BOARD MEETING DATE: December 10, 1999 AGENDA NO. 11
REPORT:
Audit Report of AB 2766 Fee Revenue Recipients for FYs Ending June 30, 1996 and 1997, and Set Public Hearing January 21, 2000 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, November 19, 1999, Recommended for Approval
RECOMMENDED ACTION:
- Receive and file report.
- Set Public Hearing January 21, 2000 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 third 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 Advisor 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, 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 1998, the AQMD Board approved an award for the performance of the audit to the CPA firm of Simpson & Simpson, Certified Public Accountants.
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 no findings. The audit report is included in Attachment I. The cost of auditing the AQMD’s use of the AB 2766 revenues was $2,500, paid from the AQMD’s portion of the fee revenues.
Local Government Use of AB 2766 Fee Revenues – Segment 2
Nearly $31 million were distributed to local jurisdictions during the two-year audit period (FYs 1995-96 and 1996-97). 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 1995-96 and 32 in FY 1996-97 received over $100,000 annually (large recipients). Twenty-six (26) large recipients were in compliance with audit guidelines in FY 1995-96 and 27 large recipients were compliant in FY 1996-97. Simpson & Simpson 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 1995-96 and 123 in FY 1996-97. Of these, 114 were in compliance in FY 1995-96 and 115 were in compliance in FY 1996-97. From this compliant pool, 25 cities were selected to be audited. There were eight noncompliant small local governments in both FYs 1995-96 and 1996-97. These were audited in addition to the pool cities.
Audits were performed on 47 local government recipients; 19 cities had no audit findings. Of the 28 cities with findings, there were a total of 42 findings noted. A desk review was completed for 28 large recipients, which resulted in seven 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.
Of the total 49 findings, to date, all but one is resolved. 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.
Local governments are permitted to pool their resources through joint powers agreements (JPAs) for implementing the requirements for the use of AB 2766 funds. The following four JPAs were in existence during FYs 1995-96 and 1996-97 and were also audited:
All of the JPAs audited were found to be in full compliance with all AB 2766 requirements.
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 audited local governments and is currently working with cities and counties to provide resolution of issues.
Unresolved issues, if any, and a summation of the audit findings and recommendations will be brought to the Board at its January 21, 2000 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 $48,400. 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 29 projects in FY 1995-96 and 20 projects in FY 1996-97, for a total amount of $14,823,737.
For the discretionary portion of the funds, the scope of the audit included 16 projects randomly selected from the Work Program awarded by the MSRC in FYs 1995-96 and 1996-97. In addition, audits were performed for the Regional Transit Database Information Exchange award (Southern California Association of Governments), The Planning Center and General Motors Acceptance Corporation. The auditors have issued a total of 19 reports. They consist of two summary reports (Attachment IV) and individual reports for each project audited.
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 November 18, 1999 and concurs. The $10,000 cost of auditing MSRC recipients will be deducted from the fee revenues subvened to the MSRC in FY 1999-2000.
I. AQMD’s Use of AB 2766 Fee Revenues – Segment 1
II. Local Government Use of AB 2766 Fee Revenues Summary Audit Reports – Segment 2 and Segment 2-Subgroup 1
III. Summary of Audit Findings for Local Governments
IV. MSRC’s Use of AB 2766 Fee Revenues Summary Audit Report – Segment 3 and Segment 3 - Projects
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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