BILL ANALYSIS                                                                                                                                                                                                    Ó



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          ASSEMBLY THIRD READING
          AB 757 (Roger Hernández)
          As Amended  May 2, 2013
          Majority vote 

           WATER, PARKS & WILDLIFE          15-0                
          APPROPRIATIONS      17-0        
           
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          |Ayes:|Rendon, Bigelow, Allen,   |Ayes:|Gatto, Harkey, Bigelow,   |
          |     |Blumenfield, Bocanegra,   |     |Bocanegra, Bradford, Ian  |
          |     |Dahle, Fong, Frazier,     |     |Calderon, Campos,         |
          |     |Beth Gaines, Gatto,       |     |Donnelly, Eggman, Gomez,  |
          |     |Gomez, Gray, Patterson,   |     |Hall, Rendon, Linder,     |
          |     |Yamada, Bloom             |     |Pan, Quirk, Wagner, Weber |
          |     |                          |     |                          |
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           SUMMARY  :  Requires the Department of Parks and Recreation (DPR),  
          by July 31, 2014, to implement recommendations of the State  
          Controller's Office (SCO) regarding violations of out-of-class  
          (OOC) assignments by the DPR.  Specifically,  this bill  :

          1)Requires DPR, by July 1, 2014, to implement policy  
            recommendations contained in the SCO's Payroll Review Report  
            dated December 18, 2012.

          2)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 that 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 entitled.









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          3)Requires DPR to report to the Legislature on its  
            implementation of the SCO's recommendations on or before July  
            31, 2014.

          4)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  :  According to the Assembly Appropriations  
          Committee, increased costs to DPR to implement the SCO  
          recommendations, including reporting and training, potentially  
          in the $100,000 range, offset by the potential recovery of  
          revenue from employees who unlawfully received OOC payments.

          COMMENTS  :  On July 15, 2012, the Sacramento Bee reported that a  
          high-ranking official at DPR carried out a secret vacation  








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          buy-out program during 2011 for himself and other headquarters  
          staff.  The Sacramento 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 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 Sacramento 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:

          1)DPR management circumvented internal controls for authorizing  
            OOC assignments pay.

          2)DPR lacked proper supporting documentation for OOC  
            assignments.

          3)OOC assignment periods exceeded limits set by bargaining unit  
            agreements and state regulations, resulting in overpayments to  
            employees. 

          4)DPR did not wait 91 days before paying managers OOC  
            compensation, as required by the State Civil Service Pay  
            Scales Manual. 

          5)OOC pay was not adjusted for employees receiving NDI, as  
            required by the State Civil Service Pay Scales Manual.

          6)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  








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          limited to the following:

          1)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.

          2)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.

          3)Justification documentation should state that approval for  
            managers to receive OOC may occur only after the manager  
            already has worked in an OOC assignment for 90 days.

          4)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.

          5)DPR's Internal Audit Unit should conduct regular reviews of  
            OOC assignments for compliance with state law, bargaining unit  
            agreements, and DPR policies. 

          6)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  








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          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  
          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. 


           Analysis Prepared by  :    Diane Colborn / W., P. & W. / (916)  
          319-2096


                                                                FN: 0000573








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