DeSaulnier’s Statement After Poor Audit Report on State Specialized License Plate Program

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The States Special Interest License Plate Program did not receive a flattering audit report according to the California State Auditor which caused State Senator Mark DeSaulnier to issue some public comments based off his request last year for the audit to occur.

In response to the poor report, State Senator Mark DeSaulnier released the following statement below via a Press Release.

Today State Auditor Elaine Howle released an audit report on California’s special interest license plate funds.

“Last year Senator Ted Gaines, Assemblymember Susan Bonilla, and I called for an audit of California’s specialized license plate program because we had serious concerns that this program was not collecting and spending money properly,” Senator Mark DeSaulnier (D-Concord), Chair of the Senate Transportation and Housing Committee said. “The release of today’s report has identified the collection and spending problems that have impacted the specialized plate program. It is our expectation that the responsible state agencies take the necessary steps to comply with the law.”

“We will closely monitor the scheduled follow up to the State Auditor’s report, and if the appropriate action is not taken I will not hesitate to call a follow up hearing on the license plate program. If the public is going to purchase these specialty license plates, we must ensure the integrity of the programs they support. Our state government loses the public’s trust when funds are being spent improperly.”

If the State is having issues collecting and spending money on a program as simple as license plates, we may be in trouble with the more complex programs out there. Here is some information about the report which can be found on the Auditors website

Special Interest License Plate Funds:
The State Has Foregone Certain Revenues Related to Special Interest License Plates and Some Expenditures Were Unallowable or Unsupported

HIGHLIGHTS

Our audit of the special interest license plate (special plate) programs and some of the related funds highlighted the following:

  • The California Department of Motor Vehicles (Motor Vehicles) does not ensure that it has collected the appropriate amount of fees that are due for special plates.
    • Despite being required to collect annual retention fees on inactive special plates, it only collects these fees for a maximum of four years and only when plate holders notify Motor Vehicles of their intent to reuse them.
    • It did not collect an estimated $12 million in revenues from such fees during fiscal years 2010-11 and 2011-12.
    • It potentially undercharged some special plate owners by a total of nearly $10.2 million during fiscal years 2010-11 and 2011-12.
    • It has been inaccurate in the charges used to recover its administrative costs from special plate programs—during fiscal years 2009-10 through 2011-12 it overcharged the California Environmental License Plate Fund $2.1 million annually for personalized plates.
    • It did not recover net administrative fees of roughly $1.1 million during fiscal years 2009-10 through 2011-12 for other special plates because it continues to use the per-plate administrative cost information it developed when certain programs were first established.
  • We identified weaknesses in how money was being spent from the special plate funds.
    • The California Emergency Management Agency (Cal EMA) did not monitor its $2.5 million contract with the California Fire Fighter Joint Apprenticeship Committee to ensure the training called for by the contract was delivered as specified.
    • Cal EMA spent Antiterrorism Fund money in a manner inconsistent with the purposes state law establishes—it exceeded the 5 percent administrative cap in some years and it used over 10 percent of the expenditures we reviewed for unrelated purposes.
    • Some state agencies could not always provide adequate support for amounts they charged to special plate funds or could not support their rationale for such charges. For example, the California Department of Food and Agriculture could not provide adequate support for $896,000 in expenses.
    • The California Natural Resources Agency did not submit required annual and triennial reports to the governor and Legislature that provide pertinent information about program performance.
    • The California Victim Compensation and Government Claims Board did not identity and notify all individuals eligible for the Memorial Scholarship Program by the date required by law—ultimately only 13 of the 43 identified eligible individuals plus three other individuals who were not screened for eligibility participated.

RESULTS IN BRIEF

State law establishes special interest license plate (special plate) programs, and California currently has 11 special plates supporting specific programs. According to the California Department of Motor Vehicles (Motor Vehicles), between July 1, 2011, and June 30, 2012, it issued, renewed, or transferred nearly 1.3 million special plates. Motor Vehicles is responsible for collecting the fees for the special plates and—generally after it recovers its administration costs—depositing the revenue into the state funds that correspond to the different programs; several state agencies spend the money from the special plate funds on some of their activities. We reviewed four of these agencies—the California Emergency Management Agency (Cal EMA), the Commission on Peace Officer Standards and Training, the California Department of Food and Agriculture (Food and Agriculture), and the ScholarShare Investment Board—that used California Memorial License Plate revenues, which are accounted for in the Antiterrorism Fund (antiterrorism fund) and the California Memorial Scholarship Fund (scholarship fund). We also reviewed certain statutory responsibilities of the California Victim Compensation and Government Claims Board (Victim Compensation) related to the scholarship fund. In addition, we reviewed three state agencies of the more than 20 entities that spend revenues from Environmental License Plates, which are any standard or special plates that carry personalized combinations of letters, numbers, or both.1 The three state agencies reviewed were the California Natural Resources Agency (Resources), the California Department of Fish and Wildlife, and the California Department of Parks and Recreation (Parks and Recreation).

Our review found that Motor Vehicles does not ensure that it has collected the appropriate amount of fees that are due for the special plates. Specifically, state law requires Motor Vehicles to charge and collect annual retention fees on inactive special plates—plates that have been removed from a vehicle and retained by the owner. However, currently Motor Vehicles does not fully collect these annual fees. In fact, despite the legal requirement, it only collects these fees for a maximum of four years—the current year and the prior three years—and only when the plate holder notifies Motor Vehicles of his or her intention to reuse those plates on a vehicle. As a result, in cases where the plate has been inactive for more than four years, Motor Vehicles does not collect the full amount of retention fees it is due. Because it does not collect these fees annually, we estimate that Motor Vehicles did not collect $12 million in revenue from retention fees that state law specifies for special plate programs during fiscal years 2010-11 and 2011-12. Further, we found that Motor Vehicles lists in its application for special plates certain fees, including retention fees, for various plates that differ from those fees the law prescribes. We estimate that during fiscal years 2010-11 and 2011-12, it potentially undercharged some plate owners by a total of nearly $10.2 million.

Further, Motor Vehicles has been inaccurate in the charges used to recover its administrative costs from special plate programs. During fiscal years 2009-10 through 2011-12, it overcharged the Environmental License Plate Fund (environmental fund) $2.1 million annually for administrative costs related to personalized plates. Although Motor Vehicles could not definitively explain these errors, it speculates that the overcharge might have been caused either by a decision to recover the same amount each year as it did for fiscal year 1998-99 or by an oversight when it was developing the documents for its annual budgets. Motor Vehicles appropriately reduced its claim for administrative costs related to personalized plates from the environmental fund from $3.9 million to $1.8 million for fiscal year 2012-13.

State law also allows Motor Vehicles to deduct a per-plate administrative fee from the revenue it collects for all other special plates before depositing the remainder into the appropriate funds. Although Motor Vehicles recalculates its per-plate administrative fees every two years, when claiming its administrative fees for the other special plate programs it continues to use the per-plate administrative cost information it developed when each of those programs were first established. As a result, we estimate that Motor Vehicles did not recover net administrative fees of roughly $1.1 million during fiscal years 2009-10 through 2011-12. Motor Vehicles stated that the programming costs for updating its automated system for recovering administrative fees might outweigh any potential benefits from that change. Nevertheless, Motor Vehicles plans to assess the costs and benefits of reprogramming its automated systems so that it can charge up-to-date administrative costs.

We also identified weaknesses in how money was being spent from the special plate funds. The California Department of Finance (Finance) has designated Cal EMA as the administrator for the antiterrorism fund, and state law has designated Resources as the administrator for the environmental fund. However, Finance’s designation does not require Cal EMA to monitor the appropriateness of expenditures that other state agencies make from the antiterrorism fund, such as Food and Agriculture; these agencies receive money from the fund directly through appropriations. Further, although state law establishes certain requirements that Resources report on the benefits derived from the programs that spend environmental fund money, each agency receiving money from the antiterrorism fund and from the environmental fund bears the primary responsibility to spend it in accordance with state law.

In the area of contract monitoring, we found that Cal EMA did not monitor its $2.5 million contract with the California Fire Fighter Joint Apprenticeship Committee (Fire Fighter Committee) to ensure that the Fire Fighter Committee performed services in the manner the contract specified. Specifically, the Fire Fighter Committee did not train 125 instructors by June 30, 2010, to provide critical training to nearly 30,000 fire service personnel statewide in accordance with the contract, thus requiring Cal EMA to twice extend the time for services by executing another contract and an amendment. Furthermore, the contract manager approved invoices for payment for these contracts and amendment without obtaining sufficient support for the underlying expenditures. The section chief noted that management had directed the section to process the contracts and payments but did not direct it to monitor the contracts. Without such monitoring, Cal EMA cannot be assured that it pays only for activities state law allows when it uses money from the antiterrorism fund. Cal EMA plans to inform its contract managers of the monitoring requirements.

We also noted that Cal EMA spent antiterrorism fund money in a manner inconsistent with the purposes state law establishes. State law restricts Cal EMA’s administrative expenditures from the antiterrorism fund to no more than 5 percent of the appropriation. However, Cal EMA far exceeded this limit for fiscal years 2009-10 and 2010-11. Further, of the nearly $914,000 in expenditures that we reviewed, Cal EMA used approximately $98,000 from the antiterrorism fund to pay for activities such as purchasing and moving furniture and for travel expenses related to training courses about how to apply for federal grants, neither of which are directly related to fighting terrorism as state law requires.

Moreover, some state agencies could not always provide adequate support for amounts they charged to specific special plate funds or could not support their rationale for such charges. Of the expenditures that we reviewed from the antiterrorism fund made during fiscal years 2009-10 through 2011-12, Cal EMA used $142,000 and Food and Agriculture spent $896,000 on expenses, such as employee compensation, indirect cost distribution, software costs, building lease costs, and contract payments, for which they could not provide adequate support. For example, both Cal EMA and Food and Agriculture used money from the antiterrorism fund to pay the entire salaries of certain employees whose duties include activities related to both natural and man-made disasters. However, neither state agency could provide signed time reports or other documents to support that the employees worked exclusively on activities to mitigate terrorist acts.

Further, Parks and Recreation pays a predetermined percentage of all expenses incurred by offices in its department, regardless of the purpose of the underlying activities, from the environmental fund; this percentage is based on the overall proportion of each office’s budget funded by the environmental fund. However, it could not support how it determined the amount of the environmental fund money it budgeted for its offices. As a result, Parks and Recreation could not demonstrate that the State received the intended benefits from the $200,000 in expenditures it charged to the environmental fund that we reviewed. Also, Resources paid for an executive salary entirely from the environmental fund even though the executive’s activities also benefitted other programs. Resources could not adequately explain how its method for charging certain costs that benefit multiple programs is equitable when charged entirely to the environmental fund.

We also found that Resources and Victim Compensation did not meet certain statutory responsibilities related to special plate programs. Specifically, Resources has not submitted specified annual and triennial reports to the governor and Legislature, which state law requires and which provide pertinent information about the performance of programs and projects funded with the environmental fund. Resources believes that the information it already provides to the governor and the Legislature during the budget process sufficiently covers the information that these required reports would include. However, the budgetary information does not include all elements the law requires. Without this vital information, officials do not have an opportunity to review a summary of past performance and accomplishments to inform their decisions about how best to allocate revenue from the environmental fund in the future.

Further, Victim Compensation did not identify and notify all individuals eligible for the Memorial Scholarship Program (scholarship program) on or before July 1, 2003, as state law requires. Victim Compensation believes that its outreach was adequate to identify all individuals who might be eligible for the scholarship program. However, most of the outreach that Victim Compensation performed predated the establishment of the scholarship program and did not mention the program by name. In fact, three of the 16 participants learned of the program through means other than Victim Compensation’s outreach. Moreover, Victim Compensation did not notify all eligible individuals of the scholarship program before the deadline, thus allowing those individuals fewer than three months to apply for the scholarship instead of the two years state law intended. We found that only 13 of the 43 individuals that Victim Compensation identified as eligible for the scholarship program and three other individuals who were not screened for eligibility ultimately participated.