Merced County

MERCED COUNTY Audit Report PESTICIDE USE REPORTS PROGRAM Chapter 1200, Statutes of 1989 July 1, 1997, through June 30, 2001 S W TEVE ESTLY California State Controller September 2003 S W TEVE ESTLY California State Controller September 30, 2003 Mr. David A. Robinson Agricultural Commissioner Merced County 2139 West Wardrobe Avenue Merced, CA 95340 Dear Mr. Robinson: The State Controller’s Office (SCO) has completed an audit of the claims filed by Merced County for costs of the legislatively mandated Pesticide Use Reports Program (Chapter 1200, Statutes of 1989) for the period of July 1, 1997, through June 30, 2001. The county claimed and was paid $300,601 for the mandated program. Our audit disclosed that $52,628 is allowable and $247,973 is unallowable. The unallowable costs occurred because the county claimed unsupported and ineligible costs and understated claimed revenue offsets. The amount paid in excess of allowable costs claimed, totaling $247,973, should be returned to the State. The SCO has established an informal audit review process to resolve a dispute of facts. The auditee should submit, in writing, a request for a review and all information pertinent to the disputed issues within 60 days after receiving the final report. The request and supporting documentation should be submitted to: Richard J. Chivaro, Chief Counsel, State Controller’s Office, Post Office Box 942850, Sacramento, CA 94250-0001. If you have any questions, please contact Jim L. Spano, Chief, Compliance Audits Bureau, at (916) 323-5849. Sincerely, Original Signed By: WALTER BARNES Chief Deputy State Controller, Finance WB:ams cc: (See page 2) Mr. David A. Robinson -2- September 30, 2003 cc: The Honorable M. Stephen Jones Auditor-Controller Merced County Calvin Smith, Program Budget Manager Corrections and General Government Department of Finance Merced County Pesticide Use Reports Program Contents Audit Report Summary.................................................................................................................................... 1 Background................................................................................................................................ 1 Objective, Scope, and Methodology........................................................................................ 1 Conclusion.................................................................................................................................. 2 Views of Responsible Officials................................................................................................. 2 Restricted Use............................................................................................................................ 3 Findings and Recommendations.................................................................................................. 4 Schedule 1—Summary of Program Costs.................................................................................. 9 Attachment—Auditee’s Response to Draft Audit Report Steve Westly • California State Controller Merced County Pesticide Use Reports Program Audit Report Summary The State Controller’s Office (SCO) has completed an audit of the claims filed by Merced County for costs of the legislatively mandated Pesticide Use Reports Program (Chapter 1200, Statutes of 1989) for the period of July 1, 1997, through June 30, 2001. The last day of fieldwork was December 24, 2002. The county claimed and was paid $300,601 for the mandated program. The audit disclosed that $52,628 is allowable and $247,973 is unallowable. The unallowable costs occurred because the county claimed unsupported and ineligible costs and understated claimed revenue offsets. The amount paid in excess of allowable costs claimed, totaling $247,973, should be returned to the State. Background Chapter 1200, Statutes of 1989, added Food and Agricultural Code Section 12979 and its implementing regulations in Title 3, California Code of Regulations. This legislation requires increased pesticide reporting requirements by pesticide users, which includes all agricultural users, and increases recordkeeping requirements by pesticide dealers that are licensed by the State. It also requires county agricultural commissioners to issue operator site identification numbers to specified persons, inspect and audit certain records, and file the newly-required pesticide use reports with the State. On November 19, 1992, the Commission on State Mandates determined that Chapter 1200, Statutes of 1989, resulted in state mandated costs that are reimbursable pursuant to Title 2, Division 4, Part 7, of the Government Code. Parameters and Guidelines, adopted by the Commission on State Mandates, establishes state mandates 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 local agencies in claiming reimbursable costs. Objective, The objective of the audit was to determine whether costs claimed are increased costs incurred as a result of the legislatively mandated Scope, and Pesticide Use Reports Program (Chapter 1200, Statutes of 1989) for the Methodology period of July 1, 1997, through June 30, 2001. 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 Steve Westly • California State Controller 1 Merced County Pesticide Use Reports Program • 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. The SCO did not audit the county’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 county’s management 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 Findings and Recommendations section of this report and in the accompanying Summary of Program Costs (Schedule 1). For the audit period, Merced County claimed and was paid $300,601 for costs of the legislatively mandated Pesticide Use Reports Program. The audit disclosed that $52,628 is allowable and $247,973 is unallowable. For fiscal year (FY) 1997-98, the county was paid $44,942 by the State. The audit disclosed that no costs were allowable. The amount paid in excess of allowable costs claimed, totaling $44,942, should be returned to the State. For FY 1998-99, the county was paid $50,575 by the State. The audit disclosed that no costs were allowable. The amount paid in excess of allowable costs claimed, totaling $50,575, should be returned to the State. For FY 1999-2000, the county was paid $92,281 by the State. The audit disclosed that $29,618 is allowable. The amount paid in excess of allowable costs claimed, totaling $62,663, should be returned to the State. For FY 2000-01, the county was paid $112,803 by the State. The audit disclosed that $23,010 is allowable. The amount paid in excess of allowable costs claimed, totaling $89,793, should be returned to the State. Views of The SCO issued a draft audit report on May 30, 2003. David A. Robinson, county Agricultural Commissioner, responded by the attached Responsible letter dated June 24, 2003, disagreeing with some aspects of the audit Officials results. The county’s response is included in this final audit report. Steve Westly • California State Controller 2 Merced County Pesticide Use Reports Program Restricted Use This report is solely for the information and use of Merced County 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 Merced County Pesticide Use Reports Program Findings and Recommendations FINDING 1— The county overclaimed labor costs by $109,659 as follows: Labor costs • The county claimed salary and related fringe benefit costs related to the overclaimed issuance of restricted pesticide use permits. However, this function was required before the mandate was enacted, resulting in an overclaim of $8,789. • The county claimed labor costs for staff biologists to review pesticide use reports and for clerical staff to log in and file those reports. These labor costs were computed using a composite productive hourly salary and fringe benefit rate based primarily on the salary rates of its staff biologists. However, most of the labor hours claimed were incurred by clerical staff members who earned substantially less than the biologists. As a result, the auditor allowed the hours claimed for each employee classification and an hourly labor rate representative of the two employee classifications, resulting in an overclaim of $100,870. Should the county furnish the actual labor rates of the individual employees who performed these functions, the audit adjustment will be revised as necessary. Parameters and Guidelines for the Pesticide Use Reports program specifies that only actual increased costs incurred in the performance of the mandated activities and supported by appropriate documentation are reimbursable. Claimed labor costs have been adjusted as follows: Audit Adjustment Fiscal Year 1997-98 1998-99 1999-2000 2000-01 Total Issuing ID numbers– ineligible costs $ (1,437) $ (1,732) $ (1,899) $ (3,721) $ (8,789) Reviewing and filing with DPR–labor rates overstated (16,445) (20,969) (16,373) (37,641) (91,428) Totals $ (17,882) $ (22,701) $ (18,272) $ (41,362) $ (100,217) Recommendation The county should ensure that all costs claimed are eligible increased costs incurred as a result of the mandate, and are supported by its accounting records. Auditee’s Response The county believes that claimed labor costs were overstated by $64,645 rather than the $109,659 reported in the draft audit report and has submitted additional information in support of the amount of $45,014. Steve Westly • California State Controller 4 Merced County Pesticide Use Reports Program SCO’s Comment The additional labor costs submitted by the county included $35,572 of salaries that were already claimed and allowed as indirect costs. The SCO auditor accepted the remaining $9,442 of direct labor costs submitted. Accordingly, the finding has been revised to reduce audit adjustment by $9,442, from $109,659 to $100,217. FINDING 2— The county overclaimed indirect costs by $40,211 as follows: Indirect costs • In FY 1999-2000 and FY 2000-01, the county computed indirect cost overclaimed rates based on salaries and benefits, but applied the rates to salaries only, resulting in an underclaim of $17,580. • All vehicle mileage costs incurred by the Agricultural Commissioner’s Office were classified as indirect costs in the indirect cost rate proposal even though these costs are identified in the department’s records as direct costs. The auditor allowed mileage costs attributable to the mandated program as direct costs, and removed mileage costs from the indirect cost rate claimed, resulting in an overclaim of $24,185. • Indirect costs related to labor costs questioned in Finding 1 above were overstated by $33,606. Parameters and Guidelines and the SCO’s claiming instructions require the county, when claiming an indirect cost rate exceeding 10%, to submit with its claim a departmental indirect cost rate proposal prepared in accordance with federal Office of Management and Budget (OMB) Circular A-87 (Cost Principles for State, Local, and Indian Tribal Governments). OMB Circular A-87 specifies that indirect costs are allowable only when costs cannot reasonably be identified to a particular program, and are allocated to each program relative to the benefits received. Furthermore, costs must be consistent with policies that apply uniformly to all programs. Claimed indirect costs have been adjusted as follows: Audit Adjustment Fiscal Year 1997-98 1998-99 1999-2000 2000-01 Total Indirect cost rates applied to salaries only $ — $ — $ 7,998 $ 9,582 $ 17,580 Mileage costs incorrectly included in indirect costs (4,187) (5,268) (7,357) (7,381) (24,193) Indirect costs related to overclaimed labor costs (4,729) (8,159) (5,440) (12,417) (30,745) Totals $ (8,916) $ (13,427) $ (4,799) $(10,216) $ (37,358) Steve Westly • California State Controller 5 Merced County Pesticide Use Reports Program Recommendation The county should ensure that indirect costs claimed are supported by an acceptable indirect cost rate proposal prepared in accordance with OMB Circular A-87. Auditee’s Response The county stated that the revised direct labor costs (discussed in Finding 1) should be the basis for the calculation of indirect costs. SCO’s Comment The SCO auditor agrees with the county and recomputed allowable indirect costs based on the changes to allowable direct labor in Finding 1 above. Accordingly, the finding has been revised to reduce audit adjustments by $2,853, from $40,211 to $37,358. FINDING 3— The county understated revenues allocable to the mandate, which are required to be deducted on its claims. The county received revenues from Revenue offsets the following sources: understated • Unclaimed gas tax allotment: These state funds are allocated to counties under the state Food and Agricultural Code to help fund all of the activities carried out by the county Agricultural Commissioner’s Office. • Mill tax assessment: These state funds are allocated to counties by the state Department of Pesticide Regulation (DPR) to help fund county pesticide use enforcement costs within the county Agricultural Commissioner’s Office. • Memorandum of understanding: These state funds are allocated by DPR to counties under the Food and Agricultural Code to help fund the counties mandated activities. Parameters and Guidelines specifies that any offsetting savings or reimbursements received by the county from any source as a result of this mandate shall be identified and deducted so only net county costs are claimed. Steve Westly • California State Controller 6 Merced County Pesticide Use Reports Program The county offset its claims by the revenues received under the Memorandum of Understanding. The county did not offset its claims by unclaimed gas tax or mill tax assessment revenues because it believed these revenues were not allocable to the mandate. As a result, claimed revenue offsets have been adjusted as follows: Amount Amount Per Audit Claimed Audit Adjustment Fiscal Year 1997-98: Unclaimed gas tax allotment $ — $ (11,296) $ (11,296) Mill tax assessment — (18,739) (18,739) Memorandum of understanding (34,400) (34,400) — Totals, FY 1997-98 (34,400) (64,435) (30,035) Fiscal Year 1998-99: Unclaimed gas tax allotment — (15,550) (15,550) Mill tax assessment — (19,522) (19,522) Memorandum of understanding (43,000) (43,000) — Totals, FY 1998-99 (43,000) (78,072) (35,072) Fiscal Year 1999-2000: Unclaimed gas tax allotment — (10,963) (10,963) Mill tax assessment — (28,629) (28,629) Memorandum of understanding — — — Totals, FY 1999-2000 — (39,592) (39,592) Fiscal Year 2000-01: Unclaimed gas tax allotment — (9,971) (9,971) Mill tax assessment — (28,244) (28,244) Memorandum of understanding — — — Totals, FY 2000-01 — (38,215) (38,215) Totals $ (77,400) $ (220,314) $ (142,914) Recommendation The county should ensure that all applicable revenues are offset on its claims against its mandated program costs. Auditee’s Response The county disagreed that unclaimed gas tax and mill tax assessment revenues should be included as offsetting revenue on its claims. It stated, “there has never been any increase in unclaimed gas tax funds allotted” to the counties to cover the mandate. Further, it contended that this revenue source would be unaffected if the mandate were eliminated. Regarding mill tax assessments, the county stated that these revenues are distributed based on work hours spent on pesticide-related activities and expenditures reported for pesticide-related activities, rather than net costs. Further, it stated that no additional funding for the Pesticide Use Reporting Program was provided through the pesticide mill assessment. Steve Westly • California State Controller 7 Merced County Pesticide Use Reports Program SCO’s Comment The SCO disagrees with the county’s contention. The SCO’s calculations for mill tax assessment offsets were in fact based on total expenditures— not net cost. Both mill tax assessment and unclaimed gas tax revenues are allocated by the state Departments of Pesticide Regulation and Food and Agriculture, respectively, based on total pesticide and/or agricultural program costs reported by counties statewide. While the SCO agrees that there has not been an increase in revenue due to the mandate, there has never been an increase specific to any program. When a county reports its mandated costs within total agricultural program costs on its Annual Financial Statement submitted to the Department of Food and Agriculture, as did Merced County, it increases the county’s share of statewide revenue allocations. Allowable labor and indirect costs have been increased in Findings 1 and 2 due to additional information provided by the county. As a result, required revenue offsets have been increased by $6,748, from $136,166 to $142,914. Steve Westly • California State Controller 8 Merced County Pesticide Use Reports Program Schedule 1— Summary of Program Costs July 1, 1997, through June 30, 2001 Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustments Reference 1 July 1, 1997, through June 30, 1998 Direct costs: Issuing ID numbers $ 5,066 $ 3,629 $ (1,437) Finding 1 Reviewing and filing with DPR 52,607 36,162 (16,445) Finding 1 Auditing and inspecting records 1,759 1,759 — Total direct costs 59,432 41,550 (17,882) Indirect costs 19,910 10,994 (8,916) Finding 2 Total costs 79,342 52,544 (26,798) Less offsetting revenues (34,400) (64,435) (30,035) Finding 3 Net costs 44,942 (11,891) (56,833) Adjustment to increase allowable costs to zero — 11,891 11,891 Adjusted net costs $ 44,942 — $ (44,942) Less amount paid by the State (44,942) Allowable costs claimed in excess of (less than) amount paid $ (44,942) July 1, 1998, through June 30, 1999 Direct costs: Issuing ID numbers $ 3,437 $ 1,705 $ (1,732) Finding 1 Reviewing and filing with DPR 58,929 37,960 (20,969) Finding 1 Auditing and inspecting records 2,594 2,594 — Total direct costs 64,960 42,259 (22,701) Indirect costs 28,615 15,188 (13,427) Finding 2 Total costs 93,575 57,447 (36,128) Less offsetting revenues (43,000) (78,072) (35,072) Finding 3 Net costs 50,575 (20,625) (71,200) Adjustment to increase allowable costs to zero — 20,625 20,625 Adjusted net costs $ 50,575 — $ (50,575) Less amount paid by the State (50,575) Allowable costs claimed in excess of (less than) amount paid $ (50,575) July 1, 1999, through June 30, 2000 Direct costs: Issuing ID numbers $ 3,622 $ 1,723 $ (1,899) Finding 1 Reviewing and filing with DPR 63,865 47,492 (16,373) Finding 1 Auditing and inspecting records 4,118 4,118 — Total direct costs 71,605 53,333 (18,272) Indirect costs 20,676 15,877 (4,799) Finding 2 Steve Westly • California State Controller 9 Merced County Pesticide Use Reports Program Schedule 1 (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustments Reference 1 July 1, 1999, through June 30, 2000 (continued) Total costs 92,281 69,210 (23,071) Less offsetting revenues — (39,592) (39,592) Finding 3 Net costs 92,281 29,618 (62,663) Adjustment to increase allowable costs to zero — – — Adjusted net costs $ 92,281 29,618 $ (62,663) Less amount paid by the State (92,281) Allowable costs claimed in excess of (less than) amount paid $ (62,663) July 1, 2000, through June 30, 2001 Direct costs: Issuing ID numbers $ 6,112 $ 2,391 $ (3,721) Finding 1 Reviewing and filing with DPR 76,670 39,029 (37,641) Finding 1 Auditing and inspecting records 5,669 5,669 — Total direct costs 88,451 47,089 (41,362) Indirect costs 24,352 14,136 (10,216) Finding 2 Total costs 112,803 61,225 (51,578) Less offsetting revenues — (38,215) (38,215) Finding 3 Net costs 112,803 23,010 (89,793) Adjustment to increase allowable costs to zero — — — Adjusted net costs $ 112,803 23,010 $ (89,793) Less amount paid by the State (112,803) Allowable costs claimed in excess of (less than) amount paid $ (89,793) Summary: July 1, 1997, through June 30, 2001 Direct costs: Issuing ID numbers $ 18,237 $ 9,448 $ (8,789) Finding 1 Reviewing and filing with DPR 252,071 160,643 (91,428) Finding 1 Auditing and inspecting records 14,140 14,140 — Total direct costs 284,448 184,231 (100,217) Indirect costs 93,553 56,195 (37,358) Finding 2 Total costs 378,001 240,426 (137,575) Less offsetting revenues (77,400) (220,314) (142,914) Finding 3 Net costs 300,601 20,112 (280,489) Adjustment to increase allowable costs to zero — 32,516 32,516 Adjusted net costs $ 300,601 52,628 $ (247,973) Less amount paid by the State (300,601) Allowable costs claimed in excess of (less than) amount paid $ (247,973) __________________________ 1 See the Findings and Recommendations section. Steve Westly • California State Controller 10 Merced County Pesticide Use Reports Program Attachment— Auditee’s Response to Draft Audit Report Steve Westly • California State Controller State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, California 94250-5874 http://www.sco.ca.gov S03-MCC-013