City of Santa Clarita

CITY OF SANTA CLARITA Audit Report IDENTITY THEFT PROGRAM Chapter 956, Statutes of 2000 July 1, 2002, through June 30, 2013 BETTY T. YEE California State Controller October 2021 BETTY T. YEE California State Controller October 27, 2021 CERTIFIED MAIL—RETURN RECEIPT REQUESTED Carmen Magaña, Director Administrative Services City of Santa Clarita 23920 Valencia Boulevard, Suite 295 Santa Clarita, CA 91355 Dear Ms. Magaña: The State Controller’s Office (SCO) audited the costs claimed by the City of Santa Clarita for the legislatively mandated Identity Theft Program for the period of July 1, 2002, through June 30, 2013. The city claimed $535,834 for costs of the mandated program. Our audit found that $318,809 is allowable and $217,025 is unallowable, primarily because the city overstated the number of identity theft reports taken and the time increments spent by law enforcement personnel performing the reimbursable activities. The State made no payments to the city. The State will pay $318,809, contingent upon available appropriations. Following issuance of this audit report, the SCO’s Local Government Programs and Services Division will notify the city of the adjustment to its claims via a system-generated letter for each fiscal year in the audit period. If you have any questions, please contact Lisa Kurokawa, Chief, Compliance Audits Bureau, by telephone at (916) 327-3138. Sincerely, Original signed by KIMBERLY TARVIN, CPA Chief, Division of Audits KT/ls P.O. Box 942850, Sacramento, CA 94250  (916) 445-2636 3301 C Street, Suite 700, Sacramento, CA 95816  (916) 324-8907 901 Corporate Center Drive, Suite 200, Monterey Park, CA 91754  (323) 981-6802 Carmen Magaña, Director -2- October 27, 2021 cc: Bill Miranda, Mayor City of Santa Clarita Brittany Houston, Finance Manager City of Santa Clarita Mary Ann Ruprecht, Finance Administrator City of Santa Clarita Evangeline Domingo, Financial Analyst City of Santa Clarita Chris Hill, Principal Program Budget Analyst Local Government Unit California Department of Finance Steven Pavlov, Finance Budget Analyst Local Government Unit California Department of Finance Darryl Mar, Manager Local Government Programs and Services Division State Controller’s Office Everett Luc, Supervisor Local Government Programs and Services Division State Controller’s Office City of Santa Clarita Identity Theft Program Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Audit Authority.................................................................................................................. 2 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 Program Costs .............................................................................. 5 Finding and Recommendation .............................................................................................. 8 Attachment—City’s Response to Draft Audit Report City of Santa Clarita Identity Theft Program Audit Report Summary The State Controller’s Office (SCO) audited the costs claimed by the City of Santa Clarita for the legislatively mandated Identity Theft Program for the period of July 1, 2002, through June 30, 2013. The city claimed $535,834 for costs of the mandated program. Our audit found that $318,809 is allowable and $217,025 is unallowable, primarily because the city overstated the number of identity theft reports taken and the time increments spent by law enforcement personnel performing the reimbursable activities. The State made no payments to the city. The State will pay $318,809, contingent upon available appropriations. Background Penal Code (PC) section 530.6, subdivision (a), as added by the Statutes of 2000, Chapter 956, requires local law enforcement agencies to take a police report and begin an investigation when a complainant residing within their jurisdiction reports suspected identity theft. On March 27, 2009, the Commission of State Mandates (Commission) found that this legislation mandates a new program or higher level of service for local law enforcement agencies within the meaning of Article XIII B, section 6 of the California Constitution, and imposes costs mandated by the State pursuant to Government Code (GC) section 17514. The Commission determined that each claimant is allowed to claim and be reimbursed for the following ongoing activities identified in parameters and guidelines (Section IV., Reimbursable Activities): 1. Either a) or b) below: a) Take a police report supporting a violation of Penal Code section 530.5 which includes information regarding the personal identifying information involved and any uses of that personal identifying information that were non-consensual and for an unlawful purpose, including, if available, information surrounding the suspected identity theft, places where the crime(s) occurred, and how and where the suspect obtained and used the personal identifying information. This activity includes drafting, reviewing, and editing the identity theft police report; or b) Reviewing the identity theft report completed online by the identity theft victim. 2. Begin an investigation of the facts, including the gathering of facts sufficient to determine where the crime(s) occurred and what pieces of personal identifying information were used for an unlawful purpose. The purpose of the investigation is to assist the victims in clearing their names. Reimbursement is not required to complete the investigation for purposes of criminal prosecution. The Commission also determined that providing a copy of the report to the complainant and referring the matter to the law enforcement agency where the suspected crime was committed for further investigation of the facts are not reimbursable activities. -1- City of Santa Clarita Identity Theft Program The program’s parameters and guidelines establish the state mandate and define the reimbursement criteria. In compliance with GC section 17558, the SCO issues claiming instructions to assist local agencies in claiming mandated program reimbursable costs. Audit Authority We conducted this performance audit in accordance with GC sections 17558.5 and 17561, which authorize the SCO to audit the city’s records to verify the actual amount of the mandated costs. In addition, GC section 12410 provides the SCO with general audit authority to audit the disbursement of state money for correctness, legality, and sufficient provisions of law. Objective, Scope, The objective of our audit was to determine whether costs claimed represent increased costs resulting from the legislatively mandated and Methodology Identity Theft Program. Specifically, we conducted this audit to determine whether costs claimed were supported by appropriate source documents, were not funded by another source, and were not unreasonable and/or excessive.1 The audit period was July 1, 2002, through June 30, 2013. To achieve our objective, we:  Reviewed the annual mandated cost claims filed by the city for the audit period and identified the significant cost components of each claim as salaries. Determined whether there were any errors or unusual or unexpected variances from year to year. Reviewed the activities claimed to determine whether they adhered to the SCO’s claiming instructions and the program’s parameters and guidelines;  Completed an internal control questionnaire by interviewing key city staff. Discussed the claim preparation process with city staff to determine what information was obtained, who obtained it, and how it was used;  Reviewed the contract service agreements and related SH-AD 575 Deployment of Personnel forms (SH-AD 575 forms) executed between the Los Angeles County Sheriff’s Department (LASD) and the city to determine the contracted employee classifications involved in performing the reimbursable activities. We found that the Deputy Sheriff Generalist and Sergeant classifications performed the reimbursable activities;  Obtained the contract salary rates and contract hours from the SH-AD 575 forms. We calculated an average contract hourly rate for the Deputy Sheriff Generalist and Sergeant classifications;  Obtained system-generated lists of identity theft cases that originated within the city during the audit period to verify the existence, 1 Unreasonable and/or excessive costs include ineligible costs that are not identified in the program’s parameters and guidelines as reimbursable costs. -2- City of Santa Clarita Identity Theft Program completeness, and accuracy of unduplicated case counts for each fiscal year in the audit period;2  Designed a statistical sampling plan to test approximately 25–50% costs claimed as salaries, based on a moderate level of detection (audit) risk. Judgmentally selected the city’s filed claims for fiscal year (FY) 2008-09 through FY 2012-13, which comprised salary costs totaling $236,932 (or 44%) of the $535,834 claimed. The sampling plan is described in the Finding and Recommendation section;  Used a random number table to select 492 out of 1,766 identity theft reports from the five fiscal years sampled. Tested the identity theft reports as follows: o Determined whether a contemporaneously prepared and approved police report supported a violation of PC section 530.5; o Determined whether the initial police reports were courtesy reports from other law enforcement agencies that had been forwarded to the Santa Clarita Valley Station for further investigation; and o Obtained from sampled police reports the LASD employee numbers, names, and classifications of employees who performed the reimbursable activities pursuant to a contract between the city and Los Angeles County for the city’s law enforcement services. Compared the employee classifications obtained from the police reports to those claimed by the city;  Used the audited time increments required to perform the reimbursable activities from a time study previously conducted by LASD.3 LASD’s audited identity theft time increments were directly related to the Identity Theft Program’s reimbursable activities and were properly supported;  Projected the audit results of the five years tested by multiplying the actual case counts by the audited average time increments needed to perform the activities, and then by the contract rates of LASD employees who performed them. We applied a weighted five-year average to the remaining six years of the audit period due to the homogeneity of the population; and  Reviewed the city’s Single Audit Reports to identify potential sources of offsetting savings or reimbursements from federal or pass-through programs applicable to the Identity Theft Program. The city certified in its claims that it did not receive any offsetting revenues applicable to this mandated program. 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 2 The LASD Crime Analysis Unit provided system-generated case lists based on information obtained from LASD’s Los Angeles Regional Crime Information System (LARCIS). 3 LASD conducted a time study in 2012 at its Lakewood, Palmdale, and Santa Clarita Valley Sheriff’s Stations. We chose this time study because LASD staff performed all of the city’s mandated identity theft activities. For the purposes of this audit, we only used time study data created by LASD staff at the Santa Clarita Valley Station. -3- City of Santa Clarita Identity Theft Program audit objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. We did not audit the city’s financial statements. Conclusion As a result of performing the audit procedures, we found instances of noncompliance with the requirements described in our audit objective. We did not find that the city claimed costs that were funded by other sources; however, we did find that it claimed unsupported and ineligible costs, as quantified in the Schedule and described in the Finding and Recommendation section of this audit report. For the audit period, the City of Santa Clarita claimed $535,834 for costs of the legislatively mandated Identity Theft Program. Our audit found that $318,809 is allowable and $217,025 is unallowable. The State made no payments to the city. The State will pay $318,809, contingent upon available appropriations. Following issuance of the final audit report, the SCO’s Local Government Programs and Services Division will notify the city of the adjustment to its claims via a system-generated letter for each fiscal year in the audit period. Follow-up on We have not previously conducted an audit of the city’s legislatively mandated Identity Theft Program. Prior Audit Findings Views of We issued a draft audit report on September 23, 2021. Carmen Magaña, Responsible Director of Administrative Services, responded by letter dated October 1, 2021 (Attachment), agreeing with the audit results. Officials Restricted Use This audit report is solely for the information and use of the City of Santa Clarita, the California Department of Finance, and 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 KIMBERLY TARVIN, CPA Chief, Division of Audits ______________________, 2021 -4- City of Santa Clarita Identity Theft Program Schedule— Summary of Program Costs July 1, 2002, through June 30, 2013 Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustmenta July 1, 2002, through June 30, 2003 Direct costs: Contract servicesb Taking a police report on violation of PC §530.5 $ 1 0,778 $ 1 4,682 $ 3,904 Beginning an investigation of facts 2,629 10,273 7,644 Total direct costs 13,407 24,955 11,548 Less allowable costs that exceed costs claimed c - (11,548) (11,548) Total program costs $ 1 3,407 13,407 $ - Less amount paid by the Stated - Allowable costs claimed in excess of amount paid $ 1 3,407 July 1, 2003, through June 30, 2004 Direct costs: Contract servicesb Taking a police report on violation of PC §530.5 $ 1 3,466 $ 1 2,700 $ ( 766) Beginning an investigation of facts 3,425 8,874 5,449 Total direct costs 16,891 21,574 4,683 Less allowable costs that exceed costs claimed c - (4,683) (4,683) Total program costs $ 1 6,891 16,891 $ - Less amount paid by the Stated - Allowable costs claimed in excess of amount paid $ 1 6,891 July 1, 2004, through June 30, 2005 Direct costs: Contract servicesb Taking a police report on violation of PC §530.5 $ 4 3,785 $ 1 3,918 $ (29,867) Beginning an investigation of facts 12,320 9,690 (2,630) Total program costs $ 5 6,105 23,608 $ (32,497) Less amount paid by the Stated - Allowable costs claimed in excess of amount paid $ 2 3,608 July 1, 2005, through June 30, 2006 Direct costs: Contract servicesb Taking a police report on violation of PC §530.5 $ 7 2,497 $ 1 4,854 $ (57,643) Beginning an investigation of facts 17,315 10,322 (6,993) Total program costs $ 8 9,812 25,176 $ (64,636) Less amount paid by the Stated - Allowable costs claimed in excess of amount paid $ 2 5,176 -5- City of Santa Clarita Identity Theft Program Schedule (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustmenta July 1, 2006, through June 30, 2007 Direct costs: Contract servicesb Taking a police report on violation of PC §530.5 $ 5 1,054 $ 2 3,673 $ (27,381) Beginning an investigation of facts 11,931 16,402 4,471 Total program costs $ 6 2,985 40,075 $ (22,910) Less amount paid by the Stated - Allowable costs claimed in excess of amount paid $ 4 0,075 July 1, 2007, through June 30, 2008 Direct costs: Contract servicesb Taking a police report on violation of PC §530.5 $ 4 7,908 $ 2 1,426 $ (26,482) Beginning an investigation of facts 11,794 14,842 3,048 Total program costs $ 5 9,702 36,268 $ (23,434) Less amount paid by the Stated - Allowable costs claimed in excess of amount paid $ 3 6,268 July 1, 2008, through June 30, 2009 Direct costs: Contract servicesb Taking a police report on violation of PC §530.5 $ 4 2,527 $ 2 0,461 $ (22,066) Beginning an investigation of facts 9,121 14,217 5,096 Total program costs $ 5 1,648 34,678 $ (16,970) Less amount paid by the Stated - Allowable costs claimed in excess of amount paid $ 3 4,678 July 1, 2009, through June 30, 2010 Direct costs: Contract servicesb Taking a police report on violation of PC §530.5 $ 3 3,285 $ 1 7,423 $ (15,862) Beginning an investigation of facts 8,458 12,099 3,641 Total program costs $ 4 1,743 29,522 $ (12,221) Less amount paid by the Stated - Allowable costs claimed in excess of amount paid $ 2 9,522 July 1, 2010, through June 30, 2011 Direct costs: Contract servicesb Taking a police report on violation of PC §530.5 $ 2 9,369 $ 1 6,642 $ (12,727) Beginning an investigation of facts 8,337 11,526 3,189 Total program costs $ 3 7,706 28,168 $ (9,538) Less amount paid by the Stated - Allowable costs claimed in excess of amount paid $ 2 8,168 -6- City of Santa Clarita Identity Theft Program Schedule (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustmenta July 1, 2011, through June 30, 2012 Direct costs: Contract servicesb Taking a police report on violation of PC §530.5 $ 3 7,607 $ 1 6,755 $ (20,852) Beginning an investigation of facts 18,803 11,620 (7,183) Total program costs $ 5 6,410 28,375 $ (28,035) Less amount paid by the Stated - Allowable costs claimed in excess of amount paid $ 2 8,375 July 1, 2012, through June 30, 2013 Direct costs: Contract servicesb Taking a police report on violation of PC §530.5 $ 2 8,243 $ 2 5,157 $ (3,086) Beginning an investigation of facts 21,182 17,484 (3,698) Total program costs $ 4 9,425 42,641 $ (6,784) Less amount paid by the Stated - Allowable costs claimed in excess of amount paid $ 4 2,641 Summary: July 1, 2002, through June 30, 2013 Direct costs: Contract servicesb Taking a police report on violation of PC §530.5 $ 410,519 $ 197,691 $ ( 212,828) Beginning an investigation of facts 1 25,315 1 37,349 12,034 Total direct costs 5 35,834 3 35,040 (200,794) Less allowable costs that exceed costs claimed c - (16,231) (16,231) Total program costs $ 535,834 3 18,809 $ ( 217,025) Less amount paid by the Stated - Allowable costs claimed in excess of amount paid $ 318,809 _________________________ a See the Finding and Recommendation section. b The city misclassified Contract Services costs as salaries during the audit period. We reallocated the claimed costs to the appropriate cost category. c GC section 17568 stipulates that the State will not reimburse any claim more than one year after the filing deadline specified in the SCO’s claiming instructions. That deadline has expired for FY 2002-03 and FY 2003-04. d Payment amount current as of October 21 2021. -7- City of Santa Clarita Identity Theft Program Finding and Recommendation FINDING — The city claimed $535,834 in salary costs. We found that $318,809 is allowable and $217,025 is unallowable. We found that the city incorrectly Overstated contract classified claimed costs as salary costs. For the audit period, the city did services costs not incur any salary costs, but rather incurred contract services costs. We reallocated the costs to the appropriate cost category of Contract Services. The city used the correct methodology to calculate its salary costs: it multiplied the number of identity theft police reports by the estimated time required to perform the reimbursable activities, and then by the hourly rates obtained from the city’s contract with the county. The hourly rates in the contract include salaries, benefits, and indirect costs. However, because no city staff members performed the reimbursable activities, these costs should have been classified as contract services costs, not as salaries. The costs are unallowable because the city misinterpreted the requirements of the program’s parameters and guidelines when preparing its mandated cost claims. As a result, the city misclassified contract services costs as salary costs, overstated the number of identity theft reports taken, and overstated the time increments needed to perform the reimbursable activities. The city overstated the number of identity theft reports taken because it claimed courtesy reports, which are unallowable because other law enforcement agencies conducted the initial investigations, wrote the reports, and forwarded them to the Santa Clarita Valley Station. The city also did not provide the initial reports for some of the cases that were selected from our statistical sample. The following table summarizes the claimed, allowable, and audit adjustment amounts by fiscal year: Contract Services Fiscal Amount Amount Audit Year Claimed Allowable Adjustment 2002-03 $ 13,407 $ 13,407 $ - 2003-04 16,891 16,891 - 2004-05 56,105 23,608 (32,497) 2005-06 89,812 25,176 (64,636) 2006-07 62,985 40,075 (22,910) 2007-08 59,702 36,268 (23,434) 2008-09 51,648 34,678 (16,970) 2009-10 41,743 29,522 (12,221) 2010-11 37,706 28,168 (9,538) 2011-12 56,410 28,375 (28,035) 2012-13 49,425 42,641 (6,784) Total $ 535,834 $ 318,809 $ (217,025) Contract Services Costs The city contracts with the LASD to perform all law enforcement services for the city. These services include activities claimed for the mandated -8- City of Santa Clarita Identity Theft Program program. The city contracts for various LASD staff positions each fiscal year and pays the LASD annual contract rates for the positions.1 No city staff member performed any of the reimbursable activities under this program; therefore, the city did not incur salary costs as claimed, but rather incurred contract services costs. We reallocated the costs to the appropriate cost category of Contract Services. Taking a Police Report Supporting a Violation of PC section 530.5 (Activity 1a) The city claimed $410,519 in salary costs for taking a police report supporting a violation of PC section 530.5. The reimbursable activities consist of writing, reviewing, and editing the incident reports. We found that $197,691 is allowable and $212,828 is unallowable. The costs are unallowable, primarily because the city overstated the number of identity theft reports taken and overstated its time increments. We also noted that the city did not claim any costs related to Sergeants for reviewing the initial police reports. Therefore, we included and calculated the allowable costs for Sergeants who performed the reimbursable activities. The following table summarizes the claimed, allowable, and audit adjustment amounts for taking a police report on violations of PC section 530.5 by fiscal year: Taking Police Report Fiscal Amount Amount Audit Year Claimed Allowable Adjustment 2002-03 $ 10,778 $ 14,682 $ 3 ,904 2003-04 13,466 12,700 (766) 2004-05 43,785 13,918 (29,867) 2005-06 72,497 14,854 (57,643) 2006-07 51,054 23,673 (27,381) 2007-08 47,908 21,426 (26,482) 2008-09 42,527 20,461 (22,066) 2009-10 33,285 17,423 (15,862) 2010-11 29,369 16,642 (12,727) 2011-12 37,607 16,755 (20,852) 2012-13 28,243 25,157 (3,086) Total $ 410,519 $ 197,691 $ (212,828) Beginning an Investigation of the Facts (Activity 2) The city claimed $125,315 in contract services for beginning an investigation of the facts. We found that $137,349 is allowable. The city understated its claimed costs by $12,034 for the audit period, primarily because the city understated the number of investigations and understated its contract hourly rates. 1 These positions include, but are not limited to, Deputy Sheriffs and Sergeants. -9- City of Santa Clarita Identity Theft Program The following table summarizes the claimed, allowable, and audit adjustment amounts for beginning an investigation of the facts by fiscal year: Beginning an Investigation Fiscal Amount Amount Audit Year Claimed Allowable Adjustment 2002-03 $ 2,629 $ 10,273 $ 7 ,644 2003-04 3,425 8,874 5 ,449 2004-05 12,320 9,690 (2,630) 2005-06 17,315 10,322 (6,993) 2006-07 11,931 16,402 4 ,471 2007-08 11,794 14,842 3 ,048 2008-09 9,121 14,217 5 ,096 2009-10 8,458 12,099 3 ,641 2010-11 8,337 11,526 3 ,189 2011-12 18,803 11,620 (7,183) 2012-13 21,182 17,484 (3,698) Total $ 125,315 $ 137,349 $ 1 2,034 Identity Theft Incident Reports The city claimed that it took 4,086 identity theft incident reports for the audit period. We found that the city overstated the number of reports taken by 500, and only 3,586 reports are allowable. The following table summarizes the counts of claimed, supported, and allowable identity theft cases, and the audit adjustment by fiscal year: (A) (B) (C) (D)=(C)-(A) Audited Fiscal Claimed Population Allowable Audit Year Reports (per LARCIS) Reports Adjustment 2002-03 8 2 3 68 326 2 44 2003-04 135 3 08 273 1 38 2004-05 417 3 34 296 (121) 2005-06 508 3 36 298 (210) 2006-07 562 5 07 449 (113) 2007-08 501 4 27 378 (123) 2008-09 415 4 06 347 (68) 2009-10 324 3 14 286 (38) 2010-11 283 3 34 273 (10) 2011-12 413 3 00 267 (146) 2012-13 446 4 12 393 (53) Total 4,086 4,046 3,586 (500) For each fiscal year, the city provided a summary report to support the claimed number of identity theft incident reports taken. These summary reports were generated by LASD’s crime reports record management system. LARCIS provides unduplicated counts of initial police reports filed for violations of PC section 530.5 and identifies the specific origin of each report. -10- City of Santa Clarita Identity Theft Program Canyon Country, Saugus, Valencia, and Newhall merged in 1987 to create the city of Santa Clarita, and these areas are within the city’s jurisdiction. We noted that the city’s summary reports also included incidents that occurred in unincorporated/county areas. Based on the city’s summary report for FY 2012-13, we verified that cases occurring in unincorporated areas had been included in the prior audit of Los Angeles County’s Identity Theft Program case count. Therefore, we eliminated cases that occurred in unincorporated areas from the city’s summary report for each fiscal year. The following table summarizes the unduplicated case listing per LARCIS, the number of unallowable cases in unincorporated areas, and the audited population for each fiscal year: (A) (B) (C)=(A)-(B) Unduplicated Unallowable: Fiscal Case Listing Unincorporated Audited Year Per LARCIS Areas Population 2002-03 368 - 368 2003-04 308 - 308 2004-05 455 121 334 2005-06 442 106 336 2006-07 625 118 507 2007-08 538 111 427 2008-09 509 103 406 2009-10 421 107 314 2010-11 441 107 334 2011-12 415 115 300 2012-13 527 115 412 Total 5,049 1 ,003 4,046 We verified the accuracy of the unduplicated counts of initial police reports recorded in LASD’s LARCIS by determining whether:  Each identity theft case was supported by a contemporaneously prepared and approved police report; and  The police report supported a violation of PC section 530.5. Due to LASD’s record retention policy, the county was unable to provide copies of the city’s incident reports for FY 2002-03 through FY 2007-08. Therefore, for FY 2008-09 through FY 2012-13, we selected a statistical sample from the documented number of identity theft incident reports (the population) based on a 95% confidence level, a precision rate of ±8%, and an expected error rate of 50%. We used statistical samples in order to project the results to the population for each fiscal year. We selected for review a total random sample of 492 out of 1,766 identity theft incident reports from the last five fiscal years of the audit period. Our review of sample incident reports disclosed the following:  For FY 2008-09, we found that 34 of the 110 identity theft incident reports selected had been purged due to LASD’s record retention policy. As a result, we decreased our sample size to 76. We found that 11 of the 76 identity theft incident reports were unallowable. Six of these reports were unallowable because they were courtesy reports. -11- City of Santa Clarita Identity Theft Program The remaining five reports were unallowable because they were not supported by a contemporaneously prepared and approved police report. Therefore, we calculated an error rate of 14.47% for FY 2008-09.  For FY 2009-10, we found that nine out of 102 identity theft incident reports were unallowable because they were courtesy reports. Therefore, we calculated an error rate of 8.82% for FY 2009-10.  For FY 2010-11, we found that 19 out of 104 identity theft incident reports were unallowable. The majority of these reports (18) were unallowable because they were courtesy reports. The remaining report was unallowable because it was not supported by a contemporaneously prepared and approved police report. Therefore, we calculated an error rate of 18.27% for FY 2010-11.  For FY 2011-12, we found that 11 out of 100 identity theft incident reports were unallowable. The majority of these reports (10) were unallowable because they were courtesy reports. The remaining report was unallowable because it was not supported by a contemporaneously prepared and approved police report. Therefore, we calculated an error rate of 11.00% for FY 2011-12.  For FY 2012-13, we found that five out of 110 identity theft incident reports were unallowable because they were courtesy reports. Therefore, we calculated an error rate of 4.55% for FY 2012-13. As we were unable to sample the incident reports and determine the actual error rates for FY 2002-03 through FY 2007-08, we calculated an average error rate of 11.42% from the five fiscal years sampled. The following table shows the average error rates for FY 2002-03 through FY 2007-08: (A) (B) (C)=(A)÷(B) Number of Fiscal Unallowable Sample Error Year Cases Sampled Size Rate 2008-09 11 76 14.47% 2009-10 9 1 02 8.82% 2010-11 19 1 04 18.27% 2011-12 11 1 00 11.00% 2012-13 5 1 10 4.55% Total 57.11% Number of fiscal years sampled ÷ 5 Average error rate 11.42% We applied these error rates to the audited populations for the respective fiscal years to determine the allowable and unallowable number of incident reports taken. -12- City of Santa Clarita Identity Theft Program The following table shows the number of allowable and unallowable incident reports taken by fiscal year: (A) (B) (C)=(A)×(B) (D)=(A)-(C) Average Total Total Fiscal Audited Error Error Unallowable Allowable Year Population Rate Rate Reports Reports 2002-03 3 68 N/A 11.42% 42 326 2003-04 3 08 N/A 11.42% 35 273 2004-05 3 34 N/A 11.42% 38 296 2005-06 3 36 N/A 11.42% 38 298 2006-07 5 07 N/A 11.42% 58 449 2007-08 4 27 N/A 11.42% 49 378 2008-09 4 06 14.47% N/A 59 347 2009-10 3 14 8.82% N/A 28 286 2010-11 3 34 18.27% N/A 61 273 2011-12 3 00 11.00% N/A 33 267 2012-13 4 12 4.55% N/A 19 393 Total 4,046 460 3 ,586 Case Counts for Beginning an Investigation of the Facts The city claimed a total of 3,043 investigations for the audit period. We found that the city understated the number of investigations by 543, and 3,586 investigations are allowable. The city confirmed that each of the police reports was investigated by the field deputy who took the report. We also verified that this reimbursable activity was performed for each of the police reports that we sampled and reviewed. Therefore, the number of reports taken and the number of cases investigated should be the same. (A) (B) (C)=(B)-(A) Number of Number of Fiscal Investigations Investigations Audit Year Claimed Supported Adjustment 2002-03 60 326 266 2003-04 103 273 170 2004-05 352 296 ( 56) 2005-06 364 298 ( 66) 2006-07 394 449 55 2007-08 370 378 8 2008-09 267 347 80 2009-10 247 286 39 2010-11 241 273 32 2011-12 310 267 ( 43) 2012-13 335 393 58 Total 3 ,043 3,586 543 -13- City of Santa Clarita Identity Theft Program Time increments The city claimed the following time increments for taking a police report on violations of PC section 530.5 (Activity 1a):  90 minutes for FY 2002-03 through FY 2010-11;  45 minutes for FY 2011-12; and  30 minutes for FY 2012-13. In addition, the city claimed 30 minutes to begin an investigation of the facts for the audit period (Activity 2). These reimbursable activities were performed by LASD Deputy Sheriffs. However, the city did not provide source documentation based on actual data to support the estimated time increments. LASD conducted a one-month time study in June 2012 at its Lakewood, Palmdale, and Santa Clarita stations to determine how long it took to perform the reimbursable activities that directly relate to the Identity Theft Program. We determined that only the time study results from the Santa Clarita Valley Station were applicable to this audit. In that time study, LASD separated reimbursable Activity 1a (taking a police report) into two sub-activities. Those sub-activities included writing and editing the initial police report (Activity 1a.1), and reviewing the police report (Activity 1a.2). LASD separated these activities because various LASD staff performed Activity 1a.1, while only Sergeants performed Activity 1a.2. The county’s time study supported 53.34 minutes to conduct the reimbursable activities. We applied the following time increments for each allowable police report that originated in the city of Santa Clarita:  25.79 minutes (0.43 hours) for Deputy Sheriffs to perform activity 1a.1 – taking a police report on violations of PC section 530.5;  6.09 minutes (0.10 hours) for Sergeants to perform activity 1a.2 – reviewing incident reports on violations of PC section 530.5; and  21.46 minutes (0.36 hours) for Deputy Sheriffs to perform activity 2 – beginning an investigation of the facts. We included the time spent by LASD Sergeants reviewing the reports because the city’s contract with LASD during the audit period included costs for LASD Sergeants. Therefore, the city incurred costs for time spent by LASD Sergeants on the reimbursable activities. -14- City of Santa Clarita Identity Theft Program The following table summarizes the time increments claimed and allowable for the reimbursable activities by fiscal year: Claimed Minutes Allowable Minutes Activity 1a.1 Activity 1a.2 Activity 2 Activity 1a.1 Activity 1a.2 Activity 2 Taking a Reviewing a Beginning Taking a Reviewing a Beginning Fiscal Police Police an Police Police an Year Report Report Investigation Report Report Investigation 2002-03 90.00 - 30.00 25.79 6.09 2 1.46 2003-04 90.00 - 30.00 25.79 6.09 2 1.46 2004-05 90.00 - 30.00 25.79 6.09 2 1.46 2005-06 90.00 - 30.00 25.79 6.09 2 1.46 2006-07 90.00 - 30.00 25.79 6.09 2 1.46 2007-08 90.00 - 30.00 25.79 6.09 2 1.46 2008-09 90.00 - 30.00 25.79 6.09 2 1.46 2009-10 90.00 - 30.00 25.79 6.09 2 1.46 2010-11 90.00 - 30.00 25.79 6.09 2 1.46 2011-12 45.00 - 30.00 25.79 6.09 2 1.46 2012-13 30.00 - 30.00 25.79 6.09 2 1.46 Contract Hourly Rates For the audit period, the city provided a copy of the signed Municipal Law Enforcement Services Agreement that it negotiated with Los Angeles County. The contract specifies that the services performed and requested by the city must be “indicated on a LASD SH-AD 575 Deployment of Personnel form.” The county uses this form to indicate the authorized LASD staffing level for each year that the contract is in effect, and the rates billed to the city for various LASD staff. The city provided copies of its SH-AD 575 forms for all fiscal years of the audit period. The contract law enforcement staffing level in effect for the entire audit period included the classifications of Deputy Sheriff Generalist and Sergeant. Based on the sampled police reports, we found that Deputy Sheriff Generalists performed reimbursable Activity 1a.1 (Taking a Police Report) and reimbursable Activity 2 (Beginning an Investigation). We also found that Sergeants reviewed and approved all of the reports (reimbursable Activity 1a.2). As noted previously, the approved staffing levels for the city included Sergeants during the audit period. Therefore, the city incurred costs for time spent by LASD Sergeants on the reimbursable activities. We recomputed the contract hourly rates for the Deputy Sheriff Generalist and Sergeant classifications using information from the SH-AD 575 forms and the city’s contract with LASD. The city’s contracts specify the number of service units, which vary from year to year, for the Deputy Sheriff Generalist classification and the Sergeant classification.2 2 LASD’s agreements with contract cities define a “service unit” as one position of a certain classification. -15- City of Santa Clarita Identity Theft Program For the Deputy Sheriff Generalists, the city’s contract specifies a liability percentage of 6% for FY 2002-03 through FY 2009-10, and of 4% for FY 2010-11 through FY 2012-13.3 We applied the appropriate liability percentage to the contract costs for each fiscal year. To calculate the average contract hourly rate for each fiscal year, we divided the total annual unit cost (including the liability percentage) for all Deputy Sheriff Generalists by the total annual hours per service unit. The following table summarizes the claimed and allowable contract hourly rates for Deputy Sheriff Generalists during the audit period, and the difference between those rates: Deputy Sheriff Generalist Fiscal Claimed Allowable Year Hourly Rate Hourly Rate Difference 2002-03 $ 87.63 $ 87.53 $ ( 0.10) 2003-04 6 6.50 90.29 23.79 2004-05 7 0.00 90.93 20.93 2005-06 9 5.14 96.22 1 .08 2006-07 6 0.56 101.47 40.91 2007-08 6 3.75 109.07 45.32 2008-09 6 8.32 113.81 45.49 2009-10 6 8.49 117.51 49.02 2010-11 6 9.19 117.28 48.09 2011-12 121.41 120.89 (0.52) 2012-13 126.65 123.58 (3.07) To calculate the average contract hourly rate for Sergeants, we divided the total annual unit cost for all Sergeants by the total annual hours per service unit. The following table summarizes the claimed and allowable contract hourly rates for Sergeants during the audit period, and the difference between those rates: Sergeant Fiscal Claimed Allowable Year Hourly Rate Hourly Rate Difference 2002-03 $ - $ 73.98 $ 73.98 2003-04 - 76.95 76.95 2004-05 - 79.20 79.20 2005-06 - 84.70 84.70 2006-07 - 90.92 90.92 2007-08 - 97.83 97.83 2008-09 - 100.26 100.26 2009-10 - 103.90 103.90 2010-11 - 105.31 105.31 2011-12 - 107.73 107.73 2012-13 - 108.72 108.72 3 The liability percentage is an additional charge that the county adds to its calculated contract rates for staff based on salaries, benefits, and overhead costs. -16- City of Santa Clarita Identity Theft Program For the audit period, we calculated allowable contract services costs based on the audited counts of PC 530.5 identity theft reports, audited time increments, and contract hourly rates. For example, the following table shows the calculation of allowable contract services costs for FY 2012-13: (A) (B) (C) (D)=(A)×(B)×(C) Allowable Allowable Total Time Contract Reimbursable LASD Allowable Increment Hourly Allowable Activity Staff Reports (in hours) Rate Costs 1a.1 Deputy Sheriff 393 0.43 $ 123.58 $ 2 0,884 1a.2 Sergeant 393 0.10 $ 108.72 4,273 Subtotal, Reimbursable Activity 1a 25,157 2 Deputy Sheriff 393 0.36 $ 123.58 17,484 Subtotal, Reimbursable Activity 2 17,484 Total allowable contract services costs $ 4 2,641 Criteria Section III (Period of Reimbursement) of the parameters and guidelines states, in part, “Actual costs for one fiscal year shall be included in each claim.” Section IV (Reimbursable Activities) of the parameters and guidelines begins: To be eligible for mandated cost reimbursement for any given fiscal year, only actual costs may be claimed. Actual costs are those costs actually incurred to implement the mandated activities. Actual costs must be traceable to and supported by source documents that show the validity of such costs, when they were incurred, and their relationship to the reimbursable activities. A source document is a document created at or near the same time the actual cost was incurred for the event or activity in question. Source documents may include, but are not limited to, employee time records or time logs, sign-in sheet, invoices, and receipts. Section IV of the parameters and guidelines continues: For each eligible claimant, the following ongoing activities are eligible for reimbursement: 1. Either a) or b) below: a) Take a police report supporting a violation of Penal Code section 530.5 which includes information regarding the personal identifying information involved and any uses of that personal information that were non-consensual and for an unlawful purpose, including, if available, information surrounding the suspected identity theft, places where the crime(s) occurred, and how and where the suspect obtained and used the personal identifying information. This activity includes drafting, reviewing, and editing the identity theft police report; or b) Reviewing the identity theft report completed on-line by the identity theft victim. -17- City of Santa Clarita Identity Theft Program 2. Begin an investigation of the facts, including the gathering of facts sufficient to determine where the crime(s) occurred and what pieces of personal identifying information were used for an unlawful purpose. The purpose of the investigation is to assist the victims in clearing their names. Reimbursement is not required to complete the investigation for purposes of criminal prosecution. In addition, Section IV states that, “Referring the matter to the law enforcement agency where the suspected crime was committed for further investigation of the facts is also not reimbursable under this program.” Section V (Claim Preparation and Submission) of the parameters and guidelines states, in part: 1. Salaries and benefits Report each employee implementing the reimbursable activities by name, job classification, and productive hourly rate (total wages and related benefits divided by productive hours). Describe the specific reimbursable activities performed and the hours devoted to these activities. Recommendation The State Legislature suspended the Identity Theft Program in the FY 2013-14 through FY 2021-22 Budget Acts. If the program becomes active again, we recommend that the city:  Adhere to the program’s parameters and guidelines and claiming instructions when claiming reimbursement for mandated costs; and  Ensure that claimed costs include only eligible costs, are based on actual costs, and are properly supported. City’s Response The City accepts this finding. Should the program become active again in the future, the City will adhere to the program’s parameters and guidelines and claiming instructions as clarified in the audit report. The City will also ensure claimed costs include only eligible costs, are based on actual costs, and are properly supported. -18- City of Santa Clarita Identity Theft Program Attachment— City’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 S20-MCC-0010