To ensure that any significant changes affecting fund balances proposed by Finance for presentation in the governor's budget are presented accurately and transparently, the department should develop procedures to require higher-level review and approval of such changes by its chief deputy director, director, and potentially the secretary for the Natural Resources Agency. The department should identify levels of significance for the proposed changes in fund balances that would trigger seeking these higher-level approvals.
The Department has implemented procedures that have been included in the Budget Offices' Desk Procedures Binder. The Budget Section has also implemented changes that will allow them to identify augmentations in fund balances more accurately and timely. Analysts within the Budget Section have been identified as fund custodians and will be undertaking a monthly reconciliation process using State Controller's Office reports and identifying any significant changes in fund balances. The analysts will work closely with the General Ledger Unit to ensure the validity of these changes and ensure that both parties are seeing the same activity. If accurate, then different levels of management will be notified depending on the percentage change to any fund's balance. See 'Fund Balance Changes Initiated by the Department of Finance' procedures for more information.
Fund Balance Changes Initiated by the Department of Finance
Memo Released to Budget Staff
If DOF presents a change to any of the fund balances that is a change of 40% or more of the Departments total budget authority, the Budget Officer will advise the Director and Agency in writing.
Although the department asserts that the budget officer will advise the director and agency in writing if Finance presents a change to a fund balance of 40 percent or more of the department's total budget authority, the department does not indicate that it has formalized this process in procedures. Also the department has not identified levels of significance, but rather only one level. We would have expected the department to require incrementally higher levels of review for incrementally more significant proposed changes.
Moreover, the department's change threshold of 40 percent of its budget authority may not capture changes similar to those we identified in our report. For example, the department's stated process would not have identified the change we discuss on page 29 of our report. Specifically, for fiscal year 2010-11 Finance reduced the transfer amount to the off-highway vehicle fund by nearly $55 million which contributed to the department's ending fund balance for the off-highway vehicle fund in the governor's budget being understated by more than $33 million compared to the State Controller's budgetary report. In this case, the department's proposed process would not have triggered a notification to the director and agency.
When the Department of Finance proposes significant changes to the Budget Office that would impact the Departments fund balances, the Budget Office will present proposed changes to the Deputy Director of Administrative Services.
The Deputy Director of Administrative Services will notify the Chief Deputy Director of any significant programmatic impacts of proposed changes to fund balances. The Chief Deputy Director would communicate with the Department of Finance and advise the Director or Agency, as needed.
The department has not defined what it considers a significant change that would impact the department's fund balances. As we state in our recommendation, the department should identify levels of significance for the proposed changes in fund balances that would trigger seeking these higher-level approvals. Additionally, we would have expected the department to institute a more formal approval process, such as a signature from the higher-level reviewer. Finally, although it has asserted to us the steps it would take if Finance proposed changes that would affect the presentation of fund balances, the department has not provided written procedures to address our concerns.
If DOF proposes a significant change affecting a fund balance the budget section works with DOF to update the fund condition statement. The discussions with DOF are reported to the Admin Deputy, Chief Deputy and Director. The DOF is responsible for implementing decisions proposed on behalf of direction from the Administration. While Executive staff at DPR is notified, they are not decision makers in the process.
The department has a responsibility to ensure that its financial information is presented accurately and transparently. Until the department develops procedures to require higher-level review and approval of such changes to its fund balance by its chief deputy director, director, and potentially the secretary for the Natural Resources Agency the department cannot ensure that its management will be informed of any significant changes affecting fund balances proposed by Finance and that changes are presented accurately and transparently.
While formal written procedures are not in place, the Director has made it clear that he is the only one with the authority to authorize changes affecting fund balances. This has been communicated to budget staff. Any recommended changes would be presented to the Deputy Director of Administration who would take the proposals forward to the Chief Deputy and Director for review and decision.
The department has asserted that the director communicated to the budget staff regarding the authority to authorize changes affecting fund balances. However, the department admits that no formal written procedures have been developed to address the requirement in the recommendation to develop such procedures.
Agency responses received after June 2013 are posted verbatim.