BILL ANALYSIS Ó AB 757 Page 1 Date of Hearing: April 30, 2013 ASSEMBLY COMMITTEE ON WATER, PARKS AND WILDLIFE Anthony Rendon, Chair AB 757 (Hernández, Roger) - As Introduced: February 21, 2013 SUBJECT : Department of Parks & Recreation; Regulations SUMMARY : Requires the Department of Parks & Recreation (DPR) to adopt emergency regulations by July 31, 2014 implementing recommendations of the State Controller's Office regarding violations of out-of-class (OOC) assignments by the DPR. Specifically, this bill : 1)Requires DPR to adopt emergency regulations by July 1, 2014 implementing, to the extent practicable, policy recommendations contained in an audit review report on DPR conducted by the State Controller's Office (SCO) concerning compensation for employees working OOC assignments. 2)Provides that adoption of the regulations shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare, and provides that the regulations shall be exempt from review and approval by the Office of Administrative Law (OAL). Requires DPR to transmit the regulations directly to the Secretary of State for filing, and provides that the regulations shall take effect immediately upon filing by the Secretary of State. 3)Reiterates the recommendations of the SCO contained in the audit of DPR completed on December 18, 2012, including: recommendations on procedures that should be followed for obtaining proper approvals before OOC assignments are entered into the payroll system; review of bargaining contracts before approval of OOC assignments to ensure compensation is not paid beyond the time periods authorized; documentation of rules for approval of OOC assignments for managers; training to be provided by DPR to staff on adjustment of OOC pay for employees on nonindustrial disability insurance (NDI); tools and training to be provided to staff to ensure payment calculations are calculated and documented correctly; the need for regular internal audit reviews of OOC assignments to determine compliance with state law, bargaining unit agreements and DPR policies; and that DPR should seek reimbursement from employees who received OOC payments to which they were not lawfully AB 757 Page 2 entitled. 4)Requires DPR to report to the Legislature on the regulations adopted on or before July 31, 2014. 5)Sunsets this bill on December 31, 2014. EXISTING LAW : 1)Establishes the DPR and vests it with control of the state park system and responsibility for administering, protecting, developing and interpreting state parks for the use and enjoyment of the public. Requires DPR to protect the state park system from damage and to preserve the peace therein. 2)Establishes the SCO in the California State Constitution and vests the SCO with responsibility for supervising the fiscal concerns of the State. Requires the SCO to audit all claims against the State and authorizes the SCO to audit the disbursement of any state money for correctness, legality and lawful payment. 3)Delegates to State departments the authority to approve employee OOC assignments, subject to limitations, rules and procedures set out in administrative regulations and various Department of Personnel Administration and State Civil Service manuals. Requires departments to refer to bargaining unit contracts for represented employees. 4)Establishes a process, pursuant to the Administrative Procedures Act (APA) for adoption of emergency regulations, where necessary to address situations calling for immediate action to avoid serious harm to the public peace, health, safety or general welfare. Requires review and approval of emergency regulations by the Office of Administrative Law (OAL). FISCAL EFFECT : Unknown COMMENTS : On July 15, 2012 the Sacramento Bee reported that a high-ranking official at DPR carried out a secret vacation buy-out program during 2011 for himself and other headquarters staff. The Bee reported that the buy-backs cost more than $271,264 and that DPR participated in additional unauthorized vacation buy-backs in 2004, 2005 and 2008. The vacation buy-outs AB 757 Page 3 were the subject of internal audits by DPR and the Attorney General's Office, and are also being investigated by the Bureau of State Audits. After the Bee article came out, the SCO determined how the buy-back transactions were entered into the State's payroll system. The SCO discovered that two DPR managers keyed in the majority of the buy-back transactions, and that these managers should not have been allowed keying input access to the system due to their management status. As a result of the circumstances surrounding the leave buy-back program and the security protocol violations, the SCO determined it was necessary to perform a broader review of DPR's payroll processes. The review was released in December 2012 and identified internal control weaknesses and/or violations of DPR and State policies that created a risk of abuse, fraud and overpayments to employees for OOC assignment pay. Specifically, the SCO found: DPR management circumvented internal controls for authorizing OOC assignments pay; DPR lacked proper supporting documentation for OOC assignments; OOC assignment periods exceeded limits set by bargaining unit agreements and State regulations, resulting in overpayments to employees; DPR did not wait 91 days before paying managers OOC compensation, as required by the State Civil Service Pay Scales Manual; OOC pay was not adjusted for employees receiving NDI, as required by the State Civil Service Pay Scales Manual; and OOC payment calculations were not properly calculated or documented, as required by the SCO's Payroll Procedures Manual. The SCO report made several recommendations, including but not limited to the following: All OOC assignments should be forwarded to DPR's Classification and Pay Unit for approval, and the DPR Transactions Unit should ensure all proper approvals are obtained before entering assignments into the payroll system and before the assignment start date; DPR's Classification and Pay Unit should review bargaining unit contracts before approval of OOC assignments to ensure that compensation is not being paid beyond the end of the assignment period and does not exceed the maximum number of days allowed for the employee's classification; Justification documentation should state that approval for managers to receive OOC may occur only after the manager AB 757 Page 4 already has worked in an OOC assignment for 90 days; The DPR Transactions Unit should provide training and tools to staff to ensure they follow rules for employees on NDI, and to ensure payment calculations are calculated correctly and are adequately documented; DPR's Internal Audit Unit should conduct regular reviews of OOC assignments for compliance with state law, bargaining unit agreements, and DPR policies; and DPR should seek reimbursement from employees who received OOC payments to which they were not lawfully entitled. DPR in its response to the SCO's audit agreed with the recommendations made and noted that many of the improvements and safeguards suggested have already been implemented. They also noted that DPR has in place an entirely new executive management team. With regard to the specific recommendations, DPR stated that a majority were implemented prior to completion of the audit. The Classification and Pay Unit at DPR is following a newly updated OOC Procedural Guide that includes several control measures, including: requirements for bargaining unit contract review; approval of OOC assignments by the DPR Budget Chief, Division Chief, Classification and Pay Unit Manager, and Administrative Division Chief; and other measures to ensure approvals are received before the OOC effective date and rules for management employee OOC pay are followed. DPR indicated other SCO recommendations would be implemented by December 31, 2012, including employee trainings, tools for ensuring proper calculations, an internal audit review schedule (the first of which are to be implemented in 2013), and plans to seek reimbursement from employees who received OOC payments they were not entitled to. With regard to the latter, DPR indicated an accounts receivable will be established within 60 days of notification of the impacted employees. DPR also noted that managerial employees responsible for circumventing the OOC approval process have been replaced or are no longer employed by DPR. The OOC issues reviewed by the SCO audit were just one of several problems at DPR revealed through multiple audits and investigations last year, some of which are ongoing. At least four audits were conducted, including audits by the Department of Finance, the Attorney General's Office, the Bureau of State Audits, and the SCO audit which is the subject of this bill. The Bureau of State Audits is also in the midst of conducting a second phase of their audit which is also looking closer at the AB 757 Page 5 vacation buy-out issue. The Attorney General's investigation found that certain management level employees at DPR intentionally concealed the true balance of funds available in the State Park and Recreation Fund from the Department of Finance and the Legislature. That revelation, coming closely on the heels of the disclosure of the unauthorized vacation buy-outs, led to the resignation of the DPR director and the termination of several other management level employees. Since that time, the Governor appointed a new Director, and the Legislature and Administration have taken several actions through budget trailer bills to prevent these problems from happening again in the future. For example, a requirement has now been imposed that SCO fund condition statements, and the budget balances reported by departments to the Department of Finance, must be reconciled so that the Legislature and Administration are relying on correct information in developing and approving the state budget. Issues for Committee Consideration : In light of these revelations, it is understandable that the author of this bill is proposing legislation to ensure that the recommendations of the SCO concerning OOC payments are implemented. However, while the goal of this bill is laudable, the use of the emergency regulatory process as proposed may not be the best tool for achieving this objective for several reasons. First, regulations already exist governing the process for OOC assignments for excluded employees such as managers (see Title 2, California Code of Regulations, Section 599.810), and for represented employees, procedures are contained in bargaining unit agreements. The problem in DPR's case was not a lack of rules and regulations governing OOC payments, but that DPR staff was not following them. Therefore, adoption of additional regulations as proposed in this bill could be either duplicative of existing rules, or potentially in conflict with the criteria set out in bargaining unit contracts, which are renegotiated from time to time. Secondly, as defined in the Government Code, emergency regulations are regulations that are necessary to address a situation that calls for immediate action to avoid serious harm to the public peace, health, safety or general welfare. Emergency regulations are limited to such emergencies because the adoption of emergency regulations involves a very truncated public review process (normally just 5 days). The APA also requires all regulations, including emergency regulations, to be AB 757 Page 6 reviewed and approved by the OAL. The purpose of the OAL review is to ensure that regulations meet the standards of necessity, authority, clarity, consistency, reference and non-duplication required by the APA. OAL also reviews emergency regulations to ensure that the regulations meet the statutory standard for an emergency, which is a factual determination. This bill would "deem" the regulations to have met the emergency test. However, it is unclear that the situation in this case actually constitutes the type of emergency that would meet the statutory standard in the sense of being necessary to avoid immediate and serious public harm. The fact that DPR has already begun to implement the recommendations would seem to indicate that regulations - whether emergency or otherwise - are not necessary in this case for DPR to comply with the audit recommendations. This bill would also exempt the emergency regulations from OAL review. The Legislature has generally been reluctant to exempt regulations from OAL review because the purpose of the review is to ensure that regulations are necessary and consistent and not in conflict with other provisions of law. Exemptions can create precedents for other exemptions, which cumulatively can begin to erode the purpose of the APA. Suggested Amendments : Recognizing the important public policy goals served by ensuring that DPR complies with the recommendations of the SCO audit on OOC assignments, and also recognizing, for all the reasons stated above, that the emergency regulatory process may not be the best tool for achieving that goal, staff recommends committee amendments be adopted to delete the provisions of this bill requiring adoption of emergency regulations, and instead require in statute that DPR comply with the SCO recommendations and report back to the Legislature regarding its compliance by no later than July 1, 2014. REGISTERED SUPPORT / OPPOSITION : Support Opposition None on file. None on file. Analysis Prepared by : Diane Colborn / W., P. & W. / (916) 319-2096 AB 757 Page 7