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California State Auditor Report Number : 2016-110

Trade Apprenticeship Programs
The State Needs to Better Oversee Apprenticeship Programs, Such as the Air Conditioning Trade Association’s
Sheet Metal Program

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The Apprenticeship Division Is Not Overseeing Apprenticeship Programs Adequately

Key Points:


Division of Apprenticeship Standards' Audits

State law requires the Division of Apprenticeship Standards (apprenticeship division) to audit apprenticeship programs to ensure that they do the following:

  • Comply with its own program standards
  • Ensure a journeyman supervises all on‑the‑job training.
  • Provide all the related and supplemental training required by the apprenticeship standards.
  • Cover all work process standards.
  • Ensure that the apprenticeship program’s graduates have completed their requirements.

State law authorizes the apprenticeship division to conduct audits whenever it identifies deficiencies in programs. For programs in the construction trade, however, state law also sets forth these specific circumstances that require an audit:

  • One year after the creation of a new apprenticeship program or one year after the expansion of an existing apprenticeship program.
  • When the apprenticeship program has been the subject of two or more meritorious complaints concerning apprentice recruitment, training, or education within a five‑year period.
  • When an apprenticeship program, having had at least two graduating classes, has an annual apprentice completion rate below 50 percent of the State average graduation rate in its trade.

Source: Labor Code section 3073.1.

Poor Audit Oversight

The apprenticeship division is responsible for auditing its apprenticeship programs; however, it has not been conducting audits regularly. Audits are the means by which the apprenticeship division can ensure that apprenticeship programs are following State‑approved apprenticeship standards. The text box shows the scope of such audits as well as the circumstances under which state law requires the apprenticeship division to conduct them. Our 2006 audit of the apprenticeship division found that it had stopped conducting audits in 2004.1 Even though it resumed them in 2007, the apprenticeship division began restructuring its audits unit in August 2014. As a result, it only completed two audits in fiscal year 2014–15. The apprenticeship division’s deputy chief explained that this restructuring is intended to improve the efficiency of audits and to shorten the time it takes for the apprenticeship division to complete them. Once the apprenticeship division resumes conducting audits, it plans to use staff assigned as apprenticeship division consultants (consultants) who are responsible for monitoring and overseeing apprenticeship programs, to conduct audits as part of their responsibilities. According to the deputy chief, the audit restructuring process has not yet been completed because the statutory and regulatory changes regarding audits are significant, its audit staff has needed retraining, and it needs to ensure that programs the apprenticeship division previously audited have addressed all recommendations. The apprenticeship division expects to complete the restructuring of its audit unit by December 2016.

The apprenticeship division does not consistently track the number of apprenticeship programs it identifies for an audit. Although it does have an audit log to keep track of the status of its audits, we found the information in the log to be incomplete. As a result, the apprenticeship division was not always able to provide us information regarding the status of its audits over the most recent five fiscal years. For example, it could not provide the status of any programs identified for audit in fiscal years 2010–11 and 2011–12, as shown in Table 3. Better tracking of audit status will help the apprenticeship division ensure that it is complying with state law and that it completes audits in a timely manner. To address these issues, the apprenticeship division is currently looking into adopting new database software to allow it to more accurately track the status of audits.


Table 3
Status of the Division of Apprenticeship Standards' Audits
Fiscal Year
2010–11 2011–12 2012–13 2013–14 2014–15 Total
Number of apprenticeship programs identified for audit –* –* 79 0 25 –*
Number of audits initiated 34 28 39 15  0 116
Number of audits completed (reports written) 25 34 34 22  2 117

Source: The audit log of the Department of Industrial Relations’ Division of Apprenticeship Standards (apprenticeship division) and information that its deputy chief provided.

Note: Because 26 audits in the log lacked an initiation date and 79 audits lacked a report completed date, these statistics may underestimate the number of audits initiated or completed in a given year.

* The deputy chief of the apprenticeship division was unable to provide us with the number of programs identified for an audit in these years.

Audit of ACTA

As described earlier, state law requires for a variety of reasons that the apprenticeship division audit apprenticeship programs. For instance, it is required to schedule an audit when a building and construction trades apprenticeship program, which has had at least two graduating classes, has an annual completion rate that falls below 50 percent of the state average completion rate in its trade. As shown in Figure 2, the completion rates for ACTA’s sheet metal program have been below the state industry average since 2011, and they dropped below 50 percent of the state industry average in 2013. In October 2015, the apprenticeship division determined that because of ACTA’s low completion rate for 2013, it was required to schedule and conduct an audit of ACTA to determine whether it was complying with standards for apprenticeship training and other requirements under state law. However, as of October 2016, the apprenticeship division had not begun that audit.


Figure 2
Air Conditioning Trade Association’s Apprenticeship Completion Rates Generally Fell Below the State’s Industry Average

Figure 2, a line chart that shows ACTA’s apprenticeship completion rates generally fell below the State’s industry average.

Source: California State Auditor’s analysis of completion data from the Division of Apprenticeship Standards (apprenticeship division).

Note: Under state law, within three months of determining that a building and construction trades apprenticeship program has an annual completion rate below 50 percent of the average completion rate in its industry, the apprenticeship division shall schedule that apprenticeship program for an audit. This requirement applies to apprenticeship programs that have had at least two graduating classes.

* Data is unaudited.

In response to our inquiry, ACTA’s executive director (ACTA director) attributed the decline in the completion rates of both ACTA and the State’s sheet metal industry to the State's recession and asserted that if an apprentice is not performing according to ACTA’s rules, ACTA will not allow him or her to graduate just to maintain higher completion rates. Further, a consultant stated that the weak economy affected many apprentices who were not able to fulfill their on‑the‑job training requirements in order to graduate because work was not available. It is also worth noting that because ACTA serves only four counties, as described in the Introduction, the number of apprentices enrolled at ACTA is relatively small compared to the total number of apprentices enrolled in sheet metal apprenticeships in California—ranging from five to 14 at ACTA in any given year, as shown in Figure 2—and therefore even a small change in the number of apprentices that graduate can cause ACTA’s graduation rates to increase or decrease significantly. However, until the apprenticeship division completes its audit of ACTA and addresses its backlog of incomplete audits, it is unclear whether apprenticeship programs, including ACTA, are complying with their standards for apprenticeship training and other requirements under state law.

It is unclear whether apprenticeship programs, including ACTA, are complying with their standards for apprenticeship training and other requirements under state law.

Authority to Determine How Grant Funds Are Spent

As part of an apprenticeship program audit, the apprenticeship division is authorized to determine whether grant funds are being appropriately spent to train apprentices.  However, until we inquired about whether it was confirming the appropriate use of grant funds, the apprenticeship division had not considered including that confirmation as part of its audit process. 

Legal counsel for Industrial Relations acknowledged that during the course of an audit, the apprenticeship division can request that an apprenticeship program provide information—such as invoices, receipts, or cancelled checks—to demonstrate that it appropriately spent grant funds.  However, in light of ERISA’s regulation of the operation of apprenticeship trust funds, the legal counsel cautioned that ERISA prevents Industrial Relations from reviewing information that pertains to the conduct of a financial audit.  For example, during the course of one of its program audits, the apprenticeship division could not access the financial statements or accounting records of an apprenticeship training trust.

The apprenticeship division’s grant application states that apprenticeship programs are required to provide an accounting of grant funds previously received.  However, the deputy chief stated that he considers this to be a request rather than a legal requirement. Legal counsel for Industrial Relations does not believe that the apprenticeship division has the authority to independently request verification of grant fund expenditures outside of a program audit. In other words, Industrial Relations believes that for the apprenticeship division to determine how grant funds were spent, it would have to conduct a full program audit of the apprenticeship program, which would need to cover all the areas described earlier. We agree that state law does not expressly provide the apprenticeship division with this independent authority, nor does it provide a remedy if state funds are used improperly.  For the apprenticeship division to determine outside of a program audit that grant funds are being spent appropriately, the Legislature would need to amend state law in a manner consistent with ERISA.

Complaints Regarding ACTA

During the past five fiscal years, the apprenticeship division has received two complaints against ACTA. However, because it could not substantiate them, it dismissed them. The apprenticeship division is responsible for overseeing apprenticeship complaints. An apprentice may file a complaint against an apprenticeship program to appeal a discipline or termination decision. Additionally, any interested person can also file a complaint when there is cause to believe that a decision, order, or action has been unfair or unreasonable, or to allege a violation of state law. Regulations require complainants to include specific information, such as the full names of the parties involved and a clear statement of facts constituting the basis for the complaint as well as the specific standard that the apprenticeship program is alleged to have violated. However, the apprenticeship division determined that the complaints it received from two apprentices of ACTA, one in 2011 to appeal a termination and the other in 2014 to appeal a disciplinary action, lacked the information needed to investigate the complaints. The apprenticeship division requested more information from the complainants and notified them that their complaints would be dismissed without more information. Receiving no response from either complainant, the apprenticeship division closed the cases within three months after receiving each complaint.

Other Oversight Activities

The consultants could improve the quality of the other oversight activities of apprenticeship programs that the consultants conduct. Specifically, the consultants are responsible for a variety of oversight activities, including attending committee meetings, conducting site visits of apprenticeship programs, and reviewing the apprenticeship programs’ annual self‑assessments in which each program appraises its status in a number of areas related to apprentice training, including curriculum, use of facilities, and industry involvement. These oversight activities allow the consultants to review and assess the performance of the apprenticeship programs while ensuring that the programs are following training standards. According to our review of the consultants’ oversight of ACTA during fiscal years 2010–11 through 2014–15, the apprenticeship division could do more to ensure that its consultants are properly overseeing apprenticeship programs. For example, the consultants conduct site visits of apprenticeship programs to review operations, ensure that their records are accurate, and discuss possible improvements to the programs. However, the template for the apprenticeship division’s site visit reports does not require a narrative about the findings of the visit or how the apprenticeship program is performing, and these omissions limit the site reports’ value as oversight tools. The apprenticeship division acknowledged that it could make improvements to the consultants’ oversight activities of apprenticeship programs by, for example, revising the site visit template to require such information as a narrative of visit findings. It is in the process of adopting new software for tracking these oversight activities and also revising its consultant training.

The apprenticeship division’s template for site visit reports does not require a narrative about the findings of the visit or how the apprenticeship program is performing.

Furthermore, the apprenticeship division could not always demonstrate that its consultants conducted the required oversight activities of ACTA. For example, it could not provide committee meeting logs from 2012 through 2015. Committee meeting logs are records that show a consultant attended a committee meeting. At committee meetings, ACTA’s executive director, board members, and other ACTA staff may hold hearings regarding apprentice termination, discuss revisions of apprenticeship standards, and approve changes in apprentice status. The apprenticeship division’s deputy chief stated that it is important for consultants to attend every committee meeting, if possible, in order to ensure that the programs are following rules and regulations and to provide advice for program improvement. It is especially important for consultants to attend meetings involving disciplinary actions to ensure that apprenticeship programs treat apprentices fairly. Although the consultants asserted to us that they attended many of the committee meetings, one senior consultant indicated that he did not complete some logs on the apprenticeship division’s case management software because of technical issues, and another senior consultant did not complete some logs because of time constraints. However, if consultants do not document their oversight activities regularly, it is difficult for the apprenticeship division’s management to ensure that its consultants are fulfilling their responsibilities consistently. The deputy chief stated that the apprenticeship division plans to adopt new case management software by April 2017, which along with training they will receive, should better ensure that consultants are tracking their oversight activities. Additionally, according to the deputy chief, the new software will better allow management to track the consultants’ oversight activities.

Recommendations

To better oversee state apprenticeship programs, the apprenticeship division should resume conducting program audits by December 2016. As part of such audits, the apprenticeship division should ensure that apprenticeship programs receiving grants are appropriately spending the money to train apprentices.

The Legislature should amend state law to provide the apprenticeship division with explicit authority to verify that as a condition of receiving future grant funds, apprenticeship programs are using state funds solely for training apprentices. In addition, if an apprenticeship program is unable to demonstrate how state funds are used or if it is found to be using funds for inappropriate purposes, the apprenticeship division should have the authority to deregister that particular program.

Until it implements new case management software in April 2017, the apprenticeship division should ensure that consultants perform and track their oversight activities. Furthermore, once the software is implemented, the apprenticeship division should ensure that consultants consistently use the software to document their oversight activities. Finally, the apprenticeship division should improve the usefulness of the site visit reports to provide the findings and an evaluation of each apprenticeship program, and it should periodically verify that consultants are performing their required oversight activities, including attending apprenticeship committee meetings and performing site visits.

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Insufficient Oversight Resulted in ACTA Receiving Unallowable Reimbursements

Key Points:


ACTA’s Unallowable Reimbursements

We estimate that between fiscal years 2010–11 through 2014–15, ACTA claimed at least 10,100 hours for unallowable reimbursements, with a cost of nearly $51,000 in apprenticeship instruction funding. Under state law, the Chancellor’s Office can only reimburse LEAs for the hours of classroom instruction that the apprenticeship programs provide to their students. ACTA provides training and instruction for its sheet metal program and forwards its classroom attendance hours for reimbursement to Central Unified, the K–12 LEA that contracts with ACTA. However, the ACTA director explained that in addition to claiming class attendance hours, ACTA also claims time that apprentices use on homework assignments as part of its attendance hours for reimbursement. Examples of homework assignments that ACTA’s apprentices performed include math review as well as drawings and fabrication of various ductwork pieces. Our review of ACTA’s records determined that it had indeed claimed time spent on homework assignments as teaching time for reimbursement. The ACTA director believes that the homework assignments are eligible for reimbursement because a teacher is available by telephone to answer questions for students. However, we disagree with the ACTA director’s statement because the time spent completing homework is not considered teaching time under state law.

Central Unified was not aware that ACTA was claiming homework assignment time for reimbursement because it does not verify whether the apprenticeship attendance hours that ACTA reported are for allowable activities. ACTA provides Central Unified with a monthly attendance report that summarizes total hours, by apprentice, that it is claiming for reimbursement. According to the director of Central Unified’s adult school site (adult school director), his staff do not request documentation from ACTA, such as sign‑in sheets, to verify that the reported attendance hours are only for classroom instruction because it has never collected that type of information. In addition, he stated that the Chancellor’s Office has not provided Central Unified with guidance for overseeing apprenticeship programs, including how to verify attendance hours. Lastly, he agreed that Central Unified’s failure to verify attendance creates a risk that Central Unified is reimbursing ACTA for attendance that did not occur because it cannot be certain that the apprentices actually attended ACTA’s online courses.

Central Unified could limit this risk by using its contractual authority to review ACTA’s student records, which the adult school director agrees would be an important form of monitoring. He noted that his staff already receives and verifies the attendance records for two other apprenticeship programs, which have classes that use Central Unified’s facilities and thus are not taught online, to ensure that they are claiming reimbursement only for classroom instruction. However, the adult school director believes that the agreement between Central Unified and ACTA, which they entered into in 2004, is outdated and that it would be beneficial to revise its agreement with ACTA to reflect each party’s current roles and responsibilities. For example, the agreement states that Central Unified is responsible for the curriculum, even though it currently has no such role, and the agreement lists Education as the overseeing state department, even though state law shifted that role to the Chancellor’s Office in fiscal year 2013–14. Despite acknowledging the need to update its 12‑year‑old agreement with ACTA, the adult school director stated that he is waiting for guidance from the Chancellor’s Office for the best way to do so.

The Chancellor’s Office could provide guidance to Central Unified by developing two important documents already required by state law: a model agreement that Central Unified and other LEAs could use as a basis for updating their agreements with apprenticeship programs and a common administrative practices document—which was to be completed by March 2014—meant to clarify the roles and responsibilities of the different entities involved in the apprenticeship system. Although state law required the Chancellor’s Office and the apprenticeship division to jointly develop a model format for agreements between apprenticeship programs and LEAs, neither entity has developed one.

When we inquired why, after more than two years, this joint effort was still incomplete, the deputy chief of the apprenticeship division explained that the primary concern for the apprenticeship division and the Chancellor’s Office was to first develop the common administrative practices document for the Apprenticeship Council’s approval before developing the model agreement. Although the Chancellor’s Office and the apprenticeship division finished developing the common administrative practices document in 2014, the deputy chief stated that the Apprenticeship Council has not yet approved this document because of other priorities. However, the deputy chief agrees that it would be beneficial for the Apprenticeship Council to do so because the document would provide greater clarity over the roles and responsibilities of the many parties involved in the State’s apprenticeship system.

Because the Chancellor’s Office has not overseen adequately Central Unified’s interactions with ACTA, it was also unaware that ACTA had claimed homework assignment hours for reimbursement and that Central Unified had not verified the course attendance hours of ACTA’s apprentices. As described in the Introduction, state law shifted the administrative responsibility to allocate apprenticeship instruction funding for K–12 LEAs from Education to the Chancellor’s Office in fiscal year 2013–14. However, neither Education nor the Chancellor’s Office developed formalized guidelines, procedures, or other attendance‑reporting requirements for K–12 LEAs to follow for verifying the attendance hours of its apprenticeship programs. Further, both Education and the Chancellor’s Office confirmed that they do not independently audit the apprenticeship attendance hours that K–12 LEAs report to them.

Neither Education nor the Chancellor’s Office developed formalized guidelines, procedures, or other attendance‑reporting requirements for K–12 LEAs to follow for verifying the attendance hours.

Despite the lack of guidance and oversight, a specialist in the Chancellor’s Office’s Workforce and Economic Development Division stated that the Chancellor’s Office expects all K–12 LEAs to verify actual class attendance hours of apprentices before submitting those hours for reimbursement. However, until the Chancellor’s Office provides specific guidance and begins actively monitoring K–12 LEAs, it will not have reasonable assurance that the K–12 LEAs are appropriately verifying apprenticeship class attendance and reimbursing their apprenticeship programs correctly.

Although the Chancellor’s Office does have regulations and accounting procedures outlining how it expects community colleges to verify attendance records for apprenticeship programs, the director of Fiscal Standards and Accountability for the Chancellor's Office (fiscal director) stated that those procedures were specifically designed to guide community college LEAs. The fiscal director explained that the current regulations and accounting procedures of the Chancellor’s Office are based on its existing statutory authority over community college LEAs, which predates when the Chancellor’s Office began allocating apprenticeship instruction funding in fiscal year 2013–14 to K–12 LEAs.

The fiscal director does not believe that the Chancellor’s Office currently has the legal authority to impose similar regulatory and accounting requirements on K–12 LEAs or to audit their attendance records. The fiscal director agrees that the Chancellor’s Office should clarify its guidance to K–12 LEAs, but he believes that its statutory authority should be updated to reflect the Chancellor’s Office’s new responsibilities. However, although it has had the responsibility to allocate apprenticeship instruction funding to K–12 LEAs since fiscal year 2013–14, the Chancellor’s Office has not sought legislative assistance to clarify its authority with respect to overseeing them.

Recommendations

To ensure that ACTA was reimbursed only for allowable costs from fiscal years 2010–11 through 2014–15, Central Unified should determine how much it reimbursed ACTA for unallowable activities and work with the Chancellor’s Office to determine how to recover those funds from ACTA.

To ensure that Central Unified correctly reimburses state funds to ACTA, Central Unified should develop a process—like the one it currently has for its other two apprenticeship programs—to verify that ACTA’s apprentices have attended the online training courses for the corresponding hours ACTA reports. Further, Central Unified should ensure that it reimburses apprenticeship programs only for allowable activities.

To limit its risk and to clarify its roles and responsibilities as they relate to ACTA, Central Unified should update its agreement with ACTA to reflect each party’s current roles and responsibilities. Further, Central Unified should periodically update this agreement to ensure that the agreement continues to reflect current roles and responsibilities.

To ensure that LEAs develop sound contract agreements with apprenticeship programs, the Chancellor’s Office and the apprenticeship division should develop a model agreement to outline the types of information, roles, and responsibilities for both parties as the Education Code requires and make this model agreement available to K–12 LEAs by April 2017. In addition, this model agreement should specify that K–12 LEAs will verify that the apprentices have attended the instructional courses by collecting supporting documentation such as sign‑in sheets or rosters.

To ensure the proper oversight of funding for related and supplemental instruction and to clarify the roles of the entities involved in the State’s apprenticeship system, the apprenticeship division should work with the Apprenticeship Council to formally approve the common administrative practices document by April 2017 and distribute it to all relevant parties within that system. In addition, to ensure the proper reimbursement of apprenticeship programs, the common administrative practices document should specify that K–12 LEAs take steps to verify that the apprentices actually attended the courses and that the apprenticeship attendance hours reported are for allowable activities only.

To ensure accountability, the Legislature should amend state law to clarify that the Chancellor’s Office has the authority to provide accounting guidance to and conduct audits of the K–12 LEAs’ oversight of apprenticeship training funds.


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It Is Unclear Whether Transfers Among ACTA’s Funds Were Allowable, but a Recent Federal Investigation Found That ACTA Improperly Spent Apprenticeship Training Funds

Key Points:

Transfers Among Funds

According to its publicly available tax‑exempt filings with the IRS, ACTA and the Training Fund owe the Wage Fund $203,700 as of December 31, 2014. Specifically, the amount the Training Fund owed the Wage Fund increased substantially from $57,200 in 2010 to $183,400 in 2011, and it decreased to $158,000 in 2014, as shown in Figure 3. To reduce the Training Fund’s liability to the Wage Fund, either ACTA transferred Training Fund money to the Wage Fund or the debt was forgiven. In response to our inquiry about the reasons for these transfers and the sources of funding it used, ACTA asserted that its tax‑exempt filings reflect a transfer of funds from the Wage Fund to its other two funds. However, ACTA’s assertion is not logical because the tax‑exempt filings of the two funds show that they owe money to the Wage Fund by listing an amount under their liabilities as “due to the [Wage Fund]” and that the amount they owe has decreased over the past five years. Ultimately, it is unclear to us whether these transfers were appropriate because our access to these funds is limited to verifying the use of the apprenticeship division grants ACTA received from the State.

As described in the Introduction, under federal law, individuals who control a training trust fund must use those funds for the sole benefit of the apprentices in the program. ACTA may not favor the interests of another entity, like the Wage Fund, over those of the apprentices in its training program when managing Training Fund assets. In addition, state law requires that apprenticeship division grants be used for the purpose of training apprentices. On multiple occasions we asked ACTA to provide documentation showing that it spent the $9,800 in apprenticeship division grants that it received from Industrial Relations solely for the purpose of training apprentices. Although ACTA failed to provide any documentation, it asserted that the Wage Fund does not receive state money, and that all state funds that ACTA receives are deposited directly into its Training Fund and not in either of its other two funds. However, without any additional information from ACTA we are unable to conclude whether or not it used the $9,800 in apprenticeship division grants for allowable purposes. We did not continue to pursue access to ACTA’s records through our statutory authority to subpoena those documents because the legal costs associated with obtaining this information through the courts would be much greater than the $9,800 in question.

Figure 3
Air Conditioning Trade Association’s Obligations to Its Wage and Hour Fairness Fund

Figure 3, a stacked bar chart that shows obligations of two ACTA funds to its wage and hour fairness fund (Wage Fund).

Source: California State Auditor’s analysis of the Internal Revenue Service Form 990 (IRS Form 990) tax returns, Return of Organization Exempt From Income Tax, for each of ACTA’s funds from 2010 through 2014. ACTA reported the amounts shown above as “due to the Wage and Hour Fairness Fund” on its IRS Form 990 tax returns.

ACTA’s Misuse of Apprenticeship Training Funds

A recent civil investigation by U.S. Labor points to the need for better oversight by the apprenticeship division. Specifically, U.S. Labor completed an investigation of ACTA in December 2014 that found numerous violations involving inappropriate spending from the Training Fund which, under federal law, ACTA must use exclusively to train and educate apprentices and to defray the reasonable expenses of administering the apprenticeship program. U.S. Labor determined that from 2005 through 2012, ACTA spent approximately $800,000 in apprenticeship training funds for expenditures unrelated to the Training Fund, including legal fees, payments to the former executive director, and payments for apprentices and instructors to go on vacations. Although most of these funds likely came from employers, Table 1 shows that ACTA’s Training Fund did receive approximately $1,600 in grants from the apprenticeship division in fiscal year 2011–12 during the period covered by the investigation. U.S. Labor attributed these inappropriate expenditures to ACTA’s poor internal controls and inadequate oversight. According to U.S. Labor, ACTA disputed all violations but subsequently offered to settle for $75,000 and to take certain actions, including adopting a travel expense policy and having management attend ERISA training courses. U.S. Labor decided not to pursue further corrective action against ACTA because it determined it was unlikely that ACTA could afford to pay more than $75,000. Furthermore, in March 2015 ACTA began working with an ERISA consultant who periodically reviews the Training Fund’s records. In June 2015, U.S. Labor informed ACTA that it had closed the investigation based on the corrective action ACTA had taken, and U.S. Labor would not take any further action.

We followed up with the apprenticeship division to understand what process it has in place to ensure that it is aware of federal investigations of apprenticeship programs. The apprenticeship division acknowledged that it was aware of the investigation of ACTA that U.S. Labor conducted, but it explained that it does not believe it has the authority to pursue any financial investigations of apprenticeship programs the federal government conducts because ERISA preempts these investigations. Therefore, the apprenticeship division does not ask U.S. Labor about any investigations of apprenticeship programs that U.S. Labor conducts. However, in addition to its audit authority described earlier, the apprenticeship division also has the authority to conduct audits at its discretion. Thus, if it had a process in place to learn if the federal government was investigating apprenticeship programs, it could use this information to determine whether it should conduct its own program audit of a given apprenticeship program to ensure that state funds are used appropriately.

Recommendation

To ensure that the apprenticeship division is overseeing apprenticeship programs adequately, it should consider periodically checking with U.S. Labor to determine what investigations it has recently conducted on apprenticeship programs. The apprenticeship division could use this information as a basis for conducting its own audit to ensure apprenticeship programs are using state funds appropriately.


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Scope and Methodology

The Audit Committee directed the California State Auditor to review the state funds that Industrial Relations and the Chancellor’s Office provides to ACTA. Table 4 lists the objectives that the Audit Committee approved and the methods we used to address those objectives.

Table 4
Audit Objectives and the Methods Used to Address Them
AUDIT OBJECTIVE METHOD
1 Review and evaluate the laws, rules, and regulations significant to the audit objectives. Reviewed relevant state and federal laws, regulations, and other information relating to apprenticeship programs.
2 Assess the policies and procedures in place at the Department of Industrial Relations (Industrial Relations) to ensure that the Air Conditioning Trade Association’s (ACTA) apprenticeship program is meeting requirements of the Industrial Relations’ Division of Apprenticeship Standards (apprenticeship division)to train apprentices.
  • Reviewed available documentation and interviewed the apprenticeship division in order to identify and assess the policies and procedures that ensure that all apprenticeship programs meet the requirements to train apprentices.
  • Reviewed available documentation and interviewed staff at the apprenticeship division to assess whether it performed oversight of ACTA adequately during the audit period.
3 Identify the policies and procedures in place at Industrial Relations to ensure that ACTA spends public funds appropriately.
  • Reviewed state laws and interviewed the chief legal counsel of Industrial Relations to determine the authority it has to regulate, audit, or monitor the spending of public funds from an apprenticeship program’s trust fund.
  • Reviewed relevant federal laws to determine any limitations placed on the State’s role in overseeing the spending of public funds from an apprenticeship program’s trust fund.
4 For fiscal years 2010–11 through 2014–15, determine the amounts and sources of public funds provided through Industrial Relations and/or other state agencies for the Training Trust Fund (Training Fund). Further, determine whether expenditures of these funds were allowable and reasonable.
  • Reviewed available documentation to evaluate and understand how Industrial Relations' grant funding process works for apprenticeship programs.
  • Obtained and evaluated the grants Industrial Relations provided to ACTA during the audit period.
  • Reviewed available documentation and interviewed staff at the California Community Colleges Chancellor's Office (Chancellor’s Office) to evaluate its oversight processes for validating the apprenticeship attendance hours reported to it by K–12 local educational agencies.
  • Obtained and evaluated ACTA’s detailed attendance records to determine if it was reimbursed for allowable activities.
5 For fiscal years 2010–11 through 2014–15, determine the amounts of funds allocated to the Central Unified School District (Central Unified) in Fresno by the Chancellor’s Office to offset the Training Fund’s operating expenses. Reviewed accounting records and other files of Central Unified, the Chancellor’s Office, and the California Department of Education (Education) to identify and evaluate the amount of public funds reimbursed to ACTA for the related and supplemental instruction costs it incurred to educate sheet metal apprentices.
6 Determine whether ACTA diverted any public funds allocated to the Training Fund to other funds or programs. If funds were diverted, determine the reasons for the diversion of funds, and whether the diverted funds were repaid or a repayment plan has been established. Further, determine what action Industrial Relations has taken in such instances.
  • ACTA is a nonprofit entity, and therefore our access to its funds was limited to the $9,800 it received in state funds from fiscal years 2010–11 through 2014–15.
  • Obtained and evaluated ACTA’s tax‑exempt filings and articles of incorporation to understand the sources of revenue and the nature of the transfers among its three funds.
  • Contacted the U.S. Department of Labor to ascertain the extent to which it has provided oversight of ACTA.
7 To the extent that funds were diverted from the Training Trust Fund during fiscal years 2010–11 through 2014–15, assess the impact this may have had on the apprenticeship program and its graduation rates. Interviewed the executive director and legal counsel for ACTA and asked if it used public funds for the purposes of training apprentices.
8 Identify the completion rates for the ACTA's apprenticeship program for fiscal years 2010–11 through 2014–15, as well as any trends in the completion rates and the reason for such trends.
  • Obtained and evaluated ACTA’s completion rates from the apprenticeship division’s database.
  • Performed a data reliability assessment on the apprenticeship division’s apprenticeship data for ACTA during the audit period and found no errors.
  • Interviewed the apprenticeship division staff and the executive director and legal counsel for ACTA to understand the reasons for its declining completion rates.
9 Review and assess any other issues that are significant to the audit.
  • During fieldwork, we were informed that other entities may be providing ACTA with state funding. Therefore, we contacted the Employment Development Department, Fresno County Workforce Investment Board, California Employment Training Panel (Training Panel), Fresno County Office of Education, and California Partnership Academies to determine if they provided any public funding to ACTA during the audit period.
  • We determined that the only additional entity providing ACTA with state funding was the Training Panel. Specifically, the Training Panel entered an agreement with ACTA to provide $28,360 for training from March 2015 through March 2017. However, the Training Panel did not make any payments because ACTA cancelled the agreement.

Sources: California State Auditor’s analysis of the Joint Legislative Audit Committee’s audit request number 2016‑110, and information and documentation identified in the column titled Method.



Assessment of Data Reliability

In performing this audit, we relied on electronic data files extracted from the apprenticeship division’s California Apprenticeship System database (apprenticeship database). The U.S. Government Accountability Office, whose standards we are statutorily required to follow, requires us to assess the sufficiency and appropriateness of the computer‑processed information that we use to support our findings, conclusions, or recommendations. Table 5 describes the analyses we conducted using the data from the apprenticeship database, our methods for testing it, and the results of our assessments.

Table 5
Methods Used to Assess Data Reliability
Information System Purpose Methods and Results Conclusion
California Apprenticeship System database (apprenticeship database) To gain assurance that the data the Department of Industrial Relations used to calculate apprenticeship completion rates for the Air Conditioning Trade Association (ACTA) was accurate and complete from fiscal year 2010–11 through 2014–15.
  • We performed data‑set verification procedures and electronic testing of key data elements and did not identify any significant issues.
  • To test the accuracy of the apprenticeship database, we traced key data elements to supporting documentation for a selection of 29 ACTA apprentices and found no errors.
  • To test the completeness of the apprenticeship database, we haphazardly selected 35 ACTA apprentices from the Division of Apprenticeship Standards' source documents and traced them back to the apprenticeship database. We found the data to be complete.
 Sufficiently reliable for the purpose of this audit.

Source: California State Auditor’s analysis of data obtained from the apprenticeship database.



We conducted this audit under the authority vested in the California State Auditor by section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the Scope and Methodology section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Respectfully submitted,


ELAINE M. HOWLE, CPA
State Auditor

Date:
November 15, 2016

Staff:
John Baier, CPA, Audit Principal
Amber Ronan
Oswin Chan, MPP, CIA
Bill Eggert, MPA
Matthew McAuley

Legal Counsel:
Heather Kendrick, Sr. Staff Counsel

For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255.



Footnotes

1 Department of Industrial Relations: Its Division of Apprenticeship Standards Inadequately Oversees Apprenticeship Programs, Report 2005‑108, September 2006. Go back to text



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