South Coast Air Quality Management District
South Coast Air Quality Management District
BOARD MEETING DATE: May 11, 2001 AGENDA NO. 16
Audit Report of AB 2766 Fee Revenue Recipients for FYs Ending June 30, 1998 and 1999, and Set Public Hearing June 15, 2001 Regarding Final Resolution of Unresolved Audit Findings and Recommendations
SYNOPSIS:
Health and Safety Code 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:
Administrative, April 13, 2001, Recommended for Approval
RECOMMENDED ACTION:
- Receive and file report.
- Approve Revised Audit Program Guidelines.
- Set Public Hearing June 15, 2001 regarding final resolution of unresolved audit findings and recommendations.
Barry R. Wallerstein, D.Env.
Executive Officer
Background
AB 2766 was chaptered into law as Health and Safety Code Sections 44220-44247 which were enacted to authorize air pollution control districts to impose fees on motor vehicles. These fees are to be expended specifically for the purpose of mobile source air pollution reduction measures pursuant to the California Clean Air Act of 1988 or the AQMD’s AQMP pursuant to Article 5 of Chapter 5.5 of Part 3 of the Health and Safety Code.
The fee revenue is collected by the Department of Motor Vehicles and subvened to the AQMD for distribution as follows: from every one dollar, thirty cents (30 percent) goes to support AQMD-approved programs for the reduction of emissions from mobile sources; forty cents (40 percent) is placed in the Air Quality Improvement Trust Fund for quarterly disbursement to local governments; and thirty cents (30 percent) is placed in the Mobile Source Air Pollution Reduction Trust Fund for projects awarded by the Mobile Source Air Pollution Reduction Review Committee (MSRC) under a work program approved by the AQMD’s Board.
AQMD’s portion of the revenue subvened from the Department of Motor Vehicles is classified as general fund revenue and utilized to fund the mobile-related components of AQMD programs. Fees subvened to local governments are utilized to fund mobile source emission reduction programs. Fees allocated to the MSRC are used to fund projects pursuant to a work program developed and adopted by the MSRC and approved by the AQMD Board. The funding mechanism for MSRC projects is a contractual agreement between the AQMD and the entity implementing the project and includes the audit requirements stated under AB 2766.
AB 2766 Audit Requirement
Health and Safety Code Section 44244.1 states that any agency receiving fee revenues shall, at least once every two years, be subject to an audit of each program or project funded. The audit is to be conducted by an independent auditor selected by the AQMD through a competitive bid process. Based on an opinion issued by the Attorney General of the State of California the audit is to report on the propriety of expenditures made under AB 2766--not their efficacy in reducing air pollution.
This is the fourth biennial audit of AB 2766 revenues. The audit covered the AQMD’s use of the money, projects funded by the MSRC, and the use by selected local governments of the fee revenues. The audits were based on the audit guidelines described below.
To assist local government compliance with the audit requirements of the law, in December 1992 the AQMD developed audit program guidelines for local government fee recipients. The guidelines were prepared in consultation with the Technical Advisory Committee (TAC) Audit Subcommittee of the AQMD’s Interagency AQMP Implementation Committee (IAIC). The elements of the audit program were reviewed with representatives of the Finance Committee of the California League of Cities and with Certified Public Accountants whose clients include local governments. The final audit program guidelines were approved by the AQMD Board on December 4, 1992 and updated with additional clarifications on January 13, 1995.
In accordance with the audit program guidelines provided to local governments for their 30% share, local governments are to submit an annual financial report and progress report to the AQMD. The financial reporting requirements are stratified based upon the annual dollar amount of revenues received. Large recipients (annual receipts more than $100,000) may elect to meet the financial reporting requirement by:
For small recipients (annual receipts of less than $100,000) the financial report shall consist of their audited general-purpose financial statement. Small recipients that submit annual audited financial statements shall form a pool from which, once every two years, a sample of 10% of participants will be selected for an audit by an independent auditor selected by the AQMD. In September 2000, the AQMD Board approved an award for the performance of the audit to the CPA firm of Thompson, Cobb, Bazilio & Associates.
In accordance with Section 44244.1 of the Health and Safety Code if, after reviewing the audit, the AQMD determines that the revenues from the fees have been expended in a manner which is contrary to the Health and Safety Code or which will not result in the reduction of air pollution from motor vehicles, it shall do all of the following:
Audit Summary
AQMD’s Use of AB 2766 Fee Revenues – Segment 1
The audit of the AQMD’s use of the motor vehicle registration revenues resulted in one finding. The finding noted that the AQMD under-recorded AB 2766 revenue fees of $2,848 and $3,605 in FYs 1997-98 and 1998-99, respectively. These funds were properly recorded in the General Fund but were not allocated to the various AB 2766 fund accounts. The AQMD has adjusted DMV revenues to reallocate these amounts to the proper AB 2766 fund accounts and has implemented additional procedures to reduce the possibility of future errors. The audit report is included in Attachment I. The cost of auditing the AQMD’s use of the AB 2766 revenues was $5,860, paid from the AQMD’s portion of the fee revenues.
Local Government Use of AB 2766 Fee Revenues – Segment 2
Over $31 million were distributed to local jurisdictions during the two-year audit period (FYs 1997-98 and 1998-99). There were a total of 151 cities and 4 counties receiving subvention funds from motor vehicle registration fees.
Of these, 33 local governments in FY 1997-98 and 34 in FY 1998-99 received over $100,000 annually (large recipients). Twenty-eight (28) large recipients were in compliance with audit guidelines in FY 1997-98 and FY 1998-99. Thompson, Cobb, Bazilio & Associates performed a desk review of all compliant large recipients. A full audit was conducted for all large recipients not in compliance with the audit guidelines.
There were 122 small recipients in FY 1997-98 and 121 in FY 1998-99. Of these, 103 were in compliance in FY 1997-98 and 101 were in compliance in FY 1998-99. From this compliant pool, 23 cities were selected to be audited. There were 12 noncompliant small local governments in FY 1997-98 and 11 in 1998-99. These were audited in addition to the pool cities.
Audits were performed on 45 local government recipients; 32 cities had no audit findings. Of the 13 cities with findings, there were a total of 16 findings noted. A desk review was completed for 28 large recipients, which resulted in 9 findings. The summary reports of audit findings for local governments are included in Attachment II. A Summary of Audit Findings for Local Governments is provided in Attachment III.
Noncompliance items include administrative costs in excess of the five percent cap, absence of or unreasonable allocation of interest, insufficient documentation of costs, unallowable costs, and noncompliance with reporting requirements. Of the total 25 findings, to date, all but one is resolved. The remaining unresolved finding is with the County of San Bernardino which did not allocate interest to its Air Quality Improvement Trust Fund in accordance with program guidelines and its own adopted ordinance.
Local governments are permitted to pool their resources for implementing the requirements for the use of AB 2766 funds. The following four entities were in existence during FYs 1997-98 and 1998-99 and were also audited:
Three of the entities audited were found to be in full compliance with all AB 2766 requirements. One entity’s audit report contained two findings as they were not made aware that they were receiving AB 2766 funds from member cities, and therefore, accounted for AB 2766 funds within the General Fund. In addition, for FY 1997-98, interest earned on AB 2766 funds was not being allocated. Both findings have been resolved.
As part of the overall Management Letter which summarizes the results of the financial audits and agreed-upon procedures reviews, Thompson, Cobb, Bazilio & Associates noted that AB 2766 Requirements are not clear to consortiums. Therefore, in light of the two findings noted in the Council of Government’s audit report, AQMD staff has revised and clarified AB 2766 guidelines to provide the consortiums with the specific program requirements for the proper accounting, expenditure and reporting of AB 2766 funds (Attachment V).
Local governments were provided with draft audit reports by the audit firm with a request to respond with clarifications and additional information. Their responses are included in the reports. Staff has forwarded a copy of the final report to the affected local governments and is currently working with cities and counties to provide resolution of issues.
Unresolved issues, if any, and a summation of the unresolved audit findings and recommendations will be brought to the Board at its June 15, 2001 meeting. At that time, the AQMD Board will conduct a public hearing on whether the moneys were properly spent and determine whether to withhold the funds.
The total cost to audit the local government recipients was $45,122. The cost of the audit of the pool cities was prorated among all the cities in the compliant pool. The cost of the balance of the audits will be borne by the agency being audited.
MSRCs Use of AB 2766 Fee Revenues – Segment 3
As part of the annual work program, the MSRC awarded funding for 15 projects in FY 1997-98 and 33 projects and 80 EV charge contracts in FY 1998-99, for a total amount of $29,177,474.
For the discretionary portion of the funds, the scope of the audit included projects randomly selected from the Work Program awarded by the MSRC in FYs 1997-98 and 1998-99. The auditors have issued two summary reports (Attachment IV).
The audits of the randomly selected projects from the MSRC work program resulted in no findings. The MSRC reviewed the summary audit report at its meeting on April 26, 2001. The $19,610 cost of auditing MSRC recipients will be deducted from the fee revenues subvened to the MSRC in FY 2000-2001.
Attachments
Due to the large number of audit reports, Attachments II and IV are summary reports only. The detailed audit reports for each local government recipient and MSRC contract audited are available for review at the AQMD’s library.
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