Report 2014-110 All Recommendation Responses

Report 2014-110: California Department of Resources Recycling and Recovery: The Beverage Container Recycling Program Continues to Face Deficits and Requires Changes to Become Financially Sustainable (Release Date: November 2014)

Recommendation for Legislative Action

To better ensure the Beverage Container Recycling Program (beverage program) is financially sustainable, the Legislature should consider enacting statutory changes that increase revenue, reduce costs, or a combination of both. Our report lists some specific proposals for the Legislature's consideration in Table 3, which begins on page 19 of our report.

Description of Legislative Action

Legislation has not been introduced to specifically address this recommendation. Assembly Bill 2110 was introduced on February 17, 2016, to serve as a placeholder for changes to the State Beverage Container Recycling and Litter Reduction Act; however, the bill was not pursued.

  • Legislative Action Current As-of: October 2016

California State Auditor's Assessment of Status: Legislation Introduced


Description of Legislative Action

Legislation has not been introduced to specifically address this recommendation. However, AB 2110 was introduced on February 17, 2016, to serve as a placeholder for changes to the State Beverage Container Recycling and Litter Reduction Act.

  • Legislative Action Current As-of: March 2016

California State Auditor's Assessment of Status: Pending


Description of Legislative Action

Legislation has not been introduced addressing this recommendation.

  • Legislative Action Current As-of: November 2015

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


Recommendation #2 To: Resources Recycling and Recovery, Department of

To ensure it can demonstrate that its fraud prevention efforts are maximizing financial recoveries for the beverage program, CalRecycle should both modify and annually update its fraud management plan to include the following:
- By December 31, 2014, formally establish a systematic process for analyzing, monitoring, and responding to the risk of fraudulent recycling of out-of-state beverage containers.
- Develop fraud estimates—by type of fraudulent activity—that quantify the potential financial losses to the beverage program and the methodology CalRecycle used to develop these estimates.
- Identify the amount of actual fraud in the prior year by type of fraudulent activity, such as the financial losses resulting from the redemption of out-of-state beverage containers or the falsification of reports used to substantiate program payments.
- Identify the amount actually recovered for the beverage program in the form of cash for restitution and penalties resulting from fraud.

Agency Response*

The Imported Materials Unit now uses a process to analyze, monitor, and respond to the risk of fraudulent recycling of out-of-state beverage containers.

CalRecycle has identified and quantified known financial losses to the program from fraudulent activity associated with known criminal activity.

CalRecycle has initiated reconciling restitution amounts owed from criminal activity with payments. CalRecycle is determining any outstanding restitution owed. CalRecycle has not yet updated the case management system to identify the amount of fraud in the prior year by type of activity or the amount recovered. Higher-priority enhancements have taken precedence. CalRecycle is finalizing procedures to better track referrals from CalRecycle to the Department of Justice through to invoicing and disposition.

Precisely estimating fraud is difficult and estimates are potentially inaccurate. While CalRecycle manages fraud risk to the best of its ability and via cooperation with partners, identifying additional potential fraud losses and risks requires expertise that CalRecycle does not have in-house. A formal statistical estimation is needed, and CalRecycle is exploring options to conduct this work. DOJ has conducted a preliminary fraudulent activity risk assessment by county to better utilize their agents. Similarly, CalRecycle is developing a risk assessment tool to better focus enforcement efforts. CalRecycle estimates this tool will be ready by the end of 2018. CalRecycle and DOJ are collaborating to develop a comprehensive method to estimate the level of criminal fraud affecting the program. CalRecycle and DOJ will use known fraud and other factors to characterize and estimate—as well as possible—potential losses. DOJ and CalRecycle will meet in January 2018 to further develop their approaches. Based on the results of this work, and the future availability of funding, CalRecycle may contract for additional estimation work.

  • Response Type†: Annual Follow Up
  • Estimated Completion Date: 12/31/2020
  • Response Date: November 2017

California State Auditor's Assessment of Status: Pending


Agency Response*

Process and procedural documentation were completed on 1/15/15. Through the establishment of the Imported Materials Unit, a systematic process for analyzing, monitoring, and responding to the risk of fraudulent recycling of out-of-state beverage containers was implemented.

There is currently no estimated completion date for the following:

Fraud estimates. CalRecycle does not have in-house staff with the necessary expertise to develop the fraud estimates. A formal methodology based upon further study and statistical estimation is necessary. CalRecycle would need to contract for these services. Given the ongoing structural deficit in the CBCRF, CalRecycle does not anticipate having funds for this project in the foreseeable future.

Identification of fraud. CalRecycle has not updated the DORIIS case management system to identify the amount of actual fraud in the prior year by type of fraudulent activity. This improvement item is currently on CalRecycle's DORIIS Ticket Prioritization List. To date, higher priority DORIIS enhancements and improvements have taken precedence. Once DORIIS is updated, CalRecycle may be able to implement CSA's recommendation.

Amount recovered after fraud. CalRecycle has not updated the DORIIS case management system to identify the amount actually recovered resulting from fraud. This improvement item is currently on CalRecycle's DORIIS Ticket Prioritization List. To date, higher priority DORIIS enhancements and improvements have taken precedence. Once DORIIS is updated, CalRecycle may be able to implement CSA's recommendation.

  • Response Type†: Annual Follow Up
  • Estimated Completion Date: None
  • Response Date: October 2016

California State Auditor's Assessment of Status: Not Fully Implemented


Agency Response*

CalRecycle fully implemented process and procedural documentation that formally establish a systematic process for analyzing, monitoring, and responding to the risk of fraudulent recycling of out-of-state beverage containers. Seven additional LT positions have been hired to execute this systematic process.

CalRecycle does not have in-house staff with the necessary expertise to develop the fraud estimates. CalRecycle believes a formal methodology based upon further study and statistical estimation is necessary. Given the wide variety of variables, associated complexity, and the professional expertise and skill needed to effectively design and develop such a model, CalRecycle would need to contract out for these services. Unfortunately, given the ongoing structural deficit in the CBCRF, CalRecycle does not anticipate having funds for this project in the foreseeable future.

CalRecycle has not fully updated the DORiis case management system to identify the amount of actual fraud by type and identify the amount actually recovered. When the update is completed DORiis will be able to fully implement CSA's recommendation

  • Response Type†: 1-Year
  • Estimated Completion Date: July 2016
  • Response Date: November 2015

California State Auditor's Assessment of Status: Not Fully Implemented


Agency Response*

Process and procedural documentation for Imported Empty Beverage Container Reporting and Inspection Program was completed on January 15, 2015.

Notice to known recyclers in Arizona and Nevada was issued on January 16, 2015. Final draft of notice to all major truck rental companies is pending review by the CalRecycle Legal Office as of April 28, 2015.

On April 2, 2015, CalRecycle, Division of Recycling, Enforcement Branch staff, representatives from DOJ, and the AG's Office educated state and local law enforcement/code enforcement personnel, whose jurisdictional boundaries include CDFA border stations, about illegal importation and illegal CRV redemption of imported out-of-state beverage containers occurring within their respective jurisdictions. 35 state and local law enforcement/code enforcement personnel attended the workshop. CalRecycle's objective is to secure assistance from state and local law enforcement personnel to detect, deter and interdict individuals illegally importing and/or attempting to illegally redeem out-of-state empty beverage containers for CRV. Additional outreach and education sessions will be conducted during 2015.

Notice was issued to all certified processors and posted on CalRecycle's webpage on November 12, 2014.

Initial notice was issued to all certified and registered program participants and posted on the CalRecycle webpage on November 12, 2014. Notice included a webpage link where select information submitted on Imported Material Reports (IMR) is posted for program participants to reference. Since issuance of the initial notice in November 2014, CalRecycle routinely posts updated IMR information to the CalRecycle webpage on a monthly basis

  • Response Type†: 6-Month
  • Estimated Completion Date: 12/31/2016
  • Response Date: May 2015

California State Auditor's Assessment of Status: Pending


Agency Response*

Finalize process and procedural documentation associated with the implementation of the Imported Empty Beverage Container Reporting and Inspection Program

Send a notice to all major truck rental companies and all recyclers currently operating in Arizona and Nevada to ensure and document that they have been educated and informed as to the illegality of redeeming, attempting to redeem, or aiding in the redemption of imported empty beverage containers.

Participate in a series of education and training sessions for local law enforcement agencies whose jurisdictional boundaries include CDFA operated Quarantine Inspection Stations and roads which can be used to bypass CDFA border stations.

November 12, 2014: DOR issued a notice to all certified processors regarding the current regulations as they pertain to receipt and processing of imported loads of single-stream recyclable materials which included imported empty beverage containers.

November 12, 2014: DOR issued a notice to all certified and registered program participants to inform them of information associated with persons importing empty beverage containers.

CalRecycle will release a Request for Proposal (RFP) by in 2015-2016 for the development of fraud estimates, by type of fraudulent activity, in an effort to quantify potential financial losses to the beverage container recycling fund.

Develop specific criteria to clearly identify/flag administrative cases in the Division of Recycling Integrated Information System (DORiis) which contain allegations of fraud.

The identified restitution and/or civil penalty amounts will serve as the basis for the calculation of the actual fraud amount by the type of fraudulent activity for the prior year.

  • Response Type†: 60-Day
  • Estimated Completion Date: December 2016
  • Response Date: December 2014

California State Auditor's Assessment of Status: Pending


Recommendation #3 To: Resources Recycling and Recovery, Department of

To allow for public input and to prevent any legal challenges claiming that its policies and procedures regarding prepayment holds constitute unenforceable underground regulations, CalRecycle should adopt these policies and procedures as regulations in accordance with the Administrative Procedure Act.

Agency Response*

CalRecycle has conducted three (3) informal regulatory workshops: December 2015, February 2016 and May 2016. CalRecycle currently in the process of drafting the requisite regulatory package. The revised estimated completion date to submit draft regulatory package to OAL for initial public comment in 2018.

  • Response Type†: Annual Follow Up
  • Estimated Completion Date: 12/31/2018
  • Response Date: November 2017

California State Auditor's Assessment of Status: Pending


Agency Response*

CalRecycle has conducted three (3) informal regulatory workshops: December 2015, February 2016 and May 2016. CalRecycle currently in the process of drafting the requisite regulatory package. The revised estimated completion date to submit draft regulatory package to OAL for initial public comment in 2017.

  • Response Type†: Annual Follow Up
  • Estimated Completion Date: December 2017
  • Response Date: October 2016

California State Auditor's Assessment of Status: Not Fully Implemented


Agency Response*

Informal Regulatory workshop schedule for 12/8/15. Target for promulgation of regulations September 2016.

  • Response Type†: 1-Year
  • Estimated Completion Date: September 2016
  • Response Date: November 2015

California State Auditor's Assessment of Status: Not Fully Implemented


Agency Response*

CalRecycle will initiate a rulemaking procedure to, at a minimum, seek public input, clarify requirements, and detail processes pertaining to the pre-payment hold and inspection process. It is expected that the rulemaking process will take six to eighteen months to complete depending upon the number and complexity of comments received during the public comment period.

  • Response Type†: 6-Month
  • Estimated Completion Date: 12/31/2015
  • Response Date: May 2015

California State Auditor's Assessment of Status: Pending


Agency Response*

CalRecycle will initiate a rulemaking procedure to, at a minimum, seek public input, clarify requirements, and detail processes pertaining to the pre-payment hold and inspection process. It is expected that the rulemaking process will take six to eighteen months to complete depending upon the number and complexity of comments received during the public comment period.

  • Response Type†: 60-Day
  • Estimated Completion Date: April 1, 2015
  • Response Date: December 2014

California State Auditor's Assessment of Status: Pending


Recommendation #4 To: Resources Recycling and Recovery, Department of

To ensure that all appropriate redemption payments are identified and made to the beverage program, CalRecycle should do the following:
- Contract with the California Board of Equalization (Equalization) to determine the feasibility and cost of transferring its revenue collections duties and audit reviews to Equalization.
- Should CalRecycle find that it is feasible and cost effective, it should pursue legislative changes that enable Equalization to collect revenues for the beverage program at the point-of-sale and remit the money to the beverage program.

Agency Response*

A feasibility study and cost estimate was completed by Equalization in November 2015 to determine the feasibility and cost of transferring CalRecycle's revenue collection and audit duties to Equalization. For collection of revenue alone, the study estimated an annual increased cost to CalRecycle of $45 million and 514.2 PY's. CalRecycle would still be responsible for any administration costs and activities beyond collection. Based on the increased cost to the Fund, CalRecycle has determined that while technically feasible it is not cost effective to have BOE collect revenue at point of sale locations at this time.

  • Response Type†: Annual Follow Up
  • Completion Date: March 2016
  • Response Date: October 2016

California State Auditor's Assessment of Status: Fully Implemented


Agency Response*

CalRecycle has entered into an agreement with Equalization to determine feasibility and cost of transferring its revenue collections duties and audit reviews to Equalization.

  • Response Type†: 1-Year
  • Estimated Completion Date: March 2016
  • Response Date: November 2015

California State Auditor's Assessment of Status: Not Fully Implemented


Agency Response*

Meeting has been scheduled with BOE on May 12th to explore executing an interagency agreement to address recommendations in the findings. According to BOE there may need to be several meetings just to identify the scope of work and resources needed.

  • Response Type†: 6-Month
  • Estimated Completion Date: 05/2016
  • Response Date: May 2015

California State Auditor's Assessment of Status: Pending


Agency Response*

December 10, 2104 submitted a letter to Board of Equalization Chairman Jerome Horton.

If BOE agrees to proceed with a feasibility assessment, and the department in consultation with the board finds it is practical and cost effective, then an interagency agreement can be pursued. An ultimate determination of BOE's role in collecting CRV revenue will be informed by this assessment. Final determinations must be evaluated in the context of cost effectiveness and programmatic efficiency.

  • Response Type†: 60-Day
  • Estimated Completion Date: December 2015
  • Response Date: December 2014

California State Auditor's Assessment of Status: Pending


Recommendation #5 To: Resources Recycling and Recovery, Department of

To ensure it effectively uses resources, CalRecycle should renegotiate its agreement with the California Department of Justice (Justice) to pay based on the cases CalRecycle refers, limiting costs to investigations over a predefined period of time. CalRecycle could agree to increase the budget for a particular investigation if Justice demonstrates that it has developed promising leads.

Agency Response*

The construct outlined in CSA's recommendation for a renegotiated interagency agreement (IA) has been deemed unfeasible by both CalRecycle and DOJ. CalRecycle believes DOJ's past efforts are more significant than what was listed in the BSA Audit Report. CalRecycle will continue to work with DOJ under the existing interagency agreement construct to develop evidence based benchmarks to better capture results of their efforts. CalRecycle will also evaluate appropriate objectives and lessons learned from its work with DOJ when developing the next IA.

  • Response Type†: Annual Follow Up
  • Response Date: October 2016

California State Auditor's Assessment of Status: Will Not Implement


Agency Response*

The construct outlined in CSA's recommendation for a renegotiated interagency agreement has been deemed unfeasible by both CalRecycle and DOJ. CalRecycle believes DOJ's past efforts are more significant than what was listed in the BSA Audit Report. CalRecycle will continue to work with DOJ under the existing interagency agreement construct to develop evidence based benchmarks to better capture results of their efforts. CalRecyle also will evlauate appropriate objectives and lessons learned from its work with DOJ when developing the next IA.

  • Response Type†: 1-Year
  • Estimated Completion Date:
  • Response Date: November 2015

California State Auditor's Assessment of Status: Will Not Implement

We stand by our recommendation. As we further describe on pages 36 through 39 of our audit report, CalRecycle pays Justice significantly more to investigate criminal activity than the financial recoveries that result from its efforts. CalRecycle provided no evidence to support its claim that Justice's past efforts are "more significant" than what was listed in our final report. Nevertheless, we are pleased that CalRecycle sees value in better demonstrating the financial return to the beverage program resulting from Justice's investigations.


Agency Response*

At the quarterly meeting on April 22, 2015, both DOJ and CalRecycle discussed development and capture of improved performance metrics to highlight both the efforts and impacts of DOJ's investigations. Additionally, on May 20-21, CalRecycle will host a two-day workshop with representatives from Department of Justice/Bureau of Investigation and the Attorney General's Office. The workshop will identify issues and opportunities for enhancing our collective ability and authority to effectively combat beverage container program fraud associated primarily with the importation and subsequent illegal CRV redemption of out-of-state beverage containers.

  • Response Type†: 6-Month
  • Estimated Completion Date: 06/302017
  • Response Date: May 2015

California State Auditor's Assessment of Status: Pending


Agency Response*

CalRecycle & DOJ will continue our efforts to collaborate and pursue collective success under the terms, conditions and funding mechanisms in the current interagency agreement. CalRecycle will revisit this CSA Audit recommendation for potential implementation at the end of the term of the current interagency agreement which is currently June 30, 2017.

  • Response Type†: 60-Day
  • Estimated Completion Date: June 30, 2017
  • Response Date: December 2014

California State Auditor's Assessment of Status: Pending

We stand by our recommendation. As we further describe on pages 36 through 39 of our audit report, CalRecycle pays Justice significantly more to investigate criminal activity than the financial recoveries that result from its efforts.


Recommendation #6 To: Resources Recycling and Recovery, Department of

To ensure that CalRecycle has consistent evidence of the results of completed prosecutions and the amounts ordered in restitution, it should develop a status report to be issued quarterly by the Attorney General's Office (attorney general) that summarizes, among other things, the status of pending cases, recently closed cases, and amounts of restitution that are due to the beverage program as a result of the attorney general's prosecutions.

Agency Response*

CalRecycle has developed a report in a narrative form that summarizes the status of pending cases, recently closed cases, and amounts of restitution that are due to the beverage program as a result of the attorney general's prosecutions. This report is included in the quarterly report that we get from the Bureau of Investigation.

  • Response Type†: 1-Year
  • Completion Date: October 2015
  • Response Date: November 2015

California State Auditor's Assessment of Status: Fully Implemented


Agency Response*

CalRecycle will work with the Attorney General's Office to develop the recommended status report.

  • Response Type†: 6-Month
  • Estimated Completion Date: 12/31/2015
  • Response Date: May 2015

California State Auditor's Assessment of Status: Pending


Agency Response*

CalRecycle will work with the Attorney General's Office to develop the recommended status report.

  • Response Type†: 60-Day
  • Estimated Completion Date: December 31, 2014
  • Response Date: December 2014

California State Auditor's Assessment of Status: Pending


All Recommendations in 2014-110

Response Type refers to the interval in which the auditee is providing the State Auditor with their status in implementing recommendations made in an audit report. Auditees must submit a response regarding their progress in implementing recommendations from our reports at three intervals from the release of the report: 60 days, six months, and one year or subsequent to one year.

*Agency responses received after June 2013 are posted verbatim.


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