high risk update: state agencies credited their employees with millions of dollars worth of...

8/11/2019 High Risk Update: State Agencies Credited Their Employees With Millions of Dollars Worth of Unearned Leave

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High Risk Update

State Agencies Credited Their Employees WithMillions of Dollars Worth of Unearned Leave

Report -

August

COMMITMENTINTEGRITY

LEADERSHIP


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Te rst ve copies of each California State Auditor report are free. Additional copies are each, payable by checkor money order. You can obtain reports by contacting the California State Auditors Office at the following address:

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Sacramento, California . . or . .

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Doug Cordiner Chief DeputyElaine M. Howle State Auditor

621 Capi to l Mal l , Sui te 1200 Sacramento , CA 95814 916 .445 .0255 916 .327 .0019 f ax www.audi tor.ca .gov

August , -

Te Governor of CaliforniaPresident pro empore of the SenateSpeaker of the AssemblyState CapitolSacramento, California

Dear Governor and Legislative Leaders:

Te California State Auditor (state auditor) presents this report concerning the States accountingof employee leave records. Tis report concludes that state agencies have credited theiremployees with millions of dollars worth of unearned leave because the State has weak controlsover its accounting of employees leave records. Specically, when we performed a statewideelectronic analysis of the California State Controllers Offices (state controller) California LeaveAccounting System (leave accounting system), we found that state agencies credited employeeswith nearly , hours of unearned leave between January and December . As ofDecember the value of these erroneous leave hours was nearly . million, an amountthat will likely increase over time as employees receive raises or promotions. Tese errors alsoinclude nearly , hours of sick leave, which state employees can convert to state servicecredit when they retire, ultimately increasing the States pension payments.

Te large number of errors has occurred in part because the leave accounting system lackssufficient controls to assist state agencies in ensuring that their leave transactions are complete,accurate, and valid. o improve the accuracy of the leave accounting system, the state controllershould implement cost-effective controls to prevent the system from processing the types ofinappropriate transactions we identied in our analysis. Additionally, it should work withthe California Department of Human Resources to establish criteria that the state controllercan use to develop monthly exception reports, which identify unexpected or atypical leavetransactions to aid state agencies in detecting erroneous transactions.

Finally, unclear guidance in state law puts the State at risk of incurring additional costs. Althoughstate law requires agencies to initiate collection efforts within three years from the date of theoverpayment, it does not dene when an overpayment occurs. Tus, the Legislature shouldamend state law to clarify the statute of limitation for recovering overpayment of leave credits.

Respectfully submitted,

ELAINE M. HOWLE, CPAState Auditor


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California State Auditor Report 2012-603

August 2014

Contents

Summary 1

Introduction 5

Results of Our Review State Agencies Erroneously Credited Employees With More Than Six Million Dollars Worth of Unearned Leave 17

State Controller Could Strengthen Its Leave Accounting Controlsto Assist State Agencies in Detecting and Correcting the Types ofErroneous Transactions We Identied 24

CalHR Needs to Provide Additional Guidance on Leave Accounting 27

Three State Agencies We Visited Did Not Have Processes toIdentify Erroneous Leave Transactions 30

Recommendations 31

Appendix A Overview of the Furlough and Personal Leave Program forState Employees and the Furlough Program for California StateUniversity Employees 35

Appendix B State Entities That Use the California Leave Accounting System 39

Responses to the Review California Department of Human Resources 45

California Science Center 49

California State Controllers Office 51

California State Auditors Comments on the Response

From the California State Controllers Office 57

California State University, Office of the Chancellor 61

California Department of Veterans Affairs 63


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Report Highlights . . .

Our review of the California Leave Accounting System (leave accounting system) highlighted the following:

State agencies credited employees wiroughly 197,000 hoursvalued at ne$6.4 million as of December 2013ounearned leave between January 2008and December 2012.

Because of the absence of clear statulanguage, in the event of litigationthe State is at risk of not recovering tfunds that represent inappropriatelycredited leave hours.

The leave accounting system lacks sufficient automated controls to prevent state agencies from processierroneous transactions.

One state agency inappropriatelycredited an employee with eight hof sick leave each month for 10 yein addition to her monthly accrualannual leave.

One state agency erroneously gavemployee 1,212 hours of holiday cin December 2012, worth more th$33,000, instead of the eight hourswhich she was entitled.

Some state agencies misinterpreted

collective bargaining agreements relato the number of leave hours theiremployees should earn.

Of the 14 locations we visited, onlytwo performed procedures to ensure their staff properly entered informatifrom time sheets into the leaveaccounting system.

Summary

Results in Brief

State agencies have credited their employees with millions ofdollars worth of unearned leave because the State has weakcontrols over its accounting of employees leave records. TeCalifornia State Controllers Office (state controller) maintainsthe California Leave Accounting System (leave accounting system)to track leave activity for employees at participating departments,agencies, California State University (CSU) campuses, and otherentities (state agencies). While the state controller is responsiblefor maintaining and supporting the leave accounting system, eachparticipating state agency retains ownership of its data storedwithin the system and is responsible for the datas accuracy andcompleteness. When we performed a statewide electronic analysisof the leave accounting system, we found that state agenciescredited employees with roughly , hours of unearned leavebetween January and December .1 As of December the value of these erroneous leave hours was nearly . million,an amount that will likely increase over time as employeesreceive raises or promotions. Tese errors also include nearly

, hours of sick leave, which state employees can convertto state service credit when they retire, ultimately increasing theStates pension payments.

Additionally, unclear guidance in state law puts the State atrisk of additional costs. Specically, state agencies must initiatecollection efforts on overpayments within three years from thedate of overpayment. However, state law does not explicitly denewhen an overpayment occurs. Both the California Department ofHuman Resources (CalHR) and CSU consider overpaymentsof leave to occur when employees use the erroneous leave to coverabsences from work or cash out unearned leave hours. Becauseof the absence of clear statutory language, in the event of litigationthe State is at risk of not recovering the funds that representinappropriately credited leave hours.

Te large number of errors occurred in part because the leaveaccounting system lacks sufficient automated controls to preventstate agencies from processing erroneous transactions. Accordingto the state controller, the leave accounting system has automatedcontrols to ensure the accuracy of certain types of monthly accruals,such as sick leave and vacation leave. However, these automatedcontrols do not always prevent state agencies from crediting

1 There may be circumstances relating to specic transactions that result in those transactionsbeing appropriate or there may be additional errors that we did not identify. However, to accountfor all errors would have required a manual review of all state employees time sheets.


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state employees with unearned leave. For example, for more than years the California Department of Education (Education)

inappropriately credited one employee with eight hours of sick leaveeach month in addition to her monthly accrual of annual leave.An employee can elect to receive vacation and sick leave benetsor the annual leave benet, but an employee cannot receive bothbenets. Tus, Education gave this employee leave hours towhich she was not entitled.

o improve the controls over the leave accounting system, thestate controller could aid state agencies in detecting erroneoustransactions by generating additional exception reports that identifyunexpected or atypical leave transactions. For example, when weprepared an exception report, we identied one instance in whichCoalinga State Hospital erroneously gave an employee , hoursof holiday credit, worth more than , , instead of theeight hours to which she was entitled. Without exception reports,state agencies may not detect overpayments of this nature.

Further, we identied two state agencies that misinterpretedcollective bargaining agreements related to the number of leavehours employees should earn. State law and collective bargainingagreements establish state employees leave benets. For example,collective bargaining agreements establish the total compensationin pay and leave credits that employees should receive for workingon holidays. However, the California Science Center (ScienceCenter) misinterpreted the language in these agreements. As aresult, between January and December , it erroneouslygave its employees more than , hours of holiday credit towhich they were not entitled. In another instance, Chula VistaVeterans Home misinterpreted collective bargaining agreementsand consequently gave its employees twice the number of holidaycredits that they were entitled to for a holiday in March . Webelieve that CalHR should provide additional guidance to stateagencies to avoid these types of misinterpretations.

Although the state controller maintains data in its leave accounting

system, individual state agencies are responsible for ensuringthe accuracy of these data. o determine the procedures stateagencies follow for ensuring that accuracy, we visited locationsadministered by the California Department of State Hospitals,the California Department of Veterans Affairs (Veterans Affairs),and the Science Center. Although each of the locations veriedthe accuracy of the information their employees recorded ontheir time sheets, only two locations performed procedures toensure that their staff properly entered the information fromthe time sheets into the leave accounting system and even those


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procedures were limited. Without sufficient processes to verify theaccuracy of the data they enter, state agencies may make erroneous

leave accounting transactions that remain undetected or arenever identied.

Recommendations

Te Legislature should amend state law to clarify the statute oflimitations for recovering the overpayment of leave credits.

o correct the erroneous leave hours we identied in our analysisof the leave accounting system, CalHR should work with the statecontroller and all state agencies under its authority to review andtake the appropriate action to correct the errors by January .

o correct the erroneous leave hours we identied in our analysisof the leave accounting system related to the CSU, CSUs Office ofthe Chancellor should work with the CSU campuses to review andtake the appropriate action to correct the errors by January .

o improve the accuracy of information in the leave accountingsystem and to ensure that state agencies do not improperly creditemployees with leave in the future, the state controller should dothe following:

Implement additional controls by June to prevent the leaveaccounting system from processing the types of inappropriatetransactions we identied in our statewide electronic analysis.For example, it could develop cost-effective controls in the leaveaccounting system that would prevent employees from receivingannual leave and sick leave during the same pay period.

Work with CalHR to establish procedures by January forupdating the criteria it uses to produce the monthly exceptionreports to ensure that the criteria reect changes in state law andcollective bargaining agreements.

Using criteria provided by CalHR, develop monthly exceptionreports that identify transactions in the leave accounting systemthat are inconsistent with the guidelines established in state lawand collective bargaining agreements, such as instances in whichstate employees receive too many personal holidays or too muchholiday credit. By June begin providing each state agencyshuman resources management with the transactions identied inthe exception reports for review and correction as necessary.


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o ensure that state agencies accurately account for theiremployees leave benets, CalHR should do the following:

Consolidate guidance by January regarding the appropriateamount of leave that employees should earn each monthand provide these criteria to the state controller to use whendeveloping the leave accounting systems monthly exceptionreports. For example, CalHR should identify the number ofholiday credit hours that employees covered by each collectivebargaining agreement should receive for working on a holiday.

Work with the state controller to establish procedures byJanuary for updating these criteria to ensure that they reectany changes to state law and collective bargaining agreements.

Provide additional guidance to state agencies by January on interpreting the provisions of the collective bargainingagreements related to the amount of leave employees earn. Forexample, CalHR could provide scenarios to illustrate the numberof hours employees should earn under common circumstances.

Develop guidelines and procedures by January requiring allstate agencies to verify information their personnel specialistsenter into any system they use to track state employeesleave transactions.

Agency Comments

In its response to this review, CalHR, CSUs Office of theChancellor, Veterans Affairs, and the Science Center respondedto the review indicating they agreed with the recommendationsdirected to each of them. Although the state controller indicatedthat it embraced many of the recommendations, it did notagree with the ndings or the depth and completeness of ouraudit methodology.


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Introduction

Background

Legislation that became effective in January authorizes theCalifornia State Auditor (state auditor) to develop a risk assessmentprocess for the State and to issue reports focused on high-riskareas. In February the state auditor published a report titled High Risk: Te California State Auditor Has Designated the State Budget as a High-Risk Area , Report - , which added theStates budget condition to the state auditors list of high-risk issuesbecause of the States scal crisis and history of ongoing decits.It also indicated that the state auditor would explore certainbudget issues in more detail in the future to help decision makersnd areas where the State might reduce expenses or improveoperational efficiencies.

One of the budget issues we identied for further detailed reviewwas the States liability associated with leave benets. Accordingto the Legislative Analysts Office (LAO), the States liability topay employee leave balances totaled . billion as of June ,2 or the equivalent of approximately percent of the Statesannual salary costshigher than most other public and privateemployers. However, the actual leave benet liability for the Stateis likely higher than reported because the LAO did not includethe employees of the States public universities in its report. Forexample, in the fall of the California State University (CSU)reported that it employed over , faculty and staff statewide.Te leave benet liability associated with these employees was notincluded in the LAOs total liability amount reported for the Statesaccumulated leave balance.

Te State tracks its employees leave benets through a variety ofelectronic data systems. Tis report focuses on the accuracy of theStates accounting of leave benets through the California StateControllers Offices (state controller) California Leave AccountingSystem (leave accounting system). Any individual whose leave

is tracked by the leave accounting system (state employee) forthe period January through December is included inour review.

2 About , executive branch employees were included in the LAO report.


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State Employees Leave Benets

State law and collective bargaining agreements establish stateemployees leave benets. 3 Specically, state law permits moststate employees to join collective employee organizations. Teseemployee organizations either negotiate with the CaliforniaDepartment of Human Resources (CalHR) or the Board of

rustees of the CSU to determine state employees wages, hours,leave benets, and other terms and conditions of employment(employee benets). wenty-one collective bargaining agreementsidentify the outcomes of the negotiations with CalHR and

additional collective bargaining agreements describe CSUsemployees benets. Further, state law excludes some state employees,such as managers or employees working for certain state agencies,from collective bargaining altogether; instead, state law alone denesthe leave benets for these employees.

In addition to its other duties, CalHR has responsibility forissues related to the majority of state employees salaries andleave benets. o assist state agencies in understanding leavebenet rules, CalHR provides consultation and hosts forums thatprovide training and guidance to state agencies human resourcesprofessionals. It also distributes and publishes policy memos onits Web site that explain how the agencies should implement andinterpret the provisions of each bargaining agreement.

Te state controller tracks various types of employee leave benetsin its leave accounting system. In this review, we focused ourstatewide electronic analysis on eight of the nine leave benets forwhich state employees earned the most leave between January and December . able describes the leave benets wereviewed. We did not review the remaining leave benetcompensating time offbecause the state controllers payroll andleave accounting systems do not contain sufficient detail to allow usto conduct statewide electronic analysis of this leave benet. 4

As shown in able , state law entitles employees who separate from

state service to receive a lump-sum payment for certain types ofaccumulated leave. Employees may elect to receive the lump-sumpayment or they may contribute it into a personal retirementaccount, such as a (k) or account. State law requireslump-sum payments to be calculated by projecting employees

3 Certain state employees who work less than full time receive prorated benets based on theirtime base.

4 Certain state employees may earn compensating time off in lieu of cash compensation based onthe number of overtime hours they work during a week. However, because the state controllerssystems do not contain the total number of hours employees work, without manually reviewingthe employees time sheets, we could not evaluate the appropriateness of the compensatingtime off that state agencies credited to employees.


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accumulated leave on their work calendars until depleted as if theywere still employed, potentially resulting in employees earning

additional leave based on their accumulated leave balance. Forexample, if an employee who regularly earned hours of annualleave each month took off the entire month of August , therebyusing hours of his or her accumulated leave, that employeewould still earn an annual leave credit of hours for that month.Terefore, had this employee retired on July , , with a total of

hours of accumulated annual leave credit, the State would havecompensated him or her for the original hours of accumulatedleave, plus the additional hours this employee would have earnedhad he or she used the leave. However, when the State terminatesan employee for cause, he or she is not eligible to earn additionalleave based on the accumulated leave balances and only receivespayment for the accumulated leave balances as of the date he or sheleft state service.

Table 1Types of Leave Benets That We Evaluated

LEAVE BENEFIT DESCRIPTION SEPARATION FROM STATE SERVICE

Vacat ion* State employees accrue vacation on a monthly basis. The amountof leave state employees earn is based on state law or theircollective bargaining agreement and the length of time theyhave worked for the State.

State employees are entitled to a lump-sum paymentfor any unused vacation.

Sick Leave* State employees accrue sick leave on a monthly bas is. Sick leaveis used to deal with a state employees own or a family membersillness, injury, or medical-related issues.

The State converts unused sick leave to state servicecredit upon an employees retirement, potentiallyresulting in the employee receiving increasedmonthly pension payments.

Annual Leave* State employees accrue annual leave on a monthly basis inlieu of vacation and sick leave. The amount of annual leavestate employees earn is based on state law or their collectivebargaining agreement and the length of time they have workedfor the State.

State employees are entitled to a lump-sum paymentfor any unused annual leave.

Holiday Credit State employees earn leave when they work on holidays or whenholidays fall on their regularly scheduled days off.

The State provides state employees with a lump-sumpayment for any unused holiday credit.

Personal Holiday State employees earn one paid day off per year. The State generally provides most state employeeswith a lump-sum payment for any unusedpersonal holidays.

Furlough

The State implemented a program to reduce current spending byreducing its employee salaries in exchange for time off.

State employees must exhaust the leaveprior to separating from state service.

Personal Leave Programfor 2010

Personal Leave Programfor 2012

Sources: California Government Code, California Department of Human Resources policy memoranda, and executive orders.* Employees can either elect to receive vacation and sick leave benets or the annual leave benet, but not both benets. Some state employees have to complete six months of their initial probationary period in state service prior to receiving a personal holiday. On rare occasions, when an employee separates from state service and has accumulated Personal Leave Program 2010 or 2012 hours and/or

furlough hours that cannot be used prior to separation, these unused hours must be paid at the time of the employees separation.


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Vacation, Sick, and Annual Leave

Most state employees are eligible to receive a combination of vacation andsick leave. ypically, state employees earn between seven and hoursof vacation per month based on state law or their collective bargainingagreement, and how long they have worked for the State. As shown in

able , state employees receive a lump-sum payment as compensationfor their unused vacation leave when they separate from state service.In addition to vacation, state employees typically earn eight hours ofsick leave per month. However, the State does not generally compensateemployees with a lump-sum payment for sick leave when they separatefrom state service; instead, it converts the employees unused sick leave tostate service credit when they retire. 5 Because the State uses state servicecredit in its calculation of pension payments, converting unused sick leaveto state service credit can increase employees monthly pension payments.

In lieu of vacation and sick leave, certain state employees are eligibleto participate in the annual leave program. State employees opting toparticipate in an annual leave program typically earn between and

hours of annual leave per month. Similar to vacation, employeesreceive a lump-sum payment as compensation for their unused annualleave when they separate from state service.

State and Personal Holidays

Te State generally compensates its employees for state holidays with paidtime off or holiday credits. State employees typically receive eight hoursof holiday credit when a holiday falls on their regularly scheduled day off. 6 However, the amount of compensation state employees earn for workingon holidays varies. For example, if an employee represented by the ServiceEmployees International Union, Local , was regularly scheduledto work on Tanksgiving in and worked eight hours, he or shewould receive eight hours of regular pay and an additional hours ofcompensation in holiday credit, compensatory time off, or cash. However,if the same situation occurred for an employee represented by theCalifornia Correctional Peace Officers Association, he or she would have

been eligible for only eight hours of regular pay and eight hours of holidaypay. Most state employees are also entitled to one personal holiday per year.7 State employees receive a lump-sum payment as compensation fortheir unused personal holidays and holiday credits when they separatefrom state service. 8

5 The California Public Employees Retirement System tracks state employees service credits for thepurpose of calculating their pension payments.

6 State holidays falling on a Sunday are generally observed the following Monday.7 Some state employees have to complete six months of their initial probationary period in state service

before receiving a personal holiday.8 For certain CSU employees separating from state service, their unused personal holiday may not

always be included in their nal lump-sum payment.


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Furlough and Personal Leave Programs

In February the State implemented a furlough program to reducethe States spending by reducing employees salaries in exchange fortime off. As described in Appendix A beginning on page , stateemployees typically received between eight and furlough hourseach month in exchange for an equivalent reduction in their pay.Te furlough program generally required employees to take time offevery month. However, if the employees worked in locations suchas hospitals or prisons where taking time off might jeopardize thepublics health or safety and they were unable to take time off, the Statecredited them with furlough leave for use at a future date. Te furloughprogram was in effect until June , October , or March ,depending on an employees collective bargaining unit. Te employeesof two collective bargaining units participated in an additional furloughprogram during scal year .

Similar to the furlough program, the State also instituted year-longpersonal leave programs in and to lower its salaryexpenses by reducing employees pay and crediting them withpersonal leave. As shown in Appendix A, under these personalleave programs, employees received eight hours of personal leaveeach month. However, the State allowed certain employees toaccumulate these hours for future use if it was not feasible for theemployee to use them during the month in which they were earned.

Leave for Employees Working Alternate Work Week Schedules

Te State allows some of its employees to work schedules that differfrom the traditional schedule of ve eight-hour days. For employeesthat follow an alternate work week schedule (alternate schedule),the total number of hours they work in a month may differ from therequired number of work hours. Terefore, adhering to an alternateschedule may require some state employees to use their accrued leaveto ensure that they fully account for the required number of workhours in the month as established in state law and regulation. For

example, when these employees take time off, they must use leavehours to account for the total number of hours they were scheduledto work. Tus, if these employees normally work four -hour daysper week and they do not work on a holiday that falls on one of theirregularly scheduled work days, they must use two hours of leave tosupplement the eight hours of holiday credit to which these employeesare entitled. Further, if their alternate schedules result in them workingmore than the required number of hours in a particular month, theemployees earn excess hours of leave credits. Conversely, if they workfewer than the required number of hours in a month, these employeesmust use their previously earned excess hours or other accumulatedleave hours (excluding sick leave) to make up the difference.


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CalHR has different policies for employees who are exemptfrom the Fair Labor Standards Act. Under CalHR polices, these

employees are not required to supplement their total hours workedfor the month with leave hours, nor are they eligible to earnadditional leave credits for working excess hours.

Leave Accounting System

Te state controllers leave accounting system allows participatingstate agencies to record and track state employees leaveaccounting transactions. While the state controller is responsiblefor maintaining and supporting the leave accounting system,each participating state agency retains ownership of its datastored within the system and is responsible for the datas accuracyand completeness. Te state controller also provides training andsupport services to agencies using the leave accounting system.

Although other systems exist for tracking leave, many state entitieschoose to track their employees leave using the state controllersleave accounting system. As of December , state agencies,including six CSU campuses, participated in the leave accountingsystem. Te remaining CSU campuses tracked their leave using aseparate system; CSUs Office of the Chancellor is in the process ofmoving all CSU campuses to this other system. Other state entities,such as the Franchise ax Board, use alternative systems to tracktheir employees leave. Appendix B beginning on page containsa listing of state agencies that used the state controllers leaveaccounting system between and .

Processes for Recording State Employees Time and Attendance

State law and policy require all state agencies to maintaincomplete records of their employees attendance, absences, anduse of leave. However, the State has not implemented standardstatewide procedures for how state agencies should maintain

these records. o gain an understanding of state agenciestimekeeping and leave accounting processes, we interviewed staffat the California Department of State Hospitals (State Hospitals),the California Department of Veterans Affairs, and the CaliforniaScience Center. Figure identies the locations of thesethree state agencies that we visited.


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Figure 1Locations We Visited During This Review

California Department of Veterans Affairs (Veterans Affairs)Mission: To serve Californias veterans and their families.Veterans homes located in California8Veterans homes we visited6

Mission: To stimulate curiosity and inspire science learningin everyone by creating fun, memorable experiences.Science Center located in California1

California Department of State Hospitals (State Hospitals)Mission: Providing evaluation and treatment in a safe andresponsible manner, seeking innovation and excellence inhospital operations across a continuum of care and settings.State hospitals located in California8State hospitals we visisted7

California Science Center (Science Center)

West Los Angeles

State HospitalsMetropolitan Los Angeles, Norwalk

Atascadero

Barstow

Yountville

Ventura

Chula Vista

Patton

Coalinga

NapaSacramento

Vacaville

Veterans AffairsHeadquarters

State HospitalHeadquarters

Los Angeles

Sources: California State Auditors visits to the locations listed above and Web sites for the State Hospitals, Veterans Affairs, and the Science Center.


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Although we noted some variations between the locations we visited, they generally followed a similar process to account for

employee timekeeping and attendance records. Te process beginswith each employee certifying his or her monthly absence andadditional time worked report (time sheet), then forwarding itto his or her supervisor to review and approve the attendancerecorded on the time sheet. At some locations, a timekeeperthen collects the approved time sheet and compares it to otherattendance records, such as sign-in sheets. Next, the supervisor ortimekeeper forwards the time sheet to a personnel specialist, whois responsible for reviewing it and entering each employees leaveinformation into the leave accounting system.

State law limits state agencies ability to correct errors thatoccur in this process. Specically, if a state agency erroneouslycredits an employee with too much leave, that agency mustinitiate collection efforts within three years from the date of theoverpayment. Although state law does not expressly dene whenan overpayment occurs, CalHR and CSU consider an overpaymentas occurring when an employee uses the erroneous leave to coverabsences from work or cashes out the leave.

Past Reviews and Investigations

Over the past several years, some state agencies have calledattention to the States accounting of employee leave. InMarch the state auditor released an investigative report thatfound that the Sierra Conservation Center (center) of the CaliforniaDepartment of Corrections and Rehabilitation (Corrections) hadinappropriately accounted for employee absences and consequentlyundercharged employees leave balances. Te investigation revealedthat the center allowed nine exempt employees to work -hourdays, which, because of language in the bargaining unit contract,allowed them to miss work without having to charge a total of morethan , hours to their leave balances, resulting in a gift of publicfunds to the employees totaling more than , .

Further, in March , the LAO issued a report explaining the impactof the furlough and personal leave programs on state employees leavebalances. According to the LAO, state employees used fewer hoursof vacation and annual leave while the furlough and personal leaveprograms were in effect, causing them to accrue larger leave balances.Te report provided options to the Legislature recommending thatit take steps towards reducing or containing the future growth of theStates leave balances, thereby reducing the States unfunded leaveliability. Te California Department of Finance (Finance) also releaseda report in March addressing its previous recommendation thatState Hospitals institute timekeeping procedures to ensure that it


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adequately prepares, certies, and retains attendance records for futureaudits. In its report, Finance concluded that ve of the seven state

hospitals had yet to implement its recommendation. 9

Most recently, the state auditors June investigative reportidentied weaknesses in the leave accounting processes ofCorrections and California Correctional Health Care Services(Correctional Agencies). Specically, the Correctional Agenciesundercharged leave balances for nonmanagerial staff who wereworking alternate schedules, costing the State nearly , .Further, the Correctional Agencies made clerical errors in

employees leave balances, resulting in a net loss to the Stateof more than , .

Scope and Methodology

California Government Code, Section . , authorizes the stateauditor to establish a high-risk audit program to identify stateagencies and statewide issues that either present a high risk forpotential waste, fraud, abuse, and mismanagement or that presentmajor challenges related to their economy, efficiency, or effectiveness.In February the state auditor designated the States budgetcondition an area of high risk to the State. Because the LAO foundthat employee leave balances as of June represented a nancialliability of . billion, or about percent of the States annual salarycosts, these balances could signicantly impact the States budget. Wetherefore reviewed the leave accounting system to determine if stateagencies had erroneously credited leave to employees. We focusedour review on the objectives listed in able .

Table 2Review Objectives and the Methods Used to Address Them

REVIEW OBJECTIVE METHOD

1 Review and evaluate the laws, rules, andregulations signicant to the review objectives.

We reviewed relevant laws, rules, regulations, policy memoranda, collective bargainingagreements, and other background materials.

2 Review and evaluate the roles and responsibilitiesof the agencies that oversee the tracking of leaveaccounting information.

We interviewed key staff at the California Department of Human Resources (CalHR), theCalifornia State Controllers Office (state controller), and the California State UniversitysOffice of the Chancellor.

3 Review select application controls of the statecontrollers California Leave Accounting System(leave accounting system).

We reviewed system documentation for the leave accounting system.

We interviewed key staff at the state controller to determine whether the leaveaccounting system has controls that prevent agencies from entering erroneousleave transactions.

9 Stockton State Hospital was opened in July . Thus, it was not included in FinancesMarch report.

continued on next page . . .


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4 For ve years (2008 through 2012), determinewhether state employees accrued leave within themaximum allowable limits dened by state law andcollective bargaining unit agreements.

We performed a preliminary statewide electronic analysis of all employees whoseleave is tracked in the leave accounting system (state employees) and identied thenine leave benet categories for which state employees earned the most leave.

Using state law, collective bargaining agreements, and guidance from CalHR, wedetermined the maximum amount of leave that state employees were eligible toreceive each month for eight of the nine leave benets we reviewed. We did notreview the remaining leave benetcompensating time offbecause the statecontrollers payroll and leave accounting systems do not contain sufficient detail toallow us to conduct statewide electronic analysis of this leave benet.

We analyzed the leave accounting system data to identify all instances in which stateemployees earned leave in excess of the maximums allowed each month. We usedthe state controllers salary information to calculate the value of these erroneousleave hours based on state employees salaries when the error occurred and as ofDecember 2013.

Our statewide electronic analysis could not account for all of the specic circumstancesrelating to individual transactions because knowledge of these circumstances would

require a manual review of the employees time sheets. As such, certain transactionswe identied as errors in our analysis may not be errors and, conversely, we may haveidentied some transactions as appropriate when they are in error.

The leave accounting system data we received from the state controller did notcontain the number of months employees have worked for the State (months of stateservice). Because this information is necessary to calculate the amount of vacationand annual leave a state employee should earn each month, we assumed that allemployees earned leave at the highest rates set forth by state law and the collectivebargaining agreements.

Because most state employees must complete at least six months of work at theState before they are eligible to receive certain leave benets, we used payroll data toidentify the employees sixth month of pay.

5 Review and evaluate the policies andprocedures state agencies use for tracking leaveaccounting information.

Based on our preliminary statewide electronic analysis of state departments, agencies,California State University campuses, and other entities (state agencies) leavetransactions in the leave accounting system, we selected three state agencies formanual reviewthe California Department of State Hospitals (State Hospitals), theCalifornia Department of Veterans Affairs (Veterans Affairs), and the California ScienceCenter (Science Center). We selected these three agencies because they have large,medium, and small workforces and they appeared to have many employees earningleave in excess of the allowable maximums.

We conducted interviews at the three state agencies to determine their policies andprocedures for timekeeping and leave accounting.

6 For a selection of 45 time sheets for stateemployees who received erroneous furlough orpersonal leave program hours, determine whetherthe employees also received pay reductions.

We tested a total of 19 time sheets at the Science Center and Veterans Affairs, whichrepresented all of their erroneous furlough and personal leave program transactions.We tested the remaining 26 time sheets at State Hospitals. Specically, we reviewed theemployees time sheets and payroll information to determine whether they received areduction in their pay corresponding to the number of erroneous leave hours they receivedor if the state agencies gave the employees extra leave without reducing their pay.

7 For a selection of 60 time sheets from 2012,use source documents to determine whetheragencies accurately calculated the amount ofleave employees earned and used.

We randomly selected 20 time sheets at each of the three state agencies we visited andveried that they correctly entered the time sheet information into the leave accountingsystem and that all earned leave was appropriate. Although the State bases certaintypes of leave credit, such as vacation and annual leave, on an employees months ofstate service, we did not conrm the accuracy of the each state employees monthsof state service information for purposes of our manual review.

8 Determine if state agencies accurately trackedleave for employees working alternate workweek schedules (alternate schedules).

For the three state agencies we visited, we haphazardly selected a total of 55 time sheets forstate employees represented by employee organizations who worked alternate schedules.For these time sheets, we veried that the state agencies correctly calculated thenumber of hours the employees should have used to cover their absences from work andthat the entities correctly entered the employees time sheet information into the leaveaccounting system.


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9 Review and assess any other issues that aresignicant to leave accounting.

We reviewed the leave accounting system to identify all transactions where a stateemployee earned 250 or more hours of any leave benet in one month and requested thatthe state agencies that processed the transactions provide supporting documentation.These transactions included a total of nearly 7,500 hours of compensatory time off, forwhich we found less than 24 hours to be in error. We found no additional errors besidesthose we previously identied in our statewide electronic analysis. Further, we removed alltransactions that we determined were appropriate based on supporting documentationfrom our statewide electronic analysis.

Sources: California State Auditors planning documents and analysis of information and documentation identied in the column titled Method .

Assessment of Data Reliability

In performing this review, we obtained electronic data lesextracted from the information systems listed in able . o assessthe sufficiency and appropriateness of this computer-processedinformation, we conducted the analyses described in able .

Table 3Methods Used to Assess Data Reliability

INFORMATION SYSTEM PURPOSE METHODS AND RESULTS CONCLUSION

California StateControllers Offices

(state controller)

California LeaveAccountingSystem (leaveaccounting system)

Data for the periodfrom January 2008throughDecember 2012

Determine the amountof leave employees

should have received.

We performed data-set verication procedures and found no issues.

However, when we performed electronic testing of the leave accountingsystem, we found errors in more than 14,000 employees records.

Additionally, we tested 60 time sheets by tracing the leave accountingsystem information back to supporting documents and found four errors.

Finally, we haphazardly selected 55 time sheets of employees whoworked alternate work week schedules and traced the information back tosupporting documents. We found 11 errors.

Not sufficientlyreliable for the

purposes ofthis review.

State controller

Uniform StatePayroll System(payroll data)

Data for theperiod fromJuly 2007 throughDecember 2012

Review 60 time sheets todetermine whether stateagencies appropriatelyaccounted for theiremployees leave.

We performed data-set verication procedures and electronic testing of keydata elements and found no issues.

We relied on the accuracy testing performed as part of the States annualnancial audit for payroll transactions between July 2007 and June 2011.*

Because we found the payroll data to be accurate between July 2007 andJune 2011, we have reasonable assurance that the payroll data for theperiod of July 2011 through December 2012 are also accurate.

We relied on the completeness testing performed as part of the Statesannual nancial audit for payroll transactions between July 2007 andJune 2013.

Sufficientlyreliable for thepurposes ofthis review.

continued on next page . . .


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INFORMATION SYSTEM PURPOSE METHODS AND RESULTS CONCLUSION

State controller

Employee HistoryDatabase

Data for the periodfrom January 2008throughDecember 2013

Determine the hourlysalaries of employeeswe identied as havinginappropriate leavetransactions in theleave accounting systemin order to calculatethe value of thiserroneous leave.

We performed data-set verication procedures and electronic testing of keydata elements and found no issues.

We did not perform accuracy or completeness testing because thepertinent supporting documents are located throughout the State, makingsuch testing cost-prohibitive.

Undeterminedreliability.

Sources: California State Auditors (state auditor) analysis of various documents, interviews, and data obtained from the state controller.* Beginning in July 2012 the state auditor revised its nancial audit procedures and no longer performs transaction testing of payroll records. Although we concluded these systems were either not sufficiently reliable or of undetermined reliability for the purposes of our review, they were

the best available sources for the data.


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Results of Our Review

State Agencies Erroneously Credited Employees With More ThanSix Million Dollars Worth of Unearned Leave

From January through December , state departments,agencies, California State University (CSU) campuses, and otherentities (state agencies) that participated in the California LeaveAccounting System (leave accounting system) inappropriatelycredited their employees with unearned leave. Specically,state agencies credited nearly , erroneous leave hoursto more than percent of employees for whom they trackedleave in the leave accounting system (state employees). 10 As ofDecember , the cost of these errors was nearly . million,some of which the State cannot recover because of restrictionsin state law. 11 As we described in the Introduction, state law allowsstate agencies to recover overpayments to their employees only ifthe agencies initiate corrective action within three years of the dateof the overpayment.

Further, the cost of the errors we identied will increase over time asstate employees receive raises and promotions. As shown in able on the following page, when the state agencies initially entered theerrors we identied into the leave accounting system, their value wasapproximately . million. However, by December that valuehad risen nearly percent, or the equivalent of more than , .Tis increase is the result of higher employee salaries and willcontinue to increase until the State corrects the errors.

Te value of the unearned leave hours is also likely to increasewhen state employees retire or otherwise leave state service. Asdiscussed in the Introduction, when employees separate fromstate service without fault, state law generally requires the affectedagency to calculate those employees lump-sum compensation forany accrued leave by projecting that accumulated leave on theirwork calendars as if they were still employed. Separating employeescontinue to earn additional leave until their accumulated leave

balances are depleted. For example, the California Department ofCorrections and Rehabilitation (Corrections) erroneously grantedan employee hours of holiday credit for February insteadof the hours to which he was entitled. Corrections failed toidentify and correct the error before he retired in January .

10 As discussed in detail in a later section, there may be circumstances relating to specictransactions that result in those transactions being appropriate or there may be additional errorsthat we did not identify. However, to account for all errors would have required a manual reviewof all state employees time sheets, which was not feasible.

11 This amount includes the value of all errors we identied through our statewide electronicanalysis. Subsequent to our analysis, some state agencies may have taken corrective action priorto December .


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As a result, when Corrections calculated his lump-sum paymentit compensated him for the extra hours plus an additional

hours accrued on the unearned leave. Tus, as Figure shows,Corrections erroneously paid him more than , for theunearned leave. Corrections cannot recover these costs becausemore than three years have passed since it made the overpayment.

Table 4Number and Value of Unearned Leave Hours Identied Through Statewide Electronic Analysis That State AgenciesCredited to Their Employees From January 2008 Through December 2012

LEAVE TYPE

NUMBER OFAFFECTED S TATE

EMPLOYEES

NUMBER OFUNEARNED

LEAVE HOURS*

VALUE OF UNEARNED LEAVE HOURSBASED ON THE STATE EMPLOYEES

SALARIES AT THE TIME OF THE ERRORS

VALUE OF UNEARNED LEAVE HOURSBASED ON THE STATE EMPLOYEESSALARIES AS OF DECEMBER 2013

Holiday Credit 9,951 127,209 $3,805,987 $4,146,269

Furlough Leave 1,208 26,062 744,232 817,512

Sick Leave 664 15,750 568,495 602,112

Personal Holiday 1,644 15,120 350,147 390,977

Personal Leave Program 2010 1,061 10,434 301,557 323,465

Personal Leave Program 2012 183 1,727 46,592 49,266

Annual Leave 5 388 25,230 25,252

Vacation Leave 6 55 2,315 2,240

Totals 14,302 196,745 $5,844,555 $6,357,093

Sources: California State Auditors analysis of data obtained from the California State Controllers Offices California Leave Accounting System andEmployment History Database.* There may be circumstances relating to specic transactions that result in these transactions being appropriate or there may be additional errors

that we did not identify. However, to account for all errors would require a review of all state employees time sheets. These values represent the salary costs for the unearned leave hours when the errors occurred should the state employees take that time off. These amounts include the value of all errors we identied through our statewide electronic analysis valued as of December 2013. However,

subsequent to our analysis, some state agencies may have taken corrective action prior to December 2013. This number represents all state employees to whom state agencies credited unearned leave. Because some state employees inappropriately

received leave hours for more than one leave type, the total for this column is less than the sum of the number of employees in the column.

Further, some inappropriate leave hours impact the States pensionprogram. Specically, as discussed in the Introduction, the State

converts employees unused sick leave to state service creditwhen they retire. Because the State uses state service credit inits calculation of pension payments, sick leave errors in the leaveaccounting system may increase its long-term pension obligations.

Finally, unclear guidance in state law puts the State at risk ofadditional costs. As discussed in the Introduction, state agenciesmust initiate collection efforts on overpayments within three yearsfrom the date of overpayment. However, state law does not denewhen an overpayment occurs. Both the California Departmentof Human Resources (CalHR) and CSU consider overpayments ofleave to occur when employees use the erroneous leave to cover


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State Agencies Often Inappropriately Credited State Employees Time Offfor Holidays

From through , state agencies erroneously creditedstate employees more than , hours of holiday creditand personal holidays, worth more than . million as ofDecember . Tese errors occurred when state agencies enterederroneous credits for holidays that fell on Saturdays, when theymisinterpreted collective bargaining agreements, and whenthey entered data incorrectly.

Many state agencies inappropriately granted state employeestwice the allowable amount of holiday credit when holidays fellon Saturdays. As described in the Introduction, state employeestypically receive eight hours of holiday credit when a holidayfalls on their regularly scheduled day off. Accordingly, when aholiday falls on a Saturday, the California State Controllers Office(state controller) records eight hours of holiday credit in its leaveaccounting system for these employees and noties state agenciesthat the employees received their holiday credit. 12 However, wefound that some state agencies erroneously credited those sameemployees an additional eight hours of holiday credit, resultingin the employees receiving double the amount of leave to whichthey were entitled. For example, Corrections Deuel VocationalInstitution gave more than employees twice the amountof holiday credit they were entitled to for Saturday holidays,resulting in nearly , hours of erroneous leave. Althoughonly four months in our ve-year review period were monthswith Saturday holidays, these months accounted for more than

, hours, or percent, of the inappropriate holiday credithours we identied.

In addition, both the California Science Center (Science Center)and the Chula Vista Veterans Home (Chula Vista) misinterpretedcollective bargaining agreements and consequently gave theiremployees too much holiday credit. Specically, the Science Centermisinterpreted the provisions of the collective bargaining

agreements related to holiday compensation and gave employeesan additional eight unearned hours of holiday credit when theyworked on holidays that fell on their regularly scheduled workdays.Similarly, Chula Vista erroneously gave some of its employeestwice the number of holiday credit hours to which they wereentitled because it misinterpreted the collective bargainingagreements as well.

12 As specied in collective bargaining agreements, some state employees earn other types oramounts of leave when holidays fall on a Saturday.

From through , stateagencies erroneously credited state employees more than

, hours of holiday credit and personal holidays, worth more than

. million as of December .


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Finally, in addition to observed state holidays, state employeestypically receive one personal holiday, equal to eight hours of leave,

each year. However, we found that state agencies gave more than, state employees excess personal holidays, for a total of more

than , hours of unearned leave.

State Agencies Gave State Employees Unearned Sick Leave, Annual Leave, and Vacation Leave

State agencies improperly credited state employees with more than, hours of sick, annual, and vacation leave from through

. Specically, we identied state employees who wereentitled to receive either annual leave or vacation and sick leavehours but who instead received more than , hours of leave inexcess of the limits set by law or collective bargaining agreements.For example, in San Diego State University (university) madea keying error when an employee transferred from part-time tofull-time status. As a result, the university inappropriately grantedher hours of sick leave each month for the following four monthsinstead of the eight hours to which she was entitled, resulting inher receiving unearned sick leave hours.

Further, while state law and collective bargaining agreementsallow certain state employees to earn either annual leave or vacation and sick leave each month, we found that state agenciescredited state employees with both annual leave and sick leavein the same month. From through , these employeesinappropriately received nearly , hours of sick leave in additionto the annual leave to which they were entitled. In fact, six of theseemployees inappropriately received eight hours of sick leave everymonth for the entire ve-year period we reviewed. Although sickleave is typically not compensable in cash, state employees canuse these hours to take paid time off for personal or family illnessinstead of using other accrued leave. Based on the employeessalaries as of December , the value of these erroneous sickleave hours was approximately , . Alternatively, these state

employees can convert sick leave to state service credit when theyretire, potentially increasing their pension payments.

State Agencies Erroneously Gave Furlough and Personal Leave ProgramHours to Some State Employees and Inappropriately Reduced the Payof Others

From February through June , the State implementedseveral furlough and personal leave programs that reduced thenumber of hours certain state employees worked each monthin exchange for an equivalent reduction in their pay. However,

We found that state agenciescredited state employees withboth annual leave and sick leavein the same monththe value ofthese erroneous sick leave hourswas approximately , .


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from through , state agencies erroneously creditedtheir employees with more than , unearned furlough and

personal leave program hours, worth nearly . million as ofDecember . For example, during July , a month whenthe State did not furlough any employees, state agencies credited

state employees with more than , furlough hours.

o determine whether state agencies simply gave their employeeserroneous leave hours or if they also inappropriately reduced theemployees pay, we tested a selection of state employees whoreceived unearned furlough or personal leave program hours atthe three agencies we visited: the California Department of StateHospitals (State Hospitals), the California Department of VeteransAffairs (Veterans Affairs), and the Science Center. We identiedthree types of errors:

State agencies inappropriately included state employees whowere not subject to the furlough or personal leave programs, thusreducing these employees pay in error.

State agencies gave state employees erroneous furlough orpersonal leave hours without reducing their pay.

State agencies credited state employees the correct number ofhours but for the wrong program.

In our review of the employees time sheets, we found thatState Hospitals and Veterans Affairs inappropriately includedthree employees in furlough or personal leave programs whowere not subject to these programs. Tese state agencies gave theaffected employees unearned leave credits and erroneously reducedtheir pay. For example, in December , the Veterans Home ofBarstow credited a supervisor eight personal leave program hoursand reduced his pay by nearly percent, even though he was notsubject to the personal leave program.

Our review also found that the three state agencies inappropriately

gave employees a total of unearned furlough or personalleave program hours. In these instances, the agencies did notimpose a corresponding reduction in the employees pay. Forexample, Chula Vista credited an employee hours of furlough inJuly , a month when the State did not furlough any employees,without reducing the employees pay.

Finally, we found that in ve separate instances, State Hospitalsand Veterans Affairs credited four state employees with thecorrect amount of leave but for the wrong furlough or personalleave program category. For example, the Veterans Home ofWest Los Angeles gave one employee eight personal leave program


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hours during August when he should have earned eight hoursof furlough. Because the leave categories have different usage

rules that could impact employee compensation, inappropriatelycrediting hours to the wrong leave category could eventuallyincrease the States nancial liability.

Our Analysis Cannot Account for All of the Types of Errors That State Agencies Made

Our analysis suggests that, as of December , state agencies havecredited state employees with nearly . million in unearned leavefrom through . However, assessing the true magnitudeof the problem would require a manual review of the monthly timesheets for the more than , state employees whose leave wastracked in the leave accounting system during our review period.Our statewide electronic analysis compared actual employeeleave accruals to the maximum allowable accruals speciedin state law or collective bargaining agreements. Tis analysiscould not account for all of the specic circumstances relating toindividual transactions because knowledge of these circumstanceswould require a manual review of time sheets. As such, certaintransactions we identied as errors in our analysis may not beerrors and, conversely, we may have identied some transactions asappropriate when they were in error. For example, we were unableto identify instances in which employees received more leave thanthey were entitled to but less than the maximum allowed, such aspart-time employees who received more leave than the proratedamounts to which they were entitled. We also were not able toidentify instances in which state agencies gave employees too littleleave or overcharged employees leave balances when they tooktime off from work.

o determine the prevalence of such errors within the leaveaccounting system, we reviewed a selection of time sheets ateach of the three state agencies we visited. We conrmed one errorthat we had previously identied through our statewide electronic

analysis. Additionally, we found three errors that we had notpreviously identied in that analysis. Specically, the VeteransHome of Yountville incorrectly gave a part-time employee hoursof holiday credit instead of the eight hours to which she wasentitled. In addition, the Science Center failed to credit an employeeeight hours of compensating time off that he had earned. Finally,the Atascadero State Hospital inappropriately gave an employeeeight excess hours of leave. 13

13 An employee can earn excess hours when working an alternate work week schedule (alternateschedule) as described in the Introduction.

Our analysis suggests that, as ofDecember , state agencieshave credited state employees withnearly . million in unearnedleave from through .


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We also tested a total of time sheets for state employees whoworked alternate schedules at the three state agencies we visited

and we found similar errors. Te three state agencies did not alwaysrequire their employees to use leave when their alternate schedulesresulted in them working fewer hours for the month than required.As shown in able , the three state agencies failed to charge theiremployees a total of . hours of leave, at a cost to the State of

, . For example, in March Veterans Affairs failed to chargeone employee seven hours of leave to account for the full numberof required work hours as state law and regulations dene. Further,two of the three state agencies overcharged other employees whoworked an alternate schedule a total of hours, at a cost to thoseemployees of . For example, Patton State Hospital overchargedone employee eight hours of leave in July . Because we couldnot identify these types of errors in our statewide electronicanalysis, it is likely that signicantly more errors of this nature existin the leave accounting system.

Table 5Three State Agencies Inappropriate Leave Transactions for Employees on Alternate Work Week SchedulesDuring 2012

STATE AGENCY

NUMBER OFTIME SHEETS

REVIEWED

NUMBER OFTIME SHEETS

WITHERRORS

NUMBER OF HOURSTHAT THE AGENCYUNDERCHARGED

EMPLOYEES LEAVE

VALUE OFUNDERCHARGED

HOURS AS OFDECEMBER 2013

NUMBER OF HOURSTHAT THE AGENCY

OVERCHARGEDEMPLOYEES LEAVE

VALUE OFOVERCHARGEDHOURS AS OF

DECEMBER 2013

California Department of State Hospitals(State Hospitals)

19 3 4.0 $175 12 $272

California Department of Veterans Affairs(Veterans Affairs)

16 4 11.5 287 0 0

California Science Center (Science Center) 20 4 28.0 594 6 144

Totals 55 11 43.5 $1,056 18 $416

Sources: California State Auditors analysis of data obtained from the California State Controllers Offices California Leave Accounting System andEmployment History Database, and time sheets obtained from State Hospitals, Veterans Affairs, and the Science Center.

State Controller Could Strengthen Its Leave Accounting SystemControls to Assist State Agencies in Detecting and Correcting theTypes of Erroneous Transactions We Identied

Although the State Controller is responsible for maintaining andsupporting the leave accounting system, each participating stateagency is responsible for the accuracy and completeness of its data.Nevertheless, weaknesses in the state controllers leave accountingsystem contribute to the enormity of the problems we found.Specically, the leave accounting system lacks sufficient controlsthat assist state agencies in ensuring that their leave transactions arecomplete, accurate, and valid. Ideally, the leave accounting system


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would leverage a combination of automated and manual controls toprevent and detect incorrect leave transactions. However, we found

that its existing automated and manual controls are not adequate toprevent and detect the types of errors we identied in our statewideelectronic analysis. In addition to this lack of sufficient controls,during our review period the leave accounting system did notgenerate reports that would easily identify unusual transactions toenable state agencies to detect errors. Similarly, it did not identifyinappropriate manual adjustments that state agencies make to thetotal number of months a state employee has worked for the State(state service balance), a key factor in determining the amount ofleave an employee earns each month.

Te automated controls in the state controllers leave accountingsystem do not always prevent state agencies from crediting stateemployees with leave to which they are not entitled. We wouldexpect a system for tracking state employee leave balances toapply accurately the conditions set forth in state law and collectivebargaining agreements. For example, the leave accounting systemshould have automated controls to prevent state agencies fromcrediting employees with more than the respective maximumallowable hours for each type of leave each month or withconcurrent accruals of both sick leave and annual leave. Accordingto the state controller, the leave accounting system has automatedcontrols to ensure the accuracy of certain types of monthlyaccruals, such as vacation and sick leave, but lacks controls forcertain benets such as holiday credit and furlough. When we askedthe chief of the state controllers Personnel and Payroll ServicesDivisionthe division that maintains the leave accounting systemwhy the system lacks controls that would prevent the types of errorswe identied, she stated that it was designed to be exible enoughto accommodate the multitude of benets for which employeesare eligible, including the nuances created by collective bargainingagreements, time bases, and the use of alternate schedules.However, as shown by the results of our statewide electronicanalysis in able on page , we identied many instances inwhich state agencies credited their employees with inappropriate

amounts of leave despite the state controllers automated controls.Although we realize it would not be cost-effective to designautomated controls capable of detecting every type of error, wewould expect the state controller to have developed automatedcontrols to detect the types of errors we present in able .

At times, these errors have resulted in signicant costs to the State.For example, in May the Porterville Developmental Center(Porterville) of the California Department of DevelopmentalServices (Developmental Services) gave one employee hours ofholiday credit instead of the eight hours to which she was entitled.Further, in March , Porterville repeated this same keying error

The automated controls in the state controllers leave accounting system do not always prevent state agencies from crediting stateemployees with leave to which theyare not entitled.


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for another employee. Had we not detected these errors, they wouldhave resulted in Porterville awarding the employees with unearned

leave credits worth nearly , . When we brought thesetransactions to the attention of Developmental Services, staff thereconrmed that both were the result of data entry errors. Portervilleis taking action to resolve these issues. Similarly, the CaliforniaDepartment of Education (Education) inappropriately creditedone employee with eight hours of sick leave each month in additionto her monthly accrual of annual leave for the entire ve-yearperiod we reviewed. After we brought this error to Educationsattention, Education found that it had erroneously credited her withsick leave each month for more than years. As a result, Educationhad given her hours of sick leave to which she was not entitled.According to Education, it ultimately completed corrections to thisemployees leave balances in January .

In the absence of adequate automated controls over its leaveaccounting system, the state controller could generate monthlyexception reports that identify unusual or unexpected leavetransactions for state agencies to review manually. Currently,the state controller produces a monthly report detailing eachemployees leave balances and activity, which requires state agenciesto review this information for each of their employees to identifyerrors. Te addition of exception reports would allow state agenciesto more quickly and easily identify transactions that are at thegreatest risk of being inappropriate, such as employees at any stateagency who earned more than eight hours of sick leave during amonth. Tese reports would allow state agencies to quickly identifythe employees receiving more than the maximum allowable hoursof leave. However, during our review period, the state controller didnot generate such a monthly exception report.

In fact, when we prepared an exception report of unusually highleave transactions, we identied one instance where Coalinga StateHospital erroneously gave an employee , hours of holidaycredit in December , worth more than , , instead ofthe eight hours to which she was entitled. When we brought this

transaction to the attention of Coalinga State Hospital in May ,it voided this transaction and entered a new transaction givingthe employee eight hours of holiday credit. Without this type ofexception report, state agencies might not detect similar errors.

Similarly, state agencies could also use exception reports to monitorchanges to their employees months of state service balances. Teleave accounting system relies on these balances to calculate howmany hours of annual or vacation leave employees are eligibleto accrue each month. Te leave accounting system allows state

We identied one instance whereCoalinga State Hospital erroneouslygave an employee , hours ofholiday credit in December ,

worth more than , , insteadof the eight hours to which shewas entitled.


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agencies to manually update an employees state service balance. 14 However, during our review period, there was no mechanism

in place to notify state agencies when changes were made. Tismakes the system vulnerable both to errors when making suchupdates and to deliberate wrongdoing. Because there is nostatewide requirement to audit the state service balance in the leaveaccounting system, agencies are unlikely to detect errors unless theyare able to review an exception report; however, at the time of ourstatewide electronic analysis no such report was being generated bythe state controller. As a result, state agencies could inappropriatelygrant additional leave credits to state employees each month.

In September we discussed the idea of implementing exceptionreports with the chief of the state controllers Personnel and PayrollServices Division and she agreed that the reports could improvethe controls over the leave accounting system. In fact, in February

, the state controller began producing exception reports thatidentify transactions crediting employees more than hours eachfor the following leave types: compensating time off, holiday credit,and excess hours. In addition, the state controller began producinga report identifying certain state service balance transactions.However, additional exception reports could be developed to identifytransactions that credit employees with more than the maximumallowable leave for a specic leave benet. Tis would further ensurethat state agencies accurately track employees leave hours.

CalHR Needs to Provide Additional Guidance on Leave Accounting

Another factor that has contributed to state agencies creditingunearned leave to state employees is the failure of CalHR to denestate policy sufficiently for employees who work alternate schedules,which may have caused one state hospital we visited to accountinappropriately for its employees leave. Further, some state agencieshave misinterpreted collective bargaining agreements. Specically,two locations we visited misinterpreted collective bargainingagreements and consequently granted unearned leave hours to

their employees. We believe that CalHR should provide additionalguidance to state agencies to avoid these types of misinterpretations.

CalHR does not have sufficient policies in place related to employeeswho work alternate schedules. Because collective bargainingagreements do not provide guidance on how to track leave benetsfor employees who adhere to alternate schedules, we expectedthat CalHR would have provided statewide policies. While weidentied some relevant policy memoranda that CalHR issued, these

14 The leave accounting system limits access to an employee record to the most current employingstate agency.

Two locations we visitedmisinterpreted collectivebargaining agreements and

consequently granted unearnedleave hours to their employees.


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memoranda did not address how state agencies should accountfor hourly employees working alternate schedules. When we

followed up with CalHR about its policies, it provided us with someadditional guidance that was last updated in March . However,this guidance is not readily available for state agencies to access.Although CalHRs Web site contains internal procedures for its ownemployees who work alternate schedules, these internal proceduresare not statewide policies and do not apply to all state employees.

In the absence of clear guidance from CalHR related to alternateschedules, state agencies may be overcompensating employeeswho work less than the required number of monthly hours or,alternatively, undercompensating employees who work more thanthe required number of hours in a month. For example, employeeswho do not work the required number of hours in a month mustgenerally receive a reduction in pay for the month or must useleave hours to balance the decit in the hours worked. Tus, it iscritical that state entities track the number of hours that employeeswork each month to ensure that these employees are compensatedcorrectly. However, CalHR does not provide specic guidance tostate agencies that instructs them to track the number of hoursworked and, as a result, we found that this was not occurring atone state hospital. Specically, Napa State Hospital did not trackwhether employees worked the required number of hours eachmonth when its employees worked an alternate schedule; thus, itwas not adjusting the employees leave balances or pay accordingly.Te human resources director indicated that she did not believeit was necessary to track the monthly hours because an employeeworking an alternate schedule should work the appropriate numberof hours over the course of a year. However, when we reviewed thescheduled hours of one employee working an alternate schedulefor , we found that by the end of the year that employee wouldhave been overcompensated for hours. Additionally, Napa StateHospital cannot guarantee that its employees who are workingalternate schedules will remain on that schedule for a full year.Ultimately, according to the human resources director, NapaState Hospital began tracking the hours of employees working an

alternate schedule in January . However, additional guidancefrom CalHR to all state agencies on how they should track thehours of the employees who work alternate schedules would helpensure that these employees are appropriately compensated.

Further, we identied two state agencies that misinterpretedcollective bargaining agreements. Specically, the Science Centermisinterpreted language in collective bargaining agreements, causingit to grant employees more holiday credit than it should have.Te collective bargaining agreements for the Service EmployeesInternational Union, Local , all state that when a full-timeemployee in Work Week Group is required to work on a premium

CalHR does not provide specicguidance to state agencies thatinstructs them to track the numberof hours worked and, as a result, wefound that this was not occurring atone state hospital.


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holiday, the employee shall receive eight hours of holiday credit andone and one-half the hourly rate for all hours worked on the observed

holiday, compensable by holiday credit, cash, or compensatorytime off.15 According to CalHRs manager of its Personnel ServicesBranch, this provision identies the total compensationin regularpay and leave hoursthat employees receive for working on apremium holiday. Terefore, the manager indicated that if employeeswork eight hours on a premium holiday that falls on their regularlyscheduled workday, they are entitled to their normal eight hoursof pay plus an additional hours of compensation in the form ofholiday credit, cash, or compensatory time off. However, the ScienceCenter believed this provision of the collective bargaining agreementspecied compensation in addition to employees regular pay andthus routinely granted its employees eight hours of pay as well as

hours of holiday credit rather than the appropriate hours.

Similarly, the Science Center misinterpreted the section of thecollective bargaining agreements related to nonpremium holidays.As a result, when some of its employees worked eight hours on anonpremium holiday that fell on their regularly scheduled workday,the Science Center gave them eight hours of pay and hours ofholiday credit, instead of the eight hours of holiday credit to whichthey were entitled. In total, we questioned more than , hours,or nearly percent, of the holiday credit hours the Science Centergave its employees from January through December .

Additionally, Chula Vista inappropriately calculated the amountof holiday credit its state employees should have received fora Saturday holiday that occurred in March . Specically,Chula Vista gave employees eight hours of holiday credit, afterthe state controller had already given these employees eight hours,or twice the hours they were entitled to, for a total of more than

hours of unearned leave. According to Chula Vistas seniorpersonnel specialist, she understood that the pertinent collectivebargaining agreement entitled employees to receive eight hours ofholiday credit for working on a holiday in addition to the eight hoursof holiday credit the state controller gave the employees. However,

according to CalHR, it is inappropriate for a state agency to providethe holiday credit to state employees when the state controllerhas already done so. Terefore, Chula Vistas employees were notentitled to receive the additional eight hours of holiday credit.

o avoid these types of misinterpretations of collective bargainingagreements, CalHR should provide state agencies with additionalguidance. Specically, CalHR could provide exam

high risk update: state agencies credited their employees with millions of dollars worth of...

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