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Board of Supervisors March 3, 2003

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Summary of Findings

Our review disclosed a total of $2,200,734 in questioned costs. Included in the


questioned costs are $1,245,036 (57%) in unauthorized expenditures for building
acquisition and improvement costs, $488,557 (22%) in expenditures that were not
supported, or were inadequately supported, and $173,001 (8%) in FFA funds used to
pay expenses for Angel’s Closet, a retail clothing store operated by El Camino. The
remaining $294,140 (13%) in questioned costs are expenditures for repayments of
loans for pre-award costs, unsupported or inadequately supported salary payments,
personal expenses incurred by Agency executives and other unallowable costs such as
charitable contributions.

In addition, we noted several deficiencies in the El Camino’s internal controls over


payroll and disbursement of foster care funds that contributed to the questioned
amounts noted above. We also noted that El Camino needs to ensure its Board of
Directors is staffed in accordance with the California Corporations Code. Details of our
findings are discussed in the attached report.

We have recommended that DCFS resolve the questioned costs and collect all
disallowed amounts. In addition, DCFS must ensure that El Camino management takes
the appropriate corrective actions to address the recommendations in this report and
monitor to ensure that the corrective actions taken result in permanent changes.

Review of Report

A draft of our report was previously discussed with El Camino’s management. At that
time, the Agency indicated that they had additional information and supporting
documentation for our review. We reviewed the documentation provided by the Agency
and updated our report as appropriate. They have agreed to provide DCFS with a
response and a corrective action plan within 30 days of this report. In addition, DCFS
has agreed to provide my office with a written response within 60 days detailing the
resolution of all findings contained in the report. We thank El Camino management and
staff for their cooperation during our review.

If you have any questions, please contact me, or have your staff contact DeWitt Roberts
at (626) 293-1101.
JTM:DR:MM
Attachment

c: David E. Janssen, Chief Administrative Officer


Lloyd W. Pellman, County Counsel
Department of Children and Family Services
Marjorie Kelly, Interim Director
Genevra Gilden, Chief, Quality Assurance Division
El Camino Children and Family Services, Inc.
Jorge E. Guiterrez, Chief Executive Officer
Board of Directors
Board of Supervisors March 3, 2003
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California Department of Social Services


Cora Dixon, Chief, Foster Care Audits Bureau
Violet Varona-Lukens, Board of Supervisors Executive Office
Public Information Office
Audit Committee Members
Commission for Children and Families
EL CAMINO CHILDREN AND FAMILY SERVICES
FISCAL AUDIT OF FOSTER FAMILY AGENCY CONTRACT

BACKGROUND

The Department of Children and Family Services (DCFS) contracts with El Camino
Children and Family Services (El Camino) to operate a Foster Family Agency (FFA).
FFAs are contracted to recruit, certify, train and support foster family homes and to
provide treatment and support services for DCFS children placed in these homes. For
the period of our review, October 1, 1998 through January 31, 2001, El Camino had
115 certified homes with 256 children placed in those homes. El Camino’s
administrative offices are located in the First Supervisorial District.

Under the provisions of the contract, DCFS pays El Camino a monthly rate between
$1,496 and $1,759 per child, based on rate criteria established by the California
Department of Social Services (CDSS). El Camino pays the foster parents between
$625 and $778 per month in accordance with the CDSS minimum payment
requirement. During the period of our review, the Agency received approximately
$11,000,000 in foster care funds from DCFS and paid out approximately $4,800,000 to
foster parents.

The Agency also operates a Day Care Program and Angel’s Closet, a children’s retail
clothing store. During the period of our review, the Agency received $99,999 in Cal-
Works funding from DCFS to operate the Day Care Program. Angel’s closet is a
separate entity owned and operated by El Camino. The Angel’s Closet manager is also
employed by El Camino, and the manager’s spouse and child are the sister and niece,
respectively, of El Camino’s CEO. Other related parties include El Camino’s former
Administrator, who is the CEO’s mother.

SCOPE AND OBJECTIVES

Applicable Regulations and Guidelines

El Camino is required to operate its FFA in accordance with certain federal, State and
County regulations and guidelines. We referred to the following applicable regulations
and guidelines during our audit:

! FFA Contract, including Exhibit F, Auditor-Controller Contract Accounting and


Administration Handbook (A-C Handbook).

! Federal Office of Management and Budget Circular A-122 (Circular), Cost


Principles for Non-Profit Organizations.

! California Department of Social Services - Manual of Policies and Procedures


(CDSS - MPP).

AUDITOR-CONTROLLER
COUNTY OF LOS ANGELES
Fiscal Review of El Camino Children & Family Services – A Foster Family Agency Page 2

! California Code of Regulations, Title 22 (Title 22).

QUESTIONED COSTS

The questioned cost section of this report is divided into two parts: “Unallowable Costs”
and “Unsupported and Inadequately Supported Costs”. Our review disclosed that El
Camino used FFA funds for questioned costs totaling $2,200,734. Details of the
questioned costs are discussed below.

Unallowable Costs

Per the Circular, only those expenditures that are necessary, proper and reasonable to
carry out the purposes and activities of the program are allowable. We identified and
are questioning a total of $1,585,625 in costs incurred by El Camino that we believe are
not reasonable and necessary under the program guidelines and, therefore, are
unallowable.

Building Acquisition

In August 2000, El Camino management purchased a new building for approximately


$2,000,000. They began occupying the building in April 2001, and concurrently paid for
both the former and new facilities for over six months. The Agency made a down
payment of $506,209 and assumed a liability of $1,495,000 with Wells Fargo Bank.
The Agency now pays as much as $15,000 per month, whereas they previously paid
between $4,770 and $5,300 per month for the lease of the old building.

Per the Circular, capital expenditures for land or buildings are unallowable unless the
agency receives prior approval from the awarding agency. Our review disclosed that no
prior approvals were obtained. Accordingly, we are questioning $1,245,036 in building
costs as follows:

! $703,431 in costs associated with the new building acquisition, including the down
payment of $506,209, ten months’ lease installments totaling $138,134, permit and
fees totaling $13,530, and other costs such as building security, telephone, utilities
and gardening services totaling $45,558.

At the time of our review, Agency management indicated that 55% of the building is
used for the FFA program, 15% is used for other Agency programs, and the
remaining 30% is currently not used. Management indicated that the 30% would
eventually be used for programs unrelated to the FFA program. However, it should
be noted that FFA funds were used to pay for all the building acquisition costs and
related improvements.

AUDITOR-CONTROLLER
COUNTY OF LOS ANGELES
Fiscal Review of El Camino Children & Family Services – A Foster Family Agency Page 3

Per the Circular, the cost of idle facilities is unallowable except to the extent they are
necessary to meet fluctuations in workload, they are idle because of changes in
program requirements and/or the cost of idle capacity is a normal cost of doing
business. Prior to the purchase of the new building, the Agency operated from a
building approximately 5,300 sq. ft. in size; the new building is about 32,790 sq. ft.
The Agency did not demonstrate increase in funding, an increase in the number of
children, or other programmatic changes, etc. to justify the need to purchase this
much larger building.

! $541,605 in FFA funds for capital expenditures to improve the newly acquired
building. These improvements increased the value of the building and include costs
for construction, roof repairs, security equipment and installation, painting, paving,
tiling and carpeting the interior, etc. Per the Circular, capital expenditures for
improvements to land, buildings, or equipment, which materially increase its value or
useful life are unallowable as a direct cost except with the prior approval of the
awarding agency. Agency management indicated that prior approval was not
obtained. 1

Repayment of Loans from Agency Management

! $86,189 in repayments for loans from the CEO, the Assistant Administrator, and the
former Administrator to pay Agency expenses. El Camino did not maintain contracts
or loan agreements for the borrowed funds. The expenditures included legal fees,
taxes, supplies, equipment and vehicle costs. The Agency states that the lent funds
were used for the benefit of the FFA, but was unable to provide us with supporting
documentation.

In addition, of the $86,189, $74,928 (87%) were pre-award expenses paid prior to
the effective date of the Agency’s contract with the County. While DCFS was
unable to provide us with a copy of the Board executed contract with El Camino, the
Department stated that the effective date of the agreement was February 3, 1998.
Pre-award costs are allowable only to the extent they would have been allowable if
incurred after the date of the award and only with the prior written approval of the
awarding agency. Agency management stated that no prior approvals were
obtained.

! $9,500 in interest expense payments to the Assistant Administrator and the former
Administrator for interest on the borrowed funds (discussed above). Per the
Circular, costs incurred for interest on borrowed capital are unallowable.

Payments made on behalf of Angel’s Closet

1
In addition, in approximately May 2001, the Agency borrowed $800,000 from Wells Fargo Bank to pay for
additional capital improvements to the Agency’s new building. It should be noted that prior to borrowing these
funds, we informed the Agency’s CEO that FFA funds could not be used to re-pay the loan. Despite this
notification, the Agency used its FAA funds to make payments on the loan.

AUDITOR-CONTROLLER
COUNTY OF LOS ANGELES
Fiscal Review of El Camino Children & Family Services – A Foster Family Agency Page 4

The Circular requires that foster family agency funds be used only for those
expenditures related to the care of foster children. Accordingly, we questioned
$173,001 in expenditures for the operation of Angel’s Closet, paid from FFA funds:

! $65,839 in expenditures for the operation of Angel’s Closet. These expenditures


include payments for advertising, rent, furniture, utilities, clothing, office equipment,
etc. Such expenditures are unrelated to providing services to the foster children. El
Camino indicated that Angel’s Closet was established to benefit foster children by
selling inexpensive clothing to foster parents. However, five of 14 (36%) Agency
employees, who worked directly with the foster parents as social workers or as
Angel’s Closet employees, indicated that the foster parents were not satisfied with
the quality of the clothing but felt pressured to purchase items from Angel’s Closet.

We found no documentation to indicate that Angel’s Closet reimbursed El Camino.


Although we did note an accounts payable balance of $35,653 due to El Camino on
Angel’s Closet’s balance sheet, we were unable to determine if the payable is
related to the $65,839, or some other amount. In addition, the payable was on
Angel’s Closet’s balance sheet as of January 1, 2000, and January 31, 2001, again
indicating that no payments had been made. It should also be noted that Angel’s
Closet’s financial statements reported net losses of $1,609 and $12,737 for
calendar years 1999 and 2000, respectively, indicating that Angel’s Closet may not
be financially viable and may be unable to meet its obligations.

! $107,162 in salary payments to eight employees of Angel’s Closet. Our interviews


with both El Camino and Angel’s Closet employees disclosed that the eight
employees worked exclusively for Angel’s Closet. However, the employees are on
El Camino’s payroll and are paid with FFA funds.

Personal Expenditures Incurred by Agency Executives

! $3,800 in credit card expenditures for items such as pantyhose, razors, men’s
clothing (e.g., Givenchy suits from The Men’s Warehouse), shoes, pet supplies,
accessories such as jewelry and beauty supplies (some of which were purchased in
Las Vegas). These expenditures appear personal in nature and did not benefit the
children placed in the Agency’s care.

! $4,715 in credit card charges by the former Administrator that were made outside
the United States in the Czech Republic, Great Britain and Panama for various
unidentified items. We were not able to determine the nature of the purchases and
how they could have benefited the foster children.

AUDITOR-CONTROLLER
COUNTY OF LOS ANGELES
Fiscal Review of El Camino Children & Family Services – A Foster Family Agency Page 5

! $6,930 in hotel accommodations, food and beverage costs, airport parking, car
rentals, and charges made at Disney World during three separate trips to Florida.
The Agency did not provide documentation to support the nature of the travel
expenditures. Accordingly, we cannot determine whether the travel expenditures
were business related, or personal.

! $7,941 in food and beverage costs incurred by the CEO, the Assistant Administrator
and the former Administrator. The Agency indicated that the food and beverage
expenditures were incurred for Board meetings and other management meetings.
However, the Agency did not provide details regarding the purpose of the meetings
and/or the individuals who attended.

! $989 in credit card expenditures by the former Administrator, the Assistant


Administrator, and the CEO for purchases in Las Vegas at Ricardo’s restaurant
located in the MGM Grand Hotel, as well as at the Luxor and Rio hotels and
Denny’s, and airline tickets to Las Vegas for the Angel’s Closet manager, his spouse
and child. (It should be noted that the Angel’s Closet manager and spouse are the
former Administrator’s son-in-law and daughter, respectively.) The Agency did not
provide documentation to support the nature of these expenditures. Accordingly, we
cannot determine whether the expenditures were business related or personal.

! $391 in entertainment expenditures incurred by the CEO. These expenditures


included purchases at Knott’s Berry Farm, Six Flags Magic Mountain, Edison Field,
Dodger Stadium and Universal Studios Hollywood. The Agency did not provide
documentation to indicate the purpose of the expenditures. Therefore, we are
unable to determine if the expenditures were business related or personal.

Other Unallowable Costs

! $22,524 in legal fees associated with a suit brought by a consultant. Agency


management indicated that a consultant assisted El Camino in starting up the
Agency. However, there were some issues associated with the payment for these
services and El Camino ceased making payments. The consultant sued El Camino
and the Agency was found liable and was ordered to pay $15,000 to the consultant
and $7,524 in legal fees. While these payments may have occurred during the audit
period, they were related to a legal settlement for services provided prior to the
effective date of DCFS’ contract with the Agency. As previously discussed in the
“Repayment of Loans from Agency Management” section, start-up costs are
unallowable without the prior approval of the awarding agency. El Camino did not
obtain DCFS’ prior approval.

! $14,008 in charity contributions for Pee Wee fundraising, girl scout cookies,
Christian Harvest Festival, and the March of Dimes. Per the Circular, contributions
and donations by the organization to others are unallowable.

AUDITOR-CONTROLLER
COUNTY OF LOS ANGELES
Fiscal Review of El Camino Children & Family Services – A Foster Family Agency Page 6

! $7,601 for the purchase of two defibrillators from the Start-A-Heart Foundation and
the American Heart Association. Agency management indicated that these
purchases were going to be for El Camino’s medical clinic (non-FFA related), once
established.

! $3,000 paid to a law firm for retainer fees. Per CDSS MPP, retainer fees for
consultants, physicians, lawyers, and accountants are unallowable.

Unsupported and Inadequately Supported Costs

El Camino incurred $488,557 in expenditures that were not adequately documented in


accordance with the Circular and A-C Handbook. In most instances, the Agency did not
provide credit card statements, itemized receipts or other supporting documentation.
Without itemized receipts or other supporting documentation, we could not determine
the types of purchases made and whether the purchases were allowable. In some
instances, even though acceptable invoices or receipts were provided, we still
questioned the expenditure because we were unable to determine if it was entirely
related to the FFA, or whether it also benefited Angel’s Closet and/or the Day Care
Program. Specifically, we noted the following:

! $77,419 in payments to seven independent contractors for which adequate


supporting documentation (i.e., invoices) was not maintained. In addition, the
Agency did not maintain contract agreements with three of the contractors. The A-C
Handbook requires agreements and invoices be maintained for all independent
contractors detailing billing rates, time and attendance information and nature of
services provided.

! $90,094 in payments for the purchase of three vehicles, driven primarily by the
CEO, the former Administrator and the Assistant Administrator. Per the Circular,
vehicle costs are allowable to the extent they are used for the benefit of the FFA.
However, the Agency was unable to provide us with documentation that Agency
management used the vehicles exclusively for the benefit of the FFA. Although
vehicle mileage logs were provided for two of the three vehicles, we concluded that
the logs are unreliable because of missing information such as trip date, trip
purpose, miles driven, etc.

! $25,106 in automobile expenses including gasoline, car washes, and repair and
maintenance fees charged by the CEO, the Assistant Administrator and the former
Administrator to the Agency’s credit cards. Of the questioned amount, at least
$20,917 represents gasoline charges. Due to inadequate supporting
documentation, including the vehicle mileage logs discussed above, we are unable
to determine whether the charges were business related or personal.

! $10,223 in credit card expenditures for toys, gifts and books mostly charged by the
CEO and the former Administrator. The Agency did not maintain records to indicate
the purpose of the expenditures. In order to adequately account for all
AUDITOR-CONTROLLER
COUNTY OF LOS ANGELES
Fiscal Review of El Camino Children & Family Services – A Foster Family Agency Page 7

expenditures, the Agency should maintain distribution records for all items
purchased.

! $2,105 in credit card expenditures for hotel meeting room rentals at the Ramada Inn
and Howard Johnson’s. Per Agency management, the expenditures were incurred
for foster parent orientations and various other meetings. However, the Agency did
not maintain records (i.e., sign in sheets) or other documentation to indicate the
foster parents that attended the meetings.

! $8,476 paid to the Knott’s Berry Farm theme park for tickets. According to El
Camino management, the Agency purchased tickets to the theme park for the foster
children. However, the Agency was unable to provide supporting documentation.
We were told that Knott’s Berry Farm later decided to donate the tickets to the
Agency and refunded the $8,476.

However, El Camino was not able to demonstrate that Knott’s Berry Farm refunded
the $8,476 expended for tickets. The Agency provided an internally prepared
document that indicates a remittance from Knott’s Berry Farm in the amount of
$3,664.50 (not $8,476) was received and deposited over a year after the Agency
paid for the tickets. We were not provided with any bank records substantiating this
deposit. Because of this, the fact that the amount of the reported “remittance” from
Knott’s Berry Farm differs from amount originally paid for the tickets and that the
reported deposit occurred over a year after the tickets were purchased, we are
questioning this expenditure.

! $13,807 in gardening expenditures (averaging approximately $493 per month) for


the old building. The Agency has two small grass areas, one in front and one on
the side of the building. The monthly gardening charges of $493 do not appear
reasonable given the size of the areas to be maintained. Accordingly, we deem the
$13,807 in gardening charges to be excessive and unreasonable.

! $57,696 in office supplies that were either unsupported ($17,806) or inadequately


supported ($39,890). None of the receipts indicated whether the supplies were for
the benefit of the FFA, Angel’s Closet, the Day Care program or some other
purpose. While the Agency no doubt incurred office supplies expense, we are
unable to determine the portion attributable to the FFA program. According to the
A-C Handbook, all costs should be appropriately allocated on an equitable basis to
the various programs or funding sources that benefit.

! $167,340 in unsupported credit card and check payments for the CEO, the Assistant
Administrator and the former Administrator, building repairs, maintenance and
improvements, loan fees, furniture, advertising, cellular telephone charges, dining,
catering and entertainment expenses, insurance and legal services. The credit card
and check transactions reviewed were missing necessary documentation such as
itemized receipts and the purpose of the expenditures. In each of the above

AUDITOR-CONTROLLER
COUNTY OF LOS ANGELES
Fiscal Review of El Camino Children & Family Services – A Foster Family Agency Page 8

instances, we were unable to determine the extent to which the expenditure


benefited the FFA.

! $15,391 in health insurance for Agency employees. The Agency did not provide a
complete invoice detailing the names of the individuals for whom the health
insurance was purchased.

! $4,967 in expenditures for miscellaneous items for which the Agency did not provide
details of the use of the items purchased. We were unable to determine whether
such items were used for the Agency or some other purpose. These included items
such as flashlights, batteries, sprays, moldings, storage racks, tiles, wire shelves,
area rugs, carpet, doorstops, potting soil, fasteners, paints, brushes, hangers, plug-
ins, plants, etc. These items were purchased from vendors such as Home Depot,
Eagle Hardware, Kmart, Landscape Growers, Target, 99-cent store, etc. Also, of
the total amount questioned, $1,384 was not supported by itemized receipts or
invoices. We were unable to determine the nature of the expenditures and whether
the expenditures were FFA related.

! $5,000 in payments to an independent contractor for accounting services. Although


the Agency provided invoices, we were unable to review the Agency’s cancelled
check to agree the payee name to the invoice. Accordingly, we were unable to
determine whether the check was paid for the accounting services. Moreover, the
check was dated approximately two weeks prior to the date the services were
delivered. It should be noted that the contractor bills the Agency on an hourly basis,
making prepayment for services very unlikely.

! $2,372 in expenditures for pagers. According to Agency management, the pagers


are assigned to its employees. However, the Agency did not provide us with
sufficient documentation to show which employees were assigned pagers. We were
unable to determine whether the pagers were used for FFA purposes.

! $1,738 in credit card expenditures for electronics & appliances such as a television,
VCR, photo albums, etc. from Best Buy, Airtouch Cellular, Radio Shack, AT&T
Wireless, and Target. The CEO made most of the charges. The Agency did not
provide itemized receipts and/or maintain records to document that the items were
purchased for FFA purposes. In order to adequately account for all expenditures,
the Agency should maintain distribution records for all items purchased.

! $6,823 in other costs such as clothing, shoes, accessories, food, household items
and vehicle related expenditures from JC Penny, Kmart, Target, Costco, Ralphs,
Anna’s Linen’s etc., for which the Agency did not provide the names of the foster
children for whom the expenditures were incurred. We were unable to determine
whether the expenditures were incurred for the benefit of the FFA.

AUDITOR-CONTROLLER
COUNTY OF LOS ANGELES
Fiscal Review of El Camino Children & Family Services – A Foster Family Agency Page 9

Salary Costs

According to the Circular, charges for salaries and wages should be based on
documented payrolls approved by responsible officials of the organization. We
questioned a total of $126,552 in unsupported or inadequately supported salary related
payments made by the Agency during calendar years 1999 and 2000, including:

! $19,514 in payments to a clerk (the CEO’s spouse) during 1999 that were not
supported by timecards or other documentation.

! $8,846 paid to three Agency employees that were not supported with timecards,
employment agreements or other documentation.

! $45,872 in bonuses paid to Agency employees, ranging from $40 to $3,815 per
employee. Per the Circular, incentive compensation to employees is allowable to
the extent the overall compensation is determined to be reasonable and such costs
are paid or accrued pursuant to an agreement entered into in good faith between
the organization and the employee before the services are rendered, or pursuant to
an established plan followed by the organization so consistently as to imply, in
effect, an agreement to make such payment. The Agency did not have a written
policy authorizing the payment of bonuses to employees, nor did an agreement exist
requiring the payment of bonuses to the Agency’s employees.

! $20,675 in distributed excess earnings to various Agency personnel. Included were


payments to the Assistant Administrator, CEO and the CEO’s spouse of $11,000,
$2,000, and $2,867, respectively. Per the Circular, compensation for services shall
be made for reasonable and actual personal services rather than a distribution of
earnings in excess of costs.

! $27,595 in expenditures for “additional earnings” ($8,100 to the CEO and $19,495 to
21 other Agency employees). The Agency could not explain the additional earnings,
nor could they provide documentation to support the payments.

! $4,050 paid to the CEO. The Agency could not explain nor provide support for the
payment.

Recommendations

DCFS management:

1. Resolve the $2,200,734 in questioned costs and, if appropriate,


collect any disallowed amounts.

AUDITOR-CONTROLLER
COUNTY OF LOS ANGELES
Fiscal Review of El Camino Children & Family Services – A Foster Family Agency Page 10

2. Ensure Agency management discontinues using FFA funds to repay


the $800,000 loan to Wells Fargo and the remaining $11,300 balance
in pre-organization costs, and disallow any amounts that have been
paid.

El Camino management:

3. Maintain adequate supporting documentation for all foster care


expenditures, including original itemized receipts and an equitable
cost allocation plan.

4. Ensure supporting documents such as invoices and receipts clearly


indicate the purpose/use of funds.

5. Ensure FFA disbursements are necessary, proper, and reasonable


and directly related to the FFA program.

6. Ensure vehicle mileage logs are complete and accurate, and include
at a minimum the date, trip destination and address, headquarters
address, purpose of trip and miles driven.

7. Ensure that disbursements for salaries, hourly earnings, bonuses


and “additional earnings” are adequately supported, that there is a
written policy authorizing these payments and that all payments are
made in accordance with the applicable provisions of the Circular
and the contract with the County.

Contract Compliance and Internal Controls

We noted the following contract compliance issues and internal control weaknesses
that require corrective action by El Camino management.

Independence

Our review disclosed an apparent lack of independence between Agency management


and the Agency’s Board of Directors that may have contributed to some of the
questioned costs. Specifically, we noted that the Agency’s Chief Executive Officer is
also the President of the Board of Directors and also performs duties commensurate
with those of a Chief Financial Officer (e.g., making major financial and fiduciary
decisions such as approving major purchases, making loans, etc.). Per the California
Corporations Code, Section 5213, the Chief Financial Officer of a corporation may not
serve concurrently as the President or Chairman of the Board of Directors, as this may
compromise the Board’s independence.

In addition, Section 5227 of the Corporations Code states that no more than 49% of the
Board of Directors may be “interested persons.” “Interested persons” include any
AUDITOR-CONTROLLER
COUNTY OF LOS ANGELES
Fiscal Review of El Camino Children & Family Services – A Foster Family Agency Page 11

person currently being compensated by the corporation for services rendered to it within
the previous 12 months, or any brother, sister, ancestor, descendant, spouse, brother-
in-law, sister-in-law, son-in-law, daughter-in-law, mother-in-law or father-in-law of any
such person. In reviewing the Board meeting minutes between December 1999 and
January 2001, we noted that 50% or more of the Board members were “interested
persons” (i.e., El Camino’s CEO and the Assistant Administrator’s wife). It was during
this period that a number of significant financial and operational decisions regarding El
Camino were made (i.e., the purchase of the new building for approximately $2 million,
and improvements to the building of approximately $500,000).

For the Board of Directors to be independent and have objective oversight of the
Agency, the President of the Board should not have duties commensurate with those of
a Chief Financial Officer. El Camino needs to ensure their Board is staffed in
accordance with the California Corporations Code and in such a way as to allow them
to function and make decisions objectively.

Recommendation

8. El Camino management ensure their Board of Directors is staffed in


accordance with the California Corporations Code.

Disbursement Procedures

Our review disclosed the following weaknesses related to the disbursement of FFA
funds:

! For 85 (approximately 43%) of 199 expenditures reviewed, supporting documents


such as invoices and receipts were not marked “paid” or otherwise cancelled and
were not cross-referenced to a cancelled check. As a result, the Agency could not
locate supporting documentation for a number of expenditures.

! The Agency purchased clothing, food, toys, and various household products and
supplies on an as-needed basis. However, the Agency did not always document
whether the items purchased were used on behalf of the foster children. At a
minimum, the Agency should indicate the name of the child or foster parents
receiving the items on the corresponding check and receipt.

! A second individual does not approve charges to Agency credit cards. For example,
the CEO, former Administrator, and Assistant Administrator are the sole users of the
Agency’s credit cards and gas cards, and no other Agency employee reviews,
authorizes or approves the charges on these credit cards. To ensure adequate
separation of duties, all purchases, including credit card purchases, must be
authorized and approved by at least two individuals.

AUDITOR-CONTROLLER
COUNTY OF LOS ANGELES
Fiscal Review of El Camino Children & Family Services – A Foster Family Agency Page 12

Recommendations

El Camino management:

9. Ensure invoices and other supporting documents are marked “paid”


or otherwise cancelled and are cross-referenced to corresponding
checks.

10. Maintain records to account for the purchase and distribution of all
items for foster children.

11. Ensure all credit card purchases are authorized and approved by at
least two individuals.

Payroll Controls

Our review disclosed a number of instances where employee timecards were not
maintained (see questioned cost section above). In addition, employee bonuses,
retroactive salary payments, and other miscellaneous payments were made to Agency
employees without supporting documentation (e.g., employment agreements). Without
proper payroll controls in place, the Agency cannot ensure payroll expenditures are
authorized or accurate.

According to Circular A-122, incentive compensation to employees is allowable to the


extent the overall compensation is determined to be reasonable and such costs are
paid or accrued pursuant to an agreement entered into in good faith between the
organization and the employee before the services are rendered. The Agency did not
have a written policy for the payment of bonuses, nor were there agreements with any
of the employees for the provision of bonuses.

Recommendations

El Camino management:

12. Ensure appropriate documentation (e.g., timecards, contract


agreements, etc.) is maintained for all payroll related expenditures.

13. Ensure the basis for bonus payments is pre-determined and


appropriately documented.

14. Discontinue making retroactive salary payments.

AUDITOR-CONTROLLER
COUNTY OF LOS ANGELES
Fiscal Review of El Camino Children & Family Services – A Foster Family Agency Page 13

Non-Compliance with Federal and State Payroll Tax Laws

Our review disclosed that income for seven of the Agency’s independent contractors
was incorrectly reported for calendar years 1999 and 2000. Specifically, the 1099s for
these seven individuals were understated by $7,305, as compared to the amounts
recorded in the Agency’s general ledger.

Per the Contract, the Agency shall comply with all applicable federal, State and County
statutes, ordinances, and regulations, including those related to the reporting of income
to the appropriate federal and State taxing agencies.

Recommendation

15. El Camino management ensure all salaries and wages paid to


employees are reported to the appropriate taxing agencies and all
appropriate payroll taxes are withheld.

Unresolved Payment Discrepancies

El Camino’s accounting records, as of May 30, 2001, indicated that DCFS owed El
Camino $64,338 for 177 foster care underpayments. Some of these underpayments
date back as far as October 1998. We reviewed ten underpayments totaling $6,756
and noted the following:

! In four instances, DCFS did not approve the payment discrepancy form
completed by El Camino because the children were not under the jurisdiction of
Los Angeles County.

! In one instance, DCFS did not receive a payment discrepancy form from the
Agency.

! In two instances the underpayments were under review by DCFS and remained
unresolved as of the date of our review.

! In three instances, DCFS records indicated that the payment discrepancies had
already been resolved.

Recommendations

16. DCFS management work with El Camino to resolve the $64,338 in


outstanding underpayments.

17. El Camino management ensure accounts receivable records


accurately reflect amounts owed for services provided.

AUDITOR-CONTROLLER
COUNTY OF LOS ANGELES