s Office and the
department may have caused them to violate the common law doctrine
against conflicts of interest. Because they used fiscal agents to pay the
contractor, both the Chancellor’s Office and the department lacked control
over payments made for the needs assessment and the state plan. As a
result, the Chancellor’s Office and the department cannot assure that the
amounts they paid for the needs assessment and the state plan were
appropriate or reasonable.
Recommendations
The Chancellor’s Office and the department should:
Discontinue the use of fiscal agents to circumvent state controls;
Comply with state requirements for awarding contracts and submit
complete, accurate information to DGS when requesting approval of
contracts;
Ensure that DGS has approved its contracts before allowing
contractors to commence work; and
Determine whether the amounts paid to the contractor for the needs
assessment and the state plan were appropriate and, if necessary,
recover any overpayments.
72
73
We conducted this review under the authority vested in the state auditor by
Section 8543 et seq. of the California Government Code and according to
generally accepted governmental auditing standards. We limited our
review to those areas specified in the audit scope of this report.
Respectfully submitted,
KURT R. SJOBERG
State Auditor
Date: January 4, 1996
Staff: Elaine Howle, CPA, Audit Principal
Stephen Cummins, CPA
Tammy Bowles, CPA
Harvey Hunter
Debra Maus
Tone Staten, CPA
74
Blank page inserted for reproduction
purposes only.
Appendix A
Description of Economic Development
Program Initiatives Funded by the
Chancellor’s Office
I
n 1988, the Chancellor’s Office established the Economic Development
Program to support local community colleges’ efforts to provide
education, training, and technical services to California business and
industry. In fiscal year 1993-94, the program was divided into 15
categories: 8 continuing initiatives and 7 annual initiatives. The
difference between the two types of initiatives is that annual initiatives
must be competitively bid every year while continuing initiatives must
only be competitively bid in the first year of the award. Thereafter,
participating community colleges continue to receive the funds for that
particular initiative as long as the prior year’s work is satisfactory.
During fiscal year 1993-94, the Chancellor’s Office awarded 53 grants for
continuing programs and 53 for annual programs. Descriptions of the
various program initiatives are presented below.
Continuing Program Funding Categories
Statewide Coordination Network (ED-Net)
This program provides operational, technical, logistical, and marketing
support for all of the Economic Development programs. The network
includes a database and electronic bulletin board that provide program
support and help to disseminate information on services available to
business and industry. In addition, the network acts as a central contact
for businesses to identify resources and services available at the
community colleges and to determine their training needs.
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Small Business Development Centers
These centers provide comprehensive services to small business owners
and to individuals interested in starting their own businesses. For example,
the centers act as information, resource, and referral agencies, and they
provide training workshops and classes for owners of small businesses.
Centers for Applied Competitive
Technologies
These centers help small- and medium-sized businesses evaluate their
readiness for new technology and design a business plan. The centers
deal with computer-integrated manufacturing, total quality management,
and the use of technology transfer teams. These centers provide training
in cooperation with the California Manufacturing Technology Center
located at El Camino College. The primary goals of the centers are to:
improve the competitiveness of small- and medium-sized manufacturers,
assist in the conversion of defense suppliers to commercial applications,
and increase the adoption of environmentally and economically sound
manufacturing technologies and techniques.
Centers for International Trade
Development
The goals of these centers are to enhance the competitive strength of
California businesses in the international marketplace and to support
international trade development in their local communities. The
community colleges that participate in this program develop courses in
international business, identify local businesses interested in international
trade development, and provide direct technical support to those
businesses.
Workplace Learning Resources
Centers
Through these centers, the community colleges provide business and
industry with a variety of workplace learning services, such as
occupation-specific skills assessment, task analysis, basic skills, English
as a second language, analytical and problem solving skills, and
teamwork.
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Regional Economic Development and
Contract Education Support, and
In-Service Training Coordination
The goals of this program include: providing regional coordination of
economic development programs; improving statewide coordination of
contract training; enhancing the technical skills of faculty and staff to
assess business needs, market the colleges services, provide training, and
develop materials; and developing partnerships, resources, and projects.
Regional Environmental Business
Resource and Assistance Center
The center develops, implements, maintains, and coordinates statewide
programs and services designed to mitigate the impact of environmental
compliance regulations. These regulations specify the manner in which
businesses may handle, store, use, and dispose of hazardous materials. The
center provides compliance counseling, applied technology counseling,
financial counseling, and environmental audit assistance.
Locally-Based Statewide Program Leadership, Coordination,
and Technical Assistance
Through this program, the community colleges provide statewide
leadership to: build the system’s capacity to deliver education, training,
and services appropriate to small- and medium-sized businesses;
coordinate resources; and provide a systemwide response to economic
development opportunities.
Annual Program Funding Categories
Employer-Based Training
The intent of this program is to expand employer-based training by
providing funds that are matched from other sources. Proposed projects
are designed to assist community colleges in serving businesses to meet
new or changing job opportunities and new or emerging technological
fields.
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Economic Development Training
Set-Aside
In cooperation with the California Department of Commerce, the
Chancellor’s Office sets aside program funds to promote the creation of
new businesses in California. Funds are available for training projects
that are part of a new business startup, site location, or business expansion.
In addition, the funds provide community colleges the flexibility to
develop and deliver quality training programs to a business that is creating
new jobs.
Vocational Education/Technology
Instructor and Career-Counselor
In-Service Training
The intent of this program is to increase the effectiveness of vocational
education/technology instructors and career counselors and to promote the
development of new curricula. Emphasis is placed on those occupations
undergoing the most rapid technological changes. Projects funded
through this program provide actual hands-on experience at the work site
by providing instructors or counselors with a minimum of six weeks of
training at a structured work site.
Technical Instructor Intensive
In-Service Training
Funds are set aside from the Vocational Education/Technology Instructor
and Career-Counselor In-Service Training category above to provide
additional projects on a developmental application basis that include an
intensive training component prior to the structured 120-hour work site
experience.
Environmental Hazardous Materials
Technology Training Program
Under this program, community colleges provide a pool of trained
technicians who have completed a certificate or associate degree in
environmental materials technology. The program helps California
industry to comply with state and local regulations on hazardous materials
and provides training opportunities for hazardous materials handling
within an industry.
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Model Community Economic
Development Programs
Funds are provided under this program to help community colleges
participate in local economic development programs. Regional training
sessions are provided to help colleges understand the practical application
the model may have for those who wish to replicate all or parts of the
model in their region. The resulting products, such as manuals,
handbooks, curricula, survey instruments, and project reports, are
distributed to all community colleges in the State.
Program Evaluation and Annual Report
These funds provide for an annual performance review and report. The
report provides an overview of programs, performance indicators, and
results and characteristics of participants.
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Appendix B
Chronology of Key Events in Preparation
of the Vocational Education Needs
Assessment and State Plan
Department of Education Activity
Date Chancellor’s Office Description
Activity
March 25, 1993 The Resource Group (contractor) submits a memorandum to the The workplan outlines seven major
Chancellor’s Office (office) and the Department of Education objectives with a projected budget
(department) proposing a workplan and budget for the needs of $335,000. The contractor
assessment. indicates that it must begin work
by April 1, 1993, to complete the
project by the end of September.
March 31, 1993 The department submits a letter to the
contractor stating that the department
and the office concur that work on the
needs assessment must begin
immediately and that the two agencies
wish to obtain the services of the
contractor.
April 16, 1993 The department instructs the contractor
to direct invoices for the needs
assessment to the Los Rios Community
College District.
April 29, 1993 The contractor bills the department
$50,000 for work on the needs
assessment.
May 10, 1993 The office directs The payment was made from an
Monterey Peninsula existing contract the office had
College to pay the with Monterey Peninsula College.
contractor $43,643 for
work on the needs
assessment.
June 10, 1993 The department directs Los Rios to pay At the direction of the department,
the contractor $50,000 for work on the the payment was made from an
needs assessment. This payment is for existing Tech-prep contract Los
the invoice submitted by the contractor Rios had with the department.
on April 29, 1993. However, the needs assessment
was not included in the scope of
work of this contract. The
department did not award a
contract to Los Rios for the needs
assessment until September 17,
1993.
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Department of Education Activity
Date Chancellor’s Office Description
Activity
August 2, 1993 The contractor submits an invoice for
$75,000 to the department for the needs
assessment.
August 20, 1993 At the request of the
office, Chaffey College
awards a contract
totaling $167,600 to the
contractor for the needs
assessment.
August 23, 1993 The contractor submits The date of the invoice is only
an invoice to Chaffey three days after the contract was
College for $81,357. approved.
September 17, 1993 The department awards a contract to The amount of the contract is
Los Rios for the needs assessment. $300,000.
October 2, 1993 The contractor submits an invoice to The contractor submits
Los Rios for $45,000 for work on the an invoice to Chaffey
needs assessment. College for $50,000 for
the needs assessment.
October 21, 1993 The contractor submits an invoice to the
department for $100,000 for work on
the state plan.
October 22, 1993 The contractor submits
an invoice to Chaffey
College for $36,243 for
the needs assessment.
November 1, 1993 The contractor submits an invoice to Los Rios uses funds from a
Los Rios for $5,000 for the needs contract it received from the office
assessment. to pay the invoice.
November 5, 1993 At the direction of the department, Los This payment is for the invoice
Rios pays the contractor $100,000 for submitted to the department on
the state plan. October 21,1993. Los Rios
inappropriately uses funds from its
contract with the department for
the needs assessment to pay the
contractor for work on the state
plan.
January 3, 1994 The contractor submits a draft copy of The contractor submits
the state plan to the department. a draft copy of the state
plan to the office.
January 31, 1994 The department submits a request to the The purpose of the amendment is
Department of General Services (DGS) to fund activities necessary to
to amend the Los Rios contract for the complete the state plan.
needs assessment from $300,000 to
$732,000.
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Department of Education Activity
Date Chancellor’s Office Description
Activity
February 18, 1994 The contractor submits Chaffey College already paid the
an invoice to Chaffey contractor $168,693, which was the
College for $42,847 for amount of the original contract,
needs assessment. and a $1,093 fee for late payments.
Therefore, funds do not exist under
the contract to pay this invoice.
February 22, 1994 At the request of the
office, Chaffey College
amends their existing
contract with the
contractor by $42,847.
February 23, 1994 The office awards a According to the Dean of
contract totaling Economic Development at Chaffey
$220,000 to Chaffey College, the contract is to
College for the needs reimburse Chaffey College for the
assessment. payments it made to the contractor.
March 7, 1994 At the request of the DGS, the
department submits additional
information regarding its request to
amend the Los Rios contract.
March 25, 1994 The office submits The sole source contract, totaling
request for approval of $400,000, is to obtain the services
a sole-source contract to of the contractor. The request
the DGS. includes a market survey and
sole-source justification.
April 6, 1994 After additional concerns were raised by
the DGS, the department withdraws its
request to amend the Los Rios contract.
April 12, 1994 The department awards a grant totaling A draft copy of the state The department awarded this grant
$300,000 to East San Gabriel Valley plan is submitted to the six days after it withdrew its
ROP for the state plan. U.S. Department of amendment request for the Los
Education. Rios contract. The department
asks East San Gabriel Valley ROP
to use the funds to pay the
contractor.
May 1, 1994 The contractor submits an invoice to The invoice was paid on May 27,
East San Gabriel Valley ROP for 1994.
$102,500 for the state plan.
May 5, 1994 The contractor submits an invoice to The invoice was paid on June 10,
East San Gabriel Valley ROP for 1994.
$102,500 for the state plan.
May 10, 1994 The contractor sbmits an invoice to East The invoice was paid on June 29,
San Gabriel Valley ROP for $47,500 for 1994.
the state plan.
May 16, 1994 The office awards a
sole-source contract for
$400,000 to the
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Department of Education Activity
Date Chancellor’s Office Description
Activity
contractor for the state
plan.
May 17, 1994 The contractor submits an invoice to The contractor submits This invoice was submitted to the
East San Gabriel Valley ROP for an invoice for $284,500 office one day after the sole-source
$22,500 for the state plan. to the office for the contract was awarded. The
state plan. invoice was paid on July 8, 1994.
June 3, 1994 The contractor submits
an invoice for $65,500
to the office for the
state plan.
June 23, 1994 The department submits a letter to The contractor submits In accordance with the terms of the
USDE listing minor revisions made to an invoice for $50,000 contract, the office withheld
the state plan. to the office for the $30,000 for progress payments.
state plan.
October 11, 1994 The contractor submits
an invoice for $30,000
to the office for the
state plan.
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