CALIFORNIA STATE BOARD OF EQUALIZATION

1 CALIFORNIA STATE BOARD OF EQUALIZATION Review Report INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS REVIEW July 1, 2013, through April 30, 2015 BETTY T. YEE CALIFORNIA STATE Controller November 2015 BETTY T. YEE CALIFORNIA STATE Controller November 18, 2015 Cynthia Bridges, Executive Director CALIFORNIA STATE BOARD of EQUALIZATION 450 N Street Sacramento, CA 95814 Dear Ms. Bridges, We reviewed the internal accounting and administrative controls of the CALIFORNIA STATE BOARD of EQUALIZATION s (BOE) financial management and reporting practices over the BOE s STATE Retail Sales Tax Fund (RSTF), Office Revolving Fund (ORF), accounts receivable cycle, and apportionment and allocation processes for the period of July 1, 2013, through April 30, 2015.

2 We identified material internal control weaknesses over the RSTF revenue allocation process that have led to improper distributions to the various fund allocations. We noted the following in regard to the RSTF (Findings 1 through 5): Inadequate internal accounting and administrative controls to appropriately allocate money in the RSTF; Inaccurate adjustments of fund allocations in quarterly true-ups; Improper allocations of sales tax on diesel fuel; (Note: After further review of the BOE s response, the SCO has determined that no further action is required on the recommendation associated with this portion of Finding 3).

3 Improper allocations of the additional sales tax on diesel fuel; Improper allocations of Department of Motor Vehicles Use Tax; and Improper allocations of Franchise Tax BOARD Use Tax; In addition, we noted that the BOE s RSTF accounts receivable balance is inaccurate (Finding 6) Further, we identified control weaknesses over the BOE s ORF. We noted the following in regard to the ORF (Findings 7 through 11): Receivables were not collected in a timely manner; Claims were not scheduled for prompt reimbursement; Cynthia Bridges, Executive Director -2- November 18, 2015 Office revolving funds were improperly used, and there was a lack of supporting documentation for some payments; Controls over salary advances were inadequate; and Controls over travel advances and travel reimbursement claims were inadequate.

4 We issued a draft report with our conclusions, findings, and recommendations on October 23, 2015. You responded on behalf of the BOE to our findings and recommendations in a letter dated November 2, 2015. Your response, as a whole, is included as an attachment to this report. We have commented on your responses to our recommendations and have included those comments throughout the Findings and Recommendations section of this report. In your letter, you stated that our findings associated with the allocation of funds in the RSTF were consistent with internal reviews you requested of the revenue and distribution processes, and as a part of these reviews, the BOE determined that a $343 million adjustment was required to correct specific fund balances for the period of April 1, 2011, through December 13, 2013.

5 Although the BOE determined an adjustment to correct fund balances, this did not solve or identify other weaknesses that contributed to inaccurate fund allocations in the RSTF during our review period of July 1, 2013, through April 30, 2015, as detailed in Findings 2 through 5. We strongly recommend that the BOE develop a detailed corrective action plan within six months of this report to address the issues noted in Findings 1 through 11. We will review the action plan and determine whether a follow-up review will be necessary.

6 If you have any questions, please contact Andrew Finlayson, Chief, STATE Agency Audits Bureau, by telephone at (916) 324-6310 or by email at Sincerely, Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits JVB/ls Attachment Cynthia Bridges, Executive Director -3- November 18, 2015 cc. Betty T. Yee, CALIFORNIA STATE Controller and BOARD Member CALIFORNIA STATE BOARD of EQUALIZATION Jerome Horton, Chair of the BOARD CALIFORNIA STATE BOARD of EQUALIZATION George Runner, Vice Chair of the BOARD CALIFORNIA STATE BOARD of EQUALIZATION Fiona Ma, BOARD Member CALIFORNIA STATE BOARD of EQUALIZATION Diane L.

7 Harkey, BOARD Member CALIFORNIA STATE BOARD of EQUALIZATION David J. Gau, Chief Deputy Director CALIFORNIA Stat BOARD of EQUALIZATION Brock Wimberley, Chief, Internal Audit Division CALIFORNIA STATE BOARD of EQUALIZATION Edna B. Murphy, Deputy Director, Administration Department CALIFORNIA STATE BOARD of EQUALIZATION Julia Findley, Acting Chief, Financial Management Division CALIFORNIA STATE BOARD of EQUALIZATION Esther Cabrera-Diaz, Revenue Manager, Revenue Section CALIFORNIA STATE BOARD of EQUALIZATION Sandra Mayorga, Chief, Human Resources Division CALIFORNIA STATE BOARD of EQUALIZATION Mark Durham, Chief, Legislative and Research Division CALIFORNIA STATE BOARD of EQUALIZATION Lynn Bartolo, Acting Deputy Director.

8 Sales and Use Tax Department CALIFORNIA STATE BOARD of EQUALIZATION Randy Ferris, Chief Counsel, Legal Department CALIFORNIA STATE BOARD of EQUALIZATION Liz Peralta, Chief, Accounting Branch CALIFORNIA STATE BOARD of EQUALIZATION Michelle Pielsticker, Chief, Legislative and Research Division CALIFORNIA STATE BOARD of EQUALIZATION CALIFORNIA STATE BOARD of EQUALIZATION Internal Accounting and Administrative Controls Review Contents Review Report Summary .. 1 Review Authority .. 1 Background.

9 2 Objectives, Scope, and Methodology .. 3 Conclusion .. 4 Views of Responsible Officials .. 5 Restricted Use .. 5 Findings and Recommendations .. 6 Attachment 1 CALIFORNIA BOARD of EQUALIZATION s Response to the Draft Review Report Attachment 2 Glossary of Acronyms CALIFORNIA STATE BOARD of EQUALIZATION Internal Accounting and Administrative Controls Review -1- Review Report We reviewed the internal accounting and administrative controls of the CALIFORNIA STATE BOARD of EQUALIZATION s (BOE) financial management and reporting practices over the BOE s STATE Retail Sales Tax Fund (RSTF), Office Revolving Fund (ORF)

10 , accounts receivable cycle, and apportionment and allocation processes for the period of July 1, 2013, through April 30, 2015. We identified material internal control weaknesses over the RSTF revenue allocation process that have led to improper distributions to the various fund allocations. We noted the following in regard to the RSTF (Findings 1 through 5): Inadequate internal accounting and administrative controls to appropriately allocate money in the RSTF; Inaccurate adjustments of fund allocations in quarterly true-ups; Improper allocations of sales tax on diesel fuel; (Note: After further review of the BOE s response, the SCO has determined that no further action is required on the recommendation associated with this portion of Finding 3).