Pacific Gas & Electric Company - Energy Assistance Program

PACIFIC GAS AND ELECTRIC COMPANY Audit Report ENERGY SAVINGS ASSISTANCE PROGRAM January 1, 2013, through December 31, 2015 BETTY T. YEE California State Controller December 2018 BETTY T. YEE California State Controller December 5, 2018 Mary O’Drain, Regulatory Reporting and Policy Expert Pacific Gas and Electric Company 245 Market Street San Francisco, CA 94105 Dear Ms. O’Drain: The State Controller’s Office audited Pacific Gas and Electric Company’s (PG&E) Energy Savings Assistance (ESA) program for the period of January 1, 2013, through December 31, 2015. The objectives of the audit were to (1) determine whether PG&E manages the ESA program in conformance with applicable laws, regulations, and agreement terms and conditions; (2) assess whether PG&E’s ESA program is in compliance with applicable laws, regulations, and agreement terms and conditions; (3) identify opportunities and priorities in which financial management governance may help to strengthen key controls; and (4) follow up on prior audit findings and evaluate the effectiveness of remediation. We assessed and evaluated the ESA program’s processes, rather than the effectiveness of internal controls, to determine whether key processes could be strengthened (Objective 3). We did not validate the effectiveness of remediation for six of the nine observations identified in the California Public Utilities Commission’s (CPUC) prior examination of the ESA program and four findings in the two prior PG&E internal audits. We limited our follow-up to reviewing PG&E’s corrective action plans and related documentation (Objective 4). Our audit found that:  PG&E did not maintain validation checklists for five of 34 ESA program expenditures tested to indicate that the expenditures were reviewed and authorized prior to payment;  PG&E did not have an appropriate method for capturing and accounting for ESA program administrative costs; and  Two of four contract records tested lacked adequate documentation to support contract awards. These issues are further described in the Findings and Recommendations section of this report. Mary O’Drain, Regulatory Reporting -3- December 5, 2018 and Policy Expert If you have any questions, please contact Andrew Finlayson, Chief, State Agency Bureau, by telephone at (916) 324-6310. Sincerely, Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits JVB/as cc: Aaron Johnson, Vice President, Customer Energy Solutions Pacific Gas and Electric Company Vincent Davis, Senior Director, Energy Efficiency Pacific Gas and Electric Company Paola Benassi, Manager (via email) Energy Savings Assistance Program Pacific Gas and Electric Company Thuong-Tina Nguyen, Senior Program Manager Pacific Gas and Electric Company Edward Randolph, Director Energy Division California Public Utilities Commission Robert Strauss, Manager (via email) Energy Efficiency Branch, Energy Division California Public Utilities Commission Alison LaBonte, Ph.D., Supervisor Residential Energy Efficiency Programs and Portfolio Approval, Energy Division California Public Utilities Commission Syreeta Gibbs, Senior Public Utility Regulatory Analyst (via email) Residential Energy Efficiency Programs and Portfolio Approval, Energy Division California Public Utilities Commission Lola Odunlami, Public Utility Regulatory Analyst (via email) Residential Energy Efficiency Programs and Portfolio Approval, Energy Division California Public Utilities Commission Barbara Owens, Director of Enterprise Risk and Compliance Office (via email) Executive Division California Public Utilities Commission Kevin Nakamura, Program and Project Supervisor (via email) Utility Audits, Finance and Compliance Branch California Public Utilities Commission Pacific Gas and Electric Company Energy Savings Assistance Program Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Objectives, Scope, and Methodology ............................................................................... 2 Conclusion .......................................................................................................................... 3 Follow-up on Prior Audit Findings .................................................................................. 4 Views of Responsible Officials .......................................................................................... 4 Restricted Use .................................................................................................................... 4 Findings and Recommendations ........................................................................................... 5 Appendix 1—Compliance with Applicable Laws, Regulations, and Agreement Terms and Conditions .......................................................... 9 Appendix 2—Summary Schedule of Prior CPUC Audit Findings .................................... 10 Attachment—Pacific Gas and Electric Company’s Response to Draft Audit Report Pacific Gas and Electric Company Energy Savings Assistance Program Audit Report Summary The State Controller’s Office (SCO) audited Pacific Gas and Electric Company’s (PG&E) Energy Savings Assistance (ESA) program for the period of January 1, 2013, through December 31, 2015. The purpose of this audit was to ensure PG&E’s compliance with Public Utilities Code and regulations associated with the Income Qualified Assistance Program for the ESA program, the California Statewide Energy Savings Assistance Program Policy and Procedures Manual, and program rules and restrictions provided by PG&E. Our audit found that:  PG&E did not maintain validation checklists for five of 34 ESA program expenditures tested to indicate that the expenditures were reviewed and authorized prior to payment;  PG&E did not have an appropriate method for capturing and accounting for ESA program administrative costs; and  Two of four contract records tested lacked adequate documentation to support contract awards. These issues are further described in the Findings and Recommendations section of this report. The ESA program, administered by electrical and gas utility companies, Background provides weatherization and energy efficiency measures, minor home repairs, and energy education at no cost to income-eligible program participants. Weatherization includes attic insulation, caulking, weather- stripping, low-flow showerheads, water heater blankets, and door and building envelope repairs that reduce air infiltration. The program’s purpose is to reduce energy consumption, resulting in bill savings, while also increasing the health, comfort, and/or safety of the household. The ESA program is funded by ratepayers as part of a statutory “public purpose program surcharge” that appears on monthly utility bills. Income eligibility for ESA program participation is set at 200% or less of the Federal Poverty Guidelines. The program’s ultimate goal is to deliver increasingly cost-effective and longer-term savings to participants. Public Utilities Code section 2790 requires that electrical or gas corporations perform home weatherization services for low-income customers if the California Public Utilities Commission (CPUC) determines that a significant need for those services exists in the corporation’s service territory. The CPUC requires that utility companies adhere to the California Statewide Energy Savings Assistance Program Policy and Procedures Manual, and comply with Public Utilities Code, CPUC directives, and CPUC General Orders (GO). -1- Pacific Gas and Electric Company Energy Savings Assistance Program CPUC Decision (D.) 12-08-044 and D.14-08-030 authorized average annual budgets of approximately $158 million in ratepayer funds to administer and implement PG&E’s ESA program budget for calendar years 2013 through 2015. Budgeted and actual amounts for the three calendar years are as follows: Year Budgeted Actual 2013 $ 156,330,249 $ 142,181,389 2014 $ 166,669,284 $ 145,940,449 2015 $ 163,946,778 $ 136,775,345 We performed the audit at the request of the CPUC, pursuant to an Interagency Agreement. Objectives, Scope, The objectives of the audit were to: and Methodology  Determine whether PG&E manages the ESA program in conformance with applicable laws, regulations, and agreement terms and conditions;  Assess whether PG&E’s ESA program is in compliance with applicable laws, regulations, and agreement terms and conditions (see Appendix 1);  Identify opportunities and priorities in which financial management governance may help to strengthen key controls; and  Follow up on prior audit findings and evaluate the effectiveness of remediation. We assessed and evaluated the ESA program’s processes, rather than the effectiveness of internal controls, to determine whether key processes could be strengthened (Objective 3). We did not validate the effectiveness of remediation for six of the nine observations identified in the CPUC’s prior examination of the ESA program and four findings in the two prior PG&E internal audits. We limited our follow-up to reviewing PG&E’s corrective action plans and related documentation (Objective 4). We conducted an audit of PG&E’s ESA program for the period of January 1, 2013, through December 31, 2015. To achieve our objectives, we:  Reviewed prior audit reports of PG&E related to the ESA program to follow up on prior audit findings by reviewing the action plan and responses to recommendations, and analyzing supporting documentation to determine whether remediation efforts were implemented;  Reviewed applicable laws, regulations, agreement terms and conditions, policies, and procedures related to PG&E’s ESA program required by the CPUC for all energy utilities; -2- Pacific Gas and Electric Company Energy Savings Assistance Program  Interviewed all PG&E ESA program employees and reviewed PG&E’s ESA program Annual Reports to: o Gain an understanding of the ESA program’s services and benefits, budgets, operational goals, funding sources, revenues, expenditures, targeted beneficiaries, and recent statistical results; o Gain an understanding of the ESA program’s accounting and operational systems; and o Assess and evaluate the ESA program’s processes, and determine whether key processes could be strengthened. Upon gaining an understanding of PG&E’s administration of the ESA program, we judgmentally selected transactions using non-statistical samples; errors found were not projected to the intended population.1 We:  Selected 34 of 114,413 ($1,450,386 of $422,920,830) ESA program expenditure transactions, and reviewed invoices and other supporting documents;  Reviewed 15 of 889 ESA program customer files and records to determine compliance with the Modified 3 Measure Minimum Rule;  Selected three of 42 contracts and reviewed bid awards;  Reviewed all fund shifting instances reported in the ESA program Annual Reports; and  Reviewed the ESA program balancing account. We conducted this performance audit in accordance with Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings, conclusions, and recommendations based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings, conclusions, and recommendations based on our audit objectives. We did not audit PG&E’s financial statements. We limited our audit scope to planning and performing audit procedures necessary to obtain reasonable assurance that PG&E’s ESA program was in compliance with the laws and regulations associated with the Income Qualified Assistance programs, the California Statewide Energy Savings Assistance Program Policy and Procedures Manual, and program rules and restrictions provided by PG&E. Conclusion We identified instances of non-compliance with applicable laws, regulations, and agreement terms and conditions, as described in the Findings and Recommendations section of this report. 1 As these samples were not statistical, we made no assumption that the errors would also be found in the transactions not sampled. -3- Pacific Gas and Electric Company Energy Savings Assistance Program Follow-up on We reviewed the CPUC’s prior examination of the ESA program, Interim Financial, Management and Regulatory Compliance Examination of Prior Audit Pacific Gas & Electric Company’s Energy Savings Assistance Program Findings for January 1, 2009 through December 31, 2010, dated April 16, 2013, and presented our comments in Appendix 2 of this report. Based on work performed in the current audit, we noted that PG&E has not implemented appropriate corrective actions for Observations 2 and 6. PG&E stated that Observation 7 is pending guidance from the CPUC Energy Division. We did not validate the effectiveness of remediation for Observations 8, 9, 10, 11, 14, and 15. We also reviewed PG&E’s internal audit reports for the ESA program, File Nos. 15-017 and 15-028, dated February 3, 2015, and April 24, 2015, respectively. We identified one finding regarding supervisor ride-alongs for inspections that was not relevant to the objectives of the current audit (Finding 2, February 3, 2015 audit); therefore, we did not consider follow- up to be necessary for this finding. For Finding 1 (April 24, 2015 audit), we had a similar finding regarding the classification of administrative costs (Finding 2 of the current audit). For Finding 3 (April 24, 2015 audit) regarding supporting documentation for program costs, our testing in this area did not identify any issues; therefore, we did not consider additional follow-up to be necessary. We did not validate the effectiveness of remediation for Findings 1 and 3 (February 3, 2015 audit); and Findings 2 and 4 (April 24, 2015 audit). Views of We issued a draft audit report on October 3, 2018. Marlene Murphy- Roach, Director, Low Income Programs & Disadvantaged Communities, Responsible responded by letter dated November 5, 2018 (Attachment), partially Officials agreeing with the audit findings. This final report includes PG&E’s response. Restricted Use This report is solely for the information and use of PG&E, the CPUC, and the SCO; it is not intended to be and should not be used by anyone other than these specified parties. This restriction is not intended to limit distribution of this report, which is a matter of public record. Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits December 5, 2018 -4- Pacific Gas and Electric Company Energy Savings Assistance Program Findings and Recommendations FINDING 1— We selected 34 of 114,413 ($1,450,386 of $422,920,830) ESA program expenditure transactions, and reviewed invoices and other supporting PG&E did not documentation. We noted that five transactions (15%, totaling $218,524) consistently did not have validation checklists, which are used internally by PG&E to maintain validation document expenditure review and approval prior to payment. Of the checklists for ESA 34 transactions, 11 were from 2013, 11 were from 2014, and 12 were from expenditures 2015. The invoices were dated as follows: Date Amount July 3, 2013 $ 41,526 August 30, 2013 11,313 March 27, 2014 24,094 September 22, 2014 83,763 October 23, 2014 57,828 Total $ 218,524 The absence of the checklists could result in payments being made without proper authorization. Although the validation checklists were missing, we determined that all expenditures were program-related and supported by invoices and/or other documentation. All expenditures were properly recorded, except for the administrative expense noted in Finding 2. As part of our expenditure testing plan, we selected an initial limited number of transactions. Based on the results of testing, we determined that testing additional transactions would not affect our overall conclusion that validation checklists were not consistently maintained. CPUC GO 28 requires public utilities to preserve all records, memoranda, and papers supporting all transactions so that the CPUC may readily examine them at its convenience. Recommendation We recommend that PG&E ensure that all recorded ESA program expenditures are fully supported by sufficient, appropriate documentation, and that all documentation is preserved in such a manner that it may be readily examined. PG&E’s Response PG&E agrees with the finding and recommendation. PG&E stated that it has implemented process improvements related to routing and storage of documents. SCO Comment Although PG&E stated that it has implemented corrective actions regarding the finding and recommendation, we did not validate the implementation or effectiveness of these corrective actions. CPUC should follow up to ensure that the corrective actions were adequate and appropriate. -5- Pacific Gas and Electric Company Energy Savings Assistance Program FINDING 2— Our expenditure testing, described in Finding 1, noted that one transaction for contractor administrative costs was accounted for in measure costs PG&E lacked an rather than in administrative costs. Accounting for contractors’ appropriate administrative costs in this manner understates the true cost of PG&E’s method to capture administrative expenses and overstates the measure cost category. Without and account for an appropriate method by which to capture and account for ESA program administrative administrative costs in one reporting area, the CPUC is unable to compare costs measure costs and administrative costs to properly evaluate budget proposals. Public Utilities Code section 584 states, “Every public utility shall furnish such reports to the commission at such time and in such form as the commission may require in which the utility shall specifically answer all questions propounded by the commission.” CPUC D.05-04-052 V.E., Investor Owned Utility Contractor Costs, requires a contractor to furnish a full breakdown of its contractor costs so that the utilities can furnish it to the CPUC. This issue was also noted in the prior examination performed by the CPUC. The examination report recommended that the CPUC work with the four large utility companies to devise an accounting and reporting system for capturing all costs to administer the ESA program in the administrative cost category. Furthermore, the recommendation stated that the CPUC’s Energy Division would provide guidance and plans for resolving this matter. As the resolution is pending, we did not pursue further testing on this issue. Recommendation We recommend that PG&E continue to work with the CPUC to devise an accounting and reporting system to capture and account for all ESA program administrative costs in one reporting area. PG&E’s Response PG&E agrees with the finding and recommendation. PG&E stated that it has implemented corrective actions regarding the finding and recommendation. SCO Comment Although PG&E stated that it has implemented corrective actions regarding the finding and recommendation, we did not validate the implementation or effectiveness of these corrective actions. CPUC should follow up to ensure that the corrective actions were adequate and appropriate. -6- Pacific Gas and Electric Company Energy Savings Assistance Program For contract procurement testing, we obtained a list of all active contracts FINDING 3— during the audit period, consisting of approximately 35 contractors that PG&E did not were sorted into five service categories: Air Conditioning Tune Up; provide adequate Heating, Ventilation, and Air Conditioning; Refrigeration; Refrigerator supporting Leveraging; and Weatherization. We selected four contractors with the documentation for highest contract values, consisting of three contractors from three different contract categories and one contractor from the remaining two categories. procurement Our review found that PG&E did not did not provide adequate supporting documentation for two contractors as follows:  Lovotti: The contractor received a direct award with an effective date of April 29, 2013. The Direct Award Request Form No. 62-1562 referenced a justification. However, when requested by the auditor, PG&E did not provide actual documents to support the justification.  Richard Heath and Associates, Inc. (RHA): The contractor received a bid award with an effective date of December 21, 2012. PG&E was not able to locate the Bid Record Form for this award. RHA was also the contractor for two other service categories and had approximately 40 subcontractors. Consequently, we were unable to determine justification for selecting this contractor or whether RHA and its subcontractors were the most qualified bid recipients. During fieldwork, PG&E staff indicated that the staff responsible for these documents during the audit period are no longer with the contracts section. As such, PG&E cannot attest to what transpired then. Based on the results of testing, we determined that testing additional transactions would not affect our overall conclusion that supporting documents for contract procurement were not maintained. PG&E Requisition to Pay Procurement Manual, 2. Source, page 37 states: All Direct Award recommendations for non-catalog contracts over $100,000 must be documented, and documents related to the sourcing efforts and decision criteria used to select the supplier must be retained in the contract file. PG&E Bid Record Form (62-1561), Step 3.2 states: The Sourcing department completes this Bid Record to document the award justification through competitive bidding. This award justification is a required part of the contract package. CPUC GO 28 requires public utilities to preserve all records, memoranda, and papers supporting all transactions so that the CPUC may readily examine them at its convenience. PG&E Requisition to Pay Procurement Manual, 3. Contract, page 31 states: The SRM contract must contain attachments of the contract document as well as any related documentation (i.e. specifications, award justification, etc.). Having all contract documents attached to the SRM contract allows users to easily access and refer to these documents, thereby helping ensure contract compliance. -7- Pacific Gas and Electric Company Energy Savings Assistance Program Recommendation To adhere to its procurement policies and procedures, we recommend that PG&E document in sufficient detail the rationale for its procurement methods, decision criteria, and award justifications. PG&E’s Response PG&E disagrees with the finding regarding Lovotti, Inc. PG&E stated that it had provided SCO with the Direct Award Form (62-1562), and that the form contained five detailed justifications supporting the award to the contractor. PG&E partially agrees with the finding regarding RHA. It agrees that it was not able to locate the Bid Record Form (62-1561), but PG&E disagrees that it was not able to provide justification for selecting the contractor. PG&E stated that it was able to locate a supporting document that contains the majority of the information documented in the Bid Record Form to provide justification for the award. PG&E stated that it has implemented action plans to mitigate the risk of a similar finding in the future. PG&E disagrees with the statement in the finding that PG&E staff responsible for documents during the audit period are no longer with the contracts section and that PG&E cannot attest to what transpired at that time. PG&E stated that it was able to identify the actions that transpired related to the contracts identified in the finding. SCO Comment The finding and recommendation remain unchanged. Regarding Lovotti, Inc., PG&E provided the Direct Award Request Form to the SCO on November 3, 2016. Although the form included five justifications, we subsequently requested additional documentation to support the statements made on the form; PG&E did not provide this additional documentation. For example, one justification stated that “through benchmarking and aggressive negotiations,” Lovotti offered competitive pricing. A cost analysis comparing other vendors’ prices or industry benchmarks would have constituted adequate support for Lovotti’s competitive pricing justification. Regarding RHA, when PG&E responded to this draft report, it provided PowerPoint slides titled “ESAP RFP Finalist Recommendation.” The slides contained a breakdown of the bidders’ scores during the request for proposal (RFP) evaluation. However, PG&E did not provide additional documentation to substantiate the amounts in the PowerPoint slides, and we could not reconcile the scores to any RFP documentation provided during fieldwork. At a meeting on October 27, 2016, contracts section staff members indicated that staff who worked on the RHA and Lovotti procurements were no longer with the contracts section. As a result, the supporting documentation that we requested during audit fieldwork was not provided. -8- Pacific Gas and Electric Company Energy Savings Assistance Program Appendix 1— Compliance with Applicable Laws, Regulations, and Agreement Terms and Conditions APPLICABLE LAWS, REGULATIONS, AND AUDIT RESULTS AGREEMENT TERMS AND CONDITIONS CPUC GO 28 Preservation of records of public utilities and Did not comply; common carriers see Findings 1 and 3 CPUC D.12-08-044 Section 6.2. Fund Shifting Rules Complied CPUC D.08-11-031 Section 20. Fund Shifting Complied California Statewide Energy Savings Assistance Program Policy and Procedures Manual. Section 2 Customer and Structural Complied Eligibility CPUC D.08-11-031 Section 11. 3 Measure Minimum Rule Complied CPUC D.09-06-026 Section 2.1. Modified “3 Measure Minimum Complied Rule” PG&E Requisition To Pay Procurement Manual, 2. Source and Did not comply; see Finding 3 3. Contract CPUC D.05-04-052 V.E., IOU Contractor Costs Did not comply; see Finding 2 -9- Pacific Gas and Electric Company Energy Savings Assistance Program Appendix 2— Summary Schedule of Prior CPUC Audit Findings CPUC INTERIM FINANCIAL, MANAGEMENT AND REGULATORY COMPLIANCE EXAMINATION OF PACIFIC GAS & ELECTRIC COMPANY'S ESA PROGRAM FOR JANUARY 1, 2009 THROUGH DECEMBER 31, 2010 CPUCʼs Observations and Recommendations Status SCO Comments OBSERVATION 2: PG&E failed to demonstrate compliance with the Federal Energy Regulatory Commission (FERC) Uniform System of Accounts (USOA), General Order (GO) 28 and its internal accounting controls. Invoices for six percent or $2.98 million of the sampled contractor invoice transactions lacked sufficient documentation. RECOMMENDATION: PG&E should ensure that all recorded program Not implemented Our audit found similar issues expenditures are fully supported by sufficient appropriate documentation, related to program including documents substantiating its performed procedures. expenditures. See Finding 1. OBSERVATION 6: PG&E failed to demonstrate compliance with general accounting best practices and § 581. PG&E reports its prime contractor costs to administer its ESAP within other cost areas such as within the measures. RECOMMENDATION: To accurately reflect the true extent of the ESAP Not implemented Our audit found similar issues general administrative costs, the Commission and all four large utilities related to accounting for providing ESAP should devise an accounting and reporting system to administrative costs. See capture all costs to administer ESAP in the administrative cost category Finding 2. whether incurred internally or by the utility or externally by a utility contractor. Within 90 days of the date of this memo, ED should provide its guidance or decision to the utilities and UAFCB on how it plans to resolve this matter. OBSERVATION 7: PG&E failed to demonstrate compliance with: the USOA, GO 28, D.05-04-052 and §§ 451, 581, and 584. Thirty-nine percent of the contracted hourly rates of PG&Eʼs implementation contractors are unidentified general administrative costs and lack proper substantiation. RECOMMENDATION: PG&E should begin to require its contractors to Not implemented PG&E stated that guidance provide a full breakdown and substantiation of their costs as required in regarding the level of detail that D.05-04-052 and GO 28 and provide the results of such when requested to must be provided by its do so by the Commission. contractors is pending from the CPUC Energy Division. -10- Pacific Gas and Electric Company Energy Savings Assistance Program Appendix 2 (continued) CPUCʼs Observations and Recommendations Status SCO Comments OBSERVATION 8: PG&E failed to demonstrate compliance with the FERC USOA, GO 28 and its own internal accounting controls. Two recorded entries from the sample reviewed were lacking supporting employee timecards. RECOMMENDATION: PG&E should ensure all recorded program PG&E provided PG&E provided the Time expenditures are fully supported by sufficient appropriate documentation SCO with Administrator Training Guide, and maintain said documentation so that UAFCB may readily examine documentation of last updated July 16, 2015, and them at its convenience. its current time- a copy of the New Time Entry entry processes. Process for Customized Energy Solutions (CES) Business Operations. PG&E stated that it had implemented SAP ESS/MSS (Employee Self Service/Manager Self Service) in January 2013 to improve labor recording processes. SAP ESS/MSS provides the following functions: management employees can submit their time directly; supervisors and their delegates can aprove time directly; timekeepers do not need to manually enter time or maintain timesheets in other systems; and the system validates leave balances in real time and implements general time-entry validation rules and controls. We did not test the effectiveness of PG&Eʼs implementation of these processes. However, we did validate that PG&E implemented SAP ESS/MSS. -11- Pacific Gas and Electric Company Energy Savings Assistance Program Appendix 2 (continued) CPUCʼs Observations and Recommendations Status SCO Comments OBSERVATION 9: PG&E failed to demonstrate compliance with §§ 451, 581, and 584. PG&E overpaid one of its contractors by $8,272. RECOMMENDATION: PG&E should: (1) revise the terms of its existing PG&E provided a PG&E stated that: (1) It will contracts to include a provision requiring a detail-level hours worked corrective action include the detail level of hours schedule from its vendors; (2) refund ESAP funds with either (a) a charge plan. worked requirement in all against its investorsʼ account or (b) a recovery from the contractor in subsequent contracts with question; and (3) ensure accurate and complete vendor billing support Direct Technologies. We did before making payments. Within 90 days after the UAFCB provides its not verify this update to the Energy Division Director memo and Appendix A and C to PG&E, it should contracts. (2) A recovery from provide the UAFCB with a summary of the steps it has taken to resolve the contractor was not this matter. warranted because the revised support for the invoice reconciled with the invoice total. We validated this assertion. (3) It provided UAFCB with evidence that all program managers in ESAP on June 27, 2013, completed an invoice review refresher training program to ensure accurate and complete vendor billing support before making payments. OBSERVATION 10: PG&E failed to demonstrate compliance with the USOA, GO 28 and §§ 451, 581, and 584. UAFCB was unable to determine the accuracy of invoices totaling $266,036. RECOMMENDATION: PG&E should: (1) revise its existing contracts to PG&E provided a PG&E stated that: (1) It include a provision requiring a detailed level, as opposed to the summary corrective action included the detail level of level, of hours worked from its vendors; (2) review the recorded expense plan. hours worked requirement in all entries discussed above against a to-be-recalculated amount that is to be subsequent contracts with based on a detailed level of hours worked and, if the entries do not Direct Technologies. We did reconcile, make restitution to the program balancing account with either not verify this update to (a) a charge against its investors' account or (b) a monetary recovery from contracts. (2) A recovery from the vendor; and (c) ensure accurate and complete vendors billing support the contractor was not before making payments. Within 90 days after the UAFCB provides its warranted because the revised Energy Division Director memo and Appendix A and C to PG&E, it should support for the invoices provide UAFCB with: (1) copies of the detail-level schedules of hours reconciled with the invoice worked for the invoices in question or evidence of making restitution to totals. We validated this the program and (2) a copy of a revised contract requiring the contractor assertion; however, our review to provide a detail-level schedule of hours worked in addition to the of the revised invoice support summary. differed from the invoice total by $88. -12- Pacific Gas and Electric Company Energy Savings Assistance Program Appendix 2 (continued) CPUCʼs Observations and Recommendations Status SCO Comments OBSERVATION 11: PG&E did not demonstrate compliance with §§ 581 and 584. PG&E improperly accounted for or improperly accrued some of its employeeʼs hours. RECOMMENDATION: PG&E should ensure proper accounting for its PG&E provided PG&E stated that it provided labor hours to ensure accurate data reporting and program labor costing. SCO with staff with a Time Administrator documentation of Training Guide, last updated its current time- July 16, 2015, and a copy of the entry process. New Time Entry Process for CES Business Operations. PG&E stated it implemented SAP ESS/MSS in January 2013 to improve labor recording processes. SAP ESS/MSS provides the following: management employees can submit their time directly; supervisors and their delegates can approve time directly; timekeepers do not need to manually enter time or maintain timesheets in other systems; and the system validates leave balances in real time and implements general time-entry validation rules and controls. We did not test the effectiveness of PG&Eʼs implementation of these processes. However, we did validate that PG&E implemented SAP ESS/MSS. OBSERVATION 14: PG&E failed to demonstrate compliance with FERC USOA, GO 28 and its own internal controls and procurement policies and procedures. Over 34% of the payments to contractors that UAFCB sampled lacked proper supporting documentation. RECOMMENDATION: PG&E should (1) adhere to and enforce the terms PG&E provided a For (1) and (3), PG&E stated of its existing contracts and (2) preserve all the required documentation corrective action that it will update Section 8 – supporting all of its recorded expenses in a manner such that UAFCB may plan. Work Authorization Form of readily examine the same at its convenience. (3) If PG&E changes the way the Repair and Replacement it conducts business during an active contract period, PG&E should contracts to clarify that the amend its contracts with its direct service providers and ensure that the information is to be submitted terms of the executed contract are adhered to. electronically for any new contracts or existing contracts when they are renewed. We did not verify this update to the contracts. For (2), PG&E stated that it continues to require its contractors to electronically enter the Work Authorization Form details directly into the Energy Partners Online database. We did test the effectiveness of this process. -13- Pacific Gas and Electric Company Energy Savings Assistance Program Appendix 2 (continued) CPUCʼs Observations and Recommendations Status SCO Comments OBSERVATION 15: PG&E failed to demonstrate compliance with §§ 451, 581 and 584. Five of the sampled transactions regarding payments to PG&Eʼs direct service providers that UAFCB reviewed had inconsistent accounting for rendered services and allocations between its gas and electric programs. RECOMMENDATION: UAFCB should review PG&Eʼs new controls and PG&E did not Based on interviews and their implementation in this area in a future audit or examination. provide a flowcharts provided by PG&E corrective action of their Energy Partner Online plan. process, any corrections necessary to invoices are sent back to the contractor to revise and resubmit for payment. We did not test the effectiveness of PG&Eʼs implementation of this process. -14- Pacific Gas and Electric Company Energy Savings Assistance Program Attachment— Pacific Gas and Electric Company’s Response to Draft Audit Report State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250 http://www.sco.ca.gov S16-LIQ-0001