Responses to the Audit
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- California Community Colleges Chancellor's Office
- Central Unified School District
- Industrial Relations
ERIK E. SKINNER, INTERIM CHANCELLOR
1102 Q Street, Suite 4550
Sacramento, Ca 95811-6549
October 27, 2016
Ms. Elaine Howle, State Auditor
621 Capitol Mall Suite, Suite 1200
Sacramento, CA 95814
Dear Ms. Howle:
The California Community Colleges Chancellor’s Office appreciates the opportunity to review and comment on your audit report titled Trade Apprenticeship Programs. In general, we find the report to be a thorough and accurate assessment of the state’s need to better oversee apprenticeship programs such as the Air Conditioning Trade Association (ACTA) Sheet Metal Program. The report effectively raises a number of administrative concerns that warrant attention by all involved parties and we look forward to working collaboratively to ensure these deficiencies are addressed.
Your audit report identified that inadequate oversight by the Chancellor’s Office resulted in ACTA receiving unallowable reimbursement. We are in concurrence with the report’s finding and recommendations and provide the following comments:
To ensure that ACTA was only reimbursed for allowable costs from fiscal year 2010-2011 through 2014-15, the Central Unified School District should determine how much it reimbursed ACTA for unallowable activities and work with the Chancellor’s Office to determine how to recover those funds from ACTA.
The Chancellor’s Office will work with the Central Unified School District to determine how much it reimbursed ACTA for unallowable activities and recover those funds from ACTA through an appropriate mechanism.
To ensure accountability, the Legislature should amend state law to clarify that the Chancellor’s Office has the authority to provide accounting guidance to and conduct audits of the K-12 LEAs’ oversight of apprentice training funds.
The Chancellor’s Office would support any legislative proposals or amendments to state law to clarify that the Chancellor’s Office has authority to provide accounting guidance to and conduct audits of the local educational agencies. Such authority would improve oversight of apprenticeship training funds.
To ensure that LEAs develop sound contract agreements with apprenticeship programs, the Chancellor’s Office shall develop a model contract agreement to outline the types of information, roles, and responsibilities for both parties, as Education Code requires, and make this model contract available to K-12 LEAs by April 2017. In addition, this model contract should specify that K-12 LEAs will verify that the apprentices attended the instructional courses by collecting supporting documentation such as sign-in sheets or rosters.
The Chancellor’s Office is currently developing a model contract agreement and anticipates its release date sometime in the spring of 2017. The model contract agreement will specify that K-12 LEAs will verify that apprentices attended instructional courses by collecting supporting documentation, such as sign-in sheets or rosters.
Again, we appreciate the opportunity to review and comment on this report. We look forward working with you and your staff in the future. If you have any questions, please contact Javier Romero at (916) 322-1677.
Erik E. Skinner
cc: Van Ton-Quinlivan, Vice Chancellor, Workforce and Economic Development, California Community Colleges Chancellor’s Office
Mario Rodriquez, Vice Chancellor, College Finance and Facilities Planning Division, California Community Colleges Chancellor’s Office
Javier Romero, Grant Unit Manager, Workforce and Economic Development, California Community Colleges Chancellor’s Office
October 25, 2016
Dear Elaine Howle,
We have reviewed the redacted copies of the Trade Apprenticeship Programs: The State Needs to Better Oversee Apprenticeship Programs Such as the Air Conditioning Trade Association’s Sheet Metal Program. We understand the recommendations and plan to do the following:
- Ensure that ACTA was the only reimbursed for allowable costs from fiscal years 2010-11 through 2014-15. Central Unified should determine how much it reimbursed ACTA for unallowable activities and work with the Chancellor’s Office to determine how to recover those funds from ACTA.
We understand the recommendation and will plan to work with the Chancellor’s office in the near future in order to recover funds from ACTA. The planning and outline of this recommendation will require CUSD and the Chancellor’s to meet as soon as the report is final.
As we go through this process, it would be beneficial to our site and the state to have some type of guidance in this process as we do not have any past references to draw from. Any exemplars of past audits or resources regarding steps in recovering funds would be helpful.
- To ensure that Central Unified correctly reimburses state funds to ACTA, Central Unified should develop a process-like it currently has for its two other apprenticeship programs- to verify that ACTA’s apprentices attended the online training courses for the corresponding hours ACTA reports. Further, Central Unified should ensure that it only reimburses apprenticeship programs for allowable activities.
We have currently addressed past and proposed future practices with ACTA for reimbursement of funds. We plan to align the practices of all apprenticeship programs in order to have clarity and articulation. In doing so, continuity of programs will be evident. Additionally, ACTA and CUSD have met face to face and plan on working together for fidelity of program.
- To limit the risk and to clarify its roles and responsibilities as they relate to ACTA, Central Unified should update its agreement with ACTA to reflect each party’s current roles and responsibly. Further, Central Unified should periodically update this agreement to ensure that the agreement continues to reflect current roles and responsibilities.
We understand the recommendation and agree that the agreement between ACTA and CUSD need to be updated. We will continue the planning process and have a working document shortly after the states report is finalized. Additionally, the agreement will be periodically updated to reflect any changes in program and the roles of its members.
Mark G. Sutton
October 27, 2016
Elaine M. Howle, State Auditor
California State Auditor’s Office
621 Capitol Mall, Suite 1200
Sacramento, California 95814
Re: Response to the State Auditor’s Draft Report “Trade Apprenticeship Programs:
The State Needs to Better Oversee Apprenticeship Programs Such as the Air
Conditioning Trade Association’s Sheet Metal Program”
Dear Ms. Howle:
On behalf of the Labor and Workforce Development Agency, as Director of the Department of Industrial Relations, I appreciate the opportunity to respond to the State Auditor’s draft audit report of the Division of Apprenticeship Standards’ oversight of state-approved apprenticeship programs.
The State Auditor identified some areas where there can be opportunities for improvement, and made insightful recommendations. We welcome the State Auditor’s recommendations and take them very seriously. In fact, we have already taken specific action to implement some of those recommendations, as discussed in detail below.
We also appreciate that you recognized that the Division is performing well in some areas that you examined. In other areas, you agree that the Division is restricted by existing law from doing more.
As you may know, we are continuing to perform Division-wide software and technology upgrades to standardize the Division’s procedures and make the Division run more efficiently. The Department of Industrial Relations has committed significant resources to ensure the Division promptly carries out its mandate to foster, promote and protect California’s apprentices and expand apprentice employment and training opportunities. Given that the Division is already in the process of implementing significant changes, our goal is to fully comply with most of the recommendations by the first 60-day response period.
Complaints Regarding Air Conditioning Trade Association
The Director of the Department of Industrial Relations is ex officio the Administrator of Apprenticeship tasked with investigating and issuing decisions on complaints. The Division, as the Administrator of Apprenticeship’s designee, investigates thoroughly all complaints brought against state-approved apprenticeship programs. As the draft report notes, the Division received two complaints against the Air Conditioning Trade Association (ACTA) in the past five fiscal years. After a thorough investigation and consultation with legal counsel, the Division ultimately dismissed the complaints because the complaints were unsubstantiated. The Division allowed up to three months for the complainant-apprentices to supply the information necessary to process the complaints and dismissed the complaints when no information was received. The Division followed standard procedure in processing and resolving the complaints.
Authority to Determine How Grant Funds Are Spent
Current state law provides that the California Apprenticeship Council “shall” make grants to “approved apprenticeship programs for the purpose of training apprentices.” In other words, the Council must unconditionally distribute the money, as long as a program submits an application. Because of the Division’s limited audit authority under state law and concerns with the federal Employee Retirement Income Security Act’s (ERISA) broad preemption language, the Division concluded, through advice from legal counsel, that it did not have the necessary legal authority to verify grant funds are spent appropriately. The draft audit report recognizes this limitation on the Division. In addition, the fact that ACTA received a total of less than $10,000 in grants over the course of five years makes it unlikely that any portion of the public money was spent for non-training purposes. ACTA, like most other programs, receives the bulk of its funding from contributions made directly by member-contractors. Compared to direct contractor contributions, Council grants represent a very small portion of an apprenticeship program’s funding.
Tracking of Apprenticeship Programs Identified for Audit
The draft report describes concerns with the tracking of the audit status of apprenticeship programs identified for audit. The Division is undergoing extensive technology upgrades to streamline its processes. New database software is currently being installed on the Division’s systems to allow Division staff to more accurately track the status of audits, which is slated to become fully operational by next year, as noted in the draft report.
Audit Recommendation 1
To better oversee state apprenticeship programs, the apprenticeship division should resume conducting program audits by December 2016. As part of such audits, the apprenticeship division should ensure that apprenticeship programs receiving grants are appropriately spending the money to train apprentices.
The Division accepts this recommendation. Before this audit was initiated, the Division was in the process of restructuring its audit unit and had already planned to resume program audits no later than December 2016. Restructuring of the audit unit was necessary because of major statutory and regulatory changes to the audit process, as mentioned in the draft report. The Division also had to ensure that a significant number of audited programs had complied with the Division’s recommendations. The restructuring – which included reassignment and training of staff, revamped audit procedures, and an updated audit manual – was completed ahead of schedule. The Division has scheduled audits to commence in November, beginning with the audit of ACTA’s Sheet Metal Worker program, which is scheduled to begin on November 7, 2016. Notice of the audit was sent to ACTA on October 17, 2016. Audits of three other programs will also commence in November. In total, over 30 audits have been scheduled between now and July 2017.
With regard to audits to ensure programs are appropriately spending money to train apprentices, the Division agrees with the recommendation, but as the draft report indicates, under current law, the Division can only request information such as invoices, receipts, or cancelled checks within the context of a full audit. Nothing explicit in state law, however, permits the Division to require a program to turn over invoices, receipts, or cancelled checks to substantiate the proper use of grant funds. Even if a program voluntarily turned over such records within the context of an audit, the Division would not be able to independently corroborate those records, because ERISA would likely bar the Division’s access to the financial statements or accounting records of an apprenticeship training trust. With that said, the Division will begin requesting invoices, receipts, and other similar records, where appropriate, when conducting program audits.
Audit Recommendation 2
The Legislature should amend state law to provide the apprenticeship division with explicit authority to verify that state funds are being used solely for training apprentices as a condition of receiving future grant funds. In addition, if an apprenticeship program is unable to demonstrate how state funds are used or if it is found to be using funds for inappropriate purposes, the apprenticeship division should have the authority to decertify that particular program.
The Division will make every effort to effectively utilize its existing authority as well as any additional tools authorized by the Legislature. Regarding this particular recommendation, the Division awaits further direction from the Legislature. As already noted, even with state authority, ERISA’s broad preemption language may prevent the Division from independently corroborating financial records, because ERISA may bar access to the financial statements or accounting records of an apprenticeship training trust.
Audit Recommendation 3
Until it implements the new case management software in April 2017, the apprenticeship division should ensure that consultants perform and track their oversight activities. Furthermore, once the software is implemented, the apprenticeship division should ensure that consultants consistently use the software to document their oversight activities. Finally, the apprenticeship division should improve the usefulness of the site visit reports to provide the findings and an evaluation of each apprenticeship program and it should periodically verify that consultants are performing their required oversight activities, including attending apprenticeship committee meetings and performing site visits.
The Division accepts this recommendation and is taking immediate action to comply. Specifically, the Division has nearly completed its revisions to the Division’s Operations Manual, which is essentially a handbook that spells out the Division’s policies and procedures and what is expected of each staff member. There will be strong, express references to an apprenticeship consultant’s responsibilities to regularly attend committee meetings, conduct site visits, and perform other oversight activities. The revised Operations Manual includes an updated template for site visit reports to require that a consultant detail his or her findings, an evaluation of the program, and recommendations for improvement. The Operations Manual will also specify the frequency, and the procedures, under which supervisors must verify that consultants and other staff are fulfilling their job responsibilities.
Audit Recommendation 4
To ensure the proper oversight of funding for related and supplemental instruction and to clarify the roles of the entities involved in the State’s apprenticeship system, the Apprenticeship Council should, by December 2016, formally approve the common administrative practices document and distribute it to all relevant parties within that system. In addition, to ensure the proper reimbursement of apprenticeship programs, the common administrative practices document should specify that K-12 LEAs take steps to verify that the apprentices actually attended the courses and that the apprenticeship attendance hours reported are only for allowable activities.
While the Division agrees, the Division has no authority to implement this recommendation. The Council is a body largely independent from the Division, the Department, and the Agency. The Council is comprised of eleven total members and a secretary: eight members appointed by the Governor, plus three ex officio members and the Chief of the Division as secretary. The Council issues rules and regulations and formulates policy. Under the Shelley-Maloney Act, the Council is only nominally “in” the Division. (See Lab. Code, § 3070 “There is in the Division of Apprenticeship Standards the California Apprenticeship Council.”)
The Division understands that the State Auditor has not contacted the Council about this recommendation or any other findings expressed in the draft report. The recommended action that the Council formally approve the common administrative practices document was recently brought to the attention of the Council, and at the current quarterly Council meeting held on October 26-27, 2016, the Council discussed the issue and decided that further discussion was necessary. Discussion will continue at the next quarterly Council meeting in January 2017.
Audit Recommendation 5
To ensure that LEAs develop sound contract agreements with apprenticeship programs, the Chancellor’s Office and the apprenticeship division should develop a model contract agreement to outline the types of information, roles, and responsibilities for both parties, as the Education Code requires, and make this model contract available to K-12 LEAs by April 2017. In addition, this model contract should specify that K-12 LEAs will verify that the apprentices attended the instructional courses by collecting supporting documentation such as sign-in sheets or rosters.
The Division accepts this recommendation. The Division is working with the Chancellor’s Office on developing the model contract consistent with this recommendation. On October 27, 2016, representatives from the Division and the Chancellor’s Office met in person to discuss and agreed on a plan to expeditiously implement this recommendation.
Audit Recommendation 6
To ensure the apprenticeship division is adequately overseeing apprenticeship programs it should consider periodically checking with U.S. Labor to determine what investigation it has recently conducted on apprenticeship programs. The apprenticeship division could use this information as a basis for conducting its own audit to ensure apprenticeship programs are using state funds appropriately.
The Division accepts this recommendation. Shortly after learning of the Department of Labor’s (DOL) audit of ACTA, the Division made a Freedom of Information Act request on DOL’s Employee Benefits Security Administration (EBSA) for a copy of the report. At the same time, the Division also made a request to receive reports of EBSA’s future investigations into training trust funds of state-approved apprenticeship programs. EBSA advised that they are preparing an information sharing agreement to facilitate the disclosure of EBSA’s investigation records.
If you need additional information regarding the Division’s responses, please do not hesitate to contact Ken Lau, counsel in my office’s legal unit at (510) 286-3800.
Director of Industrial Relations
CALIFORNIA STATE AUDITOR’S COMMENTS ON THE RESPONSE FROM INDUSTRIAL RELATIONS
To provide clarity and perspective, we are commenting on the response from Industrial Relations to our audit. The numbers below correspond to the numbers we have placed in the margin of the response from Industrial Relations.
To clarify, we agree that ERISA would preempt the apprenticeship division from being able to request certain records, such as financial statements, general ledgers, or other documents that pertain to the conduct of a financial audit (i.e. an independent assessment of whether an entity’s financial position as of a certain date is reported fairly and in accordance with accounting standards). However, we believe, and as noted in the Audit Results of our report, legal counsel for Industrial Relations acknowledged that the apprenticeship division can make requests to apprenticeship programs for specific records containing financial information needed to verify that state grant funds were spent appropriately, such as invoices, receipts, or cancelled checks.
We disagree with the assertion of Industrial Relations that it lacks the authority to compel an apprenticeship program to demonstrate the appropriate spending of state funds. State regulations give Industrial Relations the authority to review program records as part of a program audit. Further, legal counsel for Industrial Relations confirmed to us during the audit that if an apprenticeship program does not comply with a program audit, Industrial Relations could initiate the process of deregistering the apprenticeship program in accordance with state regulations.
Industrial Relations is significantly downplaying its involvement with the Apprenticeship Council. Specifically, because the director of Industrial Relations is a member of the Apprenticeship Council, the chief of the apprenticeship division serves as its secretary, and the apprenticeship division provides staff services to it, Industrial Relations is significantly involved in the activities of the Apprenticeship Council. However, to address the concern of Industrial Relations, we refined the recommendation in the Audit Results to state that the apprenticeship division should work with the Apprenticeship Council to formally approve the common administrative practices document by April 2017. Moreover, we did not directly contact the Apprenticeship Council because of Industrial Relations’ significant involvement described above and because this audit was primarily focused on the entities that provide state funding to ACTA.