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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


Kenneth J. Pogue, Undersecretary, Administration and Offender Services


Diane Toche, Undersecretary, Health Care Services


Alene Shimazu, Director, Division of Administrative Services


Bryan Beyer, Director, Division of Internal Oversight and Research


Kathleen Allison, Director, Division of Adult Institutions


Connie Gipson, Deputy Director, Division of Adult Institutions


Jeffrey Macomber, Deputy Director, Division of Adult Institutions


Katherine Minnich, Deputy Director, Human Resources


Lori Zamora, Deputy Director, Office of Audits and Court Compliance


Linda Larabee, External Audits Manager, Office of Audits and Court Compliance


Yulanda Mynhier, Director, Health Care Policy and Administration

California Correctional Health Care Services

Janet Lewis, Deputy Director, Policy and Risk Management


Debbie Richardson, Chief of Internal Audits


Kelly Green, Associate Warden of Business Services,


Rachelle Nunez, Institutional Personnel Officer


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


-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


-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%


compensating time off,

resulting in excessive

balances

6 Employee

250,937 6 100% 250,937 100%


employee separation

lump-sum pay, resulting in

underpayments, net

10 Employee

166,686

3

30%

(30,895)

(19%)


out-of-class compensation,

resulting in improper

payments

20 Employee

86,736

5

25%

11,150

13%


overtime pay, resulting in

overpayments, net

16 Employee

120,932

5

31%

5,003

4%


holiday credits, resulting

in improper accruals

15 Holiday

credit

transactions

5,687

3

20%

851

15%


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


-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


-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


-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


-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


-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


-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


-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


-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


-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


-12-

(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


-13-

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


-14-

Provide adequate supervisory review to ensure that the responsible

staff processes only authorized and valid payments for uniform

allowance.


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

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