SCO
Lancaster City
Identity Theft
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CITY OF LANCASTER
Audit Report
IDENTITY THEFT PROGRAM
Chapter 956, Statutes of 2000
July 1, 2002, through June 30, 2013
BETTY T. YEE
California State Controller
September 2018
BETTY T. YEE
California State Controller
September 18, 2018
The Honorable R. Rex Parris, Mayor
City of Lancaster
44933 North Fern Avenue
Lancaster, CA 93534
Dear Mayor Parris:
The State Controller’s Office (SCO) audited the costs claimed by the City of Lancaster for the
legislatively mandated Identity Theft Program for the period of July 1, 2002, through June 30,
2013.
The city claimed $1,811,489 for the mandated program. Our audit found that $242,137 is
allowable ($261,223 less a $19,086 penalty for filing late claims) and $1,569,352 is unallowable
because the city overstated the number of identity theft cases, overstated the time increments
required to perform the reimbursable activities, misclassified contract services costs as salary
costs, misclassified the employees who performed the reimbursable activities, understated
salaries, benefits, and related indirect costs for city employees who performed the reimbursable
activities, and understated contract services costs. The State made no payments to the city. The
State will pay $242,137, contingent upon available appropriations. Following issuance of this
audit report, the SCO’s Local Government Programs and Services Division will notify the city of
the adjustment to its claims via a system-generated letter for each fiscal year in the audit period.
This final audit report contains an adjustment to costs claimed by the city. If you disagree with
the audit finding, you may file an Incorrect Reduction Claim (IRC) with the Commission on
State Mandates (Commission). Pursuant to the Commission’s regulations, outlined in Title 2,
California Code of Regulations, section 1185.1, subdivision (c), an IRC challenging this
adjustment must be filed with the Commission no later than three years following the date of this
report, regardless of whether this report is subsequently supplemented, superseded, or otherwise
amended. You may obtain IRC information on the Commission’s website at
www.csm.ca.gov/forms/IRCForm.pdf.
If you have any questions, please contact Lisa Kurokawa, Chief, Compliance Audits Bureau, by
telephone at (916) 327-3138.
Sincerely,
Original signed by
JEFFREY V. BROWNFIELD, CPA
Chief, Division of Audits
The Honorable R. Rex Parris, Mayor -2- September 18, 2018
JVB/as
cc: Pam Statsmann, Finance Director
City of Lancaster
Chris Hill, Principal Program Budget Analyst
Local Government Unit
California Department of Finance
Steven Pavlov, Finance Budget Analyst
Local Government Unit
California Department of Finance
Anita Dagan, Manager
Local Government Programs and Services Division
State Controller’s Office
City of Lancaster Identity Theft Program
Contents
Audit Report
Summary ............................................................................................................................ 1
Background ........................................................................................................................ 1
Objective, Scope, and Methodology ................................................................................. 2
Conclusion .......................................................................................................................... 3
Follow-up on Prior Audit Findings .................................................................................. 3
Views of Responsible Officials .......................................................................................... 4
Restricted Use .................................................................................................................... 4
Schedule—Summary of Program Costs .............................................................................. 5
Finding and Recommendation .............................................................................................. 11
City of Lancaster Identity Theft Program
Audit Report
Summary The State Controller’s Office (SCO) audited the costs claimed by the City
of Lancaster for the legislatively mandated Identity Theft Program for the
period of July 1, 2002, through June 30, 2013.
The city claimed $1,811,489 for the mandated program. Our audit found
that $242,137 is allowable ($261,223 less a $19,086 penalty for filing late
claims) and $1,569,352 is unallowable because the city overstated the
number of identity theft cases; overstated the time increments required to
perform the reimbursable activities; misclassified contract services costs
as salary costs; misclassified the employees who performed the
reimbursable activities; understated salaries, benefits, and related indirect
costs for city employees who performed the reimbursable activities; and
understated contract services costs. The State made no payments to the
city. The State will pay $242,137, contingent upon available
appropriations.
Background Penal Code (PC) section 530.6, subdivision (a), as added by Chapter 956,
Statutes of 2000, requires local law enforcement agencies to take a police
report and begin an investigation when a complainant residing within their
jurisdiction reports suspected identity theft.
On March 27, 2009, the Commission of State Mandates (Commission)
found that this legislation mandates a new program or higher level of
service for local law enforcement agencies within the meaning of
Article XIII B, section 6 of the California Constitution, and imposes costs
mandated by the State pursuant to Government Code (GC) section 17514.
The Commission determined that each claimant is allowed to claim and be
reimbursed only for the following ongoing activities identified in the
parameters and guidelines (Section IV. Reimbursable Activities):
1. Either a) or b) below:
a) Take a police report supporting a violation of Penal Code
section 530.5 which includes information regarding the
personal identifying information involved and any uses of that
personal identifying information that were non-consensual and
for an unlawful purpose, including, if available, information
surrounding the suspected identity theft, places where the
crime(s) occurred, and how and where the suspect obtained and
used the personal identifying information. This activity
includes drafting, reviewing, and editing the identity theft
police report; or
b) Reviewing the identity theft report completed online by the
identity theft victim.
2. Begin an investigation of the facts, including the gathering of facts
sufficient to determine where the crime(s) occurred and what pieces
of personal identifying information were used for an unlawful
purpose. The purpose of the investigation is to assist the victims in
clearing their names. Reimbursement is not required to complete the
investigation for purposes of criminal prosecution.
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City of Lancaster Identity Theft Program
The Commission also determined that providing a copy of the report to the
complainant and referring the matter to the law enforcement agency in the
jurisdiction where the suspected crime was committed for further
investigation of the facts are not reimbursable activities.
The program’s parameters and guidelines establish the state mandate and
define the reimbursement criteria. In compliance with GC section 17558,
the SCO issues claiming instructions to assist local agencies in claiming
mandated program reimbursable costs.
Objective, Scope, The objective of our audit was to determine whether costs claimed
represent increased costs resulting from the legislatively mandated
and Methodology
Identity Theft Program. Specifically, we conducted this audit to determine
whether costs claimed were supported by appropriate source documents,
were not funded by another source, and were not unreasonable and/or
excessive.
The audit period was from July 1, 2002, through June 30, 2013.
To achieve our audit objectives, we:
Reviewed the annual mandated cost claims filed by the city for the
audit period and identified the material cost components of each claim
as salaries. Determined whether there were any errors or unusual or
unexpected variances from year to year, and reviewed the claimed
activities to determine whether they adhered to the SCO’s claiming
instructions and the program’s parameters and guidelines;
Completed an internal control questionnaire by interviewing key city
staff, and discussed the claim preparation process with city staff to
determine what information was obtained, who obtained it, and how it
was used;
Obtained system-generated lists of identity theft cases from the city to
verify the existence, completeness, and accuracy of unduplicated
counts for each fiscal year in the audit period;
Designed a statistical sampling plan to test claimed salary costs.
Judgmentally selected two of the city’s filed claims during the audit
period (fiscal year [FY] 2011-12 and FY 2012-13) to test claimed
salary costs. Claimed salary costs for those years comprised $328,567
of the $1,811,489 salary costs claimed during the audit period
(18.1%). The specifics of the sampling plan are outlined in the Finding
and Recommendation section;
Used a random number table to select 206 identity theft cases out of
716 from the two years sampled. Tested the identity theft cases to
determine whether an approved police report supported that a
violation of PC section 530.5 had occurred;
Used time increments to perform the reimbursable activities
determined by the Los Angeles County Sheriff’s Department (LASD),
as the city contracted with LASD for its law enforcement services;
therefore, LASD performed the city’s mandated identity theft
activities and would also have the data related to performing these
activities. LASD’s audited identity theft time increments were directly
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City of Lancaster Identity Theft Program
related to the Identity Theft Program’s reimbursable activities and are
properly supported;
Reclassified claimed costs from only salaries to salaries, benefits,
contract services, and related indirect costs. Calculated weighted
average productive hourly rates (PHRs) based on the extent that city
employees performed the reimbursable activities. Calculated weighted
contract services rates based on the contracted LASD employees who
performed the reimbursable activities; and
Projected the audit results of the two years tested by multiplying the
actual case counts by the average time increments to perform the
activities by the weighted average PHRs (for salaries) and by the
weighted average contract services rates (for contract services). Due
to the homogeneousness of the populations for all years of the audit
period, we applied a weighted two-year average of the sampling
results to the remaining nine years of the audit period.
GC sections 12410, 17558.5, and 17561 provide the legal authority to
conduct this audit. 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 objective. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based on our
audit objective.
We limited our review of the city’s internal controls to gaining an
understanding of the transaction flow and claim preparation process as
necessary to develop appropriate auditing procedures. Our audit scope did
not assess the efficiency or effectiveness of program operations. We did
not audit the city’s financial statements.
Conclusion Our audit found instances of noncompliance with the requirements
outlined in the Objective, Scope, and Methodology section. These
instances are quantified in the accompanying Schedule (Summary of
Program Costs) and described in the Finding and Recommendation section
of this report.
For the audit period, the City of Lancaster claimed $1,811,489 for costs of
the legislatively mandated Identity Theft Program. Our audit found that
$242,137 is allowable ($261,223 less a $19,086 penalty for filing late
claim) and $1,569,352 is unallowable. The State made no payments to the
city. The State will pay $242,137, contingent upon available
appropriations.
Following issuance of this audit report, the SCO’s Local Government
Programs Services Division will notify the city of the adjustment via a
system-generated letter for each fiscal year in the audit period.
Follow-up on We have not previously conducted an audit of the city’s legislatively
mandated Identity Theft Program.
Prior Audit
Findings
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City of Lancaster Identity Theft Program
Views of We issued a draft audit report on August 7, 2018. We contacted Pam
Responsible Statsmann, Finance Director, by telephone on August 21, 2018.
Ms. Statsmann declined to respond to the draft audit report.
Officials
Restricted Use This report is solely for the information and use of the City of Lancaster,
the California Department of Finance, 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 audit report,
which is a matter of public record.
Original signed by
JEFFREY V. BROWNFIELD, CPA
Chief, Division of Audits
September 18, 2018
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City of Lancaster Identity Theft Program
Schedule—
Summary of Program Costs
July 1, 2002, through June 30, 2013
Actual Costs Allowable Audit
Cost Elements Claimed per Audit Adjustments1
July 1, 2002, through June 30, 2003
Direct costs:
Salaries
Taking police report for violation of PC §530.5 $ 55,371 $ - $ (55,371)
Begin an investigation of the facts 69,642 - (69,642)
Total salaries 125,013 - (125,013)
Contract services - 16,903 16,903
Total direct costs 125,013 16,903 (108,110)
Indirect costs - - -
Total direct and indirect costs 125,013 16,903 (108,110)
Less late filing penalty2 - (1,690) (1,690)
Total program costs $ 125,013 15,213 $ (109,800)
Less amount paid by the State3 -
Allowable costs claimed in excess of amount paid $ 15,213
July 1, 2003, through June 30, 2004
Direct costs:
Salaries and benefits
Taking police report for violation of PC §530.5 $ 51,402 $ - $ (51,402)
Begin an investigation of the facts 64,414 - (64,414)
Total salaries and benefits 115,816 - (115,816)
Contract services - 16,282 16,282
Total direct costs 115,816 16,282 (99,534)
Indirect costs - - -
Total direct and indirect costs 115,816 16,282 (99,534)
Less late filing penalty2 - (1,628) (1,628)
Total program costs $ 115,816 14,654 $ (101,162)
Less amount paid by the State3 -
Allowable costs claimed in excess of amount paid $ 14,654
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City of Lancaster Identity Theft Program
Schedule (continued)
Actual Costs Allowable Audit
Cost Elements Claimed per Audit Adjustments1
July 1, 2004, through June 30, 2005
Direct costs:
Salaries and benefits
Taking police report for violation of PC §530.5 $ 69,991 $ - $ (69,991)
Begin an investigation of the facts 87,195 - (87,195)
Total salaries and benefits 157,186 - (157,186)
Contract services - 25,143 25,143
Total direct costs 157,186 25,143 (132,043)
Indirect costs - - -
Total direct and indirect costs 157,186 25,143 (132,043)
Less late filing penalty2 - (2,514) (2,514)
Total program costs $ 157,186 22,629 $ (134,557)
Less amount paid by the State3 -
Allowable costs claimed in excess of amount paid $ 22,629
July 1, 2005, through June 30, 2006
Direct costs:
Salaries and benefits
Taking police report for violation of PC §530.5 $ 62,902 $ - $ (62,902)
Begin an investigation of the facts 78,135 - (78,135)
Total salaries and benefits 141,037 - (141,037)
Contract services - 22,952 22,952
Total direct costs 141,037 22,952 (118,085)
Indirect costs - - -
Total direct and indirect costs 141,037 22,952 (118,085)
Less late filing penalty2 - (2,295) (2,295)
Total program costs $ 141,037 20,657 $ (120,380)
Less amount paid by the State3 -
Allowable costs claimed in excess of amount paid $ 20,657
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City of Lancaster Identity Theft Program
Schedule (continued)
Actual Costs Allowable Audit
Cost Elements Claimed per Audit Adjustments1
July 1, 2006, through June 30, 2007
Direct costs:
Salaries
Taking police report for violation of PC §530.5 $ 94,125 $ 1,753 $ (92,372)
Begin an investigation of the facts 116,242 1,565 (114,677)
Total salaries 210,367 3,318 (207,049)
Benefits - 962 962
Contract services - 24,539 24,539
Total direct costs 210,367 28,819 (181,548)
Indirect costs - 332 332
Total direct and indirect costs 210,367 29,151 (181,216)
Less late filing penalty2 - (2,915) (2,915)
Total program costs $ 210,367 26,236 $ (184,131)
Less amount paid by the State3 -
Allowable costs claimed in excess of amount paid $ 26,236
July 1, 2007, through June 30, 2008
Direct costs:
Salaries
Taking police report for violation of PC §530.5 $ 97,559 $ 1,874 $ (95,685)
Begin an investigation of the facts 120,441 1,673 (118,768)
Total salaries 218,000 3,547 (214,453)
Benefits - 1,135 1,135
Contract services - 25,295 25,295
Total direct costs 218,000 29,977 (188,023)
Indirect costs - 355 355
Total direct and indirect costs 218,000 30,332 (187,668)
Less late filing penalty2 - (3,033) (3,033)
Total program costs $ 218,000 27,299 $ (190,701)
Less amount paid by the State3 -
Allowable costs claimed in excess of amount paid $ 27,299
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City of Lancaster Identity Theft Program
Schedule (continued)
Actual Costs Allowable Audit
Cost Elements Claimed per Audit Adjustments1
July 1, 2008, through June 30, 2009
Direct costs:
Salaries
Taking police report for violation of PC §530.5 $ 83,740 $ 1,508 $ (82,232)
Begin an investigation of the facts 104,029 1,346 (102,683)
Total salaries 187,769 2,854 (184,915)
Benefits - 942 942
Contract services - 22,076 22,076
Total direct costs 187,769 25,872 (161,897)
Indirect costs - 285 285
Total direct and indirect costs 187,769 26,157 (161,612)
Less late filing penalty2 - (2,616) (2,616)
Total program costs $ 187,769 23,541 $ (164,228)
Less amount paid by the State3 -
Allowable costs claimed in excess of amount paid $ 23,541
July 1, 2009, through June 30, 2010
Direct costs:
Salaries
Taking police report for violation of PC §530.5 $ 79,262 $ 1,390 $ (77,872)
Begin an investigation of the facts 98,317 1,241 (97,076)
Total salaries 177,579 2,631 (174,948)
Benefits - 947 947
Contract services - 20,108 20,108
Total direct costs 177,579 23,686 (153,893)
Indirect costs - 263 263
Total direct and indirect costs 177,579 23,949 (153,630)
Less late filing penalty2 - (2,395) (2,395)
Total program costs $ 177,579 21,554 $ (156,025)
Less amount paid by the State3 -
Allowable costs claimed in excess of amount paid $ 21,554
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City of Lancaster Identity Theft Program
Schedule (continued)
Actual Costs Allowable Audit
Cost Elements Claimed per Audit Adjustments1
July 1, 2010, through June 30, 2011
Direct costs:
Salaries
Taking police report for violation of PC §530.5 $ 67,195 $ 1,186 $ (66,009)
Begin an investigation of the facts 82,960 1,059 (81,901)
Total salaries 150,155 2,245 (147,910)
Benefits - 876 876
Contract services - 16,501 16,501
Total direct costs 150,155 19,622 (130,533)
Indirect costs - 225 225
Total program costs $ 150,155 19,847 $ (130,308)
Less amount paid by the State3 -
Allowable costs claimed in excess of amount paid $ 19,847
July 1, 2011, through June 30, 2012
Direct costs:
Salaries
Taking police report for violation of PC §530.5 $ 57,147 $ 1,594 $ (55,553)
Begin an investigation of the facts 97,966 1,423 (96,543)
Total salaries 155,113 3,017 (152,096)
Benefits - 1,388 1,388
Contract services - 20,614 20,614
Total direct costs 155,113 25,019 (130,094)
Indirect costs - 302 302
Total program costs $ 155,113 25,321 $ (129,792)
Less amount paid by the State3 -
Allowable costs claimed in excess of amount paid $ 25,321
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City of Lancaster Identity Theft Program
Schedule (continued)
Actual Costs Allowable Audit
Cost Elements Claimed per Audit Adjustments1
July 1, 2012, through June 30, 2013
Direct costs:
Salaries
Taking police report for violation of PC §530.5 $ 59,773 $ 1,378 $ (58,395)
Reviewing online identity theft report 209 - (209)
Begin an investigation of the facts 113,472 1,231 (112,241)
Total salaries 173,454 2,609 (170,845)
Benefits - 1,305 1,305
Contract services - 21,011 21,011
Total direct costs 173,454 24,925 (148,529)
Indirect costs - 261 261
Total program costs $ 173,454 25,186 $ (148,268)
Less amount paid by the State3 -
Allowable costs claimed in excess of amount paid $ 25,186
Summary: July 1, 2002, through June 30, 2013
Direct costs:
Salaries $ 1,811,489 $ 20,221 $ (1,791,268)
Benefits - 7,555 7,555
Contract services - 231,424 231,424
Total direct costs 1,811,489 259,200 (1,552,289)
Indirect costs - 2,023 2,023
Total direct and indirect costs 1,811,489 261,223 (1,550,266)
Less late filing penalties - (19,086) (19,086)
Total program costs $ 1,811,489 242,137 $ (1,569,352)
Less payment offsets made by the State3 -
Allowable costs claimed in excess of amount paid $ 242,137
_________________________
1 See the Finding and Recommendation section.
2 The city filed its FY 2002-03 through FY 2009-10 initial reimbursement claims after the due date specified in GC
section 17560. Pursuant to GC section 17561, subdivision (d)(3), the State assessed a late filing penalty equal to
10% of allowable costs, with no maximum penalty amount.
3 Payment information is current as of September 4, 2018.
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City of Lancaster Identity Theft Program
Finding and Recommendation
FINDING— The city claimed $1,811,489 in salary costs for the Identity Theft Program
for the audit period consisting of salaries with no related benefits or
Overstated Identity
indirect costs. We found that $261,223 is allowable and $1,550,266 is
Theft Program costs
unallowable. The unallowable costs occurred because the city overstated
salary costs by $1,791,268, understated employee benefit costs by $7,555,
understated contract services costs by $231,424, and understated indirect
costs by $2,023.
Salary costs are determined by multiplying the number of identity theft
police reports by the time required to perform the reimbursable activities
by the weighted average PHRs of the employee classifications that
performed the reimbursable activities. Contract services costs are
calculated in the same manner, except that weighted average contract rates
are used for the employees performing the reimbursable activities.
The costs are unallowable because the city misinterpreted the program’s
parameters and guidelines, which resulted in contract services costs
misclassified as salary costs, overstated identity theft reports, overstated
time increments required to perform the reimbursable activities,
unclaimed salary costs for certain city employees who performed the
reimbursable activities, and related unclaimed employee benefit and
indirect costs.
The following table summarizes the claimed, allowable, and audit
adjustment amounts by fiscal year:
Salaries Related Related Contract Total
Fiscal Amount Amount Audit Benefit Indirect Cost Services Audit
Year Claimed Allowable Adjustment Adjustment Adjustment Adjustment Adjustment
2002-03 $ 125,013 $ - $ (125,013) $ - $ - $ 16,903 $ (108,110)
2003-04 115,816 - (115,816) - - 16,282 (99,534)
2004-05 157,186 - (157,186) - - 25,143 (132,043)
2005-06 141,037 - (141,037) - - 22,952 (118,085)
2006-07 210,367 3 ,318 (207,049) 962 332 24,539 (181,216)
2007-08 218,000 3 ,547 (214,453) 1,135 355 25,295 (187,668)
2008-09 187,769 2 ,854 (184,915) 942 285 22,076 (161,612)
2009-10 177,579 2 ,631 (174,948) 947 263 20,108 (153,630)
2010-11 150,155 2 ,245 (147,910) 876 225 16,501 (130,308)
2011-12 155,113 3 ,017 (152,096) 1,388 302 20,614 (129,792)
2012-13 173,454 2 ,609 (170,845) 1,305 261 21,011 (148,268)
Total $ 1,811,489 $ 2 0,221 $ (1,791,268) $ 7,555 $ 2,023 $ 231,424 $ (1,550,266)
Overstated counts of identity theft police reports
The city reported costs incurred for performing mandated activities related
to 4,200 identity theft cases for violations of PC section 530.5 (identity
theft). We found that 3,619 reports are allowable and that the city
overstated its counts of police reports by 581 during the audit period.
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City of Lancaster Identity Theft Program
The city did not have its own police force during the audit period and
contracted with Los Angeles County for the LASD to provide its law
enforcement services. LASD’s Lancaster Station provided law
enforcement services to residents of the city under a Municipal Law
Enforcement Service Agreement (contract), which included identity theft
cases. Therefore, LASD had the relevant information about the identity
theft case counts related to the city.
The LASD’s database system, the Los Angeles Regional Crime
Information System (LARCIS), provides unduplicated counts of initial
police reports filed for violations of PC section 530.5 and identifies the
specific origin of each report. We received a detailed system-generated list
from LASD of identity theft reports by case number originating from the
City of Lancaster for the entire 11 year audit period. We reviewed the list
and noted that the city overstated its report counts for every year of the
audit period.
The following table summarizes the counts of identity theft cases claimed,
supported by LARCIS data, allowable, and difference by fiscal year:
Fiscal Per
Year Claimed LARCIS Allowable Difference
2002-03 345 262 255 (90)
2003-04 311 245 239 (72)
2004-05 418 374 365 (53)
2005-06 354 323 315 (39)
2006-07 501 453 442 (59)
2007-08 483 440 429 (54)
2008-09 398 366 357 (41)
2009-10 365 325 317 (48)
2010-11 309 268 261 (48)
2011-12 354 320 307 (47)
2012-13 362 335 332 (30)
Total 4,200 3,711 3,619 ( 581)
Once we determined the actual counts of identity theft cases for the audit
period, we developed further tests to determine whether:
A contemporaneously prepared and approved police report supported
each identity theft case; and
Each police report supported that a violation of PC section 530.5 had
occurred.
In order to test claimed salary costs, we began by judgmentally selecting
two of the city’s filed claims during the audit period (FY 2011-12 and
FY 2012-13). Claimed salary costs for those years comprised $328,567 (or
18.1%) of the $1,811,489 salary costs claimed during the audit period. Due
to the homogeneousness of the population of identity theft reports for all
years of the audit period, we determined that the two years selected would
be reasonably representative of any other year of the audit period.
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City of Lancaster Identity Theft Program
We designed a statistical sample to test the attributes identified above so
that we could project our sample results to the population of identity theft
reports. We selected our statistical samples of identity theft police reports
based on a 95% confidence level, a sampling error of +/-8%, and an
expected (true) error rate of 50%. Our sampling plan required that we test
102 reports from FY 2011-12 and 104 reports from FY 2012-13. We
selected the identity theft reports for each of the two years by using random
number tables.
To test whether police reports supported identity theft cases, we reviewed
each report selected to verify the existence of actual cost documentation
(case reports) that also supported violations of PC section 530.5.
Our testing disclosed the following:
For FY 2011-12, we selected 102 cases from the population of 320 PC
section 530.5 cases for testing. We found that 4% of the cases were
unallowable because they were not a violation of PC section 530.5
(four instances).
For FY 2012-13, we selected 104 cases from the population of 335 PC
section 530.5 cases for testing. We found that 1% of the cases were
unallowable because they were not a violation of PC section 530.5
(one instance).
Using these testing results, we calculated an average error rate of 2.5%
(4% for FY 2011-12 and 1% for FY 2012-13) and applied the average
error rate to FY 2002-03 through FY 2010-11.
We extrapolated and projected the results of our substantive tests of
statistical samples of identity theft cases to determine the number of
allowable and unallowable identity theft incident reports for the entire
11-year audit period. As shown in the table on the previous page, we found
that 3,619 incident reports are allowable (4,200 less a 2.5% average error
rate), and 581 incident reports for the audit period were not violations of
PC section 530.5.
Overstated time increments
The city claimed salary costs during the audit period based on estimated
time increments for performing the reimbursable activities of:
Taking a police report (drafting, reviewing, and editing) –
(Activity 1a),
Reviewing a police report submitted online (Activity 1b), and
Beginning an investigation (Activity 2).
The city did not provide any supporting documentation for the time
increments it claimed for the first nine fiscal years of the audit period (FY
2002-03 through FY 2010-11). The city provided a declaration of time
increments for FY 2012-13 prepared by a city Community Service Officer
(CSO) and a Crime Analyst at LASD’s Crime Assessment Center. This
declaration of time increments documented the time spent by city and
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City of Lancaster Identity Theft Program
LASD staff performing each identity theft reimbursable activity. The
declaration indicated the following time increments:
Reimbursable Employee Minutes
Activity Classification Required
1a – Take a police report CSO 14
Deputy Sheriff 56
Total – Activity 1a 70
1b – Review online reports Deputy Sheriff Bonus I 20
2 – Begin an investigation Deputy Sheriff Bonus I 120
The city CSO and the LASD Crime Analyst indicated on the declaration
form that it took them 30 minutes to gather data and complete the form,
without explaining how they determined the time increments to perform
the reimbursable activities. Therefore, we determined that these time
increments are estimated and unsupported.
When the city submitted its claims to SCO, the city provided evidence that
it had contracted with LASD for all of its law enforcement services. The
city also provided evidence that mandated activities were performed both
by city employees and contract LASD staff. We made numerous attempts
to obtain supporting documentation for the claimed time increments from
the city. However, the city did not provide the requested documentation.
As an alternative, we used audited LASD identity theft time increment
amounts for the following reasons:
The city contracted with LASD for its law enforcement services.
Therefore, LASD performed the city’s mandated identity theft
activities and would also have the data related to performing these
activities;
We previously audited the time increments spent by LASD staff to
perform the reimbursable activities. SCO issued its audit report on
June 12, 2017, for our audit of identity theft claims submitted by Los
Angeles County over the period of July 1, 2004, through June 30,
2013; and
LASD’s audited identity theft time increments are directly related to
the Identity Theft Program’s reimbursable activities and are properly
supported.
In our June 12, 2017 audit report, we noted that LASD conducted a time
survey to determine how long it took to perform the reimbursable
activities. In that survey, LASD broke down reimbursable activity 1.a
(Taking a Police Report) into two sub-activities. Those sub-activities
included writing and editing the initial police report (activity 1a.1), and
reviewing the police report (activity 1a.2). LASD separated the activities
because activity 1a.1 is performed by various LASD staff, while
activity 1a.2 is performed only by Watch Sergeants.
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City of Lancaster Identity Theft Program
The table below summarizes the audited time increments for LASD staff
to perform activities 1a.1, 1a.2, and 2:
Audited
Reimbursable Time
Activity Increment
1a.1 – Taking a police report 26.94
1a.2 – Reviewing police reports 7.31
2 – Beginning an investigation 24.06
Costs claimed for reviewing police reports submitted online for
PC section 530.5 violations (reimbursable activity 1b) are unallowable
because identity theft is one of the crimes that cannot be reported online
with LASD.
The following table summarizes the time claimed and allowable for
reimbursable activities 1a.1, 1a.2, 1b, and 2 by fiscal year:
Claimed Minutes Allowable Minutes
Activity 1a.1Activity 1a.2 Activity 1b Activity 2 Activity 1a.1Activity 1a.2 Activity 1b Activity 2
Taking a Reviewing a Reviewing Beginning Taking a Reviewing a Reviewing Beginning
Fiscal Police Police Online an Police Police Online an
Year Report Report Report Investigation Report Report Report Investigation
2002-03 70.00 30.00 - 120.00 26.94 7.31 - 24.06
2003-04 70.00 30.00 - 120.00 26.94 7.31 - 24.06
2004-05 70.00 30.00 - 120.00 26.94 7.31 - 24.06
2005-06 70.00 30.00 - 120.00 26.94 7.31 - 24.06
2006-07 70.00 30.00 - 120.00 26.94 7.31 - 24.06
2007-08 70.00 30.00 - 120.00 26.94 7.31 - 24.06
2008-09 70.00 30.00 - 120.00 26.94 7.31 - 24.06
2009-10 70.00 30.00 - 120.00 26.94 7.31 - 24.06
2010-11 70.00 30.00 - 120.00 26.94 7.31 - 24.06
2011-12 70.00 - - 120.00 26.94 7.31 - 24.06
2012-13 70.00 - 20.00 120.00 26.94 7.31 - 24.06
Misclassified Costs
Actual Personnel Status and Job Classifications
The city misclassified its claimed costs as salaries when they were actually
primarily contract services. As noted previously, LASD staff provided the
city’s law enforcement services during the audit period, although city staff
performed some clerical functions related to the mandated activities. We
found that the city’s costs consisted entirely of contract services for the
first four years of the audit period, and in various percentages ranging from
63% to 72% for the remaining seven years.
To validate the city’s assertion as to which employees performed the
reimbursable activities, we:
Reviewed the employee numbers and names from the LASD LARCIS
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City of Lancaster Identity Theft Program
system-generated lists of the city’s identity theft cases for each fiscal
year of the audit period to identify who performed the reimbursable
activities;
Requested information supporting the actual personnel status, job
classifications, and PHRs of those who performed the mandated
activities for the sampled PC 530.5 police reports for FY 2011-12, and
FY 2012-13; and
Determined the extent/percentage of city employees and LASD
employees who performed the mandated activities for the identity
theft cases.
We reviewed the LASD system-generated LARCIS lists of PC 530.5 cases
for the audit period. Lancaster city employees used six-character
alphanumeric LARCIS codes (e.g. LN9999) and LASD contract law
enforcement staff used six-character numeric codes. We used these codes
to identify the authors of identity theft cases (authors). All other agencies
used a six-character alphanumeric code beginning with something other
than “LN” (e.g. PL9999 for a City of Palmdale employee), by which we
identified authors who were not employees or contractors of the City of
Lancaster and therefore of no cost to the city.
We found that no city employees performed mandated activities between
FY 2002-03 and FY 2005-06. We noted that city employees performed
some mandated identity theft activities beginning in FY 2006-07.
We provided the city with a list of the authors of identity theft cases for
FY 2011-12 and FY 2012-13. The city subsequently identified each listed
name as a city employee or an LASD employee and provided job
classification information. We used this claimant-generated information to
determine the employment status and job classifications of the authors of
sampled PC 530.5 cases for the two fiscal years tested. We noted that
CSOs were the only city employees that performed the mandated activities
between FY 2006-07 and FY 2012-13. Based on the information provided
and reviewed for FY 2011-12 and FY 2012-13, we determined an average
percentage of employee involvement, which we applied to FY 2006-07
through FY 2010-11.
The following table summarizes the results of our review for the actual job
classifications that performed the reimbursable activities during the audit
period and their percentages of involvement in the reimbursable activities:
Fiscal Year
2002-03 2006-07
through through
Classification 2005-06 2010-11 2011-12 2012-13
City employees 0% 32% 36% 28%
LASD employees 100% 68% 63% 72%
Non city/LASD employees 0% 0% 1% 0%
100% 100% 100% 100%
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City of Lancaster Identity Theft Program
Overstated and misclassified salaries
The city claimed salary costs for all years of the audit period based on
PHRs for the following job classifications:
Deputy Sheriff Generalist (Generalist);
Deputy Sheriff Bonus I (Bonus I); and
Sergeants.
However, all of these employees were LASD staff members who provided
law enforcement services to the city pursuant to the city’s contract with
LASD. Therefore, all of the claimed costs were misclassified, resulting in
overstated salary costs. We performed an analysis to determine allowable
contract services costs. That analysis is presented under the heading of
Allowable Contract Services Costs.
As noted above, we found that no city employees performed mandated
identity theft activities between FY 2002-03 and FY 2005-06, and that city
CSOs performed some of the reimbursable activities between FY 2006-07
and FY 2012-13. The percentage involvement in these activities by city
employees is noted in the previous table. Specifically, CSOs were
involved with activities 1a.1 (Taking a police report) and 2 (Beginning an
investigation). The city did not include any costs for CSOs in its claims
for those years. Therefore, we performed an analysis to determine the
amount of allowable salary costs for CSOs during the audit period.
The city provided the following hourly salary rates for its CSOs for
FY 2006-07 through FY 2012-13:
Fiscal Salary
Year Rate
2006-07 $ 27.60
2007-08 30.40
2008-09 29.38
2009-10 30.51
2010-11 31.62
2011-12 32.11
2012-13 33.01
Using this salary rate information, the corrected number of case counts,
the corrected time increments, and the percentage involvement of CSOs
during the audit period, we determined allowable salaries for each fiscal
year. For example, the following table shows the calculation of allowable
salary costs for FY 2006-07:
Number of Time CSO Percentage Allowable
Reimbursable Cases Increment Minutes Hours PHR Involvement Costs
Activity (a) (b) c= (a) * (b) d = c/60 [e] (f) = d * e * f
1a 442 26.94 11,907 198.45 $ 27.60 32% $ 1 ,753
2 442 24.06 10,635 177.25 27.60 32% 1 ,565
Total $ 3 ,318
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City of Lancaster Identity Theft Program
The following table presents the allowable salary costs for CSOs by fiscal
year:
Fiscal Allowable
Year Salaries
2006-07 $ 3,318
2007-08 3,547
2008-09 2,854
2009-10 2,631
2010-11 2,245
2011-12 3,017
2012-13 2,609
Total $ 20,221
Allowable related employee benefits
Benefit costs are determined by multiplying allowable salary costs by each
year’s benefit rate. Employee benefits related to the allowable salaries
identified above are also allowable. The city provided the benefit rates for
its CSOs for FY 2006-07 through FY 2012-13. Using this information, we
calculated allowable benefit costs.
The following table summarizes the allowable related employee benefit
costs by fiscal year:
Allowable Allowable
Fiscal Allowable Benefit Benefit
Year Salaries Rate Costs
2002-03 $ - 0% $ -
2003-04 - 0% -
2004-05 - 0% -
2005-06 - 0% -
2006-07 3,318 29% 962
2007-08 3,547 32% 1,135
2008-09 2,854 33% 942
2009-10 2,631 36% 947
2010-11 2,245 39% 876
2011-12 3,017 46% 1,388
2012-13 2,609 50% 1,305
Total $ 20,221 $ 7,555
Allowable related indirect costs
Indirect costs are determined by multiplying the salary costs by the indirect
cost rate. Indirect costs related to the allowable salaries previously
identified are also allowable. The parameters and guidelines offer two
options for claiming indirect costs, which are (1) use 10% of labor,
excluding fringe benefits; or (2) prepare an Indirect Cost Rate Proposal
(ICRP) for each year of the audit period. As the city did not prepare an
ICRP for any year of the audit period, we calculated allowable indirect
costs using the 10% of labor, excluding fringe benefits option.
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City of Lancaster Identity Theft Program
The following table summarizes the related indirect cost audit adjustment
by fiscal year:
Allowable Allowable Related
Salaries Indirect Indirect
Fiscal Audit Cost Cost
Year Adjustment Rate Adjustment
2002-03 $ - 10% $ -
2003-04 - 10% -
2004-05 - 10% -
2005-06 - 10% -
2006-07 3,318 10% 332
2007-08 3,547 10% 354
2008-09 2,854 10% 285
2009-10 2,631 10% 263
2010-11 2,245 10% 225
2011-12 3,017 10% 302
2012-13 2,609 10% 262
Total $ 20,221 $ 2,023
Allowable contract services costs
Understated contract services costs
The city did not include any costs for contract services in its claims during
the audit period. However, as noted previously, the city contracted with
Los Angeles County for its law enforcement services during the audit
period, which included most of the activities related to identity theft.
During the audit, the city provided us with a copy of its contract dated
June 29, 2004, between the city and Los Angeles County for the period of
July 1, 2004, through June 30, 2009. That contract was subsequently
renewed and was in effect throughout the rest of the audit period. The
contract specifies that LASD will render law enforcement functions for
the city and that law enforcement services requested by the city shall be
authorized annually by the city and LASD each July 1st, using an LASD
SH-AD-575 Deployment of Personnel Form (SH-AD-575 Form). This
form is used to indicate the level of services provided and the amounts that
the city will be billed based on the rates indicated for various LASD staff.
The city provided a copy of its signed SH-AD-575 Form for FY 2004-05,
signed by the LASD Lancaster Station Commander and the Mayor of
Lancaster. The contract law enforcement service staffing level in effect for
FY 2004-05 included the following LASD employee classifications:
Sworn Officers
Generalist
Bonus I
Sergeant
Civilian Support Staff
Community Service Assistant (CSA)
Station Clerk
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City of Lancaster Identity Theft Program
As noted previously, we determined the extent to which LASD staff
performed the mandated activities during the audit period. To determine
the amount of allowable costs that the city incurred for contract services,
we also needed to determine which LASD staff performed the
reimbursable activities, the extent of their involvement during the audit
period, and the billing rates assessed to the city by Los Angeles County
for such staff.
LASD Contract Staffing Levels
Staff Claimed
For FY 2002-03 through FY 2012-13, the city claimed the PHRs of the
Generalist classification for performing mandated reimbursable activities
1a.1 (Taking a police report) and 2 (Beginning an investigation).
For FY 2002-03 through FY 2010-11, the city claimed the PHRs of the
Sergeant classification for performing reimbursable activity 1a.2
(Reviewing written incident reports).
For FY 2012-13, the city claimed the PHRs of the Bonus I classification
for performing reimbursable activities 1b (Reviewing identity theft reports
submitted online) and 2 (Beginning an investigation).
Staff Allowable
From the information provided during audit fieldwork, we prepared a
schedule to determine the extent that LASD staff performed the
reimbursable activities during FY 2011-12 and FY 2012-13. To do this,
we used the same population of identity theft reports that we selected for
testing. Once we determined which LASD employee classifications
performed the activities and the extent of their involvement for the two
years, we developed an average for the involvement of each LASD staff
for the remaining years of the audit period.
The following table summarizes the actual job classifications that
performed the reimbursable activities for FY 2011-12 and FY 2012-13,
and their percentages of involvement in the reimbursable activities. The
percentage levels shown for FY 2002-03 through FY 2010-11 represent
an average based on FY 2011-12 and FY 2012-13.
Fiscal Year
2002-03
through
Classification 2010-11 2011-12 2012-13
Activities 1a.1 and 2
Generalist 43% 50% 36%
Bonus I 22% 27% 16%
Security Officer 3% 0% 6%
CSA 32% 23% 42%
100% 100% 100%
Activity 1a.2
Sergeant 100% 100% 100%
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City of Lancaster Identity Theft Program
Contract Law Enforcement Rates
The city provided the LASD Law Enforcement Rates for FY 2002-03
through FY 2010-11 for all LASD contract staff. We also requested copies
of the annual authorized SH-AD-575 Forms. These forms identify the
specific contract staff who performed the reimbursable activities each
fiscal year and the applicable contract rates assessed to the city for those
staff. We attempted repeatedly to obtain this information. Subsequently,
the city sent an email stating that no further information would be
submitted.
We then contacted the LASD Contract Law Enforcement Bureau, which
provided contract rates for the specific LASD staffing levels in effect
during the audit period for the law enforcement services that LASD
provided to the city. Using this LASD-generated information, we
calculated weighted hourly contract rates for the Generalist, Bonus I, CSA,
and Security Officer classifications. These LASD staff were all involved
in performing the reimbursable activity of taking a police report (activity
1a.1) and beginning an investigation (activity 2). As only the Watch
Sergeants reviewed the PC 530.5 police reports, we applied their hourly
rates to the reimbursable activity of reviewing PC 530.5 police reports
(activity 1a.2).
For example, the following table shows the calculation of the weighted
average PHRs used to calculate allowable costs for FY 2002-03.
Employee Hourly Percentage Weighted
Classification Rate Involvement Rate
Activities 1.a.1 and 2
Generalist $ 87.01 43% $ 37.41
Bonus I 92.28 22% 20.31
CSA 26.47 32% 8.47
Security Officer 39.68 3% 1.19
Weighted Hourly Rate $ 67.38
Activity 1a.2
Sergeant $ 73.98 100% $ 73.98
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City of Lancaster Identity Theft Program
We performed a similar calculation for all other years of the audit period
using updated hourly rate information. The following table summarizes
the weighted contract rates applicable to the reimbursable activities for
each fiscal year of the audit period:
Allowable Contract Rates
Fiscal Activities Activity
Year 1a.a and 2 1a.2
2002-03 $ 67.38 $ 73.98
2003-04 69.13 76.95
2004-05 69.69 79.20
2005-06 73.58 84.70
2006-07 76.89 90.92
2007-08 81.38 97.83
2008-09 85.41 102.35
2009-10 87.71 104.54
2010-11 87.05 105.96
2011-12 100.73 108.39
2012-13 81.63 109.39
Calculation of allowable costs
We calculated allowable costs for contract services during the audit period
based on the audited counts of PC 530.5 identity theft reports, audited time
increments, and weighted hourly contract rates. The weighted hourly
contract rates were multiplied by 100% for FY 2002-03 through
FY 2005-06, as no city employees performed the reimbursable activities
for those fiscal years. The weighted rates were multiplied by 68% for
FY 2006-07 through FY 2010-11, as city employees performed 32% of
the reimbursable activities for those fiscal years. The weighted rates were
multiplied by 63% for FY 2011-12 and 72% for FY 2012-13, as city
employees performed 37% and 28%, respectively, of the reimbursable
activities for those fiscal years.
For example, the following table shows the calculation of allowable
contract services costs for FY 2012-13:
Allowable
Time Allowable Weighted
Case Increment Time Contract Percentage Allowable
Reimbursable Count (minutes) (hours) Rate Involvement Costs
Activity (a) (b) c = (a*b/60) (d) (e) (f ) = (c*d*e)
1a.1 332 26.94 149.07 $ 81.63 72% $ 8,761
1a.2 332 7.31 40.45 109.39 100% 4,425
2 332 24.06 133.13 81.63 72% 7,825
Total $ 21,011
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City of Lancaster Identity Theft Program
The following table summarizes the allowable contract services costs by
fiscal year:
Allowable
Contract
Fiscal Services
Year Costs
2002-03 $ 16,903
2003-04 16,282
2004-05 25,143
2005-06 22,952
2006-07 24,539
2007-08 25,295
2008-09 22,076
2009-10 20,108
2010-11 16,501
2011-12 20,614
2012-13 21,011
$ 231,424
Criteria
Section III. (Period of Reimbursement) of the parameters and guidelines
states, in part, “Actual costs for one fiscal year shall be included in each
claim.”
Section IV. (Reimbursable Activities) of the parameters and guidelines
states:
To be eligible for mandated cost reimbursement for any given fiscal year,
only actual costs may be claimed. Actual costs are those costs actually
incurred to implement the mandated activities. Actual costs must be
traceable to and supported by source documents that show the validity
of such costs, when they were incurred, and their relationship to the
reimbursable activities. A source document is a document created at or
near the same time the actual cost was incurred for the event or activity
in question. Source documents may include, but are not limited to,
employee time records or time logs, sign-in sheets, invoices, and
receipts.
Section IV of the parameters and guidelines also notes that evidence
corroborating the source documents may include declarations. However,
the parameters and guidelines also state that “corroborating documents
cannot be substituted [emphasis added] for source documents.”
Section V. (Claim Preparation and Submission) of the parameters and
guidelines states:
1. Salaries and benefits
Report each employee implementing the reimbursable activities by
name, job classification, and productive hourly rate (total wages and
related benefits divided by productive hours). Describe the specific
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City of Lancaster Identity Theft Program
reimbursable activities performed and the hours devoted to these
activities.
2. Contracted services
Report the name of the contractor and services performed to
implement the reimbursable activities and attach a copy of the
contract to the claim. If the contractor bills for time and materials,
report the number of hours spent on the activities and all costs
charged. If the contract is a fixed price, report the dates when
services were performed and itemize all costs for those services
during the period covered by the reimbursement claim. If the
contract services were also used for purposes other than the
reimbursable activities only the pro-rata portion of the services used
to implement the reimbursable activities can be claimed. Submit
contract consultant and invoices with the claim and a description of
the contract scope of services.
Recommendation
The Identity Theft Program was suspended in the FY 2013-14 through
FY 2017-18 Budget Acts. If the program becomes active again, we
recommend that the city:
Adhere to the program’s parameters and guidelines and claiming
instructions when claiming reimbursement for mandated costs; and
Ensure that claimed costs include only eligible costs, are based on
actual costs, and are properly supported.
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State Controller’s Office
Division of Audits
Post Office Box 942850
Sacramento, CA 94250
http://www.sco.ca.gov
S17-MCC-0021