San Bernardino County Grand Jury • 2010-2011

Grand Jury Report 2010/2011 Full Report (5.34 Mb)

Published: June 30, 2011 214 pages Consolidated Report

Ver PDF original

⚠️ Aviso de traducción: Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.

⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.

Note: Missing finding numbers detected: F10, F11, F12, F13, F14, F15, F16, F17, F18, F19, F20, F21, F22, F23, F24, F25, F26, F27, F28, F29, F30, F31, F32, F33, F34, F35, F36, F37, F38, F39, F40, F41, F42, F43, F44, F45, F46, F47, F48, F49, F50, F51, F52, F53, F54, F55, F56, F57, F58, F59, F60, F61, F62, F63, F64, F65, F66, F67, F68, F69, F70, F71, F72, F73, F74, F75, F76, F77, F78, F79, F80, F81, F82, F83, F84, F85, F86, F87, F88, F89, F90, F91, F92, F93, F94, F95, F96, F97, F98, F99, F100, F101, F102, F103, F104, F105, F106, F107, F108, F109, F110, F111, F112, F113, F114, F115, F116, F117, F118, F119, F120, F121, F122, F123, F124, F125, F126, F127, F128, F129, F130, F131, F132, F133, F134, F135, F136, F137, F138, F139, F140, F141, F142, F143, F144, F145, F146, F147, F148, F149, F150, F151, F152, F153, F154, F155, F156, F157, F158, F159, F160, F161, F162, F163, F164, F165, F166, F167, F168, F169, F170, F171, F172, F173, F174, F175, F176, F177, F178, F179, F180, F181, F182, F183, F184, F185, F186, F187, F188, F189, F190, F191, F192, F193, F194, F195, F196, F197, F198, F199, F200, F201, F202, F203, F204, F205, F206, F207, F208, F209, F210, F211, F212, F213, F214, F215, F216, F217, F218, F219, F220, F221, F222, F223, F224, F225, F226, F227, F228, F229, F230, F231, F232, F233, F234, F235, F236, F237, F238, F239, F240, F241, F242, F243, F244, F245, F246, F247, F248, F249, F250, F251, F252, F253, F254, F255, F256, F257, F258, F259, F260, F261, F262, F263, F264, F265, F266, F267, F268, F269, F270, F271, F272, F273, F274, F275, F276, F277, F278, F279, F280, F281, F282, F283, F284, F285, F286, F287, F288, F289, F290, F291, F292, F293, F294, F295, F296, F297, F298, F299, F300, F301, F302, F303, F304, F305, F306, F307, F308, F309, F310, F311, F312, F313, F314, F315, F316, F317, F318, F319, F320, F321, F322, F323, F324, F325, F326, F327, F328, F329, F330, F331, F332, F333, F334, F335, F336, F337, F338, F339, F340, F341, F342, F343, F344, F345, F346, F347, F348, F349, F350, F351, F352, F353, F354, F355, F356, F357, F358, F359, F360, F361, F362, F363, F364, F365, F366, F367, F368, F369, F370, F371, F372, F373, F374, F375, F376, F377, F378, F379, F380, F381, F382, F383, F384, F385, F386, F387, F388, F389, F390, F391, F392, F393, F394, F395, F396, F397, F398, F399, F400, F401, F402, F403, F404, F405, F406, F407, F408, F409, F410, F411, F412, F413, F414, F415, F416, F417, F418, F419, F420, F421, F422, F423, F424, F425, F426, F427, F428, F429, F430, F431, F432, F433, F434, F435, F436, F437, F438, F439, F440, F441, F442, F443, F444, F445, F446, F447, F448, F449, F450, F451, F452, F453, F454, F455, F456, F457, F458, F459, F460, F461, F462, F463, F464, F465, F466, F467, F468, F469, F470, F471, F472, F473, F474, F475, F476, F477, F478, F479, F480, F481, F482, F483, F484, F485, F486, F487, F488, F489, F490, F491, F492, F493, F494, F495, F496, F497, F498, F499, F500, F501, F502, F503, F504, F505, F506, F507, F508, F509, F510, F511, F512, F513, F514, F515, F516, 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F683, F684, F685, F686, F687, F688, F689, F690, F691, F692, F693, F694, F695, F696, F697, F698, F699, F700, F701, F702, F703, F704, F705, F706, F707, F708, F709, F710, F711, F712, F713, F714, F715, F716, F717, F718, F719, F720, F721, F722, F723, F724, F725, F726, F727, F728, F729, F730, F731, F732, F733, F734, F735, F736, F737, F738, F739, F740, F741, F742, F743, F744, F745, F746, F747, F748, F749, F750, F751, F752, F753, F754, F755, F756, F757, F758, F759, F760, F761, F762, F763, F764, F765, F766, F767, F768, F769, F770, F771, F772, F773, F774, F775, F776, F777, F778, F779, F780, F781, F782, F783, F784, F785, F786, F787, F788, F789, F790, F791, F792, F793, F794, F795, F796, F797, F798, F799, F800, F801, F802, F803, F804, F805, F806, F807, F808, F809, F810, F811, F812, F813, F814, F815, F816, F817, F818, F819, F820, F821, F822, F823, F824, F825, F826, F827, F828, F829, F830, F831, F832, F833, F834, F835, F836, F837, F838, F839, F840, F841, F842, F843, F844, F845, F846, F847, F848, F849, F850, F851, F852, F853, F854, F855, F856, F857, F858, F859, F860, F861, F862, F863, F864, F865, F866, F867, F868, F869, F870, F871, F872, F873, F874, F875, F876, F877, F878, F879, F880, F881, F882, F883, F884, F885, F886, F887, F888, F889, F890, F891, F892, F893, F894, F895, F896, F897, F898, F899, F900, F901, F902, F903, F904, F905, F906, F907, F908, F909, F910, F911, F912, F913, F914, F915, F916, F917, F918, F919, F920, F921, F922, F923, F924, F925, F926, F927, F928, F929, F930, F931, F932, F933, F934, F935, F936, F937, F938, F939, F940, F941, F942, F943, F944, F945, F946, F947, F948, F949, F950, F951, F952, F953, F954, F955, F956, F957, F958, F959, F960, F961, F962, F963, F964, F965, F966, F967, F968, F969, F970, F971, F972, F973, F974, F975, F976, F977, F978, F979, F980, F981, F982, F983, F984, F985, F986, F987, F988, F989, F990, F991, F992, F993, F994, F995, F996, F997, F998, F999, F1000, F1001, F1002, F1003, F1004, F1005, F1006, F1007, F1008, F1009, F1010, F1011, F1012, F1013, F1014, F1015, F1016, F1017, F1018, F1019, F1020, F1021, F1022, F1023, F1024, F1025, F1026, F1027, F1028, F1029, F1030, F1031, F1032, F1033, F1034, F1035, F1036, F1037, F1038, F1039, F1040, F1041, F1042, F1043, F1044, F1045, F1046, F1047, F1048, F1049, F1050, F1051, F1052, F1053, F1054, F1055, F1056, F1057, F1058, F1059, F1060, F1061, F1062, F1063, F1064, F1065, F1066, F1067, F1068, F1069, F1070, F1071, F1072, F1073, F1074, F1075, F1076, F1077, F1078, F1079, F1080, F1081, F1082, F1083, F1084, F1085, F1086, F1087, F1088, F1089, F1090, F1091, F1092, F1093, F1094, F1095, F1096, F1097, F1098, F1099, F1100, F1101, F1102, F1103, F1104, F1105, F1106, F1107, F1108, F1109, F1110, F1111, F1112, F1113, F1114, F1115, F1116, F1117, F1118, F1119, F1120, F1121, F1122, F1123, F1124, F1125, F1126, F1127, F1128, F1129, F1130, F1131, F1132, F1133, F1134, F1135, F1136, F1137, F1138, F1139, F1140, F1141, F1142, F1143, F1144, F1145, F1146, F1147, F1148, F1149, F1150, F1151, F1152, F1153, F1154, F1155, 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F1299, F1300, F1301, F1302, F1303, F1304, F1305, F1306, F1307, F1308, F1309, F1310, F1311, F1312, F1313, F1314, F1315, F1316, F1317, F1318, F1319, F1320, F1321, F1322, F1323, F1324, F1325, F1326, F1327, F1328, F1329, F1330, F1331, F1332, F1333, F1334, F1335, F1336, F1337, F1338, F1339, F1340, F1341, F1342, F1343, F1344, F1345, F1346, F1347, F1348, F1349, F1350, F1351, F1352, F1353, F1354, F1355, F1356, F1357, F1358, F1359, F1360, F1361, F1362, F1363, F1364, F1365, F1366, F1367, F1368, F1369, F1370, F1371, F1372, F1373, F1374, F1375, F1376, F1377, F1378, F1379, F1380, F1381, F1382, F1383, F1384, F1385, F1386, F1387, F1388, F1389, F1390, F1391, F1392, F1393, F1394, F1395, F1396, F1397, F1398, F1399, F1400, F1401, F1402, F1403, F1404, F1405, F1406, F1407, F1408, F1409, F1410, F1411, F1412, F1413, F1414, F1415, F1416, F1417, F1418, F1419, F1420, F1421, F1422, F1423, F1424, F1425, F1426, F1427, F1428, F1429, F1430, F1431, F1432, F1433, F1434, F1435, F1436, F1437, F1438, F1439, F1440, F1441, 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F1871, F1872, F1873, F1874, F1875, F1876, F1877, F1878, F1879, F1880, F1881, F1882, F1883, F1884, F1885, F1886, F1887, F1888, F1889, F1890, F1891, F1892, F1893, F1894, F1895, F1896, F1897, F1898, F1899, F1900, F1901, F1902, F1903, F1904, F1905, F1906, F1907, F1908, F1909, F1910, F1911, F1912, F1913, F1914, F1915, F1916, F1917, F1918, F1919, F1920, F1921, F1922, F1923, F1924, F1925, F1926, F1927, F1928, F1929, F1930, F1931, F1932, F1933, F1934, F1935, F1936, F1937, F1938, F1939, F1940, F1941, F1942, F1943, F1944, F1945, F1946, F1947, F1948, F1949, F1950, F1951, F1952, F1953, F1954, F1955, F1956, F1957, F1958, F1959, F1960, F1961, F1962, F1963, F1964, F1965, F1966, F1967, F1968, F1969, F1970, F1971, F1972, F1973, F1974, F1975, F1976, F1977, F1978, F1979, F1980, F1981, F1982, F1983, F1984, F1985, F1986, F1987, F1988, F1989, F1990, F1991, F1992, F1993, F1994, F1995, F1996, F1997

Findings and Recommendations 10 findings

F1 Page 14

The benefit package should not be more than the salary for the BOS. (See Graph #1) Graph #1: Annual Salaries and Benefits Charts: 2. Health Insurance Coverage varies for the three supervisors who participate in the program. The three amounts are $6,569.00, $19,810.00 and $30,720.00.

No recommendations for this finding

F2 Page 24

The Grand Jury made an appointment with the Assessor to discuss the nine areas the BOE had pointed out for improvement. We also inquired of the Chief Executive Officer (CEO) as to which office in the county kept a log of the state audits. We were informed that no one is assigned that task because the state audits are random and timing cannot be anticipated.

No recommendations for this finding

F3 Page 14

The retirement plans paid for all of the BOS are excessive when compared to retirement plans of other counties. One supervisor's retirement benefits exceed $85,000. Members of the Board of Supervisors are enrolled in more retirement plans than the compared counties. (See Graph #2) 4. The BOS benefit packages range from the highest (First District) $158,403.00 to the lowest (Third District) $99,304.00. (See Graph #2) 3 2010-2011 San Bernardino County Grand Jury Final Report Graph #2: Detailed Salaries and Benefits Detail First District Second District Third District Fourth District Fifth District Salary $150,197.00 $150,197.00 $150,197.00 $150,197.00 $150,197.00 401K $12,016.00 $12,016.00 $12,016.00 $12,016.00 $12,016.00 401a $16,500.00 $7,510.00 $7,510.00 $7,510.00 $16,500.00 457b $1,502.00 $1,502.00 $1,502.00 $1,502.00 $1,502.00 Flexible Benefit Plan $5,980.00 $4,200.00 $5,980.00 $4,200.00 $5,980.00 Medical Reimbursement Account $1,040.00 $1,040.00 $1,040.00 $520.00 $1,040.00 Life Insurance County Paid $52.00 $52.00 $52.00 $52.00 $52.00 Variable Universal Life $249.00 $229.00 $229.00 $1,579.00 $1,047.00 Retirement Medical Trust $2,628.00 $4,130.00 $4,130.00 $4,130.00 $1,502.00 Workers Comp $1,030.00 $967.00 $900.00 $986.00 $986.00 Medicare $2,669.00 $2,508.00 $2,277.00 $2,517.00 $2,523.00 Vision $147.00 $147.00 $147.00 $147.00 $147.00 Long Term Disability $500.00 $500.00 $500.00 $500.00 $500.00 Health Insurance Coverage $30,720.00 $0.00 $6,569.00 $0.00 $19,810.00 Retirement Employer Pick Up $18,403.00 $18,090.00 $14,825.00 $20,826.00 $21,897.00 Retirement Employer Pick Up Cash $6,168.00 $5,580.00 $8,367.00 $2,879.00 $1,861.00 Survivor Benefit $26.00 $26.00 $26.00 $26.00 $26.00 Retirement Employee General $34,473.00 $32,096.00 $30,834.00 $32,189.00 $32,329.00 Automobile Allowance $21,900.00 $11,400.00 $0.00 $14,600.00 $14,600.00 Cell Phone Allowance $2,400.00 $2,400.00 $2,400.00 $2,400.00 $2,400.00 TOTAL $308,600.00 $254,590.00 $249,501.00 $258,776.00 $286,915.00 5. When compared to other counties, the car allowance is excessive. All three counties used to make comparisons, San Diego, Ventura and Riverside, showed that car allowances were the same for all supervisors. (See Graph #3) Graph #3: Annual Car Allowance District San Ventura Riverside San Diego Bernardino County County County County First $21,900 $4,500 $.51 per mile* $8,820 Second $11,400 Third Car provided Fourth $14,600 Fifth $14,600 *At $.51 per mile, the $4,500 for Ventura computes to 8,823 miles and San Diego’s $8,820 computes to 17,294 miles 4 2010-2011 San Bernardino County Grand Jury Final Report RECOMMENDATIONS 11-01 The Board of Supervisors car allowance follows the Federal guidelines (presently $.51 per mile). (Finding 2) 11-02 The Chief Executive Officer continue his efforts to adjust the salary and benefit ratio to be competitive. (Findings 2, 3) Responding Agency Recommendations Date Due Chief Executive Officer 11-01 through 11-02 September 30, 2011 5 2010-2011 San Bernardino County Grand Jury Final Report RISK MANAGEMENT BACKGROUND The County of San Bernardino Department of Risk Management is responsible for the identification, assessment and prioritization of risks associated within the operation of county departments. The department’s task is to protect San Bernardino County, (people, property, equipment and funds), from the chance of injury, damage or loss. This is achieved by providing management a source of consultation, guidance, training and technical support relative to occupational safety and health, loss prevention, regulatory compliance, and risk/hazard analysis, while improving the conditions in which services are rendered to the public. FINDINGS Dashboard is a computer-based liability tracking program, available to all county departments. The program permits the monitoring, identifying and controlling of risk exposures of county departments, such as Worker’s Compensation, civil lawsuits and preventable injuries. An example of this is the Arrowhead Achievement Program. In this program county departments are recognized and incentivized for their efforts in identifying risks through an audit process. Methods, goals and definitions vary according to whether the risk management, for example, is in the context of security, actuarial assessments, public health and safety. It should be noted that in an ideal risk management department, a prioritization process is followed. The risks with the greatest loss and the greatest probability of occurring are handled first and risks with lower loss are handled in descending order. Risk management also identifies areas of risk that have a high probability of occurrence, but these are often ignored due to these risks not being identified or acknowledged. This can occur when insufficient knowledge is applied to a situation, or when bad decisions are made, the result of which causes a new knowledge of risk to materialize. 6 2010-2011 San Bernardino County Grand Jury Final Report COMMENDATION The Grand Jury commends and recognizes the hard work of the Risk Management Department in the continued development, training and use of the “Dashboard” program. AUDIT/FISCAL COMMITTEE Margaret Furman, Chair Alfred J. Dubiel Arnim Belke Dawn Molumphy Allen “Skip” Burt Susan Brewster Wayne L. King O U N T Y OF SAN BERN A R D IN C O G R Q A uae N rite D Ver i J ta U tem R Y AUDIT/FISCAL COMMITTEE 2010-2011 San Bernardino County Grand Jury Final Report AUDIT/FISCAL COMMITTEE Introduction The Audit/Fiscal Committee investigates matters pertaining to sound financial practices as they apply to county and other governmental agencies, such as: Assessor/Recorder Auditor Controller/Treasurer/Tax Collector Purchasing Department Cities/Municipalities School Districts and Community College Districts Special Districts Because of its broad interagency scope, the Audit/Fiscal Committee coordinates its activities with other jury committees. This year, that coordination consisted of disseminating internal audit findings to the committees affected. The committee conducted investigations regarding the following: Assessor Auditor Controller Purchasing Recorder Tax Collector Treasurer Final Reports written by this committee are: Assessor Auditor-Controller 8 2010-2011 San Bernardino County Grand Jury Final Report ACCOUNTING COMPUTER SYSTEM BACKGROUND San Bernardino County is the largest county in the contiguous United States, encompassing 20,000 square miles; and it has a Gross Domestic Product (GDP) greater than several states. In addition, San Bernardino County is the employer of over 18,000 persons, and conducts business in much the same manner as a large corporation, particularly in the area of its Financial Management System. Just like any large employer, it needs to be on the cutting edge of technology to stay competitive. FINDINGS 1. In the 2003-2004 Grand Jury report, the Audit/Fiscal Committee addressed the issue of the outdated Financial Management System the county was using (AMS Advantage version 2.1.1), and the problems that will occur if the system was not upgraded. The Grand Jury made this recommendation to the Auditor/Controller- Recorder (ACR) who, in response to the recommendation, was in agreement. (See Attachment #1) In the interviews the Grand jury conducted with the ACR and staff members, there was no opposition to upgrading the system; and in fact, in the years following the report, there were some efforts to upgrade or replace the system. These efforts fell short of the mark due to miscommunications between departments, and budget restraints. The bottom line is, seven years later, the county is still using AMS Advantage version 2.1.1 as its Financial Management System. The Grand Jury is very aware of budgetary problems plaguing the entire nation, from the smallest of villages to the federal level. The county efficiently managing its assets should be very high on its list of priorities. 9 2010-2011 San Bernardino County Grand Jury Final Report RECOMMENDATIONS 11-03 Acquire the AMS Advantage Version 4.0 System (or the most current version) to upgrade the Financial Management System; and put a procedure in place that mandates periodic updating. (Finding 1) 11-04 With the acquisition of a new computer system comes the need for additional technical support. Insure employees have the necessary training in order to best operate, and support, the new system. (Finding 1) Responding Agency Recommendations Date Due Auditor/Controller- 11-03, 11-04 August 30, 2011 Treasurer/Tax Collector 10 2010-2011 San Bernardino County Grand Jury Final Report ASSESSOR’S OFFICE BACKGROUND The Audit/Fiscal departments of the County are audited by several State agencies. FINDINGS 1. From an internet search, our committee discovered that the California Board of Equalization (BOE) had completed an extensive Assessment Practices Survey of the San Bernardino County Assessor’s Office. This document is the current report of their BOE audit. The perspective of the BOE was very helpful in assisting the Grand Jury understand mechanics of the Assessor’s function. Instructions on the cover page of the Survey state that the responses to the BOE from the Assessor’s Office should be sent to the Grand Jury. The report was not provided to the Grand Jury and we found it during our own independent investigation.

No recommendations for this finding

F4 Page 29

According to our investigation the IAS performs financial statement audits to develop staff and increase the reliability of the County’s audited financial statements. In two situations internal audits were performed by employees in the 16 2010-2011 San Bernardino County Grand Jury Final Report office of the Auditor/Controller-Recorder who hold Certified Public Accounting (CPA) credentials; these were printed on county letterhead stating that the audit is an “Independent Auditor’s Report.” On the face of it, this is misleading. An employee has duties to his employer and is directed by the employer; but an independent auditor cannot be obligated in any manner to the client or independence is lost. The words “Independent Auditor’s Report” do not per se make the auditor independent. The Grand Jury commends the IAS department for using an employee with expertise as a CPA to develop staff but there is potential here for misunderstanding of independent functions.

No recommendations for this finding

F5 Page 30

Our research of the organization of internal audit departments in other California counties shows that in Ventura and Riverside Counties the internal auditor reports to the Auditor-Controller as we do in San Bernardino County. Twenty-four of the fifty- eight California Counties have combined Assessor-Recorder’s, and at least 10 Counties including Sacramento, Fresno and Santa Clara have combined Auditor- Controller/Treasurer/Tax Collector, functions. It is notable that the Grand Jury found no county where as many important positions are held concurrently by one person as is the case with the San Bernardino County Auditor-Controller/Treasurer/Tax Collector/ and County Clerk. The combining of tasks occurred on the February 25, 2010 consolidation when the offices of Auditor- Controller/Recorder and Treasurer/Tax Collector were made into a single office. While the combination of offices is allowable under Government Code §24300, the Grand Jury finds, in practice, in San Bernardino County the Controller’s Office, not the Auditor’s Office, does the risk assessment that determines which departments are to be audited. This chain of authority may not have been anticipated when the consolidation was deemed to be beneficial to the County. San Bernardino County is not out of the norm in combining the Controller/Auditor function. However, we are not the first Grand Jury to point out the inherent problems in this and to recommend a separation of the Auditor’s function from the 17 2010-2011 San Bernardino County Grand Jury Final Report Controller’s function. Orange County (OC) has organized an Internal Audit Department that reports directly to the Board of Supervisors and is connected to the Controller’s function. Currently the OC Director of Internal Audit is a CPA and Certified Auditor with numerous professional awards. The recommendation to have the OC top internal auditor removed from the controller’s function came from the 2007-2008 Orange County Grand Jury. That Grand Jury stated that they wanted to ensure the independence of the internal audit function from the direct influence of management. They understood the difficulty of auditing the boss. To accomplish this goal, the OC Grand Jury asked the Board of Supervisors to exercise their authority in California Government Code §25250 (governing financial powers), and §26881, and §26883 (governing clerks and county controllers) for authority to determine who shall conduct biennials audits of County Officers and who shall perform internal audits. Their research concluded that they could reassign internal audit responsibilities to a separate Internal Audit Department that would conduct financial, compliance, and performance audits of all county departments. The San Bernardino County Grand Jury finds that the OC method of separation of the Controller’s function from the Auditor’s function has merit. In OC, the BOS chose to have the head of the Internal Audit Department report directly to them.

No recommendations for this finding

F6 Page 31

Staff in the Internal Audits Section (IAS) was reduced. Three years ago, the IAS had twenty positions, with most of them filled. The current lack of funding impacts all aspects of county government in this era of post 2008 financial-melt-down; and hard decisions need to be made. When budget cuts are required, priorities must be set.

No recommendations for this finding

F7 Page 31

The IAS is currently operating with eleven full-time positions. The organizational chart specifically identifies a Chief Deputy Auditor with a secretary, a Management Services Manager, two Systems Accountant Level III, four Systems Accountant 18 2010-2011 San Bernardino County Grand Jury Final Report Level II, one Accountant Level III, and one Accountant Level II. The positions for another Accountant Level II and a Public Service Employee are vacant due to recent promotions. The IIA’s International Standards for the Professional Practice of Internal Auditing require that the chief audit executive (in San Bernardino this would be the Chief Deputy Auditor) report to a level within the organization that allows the internal audit activity to fulfill its responsibilities. To achieve necessary independence, best practices suggest the chief audit executive should report directly to the Audit Committee or its equivalent. For day to day administrative purposes, the chief audit executive should report to the senior executive of the organization.

No recommendations for this finding

F8 Page 32

Although for FYE 2010 the IAS reviewed department accrual packages designated as high risk by the Controller’s Division General Accounting Section, some internal audits are not being performed. The Grand Jury received a letter from the office of the Auditor/Controller/Treasurer (ACT) explaining why there were no audit reports for the quarter ended September 30, 2010. We were reminded that, “As discussed during our recent meeting, this office has the responsibility to pay employees and vendors, produce financial reports, and perform audits. During times of reduced resources, the first three listed activities are deemed a higher priority. Internal audit activity is deferred much as fixed asset maintenance is for other entities in difficult economic environments.” The Grand Jury received a schedule of audits accomplished for FYE June 2008 and 2009. Although the internal audit guidelines say all County Departments and Special Districts are to be audited every year, at the time they provided us with this data the Department stated they can’t accomplish that with their seven auditors and four support personnel. They prioritize their tasks based on their evaluation of High, Medium, or Low Risk for the County Departments and fall back on the every-five- year-rule mandated for Special Districts. The risk level is determined by the 19 2010-2011 San Bernardino County Grand Jury Final Report Controller Division’s General Account Section. The numbers in the financial statements are only as good as the systems that produce them.

No recommendations for this finding

F9 Page 33

According to the Auditor-Controller/Recorder/Treasurer/Tax Collector, and County Clerk, in the letter to the Board of Supervisors accompanying the CAFR we learned it is “the responsibility for both the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosure, rests with the County.” Also in the CAFR, we know the role of the outside CPA firm does not include examining the effectiveness of internal control and it does not provide assurances on internal control. This demonstrates that the responsibility for the value of the data rests upon the client. In this case the County of San Bernardino. This conclusion is confirmed in the second page of the letter to the Board of Supervisors in the section under Internal Controls. “The County‘s internal accounting control system exists to provide reasonable, but not absolute, assurance that assets are safeguarded against loss or unauthorized disposition and to provide reliable records for preparing financial statements and maintaining accountability for assets.” According to the Audit Committee charter: Members of the Audit Committee are: 1. Chair and Standing Member: Auditor/Controller- Tax Collector (ACT) 2. One member of the Board of Supervisors, or other representative appointed by the Chair of the Board of Supervisors. This representative shall serve for a two year period coterminous with the term of the Chair of the Board and appointed by the new Chair on the taking of office.

No recommendations for this finding

F1998 Page 55

The number of Children receiving services increased steadily over these first few years of operation. In 1999, a larger, more permanent facility was needed for the Assessment Center. Children's Fund, a non-profit organization whose purpose is to raise funds for children in need, entered into a new partnership with San Bernardino County to make that facility a reality. Children’s Fund began a capitol campaign to raise the funding for the purchase 38 2010-2011 San Bernardino County Grand Jury Final Report and remodeling of the new facility, which is owned and maintained by San Bernardino County. A contract was formed between the administrators of Loma Linda University Children's Hospital, and Children and Family Services under San Bernardino County’s Human Services Department. CFS provided forensic interviewers, the Center's management staff, and financial assistance. Currently 80-100 children are seen monthly. Since opening in 1994 over 8,000 children have received services at the Assessment Center. FINDINGS 1. During the investigation into the CAC partnership, members of the Grand Jury heard many times the Children’s Assessment Center is a gift to our county and our children. Nationally there are approximately 180 Board Certified Pediatric Forensic Physicians and San Bernardino County is fortunate to have two such physicians currently and one additional physician soon to be certified. They work tirelessly, and fiercely, for the rights and safety of abused children. Clients of the Center are child victims of alleged abuse from birth to age 18 referred to the Assessment Center by Children and Family Services, a law enforcement agency, and/or the Family Law Court.

No recommendations for this finding

Conclusions 5

CL1 Page 87

The San Bernardino International Airport Authority has not established effective internal controls over financial management activities. The internal control foundation is weak, policies and procedures are neither current nor effective and business processes are poorly documented. The Commission should direct management to strengthen this internal control foundation over the next 12 months by establishing appropriate policies, procedures and business processes that protect the Authority’s assets. Although most major financial matters are brought before the Commission for consideration, the analysis supporting decision-making is often incomplete or vaguely stated. Authority for approving individual financial and contract transactions has been delegated to mid-level managers within the organization. In critical areas, the Authority’s Chief Financial Officer has limited involvement in the initial review and approval of such transactions. The Authority has secured the services of a local accounting firm to conduct its annual audit and various special compliance reviews. In some instances, the scope definitions for these reviews have been narrowed by management to exclude major areas of exposure. In addition, although we found no evidence of impropriety, the Interim Executive Director was a founding partner of the accounting firm with which the Authority contracts. The Commission should adopt a policy requiring rotation of auditing firms every five years and solicit the services of other accounting firms through a competitive bid process to remove any appearance of an impairment to auditor independence. 8 Government Finance officers Association, Best Practice Audit Procurement (1996 and 2002) Harvey M. Rose Associates, LLC 1-9 Section 1: Internal Controls
CL2 Page 93

SBIAA management proceeded with the Terminal Development and Fixed Based Operation (FBO) projects in a manner contrary to industry standards for large public infrastructure projects. Specifically, SBIAA management did not (1) conduct competitive bidding for general contractor services; (2) adhere to a clearly stated compensation structure for Norton Development Company, LLC (Norton Development) and SBD Properties, LLC (SBD Properties); (3) base the Terminal Building design substantially on transparent and methodical analysis of anticipated passenger traffic; (4) report a clearly defined budget to the SBIAA Commission throughout the project; and, (5) utilize clear and effective policies and procedures. SBIAA management expedited and substantially increased the scope of the Terminal Development Project. These changes were based on assertions from the contractor with whom management intended to hire as the project developer through a sole source contract. This created a clear conflict of interest, since the developer has been paid on a percentage-of-project- cost basis and any increases in project cost leads directly to increased compensation for the developer. Such changes were largely based on assertions by the contractor of (1) major commercial passenger air carrier interest in SBIA; (2) prospective air carrier infrastructure requirements; and, (3) more aggressive passenger traffic projections. The validity of these updated projections, interest, and demands are unclear and unsubstantiated. Further, the updated projections and resulting schematic design led to significantly higher costs, including $9 million for a two-story concourse, over $4 million for major aviation equipment, and $2.7 million to fast track the project. Notably, the scope and cost of the Terminal Development Project grew incrementally from approximately $22 million, based on an initial design in January 2006, to over $100 million budgeted as of January 2011 with work and costs continuing to escalate. Similar to the Terminal Project, SBIAA management allowed the same development contractor (through a separate company) to define the design and scale of the FBO project, leading to Harvey M. Rose Associates, LLC 2-31 Section 2: Construction Management substantially higher costs. Likewise, the scope and cost of the FBO Project grew incrementally from $5 million in March 2007 to over $33 million as of January 2011, with approximately $30 million actually expended as of that date. SBIAA management has managed the Terminal Development and FBO Projects with insufficient controls. These control weaknesses have included: (1) the absence of sufficient policies and procedures; (2) the lack of an independent audit for either project; (3) poorly written leases that provide for little contractor oversight; and, (4) an opaquely written and implemented compensation structure for the two development companies. The fund control process has (1) alienated the Chief Financial Officer from day to day financial oversight of major construction projects, and (2) resulted in poor budgetary controls.
CL3 Page 95

SBIAA management did not conduct proper due diligence prior to purchasing used major aviation equipment from Norton Development for the terminal building. SBIAA management did not assess its equipment needs, determine whether the used equipment was appropriate, or send staff to visually inspect the equipment prior to authorization by the Commission. Further, SBIAA management did not consider or analyze the long term costs of purchasing used equipment versus the alternative of purchasing new equipment prior to proceeding with the acquisition. The Interim Executive Director never executed a Sale and Purchase Agreement with Norton Development despite multiple assertions to the Commission that he would do so and several references in the authorizing resolution indicating that such an agreement would be executed. In lieu of an executed contract, the terms of the agreement were later stated in a series of two letters from the Manager of Norton Development to the Interim Executive Director. The terms of these letters were substantially different from the representations made to the Commission by the Interim Executive Director. SBIAA has insufficient controls, including policies, procedures, and audits for use when acquiring aviation equipment. SBIAA management has not set up an internal process for verifying price, quantity, or condition of the used aviation equipment that is acquired from Norton Development. Further, the fund control process is inadequate for ensuring that SBIAA receives a fair and accurate price for the used equipment. Additionally, there have been no audits conducted of the used aviation equipment. Harvey M. Rose Associates, LLC 3-18 Section 3: Equipment Acquisition
CL4 Page 168

The Settlement and Mutual Release Agreement was executed less than seven weeks after the lease between SBIAA and NAMS had been signed, and only 18 days after the claim for damages was submitted to the Airport by NAMS and SBD. SBIAA management did not compel either NAMS or SBD to submit documentation to objectively assess the appropriateness of the claim for damages or challenge the original amount of the claim in any meaningful way. Importantly, this settlement was amicably reached in a short time period, even though the lease agreement with NAMS included language intended to completely indemnify SBIAA from “consequential or punitive damages” in the event of default. Further, SBIAA did not require an independent appraisal of the aircraft, including the airframe and jet engines, which were pledged as collateral for the loan prior to disbursing funds. By failing to conduct an appraisal, SBIAA can not be assured that SBD will have financial resources that are sufficient to repay the loan amount of $550,000. At the very least, the expedited nature of this agreement and the lack of due diligence by SBIAA to verify the existence or extent of damages, or independently obtain an opinion of value of the collateral pledged for the loan, make the appropriateness of the settlement questionable. In addition, the settlement resulted in substantial cost to the taxpayer, which may be greater if SBD defaults on the loan and the market value of the aircraft used as collateral is not sufficient to repay the balance of the debt owed to SBIAA.
CL5 Page 87

San Bernardino International Airport Authority (SBIAA) has entered into multiple contracts with companies managed by a single individual, Scot Spencer. Mr. Spencer is a convicted felon who served time for bankruptcy fraud in a federal penitentiary and, in a separate matter stemming from businesses he managed at San Bernardino International Airport, was ordered by the United States Department of Transportation (DOT) to “permanently cease and desist from further marketing or other involvement in air transportation operations so that he is banned from the aviation industry.” Mr. Spencer was ordered to pay civil penalties of $1.0 million, which remain unpaid. Mr. Spencer’s history at SBIAA began in approximately 2003 as a manager of KCP Leasing & Services, LLC, which was leasing space for the storage of Boeing 727 aircraft. Over the years, his involvement with SBIAA has grown, until Norton Development Company, LLC and SBD Properties, LLC (SBD) – two other companies that he manages – were granted development contracts to construct a new Terminal and a Fixed Base Operator (FBO) facility at the airport. The initial combined cost estimate for these two projects was about $43 million, but through January 2011, SBIAA had spent over $125 million on the projects. Companies affiliated with Mr. Spencer received payments of $7.4 million in developer fees, based on a percentage of total costs, and reimbursement of nearly all of their direct and indirect costs through that date. As the development projects progressed, Mr. Spencer’s companies were given responsibility for major aspects of airport operations. After approaching the Interim Executive Director with an informal proposal, Mr. Spencer was able to obtain agreement from a nationally recognized company to participate in FBO services at the airport. Mr. Spencer then gathered investors to open a franchise of that company, which he now manages, named Million Air San Bernardino, LLC. Subsequently, SBD was then awarded a 25-year lease to provide FBO services and run the airport fuel farm through Million Air San Bernardino, LLC. SBIAA had also solicited proposals for a nationally recognized airport management company to operate the airport, but no responses were received. As an alternative, the Interim Executive Director negotiated a sole source contract with Mr. Spencer through San Bernardino Airport Management, LLC (SBAM), which Mr. Spencer formed for that purpose and now manages. Compensation for SBAM under a 25-year agreement with SBIAA guarantees payments of $500,000 per year, reimbursement of most major operating costs, and the receipt of 50% of net operating income. SBIAA absorbs all financial risk. Harvey M. Rose Associates, LLC 5-12 Section 5: Contractor Relations The evolution of these sole source relationships between SBIAA and Mr. Spencer, and the growth in the involvement of the companies he manages, raises serious questions. Further, Mr. Spencer’s activities at SBIAA are in direct violation of the DOT order, which states he should be “banned from the aviation industry.”

Commendations 2

CM1 Page 18

The Grand Jury commends and recognizes the hard work of the Risk Management Department in the continued development, training and use of the “Dashboard” program. 7 AUDIT/FISCAL COMMITTEE Margaret Furman, Chair Alfred J. Dubiel Arnim Belke Dawn Molumphy Allen “Skip” Burt Susan Brewster Wayne L. King O U N T Y OF SAN BERN A R D IN C O G R Q A uae N rite D Ver i J ta U tem R Y AUDIT/FISCAL COMMITTEE 2010-2011 San Bernardino County Grand Jury Final Report AUDIT/FISCAL COMMITTEE Introduction The Audit/Fiscal Committee investigates matters pertaining to sound financial practices as they apply to county and other governmental agencies, such as: Assessor/Recorder Auditor Controller/Treasurer/Tax Collector Purchasing Department Cities/Municipalities School Districts and Community College Districts Special Districts Because of its broad interagency scope, the Audit/Fiscal Committee coordinates its activities with other jury committees. This year, that coordination consisted of disseminating internal audit findings to the committees affected. The committee conducted investigations regarding the following: Assessor Auditor Controller Purchasing Recorder Tax Collector Treasurer Final Reports written by this committee are: Assessor Auditor-Controller 8 2010-2011 San Bernardino County Grand Jury Final Report ACCOUNTING COMPUTER SYSTEM
CM2 Page 75

The Grand Jury commends Kevin Hawkins, Director of Parks and Recreation Department, and his staff for providing quality services, programs, and activities for the City of San Bernardino, despite the city’s financial problems. The Parks and Recreation staff is committed to providing the residents of San Bernardino an opportunity to enjoy leisure and recreational activities. Responding Agency Recommendations Date Due San Bernardino City Council 11-31, 11-32 August 30, 2011 53 2010-2011 San Bernardino County Grand Jury Final Report CODE ENFORCEMENT

No Responses Found 1

Government entities assigned to respond to this report. No response documents have been linked in our database.

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