Report 2014-107 Recommendation 14 Responses

Report 2014-107: Judicial Branch of California: Because of Questionable Fiscal and Operational Decisions, the Judicial Council and the Administrative Office of the Courts Have Not Maximized the Funds Available for the Courts (Release Date: January 2015)

Recommendation #14 To: Administrative Office of the Courts

To ensure that it spends funds appropriately, the AOC should develop and implement controls to govern how its staff can spend judicial branch funds. These controls should include specific definitions of local assistance and support expenditures, written fiscal policies and procedures as the rules of court require, and a review process.

Annual Follow-Up Agency Response From October 2019

The Judicial Council believes its existing policies and practices reasonably ensure that spending from legislative appropriations—whether for "support" or "local assistance"—are compliant with state law and guidance from the Department of Finance. As noted on page 41 of the auditor's report, state law affords the Judicial Council a great deal of flexibility in determining how it spends local assistance funds, and the auditor did not conclude the Council had spent these funds unlawfully. Further, the Judicial Council's spending activities are audited biennially by the State Controller's Office, which concluded in June 2019 that the Council had complied with the governing statutes, rules, regulations, and policies relating to the revenues, expenditures and fund balances under its control. The Judicial Council is also transparent during the annual budget process by disclosing in the Governor's budget how trial court funding is spent on activities that benefit the trial courts. Examples of the Judicial Council's spending on behalf of the courts include payments made under the Temporary Assigned Judges Program and for court-appointed dependency council. Finally, in fiscal year 2019-20 the Judicial Council continued to work collaboratively with the Legislature to increase financial support for the trial courts through the State's General Fund, thus minimizing further spending pressure on the State Trial Court Improvement and Modernization Fund.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

We are disappointed that the Judicial Council continues to disregard our recommendation. As we state on page 41 of our report: "State law affords the Judicial Council a great deal of flexibility in determining how it spends local assistance funds, and with that flexibility comes the responsibility to spend those funds in the most transparent and justified manner." Our concern was based on finding that the Judicial Council spent local assistance funds on activities that were more closely associated with state operations. Thus, we concluded that "the manner in which the Judicial Council spends state operations and local assistance appropriations leads to a lack of accountability over public funds." Therefore, we standby our original recommendation.

Annual Follow-Up Agency Response From October 2018

The Judicial Council of California (Judicial Council) believes it has adequate internal controls to reasonably ensure that its spending from legislative appropriations—whether for "support" or "local assistance"—are compliant with state law and guidance from the Department of Finance. The Judicial Council is required to have the State Controller's Office (SCO) audit the revenues, expenditures and fund balances that are under the Judicial Council's control every other year. The previous SCO audit covering fiscal year 2015-16 concluded that the Judicial Council had complied with state rules, and the next audit covering fiscal year 2017-18 is expected to begin in November 2018. Finally, the Judicial Council fully discloses in the Governor's annual budget how it uses certain trial court funding—which is not distributed to the trial courts—for activities that benefit the trial courts. Spending under the Assigned Judges Program and payments made for court-appointed dependency council are examples.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

We followed up with the Judicial Council and it provided the following response. Based on its response, it is unclear to us what steps the Judicial Council has taken to develop and implement controls to govern how its staff can spend judicial branch funds. Although we agree that the Judicial Council has flexibility on how its staff can spend judicial branch funds, internal controls will ensure that the Judicial Council's flexibility is reasonable.

"The Judicial Council of California believes it has provided the level of transparency in its spending activities as required by law. The State Controller's recurring audits of the Judicial Council—as well as the Judicial Council's ongoing discussions with the Department of Finance concerning the judicial branch's annual budget—help to ensure the Judicial Council's spending activities are both accountable and transparent to external stakeholders. From an internal operational standpoint, leadership from the Judicial Council's various offices are required to have recurring monthly meetings with internal budget staff, and topics include: (1) office spending relative to the approved budget; (2) the office's anticipated needs for additional funding; and (3) authorized versus filled staffing levels. Further, these monthly discussions are fund and appropriation specific, given that each office has different budgets assigned for each Project Cost Center (PCC) in our Oracle financial system, and each PCC can be further traced to a specific fund and appropriation. Discussions between Judicial Council management and budget staff are often verbal as the spending activity recorded in the accounting system is jointly reviewed and discussed. With the Judicial Council's transition to Fi$Cal earlier this year, monthly budget discussions focusing on office spending relative to legislative spending authority have and will continue. The Judicial Council appreciates the State Auditor's conclusion in its report that state law affords the Judicial Council a great deal of flexibility in determining how it spends local assistance funds, and Judicial Council staff take that responsibility seriously and will continue to respond to any further requests for additional information from either the Department of Finance or the Legislature."

Annual Follow-Up Agency Response From December 2017

Every other year, the State Controller's Office performs financial compliance audits of all revenues, expenditures and fund balances under the operational control of the Judicial Council of California (Judicial Council) per Government Code, section 77206(i). The last audit was issued in October 2017 for fiscal year 2015-16 and included a review of 235 expenditure transactions from 17 different funds. The objective of the review, among other things, was to evaluate whether spending was properly documented and consistent with state law and regulations. The State Controller's audit concluded the Judicial Council had "complied with governing statutes, rules, regulations and policies relating to revenues, expenditures and fund balance." Going forward, the Judicial Council will re-evaluate the need to further develop additional policies based on the State Controller's audit findings, if any. In addition to the normal GASB/GAAP accounting standards JCC has in place with respect to branch wide expenditures (supreme court, appellate, trial courts), the JCC budget staff are currently implementing a process of monthly reviews of JCC staff expenditures and that report will go directly to the Chief of Administration on staff expenditure patterns.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Our recommendation was that the Judicial Council develop and implement controls over the spending of judicial branch funds. An annual audit by the State Controller's Office (SCO) does not sufficiently implement our recommendation, but we agree that this annual audit will identify controls that the Judicial Council needs to strengthen.

Annual Follow-Up Agency Response From November 2016

All judicial branch funds have been appropriately categorized as either state operations or local assistance and the details of the budget can be found on the California Court's website (www.courts.ca.gov/finance.htm). The Judicial Council of California continues to work on further developing policies and procedures to improve controls over spending from these two different types of appropriations.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

The Judicial Council has worked with the Department of Finance to align Operations and Local Assistance expenditures. These adjustments will be reflected in the 2016-2017 Governor's Budget. It is anticipated that a defined set of controls will be ready for submittal to the Judicial Council by the second quarter of 2016.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

The Judicial Council staff, in consultation with Judicial Council advisory bodies, will develop internal controls on expenditures of all judicial branch funds. Council staff anticipates completing this recommendation in the fourth quarter of 2015.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

In consultation with the Trial Court Budget Advisory Committee, council staff is updating staff guidelines regarding appropriate uses for Trial Court Trust Fund and Trial Court Improvement and Modernization Fund monies consistent with the audit recommendations. This will include an annual training requirement for staff on use of the guidelines. Council staff anticipates completing the initial guidelines in the third quarter of 2015.

California State Auditor's Assessment of 60-Day Status: Pending

The AOC's response only notes that it will implement guidelines. We expect a clear policy that established internal controls over the spending of judicial branch funds, not just guidelines.

All Recommendations in 2014-107

Agency responses received are posted verbatim.