California Victim's Compensation Board - Proposition 47 Safe Neighborhoods and Schools Fund

CALIFORNIA VICTIM COMPENSATION BOARD Audit Report PROPOSITION 47 SAFE NEIGHBORHOODS AND SCHOOLS FUND GRANTS PROGRAM July 1, 2016, through June 30, 2017 BETTY T. YEE California State Controller May 2019 BETTY T. YEE California State Controller May 23, 2019 Christie Munson, Deputy Executive Officer California Victim Compensation Board 400 R Street, Suite 500 Sacramento, CA 95811 Dear Ms. Munson: The State Controller’s Office (SCO) conducted a performance audit of the California Victim Compensation Board’s (CalVCB) Proposition 47 Safe Neighborhoods and Schools Fund (SNSF) grants program for the period of July 1, 2016, through June 30, 2017. The purpose of the audit was to ensure that program funds were disbursed and expended in accordance with program requirements and as required by Government Code section 7599.2(c). We verified that during fiscal year (FY) 2016-17 CalVCB awarded five grants, totaling $3,854,744, of which $292,873 was disbursed to two awardees. CalVCB did not charge any administrative costs to the Proposition 47 SNSF grants program during FY 2016-17. Our audit found that CalVCB is properly awarding grants, and providing oversight and monitoring of Proposition 47 SNSF grants program. However, CalVCB lacks adequate internal control over the invoice review and approval process for grant recipients, resulting in the reimbursement of $6,341 in unallowable costs and $223,342 of costs without adequate supporting documentation, totaling $229,683. 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 Christie Munson, Deputy Executive Officer -3- May 23, 2019 cc: Valinda Roberts, Deputy Executive Officer California Victim Compensation Board Robin Foemmel Bie, Assistant Deputy Executive Officer California Victim Compensation Board Joanna Gonzales, Resource Branch Manager California Victim Compensation Board Ava Watson, Staff Services Manager I – Program Development and Analysis California Victim Compensation Board Marianne Tran, Accounting Manager California Victim Compensation Board California Victim Compensation Board Proposition 47 Safe Neighborhoods and Schools Fund Grants Program Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Objective, Scope, and Methodology ................................................................................. 2 Conclusion .......................................................................................................................... 3 Follow-up on Prior Audit Finding ................................................................................... 3 Views of Responsible Officials .......................................................................................... 4 Restricted Use .................................................................................................................... 4 Schedule—Summary of Grant Awards, Amounts Expended and Disbursed, and Audit Adjustments ................................................................................... 5 Findings and Recommendations ........................................................................................... 6 Attachment—California Victim Compensation Board’s Response to Draft Audit Report California Victim Compensation Board Proposition 47 Safe Neighborhoods and Schools Fund Grants Program Audit Report Summary The State Controller’s Office (SCO) conducted a performance audit of the California Victim Compensation Board’s (CalVCB) Proposition 47 Safe Neighborhoods and Schools Fund (SNSF) grants program for the period of July 1, 2016, through June 30, 2017. The purpose of the audit was to ensure that program funds were disbursed and expended in accordance with program requirements and as required by Government Code (GC) section 7599.2(c). We verified that during fiscal year (FY) 2016-17, CalVCB awarded five grants, totaling $3,854,744, of which $292,873 was disbursed to two awardees. CalVCB did not charge any administrative costs to the Proposition 47 SNSF grants program during FY 2016-17. Our audit found that CalVCB is properly awarding grants, and providing oversight and monitoring of Proposition 47 SNSF grants program. However, CalVCB lacks adequate internal control over the invoice review and approval process for grant recipients, resulting in the reimbursement of $6,341 in unallowable costs and $223,342 of costs without adequate supporting documentation (see the Findings and Recommendations section of this report). Proposition 47 Safe Neighborhoods and Schools Fund Background On November 10, 2014, California voters approved Proposition 47, which reduces penalties for certain offenders convicted of non-serious and nonviolent property and drug crimes. It also allows some offenders to apply for reduced sentences. Proposition 47 established the Safe Neighborhoods and Schools Fund, which is funded by savings that accrue to the State from the implementation of the measure. This mandate is expected to save significant state corrections dollars annually. Savings resulting from this proposition will be transferred to the newly created Safe Neighborhoods and Schools Fund to be used in support of truancy reduction and drop-out prevention programs, increase victim services grants, and support substance abuse and mental health treatment services. California Victim Compensation Board CalVCB is a state program dedicated to providing reimbursement to eligible victims for many crime-related expenses. CalVCB funding comes from restitution paid by criminal offenders through fines, orders, and penalty assessments, in addition to federal funds. The Proposition 47 SNSF grants program is CalVCB’s sole grants program. GC section 7599.2 (a)(2) requires that, by August 15 of each fiscal year beginning in 2016, the State Controller shall disburse money deposited in the Safe Neighborhoods and Schools Fund as follows: Ten percent to the California Victim Compensation Board, to make grants to trauma recovery centers [TRCs] to provide services to victims of crime pursuant to Section 13963.1 of the Government Code. -1- California Victim Compensation Board Proposition 47 Safe Neighborhoods and Schools Fund Grants Program We conducted this audit pursuant to GC section 7599.2(c), which requires the Controller, every two years, to conduct an audit of the Safe Neighborhoods and Schools Fund grant programs operated by the California Department of Education, CalVCB, and the Board of State and Community Corrections “to ensure the funds are disbursed and expended solely according to this chapter and shall report his or her findings to the Legislature and the public.” In addition, GC section 12410 states: The Controller shall superintend the fiscal concerns of the state. The Controller shall audit all claims against the state, and may audit the disbursement of any state money, for correctness, legality, and for sufficient provision of law for payment. Objective, Scope, The objective of our audit was to assess CalVCB’s implementation and and Methodology administration of the Proposition 47 SNSF grants program, and to ensure that program funds were disbursed and expended as required by GC section 7599.2 (c) for the audit period of July 1, 2016, through June 30, 2017. To achieve our objective, we:  Identified the Proposition 47 SNSF grants program background, criteria, purpose, and requirements by reviewing the FY 2016-17 Governor’s Budget, GC sections 7599 through 7599.2 and 13963.1, and the California Department of Finance (DOF) fund classification and basis for the Safe Neighborhoods and Schools Fund;  Interviewed key personnel to gain a general understanding of CalVCB’s internal controls, such as procedures performed by staff during the grant award process; expenditure reviews and approvals; program monitoring; accounting records and grantee’s invoices; and recording and disbursements of the Proposition 47 SNSF grants program expenditures in the agency’s financial management system;  Examined CalVCB’s internal controls related to the Proposition 47 SNSF grants program by reviewing policies and procedures, guidelines, grant agreements, and grant processes; direct testing of claimed costs, invoices, and supporting documentation; and verifying CalVCB’s compliance with applicable provisions of laws, regulations, and grant agreements. We did not examine the agency’s information systems controls;  Identified five grants totaling $3,854,744 that were awarded by CalVCB during the audit period, FY 2016-17, of which $292,873 was disbursed to two awardees;  Selected a sample of three out of five grants awarded to determine whether sampled grants were approved by CalVCB; whether grant agreements specified standard contract language established by the California Department of General Services, including scope of work, budgets, terms and conditions, and services to be provided; and whether grant agreements were in compliance with program requirements, CalVCB internal control policies and procedures, guidelines, and criteria established by GC section 13963.1; -2- California Victim Compensation Board Proposition 47 Safe Neighborhoods and Schools Fund Grants Program  Tested all of the invoices that were paid during the audit period (totaling $292,873 to two grantees) to determine whether costs were eligible, allowable, reasonable, and adequately supported by financial records and accounting records; did not exceed the grant agreement approved budget; and were in compliance with grant agreements and applicable requirements; and  Verified the accuracy of the Proposition 47 SNSF grants program financial information reported by CalVCB, such as: o Agency fund reconciliation reports submitted to SCO; o Proposition 47 SNSF grants program disbursement and activity reports; o General ledger activity reports, detail ledger reports, trial balance reports; and o Budget detail expense reports. 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 finding 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 did not examine the economy, efficiency, or effectiveness of the program. Our audit of the program requirements was related solely to program expenditures as required by GC section 7599.2(c). We did not audit CalVCB’s financial statements. We limited our audit scope to planning and performing audit procedures necessary to achieve our audit objective. In addition, our review of internal controls was limited to gaining an understanding of the transaction flows, the financial management accounting system, and limited tests of controls regarding CalVCB’s ability to accumulate and segregate reasonable and allowable grantee costs. Conclusion Our audit found that CalVCB is properly awarding grants, and providing oversight and monitoring of the Proposition 47 SNSF grants program. However, CalVCB lacks adequate internal control over invoice review and the approval process for grant recipients, resulting in the reimbursement of $6,341 in unallowable costs and $223,342 of costs without adequate supporting documentation, totaling $229,683. The adjustments are quantified in the accompanying Schedule and described in the Findings and Recommendations section of this report. Follow-up on CalVCB did not have any prior audits related to the objective of this audit; therefore, we did not perform any follow-up activity. Prior Audit Finding -3- California Victim Compensation Board Proposition 47 Safe Neighborhoods and Schools Fund Grants Program Views of We issued a draft audit report on February 20, 2019. Christie Munson, Deputy Executive Officer, responded by letter dated March 27, 2019 Responsible (Attachment), agreeing with audit Findings 1 and 2 and disagreeing, in Officials part, with Finding 3. This final audit report includes CalVCB’s response. Restricted Use This audit report is intended for the information and use of CalVCB 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 and is available on the SCO website at www.sco.ca.gov. Original signed by JIM L. SPANO, CPA Chief, Division of Audits May 23, 2019 -4- California Victim Compensation Board Proposition 47 Safe Neighborhoods and Schools Fund Grants Program Schedule— Summary of Grant Awards, Amounts Expended and Disbursed, and Audit Adjustments CalVCB Trauma Recovery Center July 1, 2016, through June 30, 2017 Expended and Audit Grantee Agreement Awarded1 Disbursed2 Adjustments3 The Grace Network VC-G6130 $ 7 33,333 $ 1 95,009 $ 178,965 St. Francis Medical Center Foundation VC-G6031 7 66,484 9 7,864 50,718 Regents of the University of California VC-G6038 8 80,949 - - (UC San Francisco) Downtown Womenʼs Center VC-G6040 4 68,453 - - CSU Long Beach VC-G6041 1 ,005,525 - - Total: $ 3 ,854,744 $ 2 92,873 $ 229,683 ____________________ 1 CalVCB approved 10 grant awards totaling $7,742,500; however, a subsequent allocation fact sheet shows that only five of the awarded grants were approved for expenditure. 2 CalVCB did not charge any administrative costs to the Proposition 47 SNSF grants program. 3 See Findings 1 and 2. California Victim Compensation Board Proposition 47 Safe Neighborhoods and Schools Fund Grants Program Findings and Recommendations FINDING 1— CalVCB reimbursed $6,341 of paid expenditures to trauma recovery centers. We found that these costs were unallowable, as they were incurred Unallowable Costs before the grant agreement Notice to Proceed Date of September 1, 2016, and costs were not permitted by the terms of the grant agreement and approved budget. It appears that program staff did not review reimbursement requests for completeness, accuracy and compliance with the grant agreement requirements to verify that claimed costs are eligible and supported by sufficient documentation (see Finding 3). These reimbursed expenditures were paid to two grant recipients as follows: Unallowable Trauma Recovery Center Costs The Grace Network Operating costs incurred before Notice to Proceed date $ 822 Unallowable salaries and wages 5,000 Unallowable outreach services 2 80 Total, Grace Network 6,102 St. Francis Medical Center Foundation Operating costs incurred before Notice to Proceed date 2 39 Total unallowable costs $ 6,341 ______________________ Note: Numbers rounded to the nearest whole dollar. During an earlier survey of CalVCB that we performed, we found that CalVCB had weak internal controls. Therefore, during this audit, we tested all expenditures, totaling $292,873, paid to two grantees, St. Francis Medical Center Foundation and The Grace Network, for the period of July, 1, 2016, through June 30, 2017. We deemed these costs to be unallowable, as The Grace Network (Agreement No. VC-G6130) and St. Francis Medical Center Foundation (Agreement No. VC-G6031) were not in compliance with the following sections of their respective contracts: Section IV: Invoicing and Payment For services satisfactorily rendered, and upon receipt and approval of the invoices, the Board agrees to compensate the Awardee for actual expenditures permitted by the terms of this contract in accordance with the approved budget. Services rendered must be consistent with the Awardee’s proposed scope of work. Section 14. Notice to Proceed The Notice to Proceed is a formal notification from the Board that authorizes the grantee to begin the project and incur costs. It is issued after the grantee and the Board have both signed the grant agreement. Applicants are not permitted to incur any grant-related costs prior to the issuance of the Notice to Proceed. California Victim Compensation Board Proposition 47 Safe Neighborhoods and Schools Fund Grants Program Recommendation We recommend that CalVCB:  Ensure that all expenditures reimbursed to trauma recovery centers with Proposition 47 SNSF grant funds are program-related, allowable costs in accordance with Proposition 47 SNSF grants program requirements; and  Either seek reimbursement of unallowable expenditures from the grantees ($6,102 from The Grace Network and $239 from St. Francis Medical Center Foundation), or offset and deduct the unallowable costs from the grantees’ future claims as required by GC sections 13965 through 13966. CalVCB’s Response CalVCB agreed with the finding and recommendation, and stated that it has already taken action to rectify the problem. SCO Comment We did not validate the implementation of corrective actions noted in CalVCB’s response. We will conduct follow-up work in a separate audit to determine whether corrective actions were adequate and appropriate. FINDING 2— CalVCB reimbursed $223,342 of paid expenditures to trauma recovery centers that lacked sufficient financial and/or accounting documentation Paid expenditures to support that the costs were eligible for reimbursement. Additionally, were not invoices did not show evidence that they had been properly reviewed or adequately authorized for payment (see Finding 3). These reimbursed expenditures supported by were paid to two grant recipients as follows: sufficient financial and/or accounting Trauma Recovery Center Agreement No. Costs documentation The Grace Network VC-G6130 $ 1 72,863 St. Francis Medical Center Foundation VC-G6031 50,479 Total $ 2 23,342 CalVCB did not provide sufficient supporting documentation to support $223,342 of Proposition 47 SNSF grants program expenditures claimed and paid to the trauma recovery centers. The expenditures that lacked support were categorized as follows: Category Costs Salaries and wages $ 170,046 Operating expenses 53,046 Outreach services 250 Total $ 223,342 California Victim Compensation Board Proposition 47 Safe Neighborhoods and Schools Fund Grants Program GC section 12410 states: The Controller shall superintend the fiscal concerns of the state. The Controller shall audit all claims against the state, and may audit the disbursement of any state money, for correctness, legality, and for sufficient provisions of law for payment. Whenever, in his opinion, the audit provided for by Chapter 4 (commencing with Section 925), Part 3, Division 3.6 of Title 1 of this code is not adequate, the Controller may make such field or other audit of any claim or disbursement of state money as may be appropriate to such determination Recommendation We recommend that CalVCB:  Ensure that all program expenditures that are reimbursed to trauma recovery centers with Proposition 47 SNSF grants program funds are supported by sufficient financial and/or accounting documentation; and  Establish adequate policies and procedures to ensure that grant recipients are in compliance with such requirements. CalVCB’s Response CalVCB agreed with the finding and recommendation, and stated that it has already taken actions to implement the recommendations. SCO Comment We did not validate the implementation of corrective actions noted in CalVCB’s response. We will conduct follow-up work in a separate audit to determine whether corrective actions were adequate and appropriate. FINDING 3— Invoices paid by CalVCB lacked supporting documentation to Lack of adequate demonstrate that they had been properly reviewed or approved for accounting policy payment. Trauma centers were reimbursed for unallowable expenses and procedures (Finding 1) and did not provide adequate documentation to support claimed costs (Finding 2). Although CalVCB identified staff members that ensure that who reviewed invoices, individual invoices were not signed as invoices are reviewed/approved by CalVCB staff members. properly reviewed and approved The Proposition 47 SNSF grants program is the first and only grant that CalVCB has managed. Therefore, CalVCB did not have previously existing internal grant accounting policies and procedures. CalVCB staff members who perform accounting functions appear to be using Notice of Funds Available (NOFA) documents as the criteria for approving invoices. The purpose of the NOFA document is to provide an overview of the program during the Request for Proposal and contract awarding process. This document is an inadequate reference source for staff who perform accounting functions. CalVCB has an additional handbook titled Trauma Recovery Center Grant Recipient Handbook that details allowable and unallowable costs and describes the invoicing process for recipients. The Trauma Recovery Center Grant Recipient California Victim Compensation Board Proposition 47 Safe Neighborhoods and Schools Fund Grants Program Handbook appears to provide more appropriate approval criteria. However, CalVCB does not seem to have based its internal accounting processes and procedures on this handbook. Government Code requires that CalVCB establish such policies and procedures, as follows:  GC section 13401(a) (2) states, “Fraud and errors in state programs are more likely to occur from a lack of effective systems of internal control in state agencies when active monitoring measures are not maintained to ensure that controls are functioning properly.”  GC section 13401(b) (1) states, “Each state agency must maintain effective systems of internal control as an integral part of its management practices.” Recommendation We recommend that CalVCB develop internal grant accounting processes, policies, and procedures to ensure that:  Invoices demonstrate approval for payment by authorized reviewers; and  Reviewers use the proper criteria to review invoices submitted for payment, such as review checklists. CalVCB’s Response CalVCB disagreed, in part, with the finding; however, CalVCB stated that it will take additional steps to ensure proper controls over the invoice review and approval process, which include creating invoice review guidelines and an invoice review checklist. SCO Comment Our finding remains unchanged. We did not validate the implementation of corrective actions noted in CalVCB’s response. We will conduct follow-up work in a separate audit to determine whether corrective actions were adequate and appropriate. California Victim Compensation Board Proposition 47 Safe Neighborhoods and Schools Fund Grants Program Attachment— California Victim Compensation Board’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 S18-P47-0002