U.s. Global Petroleum - Motor Oil Fee Program

U.S. GLOBAL PETROLEUM Audit Report MOTOR OIL FEE PROGRAM July 1, 2013, through June 30, 2016 BETTY T. YEE California State Controller April 2019 BETTY T. YEE California State Controller April 25, 2019 Karen Ross, Secretary California Department of Food and Agriculture 1220 N Street Sacramento, CA 95814 Dear Ms. Ross: The State Controller’s Office conducted a performance audit of U.S. Global Petroleum’s California Motor Oil Fee (MOF) program. The purpose of our audit was to determine the propriety of assessed and remitted MOFs for the period of July 1, 2013, through June 30, 2016, pursuant to Title 4, California Code of Regulations (4 CCR), Division 9, Chapter 8, section 4305. Our audit found that U.S. Global Petroleum did not assess and remit MOFs in accordance with 4 CCR 4305 and failed to file one quarterly return during the audit period. If you have any questions, please contact Andrew Finlayson, Chief, State Agency Audits Bureau, by telephone at (916) 324-6310. Sincerely, Original signed by JIM L. SPANO, CPA Chief, Division of Audits JLS/as Karen Ross, Secretary -2- April 25, 2019 cc: Kristin Macey, Director Fuels, Lubricants and Automotive Products Program Division of Measurement Standards California Department of Food and Agriculture Clark Cooney, Chief, Enforcement Branch Fuels, Lubricants and Automotive Products Program Division of Measurement Standards California Department of Food and Agriculture Kevin Schnepp, Environmental Program Manager I Fuels, Lubricants and Automotive Products Program Division of Measurement Standards California Department of Food and Agriculture Rebecca Bland, Staff Services Manager I Administrative Services Unit Division of Measurement Standards California Department of Food and Agriculture U.S. Global Petroleum Motor Oil Fee Program Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Objective, Scope, and Methodology ................................................................................. 1 Conclusion .......................................................................................................................... 2 Follow-up on Prior Audit Findings .................................................................................. 2 Views of Responsible Officials .......................................................................................... 2 Restricted Use .................................................................................................................... 3 Schedule—Summary of Reported and Audited Motor Oil Fees ....................................... 4 Finding and Recommendation .............................................................................................. 5 U.S. Global Petroleum Motor Oil Fee Program Audit Report Summary The State Controller’s Office (SCO) conducted a performance audit of U.S. Global Petroleum’s California Motor Oil Fee (MOF) program. The purpose of our audit was to determine the propriety of assessed and remitted MOFs for the period of July 1, 2013, through June 30, 2016, pursuant to Title 4, California Code of Regulations (4 CCR), Division 9, Chapter 8, section 4305. Our audit found that U.S. Global Petroleum did not assess and remit MOFs in accordance with 4 CCR 4305 and failed to file one quarterly return during the audit period, resulting in under-reported 54,588 gallons, or $2,184 in MOF, plus a $218 late fee. The MOF program is administered by the California Department of Food Background and Agriculture (CDFA) Division of Measurement Standards, pursuant to 4 CCR, Division 9, Chapter 8, sections 4300 through 4308. The Division of Measurement Standards is responsible for providing administrative oversight to motor oil dealers by establishing reporting and accounting guidelines for assessments and receipts. The dealers/producers are required to provide assessment reports and remit the MOFs. The MOF is a fee paid by motor oil dealers who produce and sell motor oil products in California, regardless of whether they are packaged in retail containers. Pursuant to 4 CCR 4304, the MOF was established at four cents per gallon for the audit period. All participants are responsible for paying MOFs and are required to file returns with the CDFA on a quarterly basis (for each quarter ending September 30, December 31, March 31, and June 30). Each quarterly return includes, in part:  Volume, in gallons, of motor oil produced, sold, or manufactured in, or imported to, California;  Volume of MOFs paid to suppliers; and  Net volume of MOFs subject to assessment. The CDFA receives approximately $4 million in MOFs from motor oil dealers annually. Approximately 200 dealers produce, sell, or distribute motor oil in California. Objective, Scope, We conducted a performance audit of motor oil dealer U.S. Global and Methodology Petroleum, selected by the CDFA for the MOF program assessment. The objective of our audit was to determine the propriety of assessed and remitted MOFs. The audit period was July 1, 2013, through June 30, 2016. To achieve our objective, we:  Assessed reporting timeliness, delinquency, penalties, and the CDFA’s efforts and enforcement actions to conform to the MOF assessment and reporting requirements; -1- U.S. Global Petroleum Motor Oil Fee Program  Reviewed quarterly MOF reports, remittance advice, and other correspondence to gain an understanding of reported assessments and fees, and to identify reported anomalies with emphasis on volumes produced, volumes subject to assessment, and fees remitted;  Gained an understanding of the dealer’s organization, business model, and business components by inquiring with and observing the dealer’s responsible function groups for MOF assessment to understand and evaluate effectiveness of applicable internal control, including but not limited to the accounting system, purchase and sales records, and claim preparation process; and  Examined all accounting records and purchase and sales records to determine whether MOFs were assessed and remitted properly: o Gallons Reported – Sold, Imported, Purchased, or Manufactured: Population: 11 quarterly returns, totaling $21,859, or 546,488 gallons. 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. Conclusion Our audit found that U.S. Global Petroleum did not assess and remit MOFs in accordance with 4 CCR 4305 and failed to file one quarterly return during the audit period, resulting in under-reported 54,588 gallons or $2,184 in MOFs, plus a $218 late fee, as summarized in the accompanying Schedule and described in the Finding and Recommendation section of this report. Follow-up on U.S. Global Petroleum did not have any prior audits related to the Prior Audit objective of this report. Findings Views of We issued a draft report on December 28, 2018. Dean Mohammad, President and Chief Excutive officer, responded by email on February 1, Responsible 2019, stating that the final report could be issued without any additional Officials comments from U.S. Gobal Petroleum. -2- U.S. Global Petroleum Motor Oil Fee Program Restricted Use This report is solely for the information and use of U.S. Global Petroleum, the CDFA, 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 the final report, which is a matter of public record and is available on the SCO website at www.sco.ca.gov. Original signed by JIM L. SPANO, CPA Chief, Division of Audits April 25, 2019 -3- U.S. Global Petroleum Motor Oil Fee Program Schedule— Summary of Reported and Audited Motor Oil Fees July 1, 2013, through June 30, 2016 Cost Reported Audited Audit Element Amount Amount Adjustment Total Gallons Sold, Imported, Purchased, or Manufactured 546,488 6 01,076 54,588 (Less: Gallons with Fee Paid to Supplier) - - - Total Gallons Assessed MOF 546,488 6 01,076 54,588 Total MOF @ $0.04/gallon $ 21,859 1 $ 2 4,043 $ 2,184 Late Fee 218 Total Audit Adjustment $ 2,402 ________________ 1Difference due to rounding. -4- U.S. Global Petroleum Motor Oil Fee Program Finding and Recommendation FINDING— During the audit period, we determined that U.S. Global Petroleum failed to file a quarterly return, as it failed to file or remit its MOFs for the quarter Failure to file ending September 2015. The oil dealer failed to report assessable gallons Quarterly Return for fiscal year 2015-16, Quarter 1, in the amount of 54,588 gallons. 4 CCR 4304 states that the dealer is to file a return with the CDFA quarterly and remit assessable gallons at $0.04 per gallon. Additionally, 4 CCR 4307 states that for any delinquency in making a return, or any deficiency in payment, the CDFA shall add to such delinquent payment a penalty of ten percent of the amount which is due. U.S. Global Petroleum underpaid the MOF by $2,184 and has been charged a late penalty of $218; the total amount owed to the CDFA for MOFs is $2,402. Recommendation We recommend that U.S. Global Petroleum:  File and remit all quarterly returns by the last day of the month following each reporting period to be in compliance and in accordance with 4 CCR 4306 – Penalties; and  Work with CDFA to remit any underpaid MOFs. -5- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250 http://www.sco.ca.gov S18-MOF-0003