City of Palmdale

CITY OF PALMDALE Audit Report IDENTITY THEFT PROGRAM Chapter 956, Statutes of 2000 July 1, 2002, through June 30, 2013 BETTY T. YEE California State Controller June 2022 BETTY T. YEE California State Controller June 22, 2022 CERTIFIED MAIL—RETURN RECEIPT REQUESTED Keith Kang, CPA Finance Manager/City Treasurer City of Palmdale 38300 Sierra Highway, Suite D Palmdale, CA 93550 Dear Mr. Kang: The State Controller’s Office audited the costs claimed by the City of Palmdale for the legislatively mandated Identity Theft Program for the period of July 1, 2002, through June 30, 2013. The city claimed $578,186 for costs of the mandated program. Our audit found that $464,400 is allowable and $113,786 is unallowable, primarily because the city misclassified contract services costs as salary costs, understated the number of identity theft reports taken, and misstated the time increments needed to perform the reimbursable activities. The State made no payments to the city. The State will pay $464,400, contingent upon available appropriations. Following issuance of this audit report, the Local Government Programs and Services Division of the State Controller’s Office will notify the city of the adjustment to its claims via a system- generated letter for each fiscal year in the audit period. This final audit report contains an adjustment to costs claimed by the city. If you disagree with the audit finding, you may file an Incorrect Reduction Claim (IRC) with the Commission on State Mandates (Commission). Pursuant to the Commission’s regulations, outlined in Title 2, California Code of Regulations, section 1185.1, subdivision (c), an IRC challenging this adjustment must be filed with the Commission no later than three years following the date of this report, regardless of whether this report is subsequently supplemented, superseded, or otherwise amended. IRC information is available on the Commission’s website at www.csm.ca.gov/forms/IRCForm.pdf. Keith Kang, CPA, Finance Manager -2- June 22, 2022 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 cc: The Honorable Steven D. Hofbauer Mayor of the City of Palmdale 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 Reimbursements Section State Controller’s Office Everett Luc, Supervisor Local Reimbursements Section State Controller’s Office City of Palmdale Identity Theft Program Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Audit Authority.................................................................................................................. 2 Objective, Scope, and Methodology ................................................................................. 2 Conclusion .......................................................................................................................... 3 Follow-up on Prior Audit Findings .................................................................................. 4 Views of Responsible Officials .......................................................................................... 4 Restricted Use .................................................................................................................... 4 Schedule—Summary of Program Costs .............................................................................. 5 Finding and Recommendation .............................................................................................. 11 City of Palmdale Identity Theft Program Audit Report Summary The State Controller’s Office (SCO) audited the costs claimed by the City of Palmdale for the legislatively mandated Identity Theft Program for the period of July 1, 2002, through June 30, 2013. The city claimed $578,186 for costs of the mandated program. Our audit found that $464,400 is allowable and $113,786 is unallowable, primarily because the city misclassified contract services costs as salary costs, understated the number of identity theft reports taken, and misstated the time increments needed to perform the reimbursable activities. The State made no payments to the city. The State will pay $464,400, 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 the 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 in the jurisdiction where the suspected crime was committed for further investigation of the facts are not reimbursable activities. -1- City of Palmdale 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 the Mandated Cost Manual for Local Agencies (Mandated Cost Manual) 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. The audit period was July 1, 2002, through June 30, 2013. To achieve our objective, we performed the following procedures:  We analyzed the annual mandated cost claims filed by the city for the audit period, and identified the significant cost components of each claim as salaries and indirect costs. We determined whether there were any errors or unusual or unexpected variances from year to year. We reviewed the activities claimed to determine whether they adhered to the SCO’s Mandated Cost Manual and the program’s parameters and guidelines;.  We completed an internal control questionnaire by interviewing key city staff members. We discussed the claim preparation process with city staff members to determine what information was obtained, who obtained it, and how it was used.  We reviewed the contract service agreement and related Deployment of Personnel forms (SH-AD 575 forms) for fiscal year (FY) 2006-07, FY 2011-12, and FY 2012-13 executed between the Los Angeles County Sheriff’s Department (LASD) and the city to determine which contracted employee classifications performed the reimbursable activities. We found that the Deputy Sheriff and Sergeant classifications performed the reimbursable activities. The city’s contracts with LASD specify the number of service units, which vary from year to year, for the Deputy Sheriff classifications and the Sergeant classification.  We obtained system-generated lists of identity theft cases that originated within the city during the audit period to verify the existence, completeness, and accuracy of unduplicated case counts for each fiscal year in the audit period.1 1 The LASD Crime Analysis Unit provided system-generated case lists based on information obtained from LASD’s Los Angeles Regional Crime Information System. -2- City of Palmdale Identity Theft Program  We designed a statistical sampling plan to test approximately 25-50% of costs claimed, based on a moderate level of detection (audit) risk. We judgmentally selected the city’s filed claims for FY 2007-08, FY 2008-09, and FY 2012-13, which comprised claimed costs totaling $218,916 (or 42%) of the $525,627 claimed. The sampling plan is described in the Finding and Recommendation section.  We used a random number table to select 332 identity theft cases out of 4,436 identity theft reports from the three years sampled, and tested the identity theft reports as follows: o We determined whether a contemporaneously prepared and approved police report supported a violation of PC section 530.5; and o We determined whether the initial police reports were courtesy reports from other law enforcement agencies that had been forwarded to the Palmdale Station for further investigation.  We used the audited time increments required to perform the reimbursable activities from a time study conducted by LASD in June 2012. We chose this time study because LASD staff performed all of the city’s mandated identity theft activities. LASD’s audited identity theft increments were directly related to the Identity Theft Program’s reimbursable activities and were properly supported. LASD performed the time study using staff at its Lakewood, Palmdale, and Santa Clarita stations. For the purposes of this audit, we used only the time study data created by LASD staff at the Palmdale Station. Using those time study results, we applied the time increments to each allowable police report that originated in the City of Palmdale.  We 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 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. -3- City of Palmdale Identity Theft Program For the audit period, the City of Palmdale claimed $578,186 for costs of the legislatively mandated Identity Theft Program. Our audit found that $464,400 is allowable and $113,786 is unallowable. The State made no payments to the city. The State will pay $464,400, contingent upon available appropriations. Following issuance of the final audit report, the Local Government Programs and Services Division of the SCO 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 April 13, 2022. We emailed Keith Kang, Responsible Finance Manager, on April 25, 2022, inquiring whether the city would be providing a response to the draft audit report. Mr. Kang did not respond to Officials our email inquiry. Restricted Use This audit report is solely for the information and use of the City of Palmdale, the California Department of Finance, 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 KIMBERLY TARVIN, CPA Chief, Division of Audits June 22, 2022 -4- City of Palmdale Identity Theft Program Schedule— Summary of Program Costs July 1, 2002, through June 30, 2013 Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment1 July 1, 2002, through June 30, 2003 Direct costs: Salaries Taking a police report on a violation of PC §530.5 $ 6,583 $ - $ (6,583) Begin an investigation of the facts 2,269 - ( 2,269) Total salaries 8,852 - ( 8,852) Contract services Taking a police report on a violation of PC §530.5 - 14,256 14,256 Begin an investigation of the facts - 17,155 17,155 Total contract services - 31,411 31,411 Total direct costs 8,852 31,411 22,559 Indirect costs 8 85 - (885) Total direct and indirect costs 9,737 31,411 21,674 Less allowable costs that exceed costs claimed2 - (21,674) (21,674) Total program costs $ 9,737 9,737 $ - Less amount paid by the State3 - Allowable costs claimed in excess of amount paid $ 9,737 July 1, 2003, through June 30, 2004 Direct costs: Salaries Taking a police report on a violation of PC §530.5 $ 1 1,948 $ - $ (11,948) Begin an investigation of the facts 4,119 - ( 4,119) Total salaries 16,067 - (16,067) Contract services Taking a police report on a violation of PC §530.5 - 17,432 17,432 Begin an investigation of the facts - 20,938 20,938 Total contract services - 38,370 38,370 Total direct costs 16,067 38,370 22,303 Indirect costs 1,607 - ( 1,607) Total direct and indirect costs 17,674 38,370 20,696 Less allowable costs that exceed costs claimed2 - (20,696) (20,696) Total program costs $ 1 7,674 17,674 $ - Less amount paid by the State3 - Allowable costs claimed in excess of amount paid $ 17,674 -5- City of Palmdale Identity Theft Program Schedule (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment1 July 1, 2004, through June 30, 2005 Direct costs: Salaries Taking a police report on a violation of PC §530.5 $ 3 1,976 $ - $ (31,976) Begin an investigation of the facts 11,275 - (11,275) Total salaries 43,251 - (43,251) Contract services Taking a police report on a violation of PC §530.5 - 20,092 20,092 Begin an investigation of the facts - 24,061 24,061 Total contract services - 44,153 44,153 Total direct costs 43,251 44,153 902 Indirect costs 4,325 - ( 4,325) Total program costs $ 4 7,576 44,153 $ (3,423) Less amount paid by the State3 - Allowable costs claimed in excess of amount paid $ 4 4,153 July 1, 2005, through June 30, 2006 Direct costs: Salaries Taking a police report on a violation of PC §530.5 $ 3 3,554 $ - $ (33,554) Begin an investigation of the facts 11,549 - (11,549) Total salaries 45,103 - (45,103) Contract services Taking a police report on a violation of PC §530.5 - 19,195 19,195 Begin an investigation of the facts - 22,955 22,955 Total contract services - 42,150 42,150 Total direct costs 45,103 42,150 ( 2,953) Indirect costs 4,510 - ( 4,510) Total program costs $ 4 9,613 42,150 $ (7,463) Less amount paid by the State3 - Allowable costs claimed in excess of amount paid $ 4 2,150 -6- City of Palmdale Identity Theft Program Schedule (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment1 July 1, 2006, through June 30, 2007 Direct costs: Salaries Taking a police report on a violation of PC §530.5 $ 4 4,151 $ - $ (44,151) Begin an investigation of the facts 15,378 - ( 15,378) Total salaries 59,529 - ( 59,529) Contract services Taking a police report on a violation of PC §530.5 - 22,429 22,429 Begin an investigation of the facts - 26,739 26,739 Total contract services - 49,168 49,168 Total direct costs 59,529 49,168 ( 10,361) Indirect costs 5,953 - (5,953) Total program costs $ 6 5,482 49,168 $ (16,314) Less amount paid by the State3 - Allowable costs claimed in excess of amount paid $ 4 9,168 July 1, 2007, through June 30, 2008 Direct costs: Salaries Taking a police report on a violation of PC §530.5 $ 4 8,709 $ - $ (48,709) Begin an investigation of the facts 16,692 - ( 16,692) Total salaries 65,401 - ( 65,401) Contract services Taking a police report on a violation of PC §530.5 - 25,669 25,669 Begin an investigation of the facts - 30,603 30,603 Total contract services - 56,272 56,272 Total direct costs 65,401 56,272 (9,129) Indirect costs 6,540 - (6,540) Total program costs $ 7 1,941 56,272 $ (15,669) Less amount paid by the State3 - Allowable costs claimed in excess of amount paid $ 5 6,272 -7- City of Palmdale Identity Theft Program Schedule (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment1 July 1, 2008, through June 30, 2009 Direct costs: Salaries Taking a police report on a violation of PC §530.5 $ 4 0,062 $ - $ (40,062) Begin an investigation of the facts 14,382 - ( 14,382) Total salaries 54,444 - ( 54,444) Contract services Taking a police report on a violation of PC §530.5 - 22,739 22,739 Begin an investigation of the facts - 27,106 27,106 Total contract services - 49,845 49,845 Total direct costs 54,444 49,845 (4,599) Indirect costs 5,444 - (5,444) Total program costs $ 5 9,888 49,845 $ (10,043) Less amount paid by the State3 - Allowable costs claimed in excess of amount paid $ 4 9,845 July 1, 2009, through June 30, 2010 Direct costs: Salaries Taking a police report on a violation of PC §530.5 $ 3 3,714 $ - $ (33,714) Begin an investigation of the facts 11,971 - ( 11,971) Total salaries 45,685 - ( 45,685) Contract services Taking a police report on a violation of PC §530.5 - 21,953 21,953 Begin an investigation of the facts - 26,197 26,197 Total contract services - 48,150 48,150 Total direct costs 45,685 48,150 2 ,465 Indirect costs 4,569 - (4,569) Total program costs $ 5 0,254 48,150 $ ( 2,104) Less amount paid by the State3 - Allowable costs claimed in excess of amount paid $ 4 8,150 -8- City of Palmdale Identity Theft Program Schedule (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment1 July 1, 2010, through June 30, 2011 Direct costs: Salaries Taking a police report on a violation of PC §530.5 $ 3 0,897 $ - $ (30,897) Begin an investigation of the facts 10,632 - ( 10,632) Total salaries 41,529 - ( 41,529) Contract services Taking a police report on a violation of PC §530.5 - 20,524 20,524 Begin an investigation of the facts - 24,448 24,448 Total contract services - 44,972 44,972 Total direct costs 41,529 44,972 3 ,443 Indirect costs 4,153 - (4,153) Total program costs $ 4 5,682 44,972 $ (710) Less amount paid by the State3 - Allowable costs claimed in excess of amount paid $ 4 4,972 July 1, 2011, through June 30, 2012 Direct costs: Salaries Taking a police report on a violation of PC §530.5 $ 3 4,342 $ - $ (34,342) Begin an investigation of the facts 12,352 - ( 12,352) Total salaries 46,694 - ( 46,694) Contract services Taking a police report on a violation of PC §530.5 - 23,546 23,546 Begin an investigation of the facts - 28,043 28,043 Total contract services - 51,589 51,589 Total direct costs 46,694 51,589 4 ,895 Indirect costs 4,669 - (4,669) Total direct and indirect costs 51,363 51,589 226 Less allowable costs that exceed costs claimed2 - (226) (226) Total program costs $ 5 1,363 51,363 $ - Less amount paid by the State3 - Allowable costs claimed in excess of amount paid $ 5 1,363 -9- City of Palmdale Identity Theft Program Schedule (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment1 July 1, 2012, through June 30, 2013 Direct costs: Salaries Taking a police report on a violation of PC §530.5 $ 7 2,893 $ - $ (72,893) Begin an investigation of the facts 26,176 - ( 26,176) Total salaries 99,069 - ( 99,069) Contract services Taking a police report on a violation of PC §530.5 - 23,216 23,216 Begin an investigation of the facts - 27,700 27,700 Total contract services - 50,916 50,916 Total direct costs 99,069 50,916 ( 48,153) Indirect costs 9,907 - (9,907) Total program costs $ 108,976 50,916 $ (58,060) Less amount paid by the State3 - Allowable costs claimed in excess of amount paid $ 5 0,916 Summary: July 1, 2002, through June 30, 2013 Direct costs: Salaries Taking a police report on a violation of PC §530.5 $ 388,829 $ - $ (388,829) Begin an investigation of the facts 1 36,795 - (136,795) Total salaries 5 25,624 - (525,624) Contract services Taking a police report on a violation of PC §530.5 - 2 31,051 231,051 Begin an investigation of the facts - 2 75,945 275,945 Total contract services - 5 06,996 506,996 Total direct costs 5 25,624 5 06,996 ( 18,628) Indirect costs 52,562 - ( 52,562) Total direct and indirect costs 5 78,186 5 06,996 ( 71,190) Less allowable costs that exceed costs claimed2 - (42,596) ( 42,596) Total program costs $ 578,186 4 64,400 $ (113,786) Less amount paid by the State3 - Allowable costs claimed in excess of amount paid $ 464,400 _________________________ 1 See the Finding and Recommendation section. 2 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 Mandated Cost Manual. That deadline has passed for FY 2002-03, FY 2003-04, and FY 2011-12. 3 Payment amount current as of May 24, 2022. -10- City of Palmdale Identity Theft Program Finding and Recommendation FINDING— The city claimed $578,186 ($525,624 in salaries and $52,562 in related indirect costs) for the Identity Theft Program. We found that $506,996 is Overstated Identity allowable and $71,190 is unallowable.1 Theft Program costs We found that the city incorrectly claimed salary costs instead of contract service costs. The city contracted with the LASD for its law enforcement services during the audit period; therefore, it incurred contract services costs, not salary 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 contracts with Los Angeles County. The county based its hourly rates in the contracts on 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 salaries. The costs are unallowable primarily because the city misclassified costs and claimed unallowable indirect costs. In addition, the city understated the number of identity theft reports taken. We also noted differences in the time increments required to perform the reimbursable activities. The following table summarizes the claimed and allowable amounts, and the audit adjustments by fiscal year: Total Salaries Contract Indirect Total Total Fiscal Amount Amount Audit Services Cost Audit Amount Year Claimed Claimed Adjustment Adjustment Adjustment Adjustment Allowable 2002-03 $ 9 ,737 $ 8,852 $ ( 8,852) $ 31,411 $ (885) $ 21,674 $ 31,411 2003-04 1 7,674 16,067 ( 16,067) 38,370 (1,607) 20,696 38,370 2004-05 4 7,576 43,251 ( 43,251) 44,153 (4,325) (3,423) 44,153 2005-06 4 9,613 45,103 ( 45,103) 42,150 (4,510) (7,463) 42,150 2006-07 6 5,482 59,529 ( 59,529) 49,168 (5,953) (16,314) 49,168 2007-08 7 1,941 65,401 ( 65,401) 56,272 (6,540) (15,669) 56,272 2008-09 5 9,888 54,444 ( 54,444) 49,845 (5,444) (10,043) 49,845 2009-10 5 0,254 45,685 ( 45,685) 48,150 (4,569) (2,104) 48,150 2010-11 4 5,682 41,529 ( 41,529) 44,972 (4,153) (710) 44,972 2011-12 5 1,363 46,694 ( 46,694) 51,589 (4,669) 226 51,589 2012-13 1 08,976 99,069 ( 99,069) 50,916 (9,907) (58,060) 50,916 Total $ 5 78,186 $ 525,624 $ ( 525,624) $ 506,996 $ (52,562) $ (71,190) $ 506,996 1 For FY 2002-03, we found that $31,411 is allowable, which is $21,674 in excess of claimed costs. For FY 2003-04, we found that $38,370 is allowable, which is $20,696 in excess of claimed costs. For FY 2011-12, we found that $51,589 is allowable, which is $226 in excess of claimed costs. 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 and that deadline has expired for FY 2002-03, FY 2003-04, and FY 2011-12. Therefore, total allowable costs for the audit period are $464,400 ($506,996 less $42,596 in excess of claimed costs for FY 2002-03, FY 2003-04, and FY 2011-12). -11- City of Palmdale Identity Theft Program Identity theft incident reports The city claimed that it took 4,052 identity theft incident reports for the audit period. We found that the city understated the number of reports taken by 247, and 4,299 are allowable. The following table summarizes the counts of claimed, supported, and allowable identity theft cases and the difference by fiscal year: Fiscal Claimed Supported Allowable Audit Year Reports Population Reports Adjustment 2002-03 85 3 32 3 22 237 2003-04 150 3 95 3 83 233 2004-05 397 4 51 4 37 40 2005-06 393 4 06 3 94 1 2006-07 489 4 45 4 32 ( 57) 2007-08 503 4 94 4 65 ( 38) 2008-09 414 3 94 3 94 ( 20) 2009-10 339 3 82 3 70 31 2010-11 296 3 56 3 45 49 2011-12 320 3 97 3 85 65 2012-13 666 3 84 3 72 ( 294) Total 4,052 4 ,436 4 ,299 247 The city provided a system-generated unduplicated list from LASD’s crime reports and management system (Los Angeles Regional Crime Information System) to support the claimed number of identity theft incident reports taken. This list supported 4,436 identity theft police reports filed for violations of PC section 530.5. We determined the accuracy of the unduplicated counts of initial police reports by verifying that:  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. We developed a statistical sampling plan to test at least 25% of claimed costs based on a low level of detection risk. We generated statistical samples of identity theft cases for these two procedures so that we could project our sample results to the population of identity theft cases. We selected our statistical samples of identity theft cases originating from the city based on a 95% confidence level, a sampling error of ±8%, and an expected (true) error rate of 50%. We judgmentally selected FY 2007-08, FY 2008-09, and FY 2012-13 for testing because the city claimed salary costs for these three years totaling $218,916, which constitutes 41.6% of the total claimed during the audit period. Our testing disclosed the following:  For FY 2007-08, we found that 98 of the 115 selected identity theft incident reports had been purged due to LASD’s record retention policy. As a result, we decreased our sample size to 17. We found that one of the 17 identity theft incident reports was unallowable because it was a courtesy report. Therefore, we calculated an error rate of 5.9% for FY 2007-08. -12- City of Palmdale Identity Theft Program  For FY 2008-09, we found that 54 of the 109 selected identity theft incident reports had been purged due to LASD’s record retention policy. As a result, we decreased our sample size to 55. We found that all 55 identity theft incident reports were allowable. Therefore, we calculated an error rate of 0% for FY 2008–09.  For FY 2012-13, we found that 46 of the 108 selected identity theft incident reports had been purged due to LASD’s record retention policy. As a result, we decreased our sample size to 62. We found that two of the 62 identity theft incident reports were unallowable because they were for infractions other than identity theft. Therefore, we calculated an error rate of 3.2% for FY 2012-13. Based on these results, we calculated a 3% average error rate for the three years that we tested (FY 2007-08, FY 2008-09, and FY 2012-13). We extrapolated this average error rate to the other nine years of the audit period (FY 2002-03 through FY 2006-07 and FY 2009-10 through FY 2011-12) to determine the number of allowable and unallowable identity theft incident reports for the entire eleven-year audit period. The following table shows the number of allowable and unallowable incident reports taken by fiscal year: (A) (B) (C)=(A)×(B) (D)=(A)-(C) Total Total Fiscal Audited Error Average Unallowable Allowable Year Population Rate Error Rate Reports Reports 2002-03 332 N/A 3.0% 1 0 322 2003-04 395 N/A 3.0% 1 2 383 2004-05 451 N/A 3.0% 1 4 437 2005-06 406 N/A 3.0% 1 2 394 2006-07 445 N/A 3.0% 1 3 432 2007-08 494 5.9% N/A 2 9 465 2008-09 394 0.0% N/A - 394 2009-10 382 N/A 3.0% 1 2 370 2010-11 356 N/A 3.0% 1 1 345 2011-12 397 N/A 3.0% 1 2 385 2012-13 384 3.2% N/A 1 2 372 Total 4,436 137 4 ,299 Time increments The city claimed the following time increments for each year of the audit period:  44 minutes for taking/drafting a police report by the Deputy/Officer;  11 minutes for the Sergeant to review the police report;  11 minutes for the Detective to begin an investigation; and  Seven minutes for the Sergeant to begin an investigation. 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. In that time study, LASD separated reimbursable Activity 1a (taking a police report) into two sub-activities. Those sub-activities -13- City of Palmdale Identity Theft Program 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. For the purposes of this audit, we used only the time study data created by LASD staff at the Palmdale Station. Using those time study results, we applied the following time increments for each allowable police report that originated in the City of Palmdale:  26.25 minutes (0.44 hours) for Deputy Sheriffs to perform activity 1a.1 – taking a police report on violations of PC section 530.5;  4.5 minutes (0.08 hours) for Sergeants to perform activity 1a.2 – reviewing incident reports on violations of PC section 530.5; and  36.38 minutes (0.61 hours) for Deputy Sheriffs to perform activity 2 – beginning an investigation of the facts. The following table summarizes the total time increments claimed and allowable for the reimbursable activities by fiscal year: Claimed Minutes Allowable Minutes 2 2 1a.1 1a.2 Beginning B e g i n ning 1 a . 1 1a.2 2 Taking a Reviewing an an Taking a Reviewing Beginning Fiscal Police a Police Investigation- Investigation- Police a Police an Year Report Report Detective Sergeant Report Report Investigation 2002-03 4 4.00 1 1.00 1 1.00 7 .00 2 6.25 4 .50 3 6.38 2003-04 4 4.00 1 1.00 1 1.00 7 .00 2 6.25 4 .50 3 6.38 2004-05 4 4.00 1 1.00 1 1.00 7 .00 2 6.25 4 .50 3 6.38 2005-06 4 4.00 1 1.00 1 1.00 7 .00 2 6.25 4 .50 3 6.38 2006-07 4 4.00 1 1.00 1 1.00 7 .00 2 6.25 4 .50 3 6.38 2007-08 4 4.00 1 1.00 1 1.00 7 .00 2 6.25 4 .50 3 6.38 2008-09 4 4.00 1 1.00 1 1.00 7 .00 2 6.25 4 .50 3 6.38 2009-10 4 4.00 1 1.00 1 1.00 7 .00 2 6.25 4 .50 3 6.38 2010-11 4 4.00 1 1.00 1 1.00 7 .00 2 6.25 4 .50 3 6.38 2011-12 4 4.00 1 1.00 1 1.00 7 .00 2 6.25 4 .50 3 6.38 2012-13 4 4.00 1 1.00 1 1.00 7 .00 2 6.25 4 .50 3 6.38 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 FY 2006 07, FY 2010-11, and FY 2012-13. The contract law enforcement staffing level in effect for the entire audit period included the classifications of Deputy Sheriff and Sergeant. -14- City of Palmdale Identity Theft Program Based on our review of the sampled police reports, we found that Deputy Sheriffs 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). We tested contract hourly rates for the Deputy Sheriff and Sergeant classifications using information provided by the city from its SH-AD 575 forms for FY 2006-07, FY 2011-12, and FY 2012-13. The city’s contracts with LASD specify the number of service units, which vary from year to year, for the Deputy Sheriff classifications and the Sergeant classification. For the Deputy Sheriffs, the city’s contract specifies a liability percentage of 6% for FY 2006-07, and of 4% for FY 2010-11 and FY 2012-13. 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 Sheriffs by the total annual hours per service unit. 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. Based on our testing results for FY 2006-07, FY 2011-12, and FY 2012-13, we accepted the rates that the city claimed for the Deputy Sheriff and Sergeant classifications for all years of the audit period. However, the city’s mandated cost consultant advised that the rates claimed for FY 2008-09 and FY 2009-10 for Deputy Sheriffs did not include the 6% liability percentage. Based on contract information provided by the city, we confirmed that this information was correct. Therefore, we adjusted the allowable rate for Deputy Sheriffs from $106.68 to $112.78 for FY 2008-09 and from $109.80 to $116.07 for FY 2009-10. The following table summarizes the rates claimed and allowable for the audit period: Rates Claimed Rates Allowable Fiscal Sheriff’s Sheriff’s Year Deputy Detective Sergeant Deputy Detective Sergeant 2002-03 $ 87.34 $ 97.91 $ 73.07 $ 87.34 $ - $ 73.07 2003-04 8 9.62 1 00.16 7 6.01 8 9.62 - 7 6.01 2004-05 9 0.26 103.81 7 8.29 9 0.26 - 7 8.29 2005-06 9 5.51 105.73 8 3.66 9 5.51 - 8 3.66 2006-07 100.39 112.27 9 0.92 101.47 - 9 0.92 2007-08 107.89 118.03 9 6.64 107.89 - 9 6.64 2008-09 106.68 123.59 1 01.10 112.78 - 1 01.10 2009-10 109.80 125.32 1 03.27 116.07 - 1 03.27 2010-11 116.17 127.70 1 04.67 116.17 - 1 04.67 2011-12 119.91 133.58 1 07.73 119.91 - 1 07.73 2012-13 122.07 136.72 1 08.72 122.07 - 1 08.72 -15- City of Palmdale Identity Theft Program Using the contract rate information, the corrected number of case counts, and the corrected time increments, we determined allowable contract costs for each fiscal year. For example, the following table shows the calculation of allowable contract services costs for FY 2012-13: [1] [2] [3] [4] [5] [6] Time Contract Activity Reimbursale Employee Number Increment Rate A l l o w a b l e Costs ($) Number Activity Classification of Cases (Hours) ($) (cols.[3]*[4]*[5]) 1a Take a police report Deputy Sheriff 372 0.44 $ 122.07 $ 1 9,980 1b Review a police report Sergeant 372 0.08 108.72 3 ,236 - 2 Begin an investigation Deputy Sheriff 372 0.61 122.07 2 7,700 Total $ 5 0,916 Indirect costs The City of Palmdale claimed $52,562 in related indirect costs for the audit period based on $525,627 in claimed salaries. The city applied an indirect cost rate of 10% to the total salaries. However, the city did not incur any salary costs during the audit period. Therefore, the entire $52,563 claimed for indirect costs is unallowable. Criteria Item 1 of section III., “Period of Reimbursement,” of the parameters and guidelines states, “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 sheets, invoices, and receipts. Section IV. of the parameters and guidelines also states: 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 -16- City of Palmdale Identity Theft Program 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. 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. Providing a copy of the report to the complainant is not reimbursable under this program. Section V.A.1, “Salaries and benefits,” of the parameters and guidelines states: 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. Section V.B, “Indirect Cost Rates,” of the parameters and guidelines states: Indirect costs are costs that are incurred for a common or joint purpose, benefiting more than one program, and are not directly assignable to a particular department or program without efforts disproportionate to the result achieved. Indirect costs may include: (1) the overhead costs of the unit performing the mandate; and (2) the costs of the central government services distributed to the other departments based on a systematic and rational basis through a cost allocation plan. Compensation for indirect costs is eligible for reimbursement utilizing the procedure provided in 2 CFR Part 225 (Office of management and Budget [OMB] Circular A-87). Claimants have the option of using 10% of labor, excluding fringe benefits, or preparing an Indirect Cost Rate Proposal (ICRP) if the indirect cost rate exceeds 10%. Recommendation The California 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 the SCO’s Mandated Cost Manual when claiming reimbursement for mandated costs; and  Ensure that claimed costs include only eligible costs, are based on actual costs, and are properly supported. -17- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250 http://www.sco.ca.gov S20-MCC-0011