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SALINAS VALLEY STATE PRISON
Review Report
PAYROLL PROCESS REVIEW
July 1, 2010, through June 30, 2013
BETTY T. YEE California State Controller
June 2017
BETTY T. YEE
California State Controller
June 26, 2017
William L. Muniz, Warden
Salinas Valley State Prison
P. O. Box 1020
Soledad, CA 93960-1020
Dear Mr. Muniz:
The State Controller’s Office has reviewed the Salinas Valley State Prison (SVSP) payroll
process for the period of July 1, 2010, through June 30, 2013. SVSP management is responsible
for maintaining a system of internal control over the payroll process within its organization and
ensuring compliance with various requirements under state laws and regulations regarding
payroll and payroll-related expenditures.
Our limited review identified material weaknesses in internal control over the SVSP payroll
process that leave SVSP at risk of additional improper payments if not mitigated. Specifically,
SVSP lacked adequate segregation of duties and compensating controls over its processing of
payroll transactions. The lack of segregation of duties and appropriate compensating controls has
a pervasive effect on the SVSP payroll process and impairs the effectiveness of other controls by
rendering their design ineffective or by keeping them from operating effectively.
Our review also found that SVSP lacked sufficient controls over the processing of specific
payroll-related transactions to ensure that SVSP complies with collective bargaining agreements
and state laws, and that only valid and authorized payments are processed. The control
deficiencies contributed to SVSP employees’ excessive vacation and annual leave balances,
improper payments, and improper holiday credit and compensating time off accruals, costing the
State an estimated net total of $566,451. Our review was performed on a limited number of
transactions only; a more extensive review may determine that the amount of improper payments
is higher than what we found.
If you have any questions, please contact Andrew Finlayson, Chief, State Agency Audits Bureau,
by phone at (916) 324-6310.
Sincerely,
Original signed by
JEFFREY V. BROWNFIELD, CPA
Chief, Division of Audits
JVB/as
William L. Muniz, Warden -2- June 26, 2017
cc: Scott Kernan, Secretary
California Department of Corrections and Rehabilitation
Ralph Diaz, Undersecretary, Operations
California Department of Corrections and Rehabilitation
Kenneth J. Pogue, Undersecretary, Administration and Offender Services
California Department of Corrections and Rehabilitation
Diane Toche, Undersecretary, Health Care Services
California Department of Corrections and Rehabilitation
Alene Shimazu, Director, Division of Administrative Services
California Department of Corrections and Rehabilitation
Bryan Beyer, Director, Division of Internal Oversight and Research
California Department of Corrections and Rehabilitation
Kathleen Allison, Director, Division of Adult Institutions
California Department of Corrections and Rehabilitation
Connie Gipson, Deputy Director, Division of Adult Institutions
California Department of Corrections and Rehabilitation
Jeffrey Macomber, Deputy Director, Division of Adult Institutions
California Department of Corrections and Rehabilitation
Katherine Minnich, Deputy Director, Human Resources
California Department of Corrections and Rehabilitation
Lori Zamora, Deputy Director, Office of Audits and Court Compliance
California Department of Corrections and Rehabilitation
Linda Larabee, External Audits Manager, Office of Audits and Court Compliance
California Department of Corrections and Rehabilitation
Yulanda Mynhier, Director, Health Care Policy and Administration
California Correctional Health Care Services
Janet Lewis, Deputy Director, Policy and Risk Management
California Correctional Health Care Services
Debbie Richardson, Chief of Internal Audits
California Correctional Health Care Services
Kelly Green, Associate Warden of Business Services,
Salinas Valley State Prison
Rachelle Nunez, Institutional Personnel Officer
Salinas Valley State Prison
Mark Rodriguez, Chief, Administrative Services Division
California Department of Human Resources
Salinas Valley State Prison Payroll Process Review
Contents
Review Report
Summary ............................................................................................................................ 1
Background ........................................................................................................................ 2
Objectives, Scope, and Methodology ............................................................................... 3
Conclusion .......................................................................................................................... 4
Views of Responsible Officials .......................................................................................... 5
Restricted Use .................................................................................................................... 5
Findings and Recommendations ........................................................................................... 6
Attachment—Salinas Valley State Prison’s Response to Draft Review Report
Salinas Valley State Prison Payroll Process Review
-1-
Review Report
The State Controller’s Office (SCO) reviewed the Salinas Valley State
Prison (SVSP) payroll process for the period of July 1, 2010, through June
30, 2013. SVSP management is responsible for maintaining a system of
internal control over the payroll process within its organization, and for
ensuring compliance with various requirements under state laws and
regulations regarding payroll and payroll-related expenditures.
Our limited review identified material weaknesses in internal control over
the SVSP payroll process that leave SVSP at risk of additional improper
payments if not mitigated. We found that SVSP has a combination of
deficiencies in internal control over its payroll process such that there is a
reasonable possibility that a material misstatement in financial information
or noncompliance with provisions of laws, regulations, or contracts will
not be prevented, or detected and corrected on a timely basis. Specifically,
SVSP lacked adequate segregation of duties and compensating controls
over its processing of payroll transactions. The payroll transactions unit
staff performed conflicting duties. The staff performs multiple steps in
processing payroll transactions, including data entry into the State’s
payroll system; auditing employee timesheets; reconciling payroll,
including system output to source documentation; and reporting payroll
exceptions. This control deficiency was aggravated by the lack of
compensating controls, such as management oversight and review, to
mitigate the risks associated with such a deficiency. The lack of
segregation of duties and appropriate compensating controls has a
pervasive effect on the SVSP payroll process and impairs the effectiveness
of other controls by rendering their design ineffective or by keeping them
from operating effectively.
Our review also found that SVSP lacked sufficient controls over the
processing of specific payroll-related transactions to ensure that SVSP
complies with collective bargaining agreements and state laws, and that
only valid and authorized payments are processed. As summarized in the
table on page 2, the control deficiencies contributed to SVSP employees’
excessive vacation and annual leave balances, improper payments, and
improper holiday credit and compensating time off (CTO) accruals,
costing the State an estimated net total of $566,451. Our review was
performed on a limited number of transactions only; a more extensive
review may determine that the amount of improper payments is higher
than what we found.
Summary
Salinas Valley State Prison Payroll Process Review
-2-
The following table summarizes our review results:
Selections Reviewed Selections with Issues
Finding
Number Issues
Number
of
Selections
Reviewed
Selection
Unit
Dollar
Amount of
Selections
Reviewed
Number of
Selections
with Issues
Issues as a
Percentage
of
Selections
Reviewed ᵃ
Approxi-
mate
Dollar
Amount
Dollar
Amount of
Issues as a
Percentage
of Dollar
Amount of
Selections
Reviewed ᵃ
1 Inadequate segregation of
duties and compensating
controls
N/A N/A
N/A
N/A
N/A
N/A
N/A
2 Inadequate controls over
vacation and annual leave
balances, resulting in
liability for excessive
credits
46 Employee
$ 328,831
46
100%
$ 328,831
100%
3 Inadequate controls over
compensating time off,
resulting in excessive
balances
6 Employee
250,937 6 100% 250,937 100%
4 Inadequate controls over
employee separation
lump-sum pay, resulting in
underpayments, net
10 Employee
166,686
3
30%
(30,895)
(19%)
5 Inadequate controls over
out-of-class compensation,
resulting in improper
payments
20 Employee
86,736
5
25%
11,150
13%
6 Inadequate controls over
overtime pay, resulting in
overpayments, net
16 Employee
120,932
5
31%
5,003
4%
7 Inadequate controls over
holiday credits, resulting
in improper accruals
15 Holiday
credit
transactions
5,687
3
20%
851
15%
8 Inadequate controls over
uniform allowance,
resulting in improper
payments
15 Uniform
allowance
transactions
9,920
2
13%
574
6%
Total 128 $ 969,729 70 $ 566,451
ᵃ All percentages are rounded to the nearest full percentage point.
In 1979, the State of California adopted collective bargaining for state
employees. This adoption of collective bargaining created a significant
workload increase for the SCO’s Personnel and Payroll Services Division
(PPSD), as PPSD was the State’s centralized payroll processing center for
all payroll related-transactions. As such, PPSD decentralized the
processing of payroll, allowing state agencies and departments to process
their own payroll-related transactions. Periodic reviews of the
decentralized payroll processing at state agencies and departments ceased
due to the budget constraints in the late 1980s.
Background
Salinas Valley State Prison Payroll Process Review
-3-
In 2013, the California State Legislature reinstated the payroll reviews to
gain assurance that state agencies and departments maintain an adequate
internal control structure over the payroll function, provide proper
oversight over their decentralized payroll processing, and comply with
various state laws and regulations regarding payroll processing and related
transactions.
Review Authority
Authority for this review is provided by California Government
Code (GC) section 12476, which states, “The Controller may audit the
uniform state pay roll system, the State Pay Roll Revolving Fund, and
related records of state agencies within the uniform state pay roll system,
in such manner as the Controller may determine.” In addition, GC section
12410 stipulates that “The Controller shall superintend the fiscal concerns
of the state. The Controller shall audit all claims against the state, and may
audit the disbursement of any state money, for correctness, legality, and
for sufficient provisions of law for payment.”
Our review objectives were to determine whether:
Payroll and payroll-related disbursements were accurate and in
accordance with collective bargaining agreements and state laws,
regulations, policies, and procedures.
SVSP had established adequate internal control for payroll to meet the
following control objectives:
o Payroll and payroll-related transactions are properly approved and
certified by authorized personnel;
o Only valid and authorized payroll and payroll-related transactions
are processed;
o Payroll and payroll-related transactions are accurate and properly
recorded;
o Payroll systems, records, and files are adequately safeguarded;
and
o State laws, regulations, policies, and procedures are complied
with regarding payroll and payroll-related transactions.
SVSP complied with existing controls as part of the ongoing
management and monitoring of payroll and payroll-related
expenditures.
SVSP maintained accurate records of leave balances.
Salary advances were properly administered and recorded in
accordance with state laws, regulations, policies, and procedures.
We reviewed the SVSP payroll process and transactions for the period of
July 1, 2010, through June 30, 2013.
Objectives, Scope,
and Methodology
Salinas Valley State Prison Payroll Process Review
-4-
To achieve our review objectives, we:
Reviewed state and SVSP policies and procedures related to the
payroll process to understand the practice of processing various
payroll and payroll-related transactions;
Interviewed SVSP payroll personnel to understand the practice of
processing various payroll and payroll-related transactions, determine
their level of knowledge and ability relating to the payroll transaction
processing, and obtain or confirm our understanding of existing
internal control over the payroll process and systems;
Selected transactions recorded in the State’s payroll database based on
risk factors and other criteria for review;
Analyzed and tested transactions recorded in the State’s payroll
database and reviewed relevant files and records to determine the
accuracy of payroll and payroll-related payments, accuracy of leave
transactions, proper review and approval of transactions, adequacy of
internal control over the payroll process and systems, and compliance
with collective bargaining agreements and state laws, regulations,
policies, and procedures (errors found were not projected to the
intended population); and
Reviewed salary advances to determine whether they were properly
administered and recorded in accordance with state laws, regulations,
policies, and procedures.
Our limited review identified material weaknesses1 in internal control over
the SVSP payroll process that leave SVSP at risk of making additional
improper payments if not mitigated. SVSP has a combination of
deficiencies in internal control over its payroll process such that there is a
reasonable possibility that a material misstatement in financial information
or noncompliance with provisions of laws, regulations, or contracts will
not be prevented, or detected and corrected, on a timely basis. Specifically,
SVSP lacked adequate segregation of duties and compensating controls
over its processing of payroll transactions. The payroll transactions unit
staff performed conflicting duties. The staff performs multiple steps in
processing payroll transactions, including data entry into the State’s
payroll system; auditing employee timesheets; reconciling payroll,
including system output to source documentation; and reporting payroll
1 An evaluation of an entity’s payroll process may identify deficiencies in its internal control over such a process. A
deficiency in internal control exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent, or detect and correct
misstatements in financial information; impairments of effectiveness or efficiency of operations; or noncompliance
with provisions of laws, regulations, or contracts on a timely basis.
Control deficiencies, either individually or in combination with other control deficiencies, may be evaluated as
significant deficiencies or material weaknesses. A significant deficiency is a deficiency, or a combination of
deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention
by those charged with governance. A material weakness is a deficiency, or combination of deficiencies, in internal
control such that there is a reasonable possibility that a material misstatement in financial information, impairment
of effectiveness or efficiency of operations, or noncompliance with provisions of laws, regulations, or contracts will
not be prevented, or detected and corrected on a timely basis.
Conclusion
Salinas Valley State Prison Payroll Process Review
-5-
exceptions. This control deficiency was aggravated by the lack of
compensating controls, such as management oversight and review, to
mitigate the risks associated with such a deficiency. The lack of
segregation of duties and appropriate compensating controls has a
pervasive effect on the SVSP payroll process and impairs the effectiveness
of other controls by rendering their design ineffective or by keeping them
from operating effectively.
SVSP also lacked sufficient controls over the processing of specific
payroll-related transactions to ensure that SVSP complies with collective
bargaining agreements and state laws, and that only valid and authorized
payments are processed. The control deficiencies contributed to SVSP
employees’ excessive vacation and annual leave balances, costing at least
$328,831 as of June 30, 2013; excessive compensating time off balances,
costing an estimated total of $250,937; underpayments in employee
separation lump-sum pay, at a net total of $30,895; improper out-of-class
compensation, totaling approximately $11,150; improper payments for
overtime pay, at a net total of $5,003; improper holiday credit accruals,
costing an estimated total of $851; and improper payments for uniform
allowance, totaling $574. Our review was performed on a limited number
of transactions only; a more extensive review may determine that the
amount of improper payments is higher than what we found.
We issued a draft review report on May 11, 2017. William L. Muniz,
Warden, responded by letter dated May 26, 2017 (Attachment), and did
not dispute the findings. Mr. Muniz indicated that SVSP has implemented
corrective actions for the findings. We will follow up at the next payroll
review to ensure that the corrective actions were adequate and appropriate.
This report is solely for the information and use of SVSP, California
Department of Corrections and Rehabilitation, California Correctional
Health Care Services, and SCO; it is not intended to be and should not be
used by anyone other than these specified parties. This restriction is not
intended to limit distribution of this report, which is a matter of public
record.
Original signed by
JEFFREY V. BROWNFIELD, CPA
Chief, Division of Audits
June 26, 2017
Views of
Responsible
Officials
Restricted Use
Salinas Valley State Prison Payroll Process Review
-6-
Findings and Recommendations
SVSP lacked adequate segregation of duties within its payroll transactions
unit that would ensure that only valid and authorized payroll transactions
are processed. SVSP also failed to implement other controls to compensate
for this risk.
GC sections 13402 and 13403 mandated state agencies to establish and
maintain internal controls, including proper segregation of duties and an
effective system of internal review. Adequate segregation of duties
reduces the likelihood that fraud or error will remain undetected by
providing for separate processing by different individuals at various stages
of a transaction and for independent reviews of the work performed.
Our review found that the SVSP payroll transactions unit staff performed
conflicting duties. The staff performs multiple steps in processing payroll
transactions, including data entry into the State’s payroll system; auditing
employee timesheets; reconciling payroll, including system output to
source documentation; and reporting payroll exceptions. For example, the
payroll transactions unit staff keys in regular and overtime pay and
reconciles the master payroll, overtime, and other supplemental warrants.
SVSP failed to demonstrate that it implemented compensating controls to
mitigate the risks associated with such a deficiency. For example, we
found no indication that supervisors conduct periodic review of
transactions processed by the payroll transactions unit staff.
The lack of adequate segregation of duties and compensating controls has
a pervasive effect on the SVSP payroll process and impairs the
effectiveness of other controls by rendering their design ineffective or by
keeping them from operating effectively. These control deficiencies, in
combination with other deficiencies discussed in Findings 2 through 8,
represent a material weakness in internal control over the payroll process
such that there is a reasonable possibility that a material misstatement in
financial information or noncompliance with provisions of laws,
regulations, or contracts will not be prevented, or detected and corrected
on a timely basis.
Recommendation
SVSP should separate conflicting payroll function duties to the extent
possible. Adequate segregation of duties will provide a stronger system of
internal control whereby the functions of each employee are subject to the
review of another. Good internal control practices require that the
following functional duties should be performed by different work units,
or at minimum, by different employees within the same unit:
Recording transactions. This duty refers to the record-keeping
function, which is accomplished by entering data into a computer
system.
Authorization to execute. This duty belongs to individuals with
authority and responsibility to initiate and execute transactions.
FINDING 1—
Inadequate
segregation of
duties and
compensating
controls over
payroll
transactions
Salinas Valley State Prison Payroll Process Review
-7-
Periodic reviews and reconciliation of actual payments to recorded
amounts. This duty refers to making comparisons at regular intervals
and taking action to resolve differences.
If it is not possible to segregate payroll functions fully and appropriately
due to specific circumstances, SVSP should implement compensating
controls. For example, if the payroll transactions unit staff responsible for
recordkeeping also performs a reconciliation process, a supervisor could
perform and document a detailed review of the reconciliation to provide
additional control over the assignment of conflicting functions.
Compensating controls may also include dual authorization requirements
and documented reviews of payroll system input and output. SVSP should
develop formal written procedures for performing and documenting
compensating controls.
SVSP failed to implement controls to ensure that it adheres to the
requirement of collective bargaining agreements and state regulations to
limit the accumulation of vacation and annual leave credits. This
deficiency resulted in liability for excessive leave credits, which could cost
the State at least $328,831 as of June 30, 2013. We expect the liability to
increase if SVSP does not take action to address the excessive vacation
and annual leave credits.
Collective bargaining agreements and state regulations limit the amount
of vacation and annual leave that most state employees may accumulate to
no more than 80 days (640 hours). The limit on leave balance serves as a
tool for state agencies to manage leave balances and control the State’s
liability for accrued leave credits. State agencies may allow employees to
carry more than the limit only in certain circumstances. For example, an
employee may not be able to reduce accrued vacation or annual leave
hours below the limit because of business needs. When an employee’s
leave accumulation exceeds or is projected to exceed the limit, the state
agency should work with the employee to develop a plan to reduce leave
balances below the applicable limit.
Our review of the leave accounting records found that SVSP had 1,351
employees with unused vacation or annual leave credits at June 30, 2013.
Of the 1,351 employees, 46 exceeded the limit set by collective bargaining
agreements and state regulations. For example, one employee had an
accumulated balance of 1,290 hours in annual leave—650 hours beyond
the 640-hour limit. Collectively, the 46 employees exceeded the limit by a
total of more than 10,000 hours in vacation and annual leave credits. These
excess hours cost the State approximately $328,831 as of June 30, 2013.
This estimated liability does not adjust for salary rate increases and
additional leave credits.2 Accordingly, we expect that the amount needed
to pay for the liability would be higher. For example, a SVSP employee
separated from state service with 1,247 hours in leave credits, including
1,223 hours in annual leave. After adjusting for additional leave credits,
the employee should have been paid for 1,415 hours, or 13% more.
2 Most state employees receive pay rate increases every year pursuant to state laws or collective bargaining agreements.
Also, when projecting accumulated leave balances upon separation, an employee earns additional leave credits equal
to the amount that the employee would have earned had the employee taken time off but not separated from state
service.
FINDING 2—
Inadequate
controls over
vacation and
annual leave
balances, resulting
in liability for
excessive credits
Salinas Valley State Prison Payroll Process Review
-8-
We inquired whether any plans were in place to address excessive vacation
and annual leave credits in accordance with collective bargaining
agreements and state regulations. SVSP responded that it does not have
any plans in place to reduce excessive leave credits.
If SVSP does not take action to reduce the excessive credits, the liability
for accrued vacation and annual leave will likely increase because most
employees will receive salary increases and additional leave credits, or
have other non-compensable leave credits that they can use instead of
vacation or annual leave, increasing their vacation or annual leave
balances. In addition, the state agency responsible for paying these leave
balances may also face a cash flow problem if a significant number of
employees with excessive vacation or annual leave credits separate from
state service. Normally, state agencies are not budgeted to make these
lump sum payments. However, the State’s current practice dictates that the
state agency that last employed an employee pays for that employee’s
separation lump-sum payment, regardless of where the employee accrued
the leave balance.
Recommendation
SVSP should implement controls, including existing policies and
procedures, to ensure that its employees’ vacation and annual leave
balances are maintained within levels allowed by collective bargaining
agreements and state regulations. SVSP should conduct ongoing
monitoring of controls to ensure that they are implemented and operating
effectively.
If the State offers leave buy-back programs, SVSP should participate in
such programs if funds are available.
SVSP lacked adequate controls to ensure it adheres to the requirement of
collective bargaining agreements to limit the accumulation of CTO credits.
This deficiency resulted in liability for excessive CTO credits, costing an
estimated total of $250,937. The deficiency also leaves SVSP at risk of
additional liability for violation of the timely payment requirements of
federal and state laws and collective bargaining agreements.
Collective bargaining agreements between the State and Bargaining Units
16 and 17 limit the amount of CTO than an employee can accrue to 480
and 100 hours, respectively. The agreements state that all hours in excess
of the limit will be paid in cash.
Our review of the leave accounting records found that SVSP had 70
employees with unused CTO leave credits as of June 30, 2013. Of the 70
employees, six (9%) exceeded the limits set by collective bargaining
agreements by a total of 2,414 hours, costing approximately $250,937. For
example, one employee had an accumulated balance of 1,884 hours in
CTO, or 1,404 hours beyond the 480-hour limit.
FINDING 3—
Inadequate
controls over
compensating time
off, resulting in
excessive balances
Salinas Valley State Prison Payroll Process Review
-9-
Recommendation
SVSP should implement internal controls, including existing policies and
procedures, to ensure that its employees’ CTO balances are maintained
within levels allowed by collective bargaining agreements. SVSP should
conduct ongoing monitoring of controls to ensure that the controls are
implemented and operating effectively.
SVSP should establish controls requiring that CTO hours are paid in
accordance with federal and state laws and collective bargaining
agreements.
SVSP lacked adequate controls over the processing of employee
separation lump-sum pay. Of the ten employees whose records we
reviewed, three were improperly paid, resulting in a net total
underpayment of $30,895. If not mitigated, the control deficiencies also
leave SVSP at risk of additional improper payments.
Pursuant to collective bargaining agreements and state law, employees are
entitled to receive cash for accrued eligible leave credits when separating
from state employment. We reviewed the records of ten selected
employees who received separation lump-sum payments. As shown in the
table below, of the ten employees, two (20%) were paid for 261 hours less
than they should have been paid for accrued leave credits, resulting in a
total underpayment of approximately $31,452. In addition, one employee
was paid an excess of 14 hours, resulting in an overpayment of
approximately $557. These improper payments resulted from
miscalculation of the employees’ accrued leave credits by the payroll
transactions unit staff.
Leave Hours
Estimated Dollar
Amount of Overpayment
(Underpayment) Paid Earned Overpaid
(Underpaid)
Overpayment Employee A 242 228 14 $ 557
Underpayment Employee B 1,157 1,415 (258) (31,323)
Employee C 421 424 (3) (129)
Subtotal 1,578 1,839 (261) (31,452)
Net Total 1,820 2,067 (247) $ (30,895)
Source: State’s payroll system and the SVSP’s payroll records
Recommendation
SVSP should:
Establish adequate controls to ensure accurate calculation and
payment of employee separation lump-sum pay;
FINDING 4 –
Inadequate
controls over
employee
separation lump-
sum pay, resulting
in improper
payments
Salinas Valley State Prison Payroll Process Review
-10-
Conduct a review of employee separation lump-sum payments during
the past three years to ensure that the payments are accurate and in
compliance with collective bargaining agreements and state law; and
Recover overpayments made to separated employees in accordance
with GC section 19838 and SAM section 8776.6, and properly
compensate those employees who were underpaid.
SVSP lacked adequate controls necessary to ensure that payment of out-
of-class compensation complied with collective bargaining agreements
and state policy. Of the 20 employees whose records we reviewed, five
(25%) received approximately $11,150 in improper out-of-class
compensation during the review period. If not corrected, the control
deficiency leaves SVSP at risk of additional improper payments.
Payments made for out-of-class assignments that exceeded limits set
by collective bargaining agreements, resulting in overpayments
Payroll records showed that SVSP paid out-of-class compensation to 126
employees between July 2010 and June 2013. We reviewed selected out-
of-class compensation for 20 of these employees to determine whether
SVSP granted compensation in excess of the number of days allowed by
collective bargaining agreements. Of the 20 employees reviewed, five
were represented employees whose assignments exceeded the limits set by
collective bargaining agreements. Accordingly, SVSP paid the five
employees an estimated total of $11,150 in compensation for out-of-class
assignments that exceeded the limits set by collective bargaining
agreements.
The collective bargaining agreements between the State and Bargaining
Units 1, 4, and 17 restrict represented employees to up to 120 days of out-
of-class assignment within any 12 consecutive months. CalHR’s Policy
Memo No. 2007-026 reminds departments that there are no exceptions to
request extensions of out-of-class assignments for represented employees
beyond the provisions of collective bargaining agreements.
Control deficiencies over processing of out-of-class compensation
GC sections 13402 and 13403 require state agencies to establish and
maintain internal controls, including a system of authorization and an
effective system of internal review. State agencies are also responsible for
ensuring that these controls are functioning as prescribed. However, our
review of out-of-class compensation revealed significant control
deficiencies that leave SVSP at risk of additional improper payments and
practices if not mitigated. We found that:
SVSP failed to implement existing policies and procedures related to
out-of-class assignment and compensation. For example, CDCR’s
Operations Manual and Personnel Operations Manual allow out-of-
class assignments only as provided in collective bargaining
agreements. However, as described previously, SVSP payroll
transactions unit staff processed compensation for out-of-class
assignments even though the assignments exceeded the limits set by
FINDING 5—
Inadequate
controls over out-
of-class
compensation,
resulting in
improper
payments
Salinas Valley State Prison Payroll Process Review
-11-
collective bargaining agreements. In another example, the Personnel
Operations Manual requires the submission of an out-of-class request
package to the payroll transactions unit in advance with sufficient time
for review and approval prior to the start date of assignment. We found
that 31 (34%) of the 90 assignments we reviewed were not approved
in advance of the start date of assignment.
SVSP management did not provide adequate oversight of the payroll
transactions unit staff to ensure that the processing of out-of-class
compensation complied with collective bargaining agreements and
state regulations.
Recommendation
SVSP should conduct a review of out-of-class compensation during the
past three years to ensure that it complies with collective bargaining
agreements and state policies. SVSP should recover overpayments made
to employees through an agreed-upon collection method in accordance
with GC section 19838.
To prevent improper out-of-class compensation from recurring, SVSP
should:
Implement controls over out-of-class assignments and compensation,
including existing policies and procedures prescribed by CDCR and
CalHR;
Conduct ongoing monitoring of controls to ensure that they are
consistently implemented and operating effectively; and
Provide adequate oversight to ensure that the payroll transactions unit
staff process only valid and authorized out-of-class compensation that
complies with collective bargaining agreements and state and CDCR
policies.
SVSP lacked adequate controls over overtime compensation. Of the 16
employees whose overtime compensation records we reviewed, four were
overpaid by a total of $5,526 and one was underpaid by $523. If not
corrected, the control deficiency also leaves SVSP at risk of granting
additional improper payments.
Payroll records showed that SVSP paid overtime compensation to 1,559
employees between July 2010 and June 2013. We reviewed the overtime
payments for 16 of these employees and found that six of them were
improperly paid:
One Work Week Group “E” employee was improperly paid $3,556 in
overtime compensation. The compensation was paid for the
employee’s work in another job classification that was not approved.
The collective bargaining agreement between the State and
Bargaining Unit 19, section 6.1.B states, in part:
. . . . Work Week Group “E” includes classes that are exempted from
coverage under the FLSA because of the “white-collar”
FINDING 6—
Inadequate
controls over
overtime, resulting
in improper
payments
Salinas Valley State Prison Payroll Process Review
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(administrative, executive, professional) exemptions. . . . Work
Week Group “E” applies to classes and positions with no minimum
or maximum number of hours in an average workweek. Exempt
employees are paid on a “salaried” basis, and the regular rate of pay
is full compensation for all hours worked to perform assigned
duties. . .
. . . The salary paid to FLSA exempt employees is full compensation
for all hours worked.
FLSA-exempt employees are not authorized to receive any form of
overtime compensation, whether formal or informal. . . .
Three employees reviewed were overpaid by $1,970 and one was
underpaid by $523, which resulted from incorrect pay rates and
miscalculation of overtime hours by the payroll transactions unit staff.
We found no indication that the processing of these overtime
payments was reviewed by an authorized individual.
GC sections 13402 and 13403 mandate state agencies to establish and
maintain internal controls, including a system of authorization and an
effective system of internal review. State agencies are also responsible for
ensuring that these controls are functioning as prescribed. However, as
described above, SVSP lacked adequate controls to ensure that overtime
payments are accurate and comply with collective bargaining agreements.
Recommendation
SVSP should conduct a review of overtime payments during the past three
years to ensure that the payments comply with collective bargaining
agreements. SVSP should recover overpayments made to employees
through an agreed-upon collection method in accordance with GC section
19838.
To prevent improper overtime payments from recurring, SVSP should
establish adequate internal controls to ensure that overtime payments are
calculated accurately and comply with collective bargaining agreements.
The controls include providing adequate supervisory oversight of payroll
transactions unit staff.
SVSP lacked adequate controls over the accrual of its employees’ holiday
credits. SVSP improperly granted 24 holiday credit hours in three (20%)
of 15 transactions reviewed, costing the State approximately $851. In
addition, eight employees had their holiday credit hours accrued in the
wrong month. The control deficiency also leaves SVSP at risk of
additional improper accruals of holiday credit if not mitigated.
Collective bargaining agreements and GC section 19853 specify the
number of hours of holiday credit an employee would receive per
qualifying holiday. Leave accounting records indicated that SVSP had
more than 19,000 holiday credit accrual transactions between July 2010
and June 2013. In our review of 15 selected holiday credit transactions
recorded in the State’s leave accounting system, we determined that three
involved accruals of 24 holiday credit hours that did not comply with
collective bargaining agreements and state law. SVSP granted improper
holiday credits on pay periods that had no holidays. We found no
FINDING 7—
Inadequate
controls over
holiday credits,
resulting in
improper accruals
Salinas Valley State Prison Payroll Process Review
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indication that the holiday credit transactions were reviewed by an
individual other than the payroll transactions unit staff responsible for
keying these transactions into the system.
Recommendation
SVSP should conduct a review of the leave accounting system to ensure
that the accrual of holiday credits complies with collective bargaining
agreements and state law. SVSP should correct any improper holiday
credits in the leave accounting system.
To prevent the recording of improper holiday credits in the leave
accounting system from recurring, SVSP should:
Provide adequate oversight to ensure that the responsible staff
accurately records leave transactions; and
Provide training to responsible staff involved in keying transactions
into the leave accounting system to ensure that they understand the
requirements under collective bargaining agreements and state law
regarding holiday credits.
Pursuant to the collective bargaining agreement between the State and
Bargaining Unit 6, employees required to wear a uniform and uniform
accessories receive a minimum allowance of $530 per year, to be paid
annually. If the employee leaves the uniform class, then the employee
receives a pro-rated share of the annual uniform allowance.
Between July 2010 and June 2013, SVSP paid 1,099 employees for annual
uniform allowances totaling $1,513,580. We reviewed a total of 31
uniform allowance transactions for 23 employees. Of the 23 employees,
two (9%) were paid more than the allowable amount. Specifically, one
received $530 in a duplicate payment during a single allowance period and
one received $44 more than the pro-rated share at the time of separation.
GC sections 13402 and 13403 mandate state agencies to establish and
maintain internal controls. However, as described above, SVSP lacked
adequate controls to ensure that uniform allowances are accurate and
comply with the bargaining agreement.
Recommendation
SVSP should conduct a review of payments for uniform allowance during
the past three years to ensure that the payments comply with the collective
bargaining agreement. SVSP should recover overpayments made to
employees through an agreed-upon collection method in accordance with
the collective bargaining agreement and GC section 19838.
To prevent improper payments for uniform allowance from recurring,
SVSP should:
Establish written policies and procedures, including requiring
responsible staff to verify that payments for uniform allowance
comply with the collective bargaining agreement; and
FINDING 8—
Inadequate
controls over
uniform allowance,
resulting in
improper
payments
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Provide adequate supervisory review to ensure that the responsible
staff processes only authorized and valid payments for uniform
allowance.
Salinas Valley State Prison Payroll Process Review
Attachment—
Salinas Valley State Prison’s
Response to Draft Review Report
State Controller’s Office
Division of Audits
Post Office Box 942850
Sacramento, CA 94250-5874
http://www.sco.ca.gov
S15-PAR-9004