The Honorable Corie J. Caraway Bu(cid:425)e County Superior Court

Although achieving an unmodified opinion, the 2022 Butte County Single Audit Report flagged a significant deficiency in internal controls. The deficiency was due 34 to Butte County following the guidance proposed by the IA for the previous fiscal year-end report. The deficiency was corrected in the fiscal year ended June 30, 2022, report and caused no financial harm to Butte County. Responses are to be submitted to the presiding judge of the Butte County Superior Court in accordance with the provisions of Penal Code § 933.05. Responses must include information required by §933.05. Reports issued by the Grand Jury do not identify individuals interviewed. Penal Code §929 requires that reports of the Grand Jury not contain the name of any person or facts leading to the identity of any person who provides information to the Grand Jury. WEBSITES https://www.hrsa.gov https://www.councilofnonprofits.org 35 < This page intentionally blank> 36 2022-2023 BUTTE COUNTY GRAND JURY April 11, 2023 Unfinished Business, The Butte County Payroll Clearing Fund 1420 Analysis Report Payroll SUMMARY The Butte County Grand Jury (BCGJ) received and reviewed the Butte County Payroll Clearing Fund Analysis Report for Fiscal Years 2010-2018. It was prepared by the Independent Auditor (IA) CLIFTON, LARSON, ALLEN, LLP. The finalized report was released in February 2019 and has been under discussion by county officials for over 3 years. Some of the IA recommendations have been implemented by Butte County (BC) and others have not, due in part to inter-departmental differences of opinion as to the financial impact of a current BC practice and the absence of clear direction from the Board of Supervisors (BOS). The County Audit Committee (CAC) commissioned the IA’s report to audit the accuracy and efficiency of the practices currently in place for the Payroll Clearing Fund 1420 (Fund 1420) reconciliation. Fund 1420 is a pass-through account which accumulates the contributions for BC employee health insurance and other benefits in advance of the payments that would subsequently pass to benefit provider vendors. Approximately 40 different employee benefit ledger accounts comprise Fund 1420. CAC was concerned that due to the nature of advance collections and intermittent disbursements from Fund 1420, material deficits and cash flow shortfalls may occur and exist without detection. Also, there is a substantial (approx. $900,000) reserve fund set aside to cover Fund 1420 deficits. The IA audit would help determine if the reserve account is sufficient to cover any estimated Fund 1420 deficit or if some of the reserve was available to be released back to the BC general fund. The IA recommended various procedural and operational changes to BC practices to improve the reconciliation efficiency and transparency of Fund 1420. The IA also found that there were more than sufficient reserves to cover the estimated deficiency in Fund 1420 and recommended releasing a substantial portion of the reserve. Amongst other things, the BCGJ found that some of the proposed 2019 IA report

The compensation contracts between BC and third-party entities for providing payroll and benefit administration servicing have not been updated since origination which causes BC to provide those services at a charge rate below cost.

The BC practice of advancing benefit premium funds to off-payroll employees does not follow BOS policy.

There is no applicable BC termination policy for ex-employees who fail to repay their benefit contribution fund advancements.

It is unclear as to the amount of the set-aside reserve fund for Fund 1420 that is available for release.

There is no management plan in place to replenish funding shortfalls within Fund 1420.

Complete quarterly reconciliations of Fund 1420 are not occurring.

The need for significant changes to the Oroville City Charter have been reported by 4 previous Grand Juries over the past 10 years.

The Oroville City Charter document is not well assembled nor easily navigated.

The Oroville City Charter document is vague, allows multiple interpretations, and leads to opportunities for manipulation.

Currently, the City of Oroville Charter allows the mayor to appoint administrative staff/department heads under certain conditions, creating an incentive for the mayor to help create those conditions, in order to appoint specific persons without Council super-majority approval.

The 1906 City Charter document requires an elected City Treasurer. The city treasurer position is no longer necessary to administer city financial business.

Oroville City Charter currently requires only a vote of 3 council members in favor to terminate a department head, requires a vote of 5 council members in favor to hire a new department head, or appointment solely by the Mayor. 128

The BCGJ remains uncertain why the public safety emergency access exit door was removed from the Police & Fire Department lobby.