Los Angeles City

CITY OF LOS ANGELES Audit Report CANCER PRESUMPTION– PEACE OFFICERS PROGRAM Chapter 1171, Statutes of 1989 July 1, 2001, through June 30, 2004 J C OHN HIANG California State Controller June 2007 J C OHN HIANG California State Controller June 29, 2007 Laura N. Chick, Controller City of Los Angeles 200 N. Main Street, Suite 300 Los Angeles, CA 90012 Dear Ms. Chick: The State Controller’s Office audited the costs claimed by the City of Los Angeles for the legislatively mandated Cancer Presumption–Peace Officers Program (Chapter 1171, Statutes of 1989) for the period of July 1, 2001, through June 30, 2004. The city claimed $565,352 for the mandated program. Our audit disclosed that $380,866 is allowable and $184,486 is unallowable. The unallowable costs occurred because the city claimed unallowable, unsupported, and duplicate costs. The State paid the city $89,322. The State will pay allowable costs claimed that exceed the amount paid, totaling $291,544, contingent upon available appropriations. If you disagree with the audit findings, you may file an Incorrect Reduction Claim (IRC) with the Commission on State Mandates (COSM). 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 COSM’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/jj:vb Laura N. Chick, Controller -2- June 29, 2007 cc: William T. Fujioka City Administrative Officer City of Los Angeles Margaret M. Whelan General Manager City of Los Angeles Lois Pace Bailey, Chief Workers’ Compensation Division City of Los Angeles Todd Jerue, Program Budget Manager Corrections and General Government Department of Finance City of Los Angeles Cancer Presumption–Peace Officers Program Contents Audit Report Summary............................................................................................................................ 1 Background........................................................................................................................ 1 Objective, Scope, and Methodology................................................................................. 1 Conclusion.......................................................................................................................... 2 Views of Responsible Official........................................................................................... 2 Restricted Use.................................................................................................................... 2 Schedule 1—Summary of Program Costs............................................................................ 3 Findings and Recommendations........................................................................................... 5 Attachment—City’s Response to Draft Audit Report City of Los Angeles Cancer Presumption–Peace Officers Program Audit Report Summary The State Controller’s Office (SCO) audited the costs claimed by the City of Los Angeles for the legislatively mandated Cancer Presumption– Peace Officers Program (Chapter 1171, Statutes of 1989) for the period of July 1, 2001, through June 30, 2004. The last day of fieldwork was July 28, 2006. The city claimed $565,352 for the mandated program. Our audit disclosed that $380,866 is allowable and $184,486 is unallowable. The unallowable costs occurred because the city claimed unallowable, unsupported, and duplicate costs. The State paid the city $89,322. The State will pay allowable costs claimed that exceed the amount paid, totaling $291,544, contingent upon available appropriations. Background Chapter 1171, Statutes of 1989, amended Labor Code Section 3212.1 so that its provisions also apply to peace officers who are primarily engaged in law enforcement activities, as defined in Penal Code Sections 830.1 and 830.2. Previously, the provisions applied only to public sector firefighters. The law states that cancer that has developed or manifested itself in peace officers is presumed to have arisen out of and in the course of employment, unless other evidence controverts the presumption. The presumption extends to a peace officer following termination of service for a period of three calendar months for each year of requisite service, but not to exceed 60 months in any circumstance, commencing with the last date actually worked in the specified capacity. On July 23, 1992, the Commission on State Mandates (COSM) determined that Chapter 1171, Statutes of 1989, imposed a state mandate reimbursable under Government Code Section 17561. Parameters and Guidelines establishes the state mandate and defines reimbursement criteria. COSM adopted the Parameters and Guidelines on January 21, 1993. In compliance with Government Code Section 17558, the SCO issues claiming instructions for mandated programs to assist local agencies in claiming reimbursable costs. Objective, We conducted the audit to determine whether costs claimed represent increased costs resulting from the Cancer Presumption–Peace Officers Scope, and Program for the period of July 1, 2001, through June 30, 2004. Methodology 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 city’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 -1- City of Los Angeles Cancer Presumption–Peace Officers Program reimbursement. Accordingly, we examined transactions, on a test basis, to determine whether the costs claimed were supported. We limited our review of the city’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 City of Los Angeles claimed $565,352 for costs of the Cancer Presumption–Peace Officers Program. Our audit disclosed that $380,566 is allowable and $184,486 is unallowable. For fiscal year (FY) 2001-02, the State paid the city $88,999. Our audit disclosed that $117,048 is allowable. The State will pay allowable costs claimed that exceed the amount paid, totaling $28,049, contingent upon available appropriations. For FY 2002-03, the State paid the city $323. Our audit disclosed that $108,879 is allowable. The State will pay allowable costs claimed that exceed the amount paid, totaling $108,556, contingent upon available appropriations. For FY 2003-04, the State made no payment to the city. Our audit disclosed that $154,939 is allowable. The State will pay that amount, contingent upon available appropriations. Views of We issued a draft audit report on November 29, 2006. Margaret Whelan, General Manager, responded by letter dated January 9, 2007 Responsible (Attachment), with documentation that could reduce the unallowable Official costs in Finding 1 by $87,973. This final audit report includes the city’s response. Restricted Use This report is solely for the information and use the City of Los Angeles, 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 -2- City of Los Angeles Cancer Presumption–Peace Officers Program Schedule 1— Summary of Program Costs July 1, 2001, through June 30, 2004 Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment Reference 1 July 1, 2001, through June 30, 2002 Salaries $ 2,107 $ 2,107 $ — Benefits 1,891 1,891 — Disability benefit costs 253,919 230,099 (23,820) Finding 1 Total direct costs 257,917 234,097 (23,820) Indirect costs 1,863 — (1,863) Finding 2 Total direct and indirect costs 259,780 234,097 (25,683) Reimbursable percentage × 0.50 × 0.50 × 0.50 Total program costs $ 129,890 117,048 $ (12,842) Less amount paid by the State (88,999) Allowable costs claimed in excess of (less than) amount paid $ 28,049 July 1, 2002, through June 30, 2003 Salaries $ 2,610 $ 2,610 $ — Benefits 2,346 2,346 — Disability benefit costs 261,055 212,801 (48,254) Finding 1 Total direct costs 266,011 217,757 (48,254) Indirect costs 1,083 — (1,083) Finding 2 Total direct and indirect costs 267,094 217,757 (49,337) Reimbursable percentage × 0.50 × 0.50 × 0.50 Total program costs $ 133,547 108,879 $ (24,668) Less amount paid by the State (323) Allowable costs claimed in excess of (less than) amount paid $ 108,556 July 1, 2003, through June 30, 2004 Salaries $ 7,598 $ 7,598 $ — Benefits 6,920 6,920 — Disability benefit costs 589,312 295,359 (293,953) Finding 1 Total direct costs 603,830 309,877 (293,953) Indirect costs — — — Total direct and indirect costs 603,830 309,877 (293,953) Reimbursable percentage × 0.50 × 0.50 × 0.50 Total program costs $ 301,915 154,939 $ (146,976) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ 154,939 -3- City of Los Angeles Cancer Presumption–Peace Officers Program Schedule 1 (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment Reference 1 Summary: July 1, 2001, through June 30, 2004 Salaries $ 12,315 $ 12,315 $ — Benefits 11,157 11,157 — Disability benefit costs 1,104,286 738,259 (366,027) Finding 1 Total direct costs 1,127,758 761,731 (366,027) Indirect costs 2,946 — (2,946) Finding 2 Total direct and indirect costs 1,130,704 761,731 (368,973) Reimbursable percentage × 0.50 × 0.50 × 0.50 Total program costs $ 565,352 380,866 $ (184,486) Less amount paid by the State (89,322) Allowable costs claimed in excess of (less than) amount paid $ 291,544 _________________________ 1 See the Findings and Recommendations section. -4- City of Los Angeles Cancer Presumption–Peace Officers Program Findings and Recommendations FINDING 1— For the audit period, the city overstated disability benefit costs by $366,027. Unallowable costs resulted because the city claimed: Overstated disability benefit costs • Costs that were not net of applicable credits; • Unsupported costs; • Costs applicable to fiscal year (FY) 2004-05, which is outside the audit period; • Costs that were not mandate-related; and • Duplicate costs. The city claimed non-mandate-related costs because it claimed 100% of disability benefit costs incurred for claimants whose workers’ compensation claims were only partly attributable to cancer-related ailments. The duplicate costs occurred because the city claimed the same costs in two fiscal years and claimed multiple-year cumulative costs rather than costs applicable to a single fiscal year. The city claimed the same costs in two fiscal years because its contracted administrator did not use a consistent methodology to identify reimbursable costs. The contractor’s employees claimed some costs based on the date that the service was provided and other costs based on the payment date. In some cases, these dates occurred in different fiscal years, causing the city to claim associated costs twice. The city also provided documentation supporting mandate-related costs totaling $60,634 that the city did not previously claim. We allowed these additional costs. The following table summarizes the audit adjustment. Fiscal Year 2001-02 2002-03 2003-04 Total Applicable credits not deducted $ (20,271) $ — $ — $ (20,271) Unsupported costs (353) (36,202) (5,384) (41,939) Costs outside audit period — — (332,702) (332,702) Not mandate-related — (5,067) (11,566) (16,633) Duplicated costs (3,196) (6,985) (4,935) (15,116) Allowable costs not claimed — — 60,634 60,634 Audit adjustment $ (23,820) $ (48,254) $ (293,953) $ (366,027) Parameters and Guidelines states, in part, that costs are reimbursable if a worker has a cancer that has caused the disability. Parameters and Guidelines also states, “For auditing purposes, all costs claimed must be traceable to source documents or worksheets that show evidence of and the validity of such costs.” Furthermore, Parameters and Guidelines states that the city shall identify and deduct reimbursements received from any source for this mandated program. -5- City of Los Angeles Cancer Presumption–Peace Officers Program Recommendation We recommend that the city develop and implement an adequate recording and reporting system to ensure that all claimed costs are properly supported and reimbursable under the mandated program. Specifically, the city should ensure that: • Claimed costs are net of any applicable credits; • Claimed costs are supported by source documentation; • It claims costs based on the payment date to preclude duplicate costs and ensure that costs are claimed in the correct fiscal year; and • It claims only mandate-reimbursable costs (i.e., those medical and disability costs specifically related to cancer ailments). City’s Response The city submitted documentation to support disability benefit costs totaling $81,973 - $5,703 for FY 2002-03 and $76,270 for FY 2003-04. SCO’s Comment We revised the audit finding to reduce the audit adjustment by $65,013. Our recommendation regarding unallowable costs is unchanged. For FY 2002-03, the city submitted documentation to support costs totaling $5,704 that the draft audit report identified as unallowable. We accepted the documentation and reduced the audit adjustment for non- mandate-related costs by this amount. For FY 2003-04, the city submitted documentation supporting costs that total $76,270. Of this amount, documentation supporting $1,703 applies to costs that the draft audit report identified as unallowable. These costs are now allowable. Therefore, we reduced the audit adjustments for unsupported costs and non-mandate-related costs by $320 and $1,383, respectively. The remaining FY 2003-04 documentation submitted is applicable to costs not previously claimed totaling $74,567. Of this amount, $60,634 is allowable. The remaining costs are unallowable for the following reasons. • Documentation totaling $6,149 supports costs previously claimed and allowed for FY 2002-03. • Documentation totaling $6,011 supports cost that are applicable to an ineligible claimant. These costs are applicable to a claimant whose medical condition was unrelated to Labor Code Section 3212.1. As such, the costs are not reimbursable under the mandated program. • Documentation totaling $1,773 supports costs that are non-mandate- related. The costs are attributable to a claimant’s non-cancer-related ailments. -6- City of Los Angeles Cancer Presumption–Peace Officers Program In addition, the city’s documentation shows that the draft audit report included allowable costs totaling $3,028 that are actually unallowable. The documentation shows that these costs are applicable to a claimant whose medical condition was unrelated to Labor Code Section 3212.1. As such, the costs are not reimbursable under the mandated program. Therefore, we increased the audit adjustment for non-mandate-related costs by this amount. FINDING 2— The city claimed unallowable indirect costs totaling $2,946 for FY 2001-02 and FY 2002-03. The city erroneously applied its indirect Unallowable indirect cost rate to its contracted employees’ salary and benefit costs. The city’s costs indirect cost rate is not applicable to the contracted employees, as they are not city employees. The following table summarizes the audit adjustment. Fiscal Year 2001-02 2002-03 Total Unallowable indirect costs $ (1,863) $ (1,083) $ (2,946) Parameters and Guidelines states, “For auditing purposes, all costs claimed must be traceable to source documents or worksheets that show evidence of and the validity of such costs.” Recommendation We recommend that the city claim only those indirect costs applicable to city employees’ salary and benefit costs. City’s Response The city did not respond to this audit finding. -7- City of Los Angeles Cancer Presumption–Peace Officers Program Attachment— City’s Response to Draft Audit Report State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, California 94250-5874 http://www.sco.ca.gov S06-MCC-017