payroll process review(mcsp) payroll process for the period of july 1, 2010, through june 30, 2013....

MULE CREEK STATE PRISON

Review Report

PAYROLL PROCESS REVIEW

July 1, 2010, through June 30, 2013

BETTY T. YEE California State Controller

June 2017

BETTY T. YEE

California State Controller

June 29, 2017

Joe A. Lizarraga, Warden

Mule Creek State Prison

4001 Highway 104

Ione, CA 95640

Dear Mr. Lizarraga:

The State Controller’s Office has reviewed the Mule Creek State Prison (MCSP) payroll process

for the period of July 1, 2010, through June 30, 2013. MCSP management is responsible for

maintaining a system of internal control over the payroll process within its organization, and for

ensuring compliance with various requirements under state laws and regulations regarding

payroll and payroll-related expenditures.

Our limited review identified material weaknesses in internal control over MCSP payroll process

that leave MCSP at risk of improper payments if not mitigated. Specifically, MCSP lacked

adequate segregation of duties and compensating controls over its processing of payroll

transactions. The lack of segregation of duties and appropriate compensating controls has a

pervasive effect on MCSP payroll process and impairs the effectiveness of other controls by

rendering their design ineffective or by keeping them from operating effectively.

We also found that MCSP lacked sufficient controls over the processing of specific payroll-

related transactions to ensure that MCSP complies with collective bargaining agreements and

state laws, and that only valid and authorized payments are processed. The control deficiencies

contributed to MCSP employees’ excessive vacation and annual leave balances, improper

payments, improper holiday credit accruals, and unrecovered long-outstanding salary advances,

costing the State an estimated net total of $1,181,121. Our review was performed on a limited

number of transactions only; a more extensive review may determine that the amount of

improper payments is higher than what we found.

If you have any questions, please contact Andrew Finlayson, Chief, State Agency Audits Bureau,

by telephone at (916) 324-6310.

Sincerely,

Original signed by

JEFFREY V. BROWNFIELD, CPA

Chief, Division of Audits

JVB/as

Joe A. Lizarraga, Warden -2- June 29, 2017

cc: Scott Kernan, Secretary

California Department of Corrections and Rehabilitation

Ralph Diaz, Undersecretary, Operations


Diana Toche, Undersecretary, Health Care Services


Kenneth J. Pogue, Undersecretary, Administration and Offender Services


Alene Shimazu, Director, Division of Administrative Services


Bryan Beyer, Director, Division of Internal Oversight and Research


Kathleen Allison, Director, Division of Adult Institutions


Connie Gipson, Deputy Director, Division of Adult Institutions


Jeffrey Macomber, Deputy Director, Division of Adult Institutions


Katherine Minnich, Deputy Director, Human Resources


Lori Zamora, Deputy Director, Office of Audits and Compliance


Linda Larabee, External Audits Manager, Office of Audits and Court Compliance


Yulanda Mynhier, Director, Health Care Policy and Administration

California Correctional Health Care Services

Janet Lewis, Deputy Director, Policy and Risk Management


Debbie Richardson, Chief of Internal Audits


Robert Burton, Chief Deputy Warden


Mike Williams, Associate Warden


Tammy Finch, Institutional Personnel Officer


Mark Rodriguez, Chief, Administrative Services Division

California Department of Human Resources

Mule Creek State Prison Payroll Process Review

Contents

Review Report

Summary ............................................................................................................................ 1

Background ........................................................................................................................ 2

Objectives, Scope, and Methodology ............................................................................... 3

Conclusion .......................................................................................................................... 4

Views of Responsible Officials .......................................................................................... 5

Restricted Use .................................................................................................................... 5

Findings and Recommendations ........................................................................................... 6

Attachment—Mule Creek State Prison’s Response to Draft Review Report


-1-

Review Report

The State Controller’s Office (SCO) reviewed the Mule Creek State Prison

(MCSP) payroll process for the period of July 1, 2010, through June 30,

2013. MCSP management is responsible for maintaining a system of

internal control over the payroll process within its organization, and for

ensuring compliance with various requirements under state laws and

regulations regarding payroll and payroll-related expenditures.

Our limited review identified material weaknesses in internal control over

MCSP payroll process that leave MCSP at risk of additional improper

payments if not mitigated. MCSP has a combination of deficiencies in

internal control over its payroll process such that there is a reasonable

possibility that a material misstatement in financial information or

noncompliance with provisions of laws, regulations, or contracts will not

be prevented, or detected and corrected on a timely basis. Specifically,

MCSP lacked adequate segregation of duties and compensating controls

over its processing of payroll transactions. The payroll transactions unit

staff performed conflicting duties. The staff performs multiple steps in

processing payroll transactions, including data entry into the State’s

payroll system; auditing employee timesheets; reconciling payroll,

including system output to source documentation; reporting payroll

exceptions; and processing adjustments. This control deficiency was

aggravated by the lack of compensating controls, such as management

oversight and review, to mitigate the risks associated with such a

deficiency. The lack of segregation of duties and appropriate

compensating controls has a pervasive effect on the MCSP payroll process

and impairs the effectiveness of other controls by rendering their design

ineffective or by keeping them from operating effectively.

We also found that MCSP lacked sufficient controls over the processing

of specific payroll-related transactions to ensure that MCSP complies with

collective bargaining agreements and state laws, and that only valid and

authorized payments are processed. As summarized in the table on page 2,

the control deficiencies contributed to MCSP employees’ excessive

vacation and annual leave balances, improper payments, improper holiday

credit accruals, and unrecovered long-outstanding salary advances,

costing the State an estimated net total of $1,181,121. Our review was

performed on a limited number of transactions only; a more extensive

review may determine that the amount of improper payments is higher

than what we found.

Summary


-2-

The following table summarizes our review results:

Selections Reviewed

Selections with Issues

Finding Number Issues

Number of

Selections Reviewed Selection Unit

Dollar

Amount of

Selections Reviewed

Number of

Selections with Issues

Issues as a

Percentage of

Selections Reviewed ᵃ

Estimated

Dollar Amount

Dollar Amount of

Issues as a

Percentage of Dollar

Amount of

Selections Reviewed ᵃ

1 Inadequate segregation of duties

and compensating controls

N/A N/A N/A N/A N/A N/A N/A

2 Inadequate controls over

vacation and annual leave

balances, resulting in liability for

excessive credits

92 Employee

$ 1,156,105

92

100%

$1,156,105

100%

3 Inadequate controls over out-of-

class compensation, resulting in

improper payments

10 Employee

46,125

9

90%

17,200

37%

4 Inadequate controls over holiday

credit, resulting in improper

accruals

17 Holiday

credit

transaction

12,395

14

82%

6,818

55%

5 Inadequate controls over

employee separation lump-sum

pay, resulting in improper

payments, net

13 Employee

1,606,175

8

62%

(4,710)

–

6 Improper uniform allowance and

overtime compensation, net

30 Employee

143,378

6

20%

3,773

3%

7 Inadequate control over salary

advances, resulting in failure to

recover outstanding accounts

4 Transaction

5,231

1

25%

1,935

37%

Total 166 $ 2,969,409 130 $1,181,121

ᵃ All percentages are rounded to the nearest full percentage point.

In 1979, the State of California adopted collective bargaining for state

employees. This adoption of collective bargaining created a significant

workload increase for SCO’s Personnel and Payroll Services Division

(PPSD), as PPSD was the State’s centralized payroll processing center for

all payroll related-transactions. As such, PPSD decentralized the

processing of payroll, allowing state agencies and departments to process

their own payroll-related transactions. Periodic reviews of the

decentralized payroll processing at state agencies and departments ceased

due to the budget constraints in the late 1980s.

In 2013, the California State Legislature reinstated these payroll reviews

to gain assurance that state agencies and departments maintain an adequate

internal control structure over the payroll function, provide proper

oversight over their decentralized payroll processing, and comply with

various state laws and regulations regarding payroll processing and related

transactions.

Background


-3-

Review Authority

Authority for this review is provided by California Government Code

(GC) section 12476, which states, “The Controller may audit the uniform

state payroll system, the State Payroll Revolving Fund, and related records

of state agencies within the uniform state payroll system, in such manner

as the Controller may determine.” In addition, GC section 12410 stipulates

that “The Controller shall superintend the fiscal concerns of the state. The

Controller shall audit all claims against the state, and may audit the

disbursement of any state money, for correctness, legality, and for

sufficient provisions of law for payment.”

Our objectives were to determine whether:

Payroll and payroll-related disbursements were accurate and in

accordance with collective bargaining agreements and state laws,

regulations, policies, and procedures.

MCSP had established adequate internal control for payroll, to meet

the following control objectives:

o Payroll and payroll-related transactions are properly approved and

certified by authorized personnel;

o Only valid and authorized payroll and payroll-related transactions

are processed;

o Payroll and payroll-related transactions are accurate and properly

recorded;

o Payroll systems, records, and files are adequately safeguarded;

and

o State laws, regulations, policies, and procedures are complied

with regarding payroll and payroll-related transactions.

MCSP complied with existing controls as part of the ongoing

management and monitoring of payroll and payroll-related

expenditures.

MCSP maintained accurate records of leave balances.

Salary advances were properly administered and recorded in

accordance with state laws, regulations, policies, and procedures.

We reviewed the MCSP payroll process and transactions for the period of

July 1, 2010, through June 30, 2013. To achieve our review objectives,

we:

Reviewed state and MCSP policies and procedures related to payroll

process to understand the practice of processing various payroll and

payroll-related transactions;

Interviewed the MCSP payroll personnel to understand the practice of

processing various payroll and payroll-related transactions, determine

their level of knowledge and ability relating to the payroll transaction

processing, and obtain or confirm our understanding of existing

internal control over the payroll process and systems;

Objectives, Scope,

and Methodology


-4-

Selected transactions recorded in the State’s payroll database based on

risk factors and other criteria for review;

Analyzed and tested selected transactions recorded in the State’s

payroll database and reviewed relevant files and records to determine

the accuracy of payroll and payroll-related payments, accuracy of

leave transactions, proper review and approval of transactions,

adequacy of internal control over the payroll process and systems, and

compliance with collective bargaining agreements and state laws,

regulations, policies, and procedures (errors found were not projected

to the intended populations); and

Reviewed salary advances to determine whether they were properly

administered and recorded in accordance with state laws, regulations,

policies, and procedures.

Our limited review identified material weaknesses1 in internal control over

the MCSP payroll process that leave MCSP at risk of additional improper

payments if not mitigated. MCSP has a combination of deficiencies in

internal control over its payroll process such that there is a reasonable

possibility that a material misstatement in financial information or

noncompliance with provisions of laws, regulations, or contracts will not

be prevented, or detected and corrected on a timely basis. Specifically,

MCSP lacked adequate segregation of duties and compensating controls

over its processing of payroll transactions. The payroll transactions unit

staff performed conflicting duties. The staff performs multiple steps in

processing payroll transactions, including data entry into the State’s

payroll system; auditing employee timesheets; reconciling payroll,

including system output to source documentation; reporting payroll

exceptions; and processing adjustments. This control deficiency was

aggravated by the lack of compensating controls, such as management

oversight and review, to mitigate the risks associated with such a

deficiency. The lack of segregation of duties and appropriate

compensating controls has a pervasive effect on the MCSP payroll process

and impairs the effectiveness of other controls by rendering their design

ineffective or by keeping them from operating effectively.

1 An evaluation of an entity’s payroll process may identify deficiencies in its internal control over such a process. A

deficiency in internal control exists when the design or operation of a control does not allow management or

employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements

in financial information, impairments of effectiveness or efficiency of operations, or noncompliance with provisions

of laws, regulations, or contracts on a timely basis.

Control deficiencies, either individually or in combination with other control deficiencies, may be evaluated as

significant deficiencies or material weaknesses. A significant deficiency is a deficiency, or a combination of

deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention

by those charged with governance. A material weakness is a deficiency, or combination of deficiencies, in internal

control such that there is a reasonable possibility that a material misstatement in financial information, impairment of

effectiveness or efficiency of operations, or noncompliance with provisions of laws, regulations, or contracts will not

be prevented, or detected and corrected on a timely basis.

Conclusion


-5-

MCSP also lacked sufficient controls over the processing of specific

payroll-related transactions to ensure that it complies with collective

bargaining agreements and state laws, and that only valid and authorized

payments are processed. The control deficiencies contributed to MCSP

employees’ excessive vacation and annual leave balances, improper

payments, improper holiday credit accruals, and unrecovered long-

outstanding salary advances, costing the State an estimated net total of

$1,181,121. Our review was performed on a limited number of

transactions only; a more extensive review may determine that the amount

of improper payments is higher than what we found.

We issued a draft review report on May 15, 2017. Joe A. Lizarraga,

Warden, responded by letter dated May 30, 2017 (Attachment); he did not

dispute the findings. Mr. Lizarraga indicated that MCSP has taken steps to

correct the deficiencies noted in the findings. We will follow up at the next

payroll review to ensure that the corrective actions were adequate and

appropriate. In response to Finding 4, Mr. Lizarraga also indicated that

MCSP cannot ensure the accuracy of holiday credits for employees whose

credits were keyed into the State’s leave accounting system at other CDCR

facilities before the employees moved MCSP. We believe that the

responsibility for correcting these improper accruals now falls on MCSP,

and that MCSP has access to the information necessary to take corrective

action. Accordingly, we reaffirm the conclusions, findings, and

recommendations we made regarding this review. Our full comment on

the MCSP’s response to Finding 4 is included in the Findings and

Recommendations section.

This report is solely for the information and use of MCSP, California

Department of Corrections and Rehabilitation, California Correctional

Health Care Services, and the SCO; it is not intended to be and should not

be used by anyone other than these specified parties. This restriction is not

intended to limit distribution of this report, which is a matter of public

record.

Original signed by

JEFFREY V. BROWNFIELD, CPA

Chief, Division of Audits

June 29, 2017

Views of

Responsible

Officials

Restricted Use


-6-

Findings and Recommendations

MCSP lacked adequate segregation of duties within its payroll

transactions unit to ensure that only valid and authorized payroll

transactions are processed. MCSP also failed to implement other controls

to compensate for this risk.

GC sections 13400 through 13407 require state agencies to establish and

maintain internal controls, including proper segregation of duties and an

effective system of internal review. Adequate segregation of duties

reduces the likelihood that fraud or error will remain undetected by

providing for separate processing by different individuals at various stages

of a transaction and for independent reviews of the work performed.

Our review found that the MCSP payroll transactions unit staff performed

conflicting duties. The staff performs multiple steps in processing payroll

transactions, including data entry into the State’s payroll system; auditing

employee timesheets; reconciling payroll, including system output to

source documentation; reporting payroll exceptions; and processing

adjustments. For example, the payroll transactions unit staff keys in

regular and overtime pay and reconciles the master payroll, overtime, and

other supplemental warrants. MCSP failed to demonstrate that it

implemented compensating controls to mitigate the risks associated with

such a deficiency. For example, we found no indication that supervisors

conduct periodic review of transactions processed by the payroll

transactions unit staff.

The lack of adequate segregation of duties and compensating controls has

a pervasive effect on MCSP payroll process and impairs the effectiveness

of other controls by rendering their design ineffective or by keeping them

from operating effectively. These control deficiencies, in combination

with other deficiencies discussed in Findings 2 through 7, represent a

material weakness in internal control over the payroll process such that

there is a reasonable possibility that a material misstatement in financial

information or noncompliance with provisions of laws, regulations, or

contracts will not be prevented, or detected and corrected on a timely basis.

Recommendation

MCSP should separate conflicting payroll function duties to the extent

possible. Adequate segregation of duties will provide a stronger system of

internal control, whereby the functions of each employee are subject to the

review of another. Good internal control practices require that the

following functional duties should be performed by different work units,

or at minimum, by different employees within the same unit:

Recording transactions. This duty refers to the recordkeeping

function, which is accomplished by entering data into a computer

system.

Authorization to execute. This duty belongs to individuals with

authority and responsibility to initiate and execute transactions.

FINDING 1—

Inadequate

segregation of

duties and

compensating

controls over

payroll

transactions


-7-

Periodic reviews and reconciliation of actual payments to recorded

amounts. This duty refers to making comparisons of information at

regular intervals and taking action to resolve differences.

If it is not possible to segregate payroll functions fully and appropriately

due to specific circumstances, MCSP should implement compensating

controls. For example, if the payroll transactions unit staff member

responsible for recordkeeping also performs a reconciliation process, the

supervisor could perform and document a detailed review of the

reconciliation to provide additional control over the assignment of

conflicting functions. Compensating controls may also include dual

authorization requirements and documented reviews of payroll system

input and output. In addition, MCSP should develop formal written

procedures for performing and documenting compensating controls.

MCSP failed to implement controls to ensure that it adheres to the

requirement of collective bargaining agreements and state regulations to

limit the accumulation of vacation and annual leave credits, resulting in

liability for excessive leave credits that could cost the State at least

$1,156,105 as of June 30, 2013. We expect the liability to increase if

MCSP does not take action to address the excessive vacation and annual

leave credits.

Collective bargaining agreements and state regulations limit the amount

of vacation and annual leave that most state employees may accumulate at

no more than 80 days (640 hours). The limit on leave balance serves as a

tool for state agencies to manage leave balances and control the State’s

liability for accrued leave credits. State agencies may allow employees to

carry more than the limit only in limited circumstances. For example, an

employee may not be able to reduce accrued vacation or annual leave

hours below the limit because of business needs. When an employee’s

leave accumulation exceeds or is projected to exceed the limit, the state

agency should work with the employee to develop a plan to reduce leave

balances below the applicable limit.

Our review of the leave accounting records found that, at June 30, 2013,

MCSP had 92 employees whose vacation or annual leave balances

exceeded the limit set by collective bargaining agreements and state

regulations. For example, one employee had an accumulated balance of

2,065 hours in annual leave, or 1,425 hours beyond the 640-hour limit.

Collectively, the 92 employees exceeded the limit by a total of more than

30,000 hours in vacation and annual leave credits, costing the State at least

$1,156,105 as of June 30, 2013. This estimated liability does not adjust for

salary rate increases and additional leave credits2. Accordingly, we expect

that the amount needed to pay for the liability would be higher. For

example, an MCSP employee separated from State service with 2,500

hours in leave credits, including 1,885 hours in annual leave. After

adjusting for additional leave credits, the employee should have been paid

for 2,976 hours, or 19% more.

2 Most state employees receive pay rate increases every year pursuant to state laws or collective bargaining agreements.

Also, when projecting accumulated leave balances upon separation, an employee earns additional leave credits equal

to the amount that the employee would have earned had the employee taken time off but not separated from state

service.

FINDING 2—

Inadequate

controls over

vacation and

annual leave

balances, resulting

in liability for

excessive credits


-8-

We inquired whether any plans were in place to address excessive vacation

and annual leave credits in accordance with collective bargaining

agreements and state regulations. During the review, MCSP did not have

any plans in place to reduce excessive leave credits.

If MCSP does not take action to reduce the excessive credits, the liability

for accrued vacation and annual leave will likely increase because most

employees will receive salary increases and additional leave credits, or

have other non-compensable leave credits that they can use instead of

vacation or annual leave, increasing their vacation or annual leave

balances. In addition, the state agency responsible for paying these leave

balances may also face a cash flow problem if a significant number of

employees with excessive vacation or annual leave credits separate from

state service. Normally, state agencies are not budgeted to make these

lump-sum payments. However, the State’s current practice dictates that

the state agency that last employed an employee pays for that employee’s

lump-sum separation payment, regardless of where the employee accrued

the leave balance.

Recommendation

MCSP should implement controls, including existing policies and

procedures, to ensure that its employees’ vacation and annual leave

balances are maintained within levels allowed by collective bargaining

agreements and state regulations. MCSP should conduct ongoing

monitoring of controls to ensure that they are implemented and operating

effectively.

If the State offers leave buy-back programs, MCSP should also participate

in such programs if funds are available.

MCSP lacked adequate controls to ensure that the payment of out-of-class

compensation complied with collective bargaining agreements and state

policies. MCSP improperly granted out-of-class compensation to nine

(90%) of the ten employees whose records we reviewed, costing the State

approximately $17,200. If not corrected, this control deficiency also leaves

MCSP at risk of additional improper payments.

Payroll records showed that MCSP paid out-of-class compensation to 119

employees between July 2010 and June 2013. We reviewed the out-of-

class compensation for ten selected employees to determine whether

MCSP granted compensation in accordance with collective bargaining

agreements and state policies. Of the ten employees whose records we

reviewed, nine exceeded the limits set by collective bargaining agreements

and state policy, as follows:

Six employees were subject to collective bargaining agreements that

restrict an employee’s out-of-class assignment to 120 days in any 12

consecutive months. The employees were paid an estimated total of

$10,694 in compensation exceeding the 120-day limit.

FINDING 3—

Inadequate

controls over out-

of-class

compensation,

resulting in

improper

payments


-9-

Two supervisory employees who were excluded from collective

bargaining received an estimated total of $4,951 in compensation

exceeding the one-year limit per California Department of Human

Resources (CalHR) policy.

One managerial employee who was excluded from collective

bargaining received $1,555 in compensation exceeding nine months

per CalHR policy.

Accordingly, MCSP paid the nine employees an estimated total of $17,200

in compensation for out-of-class assignments that exceeded the limits set

by collective bargaining agreements and CalHR policy.

CalHR’s California State Civil Service Pay Scales section 14, Pay

Differential 101 and Policy Memo No. 2007-026 allow out-of-class

assignments for excluded employees for up to one year. The compensation

begins on the 91st day but not to exceed nine months.

Policy Memo No. 2007-026 also reminds departments that there are no

exceptions to request extensions of out-of-class assignments beyond the

provisions of collective bargaining agreements for represented employees.

The collective bargaining agreements between the State and Bargaining

Units 1 and 4 restrict represented employees to up to 120 days of out-of-

class assignment within 12 consecutive months.

Control deficiencies over the processing of out-of-class compensation

GC sections 13400 and 13407 require state agencies to establish and

maintain internal controls, including a system of authorization and an

effective system of internal review. State agencies also should ensure that

these controls are functioning as prescribed. However, as described

previously, our review of out-of-class compensation found significant

control deficiencies that leave MCSP at risk of additional improper

payments and practices if not mitigated. Specifically, we found that:

MCSP failed to implement existing policies and procedures related to

out-of-class assignment and compensation consistently. For example,

the California Department of Corrections and Rehabilitation (CDCR)

Operations Manual and Personnel Operations Manual allow out-of-

class assignments only as provided in collective bargaining

agreements and CalHR policies. However, as described previously,

the payroll transactions unit staff processed compensation for out-of-

class assignments even though the assignments exceeded the limits set

by collective bargaining agreements and state policies.

MCSP management did not provide adequate oversight to ensure that

the processing of out-of-class compensation complies with collective

bargaining agreements and state policies.

Recommendation

MCSP should conduct a review of out-of-class compensation during the

past three years to ensure that the compensation complied with collective

bargaining agreements and state policies. MCSP should recover

overpayments made to employees through an agreed-upon collection

method in accordance with GC section 19838.


-10-

To prevent improper out-of-class compensation from recurring, MCSP

should:

Implement existing controls over out-of-class assignments and

compensation, including existing policies and procedures prescribed

by CDCR and CalHR;

Conduct ongoing monitoring of controls to ensure they are

consistently implemented and operating effectively; and

Provide adequate oversight to ensure that the payroll transactions unit

staff process only valid and authorized out-of-class compensation that

complies with collective bargaining agreements and state and CDCR

policies.

MCSP lacked adequate controls over the accrual of its employees’ holiday

credits. MCSP improperly granted 122 holiday credit hours in 14 (82%)

of the 17 transactions reviewed, costing the State an estimated total of

$6,818. If not mitigated, the control deficiency also leaves MCSP at risk

of recording additional improper accruals of holiday credit.

Collective bargaining agreements and GC section 19853 specify the

number of hours of holiday credit an employee would receive per

qualifying holiday. We reviewed 17 selected holiday credit transactions

and found that 14 involved improper accruals totaling 122 holiday credit

hours. Of the 14 improper transactions, nine involved holiday credits that

were granted on pay periods that had no holidays and five involved holiday

credits that exceeded the limit set by the collective bargaining agreement.

In nine improper transactions, the holiday credits were keyed into the

State’s leave accounting system at other CDCR facilities before the

employees moved to MCSP. The responsibility for correcting these

improper accruals now falls on MCSP.

In regards to seven improper transactions, including two that were keyed

at other CDCR facilities, MCSP stated that it tried to implement corrective

actions as a result of a prior audit. However, the corrections were not

implemented due to employees’ grievances.

Recommendation

MCSP should conduct a review of the leave accounting system to ensure

that the accrual of holiday credits complies with collective bargaining

agreements and state law. MCSP should correct any improper holiday

credits in the leave accounting system.

To prevent recording of improper holiday credits in the leave accounting

system from recurring, MCSP should:

Provide adequate oversight to ensure that payroll transactions unit

staff accurately record leave transactions; and

Provide training to payroll transactions unit staff who key transactions

into the leave accounting system to ensure that they understand the

requirements under collective bargaining agreements and state law

regarding holiday credits.

FINDING 4—

Inadequate

controls over

holiday credits,

resulting in

improper accruals


-11-

MCSP’s Response

The audit revealed some errors originating outside of MCSP. MCSP only

has timesheets for employees who are employed at the institution. If an

employee was at a different state agency or CDCR institution, MCSP

does not have a way to ensure holiday credit was accurately recorded. It

is MCSP’s procedure and policy to detect errors made during time

keying by one specialist keying the Leave Accounting System (LAS) and

another specialist recalculating 998/Timesheet and checking against the

LAS.

SCO’s Comment

The finding remains as stated. As discussed in the finding, we found that

14 of the 17 holiday credit transactions we reviewed were improper. Of

the 14 transactions, nine were keyed into the State’s leave accounting

system at other CDCR facilities before the employees moved to MCSP.

MCSP’s response did not dispute that the 14 holiday credit transactions

were improper. The response asserts, however, that MCSP cannot ensure

the accuracy of holiday credits for the nine employees whose credits were

keyed into the system at other CDCR facilities before their move to MCSP.

We believe that MCSP has access to the information necessary to take

corrective action. For example, MCSP can validate the number of hours

of holiday credit that an employee improperly received on a pay period

that had no holidays by reviewing the applicable collective bargaining

agreement or state law and the employee’s leave records in the leave

accounting system. The employee’s timesheet may no longer be necessary

because the employee should not be recording any holiday credit,

considering there were no holidays during the period. If MCSP requires

additional information to take corrective actions, MCSP can work with

CDCR headquarters and other CDCR facilities.

MCSP lacked adequate controls over the processing of employee

separation lump sum pay. Of the 13 employees whose records we

reviewed, eight were improperly paid, resulting in a net total

underpayment of $4,710. The control deficiencies also leave MCSP at risk

of additional improper separation lump sum payments if not mitigated.

FINDING 5—

Inadequate

controls over

employee

separation lump-

sum pay, resulting

in improper

payments


-12-

Pursuant to collective bargaining agreements and state law, employees are

entitled to receive cash for accrued eligible leave credits when separating

from state employment. We reviewed records for 13 eligible employees

who received lump-sum payments due to separation from state

employment and found that eight were improperly paid, as shown in the

following table:

Estimated

Dollar

Leave Hours Amount of

Paid Earned

Overpaid

(Underpaid)

Overpayment

(Underpayment)

Overpayment

Employee A 2,984 2,976 8 $ 500

Employee B 1,709 1,707 2 97

Subtotal 4,693 4,683 10 597

Underpayment

Employee C 3,724 3,732 (8) (296)

Employee D 2,850 2,855 (5) (177)

Employee E 1,981 1,997 (16) (494)

Employee F 1,510 1,526 (16) (1,804)

Employee G 2,566 2,574 (8) (365)

Employee H 2,593 2,609 (16) (2,171)

Subtotal 15,224 15,293 (69) (5,307)

Net total 19,917 19,976 (59) $ (4,710)

Source: State’s payroll system and MCSP payroll records.

These improper payments resulted from miscalculation of the employees’

accrued leave credits by the payroll transactions unit staff. We found no

indication that the processing of these lump-sum payments was reviewed

by an authorized individual.

Recommendation

MCSP should:

Establish adequate controls to ensure accurate calculation and

payment of employee separation lump-sum pay;

Conduct a review of employee separation lump-sum payments during

the past three years to ensure that the payments are accurate and in

compliance with collective bargaining agreements and state law; and

Recover overpayments made to separated employees in accordance

with GC section 19838 and State Administrative Manual (SAM)

section 8776.6, and properly compensate those employees who were

underpaid.


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MCSP lacked adequate controls to ensure that the payroll transactions unit

staff processes only valid and authorized uniform allowance and overtime

payments that comply with collective bargaining agreements and state

laws. MCSP improperly paid six employees an estimated net total of

$3,773 in uniform allowance and overtime compensation. The control

deficiencies also leave MCSP at risk of additional improper payments if

not mitigated.

Uniform allowance improperly paid to employees

Pursuant to the collective bargaining agreement between the State and

Bargaining Units 6 and 15, employees required to wear a uniform and

uniform accessories receive a maximum uniform allowance of $530 and

$450 per year, respectively, to be paid annually. If the employee leaves the

uniform class, the employee receives a prorated share of the annual

uniform allowance. Between July 2010 and June 2013, MCSP paid 815

employees for annual uniform allowance. We reviewed records of 15

selected employees and found that two were improperly paid uniform

allowance. One individual from Bargaining Unit 6 received a duplicate

payment of $530 and another individual from Bargaining Unit 19 received

three payments of $310 for a total of $930. The collective bargaining

agreement between the State and Bargaining Unit 19 cites GC section

19850.3, which requires CalHR to establish procedures for determining

need for uniforms and the amount and frequency of uniform allowances.

During the review, MCSP was not able to provide documentation from

CalHR to support the payments for uniform allowance.

Overtime compensation improperly paid to employees

Payroll records showed that MCSP paid overtime compensation to more

than 1,000 employees between July 2010 and June 2013. We reviewed 17

overtime payments for 15 of these employees. Of the 17 payments, four

(24%) resulted in improper compensation. Two employees were overpaid

approximately $2,386 and two employees were underpaid approximately

$73. The improper payments resulted from miscalculations of overtime

hours by the payroll transactions unit staff. We found no indication that

these overtime payments were reviewed by an individual other than the

payroll transactions unit staff responsible for processing them.

Control deficiencies over processing of uniform allowance and overtime

payments

GC sections 13400 through 13407 require state agencies to establish and

maintain internal controls, including a system of authorization and

recordkeeping procedures over expenditures, and an effective system of

internal review. State agencies are also responsible for ensuring that these

controls are functioning as prescribed. However, the improper uniform

allowance and overtime payments indicated that MCSP lacked adequate

controls to ensure that the payroll transactions unit staff processes only

valid and authorized payments that comply with collective bargaining

agreements and state law.

FINDING 6—

Inadequate

controls over

uniform allowance

and overtime

payments, resulting

in improper

payments


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Recommendation

MCSP should conduct a review of uniform allowance and overtime

payments made during the past three years to ensure that the payments

comply with collective bargaining agreements and state law. MCSP

should recover overpayments made to employees through an agreed-upon

collection method in accordance with GC section 19838, and properly

compensate those employees who were underpaid.

To prevent improper uniform allowance and overtime payments from

recurring, MCSP should:

Establish adequate internal controls to ensure that payments are

accurate and comply with collective bargaining agreements and state

law. These controls should require payroll transactions unit staff to

verify that payment does not exceed the amount allowed by collective

bargaining agreements and state law.

Provide adequate oversight to ensure that payroll transactions unit

staff processes only valid and authorized payments that comply with

collective bargaining agreements and state law.

Provide training to payroll transactions unit staff who process payment

transactions to ensure that they understand the requirements under

collective bargaining agreements and state law.

MCSP lacked adequate controls over salary advances to ensure that they

are processed in accordance with state laws and policies. The control

deficiency leaves MCSP at risk for additional uncollectable salary

advances. At June 30, 2013, MCSP had $26,426 in uncollected salary

advances, including $8,949 (34%) that had been outstanding for more than

120 days. The oldest salary advance had been outstanding for eight years.

GC section 19838 and SAM section 8776.7 allow MCSP to collect salary

advances in a timely manner. Generally, the prospect of collection

diminishes as an account ages. When an agency is unable to collect after

three years, the possibility of collection is remote.

We performed further review of the four selected salary advances totaling

$5,231. Of the four salary advances, one (25%) amounting to $1,935

lacked adequate documentation to support that the salary advance issued

was for an eligible employee and approved by an authorized individual, as

required by the Personnel Operations Manual. MCSP also could not

support its collection efforts during our review period, if any, due to lack

of supporting documentation. SAM section 8776 requires agencies to

maintain proper records of collection efforts and payment of salary

advances.

The lack of adequate controls over salary advances increases the risk of

financial loss, reduces the likelihood of collection, increases the amount

of resources expended on collection efforts, and negatively impacts cash

flow.

FINDING 7 —

Inadequate

controls over

salary advances,

resulting in failure

to recover

outstanding

accounts


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Recommendation

MCSP should ensure that salary advances are recovered in a timely

manner pursuant to GC section 19838 and SAM section 8776.7. If

reasonable collection procedures do not result in payment, MCSP may

request discharge from accountability of uncollectable amounts.

MCSP also should maintain documentation of salary advance

authorization, collection effort, and payment.


Attachment—

Mule Creek State Prison’s

Response to Draft Review Report

State Controller’s Office

Division of Audits

Post Office Box 942850

Sacramento, CA 94250-5874

http://www.sco.ca.gov

S15-PAR-9006

payroll process review(mcsp) payroll process for the period of july 1, 2010, through june 30, 2013....

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