Santa Cruz County April 2014

SANTA CRUZ COUNTY Audit Report ROAD FUND July 1, 2010, through June 30, 2011 J C OHN HIANG California State Controller April 2014 J C OHN HIANG California State Controller April 29, 2014 The Honorable Zach Friend, Chairperson Board of Supervisors Santa Cruz County 701 Ocean Street, Room 500 Santa Cruz, CA 95060 Dear Mr. Friend: The State Controller’s Office (SCO) audited Santa Cruz County’s Road Fund for the period of July 1, 2010, through June 30, 2011. We also reviewed road-purpose revenues, expenditures, and changes in fund balances for the period of July 1, 2003, through June 30, 2010. The results of our review are included in our audit report. The county accounted for and expended Road Fund money in compliance with Article XIX of the California Constitution, the Streets and Highways Code, and the SCO’s Accounting Standards and Procedures for Counties manual, except for our adjustments, totaling $12,863. We made the adjustments because the county incurred an ineligible expenditure for fire supplies and uncollected non-road expenditures performed for the Port District Project. In addition, we identified a procedural finding affecting the Road Fund. If you have any questions, please contact Steven Mar, Chief, Local Government Audits Bureau, by telephone at (916) 324-7226. Sincerely, Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits JVB/sk cc: The Honorable Mary Jo Walker, Auditor-Controller Santa Cruz County John Presleigh, Director of Public Works Santa Cruz County Santa Cruz County Road Fund Contents Audit Report Summary ........................................................................................................................... 1 Background ....................................................................................................................... 1 Objectives, Scope, and Methodology .............................................................................. 1 Conclusion ......................................................................................................................... 3 Follow-Up on Prior Audit Findings ................................................................................ 3 Views of Responsible Official .......................................................................................... 3 Restricted Use ................................................................................................................... 3 Schedule 1—Reconciliation of Road Fund Balance ............................................................ 4 Findings and Recommendations ........................................................................................... 5 Attachment—County’s Response to Draft Audit Report Santa Cruz County Road Fund Audit Report Summary The State Controller’s Office (SCO) audited Santa Cruz County’s Road Fund for the period of July 1, 2010, through June 30, 2011. We also reviewed road-purpose revenues, expenditures, and changes in fund balances for the period of July 1, 2003, through June 30, 2010. The results of our review are included in our audit report. Our audit and review found that the county accounted for and expended Road Fund money in compliance with Article XIX of the California Constitution, the Streets and Highways Code, and the SCO’s Accounting Standards and Procedures for Counties manual, except for our adjustments, totaling $12,863, and a procedural finding identified in this report. Background We conducted an audit of the county’s Road Fund in accordance with Government Code section 12410. The Road Fund was established by the county boards of supervisors in 1935, in accordance with Streets and Highways Code section 1622, for all amounts paid to the county out of money derived from the highway users tax fund. A portion of the Federal Forest Reserve revenue received by the county is also required to be deposited into the Road Fund (Government Code section 29484). In addition, the county board of supervisors may authorize the deposit of other sources of revenue into the Road Fund. Once money are deposited into the Road Fund, it is restricted to expenditures made in compliance with Article XIX of the California Constitution and Streets and Highways Code Sections 2101 and 2150. Objectives, Scope, The objectives of our audit of the Road Fund were to determine whether: and Methodology  Highway users tax apportionments received by the county were accounted for in the Road Fund, a special revenue fund;  Expenditures were made exclusively for authorized purposes or safeguarded for future expenditure;  Reimbursements of prior Road Fund expenditures were identified and properly credited to the Road Fund;  Non-road-related expenditures were reimbursed in a timely manner;  The Road Fund cost accounting is in conformance with the SCO’s Accounting Standards and Procedures for Counties manual, Chapter 9, Appendix A; and  Expenditures for indirect overhead support service costs were within the limits formally approved in the Countywide Cost Allocation Plan. -1- Santa Cruz County Road Fund Our audit objectives were derived from the requirements of Article XIX of the California Constitution, the Streets and Highways Code, the Government Code, and the SCO’s Accounting Standards and Procedures for Counties manual. To meet the objectives, we:  Gained a basic understanding of the management controls that would have an effect on the reliability of the accounting records of the Road Fund, by interviewing key personnel and testing the operating effectiveness of the controls;  Verified whether all highway users tax apportionments received were properly accounted for in the Road Fund, by reconciling the county’s records to the State Controller’s payment records;  Analyzed the system used to allocate interest and determined whether the interest revenue allocated to the Road Fund was fair and equitable, by interviewing key personnel and testing a sample of interest calculations;  Verified that unauthorized borrowing of Road Fund cash had not occurred, by interviewing key personnel and examining the Road Fund cash account entries; and  Determined, through testing, whether Road Fund expenditures were in compliance with Article XIX of the California Constitution and with the Streets and Highways Code, and whether indirect cost allocation plan charges to the Road Fund were within the limits approved by the SCO’s Division of Accounting and Reporting, County Cost Plan Unit. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We did not audit the county’s financial statements. Our scope was limited to planning and performing audit procedures necessary to obtain reasonable assurance concerning the allowability of expenditures claimed for reimbursement. Accordingly, we examined transactions on a test basis to determine whether they complied with applicable laws and regulations and were properly supported by accounting records. We considered the county’s internal controls only to the extent necessary to plan the audit. -2- Santa Cruz County Road Fund Conclusion Our audit and review found that the county accounted for and expended Road Fund money in compliance with Article XIX of the California Constitution, the Streets and Highways Code, and the SCO’s Accounting Standards and Procedures for Counties manual, except for the items shown in Schedule 1 and described in the Findings and Recommendations section of this report. The findings require an adjustment of $12,863 to the county’s accounting records. Follow-up on Prior Our prior audit report, issued on October 8, 2004, disclosed no findings. Audit Findings Views of We issued a draft audit report on February 5, 2014. John Presleigh, the Responsible county’s Public Works Director, responded by letter dated February 21, 2014, agreeing with the audit results. The county’s response is included Official as an attachment to this final audit report. Restricted Use This report is solely for the information and use of Santa Cruz County, the Santa Cruz County Board of Supervisors, 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 April 29, 2014 -3- Santa Cruz County Road Fund Schedule 1— Reconciliation of Road Fund Balance July 1, 2010, through June 30, 2011 Amount Beginning fund balance per county $ 3,966,636 Revenues 15,763,286 Total funds available 19,729,922 Expenditures (16,311,885) Ending fund balance per county 3,418,037 SCO adjustments: Finding 1—Ineligible expenditures 10,171 Finding 2—Unreimbursed non-road expenditures 2,692 Total SCO audit adjustments 12,863 Ending fund balance per audit $ 3,430,900 -4- Santa Cruz County Road Fund Findings and Recommendations FINDING 1— The county paid $10,171 from the Road Fund for Project #40009 (Fire Ineligible expenditures Supplies) during fiscal year (FY) 2005-06. The Fire Department supplies refers to sandbags and dump truck loads of sand that are delivered to various fire stations throughout the county upon the fire station captain’s request or at the request of Emergency Services. These materials are made available to the public at the various fire stations. Many times throughout the winter, the Santa Cruz County Department of Public Works is requested to replenish these supplies as needed. Streets and Highways Code section 2101 states: All money in the Highway Users Tax Account in the Transportation Tax Fund and hereafter received in the account are appropriate for all of the following: (a) The research, planning, construction, improvement, maintenance, and operation of public streets and highways (and their related public facilities for nonmotorized traffic), including the mitigation of their environmental effects, the payment for property taken or damaged for such purposes, and the administrative costs necessarily incurred in the foregoing purposes. Streets and Highways Code section 2150 states: All amounts paid to each county out the Highway Users Tax Fund shall be deposited in its road fund. The board may deposit in said fund any other money available for roads. All money received by a county from the Highway Users Tax Fund and all money deposited by a county in its road fund shall be expended by the county exclusively for county roads for the purposes specified in Section 2101 or for other public street and highway purposes as provided by law. Providing sand bags and other emergency supplies is not a road-related expenditure and does not have a direct impact on construction, improvement, maintenance, and operation of public streets and highways as described in Streets and Highways Code section 2101. Recommendation The county should reimburse the Road Fund $10,171 for expenditures incurred for non-road work supplies during FY 2005-06. In addition, the county must ensure that only expenditures considered road or road- related purposes are paid for with road funds. County’s Response The County acknowledges the State Controller’s finding pursuant to Streets and Highway Code Sections 2101 and 2150. Costs in this project were submitted to and reimbursed by the Federal Emergency Management Agency (FEMA) and California Office of Emergency Services (CalOES) for declared disaster event DR-1628, Project Worksheet 3144, Category B work. The County accepts the recommendation of the State Controller that the County must ensure that only expenditures considered road or road-related purposes are paid for with road funds. -5- Santa Cruz County Road Fund FINDING 2— At the end of fieldwork, the Santa Cruz Port did not reimburse the Road Unreimbursed Fund $2,692 for the Santa Cruz Port District Project #79079 during fiscal non-road expenditures year 2010-11. Streets and Highways Code section 2101 states: All money in the Highway Users Tax Account in the Transportation Tax Fund and hereafter received in the account are appropriate for all of the following: (a) The research, planning, construction, improvement, maintenance, and operation of public streets and highways (and their related public facilities for nonmotorized traffic), including the mitigation of their environmental effects, the payment for property taken or damaged for such purposes, and the administrative costs necessarily incurred in the foregoing purposes. Streets and Highways Code section 2150 states: All amounts paid to each county of the Highway Users Tax Fund shall be deposited in its road fund. The board may deposit in said fund any other money available for roads. All money received by a county from the Highway Users Tax Fund and all money deposited by a county in its road fund shall be expended by the county exclusively for county roads for the purposes specified in Section 2101 or for other public street and highway purposes as provided by law. The SCO has permitted expenditures of road funds for non-road work as a convenience for counties, provided that the expenditures are billed and reimbursed in a timely manner (30-60 days after completion of the work). Recommendation The county should reimburse the Road Fund $2,692 for the expenditures incurred for the non-road projects performed for the Port District Project. In addition, the county must establish procedures to ensure that future outstanding non-road billings are collected timely. County’s Response The County submitted a claim for reimbursement to the Santa Cruz Port District and was reimbursed in full. Documentation of this payment is attached. The County accepts the recommendation of the State Controller to establish procedures for the timely collection of non-road billings. -6- Santa Cruz County Road Fund Attachment— County’s Response to Draft Audit Report State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S12-RFA-006