Report 2019-046 All Recommendation Responses

Report 2019-046: Proposition 56 Tobacco Tax: State Agencies' Weak Administration Reduced Revenue by Millions of Dollars and Led to the Improper Use and Inadequate Disclosure of Funds (Release Date: January 2021)

Recommendation #1 To: Education, Department of

To provide the public with relevant information and ensure the level of accountability that state law intends, each state entity that receives Proposition 56 funds should publish the following information on its website by April 2021 for fiscal years 2017-18 through 2019-20, and within six months of the end of each fiscal year, beginning with fiscal year 2020-21:

The amount of Proposition 56 funds received by each program it administers.
The amount of Proposition 56 funds spent by each program it administers.
The amount of Proposition 56 funds obligated for future expenditures by each program it administers.
Any corrections to the information it reported in previous fiscal years.

1-Year Agency Response

Beginning in fiscal year 2017-18, Education has annually provided a narrative report which identifies the amount of money received from the California Healthcare Research and Prevention Tobacco Tax Act of 2016 Fund and how the money was spent, including the obligated amounts. Additionally, to strengthen transparency and provide a clearer understanding, Education now includes an Excel spreadsheet, summarizing the accounting data provided in the narrative report.

Education published the fiscal year 2020-21 Proposition 56 funding information on its web site on October 11, 2021, at the following locations:

TUPE Expenditure Report for Fiscal Year 2020-21 - Alcohol, Tobacco & Other Drug Prevention (CA Dept of Education)

tupeprop56budgexpend2021.xlsx (live.com).

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Education's reported Proposition 56 funding received and spent for each fiscal year can be found at: https://www.cde.ca.gov/ls/he/at/tupefunding.asp

6-Month Agency Response

Education published the fiscal year 2019-20 Proposition 56 funding information on its web site on March 12, 2021, at the following locations:

https://www.cde.ca.gov/ls/he/at/tupefunding.asp

https://www.cde.ca.gov/ls/he/at/prop56expendreport1920.asp

California State Auditor's Assessment of 6-Month Status: Partially Implemented

We will evaluate whether Education has posted its fiscal year 2020-21 information within six months of the end of the fiscal year in our assessment of its one-year response, due in January 2022.

60-Day Agency Response

As indicated in Education's response to the audit report, the required data was published on its web site as it became available each year as follows:

Fiscal year 2017-18 was posted on April 18, 2019

Fiscal year 2018-19 was posted on October 1, 2020.

Links to the relevant web pages are provided below.

https://www.cde.ca.gov/ls/he/at/tupefunding.asp

https://www.cde.ca.gov/fg/fo/r8/expendreportfy1718.asp

https://www.cde.ca.gov/ls/he/at/tupefunding.asp

https://www.cde.ca.gov/fg/fo/r8/expendreportfy1819.asp

Education anticipates publishing the fiscal year 2019-20 Proposition 56 funding information by the end of March 2021.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

As of March 12, 2021, Education had published data for fiscal year 2019-20. Education's ongoing compliance with the recommendation to publish information within six months of the end of each fiscal year will be reviewed in future responses to this recommendation.

Recommendation #2 To: Health Care Services, Department of

To provide the public with relevant information and ensure the level of accountability that state law intends, each state entity that receives Proposition 56 funds should publish the following information on its website by April 2021 for fiscal years 2017-18 through 2019-20, and within six months of the end of each fiscal year, beginning with fiscal year 2020-21:

The amount of Proposition 56 funds received by each program it administers.
The amount of Proposition 56 funds spent by each program it administers.
The amount of Proposition 56 funds obligated for future expenditures by each program it administers.
Any corrections to the information it reported in previous fiscal years.

1-Year Agency Response

Added the "Future Obligation" column to the posted spreadsheets for fiscal years 17/18, 18/19, 19/20, and 20/21. Included the "Future Obligation" column to the spreadsheet for FY 21/22 and forward. Final/approved spreadsheets can be found at the following link: DHCS' California Proposition 56 webpage.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Health Care Services' website currently includes the relevant information, but its website did not have the information available when we checked in January 2022 to verify its response. Although we consider the recommendation to be implemented, in the future Health Care Services should publish the relevant information within six months of the end of the fiscal year.

6-Month Agency Response

DHCS has developed a webpage for the Proposition 56 funds received by each program administered. The data currently includes the amount of Proposition 56 funds received and spent by each program administered for State Fiscal Years 2017-18 and 2018-19. We have updated the webpage to include State Fiscal Year 2019-20 financial information, in addition to including funds obligated for future expenditures by program. Any corrections to the financial information reported by DHCS for previous fiscal years will be reflected in the current year as the fund operates on a cash basis.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

DHCS' posted information includes the amounts received and spent, but does not include the amounts obligated for future expenditures.

60-Day Agency Response

DHCS has developed a webpage for the Proposition 56 funds received by each program administered. The data currently includes the amount of Proposition 56 funds received and spent by each program administered for State Fiscal Years 2017-18 and 2018-19. We will update the webpage to include State Fiscal Year 2019-20 financial information, in addition to include funds obligated for future expenditures by program. Any corrections to the financial information reported by DHCS for previous fiscal years will be reflected in the current year as the fund operates on a cash basis.

California State Auditor's Assessment of 60-Day Status: Pending

Health Care Services' webpage presents the information we reviewed during the audit. We noted no new information. We will review the funds obligated for future expenditures and fiscal year 2019-20 financial information when Health Care Services makes them available.

Recommendation #3 To: Justice, Department of

To provide the public with relevant information and ensure the level of accountability that state law intends, each state entity that receives Proposition 56 funds should publish the following information on its website by April 2021 for fiscal years 2017-18 through 2019-20, and within six months of the end of each fiscal year, beginning with fiscal year 2020-21:

The amount of Proposition 56 funds received by each program it administers.
The amount of Proposition 56 funds spent by each program it administers.
The amount of Proposition 56 funds obligated for future expenditures by each program it administers.
Any corrections to the information it reported in previous fiscal years.

1-Year Agency Response

The Department's report showing funds received, expended, and obligated for fund years 2017-18, 2018-19, 2019-20 and 2020-21 has been published on the Attorney General's website

Publications | State of California - Department of Justice - Office of the Attorney General.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Justice published the relevant information for the listed fiscal years at https://oag.ca.gov/publications#tobacco-prop56. We did not verify when it published this information; however, Justice should ensure that it publishes this information within six months of the end of each fiscal year.

6-Month Agency Response

The Department's report showing funds received, expended, and obligated for fund years 2017-28, 2018-19, and 2019-20 has been published on the Attorney General's website - https://oag.ca.gov/sites/all/files/agweb/pdfs/publications/fy2019-20-sum-expendite.pdf.

The FY 2020-21 report showing funds received, expended, and obligated will be published by January 1, 2022.

California State Auditor's Assessment of 6-Month Status: Pending

We look forward to reviewing the Fiscal Year 2020-21 report when it is published.

60-Day Agency Response

The Department's report showing funds received, expended, and obligated for fund years 2017-18, 2018-19, and 2019-20 is under review and will be published on the Attorney General's website by April 2021.

California State Auditor's Assessment of 60-Day Status: Pending

We look forward to reviewing the report when it is published.

Recommendation #4 To: Public Health, Department of

To provide the public with relevant information and ensure the level of accountability that state law intends, each state entity that receives Proposition 56 funds should publish the following information on its website by April 2021 for fiscal years 2017-18 through 2019-20, and within six months of the end of each fiscal year, beginning with fiscal year 2020-21:

The amount of Proposition 56 funds received by each program it administers.
The amount of Proposition 56 funds spent by each program it administers.
The amount of Proposition 56 funds obligated for future expenditures by each program it administers.
Any corrections to the information it reported in previous fiscal years.

1-Year Agency Response

CDPH's California Tobacco Control Program (CTCP), Office of Oral Health (OOH), and Stop Tobacco Access to Kids Enforcement Act (STAKE) program have posted Proposition 56 funds for fiscal years 2018-19 through 2020-21 which consisted of funds received, expended, and amount obligated for future expenditures by each program to the CDPH webpage. In response to CSA's assessment, CDPH has combined the individual program reports into one file which is available on the CDPH website at: https://www.cdph.ca.gov/Programs/CCDPHP/Pages/Proposition-56-Fiscal-Reporting.aspx

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Public Health published the relevant information online in a consistent manner for each of the Proposition 56-funded programs it administers. Although we now consider the recommendation to be implemented, in the past it did not publish complete information in a consistent manner. Public Health should continue to publish the relevant information for each program it administers, and should ensure it does so within six months of the end of each fiscal year.

6-Month Agency Response

CDPH's California Tobacco Control Program (CTCP), Office of Oral Health (OOH), and Stop Tobacco Access to Kids Enforcement Act (STAKE) program have posted Proposition 56 funds for fiscal years 2017-18 through 2019-20 which consisted of funds received, expended, and amount obligated for future expenditures by each program to the CDPH webpage. Links to the data as are listed below:

CTCP: https://www.cdph.ca.gov/Programs/CCDPHP/DCDIC/CTCB/Pages/ProgramBudget.aspx

OOH: https://www.cdph.ca.gov/Programs/CCDPHP/DCDIC/CDCB/Pages/OralHealthProgram/Prop-56-Budget.aspx

STAKE: https://www.cdph.ca.gov/Programs/CEH/DFDCS/Pages/FDBPrograms/STAKEProgram.aspx (see under Reports)

California State Auditor's Assessment of 6-Month Status: Partially Implemented

Public Health has posted the amounts of Proposition 56 funds received and expended for all three programs it administers for fiscal years 2017-18, 2018-19, and 2019-20; however, it did not clearly indicate how much it obligated for future spending each year from its STAKE program. Additionally, the information is presented differently for each program--limiting the ability of the public to easily understand and compare information--and in three separate locations, which does not make the total amounts Public Health received, expended, and obligated readily available to the public. Finally, full implementation of this recommendation will require Public health to post its fiscal year 2020-2021 information within six months of the close of the fiscal year.

60-Day Agency Response

The California Tobacco Control Program (CTCP) and the Office of Oral Health (OOH) are reviewing financial data from fiscal years 2018-19 and 2019-20 to comply with this recommendation. Additionally, the Stop Tobacco Access to Kids Enforcement Act (STAKE) program within Public Health's Food and Drug Branch (FDB) will create procedures to include the expenditure posting requirements and local assistance awards for fiscal year 2018-19 and 2019-20 to comply with this recommendation.

California State Auditor's Assessment of 60-Day Status: Pending

Public Health has not published any information in addition to what we reviewed during the audit.

Recommendation #5 To: Tax and Fee Administration, California Department of

To provide the public with relevant information and ensure the level of accountability that state law intends, each state entity that receives Proposition 56 funds should publish the following information on its website by April 2021 for fiscal years 2017-18 through 2019-20, and within six months of the end of each fiscal year, beginning with fiscal year 2020-21:

The amount of Proposition 56 funds received by each program it administers.
The amount of Proposition 56 funds spent by each program it administers.
The amount of Proposition 56 funds obligated for future expenditures by each program it administers.
Any corrections to the information it reported in previous fiscal years.

1-Year Agency Response

The CDTFA has published the amount of Proposition 56 funds received and spent for fiscal year 2020-21 on its webpage at www.cdtfa.ca.gov/taxes-andfees/prop-56-summary-rev-and-exp.htm.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

The CDTFA' s Proposition 56 webpage describes the amounts that it asserts it received and spent. The correct link to that page is: https://www.cdtfa.ca.gov/taxes-and-fees/prop-56-summary-rev-and-exp.htm

6-Month Agency Response

The CDTFA will post on its website www.cdtfa.ca.gov/taxes-and-fees/prop-56-summary-rev-and-exp.htm the amount of Proposition 56 funds received, spent, and any corrections to previous fiscal year amounts within 6 months of the end of each fiscal year, beginning with fiscal year 2020-21.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

We look forward to reviewing CDTFA's publication of fiscal year 2020-21 information.

60-Day Agency Response

While the CDTFA believes it has fulfilled the disclosure requirement of publishing Proposition 56 fund information in its Annual Report and more detailed fund information in its data portal, as required pursuant to Revenue and Taxation Code section 30130.56(c), the CDTFA has further published the amount of Proposition 56 funds received and spent for fiscal years 2017-18 through 2019-20 on its webpage at www.cdtfa.ca.gov/taxes-and-fees/prop-56-summary-rev-and-exp.htm. The CDTFA will post on its website the amount of Proposition 56 funds received, spent, and any corrections to previous fiscal year amounts within 6 months of the end of each fiscal year, beginning with fiscal year 2020-21.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

We will review CDTFA's publication of fiscal year 2020-21 information to verify that it publishes the information within 6 months of the end of the fiscal year.

Recommendation #6 To: University of California

To provide the public with relevant information and ensure the level of accountability that state law intends, each state entity that receives Proposition 56 funds should publish the following information on its website by April 2021 for fiscal years 2017-18 through 2019-20, and within six months of the end of each fiscal year, beginning with fiscal year 2020-21:

The amount of Proposition 56 funds received by each program it administers.
The amount of Proposition 56 funds spent by each program it administers.
The amount of Proposition 56 funds obligated for future expenditures by each program it administers.
Any corrections to the information it reported in previous fiscal years.

1-Year Agency Response

Two programs operated by the University of California receive tobacco tax funds under Proposition 56: the Tobacco-Related Disease Research Program (TRDRP), based within the UC Office of the President; and CalMedForce, a statewide Graduate Medical Education (GME) grant program, managed by the UC Office of the President (UC Health Division) under contract. Both programs accepted and have fully implemented this recommendation.

The required reporting information for FY 2017-18 through FY 2019-20 is posted on the public website: https://reportingtransparency.universityofcalifornia.edu/. The required reporting information for FY 20-21 was posted on the same website on December 20, 2021, thereby fully implementing the CSA recommendation.

The financial reporting will be updated by December 31 of each subsequent year by each program. The Stakeholder Reporting Policies for both programs have been submitted to the State Auditor for review.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

The University of California posted the relevant information on its website for each indicated fiscal year. We did not verify when it published this information; however, the University of California should ensure that it publishes this information within six months of the end of each fiscal year.

6-Month Agency Response

Two programs operated by the University of California receive tobacco tax funds under Proposition 56: the Tobacco-Related Disease Research Program (TRDRP), based within the UC Office of the President; and CalMedForce, a statewide Graduate Medical Education (GME) grant program, managed by the UC Office of the President (UC Health Division) under contract. Both programs accept and plan to fully implement this recommendation.

The required reporting information for FY 2017-18 through FY 2019-20 is posted on the public website: https://reportingtransparency.universityofcalifornia.edu/. The required reporting information for FY 20-21 will be posted on the same website by December 31, 2021, thereby fully implementing the CSA recommendation.

The financial reporting will be updated annually thereafter by each program. The Stakeholder Reporting Policies for both programs have been submitted to the State Auditor for review.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

We will evaluate whether the University of California has posted its fiscal year 2020-21 information within six months of the end of the fiscal year in our assessment of its one-year response, due in January 2022.

60-Day Agency Response

Two programs operated by the University of California receive tobacco tax funds under Proposition 56: the Tobacco-Related Disease Research Program (TRDRP), based within the UC Office of the President; and CalMedForce, a statewide Graduate Medical Education (GME) grant program, managed by the UC Office of the President (UC Health Division) under contract. Both programs accept and plan to fully implement this recommendation.

The required reporting information for FY 2017-18 through FY 2019-20 is posted on the public website: https://reportingtransparency.universityofcalifornia.edu/. The required reporting information for FY 20-21 will be posted on the same website by December 31, 2021, thereby fully implementing the CSA recommendation.

The financial reporting will be updated annually thereafter by each program. The Stakeholder Reporting Policies for both programs have been submitted to the State Auditor for review.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Prior to April 2021, the University of California published the amounts of Proposition 56 funds received, spent, and obligated through fiscal year 2019-20. We will review the information for fiscal year 2020-21 after the University of California publishes the information.

Recommendation #7 To: Tax and Fee Administration, California Department of

To increase the accuracy of its calculation of the tax rate for other tobacco products, CDTFA should take the following steps to update its methodology for calculating the tax by March 2021: Include nonpremium cigarettes in its calculation of the average manufacturer wholesale cigarette price.

6-Month Agency Response

The CDTFA completed its research on the wholesale cigarette industry and review of its internal cigarette data. To increase the accuracy of the other tobacco products tax rate calculation, the CDTFA has updated its data source and methodology for calculating the other tobacco products tax rate. These changes are reflected in the tobacco products tax rate beginning with fiscal year (FY) 2021-22.

In May 2020, the CDTFA implemented standardized cigarette tax reporting procedures for cigarette manufacturers, importers, distributors, and wholesalers. With this new data, the CDTFA was able to utilize the cigarette sales reported by cigarette manufacturers and importers to determine the average wholesale cost of cigarettes. This eliminated the need to use the wholesale markup percentage to determine the average wholesale cost of cigarettes, as was used in prior fiscal years. The rate calculation formula itself has not changed. The new data source is reliable, includes all classes of cigarettes (premium and nonpremium), represents the California cigarette industry, and provides the up-to-date wholesale cost of cigarettes.

The FY 2021-22 tax rate calculation has been completed and approved by the director. Taxpayers were notified of the new tax rate in May 2021.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

CDTFA's new OTP tax rate calculation addresses this recommendation. Our initial estimate suggests that the revision to the OTP tax rate calculation has increased tobacco tax revenue by roughly $24 million, which supports programs such as early childhood education, breast cancer research, and increased access to healthcare for MediCal recipients.

60-Day Agency Response

The CDTFA is conducting research on the wholesale cigarette industry and reviewing internal data to determine how to update its methodology for calculating the tax rate for other tobacco products to increase its accuracy. The CDTFA is surveying cigarette manufacturers and distributors for cigarette wholesale price/cost information.

As background, beginning with the May 2020 filing period, the CDTFA implemented standardized cigarette tax reporting procedures for cigarette manufacturers, importers, distributors, and wholesalers. The CDTFA is evaluating whether this reported cigarette data may be useful in conjunction with the existing Tobacco Merchants Association data in determining a representative average wholesale cost of cigarettes covering all cigarette brand categories (premium and nonpremium) for the tobacco products tax rate calculation.

The tax rate calculation is expected to be complete by March 31, 2021. After review and approval by the director, taxpayer notification will follow, with the rate implementation being completed by June 30, 2021.

California State Auditor's Assessment of 60-Day Status: Pending

We look forward to reviewing CDTFA's other tobacco products tax rate calculation methodology in its next response to this recommendation.

Recommendation #8 To: Tax and Fee Administration, California Department of

To increase the accuracy of its calculation of the tax rate for other tobacco products, CDTFA should take the following steps to update its methodology for calculating the tax by March 2021: Determine the current wholesale markup rate for cigarettes and use this rate when calculating the tax rate for other tobacco products.

6-Month Agency Response

The CDTFA completed its research on the wholesale cigarette industry and review of its internal cigarette data. To increase the accuracy of the other tobacco products tax rate calculation, the CDTFA has updated its data source and methodology for calculating the other tobacco products tax rate. These changes are reflected in the tobacco products tax rate beginning with fiscal year (FY) 2021-22.

In May 2020, the CDTFA implemented standardized cigarette tax reporting procedures for cigarette manufacturers, importers, distributors, and wholesalers. With this new data, the CDTFA was able to utilize the cigarette sales reported by cigarette manufacturers and importers to determine the average wholesale cost of cigarettes. This eliminated the need to use the wholesale markup percentage to determine the average wholesale cost of cigarettes, as was used in prior fiscal years. The rate calculation formula itself has not changed. The new data source is reliable, includes all classes of cigarettes (premium and nonpremium), represents the California cigarette industry, and provides the up-to-date wholesale cost of cigarettes.

The FY 2021-22 tax rate calculation has been completed and approved by the director. Taxpayers were notified of the new tax rate in May 2021.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

CDTFA's new OTP tax rate calculation addresses this recommendation. Our initial estimate suggests that the revision to the OTP tax rate calculation has increased tobacco tax revenue by roughly $24 million, which supports programs such as early childhood education, breast cancer research, and increased access to healthcare for MediCal recipients.

60-Day Agency Response

The CDTFA is conducting research on the wholesale cigarette industry and reviewing internal data to determine how to update its methodology for calculating the tax rate for other tobacco products to increase its accuracy. The CDTFA is surveying cigarette manufacturers and distributors for cigarette wholesale price/cost information.

As background, beginning with the May 2020 filing period, the CDTFA implemented standardized cigarette tax reporting procedures for cigarette manufacturers, importers, distributors, and wholesalers. The CDTFA is evaluating whether this reported cigarette data may be useful in conjunction with the existing Tobacco Merchants Association data in determining a representative average wholesale cost of cigarettes covering all cigarette brand categories (premium and nonpremium) for the tobacco products tax rate calculation.

The tax rate calculation is expected to be complete by March 31, 2021. After review and approval by the director, taxpayer notification will follow, with the rate implementation being completed by June 30, 2021.

California State Auditor's Assessment of 60-Day Status: Pending

We look forward to reviewing CDTFA's other tobacco products tax rate calculation methodology in its next response to this recommendation.

Recommendation #9 To: Tax and Fee Administration, California Department of

To ensure that the other tobacco products tax rate accurately reflects changes in the wholesale price of cigarettes, CDTFA should enact a policy to obtain the current wholesale markup rate for cigarettes no less than every three years and to incorporate this number in its calculation of the tax rate.

60-Day Agency Response

The CDTFA has instituted a policy to review and adjust, as appropriate, the wholesale markup rate for cigarettes no less than every three years and incorporate the appropriate markup rate in its calculation of the tobacco products tax rate. The policy is attached.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

CDTFA circulated a memorandum requiring its staff to obtain the current wholesale markup rate for cigarettes every three years and incorporate the number into its calculation of the tax rate.

Recommendation #10 To: Education, Department of

To ensure that it applies sufficient funding to address tobacco-related health disparities, by June 2021, Education should establish a formal procedure for meeting the requirement that it spend at least 15 percent of the Proposition 56 revenues funding its TUPE program to accelerate and monitor the rate of decline in tobacco-related health disparities.

1-Year Agency Response

Education previously provided documentation on how the 15 percent of funds will be awarded and used to accelerate and monitor the rate of decline in tobacco-related disparities in California, which was added to the CDE's TUPE procedure manual. The manual has been approved by the Division Director and shared and discussed with all relevant staff members via emails and staff meetings. The TUPE manual is also on a shared drive that is accessible to all relevant staff members. Additionally, the terms and conditions of Education's tobacco-related disparities grant have been added to the existing TUPE manual (pages 35 through 47).

Information regarding terms and conditions of the tobacco-related disparities grant have also been published on Education's web site, along with the release of the Youth Engagement to Address Tobacco-Related Disparities Request for Application, which can be found at the following locations:

rfadisparities.docx (live.com)

RFA: Youth Engagement to Address Tobacco-Related Disparities (CA Dept of Education).

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Education provided the additional information it has added to its procedure manual. This procedure directs its staff to appropriate 15 percent of the Proposition 56 funds to applications that address priority subgroups it has defined as having tobacco-related health disparities.

6-Month Agency Response

Education strengthened its existing process by documenting how the 15 percent of funds will be awarded and used to accelerate and monitor the rate of decline in tobacco-related disparities in California.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

Education did not provide a copy of the documentation it describes in its response. We will review such documentation when Education provides it, and will assess whether it has established a procedure that fully implements the recommendation.

60-Day Agency Response

Education strengthened existing processes by: 1) creating and finalizing a Proposition 56 Funding Tree, which is incorporated into the TUPE Office Manual; and 2) establishing and implementing the "Youth Engagement to Address Tobacco Related Health Disparities Grant 2019-2022," to accelerate and monitor the rate of decline in tobacco-related disparities in California in accordance with Proposition 56.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Education provided an excerpt from its 2019 office manual stating that not less than 15 percent of Proposition 56 funds will be awarded to accelerate and monitor the rate of decline in tobacco-related disparities. However, full implementation of this recommendation will require Education to establish a formal documented procedure describing how it defines and calculates the percentage of funds related to reducing tobacco related disparities. If Education proposes to meet the 15 percent requirement through use of the grant it refers to in its response, it should define how the grant will be used to accelerate and monitor the rate of decline in tobacco-related health disparities.

Recommendation #11 To: Health Care Services, Department of

To ensure that the State benefits from its use of Proposition 56 funds, Health Care Services should, by June 2021, implement a policy to establish formal processes for granting all funds, regardless of whether a program receives a one-time allocation or is ongoing. The policy should require sufficient criteria to ensure that the funds awarded provide the benefit intended by the program.

6-Month Agency Response

Department of Health Care Services has developed and approved the policy for distribution and implementation. Distribution is projected to be finalized by July 23, 2021.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Upon review of the policy DHCS provided following its 6-month response, DHCS appears to have fully implemented this recommendation to implement a policy that requires criteria that ensures it achieves its intended benefit.

60-Day Agency Response

DHCS is currently in progress on the development of the policy. Anticipated time of completion is estimated for June 2021.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #12 To: Health Care Services, Department of

To ensure that it awards funds to applicants who address the need for providers in health professional shortage areas, Health Care Services should amend its application selection process to require by June 2021 that all participants practice in geographic areas that have shortages of such health care professionals, and annually verify that participants continue to practice in such areas.

1-Year Agency Response

No change from the Six-Month update. As reported in our audit response and previous update, the statute only requires DHCS prioritize, among other things, limiting geographic shortages of services. DHCS continues to believe the current methods employed accomplish the goal, and elevating the priority of a consideration for geographic shortage areas may eliminate awards to qualified providers outside a geographic shortage area who, for example, significantly increase the provider's caseload or speak another language, which ensures more timely access or a heightened quality of care for certain beneficiaries. As such, DHCS continues to disagree with the recommendation to further emphasize or make limiting geographic shortages a program requirement. As part of the Fiscal Year 2019-20 Cohort 2 awardee process, DHCS increased utilization of additional standards for prioritization of geographic shortage. Out of the 318 Cohort 2 awardees, 252 of the awardees fall into "geographic shortage" category, or 79.2 percent of Cohort 2 awardees. For further detail, the Specialists Ratios by County utilized a data set for both adult and pediatric specialists, which included a baseline of 1 provider per 1,200 Medi Cal beneficiaries to address need. A ratio was then created with the number of active providers of eligible beneficiaries multiplied by 1,200. The Alternative Access Standards utilized a data set, which examined the average time and distance to the nearest three providers for Medi-Cal Managed Care and beneficiaries enrolled in a managed care plan.

California State Auditor's Assessment of 1-Year Status: Will Not Implement

Based on the data at our disposal, Health Care Services' decision not to implement this recommendation is not in the best interests of California residents. As the report describes, the lack of health care professionals in shortage areas has a significant impact on Medi-Cal beneficiaries who do not have adequate access to the providers they need. Health Care Services could better address this impact by prioritizing applicants in shortage areas. Further, requiring that applicants be located in a geographic area with a provider shortage would not preclude Health Care Services from taking other factors into consideration.

Health Care Services states that its current process prioritizes, among other things, limiting geographic shortages of services. However, it did not provide supporting documentation for this statement or the numbers in its response.

6-Month Agency Response

As reported in our audit response and previous update, the statute only requires DHCS prioritize, among other things, limiting geographic shortages of services. DHCS continues to believe the current methods employed accomplish the goal, and elevating the priority of a consideration for geographic shortage areas may eliminate awards to qualified providers outside a geographic shortage area who, for example, significantly increase the provider's caseload or speak another language, which ensures more timely access or a heightened quality of care for certain beneficiaries. As such, DHCS continues to disagree with the recommendation to further emphasize or make limiting geographic shortages a program requirement. As part of the Fiscal Year 2019-20 Cohort 2 awardee process, DHCS increased utilization of additional standards for prioritization of geographic shortage. Out of the 318 Cohort 2 awardees, 252 of the awardees fall into "geographic shortage" category, or 79.2 percent of Cohort 2 awardees. For further detail, the Specialists Ratios by County utilized a data set for both adult and pediatric specialists, which included a baseline of 1 provider per 1,200 Medi Cal beneficiaries to address need. A ratio was then created with the number of active providers of eligible beneficiaries multiplied by 1,200. The Alternative Access Standards utilized a data set, which examined the average time and distance to the nearest three providers for Medi-Cal Managed Care and beneficiaries enrolled in a managed care plan.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

Health Care Services' decision not to implement this recommendation is not in the best interests of California residents. As the report describes, the lack of health care professionals in shortage areas has a significant impact on Medi-Cal beneficiaries who do not have adequate access to the providers they need. Health Care Services could better address this impact by prioritizing applicants in shortage areas. Further, requiring that applicants be located in a geographic area with a provider shortage would not preclude Health Care Services from taking other factors into consideration.

Health Care Services states that its current process prioritizes, among other things, limiting geographic shortages of services. However, it did not provide support for this statement or the numbers in its response.

60-Day Agency Response

As reported in our audit response, the statute only requires DHCS prioritize, among other things, limiting geographic shortages of services. The current methods employed by DHCS accomplish the goal, and elevating the priority of a consideration for geographic shortage areas may eliminate awards to qualified providers outside a geographic shortage area who, for example, significantly increase the provider's caseload or speak another language which ensures more timely access or a heightened quality of care for certain beneficiaries. As such, DHCS disagrees with the recommendation to further emphasize or make limiting geographic shortages a program requirement. As part of the Fiscal Year 2019-20 Cohort 2 awardee process, DHCS increased utilization of additional standards for prioritization of geographic shortage. Out of the 318 Cohort 2 awardees, 252 of the awardees fall into "geographic shortage" category, or 79.2 percent of Cohort 2 awardees. The breakdown is listed below:

- 145* specialist providers paired with the specialist ratios by county shortage data

- 12* primary care providers paired with the 2018 Alternative Access Standards data

- 5* dentists matched with the Medi-Cal dentist shortage data

- 108* practice in a HPSA designated facility, region, or population served

*Note: 18 providers are included as both a HPSA and paired with one of the DHCS data provided (specialist ratios by county, Alternative Access Standards or Medi-Cal dentist shortage data)

California State Auditor's Assessment of 60-Day Status: Will Not Implement

Health Care Services' decision not to implement our recommendation is not in the best interests of California residents. As we describe in our report, the lack of health care professionals in shortage areas has a significant impact on Medi-Cal beneficiaries who do not have adequate access to the providers they need. Health Care Services could better address this impact by prioritizing applicants in shortage areas. Further, requiring that applicants be located in a geographic area with a provider shortage would not preclude Health Care Services from taking other factors into consideration.

Health Care Services states that its current process prioritizes, among other things, limiting geographic shortages of services. However, as we describe on page 25 of our report, at the time of our audit Health Care Services' deputy director of financing stated that Health Care Services had not established a process to determine whether specialist applicants are located within a shortage area—although it awarded $28.4 million to repay student loans for 121 of them. Further, the majority of the 117 primary care physicians that were awarded funds were not in areas with geographic shortages.

Although Health Care Services states that it increased the use of standards for prioritizing geographic shortages, it did not provide sufficient information to evaluate this statement. The Cohort 2 awards that it describes occurred after the period our audit reviewed, and Health Care Services did not provide information regarding the location of the awardees, or the nature of the additional standards it is using to identify shortage areas and the location of shortage areas identified through these standards. Thus, it is not possible to determine whether the Cohort 2 awards better address the need for additional providers in geographic areas with a shortage of health care professionals.

Recommendation #13 To: Health Care Services, Department of

To ensure that participants are serving the agreed-upon Medi-Cal patient caseloads, Health Care Services should finalize its formal process by June 2021 to verify the caseload percentage that participants self-report.

60-Day Agency Response

The annual review formal process was finalized and the staff were all trained by December 9, 2020. Please refer to attachments titled "Annual Reviews" and "Annual Review Policy Acknowledgement Master List," respectively.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

DHCS provided documentation of the process it established to verify the calculation of the caseload percentage that participants self-report.

Recommendation #14 To: Justice, Department of

To ensure that it awards Proposition 56 funding in accordance with the requirements in state law, Justice should implement a formal grant application review process by June 2021 that ensures that it does not award Proposition 56 funds for purposes—such as education and outreach—that are not described in the law governing its use of funds.

1-Year Agency Response

As previously reported, our position remains that because education and outreach regarding tobacco laws can be a permissible component of a tobacco law enforcement program, DOJ will continue to make tobacco grant funds available for these purposes.

California State Auditor's Assessment of 1-Year Status: Will Not Implement

Justice's position remains at odds with the direction of the law as passed by voters. As the report describes on page 20, the law requires Justice to award Proposition 56 funding to law enforcement agencies to support and hire front-line law enforcement peace officers to reduce the illegal sales of tobacco products, particularly illegal sales to minors. The activities described in the law include enforcing tobacco-related laws, increasing investigative activities, and reducing illegal sales. Rather than meeting these requirements, Justice continues to fund tobacco cessation and education programs in schools that are potentially duplicative of the funding allocated in law to the Department of Education for school programs to prevent and reduce the use of nicotine products by young people. Thus, Justice's process for awarding grants does not ensure that they are awarded exclusively for the requirements established in law.

6-Month Agency Response

Our positon remains what we have previously reported; because education and outreach regarding tobacco laws can be a permissible component of a tobacco law enforcement program, DOJ will to continue to make tobacco grant funds available for these purposes.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

Justice's position is at odds with the direction of the law as passed by voters. As the report describes on page 20, the law requires Justice to award Proposition 56 funding to law enforcement agencies to support and hire front-line law enforcement peace officers to reduce the illegal sales of tobacco products, particularly illegal sales to minors. The activities described in the law include enforcing tobacco-related laws, increasing investigative activities, and reducing illegal sales. Rather than meeting these requirements, Justice continues to fund tobacco cessation and education programs in schools that are potentially duplicative of the funding allocated in law to the Department of Education for school programs to prevent and reduce the use of nicotine products by young people. Thus, Justice's process for awarding grants does not ensure that they are awarded exclusively for the requirements established in law.

60-Day Agency Response

Because education and outreach regarding tobacco laws can be a permissible component of a tobacco law enforcement program, DOJ intends to continue to make tobacco grants for these purposes. As previously mentioned, these efforts by law enforcement agencies can help prevent illegal tobacco sales to minors in much the same way that compliance checks of retailers can help prevent such sales.

DOJ established process consistently affords the following:

- Thoughtful selection of a team of committee members who participate in scheduled formal meetings to review and score the grant applications.

- Use of scoring checklists, rubrics, benchmarks, budget worksheets and checklists by the committee for the review and approval of applications, awards, and eligible activities.

- Announcement of grants to all local law enforcement agencies.

- Assignment of grant administrators consisting of DOJ's legal and other professionals to each awarded agency for assistance with implementation, oversight and lawful expenditures at the onset of the award notification.

- Frequent phone and email communications, and site visits between grant administrators and the awarded agency to provide guidance on expenditures and implementation of their specific grant program.

- A continuous informal review processes throughout each grant life cycle.

Several of these processes (e.g., committee selection, committee review, award announcements, and site visits) are currently documented in the Tobacco Grant Handbook and/or RFP document. Specifics regarding Grant Administrator assignment, communications with grantees and continuous review throughout the grant life cycle will be incorporated in the next version of the Tobacco Grant Handbook which is anticipated to be published with the next RFP within the next 30 days.

California State Auditor's Assessment of 60-Day Status: Will Not Implement

Justice's response is misleading. Its comparison of compliance checks of retailers to the grants it awards infers that it is funding the education of retailers. In fact, it is funding tobacco cessation and education programs in schools. As the report states on page 22, Proposition 56 allocates funding to the Department of Education for school programs to prevent and reduce the use of nicotine products by young people. Further, as the report describes on page 20, the law requires Justice to award Proposition 56 funding to law enforcement agencies to support and hire front-line law enforcement peace officers to reduce the illegal sales of tobacco products, particularly illegal sales to minors. The activities described in the law include enforcing tobacco-related laws, increasing investigative activities, and reducing illegal sales. Thus, Justice's process for awarding grants does not ensure that they are awarded exclusively for the requirements established in law.

Recommendation #15 To: Public Health, Department of

To ensure that it applies sufficient funding to address tobacco-related health disparities, by June 2021, Public Health should establish a formal procedure for meeting the requirement that it award at least 15 percent of the Proposition 56 revenues funding its Tobacco Control Program to accelerate and monitor the rate of decline in tobacco-related health disparities.

6-Month Agency Response

CTCP updated its Solicitation Manual Chapter 1 in May 2021 to further identify the methodology used to categorize funding awards that accelerate reduction of tobacco-related disparities. The Solicitation Manual Chapter 1 update is provided as supporting documentation. For your reference, the Proposition 56 Tobacco-Related Disparities Policy and Procedures begins on page 8.

CTCP also updated its webpage to include the Story of Inequity and posted an interactive map of its Priority Population funded grantees at: https://www.cdph.ca.gov/Programs/CCDPHP/DCDIC/CTCB/Pages/DataHub.aspx#. The Story of Inequity website provides the progress made.

The 2019 Tobacco Facts and Figures report was the last Tobacco Facts and Figures report posted on the CTCB website. The 2020 Tobacco Facts and Figures report is scheduled to be posted later this year which will describe the efforts to monitor the rate of decline in tobacco-related disparities.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Public Health has established formal procedures that appear to implement the recommendation. However, it remains to be seen whether its funding is accelerating the rate of decline. For example, its claim that the Story of Inequity website "provides the progress made" is not substantiated by the website, which includes point-in-time statistics but fails to show progress resulting from Proposition 56 funding.

60-Day Agency Response

The California Tobacco Control Program (CTCP) updated its Solicitation Manual to incorporate its existing business practices and procedures for awarding funds in compliance with this recommendation. CTCP's Financial Management and Compliance Unit (FMCU) also completed procedures for ensuring that CTCP awards at least 15 percent of its annual revenue toward accelerating and monitoring the reduction of tobacco-related disparities. The Solicitation Manual and FMCU procedures are provided as supporting documentation.

CTCP also added a link to the Story of Inequity website on the Data Section of Public Health's California Tobacco Control Branch website at: https://www.cdph.ca.gov/Programs/CCDPHP/DCDIC/CTCB/Pages/Data.aspx. The Story of Inequity website tracks 22 tobacco-related disparity measures for eight population groups disproportionately burdened by tobacco-related disparities. The link was added to improve awareness and access to the website.

Finally, CTCP annually releases a Tobacco Facts and Figures report that summarizes California tobacco-related data. CTCP plans to add a section to this annual report that clearly describes efforts to monitor the rate of decline in tobacco-related disparities and the progress made. This is currently under development.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

The procedure Public Health describes in its solicitation manual does not appear to be sufficient to ensure that it meets the requirement that it award at least 15 percent of the Proposition 56 revenues funding its Tobacco Control Program to accelerate and monitor the rate of decline in tobacco-related health disparities. Specifically, its procedure counts a portion of the funds it awards for grants that are only partially used for priority groups. However, we are concerned that funds that do not address disparities--or differences between two groups--could be counted. For example, a grant that targets both priority and non-priority groups equally would not reduce the disparities between the groups, as required. Full implementation of this requirement should also result in a policy that addresses monitoring the results of these grants, to allow Public Health to demonstrate that its funding is accelerating the rate of decline, as required.

Recommendation #16 To: Education, Department of

To obtain its full share of the fiscal year 2017-18 Proposition 56 revenues, Education should negotiate with Finance and Public Health to ensure that it receives the full amount of its proportional share of the fiscal year 2017-18 Proposition 56 funds.

Annual Follow-Up Agency Response From October 2023

DOF determined that Education is owed $17,910,930.19 for its proportional share of 2017-18 Proposition 56 revenue. To make Education whole for this amount, transfers will occur across three fiscal years.

On January 20, 2023, DOF submitted an Executive Order transferring $15,233,233.08 from Fund 3309, the Tobacco Prevention and Control Programs Account, California Healthcare, Research and Prevention Tobacco Tax Act of 2016 Fund to Fund 3321, Education's Subaccount, Tobacco Prevention and Control Programs Account, CA Healthcare, Research and Prevention Tobacco Tax Act of 2016 Fund. The second transfer in the amount of $1,338,848.56 will occur in Fiscal Year 2023-24 and the third and final transfer in the amount of $1,338,848.55 will occur in Fiscal Year 2024-25.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Education's response indicates that the Department of Finance has begun transferring the funds owed to Education. We will assess whether this recommendation has been fully implemented after all of the transfers have been completed which, according to Education's response, will occur in Fiscal Year 2024-25.

Annual Follow-Up Agency Response From October 2022

DOF calculated Education's proportional share of fund 3309 for fiscal year 2017-18, and will transfer the amount owed into fund 3321; however, DOF is currently working on calculating revenues/expenditures for the remaining affected departments and does not have a timeline yet for when the transfer will be completed.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Education is waiting for Finance to transfer the amount owed to Education.

1-Year Agency Response

Education contacted DOF and requested a status of their analysis to determine the correct proportional shares each department was entitled to for fund 3309 for fiscal year 2017-18; DOF is continuing to finalize their analysis and any proportional shares owed to the CDE will be provided in fiscal year 2022-23.

California State Auditor's Assessment of 1-Year Status: Pending

In this response, Education indicates that the Department of Finance's timeframe for addressing this issue has shifted from fiscal year 2021-22 to 2022-23. Education did not provide an explanation for this change.

6-Month Agency Response

Education contacted DOF and requested a status of their analysis to determine the correct proportional shares each department was entitled to for fund 3309 for fiscal year 2017-18; DOF is finalizing their analysis and any proportional shares owed to the CDE will be provided in fiscal year 2021-22.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

Education met with DOF to discuss concerns regarding the proportional share of Fund 3309 received for fiscal year 2017-18 and to determine if the amount was incorrect. Once the financial statements are submitted by all departments utilizing Fund 3309, DOF will complete an analysis to determine the correct proportional shares each department was entitled to; further discussions will take place regarding the results of the analysis.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #17 To: Public Health, Department of

To reduce the risk of exceeding Proposition 56's limit on the use of funds for administrative costs, Public Health should, by June 2021, develop and implement a procedure for verifying that its combined administrative costs for its Proposition 56-funded programs do not exceed 5 percent.

60-Day Agency Response

The California Tobacco Control Program (CTCP) developed procedures for monitoring administrative expenditures. The document, Administrative Expenditure Tracking Procedures, is provided as supporting documentation.

The Office of Oral Health (OOH) developed a policy and procedures for monitoring administrative expenditures. The policy and procedures documents are provided as supporting documentation.

The Food and Drug Branch established written procedures to ensure the administrative costs do not exceed five percent (also provided).

The Financial Management Branch (FMB) has begun providing Prop 56 KK reports with pivot tables on a monthly basis beginning in February 2021 and developed procedures to fulfill this requirement. Refer to supporting document Prop 56 Expenditure FI$Cal Report.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

Recommendation #18 To: Tax and Fee Administration, California Department of

To provide public accountability for the Proposition 56 funds it receives, CDTFA should publish on its website information about the Proposition 56 funds that it receives and spends in a manner that allows the public to easily find the information and that does not restrict the public's access.

60-Day Agency Response

While the CDTFA has fulfilled the disclosure requirement of publishing Proposition 56 fund information in its Annual Report and more detailed fund information in its data portal, as required by Revenue and Taxation Code section 30130.56(c), the CDTFA has 1) removed the terms of use agreement from the data portal, and 2) created a separate webpage at www.cdtfa.ca.gov/taxes-and-fees/prop-56-summary-rev-and-exp.htm specifically to publish Proposition 56 funds. These improvements remove all barriers, restrictions and limitations to the public's ability to easily find and access the amount of Proposition 56 funds received and spent.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

Recommendation #19 To: Tobacco Education and Research Oversight Committee

To ensure that the Legislature has the knowledge necessary to make informed decisions about tobacco tax-funded programs, TEROC should produce the annual report each year, as state law requires.

60-Day Agency Response

On December 31, 2020, TEROC Chair Dr. Michael Ong emailed TEROC's 2020 Annual Report to the Legislature to Assembly Speaker Anthony Rendon and Senate President pro Tempore Toni Atkins. Two copies of the 2020 annual report, addressed to both Speaker Rendon and Senator Atkins, are submitted for supporting documentation. This report includes information on:

a) A description and assessment of programs funded by Propositions 99 and 56, specifically CDPH/CTCP, CDE/Tobacco-Use Prevention Education (TUPE), and UC/Tobacco-Related Disease Research Program (TRDRP);

b) The number and amount of programs funded by the Health Education Account created by Section 30122 of the Revenue and Taxation Code, specifically CDPH/CTCP and CDE/TUPE;

c) The amount of money in the account and any moneys previously appropriated by CDPH/CTCP, CDE/TUPE, and the UC/TRDRP but unspent by the departments;

d) Recommendations for necessary policy changes or improvements for tobacco education programs. The information in this report was taken from the 2019-2020 California Governor's Budget.

To comply with state law, TEROC will continue to submit its annual report to the legislature on or before December 31 of each year. The annual report for 2021 will be developed and submitted after the Governor's May Revise so as to report the most accurate numbers for CDPH/CTCP, CDE/TUPE and UC/TRDRP in 2021 and subsequent years.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

TEROC's publication of the annual report on an annual basis addresses our recommendation. However, some of the information that it provided is of little value. Specifically, it did not publish in its annual report actual amounts received or spent for the two most recent fiscal years. Instead, it provided estimates from the State budget. Thus, the information TEROC published for the most recently concluded fiscal year is significantly out of date. Further, because TEROC is providing budgeted numbers rather than actuals, the information conflicts with the information that state agencies are publishing on their websites.

Recommendation #20 To: Tobacco Education and Research Oversight Committee

To ensure that it is meeting the Legislature's expectations, TEROC should either provide the master plan to the Legislature every two years, as state law requires, or seek legislative change to reduce the frequency with which it is required to produce the master plan.

6-Month Agency Response

TEROC has pulished its two year plan. The dates covered are 2021-2022, with the next plan to cover 2023-2024.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

TEROC issued its master plan for 2021-2022 as recommended, but a brief review of the plan suggests that TEROC did not address all of the required elements. For example, the plan lacks implementation strategies and progress reports for all target populations, both of which are required by law. TEROC should review the relevant requirements and ensure that its next master plan addresses each of the elements required by law.

60-Day Agency Response

To comply with state law, TEROC will produce and submit its master plan to the Legislature biennially so that subsequent master plans will cover two calendar years. TEROC is in the final production stages for the 2021-2022 Master Plan, which will be published online and mailed to the offices of each California State Senator and Assemblymember by April 2021. This plan will cover the period of 2021-2022. The next two-year plan will be released in early 2023 to cover the period of 2023-2024. For future plans, TEROC will modify the process for writing and disseminating the plan to ensure that it is released biennially, and will consider releasing a shorter report every two years and a longer report once every ten years.

California State Auditor's Assessment of 60-Day Status: Pending

We look forward to reviewing TEROC's master plan upon its completion and submission.

All Recommendations in 2019-046

Agency responses received are posted verbatim.