California Governor's Office of Emergency Services (cgoes) Payroll Process

CALIFORNIA GOVERNOR’S OFFICE OF EMERGENCY SERVICES Audit Report PAYROLL AUDIT March 1, 2016, through February 28, 2019 BETTY T. YEE California State Controller May 2021 BETTY T. YEE California State Controller May 3, 2021 Mark Ghilarducci, Director Governor’s Office of Emergency Services 3650 Schriever Avenue Mather, CA 95655 Dear Mr. Ghilarducci: The State Controller’s Office audited the California Governor’s Office of Emergency Services’ (Cal OES) payroll process and transactions for the period of March 1, 2016, through February 28, 2019. Our audit determined that Cal OES did not maintain adequate and effective internal controls over its payroll process. Cal OES lacked adequate segregation of duties and compensating controls, resulting in improper overtime payments, maintenance of timesheets, and separation lump-sum payments. Cal OES also granted inappropriate keying access to the State’s payroll system. In addition, Cal OES did not implement controls to limit the accumulation of vacation and annual leave credits, resulting in liability for excessive balances. Cal OES also did not have adequate controls over holiday credit transactions. If you have any questions, please contact Andrew Finlayson, Chief, State Agency Audits Bureau, by telephone at (916) 324-6310. Sincerely, Original signed by MICHAEL REEVES, CPA Acting Chief, Division of Audits Mark Ghilarducci, Director -2- May 3, 2021 MR/as cc: Tina Curry, Acting Chief Deputy Director California Governor’s Office of Emergency Services Timothy Perry, Chief of Staff California Governor’s Office of Emergency Services Sheila Braverman, Chief Human Resources Office California Governor’s Office of Emergency Services Ralph Zavala, Chief Internal Audits Office California Governor’s Office of Emergency Services Brendan Murphy, Chief, Administrative Services Division California Department of Human Resources Jil Barraza, Chief, Personnel and Payroll Services Division State Controller’s Office California Governor’s Office of Emergency Services Payroll Audit Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Audit Authority .................................................................................................................. 1 Objectives, Scope, and Methodology ............................................................................... 2 Conclusion .......................................................................................................................... 3 Follow-up on Prior Audit Findings .................................................................................. 4 Views of Responsible Officials .......................................................................................... 4 Restricted Use .................................................................................................................... 4 Schedule—Summary of Audit Results ................................................................................. 5 Findings and Recommendations ........................................................................................... 6 Appendix A—Audit Sampling Methodology Appendix B—California Governor’s Office of Emergency Services Response to Draft Audit Report California Governor’s Office of Emergency Services Payroll Audit Audit Report Summary The State Controller’s Office (SCO) audited the California Governor’s Office of Emergency Services’ (Cal OES) payroll process and transactions for the period of March 1, 2016, through February 28, 2019. Cal OES 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 December 9, 2019. Our audit determined that Cal OES did not:  Maintain adequate and effective internal controls over its payroll process, resulting in improper separation lump-sum and overtime payments, and improper holiday credit transactions. Cal OES also granted inappropriate keying access to the State’s payroll system;  Implement controls to limit the accumulation of vacation and annual leave credits, resulting in liability for excessive balances; and  Collect salary advances from its employees in a timely manner. 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 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. Authority for this audit is provided by California Government Code (GC) Audit section 12476, which states: Authority The Controller may audit the uniform state pay roll system, the State Pay Roll Revolving Fund, and related records of state agencies within the uniform state pay roll system, in such manner as the Controller may determine. In addition, GC section 12410 stipulates: 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. -1- California Governor’s Office of Emergency Services Payroll Audit Objectives, Scope, We performed this audit to determine whether Cal OES: 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. To achieve our audit objectives, we:  Reviewed state and Cal OES policies and procedures related to the payroll process to understand Cal OES’ methodology for processing various payroll and payroll-related transactions;  Interviewed Cal OES payroll personnel to understand Cal OES’ methodology for processing various payroll and payroll-related transactions, determine the employees’ level of knowledge and ability relating to payroll transaction processing, and gain an understanding of existing internal controls over the payroll process and systems;  Selected transactions recorded in the State’s payroll database using statistical sampling, as outlined in Appendix A, 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 Cal OES 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 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. -2- California Governor’s Office of Emergency Services Payroll Audit Conclusion Our audit determined that Cal OES:  Did not maintain adequate and effective internal controls over its payroll process.1 We found the following deficiency in internal control over the payroll process that we consider to be a material weakness: o Inappropriate keying access to the State’s payroll system (see Finding 1);  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 instance of noncompliance with the requirements of[collective bargaining agreements and state laws, regulations, policies, and procedures: o Improper payments for separation lump-sum pay, costing an estimated net total of $297,748 (see Finding 3); o Improper holiday credit transactions, with an estimated value of $2,283 (see Finding 4); o Excessive vacation and annual leave balances with a value of at least $870,995 (see Finding 5). 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 overtime payments, costing an estimated net total of $401,780 (see Finding 6); and 1 In planning and performing our audit of compliance, we considered Cal OES’ internal controls 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 and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. However, as discussed this section, we identified certain deficiencies in internal control over compliance that we consider to be a material weakness. 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- California Governor’s Office of Emergency Services Payroll Audit  Did not administer salary advances in accordance with collective bargaining agreements and state laws, regulations, policies, and procedures. Seven salary advances, totaling $8,378, remained outstanding as of February 28,2019, due to Cal OES’ noncompliance with the State’s collection policies and procedures (see Finding 2). Follow-up on There were no prior payroll audits and, consequently, no prior audit Prior Audit findings. Findings Views of We issued our draft audit report on January 5, 2021. Sheila Braverman, Assistant Director, Human Resources, responded by letter dated Responsible February 5, 2021 (Appendix B), did not disagree with the audit results and Officials provided corrective actions in the response. This final audit report includes Cal OES’ complete response. Restricted Use This audit report is solely for the information and use of Cal OES, the CalHR, 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 MICHAEL REEVES, CPA Acting Chief, Division of Audits May 3, 2021 -4- California Governor’s Office of Emergency Services Payroll Audit Schedule— Summary of Audit Results March 1, 2016, through February 28, 2019 Net Total Number of Dollar Number of Dollar Amount Dollar Amount Method of Units of Amount of Selections Selection of Selections of Known and Finding Audit Area Tested Selection Population Population Examined Unit Tested Likely Issues Number Inappropriate keying access to the Targeted N/A N/A 24 Employee N/A N/A 1 Stateʼs payroll system Targeted 7 $ 8 ,378 7 Employee $ 8 ,378 $ 8 ,378 2 Inadequate controls over salary advances, resulting in failure to recover outstanding balances in accordance with state laws and policies Inadequate controls over separation Statistical 267 5,190,905 1 05 Employee 1,481,017 3 lump-sum pay, resulting in improper payments – Overpayments -- See above -- 306,644 – Underpayments -- See above -- (8,896) Inadequate supervisory review over Targeted 6 2,283 6 Employee 2,283 2 ,283 4 holiday credit transactions, resulting in improper credits Inadequate controls over vacation Targeted N/A N/A 1 20 Employee 870,995 870,995 5 and annual leave balances, resulting in liability for excessive balances Improper overtime payments Statistical 1 7,765 22,548,685 45 Employee 6 111,664 – Overpayments -- See above -- 419,811 – Underpayments -- See above -- (16,031) 3 07 $ 2,474,337 $ 1,583,184 -5- California Governor’s Office of Emergency Services Payroll Audit Findings and Recommendations FINDING 1— Cal OES lacked adequate controls to ensure that only appropriate staff had keying access to the State’s payroll system. Cal OES inappropriately Inappropriate allowed eight 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, which all state agencies are required to follow in order to access the State’s payroll system. The manual’s objectives are to secure and protect the confidentiality and integrity of the data against misuse, abuse, and unauthorized use. Twenty-four Cal OES employees had keying access to the State’s payroll system at various times from March 2016, through February 2019. Of the 24 Cal OES employees, eight had inappropriate keying access to the State’s payroll system. Cal OES did not immediately remove or modify the employees’ keying access after their separation from state service, transfer to another agency or unit, or change in classification. The keying access of a Personnel Specialist who transferred to another state agency was not removed until October 1, 2018, 108 days after the separation. The Decentralized Security Program Manual (Revised January 2020), states, in part: Revocation and Deletion of User IDs 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 signed by both Security Monitor and Authorizing Manager to delete the user’s system access. Using an old user ID increases the risk of a security breach, which is a serious security violation. Sharing a user ID is strictly prohibited. Recommendation We recommend that Cal OES:  Provide adequate controls to ensure that employees with keying access to the State’s payroll system do not enter their own data into the system;  Update keying access to the State’s payroll system immediately after the employees leave Cal OES, transfer to another agency or unit, or change classifications; and  Periodically review access to the system to verify that access complies with the Decentralized Security Program Manual. -6- California Governor’s Office of Emergency Services Payroll Audit Cal OES’ Response Cal OES states that it implemented corrective actions, including ensuring that staff members with keying access do not enter their own data into the State’s payroll system; periodic review and updating of forms and checklists; communication with SCO’s Decentralized Security Administrator regarding employees whose access should be removed; and management review of access to the payroll system. FINDING 2— Cal OES failed to implement adequate controls over salary advances to ensure that advances were recovered in accordance with state law and Inadequate policies. Seven salary advances, totaling $8,378, remained outstanding as controls over of February 28, 2019, due to Cal OES’ noncompliance with the State’s salary advances, collection policies and procedures. The oldest uncovered salary advance resulting in failure was outstanding for almost a full year. If not mitigated, this control to recover deficiency leaves Cal OES at risk of failing to collect further salary outstanding advances. balances in accordance with As of March 1, 2019, Cal OES’ accounting records showed seven state law and outstanding salary advances, totaling $8,378, that had been outstanding for policies more than 90 days. Generally, the prospect of collection diminishes as an account ages. When an agency fails to initiate collection of the overpayment within three years, the possibility of collection is remote. GC section 19838 and State Administrative Manual (SAM) sections 8776 and 8776.7 describe the State’s collection policies and procedures, which require Cal OES to collect salary advances in a timely manner and maintain proper records of collection efforts. We examined the seven salary advances that had been outstanding for more than 90 days. Based on this examination, we noted that Cal OES did not comply with the State’s collection policies and procedures for all of them. Cal OES did not send collection notices promptly, or did not send the notices at all. The lack of adequate controls over salary advances reduces the likelihood of collection, increases the amount of resources expended on collection efforts, and negatively impacts cash flow. Recommendation We recommend that Cal OES:  Ensure that it recovers salary advances in a timely manner pursuant to GC section 19838 and SAM sections 8776 and 8776.7; and  Maintain documentation of its collection efforts, if any. -7- California Governor’s Office of Emergency Services Payroll Audit Cal OES’ Response Cal OES states that it recovered the seven salary advances totaling $8,378 and currently has a $0 balance of outstanding salary advances. Cal OES also notes that it established procedures for recovering salary advances outstanding for more than 90 days. Furthermore, Cal OES cites various tracking methods, including the Permanent Separation Transactions Checklist and the Salary Advance Tracking spreadsheet, that it uses to ensure that collection notices and salary advance payments are promptly collected and recorded. Cal OES failed to implement adequate controls, such as conducting FINDING 3— additional review, over the calculating and processing of employee Inadequate separation lump-sum pay. We identified $306,644 in overpayments and controls over $8,896 in underpayments for separation lump-sum pay, consisting of separation lump- $87,489 in overpayments and $2,538 in underpayments based on actual sum pay, resulting transactions audited (“known”); and $219,155 in overpayments and in improper $6,358 in underpayments based on the results of statistical sampling payments (“likely”). If not mitigated, these control deficiencies leave Cal OES at risk of making additional improper separation lump-sum payments. GC section 19839 allows lump-sum payments for accrued eligible leave credits when employees separate from state employment. Collective bargaining agreements include similar provisions regarding separation lump-sum pay. Payroll records show that Cal OES processed payments for separation lump-sum pay, totaling $5,190,905, for 267 employees between March 1, 2016, and February 28, 2019. We randomly selected a statistical sample of 105 employees who received separation lump-sum pay, totaling $1,481,017. Our examination of lump-sum payments made to these 105 employees showed that Cal OES overpaid 30 of them by approximately $87,489, and underpaid 12 of them by approximately $2,538. These payments resulted in an exception totaling $84,951. As we used a statistical sampling method to select the employees whose payments for separation lump-sum pay we examined, we projected the amount of likely overpayments to be $219,155 and likely underpayments to be $6,358. These payments resulted in a net total exception of $212,798. Therefore, the known and likely improper payments totaled a net approximate of $297,748, consisting of $306,644 in overpayments and $8,896. -8- California Governor’s Office of Emergency Services Payroll Audit The following table summarizes the results of our statistical sampling: Known improper and questioned payments, net $ 84,951 Divide by: Samples 1,481,017 Error rate 5.74% Population that was statistically sampled 5,190,905 Multiply by: Error rate 5.74% Known and likely improper and questioned payments, net 297,748 Less: Known improper and questioned payments, net 84,951 Likely improper and questioned payments, net $ 212,798 *Amounts in this table are rounded to the nearest dollar. Recommendation We recommend that Cal OES:  Establish adequate controls to ensure accurate calculation and payment of separation lump-sum pay;  Review all separation lump-sum payments made during the past three years to ensure that payments were accurate and in compliance with collective bargaining agreements and state law; and  Recover overpayments made to separated employees in accordance with GC section 19838 and SAM section 8776.6, and properly compensate those employees who were underpaid. Cal OES’ Response Cal OES states that it developed and implemented procedures to ensure accurate payment and calculation of separation lump-sum payments, and provided training to personnel specialists on how to exhaust leave credits. Cal OES notes that it is developing a process to review all lump-sum payments made in the past three years, as requested by SCO. Cal OES lacked adequate supervisory review of the monitoring and FINDING 4— processing of holiday credit transactions and did not identify clerical errors Inadequate that involved granting holiday credits in months that they were not earned. supervisory review We identified approximately $2,283 in improper holiday credits. We over holiday credit determined that the error identified is not a material issue. However, if not transactions, mitigated, this control deficiency leaves Cal OES at risk of granting resulting in additional improper holiday credits. improper credits GC section 19853 specifies the compensation that an eligible employee is entitled to receive when required work on a qualifying holiday. Collective bargaining agreements between the State and Bargaining Units 01, 04 and 12 include similar provisions regarding holiday compensation for represented employees. -9- California Governor’s Office of Emergency Services Payroll Audit Leave accounting records showed that Cal OES processed 6,251 accrual transactions of holiday credit. We examined seven transactions with an estimated value of $2,283 because they involved unusual credits. All seven holiday credit transactions were improper because payroll transactions unit staff members granted holiday credits to employees during pay periods with no holidays and improperly calculated holiday credit hours. Cal OES also lacked adequate supervisory review to ensure accurate processing of holiday credits GC sections 13400 through 13407 require state agencies to establish and maintain internal controls, including an effective system of internal review Recommendation We recommend that Cal OES:  Review all holiday credits granted during the past three years to ensure that credits complied with collective bargaining agreements and state laws;  Correct any improper holiday credits in the State’s leave accounting system; and  Establish adequate controls to ensure that holiday credits granted are valid and comply with collective bargaining agreements and state laws Cal OES’ Response Cal OES states that it developed and implemented adequate controls over holiday credits granted. Cal OES notes that it provided training to personnel specialists, other employees, and managers on differentiating between bargaining units and applying holiday credits. Cal OES is implementing a new timekeeping system that will help identify correct earning and usage of holiday credit. In the interim, Cal OES notes that it has been conducting an in-house review of all holiday credits granted during the past three years, as requested by SCO. Cal OES failed to implement controls to ensure that it adheres to collective FINDING 5— bargaining agreements and state regulations to limit the accumulation of Inadequate vacation and annual leave credits. The deficiency resulted in a liability for controls over excess leave balances with a value of at least $870,995 as of February 28, vacation and 2019.2 We expect the liability to increase if Cal OES does not take action annual leave to address the excessive vacation and annual leave balances. balances, resulting in liability for Collective bargaining agreements and state regulations limit the amount excessive balances of vacation and annual leave that most state employees may accumulate to no more than 80 days (640 hours). The limit on leave balances helps state agencies manage leave balances and control the State’s liability for accrued leave credits. State agencies may allow employees to carry a higher leave balance only under limited circumstances. For example, an 2 At the time of our audit, we used the most recent and complete vacation and annual leave balances, which were as of February 28, 2019. -10- California Governor’s Office of Emergency Services Payroll Audit employee may not be able to reduce accrued vacation or annual leave hours below the limit due to business needs. When an employee’s leave accumulation exceeds or is projected to exceed the limit, state agencies should work with the employee to develop a written plan for reducing leave balances below the applicable limit. Our examination of Cal OES’ leave accounting records determined that Cal OES had 995 employees with unused vacation or annual leave credits as of February 28, 2019. Of those employees, 120 exceeded the limit set by collective bargaining agreements and state regulations. For example, one employee had an accumulated balance of 1,583 hours of vacation leave, or 943 hours beyond the 640-hour limit. Collectively, the 120 employees accumulated 18,906 hours of excess vacation and annual leave, with a value of at least $870,995 as of February 28, 2019. This estimated liability does not adjust for salary rate increases and additional leave credits.3 Accordingly, we expect that the amount needed to pay for this liability will be higher. We selected 120 employees for examination to determine whether Cal OES complied with collective bargaining agreements and state regulations. When we discussed the records of these employees with the personnel office staff, they indicated that Cal OES had no plans in place during the audit period for reducing leave balances below the limit. Cal OES also 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. If Cal OES 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, increasing their vacation or annual leave balances. The state agency responsible for paying these leave balances may face a cash flow problem if a significant number of employees with excessive vacation or annual leave balances separate from state service. Normally, state agencies are not budgeted to make these separation lump-sum payments. However, the State’s current practice dictates that the state agency that last employed an employee pays for that employee’s lump sum separation payment regardless of where the employee accrued the leave balance. Although an October 20, 2020 directive from CalHR 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 to 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. 3 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 the time off and not separated from state service. -11- California Governor’s Office of Emergency Services Payroll Audit Recommendation We recommend that, after the 2020 PLP ends, or July 1, 2022, whichever is sooner, Cal OES:  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. Cal OES’ Response Cal OES states that its Leave Reduction Plan is in place to ensure that employees reduce leave balances to approved levels, and that Cal OES employees reduced excess leave by 50,000 hours in 2019. However, Cal OES notes that due to the 2020 PLP, the Leave Reduction Plan was postponed; until the 2020 PLP ends, Cal OES will track leave balances. Cal OES states that it has not had sufficient funds to participate in recent leave buy-back programs; however, it will continue its yearly funding analysis and participate in these programs when funds are available. Cal OES lacked adequate controls over the processing of overtime pay to FINDING 6— ensure the payments were calculated correctly. Payroll transaction unit Improper overtime staff members miscalculated overtime hours worked, which resulted in payments improper payments. We identified $419,811 in overpayments and $16,031 in underpayments for overtime, consisting of $2,079 in overpayments and $79 in underpayments based on actual transactions examined (“known”); and $417,732 in overpayments and $15,952 in underpayments based on the results of our statistical sampling (“likely”). If not mitigated, these control deficiencies leave Cal OES at risk of making additional improper payments for overtime. Collective bargaining agreements, and state laws and policies, contain specific clauses regarding overtime pay. Payroll records show that Cal OES processed payments for overtime, totaling $22,548,685, for 17,765 overtime transactions between March 1, 2016 and February 28, 2019. Of the 17,765 overtime transactions, we randomly selected a statistical sample (as described in Appendix A) of 45 employees who received overtime pay, totaling $111,664. Our examination of overtime payments made to those 45 employees found that Cal OES overpaid two of them approximately $2,079 and underpaid two of them by approximately $79. These payments resulted in net total improper payments of $2,000. As we used a statistical sampling method to select the employees whose payments for overtime pay were examined, we projected the amount of likely overpayments to be $417,732 and likely underpayments to be -12- California Governor’s Office of Emergency Services Payroll Audit $15,952. These payments resulted in net total improper payments of $401,780. Therefore, the known and likely improper payments totaled a net of approximately $403,780, consisting of $419,811 in overpayments and $16,031 in underpayments. The following table summarizes the results of our statistical sampling: Dollar amount of exceptions, net $ 2,000 Divide by: Dollar amount sampled 111,664 Error rate 1.79% Population that was statistically sampled 22,548,685 Multiply by: Error rate 1.79% Known and likely improper and questioned payments, net 403,780 Less: Known dollar exceptions 2,000 Likely dollar exceptions $ 401,780 *Amounts in this table are rounded to the nearest dollar. The underpayments and overpayments were made because payroll transactions unit staff members incorrectly paid overtime hours at the straight-time rate instead of the time-and-a-half rate or vice versa, for intermittent employees who were eligible for overtime. GC sections 13402 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 Cal OES:  Review all payments for overtime 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 the employees through 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 overtime pay from recurring, Cal OES:  Establish adequate internal controls to ensure that payments are accurate and comply with collective bargaining agreements and state laws and policies;  Review the timekeeping system and ensure that it is not improperly rounding overtime hours worked; and  Provide adequate oversight to ensure that payroll transactions unit staff members process only valid and authorized payments that -13- California Governor’s Office of Emergency Services Payroll Audit comply with collective bargaining agreements and state laws and policies. Cal OES’ Response Cal OES states that it developed and implemented procedures to ensure accurate payment and calculation of overtime payments, including designated personnel specialists who review overtime entries; and keying overtime from SCO Form 672 (Time and Attendance form). Cal OES notes that it has adequate oversight to ensure that staff members process only valid and authorized payments. Cal OES is implementing a new timekeeping system that will help ensure the accuracy of overtime compensation. Cal OES notes that it is developing a process to review all overtime payments made in the past three years, as requested by SCO. -14- Governor’s Office of Emergency Services Payroll Audit Appendix A— Audit Sampling Methodology We used attributes sampling for tests of compliance. The following table outlines our audit sampling application: Results Expected Projected to Audit Type Population Population Sampling Sample Selection Confidence Tolerable Error Sample Intended Finding Area of Test (Unit) (Dollar) Unit Method Level Error Rate (Rate) ¹ Size2 Population Number Computer-generated Separation lump-sum pay Compliance 267 $ 5,190,905 Employee 90% 5% 1.50% 105 Yes sample random 3 Internal Computer-generated Overtime pay Employee 90% 5% 0.00% 6 control 17,765 $ 22,548,685 sample random 45 No Computer-generated Overtime pay Compliance Employee 90% 5% 1.50% 45 Yes 6 17,765 $ 22,548,685 sample random ________________ ¹ Pursuant to the AICPA’s Audit Guide: Audit Sampling (May 1, 2017 edition), pages 131-133, the expected error is the expected number of errors planned for in the sample. It is derived by multiplying the expected error rate by the sample size. The expected number of errors in the sampling tables on pages 135-136 was rounded upward, e.g., 0.2 errors becomes 1.0 error. 2 For population of less than 250 items, we determined the sample size using a calculator that utilizes a hypergeometric distribution. For population 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. Governor’s Office of Emergency Services Payroll Audit Appendix B— California Governor’s Office of Emergency Services Response to Draft Audit Report Cal OES Attachment 1 Cal OES Attachment 1 Cal OES Attachment 1 Cal OES Attachment 1 Cal OES Attachment 1 Cal OES Attachment 2 Cal OES Attachment 3 Cal OES Attachment 3 Cal OES Attachment 4 Cal OES Attachment 5 Cal OES Attachment 6 Reason (ADM, Date Date Warrant Letter RPA, Emailed SCO, Acctg to Number Residual (- Letter 2 Date of Employee AGY/ request to Pay FIN, ETC) Clear Warrant Warrant ) Balance Sent? Date Sent? Date Request Name Unit Specialist Acct. Period Amount S/A Amount Date (+) Y/N Sent Y/N Sent NOTES employees owes 42.29, cleared by check Cal OES Attachment 7 Date of Running Defer to Date Date LSP next out SA Pot AB Effective Date 2 tax Curent Package Date LS Last First Position Number Defer tax leave Issued 2410 NOTES Date Notified years tax year to SCO or Paid (Y/N) year prior to (Y/N) (Y/N) (Y/N) sent keyed sent Sep. COBRA Y/N JANUARY Bardwell Cameron 1/3/2020 163-266-4926-002 12/23/2019 N N N N N N N 1/3/2020 1/4/2019 Declined Salry advance Murrey Brooke 1/17/2020 163-412-5393-001 12/11/2019 N N N N N N Y 1/17/2020 1/21/2020 Norton James 1/23/2020 163-756-6911-905 1/8/2020 N N N N N N Y 1/21/2020 2/4/2020 Medical Unit Russell Nan 1/16/2020 163-272-9927-001 1/7/2020 N N N N N N N 1/23/2020 1/30/2020 SCO keyed Y Johnson Heather 1/10/2020 163-812-1139-904 1/8/2020 N N N N N N N 1/13/2019 none Declined Salry advance Enriquez Erika 9/30/2019 163-814-1138-904 1/24/2020 N N N N N N N 1/29/2020 none Jacobs Justin 1/30/2020 163-118-5595-904 2/6/2020 N N N N N N N 1/29/2020 1/30/2020 FEBRUARY Newquist Laura 2/1/2020 163-274-8085-002 1/15/2020 N N N N N N N 1/27/2020 1/28/2020 Stephens Marklyn 2/7/2020 163-122-1432-905 1/24/2020 N N N N N N N 2/6/2020 2/7/2020 Berry Chris 2/18/2020 163-300-5393-904 1/29/2020 N N N N N N Y 2/11/2020 2/12/2020 used lsv to collect for 2/10/2020 163-113-5157-904 Dierking Mathew 2/7/2020 N N N N N N N 2/7/2020 2/10/2020 AR Gottlob Jeanelle 2/22/2020 163-791-5393-002 2/5/2020 N N N N N N N 2/18/2020 2/19/2020 2/28/2020 163-430-8030-904 Mitchem Larry 2/27/2020 N N N N N N N 2/28/2020 3/3/2020 declined salary advance Nunez Steve 2/29/2020 163-295-2881-001 2/18/2020 N N N N N N N 2/20/2020 2/21/2020 Webb Janice 12/27/2019 163-308-8085-904 2/18/2020 N N N N N N N 12/24/2019 1/30/2020 final lsv issue in 2020 2/28/2020 163-720-7500-001 Araj Nadar 2/28/2020 N N N N N N N 2/28/2020 3/3/2020 declined salary advance MARCH Lopez Phillip 3/1/2020 163-759-6910-009 11/19/2020 Y N 2/14/2020 N N N N 2/25/2020 2/26/2020 delay do to program not 3/13/2020 163-855-5393-904 submitting final Perez Angel 3/5/2020 N N N 3/17/2020 3/18/2020 timesheet until 3/17/20 Cotrill Dorothy 3/31/2020 163-800-4802-904 3/26/2020 N N N N N N N 3/27/2020 None Sidhu Debi 3/31/2020 163-405-1138-904 3/26/2020 N N N N N N N 4/1/2020 None Death, Medical unit will 3/25/2020 163-457-5393-002 Guiterriez Abraham 4/8/2020 N N N N N N Y 4/8/2020 NA key Stolz Rick 3/10/2020 163-800-4802-904 5/27/2020 N N N N N N N 5/27/2020 NA APRIL Schultz Jeff 4/10/2020 163-322-4926-006 4/2/2020 N N N N N N Y NA NA Turney Jo 4/23/2020 163-405-5393-904 4/23/2020 N N N N N N N 4/22/2020 none Willyard Eddie 4/27/2020 163-791-5393-904 4/24/2020 N N N N N N N 4/28/2020 none Stark Ginessa 4/30/2020 163-118-5601-904 3/30/2020 N N N N N N N 4/28/2020 4/29/2020 MAY Banning Brian 5/1/2020 163-364-5314-905 1/8/2020 N N N N N N Y 4/28/2020 4/29/2020 Schultz Jeff 5/30/2020 163-322-4926-006 4/2/2020 N N N N N N Y NA NA Novak Jamie 5/30/2020 163-341-4926-001 5/18/2020 5//20 5/288/20 going to CSU Schulze Steven 5/30/2020 163-753-6910-004 5/18/2020 N N N N N 5/22/2020 5/26/2020 corrctions being made 5/29/2020 163-299-7500-001 Ayre James 5/15/2020 Y N N N N N 5/22/2020 6/12/2020 to EH from dept of Mil Haddox Jerry 5/31/2020 163-748-3637-001 3/5/2020 Y N Y N N N N 6/2/2020 6/3/2020 Cal OES Attachment 7 JUNE Armas Lidia 6/1/2020 163-443-8085-001 5/18/2020 Y N N N Y N N 5/22/2020 6/12/2020 Garcia Richard 6/12/2020 163-726-5171-006 5/14/2020 N N N N N N N 6/9/2020 6/10/2020 Accinelli Katie 6/13/2020 163-879-5393-004 5/22/2020 N N N N N N N 6/11/2020 6/12/2020 Haddox Jerry 6/1/2020 5/29/2020 N N N N N N N 6/2/2020 6/3/2020 Ford Brian 6/1/2020 163-785-1501-904 5/29/2020 N N N N N N N 6/2/2020 NA Jenkins Dawn 6/8/2020 163-365-1139-001 6/8/2020 N N N N N N N 6/8/2020 6/10/2020 Lemmon John 6/30/2020 163-730-3637-001 N N N N N N 6/24/2020 6/25/2020 Berendsen Joseph 6/30/2020 163-760-6910-002 6/17/2020 Y N Y N N N N 6/29/2020 7/2/2020 July Dixon Lisa 7/1/2020 163-879-5393-05 6/15/2020 6/24/2020 6/25/2020 Cannie Anna 7/3/2020 163-841-1303-003 5/3/2020 N N N N N N N 7/2/2020 7/3/2020 Johnson Mark 7/4/2020 163-364-5314-905 7/29/2020 N N N N N N N 7/27/2020 7/29/2020 Haro Marissa 7/11/2020 163-879-5393-033 6/5/2020 N N N N N N N 6/24/2020 6/25/2020 Sutkus Adam 7/15/2020 163-294-2881-001 5/14/2020 N N N N N N N 7/14/2020 7/16/2020 Waived Salary Mejorado Theresa 7/25/2020 163-322-4926-004 7/13/2020 N N N N N N N 7/21/2020 7/23/2020 Budnovich Joy 7/22/2020 163-354-1670-001 7/14/2020 N N N N N N N 7/21/2020 7/22/2020 Shemenski Denise 7/31/2020 163-131-8085-904 7/21/2020 N N N N N N N 7/28/2020 7/29/2020 Anderson Carla 7/25/2020 163-565-1139-904 7/23/2020 N N N N N N N 7/23/2020 NONE Smalley Malachi 7/28/2020 163-341-4926-002 7/27/2020 N N N N N N N 7/27/2020 7/28/2020 Watkins Soccoro 4/9/2020 163-796-4900--904 8/20/2020 N N N N N N N 8/21/2020 None Gregson Barbara 7/1/2020 163-791-1138-904 8/18/2020 N N N N N N N 8/27/2020 None August McCowan Felicia 8/20/2020 163-744-5135-001 5/14/2020 N N N N N N Y 7/31/2020 8/4/2020 Leal-Markham Shauna 8/1/2020 163-331-4926-009 7/22/2020 N N N N N N N 7/27/2020 7/28/2020 Kong Elaine 8/22/2020 163-118-5601-001 8/11/2020 N N N N N N Y 8/19/2020 8/20/2020 Almquist Cheryl 8/1/2020 163-565-5393-904 8/1/2020 N N N N N N Y 8/21/2020 NA September Perry Tim 9/10/2020 163-120-9484-001 6/15/2020 N N N N Y N N 9/10/2020 9/11/2020 Briggs Pat 9/1/2020 163-875-4159-001 8/18/2020 N N N N N N Y 8/19/2020 8/20/2020 Jones-Roberts Chris 9/16/2020 163-318-5758-001 8/26/2020 N N N N N N Y 9/14/2020 9/15/2020 Lamoureux Eric 9/28/2020 163-310-9498-001 8/25/2020 N N N N N N Y 9/24/2020 9/28/2020 Roberts Wally 9/11/2020 163-747-3637-001 8/25/2020 N N N N N N N 9/7/2020 9/8/2020 Christensen Eric 9/11/2020 163-438-4924-001 9/1/2020 N N N N N N 9/10/2020 9/11/2020 Cannon Samuel 8/29/2020 163-570-8030-006 8/20/2020 N N N N N N Y 8/25/2020 8/27/2020 Yang Chue 9/11/2020 163-723-1414-002 9/30/2020 N N N N N N N 9/30/2020 NA Daniel Lena 9/26/2020 163-150-4801-002 9/24/2020 N N N N N N Y 9/24/2020 10/1/2020 Riddle Nina 9/10/2020 163-510-5157-010 9/15/2020 N N N N N N N 9/2/2020 9/3/2020 Cal OES Attachment 7 October Palmer Gina 10/1/2020 163-296-5393-001 9/15/2020 9/23/2020 9/28/2020 Bondshu William 10/31/2020 163-357-8188-003 8/12/2020 N N N N N N Y 10/2/2020 11/23/2020 Burgess-Alex Cassandra 10/6/2020 163-876-5393-004 10/7/2020 N N N N N Y Y 10/9/2020 10/10/2020 Zanni Kyle 10/30/2020 163-756-6911-001 10/7/2020 N N N N N N N 10/28/2020 10/29/2020 Brown Greg 10/16/2020 163-757-6910-904 10/5/2020 N N N N N N Y 10/14/2020NA Dunbar Janice 10/1/2020 163-355-8188-904 11/5/2020 N N N N N N N 11/6/2020NA Nelson Darren 10/1/2020 163-369-5314-905 10/22/2020 N N N N N N N 9/28/2020 9/30/2020 November December Ladieu Jr Francis 12/1/2020 163-724-3640-001 10/21/2020 n n n n n n n 11/24/2020 NA Whitehorn Larry 12/1/2020 163-704-6220-003 10/21/2020 n n n n n n n 11/20/2020 11/28/2020 Hackney Karma 12/2/2020 163-551-4924-001 10/21/2020 n n n n n n n 11/20/2020 11/23/2020 Siligo Steve 12/2/2020 163-355-4926-904 11/4/2020 n n n n n n n 12/1/2020 NA Hensley Jerid 12/4/2020 163-369-5314-905 11/12/2020 n n n n n n n 12/2/2020 Asghari Maurine 12/16/2020 163-510-5393-001 11/4/2020 Y n n n n n n 12/7/2020 Krimsky Matt 12/18/2020 163-289-2881-006 10/7/2020 Tahan Nikka 12/31/2020163-250-1996-904 12/8/2020 N N N N N N N 12/22/2020 12/23/2020 Lewis Robert 12/30/2020163-298-2882-001 12/7/2020 Y n 12/9/2020 n n n n 12/9/2020 Huls Douglas 12/13/2020163-342-8085-002 12/10/2020 N N N N N N N 12/10/2020 Nicholson Lucia 12/31/2020 163-748-3640-005 11/5/2020 Y N Y N 12/2/2020 Jackson Karen 12/30/2020 163-297-2881-009 11/3/2020 Y N 12/9/2020 N N N N 12/9/2020 Gilly Mondonna 12/1/2020163-570-4687-904 12/11/2020 N N N N N N N 12/11/2020 Ferderer John 12/30/2020 163-739-4800-001 11/2/2020 N N N N N N N 12/28/2020 12/30/2020 Pao Edward 12/20/2020 163-531-8025-004 11/4/2020 12/18/2020 Lococo Michael 12/31/2020 163-352-8188-904 10/28/2020 N N N N N N N 12/21/2020 12/22/2020 Brown Sonia 12/16/2020 163-342-8085-001 12/11/2020 N N N N N N N 12/14/2020 Thompson Brenna 12/16/2020 163-250-1996-904 12/10/2020 N N N N N N N 12/14/2020 12/15/2020 Lamb Mark 11/17/2020 163-855-4160-904 12/9/2020 N N N N N N N 12/14/2020 NA Worman Ken N N N N N N N Cota James 12/18/2020 163-553-8030-001 N N N N N N N 12/15/2020 Hana Joy 12/31/2020 163-308-8085-001 11/6/2020 N N N N N N N 12/21/2020 12/22/2020 Cal OES Attachment 8 Employee Control Number Position Number Directorate Last day worked Lump sum thru Lump Sum Type of Comments date Payout Amount Separation Cal OES Attachment 9 Cal OES Attachment 9 Cal OES Attachment 9 Cal OES Attachment 9 Cal OES Attachment 10 Cal OES Attachment 10 Cal OES Attachment 10 State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250 http://www.sco.ca.gov S19-PAR-0020