Torrance City

CITY OF TORRANCE Audit Report FIREFIGHTERS CANCER PRESUMPTION PROGRAM Chapter 1568, Statutes of 1982 July 1, 2001, through June 30, 2004 S W TEVE ESTLY California State Controller October 2006 S W TEVE ESTLY California State Controller October 4, 2006 Eric Tsao Finance Director City of Torrance 3031 Torrance Boulevard Torrance, CA 90503 Dear Mr. Tsao: The State Controller’s Office audited the costs claimed by the City of Torrance for the legislatively mandated Firefighters Cancer Presumption Program (Chapter 1568, Statutes of 1982) for the period of July 1, 2001, through June 30, 2004. The city claimed $1,168,491 for the mandated program. Our audit disclosed that $706,361 is allowable and $462,130 is unallowable. The unallowable costs occurred because the city claimed unallowable costs and did not report offsetting revenue. The State paid the city $238. The State will pay allowable costs claimed that exceed the amount paid, totaling $706,123, contingent upon available appropriations. If you have any questions, please contact Jim L. Spano, Chief, Compliance Audits Bureau, at (916) 323-5849. Sincerely, Original signed by JEFFREY V. BROWNFIELD Chief, Division of Audits JVB/vb cc: Ken Flewellyn, Assistant Finance Director City of Torrance Randy Sellers, Risk Manager City of Torrance Donna Rizzo, Workers Compensation Administrator City of Torrance Todd Jerue, Program Budget Manager Corrections and General Government Department of Finance City of Torrance Firefighters Cancer Presumption Program Contents Audit Report Summary............................................................................................................................ 1 Background........................................................................................................................ 1 Objective, Scope, and Methodology................................................................................. 1 Conclusion.......................................................................................................................... 2 Views of Responsible Officials.......................................................................................... 2 Restricted Use.................................................................................................................... 2 Schedule 1—Summary of Program Costs............................................................................ 3 Findings and Recommendations........................................................................................... 5 Steve Westly • California State Controller City of Torrance Firefighters Cancer Presumption Program Audit Report Summary The State Controller’s Office (SCO) audited the costs claimed by the City of Torrance for the legislatively mandated Firefighters Cancer Presumption Program (Chapter 1568, Statutes of 1982) for the period of July 1, 2001, through June 30, 2004. The last day of fieldwork was July 25, 2006. The city claimed $1,168,491 for the mandated program. Our audit disclosed that $706,361 is allowable and $462,130 is unallowable. The unallowable costs occurred because the city claimed unallowable costs and did not report offsetting revenue. The State paid the city $238. The State will pay allowable costs claimed that exceed the amount paid, totaling $706,123, contingent upon available appropriations. Background Chapter 1568, Statutes of 1982, added Labor Code Section 3212.1, which states that cancer that has developed or manifested itself in firefighters will be presumed to have arisen out of and in the course of employment, unless the presumption is controverted by other evidence. The presumption extends to a firefighter 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 February 23, 1984, the Board of Control (now the Commission on State Mandates [COSM]) determined that Chapter 1568, Statutes of 1982, imposed a reimbursable mandate under Government Code Section 17561. Parameters and Guidelines establishes the state mandate and defines reimbursement criteria. COSM adopted the Parameters and Guidelines on October 24, 1985 (last amended on March 26, 1987). In compliance with Government Code Section 17558, the SCO issues claiming instructions for mandated programs, to assist local agencies and school districts in claiming reimbursable costs. Objective, We conducted the audit to determine whether costs claimed represent increased costs resulting from the Firefighters Cancer Presumption 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 reimbursement. Accordingly, we examined transactions, on a test basis, to determine whether the costs claimed were supported. Steve Westly • California State Controller 1 City of Torrance Firefighters Cancer Presumption Program 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 Torrance claimed $1,168,491 for costs of the Firefighters Cancer Presumption Program. Our audit disclosed that $706,361 is allowable and $462,130 is unallowable. For fiscal year (FY) 2001-02, the State made no payment to the city. Our audit disclosed that $107,713 is allowable, which the State will pay contingent upon available appropriations. For FY 2002-03, the State paid the city $238. Our audit disclosed that $552,923 is allowable. The State will pay allowable costs claimed that exceed the amount paid, totaling $552,685, contingent upon available appropriations. For FY 2003-04, the State made no payment to the city. Our audit disclosed that $45,725 is allowable, which the State will pay contingent upon available appropriations. Views of We discussed our audit results with the city’s representatives during an exit conference conducted on July 25, 2006. Ken Flewellyn, Assistant Responsible Finance Director; Joyce Reyes, Accounting Manager; and Donna Rizzo, Officials Workers Compensation Claims Administrator, agreed with the audit results. Mr. Flewellyn declined a draft audit report and agreed that we could issue the audit report as final. Restricted Use This report is solely for the information and use of the City of Torrance, 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 2 City of Torrance Firefighters Cancer Presumption 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 $ 5,875 $ 5,875 $ — Benefits 1,525 1,525 — Services and supplies 63,518 19,198 (44,320) Finding 1 Disability benefit costs 260,285 188,089 (72,196) Finding 2 Total direct costs 331,203 214,687 (116,516) Indirect costs 740 740 — Total direct and indirect costs 331,943 215,427 (116,516) Less offsetting savings/reimbursements — — — Finding 3 Subtotal 331,943 215,427 (116,516) Reimbursable percentage × 50% × 50% × 50% Total program costs $ 165,971 107,713 $ (58,258) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ 107,713 July 1, 2002, through June 30, 2003 Salaries $ 5,993 $ 5,993 $ — Benefits 1,550 1,550 — Services and supplies 19,809 13,564 (6,245) Finding 1 Disability benefit costs 1,482,913 1,340,077 (142,836) Finding 2 Total direct costs 1,510,265 1,361,184 (149,081) Indirect costs 754 754 — Total direct and indirect costs 1,511,019 1,361,938 (149,081) Less offsetting savings/reimbursements — (256,092) (256,092) Finding 3 Subtotal 1,511,019 1,105,846 (405,173) Reimbursable percentage × 50% × 50% × 50% Total program costs $ 755,510 552,923 $ (202,587) Less amount paid by the State (238) Allowable costs claimed in excess of (less than) amount paid $ 552,685 Steve Westly • California State Controller 3 City of Torrance Firefighters Cancer Presumption Program Schedule 1(continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment Reference 1 July 1, 2003, through June 30, 2004 Salaries $ 1,969 $ 1,969 $ — Benefits 511 511 — Services and supplies 21,087 9,776 (11,311) Finding 1 Disability benefit costs 470,204 394,189 (76,015) Finding 2 Total direct costs 493,771 406,445 (87,326) Indirect costs 248 248 — Total direct and indirect costs 494,019 406,693 (87,326) Less offsetting savings/reimbursements — (315,244) (315,244) Finding 3 Subtotal 494,019 91,449 (402,570) Reimbursable percentage × 50% × 50% × 50% Total program costs $ 247,010 45,725 $ (201,285) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ 45,725 Summary: July 1, 2001, through June 30, 2004 Salaries $ 13,837 $ 13,837 $ — Benefits 3,586 3,586 — Services and supplies 104,414 42,538 (61,876) Finding 1 Disability benefit costs 2,213,402 1,922,355 (291,047) Finding 2 Total direct costs 2,335,239 1,982,316 (352,923) Indirect costs 1,742 1,742 — Total direct and indirect costs 2,336,981 1,984,058 (352,923) Less offsetting savings/reimbursements — (571,336) (571,336) Finding 3 Subtotal 2,336,981 1,412,722 (924,259) Reimbursable percentage × 50% × 50% × 50% Total program costs $ 1,168,491 706,361 $ (462,130) Less amount paid by the State (238) Allowable costs claimed in excess of (less than) amount paid $ 706,123 _________________________ 1 See the Findings and Recommendations section. Steve Westly • California State Controller 4 City of Torrance Firefighters Cancer Presumption Program Findings and Recommendations FINDING 1— For the audit period, the city claimed unallowable services and supplies costs totaling $61,876. The unallowable costs claimed were not related to Unallowable services the mandated program. and supplies costs The city claimed the total costs for legal fees, rehabilitation services, and other service and supply costs related to various workers compensation cases. However, the costs claimed included costs related to ailments other than cancer. Parameters and Guidelines identifies reimbursable costs as all actual costs attributable to cancer-related ailments, as specified by Labor Code Section 3212.1. The following table summarizes the unallowable services and supplies costs. Fiscal Year 2001-02 2002-03 2003-04 Total Services and supplies $ (44,320) $ (6,245) $ (11,311) $ (61,876) Recommendation We recommend that the city develop and implement a cost accounting system to ensure that it claims only mandate-related costs. FINDING 2— For the audit period, the city claimed unallowable disability benefit costs totaling $291,047. The city claimed non-mandate-related costs. Unallowable disability benefit costs The city claimed medical costs attributable to non-cancer related ailments, such as hypertension, knee injuries, heart conditions, etc. In addition, the city incorrectly claimed total temporary- and permanent- disability payments for claimants who had multiple ailments, rather than claiming only those costs attributable to cancer-related ailments. Parameters and Guidelines identifies reimbursable costs as all actual costs attributable to cancer-related ailments, as specified by Labor Code Section 3212.1. The following table summarizes the unallowable disability benefit costs. Fiscal Year 2001-02 2002-03 2003-04 Total Disability benefit costs $ (72,196) $ (142,836) $ (76,015) $ (291,047) Recommendation We recommend that the city develop and implement a cost accounting system to ensure that it claims only mandate-related costs. Steve Westly • California State Controller 5 City of Torrance Firefighters Cancer Presumption Program FINDING 3— For the audit period, the city understated offsetting reimbursements by $571,336. Understated offsetting reimbursements The city’s excess insurance carrier reimburses the city for costs incurred that exceed $750,000 for any individual claimant. During the audit period, the city incurred and claimed costs totaling $1,321,336 for one claimant. However, the city did not report offsetting reimbursements for the costs claimed that exceeded $750,000. Parameters and Guidelines states: Any offsetting savings the claimants experience as a direct result of this statute must be deducted from the costs claimed. Such offsetting savings shall include, but not be limited to, savings in the cost of personnel, service or supplies, or increased revenues obtained by the claimant. In addition, reimbursement for this mandate received from any source, e.g., federal, state, etc., shall be identified and deducted from this claim. The following table summarizes the understated offsetting reimbursements. Fiscal Year 2002-03 2003-04 Total Offsetting savings/reimbursements $ (256,092) $ (315,244) $ (571,336) Recommendation We recommend that the city report offsetting reimbursements received applicable to mandate-related costs claimed. Steve Westly • California State Controller 6 State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, California 94250-5874 http://www.sco.ca.gov S05-MCC-040