Auditor Says Lax Oversight of Recycling Program Cost State Nearly $2.2 Million. The state auditor released a report June 22 stating that the Beverage Container Recycling Program at the Department of Resources Recycling and Recovery did not ensure that recipients of grants met their commitments for six completed market development and expansion grants that were reviewed – ultimately costing the state nearly $2.2 million.
Auditors said the program uses a flawed fiscal forecasting process, and that the flaws resulted in a $158.1 million overstatement in the 2009-10 budget proposed by the governor. "In addition, the actual balance in the beverage fund was understated in the governor' s budget for three fiscal years – 2004-05 through 2006-07 – because revenues were not corrected to include prior year adjustments," the auditor stated.
The audit of the recycling program found:
· Its forecasting process is outdated and not able to reliably project revenues and expenditures.
· Over the past five years projections have differed from actuals by between 3 percent and 15 percent – a problem the auditors attributed to "ineffective supervisory oversight and lack of review of the accuracy of the forecasts."
· A projected fund balance deficit in May 2009 prompted the department to reduce payments to beverage program participants.
· For one audit with identified underpayments of $941,000 including interest, the department took six months to bill the distributor.
· In two instances, the department could not collect a total of $324,000 because it exceeded the two-year statute of limitations on collecting underpayments.
· It may be missing opportunities to detect fraud because it lacks a systematic and documented methodology for analyzing data regarding the volume of recycled containers.
· It does not always perform key steps to monitor grants awarded to private entities and local governments and ensure that funds are properly used by visiting grantees and obtaining project status reports.
The Beverage Container Recycling Program was created in 1986 with the intent of increasing consumer recycling. The program requires beverage distributors to make a redemption payment to the Beverage Container Recycling Fund for every qualified beverage container sold or offered for sale. The cost of the redemption payment is passed along to consumers when they purchase beverages and, to encourage recycling, consumers can return used containers to recycling centers and receive a payment representing the initial California refund value. (Source: Bureau of State Audits report, "2010-101, Department of Resources Recycling and Recovery: Deficiencies in Forecasting and Ineffective Management Have Hindered the Beverage Container Recycling Program," June 22.)
Cal-Tax recommendation: The department should follow the auditor's recommendations to implement a new forecasting model and to immediately take steps to improve management of the entire recycling program.
Cal-TaxReports, June 28, 2010
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