Report 2008-103 Summary - November 2008
California Unemployment Insurance Appeals Board
:Its Weak Policies and Practices Could Undermine Employment Opportunity and Lead to the Misuse of State Resources
HIGHLIGHTS
Our review of the California Unemployment Insurance Appeals Board's (appeals board) hiring, procurement, and administrative practices found that:
- Hiring managers were not always allowed to consider all applicants for a given position because of a freeze on outside hires.
- Hiring managers did not consistently document their reason for hiring a particular candidate.
- Nearly half of the employees who responded to our survey believed that the appeals board's hiring and promotion practices were compromised by familial relationships or employee favoritism.
- The appeals board cannot currently enforce its new nepotism policy on persons who are not currently employed by the appeals board because the new policy should have been submitted to the State's Office of Administrative Law for approval as a regulation.
- Employees submitted few equal employment opportunity (EEO) complaints or grievances during roughly the past five years, and 40 percent of employees responding to our survey indicated that they would have some fear of retaliation from their supervisors or upper management if they were to file either EEO complaints or grievances.
- Certain weaknesses in the appeals board's controls over travel expenses prevent it from demonstrating the business purpose of some travel expenses and resulted in some questionable costs that may need to be recovered.
- The appeals board expends approximately $5,000 per month for parking spaces, but it has not established any procedures to ensure that these spaces are only used for appropriate purposes.
RESULTS IN BRIEF
The California Unemployment Insurance Appeals Board (appeals board) is a quasi-judicial agency created in 1953 to conduct hearings and issue decisions to resolve disputed unemployment and disability determinations and tax liability assessments made by the Employment Development Department. The appeals board is overseen by a seven member board or its authorized deputies or agents. For fiscal year 2007-08, the appeals board employed about 650 staff, with an annual budget exceeding $80 million. Representatives of the appeals board requested an audit of their organization because of concerns over alleged administrative wrongdoing or irregularities, the prevalence of familial relationships, and the potential for misuse of state property.
Our review of the appeals board's hiring process found that hiring managers were not always allowed to consider all applicants for a given position because of a freeze on outside hires. In addition, managers did not consistently document each of the steps in the hiring process or their reasons for hiring a particular candidate, making it difficult for an outside party to understand why the appeals board selected particular candidates. For example, there was no evidence that managers conducted interviews for some hires, most notably when hiring two former board members as administrative law judges. Consequently, the appeals board is vulnerable to allegations that its hiring decisions are unfair and that employment opportunities are not afforded to all candidates.
Familial relationships among appeals board employees appear to have a negative impact on many employees' perceptions of their workplace. Specifically, 25 percent of the employees who responded to our survey indicated that their supervisor or manager was related to another appeals board employee. In addition, 35 percent of respondents indicated that familial relationships were having a negative effect on their workplace. More significantly, nearly half of the responding employees believed that hiring and promotion practices were compromised by familial relationships or employee favoritism. Deficiencies in the appeals board's hiring practices may contribute to this perception among employees.
In response to concerns about nepotism, the appeals board recently adopted a more restrictive policy stating that it retains the right to refuse to appoint a person to a position whose relationship to another appeals board employee has the potential for creating an adverse impact on supervision, security, or morale, or involves a potential conflict of interest. However, according to our legal counsel, the appeals board cannot currently enforce this policy against persons who are not presently employed by the appeals board because the policy should have been submitted to the State's Office of Administrative Law for approval as a regulation.
We also evaluated the appeals board's equal employment opportunity (EEO) complaint process and grievance process and found that they are designed to mitigate the threat of retaliation by allowing employees to file or appeal EEO complaints or grievances with designated personnel and outside agencies instead of their direct supervisors. However, appeals board data indicate that employees filed just 10 formal employment grievances and 14 formal EEO complaints over roughly the last five years. The fact that employees filed few EEO complaints or grievances was confirmed by our survey. Of the employees responding to our survey, only 2 percent indicated that they had ever filed an EEO complaint, with 5 percent indicating that they had ever filed a grievance. In fact, 40 percent of responding employees indicated that they would have some fear of retaliation from their supervisors or upper management if they were to file either an EEO complaint or grievance. The survey indicated that the degree of fear varied depending on employees' work location, position, and tenure with the organization. Moreover, 23 percent of survey respondents indicated that they were not aware of how to file a grievance, and 11 percent of respondents were not aware of the appeals board's EEO policy. Thus, we believe the appeals board could do a better job of informing employees of the grievance process and EEO complaint process and explaining that they both include specific protections from retaliation.
We found that a former board may have violated conflict of interest laws. In accordance with audit standards that state law requires us to follow, we referred the matter to the Sacramento County District Attorney and the California Attorney General for their consideration.
Furthermore, we found that certain weaknesses in the appeals board's controls over travel expenses prevent it from demonstrating the business purpose of some travel expenses and resulted in some questionable costs that may need to be recovered. In particular, we found that the former executive director was reimbursed for travel expenses that did not always appear to be in the State's best interest. For example, we noted eight instances in which the appeals board reimbursed the former executive director for lodging costs that exceeded the State's allowed rates, including one occurrence for which it reimbursed him $259 for the cost of staying one night at the Omni Hotel in San Diego. In addition, we found that the appeals board may have inappropriately reimbursed the former executive director for expenses that appear to be associated with travel between his home and headquarters.
The appeals board does appear to comply with state leasing and purchasing requirements when it acquires office space, furniture, and equipment. However, it spends approximately $5,000 per month for parking spaces without having established procedures to ensure that these spaces are used only for appropriate purposes. In addition, the appeals board's use of three leased state vehicles and associated fuel cards appears reasonable and allowable. Finally, we found that the appeals board currently cannot locate all of the information technology and communications equipment that its records reflect.
RECOMMENDATIONS
To better ensure that its hiring decisions are fair and that employment opportunity is afforded to all eligible candidates, and to minimize employees' perceptions that its practices are compromised by familial relationships or employee favoritism, the appeals board should take the following steps:
- Prepare and formally adopt a comprehensive hiring manual that incorporates the State Personnel Board's guidelines. The manual should include a requirement that managers document each of the steps in the hiring process.
- Require managers to document their reasons for selecting a particular candidate.
- Maintain documentation related to the hiring process for a period of at least two years, as required by state regulations, so it can demonstrate that the hiring process was based on merit and each candidate's fitness for the job.
- Before implementing another freeze on outside hires, the appeals board should carefully consider whether the projected budgetary advantages outweigh the risk that it may not hire the strongest and most qualified candidates during any such freeze.
The appeals board should not attempt to enforce its recently adopted nepotism policy against persons who are not currently employed by the appeals board, as it is unenforceable. Because this policy affects persons outside of the organization, the appeals board should submit a new version of this regulation to the Office of Administrative Law for approval.
To ensure that employees understand their right to file an EEO complaint or grievance, and to reduce any associated fear of retaliation, the appeals board should do the following:
- Notify employees annually of its EEO complaint and grievance procedures, including the protections from retaliation. For example, the appeals board should remind employees that they could pursue such complaints and grievances with certain outside entities, especially if they believe they may have been retaliated against.
- Consider conducting training in this area on a periodic basis.
To ensure that employees are reimbursed only for appropriate and authorized travel expenses, the appeals board should strengthen its travel policies and procedures by requiring supervisors to preapprove employees' travel plans and to subsequently review their travel expense claims to ensure that all travel is in the State's best interest. In addition, the appeals board should ensure that employees are reimbursed only for those lodging costs that comply with the Department of Personnel Administration's regulations.
In addition, the appeals board should review all travel related payments it made to its former executive director, from the date of his appointment as executive director/chief administrative law judge in November 2000, to determine whether those payments were reasonable and allowable. To the extent that the appeals board identifies travel reimbursements that did not comply with regulations established by the Department of Personnel Administration, it should seek recovery from the former executive director.
The appeals board should develop and implement procedures to ensure that its paid parking spaces are used only for authorized purposes.
The appeals board should resolve the inconsistencies between the results of its recent survey of information technology and communications equipment and its asset management records.
AGENCY COMMENTS
The appeals board agrees that our recommendations reflect reasonable suggestions for addressing the issues raised in our report. In addition, the appeals board indicates that it has already begun taking actions to implement some of our recommendations. Finally, the appeals board asserts that because some of our recommendations may require formal action by its board members, it will present the entire report to the board members for their review and action at the earliest possible opportunity.