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Final Resolution of Unresolved AB 2766 Program Audit Findings and Recommendations

SYNOPSIS: 

Health and Safety Code Section 44244.1 requires any agency that receives fee revenues subvened from the Department of Motor Vehicles to be audited once every two years. This audit of AQMD’s share, MSRC’s share, and local governments’ share of such subvened funds, performed by independent Certified Public Accountants, has been completed and makes certain recommendations for improvement in some areas.

COMMITTEE: 

Mobile Source, January 28, 2000. Less than a quorum was present during the discussion of this item; those Committee members who were present communicated their concurrence.

RECOMMENDED ACTION:

1. Resolve the audit finding by allowing the purchase of fuel utilizing AB 2766 funds for the audit year for the cities of Duarte and Manhattan Beach.
   
   
2. Instruct staff to develop guidance in consultation with the ARB for future years, clarifying the use of AB 2766 funds for alternative fuel purchases including a determination whether the full cost or only the incremental difference between gasoline/diesel and alternative fuel costs would be allowable.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

The biennial audit of the Motor Vehicle Registration Fee Revenue Program (AB 2766) conducted under Health and Safety Code Section 44244.1 has been concluded for FYs 1995-96 and 1996-97 and the audit reports transmitted to your Board at its December 10, 1999 meeting. The audit covered the AQMD’s use of the money, projects funded by the Mobile Source Air Pollution Reduction Review Committee (MSRC), and the use of the fee revenues by selected local governments.

The audit reports on local governments listed 34 local governments with noncompliant items. There were a total of 49 findings. To date, all but one of the findings (with the City of Duarte) have been resolved. Subsequent to the December 10, 1999 Board meeting, staff continued to work with the City of Duarte to obtain resolution of the one remaining finding.

Audit Finding

The audit of the City of Duarte (City) disclosed information relating to $5,733 in expenditures of AB 2766 registration fee revenues for the operation and maintenance of methanol vehicles. The City disagreed with the audit finding of noncompliance and felt that guidelines were not clear on the use of AB 2766 funds to purchase methanol fuel or for ongoing operational costs.

AQMD staff reviewed the annual program reports for the audit year submitted by the City of Duarte. AQMD staff obtained the City’s detailed expenditure ledgers from the auditor and inquired with the City regarding whether some of the $5,733 was not for fuel and operation of the methanol vehicle.

In early January, the City responded and had classified the $5,733 in expenditures into three categories: 1) methanol fuel purchases ($2,198.44); 2) vehicle repairs ($1,783.58); and 3) "other" ($1,750.76). Based on this analysis the City of Duarte accepted the audit finding related to nonfuel cost and has directed that a total of $3,534.34 (representing vehicle repairs and other unallowable expenditures) be deducted from their second quarterly disbursement of FY 1999-2000, which is scheduled for March 2000. However, the City still believes that guidelines relating to fuel usage were unclear.

Presently, the ARB does not believe that motor vehicle funds should be utilized for the support of ongoing operational expense. The ARB’s position is that funding ongoing operations does not meet the legislative requirement because no new emission reductions would be achieved.

However, ARB has not provided specific guidance with respect to fuel use and whether that should be considered operational expenses. ARB staff has stated that they are fuel neutral. The City of Duarte believed that the purchase of alternative fuels does reduce emissions. Thus, it appears that guidance was not clear at the time Duarte made the expenditures for methanol fuel.

Audit Resolution

Based upon the City of Duarte’s input that guidelines with the respect to the usage of AB 2766 funds from the ARB or District were unclear, staff recommends that the amount representing alternative fuel purchases by the City of Duarte ($2,198.44) be an allowable expense for the audited year. In addition staff will draft for Board review, guidelines which will clarify for future years whether the full cost or only the incremental cost of alternative fuel with AB 2766 funds is allowable.

It should be noted that one other local government recipient (Manhattan Beach) had a similar finding in the amount of $14,996, and that City has voluntarily reimbursed the AB 2766 fund. Based on this resolution for the City of Duarte, AQMD staff recommends that the City of Manhattan Beach be notified of the revised outcome for the audited year, giving them the opportunity to be absolved of the similar finding for the audited year.

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