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HomeMy WebLinkAboutMINUTES - 07311990 - IO.2 VO: BOARD OF SUPERVISORS Contra at•' FROM: .••�/ f Costa INTERNAL OPERATIONS COMMITTEE meq. . :. County DATE: July 31, 1990 _605 CUU '4 N•� SUBJECT,, REPORT ON ACTIONS WHICH ARE REQUIRED IN ORDER TO MAINTAIN THE FISCAL INTEGRITY OF FEDERAL HEAD START AND COMMUNITY SERVICES FUNDS SPECIFIC REOUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATIONS 1. Direct the Community Services Director to provide ten day written notice to Southside Community Center notifying them that contracts H.S. /89-05 and C.S./89-05 are terminated for cause effective at the end of the ten day period. 2 . Request the Executive Director and Board of Directors of Southside Community Center to make available to the Community Services Director and .Auditor-Controller or their designees all records which are required to determine the amount of funds due the County for any and all reasons, including as a result of the breach of contract resulting from having been suspended from the California Child Care Food Program and direct the Community Services Director and Auditor-Controller to offset any funds which may be due to Southside Community Center with the funds due the County. 3. Direct the Community Services Director to operate the Head Start Program previously operated by Southside Community Center with as many of the current Southside Community Center staff as possible. 4. Authorize the Community Services Director to negotiate with the Richmond Unified School District for space in which to continue to operate the Head Start Program previously operated by Southside Community Center. CONTINUED ON ATTACHMENTYeS—YES SIGNATURE: RECOMMENDATION OF COUNTY ADMINISTRATOR —RECOMMENDATION OF BOARD COMMITTEE APPROVE �� SIGNATURE(S): SUNNE WRI�cP`EAR LV_"OW 41�'7v ACTION OF BOARD ON July 31, 1990 APPROVED AS RECOMMENDED X OTHER VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE X UNANIMOUS(ABSENT ) AND CORRECT COPY OF AN ACTION TAKEN AYES: NOES: AND ENTERED ON THE MINUTES OF THE BOARD ABSENT: ABSTAIN: OF SUPERVISORS THE DATE SHOWN. CC: Please see Page 3 . ATTESTED 0/ /q90 PHABATCHICCOR,CLERK OF THE BOARD OF SUPERVISORS AND COUNTY ADMINISTRATOR BY y ,DEPUTY M362 (10/88) 5. Authorize the Community Services Director to negotiate a personal service contract' with Bettye Jones (currently Community Services Program Manager with Southside Community Center) to continue Community Services Block Grant services to the West County community. BACKGROUND: On July 17, 1990 the Board of Supervisors authorized the Internal Operations Committee to return to the Board of Supervisors July 24, 1990 with an oral report on any actions which were considered necessary in order to assure the fiscal integrity of federal funds for which the Community Services Department and ultimately the Board of Supervisors are responsible. Our Committee met with the Executive Director of the Southside Community Center, members of the Board of Directors of Southside Community Center, the Director of the Community Services Department and staff from the County Administrator's Office on July 24, 1990. At this meeting it was agreed to give Southside Community Center a few days in which to respond to the concerns which had been expressed by the Community Services Director and Board of Supervisors for the past several months. An additional meeting was held on July 31 , 1990 with the Community Services Director, members of her staff, the Executive Director of Southside Community Center, staff from the Auditor-Controller's Office and County Administrator' s Office and County Counsel' s Office. Attached are the documents which our Committee received and reviewed at our meeting on July 31, 1990 : 1. Report from the Community Services Director dated July 31, 1990 with attachments. 2. Report from the Auditor-Controller' s Office dated dated July 30, 1990. 3 . Report from the Chairman of the Board of Directors of Southside Community Center dated July 30, 1990. As is clear from the report of the Community Services Director, the County remains dissatisfied with the response provided by the Southside Community Center. The Executive Director of Southside Community Center conceded that at least a technical breach of contract had occurred when Southside failed to advise the County that they had been suspended from participation in the State Child Care Food Program in violation of the terms of the County' s contract with Southside and with Head Start regulations. The Executive Director also acknowledged that Southside had not had a general ledger, even though such was noted by their own auditors and recommended on more than one occasion. However, the Executive Director of Southside indicated in explanation that the agency could document the expenditures and revenue for each of their contracts despite the lack of a general ledger. All of the attached reports and attachments are incorporated herein by reference for the purpose of documenting the basis for the Committee' s recommendations. In view of the continuing serious fiscal and accounting problems displayed by the attached reports our Committee has no choice but t � to make the above recommendations to the Board of Supervisors in order to attempt to protect the fiscal integrity of the federal funds for which the Community Services Department and the Board of Supervisors are responsible. cc: County Administrator Chief Assistant Administrator Auditor-Controller County Counsel Community Services Director Sondra Rothwell, County Administrator' s Office Betty Fong, Executive Director, Southside Community Center Community Services DepartmentContl'a Community Services 646-5544 Head Start 646-5540 2425 Bisso Lane,Suite 120 Costa Energy Programs 646-5544 s Concord,California 94520 J Human Services 646-5540 (415)646-5544 County Joan V.Sparks, Director - "•-.o July 31, 1990 To: Board of Supervisors Internal Operations Committee From: Joan Sparklq Director, Community Services Department Subject: Southside Community Center Recommendation: Southside Community Center' s contract should be terminated based on the following: a. Breach of Contract Southside Community Center is in breach of contract based on their suspension from the California Child Care Food Program effective July 18, 1989 through March 1, 1990. The County contract requires that a Head Start delegate agency participate in the State Child Care Food Program. Despite mandatory requirement for participation, the Department was not notified of the suspension until approximately 11 months later. The State Child Care Food Program has reinstated Southside for the months of March through June of 1990, but has denied repayment for the months of October, 1989, through February of 1990, resulting in an estimated disallowance of approximately $18,460. The portion of this disallowance applicable to the Head Start program must be paid back to the County. The State Child Care Food Program contract is between Southside and the State. This is the only portion of Southside' s records that are not subject to pre-audit. However, both Head Start and our contract requires participation. b. Audits Reveal Reimbursement Due to County The 1989 agency wide audit indicates that "the agency erroneously billed and was reimbursed, by its Head Start contract for food costs, properly reimbursed by the Child Care Food Program, in the amount of $11, 228, for 1989 . " When the agency was suspended from the Child Care Food Affirmative Action / Equal Opportunity Employer Program they had no legal authority to use Head Start funds for food service operations. Despite this, Southside Community Center improperly billed the Head Start program for costs that were not the responsibility of the County's to pay. In addition, there are also food service worker costs and fringe benefits that must also be paid back to the County' s Head Start program for 1989 and 1990. The actual amount that will have to be paid back to the County at this date for Head Start is undetermined, as the County is still in the process of reviewing the 1987 1988 and 1989 audits for Southside and has yet to conduct a field audit of the records. C. Audits Reflect Weakness of Agency' s Internal Fiscal Management The 1987, 1988 and 1989 agency audits reflect serious material weaknesses in the agency's internal control structure as stated by Southside's independent auditors (1987 Izabal, Bernaciak & Company; and 1989 LaVerne Braxton) . d. Qualified Audits The 1987 and 1989 agency audits are "qualified" because the agency does not have a 1986 agency audit from which a beginning balance can be determined. e. Additional Concerns The Department is concerned that it appeared throughout these meeting with Southside, members of the Board of Directors of Southside, excluding Jim Newson, knew nothing about the management issues or the CCFP suspension. Southside has a five member board. Their by-laws were changed in early 1990 from a larger board of at least 13 members to the smaller five member board. This Department will contract with an independent CPA to assist the County to determine within 30 days the actual amount of funds owed by Southside to the County's Head Start program. When this amount is determined, the Department will proceed to collect the outstanding obligation owed to the County. 2 The Department is highly reluctant to continue contracting with an agency that has a history of financial management problems. This Department is prepared to continue service to the Richmond community in both the Head Start program and the Community Services Block Grant program. The Child Development Division/Head Start branch requests that the Board of Supervisors direct the department to operate the Head Start program with as many of the current Southside staff as possible without interruption of services to community and to allow the department to negotiate for space to operate the program with the Richmond Unified School District. The Head Start Policy Council has been kept informed and updated on the Board of Supervisors actions regarding Southside. The Executive Committee of the Policy Council will meet on Thursday, August 2 , 1990 to formally support action taken by the County Board of Supervisors. The Economic Opportunity Council will meet in a special session on Wednesday, July 31, 1990 to discuss the Community Services operation at Southside. The EOC' s Program Development Committee met on July 26 and will present their recommendation to the full EOC on the 31st. That recommendation is to negotiate a personal services contract to continue CSBG services to the Community with Betty Jones, the Southside staff person on the CSBG contract. Background: Special Internal Operations Committee Meeting July 24, 1990 On Tuesday, July 24, 1990, the Internal Operations Committee of the Board of Supervisors met to receive from the Community Services Department a report on Southside Community Center. Staff from the County Administrator' s Office, Auditor-Controller, and the Community Services Department provided the IOC with an overview of problems with Southside, stemming from their July 1989 suspension from the State Child Care Food Program, and problems with Southside' s 1987 and 1989 audits. Supervisor - Powers informed members of Southside' s Board of Directors that he would recommend to the Board of Supervisors on Tuesday, July 31, 1990, that the County terminate its 1990 Community Service Block Grant and Head Start contracts. Supervisor Powers gave Southside until Tuesday, July 31, 1990 to provide information or evidence that the County' s information about Southside was incorrect, otherwise, that he would proceed with his recommendation for termination. 3 1 Meeting with Southside to Review Audit Findings A meeting was arranged by the Community Services Department on July 26, 1990 with Southside's Board of Directors, the CPA firms of Laverne Braxton and Izabal & Berniciak, and staff from the County Administrator's Office, County Counsel, Auditor-Controller, and the Community Services Department for the purpose of clarifying the issues under discussion, and to clear up and resolve any misunderstandings about assertions concerning Southside. Additionally, a questionnaire regarding the issues at hand was sent to Southside by the County on Thursday, July 25, 1990. Conversely, Southside sent a similar questionnaire to the County, which the County responded to. Summary: It is the Department's opinion that the information provided to the IO Committee on July 24 , 1990 regarding Southside is factual and correct: 1. Southside was suspended from participating in the Child Care Food Program, a requirement of the Head Start program, on July 18, 1990, because of delinquent audits owed to the State. 2 . Southside failed to report this suspension to the County until June 1990, eleven months later. 3 . Southside's suspension from participation resulted in a breach of contract between Southside and the County. 4 . Southside's failure to resolve it's audit problems in a timely manner resulted in the state refusing to reimburse Southside for five months of 1989 and 1990 reimbursements, creating a liability owed by Southside to the County. 5. Southside was found to have improperly charged to the 1989 Head Start contract approximately $12 , 000 in food bills that were the responsibility of the State Child Care Food Program. 6. Because of the State suspension, it is estimated that Southside charged in 1989 and 1990 additional $24, 000 in staff and fringe benefit charges alone to the Head Start program, a further misuse of Head Start funds. 7. The 1987, 1988 and 1989 audits for Southside reflect serious weaknesses in the agency' s internal control structure. I believe that the Department and County has been more than equitable with Southside in attempting to resolve the problems at hand. 4 s Office of COUNTY AUDITOR-CONTROLLER Contra Costa County Martinez, California July 30, 1990 TO: Phil Batchelor, County Administrator Attention: Scott Tandy, Chief Assistant County Administrator FROM: Donald L. Bouchet, Auditor-Controller By: Kenneth J. Corcoran,/9PPrrincipal Accountant SUBJECT: Review of Southside Center, Inc. Audit Reports This responds to your request that our office review and comment on various audit reports relating to Southside Center, Inc. Our review encompassed four audit reports as follows: Period Covered Auditor Type of Audit 1/1 - 12/31/86 Izabal , Bernaciak & Co. Audit of Head Start component 1/1 - 12/31/87 Izabal , Bernaciak & Co Organization Wide 1/1 - 12/31/88 Izabal , Bernaciak & Co. Organization Wide 1/1 - 12/31/89 Laverne Braxton Organization Wide Conclusion Each of the four audits, covering the inclusive period of January 1 , 1986 through December 31 , 1989, reported significant and material weaknesses in internal accounting controls and the lack of various accounting procedures and records. In addition, the 1989 report disclosed an out of compliance situation where Southside erroneously billed the Head Start program for certain costs which should have been billed to the State's Child Care Food Program. Based on the continuing problems with inadequate internal financial controls and accounting procedures it is our opinion that the County would incur considerable financial risk by continuing to contract with Southside in the absence of a pre-audit procedure. Discussion For a number of years the Southside Head Start program (as well as other agencies performing similar Head Start services) operated on a "pre-audit" basis. Under this procedure, staff from the County Auditor's Office reviewed and authorized documentation for all Head Start expenses prior to the disbursements actually being issued by the agency. The costs incurred by the Auditor's Office performing the pre-audit function, estimated at approximately $70,000 per year, were charged to the Head Start program. During 1989-90 the Board of Supervisors instructed staff to consider alternatives to the pre-audit process. Elimination of pre-audit and the associated costs was considered necessary to offset cut-backs in program funding. -2- Phil Batchelor, County Administrator July 30, 1990 Attention: Scott Tandy Review of Southside Center, Inc. Audit Reports In order to eliminate pre-audit, it is absolutely essential that the agencies have good accounting systems, a strong system of internal accounting procedures and controls, and competent accounting personnel . Our office was asked to comment on the ability of Southside to come off pre-audit considering the above requirements. Our assessment was based on audit reports prepared by independent certified public accountants covering the calendar years 1986 through 1989. The following provides a summary of the significant findings in each report: 1 . 1986 The County contracted with Izabal , Bernaciak & Co. to audit the Head Start component of Southside and five other delegate agencies. With respect to Southside, the auditors noted that its general ledger was not complete at the time of the audit. The auditors also indicated that they had to rely on records maintained in the County Auditor' s Office to identify Southside's Head Start revenues and expenditures. Normally the independent auditor is able to rely on the auditee's (i .e. Southside) financial records to obtain this information. Finally, the auditors recommended that Southside establish a general ledger and related financial records and procedures. 2. 1987 and 1988 Both 1987 and 1988 were organization wide audits (i .e. includes all financial records for the agency, not just those pertaining to Head Start) conducted by Izabal , Bernaciak & Co. In each report the auditors disclosed that they found ". . . reportable conditions . . relating to significant deficiencies in the design or operation of the internal' control structure that, in our judgment, could adversely affect the organization's ability to record, process, summarize and report financial data ." These conditions included: -- no general ledger -- the records were not in a condition to be audited -- the lack of proficient and knowledgeable accounting personnel -- documentation supporting various financial transactions was lacking or difficult to retrieve -- fixed assets were not properly accounted for. 3. 1989 Laverne Braxton, CPA, performed the organization wide audit for calendar 1989. This audit revealed that Southside was not in compliance with the requirements of the State Child Care Food Program and, as a result, Head Start had been erroneously billed. With respect to internal controls the auditor found conditions ". . . that I believe result in more than a relatively low risk that errors or irregularities in amounts that would be material . . . may occur and not be detected within a timely period." These conditions included: -3- Phil Batchelor, County Administrator July 30, 1990 Attention: Scott Tandy Review of Southside Center, Inc. Audit Reports -- no general ledger -- prior year fixed asset acquisitions were not properly recorded -- Southside had not obtained audits for 1987 and 1988 as required by the State Child Care Food Program. Our conclusions are based on the audit reports noted above. Please call me at 646-2246 if you have any questions. KJC:mp