The California State Auditor’s office released its Internal Control and Compliance Report on Oct. 30 for the fiscal year that ended on June 30, 2019.
“Unfortunately, the financial systems' problems that were noted last year are still pervasive in California, which is not just a source of uncertainty by itself but apparently there's a law that directs the state to identify and help citizens understand where those systems failures are arising,” said Bill Bergman, research director with Truth in Accounting, a nonpartisan accounting organization that measures state transparency and reliability in accounting practices.
According to the report, the California Department of Tax and Fee Administration (CDTFA) was delayed in revising its bank reconciliations while the California Department of Health Care Services (DHCS) is struggling with completing its bank reconciliations due to staffing issues and the complexity of the state’s financial system and the Employment Development Department (EDD) completed reconciliations but only after submitting its initial financial reports to the State Controller Betty Yee.
“The reconciliations discussed constitute an important internal control because they enable departments to detect fraud as well as to identify and resolve errors or omissions in the financial information that is ultimately reported in the State’s Comprehensive Annual Financial Report (CAFR),” said Margarita Fernández, CPA and chief of public affairs and quality assurance with the California State Auditor.
The auditor's office also released the state’s Financial Report as well as a Federal Compliance audit report.
“My first impression is that on the surface things appear to have improved from last year despite the fact that we've had a lag in time that’s even later than last year's report and that's because the number of material weaknesses has declined by one,” Bergman told the Southern California Record. “It appears that the state has done a better job of addressing the implementation of the standard requiring the disclosure of 'Other Post Employment Benefits.' So, that's a sign of progress even though it took so long to find out.”
As previously reported in the Southern California Record, the state of California was recently crowned with the Tortoise Award by Truth in Accounting for the slow publication of its CAFR.
“Some of the explanations that departments provided for not performing timely reconciliations included a lack of staff resources, the need for staff training, unfamiliarity with the financial system, complexity of the financial system, challenges encountered during the conversion of prior year balances from legacy systems and the additional strain placed on resources by running the system in parallel with legacy systems,” Fernández told the Southern California Record.
Recommendations to the departments stated in the report include:
-The EDD should develop a process to reconcile its banking activity to its official accounting records
-DHCS should complete its bank reconciliations and reflect any needed adjusting entries in its official accounting records
-Departments should perform their monthly bank reconciliations and reconciliations to the accounts maintained by the State Controller in a timely manner, and before submitting financial reports to the State Controller.
-Departments should work with Finance and the State Controller to obtain any additional training and/or clarification needed to ensure monthly reconciliations are performed properly and in a timely manner.
“As part of our annual audit of the state’s financial reports, we will follow-up to determine if the agencies implement our recommendations,” Fernández said in an interview.
Other state-funded agencies covered in the report include California Department of Education, the State Water Resources Control Board, California Department of Forestry and Fire Protection, California Highway Patrol, California Community Colleges Chancellor's Office, California Air Resources Board, Department of Developmental Services and the Department of State Hospitals.