SCO
Ventura Youth Correctional Facility’s (vycf) Payroll Process
Read the report at Ventura Youth Correctional Facility’s (VYCF) Payroll Process ↗
VENTURA YOUTH CORRECTIONAL
FACILITY
Audit Report
PAYROLL AUDIT
March 1, 2016, through February 28, 2019
BETTY T. YEE
California State Controller
November 2020
BETTY T. YEE
California State Controller
November 17, 2020
Jennie Dillon, Acting Superintendent
Ventura Youth Correctional Facility
3100 Wright Road
Camarillo, CA 93010
Dear Ms. Dillon:
The State Controller’s Office audited the Ventura Youth Correctional Facility’s (VYCF) payroll
process and transactions for the period of March 1, 2016, through February 28, 2019. VYCF
management is responsible for maintaining a system of internal control over the payroll process
within its organization, and for ensuring compliance with various requirements under state laws
and regulations regarding payroll and payroll-related expenditures.
Our audit determined that VYCF did not maintain adequate and effective internal controls over
its payroll process. VYCF lacked adequate segregation of duties and compensating controls over
payroll transactions, resulting in improper regular, overtime, separation lump-sum, settlement,
and holiday payments. VYCF also granted inappropriate keying access to the State’s payroll
system.
In addition, VYCF did not implement controls to limit the accumulation of vacation and annual
leave credits, resulting in liability for excessive balances.
VYCF administered salary advances in accordance with collective bargaining agreements and
state laws, regulations, policies, and procedures.
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
Jennie Dillon, Acting Superintendent -2- November 17, 2020
cc: Leslie Zuniga, Institution Personnel Officer
Ventura Youth Correctional Facility
Kathleen Allison, Secretary
California Department of Corrections and Rehabilitation
Jennifer Barretto, Undersecretary of Administration
California Department of Corrections and Rehabilitation
Katherine Minnich, Deputy Director of Human Resources
California Department of Corrections and Rehabilitation
Maria Hudson, Deputy Director, Division of Juvenile Justice
California Department of Corrections and Rehabilitation
Mai Lee Vang, External Audits Manager
California Department of Corrections and Rehabilitation
Brenden Murphy, Chief, Administrative Services Division
California Department of Human Resources
Jil Barraza, Chief, Personnel and Payroll Services Division
State Controller’s Office
Ventura Youth Correctional Facility Payroll Audit
Contents
Audit Report
Summary ............................................................................................................................ 1
Background ........................................................................................................................ 1
Objectives, Scope, and Methodology ............................................................................... 2
Conclusion .......................................................................................................................... 3
Follow-up on Prior Audit Findings .................................................................................. 4
Views of Responsible Officials .......................................................................................... 4
Restricted Use .................................................................................................................... 5
Schedule—Summary of Audit Results ................................................................................. 6
Findings and Recommendations ........................................................................................... 7
Appendix—Audit Sampling Methodology
Attachment—Ventura Youth Correctional Facility’s Response to Draft Audit Report
Ventura Youth Correctional Facility Payroll Audit
Audit Report
Summary The State Controller’s Office (SCO) audited the Ventura Youth
Correctional Facility’s (VYCF) payroll process and transactions for the
period of March 1, 2016, through February 28, 2019. VYCF management
is responsible for maintaining a system of internal control over the payroll
process within its organization, and for ensuring compliance with various
requirements under state laws and regulations regarding payroll and
payroll-related expenditures. We completed our audit fieldwork on
August 12, 2020.
Our audit determined that VYCF:
Did not maintain adequate and effective internal controls over its
payroll process. VYCF lacked adequate segregation of duties and
compensating controls over payroll transactions, resulting in improper
regular, overtime, separation lump-sum, settlement, and holiday
payments. Additionally, VYCF granted inappropriate keying access to
the State’s payroll system;
Did not implement controls to limit the accumulation of vacation and
annual leave credits, resulting in liability for excessive balances; and
Administered salary advances in accordance with collective
bargaining agreements and state laws, regulations, policies, and
procedures.
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
audits of the decentralized payroll processing at state agencies and
departments ceased due to the budget constraints in the late 1980s.
In 2013, the California State Legislature reinstated these payroll audits to
gain assurance that state agencies and departments maintain adequate
internal control over the payroll function, provide proper oversight of their
decentralized payroll processing, and comply with various state laws and
regulations regarding payroll processing and related transactions.
Audit Authority
Authority for this audit 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.
-1-
Ventura Youth Correctional Facility Payroll Audit
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 audit to determine whether VYCF:
and Methodology
Maintained adequate and effective internal controls over its payroll
process;
Processed payroll and payroll-related disbursements and leave
balances accurately and in accordance with collective bargaining
agreements and state laws, regulations, policies, and procedures; and
Administered salary advances in accordance with collective
bargaining agreements and state laws, regulations, policies, and
procedures.
The audit covered the period from March 1, 2016, through
February 28, 2019.
The audit population consisted of payroll transactions totaling
$100,115,705, as quantified in the Schedule.
To achieve our audit objectives, we:
Reviewed state and VYCF policies and procedures related to the
payroll process to understand VYCF’s methodology for processing
various payroll and payroll-related transactions;
Interviewed VYCF payroll personnel to understand VYCF’s
methodology for processing various payroll and payroll-related
transactions, determine employees’ 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, random selection,
and targeted selection based on risk factors and other relevant criteria;
Analyzed and tested the selected transactions and reviewed relevant
files and records to determine the accuracy of payroll and payroll-
related payments, accuracy of leave transactions, adequacy and
effectiveness of internal control over the payroll process, and
compliance with collective bargaining agreements and state laws,
regulations, policies, and procedures; and
Reviewed salary advances to determine whether VYCF administered
and recorded them in accordance with collective bargaining
agreements and state laws, regulations, policies, and procedures.
We conducted this performance audit in accordance with generally
accepted government auditing standards. Those standards require that we
-2-
Ventura Youth Correctional Facility Payroll Audit
plan and perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on our
audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
Conclusion Our audit determined that VYCF:
Did not maintain adequate and effective internal controls over its
payroll process.1 We found the following deficiencies in internal
control over the payroll process that we consider to be material
weaknesses:
o Inadequate segregation of duties and a lack of compensating
controls over payroll transactions (see Finding 1);
o Inappropriate keying access to the State’s payroll system (see
Finding 2);
o Failure to implement controls to ensure that VYCF adhered to the
requirements of collective bargaining agreements and state
regulations to limit the accumulation of vacation and annual leave
credits, resulting in liability for excessive balances (see
Finding 3);
o Inadequate controls to ensure that payments for regular pay were
calculated correctly, adjusted properly for absences, and
supported with adequate documentation, resulting in improper and
questioned payments (see Finding 4);
o Inadequate controls to ensure that overtime payments were
calculated correctly and granted to eligible employees, resulting
in improper payments (see Finding 5);
o Inadequate controls to ensure that separation lump-sum payments
were calculated correctly, supported with adequate
documentation, and paid in a timely manner, resulting in
improper, questioned, and late payments (see Finding 6); and
1 In planning and performing our audit of compliance, we considered VYCF’s internal control over compliance with
collective bargaining agreements and state laws, regulations, policies, and procedures to determine the auditing
procedures that were appropriate under the circumstances for the purpose of providing a conclusion on compliance,
and to test and report on internal control over compliance.
Our consideration of internal control over compliance was for the limited purpose described in the first paragraph
of this footnote; it was not designed to identify all deficiencies in internal control over compliance that might be
material weaknesses or significant deficiencies. As discussed in this section, we identified certain deficiencies in
internal control over compliance that we consider to be material weaknesses.
A deficiency in internal control over compliance 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, 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 in internal control over compliance is a deficiency, or combination of
deficiencies, in internal control over compliance, such that there is a reasonable possibility that material
noncompliance with provisions of laws, regulations, or contracts will not be prevented, or detected and corrected,
on a timely basis. A significant deficiency over compliance is a deficiency, or a combination of deficiencies, in
internal control over compliance with provisions of laws, regulations, or contracts that is less severe than a material
weakness, yet important enough to merit attention from those charged with governance.
-3-
Ventura Youth Correctional Facility Payroll Audit
o Inadequate controls to ensure that adjustments of annual wages
were performed for all applicable employees and settlement
payments were calculated correctly, resulting in improper and
questioned payments (see Finding 7);
o Inadequate controls to ensure that holiday payments were valid
and accurate, resulting in overpayments (see Finding 8);
Did not process payroll and payroll-related disbursements and leave
balances accurately and in accordance with collective bargaining
agreements and state laws, regulations, policies, and procedures. We
found the following instances of noncompliance with the requirements
of collective bargaining agreements and state laws, regulations,
policies, and procedures:
o Excessive vacation and annual leave credits with a value of at least
$631,244 as of February 28, 2019 (see Finding 3).
Although a new directive from California Department of Human
Resources (CalHR) that became effective October 20, 2020, does
not affect the dollar value of this finding, we are disclosing this
directive because it affects our recommendation. CalHR has
directed departments to immediately suspend policies that require
leave balances be reduced below the limit, and that require
employees to implement leave-reduction plans. This suspension
will be in effect until the 2020 Personal Leave Program
(2020 PLP) ends, or July 1, 2022, whichever is sooner;
o Improper and questioned payments made for regular pay (see
Finding 4); improper payments made for overtime pay (see
Finding 5); improper, questioned, and late payments made for
employee separation lump-sum pay (see Finding 6); improper and
questioned payments made for settlement pay (see Finding 7); and
overpayments made for holiday pay (see Finding 8); costing an
estimated net total of $1,260,254; and
Administered salary advances in accordance with collective
bargaining agreements and state laws, regulations, policies, and
procedures.
Follow-up on There were no prior payroll audits of VYCF and, consequently, no prior
audit findings.
Prior Audit
Findings
Views of We issued a draft audit report on September 21, 2020. Jennie Dillon,
Acting Superintendent, responded by letter dated October 20, 2020
Responsible
(Attachment), acknowledging the findings and indicating that VYCF has
Officials
taken steps to correct the noted deficiencies. This final audit report
includes VYCF’s response.
-4-
Ventura Youth Correctional Facility Payroll Audit
Restricted Use This audit report is solely for the information and use of VYCF 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
November 17, 2020
-5-
Ventura Youth Correctional Facility Payroll Audit
Schedule—
Summary of Audit Results
March 1, 2016, through February 28, 2019
Net Total
Number of Number of Dollar Amount Dollar Amount
Method of Units of Dollar Amount Selections Selection of Selections of Known and Finding
Audit Area Tested Selection Population of Population Examined Unit Examined Likely Issues Number
Segregation of duties N/A N/A N/A N/A N/A N/A N/A 1
System access Targeted 8 N/A 8 Employee N/A N/A 2
Excess vacation and annual leave Targeted 4 1 $ 631,244 4 1 Employee $ 631,244 $ 631,244 3
Regular pay Statistical 1 3,149 87,466,330 4 5 Transaction 311,558 1,070,279 4
Overtime pay Statistical, 5 ,620 8,560,650 1 87 Transaction 285,012 9 3,830 5
random, and
targeted
Separation lump-sum pay Targeted 7 7 2,207,278 7 7 Employee 2,207,278 4 2,697 6
Settlement pay Targeted 9 4 3 95,922 9 4 Transaction 395,922 4 6,970 7
and employee
Holiday pay Statistical 2,252 8 46,783 105 Transaction 41,287 6,478 8
Salary advance Targeted 4 7,498 4 Transaction 7,498 -
$ 100,115,705 $ 3 ,879,799 $ 1 ,891,498
-6-
Ventura Youth Correctional Facility Payroll Audit
Findings and Recommendations
FINDING 1— VYCF lacked adequate segregation of duties within its payroll
transactions unit to ensure that only valid and authorized payroll
Inadequate
transactions were processed. VYCF also failed to implement other
segregation of
controls to compensate for this risk.
duties and lack of
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 audit found that VYCF 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. In addition, as described in
Finding 2, a payroll transactions manager had keying access to the payroll
system while responsible for approving payroll transactions entered in the
system. VYCF failed to demonstrate that it 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 VYCF 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 8,
represent a material weakness in internal control over the payroll process
such that there is a reasonable possibility that a material 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.
-7-
Ventura Youth Correctional Facility Payroll Audit
Recommendation
We recommend that VYCF:
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, VYCF 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.
FINDING 2— VYCF lacked adequate controls to ensure that only appropriate staff had
keying access to the State’s payroll system. VYCF inappropriately
Inappropriate
allowed two employees keying access to the State’s payroll system. If not
keying access to the
mitigated, this control deficiency leaves payroll data at risk of misuse,
State’s payroll
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 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 examined the records of eight VYCF employees who had keying
access to the State’s payroll system at various times between March 2016
and February 2019. Of the eight employees, two had inappropriate keying
access to the State’s payroll system. Specifically, VYCF did not
immediately remove or modify keying access for the two employees after
the employees’ separation from state service, transfer to another agency,
or change in classification. A Personnel Specialist left VYCF on May 16,
2016, but VYCF did not request to remove the employee’s access until
March 2, 2017 (36 days later). In addition, a payroll transactions manager
had keying access to the payroll system. The employee had been provided
keying access before becoming a manager, and VYCF did not remove or
modify the employee’s access after the employee became a manager.
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. . . .
-8-
Ventura Youth Correctional Facility Payroll Audit
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.
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. . . .
A request to grant access to an individual in a classification other than in
the Personnel Specialist/Payroll Technician series to access PIMS,
HIST, KEYM, PIP, LAS, MPC and/or ACAS requires a written
justification from the Authorizing Manager. The justification must
describe the individual's specific job duties requiring the need to access
system information (i.e., PIMS = Employment History, HIST=Payroll
History, LAS=Leave Accounting System, etc.) as well as level of access
to that application, in order to perform their regular daily duties.
Manager classifications will be granted inquiry access only.
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 VYCF:
Update keying access to the State’s payroll system immediately after
employees leave VYCF, 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.
VYCF failed to implement controls to ensure that it adhered to the
FINDING 3—
requirements of collective bargaining agreements and state regulations to
Inadequate
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 $631,244 as of February 28, 2019. We expect the liability to
annual leave
increase if VYCF does not take action to address the excessive vacation
balances, resulting 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 to 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
-9-
Ventura Youth Correctional Facility Payroll Audit
should work with the employee to develop a written plan to reduce leave
balances below the applicable limit.
Our examination of VYCF’s leave accounting records determined that
VYCF had 324 employees with unused vacation or annual leave credits at
February 28, 2019. Of those employees, 41 exceeded the limit set by
collective bargaining agreements and state regulations. For example, one
employee had an accumulated balance of 1,809 hours in vacation, or
1,169 hours beyond the 640-hour limit. Collectively, the 41 employees
accumulated 13,601 hours of excess vacation and annual leave, with a
value of at least $631,244 as of February 28, 2019.
This estimated liability does not adjust for salary rate increases and
additional leave credits.2 Accordingly, we expect that the amount needed
to pay for this liability will be higher. For example, a VYCF employee
separated from state service with 2,624 hours of leave credits, including
1,018 hours of vacation. After adjusting for additional leave credits, the
employee should have been paid for 2,814 hours, or 7% more.
We further examined the records of the 41 employees to determine
whether VYCF complied with collective bargaining agreements and state
regulations. We determined that VYCF could not demonstrate that it had
complied with collective bargaining agreements and state regulations
when allowing these employees to maintain excess vacation or annual
leave balances. We also found that VYCF had no plans in place during the
audit period to reduce leave balances below the limit.
If VYCF does not take action to reduce the excessive leave balances, the
liability for accrued vacation and annual leave will likely increase because
most employees will receive salary increases or use other non-
compensable leave credits instead of vacation or annual leave, thus
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 separation lump-sum payment,
regardless of where the employee accrued the leave balance.
Although a new directive from CalHR that became effective
October 20, 2020 does not affect the dollar value of this finding, we are
disclosing this directive because it affects our recommendation. CalHR
has directed departments to immediately suspend policies that require
leave balances be reduced below the limit, and that require employees to
implement leave-reduction plans. This suspension will be in effect until
the 2020 PLP ends, or July 1, 2022, whichever is sooner.
2 Most 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.
-10-
Ventura Youth Correctional Facility Payroll Audit
Recommendation
We recommend that, after the 2020 PLP ends, or July 1, 2022, whichever
is sooner, VYCF:
Implement controls, including existing policies and procedures, to
ensure that its 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.
VYCF lacked adequate segregation of duties within its payroll
FINDING 4—
transactions unit, as noted in Finding 1, and lacked adequate controls over
Inadequate
the processing of regular pay. We identified a net total of $1,070,279 in
controls over
improper and questioned payments for regular pay, consisting of $405 in
regular pay,
overpayments, $66 in underpayments, and $3,473 in questioned payments
resulting in
based on actual transactions examined (“known”); and $113,354 in
improper and overpayments, $18,340 in underpayments, and $971,453 in questioned
questioned payments based on the results of statistical sampling (“likely”). If not
payments mitigated, these control deficiencies leave VYCF at risk of making
additional improper payments for regular pay.
Collective bargaining agreements, and state laws and policies, contain
specific clauses regarding regular pay. Payroll records show that VYCF
processed 13,149 regular pay transactions, totaling $87,466,330, between
March 2016 and February 2019. Of the 13,149 regular pay transactions,
we randomly selected a statistical sample (as described in the Appendix)
of 45 transactions, totaling $311,558. Of the 45 transactions, three were
overpaid by $405 and one was underpaid by $66. We also questioned one
transaction, totaling $3,473, because VYCF could not provide the
employee’s timesheet to support that the payment was valid and
authorized. Although the State’s payroll system makes all computations
and prepares the “negative” payrolls, timesheets are still required to
substantiate the hours worked for regular pay.3 Without a timesheet, there
is no record of hours worked or of supervisory review or approval.
Therefore, we could not determine the validity and authorization of
payment for this regular pay transaction. As a result, we questioned this
payment. These payments resulted in a net total of $3,812 in improper and
questioned payments.
As we used a statistical sampling method to select the regular pay
transactions examined, we projected the amount of likely overpayments to
be $113,354 and likely underpayments to be $18,340. We could also
estimate that there may have been additional missing timesheets
associated with regular pay, totaling $971,453. As timesheets are required
3According to SCO’s Payroll Procedures Manual, “These are referred to as ‘negative’ payrolls because attendance
reports have not been submitted and no working payrolls have been cleared with agencies/campuses when the
payrolls are prepared. This payroll writing operation is performed for the majority of state employees during the
period from the cutoff day in each pay period to the 27th and 28th of the month.”
-11-
Ventura Youth Correctional Facility Payroll Audit
documents to authorize pay, we would also question these regular pay
transactions. These payments resulted in a net total of $1,066,467 in likely
improper and questioned payments. Therefore, the known and likely
improper and questioned payments totaled a net of $1,070,279, consisting
of $113,759 in overpayments, $18,406 in underpayments, and $974,926
in questioned payments.
The following table summarizes the results of our statistical
sampling:
Known improper and questioned payments, net $ 3,812
Divide by: Sample 311,558
Error rate for projection (differences due to rounding) 1.22%
Population that was statistically sampled 87,466,330
Multiply by: Error rate for projection 1.22%
Known and likely improper and questioned payments, net (differences due to rounding) 1,070,279
Less: Known improper and questioned payments, net 3,812
Likely improper and questioned payments, net $ 1,066,467
_____________
* Amounts in this table are rounded to the nearest dollar.
The known improper payments occurred because payroll transactions unit
staff members failed to reduce or incorrectly recorded reduction in leave
balances for absences in the leave accounting system, and inaccurately
calculated the number of hours that should have been reduced from the
master payroll. Furthermore, VYCF lacked adequate supervisory review
to ensure accurate processing of regular pay.
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 VYCF:
Conduct a review of payments for regular pay made during the past
three years to ensure that the payments complied with collective
bargaining agreements and state laws and policies; and
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.
We further recommend that, to prevent improper payments for regular pay
from recurring, VYCF:
Establish adequate internal controls to ensure that payments are
accurate and comply with collective bargaining agreements and state
laws and policies;
-12-
Ventura Youth Correctional Facility Payroll Audit
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; and
Maintain supporting documentation for payments pursuant to
retention policies.
VYCF lacked adequate segregation of duties within its payroll
FINDING 5—
transactions unit, as noted in Finding 1, and lacked adequate controls over
Inadequate
the processing of overtime pay. We identified a net total of $93,830 in
controls over
improper payments for overtime, consisting of $58,647 in known
overtime pay,
overpayments and $70 in known underpayments; and $36,254 in likely
resulting in
overpayments and $1,001 in likely underpayments. If not mitigated, these
improper control deficiencies leave VYCF at risk of making additional improper
payments overtime payments.
Collective bargaining agreements, and state laws and policies, contain
specific clauses regarding overtime pay. Payroll records show that VYCF
processed 5,620 overtime pay transactions, totaling $8,560,650, between
March 2016 and February 2019, as follows:
Overtime Payment Type by Group Unit Amount
Work Week Group 2 (statistically sampled) 5,431 $ 8,082,038
Work Week Group SE (items examined 100%) 12 27,920
Work Week Group SE (randomly selected 10 payments) 84 350,140
Work Week Group E (items examined 100%) 13 21,681
Work Week Group E (statistically sampled) 80 78,871
Total population 5,620 $ 8,560,650
_____________
* Amounts in this table are rounded to the nearest dollar.
Of the 5,431 overtime pay transactions, totaling $8,082,038, for Work
Week Group (WWG) 2 employees, we randomly selected a statistical
sample (as described in the Appendix) of 105 transactions, totaling
$145,883. Of the 105 transactions, five were overpaid by approximately
$543 and one was underpaid by approximately $18. These payments
resulted in a net total of $525 in improper payments.
As we used a statistical sampling method to select the overtime pay
transactions examined for WWG 2 employees, we projected the amount
of likely overpayments to be $29,527 and likely underpayments to be
$968. These payments resulted in a net total of $28,559 in likely improper
payments. Therefore, the known and likely improper payments totaled a
net of approximately $29,084, consisting of $30,070 in overpayments and
$986 in underpayments.
-13-
Ventura Youth Correctional Facility Payroll Audit
The following table summarizes the results of our statistical sampling:
Known improper payments, net $ 525
Divide by: Sample 145,883
Error rate for projection (differences due to rounding) 0.36%
Population that was statistically sampled 8,082,038
Multiply by: Error rate for projection 0.36%
Known and likely improper payments, net (differences due to rounding) 29,084
Less: Known improper payments, net 525
Likely improper payments, net $ 28,559
_____________
* Amounts in this table are rounded to the nearest dollar.
We also examined 12 overtime pay transactions, totaling $27,920, for
WWG SE employees who were eligible to receive pay for additional
instructional assignments outside of the regular work schedule. Of the
12 transactions, 10 (for a total of $26,116) were improper because the
employees did not meet the requirements to receive the pay.
Of the 84 overtime pay transactions, totaling $350,140, for WWG SE
employees who are eligible to receive pay for on-call assignments, we
randomly selected 10 transactions, totaling $41,365. Our examination of
these transactions found no errors.
We also examined 13 overtime pay transactions, totaling $21,681, for
WWG E employees who were not eligible to receive overtime pay. Of the
13 transactions, 12 (with a total of $21,437) were improper because the
employees were not eligible to receive overtime pay. VYCF properly paid
one employee for overtime work performed before the employee was
promoted to a WWG E classification.
Of the 80 overtime pay transactions, totaling $78,871, for WWG E
employees who are eligible to receive pay for on-call assignments, we
randomly selected a statistical sample (as described in the Appendix) of
47 transactions, totaling $48,163. Of the 47 transactions, 16 were overpaid
by approximately $10,551 and one was underpaid by approximately $52.
These payments resulted in a net total of $10,499 in improper payments.
As we used a statistical sampling method to select the remaining overtime
pay transactions examined for WWG E employees, we projected the
amount of likely overpayments to be $6,727 and likely underpayments to
be $33. These payments resulted in a net total of $6,694 in likely improper
payments. Therefore, the known and likely improper payments totaled a
net of approximately $17,193, consisting of $17,278 in overpayments and
$85 in underpayments.
-14-
Ventura Youth Correctional Facility Payroll Audit
The following table summarizes the results of our statistical sampling:
Known improper payments, net $ 10,499
Divide by: Sample 48,163
Error rate for projection (differences due to rounding) 21.80%
Population that was statistically sampled 78,871
Multiply by: Error rate for projection 21.80%
Known and likely improper payments, net (differences due to rounding) 17,193
Less: Known improper payments, net 10,499
Likely improper payments, net $ 6,694
_____________
* Amounts in this table are rounded to the nearest dollar.
The known improper payments occurred because payroll transactions unit
staff members miscalculated overtime hours worked, and management
improperly approved pay for employees who were not eligible to receive
the pay. Furthermore, VYCF lacked adequate supervisory review to
ensure accurate processing of overtime pay.
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 VYCF:
Conduct a review of overtime payments made during the past three
years to ensure that the payments complied with collective bargaining
agreements and state laws and policies; and
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.
We further recommend that, to prevent improper overtime payments from
recurring, VYCF:
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.
-15-
Ventura Youth Correctional Facility Payroll Audit
VYCF lacked adequate segregation of duties within its payroll
FINDING 6—
transactions unit, as noted in Finding 1, and lacked adequate controls over
Inadequate
the processing of employee separation lump-sum pay. We identified a net
controls over
total of $42,697 in improper and questioned payments for separation lump-
separation lump-
sum pay. VYCF also did not make separation lump-sum payments to
sum pay, resulting
five employees in a timely manner. If not mitigated, these control
in improper, deficiencies leave VYCF at risk of making additional improper and late
questioned, and separation lump-sum payments, noncompliance with agreements and
late payments laws, and liability for late payments.
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.
Payroll records show that VYCF processed separation lump-sum
payments, totaling $2,207,278, for 77 employees between March 2016
and February 2019. We examined the separation lump-sum payments for
all 77 employees; we found that VYCF overpaid 18 by approximately
$34,819 and underpaid six by approximately $5,600. We also questioned
the separation lump-sum payments, totaling $13,478, for two employees
due to the lack of supporting documentation. Without the required
documentation, there is no record of calculation or approval of these
payments. Therefore, we could not determine the validity, accuracy, and
propriety of the two payments. These payments resulted in a net total of
$42,697 in improper and questioned payments.
Of the 77 employees whose separation lump-sum payments we examined,
five were not paid in a timely manner, in violation of collective bargaining
agreements and state laws as summarized in CalHR’s Human Resources
Manual, section 1703.
The known improper payments were made because payroll transactions
unit staff members miscalculated leave balances paid, and improperly
included holiday credits when calculating posted-position employees’
leave balances for lump-sum pay. VYCF also lacked adequate supervisory
review to ensure accurate and timely processing of separation lump-sum
pay.
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 VYCF:
Establish adequate controls to ensure accurate and timely separation
lump-sum payments;
Conduct a review of separation lump-sum payments made during the
past three years to ensure that the payments were accurate and in
compliance with collective bargaining agreements and state law; and
-16-
Ventura Youth Correctional Facility Payroll Audit
Recover overpayments made to separated employees in accordance
with GC section 19838 and State Administrative Manual
section 8776.6, and properly compensate those employees who were
underpaid.
VYCF lacked adequate segregation of duties within its payroll
FINDING 7—
transactions unit, as noted in Finding 1, and lacked adequate controls over
Inadequate
the processing of settlement pay. We identified a net total of $46,970 in
controls over
improper and questioned payments for settlement pay. If not mitigated,
settlement pay,
these control deficiencies leave VYCF at risk of making additional
resulting in
improper settlement payments.
improper and
questioned The collective bargaining agreement between the State and Bargaining
payments Unit 3 contains specific clauses regarding settlement pay. Payroll records
show that VYCF processed 76 settlement pay transactions, totaling
$373,370, between March 2016 and February 2019. We examined all
76 settlement pay transactions; we found that VYCF overpaid 12 by
approximately $9,244, and underpaid four by approximately $1,183. We
also questioned four settlement pay transactions, totaling $16,357, due to
the lack of supporting documentation. Without the required
documentation, there is no record of calculation or approval of these
payments. Therefore, we could not determine the validity, accuracy, and
propriety of the four payments. These payments resulted in a net total of
$24,418 in improper and questioned payments.
We further examined the settlement calculation records to determine
whether VYCF complied with collective bargaining agreements and state
policy. Our examination found that, although there were salary rate
changes in July 2017, VYCF failed to adjust annual wages for
18 employees for fiscal year 2016-17. As a result, VYCF overpaid the
18 employees by $22,552.
Section F of SCO’s Payroll Procedures Manual states, in part:
Adjustment of annual wages is referred to as a “settlement.” A settlement
shall be certified for each academic year employee or ten-month
academic employee whose pay has been adjusted during the period of
employment due to a late start, dock, transfer between positions or a
separation. When settlements are submitted, adjustments will be made
for work at two or more time bases or salary rates.
The known improper payments were made because payroll transactions
unit staff members used incorrect salary rates, miscalculated payments,
and failed to implement state policy regarding the adjustment of annual
wages. VYCF also 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 an effective system of internal
review.
-17-
Ventura Youth Correctional Facility Payroll Audit
Recommendation
We recommend that VYCF:
Establish adequate controls to ensure that settlement payments are
accurate and in compliance with collective bargaining agreements and
state policy; and
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.
VYCF lacked adequate segregation of duties within its payroll
FINDING 8—
transactions unit, as noted in Finding 1, and lacked adequate controls over
Inadequate
the processing of holiday pay. We identified a total of $6,478 in
controls over
overpayments for holiday pay, consisting of $316 in known overpayments,
holiday pay,
and $6,162 in likely overpayments. If not mitigated, these control
resulting in
deficiencies leave VYCF at risk of making additional improper holiday
overpayments payments.
GC section 19853 specifies the compensation that an employee is eligible
to receive per qualifying holiday. Collective bargaining agreements
include similar provisions regarding holiday credit and holiday pay.
Payroll records show that VYCF processed 2,252 holiday pay
transactions, totaling $846,783, between March 2016 and February 2019.
Of the 2,252 holiday pay transactions, we randomly selected a statistical
sample (as described in the Appendix) of 105 transactions, totaling
$41,287. Of the 105 transactions, three were overpaid by $316. As we used
a statistical sampling method to select the holiday pay transactions
examined, we projected the amount of likely overpayments to be $6,162.
Therefore, the known and likely overpayments totaled $6,478.
The following table summarizes the results of our statistical sampling:
Known overpayments $ 316
Divide by: Sample 41,287
Error rate for projection (differences due to rounding) 0.77%
Population that was statistically sampled 846,783
Multiply by: Error rate for projection 0.77%
Known and likely overpayments (differences due to rounding) 6,478
Less: Known overpayments 316
Likely overpayments $ 6,162
_____________
* Amounts in this table are rounded to the nearest dollar.
The known improper payments occurred because payroll transactions unit
staff members made the payments after the employees had already been
granted holiday credits. VYCF also lacked adequate supervisory review to
ensure accurate processing of holiday pay.
-18-
Ventura Youth Correctional Facility Payroll Audit
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 VYCF:
Conduct a review of holiday payments made during the past three
years to ensure that payments complied with collective bargaining
agreements and state law;
Recover overpayments made to employees through an agreed-upon
collection method in accordance with GC section 19838; and
Establish adequate controls to ensure that holiday payments are
accurate and comply with collective bargaining agreements and state
law.
-19-
Ventura Youth Correctional Facility Payroll Audit
Appendix—
Audit Sampling Methodology
We used attributes sampling for tests of compliance. The sample design was chosen because:
It follows the American Institute of Certified Public Accountants (AICPA) guidelines;
It allows us to achieve our objectives for tests of compliance in an efficient and effective manner; and
Audit areas included both high and low volumes of transactions.
The following table outlines our audit sampling application for all audit areas where statistical sampling was utilized:
Results
Expected Projected to
Audit Type Population Population Sampling Confidence Tolerable Error Sample Intended Finding
Area of Test (Unit) (Dollar) Unit Sample Selection Method Level Error Rate (Rate) ᵃ Size ᵇ Population Number
Regular pay Compliance 1 3,149 $87,466,330 Transaction Computer-generated simple 90% 5% 0 (0.00%) 45 Yes 4
random
Overtime pay – Work Week Group 2 Compliance 5,431 8,082,038 Transaction Computer-generated simple 90% 5% 2 (1.75%) 105 Yes 5
random
Overtime pay – Work Week Group E Compliance 80 7 8,871 Transaction Computer-generated simple 80% 5% 2 (2.00%) 47 Yes 5
random
Holiday pay Compliance 2,252 8 46,783 Transaction Computer-generated simple 90% 5% 2 (1.75%) 105 Yes 8
random
______________________
a 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 1.0 error.
b For populations of less than 250 items, we determined the sample size using a calculator that utilizes a hypergeometric distribution. For populations of 250 items and above, we
determined the sample size using a calculator that utilizes a binomial distribution. As stated in Technical Notes on the AICPA Audit Guide: Audit Sampling (March 1, 2012),
page 5, although the hypergeometric distribution is the exactly correct distribution to use for attributes sample sizes, the distribution becomes unwieldy for large populations
unless suitable software is available. Therefore, more convenient approximations are frequently used instead.
Ventura Youth Correctional Facility Payroll Audit
Attachment—
Ventura Youth Correctional Facility’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-PAR-0016