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California State Auditor Report Number : 2016-110

Trade Apprenticeship Programs
The State Needs to Better Oversee Apprenticeship Programs, Such as the Air Conditioning Trade Association’s
Sheet Metal Program



Apprenticeship programs help prepare individuals for careers in skilled crafts and trades by providing classroom or online instruction and on‑the‑job training. Classroom and online instruction give apprentices an understanding of the theoretical aspects of their crafts or trades, while on‑the‑job training lets them put into practice what they learn under the supervision of an experienced journeyman. Apprenticeship programs cover a wide range of crafts and trades, but most apprentices participate in programs related to the construction industry. Individual employers, joint employer and labor groups, and employer associations sponsor apprenticeship programs.

As the Joint Legislative Audit Committee (Audit Committee) requested, this audit focused on two agencies, the apprenticeship division and the Chancellor’s Office, and their oversight of ACTA and its Commercial Sheet Metal Apprentices program (sheet metal program). Additionally, we assessed the two agencies’ oversight of apprenticeship programs throughout the State for the key oversight controls that we identified. ACTA is a nonprofit contractor‑member trade association that files under section 501(c)(6) of the Internal Revenue Code, and it must maintain its tax‑exempt status with the Internal Revenue Service (IRS) by not engaging in activities that ordinarily earn a profit and by devoting itself instead to improving business conditions for its industry. ACTA, which is based in Manteca and covers Mariposa, Merced, Stanislaus, and Tuolumne counties, serves free‑enterprise nonunion contractors in the HVAC industry—and their employees and industrial suppliers—by providing apprenticeship training and education in the use of sheet metal to fabricate HVAC systems and service them. It offers a four‑year program primarily through online instruction and four hands‑on labs each year that teach apprentices how to install, fabricate, and read blueprints for HVAC systems as well as how to supervise jobs once they become journeymen. Apprentices receive a journeyman’s card and a certificate of completion upon successfully completing all class requirements, finishing 6,500 work hours, and passing the journeyman exit exam.

Entities Overseeing Apprenticeship Programs

The apprenticeship division has primary responsibility for overseeing apprenticeship programs. State law requires the apprenticeship division to foster, promote, and develop the welfare of the apprentices and the industry; to improve the working conditions of apprentices and advance their opportunities for profitable employment; to ensure that selection procedures are impartially administered to all applicants for apprenticeship; and to cooperate in the development of programs and audit them. Within the apprenticeship division is the California Apprenticeship Council (Apprenticeship Council), whose membership includes representatives from sponsors of apprenticeship programs, the director of Industrial Relations, the superintendent of public instruction, and the chancellor of the California Community Colleges. The Apprenticeship Council’s duties include issuing rules and regulations to establish standards for minimum wages, maximum hours, and working conditions for apprentices and aiding the apprenticeship division in formulating policies.

The apprenticeship division also distributes grants to apprenticeship programs to train apprentices. Contractors for public works projects that employ journeymen or apprentices are generally required by state law to make contributions to the Apprenticeship Training Contribution Fund established by the State. The apprenticeship division uses the proceeds from this fund to pay for its expenses and to provide training grants to State‑approved apprenticeship programs, such as ACTA’s sheet metal program. The apprenticeship division distributes grants to apprenticeship programs based on the number of programs in a county serving the same craft or trade for which the training contributions were made and on the number of registered apprentices. In fiscal years 2010–11 through 2014–15, the apprenticeship division provided $14.1 million in grants to more than 70 apprenticeship programs throughout the State, with $9,800 going to ACTA, as shown in Table 1.

Table 1
State Funding Allocated to the Air Conditioning Trade Association
Fiscal Years 2010–11 Through 2014–15
Type of State Funding Received Entity Providing Funding Fiscal Year Five‑Year Total
2010–11 2011–12 2012–13 2013–14 2014–15
Grants Department of Industrial Relation’s Division of Apprenticeship Standards (apprenticeship division) $1,600 $6,600 $1,600 $9,800
Reimbursements California Community Colleges Chancellor’s Office (Chancellor’s Office) 29,600 33,900 63,500
California Department of Education (Education) $23,100 28,200 $26,900 78,200
Total State Funding $23,100 $29,800 $26,900 $36,200 $35,500 $151,500

California State Auditor’s analyses of accounting records of the apprenticeship division, Chancellor’s Office, and Education.

Notes: Education administered apprenticeship training and instruction reimbursements for the Air Conditioning Trade Association’s Apprenticeship Program until fiscal year 2012–13. Beginning in fiscal year 2013–14, the Chancellor’s Office assumed these responsibilities.

Amounts in table rounded to the nearest hundred.

The Chancellor’s Office and LEAs—such as secondary schools, regional occupational centers and programs, adult schools, and community colleges—allocate state funding for the classroom portion of apprenticeship training (apprenticeship instruction funds). The State’s budget includes appropriations for minimum annual funding levels set by Proposition 98 for K–12 schools and community colleges. Included in Proposition 98 funds are apportionments for apprenticeship instruction funds, which are used to reimburse apprenticeship programs for providing what is known as related and supplemental instruction to apprentices, as shown in Figure 1. Before fiscal year 2013–14, the California Department of Education (Education) was responsible for allocating apprenticeship instruction funding to apprenticeship programs that were administered by K–12 LEAs, while the Chancellor’s Office was responsible for allocating this funding to programs administered by community college LEAs. However, state law shifted the responsibility of allocating apprenticeship instruction funding for all LEAs to the Chancellor’s Office, beginning in fiscal year 2013–14. The Chancellor’s Office allocates this funding directly to LEAs that have contracts with apprenticeship programs that have been approved by the apprenticeship division. The Chancellor’s Office reimburses LEAs based on the number of hours of teaching time reported; these hours should not include time that apprentices spend on homework assignments. The Chancellor’s Office and Education provided $78.5 million to more than 260 other apprenticeship programs throughout the State during the same period. As shown in Table 1, ACTA received $78,200 from Education and $63,500 from the Chancellor’s Office, totaling $141,700 from fiscal years 2010–11 through 2014–15.

Central Unified, a K–12 LEA, contracts with ACTA to provide administration and fiscal support for its apprenticeship training program. Based on an agreement with Central Unified, which they entered in 2004, ACTA acts as the program sponsor and provides all instructional materials, lesson plans, and credentialed instructors for its online training. For its part, Central Unified acts as the fiscal agent between the Chancellor’s Office and ACTA, as shown in Figure 1, by forwarding the number of class attendance hours ACTA reports to the Chancellor’s Office and then reimbursing ACTA from the allocation Central Unified receives from the Chancellor’s Office, less an 18 percent administrative fee.

Figure 1
State Oversight of the Air Conditioning Trade Association’s Apprenticeship Program

Figure 1, a flowchart describing the roles and responsibilities of various State entities that oversee the Air Conditioning Trade Association (ACTA).

Sources: State laws, Industrial Relations’ Division of Apprenticeship Standards' operations manual, ACTA’s apprenticeship standards, interviews with the director of Central Unified, and the 2004 agreement between ACTA and Central Unified.

* Before fiscal year 2013–14, the California Department of Education oversaw K–12 LEAs.

In addition to its primary ACTA fund—which it uses to support day‑to‑day operations—ACTA has established the Training Trust Fund (Training Fund) and the Wage and Hour Fairness Fund (Wage Fund). As shown in Table 2, the Training Fund provides for the training and education of apprentices in the sheet metal, heating, and air conditioning trade. Federal law requires apprenticeship training programs to hold their funds in trust. Federal law also requires apprenticeship programs to use training trust funds exclusively for providing benefits to participants—in this case, for training and educating apprentices—and to defray the program’s reasonable administrative expenses. ACTA’s Training Fund may include money from state funds and employer contributions. For example, state law requires contractors employing registered apprentices on public works projects to make apprenticeship training contributions. The contributions are then used in part to make grants, like those ACTA receives, to approved apprenticeship programs for training apprentices. In contrast, ACTA’s Wage Fund supports a variety of nontraining purposes related to nonunion employment, including representing the interests of the contractor members engaged in the HVAC industry and protecting employment opportunities through participation in litigation and legislation.

Table 2
Air Conditioning Trade Association’s Funds and Revenue
Fund Purpose Revenue in 2014
Air Conditioning Trade Association (ACTA) Fund Serves as the primary fund for ACTA and finances its day‑to‑day operations. $80,900
Training Trust Fund Provides apprenticeship training and education for the sheet metal, heating, and air conditioning (HVAC) trade. 320,300
Wage and Hour Fairness Fund Accounts for a variety of activities intended to represent the interests of the members engaged in the HVAC industry. 134,800

Source: California State Auditor’s analysis of the Internal Revenue Service Form 990 for each of ACTA’s funds for 2014.

Note: Amounts rounded to the nearest hundred.

The Federal Government’s Role

Federal law governs the expenditures of apprenticeship training trust funds. Under the Employee Retirement Income Security Act of 1974 (ERISA), apprenticeship training trusts like ACTA’s are subject to federal law as part of ERISA’s general regulation of employee welfare benefit plans. The individuals who manage a training trust must discharge their duties solely in the interests of the program participants for the exclusive purpose of providing apprenticeship or training benefits to participants and of defraying reasonable expenses of administration. U.S. Labor, oversees and enforces these requirements. To carry out its responsibilities, U.S. Labor conducts investigations of apprenticeship training funds, and it conducted such an investigation of ACTA’s Training Fund and issued a report in 2014, which we discuss later in this report.

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