Report 2016-110 Recommendation 1 Responses

Report 2016-110: Trade Apprenticeship Programs: The State Needs to Better Oversee Apprenticeship Programs, Such as the Air Conditioning Trade Association's Sheet Metal Program (Release Date: November 2016)

Recommendation #1 To: Industrial Relations, Department of

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.

6-Month Agency Response

In 2017, the Division has thus far started 19 audits of programs. An additional 11 are scheduled to take place in May through the end of July. Audits for the remaining half of 2017 will be scheduled beginning in July.

The Division has inserted language in its operations manual to make apprenticeship consultants aware they are required to request information during audits to ensure apprenticeship programs spend grant funds appropriately. The language makes clear that the requirement to ask for copies of invoices, receipts, cancelled checks and other documentation to substantiate appropriate use of the Apprenticeship Training Contribution Fund grants applies to building and construction trades programs and that legal advice should be sought if the program refuses to provide the requested documentation. All of the Division's apprenticeship consultants are attending a statewide training May 30- June 1 in Redondo Beach, where a significant portion of the time will be dedicated to audit training and the new procedures as recommended by the State Auditor.

The Division is also aware that the Legislature has taken the State Auditor's recommendation and introduced Assembly Bill 581 to grant the Division authority to verify that grant funds be used solely for training purposes and to deregister a program that spends grant funds inappropriately.

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

60-Day Agency Response

As a part of the audit unit's restructuring, the Division created new audit forms and checklists. The Operations Manual has been revised to reflect current audit procedures, complete with a flowchart describing the process. Senior Consultants now directly assign audits to all consultants, who must report regularly on the status of those audits. This will ensure that audits are closely tracked until the new case management software is deployed.

An audit of ACTA's program began on November 16, 2016. The Division has also commenced 14 other audits and scheduled at least another 24 between now and July 2017, which covers all scheduled audits required by law.

As the State Auditor notes, under current law, the Division can only request information such as invoices, receipts, or cancelled checks within the context of an audit. Yet, compelling a program that refuses to comply with the request is a different issue. Indeed, the State Auditor, armed with broad investigative authority, was unable to compel ACTA to turn over certain records and ultimately opted not to press the issue.

The State Auditor suggests that the Division "could initiate the process of deregistering the apprenticeship program in accordance with state regulations" if a program refuses to turn over records. While true, deregistration is generally only appropriate "if the program is not conducted, operated and administered in accordance with applicable federal and state law and regulations." Citing ERISA preemption, a program could argue that refusing to turn over records is in accordance with federal law. What action the Division takes in response must be evaluated on a case-by-case basis.

With that said, the Division reiterates that it will request invoices, receipts, and other records, where appropriate, when conducting audits. The Division, however, must take into consideration many factors, as the State Auditor did, in deciding how to proceed if the audited program refuses to comply.

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

We agree that as a best business practice, Industrial Relations would need to weigh the costs and benefits of following-up with apprenticeship programs that refuse to turn over records. However, the issue, which we point out on page 12 of our report, is that although the apprenticeship division has the authority to request an apprenticeship program provide information—such as invoices, receipts, or cancelled checks—to demonstrate that it appropriately spent grant funds, it had not considered including that confirmation as part of its audit process. Therefore, we stand by our recommendation that Industrial Relations begin requesting this information while conducting its audits of apprenticeship programs.

Furthermore, in order for this recommendation to be fully implemented, Industrial Relations needs to include language in its operations manual for requesting information to ensure apprenticeship programs spend grant funds appropriately.

Finally, we stand by our legal conclusion that Industrial Relations could deregister apprenticeship programs if they do not provide documentation to demonstrate how grant funds were spent. As we mention on page 47 of our report, Industrial Relations' legal counsel also agreed with this conclusion.

All Recommendations in 2016-110

Agency responses received are posted verbatim.