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Extracted from Consolidated Report
This investigation was originally published as part of a larger consolidated report containing multiple investigations. View the consolidated PDF for the complete document.
Los Angeles County Grand Jury
• 1971-1972
Audit . . . . . . . . . . . . . . . . . .
⚠️ Translation Notice: This content has been automatically translated. The original English text is the official version. Translation may contain errors.
⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.
Findings 4 findings
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High employee turnover, absenteeism, low morale and apparent lax super- vision resulting in inefficiencies and low productivity.
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A "suspense account" is maintained for payments, refused or returned warrants, misdirected payments, bad checks, lump sum payments received in advance and other items not clearable through the normal computer- maintained file system installed in July, 1971. On June 30, 1971, the detail balance of suspense items was about $250,000. It had increased to about $900,000 by June 30, 1972 and to almost $1,000,000 by August 31, 1972. This is roughly 4% of one year's total receipts. Although approximately $300,000 was added to the sus- pense account in July 1971 through the new computer system conversion there does not appear to be any justification for either the large balance in June, 1971 or the continuous increase in the suspense account balance since that time. This is especially significant since some of the payments received and not yet identified quite possible should have been paid to families with dependent children. As the result of the foregoing disclosures, the CAO was advised on Sep- tember 7, 1972, of the situation and was provided with a preliminary copy of the audit report. An urgent recommendation was made that a special Task Force be assigned the task of clearing the suspense account as soon as possible of all identifiable items and reducing the balance to a minimum level. The CAO accepted this recommendation but the Task Force did not begin work until the first week of October. On November 9, the Auditor- Controller reported that the suspense item balance was reduced to approxi- mately $700,000. We have been further advised that the suspense account will be reduced to a minimum level by about January 15, 1973. After that date it should include only items which will be cleared on a routine basis within a few days after the item is placed in suspense or cannot be cleared by legal requirements. As of June 30, 1972, there were on hand 6,651 documents received from
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DPSS which had been received but not processed – an increase of about 6,000 over the unprocessed backlog in May, 1971. These unprocessed documents had increased to more than 9,200 as of August 31, a 50% increase in the two months of July and August. It is certain that many of these documents pertain to items included in the suspense account - items which must be manually researched in lieu of using the Electronic Data Processing (EDP) facilities. Delinquencies and non-receipt of first payments obviously could go undetected until these documents are pro- cessed through the system. This could result in a reduction of revenues. The Contract Auditor recommended that this backlog of documents be processed immediately and that future documents be processed on a current basis. CONCLUSION The office of the Court Trustee presently is not functioning efficiently. That management and other personnel of the IT IS RECOMMENDED: Court Trustee's office be evaluated to determine whether the department has the competent, properly motivated people it needs to do an efficient, timely job in accounting for the trust funds. That the Court Trustee system be reorganized IT IS RECOMMENDED: to encompass all collections of child support involving welfare. That proper procedures be instituted to ensure current processing of all docu- ments and funds received. The data flowing through this office to the computer should constitute the basis for financial control of the entire Child Support Collection System. This includes all collection for child support (involving welfare cases), delinquency notifications and monies to be received from the State Support Enforcement Incentive Fund (SEIF). CHILD SUPPORT SYSTEM TASK FORCE The Board of Supervisors authorized the development of a totally computerized Child Support System on November 24, 1970. However, because of budgetary considerations the Task Force was not organized until the latter months of 1971. The current annual salary cost of the Task Force personnel has been estimated to be approximately $280,000. (State Department of Social Welfare letter of July 27, 1971 approved the study for 50% reimbursement). Projections made by the Task Force Project Manager indicate that the earliest date for completion is April, 1976 even with the addition of an unspecified number of programmers. 1979 was specified as the year the project could be completed with the present staff of 16 people and contract consultant(s). Simple arithmetic indicates that if these dates are realistic, the completed project will cost a minimum of $1.5 million including expenditures to date and more than $2 million if the project is not completed until 1979. The Board of Supervisors on October 17, 1972, approved the CAO's proposal based on the fact that (a) SDSW documentation requirements had been completed and (b) Los Angeles County does not employ and is unable to recruit qualified personnel to accomplish the project (according to Civil Service Commission). Preliminary estimates indicate that the cost of the system design and subsequent programming for the system will be approximately $2 million. The County will be reimbursed 50% of total cost by the State Department of Social Welfare. Offsetting benefits now anticipated by the County after completion of the com- puterized system are increased child support revenue and reduced welfare costs of approximately $2.5 million annually. While we agree with the program in its entirety, we also agree with the Contract Auditor's recommendations as follows:
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note the observation of the Contract Auditor that "the County's Child Support Collection Program is not operating in an efficient or effective manner." Also "The activities of the program are fragmented among several County Agencies... in many cases procedures are weak...in addition ineffective interagency com- munication is inhibiting program operations." We agree that "the most compelling need is the designation of a single agency 80 having the responsibility and the commensurate authority to channel County resources into a more effective system." That the Board of Supervisors take appropriate WE RECOMMEND: action to designate a single coordinating agency to assure achievement of the program goals. REPORT NO. 2 – MUSIC CENTER AND PERFORMING ARTS Ten recommendations were made by the Contract Auditor. Principal recommenda- tions concerned operating problems including parking availability for theatre at- tendees and revenue control procedures. All recommendations were concurred with by representatives of the Chief Admini- strator's Office. They are being implemented with the exception of Nos. 2-8 and 2-9 which concern more detailed accounting for services and supplies received from County departments. These are to be studied in an attempt to devise simplified methods for monitoring these costs. REPORT NO. 3 – OFFICE OF DISTRICT ATTORNEY The Office of the District Attorney agreed with the seven minor recommendations made by the Contract Auditor. This report does not include functions of the D.A. pertaining to the Child Support Collection Program which are set forth in Report No. 1. REPORT NO. 4 – REVOLVING FUNDS Revolving funds are established on an imprest basis and expenditures made are re- imbursed by the Department of the Auditor-Controller. Control balances, therefore, remain constant and the cash on hand plus unreimbursed expenditures should equal the control totals for each of the funds counted. Of $1,218,775 of Imprest Funds scattered at 577 locations in County offices, a total of $1,116,700 of such funds was accounted for in surprise counts and reconciliations. Except for some recommendations relevant to control of the funds, expenditure approvals and other internal procedures, the majority of the funds reviewed appeared to be in good order. However, it was noted that there appeared to be (a) an exces- sively large fund in the custody of DPSS, (b) excessive amounts of unreimbursed disbursements were outstanding as part of the revolving fund balance in the office of the Public Administrator-Public Guardian (some for three years or more) and (c) 81 there were several unresolved cash overages, shortages and unreimbursed cash vouchers outstanding for a long time in funds under the control of the Department of Hospitals. All departments concerned with audit recommendations agreed with them. Actions necessary to correct the deficiencies have been or will be taken. REPORT NO. 5 – PURCHASING AND STORES DEPARTMENT The Purchasing and Stores Department is responsible for negotiating contracts with vendors and purchasing items requisitioned by other departments and special districts within the County. During the 1971-72 fiscal year, about $100 million of materials and supplied were purchased. An inventory of about $3.3 million of items is main- tained by the department. This inventory is utilized to fill requisitions amounting on an annual basis to about $20 million or about six times the inventory value. Many relatively minor "housekeeping" observations and recommendations were made which, after review by the Audit Committee, were incorporated in a separate letter to the Purchasing Agent for his information and consideration. Of the remaining comments and recommendations included in the audit report the most important were concerned with inventory management and with printing and duplicating facilities. INVENTORY MANAGEMENT The Contract Auditor's analysis indicated that the inventory at May 31, 1972 in- cluded 15.3% of the total items in stock representing 14% of total dollar value. Based on average consumption this was more than one year's supply of such items. Furthermore, the analysis showed that 34.6% of items with a dollar value of 36.4% of the total inventory were items sufficient for a period of six months or more. The Contract Auditor's recommendation with respect to inventory control was, therefore:
Recommendations 3
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R1Page 86"Report of Task Force Assigned to Public Administrator-Public Guardian", dated September 1, 1971. "Public Administrator-Public Guardian Departmental Audit" (by Auditor-
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R2Page 86Controller), dated April 12, 1972. "System and Procedures Study of Public Administrator-Public Guardian",
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R3Page 86(by Auditor-Controller), dated July 26, 1972. Except for review of County-supplied monies for operations of the PA-PG, the Contract Auditor concentrated his efforts in areas where recommendations had not yet been implemented. The final Contract Auditor's report contains 10 recom- mendations. Although the reports enumerated above indicated that internal controls to prevent malfeasance or fraud were lacking, the Contract Auditor found relatively the same situation during his review of this function, e.g.: (a) "Our review of case files indi- cated serious weakness in internal control." (b) "There are no internal control features to guard against an unauthorized disbursement of trust funds." (c) "The PA-PG does not deposit receipts on a daily basis...We reveiwed the undeposited receipts as of August 31, 1972 and noted...735 checks totaling $928,733". (Of the 735 checks, only 420 had been held less than 30 days and 26 were more than one year old). On February 14, 1972, the Los Angeles County Citizens Economy and Efficiency Committee issued its Report on the Department of Public Administrator-Public Guardian, and amended it on March 8, to recommend a five man Policy and Mange- ment Commission in lieu of the four member Commission recommended in the original Report. This Commission has been appointed and is now functioning. How- ever, the second recommendation, which the Grand Jury endorses, is that the Board of Supervisors request the Civil Service Commission to consider the establishment of several important qualifications for the position of a highly qualified Public Administrator-Public Guardian. This position's description, presumably, anticipates the early appointment of some person possessing the attributes so described. Since the suspension of the former Administrator, no appointment of a full time Administrator has been made, even on an interim basis, pending resolution of the problems regarding the former Administrator. It seems apparent that no one can adequately do justice to two full time jobs. The problems associated with the office 84 of the PA-PG probably will continue until the appointment of a fully qualified Administrator with the ability to provide the department with close supervision and motivation of personnel. CONCLUSIONS OF THE AUDIT COMMITTEE In view of the several surveys and reports pointing out the conditions in the office of the PA-PG, it is difficult to understand the reasons why the inefficiencies and lack of control over financial transactions still exist more than a year after the suspension of the former Administrator. That the Board of Supervisors with the assist- IT IS RECOMMENDED: ance of the PA-PG Advisory Commission promptly appoint a fully quali- fied Administrator to rectify this situation and to provide full time administration. REPORT NO. 7 – DEPARTMENT OF PUBLIC SOCIAL SERVICES This year's examination was limited to the system of internal control and financial records of the Adult Aid programs, including the General Relief program (also known as Indigent Aid), i.e.: Old Age Security (OAS) Aid to the Disabled (ATD) Aid to the Blind (AB) Aid to the Potentially Self-supporting Blind (APSB) General Relief (GR) These programs involve about 423,000 cases and a total expenditure for aid of approximately $857 million during the fiscal year ended June 30, 1972. The County's share was about $147 million. On October 17, 1972, the Joint Conferee Committee of the United States Senate and House of Representatives approved H.R. Social Security Amendments of 1972 and sent the bill to the President for signature. Since the President signed the legislation into law on October 31, 1972, the Federal government will assume by January 1, 1974, those parts of the welfare system for the aged, blind and disabled which are presently administered by local governments. In view of the fact that OAS, AB and ATD programs as presently constituted in the 85 County of Los Angeles will be placed under Federal administration, many of the recommendations contained in the Contract Auditor's report may not be of future long-range concern to the County. However, some of the recommendations pertain- ing to tightening financial control of expenditures should be implemented for the purpose of assuring that monies spent during the next year are properly authorized and paid. Of the recommendations set forth in the final report relating to these programs, the following were of major importance: GENERAL RELIEF RECOMMENDATION NO. 7-20: "It is recommended that DPSS im- mediately reconcile the GR master file to supporting budget documents, establish and continuously maintain dollar total and item controls over the GR master file, and transfer maintenance of the GR master file to the Welfare Data Center." This program is funded entirely by the County. During the fiscal year 1971-72 the County spent approximately $21 million in aid payments. In addition, almost $7 million in administrative expenses were associated with the program. Approximately 20,000 cases were on file in June, 1972. DISBURSEMENT CONTROLS One of the most serious weaknesses in the control of funds disbursed was found in the accounting for payment of GR grants. When district offices approve a GR case, GR accounting computes the grant amount and sends a batch of input documents to the Welfare Data Center for preparation of keypunched "pay cards" and "address cards". When returned to GR accounting by WDC, these cards are inserted manually in the GR automatic warrant master file (known as the GR "Hot Deck"). This is a large deck of approximately 20,000 keypunched cards transported monthly to the data center for the printing of the automatic monthly aid warrants. There have not been any dollar or item controls maintained on the total cards (items) or the total dollar amount of the approved "payroll" represented by the individual cards. However, a listing of the warrants issued is sent to GR accounting for reconciliation between the current and prior months' totals. This reconciliation was not balanced in any of the three months reviewed (April, May and June, 1972) and, therefore, exceptions were not cleared. At some time in the past, GR accounting periodically performed a complete reconcili- ation of the automatic warrant listing, produced from the "Hot Deck" to supporting documents. This reconciliation has not been performed recently. Needless to say, 86 without proper controls of the "Hot Deck" by predetermined control totals, ac- companied by monthly reconciliation of such totals with warrants issued each month, the insertion of fictitious cards (and their removal in subsequent months) or the alteration of cards to issue improper amounts could be accomplished easily without detection for some period of time. This lack of control over some $21 million of County expenditures is inexcusable. Whether the "Hot Deck" contains fictitious beneficiaries, improper payments or even current payments to recipients no longer eligible cannot be determined without a complete audit of basic documents and cases currently receiving payments. This audit must be performed promptly in order to validate all payments being made currently. CASE FILE DOCUMENTATION The lack of control over funds being disbursed currently and the determination of proper disbursements through audit, as recommended above, will apparently be complicated by lack of data in the GR case file. The Contract Auditor has reported that, based on random sampling techniques, it is concluded that about 25% of the total case files (38,000 in June, 1971 and 19,000 in May, 1972) lack proper documentation and that more than 4% contain budget errors involving erroneous payments. To quote from the audit report: "Case files are the foundation for virtually all required information concerning the aid program recipient. Consistent and complete documentation of this information is essential to properly control aid payments." OTHER ADULT AID PROGRAMS In addition to the General Relief program, the Bureau of Adult Assistance administers two other groups of programs: the Adult Categorical Aid programs and the Food Stamp program. The Adult Categorical Aid programs are listed at the beginning of this report. In connection with the Food Stamp program, the Contract Auditor's report ex- presses some question as to the plan to mail food stamps to recipients. This question was also raised by the Social Services Committee of this Grand Jury and resulted in the dispatch of a letter to appropriate authorities expressing the Grand Jury's opposition to the mailing proposal. Refer to the report of the Social Services Com- mittee for further comment. Concerning the Categorical Aid programs, the Contract Auditor has reported general- ly the same weaknesses in controls as found in the General Relief program. For 87 example, based on random sampling techniques it was concluded that at least 11% of the total Aid to Disabled case files (74,000 in June, 1972) lack required case maintenance documents. At least 5% contain budget errors involving erroneous payments. Other observations were made indicating definite lack of proper control or adherence to prescribed procedures in certain areas. While the Contract Auditor's review was limited to specific areas defined in his report, he commented that: "While a report of this nature tends to be critical, we observed many instances not discussed herein where the internal control procedures were sound, County administrative code provisions and statutory requirements were being adhered to, and adequate follow-up on potential cost savings was being made ... " Nevertheless, the Contract Auditor stated that: "Due to the deficiencies noted in the preceding paragraphs and their impact upon the controls exercised over the issuance of aid to welfare recipients and due to the limitation in the scope of our review, we were unable to determine that (a) the overall departmental system of internal control is entirely adequate, (b) established operating policies and pro- cedures are being followed in all instances and (c) all areas of potential cost savings have been identified and corrective procedures instituted." CONCLUSIONS OF THE AUDIT COMMITTEE The 1971 Contract Auditor recommended that controls, to which the monthly automatic warrant listing may be reconciled, be established in the district office (Recommendation 8-6). We are informed that DPSS did not concur with the recom- mendation. The 1972 report adequately sets forth the reasons that these controls must be implemented. IT IS RECOMMENDED: That the CAO and Auditor-Controller take immediate action to ensure that proper procedures and controls are in- stalled without further delay. WE FURTHER RECOMMEND: That the 1973 Grand Jury Contract Auditor review both the 1971 and 1972 Contract Auditor's recommenda- tions in these areas to determine that new procedures are installed or, at least, that definite progress in revision of control procedures has been made.