Board of Supervisors Summary of Findings

March 3, 2003 Page 2 of 3

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
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

March 3, 2003 Page 3 of 3

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 CalWorks 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).
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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.

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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
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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.
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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.

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$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.

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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.

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$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

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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
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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
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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, plugins, 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.

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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.

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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. Ensure supporting documents such as invoices and receipts clearly indicate the purpose/use of funds. Ensure FFA disbursements are necessary, proper, and reasonable and directly related to the FFA program. 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. 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

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7.

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
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person currently being compensated by the corporation for services rendered to it within the previous 12 months, or any brother, sister, ancestor, descendant, spouse, brotherin-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.

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Recommendations El Camino management: 9. Ensure invoices and other supporting documents are marked “paid” or otherwise cancelled and are cross-referenced to corresponding checks. Maintain records to account for the purchase and distribution of all items for foster children. Ensure all credit card purchases are authorized and approved by at least two individuals.

10.

11.

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. Ensure the basis for bonus payments is pre-determined and appropriately documented. Discontinue making retroactive salary payments.

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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. El Camino management ensure accounts receivable accurately reflect amounts owed for services provided. records

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