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Department of General
Services Doesn't Oversee Contracting Program Properly, Auditor Says.
The state auditor reported July 8 that its review of the Department of General
Services' "strategically sourced" contracting practices revealed several lapses
in oversight.
The auditor noted that the
purpose of strategic sourcing is to enter into statewide contracts that leverage
the state's purchasing power to save money on the goods and services purchased
most frequently by state agencies. The strategic sourcing process involves
identifying goods and services through a systematic analysis of past purchasing
data, and projecting what savings can be expected through new contracts.
The department awarded 33
statewide strategically sourced contracts for 10 categories of goods between
February 2005 and July 2006, and the good news is that the department accrued at
least $160 million in net savings as of June 30, 2007. (Cal-Tax: The
actual savings to taxpayers was less, because the department paid the consultant
who assisted in implementing the strategic sourcing initiative 10.5 percent of
the accrued savings realized through these contracts.)
The bad news is that the
department is lax in overseeing many areas of the contracting program, the audit
said. The non-partisan auditor reported that the department:
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Did not continue to formally
calculate the savings after June 2007 when its consulting contract expired.
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Has not strategically sourced
20 other categories of goods or services that were recommended by the
consultant, and had not prepared an analysis to document its rationale for not
strategically sourcing.
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Incurred significant costs to
train staff and to develop written procedures on strategic sourcing, yet has not
awarded any new strategically sourced contracts using the procedures or reviewed
comprehensive purchasing data to identify new opportunities.
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Lacks data to determine the
impact of strategic sourcing on the participation by small businesses and
Disabled Veteran Business Enterprises (DVBEs).
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Does not monitor small
business and DVBE subcontractors to ensure that they perform commercially useful
functions in providing goods or services once a contract has been awarded.
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Does not have standard
procedures to recover any overcharges identified despite its new automated
process designed to monitor compliance with contract pricing terms.
(Source: Bureau of State
Audits
report No. 2009-114, "Department
of General Services: It No Longer Strategically Sources Contracts and Has Not
Assessed Their Impact on Small Businesses and Disabled Veteran Business
Enterprises," July 8.)
Cal-Tax recommendation: The
Legislature and governor should follow up on the audit to make sure the
Department of General Services dramatically improves its oversight of this
contracting program.
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Welfare Benefits Being
Withdrawn at Strip Club ATMs.
In a follow-up story to an
investigative story cited in last week's Cal-Taxletter, the Los
Angeles Times reports that welfare recipients withdrew $12,000 in cash from
the Temporary Assistance for Needy Families program from ATMs in strip clubs
throughout the state between 2007 and 2009.
The California Department of
Social Services said the governor has ordered the department to correct the
problem by removing strip clubs and casinos from the list of businesses where
recipients can withdraw taxpayer dollars. In an e-mail to the Times,
department spokeswoman Lizelda Lopez said: "We'll take a wide-ranging look and
apply some common sense to the list of outlets where cash assistance should not
be withdrawn."
The Times earlier
reported that welfare recipients have been withdrawing cash benefits at ATMs in
casinos and cardrooms. The state has now calculated the amount of money that has
been withdrawn from the state's welfare program using ATMs located in casinos:
$1.8 million in just eight months (October 2009 through May 2010). (Source:
Los Angeles Times, June 30.)
Cal-Tax recommendation: Kudos
to the Los Angeles Times for revealing that cash welfare benefits are
being withdrawn at casinos and strip clubs, where much of the cash probably
remained. The state needs to find a better way to help those who truly need
assistance, and to stop giving cash to those who are using it for
extracurricular activities. The governor's orders are a step in the right
direction, but welfare recipients can get around the orders by simply stopping
at other ATMs on the way to the casino or strip club. More safeguards are
needed.
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Auditor Says State
Employee Misconduct and Mismanagement Costs Taxpayers Millions.
State Auditor Elaine Howle released
a report June 29 documenting major
cases of state employee wrongdoing and mismanagement during the 2009 calendar
year, and also reported that one state agency took years to follow up on a past
recommendation for more than a million in savings.
The auditor reported cases in
2009 in which employees were:
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Participating in other
employment during state work hours and misusing state resources at a total cost
to the state of $70,105.
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Misusing the time of two
psychiatric technicians, resulting in a loss to the state of $110,797.
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Improperly allowing a
business owner to use state university facilities, equipment, and supplies
costing $20,790.
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Claiming $392 in travel
expenses not incurred and violating state law by accepting gifts in the form of
substantial hotel discounts.
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Failing to report 82 hours of
leave taken, for which the state paid $2,605.
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Receiving at least $1,840 in
gifts from a vendor, thus creating the appearance that the gifts were rewards
for doing business.
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Failing to account accurately
for absences that cost $1,206.
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Improperly exempting an
estimated 3,000 after-school education programs from child-care licensing
requirements.
The auditor also provided
updates on past reports of wrongdoing, and noted that some state agencies did
not act quickly to follow up on the recommendations. A striking example, as
described in the auditor's report:
"In September 2005 we
reported that the Department of Corrections and Rehabilitation (Corrections) did
not track the total number of hours available in a release time bank (time bank)
composed of leave hours donated by members of the California Correctional Peace
Officers Association (union) so that union representatives could cover union
business. Our investigation revealed 10,980 hours that three union
representatives used from May 2003 through April 2005 but that Corrections
failed to charge against the time bank, costing the State $395,256. Following
our report, Corrections still did not attempt to obtain reimbursements for the
time that the three employees spent on union activities in May and June 2005,
resulting in an additional cost to the State of $39,151. In fact, Corrections
informed us later that it was unable to reconstruct an accurate leave history
for any period before July 2005 for the three union representatives.
Consequently, Corrections will not seek reimbursements that total $434,407.
Instead, Corrections submitted to the union monthly invoices that total
$1,037,698 for union work performed by the employees from July 2005 through
December 2009. As of June 2010, Corrections had only received a payment of
$16,530 on any of these invoices. Thus, the unrecovered reimbursements for the
three employees' time for May 2003 through December 2009 cost the State a total
of $1,455,575." (The report notes that just last month, the department said it
has initiated litigation to try to get the money from the union.) (Source:
California State Auditor's report, "Investigations of Improper Activities by
State Employees: Misuse of State Time and Resources, Improper Gifts, Inadequate
Administrative Controls, and Other Violations of State Law, January 2009 Through
December 2009," June 29.)
Cal-Tax recommendation: State
lawmakers should keep the state auditor's reports handy when writing the budget
for the next fiscal year, and should take action to force agencies to follow
through on recommendations for improvement.
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Governor Issues Executive
Order Banning Welfare Recipients From Accessing Taxpayer-Provided Benefits at
Casino ATMs. The
Los Angeles Times reported June 24 that "California welfare recipients
are able to use state-issued debit cards to withdraw cash on gaming floors in
more than half of the casinos in the state." The newspaper compared a list of
ATM addresses on the California Department of Social Services' website to a list
of casinos and poker rooms on the California Gambling Control Commission's site,
and found that 32 of 58 tribal casinos and 47 of 90 poker rooms had ATMs that
accept the state's welfare benefits cards.
The amount of money withdrawn
at these gambling facilities is not known, state officials said.
Responding to the report,
Governor Arnold Schwarzenegger on June 24 directed the Department of Social
Services to take immediate action to prevent welfare recipients from being able
to access state-provided cash benefits from ATMs in gambling establishments. "I
will use every available power I have to protect taxpayers from waste, fraud and
abuse in government," the governor said. "I urge the Legislature to pass more
aggressive laws preventing benefit recipients from withdrawing cash assistance
at casino and other gambling location ATMs that I will sign as soon as it hits
my desk." (Sources: Los Angeles Times, June 24; News release from
Governor's Office, June 24.)
(Cal-Tax recommendation: The
Legislature should follow the governor's suggestion, and all state officials
should investigate ways to prevent misuse of state funds with the same intensity
as the Times reporters who uncovered this hole in the state's welfare
system.)
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State Sends One-Cent
Payments to Counties, at a Cost of 71 Cents Each.
The state has reduced its Williamson Act subventions to counties so drastically
that some counties received a single penny when the annual checks arrived this
month. The state distributes the funds electronically, at a cost of 71 cents per
payment. Six of the payments were for amounts less than 71 cents.
Williamson Act funding was
cut from $38 million to $1,000 – an amount that was divided among 47
participating cities and counties. (Source: Los Angeles Times, June 18.)
Cal-Tax recommendation: This
appears to be a unique circumstance, and it is likely that addressing the
situation would cost a great deal more than the amount of wasted money in
question. However, if there is a simple, no-cost way to consolidate small
payments to avoid this situation in the future, state officials should do it.
Every penny counts.
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Lottery Officials Get
Taken Out to the Ball Game.
California State Lottery
Director Joan Borucki and her staff bilked taxpayers by using $3,000 in
department funds to travel to several Los Angeles Dodgers and San Francisco
Giants baseball games, according to an investigative report by CBS News
in Sacramento.
Out of every dollar raised
from state lottery funds, 34 cents is intended to go to education. The
department justified the staffers' attendance at the baseball games by claiming
that the lottery director is a public figure and since the lottery is a baseball
sponsor, it makes sense for the department to attend the baseball games.
Assemblyman Hector De La
Torre, chair of the Assembly Committee on Accountability and Administrative
Review, said the department has lost sight of its core mission.
In addition to paying for the
baseball games, the $3,000 went toward travel claims for mileage, meals, a
$189-per-night hotel room, and a meeting with a state senator in his Southern
California district. Assemblywoman Alyson Huber, a member of the oversight
committee, said: "There are telephones. I don't know why those meetings have to
take place in person in Southern California." (Source: CBS 13 News, On the
Money, May 10.)
(Cal-Tax recommendation: Even
if California wasn't facing a deficit of approximately $20 billion, each state
agency should be ensuring that available resources are used where they are most
effective in serving the public. State policymakers must continue to press state
agencies on how they are spending their resources. This oversight can be
accomplished during department budget hearings and during fiscal reviews.)
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State Agency Defeats
Purpose of Stimulus Funds by Delaying Use of $135.6 Million.
The California Emergency
Management Agency (Cal EMA) has yet to distribute $135.6 million in federal
stimulus funds received nearly eight months ago, according to a new report from
the state auditor. Cal EMA claims that it will be able to distribute the funds
by late 2010-11.
The report also highlighted a
lack of organization at Cal EMA, noting that the agency has no organized
strategy, policies or procedures to distribute the funds, and the agency has
failed to consistently report its administrative costs to the federal
government.
Last year, the federal
government enacted the Recover and Reinvestment Act of 2009, which awarded
states $2 billion (California received $225.3 million). Cal EMA was responsible
for allocating 60 percent of California's funds ($135.6 million), and the
remaining $89.7 million was appropriated to local governments from the U.S.
Department of Justice. The Recovery Act says that funds granted to states should
be spent as soon as possible to ensure that the funds achieve their purpose of
stimulating the economy.
State Auditor Elaine Howle
recommended that Cal EMA expedite its process of granting funds to recipients,
plan out what type of workload is needed to grant the funds to recipients, and
improve its activities to ensure that funds are awarded in accordance with
federal standards. (Source: California State Auditor report, May 4.)
Cal-Tax recommendation: The
auditor's report, along with previous reports about the improper handling of
federal stimulus funds, should be required reading for all members of Congress.
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Employment Development
Department Mismanagement Costs $53 Million.
Mismanagement by technology
staff at the Employment Development Department (EDD) has resulted in cost
overruns of approximately $53 million. The funds were part of the federal
stimulus money appropriated to California last year.
A report produced for the
Assembly Insurance Committee said the $53 million is in addition to a five-year
delay and previous cost increases of more than $80 million on computer
modernization projects at EDD.
Assemblyman Charles Calderon
told senior officials at EDD during a hearing: "You've all been here long enough
to be held accountable. Quite frankly, if you were in the private sector, you
would be fired."
Several other legislators
also weighed in on the issue. Assemblyman Jose Solorio said that due to the
"decade of mishaps" relating to the department's modernization efforts, the
Legislature has lost confidence in the department's leadership.
EDD officials defended the
department, and said the "cost overruns" are merely a discrepancy between the
initial estimates by the department and the final project contract costs.
EDD currently uses an
outdated computer system that has been blamed for numerous delays in disability
and unemployment payments to low-income and out-of-work Californians. With
increased state unemployment, the already-lagging computer system has had to
meet a larger service demand.
"I'm shocked at how bad this
situation has become," Mr. Calderon said. He continued: "If there's anything
that government should be doing in these economic times, it's to be getting
unemployment money to families that need it. If we can't do that, what else are
we going to do? We can't govern." (Source: The Sacramento Bee, February
9.)
(Cal-Tax recommendation:
The Legislature should set up a follow-up hearing to see what progress can
be made by the department, and state bureaucrats should be held accountable. If
the department is unable to perform its basic functions, the state should
consider reducing the size of the technology staff and instead contracting out
the duties.)
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State Still Spends Heavily
on Travel, Conferences and New Vehicles.
The Assembly Accountability and Administrative Review Committee reports that
state agencies spent heavily last year on items that may not have been
necessary, despite state budget problems that were widely viewed as being
extremely dire.
The committee found that
during the brief three-month period of January to March 2009, the following
spending occurred:
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The Department of Education
spent $945,209 and the Department of Consumer Affairs spent $245,430 on
conferences and outside meetings;
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The Department of Motor
Vehicles spent $1.73 million on new furniture, while the California Air
Resources Board spent $433,000 on new furnishings, the Department of General
Services spent $785,785, and the Health and Human Services Agency spent
$306,393.
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New vehicles were purchased
by the Department of Transportation ($10.4 million), the department of Forestry
and Fire ($1.6 million), the Department of Motor Vehicles ($900,000) and the
Department of Parks and Recreation ($5.2 million).
(Source: Assembly
Accountability and Administrative Review Committee report, February 10.)
(Cal-Tax recommendation: When
drafting this year's state budget, the Legislature and governor should eliminate
spending for new furniture and new vehicles that are not absolutely necessary,
such as for emergency response purposes. These are tough times for taxpayers,
and they shouldn't have to pay for non-necessities for government while they are
cutting their own family budgets to the bone.)
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State Sends Out 1099 Forms
With "Whopping Errors."
The Sacramento Bee reports that the Victim Compensation and Government
Claims Board recently issued thousands of erroneous 1099s to contractors who did
jobs for the agency in 2009. The Bee said the "whopping errors"
dramatically inflated the amount of money that the state claimed to have paid
the contractors. For example, if the board paid a contractor $5,200, the 1099
said the payment was $520,000!
A spokesman for the state
agency said the error in the placement of a decimal point was the result of a
computer software glitch that has since been fixed. The spokesman said the state
has worked with the IRS and Franchise Tax Board to correct the 5,431 forms that
contained errors.
The cost of reprinting and
remailing 1099s to correct the error reportedly was $2,500 plus staff time.
(Source: The Sacramento Bee, February 11.)
(Cal-Tax recommendation: The
Legislature should not pass an independent contractor withholding bill for many
reasons, including that it appears that the state would not be able to
administer withholding with respect to its own independent contractors.)
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IRS Looking at Personal
Use of State Cars.
The Internal Revenue Service
has launched an investigation into the personal use of state cars by state
employees. To the extent that state cars are used for personal use, the benefit
must be included in the user's taxable income.
Federal auditors will focus
on 2008 tax reporting. If cars were used for personal use, the state and the
employee both will owe taxes. "It could be a huge number for the state," said
Perry Ghilarducci, a Sacramento accountant.
As of June, the state had
issued 8,812 permits to state workers to store vehicles at home. (Source: The
Sacramento Bee, February 9.)
(Cal-Tax recommendation: The
state, which doesn't hesitate to create tax reporting burdens and stiff
tax-avoidance penalties for private taxpayers, should pay attention to its own
reporting requirements. Judgment will be reserved until after the IRS completes
its investigation, but it appears that state employees and their managers may
have been contributing to the "tax gap" by failing to report taxable income.)
