Glendale Community College District

GLENDALE COMMUNITY COLLEGE DISTRICT Audit Report HEALTH FEE ELIMINATION PROGRAM nd Chapter 1, Statutes of 1984, 2 E.S., and Chapter 1118, Statutes of 1987 July 1, 2000, through June 30, 2002 STEVE WESTLY California State Controller August 2004 STEVE WESTLY California State Controller August 10, 2004 John Davitt, Ed.D. Superintendent/President Glendale Community College District 1500 North Verdugo Road Glendale, CA 91208 Dear Dr. Davitt: The State Controller’s Office has completed an audit of the claims filed by Glendale Community College District for costs of the legislatively mandated Health Fee Elimination Program (Chapter 1, Statutes of 1984, 2nd Extraodinary Session, and Chapter 1118, Statutes of 1987) for the period of July 1, 2000, through June 30, 2002. The district claimed $615,749 for the mandated program. Our audit disclosed that $484,702 is allowable and $131,047 is unallowable. The unallowable costs occurred because the district claimed ineligible costs and understated other reimbursement offsets. The district was paid $133,557. Allowable costs claimed in excess of the amount paid, totaling $351,145, will be paid by the State based on available appropriations. If you have any questions, please contact Jim L. Spano, Chief, Compliance Audits Bureau, at (916) 323-5849. Sincerely, Original Signed By: VINCENT P. BROWN Chief Operating Officer VPB:JVB/jj cc: Ron Nakasone, Controller Glendale Community College District Ed Monroe, Program Assistant Fiscal Accountability Section Chancellor’s Office California Community Colleges Jeannie Oropeza, Program Budget Manager Education Systems Unit Department of Finance Charles Pillsbury School Apportionment Specialist Department of Finance Glendale Community College District Health Fee Elimination Program Contents Audit Report Summary............................................................................................................................ 1 Background........................................................................................................................ 1 Objective, Scope, and Methodology................................................................................. 2 Conclusion.......................................................................................................................... 2 Views of Responsible Officials.......................................................................................... 3 Restricted Use.................................................................................................................... 3 Schedule 1—Summary of Program Costs........................................................................... 4 Findings and Recommendations........................................................................................... 5 Attachment—District’s Response to Draft Audit Report Steve Westly • California State Controller Glendale Community College District Health Fee Elimination Program Audit Report Summary The State Controller’s Office (SCO) has completed an audit of the claims filed by Glendale Community College District for costs of the legislatively mandated Health Fee Elimination Program (Chapter 1, Statutes of 1984, 2nd Extraordinary Session (E.S.) and Chapter 1118, Statutes of 1987) for the period of July 1, 2000, through June 30, 2002. The last day of fieldwork was February 18, 2004. The district claimed $615,749 for the mandated program. The audit disclosed that $484,702 is allowable and $131,047 is unallowable. The unallowable costs occurred because the district claimed ineligible costs and understated other reimbursement offsets. The district was paid $133,557. Allowable costs claimed in excess of the amount paid, totaling $351,145, will be paid by the State based on available appropriations. Background Chapter 1, Statutes of 1984, 2nd E.S., repealed Education Code Section 72246, which had authorized community college districts to charge a health fee for providing health supervision and services, direct and indirect medical and hospitalization services, and operation of student health centers. This statue also required that health services for which a community college district charged a fee during fiscal year (FY) 1983-84 had to be maintained at that level in FY 1984-85 and every year thereafter. The provisions of this statute would automatically sunset on December 31, 1987, which would reinstate the community college district’s authority to charge a health fee as specified. Chapter 1118, Statutes of 1987, amended Education Code Section 72246 to require any community college district that provided health services in FY 1986-87 to maintain health services at the level provided during that year in FY 1987-88 and each fiscal year thereafter. On November 20, 1986, the Commission on State Mandates (COSM) determined that Chapter 1, Statutes of 1984, 2nd E.S., imposed a “new program” upon community college districts by requiring any community college district that provided health services for which it was authorized to charge a fee–pursuant to former Education Code Section 72246 in FY 1983-84–to maintain health services at the level provided during that year in FY 1984-85 and each fiscal year thereafter. This maintenance-of- effort requirement applied to all community college districts that levied a health services fee in FY 1983-84, regardless of the extent to which the health services fees collected offset the actual costs of providing health services at the FY 1983-84 level. On April 27, 1989, COSM determined that Chapter 1118, Statutes of 1987, amended this maintenance-of-effort requirement to apply to all community college districts that provided health services in FY 1986-87, and required them to maintain that level in FY 1987-88 and each fiscal year thereafter. Steve Westly • California State Controller 1 Glendale Community College District Health Fee Elimination Program Parameters and Guidelines, adopted by COSM on August 27, 1987 (and amended May 25, 1989), establishes the state mandate and defines criteria for reimbursement. In compliance with Government Code Section 17558, the SCO issues claiming instructions for each mandate requiring state reimbursement to assist school districts and local agencies in claiming reimbursable costs. Objective, The audit objective was to determine whether costs claimed are increased Scope, and costs incurred as a result of the Health Fee Elimination Program (Chapter 1, Statutes of 1984, and Chapter 1118, Statutes of 1987) for the period of Methodology July 1, 2000, through June 30, 2002. The auditor performed the following procedures: • Reviewed the costs claimed to determine if they were increased costs resulting from the mandated program; • Traced the costs claimed to the supporting documentation to determine whether the costs were properly supported; • Confirmed that the costs claimed were not funded by another source; and • Reviewed the costs claimed to determine that the costs were not unreasonable and/or excessive. The SCO conducted the audit in accordance with Government Auditing Standards, issued by the Comptroller General of the United States, and under the authority provided for under Government Code Section 17558.5. The SCO did not audit the district’s financial statements. The scope was limited to planning and performing audit procedures necessary to obtain reasonable assurance concerning the allowability of expenditures claimed for reimbursement. Accordingly, transactions were examined, on a test basis, to determine whether the amounts claimed for reimbursement were supported. Review of the district’s internal controls was limited to gaining an understanding of the transaction flow and claim preparation process as necessary to develop appropriate auditing procedures. Conclusion The audit disclosed instances of noncompliance with the requirements outlined above. These instances are described in the accompanying Summary of Program Costs (Schedule 1) and in the Findings and Recommendations section of this report. For the audit period, Glendale Community College District claimed $615,749 for costs of the legislatively mandated Health Fee Elimination Program. The audit disclosed that $484,702 is allowable and $131,047 is unallowable. Steve Westly • California State Controller 2 Glendale Community College District Health Fee Elimination Program For FY 2000-01, the district was paid $63,493 by the State. The audit disclosed that $227,941 is allowable. Allowable costs claimed in excess of the amount paid, totaling $164,448, will be paid by the State based on available appropriations. For FY 2001-02, the district was paid $70,064 by the State. The audit disclosed that $256,761 is allowable. Allowable costs claimed in excess of the amount paid, totaling $186,697, will be paid by the State based on available appropriations. Views of The SCO issued a draft audit report on May 28, 2004. Ron Nakasone, Responsible Controller, responded by the attached letter dated June 14, 2004, agreeing with the audit results with the exception of Finding 2. The Officials district’s response is included in this final audit report. Restricted Use This report is solely for the information and use of Glendale Community College District, 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 report, which is a matter of public record. Original Signed By: JEFFREY V. BROWNFIELD Chief, Division of Audits Steve Westly • California State Controller 3 Glendale Community College District Health Fee Elimination Program Schedule 1— Summary of Program Costs July 1, 2000, through June 30, 2002 Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustments Reference 1 July 1, 2000, through June 30, 2001 Salaries and benefits $ 324,107 $ 324,107 $ — Services and supplies 32,875 32,875 — Capital outlay 54,796 54,796 — Total direct costs 411,778 411,778 — Indirect costs 161,372 64,073 (97,299) Finding 2 Subtotals, health expenditures 573,150 475,851 (97,299) Less costs subject to fee authority (246,639) (244,322) 2,317 Finding 3 Subtotals 326,511 231,529 (94,982) Less offsetting savings/reimbursements (551) (3,588) (3,037) Finding 4 Total costs $ 325,960 227,941 $ (98,019) Less amount paid by the State (63,493) Allowable costs claimed in excess of (less than) amount paid $ 164,448 July 1, 2001, through June 30, 2002 Salaries and benefits $ 363,444 $ 363,444 $ — Services and supplies 64,736 36,853 (27,883) Finding 1 Capital outlay 5,165 5,165 — Total direct costs 433,345 405,462 (27,883) Indirect costs 171,509 163,550 (7,959) Finding 2 Subtotals, health expenditures 604,854 569,012 (35,842) Less costs subject to fee authority (310,929) (308,115) 2,814 Finding 3 Subtotals 293,925 260,897 (33,028) Less offsetting savings/reimbursements (4,136) (4,136) — Finding 4 Total costs $ 289,789 256,761 $ (33,028) Less amount paid by the State (70,064) Allowable costs claimed in excess of (less than) amount paid $ 186,697 Summary: July 1, 2000, through June 30, 2002 Salaries and benefits $ 687,551 $ 687,551 $ — Services and supplies 97,611 69,728 (27,883) Finding 1 Capital outlay 59,961 59,961 — Total direct costs 845,123 817,240 (27,883) Indirect costs 332,881 227,623 (105,258) Finding 2 Subtotals, health expenditures 1,178,004 1,044,863 (133,141) Less costs subject to fee authority (557,568) (552,437) 5,131 Finding 3 Subtotals 620,436 492,426 (128,010) Less offsetting savings/reimbursements (4,687) (7,724) (3,037) Finding 4 Total costs $ 615,749 484,702 $ (131,047) Less amount paid by the State (133,557) Allowable costs claimed in excess of (less than) amount paid $ 351,145 _______________________________________________ 1 See the Findings and Recommendations section. Steve Westly • California State Controller 4 Glendale Community College District Health Fee Elimination Program Findings and Recommendations FINDING 1— The district claimed unallowable athlete insurance costs totaling $27,883 for FY 2001-02. District staff members believed that these costs were Unallowable student eligible for reimbursement. insurance Parameters and Guidelines states that the cost of insurance is reimbursable for the following activities: (1) on campus accident, (2) voluntary, and (3) insurance inquiry/claim administration. Education Code Section 76355(d) (formerly Section 72246(2)) states that athletic insurance is not an authorized expenditure for health services. Recommendation The district should ensure that all costs claimed are within the scope of Parameters and Guidelines for the program. District’s Response The district agrees with this finding. FINDING 2— The district overstated indirect costs claimed by $105,258 for the audit period. Unallowable indirect costs The district claimed indirect costs by applying the indirect cost rate it calculated of 49.79% for FY 2000-01 and 47.19% for FY 2001-02 to salaries and benefits. The district did not receive federal approval to apply its indirect cost rate proposal (ICRP) to FY 2000-01. Therefore, the SCO auditor calculated indirect costs using the methodology described in the SCO claiming instructions using Form FAM-29C. Consistent with this methodology, the SCO auditor calculated the indirect cost rate of 15.56% and applied that rate to total direct costs, resulting in overstated claimed costs of $97,299. The district also did not receive federal approval to apply its ICRP to FY 2001-02. However, the district did receive federal approval to calculate indirect costs by applying 45% for salaries and wages to FY 2002-03 and FY 2003-04. The indirect cost rate was based on FY 2001-02 actual expenditures. Consistent with the SCO claiming instructions, the auditor calculated FY 2001-02 indirect costs using the 45% indirect cost rate, resulting in overstated claimed costs of $7,959. Parameters and Guidelines states that indirect costs may be claimed in the manner described in the SCO claiming instructions, which state that community college districts using an ICRP prepared in accordance with Office of Management and Budget (OMB) Circular A-21 must obtain federal approval of the ICRP. If the federal rate is used, it must be from the same fiscal year in which the costs were incurred. Alternately, the Steve Westly • California State Controller 5 Glendale Community College District Health Fee Elimination Program SCO claiming instructions allow community college districts to compute an indirect cost rate using Form FAM-29C, which is based on total expenditures as reported in California Community Colleges Annual Financial and Budget Report, Expenditures by Activity (CCFS-311). Based on the allowable indirect cost rate methodology, the audit adjustments are as follows: Fiscal Year 2000-01 2001-02 Total Allowable direct costs claimed $ 411,778 $ — Allowable salaries and wages — 363,444 Allowable indirect cost rate × 15.56% × 45.00% Allowable indirect costs 64,073 163,550 $ 227,623 Less indirect costs claimed (161,372) (171,509) (332,881) Audit adjustment $ (97,299) $ (7,959) $ (105,258) Recommendation The district should claim indirect costs based on indirect cost rates computed in accordance with the SCO claiming instructions. District’s Response The parameters and guidelines from the State Controller’s Mandated Cost Manual for Schools states the following on Indirect Cost Rates for Community Colleges: “A college has the option of using a federally approved rate, utilizing the cost accounting principles from Office of Management and Budget Circular A-21 “Cost Principles for Educational Institutions,” or the State Controllers methodology outlined in the following paragraphs. If the federal rate is used, it must be from the same fiscal year in which the cost were incurred.” The audit disallowed $111,460 of indirect costs for fiscal year 2001-02 because we did not use the State Controllers methodology for computing indirect costs. However, the college did apply and did receive a federally approved rate based on fiscal year 2001-02 expenses. Attached is the agreement which we received from the Department of Health and Human Services approving a 45.0% indirect cost rate. On our claim, we claimed a 47.19% rate. As a result, only 2.19% (47.19%-45.0%) or $7,959 should be disallowed for fiscal year 2001-02’s indirect cost. This will reduce our disallowed costs for the two-year period by $103,501. SCO’s Comment The SCO agrees with the district’s position and has updated the finding for FY 2001-02. The updated finding applies a federally approved indirect cost rate of 45% to allowable salaries and benefits rather than applying the SCO FAM-29C rate of 14.81% to total direct costs. As a result, the unallowable costs for FY 2001-02 were reduced by $103,501, from $111,460 to $7,959. Steve Westly • California State Controller 6 Glendale Community College District Health Fee Elimination Program FINDING 3— The district overstated authorized health fee revenues by $5,131 for the audit period. Overstated authorized health fee revenues Parameters and Guidelines states that health fees authorized by the claimed Education Code must be deducted from costs claimed. Education Code Section 76355(c) states that health fees are authorized from all students except those students who: (1) depend exclusively on prayer for healing; (2) are attending a community college under an approved apprenticeship training program; or (3) demonstrate financial need. Based on the Student Characteristics and Bogg-Health Fee Waiver Reports, the district overstated authorized health fee revenues as follows: Summer Fall Winter Spring Total FY 2000-01 Number of students net of allow- able health fee exemptions: Per claim 4,759 9,188 — 9,340 Per audit (4,625) (9,151) — (9,276) Total variance 134 37 — 64 Authorized student health fee × $ 9 × $11 — × $11 Audit adjustment, FY 2000-01 $ 1,206 $ 407 — $ 704 $ 2,317 FY 2001-02 Number of students net of allow- able health fee exemptions: Per claim 6,153 9,825 2,604 9,518 Per audit (6,099) (9,771) (2,520) (9,441) Total variance 54 54 84 77 Authorized student health fee × $ 9 × $12 × $ 9 × $12 Audit adjustment, FY 2001-02 $ 486 $ 648 $ 756 $ 924 2,814 Total audit adjustment $ 5,131 Recommendation The district should ensure that health fee revenues are properly reported. Districts’ Response The district agrees with this finding. FINDING 4— The district understated amounts funded by college work study and foundation contributions by $3,037 for FY 2000-01, thus understating Revenue offsets revenue offsets by the same amount. understated Parameters and Guidelines specifies that any offsetting savings or reimbursements received by the district from any source as a result of the mandate must be identified and deducted so that only net district health services costs are claimed. The SCO auditor used the district’s appropriation ledger detail and Steve Westly • California State Controller 7 Glendale Community College District Health Fee Elimination Program annual financial report to identify the reimbursements from state work study and foundation contributions for FY 2000-01. The understated revenue offsets are as follows: FY 2000-01 Offsetting revenues claimed $ 551 Less offsetting revenues per audit (3,588) Audit adjustment $ (3,037) Recommendation The district should ensure that filed claims are reduced by program- related revenue offsets. District’s Response The district agrees with this finding. Steve Westly • California State Controller 8 Glendale Community College District Health Fee Elimination Program Attachment— District’s Response to Draft Audit Report Steve Westly • California State Controller GGlleennddaallee CCoommmmuunniittyy CCoolllleeggee DDiissttrriicctt HHeeaalltthh FFeeee EElliimmiinnaattiioonn PPrrooggrraamm SStteevvee WWeessttllyy •• CCaalliiffoorrnniiaa SSttaattee CCoonnttrroolllleerr GGlleennddaallee CCoommmmuunniittyy CCoolllleeggee DDiissttrriicctt HHeeaalltthh FFeeee EElliimmiinnaattiioonn PPrrooggrraamm SStteevvee WWeessttllyy •• CCaalliiffoorrnniiaa SSttaattee CCoonnttrroolllleerr State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, California 94250-5874 http://www.sco.ca.gov C04-MCC-008