SCO
California Department of Education (cde) – California School for the Deaf, Fremont (csdf); California School for the Blind (csb); and the Diagnostic Centers (dc) (North, Central, and South) Payroll Process Review - 07//2019
CALIFORNIA DEPARTMENT OF
EDUCATION – CALIFORNIA SCHOOL
FOR THE DEAF, FREMONT;
CALIFORNIA SCHOOL FOR THE
BLIND; AND THE DIAGNOSTIC
CENTERS (NORTH, CENTRAL, AND
SOUTH)
Review Report
PAYROLL PROCESS REVIEW
March 1, 2015 through February 28, 2018
BETTY T. YEE
California State Controller
July 2019
BETTY T. YEE
California State Controller
July 31, 2019
Tony Thurmond, State Superintendent of Public Instruction
Department of Education
1430 N Street
Sacramento, CA 95814
Dear Mr. Thurmond:
The State Controller’s Office has reviewed the California Department of Education (CDE) –
California School for the Deaf, Fremont (CSDF); California School for the Blind (CSB); and the
Diagnostic Centers (DC) (North, Central, and South) payroll process for the period of March 1,
2015, through February 28, 2018. CDE – CSDF, CSB, and DC management is responsible for
maintaining a system of internal control over payroll process within its organization, and for
ensuring compliance with various requirements under state laws and regulations regarding
payroll and payroll-related expenditures.
Our review found material weaknesses in internal control over the CDE – CSDF, CSB, and DC
payroll process. These weaknesses contributed to CDE – CSDF, CSB, and DC employees’
excessive vacation and annual leave balances; improper and questioned payments for separation
lump-sum pay, regular pay, overtime pay, holiday credit, settlement pay, and leave buy-back;
and long-outstanding unrecovered salary advances, costing the State an estimated net total of
$27,869,127.
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
Tony Thurmond, State Superintendent -2- July 31, 2019
of Public Instruction
cc: Nick Schweizer, Deputy Superintendent of Public Instruction
California Department of Education
Valarie Bliss, Director
Personnel Services Division
California Department of Education
Mark Rodriguez, Chief
Administrative Services Division
California Department of Human Resources
Marissa Revelino, Chief
Personnel and Payroll Services Division
State Controller’s Office
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
Contents
Review Report
Summary ............................................................................................................................ 1
Background ........................................................................................................................ 1
Objectives, Scope, and Methodology ............................................................................... 2
Conclusion .......................................................................................................................... 3
Views of Responsible Officials .......................................................................................... 4
Restricted Use .................................................................................................................... 4
Schedule 1—Summary of Findings, California School for the Deaf, Fremont ................ 5
Schedule 2—Summary of Findings, California School for the Blind ................................ 6
Schedule 3—Summary of Findings, Diagnostic Centers (North, Central, and South) ... 7
Findings and Recommendations ........................................................................................... 8
Appendix 1—Sampling Methodology, California School for the Deaf, Fremont ............ A1
Appendix 2—Sampling Methodology, California School for the Blind ............................ A2
Attachment—California Department of Education’s Response to
Draft Review Report
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
Review Report
Summary The State Controller’s Office (SCO) reviewed the California Department
of Education (CDE) – California School for the Deaf, Fremont (CSDF);
California School for the Blind (CSB); and the Diagnostic Centers (DC)
(North, Central, and South) payroll process for the period of March 1,
2015, through February 28, 2018. CDE – CSDF, CSB, and DC
management is responsible for maintaining a system of internal control
over payroll process within its organization, and for ensuring compliance
with various requirements under state laws and regulations regarding
payroll and payroll-related expenditures.
Our limited review identified material weaknesses in internal control over
the CDE – CSDF, CSB, and DC payroll process that leave CDE – CSDF,
CSB, and DC at risk of additional improper payments if not mitigated. We
found that CDE – CSDF, CSB, and DC has a combination of deficiencies
in internal control over its payroll process such that there is a reasonable
possibility that a material misstatement in financial information or
noncompliance with provisions of laws, regulations, or contracts will not
be prevented, or detected and corrected, on a timely basis.
Specifically, CDE – CSDF, CSB, and DC lacked adequate segregation of
duties and compensating controls over their processing of payroll
transactions. In addition, CDE – CSDF, CSB, and DC inappropriately
granted one employee keying access to the State’s payroll system, which
leaves payroll data at risk of misuse, abuse, and unauthorized use. These
control deficiencies have a pervasive effect on the CDE – CSDF, CSB,
and DC payroll process, and impair the effectiveness of other controls by
rendering their design ineffective or by keeping them from operating
effectively.
We also found that CDE – CSDF, CSB, and DC lacked sufficient controls
over the processing of specific payroll-related transactions to ensure that
it complied with collective bargaining agreements and state laws, and that
only valid and authorized payments were processed. As quantified in the
Schedule, these control deficiencies contributed to CDE – CSDF, CSB,
and DC employees’ excessive vacation and annual leave balances;
improper and questioned payments for separation lump-sum pay, regular
pay, overtime pay, holiday credit, settlement pay, and leave buy-back; and
long-outstanding unrecovered salary advances, costing the State an
estimated net total of $27,869,127.
Background In 1979, the State of California adopted collective bargaining for state
employees. This created a significant workload increase for the SCO’s
Personnel and Payroll Services Division (PPSD), as PPSD was the State’s
centralized payroll processing center for all payroll-related transactions.
PPSD decentralized the processing of payroll, allowing state agencies and
departments to process their own payroll-related transactions. Periodic
reviews of the decentralized payroll processing at state agencies and
departments ceased due to the budget constraints in the late 1980s.
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California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
In 2013, the California State Legislature reinstated these payroll reviews
to gain assurance that state agencies and departments maintain adequate
internal control over payroll, provide proper oversight over their
decentralized payroll processing, and comply with various state laws and
regulations regarding payroll processing and related transactions.
Review Authority
Authority for this review is provided by California Government Code
(GC) section 12476, which states, “The Controller may audit the uniform
state pay roll system, the State Pay Roll Revolving Fund, and related
records of state agencies within the uniform state pay roll system, in such
manner as the Controller may determine.” In addition, GC section 12410
stipulates that “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.”
Objectives, Scope, We performed this review to determine whether CDE – CSDF, CSB, and
DC:
and Methodology
Processed payroll and payroll-related disbursements accurately and in
accordance with collective bargaining agreements and state laws,
regulations, policies, and procedures;
Established adequate internal control over payroll to meet the
following control objectives:
o Payroll and payroll-related transactions are properly approved and
certified by authorized personnel;
o Only valid and authorized payroll and payroll-related transactions
are processed;
o Payroll and payroll-related transactions are accurate and properly
recorded;
o Payroll systems, records, and files are adequately safeguarded;
o State laws, regulations, policies, and procedures are complied
with regarding payroll and payroll-related transactions;
Complied with existing controls as part of the ongoing management
and monitoring of payroll and payroll-related expenditures;
Maintained accurate records of leave balances; and
Administered and recorded salary advances properly and in
accordance with state laws, regulations, policies, and procedures.
We reviewed the CDE – CSDF, CSB, and DC payroll process and
transactions for the period of March 1, 2015, through February 28, 2018.
For leave balances, we used the most recent and complete balances, which
were as of February 28, 2018, at the time of our review.
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California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
To achieve our review objectives, we:
Reviewed state and CDE – CSDF, CSB, and DC policies and
procedures related to the payroll process to understand CDE – CSDF,
CSB, and DC’s methodology for processing various payroll and
payroll-related transactions;
Interviewed CDE – CSDF, CSB, and DC payroll personnel to
understand CDE – CSDF, CSB, and DC’s methodology for processing
various payroll and payroll-related transactions, determine their level
of knowledge and ability relating to payroll transaction processing,
and gain an understanding of existing internal control over the payroll
process and systems;
Selected transactions recorded in the State’s payroll database using
statistical sampling, as outlined in the Appendix, and targeted
selection based on risk factors and other criteria for review;
Analyzed and tested transactions recorded in the State’s payroll
database, and reviewed relevant files and records to determine the
accuracy of payroll and payroll-related payments; accuracy of leave
transactions; propriety of review and approval of transactions;
adequacy of internal control over the payroll process and systems; and
compliance with collective bargaining agreements and state laws,
regulations, policies, and procedures (errors found in statistically-
determined samples were projected to the intended population); and
Reviewed salary advances to determine whether CDE – CSDF, CSB,
and DC administered and recorded them in accordance with state laws,
regulations, policies, and procedures.
Conclusion Based on the results of our review, we found that CDE – CSDF, CSB, and
DC:
Did not process payroll and payroll-related disbursements accurately
and in accordance with collective bargaining agreements and state
laws, regulations, policies, and procedures (see Findings 3 through
10);
Lacked adequate internal control over payroll and payroll-related
transactions (see Findings 1 through 10);
Did not maintain accurate records of leave balances (see Findings 4,
8, and 10); and
Did not administer salary advances in accordance with state laws,
regulations, policies, and procedures (see Finding 7).
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California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
As quantified in the Schedule and described in the Findings and
Recommendations section of this review report, these material
weaknesses1 in internal control over the payroll process contributed to
CDE – CSDF, CSB, and DC employees’ excessive vacation and annual
leave balances, improper and questioned payments, and long-outstanding
unrecovered salary advances, costing the State an estimated net total of
$27,869,127.
Views of We issued a draft review report on June 28, 2019. Lupita Cortez Alcalá,
Chief Deputy Superintendent of Public Instruction of the California
Responsible
Department of Education, responded by letter dated July 26, 2019
Officials
(Attachment) on behalf of CSDF, CSB and DC. CSDF, CSB, and DC
stated that they partially concur with Finding 9, and fully concur with the
remaining recommendations of the review report. Our response to
Finding 9 is included in the Findings and Recommendations section.
Restricted Use This report is solely for the information and use of CDE – CSDF, CSB,
and DC, 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, and
is available on the SCO website at www.sco.ca.gov.
Original signed by
JIM L. SPANO, CPA
Chief, Division of Audits
July 31, 2019
1 An evaluation of an entity’s payroll process may identify deficiencies in its internal control over the process. A
deficiency in internal control exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,
misstatements in financial information, impairments of effectiveness or efficiency of operations, or noncompliance
with provisions of laws, regulations, or contracts on a timely basis.
Control deficiencies, either individually or in combination with other control deficiencies, may be evaluated as
significant deficiencies or material weaknesses. A material weakness is a deficiency, or a combination of
deficiencies, in internal control such that there is a reasonable possibility that a material misstatement in financial
information, impairment of effectiveness or efficiency of operations, or noncompliance with provisions of laws,
regulations, or contracts will not be prevented, or detected and corrected, on a timely basis. A significant deficiency
is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet
important enough to merit attention from those charged with governance.
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California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
Schedule 1—
Summary of Findings
California School for the Deaf, Fremont
March 1, 2015, through February 28, 2018
Issues as a Total Dollar
Number of Dollar Amount Number of Percentage of Dollar Dollar Amount of
Finding Selections Method of Selection of Selections Selections with Selections Amount of Amount of Known and
Number Issues Reviewed Selection Unit Reviewed Issues Reviewed * Known Issues Likely Issues Likely Issues
1 Inadequate segregation of duties and
compensating controls over payroll transactions N/A N/A N/A N/A N/A N/A N/A N/A N/A
3 Inadequate controls over vacation and annual 6 Targeted Employee $ 8 ,853 6 100% $ 8 ,853 N/A $ 8 ,853
leave balances, resulting in liability for excessive
balances
4 Inadequate controls over separation lump-sum 5 4 Targeted Employee 425,483
pay, resulting in improper and questioned
payments
-Underpayments -- Same selections as above -- 6 11% (5,606) N/A (5,606)
-Questioned payments -- Same selections as above -- 3 6 67% 288,936 N/A 2 88,936
5 Inadequate controls over regular pay, resulting in 133 Statistical Employee 455,642
improper and questioned payments
-Questioned payments -- Same selections as above -- 4 4 33% 162,068 $ 2 1,528,341 2 1,690,409
6 Inadequate controls over overtime pay, resulting in 120 Statistical Employee 7 8,715
improper payments
-Overpayments -- Same selections as above -- 3 8 32% 9,116 3 8,185 4 7,301
-Underpayments -- Same selections as above -- 1 2 10% (1,359) (5,693) (7,052)
-Questioned payments -- Same selections as above -- 5 1 43% 34,357 1 43,922 1 78,279
-Questioned payments 1 5 Targeted Employee 57,880 1 5 100% 57,880 N/A 5 7,880
7 Inadequate controls over salary advances, 1 Targeted Salary advance transaction 38,147 1 100% 38,147 N/A 3 8,147
resulting in failure to recover outstanding amounts
8 Inadequate controls over holiday credit 105 Targeted Holiday credit transaction 14,739
transactions, resulting in improper and questioned
credits
-Overpayments -- Same selections as above -- 1 1% 105 N/A 1 05
-Questioned payments -- Same selections as above -- 8 8% 934 N/A 9 34
9 Inadequate controls over settlement pay, resulting 4 8 Targeted Settlement transaction 300,086
in improper and questioned payments
-Overpayments -- Same selections above -- 1 2% 118 N/A 1 18
-Questioned payments -- Same selections above -- 3 6 75% 240,515 N/A 2 40,515
10 Inadequate controls over leave buy-back, resulting 3 9 Targeted Leave buy-back transaction 66,803
in improper payments
-Overpayments -- Same selections as above -- 1 0 26% 5,494 N/A 5,494
-Underpayments -- Same selections as above -- 1 0 26% (692) N/A ( 692)
Total $ 1 ,446,348 $ 838,866 $ 2 1,704,755 $ 22,543,621
* All percentages are rounded to the nearest full percentage point.
___________________
*All percentages are rounded to the nearest full percentage point.
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California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
Schedule 2—
Summary of Findings
California School for the Blind
March 1, 2015, through February 28, 2018
Issues as a Total Dollar
Number of Dollar Amount Number of Percentage of Dollar Dollar Amount of
Finding Selections Method of Selection of Selections Selections with Selections Amount of Amount of Known and
Number Issues Reviewed Selection Unit Reviewed Issues Reviewed * Known Issues Likely Issues Likely Issues
1 Inadequate segregation of duties and N/A N/A N/A N/A N/A N/A N/A N/A N/A
compensating controls over payroll transactions
2 Inappropriate keying access to the State’s payroll 4 Targeted Employee N/A 1 25% $ - $ - $ -
system
3 Inadequate controls over vacation and annual 1 Targeted Employee $ 9 ,276 1 100% 9,276 N/A 9,276
leave balances, resulting in liability for excessive
balances
4 Inadequate controls over separation lump-sum 2 5 Targeted Lump-sum transaction 194,720
pay, resulting in improper and questioned
payments
-Underpayments -- Same selections as above -- 4 16% (968) N/A ( 968)
-Questioned payments -- Same selections as above -- 3 12% 3,096 N/A 3,096
5 Inadequate controls over regular pay, resulting in 100 Statistical Employee 290,057
improper and questioned payments
-Overpayments -- Same selections as above -- 1 1% 188 1 3,180 1 3,368
-Questioned payments -- Same selections as above -- 2 6 26% 71,669 5,033,191 5,104,860
6 Inadequate controls over overtime pay, resulting 101 Statistical Employee 5 3,804
in improper payments
-Overpayments -- Same selections as above -- 1 2 12% 1,918 2,794 4,712
-Underpayments -- Same selections as above -- 8 8% (1,568) (2,284) (3,852)
7 Inadequate controls over salary advances, 1 Targeted Salary advance transaction 15,257 1 100% 15,257 N/A 1 5,257
resulting in failure to recover outstanding
amounts
8 Inadequate controls over holiday credit 4 2 Targeted Holiday credit transaction 7,681
transactions, resulting in improper and questioned
credits
-Overpayments -- Same selections as above -- 2 5% 416 N/A 4 16
-Underpayments -- Same selections as above -- 6 14% (249) N/A ( 249)
9 Inadequate controls over settlement pay, resulting 2 0 Targeted Settlement transaction 148,377
in improper and questioned payments
-Overpayments -- Same selections as above -- 1 5% 3,594 N/A 3,594
-Underpayments -- Same selections as above -- 1 5% (6,107) N/A (6,107)
-Questioned payments -- Same selections as above -- 1 1 55% 61,870 N/A 6 1,870
10 Inadequate controls over leave buy-back, 1 9 Targeted Leave buy-back transaction 28,650
resulting in improper payments
-Overpayments -- Same selections as above -- 7 37% 1,573 N/A 1,573
Total $ 747,822 $ 159,965 $ 5 ,046,881 $ 5 ,206,846
___________________
*All percentages are rounded to the nearest full percentage point.
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California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
Schedule 3—
Summary of Findings
Diagnostic Centers
(North, Central, and South)
March 1, 2015, through February 28, 2018
Issues as a Total Dollar
Number of Dollar Amount Number of Percentage of Dollar Dollar Amount of
Finding Selections Method of Selection of Selections Selections with Selections Amount of Amount of Known and
Number Issues Reviewed Selection Unit Reviewed Issues Reviewed * Known Issues Likely Issues Likely Issues
1 Inadequate segregation of duties and N/A N/A N/A N/A N/A N/A N/A N/A N/A
compensating controls over payroll transactions
2 Inappropriate keying access to the State’s payroll 4 Targeted Employee N/A 1 N/A $ - $ - $ -
system
3 Inadequate controls over vacation and annual 5 Targeted Employee $ 10,337 - - - N/A -
leave balances, resulting in liability for excessive
balances
4 Inadequate controls over separation lump-sum 8 Targeted Lump-sum transaction 118,368
pay, resulting in improper and questioned
payments
-Underpayments -- Same selections as above -- 3 38% (2,518) N/A (2,518)
-Questioned payments -- Same selections as above -- 1 13% 102 N/A 1 02
6 Inadequate controls over overtime pay, resulting 3 Targeted Employee 1,239
in improper payments
-Overpayments -- Same selections as above -- 3 100% 466 N/A 4 66
7 Inadequate controls over salary advances, 1 Targeted Salary advance transaction 6,695 1 100% 6,695 N/A 6,695
resulting in failure to recover outstanding
amounts
9 Inadequate controls over settlement pay, resulting 2 3 Targeted Settlement transaction 203,591
in improper and questioned payments
-Questioned payments -- Same selections as above -- 1 3 57% 113,915 N/A 1 13,915
Total $ 340,230 $ 118,660 $ - $ 118,660
___________________
*All percentages are rounded to the nearest full percentage point.
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California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
Findings and Recommendations
FINDING 1— CDE – CSDF, CSB, and DC lacked segregation of duties within its payroll
transactions unit adequate to ensure that only valid and authorized payroll
Inadequate
transactions were processed. CDE – CSDF, CSB, and DC also failed to
segregation of
implement other controls to compensate for this risk.
duties and
compensating
GC sections 13400 through 13407 require state agencies to establish and
controls over
maintain internal controls, including proper segregation of duties and an
payroll
effective system of internal review. Adequate segregation of duties
transactions reduces the likelihood that fraud or error will remain undetected by
providing for separate processing by different individuals at various stages
of a transaction and for independent reviews of the work performed.
Our review found that CDE – CSDF, CSB, and DC payroll transactions
unit staff performed conflicting duties. Staff members performed multiple
steps in processing payroll transactions, including entering data into the
State’s payroll system; auditing employee timesheets; reconciling payroll,
including reconciling system output to source documentation; reporting
payroll exceptions; and processing adjustments. For example, staff
members keyed in regular and overtime pay and reconciled the master
payroll, overtime, and other supplemental warrants. CDE – CSDF, CSB,
and DC failed to demonstrate that it had implemented compensating
controls to mitigate the risks associated with such a deficiency. We found
no indication that these functions were subjected to periodic supervisory
review.
The lack of adequate segregation of duties and compensating controls has
a pervasive effect on the CDE – CSDF, CSB, and DC payroll process, and
impairs the effectiveness of other controls by rendering their design
ineffective or by keeping them from operating effectively. These control
deficiencies, in combination with other deficiencies discussed in
Findings 2 through 10, represent a material weakness in internal control
over the payroll process such that there is a reasonable possibility that a
material misstatement in financial information or noncompliance with
provisions of laws, regulations, or contracts will not be prevented, or
detected and corrected, on a timely basis.
Good internal control practices require that the following functional duties
be performed by different work units, or at minimum, by different
employees within the same unit:
Recording transactions – This duty refers to the record-keeping
function, which is accomplished by entering data into a computer
system.
Authorization to execute – This duty belongs to individuals with
authority and responsibility to initiate and execute transactions.
Periodic review and reconciliation of actual payments to recorded
amounts – This duty refers to making comparisons of information at
regular intervals and taking action to resolve differences.
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California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
Recommendation
We recommend that CDE – CSDF, CSB, and DC:
Separate conflicting payroll function duties to the greatest extent
possible. Adequate segregation of duties will provide a stronger
system of internal control whereby the functions of each employee are
subject to the review of another.
If it is not possible to segregate payroll functions fully and
appropriately, CDE – CSDF, CSB, and DC should implement
compensating controls. For example, if the payroll transactions unit
staff member responsible for recordkeeping also performs a
reconciliation process, then the supervisor should perform and
document a detailed review of the reconciliation to provide additional
control over the assignment of conflicting functions. Compensating
controls may also include dual authorization requirements and
documented reviews of payroll system input and output; and
Develop formal procedures for performing and documenting
compensating controls.
CSB and DC lacked adequate controls to ensure that only appropriate staff
FINDING 2—
had keying access to the State’s payroll system. CSB and DC
Inappropriate
inappropriately granted one employee keying access to the State’s payroll
keying access to the
system. If not mitigated, this control deficiency leaves payroll data at risk
State’s payroll
of misuse, abuse, and unauthorized use.
system
The SCO maintains the State’s payroll system. The system is
decentralized, thereby allowing employees of state agencies to access it.
PPSD has established a Decentralized Security Program Manual that all
state agencies are required to follow in order to access the State’s payroll
system. The program’s objectives are to secure and protect the
confidentiality and integrity of payroll data against misuse, abuse, and
unauthorized use.
We reviewed the records of four CSB and DC employees who had keying
access to the State’s payroll system at various times between March 2015
and February 2018. Of the four employees, one had inappropriate keying
access to the State’s payroll system. CSB and DC did not have the
employees’ keying access immediately removed or modified after the
employees’ separation from state service, transfer to another agency or
unit, or change in classification.
The Decentralized Security Program Manual states, in part:
The PPSD system contains sensitive and confidential information.
Access is restricted to persons with an authorized, legal, and legitimate
business requirement to complete their duties. . . .
Currently, PIMS, HIST, KEYM, PIP, LAS, MPC and/or ACAS
applications are restricted to Personnel Specialists or Personnel
Technician classifications because their need is by definition a function
of their specific job duties and any change in those duties requires a
reevaluation of the need for access.
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California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
If the employee’s duties change, such that the need for access no longer
exists, the access privilege MUST be removed or deleted immediately
by a request submitted by the department/campus. . . .
To prevent unauthorized use by a transferred, terminated or resigned
employee’s user ID, the Security Monitor must IMMEDIATELY submit
all pages of the PSD125A to delete the user’s system access. Using an
old user ID increases the chances of a security breach which is a serious
security violation. Sharing a user ID is strictly prohibited and a serious
violation.
Recommendation
We recommend that CSB and DC:
Provide adequate controls to ensure that employees with keying access
to the State’s payroll system do not enter their own data into the
system;
Update keying access to the State’s payroll system immediately after
employees leave CSB and DC, transfer to another unit, or change
classifications; and
Periodically review access to the system to verify that access complies
with the Decentralized Security Program Manual.
CSDF and CSB failed to implement controls to ensure that they adhere to
FINDING 3—
the requirements of collective bargaining agreements and state regulations
Inadequate
to limit the accumulation of vacation and annual leave credits. This
controls over
deficiency resulted in liability for excessive leave balances with a value of
vacation and
at least $8,853 for CSDF and $9,276 for CSB as of February 28, 20182.
annual leave
We expect the liability to increase if CSDF and CSB do not take action to
balances, resulting address the excessive vacation and annual leave balances.
in liability for
excessive balances Collective bargaining agreements and state regulations limit the amount
of vacation and annual leave that most state employees may accumulate to
no more than 80 days (640 hours). The limit on leave balances helps state
agencies manage leave balances and control the State’s liability for
accrued leave credits. State agencies may allow employees to carry a
higher leave balance only under limited circumstances. For example, an
employee may not be able to reduce accrued vacation or annual leave
hours below the limit due to business needs. When an employee’s leave
accumulation exceeds or is projected to exceed the limit, state agencies
should work with the employee to develop a written plan for reducing
leave balances below the applicable limit.
For CSDF, payroll records show that six employees exceeded the limit set
by collective bargaining agreements and state regulations as of
February 28, 2018. For example, one employee had an accumulated
balance of 677 hours of annual leave, or 37 hours beyond the 640-hour
limit. Collectively, the six employees accumulated 323 hours of excess
vacation and annual leave, with a value of at least $8,853 as of
February 28, 2018.
2At the time of our review, we used the most recent and complete vacation and annual leave balances, which were as
of February 28, 2018.
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California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
For CSB, payroll records show that one employee exceeded the limit set
by collective bargaining agreements and state regulations as of February
28, 2018. This one employee had an accumulated balance of 784 hours of
excess annual leave, exceeding the limit by 144 hours and having a value
of at least $9,276 as of February 28, 2018.
The estimated liabilities do not adjust for salary rate increases and
additional leave credits.3 Accordingly, we expect that the amount needed
to pay for this liability will be higher.
If CSDF and CSB do not take action to reduce the excessive leave
balances, the liability for accrued vacation and annual leave will likely
increase. This is because most employees will receive salary increases or
use other non-compensable leave credits instead of vacation or annual
leave, increasing their vacation or annual leave balances. The state agency
responsible for paying these leave balances may face a cash flow problem
if a significant number of employees with excessive vacation or annual
leave balances separate from state service. Normally, state agencies are
not budgeted to make these separation lump-sum payments. However, the
State’s current practice dictates that the state agency that last employed an
employee pays for that employee’s lump-sum separation payment,
regardless of where the employee accrued the leave balance.
Recommendation
We recommend that CSDF and CSB:
Implement controls, including existing policies and procedures, to
ensure that their employees’ vacation and annual leave balances are
maintained within levels allowed by collective bargaining agreements
and state regulations;
Conduct ongoing monitoring of controls to ensure that they are
implemented and operating effectively; and
Participate in leave buy-back programs if the State offers such
programs and funds are available.
CDE – CSDF, CSB, and DC lacked adequate controls over the processing
FINDING 4—
of employee separation lump-sum pay. For CSDF, we identified $5,606 in
Inadequate
underpayments and $288,936 in questioned payments for separation lump-
controls over
sum pay. For CSB, we identified $968 underpayments and $3,096 in
separation lump-
questioned costs. For DC, we identified $2,518 underpayments and $102
sum pay, resulting
in questioned costs. If not mitigated, these control deficiencies leave
in improper and CDE – CSDF, CSB, and DC at risk of additional improper separation
questioned lump-sum payments.
payments
3Most state employees receive pay rate increases every year pursuant to state laws and/or collective bargaining
agreements until they reach the top of their pay scale, or promote into a higher-paying position. In addition, when an
employee’s accumulated leave balances upon separation are calculated for lump-sum pay, the employee is credited
with additional leave credits equal to the amount that the employee would have earned had the employee taken time
off and not separated from state service.
-11-
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
GC section 19839 allows lump-sum payment for accrued eligible leave
credits when an employee separates from state employment. Collective
bargaining agreements include similar provisions regarding separation
lump-sum pay.
For CSDF, payroll records show 54 lump-sum pay transactions, for a total
of $425,483. We examined all 54 transactions; of those transactions,
CSDF underpaid six employees by $5,606; we questioned 36 of the
54 transactions with costs in the amount of $288,935.
For CSB, payroll records show 25 lump-sum pay transactions, for a total
of $194,720. We examined all 25 transactions; of those transactions, CSB
underpaid four employees by $968; we questioned three of the
25 transactions with costs in the amount of $3,096.
For DC, payroll records show eight lump-sum pay transactions, for a total
of $118,368. We examined all eight transactions; of those transactions, DC
underpaid transactions for three employees by $2,518, and one of the eight
transactions involved a questioned cost in the amount of $102.
Underpayments were made because payroll transactions unit staff
members miscalculated leave balances paid and failed to include the leave
credits that employees that should have been credited if their leave
balances were calculated for lump-sum pay. CDE – CSDF, CSB, and DC
also lacked adequate supervisory review to ensure accurate processing of
separation lump-sum pay.
The questioned costs resulted from a lack of supporting documentation
associated with separation lump-sum pay. Without the required
documentation, there is no record of calculation and approval of payments
for separation lump-sum pay. Therefore, we could not determine the
validity, accuracy, and propriety of the payments made to the employees.
As a result, we questioned these payments.
GC sections 13400 through 13407 require state agencies to establish and
maintain internal controls, including a system of authorization and
recordkeeping procedures over expenditures, and an effective system of
internal review.
Recommendation
We recommend that CDE – CSDF, CSB, and DC:
Establish adequate controls to ensure accurate calculation and
payment of separation lump-sum pay;
Maintain documentation supporting payments pursuant to retention
policies;
Conduct a review of payments for separation lump-sum pay made
during the past three years to ensure that the payments were accurate
and in compliance with collective bargaining agreements and state
law; and
-12-
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
Recover overpayments made to separated employees in accordance
with GC section 19838 and State Administrative Manual (SAM)
section 8776.6, and properly compensate those employees who were
underpaid.
CSDF and CSB lacked adequate controls over the processing of regular
FINDING 5—
pay. For CSDF, we identified $162,068 in questioned costs. For CSB, we
Inadequate
identified $188 in overpayment and $71,669 in questioned costs.
controls over
regular pay,
For CSDF, payroll records show 15,962 regular pay transactions, for a
resulting in
total of $60,980,954. Of the 15,962 transactions, we randomly selected a
improper and statistical sample of 133 transactions, totaling $455,642. Of the
questioned 133 transactions, we questioned 44 transactions, totaling $162,068,
payments because CSDF could not provide supporting documentation to show that
the payments were valid. Payroll transactions unit staff did not maintain
timesheets in accordance with the document retention policy. As we used
a statistical sampling method to select the regular pay transactions
examined, we projected the amount of likely questioned costs to be
approximately $21,528,341.
The following table summarizes the results of our statistical sampling for
CSDF:
Known questioned payments $ 162,068
Divide by: Sample 455,642
Error rate for projection (not rounded – presented 2 decimals only) 35.57%
Population that was statistically sampled 60,980,954
Multiply by: Error rate for projection 35.57%
Known and likely questioned payments (differences due to rounding) 21,690,409
Less: Known questioned payments 162,068
Likely questioned payments $ 21,528,341
_____________
* Amounts in this table are rounded to the nearest dollar.
For CSB, payroll records show 6,684 regular pay transactions, for a total
of $20,660,193. Of the 6,684 transactions, we randomly selected a
statistical sample of 100 transactions, totaling $290,057. Of the
100 transactions, one was overpaid by $188 and 26 of the regular pay
transactions involved questioned costs, totaling $71,669, due to missing
documentation to support that the payments were valid. As we used a
statistical sampling method to select the regular pay transactions
examined, we projected the amount of likely improper and questioned
costs to be approximately $5,046,371.
-13-
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
The following table summarizes the results of our statistical sampling for
CSB:
Known improper and questioned payments $ 71,857
Divide by: Sample 290,057
Error rate for projection (not rounded – presented 2 decimals only) 24.77%
Population that was statistically sampled 20,660,193
Multiply by: Error rate for projection 24.77%
Known and likely improper and questioned payments (differences due to rounding) 5,118,228
Less: Known improper and questioned payments 71,857
Likely improper and questioned payments $ 5,046,371
_____________
* Amounts in this table are rounded to the nearest dollar. Multiplying by percentage points past
two decimals could lead to rounding differences greater/less than +/- 1 when extrapolated
against millions.
The questioned costs resulted from a lack of supporting documentation
associated with regular pay. Without the required documentation, there is
no record of calculation and approval of payments for regular pay.
Therefore, we could not determine the validity, accuracy, and propriety of
the payments made to the employees. As a result, we questioned these
payments.
GC sections 13400 through 13407 require state agencies to establish and
maintain internal controls, including a system of authorization and
recordkeeping procedures over expenditures, and an effective system of
internal review.
Recommendation
We recommend that CDE – CSDF, CSB, and DC:
Establish adequate internal controls to ensure that payments for
regular pay are accurate and comply with collective bargaining
agreements and state law; and
Maintain documentation supporting payments pursuant to retention
policies.
CDE – CSDF, CSB, and DC lacked adequate controls over the processing
FINDING 6—
of overtime pay. For CSDF employees who were paid for less than 150
Inadequate
hours of overtime, we identified the known and likely exception for
controls over
overpayment as approximately $47,301, the known and likely exception
overtime pay,
for underpayment as approximately $7,052, and the known and likely
resulting in
exception for questioned costs as approximately $178,279. For CSDF
improper employees who were paid for 150 hours or more of overtime, we identified
payments $57,880 in questioned costs. For CSB employees who were paid for less
than 150 hours of overtime, we identified the known and likely exception
for overpayment as approximately $4,712 and the known and likely
exception for underpayment as approximately $3,852. For DC, we
identified $466 in overpayments. If not mitigated, these control
deficiencies leave CDE – CSDF, CSB, and DC at risk of additional
improper payments for overtime.
Collective bargaining agreements, and state laws and policies, contain
specific clauses regarding the calculation of overtime compensation.
-14-
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
Payroll records show that CSDF processed 598 overtime pay transactions,
totaling $466,330; CSB processed 234 overtime pay transactions, totaling
$162,918; and DC processed three overtime pay transactions, totaling
$1,239. CDE – CSDF, CSB, and DC processed the overtime pay between
March 1, 2015, and February 28, 2018, as follows:
CSDF – Overtime Payment Type by Group Unit Amount
Paid for at least 150 hours (items examined 100%) 15 $ 57,880
Paid for less than 150 hours (statistically sampled) 583 408,450
Total population 598 $ 466,330
_____________
* Amounts in this table are rounded to the nearest dollar.
CSB – Overtime Payment Type by Group Unit Amount
Paid for at least 150 hours (items examined 100%) 8 $ 30,739
Paid for less than 150 hours (statistically sampled) 226 132,179
Total population 234 $ 162,918
_____________
* Amounts in this table are rounded to the nearest dollar.
For CSDF, we examined all 15 transactions for overtime of 150 hours or
more, which totaled $57,880. We questioned all 15 payments for overtime
pay because CSDF could not provide supporting documentation to show
that the payments were valid and authorized. Therefore, we could not
determine the validity of payments for these 15 overtime pay transactions,
and questioned the costs.
Of the remaining 583 overtime transactions, totaling $408,450, for
employees who were paid for less than 150 hours of overtime per
transaction, we randomly selected a statistical sample of 120 transactions,
totaling $78,715. Of the 120 transactions, CSDF had 38 overpayments in
the amount of $9,116; 12 underpayments in the amount of $1,359; and
51 questioned costs in the amount of $34,357. As we used a statistical
sampling method to select the overtime pay transactions examined, we
projected the net likely improper and questioned payments to be
approximately $176,414.
The following table summarizes the results of our statistical sampling for
CSDF:
Known improper and questioned payments, net $ 42,114
Divide by: Sample 78,715
Error rate for projection (not rounded – presented 2 decimals only) 53.50%
Population that was statistically sampled 408,450
Multiply by: Error rate for projection 53.50%
Known and likely improper and questioned pay, net (difference due to rounding) 218,528
Less: Known improper and questioned payments, net 42,114
Likely improper and questioned payments, net $ 176,414
_____________
* Amounts in this table are rounded to the nearest dollar.
-15-
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
For CSB, from the 226 overtime transactions, totaling $132,179, for
employees who were paid for less than 150 hours of overtime per
transaction, we randomly selected a statistical sample of 101 transactions,
totaling $53,804. Of the 101 transactions, CSB had 12 overpayments in
the amount of $1,918 and eight underpayments in the amount of $1,568;
net amount of $350. As we used a statistical sampling method to select the
overtime pay transactions examined, we projected the net likely improper
and questioned payments to be approximately $510.
The following table summarizes the results of our statistical sampling for
CSB:
Known improper payments, net $ 350
Divide by: Sample 53,804
Error rate for projection 0.65%
Population that was statistically sampled 132,179
Multiply by: Error rate for projection 0.65%
Known and likely improper pay (difference due to rounding) 860
Less: Known improper payments 350
Likely improper payments $ 510
_____________
* Amounts in this table are rounded to the nearest dollar.
For DC, we examined all three transactions for overtime, totaling $1,239,
and found that the three transactions were overpaid by $466.
The improper payments were made because CDE – CSDF, CSB, and DC
payroll transactions unit staff memebers miscalculated employees’
overtime hours. CDE – CSDF, CSB, and DC lacked adequate supervisory
review to ensure accurate processing of overtime compensation.
GC sections 13400 through 13407 require state agencies to establish and
maintain internal controls, including a system of policies and procedures
adequate to ensure compliance with applicable laws and other
requirements, and an effective system of internal review.
Recommendation
We recommend that CDE – CSDF, CSB, and DC:
Conduct a review of payments for overtime made during the past three
years to ensure that the payments complied with collective bargaining
agreements and state laws and policies;
Recover overpayments made to employees through an agreed-upon
collection method in accordance with GC section 19838, and properly
compensate those employees who were underpaid;
Establish adequate internal controls to ensure that payments are
accurate and comply with collective bargaining agreements and state
laws and policies; and
Provide adequate oversight to ensure that payroll transactions unit
staff process only valid and authorized payments that comply with
collective bargaining agreements and state laws and policies.
-16-
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
CDE – CSDF, CSB, and DC lacked adequate controls over salary
FINDING 7—
advances to ensure that they were recovered in accordance with state law
Inadequate
and policies. CSDF had salary advances, totaling $38,147, that remained
controls over
outstanding as of February 28, 2018. CSB had salary advances, totaling
salary advances,
$15,257, that remained outstanding as of February 28, 2018. DC had salary
resulting in failure
advances, totaling $6,695, that remained outstanding as of February 28,
to recover 2018. The salary advances remained outstanding due to CDE – CSDF,
outstanding CSB, and DC’s noncompliance with the State’s collection policies and
amounts procedures. The oldest unrecovered salary advance was outstanding for
over 20 years. This control deficiency leaves CDE – CSDF, CSB, and DC
at risk of further failures to collect salary advances if not mitigated.
At February 28, 2018, CSDF’s accounting records showed 55 outstanding
salary advances, totaling $59,212, including 43 balances totaling $38,147
that had been outstanding for more than 120 days. CSB’s accounting
records showed 32 outstanding salary advances, totaling $21,270,
including 29 balances totaling $15,257 that had been outstanding for more
than 120 days. DC’s accounting records showed eight outstanding salary
advances, totaling $6,695, with all balances outstanding for more than
120 days.
CDE – CSDF, CSB, and DC did not comply with the State’s collection
policies and procedures. They were unable to provide any supporting
documentation; therefore, we were unable to determine whether payments
were properly paid and documented and determine whether any attempts
had been made to recover the advance funds.
Generally, the prospect of collection diminishes as an account ages. When
an agency fails to initiate collection of overpayments within three years,
the possibility of collection is remote.
GC section 19838 and SAM sections 8776 and 8776.7 describe the State’s
collection policies and procedures, which require CDE – CSDF, CSB, and
DC to collect salary advances in a timely manner and maintain proper
records of collection efforts.
The lack of adequate controls over salary advances reduces the likelihood
of collection, increases the amount of resources expended on collection
efforts, and negatively impacts cash flow.
Recommendation
We recommend that CDE – CSDF, CSB, and DC:
Ensure that they recover salary advances in a timely manner pursuant
to GC section 19838 and SAM sections 8776 and 8776.7; and
Maintain documentation of their collection efforts and payment of
salary advances.
-17-
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
CSDF and CSB lacked adequate controls over the processing of holiday
FINDING 8—
credit transactions. For CSB, we found that holiday credit was over-
Inadequate
accrued by approximately $416 and under-accrued by $249. For CSDF,
controls over
we found that holiday credit was over-accrued by approximately $105, and
holiday credit
we questioned $934 of holiday credit due to missing documentation. If not
transactions,
mitigated, this control deficiency leaves CSDF and CSB at risk of
resulting in additional improper holiday credits.
improper and
questioned credits For CSDF, we examined 105 holiday credit transactions, totaling
approximately $14,739. The transactions represented a targeted
population with a high risk of receiving holiday credit in error when an
employee worked on a holiday. Of the 105 transactions, one transaction
was over-accrued by $105 and eight transactions, totaling $934, were
questioned due to missing documentation.
For CSB, we examined 42 holiday credit transactions, totaling
approximately $7,681. The transactions represented a targeted population
with a high risk of receiving holiday credit in error when an employee
worked on a holiday. Of the 42 transactions, two transactions were over-
accrued by $416 and six transactions were under-accrued by $249.
CSDF and CSB lacked adequate supervisory review to ensure accurate
processing of holiday credits.
GC sections 13400 through 13407 require state agencies to establish and
maintain internal controls, including an effective system of internal
review.
Recommendation
We recommend that CSDF and CSB:
Conduct a review of holiday credits granted during the past three years
to ensure that credits complied with collective bargaining agreements
and state law;
Correct any improper holiday credits in the State’s leave accounting
system; and
Establish adequate controls to ensure that holiday credits granted are
valid and comply with collective bargaining agreements and state law.
CDE – CSDF, CSB, and DC lacked adequate controls over the processing
FINDING 9—
of payments for settlement pay. For CSDF, we identified $118 in
Inadequate
overpayments, and $240,515 in questioned costs due to missing
controls over
documentation. For CSB, we identified $3,594 in overpayments, $6,107
settlement pay,
in underpayments, and $61,870 in questioned costs due to missing
resulting in
documentation. For DC, we identified $113,915 in questioned costs due to
improper and missing documentation. If not mitigated, this control deficiency leaves
questioned CDE – CSDF, CSB, and DC at risk of additional improper settlement pay.
payments
-18-
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
For CSDF, payroll records show 48 settlement pay transactions, for a total
of $300,086. We examined all 48 transactions;of those transactions, CSDF
overpaid one settlement by $118. Thirty-six of the settlements involve
questioned costs in the amount of $240,515 due to missing documentation
to support that payments were valid.
For CSB, payroll records show 20 settlement pay transactions for a total
of $148,377. We examined all 20 transactions; of those transactions, CSB
overpaid one settlement by $3,594, and underpaid one settlement by
$6,107. Eleven of the settlements involve questioned costs in the amount
of $61,870 due to missing documentation to support that payments were
valid.
For DC, payroll records show 23 settlement pay transactions for a total of
$203,591. We examined all 23 transactions; of those transactions, we
questioned 13 settlements in the amount of $113,915 because DC could
not provide supporting documentation to show that the payments were
valid.
CDE – CSDF, CSB, and DC were unable to provide supporting
documents; therefore, we were unable to determine whether payments
were properly paid.
CDE – CSDF, CSB, and DC lacked adequate supervisory review to ensure
accurate processing of settlement pay.
GC sections 13400 through 13407 require state agencies to establish and
maintain internal controls, including a system of authorization and
recordkeeping procedures over expenditures, and an effective system of
internal review.
Recommendation
We recommend that CDE – CSDF, CSB, and DC:
Establish adequate controls to ensure accurate calculation and
payment of settlement pay;
Review settlement payments made during the past three years to
ensure that the payments were accurate and in compliance with
collective bargaining agreements and state laws;
Recover overpayments made for settlement pay in accordance with
GC section 19838 and SAM section 8776.6, and properly compensate
those employees who were underpaid; and
Maintain documentation supporting payments pursuant to retention
policies.
CSDF, CSB, and DC’s Response
CSDF, CSB, and DC do not believe the calculation methods utilized in
this audit for settlement payments were correct. CSDF, CSB and DC
completed the calculations based on the 10-month employees’ wages
being paid out over a 12-month period, which does not take place in only
one fiscal year. Therefore, reviewing settlement payments for the past
three years in not warranted or cost effective.
-19-
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
SCO Comment
We discussed our calculation method for settlement payments with CSDF,
CSB, and DC staff before and after the issuance of the draft report; and
confirmed that it is consistent with their method. However, we modified
the finding based on additional information regarding the underpayments
in settlement pay for CSDF and CSB.
CDE – CSDF, CSB, and DC lacked adequate controls over the processing
FINDING 10—
of payments for leave buy-back. For CSDF, we identified $5,494 in
Inadequate
overpayments and $692 in underpayments, and found that leave balances
controls over leave
were not reduced for 14 employees. For CSB, we identified $1,573 in
buy-back, resulting
overpayments and found that leave balances were not reduced for six
in improper
employees. For DC, the leave balances for one employee were not
payments reduced. If not mitigated, this control deficiency leaves CDE – CSDF,
CSB, and DC of having improper payments.
For CSDF, payroll records show 39 leave buy-back transactions, for a total
of $66,803. We examined all 39 transactions; of those transactions, CSDF
overpaid 10 leave buy-backs by $5,494 and underpaid 10 leave buy-backs
by $692, and did not reduce the leave balances for 14 employees.
For CSB, payroll records show 19 leave buy-back transactions, for a total
of $28,650. We examined all 19 transactions; of those transactions, CSB
overpaid seven leave buy-backs by $1,573 and did not reduce the leave
balances for six employees.
For DC, payroll records show 20 leave buy-back transactions, for a total
of $26,067. We examined all 20 transactions; of those transactions, DC
did not reduce the leave balances for one employee.
Payroll transactions unit staff did not follow proper policies to process
payments of leave buy-back, resulting in overpayments as outlined above.
These overpayments occurred because no written policies have been
developed for payroll transactions unit staff to follow in order to ensure
accuracy.
Failing to reduce leave balances of employees could result in double
payment in the future.
GC sections 13400 through 13407 require state agencies to establish and
maintain internal controls, including a system of policies and procedures
adequate to ensure compliance with applicable laws and other
requirements, and an effective system of internal review.
Recommendation
We recommend that CDE – CSDF, CSB, and DC:
Create written policies and procedures for leave buy-back payments
to standardize the process; and
Establish adequate internal controls to ensure that leave buy-back
payments are accurate.
-20-
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
Appendix 1—
Sampling Methodology
California School for the Deaf, Fremont
March 1, 2015, through February 28, 2018
We used attributes sampling for test of compliance. The following table outlines our sampling application for review areas that included errors:
Results
Expected Projected to
Review Type Population Population Sampling Sample Selection Confidence Tolerable Error Sample Intended Finding
Area of Test (Unit) (Dollar) Unit Method Level Error Rate (Rate) ¹ Size Population Number
Regular Pay Compliance 1 5,962 $60,980,954 Payment Computer-generated 95% 5% 2 (2%) 133 Yes 5
transactions simple random
Overtime pay Compliance 5 83 $408,450 Payment Computer-generated 95% 5% 2 (2%) 120 Yes 6
transactions simple random
__________________
1 Pursuant to the AICPA’s Audit Guide: Audit Sampling (May 1, 2017 edition, pages 131-133), the expected error is the expected number of errors planned for in the sample. It is
derived by multiplying the expected error rate by the sample size. The expected number of errors in the sampling tables on pages 135-136 was rounded upward, e.g., 0.2 errors
becomes 1 error.
-A1-
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
Appendix 2—
Sampling Methodology
California School for the Blind
March 1, 2015, through February 28, 2018
We used attributes sampling for test of compliance. The following table outlines our sampling application for review areas that included errors:
Results
Expected Projected to
Review Type Population Population Sampling Sample Selection Confidence Tolerable Error Sample Intended Finding
Area of Test (Unit) (Dollar) Unit Method Level Error Rate (Rate) ¹ Size Population Number
Regular Pay Compliance 6,684 $20,660,193 Payment Computer-generated 95% 5% 2 (1.75%) 100 Yes 5
transactions simple random
Overtime pay Compliance 2 26 $132,179 Payment Computer-generated 95% 5% 2 (1.75%) 101 Yes 6
transactions simple random
_________________________
1 Pursuant to the AICPA’s Audit Guide: Audit Sampling (May 1, 2017 edition, pages 131-133), the expected error is the expected number of errors planned for in the sample. It is
derived by multiplying the expected error rate by the sample size. The expected number of errors in the sampling tables on pages 135-136 was rounded upward, e.g., 0.2 errors
becomes 1 error.
-A1-
California Department of Education – California School for the Deaf, Fremont;
California School for the Blind; and the Diagnostic Centers (North, Central, and South) Payroll Process Review
Attachment—
California Department of Education’s
Response to Draft Review Report
State Controller’s Office
Division of Audits
Post Office Box 942850
Sacramento, CA 94250
http://www.sco.ca.gov
S18-PAR-9007