Report 2011-123 Summary - August 2012
Oil Spill Prevention and Administration Fund:
The Department of Fish and Game and the Office of Spill Prevention and Response Need to Improve Their Administration of the Spill Fund
Our review of the management of the Oil Spill Prevention and Administration Fund (spill fund) highlighted the following:
- The Department of Fish and Game (Fish and Game) has yet to fully implement two of the 15 recommendations we made four years ago regarding the assessment of the spill fund's fund balance and the friction between the Office of Spill Prevention and Response (spill office) and Fish and Game.
- The spill fund's balance appearing in the governor's budget was misstated for four of the five fiscal years during our five-year audit period.
- The Legislature recently approved an increase to the per-barrel fee to cover projected deficits in the spill fund. However, the spill office developed these projections using fund balances that were not as accurate as they could have been.
- At least as far back as fiscal year 2006-07, Fish and Game undercharged the federal government for its share of Fish and Game's indirect administrative costs by using budgeted expenditures instead of actual expenditures.
- The Oil Spill Technical Advisory Committee believes that Fish and Game's interpretation of state law has affected the administrator's authority to effectively perform certain statutory responsibilities.
RESULTS IN BRIEF
The Office of Spill Prevention and Response (spill office) of the Department of Fish and Game (Fish and Game) is responsible for preventing and responding to oil spills. Following the 2007 Cosco Busan oil spill, the California State Auditor (state auditor) issued a report in August 2008 titled Office of Spill Prevention and Response: It Has Met Many of Its Oversight and Response Duties, but Interaction With Local Government, the Media, and Volunteers Needs Improvement, Report 2008-102. As discussed in the report, we concluded that Fish and Game and the spill office could improve their administration of the Oil Spill Prevention and Administration Fund (spill fund) and recommended several changes. One was that the spill office annually assess the reasonableness of the spill fund's reserve balance and the per-barrel fee charged to owners of crude oil and petroleum products received in California. The per-barrel fee, together with fees paid by certain vessels not designed to carry oil as cargo, known as nontank vessels, generates most of the spill fund's revenues. These revenues fund the majority of the spill office's oil spill prevention activities.
In the nearly four years since the issuance of our 2008 report, Fish and Game and the spill office have implemented most of our recommendations, but they still have not completely addressed others. Specifically, Fish and Game and the spill office have implemented 13 of the recommendations and partially implemented two. We determined that Fish and Game only partially implemented our recommendation about the assessment of the spill fund's fund balance, in part, because it misstated the balance appearing in the governor's budget for four of the five fiscal years during our five-year audit period, from fiscal years 2006-07 through 2010-11.1 Generally, these misstatements resulted from a lack of written procedures in Fish and Game's budget branch directing staff to reconcile the spill fund's financial condition to the State Controller's Office's (state controller) records. The state controller's records contain up-to-date accounting information provided by the departments that use the fund, primarily Fish and Game, the State Lands Commission (State Lands), and the Board of Equalization. The omission of these procedures and a clerical error in one fiscal year caused the ending fund balance to be misstated in fiscal years 2006-07 through 2009-10.
Although Fish and Game's budget branch accurately reported the fund balance as of June 30, 2011, it did not update its procedures to include this reconciliation step until April 2012, after we brought this issue to the attention of a budget branch supervisor. Moreover, the analysts within Fish and Game's budget branch lacked both experience in preparing fund condition statements and relevant training. The deputy director of the administration division acknowledged that staffing the budget branch with experienced staff has been difficult. As a result of these issues, the accuracy of the fund balances of other funds Fish and Game administers may be similarly affected.
Relying at least in part on financial information provided by the spill office, prepared in June 2011, the Legislature recently approved an increase to the per-barrel fee to cover projected deficits in the spill fund. The spill office administrator is required each year to produce a three-year projection of the spill fund's revenues and expenditures. However, the spill office developed its three-year projection using fund balances that were not as accurate as they could have been. The former acting administrator of the spill office (former administrator) explained that he used financial data that his office gathered independently, believing he could not rely solely on the financial information maintained by Fish and Game's budget branch. Although his lack of confidence in the budget branch's financial data may have been warranted, the spill office also lacked written procedures directing staff on how to prepare the three-year projection. Consequently, the three-year projection contained inaccurate financial information. Ultimately, however, due in part to clerical errors, this financial data closely reflected the spill fund's actual condition based on the state controller's records. We believe it is critical that the spill office take steps to ensure that financial information included in its three-year projection is accurate.
Possibly affecting the former administrator's ability to accurately project the revenues, expenditures, and resulting fund balance used as the basis for the three-year projection was the method Fish and Game used to calculate the federal government's share of indirect administrative costs. Typically, indirect administrative costs include the expenditures that benefit multiple programs or units within a department, such as the costs associated with accounting, personnel services, general administration, and facilities maintenance. At least as far back as fiscal year 2006-07 and continuing through fiscal year 2010-11, Fish and Game undercharged the Federal Trust Fund (federal fund) for the federal government's share of these costs because it used budgeted expenditures, as reported in the governor's budget, instead of actual expenditures, as the basis for determining its fixed indirect cost rate. Because it used budgeted expenditures for estimating its costs during those years, other funds administered by Fish and Game, including the spill fund, paid the indirect costs that should have been charged to the federal fund. Ultimately, this situation may have reduced the balance of those other funds. According to Fish and Game, the federal government has agreed to allow Fish and Game to increase its fixed indirect cost rates over three years beginning in fiscal year 2011-12 to compensate for the $27.3 million that was undercharged. Because the spill fund will benefit from the federal fund absorbing a greater share of the indirect administrative costs through fiscal year 2013-14, the spill office will need to consider the reduction in these costs when projecting its fund balance moving forward.
In our 2008 report, we also concluded that Fish and Game's restructuring of certain spill office positions appeared to have caused friction between the spill office and Fish and Game management. We recommended that the spill office and other Fish and Game units discuss their individual authority and better define their roles in managing spill prevention staff, consistent with the administrator's statutory responsibilities and other needs of Fish and Game. However, the Oil Spill Technical Advisory Committee (committee), which, among other things, provides public input and independent judgment on the actions of the spill office's administrator, asserted that issues still exist between Fish and Game and the spill office. Specifically, the committee believes that Fish and Game has interpreted certain changes made to state law in 2002 in such a way as to affect the legal authority of the administrator to effectively perform the statutory responsibilities granted under the Lempert-Keene-Seastrand Oil Spill Prevention and Response Act (act). This act emphasizes prevention of marine oil spills through improved safety measures and stronger inspection and enforcement efforts. As a result of this statutory interpretation, the committee asserts that the spill office has encountered issues with other Fish and Game divisions, such as the law enforcement division (enforcement). For example, the committee's 2009-2010 Biennial Report by the Oil Spill Technical Advisory Committee to the Governor and the Legislature, published in June 2011, noted that it learned about decisions made by enforcement to remove or replace key staff during the response to oil spills without the advice or consent of the administrator. In particular, during our interviews, committee members explained that this situation occurred during the response to the October 2009 Dubai Star oil spill, which released 400 gallons of oil into the San Francisco Bay. Although the former administrator and the chief of enforcement had agreed to work together in the future to approve such decisions, written policies and procedures would be in the best interest of all entities, ensuring that such collaboration occurs consistently in the future.
Our 2008 audit report also raised concerns about certain employee salaries being improperly charged to the spill fund. Specifically, the report described instances in which some Fish and Game employees inappropriately charged the spill fund for activities not related to spill prevention. The report raised further concerns that spill prevention wardens recorded insufficient details to justify their charges to the spill fund. Since our 2008 report, we found that Fish and Game has resolved these issues by providing guidance to its employees and implementing a new time-reporting system. However, during our review of selected labor distribution reports for State Lands' employees, who perform various activities, including conducting inspections of marine facilities, we found that an employee charged an unallowed activity to the spill fund. In particular, this employee charged the spill fund for several hours of meetings related to holiday planning because State Lands lacks sufficient controls to ensure that only allowable spill-related activities are charged to the spill fund.
To prepare and report accurate fund condition statements for inclusion in the governor's budget each year, Fish and Game should do the following:
- Ensure that staff in its budget branch follow written procedures to develop fund condition statements.
- Train both new and existing staff on how to prepare fund condition statements for inclusion in the governor's budget.
- To ensure that three-year projections of the spill fund's revenues, expenditures, and fund balances, all of which are used to determine fee rates, are based on accurate financial information, the spill office should, at a minimum, do the following:
- Develop written procedures directing staff on how to prepare the three-year projection, including steps to verify the accuracy of the financial information in the projection.
- Consider the reduction in the spill fund's costs, as a result of the recovery of indirect administrative costs, when projecting its fund balance moving forward.
To prevent under- or over-recovery of federal funds, Fish and Game should regularly reassess whether using budgeted expenditures or actual expenditures will produce the most accurate results.
To eliminate confusion about the authority of the spill office and its relationship with Fish and Game, the Legislature should consider amending state law to clarify its intent regarding the administrator's authority.
To ensure that the spill office continues to work consistently with enforcement to resolve issues on the use of staff, the spill office should develop written policies and procedures with Fish and Game enforcement.
To comply with state law, State Lands should develop time sheet review procedures to ensure that its employees charge the spill fund only for oil spill prevention activities and that those charges are accurate.
Fish and Game and State Lands agree with the audit report's recommendations and outlined steps they have already taken, or plan to take, to implement them.
1 A "fund balance" is the amount of money in a fund that is available for appropriation, and in the governor's budget, three fund condition statements present the summary of the operations of a fund for the previous, current, and budget year.