Report 2004-122R Summary - June 2005
Department of Fish and Game:
The Preservation Fund Comprises a Greater Share of Department Spending Due to Reduction of Other Revenues
Our review of the Department of Fish and Game's (Fish and Game) administration of its preservation fund disclosed the following:
- The preservation fund together with the General Fund pays for many of Fish and Game's programs.
- Although revenues to the preservation fund have increased due to fee increases that took effect in fiscal year 2003-04 for sport fishing licenses, Fish and Game has had its general fund appropriation reduced by over $20 million between fiscal years 2001-02 and 2003-04.
- Also, between fiscal years 2001-02 and 2003-04, Fish and Game spent down its preservation fund reserves significantly.
- The amount Fish and Game spent on its hatcheries declined less than 3 percent from fiscal years 2001-02 to 2003-04 while the spending of other programs declined more significantly.
- Although, a long-range spending plan could serve as a useful tool to guide department decisions, especially in times of fluctuating funding, the department lacks such a tool.
- Finally, Fish and Game failed to follow its own procedures for properly allocating its indirect costs, resulting in overcharges to some programs and undercharges to others.
RESULTS IN BRIEF
This audit focused on administration of the Fish and Game Preservation Fund (preservation fund) by the Department of Fish and Game (Fish and Game). The preservation fund accounts for about a third of the department's revenue and was established for the protection and preservation of birds, mammals, fish, reptiles, and amphibia. The preservation fund's major source of revenue is the sale of fishing and hunting licenses. Of the money deposited into this fund, 15 percent goes into dedicated accounts and can only be spent for specific programs according to statutes. Fish and Game may use the remaining money at its discretion to support any preservation fund program.
Although fees from fishing and hunting licenses increased, the preservation fund reserves decreased significantly during the past three years. At the same time, Fish and Game had its general fund appropriation reduced, which, together with the preservation fund supports Fish and Game's programs. Consequently, the preservation fund now covers a larger share of program costs. However, not all programs have been affected equally by the reduction in General Fund appropriations. While funding for some programs has dramatically increased or decreased, others, such as hatcheries, a focus of this report, have changed little. A long-range spending plan could serve as a useful tool to guide Fish and Game decisions, especially in times of fluctuating funding, but the department lacks such a tool. In addition, other factors have affected the amount of funding available for the department's programs, including inappropriate indirect cost charges and a loan to another fund that may never be paid back.
Between fiscal years 2001-02 and 2003-04, annual revenue collected on behalf of programs supported by the preservation fund increased 8 percent, from $81.9 million to $88.5 million. However, spending in some of these same programs decreased during this period, with some programs suffering a larger decrease than others. For example, the amount Fish and Game spent on its hatcheries declined less than 3 percent during those three years, but the biodiversity (wildlife habitat) protection and restoration program experienced a 22 percent cut. During this time, Fish and Game made spending cuts to certain of its programs due to decreased funding, especially reductions in its general fund appropriation. Considering all sources of funding, Fish and Game's total spending decreased by 13 percent between fiscal years 2001-02 and 2003-04. However, we found no clear evidence indicating how it made decisions regarding spending cuts. Fish and Game did not prepare annual operational plans outlining its spending priorities for those years and has not updated its strategic plan since 1995. In spite of efforts to prioritize the many programs that it operates, Fish and Game has not yet adopted a formal set of priorities to guide its spending.
During the same three fiscal years, Fish and Game spent much of its reserve, that is, the accumulated balance in the preservation fund. From fiscal years 2001-02 through 2003-04, Fish and Game expended more from its accounts with revenues dedicated by statute for specific program purposes (dedicated accounts) than it collected for those purposes. Total annual expenditures for dedicated programs ranged from $388,000 to $2.8 million more than the revenue collected for these accounts. During fiscal years 2001-02 and 2002-03, expenditures from the nondedicated account also exceeded the corresponding years' nondedicated revenue, although in fiscal year 2003-04 Fish and Game reduced those expenditures from the nondedicated account to less than the revenue collected. Fish and Game projects that the beginning balance in fiscal year 2005-06 for the preservation fund as a whole will be $665,000, down from nearly $24.5 million in fiscal year 2001-02.
Furthermore, Fish and Game has not demonstrated that it used allowable resources to cover its deficit spending in certain accounts of the preservation fund. The preservation fund's nondedicated account and some of its dedicated accounts had deficit balances as of June 30, 2004. Fish and Game was able to cover the deficit spending in these accounts by borrowing from those dedicated accounts with sufficient balances. Although the statutes establishing some dedicated accounts may allow for a broader interpretation of the types of expenditures they may cover, Fish and Game was not able to explain to us which resources it used to cover the accounts with deficits or why the uses of these funds were allowable. Deficit balances of these accounts totaled $14.7 million at June 30, 2004.
Fish and Game adequately assessed and collected fees and allocated revenue to the appropriate accounts of the preservation fund. Similarly, it properly followed the State's general administrative procedures for a sampling of expenditures from the preservation fund.
It did not do as well, however, in its accounting for indirect costs; it failed to follow its own policy and update the percentages used each year to allocate indirect costs. Using updated percentages, we determined the department overcharged or undercharged indirect costs to certain preservation fund programs. Because Fish and Game bases its distribution of the cost of shared services, such as legal services and air services, on the total expenditures of each program, the effect of the incorrect indirect cost allocations was magnified in each affected program.
Finally, Fish and Game did not properly account for a $1.4 million loan from the preservation fund to the native species conservation and enhancement account. Though Fish and Game made small transfers to the preservation fund to repay the advanced funds, it could not provide us an adequate repayment schedule. Because interest accrues more rapidly than Fish and Game is repaying the advance, the loan may remain unpaid unless the department changes its practices. When the advance is not collected, the resources are not available for preservation fund programs.
To mitigate the effects of budget reductions and fluctuations in program revenue, Fish and Game should take a more strategic approach to evaluating its financial needs. It should update its strategic plan and develop annual operational plans with specific measurable goals and objectives, then determine the funding necessary to meet those goals, allowing it to better measure the sufficiency of funding for its programs.
To reduce the reliance on fund reserves and borrowing of dedicated resources, Fish and Game should take measures to ensure that revenue streams are sufficient to fund each of its programs. This may require legislation to adjust fee revenues used for specific dedicated programs within the preservation fund or General Fund budget augmentations to sustain dedicated and nondedicated program operations.
To ensure that the resources of dedicated accounts are used for their intended purposes, Fish and Game should avoid borrowing from these accounts to fund expenditures of other accounts. If this is temporarily unavoidable, the department should identify the specific dedicated account that is the source of the borrowed resources and ensure that the law establishing that account allows for an interpretation that would make the expenditures allowable.
Finally, Fish and Game should identify those dedicated accounts that have been used to pay for expenditures of other accounts and pay back these lending accounts.
To make the resources available for preservation fund programs and to properly account for its fund balance and liabilities, Fish and Game should seek resolution for the advance from the fund to the native species conservation and enhancement account through administrative or legislative means. It should prepare an amortization schedule that is an accurate and realistic schedule for repayment and take steps to repay the advance. If full reimbursement cannot be accommodated, Fish and Game should take action to have the advance written off.
To prevent inequitable distributions of indirect costs and administrative expenses, Fish and Game should review and update the percentages used in its allocation method annually.
The Resources Agency, which oversees Fish and Game, agrees with our conclusions and has begun to implement our recommendations.