Lousy internal control policies in California’s prison system puts millions of taxpayers’ dollars at risk of fraud and abuse, according to an audit released today by state Controller John Chiang.
“My auditors found the CDCR has grossly inadequate procedures in place for collecting overpayment of salaries and travel advances made through the agency’s office revolving fund,” Chiang said in a news release. “This is the latest in a series of agency audits conducted by my staff that point to the waste and abuse of state funds due to the lack of attention to collecting overpayments. Gov. Brown and I are working together to identify the causes of these problems and to protect public funds.”
The audit comes amid increasing inclination on both sides of the political aisle to find fiscal savings in the prison system, which accounts for 11.4 percent of the state’s general-fund spending in the current budget; in comparison, about 11.9 percent of general-fund spending goes to higher education.
Chang’s auditors reviewed California Department of Corrections and Rehabilitation records from July 1, 2009 through July, 31, 2010, and found that inadequate collection efforts resulted in delays in collecting millions of dollars in overpayments for employee salary and travel advances. Of more than $6 million in outstanding receivables related to salary and travel advances, more than $4 million, or 65.6 percent, remained outstanding for more than 60 days, and $465,000, or 7.5%, had been outstanding for more than three years.
For example, an employee terminated in May 2010 got a lump-sum check for $14,950 from the office’s revolving fund to meet the timeline for paying employees separating from state service, auditors found. But CDCR didn’t take the steps necessary to offset the employee’s final check, resulting in the former employee receiving both a salary advance and a full, final check. And six months later, there had been no effort to recoup the $14,950 overpayment.
In another case, an employee got a salary advance of more than $8,000 in January 2008, plus a regular payroll check; as of Nov. 1, 2010, almost three years later, the advance still hadn’t been collected, even though the employee still works for CDCR.
The audit also found serious internal control deficiencies put CDCR at risk for fraud and abuse. For example, CDCR was tardy or noncompliant in trying to “reconcile bank accounts to ensure the accuracy and completeness of recorded transactions,” the controller’s office said – what you and I would call balancing our checkbooks. As of June 30, 2010, the bank reconciliation of CDCR’s major account showed $27 million in unresolved funds on their bank balance, while CDCR’s records showed unresolved funds totaling more than $31 million on their book balance. Without reconciling these funds, anyone with access to the fund’s check stock could issue bogus checks with little chance of getting caught.
Also, state accounting procedures require two authorized signatures for payments of more than $15,000, yet the audit found two separate checks exceeding that amount without dual signatures.
And the audit found CDCR used its revolving fund to spend more than the department’s appropriation under the state budget. That those payments appeared to be for legitimate purposes isn’t the issue, the audit said: CDCR has no legal authority to make such payments without an appropriation from the Legislature. As of last Nov. 30, CDCR still hadn’t received reimbursement for more than $3.5 million in payments made from its revolving fund prior to June 30, 2010.
Martin Hoshino, CDCR Undersecretary for Administration and Offender Services, said the agency agrees with the findings and already has implemented 22 of the 36 recommendations made by Chiang’s office. In his formal response, Hoshino said CDCR has now “prioritized the vigorous collection of outstanding debts,” succeeding in decreasing the outstanding balance by $2.2 million since November 1, 2010. “We will continue in our efforts until we have surmounted the issues identified in this audit.”
Chiang’s auditors will revisit CDCR a year from now to gauge its progress in correcting the problems.
UPDATE @ 3:16 P.M.: “The situation here is terrible, but the great thing is that we have acknowledgement and action – it’s a new day in Sacramento,” Chiang told me this afternoon, noting Brown issued an executive order April 20 addressing some of the issues this audit found. “We think they’re making the efforts to do so. We’re going to go back a year from now and make sure they’re implementing as promised.”
Chiang said amid the state’s fiscal crisis, administrators must find every opportunity large and small to conserve money.
He blamed the sloppiness on “a lack of focus. What we’ve heard in prior instances is that it (proper bookkeeping) is not their core function, but they have to understand they’re not going to be able to perform those core functions unless they have financial controls.”