San Jose/Evergreen Community College District

SAN JOSÉ/EVERGREEN COMMUNITY COLLEGE DISTRICT Audit Report HEALTH FEE ELIMINATION PROGRAM Chapter 1, Statutes of 1984, 2nd Extraordinary Session, and Chapter 1118, Statutes of 1987 July 1, 2002, through June 30, 2005 J C OHN HIANG California State Controller February 2008 J C OHN HIANG California State Controller February 15, 2008 Rosa G. Pérez, Chancellor San José/Evergreen Community College District 4750 San Felipe Road San Jose, CA 95135-1513 Dear Ms. Pérez: The State Controller’s Office audited the costs claimed by the San José/Evergreen Community College District for the legislatively mandated Health Fee Elimination Program (Chapter 1, Statutes of 1984, 2nd Extraordinary Session, and Chapter 1118, Statutes of 1987) for the period of July 1, 2002, through June 30, 2005. The district claimed $678,943 for the mandated program. Our audit disclosed that $486,418 is allowable and $192,525 is unallowable. The unallowable costs resulted because the district understated allowable indirect costs and authorized health service fees. The State paid the district $187,654. Allowable costs claimed exceed the amount paid by $298,764. If you disagree with the audit findings, you may file an Incorrect Reduction Claim (IRC) with the Commission on State Mandates (CSM). The IRC must be filed within three years following the date that we notify you of a claim reduction. You may obtain IRC information at CSM’s Web site, at www.csm.ca.gov (Guidebook link); you may obtain IRC forms by telephone, at (916) 323-3562, or by e-mail, at csminfo@csm.ca.gov. If you have any questions, please contact Jim L. Spano, Chief, Mandated Cost Audits Bureau, at (916) 323-5849. Sincerely, Original signed by JEFFREY V. BROWNFIELD Chief, Division of Audits JVB/sk Rosa G. Pérez -2- February 15, 2008 cc: Serena Muindi Director of Fiscal Services/Controller San José/Evergreen Community College District Ngoc Chim Accounting Technician Senior San José/Evergreen Community College District Marty Rubio, Specialist Fiscal Accountability Section California Community Colleges Chancellor’s Office Jeannie Oropeza, Program Budget Manager Education Systems Unit Department of Finance San José/Evergreen Community College District Health Fee Elimination Program Contents Audit Report Summary............................................................................................................................ 1 Background........................................................................................................................ 1 Objective, Scope, and Methodology................................................................................. 2 Conclusion.......................................................................................................................... 2 Views of Responsible Official........................................................................................... 3 Restricted Use.................................................................................................................... 3 Schedule 1—Summary of Program Costs............................................................................ 4 Findings and Recommendations........................................................................................... 6 San José/Evergreen Community College District Health Fee Elimination Program Audit Report Summary The State Controller’s Office (SCO) audited the costs claimed by the San José/Evergreen Community College District for the legislatively mandated Health Fee Elimination Program (Chapter 1, Statutes of 1984, 2nd Extraordinary Session, and Chapter 1118, Statutes of 1987) for the period of July 1, 2002, through June 30, 2005. The district claimed $678,943 for the mandated program. Our audit disclosed that $486,418 is allowable and $192,525 is unallowable. The unallowable costs resulted because the district understated allowable indirect costs and authorized health service fees. The State paid the district $187,654. Allowable costs claimed exceed the amount paid by $298,764. Background Chapter 1, Statutes of 1984, 2nd Extraordinary Session (E.S.) repealed Education Code section 72246, which authorized community college districts to charge a health fee for providing health supervision and services, providing medical and hospitalization services, and operating student health centers. This statute 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 statute’s provisions would automatically sunset on December 31, 1987, reinstating the community college districts’ authority to charge a health service fee as specified. Chapter 1118, Statutes of 1987, amended Education Code section 72246 (subsequently renumbered as section 76355 by Chapter 8, Statutes of 1993). The law requires 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 (CSM) determined that Chapter 1, Statutes of 1984, 2nd Extraordinary Session imposed a “new program” upon community college districts by requiring specified community college districts that provided health services 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 service fee in FY 1983-84. On April 27, 1989, the CSM 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, requiring them to maintain that level in FY 1987-88 and each fiscal year thereafter. -1- San José/Evergreen Community College District Health Fee Elimination Program The program’s parameters and guidelines establish the state mandate and define reimbursement criteria. CSM adopted the parameters and guidelines on August 27, 1987, and amended them on May 25, 1989. In compliance with Government Code section 17558, the SCO issues claiming instructions to assist school districts in claiming mandated program reimbursable costs. Objective, Scope, We conducted the audit to determine whether costs claimed represent increased costs resulting from the Health Fee Elimination Program for and Methodology the period of July 1, 2002, through June 30, 2005. Our audit scope included, but was not limited to, determining whether costs claimed were supported by appropriate source documents, were not funded by another source, and were not unreasonable and/or excessive. We conducted the audit according to Government Auditing Standards, issued by the Comptroller General of the United States, and under the authority of Government Code sections 12410, 17558.5, and 17561. We did not audit the district’s financial statements. We limited our audit scope to planning and performing audit procedures necessary to obtain reasonable assurance that costs claimed were allowable for reimbursement. Accordingly, we examined transactions, on a test basis, to determine whether the costs claimed were supported. We limited our review of the district’s internal controls to gaining an understanding of the transaction flow and claim preparation process as necessary to develop appropriate auditing procedures. Conclusion Our 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, the San José/Evergreen Community College District claimed $678,943 for costs of the Health Fee Elimination Program. Our audit disclosed that $486,418 is allowable and $192,525 is unallowable. For the fiscal year (FY) 2002-03 claim, the State paid the district $187,654. Our audit disclosed that $111,922 is allowable. The State will offset $75,732 from other mandated program payments due to the district. Alternatively, the district may remit this amount to the State. For the FY 2003-04 claim, the State made no payment to the district. Our audit disclosed that $180,772 is allowable. The State will pay that amount, contingent upon available appropriations. For the FY 2004-05 claim, the State made no payment to the district. Our audit disclosed that $193,724 is allowable. The State will pay that amount, contingent upon available appropriations. -2- San José/Evergreen Community College District Health Fee Elimination Program Views of We issued a draft audit report on December 12, 2007. We contacted Ngoc Chim, Accounting Technician Senior, by e-mail on January 16, Responsible 2008. Ms. Chim declined to respond to the draft report. Official Restricted Use This report is solely for the information and use of the San José/ Evergreen Community College District, the California Community Colleges Chancellor’s Office, 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 February 15, 2008 -3- San José/Evergreen Community College District Health Fee Elimination Program Schedule 1— Summary of Program Costs July 1, 2002, through June 30, 2005 Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment Reference 1 July 1, 2002, through June 30, 2003 Direct costs: Salaries and benefits $ 344,078 $ 344,078 $ — Services and supplies 36,783 36,783 — Total direct costs 380,861 380,861 — Indirect costs 60,557 60,557 — Total direct and indirect costs 441,418 441,418 — Less authorized health service fees (253,764) (329,496) (75,732) Finding 1 Total program costs $ 187,654 111,922 $ (75,732) Less amount paid by the State (187,654) Allowable costs claimed in excess of (less than) amount paid $ (75,732) July 1, 2003, through June 30, 2004 Direct costs: Salaries and benefits $ 369,027 $ 369,027 $ — Services and supplies 39,946 39,946 — Total direct costs 408,973 408,973 — Indirect costs 62,163 62,163 — Total direct and indirect costs 471,136 471,136 — Less authorized health service fees (174,348) (290,364) (116,016) Finding 1 Total program costs $ 296,788 180,772 $ (116,016) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ 180,772 July 1, 2004, through June 30, 2005 Direct costs: Salaries and benefits $ 350,450 $ 350,450 $ — Services and supplies 33,543 33,543 — Total direct costs 383,993 383,993 — Indirect costs 59,135 106,443 47,308 Finding 2 Total direct and indirect costs 443,128 490,436 47,308 Less authorized health service fees (248,717) (296,712) (47,995) Finding 1 Mathematical error 90 — (90) Total program costs $ 194,501 193,724 $ (777) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ 193,724 -4- San José/Evergreen Community College District Health Fee Elimination Program Schedule 1 (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment Reference 1 Summary: July 1, 2002, through June 30, 2005 Direct costs: Salaries and benefits $ 1,063,555 $ 1,063,555 $ — Services and supplies 110,272 110,272 — Total direct costs 1,173,827 1,173,827 — Indirect costs 181,855 229,163 47,308 Total direct and indirect costs 1,355,682 1,402,990 47,308 Less authorized health service fees (676,829) (916,572) (239,743) Mathematical error 90 — (90) Total program costs $ 678,943 486,418 $ (192,525) Less amount paid by the State (187,654) Allowable costs claimed in excess of (less than) amount paid $ 298,764 _________________________ 1 See the Findings and Recommendations section. -5- San José/Evergreen Community College District Health Fee Elimination Program Findings and Recommendations FINDING 1— The district understated authorized health service fees by $239,743 for Understated authorized the audit period. The district reported actual fees collected rather than health service fees authorized fees. We calculated authorized health service fees using student enrollment, Board of Governors Grant (BOGG) recipient, and apprenticeship program enrollee data that the district reported to the California Community Colleges Chancellor’s Office. The following table summarizes the allowable authorized health service fees and the audit adjustment: Fiscal Year 2002-03 2003-04 2004-05 Total Non-duplicated student enrollment 41,316 40,378 40,131 Number of BOGG recipients (13,761) (16,098) (17,261) Number of apprenticeship program enrollees (97) (83) (46) Number of students subject to authorized health service fee 27,458 24,197 22,824 Authorized health service fee × $ (12) × $ (12) × $ (13) Allowable authorized health service fees $ (329,496) $ (290,364) $ (296,712) $ (916,572) Authorized health service fees claimed 253,764 174,348 248,717 676,829 Audit adjustment $ (75,732) $ (116,016) $ (47,995) $ (239,743) The program’s parameters and guidelines state that health fees authorized by the Education Code must be deducted from costs claimed. For the audit period, Education Code section 76355, subdivision (c) states that health fees are authorized for all students except those 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. Government Code section 17514 states that “costs mandated by the state” means any increased costs that a school district is required to incur. To the extent community college districts can charge a fee, they are not required to incur a cost. In addition, Government Code section 17556 states that CSM shall not find costs mandated by the State if the school district has the authority to levy fees to pay for the mandated program or increased level of service. Recommendation We recommend that the district claim the health service fees authorized by the Education Code. The district should maintain records that support the calculated authorized health service fees. These records should identify the actual non-duplicated student enrollment and students who are exempt from health service fees under Education Code section 76355, subdivision (c). District’s Response The district did not respond to the audit finding. -6- San José/Evergreen Community College District Health Fee Elimination Program FINDING 2— For fiscal year (FY) 2004-05, the district understated the allowable Understated indirect indirect cost rate and thus understated allowable indirect costs. The cost rate claimed district calculated an indirect cost rate of 15.40%; the allowable indirect cost rate is 27.72%. The district understated the allowable indirect cost rate for the following reasons: • The district partly allocated costs to its direct cost pool for the following expenditure activities: Operation and Maintenance of Plant, Planning and Policy Making, and General Institutional Support Services. The SCO’s claiming instructions identify these expenditure activities as indirect costs. • The district included physical property acquisition costs in the direct cost pool. The SCO’s claiming instructions exclude these costs from the indirect cost rate calculation. • The district’s direct cost pool included other outgo expenses from the Extended Opportunity Programs and Services expenditure activity. The SCO’s claiming instructions exclude other outgo expenses from the indirect cost rate calculation. The parameters and guidelines state that districts may claim indirect costs in the manner described in the SCO’s claiming instructions. The following table summarizes the audit adjustment based on the allowable indirect cost rate: Fiscal Year 2004-05 Allowable direct costs $ 383,993 Allowable indirect cost rate × 27.72% Allowable indirect costs $ 106,443 Indirect costs claimed (59,135) Audit adjustment $ 47,308 Recommendation We recommend that the district calculate its indirect cost rates in accordance with the SCO’s claiming instructions. District’s Response The district did not respond to the audit finding. -7- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S07-MCC-007