PAYROLL PROCESS REVIEW - California State Controller

AVENAL STATE PRISON

Review Report

PAYROLL PROCESS REVIEW

January 1, 2012, through December 31, 2014

BETTY T. YEE California State Controller

March 2017

BETTY T. YEE

California State Controller

March 14, 2017

Rosemary Ndoh, Warden (A)

Avenal State Prison

#1 Kings Way

Avenal, CA 93204

Dear Ms. Ndoh:

The State Controller’s Office has reviewed the Avenal State Prison (ASP) payroll process for the

period of January 1, 2012, through December 31, 2014. ASP’s 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 the ASP payroll

process that leave ASP at risk of additional improper payments if not mitigated. We found that

ASP 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, 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. Specifically, ASP

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

transactions. The lack of segregation of duties without appropriate compensating controls has a

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

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

Our review also found that ASP lacked adequate controls over the processing of payroll-related

transactions to ensure that ASP complies with collective bargaining agreements and state laws,

and that only valid and authorized payments are processed. These control deficiencies

contributed to an increased liability for excessive leave balances, improper separation lump sum

payments, inaccurate holiday credit balances, and overpayments of overtime hours, costing the

State an estimated net total of $662,728. Our review was performed only on limited selections;

therefore, a more extensive review may find that the amount of improper payments is higher than

what we identified.

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

by phone at (916) 324-6310.

Sincerely,

Original signed by

JEFFREY V. BROWNFIELD, CPA

Chief, Division of Audits

Rosemary Ndoh, Warden (A) -2- March 14, 2017

JVB/rg

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


Jeff Macomber, Deputy Director, Division of Adult Institutions


Michelle Ezray, Deputy Director, Human Resources


Lori Zamora, Deputy Director, Office of Audits and Court Compliance


Linda Wong, 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


Cleo Luna, Staff Services Manager I

Avenal State Prison

Avenal 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—Avenal State Prison’s Response to Draft Review Report


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Review Report

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

(ASP) payroll process for the period of January 1, 2012, through

December 31, 2014. ASP’s management is responsible for maintaining a

system of internal control over 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

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

payments if not mitigated. We found that ASP has a combination of

deficiencies in internal controls over its payroll process 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 in a timely manner. Specifically,

ASP lacked adequate segregation of duties and compensating controls

over its processing of payroll transactions. The payroll transaction unit

staff processes all payroll transactions, including data entry into the State’s

payroll system, audits employee timesheets, reconciles payroll system

output to source documentation, and reports payroll exceptions. The

control deficiency was aggravated by the lack of compensating controls,

such as involving management oversight and review, to mitigate the risks

associated with such a deficiency. The lack of segregation of duties

without appropriate compensating controls has a pervasive effect on the

ASP payroll process and impairs the effectiveness of other controls by

rendering their design ineffective or by preventing them from operating

effectively.

Our review also found that ASP lacked adequate controls over the

processing of payroll-related transactions to ensure that ASP complies

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

and authorized payments are processed.

These control deficiencies contributed to an increased liability for leave

balances and improper payments during the period from January 1, 2012,

through December 31, 2014, costing the State an estimated net total of

$662,728. Specifically, ASP failed to implement controls over the

accumulation of vacation and annual leave credits, resulting in a liability

for excessive leave credits totaling approximately $653,403 at

December 31, 2014. We expect the liability to increase if ASP does not

take action to address the excessive leave credits. In addition, ASP

overpaid $8,355 in separation lump sum payments to ten (67%) of the 15

employees reviewed. Moreover, ASP improperly accounted for one (8%)

of 12 holiday credit transactions reviewed, overstating the employee’s

holiday credit balance by 16 hours, valued at approximately $662.

Furthermore, ASP improperly paid two (10%) of 20 overtime transactions

reviewed, resulting in a combined total overpayment of $308. Our review

was performed only on limited selections; therefore, a more extensive

review may find additional improper payments.

Summary


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The following table summarizes our review results:

Selections Reviewed Selections with Issues

Finding

Number Issues

Number of

Selections

Reviewed

Selection

Unit

$ Value of

Selections

Reviewed

Number of Selections

with

Issues

Issues as a

Percentage of

Selections

Reviewed

Approximate

$ Value

$ Value of

Issues as a Percentage

of $ Value of

Selections

Reviewed

1 Inadequate segregation of duties and

compensating controls over payroll transactions

– – – – – – –

2 Inadequate controls over vacation and annual leave balances, resulting in an

increased State liability

50 Employee $ 653,403 50 100% $ 653,403 100%

3

Inadequate controls over separation

lump sum pay, resulting in improper

payments

15 Employee $ 977,607 10 67% $ 8,355 1%

4 Inadequate controls over holiday credit and overtime pay, resulting in improper

payments

32 Payment

transaction $ 19,833 3 9% $ 970 5%

97 $ 1,650,843 63 $ 662,728

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 the 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, which allowed state agencies and departments to

process their own payroll-related transactions. Periodic reviews of this

now-decentralized payroll processing at state agencies and departments

ceased due to budget constraints in the late 1980s.

In 2013, the California State Legislature reinstated these payroll reviews

to gain assurance that state agencies and departments were maintaining an

adequate internal control structure over the payroll function; providing

proper oversight over decentralized payroll processing; and complying

with various state laws and regulations regarding payroll processing and

related transactions.

Review Authority

Authority for this review is provided by the California Government Code

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

state pay roll system, the State Pay Roll Revolving Fund, and related

records of state agencies within the uniform state pay roll 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.”

Background


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Our review objectives were to determine whether:

Payroll and payroll-related transactions/disbursements were accurate

and in accordance with collective bargaining agreements and state

laws, regulations, policies, and procedures.

ASP 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.

ASP complied with existing controls as part of the ongoing

management and monitoring of payroll and payroll-related

expenditures.

ASP maintained accurate records of leave balances.

ASP properly administered and recorded salary advances in

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

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

January 1, 2012, through December 31, 2014.

To achieve our review objectives, we performed the following procedures:

Reviewed state and ASP policies and procedures related to the payroll

process to understand the practice of processing various payroll and

payroll-related transactions.

Interviewed ASP 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.

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

risk factors and other criteria for review.

Analyzed and tested 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 population.

Objectives, Scope,

and Methodology


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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 weaknesses in internal control over

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

payments if not mitigated.

An evaluation of an entity’s payroll process may identify internal control

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.

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 a

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 or operations, or

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

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

ASP 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; 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. Specifically, ASP lacked adequate segregation of duties

and compensating controls over its processing of payroll transactions. The

ASP payroll transactions unit staff processes all payroll transactions,

including data entry into the State’s payroll system, checks audits

employee timesheets, reconciles payroll system output to source

documentation, and reports payroll exceptions. The control deficiency was

aggravated by the lack of compensating controls, such as involving

management oversight and review, to mitigate the risks associated with

such a deficiency. The lack of segregation of duties without appropriate

compensating controls has a pervasive effect on the ASP’s payroll process

and impairs the effectiveness of other controls by rendering their design

ineffective or by preventing them from operating effectively. In addition,

ASP lacked adequate controls over the processing of payroll-related

transactions to ensure that ASP complies with collective bargaining

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

are processed.

The control deficiencies contributed to an increasing liability for excessive

leave balances, improper separation lump sum payments, inaccurate

holiday credit balances, and overpayments of overtime hours, costing the

Conclusion


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State an estimated net total of $662,728. Our review was performed only

on limited number of transactions; therefore, we believe that a more

extensive review may find that the amount of improper payments is higher

than what we identified.

We issued a draft review report on January 31, 2017. Rosemary Ndoh,

Warden (A), responded by letter dated February 6, 2017 (Attachment).

This final review report includes Avenal State Prison’s response.

This report is solely for the information and use of Avenal State Prison,

California Department of Corrections and Rehabilitation, California

Correctional Healthcare 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

March 14, 2017

Views of

Responsible

Officials

Restricted Use


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Findings and Recommendations

ASP lacked adequate segregation of duties within its Payroll Transactions

Unit necessary to ensure that only valid and authorized payroll

transactions are processed. In addition, ASP did not implement other

controls to compensate for this risk.

ASP’s Payroll Transactions Unit staff performed conflicting duties. The

transactions unit staff initiate, authorize, record, and review or reconcile

payroll transactions. These functions should be segregated to reduce the

risk of fraudulent or erroneous payroll transactions. The transactions unit

staff are responsible for recording data into the payroll system and

reconciling and/or reviewing the results of their own work. In addition,

ASP does not have other compensatory controls, such as management

review of the work of payroll staff, to reduce the risk of improper payroll

transactions going undetected.

GC section 13402 states:

Agency heads are responsible for the establishment and maintenance of

a system or systems of internal control, and effective and objective

ongoing monitoring of the internal controls within their state agencies.

This responsibility includes documenting the system, communicating

system requirements to employees, and ensuring that the system is

functioning as prescribed and is modified, as appropriate, for changes in

conditions.

GC section 13403 states, in part:

(a) As used in this chapter, “internal control” means a process,

including a continuous built-in component of operations, effected

by a state agency’s oversight body, management, and other

personnel that provide reasonable assurance that the state agency's

objectives will be achieved. The following five components of

internal control, if effectively designed, implemented, and operated

in an integrated manner, constitute an effective internal control

system:

(1) “Control environment” means the foundation for an internal

control system that provides the discipline and structure to help

a state agency achieve its objectives.

(2) “Risk assessment” means an assessment of the risks facing the

state agency as it seeks to achieve its objectives and provides

the basis for developing appropriate risk responses.

(3) “Control activities” means the actions management establishes

through policies and procedures to achieve objectives and

respond to risks in the internal control system.

(4) “Information and communication” means the quality of vital

information used and communicated to achieve the state

agency's objectives.

(5) “Monitoring” means the activities management establishes and

operates to assess the quality of performance over time and

promptly resolve the findings of audits and other reviews.

FINDING 1—

Inadequate

segregation of

duties and

compensating

controls over

payroll

transactions


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(b) The elements of a satisfactory system of internal control, shall

include, but are not limited to, the following:

(1) A plan of organization that provides segregation of duties

appropriate for proper safeguarding of state agency assets.

(2) A plan that limits access to state agency assets to authorized

personnel who require these assets in the performance of their

assigned duties.

(3) A system of policies and procedures adequate to provide

compliance with applicable laws, criteria, standards, and other

requirements.

(4) An established system of practices to be followed in

performance of duties and functions in each of the state

agencies.

(5) Personnel of a quality commensurate with their responsibilities.

(6) An effective system of internal review.

(7) A technology infrastructure to support the completeness,

accuracy, and validity of information processed.

(c) Agency heads shall follow the standards established by this section

of internal control in carrying out the requirements of Section

13402.

(d) Monitoring systems and processes are vital to the following:

(1) Ensuring that routine application of internal controls do not

diminish their efficacy over time.

(2) Providing timely notice and opportunity for correction of

emerging weaknesses with established internal controls.

(3) Facilitating public resources and other decisions by ensuring

availability of accurate and reliable information.

(4) Facilitating production of timely and accurate financial reports,

and the submittal, when appropriate, of recommendations for

how greater efficiencies in support of the state agency's mission

may be attainable via the consolidation or restructuring of

potentially duplicative or inefficient processes, programs, or

practices where it appears such changes may be achieved

without undermining program effectiveness, quality, or

customer satisfaction.

ASP did not establish internal controls in accordance with California

Government Code requirements, specifically, by an effective system of

internal review by which payroll data recorded into the payroll system is

reviewed or reconciled by an employee other than the one who recorded

the transaction.

The lack of adequate segregation of duties and compensating controls has

a pervasive effect on the ASP payroll process and impairs the effectiveness

of other controls by rendering their design ineffective or by preventing

them from operating effectively. This control deficiency represents 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, regulation, or

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


-8-

Recommendation

ASP should establish sufficient internal controls to ensure an effective

internal review system by segregating incompatible duties, to the extent

possible, as required by California Government Code.

ASP’s Response

Prior to the audit, ASP recognized the need to implement improvements

to strengthen internal controls. ASP has implemented process changes

and increased oversite to improve accuracy…

ASP Personnel Management and Supervisors perform weekly reviews

of all work completed by Personnel Specialists to identify any potential

keying discrepancies and provide any necessary staff training.

SCO’s Comment

ASP indicated that it has implemented corrective actions in response to the

finding. We will follow up at the next payroll audit to ensure that the

corrective actions are adequate and appropriate.

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

requirements of collective bargaining agreements and state regulations to

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

increased liability for excessive leave credits that will cost the State at least

$653,403 as of December 31, 2014. The amount of the liability will

continue to increase if ASP does not take corrective action to address the

excessive vacation and annual leave credits.

Collective bargaining unit contracts and state regulations limit the amount

of vacation and annual leave the employees may accumulate to no more

than 80 days (640 hours). The limit on leave balances controls the State’s

liability for accrued leave credits and the applicable financial liability.

However, state agencies may allow employees to carry excessive balances

in limited circumstances. For instance, an employee may not be able to

reduce accrued vacation or annual leave hours below the limit because of

business needs. State agencies, in coordination with the affected

employees, are required to develop a written plan to reduce vacation or

annual leave balances at or below the applicable limit when an employee’s

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

Our review of the leave accounting records identified 751 ASP employees,

who are subject to the limitations of bargaining unit contracts and state

regulations on the amount of vacation or annual leave that can be

accumulated, with a vacation or annual leave balance at December 31,

2014. Of the 751 employees, 50 (7%) exceeded the limit set by contracts

and regulations. ASP could not provide documentation to support that it

allowed the 50 employees to carry vacation or annual leave balances

beyond the limit based on exceptions specified in agreements and state

regulations, or that it implemented actions to bring leave balances below

the limit.

FINDING 2—

Inadequate

controls over

vacation and

annual leave

balances, resulting

in an increased

State liability


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Collectively, the 50 employees accumulated 20,258 hours in excess

vacation and annual leave, estimated at an excess liability of $653,403.

This estimated liability does not adjust for salary rate increases and

additional leave credits. Most state employees receive salary increases

annually until reaching the maximum salary rate of their applicable pay

scale. In addition, when projecting accumulated leave balances upon

separation from state service, an employee earns additional leave credits

equal to the amount that the employee would have earned had the

employee taken time off and had not separated from state service.

For example, one employee had an accumulated balance of 1,109.25 hours

of annual leave, 88 hours of personal leave, 436.5 hours of holiday credit,

and 197.63 hours of compensating time off, for a total of 1,831.38 hours

at time of separation. After adjusting for additional leave credits, the

employee was compensated for 2,167.38 hours at a cost of $66,277. If the

employee’s annual leave balance was 640 hours at time of separation, the

total number of hours and pay would have been 1,622.13 hours and

$49,786, a difference of 545.25 hours and $16,491.

A trend analysis also was conducted on the number of employees who had

excessive vacation or annual leave balances throughout the review period.

The following table shows the annual change in the number of employees

with vacation and annual leave balances exceeding the 640-hour limit and

the total vacation and annual leave hours in excess of the 640-hour limit:

As of

Number of

employees

with vacation

or annual

leave balance

exceeding

640 hours

Year-to-

year

percentage

increase

(decrease)

Total

vacation and

annual leave

hours in

excess of the

640-hour

limit

Year-to-year

percentage increase

(decrease)

January 1, 2012 48 - 13,024 -

December 31, 2012 56 17% 16,103 24%

December 31, 2013 61 9% 20,137 25%

December 31, 2014 50 -18% 20,258 1%

Recommendation

ASP should implement controls to ensure employees’ vacation and annual

leave balances are maintained within levels allowed by collective

bargaining agreements. ASP should conduct ongoing monitoring of

controls to ensure they are implemented and operating effectively.

Also, if the State offers leave buy-back programs, ASP should participate

if funds are available.

ASP’s Response

…ASP is now utilizing the Leave Accounting Balance reports to identify

keying errors and maintain accurate records of leave balances…Letters

are sent to employees requesting a written plan be developed to reduce

and maintain vacation and annual leave balances within levels allowed

by collective bargaining agreements.


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SCO’s Comment




ASP lacked adequate controls over the processing of employee separation

lump sum pay and its employees’ holiday credit accruals. ASP

inaccurately calculated ten of the 15 employees’ (67%) separation lump

sum pay reviewed for a total of 169 hours overstated at a cost of $8,355.

Pursuant to collective bargaining agreements and state law, employees are

entitled to receive cash for specific types of accrued leave credits when

separating from state service.

ASP processed separation lump sum pay for 281 employees between

January 1, 2012 and December 31, 2014. Fifteen of 281 records for

recipients of separation lump sum pay were reviewed to determine

whether the payments were accurately calculated, and properly processed

and recorded, in accordance with state laws and regulations. We noted that

the audited calculation of hours and pay for ten of the 15 records reviewed

did not agree to the hours and pay issued by ASP:

Employee 1 – Overcompensated by 8.4 hours, amounting to $194.37.

Employee 2 – Undercompensated by 14.8 hours, and

overcompensated by $362.76.


Employee 4 – Overcompensated by 41.2 hours, amounting to

$1,585.34.

Employee 5 – Undercompensated by 7.4 hours, amounting to $284.74.



Employee 8 – Undercompensated by 1.95 hours, amounting to $55.11.

Employee 9 – Overcompensated by 8 hours, amounting to $461.18.

Employee 10 – Overcompensated by 98.8 hours, amounting to

$4,745.04.

The net variance noted equaled 169 hours overstated at a cost of $8,355.

The inaccurate calculations and pay were undetected due to a lack of

monitoring and oversight controls. The documentation provided for

review lacked any indication that the calculations were reviewed for

accuracy by an authorized individual.

GC 13402 states, in part:

State agency heads are responsible for the establishment and

maintenance of a system of internal accounting, administrative control,

and effective, independent, and objective ongoing monitoring of the

internal accounting and administrative controls within their agencies.

FINDING 3—

Inadequate

controls over

separation lump

sum pay, resulting

in improper

payments


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GC 13403 (a) states:

(a) Internal accounting and administrative controls, if maintained and

reinforced through effective monitoring systems and processes, are

the methods through which reasonable assurances can be given that

measures adopted by state agency heads to safeguard assets, check

the accuracy and reliability of accounting data, promote operational

efficiency, and encourage adherence to prescribed managerial

policies are being followed. The elements of a satisfactory system

of internal accounting and administrative control, shall include, but

are not limited to, the following:





assigned duties.

(3) A system of authorization and recordkeeping procedures

adequate to provide effective accounting control over assets,

liabilities, revenues, and expenditures.

(4) An established system of policies to be followed in performance

of duties and functions in each of the state agencies.



GC 13403 (c) states:

(b) Monitoring systems and processes are vital to the following:

(1) Ensuring that routine application of internal controls does not








how greater efficiencies in support of the agency’s mission may

be attainable via the consolidation or restructuring of





Recommendation

ASP should:

Implement adequate controls to ensure accurate calculations of

separation lump sum pay, in accordance with the California

Government Code and bargaining unit agreements.


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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. If

any inaccurate payment is made to a separated employee, ASP should

take action to recover overpayments, and properly compensate those

who were undercompensated, in accordance with applicable state laws

and the State Administrative Manual.

ASP’s Response

Lump Sum calculations are now verified by supervisors prior to

processing for accuracy as well as other payroll transactions…

ASP Personnel Management and Supervisors perform weekly reviews

of all work completed by Personnel Specialists to identify any potential

keying discrepancies and provide any necessary staff training. Training

is continuously provided to staff on the practice of processing various

payroll transactions, current laws and regulations, and requirements

under the bargaining unit contracts.

SCO’s Comment




ASP lacked adequate controls over the processing of holiday credit

accruals and overtime pay. ASP incorrectly processed one of the 12

holiday credit transactions we selected for review, resulting in 16

overstated holiday credit hours at a cost of $662. In addition, two of 20

instances of overtime payments reviewed were in error, resulting in $308

in overpayments.

Holiday Credit

Leave accounting records reported a total of 113,324 hours of holiday

credit accrued during the scope of the engagement. We reviewed 12

selected holiday credit transactions consisting of 248 hours accrued and

found that one transaction was recorded erroneously. The employee’s

timesheet reported a usage of eight hours of holiday credit, and ASP

erroneously recorded the usage as an accrual. Consequently, the

employee’s holiday credit balance was overstated by 16 hours, at a cost of

$662. We found no indication that the holiday credit transactions were

reviewed by an individual other than the payroll transaction unit staff

responsible for keying these transactions in the system.

Overtime

Payroll records reported a total of 64,158 Payment Type I (overtime)

transactions for a total 1,077,386.4 hours at a cost of of $34,244,907. We

reviewed 20 overtime transactions consisting of 314.17 hours at a cost of

$11,032. We found that two of the selected overtime payments were

erroneous. One employee was compensated for seven hours of overtime at

an incorrect salary rate, resulting in an overpayment of $29. Another

FINDING 4—

Inadequate

controls over

holiday credit and

overtime pay,

resulting in

improper

payments


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employee was compensated for 3.67 hours of overtime when records did

not support the overtime, resulting in an overpayment of $279. We found

no indication that the overtime payment transactions were reviewed by an

individual other than the payroll transaction unit staff responsible for

keying these transactions into the system.

GC 13402 states, in part:

State agency heads are responsible for the establishment and

maintenance of a system of internal accounting, administrative control,

and effective, independent, and objective ongoing monitoring of the

internal accounting and administrative controls within their agencies.

GC 13403 (a) states:

(c) Internal accounting and administrative controls, if maintained and

reinforced through effective monitoring systems and processes, are

the methods through which reasonable assurances can be given that

measures adopted by state agency heads to safeguard assets, check

the accuracy and reliability of accounting data, promote operational

efficiency, and encourage adherence to prescribed managerial

policies are being followed. The elements of a satisfactory system

of internal accounting and administrative control, shall include, but

are not limited to, the following:





assigned duties.

(9) A system of authorization and recordkeeping procedures

adequate to provide effective accounting control over assets,

liabilities, revenues, and expenditures.

(10) An established system of policies to be followed in performance

of duties and functions in each of the state agencies.



GC 13403 (c) states:

(d) Monitoring systems and processes are vital to the following:

(5) Ensuring that routine application of internal controls does not








how greater efficiencies in support of the agency’s mission may

be attainable via the consolidation or restructuring of


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Recommendation

ASP should establish and implement adequate oversight controls to ensure

that payroll and leave balance transactions are accurately processed.

Specifically, ASP should separate conflicting payroll function duties to the

extent possible, whereby transactions processed by one employee are

reviewed by another.

ASP’s Response

Payroll transactions are now verified by supervisors prior to processing for

accuracy.

SCO’s Comment

ASP has indicated that it implemented corrective actions in response to the




Attachment—

Avenal 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-9009

PAYROLL PROCESS REVIEW - California State Controller

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