Report 2013-122 All Recommendation Responses

Report 2013-122: California Department of Toxic Substances Control: Its Lack of Diligence in Cost Recovery Has Contributed to Millions in Unbilled and Uncollected Costs (Release Date: August 2014)

Recommendation #1 To: Toxic Substances Control, Department of

To ensure that it maximizes opportunities to recover its costs, by January 2015, the department should develop a reporting function in its project management database to track and monitor the statute of limitations expiration dates for its projects.

6-Month Agency Response

DTSC completed work on a cost recovery page in its project management database (EnviroStor) in June 2014 as part of the Department's Fixing the Foundation initiative. This page includes data fields for tracking and monitoring potential statute of limitations dates. In January 2015, DTSC completed the upload of data for sites addressed in the Office of the State Auditor's Report 2013-122 with potentially pending statute of limitations. Also in January 2015, DTSC fully implemented a reporting feature in EnviroStor to track and monitor the statute of limitations of its projects.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

DTSC completed work on a cost recovery page in its project management database (EnviroStor) in June 2014 as part of the Department's Fixing the Foundation initiative. This page includes data fields for tracking and monitoring potential statutes of limitations (SOL) dates. DTSC created a work plan in August 2014 that outlines an implementation timeline to populate the SOL data fields and to create a reporting function to track pending SOL expirations. Data for sites identified in the Office of the State Auditor's report with potentially pending SOLs are scheduled to be in place in January 2015. The reporting function will facilitate the tracking and monitoring of site SOLs before they expire. SOL reporting is scheduled to be in place in January 2015. DTSC continues to resolve issues impeding cost recovery efforts on sites with outstanding cost balances of $1 million or more with or without pending SOL dates and sites with pending SOL dates less than $1 million.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #2 To: Toxic Substances Control, Department of

To improve the accuracy of the outstanding costs in its billing system, by January 2015, the department should establish a process to track its settlement agreements to ensure that department staff can verify they have updated information for outstanding costs that reflects all adjustments made for settlements paid and reduced in the billing system.

6-Month Agency Response

DTSC created new Cost Recovery Settlement and Judgment Tracking Procedures to ensure settlement agreements and resulting payments are recorded and accurately adjusted in the department's billing system. The procedures outline steps for tracking settlement agreements and judgments to ensure staff have all information necessary to make appropriate accounting adjustments in DTSC's cost recovery billing system and in California's official accounting system. DTSC also updated its Settlement/Judgment Payment Guide (Guide) and made its use mandatory, instead of as requested, every time a settlement agreement or judgment is finalized. Project Managers must now submit the Guide to inform the Cost Recovery Billing Unit how to adjust settlement payments in the billing system. The settlement agreement tracking procedures provide additional quality control and accountability by prescribing the use of DTSC's new Microsoft SharePoint document tracking and dashboard reporting system.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

DTSC is developing tracking procedures that help ensure settlement agreements and resulting payments are recorded and accurately adjusted in the department's billing system. The changes will enhance DTSC's ability to track settlement agreement processing and improve communication between employees. A database developed in July for DTSC's Office of Legal Affairs to track litigation holds and referrals for potential litigation to the Office of the Attorney General will also facilitate the tracking of settlement agreements.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Recommendation #3 To: Toxic Substances Control, Department of

To ensure that it maximizes the recovery of its costs from responsible parties, by October 2014, the department should do the following:

- Establish processes to monitor and verify that responsible party searches are properly reviewed and approved according to its procedures.

60-Day Agency Response

DTSC revised its Departmental Procedures Memorandum (DPM) on potential responsible party (PRP) searches and created a new PRP Identification Memorandum Template in October 2014. The template strengthens the process for monitoring and verifying that PRP searches are properly reviewed and approved by requiring Unit Supervisor, Branch Chief, and Office of Legal Counsel signature. The new template also standardizes and clarifies the PRP search content and format. Previously, PRP Identification Memorandum content was referred to in procedures but no format was prescribed in the DPM on PRP Searches. Other search process revisions in the DPM make instructions more specific and provide information on staff roles, responsibilities, and related tasks in the PRP search process and subsequent follow-up activities. The use of the template and other DPM changes will be reinforced through training to be completed by January 2015.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

Recommendation #4 To: Toxic Substances Control, Department of

To ensure that it maximizes the recovery of its costs from responsible parties, by October 2014, the department should do the following:

- Develop written procedures for updating and monitoring its collection letter log.

60-Day Agency Response

In October 2014, DTSC added instructions for updating and monitoring its collection letter log to the Departmental Procedures Memorandum (DPM) on collection letters and created new written desk procedures. The new desk procedures provide Cost Recovery Billing Unit staff with step-by-step instructions on updating the collection letter log. The revisions to the DPM clarify instructions, make them more specific and provide information on staff roles, responsibilities, and related tasks in the collection letter process and follow-up activities. The revised DPM requires CRBU Accounting Officers to review the collection letter log weekly and identify collection letters for issuance the following week.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

Recommendation #5 To: Toxic Substances Control, Department of

To ensure that it maximizes the recovery of its costs from responsible parties, by October 2014, the department should do the following:

- Continue its plan to update policies and procedures for using liens whenever appropriate.

Annual Follow-Up Agency Response From November 2015

Audit Report 2013-122 recommended that the Department of Toxic Substances Control (DTSC) should continue its plan to update policies and procedures for using liens whenever appropriate. On November 6, 2015, DTSC issued its Statutory Lien Policy and Procedures (DTSC-15-001), outlining DTSC's use of statutory liens pursuant to Health and Safety Code section 25365.6 to secure unreimbursed response costs incurred by DTSC in conducting or overseeing response actions pursuant to the Hazardous Substances Account Act (HSAA), Health and Safety Code section 25300 et seq. DTSC worked with the Attorney General's Office to finalize DTSC's Lien Policy and Procedure to ensure that it: (1) complies with the constitutional due process principles articulated in December 2014 by the Third District Court of Appeal in Van Horn v. State of Cal. Dept. of Toxic Substances Control, Case No. C073173; and (2) provides sufficient guidance to DTSC staff regarding the appropriate use of statutory liens to secure response costs incurred by the Department.

Note: Statutory Lien Policy and Procedures (DTSC-15-001) sent as attachment via e-mail to State Auditor.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

DTSC is working with the Attorney General's Office to finalize the draft statutory lien policy to ensure that it: (1) complies with the constitutional due process principles articulated in December 2014 by the Third District Court of Appeal in Van Horn v. State of Cal. Dept. of Toxic Substances Control, Case No. C073173; and (2) provides sufficient guidance to DTSC staff regarding the appropriate use of statutory liens to secure response costs incurred by the Department. The draft is undergoing successive review by DTSC staff and the Attorney General's Office. The most recent round of revisions was received on August 7, 2015. DTSC anticipates the policy will be completed by the end of September 2015.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

6-Month Agency Response

DTSC continues to research issues related to both administrative and judgment liens and develop a revised lien policy and procedures to address both administrative and judgment liens. On December 19, 2014, the Third District Court of Appeal published its opinion in Van Horn v. State of Cal. Dept. of Toxic Substances Control, Case No. C073173, raising concerns regarding whether DTSC's lien hearing procedures comply with constitutional due process principles. DTSC is currently evaluating its lien process in the context of the Third District Court of Appeal's opinion and continues to develop revised lien policy and procedures.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

DTSC continues to research issues related to both administrative and judgment liens and has begun the process of developing a revised lien policy and revised lien DPM to address best practices with respect to both administrative and judgment liens. Once draft documents are developed, a process will be created to allow OLC, Program, and DTSC management to review and comment on the revised policy and procedure.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Although the department indicates it is continuing to research the issues and has begun to develop a revised lien policy and procedures, these documents are not yet complete and we have not been able to review them. We will wait until we receive the final versions before we agree that the recommendation has been fully implemented.

Recommendation for Legislative Action

To improve the department's efforts to recover its costs promptly, the Legislature should revise state law to allow the department to use a higher interest rate for late payments. For example, the department could be allowed to use an interest rate similar to that used by the Board of Equalization.

Description of Legislative Action

Assembly Bill 273 (Chapter 456, Statutes of 2015) requires, until June 30, 2021, a specified monetary obligation owed to the Department of Toxic Substances Control to be subject to an interest rate of 7% per annum. After that date, the monetary obligation is subject to an interest rate of 10% per annum, except that, in the case of obligations of local governments, the rate after that date will remain at 7% per annum. The statute also allows the department to waive the interest if the obligation is satisfied within 60 days or if the person, within 45 days of receiving the notice, provides notice to the department disputing the obligation

California State Auditor's Assessment of Annual Follow-Up Status: Legislation Enacted

Description of Legislative Action

AB 273 (Chapter 456, Statutes of 2015), until June 30, 2021, requires a monetary obligation owed to the Department of Toxic Substances Control to be subject to an interest rate of 7% per annum. After that date, the monetary obligation is subject to an interest rate of 10% per annum, except that, in the case of obligations of local governments, the rate after that date will remain at 7% per annum. The statute also allows the department to waive the interest if the obligation is satisfied within 60 days or if the person, within 45 days of receiving the notice, provides notice to the department disputing the obligation.

California State Auditor's Assessment of Annual Follow-Up Status: Legislation Enacted

Description of Legislative Action

Legislation has not been introduced to address this specific recommendation

California State Auditor's Assessment of 6-Month Status: No Action Taken

Recommendation for Legislative Action

To improve its ability to more effectively recover costs, the Legislature should give the department the authority to require financial information from potentially responsible parties.

Description of Legislative Action

Assembly Bill 276 (Chapter 459, Statutes of 2015) authorizes the department or a local officer or agency to require specified persons to furnish and transmit any information relating to those persons' ability to pay for or perform a response action. The statute also permits the department or a local officer or agency authorized to enforce the Hazardous Waste Control Law to require any person who has information regarding the activities of a person specified above relating to hazardous substances, hazardous wastes, hazardous materials, and the ability of the specified person to pay for or perform a response action to furnish and transmit that information.

California State Auditor's Assessment of Annual Follow-Up Status: Legislation Enacted

Description of Legislative Action

AB 276 (Chapter 459, Statutes of 2015) authorizes the Department of Toxic Substances Control or local officer or agency to require specified persons to furnish and transmit any information relating to those persons' ability to pay for or perform a response action. The statute also permits the department or a local officer or agency authorized to enforce the Hazardous Waste Control Law to require any person who has information regarding the activities of a person specified above relating to hazardous substances, hazardous wastes, hazardous materials, and the ability of the specified person to pay for or perform a response action to furnish and transmit that information.

California State Auditor's Assessment of Annual Follow-Up Status: Legislation Enacted

Description of Legislative Action

Legislation has not been introduced to address this specific recommendation

California State Auditor's Assessment of 6-Month Status: No Action Taken

Recommendation #8 To: Toxic Substances Control, Department of

To ensure it loads only accurate billing data into FI$Cal, the department should continue evaluating projects with outstanding costs in its billing system to meet the July 2015 implementation date.

Annual Follow-Up Agency Response From October 2016

As of June 30, 2016, DTSC evaluated and performed data clean up on all its backlog sites. DTSC has resolved costs at 1517 of the original 1621 backlog sites. DTSC has analyzed each site, documented paths forward and continues to pursue resolution on the remaining 104 sites. DTSC's formal data cleanup process reviewed site history, determined data gaps and assigned sites to categories to determine the most effective path forward for resolving uncollected costs. DTSC will continue to track categories, billing statuses, document workflow and process bottlenecks in its desktop application Cost Recovery Monitoring database. This database provides instant cost recovery updates and is also informing the creation of DTSC's replacement billing system called Cost Recovery Billing System III(CRBS III). CRBS III will perform the functions previously considered for FI$Cal. As envisioned, CRBS III will not only be a billing system but will also be a conduit for communication, data sharing and reporting that will help to ensure future unrecovered costs are held to a minimum. DTSC is conducting a Stage 2 Business Analysis following the States IT procurement process. The new system is due to be ready by 2021.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From November 2015

In previous audit responses, DTSC reported that Fi$Cal had determined it could not meet the Department's billing needs. DTSC now is working with the Department of Technology to implement a new billing system as soon as possible. On Oct. 14, 2015 DTSC submitted a Stage 1 Business Analysis (S1BA) document to the Department of Technology to begin the project approval process. A meeting with the Department of Technology to discuss the business analysis as well as next steps in the project approval process is scheduled in November. Development and deployment for the new billing system are expected to take three to four additional years beyond project approval. DTSC continues to clean up data and reduce unresolved costs. DTSC is on track to complete data cleanup on backlog sites by June 30, 2016, well before a new billing system would be in place. DTSC's new procedures include enhanced guidelines and controls to help ensure that new data will be accurate.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

Since its last audit report in February, DTSC wrote and implemented a Backlog Resolution Desk Manual to further speed resolution on sites with outstanding costs of more than $5,000. DTSC evaluated, cleaned up data and determined a path forward for 458 of 1661 sites. DTSC continues to work down its prioritization schedule of high dollar sites with unresolved costs and sites where the statute of limitation for collecting costs could expire. DTSC fully implemented its Microsoft SharePoint based data management system and dashboard used to track cost recovery work flows and build a metric-based culture for cost recovery. As previously reported, Fi$Cal determined it could not meet DTSC's billing needs. A recently revised State-wide IT project approval process pushed CRBS project approval to July 2018. Development and deployment are expected to take 3-4 additional years beyond project approval. DTSC is working with the Department of Technology to implement this project as soon as possible. Although DTSC is making significant progress in evaluating projects with unresolved costs, some of the 1661 sites identified by the State Auditor will not be fully resolved until July 2016. This includes 543 sites of $5,000 or less that will be addressed by the proposed legislation outlined in Recommendation 11. The July 2016 timeframe coincides with the expiration of 14 two-year limited term positions hired to clean up data, reduce unresolved costs and develop strong processes for the future. DTSC has identified business needs and is exploring opportunities to make these positions permanent.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

6-Month Agency Response

On January 5, 2015, DTSC received a letter from our FI$Cal Executive Partner acknowledging that the FI$Cal financial management system would be unable to meet the unique programmatic accounts receivable business needs of DTSC's current billing system (CRBS). In response to this setback, DTSC is pursuing funding and completing the prescribed IT procurement authorization process to replace its legacy, archaic and unsupported billing system. At the same time, DTSC continues to aggressively evaluate projects with outstanding costs and conduct data cleanup. DTSC implemented a Microsoft SharePoint based site to track cost recovery work flows. A dashboard generated from this site allows DTSC to track its progress and build a metric based culture for cost recovery. DTSC continues to balance the need for data cleanup with the need to focus on high dollar sites with unresolved costs. DTSC continues to work down its prioritization schedule for sites with outstanding balances of $1 million or more and sites of any balance with potentially expiring statutes of limitation dates. As of January 21, 2015, DTSC resolved 21 of 52 (40%) of the highest priority sites worth $17.5 million of an original $38.7 million. Although DTSC is making significant progress in evaluating projects with outstanding costs in its billing system, not all sites with outstanding costs will be fully resolved until July 2016.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

DTSC issued 27 Departmental Procedures Memorandums in November 2013 to maximize cost recovery. The Legislature approved 14 limited-term positions to help eliminate the backlog and conduct data cleanup based on a proposed two-year plan. Those positions became effective in July 2014. Also in July, DTSC implemented 1) a system using SharePoint to track and report cost recovery progress for sites with outstanding costs, and 2) a database for tracking litigation holds and referrals for potential litigation to the Office of the Attorney General. In August 2014, DTSC hired an Accounting Administrator I (Specialist) partially dedicated to evaluating projects with outstanding costs and FI$Cal implementation. Building on this foundation as well as audit recommendations, DTSC is implementing a prioritization schedule to first evaluate the cost recovery potential for sites with outstanding balances of $1 million or more and sites of any balance with potentially expiring statutes of limitation dates. Sites will be analyzed and data cleanup done using those priorities to maximize cash collection. Data cleanup requires a site-by-site analysis and can include changing billing statuses or designating the site as an orphan with no viable party to bill. Analysis often can be complex and time-consuming. Focusing DTSC efforts with data clean up as the first priority could mean the department is unable to recoup taxpayer dollars or misses important collection deadlines. Although DTSC is making significant progress in evaluating projects with outstanding costs in its billing system, not all sites with outstanding costs will be fully resolved until July 2016.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #9 To: Toxic Substances Control, Department of

To improve the accuracy of its outstanding costs related to the CLEAN loan program and federal grants, the department should do the following:

- Follow through with its plan to update its written procedures to include the changes in billing procedures for the CLEAN loan program.

6-Month Agency Response

DTSC implemented new written procedures to ensure Cleanup Loans and Environmental Assistance to Neighborhoods (CLEAN) loan funds are accurately billed and applied to outstanding invoices. The State Auditor evaluated Recommendation 9 as Partially Implemented after DTSC's 60 day response. The new written procedures have now been formally adopted and included in a revision to DPM-CR-18, Cost Recovery: Payments.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

DTSC implemented new written procedures to improve the accuracy of its unresolved backlog balance. These reconciliation practices ensure Cleanup Loans and Environmental Assistance to Neighborhoods (CLEAN) Loan funds are accurately billed and applied to outstanding invoices. The procedures require the DTSC Cost Recovery Billing Unit to invoice the DTSC Accounting Branch for sites reimbursed by Fund 1003 (CLEAN) Loan. Upon receipt of the invoice, the Accounting Branch will transfer funds from Fund 1003 (CLEAN) Loan to Fund 0557 (Toxic Substance Control Account) and will provide the CRBU with the Remittance Advice document with journal entry number confirming the transfer of funds. Upon receipt of the remittance advice document, CRBU records the transfer as a receipt for the site in the Cost Recovery Billing System. The new procedures will be finalized by December 2014 in the update to DPM-CR-18.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Recommendation #10 To: Toxic Substances Control, Department of

To improve the accuracy of its outstanding costs related to the CLEAN loan program and federal grants, the department should do the following:

- Continue to identify and remove outstanding costs for the federal grants when it determines it has already received funding.

6-Month Agency Response

Federal grant projects, with the exception of US EPA Support Agency - Multiple Site Cooperative Agreement (MSCA) grants, ceased being tracked in DTSC's Cost Recovery Billing System (CRBS) on June 30, 2011. In July 2014, DTSC identified 43 federal grant projects from this previous period that potentially needed adjustment. The list of 43 grant projects were analyzed and appropriate federal grant projects and associated costs were removed from CRBS. DTSC finalized and implemented federal grant adjustment desk procedures to guide Cost Recovery Billing Unit staff if further costs are identified.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

Federal grant projects, with the exception of US EPA Support Agency Cooperative Agreement - Multiple Site (MSCA) grants, ceased being tracked in DTSC's Cost Recovery Billing System (CRBS) on June 30, 2011. In July 2014, DTSC identified 43 federal grant projects from this previous period that could potentially need adjustment. Desk procedures were developed to address the identification and removal of pre-2011 unbilled costs for federal grants other than MSCA grants. Analysis and adjustment of unbilled costs will be complete by January 2015.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Recommendation #11 To: Toxic Substances Control, Department of

The department should continue to resolve its questions about its authority to write off outstanding costs under $5,000. To the extent that it determines it cannot write off outstanding costs, it should pursue collecting the costs.

Annual Follow-Up Agency Response From November 2015

AB 274 authorizes DTSC to write off uncollected accounts of $5,000 or less incurred between Dec. 31, 1987 and Dec. 31, 2013, if the cost to pursue the recovery exceeds the value of the uncollectible account. AB 274 was signed by the Governor on Oct. 2, 2015 and takes effect Jan. 1, 2016. DTSC created procedures to process the write-offs and will begin implementation in January 2016. When cost effective, and within established guidelines, DTSC continues to make progress in resolving costs of $5,000 or less through collection; data cleanup; and write offs. DTSC will use all available tools and processes to resolve the remainder of audit backlog costs of $5,000 or less as quickly as possible by July 2016.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

AB 274 was introduced by the Assembly Committee on Environmental Safety and Toxic Materials. As proposed, AB 274 would authorize DTSC to not pursue and to write off uncollected oversight costs of $5,000 or less, incurred between December 31, 1987 and December 31, 2013, when the cost for DTSC to pursue the oversight costs exceeds the costs itself. When cost effective, and within established guidelines, DTSC continues to make progress in resolving costs of $5,000 or less through collection; data cleanup; and write offs. Through these efforts, DTSC reduced the original 713 sites with values of $5,000 or less to 553. DTSC will use all available tools and processes to resolve the remainder of audit backlog costs of $5,000 or less as quickly as possible by July 2016.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

6-Month Agency Response

DTSC received questions from legislative staff about the DTSC's statutory authority to write of costs under $5,000. DTSC understands that there will likely be legislation introduced to further clarify DTSC's authority to write off costs under $5,000. DTSC will continue to work with legislative staff and the Legislature if/when such a bill is introduced. DTSC issued two internal guidance documents for pursuing collections and for discharging (writing off) accounts receivables (ARs) of $500 and for $25 or less per debtor for sites that are to be closed in the Cost Recovery Billing System (CRBS). The guidance aligns with Health and Safety Code section 25269.8 which allows the Department to "review all current outstanding receivables and make an appropriate adjustment for estimated uncollectible amounts consistent with current accounting practices and recognizing the present value of future collection." Although the Department has the authority to adjust its own books, the guidance follows the State Administrative Manual (SAM) and other applicable statutes to make those adjustments.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

DTSC conducted a cost recovery work analysis to determine costs associated with conducting outstanding costs collection. DTSC is coordinating with Department of Finance and State Controller's Office for clarification on authority to write off outstanding costs under $5,000.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2013-122

Agency responses received are posted verbatim.