payroll process review · in addition, ctf inappropriately granted seven employees access to the...
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CORRECTIONAL TRAINING FACILITY
Review Report
PAYROLL PROCESS REVIEW
January 1, 2012, through December 31, 2014
BETTY T. YEE California State Controller
June 2017
BETTY T. YEE
California State Controller
June 27, 2017
Shawn B. Hatton, Warden
Correctional Training Facility
P. O. Box 686
Soledad, CA 93960-0686
Dear Mr. Hatton:
The State Controller’s Office reviewed the Correctional Training Facility (CTF) payroll process
for the period of January 1, 2012, through December 31, 2014. CTF management is responsible
for maintaining a system of internal control over the payroll process within its organization, and
for ensuring compliance with various requirements under state laws and regulations regarding
payroll and payroll-related expenditures.
Our limited review identified material weaknesses in internal control over the CTF payroll
process that leave CTF at risk of improper payments if not mitigated. Specifically, CTF lacked
adequate segregation of duties and compensating controls over its processing of payroll
transactions. The lack of segregation of duties and appropriate compensating controls has a
pervasive effect on the CTF payroll process and impairs the effectiveness of other controls by
rendering their design ineffective or by keeping them from operating effectively.
In addition, CTF inappropriately granted seven employees access to the State’s payroll system.
Six employees’ keying access was not immediately removed after transfer to another agency or
change in classification. One manager should not have been allowed keying access to the system
due to the employee’s management status. This control deficiency leaves the payroll data at risk
of misuse, abuse, and unauthorized use.
Our review also found that CTF lacked sufficient controls over the processing of specific
payroll-related transactions to ensure that CTF complies with collective bargaining agreements
and state laws, and that only valid and authorized payments are processed. The control
deficiencies contributed to CTF employees’ excessive vacation and annual leave balances;
improper payments for out-of-class compensation, separation lump-sum pay, overtime
compensation, and premium and award pay; and unrecovered long-outstanding salary advances;
costing the State an estimated total of $856,141. Our review was performed on a limited number
of transactions only; a more extensive review may find that the amount of improper payments is
higher than what we identified.
Shawn B. Hatton, Warden -2- June 27, 2017
If you have any questions, please contact Andrew Finlayson, Chief, State Agency Audits Bureau,
by phone at (916) 324-6310.
Sincerely,
Original signed by
JEFFREY V. BROWNFIELD, CPA
Chief, Division of Audits
JVB/as
Attachment
cc: Scott Kernan, Secretary
California Department of Corrections and Rehabilitation
Ralph Diaz, Undersecretary, Operations
California Department of Corrections and Rehabilitation
Diana Toche, Undersecretary, Health Care Services
California Department of Corrections and Rehabilitation
Kenneth J. Pogue, Undersecretary, Administration and Offender Services
California Department of Corrections and Rehabilitation
Alene Shimazu, Director, Division of Administrative Services
California Department of Corrections and Rehabilitation
Bryan Beyer, Director, Division of Internal Oversight and Research
California Department of Corrections and Rehabilitation
Kathleen Allison, Director, Division of Adult Institutions
California Department of Corrections and Rehabilitation
Connie Gipson, Deputy Director, Division of Adult Institutions
California Department of Corrections and Rehabilitation
Jeffrey Macomber, Deputy Director, Division of Adult Institutions
California Department of Corrections and Rehabilitation
Katherine Minnich, Deputy Director, Human Resources
California Department of Corrections and Rehabilitation
Lori Zamora, Deputy Director, Office of Audits and Court Compliance
California Department of Corrections and Rehabilitation
Linda Larabee, External Audits Manager, Office of Audits and Court Compliance
California Department of Corrections and Rehabilitation
Yulanda Mynhier, Director, Health Care Policy and Administration
California Correctional Health Care Services
Janet Lewis, Deputy Director, Policy and Risk Management
California Correctional Health Care Services
Debbie Richardson, Chief of Internal Audits
California Correctional Health Care Services
Michelle Wilson, Personnel Manager
Correctional Training Facility
Mark Rodriguez, Chief, Administrative Services Division
California Department of Human Resources
Correctional Training Facility Payroll Process Review
Contents
Review Report
Summary ............................................................................................................................ 1
Background ........................................................................................................................ 2
Objectives, Scope, and Methodology ............................................................................... 3
Conclusion .......................................................................................................................... 4
Views of Responsible Officials .......................................................................................... 5
Restricted Use .................................................................................................................... 5
Findings and Recommendations ........................................................................................... 6
Attachment—Correctional Training Facility’s Response to Draft Review Report
Correctional Training Facility Payroll Process Review
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Review Report
The State Controller’s Office (SCO) reviewed the Correctional Training
Facility (CTF) payroll process for the period of January 1, 2012, through
December 31, 2014. CTF management is responsible for maintaining a
system of internal control over the payroll process within its organization,
and for ensuring compliance with various requirements under state laws
and regulations regarding payroll and payroll-related expenditures.
Our limited review identified material weaknesses in internal control over
the CTF payroll process that leaves CTF at risk of improper payments if
not mitigated. We found that CTF has a combination of deficiencies in
internal control over its payroll process such that there is a reasonable
possibility that a material misstatement in financial information or
noncompliance with provisions of laws, regulations, or contracts will not
be prevented, or detected and corrected on a timely basis. Specifically,
CTF lacked adequate segregation of duties and compensating controls
over its processing of payroll transactions. The payroll transactions unit
staff performed conflicting duties. The staff performs multiple steps in
processing payroll transactions, including data entry into the State’s
payroll system; auditing employee timesheets; reconciling payroll,
including system output to source documentation; and reporting payroll
exceptions. In addition, the payroll transactions manager had keying
access to the payroll system while being responsible for approving payroll
transactions entered in the system. This control deficiency was aggravated
by the lack of compensating controls, such as management oversight and
review, to mitigate the risks associated with such a deficiency. The lack of
segregation of duties and appropriate compensating controls has a
pervasive effect on the CTF payroll process and impairs the effectiveness
of other controls by rendering their design ineffective or by keeping them
from operating effectively.
In addition, CTF inappropriately granted seven employees access to the
State’s payroll system. Six employees’ keying access was not immediately
removed after transfer to another agency or change in classification. One
manager should not have been allowed keying access to the system due to
the employee’s management status. This control deficiency leaves the
payroll data at risk of misuse, abuse, and unauthorized use.
Our review also found that CTF lacked sufficient controls over the
processing of payroll-related transactions to ensure that CTF complies
with collective bargaining agreements and state laws, and that only valid
and authorized payments are processed. As summarized in the table on
page 2, the control deficiencies contributed to CTF employees’ excessive
vacation and annual leave balances; improper payments for out-of-class
compensation, separation lump-sum pay, overtime compensation, and
premium and award pay; and unrecovered long-outstanding salary
advances; costing the State an estimated total of $856,141.
Summary
Correctional Training Facility Payroll Process Review
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The following table summarizes our review results:
Selections Reviewed Selections with Issues
Finding
Number Issues
Number of
Selections
Reviewed
Selection
Unit
Dollar
Amount of
Selections
Reviewed
Number of
Selections
with Issues
Issues as a
Percentage
of Selections
Reviewed ᵃ
Approxi-
mate Dollar
Amount
Dollar
Amount of
Issues as a
Percentage of
Dollar
Amount of
Selections
Reviewed ᵃ
1 Inadequate segregation of duties
and compensating controls
N/A N/A
N/A
N/A
N/A
N/A
N/A
2 Inappropriate keying access to
the State’s payroll system
26 Employee $ –
7
27%
$ –
–
3 Inadequate controls over annual
and vacation leave balances,
resulting in excessive credits
55 Employee
803,612
55
100%
803,612
100%
4 Inadequate controls over out-of-
class compensation, resulting in
improper and questioned
payments
5 Employee
46,942 4 80% 13,476 29%
5 Inadequate controls over
separation lump-sum pay,
resulting in improper payments,
net
15 Employee
1,071,948
9
60%
18,205
2%
6 Inadequate controls over holiday
credits, resulting in improper
accruals
15 Holiday
credit
transactions
8,876
4
27%
1,589
18%
7 Inadequate controls over
premium, award, and overtime
payments, resulting in improper
and questioned payments
33 Employee
83,192
7
21%
13,027
16%
8 Inadequate controls over salary
advances, resulting in failure to
collect outstanding accounts
5 Salary
advance
transaction
75,665
1
20%
6,232
8%
154 $ 2,090,235 87 $ 856,141 ᵃ All percentages are rounded to the nearest full percentage point.
In 1979, the State of California adopted collective bargaining for state
employees. This created a significant workload increase for the SCO’s
Personnel and Payroll Services Division (PPSD), as PPSD was the State’s
centralized payroll processing center for all payroll related-transactions.
As such, PPSD decentralized the processing of payroll, allowing state
agencies and departments to process their own payroll-related
transactions. Periodic reviews of the decentralized payroll processing at
state agencies and departments ceased due to the budget constraints in the
late 1980s.
In 2013, the California State Legislature reinstated these payroll reviews
to gain assurance that state agencies and departments maintain an adequate
internal control structure over the payroll function, provide proper
oversight over their decentralized payroll processing, and comply with
various state laws and regulations regarding payroll processing and related
transactions.
Background
Correctional Training Facility Payroll Process Review
-3-
Review Authority
Authority for this review is provided by California Government Code
(GC) section 12476, which states, “The Controller may audit the uniform
state pay roll system, the State Pay Roll Revolving Fund, and related
records of state agencies within the uniform state pay roll system, in such
manner as the Controller may determine.” In addition, GC section 12410
stipulates that “The Controller shall superintend the fiscal concerns of the
state. The Controller shall audit all claims against the state, and may audit
the disbursement of any state money, for correctness, legality, and for
sufficient provisions of law for payment.”
The objectives of this review were to determine whether:
Payroll and payroll-related disbursements were accurate and in
accordance with collective bargaining agreements and state laws,
regulations, policies, and procedures.
CTF had established adequate internal control for payroll, to meet the
following control objectives:
o Payroll and payroll-related transactions are properly approved and
certified by authorized personnel;
o Only valid and authorized payroll and payroll-related transactions
are processed;
o Payroll and payroll-related transactions are accurate and properly
recorded;
o Payroll systems, records, and files are adequately safeguarded;
and
o State laws, regulations, policies, and procedures are complied
with regarding payroll and payroll-related transactions.
CTF complied with existing controls as part of the ongoing
management and monitoring of payroll and payroll-related
expenditures.
CTF maintained accurate records of leave balances.
Salary advances were properly administered and recorded in
accordance with state laws, regulations, policies, and procedures.
We reviewed the CTF payroll process and transactions for the period of
January 1, 2012, through December 31, 2014.
To achieve our review objectives, we:
Reviewed state and CTF policies and procedures related to payroll
process to understand the practice of processing various payroll and
payroll-related transactions;
Objectives, Scope,
and Methodology
Correctional Training Facility Payroll Process Review
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Interviewed CTF payroll personnel to understand the practice of
processing various payroll and payroll-related transactions, determine
their level of knowledge and ability relating to the payroll transaction
processing, and obtain or confirm our understanding of existing
internal control over the payroll process and systems;
Selected transactions recorded in the State’s payroll database based on
risk factors and other criteria for review;
Analyzed and tested transactions recorded in the State’s payroll
database and reviewed relevant files and records to determine the
accuracy of payroll and payroll-related payments, accuracy of leave
transactions, proper review and approval of transactions, adequacy of
internal control over the payroll process and systems, and compliance
with collective bargaining agreements and state laws, regulations,
policies, and procedures (errors found were not projected to the
intended population); and
Reviewed salary advances to determine whether they were properly
administered and recorded in accordance with state laws, regulations,
policies, and procedures.
Our limited review identified material weaknesses1 in internal control over
the CTF payroll process that leave CTF at risk of additional improper
payments if not mitigated.
We found that CTF has a combination of deficiencies in internal control
over its payroll process such that there is a reasonable possibility that a
material misstatement in financial information or noncompliance with
provisions of laws, regulations, or contracts will not be prevented, or
detected and corrected on a timely basis. Specifically, CTF lacked
adequate segregation of duties and compensating controls over its
processing of payroll transactions. The payroll transactions unit staff
performed conflicting duties. The staff performs multiple steps in
processing payroll transactions, including data entry into the State’s
payroll system; auditing employee timesheets; reconciling payroll,
including system output to source documentation; and reporting payroll
exceptions. In addition, the payroll transactions manager had keying
access to the payroll system while responsible for approving payroll
1 An evaluation of an entity’s payroll process may identify deficiencies in its internal control over such a process. A
deficiency in internal control exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent, or detect and correct
misstatements in financial information, impairments of effectiveness or efficiency of operations, or noncompliance
with provisions of laws, regulations, or contracts on a timely basis.
Control deficiencies, either individually or in combination with other control deficiencies, may be evaluated as
significant deficiencies or material weaknesses. A significant deficiency is a deficiency, or a combination of
deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention
by those charged with governance. A material weakness is a deficiency, or combination of deficiencies, in internal
control such that there is a reasonable possibility that a material misstatement in financial information, impairment
of effectiveness or efficiency of operations, or noncompliance with provisions of laws, regulations, or contracts will
not be prevented, or detected and corrected on a timely basis.
Conclusion
Correctional Training Facility Payroll Process Review
-5-
transactions entered in the system. This control deficiency was aggravated
by the lack of compensating controls, such as management oversight and
review, to mitigate the risks associated with such a deficiency. The lack of
segregation of duties and appropriate compensating controls has a
pervasive effect on the CTF payroll process and impairs the effectiveness
of other controls by rendering their design ineffective or by keeping them
from operating effectively.
In addition, CTF inappropriately granted seven employees access to the
State’s payroll system. Six employees’ keying access was not immediately
removed after transfer to another agency or change in classification. One
manager should not have been allowed keying access to the system due to
the employee’s management status. This control deficiency leaves the
payroll data at risk of misuse, abuse, and unauthorized use.
Our review also found that CTF lacked sufficient controls over the
processing of specific payroll-related transactions to ensure that CTF
complies with collective bargaining agreements and state laws, and that
only valid and authorized payments are processed. The control
deficiencies contributed to CTF employees’ excessive vacation and annual
leave balances; improper payments for out-of-class compensation,
separation lump-sum pay, overtime compensation, and premium and
award pay; and unrecovered long-outstanding salary advances; costing the
State an estimated total of $856,141. Our review was performed on a
limited number of transactions only; a more extensive review may find
that the amount of improper payments is higher than what we identified.
We issued a draft review report on May 30, 2017. Shawn B. Hatton,
Warden, responded by letter dated June 14, 2017 (Attachment), and did
not dispute the findings. Mr. Hatton indicated that CTF has taken steps to
correct the deficiencies noted in the findings. We will follow up at the next
payroll review to ensure that the corrective actions were adequate and
appropriate.
This report is solely for the information and use of California Department
of Corrections and Rehabilitation, California Correctional Health Care
Services, CTF, and the SCO; it is not intended to be and should not be
used by anyone other than these specified parties. This restriction is not
intended to limit distribution of this report, which is a matter of public
record.
Original signed by
JEFFREY V. BROWNFIELD, CPA
Chief, Division of Audits
June 27, 2017
Views of
Responsible
Officials
Restricted Use
Correctional Training Facility Payroll Process Review
-6-
Findings and Recommendations
CTF lacked adequate segregation of duties within its payroll transactions
unit to ensure that only valid and authorized payroll transactions are
processed. CTF also failed to implement other controls to compensate for
this risk.
GC sections 13402 and 13403 mandated state agencies to establish and
maintain internal controls, including proper segregation of duties and an
effective system of internal review. Adequate segregation of duties
reduces the likelihood that fraud or error will remain undetected by
providing for separate processing by different individuals at various stages
of a transaction and for independent reviews of the work performed.
Our review found that the CTF payroll transactions unit staff performed
conflicting duties. The staff performs multiple steps in processing payroll
transactions, including data entry into the State’s payroll system; auditing
employee timesheets; reconciling payroll, including system output to
source documentation; and reporting payroll exceptions. For example, the
payroll transactions unit staff keys in regular and overtime pay and
reconciles the master payroll, overtime, and other supplemental warrants.
CTF failed to demonstrate that it implemented compensating controls to
mitigate the risks associated with such a deficiency. For example, we
found no indication that these functions were subjected to periodic
supervisory review.
The lack of adequate segregation of duties and compensating controls has
a pervasive effect on the CTF payroll process and impairs the effectiveness
of other controls by rendering their design ineffective or by keeping them
from operating effectively. These control deficiencies, in combination
with other deficiencies discussed in Findings 2 through 8 represent a
material weakness in internal control over the payroll process such that
there is a reasonable possibility that a material misstatement in financial
information or noncompliance with provisions of laws, regulations, or
contracts will not be prevented, or detected and corrected on a timely basis.
Recommendation
CTF should separate conflicting payroll function duties to the extent
possible. Adequate segregation of duties will provide a stronger system of
internal control whereby the functions of each employee are subject to the
review of another. Good internal control practices require that the
following functional duties should be performed by different work units,
or at minimum, by different employees within the same unit:
Recording transactions. This duty refers to the record-keeping
function, which is accomplished by entering data into a computer
system.
Authorization to execute. This duty belongs to individuals with
authority and responsibility to initiate and execute transactions.
FINDING 1—
Inadequate
segregation of
duties and
compensating
controls over
payroll
transactions
Correctional Training Facility Payroll Process Review
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Periodic reviews and reconciliation of actual payments to recorded
amounts. This duty refers to making comparisons of information at
regular intervals and taking action to resolve differences.
If it is not possible to segregate payroll functions fully and appropriately,
CTF should implement compensating controls. For example, if the payroll
transactions unit staff responsible for recordkeeping also performs a
reconciliation process, the supervisor could perform and document a
detailed review of the reconciliation to provide additional control over the
assignment of conflicting functions. Compensating controls may also
include dual authorization requirements and documented reviews of
payroll system input and output.
CTF should develop formal written procedures for performing and
documenting compensating controls.
CTF lacked adequate controls to ensure that only appropriate staff have
keying access to the State’s payroll system. Of the 26 employees whose
records we reviewed, seven (27%) had improper keying access to the
system. If not mitigated, this control deficiency leaves the payroll data at
risk of misuse, abuse, and unauthorized use.
The SCO maintains the State’s payroll information system. The system is
decentralized, thereby allowing employees of state agencies to access the
system. PPSD has established a Decentralization Security Program that all
state agencies are required to follow in order to access the payroll systems.
The program’s objectives are to secure and protect the confidentiality and
integrity of the data against misuse, abuse, and unauthorized use.
CTF had 26 employees with access to the State’s payroll system at various
times between January 2012 and December 2014. We reviewed the
records of the 26 employees and found that six did not have their keying
access immediately removed after their transfer to another agency or
change in classification.
In addition, a payroll transactions manager had keying access to the
system. The manager’s duties include approving certain payroll
transactions prior to input into the system. The manager also reviews the
work of his or her staff. To properly segregate duties, employees charged
with approving transactions should not be able to input the transactions
that they approve.
The Decentralization Security Program manual states, in part:
The privilege to access the PPSD database poses a significant risk to the
ability for SCO to function. Therefore, that privilege is restricted to
persons with a demonstrated need for such access. Currently, . . .
applications are restricted to Personnel Services Specialists (PSS), or
Payroll Technician (PT) classifications because their need is by
definition a function of their specific job duties, and any change in those
duties requires a reevaluation of the need for access. If the employee’s
duties change, such that the need for access no longer exists, the access
privilege MUST be removed or deleted immediately by a request
submitted by the department. . . .
FINDING 2—
Inappropriate
keying access to the
State’s payroll
system
Correctional Training Facility Payroll Process Review
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A request for an individual in a classification other than in the PSS/PT
series to access (the payroll system) requires a written justification from
the Personnel/Payroll Officer. The justification must describe the
individual’s specific job duties that require the need to each type of
information…as well as the level of access to that application, in order
to perform their Statutory and/or Constitutional duties. . . .
To prevent unauthorized use of a transferred, terminated or resigned
employee’s userid, it is required that the Security Monitor
IMMEDIATELY submit a PSD125A to delete their system access. DO
NOT WAIT until another employee fills this position; this only increases
the chances for breach of security, utilizing and old userid.
The manual, as revised in January 2015, restricts manager classifications
to inquiry access only.
Recommendation
CTF should update the keying access to the payroll system after employees
leave CTF or change classification. CTF’s designated security monitor
should periodically review access to the system to determine that access
complies with the Decentralized Security Program.
CTF failed to implement controls to ensure that it adheres to the
requirement of collective bargaining agreements and state regulations to
limit the accumulation of vacation and annual leave credits. This
deficiency resulted in a liability for excessive leave credits that could cost
the State at least $803,612 as of December 31, 2014. We expect the
liability to increase if CTF does not take action to address the excessive
vacation and annual leave credits.
Collective bargaining agreements and state regulations limit the amount
of vacation and annual leave that most state employees may accumulate to
no more than 80 days (640 hours). The limit on leave balance serves as a
tool for state agencies to manage leave balances and control the State’s
liability for accrued leave credits. State agencies may allow employees to
carry more than the limit only in certain circumstances. For example, an
employee may not be able to reduce accrued vacation or annual leave
hours below the limit because of business needs. When an employee’s
leave accumulation exceeds or is projected to exceed the limit, state
agencies should work with the employee to develop a plan to reduce leave
balances below the applicable limit.
Our review of the leave accounting records found that at December 31,
2014, CTF had 55 employees whose vacation or annual leave balances
exceeded the limit set by collective bargaining agreements and state
regulations. For example, one employee had an accumulated balance of
2,049 hours in annual leave, or 1,409 hours beyond the 640-hour limit.
Collectively, the 55 employees exceeded the limit by more than
19,000 hours in vacation and annual leave credits. These excess hours cost
the State at least $803,612 in liability as of December 31, 2014.
FINDING 3—
Inadequate
controls over
vacation and
annual leave
balances,
resulting in
liability for
excessive credits
Correctional Training Facility Payroll Process Review
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We inquired whether any plans were in place to address excessive vacation
and annual leave credits in accordance with collective bargaining
agreements and state regulations. During the review, CTF and its
employees did not have any plans in place to reduce excessive leave
credits.
If CTF does not take action to reduce the excessive credits, the liability for
accrued vacation and annual leave will likely increase because most
employees will receive salary increases, additional leave credits, or have
other non-compensable leave credits that they can use instead of vacation
or annual leave, increasing their vacation or annual leave balances. In
addition, the state agency responsible for paying these leave balances may
also face a cash flow problem if a significant number of employees with
excessive vacation or annual leave credits separate from state service.
Normally, state agencies are not budgeted to make these lump-sum
payments. However, the State’s current practice dictates that the state
agency that last employed an employee pays for that employee’s
separation lump-sum payment, regardless of where the employee accrued
the leave balance.
Recommendation
CTF should implement controls, including existing policies and
procedures, to ensure that its employees’ vacation and annual leave
balances are maintained within levels allowed by collective bargaining
agreements and state regulations. CTF should conduct ongoing monitoring
of controls to ensure they are implemented and operating effectively.
If the State offers leave buy-back programs, CTF should also participate
in such programs if funds are available.
CTF lacked adequate controls necessary to ensure that payment of out-of-
class compensation complied with collective bargaining agreements and
state policies. CTF made a total of approximately $13,476 in improper and
questioned payments for out-of-class compensation during the review
period. If not corrected, this control deficiency leaves CTF at risk of
additional improper payments.
Payroll records showed that CTF paid out-of-class compensation to
119 employees between January 2012 and December 2014. We reviewed
the out-of-class compensation for five selected employees to determine
whether CTF granted the compensation in accordance with collective
bargaining agreements and state policies. Of the five employees whose
records we reviewed, four received compensation beyond the limits set by
collective bargaining agreements and state policies as follows:
One managerial employee who was excluded from collective
bargaining was improperly paid by a total of $1,536 for the first
90 days of the out-of-class assignment, in violation of CalHR policies.
Two employees who were subject to agreements that restrict an
employee’s out-of-class assignment to 120 days were improperly paid
approximately $5,475 in compensation exceeding the limit.
FINDING 4—
Inadequate
controls over out-
of-class
compensation,
resulting in
improper
payments
Correctional Training Facility Payroll Process Review
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One employee was paid a total of $6,465 in questioned out-of-class
compensation. The employee had dual part-time positions—one that
was subject to a collective bargaining agreement and another that was
excluded from collective bargaining. The out-of-class assignment
from the represented position exceeded the 120-day limit without the
required CalHR approval.
CalHR’s California State Civil Service Pay Scales section 14, Pay
Differential 101 and Policy Memo No. 2007-026 allow managerial out-of-
class compensation beginning on the ninety-first day of assignment.
Policy Memo No. 2007-026 also reminds departments that there are no
exceptions to request extensions of out-of-class assignments beyond the
provisions of collective bargaining agreements for represented employees.
The collective bargaining agreements between the State and Bargaining
Units 1 and 4 restrict represented employees to up to 120 days of out-of-
class assignment within 12 consecutive months. The collective bargaining
agreement between the State and Bargaining Unit 19 allows assignment
beyond 120 days if approved by CalHR (previously the California
Department of Personnel Administration).
Control deficiencies over the processing of out-of-class compensation
GC sections 13402 and 13403 mandated state agencies to establish and
maintain internal controls, including a system of authorization and
recordkeeping procedures over expenditures, and an effective system of
internal review. State agencies should ensure that these controls are
functioning as prescribed. However, our review of out-of-class
compensation found significant control deficiencies that leave CTF at risk
of additional improper payments and practices if not mitigated. We found
that:
CTF failed to implement existing policies and procedures related to
out-of-class assignment and compensation consistently. For example,
the California Department of Corrections and Rehabilitation (CDCR)
Operations Manual and Personnel Operations Manual allow out-of-
class assignments only as provided in collective bargaining
agreements and CalHR policies. However, as described previously,
CTF payroll transactions unit staff processed compensation for out-
of-class assignments even though the assignments exceeded the limits
set by collective bargaining agreements and state policies.
CTF management did not provide adequate oversight to ensure that
the processing of out-of-class compensation complies with collective
bargaining agreements and state policies.
Recommendation
CTF should conduct a review of out-of-class compensation made during
the past three years to ensure that compensation complied with collective
bargaining agreements and state policies. CTF should recover
overpayments made to employees through an agreed-upon collection
method in accordance with GC section 19838.
Correctional Training Facility Payroll Process Review
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To prevent improper out-of-class compensation from recurring, CTF
should:
Implement existing state policies and procedures regarding out-of-
class assignments and compensation;
Conduct ongoing monitoring of controls to ensure they are
consistently implemented and operating effectively; and
Provide adequate oversight to ensure that the payroll transactions unit
staff processes only valid and authorized out-of-class compensation
that complies with collective bargaining agreements and state policies.
CTF lacked adequate controls over the processing of employee separation
lump-sum pay. Of the 15 employees whose records we reviewed, nine
(60%) were improperly paid, resulting in a net total estimated
overpayment of $18,205. Due to the systemic nature of improper
payments, we also questioned the accuracy of the lump-sum payments,
totaling $3,512,814, made to the other 79 Bargaining Unit 6 employees. If
not mitigated, this control deficiency also leaves CTF at risk of additional
improper payments.
Pursuant to collective bargaining agreements and state law, employees are
entitled to receive cash for accrued eligible leave credits when separating
from state employment. Payroll records indicated that CTF had processed
separation lump-sum pay for 264 employees between January 2012 and
December 2014. We reviewed the records of 15 selected employees and
found that nine were improperly paid, as shown in the following table:
Leave Hours Estimated Dollar
Amount of
Overpayment
(Underpayment) Paid Earned
Overpaid
(Underpaid)
Overpayment
Employee A 3,745 3,104 641 $22,161
Employee B 1,587 1,197 390 11,649
Employee C 2,578 2,564 14 504
Employee D 3,018 3,010 8 350
Subtotal 10,928 9,875 1,053 34,664
Underpayment
Employee E 673 1,004 (331) (9,900)
Employee F 3,591 3,682 (91) (3,269)
Employee G 4,341 4,423 (82) (2,831)
Employee H 1,435 1,451 (16) (324)
Employee I 26 33 (7) (135)
Subtotal 10,066 10,593 (527) (16,459)
Net total 20,994 20,468 526 $18,205
Source: State’s payroll system and CTF’s payroll records.
The improper payments resulted from miscalculation of the employees’
accrued leave credits by the payroll transactions unit staff. We found no
indication that the processing of these lump-sum payments was reviewed
by an authorized individual.
FINDING 5—
Inadequate
controls over
employee
separation lump-
sum pay, resulting
in improper
payments
Correctional Training Facility Payroll Process Review
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In the case of employees A, B, C, E, F, and G, the improper payments also
resulted from CTF not complying with policies and procedures for
calculating separation lump-sum pay for employees working under the
provision of Section 7k of the Fair Labor Standards Act (FLSA).
According to the CDCR 7k Manual, the FLSA hourly pay rate for 7k
employee differs from the SCO pay rate due to the difference in the
number of hours required in the same time frame. CTF did not convert the
7k employees’ projected leave credit hours to reflect the correct monetary
amount when reported to SCO. The 7k Manual instructs institutional
personnel offices to convert the total hours of leave credits projected in the
final month.
We also noted two cases of inconsistencies regarding the calculation of
separation lump-sum payments. In the first case, the 7k Manual stated that
the total lump-sum hours to be paid are determined by adding the hours
from the complete pay periods to the converted hours of the final pay
period of projection. However, the manual’s examples of the conversion
process also indicated that the total lump-sum hours to be paid equal the
converted hours from the entire projection period. In the second case, the
7k Manual stated that holidays are paid based on eight hours during the
projection period. However, CTF provided us documentation from CDCR
headquarters indicating that holidays are not included in the projection of
lump-sum hours for posted employees. When we inquired with CDCR
Office of Personnel Services, we also received conflicting views on how
the holidays would be treated for lump-sum pay calculation. According to
the Office of Personnel Services, the 7k Manual has not been updated since
2006; therefore, any changes in the collective bargaining agreement since
then between the State and Bargaining Unit 6 that may affect employee
separation lump-sum payments have not been reflected in the manual.
Recommendation
CTF should:
Establish adequate controls to ensure accurate calculation and
payment of employee separation lump-sum pay;
Conduct a review of employee separation lump-sum payments during
the past three years to ensure that the payments are accurate and in
compliance with collective bargaining agreements and state law; and
Recover overpayments made to separated employees in accordance
with GC section 19838 and State Administrative Manual (SAM)
section 8776.6, and properly compensate those employees who were
underpaid.
CDCR should update the 7k Manual to reflect the most recent
requirements for calculating employee separation lump-sum pay. These
changes should be properly communicated to the institutions.
Correctional Training Facility Payroll Process Review
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CTF lacked adequate controls over its employees’ accrual of holiday
credits. CTF improperly granted 32 holiday credit hours in four (27%) of
15 transactions reviewed, costing the State approximately $1,589. The
control deficiency also leaves CTF at risk of additional improper accruals
of holiday credit if not mitigated.
Collective bargaining agreements and GC section 19853 specify the
number of hours of holiday credit an employee would receive per
qualifying holiday. In our review of 15 selected holiday credit transactions
recorded in the State’s leave accounting system, we determined that four
involved accruals of 32 holiday credit hours that did not comply with
collective bargaining agreements and state law. For all four transactions,
CTF granted a holiday credit in a month with no holidays. We found no
indication that the holiday credit transactions were reviewed by an
individual other than the payroll transactions unit staff responsible for
keying these transactions in the system.
Recommendation
CTF should conduct a review of the leave accounting system to ensure that
the accrual of holiday credits complies with collective bargaining
agreements and state law. CTF should correct any improper holiday credits
in the leave accounting system.
To prevent recording of improper holiday credits in the leave accounting
system, CTF should:
Provide adequate oversight to ensure that payroll transactions unit
staff accurately record leave transactions; and
Provide training to payroll transactions unit staff involved in keying
transactions into the leave accounting system to ensure that they
understand the requirements under collective bargaining agreements
and state law regarding holiday credits.
CTF lacked adequate controls to ensure that the payroll transactions unit
staff processes only valid and authorized premium, award and overtime
payments that comply with collective bargaining agreements and state
law. CTF granted a net total of $13,027 in improper and questioned
payments to seven employees. The control deficiencies leave CTF at risk
of additional improper payments if not mitigated.
Premium and award payments made to employees who did not meet
requirements to receive the pay
Payroll records showed that CTF granted 38 types of premium or award
payments to its employees between January 2012 and December 2014. In
addition to out-of-class compensation, discussed in Finding 4, we
reviewed selected transactions in four types of premium and award
payments. The selections included payments to seven employees for
physical fitness pay, five for housing stipend, three for uniform allowance,
and three for Inmate Worker’s Supervision Pay (IWSP). We found
improper payments for uniform allowance and IWSP, as discussed below.
FINDING 6—
Inadequate
controls over
holiday credits,
resulting in
improper accruals
FINDING 7—
Inadequate
controls over
premium, award,
and overtime
payments, resulting
in improper
payments
Correctional Training Facility Payroll Process Review
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The collective bargaining agreement between the State and Bargaining
Unit 6 allows a permanent employee required to wear a uniform and
uniform accessories on a full-time basis to receive a uniform allowance of
$530 per year. We found that one of the three employees reviewed for
uniform allowance received a duplicate payment exceeding the annual
limit of $530. Accordingly, CTF overpaid one employee by $530 for
uniform allowance.
Pursuant to collective bargaining agreements and CalHR’s California
State Civil Service Pay Scales section 14, Pay Differential 67, employees
assigned to supervise inmates are eligible to receive IWSP if the
employees meet certain requirements. The requirements include that the
employees have regular, direct responsibility for supervising the work of
at least two inmates who must collectively work 173 hours each month,
providing the resident workers with on-the-job training and evaluating the
resident workers’ work performance. In addition, the employees also must
have a valid and approved medical clearance on file.
Our review of the IWSP for three employees found that the employees
were overpaid by a total of $760. Two employees received a total of $380
in duplicate payments. One employee, who did not meet the requirements
to receive the pay during the pay period, received duplicate payments
totaling $380. In addition, the three employees did not have medical
clearances on file, as required. Accordingly, we questioned an additional
$11,970 in IWSP granted to them during the review period.
Overtime compensation improperly paid to employees
Payroll records showed that CTF paid overtime payments to
1,091 employees between January 2012 and December 2014. We
reviewed the overtime payments for 15 of these employees. Of the 15
employees, two were overpaid by a total of $136 and one was underpaid
by $369. The improper payments resulted from miscalculation of the
employees’ overtime hours by the payroll transactions unit staff. We found
no indication that the processing of these overtime payments was reviewed
by an authorized individual.
Control deficiencies over processing of award and overtime payments
GC sections 13402 and 13403 mandate state agencies to establish and
maintain internal controls, including a system of authorization and
recordkeeping procedures over expenditures, and an effective system of
internal review. State agencies are also responsible for ensuring that these
controls are functioning as prescribed. However, the improper premium,
award, and overtime payments demonstrated that CTF lacked adequate
controls to ensure that the payroll transactions unit staff processes only
valid and authorized payments that comply with collective bargaining
agreements and state law and policies.
Correctional Training Facility Payroll Process Review
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Recommendation
CTF should conduct a review of premium, award, and overtime payments
during the past three years to ensure that the payments comply with
collective bargaining agreements and state law and policies. If CTF made
overpayments to employees, it should seek reimbursement through an
agreed-upon collection method in accordance with GC section 19838.
To prevent improper award and overtime payments from recurring, CTF
should:
Establish adequate internal controls to ensure payments for premium,
award, and overtime compensation comply with collective bargaining
agreements and state law. These controls should require payroll
transaction unit staff to verify that a payment does not exceed the
amount set by collective bargaining agreements and state law and
policies.
Provide adequate oversight to ensure that payroll transactions unit
staff process only valid and authorized payments that comply with
collective bargaining agreements and state law and policies; and
Provide training to payroll transactions unit staff to ensure they
understand the requirements under collective bargaining agreements
and state law and policies.
CTF lacked adequate controls over salary advances to ensure that they are
processed in accordance with state law and policies. At December 31,
2014, CTF had $94,357 in salary advances that had been outstanding for
over 120 days. Of the five salary advances reviewed, one, costing
$6,232—the longest outstanding at over 10 years—remained outstanding
due to CTF’s lack of collection effort. The control deficiency leaves CTF
at risk for additional uncollectable salary advances.
GC section 19838 and SAM section 8776.7 allow CTF to collect salary
advances in a timely manner. At December 31, 2014, the CTF’s
accounting records showed 15 outstanding salary advances totaling
$94,357, which were all outstanding for more than 120 days. The longest
outstanding salary advance was over 10 years. Generally, the prospect of
collection diminishes as an account ages. When an agency is unable to
collect after three years, the possibility of collection is remote.
Of the five selected salary advances totaling $75,665 that we reviewed,
one, costing $6,232, was issued in November 2004. CTF could not support
its authorization and collection effort, if any, for this salary advance due
to lack of supporting documentation. SAM section 8776 requires agencies
to maintain proper records of collection efforts.
The lack of adequate controls over salary advances increases the risk of
financial loss, reduces the likelihood of collection, increases the amount
of resources expended on collection efforts, and negatively impacts cash
flow.
FINDING 8—
Inadequate
controls over salary
advances, resulting
in failure to recover
outstanding
accounts
Correctional Training Facility Payroll Process Review
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Recommendation
CTF should ensure that salary advances are recovered in a timely manner
pursuant to GC section 19838 and SAM section 8776.7. If all reasonable
collection procedures do not result in payment, CTF may request
discharge from accountability of uncollectable amounts.
CTF also should maintain documentation of its salary advance
authorization and collection efforts, if any.
Correctional Training Facility Payroll Process Review
Attachment—
Correctional Training Facility’s Response to Draft Review
Report
State Controller’s Office
Division of Audits
Post Office Box 942850
Sacramento, CA 94250-5874
http://www.sco.ca.gov
S15-PAR-9011