Report 2003-106 Summary - October 2003
The High Level of Questionable Costs Claimed Highlights the Need for Structural Reforms of the Process
Our review of the Peace Officers Procedural Bill of Rights (peace officer rights) and the animal adoption mandates found that:
- The costs for both mandates are significantly higher than what the Legislature expected.
- The local entities we reviewed claimed costs under the peace officer rights mandate for activities that far exceed the Commission on State Mandates' (Commission) intent.
- The local entities we reviewed lacked adequate supporting documentation for most of the costs claimed under the peace officer rights mandate and some of the costs claimed under the animal adoption mandate.
- Structural reforms are needed to afford the State Controller's Office an opportunity to perform a field review of initial claims for new mandates early enough to identify potential problems.
- Commission staff have indicated that the Commission will not be able to meet the statutory deadlines related to the mandate process for the foreseeable future due to an increase in caseload and a decrease in staffing.
RESULTS IN BRIEF
Although the Legislature did not anticipate high costs, local entities have filed significant claims with the State for the Peace Officers Procedural Bill of Rights (peace officer rights) and animal adoption mandates. Through fiscal year 2001-02, local entities submitted claims to the State Controller's Office (Controller) totaling about $223.5 million for the peace officer rights mandate and $60.8 million for the animal adoption mandate. The State actually paid $50 million of the peace officer rights mandate claims but has not paid any of the animal adoption mandate claims. We question a large portion of the costs claimed by four local entities that received $31 million of the $50 million paid, and we are concerned that the State already may have paid more than some local entities are entitled to receive under the peace officer rights mandate.
The Commission on State Mandates (Commission) issued guidance specifying the particular activities for which local entities could claim reimbursement. Along with claiming instructions the Controller issued, local entities are required to follow the Commission's guidance when completing and filing their claims. However, based on our review of selected claims under each mandate, we question a high proportion of the costs claimed under the peace officer rights mandate and note lesser problems with the animal adoption claims. In particular, we question $16.2 million of the $19.1 million in direct costs that four local entities claimed under the peace officer rights mandate for fiscal year 2001-02 because they included activities that far exceed the Commission's intent. Although we noted limited circumstances in which the Commission's guidance could have been enhanced, the primary factor contributing to this condition was that local entities and their consultants broadly interpreted the Commission's guidance to claim reimbursement for large portions of their disciplinary processes, which the Commission clearly did not intend.
In addition, we question $18.5 million of the $19.1 million in direct costs they claimed under the peace officer rights mandate because of inadequate supporting documentation. The local entities based the amount of time they claimed on interviews and informal estimates developed after the related activities were performed instead of recording the actual staff time spent on reimbursable activities or developing an estimate based on an acceptable time study. Additionally, we noted several errors in calculations of costs claimed under the peace officer rights mandate. Although we generally focused on fiscal year 2001-02 claims, the largest error we noted was in the fiscal year 2000-01 claim of one local entity. It overstated indirect costs by about $3.7 million because it used an inflated rate and applied the rate to the wrong set of costs in determining the amount it claimed. We noted two other errors related to fiscal year 2001-02 claims involving employee salary calculations and claiming costs for processing cases that included those of civilian employees, resulting in a total overstatement of $377,000.
We also found problems with the animal adoption claims. The four local entities we reviewed could not adequately support $979,000 of the $5.4 million they claimed for fiscal year 2001-02. In some instances, this lack of support related to the amount of staff time spent on activities. In another instance, a local entity could not adequately separate the reimbursable and nonreimbursable costs it incurred under a contract with a nonprofit organization that provided shelter and medical services for the city's animals.
In addition, we noted numerous errors in calculations the four local entities performed to determine the costs they claimed under the animal adoption mandate for fiscal year 2001-02. Although these errors caused both understatements and overstatements, the four claims were overstated by a net total of about $675,000. Several errors resulted from using the wrong numbers in various calculations involving animal census data.
Although the guidance related to the animal adoption mandate generally is adequate, the Commission's formula for determining the reimbursable amount of the costs of new facilities does not isolate how much of a claimant's construction costs relate to holding animals for a longer period of time. The two local entities we audited that claimed costs for acquiring space in fiscal year 2001-02 used the current formula appropriately to prorate their construction costs. However, one of them needed space beyond that created by the mandate; as a result, the costs it claimed probably are higher than needed to comply with the mandate.
The problems we identified highlight the need for some structural reforms of the mandate process. For example, it is difficult to gauge the clarity of the Commission's guidance and the accuracy of costs claimed for new mandates until claims are subjected to some level of field review. However, the mandate process does not afford the Controller an opportunity to perform a field review of the claims for new mandates early enough to identify potential claiming problems.
Also, inherent limitations in the process the Commission uses to develop statewide cost estimates for new mandates result in underestimates of mandate costs. Even though Commission staff base statewide cost estimates for mandates on the initial claims local entities submit to the Controller, these entities are allowed to submit late or amended claims long after the Commission adopts its estimate. The Commission could disclose this limitation in the statewide cost estimates it reports to the Legislature by stating what assumptions were made regarding the claims data. In addition, Commission staff did not adjust for some anomalies in the claims data they used to develop the cost estimate for the animal adoption mandate that resulted in an even lower estimate.
Finally, Commission staff indicated that the Commission has developed a significant caseload and has experienced cutbacks in staffing because of the State's fiscal problems. As a result, staff state that the Commission will not be able to meet the statutory deadlines related to the mandate process for the foreseeable future. This will cause further delays in the mandate process in general, including determination of the potential cost of new mandates.
To ensure that local entities receive reimbursement only for costs associated with the increased holding period for eligible animals, the Legislature should direct the Commission to amend the parameters and guidelines of the animal adoption mandate to correct the formula for determining the reimbursable portion of acquiring additional shelter space. If the Commission amends these parameters and guidelines, the Controller should amend its claiming instructions accordingly and require local entities to amend claims already filed.
To identify potential claiming errors and to ensure that costs claimed are consistent with legislative and Commission intent, the Controller should perform a field review of initial reimbursement claims for selected new mandates. In addition, the Commission should work with the Controller, other affected state agencies, and interested parties to implement appropriate changes to the regulations governing the mandate process, allowing the Controller sufficient time to perform these field reviews and identify any inappropriate claiming as well as to suggest any needed changes to the parameters and guidelines before the development of the statewide cost estimate and the payment of claims. If the Commission and the Controller find they cannot accomplish these changes through the regulatory process, they should seek appropriate statutory changes.
To ensure that local entities have prepared reimbursement claims for the peace officer rights mandate that are consistent with the Commission's intent, the Controller should audit the claims already paid, paying particular attention to the types of problems described in this report. If deemed appropriate based on the results of its audit, the Controller should request that the Commission amend the parameters and guidelines to address any concerns identified, amend its claiming instructions, and require local entities to adjust claims already filed. The Controller should seek any statutory changes needed to accomplish the identified amendments and to ensure that such amendments can be applied retroactively.
To ensure that local entities develop and maintain adequate support for costs claimed under all state mandates, the Controller should issue guidance on what constitutes an acceptable time study for estimating the amount of time employees spend on reimbursable activities and under what circumstances local entities can use time studies.
All local entities that have filed, or plan to file, claims for reimbursement under the peace officer rights or animal adoption mandate should consider carefully the issues raised in this report to ensure that they submit claims that are for reimbursable activities and that are supported properly. Additionally, they should refile claims when appropriate. Further, if local entities identify activities they believe are reimbursable but are not in the parameters and guidelines, they should request that the Commission consider amending the parameters and guidelines to include them.
To project more accurate statewide cost estimates, Commission staff should analyze more carefully the completeness of the initial claims data used to develop the estimates and adjust the estimates accordingly. Additionally, the Commission should disclose the incomplete nature of the initial claims data when reporting to the Legislature.
Finally, to ensure that it is able to meet its statutory deadlines in the future, the Commission should continue to assess its caseload and work with the Department of Finance and the Legislature to obtain sufficient staffing.
The Commission and Controller indicate they agree with our findings and recommendations. The local entities whose animal adoption claims we reviewed generally agree with our findings and recommendations. However, three of the four local entities whose peace officer rights claims we reviewed continue to disagree with our findings. Our comments on the concerns they raise follow their responses.