California Department of Education(CDE) - Proposition 47 Safe Neighborhoods and Schools Fund Grants Program

CALIFORNIA DEPARTMENT OF EDUCATION Audit Report PROPOSITION 47 SAFE NEIGHBORHOODS AND SCHOOLS FUND GRANTS PROGRAM July 1, 2016, through June 30, 2018 BETTY T. YEE California State Controller October 2019 BETTY T. YEE California State Controller October 10, 2019 The Honorable Tony Thurmond State Superintendent of Public Instruction California Department of Education 1430 N Street, 5th Floor Sacramento, CA 95814 Dear Superintendent Thurmond: This is the final report for our audit of the California Department of Education’s Proposition 47 Safe Neighborhoods and Schools Fund Grants Program for the period of July 1, 2016, through June 30, 2018. If you have any questions, please contact Andrew Finlayson, Chief, State Agency Audits Bureau, by telephone at (916) 324-6310, or by email at afinlayson@sco.ca.gov. Sincerely, Original signed by JIM L. SPANO, CPA Chief, Division of Audits JLS/as cc: Kimberly Tarvin, Director Audits and Investigations Division California Department of Education Kelly Levario, External Audits Coordinator Audits and Investigations Division California Department of Education California Department of Education Proposition 47 Safe Neighborhoods and Schools Fund Grants Program Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Objective, Scope, and Methodology ................................................................................. 2 Conclusion .......................................................................................................................... 4 Follow-up on Prior Audit Findings .................................................................................. 4 Views of Responsible Officials .......................................................................................... 4 Restricted Use .................................................................................................................... 4 Schedule—Summary of Grant Awards, Amounts Disbursed and Expended, and Audit Adjustments ................................................................................... 5 Findings and Recommendations ........................................................................................... 6 Attachment—California Department of Education’s Response to Draft Audit Report California Department of Education 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 Department of Education’s (CDE) Proposition 47 Safe Neighborhoods and Schools Fund (SNSF) Grants Program for the period of July 1, 2016, through June 30, 2018. 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) sections 7599.2(c) and 12410. We verified that during the period of July 1, 2016, through June 30, 2018, CDE awarded 28 grants, totaling $19,079,184, of which $4,382,726 was disbursed to 20 awardees. CDE charged $478,008 ($80,891 in fiscal year [FY] 2016-17, and $397,117 in FY 2017-18) in administrative costs to the Proposition 47 SNSF Grants Program that were within the 5% threshold, as required by GC section 7599.2(b). Our audit found that CDE did not adequately account for the administrative costs charged to the program. Our testing of labor costs disclosed that one CDE employee who did not perform any activities related to the Proposition 47 SNSF Grants Program charged time to the program in FY 2017-18, resulting in overcharges of $18,482 ($11,152 in salaries and $7,330 in benefits) to program administrative costs. In addition, CDE failed to implement adequate fiscal monitoring control over Proposition 47 SNSF grant expenditures in accordance with the internal guidelines presented in the CDE Funding Handbook. Our review of the 15 selected grantees’ files disclosed that there was no supporting documentation showing comprehensive monitoring and reviewing of the grantees’ expenditure reports. Proposition 47 – Safe Neighborhoods and Schools Fund Background On November 4, 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 implementation of the measure. This mandate is expected to save significant state corrections dollars annually. Savings resulting from Proposition 47 are transferred to the 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 Department of Education CDE is one of the three state agencies responsible for administering the Proposition 47 SNSF Grants Program. -1- California Department of Education Proposition 47 Safe Neighborhoods and Schools Fund Grants Program GC section 7599.2(a)(1) requires that by August 15 of each fiscal year beginning in 2016, the State Controller disburse money deposited in the Safe Neighborhoods and Schools Fund as follows: Twenty-five percent to the State Department of Education, to administer a grant program to public agencies aimed at improving outcomes for public school pupils in kindergarten and grades 1 to 12, inclusive, by reducing truancy and supporting students who are at risk of dropping out of school or are victims of crime. Audit Authority The legal authority to conduct this audit is provided by GC section 7599.2(c), which requires the Controller, every two years, to conduct an audit of the Proposition 47 SNSF Grants Program operated by CDE, the California Victim Compensation Board, 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 provisions of law for payment. Objective, Scope, The objective of our audit was to assess CDE’s implementation and administration of the Proposition 47 SNSF Grants Program, and to ensure and Methodology 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, 2018. To achieve our objective, we:  Identified the Proposition 47 SNSF Grants Program background, criteria, purpose, and requirements by reviewing the FY 2016-17 and FY 2017-18 Governor’s Budget, GC sections 7599 through 7599.2, California Education Code sections 33430 through 33436, and the California Department of Finance fund classification and basis for the Safe Neighborhoods and Schools Fund;  Interviewed key personnel to gain a general understanding of CDE’s internal controls, such as procedures performed by staff when awarding grants, reviewing and approving expenditures, monitoring the Proposition 47 SNSF Grants Program, and recording disbursements and program expenditures in the agency’s financial management system;  Examined CDE’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 CDE’s compliance with applicable provisions of laws, regulations, and established criteria; -2- California Department of Education Proposition 47 Safe Neighborhoods and Schools Fund Grants Program  Identified 28 grants totaling $19,079,184 that were awarded by CDE during the audit period, $4,382,726 of which was disbursed to 20 awardees;  Selected a sample of 15 out of 28 grants awarded to local educational agencies to determine whether sampled grants were approved by CDE; whether CDE administered a fair and open grant award process, whether grant agreements specified standard contract language established by the California Department of General Services, such as scope of work, budgets, terms and conditions, and services to be provided; whether grant agreements were in compliance with program requirements, CDE internal control policies and procedures, guidelines, and criteria established by California Education Code sections 33430 through 33436; and whether CDE implemented adequate fiscal monitoring and oversight over the grantees’ grant expenditures; o We verified that CDE’s administrative costs of $ 478,008 charged to the Proposition 47 SNSF Grants Program during the audit period were within the 5% threshold as required by GC section 7599.2(b); and performed audit tests to determine whether CDE’s internal control policies and procedures for Proposition 47 SNSF Grants Program expenditures and disbursements were adequate and were being followed by program staff;  We tested transactions and performed analytical procedures and budgetary analysis. We used a non-statistical (judgmental) sampling approach to select samples that supported our audit conclusions, and to ensure that the samples selected were representative of the population and provided sufficient, appropriate evidence;  We also tested compliance with applicable laws, regulations, internal policies and procedures, and program requirements. Our audit procedures included interviewing appropriate personnel and inspecting documents, records, and grant agreements;  Verified the accuracy of the Proposition 47 SNSF Grants Program financial information reported by CDE, 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, and trial balance reports; and o Budget detail expense reports. We did not examine the information-system controls or the economy, efficiency, or effectiveness of the program. Our audit of the program was related solely to program expenditures as required by GC section 7599.2(c). We did not audit CDE’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 control was limited to -3- California Department of Education Proposition 47 Safe Neighborhoods and Schools Fund Grants Program gaining an understanding of the transaction flows and financial- management accounting system, and performing limited tests of controls regarding CDE’s ability to accumulate and segregate reasonable and allowable program costs. 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 CDE did not adequately account for administrative costs charged to the program, resulting in overcharges of $18,482 ($11,152 in salaries and $7,330 in benefits) to program administrative costs. In addition, CDE failed to implement adequate fiscal monitoring control over Proposition 47 SNSF grant expenditures in accordance with the internal guidelines presented in the CDE Funding Handbook. Follow-up on There are no prior audits of CDE’s Proposition 47 SNSF Grants Program; therefore, we did not perform any follow-up activity. Prior Audit Findings Views of We issued a draft report on June 28, 2019. Lupita Cortez Alcalá, Chief Deputy Superintendent of Public Instruction, responded by letter dated Responsible July 17, 2019 (Attachment), agreeing with the audit findings. This final Officials audit report includes CDE’s response. Restricted Use This audit report is intended solely for the information and use of CDE 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 October 10, 2019 -4- California Department of Education Proposition 47 Safe Neighborhoods and Schools Fund Grants Program Schedule— Summary of Grant Awards, Amount Disbursed and Expended, and Audit Adjustments1 July 1, 2016, through June 30, 2018 SNSF SNSF CDE Program Grant Grant Administrative Allowable Audit Cost Element Awarded Disbursed3 Expenditures per Audit Adjustments Reference4 FY 2016-17 Local Educational Agencies2 $ 9,369,000 $ 3,796,259 N/A N/A N/A CDE Administrative costs: Salaries and benefits N/A N/A $ 60,485 $ 60,485 N/A Operating expenses N/A N/A 20,405 20,405 N/A Total for FY 2016-17 $ 9,369,000 $ 3,796,259 $ 80,891 $ 80,891 N/A FY 2017-18 Local Educational Agencies2 $ 9,710,184 $ 586,467 N/A N/A N/A CDE Administrative costs: Salaries and benefits N/A N/A $ 307,393 $ 288,911 $ (18,482) Finding 1 Operating expenses N/A N/A 89,724 89,724 N/A Total for FY 2017-18 $ 9,710,184 $ 586,467 $ 397,117 $ 378,635 $ (18,482) Grand Total $ 19,079,184 $ 4,382,726 $ 478,008 $ 459,526 $ (18,482) __________________________ 1 Numbers rounded to the nearest dollar. 2 For the period of July 1, 2016, through June 30, 2018, CDE awarded 28 grants totaling $19,079,184 (19 in FY 2016-17 and nine in FY 2017-18), $4,382,726 of which was disbursed to 20 awardees. 3 We verified the accuracy of SNSF grants awarded and disbursed by reconciling SNSF grant records to the CDE’s financial and accounting reports. 4 See the Findings and Recommendations section. -5- California Department of Education Proposition 47 Safe Neighborhoods and Schools Fund Grants Program Findings and Recommendations FINDING 1— CDE did not adequately account for the administrative costs charged to the Proposition 47 SNSF Grants Program. Our testing of labor costs Ineligible disclosed that one CDE employee who did not perform any activities administrative related to the Proposition 47 SNSF Grants Program charged time to the costs program in FY 2017-18. These ineligible Proposition 47 SNSF Grant Program costs occurred because CDE staff and management did not follow policies and procedures. As a result, CDE overcharged $18,482 ($11,152 in salaries and $7,330 in benefits) to program administrative costs. GC section 7599.2 states: (b) For each program set forth in paragraphs (1) to (3), inclusive, of subdivision (a), the agency responsible for administering the programs shall not spend more than 5 percent of the total funds it receives from the Safe Neighborhoods and Schools Fund on an annual basis for administrative costs. (c) Every two years, the Controller shall conduct an audit of the grant programs operated by the agencies specified in paragraphs (1) to (3), inclusive, of subdivision (a) 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. State Administrative Manual (SAM) section 20060 – Internal Control states, in part, “All levels of management must be involved in assessing and strengthening the systems of internal control to minimize fraud, errors, abuse, and waste of government funds.” Recommendation We recommend that CDE:  Ensure that all administrative costs charged to the Proposition 47 SNSF Grants Program are program-related, eligible, allowable, reasonable, and in accordance with program requirements; and  Make necessary accounting corrections for the labor costs of $18,482 overcharged to the program. FINDING 2— CDE failed to implement adequate fiscal monitoring control over Proposition 47 SNSF grant expenditures in accordance with the internal Inadequate fiscal guidelines presented in the CDE Funding Handbook. Our review of the monitoring control 15 grantees’ files disclosed that there was no supporting documentation over grant showing comprehensive monitoring and reviewing of the grantees’ expenditures expenditure reports. According to CDE’s program staff, the reviews were merely a comparison of the grantees’ approved budgets to their actual expenditures. Furthermore, the reported expenditures were not supported by financial and/or accounting records such as general ledger expenditure reports, timesheets, and payroll records, etc. to provide reasonable assurance that they were actual, accurate, and allowable program costs; however, CDE program staff approved all expenditure reports. -6- California Department of Education Proposition 47 Safe Neighborhoods and Schools Fund Grants Program CDE Funding Handbook – Managing the Program, Financial Reports states, in part: The format for financial reports should be consistent with the budget detail provided in the RFA. As with progress reports, staff should promptly review financial reports. A checklist for the review will ensure consistency and appropriate documentation of the monitoring effort. At a minimum, the review should include the following:  Completeness  Promptness  Accuracy  Allowability  Potential problems Program staff should review financial reports in conjunction with progress reports to ensure that the two present consistent data. Expenditures should be supportable and traceable to a level that is adequate to establish that the funds have not been used in violation of any statutory restrictions or prohibitions, Budget Act provisions, or regulations governing the program. SAM section 20060 – Internal Control states, in part, “All levels of management must be involved in assessing and strengthening the systems of internal control to minimize fraud, errors, abuse, and waste of government funds.” Recommendation To ensure that the program funds are disbursed and expended according to program requirements, we recommend that CDE:  Strengthen its fiscal monitoring efforts by ensuring that it conducts comprehensive reviews of grantees’ expenditure reports; and  Obtain adequate and sufficient financial and accounting reports from grantees to support the grant expenditure reports. -7- California Department of Education Proposition 47 Safe Neighborhoods and Schools Fund Grants Program Attachment— California Department of Education’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 S19-P47-0001