PAYROLL PROCESS REVIEW · 2020. 8. 30. · decentralized payroll processing at state agencies and departments ceased due to the budget constraints in the late 1980s. In 2013, the

JUDICIAL COUNCIL OF CALIFORNIA

Review Report

PAYROLL PROCESS REVIEW

January 1, 2012, through December 31, 2014

BETTY T. YEE California State Controller

June 2017

BETTY T. YEE

California State Controller

June 26, 2017

Martin Hoshino, Administrative Director

Judicial Council of California

455 Golden Gate Avenue

San Francisco, CA 94102-3688

Dear Mr. Hoshino:

The State Controller’s Office has reviewed the Judicial Council of California payroll process for

the period of January 1, 2012, through December 31, 2014. The Judicial Council management is

responsible for maintaining a system of internal control over the payroll process within its

organization, and for ensuring compliance with various requirements under state laws and

regulations regarding payroll and payroll-related expenditures.

Our limited review identified material weaknesses in internal control over the Judicial Council

payroll process that leave the Judicial Council at risk of additional improper payments if not

mitigated. Specifically, the Judicial Council lacked adequate segregation of duties and

compensating controls over its processing of payroll transactions. The lack of segregation of

duties and appropriate compensating controls has a pervasive effect on the Judicial Council

payroll process and impairs the effectiveness of other controls by rendering their design

ineffective or by keeping them from operating effectively.

In addition, the Judicial Council inappropriately granted two employees keying access to the

State’s payroll system. The employees’ keying access was not immediately removed or modified

subsequent to change in classification. This control deficiency leaves the Judicial Council at risk

of misuse, abuse, and unauthorized use of payroll data.

We also found that the Judicial Council lacked sufficient controls over the processing of specific

payroll-related transactions to ensure that the Judicial Council complies with state laws and

policies, and that only valid and authorized payments are processed. The control deficiencies

contributed to the Judicial Council employees’ excessive vacation and annual leave balances,

underpayments in separation lump-sum pay, overpayments in overtime compensation, and

unrecovered long-outstanding salary advances, costing the State an estimated net total of

$28,311. Our review was performed on a limited number of transactions only; a more extensive

review may determine that the amount of improper payments is higher than what we found.

Martin Hoshino, Administrative Director -2- June 26, 2017

If you have any questions, please contact Andrew Finlayson, Chief, State Agency Audits Bureau,

by phone at (916) 324-6310.

Sincerely,

Original signed by

JEFFREY V. BROWNFIELD, CPA

Chief, Division of Audits

JVB/ls

cc: Tani G. Cantil-Sakauye, Chief Justice of California

Chair of the Judicial Council of California

Aurora Rezapour, Director of Human Resources


Curt Soderlund, Chief, Administrative Division


Felizia Nava-Kardon, Human Resources Principal Manager

Administrative Division, Judicial Council of California

Evelyn Ramos, Supervising Pay and Benefits Specialist

Administrative Division, Judicial Council of California

Mark Rodriguez, Chief, Administrative Services Division

California Department of Human Resources

Judicial Council of California Payroll Process Review

Contents

Review Report

Summary ............................................................................................................................ 1

Background ........................................................................................................................ 2

Objectives, Scope, and Methodology ............................................................................... 3

Conclusion .......................................................................................................................... 4

Views of Responsible Officials .......................................................................................... 5

Restricted Use .................................................................................................................... 5

Findings and Recommendations ........................................................................................... 6

Attachment—Judicial Council of California’s Response to Draft Review Report


-1-

Review Report

The State Controller’s Office (SCO) reviewed the Judicial Council of

California payroll process for the period of January 1, 2012, through

December 31, 2014. The Judicial Council management is responsible for

maintaining a system of internal control over the payroll process within its

organization, and for ensuring compliance with various requirements

under state laws and regulations regarding payroll and payroll-related

expenditures.

Our limited review identified material weaknesses in internal control over

the Judicial Council payroll process that leave the Judicial Council at risk

of additional improper payments if not mitigated. We found that the

Judicial Council has a combination of deficiencies in internal control over

its payroll process such that there is a reasonable possibility that a material

misstatement in financial information or noncompliance with provisions

of laws, regulations, or contracts will not be prevented, or detected and

corrected on a timely basis. Specifically, the Judicial Council lacked

adequate segregation of duties and compensating controls over its

processing of payroll transactions. The payroll transactions unit staff

performed conflicting duties. The staff performs multiple steps in

processing payroll transactions, including data entry into the State’s

payroll system; auditing employee timesheets; reconciling payroll,

including system output to source documentation; and reporting payroll

exceptions. This control deficiency was aggravated by the lack of

compensating controls, such as management oversight and review, to

mitigate the risks associated with such a deficiency. The lack of

segregation of duties and appropriate compensating controls has a

pervasive effect on the Judicial Council payroll process and impairs the

effectiveness of other controls by rendering their design ineffective or by

keeping them from operating effectively.

In addition, the Judicial Council inappropriately granted two employees

keying access to the State’s payroll system. The employees’ keying access

was not immediately removed or modified subsequent to change in

classification. This control deficiency leaves the Judicial Council at risk


We also found that the Judicial Council lacked sufficient controls over the

processing of specific payroll-related transactions to ensure that the

Judicial Council complies with state laws and policies, and that only valid

and authorized payments are processed. As summarized in the table on

page 2, the control deficiencies contributed to the Judicial Council

employees’ excessive vacation and annual leave balances, underpayments

in separation lump-sum pay, overpayments in overtime compensation, and

unrecovered long-outstanding salary advances, costing the State an

estimated net total of $28,311. Our review was performed on a limited

number of transactions only; a more extensive review may determine that

the amount of improper payments is higher than what we found.

Summary


-2-

The following table summarizes our review results:

Selections Reviewed Selections with Issues

Finding

Number Issues

Number of

Selections

Reviewed

Selection

Unit

Dollar

Amount of

Selections

Reviewed

Number of

Selections

with Issues

Issues as a

Percentage

of Selections

Reviewed *

Approxi-

mate Dollar

Amount

Dollar

Amount of

Issues as a

Percentage of

Dollar

Amount of

Selections

Reviewed *

1 Inadequate segregation of duties

and compensating controls

N/A N/A

N/A

N/A

N/A

N/A

N/A

2 Inappropriate keying access to the

State’s payroll system

12 Employee

$ –

2

17%

$ – $ –

3 Inadequate controls over vacation

and annual leave balances,

resulting in liability for excessive

credits

16 Employee

95,825

10

63%

$20,976

22%

4 Inadequate controls over

employee separation lump-sum

pay, resulting in underpayments

15 Employee

602,867

2

13%

(1,356)

–

5 Inadequate controls over overtime

payments, resulting in an

overpayment

16 Payment

transaction

4,067

1

6%

23

–

6 Inadequate controls over salary

advances, resulting in failure to

collect and maintain accurate

records

3 Salary

advance

transaction

8,668

3

100%

8,668

100%

Net total 62 $ 711,427 18 $ 28,311

* All percentages are rounded to the nearest full percentage point.

In 1979, the State of California adopted collective bargaining for state

employees. The adoption of collective bargaining created a significant

workload increase for the SCO’s Personnel and Payroll Services Division

(PPSD), as PPSD was the State’s centralized payroll processing center for

all payroll related-transactions. As such, PPSD decentralized the

processing of payroll, allowing state agencies and departments to process

their own payroll-related transactions. Periodic reviews of the

decentralized payroll processing at state agencies and departments ceased

due to the budget constraints in the late 1980s.

In 2013, the California State Legislature reinstated these payroll reviews

to gain assurance that state agencies and departments maintain an adequate

internal control structure over the payroll function, provide proper

oversight over their decentralized payroll processing, and comply with

various state laws and regulations regarding payroll processing and related

transactions.

Review Authority

Authority for this review is provided by California Government Code

(GC) section 12476, which states, “The Controller may audit the uniform

state pay roll system, the State Pay Roll Revolving Fund, and related

records of state agencies within the uniform state pay roll system, in such

Background


-3-

manner as the Controller may determine.” In addition, GC section 12410

stipulates that “The Controller shall superintend the fiscal concerns of the

state. The Controller shall audit all claims against the state, and may audit

the disbursement of any state money, for correctness, legality, and for

sufficient provisions of law for payment.”

Our review objectives were to determine whether:

Payroll and payroll-related disbursements were accurate and in

accordance with state laws, regulations, policies, and procedures.

The Judicial Council had established adequate internal control for

payroll, to meet the following control objectives:

o Payroll and payroll-related transactions are properly approved and

certified by authorized personnel;

o Only valid and authorized payroll and payroll-related transactions

are processed;

o Payroll and payroll-related transactions are accurate and properly

recorded;

o Payroll systems, records, and files are adequately safeguarded;

and

o State laws, regulations, policies, and procedures are complied

with regarding payroll and payroll-related transactions.

The Judicial Council complied with existing controls as part of the

ongoing management and monitoring of payroll and payroll-related

expenditures.

The Judicial Council maintained accurate records of leave balances.

Salary advances were properly administered and recorded in

accordance with state laws, regulations, policies, and procedures.

We reviewed the Judicial Council payroll process and transactions for the

period of January 1, 2012, through December 31, 2014.

To achieve our review objectives, we:

Reviewed state and Judicial Council policies and procedures related

to payroll process to understand the practice of processing various

payroll and payroll-related transactions;

Interviewed Judicial Council payroll personnel to understand the

practice of processing various payroll and payroll-related transactions,

determine their level of knowledge and ability relating to the payroll

transaction processing, and obtain or confirm our understanding of

existing internal control over the payroll process and systems;

Selected transactions recorded in the State’s payroll database based on

risk factors and other criteria for review;

Objectives, Scope,

and Methodology


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Analyzed and tested transactions recorded in the State’s payroll

database and reviewed relevant files and records to determine the

accuracy of payroll and payroll-related payments, accuracy of leave

transactions, proper review and approval of transactions, adequacy of

internal control over the payroll process and systems, and compliance

with state laws, regulations, policies, and procedures (errors found

were not projected to the intended population); and

Reviewed salary advances to determine whether they were properly

administered and recorded in accordance with state laws, regulations,

policies, and procedures.

Our limited review identified material weaknesses1 in internal control over

the Judicial Council payroll process that leave the Judicial Council at risk

of additional improper payments if not mitigated. The Judicial Council has

a combination of deficiencies in internal control over its payroll process

such that there is a reasonable possibility that a material misstatement in

financial information or noncompliance with provisions of laws,

regulations, or contracts will not be prevented, or detected and corrected

on a timely basis. Specifically, the Judicial Council lacked adequate

segregation of duties and compensating controls over its processing of

payroll transactions. The payroll transactions unit staff performed

conflicting duties. The staff performs multiple steps in processing payroll

transactions, including data entry into the State’s payroll system; auditing

employee timesheets; reconciling payroll, including system output to

source documentation; and reporting payroll exceptions. This control

deficiency was aggravated by the lack of compensating controls, such as

management oversight and review, to mitigate the risks associated with

such a deficiency. The lack of segregation of duties and appropriate

compensating controls has a pervasive effect on the Judicial Council

payroll process and impairs the effectiveness of other controls by

rendering their design ineffective or by keeping them from operating

effectively.

In addition, the Judicial Council inappropriately granted two employees

keying access to the State’s payroll system. The employees’ keying access

was not immediately removed or modified subsequent to change in

classification. This control deficiency leaves the Judicial Council at risk


1 An evaluation of an entity’s payroll process may identify deficiencies in its internal control over such a process. A

deficiency in internal control exists when the design or operation of a control does not allow management or

employees, in the normal course of performing their assigned functions, to prevent, or detect and correct

misstatements in financial information, impairments of effectiveness or efficiency of operations, or noncompliance

with provisions of laws, regulations, or contracts on a timely basis.

Control deficiencies, either individually or in combination with other control deficiencies, may be evaluated as

significant deficiencies or material weaknesses. A significant deficiency is a deficiency, or a combination of

deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention

by those charged with governance. A material weakness is a deficiency, or combination of deficiencies, in internal

control such that there is a reasonable possibility that a material misstatement in financial information, impairment

of effectiveness or efficiency of operations, or noncompliance with provisions of laws, regulations, or contracts will

not be prevented, or detected and corrected on a timely basis.

Conclusion


-5-

The Judicial Council also lacked sufficient controls over the processing of

specific payroll-related transactions to ensure that the Judicial Council

complies with state laws and policies, and that only valid and authorized

payments are processed. The control deficiencies contributed to the

Judicial Council employees’ excessive vacation and annual leave

balances, underpayments in separation lump-sum pay, overpayments in

overtime compensation, and unrecovered long-outstanding salary

advances, costing the State an estimated net total of $28,311. Our review

was performed on a limited number of transactions only; a more extensive

review may determine that the amount of improper payments is higher

than what we found.

We issued a draft review report on May 3, 2017. Aurora Rezapour,

Director of Human Resources, responded by letter dated May 24, 2017

(Attachment). The Judicial Council did not dispute the findings and

indicated that it has implemented corrective actions for each of the

findings. We will follow up at the next payroll review to ensure that the

corrective actions were adequate and appropriate.

This report is solely for the information and use of the Judicial Council

and the SCO; it is not intended to be and should not be used by anyone

other than these specified parties. This restriction is not intended to limit

distribution of this report, which is a matter of public record.

Original signed by

JEFFREY V. BROWNFIELD, CPA

Chief, Division of Audits

June 26, 2017

Views of

Responsible

Officials

Restricted Use


-6-

Findings and Recommendations

The Judicial Council lacked adequate segregation of duties within its

payroll transactions unit to ensure that only valid and authorized payroll

transactions are processed. The Judicial Council also failed to implement

other controls to compensate for this risk.

GC sections 13400 through 13407 require state agencies to establish and

maintain internal controls, including proper segregation of duties and an

effective system of internal review. Adequate segregation of duties

reduces the likelihood that fraud or error will remain undetected by

providing for separate processing by different individuals at various stages

of a transaction and for independent reviews of the work performed.

Our review found that the Judicial Council payroll transactions unit staff

performed conflicting duties. The staff performs multiple steps in

processing payroll transactions, including data entry into the State’s

payroll system; auditing employee timesheets; reconciling payroll,

including system output to source documentation; and reporting of payroll

exceptions. For example, the payroll transactions unit staff keys in regular

and overtime pay and reconciles the master payroll, overtime, and other

supplemental warrants. The Judicial Council failed to demonstrate that it

implemented compensating controls to mitigate the risks associated with

such a deficiency. For example, we found no indication that the

supervisors conduct periodic reviews of transactions processed by the

payroll transactions unit staff.

The lack of adequate segregation of duties and compensating controls has

a pervasive effect on the Judicial Council payroll process and impairs the

effectiveness of other controls by rendering their design ineffective or by

keeping them from operating effectively. These control deficiencies, in

combination with other deficiencies discussed in Findings 2 through 6,

represent a material weakness in internal control over the payroll process

such that there is a reasonable possibility that a material misstatement in

financial information or noncompliance with provisions of laws,

regulations, or contracts will not be prevented, or detected and corrected,

on a timely basis.

Recommendation

The Judicial Council should separate conflicting payroll function duties to

the extent possible. Adequate segregation of duties will provide a stronger

system of internal control whereby the functions of each employee are

subject to the review of another. Good internal control practices require

that the following functional duties should be performed by different work

units, or at minimum, by different employees within the same unit:

Recording transactions. This duty refers to the recordkeeping

function, which is accomplished by entering data into a computer

system.

Authorization to execute. This duty refers to process of reviewing and

approving transactions.

FINDING 1—

Inadequate

segregation of

duties and

compensating

controls over

payroll

transactions


-7-

Periodic reviews and reconciliation of actual payments to recorded

amounts. This duty refers to making comparisons of information at

regular intervals and taking action to resolve differences.

If it is not possible to segregate payroll functions fully and appropriately

due to specific circumstances, the Judicial Council should implement

compensating controls. For example, if the payroll transactions unit staff

responsible for recordkeeping also performs a reconciliation process, the

supervisor could perform and document a detailed review of the

reconciliation to provide additional control over the assignment of

conflicting functions. Compensating controls may also include dual

authorization requirements and documented reviews of payroll system

input and output.

The Judicial Council should develop formal written procedures for

performing and documenting compensating controls.

The Judicial Council lacked adequate controls to ensure that only

appropriate staff members have keying access to the State’s payroll

system. Of the 12 employees whose records we reviewed, two (17%) had

improper keying access to the system. If not mitigated, this control

deficiency leaves the Judicial Council at risk of misuse, abuse, and

unauthorized use of payroll data.

The SCO maintains the State’s payroll information system. The system is

decentralized, thereby allowing employees of state agencies to access the

system. The PPSD has established a Decentralization Security Program

that all state agencies are required to follow in order to access the payroll

system. The program’s objectives are to secure and protect the

confidentiality and integrity of the data against misuse, abuse, and

unauthorized use.

The Judicial Council had 12 employees with keying access to the State’s

payroll system at various times between January 2012 and December

2014. We reviewed the records of the 12 employees and found that two

did not have their keying access immediately removed or modified

subsequent to change in classification. The two employees had keying

access while appointed as Human Resources Analysts—a classification

other than the two classifications authorized to have keying access. The

employees were provided keying access before becoming analysts;

however, the Judicial Council did not discontinue the employee’s access

after becoming analysts. Also, the Judicial Council did not have the

required written justification to allow the employees to have continued

access as analysts. When we discussed this issue with the human resources

staff at the Judicial Council, the staff stated that they were not aware that

a written justification was required.

The Decentralization Security Program manual states, in part:

The privilege to access the PPSD database poses a significant risk to the

ability for SCO to function. Therefore that privilege is restricted to

persons with a demonstrated need for such access. Currently, . . .

applications are restricted to Personnel Services Specialists (PSS), or

FINDING 2—

Inappropriate

keying access to the

State’s payroll

system


-8-

Payroll Technician (PT) classifications because their need is by

definition a function of their specific job duties, and any change in those

duties requires a reevaluation of the need for access. If the employee’s

duties change, such that the need for access no longer exists, the access

privilege MUST be removed or deleted immediately by a request

submitted by the department….

A request for an individual in a classification other than in the PSS/PT

series to access (the payroll system) requires a written justification from

the Personnel/Payroll Officer. The justification must describe the

individual’s specific job duties that require the need to each type of

information…as well as the level of access to that application, in order

to perform their Statutory and/or Constitutional duties.

Recommendation

The Judicial Council’s designated security monitor should periodically

review access to the system to determine that access complies with the

Decentralized Security Program. The Judicial Council should update the

keying access to the payroll system after employees change classifications.

The Judicial Council failed to implement controls to ensure that it adheres

to the state policy that limits the accumulation of vacation and annual leave

credits, resulting in liability for accrued leave credits exceeding the limit

that could cost the State approximately $20,976 as of December 31, 2014.

We expect the liability to increase if the Judicial Council does not take

action to address the excessive vacation and annual leave credits.

State policy limits the amount of vacation and annual leave that its

employees may accumulate to no more than 640 hours. The State uses the

limit on leave balance as a tool to manage leave balances and control the

liability for accrued leave credits.

The Judicial Council’s Personnel Policies and Procedures Manual

section 5.2 states:

Each year, supervisors are expected to develop plans with their

employees for the use of vacation and annual leave. When developing

plans for using vacation and annual leave, supervisors should take into

consideration the operational needs of their units. As vacation and annual

leave continue to accrue each month, plans to reduce leave balances must

include credit that will accrue during the year.

An employee with 640 or more hours of accrued vacation/annual leave

(combined total) on December 31 will not accrue further leave until the

employee’s accrual balance falls below 640 hours. Once below 640

hours, an employee may resume accruing vacation or annual leave

during the remainder of the calendar year, even if the employee’s leave

balance totals 640 or more hours before reaching December 31.

An employee with less than 640 hours of accrued vacation/annual leave

(combined total) on December 31 will continue to accrue vacation or

annual leave through the next calendar year.

FINDING 3—

Inadequate

controls over

vacation and

annual leave

balances, resulting

in liability for

excessive credits


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For executive-level employees, the Judicial Council’s policies allow a

maximum accrual of 1,280 hours.

We inquired whether plans were in place to address the excessive vacation

and annual leave credits in accordance with the Judicial Council policies

and procedures. According to the Judicial Council human resources staff,

supervisors are expected to monitor and ensure that their employees leave

usage complies with the Judicial Council’s policies. Each supervisor has

his or her own method of scheduling and approving employees’ leave

requests, and this plan may be verbal or written.

We reviewed the records of 16 employees who had at least 640 hours of

vacation or annual leave balances. The Judicial Council could not

demonstrate for ten of them that it implemented actions, as required by the

policies and procedures, to reduce leave balances. The ten employees

exceeded the limit by more than 350 hours in vacation and annual leave

credits. These excess hours cost approximately $20,976 in liability as of

December 31, 2014.

If the Judicial Council does not take action to reduce the excessive credits,

the liability for accrued vacation and annual leave will likely increase,

because most employees will receive salary increases and additional leave

credits or have other non-compensable leave credits that they can use

instead of vacation or annual leave, increasing their vacation or annual

leave balances. In addition, the state agency responsible for paying these

leave balances may also face a cash flow problem if a significant number

of employees with excessive vacation or annual leave credits separate

from state service. Normally, state agencies are not budgeted to make these

lump-sum payments. However, the State’s current practice dictates that

the state agency that last employed an employee pays for that employee’s

separation lump-sum payment, regardless of where the employee accrued

the leave balance.

Recommendation

The Judicial Council should implement controls, including existing

policies and procedures, to ensure that its employees’ vacation and annual

leave balances are maintained within levels allowed by state and Judicial

Council’s policies. The Judicial Council should conduct ongoing

monitoring of controls to ensure they are implemented and operating

effectively.

If the State offers leave buy-back programs, the Judicial Council should

also participate in such programs if funds are available.

The Judicial Council lacked adequate controls over the processing of

employee separation lump-sum pay. Of 15 employees whose records we

reviewed, two (13%) were underpaid by a total of $1,356. The control

deficiencies also leave the Judicial Council at risk of additional improper

separation lump-sum payments if not mitigated.

FINDING 4—

Inadequate

controls over

employee

separation lump-

sum pay, resulting

in underpayments


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State law allows employees to receive cash for accrued eligible leave

credits when separating from state employment. Payroll records indicated

that the Judicial Council had processed separation lump-sum pay for 216

employees between January 2012 and December 2014. We reviewed the

records of 15 selected employees and found that two were underpaid by a

total of $1,356, as shown in the following table:

Leave Hours Estimated Dollar

Amount of

Underpayment Employee Paid Earned Underpaid

A 1,069 1,081 12 $1,129

B 93 101 8 227

Total 1,162 1,182 20 $1,356

Source: State’s payroll system and the Judicial Council’s records.

The underpayments resulted from miscalculation of the employees’

accrued leave credits by the payroll transactions unit staff.

Recommendation

The Judicial Council should conduct a review of employee separation

lump-sum payments made during the past three years to ensure that the

payments are accurate and in compliance with the state law. The Judicial

Council should properly compensate those separated employees who were

underpaid, and recover overpayments made to those who were overpaid in

accordance with GC section 19838 and State Administrative Manual

(SAM) section 8776.6.

The Judicial Council lacked adequate controls over overtime payments.

There was no indication that the processing of the payments was reviewed

by an authorized individual. The control deficiencies leave the Judicial

Council at risk of making additional improper overtime payments if not

mitigated.

Payroll records showed that the Judicial Council paid overtime

compensation to 53 employees between January 2012 and December

2014. We reviewed 16 overtime payments for 12 of these employees. Of

the 16 payments, there was one overpayment of $23, which resulted from

miscalculation of the employees’ overtime hours by the human resources

staff. We found no indication that the processing of the 16 overtime

payments was reviewed by an individual, other than the staff responsible

for keying these transactions into the system, to ensure that payments were

accurate and comply with state law.

GC sections 13402 and 13403 mandated state agencies to establish and

maintain internal controls, including a system of authorization and an

effective system of internal review. State agencies are also responsible for

ensuring that these controls are functioning as prescribed. However, the

Judicial Council lacked adequate controls to ensure that overpayments are

processed accurately and comply with state law.

FINDING 5—

Inadequate

controls over

overtime payments,

resulting in an

overpayment


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Recommendation

The Judicial Council should conduct a review of overtime payments

during the past three years to ensure that payments comply with state law.

The Judicial Council should recover overpayments made to employees in

accordance with GC section 19838 and SAM section 8776.6, and properly

compensate those employees who were underpaid.

To prevent improper overtime payments from recurring, the Judicial

Council should establish adequate internal controls to ensure that

payments for overtime payments comply with state law. These controls

should require responsible staff to verify that payment does not exceed the

amount set by state law. The Judicial Council should also provide adequate

oversight to staff responsible for processing the payments.

The Judicial Council lacked adequate controls to ensure salary advances

are recovered in accordance with state law and policies. At November 10,

2014, the Judicial Council had $55,885 in outstanding salary advances,

including $9,260 (17%) that have been outstanding from over 120 days to

10 years. Of the three salary advances we reviewed, two, totaling $5,062,

remained outstanding due to the Judicial Council’s lack of collection

efforts; and one, for $3,606, for which collection was not recorded;

therefore, overstating the salary advance balance. If not corrected, this

control deficiency leaves the Judicial Council at risk of further failures to

collect salary advances and maintain accurate records.

The Judicial Council was not able to provide a list of outstanding salary

advances as of December 31, 2014. SAM section 8776 requires monthly

review and reconciliation of salary advances. The lack of monthly reports

prevents the Judicial Council from performing this review and

reconciliation. For our review purposes, we used the Judicial Council’s list

as of November 10, 2014, as an alternative.

GC section 19838 and SAM section 8776.7 allow the Judicial Council to

collect salary advances in a timely manner. At November 10, 2014, the

Judicial Council had 23 outstanding salary advances totaling $55,885 from

21 individuals. Two individuals had two outstanding salary advances each.

Of the total outstanding balance, $9,260 were at least 120 days old. The

longest outstanding salary advance was 10 years old. Generally, the

prospect of collection diminishes as an account ages. When an agency is

unable to collect after three years, the possibility of collection is remote.

We reviewed three salary advances totaling $8,668, representing 94% of

the salary advances that were outstanding for over 120 days. In the case of

two salary advances totaling $5,062, the Judicial Council could not

demonstrate its collection efforts, if any, due to lack of supporting

documentation. SAM section 8776 requires agencies to maintain proper

records of collection efforts and payment of salary advances. In the case

of the third salary advance, the Judicial Council received the employee’s

warrant in August 2010 but did not record collection; therefore, the total

salary advance balance as of November 10, 2014 was overstated by

$3,606.

FINDING 6—

Inadequate

controls over

salary advances,

resulting in failure

to collect and

maintain accurate

records


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The lack of adequate controls over salary advances increases the risk of

financial loss, reduces the likelihood of collection, increases the amount

of resources expended on collection efforts, and negatively impacts cash

flow.

Recommendation

The Judicial Council should ensure that salary advances are recovered in

a timely manner pursuant to GC section 19838 and SAM section 8776.7.

The Judicial Council should maintain documentation of its collection

efforts and payment of salary advances, if any. If all reasonable collection

procedures do not result in payment, the Judicial Council may request

discharge from accountability of uncollectable amounts.

The Judicial Council should also ensure that it maintains accurate and

periodic report of outstanding salary advances.


Attachment—

Judicial Council of California’s

Response to Draft Review Report

State Controller’s Office

Division of Audits

Post Office Box 942850

Sacramento, CA 94250-5874

http://www.sco.ca.gov

S15-PAR-9008

Documents

PAYROLL PROCESS REVIEW · 2020. 8. 30. · decentralized payroll processing at state agencies and departments ceased due to the budget constraints in the late 1980s. In 2013, the