Report I2011-0837 All Recommendation Responses

Report I2011-0837: California Department of Veterans Affairs: Wastefulness, Failure to Comply With State Contracting Requirements, and Inexcusable Neglect of Duty (Release Date: October 2013)

Case Number I2011-0837

Recommendation #1 To: Veterans Affairs, Department of

For all contracts that involve recreation fund moneys or involve recreation fund enterprises, as a best practice, institute policies that require the contracts be awarded and administered in a manner consistent with the policies and procedures set forth in the State Administrative Manual and the State Contracting Manual.

Agency Response From October 2016

Veterans Affairs reported that in consultation with the Department of General Services, it developed procedures for the administrative operation of the Morale, Welfare, and Recreation Fund. In its procedures, Veterans Affairs incorporated contracting and purchasing processes that are rooted in the same principles as those that govern the State Contracting Manual. It stated that it is finalizing the implementation of the new procedures and is overseeing the development of contracts accordingly.

California State Auditor's Assessment of Status: Fully Implemented

Agency Response From October 2015

Veterans Affairs reported that due to unforeseen resource challenges, it experienced difficulty in fully implementing the draft procedures it developed last year. Regardless, Veterans Affairs stated that it is working with the Department of General Services regarding certain components of the procedures. Veterans Affairs stated that it expects to have the procedures in place by the end of 2015.

California State Auditor's Assessment of Status: Pending

Agency Response From April 2015

Veterans Affairs reported it believes that additional steps may be needed before implementing the draft procedures it provided to us in December 2014. Thus, Veterans Affairs stated that it convened a team to further explore potential issues and identify options to resolve them. However, Veterans Affairs did not provide to us an expected completion date for these actions.

California State Auditor's Assessment of Status: Pending

Agency Response From December 2014

In December 2014, Veterans Affairs stated that the new policy it has drafted to address this recommendation would be in place by January 2015. Currently, the policy is being reviewed by auxiliary divisions within Veterans Affairs for final review. However, a draft version of the policy was provided for our review.

Veterans Affairs' new policy requires goods or services purchased at $5,000 or more to follow the procedures established in the State Contracting Manual, State Administrative Manual, and its department administrative manual for bidding, procurement, and contracting. Although purchases under $5,000 do not appear to be similarly obligated to follow the State Contracting Manual and State Administrative Manual as we recommended, Veterans Affairs listed a number of additional controls in the new policy, such as detailed quarterly financial statements and preapproval requirements for individual transactions by the undersecretary or his designee, to ensure that contracts involving the recreation fund are preapproved and reviewed by headquarters prior to execution.

One deficiency we identified in the draft policy was that it did not explicitly require the veterans homes to obtain preapproval for any contracts that involved the use, modification, or leasing of state property to an outside vendor, such as in the case of the zip line contract mentioned in this investigation. When we brought this deficiency to Veteran Affairs' attention, it stated that it intended to include such a statement and that it would ensure its inclusion in the final policy.

California State Auditor's Assessment of Status: Partially Implemented

Agency Response From September 2014

Veterans Affairs reported in July 2014 that the development of its new policies and procedures "changed hands" as it underwent a reorganization. It stated that it expected to complete the new policies and procedures by October 2014. In addition, Veterans Affairs stated in September 2014 that it had been working with the Department of Finance to obtain additional staffing resources to assist with increased contracting duties and responsibilities. Further, Veterans Affairs stated that because proposed legislation had failed (see Recommendation 7), it lacked the statutory authority to execute key aspects of its overall plan to reform and restructure the recreation fund that it intended to address in its new policies and procedures. However, Veterans Affairs did not specify how the proposed legislation impacted the policies and procedures. Nevertheless, Veterans Affairs reported that it continued its work on the new policy and procedures, and it stated that the policies and procedures were nearly completed. Regardless, we are unable to determine Veterans Affairs' progress on this recommendation until we have reviewed the policies and procedures.

California State Auditor's Assessment of Status: Pending

Agency Response From May 2014

Veterans Affairs reported in late March 2014 that a working group, consisting of homes division staff at its headquarters and recreation fund budget officers from each of its homes, convened in March. It stated that the working group discussed standardizing policies, determining and developing best practices, and improving checks and balances. Veterans Affairs also stated that the working group would continue to provide suggestions to the homes division on practical solutions that can be implemented within existing resources. In addition, Veterans Affairs reported that it was drafting a formal policy manual to serve as an addendum to the State Contracting Manual and State Administrative Manual, providing further clarification and additional structure for recreation fund oversight.

In April 2014 Veterans Affairs reported that staff had conducted several trips to the homes to obtain a ground-level view of how the recreation fund is used and how to feasibly improve accountability without preventing the homes from offering recreation. Veterans Affairs also stated that it was reviewing how to implement oversight capabilities within its existing resources and that it expects much of the basic framework to be in place by July 1, 2014. However, until Veterans Affairs provides us with the formal policy manual for our review, we cannot determine whether this recommendation has been fully implemented.

Veterans Affairs provided no new information in May 2014 as it is currently undergoing a major reorganization of responsibilities.

California State Auditor's Assessment of Status: Pending

Agency Response From March 2014

In January 2014, Veterans Affairs provided us with a copy of the updated legal opinion it requested from General Services. General Services' response was that a determination regarding whether recreation fund contracts must comply with state contracting and procurement requirements is a determination for Veterans Affairs to make. General Services suggested that as an alternative, Veterans Affairs could seek a formal opinion from the Attorney General.

Also in January 2014, the Department of Finance completed an audit of the accounting and contracting procedures of the veterans home. In the report that the Department of Finance issued regarding this audit, it concurred with our recommendation that recreation funds should be administered in accordance with the State Contracting Manual and the State Administrative Manual regardless of whether recreation fund enterprises are required by law to comply with their requirements. The audit report also recommended that Veterans Affairs develop written policies and procedures to complement the State Contracting Manual and the State Administrative Manual where necessary.

In light of these developments, Veterans Affairs reported that it has created a task force consisting of accounting, human resources, legal, and executive staff to review the audit and develop new procedures for handling recreation fund money at all veterans homes. Veterans Affairs also stated that it now is reviewing how to comply with the requirements of the State Contracting Manual and the State Administrative Manual within the constraints of its existing resources when managing recreation fund money. It stated that it plans to complete a basic framework for the implementation of these procedures by the end of fiscal year 2013-14.

California State Auditor's Assessment of Status: Pending

Agency Response From November 2013

Veterans Affairs has not provided any additional information.

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

Agency Response From September 2013

Veterans Affairs stated that it sought an updated legal opinion from General Services in June 2013 to determine whether General Services continues to believe that recreation fund contracts are exempt from complying with state contracting and procurement requirements. It stated that if General Services no longer believes that recreation funds are exempt from these requirements, it will comply with General Services' recommendations.

However, our report did not assert that all recreation fund contracts are required by law to comply with the State Administrative Manual and the State Contracting Manual. Rather, we recommended that Veterans Affairs follow the policies and procedures set forth in these manuals as a best practice because, based on the outcomes of the two contracts discussed in this report, the department's current policies and procedures have demonstrated themselves to be insufficient. In addition, our review of Veterans Affairs' request to General Services revealed that it failed to ask whether Veterans Affairs must comply with state contracting requirements related to state land, including whether it could lease land without General Services' authorization. Instead, it asked whether recreation fund expenditures are subject to state contracting and purchasing requirements. Accordingly, the opinion Veterans Affairs has requested from General Services does not address our recommendation.

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

Case Number I2011-0837

Recommendation #2 To: Veterans Affairs, Department of

For all contracts that involve recreation fund moneys or involve recreation fund enterprises, institute policies that require the contracts to be approved by a Veterans Affairs attorney prior to being executed.

Agency Response From December 2014

In December 2014, Veterans Affairs reported that similar to the manner in which state agencies address General Fund contracts, recreation fund contracts will only be reviewed by a Veterans Affairs attorney on an as-needed basis. As Veterans Affairs action on this recommendation appears to be reasonable, we have deemed this recommendation to be resolved.

California State Auditor's Assessment of Status: Resolved

Agency Response From September 2014

In July 2014 Veterans Affairs stated that it planned to complete the new policies and procedures by October 2014. In addition, Veterans Affairs stated that certain staff participated in training regarding writing contracts and contracting processes. However, Veterans Affairs has not specified whether its new policies and procedures will involve Veterans Affairs' attorneys, as we recommended.

California State Auditor's Assessment of Status: Pending

Agency Response From May 2014

In late March 2014 Veterans Affairs reiterated that it does not have the necessary resources for its attorneys to review every contract or expenditure. Nevertheless, Veterans Affairs stated that it would continue to process recreation fund contracts like its other contracts, in accordance with the State Contracting Manual and the State Administrative Manual. It also clarified that contract analysts review contracts and request interpretation and guidance from staff attorneys on an as-needed basis.

As Veterans Affairs had not stated previously that it processes recreation fund contracts like its other contracts, we requested Veterans Affairs to provide us with the date this change in process occurred. Veterans Affairs responded that its procedures always included having contracts reviewed by the legal office when warranted, but enforcement began by the undersecretary for veterans homes when she assumed decision-making authority for the recreation fund in August 2013. It also stated that overall, the legal office has reviewed recreation fund contracts more frequently since Veterans Affairs discovered the zip line issue.

Veterans Affairs stated subsequently that it remains committed to adopting the State Contracting Manual and State Administrative Manual guidelines for recreation fund contracts and that it should complete new written policies by July 1, 2014. However, until Veterans Affairs provides us with the formal policy manual for our review, we cannot determine whether Veterans Affairs has fully implemented this recommendation.

Veterans Affairs provided no new information in May 2014 as it was undergoing a major reorganization of responsibilities.

California State Auditor's Assessment of Status: Pending

Agency Response From March 2014

Veterans Affairs reported that it remains unwilling to require all of its contracts involving recreation fund money or enterprises be reviewed by an attorney prior to execution. It noted, however, that its procurement and legal staff are working with the veterans homes to review existing contracts and provide guidance to the homes regarding how to ensure vendors adhere to contract provisions. While this action could be of some value, it will not protect the State from becoming enmeshed in unlawful contractual arrangements, as described in our report, as a result of Veterans Affairs staff entering into contracts without receiving advice about the legal implications of their intended actions.

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

Agency Response From November 2013

Veterans Affairs has not provided any additional information.

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

Agency Response From September 2013

Veterans Affairs stated that it is unable to comply with the recommendation that all recreation fund contracts be reviewed by one of its attorneys prior to execution. It stated that Veterans Affairs enters into hundreds of recreation fund contracts and that its legal office currently is not staffed to absorb this responsibility. Instead, Veterans Affairs reported that within the next 90 days it intends to develop greater controls within the homes division over recreation fund spending. In addition, Veterans Affairs stated that it plans to propose legislation to amend the relevant portions of the Military and Veterans Code. Veterans Affairs did not specify the types of controls or the amendments it plans to propose. Therefore, we are unable to determine whether its intended actions will address our recommendation satisfactorily, which we see as necessary to protect the State from entering into legally binding contracts without the approval of an attorney trained to look for potential legal problems.

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

Case Number I2011-0837

Recommendation #3 To: Veterans Affairs, Department of

For all contracts that involve recreation fund moneys or involve recreation fund enterprises, institute policies that require the contracts to be reviewed and approved by the secretary of Veterans Affairs, or upon delegation of the authority to do so, by a deputy secretary, prior to the contracts being executed.

Agency Response From October 2016

Veterans Affairs stated that it achieved the objectives of this recommendation by requiring headquarters staff to assist the homes in the development of Morale, Welfare, and Recreation-funded contracts. Additionally, beginning in 2017, its Homes Division staff will conduct quarterly audits on each home's use of the Morale, Welfare, and Recreation funds and adherence to the administrative procedures. Lastly, Veterans Affairs stated that the new procedures requires that the veteran's homes inform headquarters of any purchases or contract plans that would amount to an expenditure of $5,000 or more, or that fall into a variety of categories that warrant additional leadership awareness.

California State Auditor's Assessment of Status: Fully Implemented

Agency Response From October 2015

Veterans Affairs reported that it is working with the Department of General Services regarding this recommendation. Veterans Affairs also stated that it will ensure this recommendation is incorporated into its procedures explicitly or is substituted by steps outlined in the State Contracting Manual. Regardless, Veterans Affairs stated that it expects to have the procedures in place by the end of 2015.

California State Auditor's Assessment of Status: Pending

Agency Response From April 2015

Veterans Affairs reported that it believes additional steps may be needed before implementing the draft procedures it provided to us in December 2014. Thus, Veterans Affairs stated that it convened a team to further explore potential issues and identify options to resolve them. However, Veterans Affairs did not provide us with an expected completion date for these actions.

California State Auditor's Assessment of Status: Pending

Agency Response From December 2014

Veterans Affairs stated in December 2014 that the new policy it has drafted to address this recommendation would be in place by January 2015. A draft version of the policy was provided to our office for our review.

The draft policy requires that many, but not all, expenditures must be granted individual approval by Veterans Affairs headquarters before goods or services are procured, in addition to being listed on the home's annual budget. Examples of purchases requiring preapproval include purchases for events or holiday celebrations, entertainment or educational items, costs for seminars, and tickets and transportation to events. Together with the other internal controls the draft policy establishes, such as detailed quarterly financial statements and preapproval requirements for individual transactions by the undersecretary or his designee, Veterans Affairs' approach to addressing our recommendation appears to be sufficient. We will review the final policy after its implementation.

California State Auditor's Assessment of Status: Partially Implemented

Agency Response From September 2014

In July 2014 Veterans Affairs reported that it planned to complete the new policies and procedures in October 2014. In addition, Veterans Affairs stated that it expected the final policies and procedures to require the secretary or his designee to approve recreation funds contracts prior to execution of the contracts. However, until we are given the opportunity to review the new policies and procedures, we are unable to determine whether Veterans Affairs has fully implemented this recommendation.

California State Auditor's Assessment of Status: Pending

Agency Response From May 2014

Veterans Affairs stated that all recreation fund contracts are being reviewed by an official at Veterans Affairs headquarters, regardless of the amount of the expenditures required by the contract. This statement is different from the statement we received a few months ago, when we were told that the undersecretary for veterans homes only reviews recreation fund expenditures rather than all contracts, but we welcome this information. In addition, Veterans Affairs told us that the only home with "zero dollar" or "revenue-generating" agreements is the home that was the subject of our investigation, and no agreements of that kind have been entered into since we issued the report in October 2013.

Veterans Affairs stated that its policy of requiring all recreation fund contracts to be reviewed by a headquarters official will be incorporated into a policy manual that it expects to complete by July 1, 2014. It anticipates that the policy manual will require approval of all recreation fund contracts by the Secretary or a designee. We await the issuance of the policy manual to confirm that this recommendation has been implemented fully.

California State Auditor's Assessment of Status: Partially Implemented

Agency Response From March 2014

In January 2014, Veterans Affairs reported that its undersecretary for veterans homes sent an e-mail in August 2013 to the administrators of the veterans homes notifying them that she would be approving all future recreation fund expenditures until Veterans Affairs implements a "policy on approval authority." We subsequently contacted Veterans Affairs to inquire whether it had established the "policy on approval authority" that the undersecretary referenced in her e-mail. Veterans Affairs responded in March 2014 that since the e-mail was "a direct, written order from an [u]ndersecretary, and has been referred to and reiterated on multiple occasions, [it] believes [the e-mail] constitutes sufficient direction, until a written policy is developed as part of the ongoing review." In addition, it stated that since "[recreation fund] contracts involve an expenditure of funds, the [u]ndersecretary is approving new [recreation fund] contracts."

Although we accept the undersecretary's review of all recreation fund expenditures as partial implementation of our recommendation, we note that her review of all recreation fund expenditures does not equal compliance with our recommendation that the secretary or his designated deputy approve all contracts involving recreation fund enterprises. As stated in our report, the adventure park contract was written in a manner that did not require any expenditure from the recreation fund, yet it created significant financial risk for the State. Thus, Veterans Affairs should revise its current guidance to veterans homes to require review by the undersecretary of any contract that involves recreation fund money or enterprises, rather than just any expenditure from the recreation fund.

We also call on Veterans Affairs to specify a date by which it will institute a written policy regarding the approval of recreation fund contracts.

California State Auditor's Assessment of Status: Pending

Agency Response From November 2013

Veterans Affairs has not provided any additional information.

California State Auditor's Assessment of Status: Pending

Agency Response From September 2013

Veterans Affairs reported that it agreed with our recommendation to have the secretary or the undersecretary for Veterans Homes review and approve all recreation fund contracts. It stated that this recommendation will be addressed with the new recreation fund policies it plans to implement within the next 90 days. Veterans Affairs also stated that the undersecretary will be designated to perform the task of reviewing contract concepts, prior to the commencement of negotiations, to ensure that they are consistent with Veterans Affairs' mission.

California State Auditor's Assessment of Status: Pending

Case Number I2011-0837

Recommendation #4 To: Veterans Affairs, Department of

Institute a policy that requires all payments of recreation fund moneys to a person or business in the amount of $5,000 or more during a fiscal year and any contract involving recreation fund enterprises be presented to the recreation fund advisory board (now known as the Morale, Welfare, and Recreation Committee) at a public meeting for an advisory vote prior to the payment being made.

Agency Response From October 2016

Veterans Affairs stated that with the passing of Senate Bill 543 in 2016, all Morale, Welfare, and Recreation fund monies are now merged into a single State Treasury account that will be distributed each year according to an allocation formula and with enhanced structure and oversight. In accordance with the bill, any homes that do not have Morale, Welfare, and Recreation committees will form them beginning in January 2017. In addition, Veterans Affairs is working to promulgate regulations that will clarify the role of these committees. This process will include input from residents and stakeholders and the collection of public comments.

California State Auditor's Assessment of Status: Fully Implemented

Agency Response From October 2015

Veterans Affairs reported that it recently requested the Department of Finance (Finance) to review its recreation fund program. Veterans Affairs stated that it anticipated recommendations from Finance that pertain to the composition and high level of involvement of a recreation fund committee at each veterans home. Veterans Affairs stated that even though each home has a process that includes residents' input about recreation fund expenditures, it believes the processes should be as uniform as possible system-wide. Thus, it will ensure that any new procedures resulting from Finance's recommendations reasonably incorporate resident input into expenditure decisions of its recreation funds. Veterans Affairs did not provide us with an expected completion date for these actions.

California State Auditor's Assessment of Status: Pending

Agency Response From April 2015

California State Auditor's Assessment of Status: Pending

Agency Response From December 2014

Veterans Affairs stated in December 2014 that the new policy it has drafted to address our recommendation would be in place by January 2015. A draft version of the policy was provided to our office for our review.

The draft policy states that although the administrator of each home is ultimately responsible for approving the recreation fund's budget proposal, the administrator is required to seek the valuable input of the allied council (made up of elected representatives of the veterans home residents) and key employees of the home. Other than this statement, the draft policy does not specify any minimum requirements for when or how the administrator will solicit input from the home's residents. In July 2014, Veterans Affairs stated that its new policy would include enabling the homes' allied councils to work with home administrators on recreation fund spending plans and require Veterans Affairs to present regular reports on recreation fund expenditures to the residents. However, the draft policy did not reflect these intentions.

California State Auditor's Assessment of Status: Pending

Agency Response From September 2014

Veterans Affairs reported in July 2014 that it was working on new policies and procedures that would address our concern. For example, Veterans Affairs stated that the new procedures would include enabling the homes' allied councils to work with home administrators on recreation fund spending plans and requiring Veterans Affairs to present regular reports on expenditures to the residents. However, Veterans Affairs has not yet provided us with its new policies and procedures but it stated that it expected to complete them in October 2014.

As the California State Auditor's Office has not yet been provided with copies of the new policies and procedures, we are unable to determine whether Veterans Affairs' alternative solution will adequately address our recommendation.

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

Agency Response From May 2014

Veterans Affairs reported that it determined our recommendation was too restrictive. Specifically, it asserted that requiring advisory votes for recreation fund expenses would affect dozens of payments every year by the home in question, and it would impose restrictions on the use of the recreation fund that are beyond those imposed by the State Contracting Manual and the State Administrative Manual. Instead, Veterans Affairs stated it would "continue to discuss the [recreation] fund as well as specific projects with residents, and statutory notification requirements for [recreation] fund budgeting will continue to be followed."

We disagree with Veterans Affairs' position that veterans home residents should not have a formal role in the process for deciding how the funds set aside for their welfare should be spent or how recreation fund enterprises should be operated. As mentioned in our report, residents of the home were not informed that a recreation fund enterprise was going to build an adventure park on the grounds of their retirement home until they saw a helicopter flying overhead carrying large wooden beams for the construction of a zip line outside their windows. We remain firm in our contention that Veterans Affairs should specify in policy a formal advisory role for veterans home residents regarding recreation fund projects and significant expenditures.

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

Agency Response From March 2014

In December 2013, Veterans Affairs told us that before making any policy changes it wanted to receive a report from the Department of Finance regarding an audit it was conducting of the accounting and contracting procedures of the veterans home. Veterans Affairs received that report in January 2014, but the report did not mention our recommendation or anything similar to it. Subsequently, Veterans Affairs has not provided any further update regarding its implementation of this recommendation.

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

Agency Response From November 2013

Veterans Affairs has not provided any additional information.

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

Agency Response From September 2013

Veterans Affairs did not address specifically our recommendation to institute a policy that requires all payments from a home's recreation fund in the amount of $5,000 or more during a fiscal year and any contract involving recreation fund enterprises be presented to the home's Morale, Welfare, and Recreation Committee at a public meeting for an advisory vote prior to the payment being made. Instead, Veterans Affairs stated that it would increase recreation fund transparency through resident meetings and make quarterly recreation fund statements available to the residents of the veterans homes. It also added that it had distributed a memorandum in August 2013 to all home administrators providing additional guidance regarding recreation fund expenditures. However, this memorandum only provided guidance about what types of expenditures may be made from a recreation fund. As Veterans Affairs did not address our recommendation specifically in its response, we are unable to determine whether it intends to implement our recommendation.

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

Case Number I2011-0837

Recommendation #5 To: Veterans Affairs, Department of

Institute a policy that requires any expenditure of recreation fund moneys to a person or business in the amount of $5,000 or more during a fiscal year be listed as a separate line item in the budget of the recreation fund as presented to the secretary for approval.

Agency Response From October 2016

Veterans Affairs stated that prior to the beginning of each fiscal year, the veterans homes' administrators submit their budget proposals to the secretary for Veterans Affairs. These budgets are divided into "service areas," which include expenditures by category and expenditure justifications for those categories. The budget for each service area is preceded by a memorandum describing and justifying the anticipated uses. Executive leadership in its Homes Division review each memoranda and budget to ensure the proposals are consistent with state law and, as needed, discuss line items with the home's administrator. Furthermore, Veterans Affairs' administrative procedures for the Morale, Welfare, and Recreation program require the homes to obtain specific headquarters' approval throughout a given fiscal year for expenditures of $5,000 or more and for expenditures that fall into certain categories.

California State Auditor's Assessment of Status: Fully Implemented

Agency Response From October 2015

Veterans Affairs stated that it is working with the veteran homes to establish a standardized budget format and a uniform level of detail for the budget documents, including the concepts mentioned in this recommendation. However, it did not provide us with an expected completion date for these actions.

California State Auditor's Assessment of Status: Pending

Agency Response From April 2015

California State Auditor's Assessment of Status: Pending

Agency Response From December 2014

The draft policy does not include a requirement that any recreation fund expenditure to a person or a business in the amount of $5,000 or more during a fiscal year be listed as a separate line item in the budget of the recreation fund presented to the secretary for approval. When we brought this to Veteran Affairs' attention, it stated that it understood our concern and that additional discussion would occur to see if this could be added to the final policy expected to be issued in January 2015.

California State Auditor's Assessment of Status: Pending

Agency Response From September 2014

As of September 2014, Veterans Affairs reported that it is still considering whether it will require expenditures of recreation fund moneys to a person or business in the amount of $5,000 or more during a fiscal year be listed as a separate line item in the budget of the recreation fund as presented to the secretary for approval. No expected date was provided on when a decision will be reached.

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

Agency Response From May 2014

In late March 2014 Veterans Affairs reported that it had not yet reached a decision about whether it would continue to require as part of this process the annual review and approval of recreation fund budgets from each home. We then asked Veterans Affairs to provide us with an expected date when it would reach a decision. Veterans Affairs did not provide us with an expected date for its decision but in April 2014, Veterans Affairs reported that it was still considering the policy changes.

Veterans Affairs provided no new information in May 2014 as it was undergoing a major reorganization of responsibilities.

California State Auditor's Assessment of Status: Pending

Agency Response From March 2014

In December 2013, Veterans Affairs reiterated that it would begin itemizing expenditures in excess of $5,000 in its recreation fund budgets, but provided no update regarding its development of appropriate policies to implement this recommendation. Then in January 2014, Veterans Affairs told us that before making any policy changes it wanted to receive a report from the Department of Finance regarding an audit it was conducting of the accounting and contracting procedures of the veterans home, but it expected to institute the policy changes necessary to implement this recommendation by the next time the recreation fund budgets were being reviewed for approval. However, in March 2014, Veterans Affairs stated it was reconsidering whether to continue using its current process for the annual review and approval of recreation fund budgets, although if it continues using this process, it will include our recommendation for the itemization of expenditures.

At present, Veterans Affairs has left us without any estimate of when it will implement our recommendation and with some doubt about whether it will implement our recommendation at all.

California State Auditor's Assessment of Status: Pending

Agency Response From November 2013

Veterans Affairs has not provided any additional information.

California State Auditor's Assessment of Status: Pending

Agency Response From September 2013

Veterans Affairs reported that it concurred with our recommendation to include a separate line item in recreation fund budgets for any proposed expenditure of $5,000 or more and that it will develop appropriate policies to implement this recommendation.

California State Auditor's Assessment of Status: Pending

Case Number I2011-0837

Recommendation #6 To: Veterans Affairs, Department of

Work with the Governor's Office to take appropriate disciplinary action against the administrator.

Agency Response From January 2014

Veterans Affairs reported that the administrator officially retired in October 2013. As the administrator no longer is employed by the State, we shall consider this recommendation resolved.

California State Auditor's Assessment of Status: Resolved

Agency Response From November 2013

Veterans Affairs has not provided any additional information, however the State Auditor's Office learned that the administrator retired.

California State Auditor's Assessment of Status: Partially Implemented

Agency Response From September 2013

Veterans Affairs stated that on October 28, 2010, the executive issued a letter of expectations to the administrator. It also stated that it has provided to the Governor's Office our recommendation that it take appropriate disciplinary action against the administrator.

California State Auditor's Assessment of Status: Partially Implemented

Case Number I2011-0837

Recommendation for Legislative Action

Consider legislation to establish increased statutory controls over the management of the recreation fund maintained by each of the veterans homes to require that the funds be managed by the secretary of Veterans Affairs, in consultation with the administrator of each home, and be managed in a manner that is transparent to the public, takes into account the feelings of veterans, is consistent with the mission of the veterans homes, and is fiscally prudent.

Description of Legislative Action

Veterans Affairs reported that in 2016 the Legislature passed and the Governor signed Senate Bill 543. The bill directs Veterans Affairs to merge all Morale, Welfare, and Recreation Fund monies into a single State Treasury account, then distribute it each year to the veterans' homes according to an allocation formula and with enhanced structure and oversight. In accordance with the specifics of the bill, any veterans homes that do not have Morale, Welfare, and Recreation committees will form them beginning in January 2017. Additionally, Veterans Affairs will promulgate regulations further clarifying the role of these committees, defining the allocation formula, and specifying other details in accordance with the requirements of the new law. The rulemaking process for these regulations will include input from residents and other stakeholders, and the collection of public comments.

Legislative Action Current As-of: October 2016

California State Auditor's Assessment of Status: Legislation Enacted

Description of Legislative Action

Veterans Affairs reported that a state senator developed legislation that proposes a new location of the recreation funds, a new distribution process, additional coordination between Veterans Affairs and the residents of its veterans homes, and additional management and oversight practices. Veterans Affairs stated that it will continue working with the state senator as the legislation progresses.

Legislative Action Current As-of: October 2015

California State Auditor's Assessment of Status: Legislation Proposed But Not Enacted

Description of Legislative Action

Veterans Affairs reported that during the current legislative session, it has begun working with a state senator regarding legislation to improve oversight of all veterans homes' recreation funds.

Legislative Action Current As-of: April 2015

California State Auditor's Assessment of Status: Pending

Description of Legislative Action

Veterans Affairs reported in July 2014 that it had worked with an assembly member to propose legislation that would address this recommendation. However, in September 2014 Veterans Affairs reported that the proposed legislation had failed. Despite this failure, Veterans Affairs stated that it intends to pursue legislative proposals in the next legislative session.

Legislative Action Current As-of: September 2014

California State Auditor's Assessment of Status: Pending

Description of Legislative Action

Veterans Affairs reported in April 2014 that discussions have continued with various legislators. It stated that although a current proposal does not adequately address many of the concerns raised in our investigation, Veterans Affairs would continue to work with the Legislature to improve recreation fund oversight.

Veterans Affairs provided no new information for May 2014 as it was undergoing a major reorganization of responsibilities.

Legislative Action Current As-of: May 2014

California State Auditor's Assessment of Status: Pending

Description of Legislative Action

Veterans Affairs told us that it discussed statutory changes to the Military and Veterans Code with the Governor's Office, the Department of Finance, the Department of General Services, and members of the Legislature. It also stated that its proposed statutory changes would clarify many ambiguities in state law, such as the manner in which recreation fund money may be used and administered. Veterans Affairs noted that it even discussed with one member of the Legislature the possibility of authoring relevant legislation.

Legislative Action Current As-of: March 2014

California State Auditor's Assessment of Status: Pending

Description of Legislative Action

To properly evaluate whether to propose legislation to increase statutory controls over the management of the recreation funds, legislative staff have contacted the State Auditor's Office to gain a better understanding of the basis for this recommendation.

Legislative Action Current As-of: November 2013

California State Auditor's Assessment of Status: Pending

Description of Legislative Action

Veterans Affairs plans to propose to the legislature amendments to the Military and Veterans Code provisions relating to recreation funds.

Legislative Action Current As-of: September 2013