California Public Utilities Commission: Fines and Restitution Accounting and Collection Report

CALIFORNIA PUBLIC UTILITIES COMMISSION Report of Review FINES AND RESTITUTION ACCOUNTING AND COLLECTION J C OHN HIANG California State Controller August 2007 J C OHN HIANG California State Controller August 21, 2007 Paul Clanon Executive Director Public Utilities Commission 505 Van Ness Avenue, Room 5223 San Francisco, CA 94102-3298 Dear Mr. Clanon This report presents the results of the State Controller’s Office (SCO) review of the California Public Utilities Commission’s (CPUC) practices and procedures for accounting and collecting fines and restitution imposed against the companies it regulates. Our review was initiated to address concerns raised that the CPUC failed to collect millions of dollars in fines and restitution, some outstanding since 1999, by not vigorously pursing collection efforts. The CPUC’s response to a draft version of this report is included as an attachment. If you have any questions, please contact John Chen at (916) 322-2460. Sincerely, Original signed by JEFFREY V. BROWNFIELD Chief, Division of Audits JVB:wm California Public Utilities Commission Review of Fines and Restitution Accounting and Collection Contents Executive Summary............................................................................................................... 1 Review Report Introduction....................................................................................................................... 4 Background of the California Public Utilities Commission........................................... 4 CPUC’s Authority to Impose Fines and Restitution...................................................... 4 Fines and Restitution......................................................................................................... 4 Scope and Methodology.................................................................................................... 5 Findings and Recommendations........................................................................................... 7 Appendix—Summary of Fines and Restitution Imposed Since 1999................................ 14 Attachment—CPUC’s Response to Draft Report Findings and Recommendations California Public Utilities Commission Review of Fines and Restitution Accounting and Collection Executive Summary This report presents the results of the State Controller’s Office (SCO) review of the California Public Utilities Commission’s (CPUC) practices and procedures for accounting and collecting fines and restitution imposed against the companies it regulates. Our review was initiated to address concerns that the CPUC failed to collect millions of dollars in fines and restitution, some outstanding since 1999, by not vigorously pursing collection efforts. According to its records, since 1999, the CPUC has imposed approximately $300 million in fines and restitution against utility companies. The records also show that $105.9 million of the $126.2 million (84%) in fines have been collected and $130.5 million of the $173.8 million (75%) in restitution have been paid. The CPUC has deemed uncollectible approximately $31.8 million in fines and restitution against utility companies. (see the Appendix). Decisions against transportation companies represent the next highest category of fines and restitution among CPUC programs. Excluding fines imposed and collected through the informal citation process, the CPUC records show that it has collected $72,505 of $515,421 (14%) in fines and restitution. Almost all of the remaining $440,000 has been deemed uncollectible (see the Appendix). Other CPUC divisions (i.e., the Energy Division and the Water Division) can issue citations to impose fines for late filings or minor administrative violations. These fines typically do not involve significant amounts and thus were excluded from the scope of our review. Our review found that, in many cases, it was inherently difficult for the CPUC to collect, as the companies that engaged in fraudulent or inappropriate practices either ceased to operate or filed for bankruptcy shortly after the CPUC launched investigations or imposed fines. In addition, when a company refuses to pay a fine, the CPUC has to obtain a court judgment; this can be a lengthy process and further compromises the CPUC’s ability to collect. However, the CPUC’s collection difficulties are further compounded by the following processing shortcomings and control deficiencies: • The CPUC does not adequately review the background and financial viability of applicants for licenses to operate as telecommunications providers. Of the $32.2 million in fines and restitution that have been deemed uncollectible, $29.2 million is from such companies. An applicant for a license only had to provide minimal information on an application form and pay a nominal application fee of $75 to register as a telecommunication provider. In many cases, unscrupulous individuals or companies began billing consumers for millions of dollars in unauthorized charges shortly after being registered by the CPUC. -1- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection • The CPUC sometimes took years to render a decision imposing fines and restitution. In one case, after a CPUC administrative law judge made a recommendation about disposition, the CPUC did not render a decision to impose a $1.5 million fine until 21 months later. In the meantime, the company filed for bankruptcy protection. • The CPUC has not developed formal guidelines, processes, and procedures to ensure uniformity and consistency in its collection efforts. This is a significant concern because the CPUC’s collection efforts are fragmented among various divisions. Collection efforts appeared to be inconsistent, even for similar cases within the same division. In a document dated March 14, 2007, a CPUC staff member prepared draft “standard operating procedures” for collection of fines, penalties and restitution. The procedures specified in this draft document appear to address many issues identified in this report. As the document was not provided to the SCO auditors until after the end of the fieldwork phase of our review, we did not evaluate the CPUC’s progress in implementing the procedures delineated in this document. • Responsibility for collection is not clearly assigned, as the CPUC does not have a centralized collection unit. We noted many cases in which the CPUC apparently made no effort to collect, even after it had obtained court judgments at considerable effort and expense. In the aforementioned standard operating procedure, currently in draft form, collection responsibility has been delineated among the various CPUC divisions and units. • The CPUC made little effort to refer companies or individuals that apparently engaged in fraudulent activities to law enforcement agencies for prosecution. Nothing in the case files indicated why no referral was made. Some of these companies, or their principals, were prosecuted by law enforcement agencies in other states for engaging in activities similar to those in California. Consequently, some unscrupulous companies or individuals were able to defraud California consumers for tens of millions dollars and then essentially disappear without suffering any fiscal or legal consequences. In addition, our review found the following conditions: • The CPUC has no means of ensuring the accuracy and completeness of the amount of fines imposed or collected, as such transactions are not recorded or reflected in its formal accounting records. We found that the CPUC has no procedures in place to ensure that its accounting office is notified of fines when they are imposed. Approximately $126.5 million in fines imposed by the CPUC since 1999 has never been entered into the CPUC’s accounting records. We also identified various accounting errors during our review. The lack of appropriate checks and balances in the CPUC’s collection functions could lead to irregularities and errors. -2- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection • The CPUC has not undergone a comprehensive audit of its fiscal operations and internal control processes and procedures in many years. Available records disclosed that the last comprehensive audit was performed by the Department of Finance in 1992. It should be of significant concern to the CPUC’s management that the conditions identified in our review of the collection system may exist in other areas of the CPUC’s fiscal operations. -3- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection Review Report Introduction The State Controller’s Office (SCO) conducted a review of the California Public Utilities Commission’s (CPUC) practices and procedures for accounting and collecting fines and restitution imposed against the companies it regulates. Our review was initiated to address concerns raised that the CPUC failed to collect millions of dollars in fines and restitution, some outstanding since 1999, by not vigorously pursuing collection efforts. The SCO review was conducted pursuant to Government Code section 12418, which stipulates that the State Controller shall direct and superintend the collection of all money due the State. Background of The CPUC consists of five commissioners appointed by the governor, with Senate approval, to six-year terms. The CPUC has broad powers to the California regulate investor-owned and operated natural gas, electric, telephone, Public Utilities water, sewer, steam, and certain transportation companies in California. Commission The CPUC has jurisdiction over more than 5,000 utilities and carriers. (CPUC) The CPUC’s regulatory activities—such as establishing operating authority, overseeing service standards, authorizing rate changes, and monitoring safety—benefit consumers by offering them more choices among new and upgraded utility products and services, and by protecting them in ways that competition between companies does not or can not. As a part of its regulatory responsibilities, the CPUC reviews and CPUC’s Authority investigates complaints and allegations of wrongdoing to ensure that the to Improve Fines entities it regulates are operating safely and legally, and that they are and Restitution necessary for the public interest. When such a review or investigation determines that an entity has failed to comply with laws or has engaged in inappropriate practices, the CPUC may impose a fine payable to the State and/or order the entity to repay consumers in the form of restitution. Typically, a CPUC administrative law judge hears and reviews the case before presenting it to the CPUC commissioners for a decision. Public Utilities Code section 2104 provides that the CPUC may file an action to recover a penalty in Superior Court. In an opinion issued in 2006, the Court of Appeal found that while the CPUC can impose a fine, Section 2104 requires the CPUC to go to the Superior Court to enforce collection of the fines if those fines are not paid voluntarily. When an entity is ordered to make restitution, the CPUC can either direct the entity to pay consumers directly or do so through a third-party payer. The Appendix provides a schedule of fines and restitution imposed and Fines and amounts collected by the CPUC since 1999 through its Consumer Restitution Protection and Safety Division (CPSD). The SCO prepared this schedule based on data provided by CPSD staff. Decisions against utility companies, including telecommunication companies, totaled approximately $300 million and constitute the overwhelming portion of fines and restitution. The $300 million includes $126.2 million in fines and $173.8 million in restitution. Decisions against transportation companies, which typically include moving companies and passenger -4- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection carriers such as limousine and airport shuttles, totaled $515,421 during this period; the total includes $412,058 in fines and $103,363 in restitution. These totals exclude fines imposed and collected through the informal citation process. The CPSD’s records also show that, of the $126.2 million in fines against utility companies, the department has collected a total of $105.9 million (84%) as of May 30, 2007. With respect to the $173.8 million in restitution payments, the utilities have collectively paid a total of $130.5 million (75%). A significant portion of the unpaid restitution consists of recent cases in which the companies are not scheduled to make payments until later. For example, one utility company was ordered by the CPUC to make approximately $5.7 million in restitution payments, in installments, starting in 2009. Of the $412,058 in fines against transportation companies, the CPUC collected a total of $59,900 (15%) as of May 30, 2007. Of $103,363 in restitution payments, the transportation companies collectively paid $12,505 (12%). In addition to fines and restitution that are imposed through formal hearings, some CPUC divisions (i.e., the Consumer Protection and Safety Division, the Energy Division, and the Water Division) can issue citations to impose fines for late filings or minor administrative violations. These fines typically do not involve significant amounts. Scope and The scope of our audit includes a review of CPUC policies, processes, procedures, and practices relative to its accounting for and collection of Methodology fines and restitution against utility companies and transportation companies through the formal hearing process. We did not review the CPUC’s practices and procedures relative to its informal process of issuing citations, as the amounts involved do not appear to be material. Similarly, the scope of our audit did not include evaluation of the CPUC’s decisions with respect to the reasonableness of the amount of fines or restitution imposed because such decisions are within the purview of the CPUC commissioners. We performed the following procedures: • Reviewed pertinent statutes, regulations, and written policies and procedures regarding the CPUC as it relates to the accounting and collection of fines and restitution. • Reviewed and analyzed relevant audit reports issued by the Bureau of State Audits (BSA) and the Department of Finance (DOF). • Reviewed and assessed the CPUC’s system of internal controls as they pertain to the accounting, tracking, and collection of fines and restitution. • Reviewed and analyzed the amounts of fines and restitution imposed, recorded, and collected from Fiscal Year 1998-99 to Fiscal Year 2006-07. -5- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection • Interviewed responsible officials at CPUC headquarters, including staff at the Information and Management Services Division and Fiscal Office, as well as staff from the Consumer Protection Safety Division’s Utilities Enforcement Branch and Transportation Branch and staff from the Administrative Law Division. • Performed tests of transactions to assess the effectiveness of controls relating to the recording and collection of fines and restitution. • Selected a sample of imposed fines to evaluate the accuracy and reliability of reported revenue and the balances reported as accounts receivables, and to determine if proper recording had occurred. -6- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection Findings and Recommendations Finding 1— According to its records, the CPUC was unable to collect $20.7 million in fines and $11.1 million in restitution that were imposed against utility The CPUC’s collection companies since 1999. The total of $31.8 million in uncollected fines and effort is ineffective restitution represents approximately 10.6% of the $300 million in fines against certain and penalties against utility companies since 1999. companies that ceased to operate and/or filed Even though the amounts of fines and penalties imposed against for bankruptcy when transportation companies are considerably less, the CPUC has had fines were imposed. significantly more difficulty collecting from such companies. Excluding informal citations, the CPUC records show that, over the years, it was able to collect only $59,900 of $412,058 in fines (15%) and $12,505 of $103,363 (12%) in restitution that were imposed against transportation companies. Our review found that it is inherently difficult for the CPUC to collect in many cases, due to the following factors: • The companies that engaged in fraudulent or inappropriate practices ceased to operate shortly after the CPUC launched investigations of issues that were brought to its attention or shortly after the CPUC imposed fines. When a company is no longer in operation, the CPUC has little leverage to collect. For example, in April 2001, the CPUC ordered Coral Communications Inc. (Coral) to pay $5.1 million in fines and $4.6 million in restitution for billing customers for services they did not authorize or did not realize they had agreed to accept during 1997 and 1998. The CPUC’s files show that the former owner of Coral shut down the business approximately 60 days after the CPUC issued an “Order Instituting Investigation” of Coral in August 1998. Thus, when the fines and restitution were eventually imposed more than two years later, in 2001, CPUC staff could not locate any assets that belonged to Coral; the company had been shut down for years and its former owner had reportedly moved to another country. • The companies filed for bankruptcy before fines or restitution were imposed. For example, In July 2002, the CPUC fined Accutel Communications Inc. (Accutel) $1.5 million for switching customers’ long-distance carriers without consent and charging for unauthorized services. When initiating efforts to collect, the CPUC staff found that Accutel had already filed for bankruptcy protection in September 2001 and the bankruptcy was discharged in October 2001. • Delays in obtaining court orders to compel companies to pay CPUC- imposed fines make it more difficult for the CPUC to collect. Although the CPUC has the legal authority to impose fines and restitution, it must file a collection case with the Superior Court and obtain a judgment to enforce collection when a company refuses to pay the fines. The process can be quite lengthy and thus further compromises the CPUC’s ability to collect. For example, the CPUC fined the USP and C Corporation (USPC) $1.75 million in April 2001 for engaging in various improper practices. After appeals, the CPUC did not obtain a Superior Court judgment until May 2004. USPC then -7- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection appealed the Superior Court decision; the Court of Appeal denied the appeal in March 2005, almost four years from the date on which the fine was initially imposed. Generally, it is more difficult to collect as time passes and often, after a lengthy and costly process of obtaining a judgment, the CPUC finds that the company has no assets to collect. The CPUC’s collection difficulties are compounded by other processing shortcomings and control deficiencies. Specifically, we found the following problems: • The CPUC does not adequately review background and financial viability of applicants for licenses to operate as telecommunications providers. Approximately $29.2 million of the $31.8 million in fines and restitution against utility companies that are deemed uncollectible are from these companies. In June 1997, the CPUC―apparently in an effort to promote competition and to expand access―decided to streamline and simplify the application process for these companies. An applicant only had to provide minimal information on an application form and pay a nominal application fee of $75 in order to register as a telecommunication provider. Much of the information requested consisted of self-certifications, such as a statement that none of the principals had filed for bankruptcy or had been found criminally or civilly liable for action involving misrepresentation to the consumers. In many instances, unscrupulous individuals or companies who had not been sufficiently scrutinized by the CPUC for background or financial viability began billing consumers for millions of dollars in unauthorized charges shortly after being registered by the CPUC. For example, after receiving its Certificate of Public Convenience and Necessity to operate as a reseller of long distance telephone service within California in May 1997, Accutel Communications billed approximately 40,000 consumers $4.95 in unauthorized monthly charges in 1998. By February 25, 1999, Accutel was in receivership. The owner of Accutel eventually was convicted of various fraudulent activities in 2004 as a result of prosecution effort by the United States Attorney’s Office in Miami, Florida. • The CPUC sometimes took years to render a decision imposing fines and restitution. For example, in the aforementioned case against Accutel, the CPUC launched an investigation in early 1999 and was made aware that the company was in receivership when a Stipulation for Appointment of a Receiver was entered in the Superior Court for the County of San Diego on February 25, 1999. Despite the obvious sign of fiscal insolvency and the fact that a CPUC administrative law judge heard the case and made a recommendation about disposition on October 25, 2000, the CPUC did not render a decision to impose the $1.5 million fine until 21 months later, in July 2002, and did not suspend Accutel’s license until December 2002. In the meantime, Accutel filed for bankruptcy protection in September 2001. In another example, when aforementioned USPC filed an application for rehearing of the CPUC’s order to impose a $1.75 million fine in April 2001, the CPUC did not reject the application for rehearing until two years later, in April 2003. -8- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection • The CPUC did not develop formal guidelines, processes, and procedures to ensure uniformity and consistency in its collection efforts. This is especially important because the CPUC’s collection efforts are fragmented among various divisions. We noted many instances in which collection efforts appeared to be inconsistent, even for similar cases within the same division. For example, in a case against All State Moving and Storage, Inc. in which the CPUC imposed a $40,000 fine, the CPUC attempted to obtain a judgment from the Superior Court (dismissed for procedural reasons) and sent out two collection letters to the company seeking payment. In a case against Ace of Bace Moving Company that also resulted in a $40,000 fine, nothing in the case file suggests that the CPUC made any effort to collect after its decision to impose the fine. Neither company paid the fine. An attorney from the CPUC’s Legal Division told the auditors that on many occasions he observed CPUC staff members in possession of, and not knowing what to do with, checks from companies for as much $300,000. On November 21, 2002, staff in the Consumer Protection and Safety Division received a $25,000 check from a telecommunication company for fine payment, but the check was not submitted to the CPUC fiscal office until April 14, 2003. By then, the check had become stale and had to be returned to the company and the company had to issue a new check. In a document dated March 14, 2007, a CPUC staff member prepared “standard operating procedures” for collection of fines, penalties, and restitution. The document, still in draft form, appears to address many issues identified in this report. According to the CPUC, the draft manual is currently being reviewed and tested prior to formal adoption. As the draft document was not provided to the SCO auditors until after the completion of the fieldwork phase of our review, we did not evaluate the CPUC’s progress in implementing the prescribed procedures. • Responsibility for collection is not clearly assigned, as the CPUC does not have a centralized collection unit. We found that collection responsibility at the CPUC is fragmented among the staff in the Legal Division, the Consumer Protection and Safety Division (CPSD), and other operating units such as the Energy Division, the Transportation Branch, and the Water Division. Meanwhile, the Information Management and Services Division, which is responsible for the fiscal activities of the department, has had virtually no involvement in the collection function. When interviewed, investigators at the CSPD said that collection efforts were the responsibility of the Legal Division. The investigators further stated that they do not believe the Legal Division staff made a determined effort to pursue collection, due to its inadequate staff resources and lack of expertise. This was especially true in cases where the companies appeared to have little assets. An attorney from the Legal Division told us that he did not believe that it was his job to be in the business of collection. • The CPUC made little effort to refer companies or individuals that apparently engaged in fraudulent activities to law enforcement agencies for prosecution. We reviewed case files of 10 telecommunication companies and one electric service provider that -9- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection may have been engaged in fraudulent or inappropriate activities and then ceased to operate when the CPUC initiated investigative or administrative action; we found only two cases in which CPUC staff interacted with law enforcement agencies concerning possible prosecution. For the other nine companies, nothing in the case files indicated why the CPUC made no effort to refer the case to law enforcement agencies. Some of these companies, or their principals, were apparently successfully prosecuted by law enforcement agencies in other states for engaging in activities similar to those in California. As a result of the factors listed above, some unscrupulous companies or individuals were able to defraud California consumers for tens of millions of dollars by billing for unauthorized services, or for services that were not provided, and then essentially disappearing without suffering any fiscal or legal consequences. When a fine is imposed, the CPUC accounting office should be notified Finding 2— so that it can set up an accounts receivable to record and track the The CPUC has no means transaction in the accounting records. We found that the CPUC has no of ensuring the accuracy procedures in place to ensure that its accounting office is notified of fines and completeness of the when they are imposed. Instead, staff in the Consumer Protection and amount of fines imposed Safety Division (CPSD) records and tracks fines (and restitution) using or collected, as such spreadsheets. Approximately $126.5 million in fines imposed by the transactions are not CPUC since 1999 has never been entered into the department’s recorded or reflected in accounting records as accounts receivable. Moreover, although the its formal accounting payments are eventually reflected in the accounting records when the records. checks from the companies are turned over to the accounting office for deposit, there is no procedure requiring periodic reconciliation of the payments received between the CPSD’s spreadsheet and the accounting records. Our review of the records disclosed the following conditions. • The amounts of fines and restitution imposed and collected as shown in the CPSD spreadsheet and accounting records are not accurate or reliable. We found instances in which CPSD staff did not revise the spreadsheet figures after the CPUC rendered a decision to revise the fine and restitution amounts. Examples include: o The CPSD spreadsheet shows $25 million in fines imposed and collected from Pacific Bell. In actuality, only $15,225,000 was collected because the CPUC made a decision to modify the fine amount. o The CPSD spreadsheet shows $378,000 in fines imposed and collected from Pacific Fiber Link. The actual amount of the original fine was $275,000. Moreover, only $25,000 had actually been collected because the CPUC amended the fine amount. o The CPSD spreadsheet shows $1.2 million in fines imposed and collected from San Diego Gas and Electric. In actuality, in lieu of a fine, $200,000 of the amount was to be spent for an education program to be administered by the utility. CPUC staff could not provide any evidence showing how or when the amount had been spent on education. -10- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection • The completeness of data in the CPSD spreadsheet is questionable. Without reconciliation with information in the department’s accounting records or other control mechanisms to ensure the completeness of transactions, there is no way of knowing whether fines or restitution were intentionally or inadvertently excluded from the CPSD spreadsheet. As the CPSD spreadsheet is the CPUC’s sole source of information for tracking fines, such incomplete data could result in outstanding fines remaining uncollected. • Collection duties are inadequately segregated. The CPSD, in essence, has access to all aspects of the collection process, including making recommendations to impose fines, collection of fines, and recording and tracking the amounts of fines imposed and collected by the department. This lack of duty segregation represents a serious internal control weakness, as it does not provide the adequate checks and balances that would prevent errors and irregularities. The procedures prescribed in the aforementioned “standard operating procedures” for collection of fines, penalties, and restitution, dated March 14, 2007, and currently in draft form, appear to address the issues identified in this finding. Finding 3— Based on the conditions found in our review of its collection system, we believe the CPUC could significantly benefit from a comprehensive audit The CPUC has not of its fiscal operations and related internal control processes and undergone a procedures. Available records disclosed that the last such audit was comprehensive audit performed by the Department of Finance (DOF) in 1992. In July 2001, of its fiscal operations the DOF auditors issued another report of a “preliminary survey” of the and internal control CPUC’s organizational and internal control structure. This survey report processes and did not constitute an audit in accordance with the Financial Integrity and procedures in many State Manager’s Accountability Act (FISMA). Both the 1992 audit and years. the 2001 preliminary survey disclosed significant internal control deficiencies, including shortcomings in the department’s collection system, processes, and procedures. We believe that some of the issues raised in this report may have been mitigated to some extent had the CPUC fully and adequately addressed the previous audit findings and recommendations. Some examples of the issues noted in the 2001 DOF report include: • “Receivables are not collected in a timely manner and an aging of the receivables outstanding is not performed.” • “No procedures are established to collect delinquent receivables and to ensure that receivable write-offs are properly approved and subsequently accounted for. For example, as of March 2001, over $1.9 million receivables were outstanding from 1998 and over $196,800, or 10%, were dated from 1990 through 1994.” • “Inadequate separation of duties over accounts receivable.” -11- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection It should be of significant concern to the CPUC’s management that the conditions identified in our review of the collection system may exist in other areas of the CPUC’s fiscal operations. Under FISMA, the head of each state agency and department is required to submit to the Department of Finance on a biannual basis a certification as to the adequacy of its internal control system. In light of the conditions noted in this report, the CPUC should undergo a comprehensive audit of its internal control system to afford its management a reasonable basis for making the FISMA-required certification. Recommendations 1. The CPUC should conduct more stringent background and financial viability reviews of individuals or companies applying for licenses to operate as telecommunications providers. 2. The CPUC should consider incorporating into the application approval process a requirement that companies post a performance bond before registering as telecommunications providers. 3. The CPUC should consider sponsoring legislation to: • Preclude transportation companies from re-registering or transferring title of company-owned vehicles carrying unpaid CPUC-imposed fines with the Department of Motor Vehicles. • Allow the CPUC to pursue collection action without a Superior Court judgment if the CPUC’s order to impose fines or restitution is not appealed within a specified timeframe. 4. The CPUC should immediately clearly assign collection responsibility to the various divisions. In addition, the CPUC should consider establishing a centralized collection unit. The CPUC could staff the collection unit through redirection of existing resources from other divisions and/or requesting additional resources through the budget process. 5. The CPUC should formally adopt the procedures delineated in the draft “Standard Operating Procedures” for collection of fines, penalties, and restitution as soon as feasible. After adoption, the CPUC should periodically review and evaluate the effectiveness of the procedures and make appropriate modifications. 6. The CPUC should develop criteria for referring companies that have apparently engaged in fraudulent practices to law enforcement agencies for possible legal action. The referrals or final case disposition should be fully documented and explained in the case files. 7. The CPUC should again review and analyze the cases involving fines that are deemed uncollectible to determine whether there are other avenues for collection. If the CPUC determines that collection is no longer possible or feasible, the CPUC should fully document the rationale and basis for such determination and submit a request to the SCO for discharge of accountability in accordance with -12- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection Government Code section 13940-13944 and the State Administrative Manual section 8776. To provide for a proper audit trail, the fines should be reflected in the CPUC’s accounting records as accounts receivable before the request for discharge of accountability is filed with the SCO. 8. The CPUC should arrange for a comprehensive audit of its internal control system, processes, and procedures in accordance with the Fiscal Integrity and State Manager’s Accountability Act. -13- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection Appendix— California Public Utilities Commission Consumer Protection and Safety Division (CPSD) Summary of Fines and Restitution Imposed Since 1999 Amount Percentage Imposed Amount Paid Paid/Collected Utilities Enforcement Branch Fines payable to the State $ 126,245,550 $ 105,920,200 84% Restitution 173,818,219 130,527,447 75% Total $ 300,063,769 1 $ 236,447,647 79% Transportation Enforcement Branch Fines $ 412,058 $ 59,900 15% Restitution 103,363 12,505 12% Total $ 515,421 1 $ 72,405 14% Source: Prepared based on data provided by CPSD Enforcement Branch staff. ______________________________ 1 Includes approximately $32.2 million in fines and restitution ($31.8 million from utility companies and $440,000 from transportation companies) deemed uncollectible by the California Public Utilities Commission. -14- California Public Utilities Commission Review of Fines and Restitution Accounting and Collection Attachment— CPUC’s Response to Draft Report Findings and Recommendations State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, California 94250-5874 http://www.sco.ca.gov S07-PRS-900