California Auditor Blasts Court Bureaucracy Over $120M Gone Unreported

SACRMAENTO, Calif. (CN) – The council that supervises California’s sprawling court system flouted procurement rules and bypassed controls intended to reduce the risk of fraud, according to a state auditor’s report. The Judicial Council’s trouble with a new accounting program also caused thousands of recent payments worth $120 million to go unreported to the Legislature.

The seal of the Judicial Council of California, the policymaking body of the California courts. (Photo the Judicial Council of California via YouTube)

California State Auditor Elaine Howle says recent mandatory reports that provide lawmakers with a snapshot of the council’s contracting activities were incomplete while unauthorized supervisors approved five new deals ranging from $570,000 to $2.7 million over the last two years.

Thursday’s report comes exactly two years after Howle blasted the council for ignoring judicial branch policy and for similarly allowing supervisors to sign off on high-dollar contracts without permission.

Howle says the lack of oversight increases the risks of bad or inappropriate procurements being signed and paid for with taxpayer dollars and that the council should “immediately” update its approval process.

“Without obtaining the appropriate approvals, the Judicial Council bypassed one of the controls intended to reduce the risk of fraud and ensure the Judicial Council only procures appropriate goods and services at the best value,” the audit states.

The council is legally required to submit reviews to the Legislature and the state auditor every six months and detail its contract procurements, amendments and payments. The information is separated into two groups: the 58 superior courts make up one group, with non-superior courts which include the Supreme Court, appeals courts, the council itself and the Habeas Corpus Resource Center falling in the second.

The problem with the last two years of reporting, Howle says, was with the non-superior court updates as they were missing about 20% of payments.

She estimates the report covering July through December 2018 was missing 2,200 payments totaling $46 million, and the January through June 2019 edition left out nearly 2,800 transactions worth $74 million.

In response to the audit, the council pins the blame for the missing information on its transition to a new and still developing accounting program called FI$Cal.

The council says the missing transactions were included in its reports, but that the publicly available FI$Cal website doesn’t provide current payment information. It cited a flaw with the website that only allows transactions older than 60 days to be viewed as the reason for the huge discrepancy.

Millicent Tidwell, the council’s chief deputy director, called the omissions unintentional and said the transition to FI$Cal has been challenging.

“It resulted in numerous changes to our internal policies and practices,” Tidwell said in a response letter. “At the time we prepared our semiannual reports, staff were unaware of any delays between our entry of payments data into FI$Cal and when that data would subsequently become available to the public on FI$Cal’s website.”

State agencies’ problems switching to the $1 billion accounting program have been well documented; Howle highlighted other lingering budget and implementation problems in an audit of FI$cal this week.

But Howle pushed back on the council’s claim that staff was unaware of the delays. She says the council’s semiannual reports for 2018-19 had a disclaimer that procurement and payment data older than 60 days could be viewed on FI$Cal’s website.

As she did in 2017, Howle accused the council of skirting approval guidelines for major contracts.

Of 10 new deals with costs greater than $500,000 signed between July 2017 and June 2019, five were approved by unauthorized supervisors. According to Howle, the costly procurements were for software products, court-appointed legal counsel and dues to the nonprofit National Center for State Courts.

“When the Judicial Council’s staff does not obtain approval for procurements from the appropriate individuals, it increases the possibility of misuse of public funds,” Howle said.

In preparing the audit, Howle says she checked with the procurement manager and that he would have approved the deals if they were brought up the ladder as they should have.

The procurement manager says the errors were made because of mid-level management vacancy and that he talked with the supervisors and sent out an email reminding council staff of the procurement policy.

Again, Howle was unconvinced and noted that the council is a repeat offender.

“We question whether a discussion with staff and an email reminder will adequately address the issue because we reported a similar finding in our 2017 audit,” Howle continued.

Howle recommends that in order to ensure accurate information is delivered to the Legislature, the council should create an alternative reporting system that outlines the payments that aren’t immediately listed on FI$Cal. She also advises the council to update its process to give managers final say over procurements.

John Wordlaw, chief administrative officer for the council, said the audit and its recommendations are helpful.

“The Judicial Council’s staff will be initiating ongoing discussions with the Department of FI$Cal to determine how we can improve and best meet our obligations to report contract data and related vendor payments,” Wordlaw said in a statement. “After consulting with FI$Cal, we will either alter how we prepare our semi-annual reports or seek statutory changes that align with FI$Cal’s reporting capabilities.”

It wasn’t all bad news for the council, as Howle found “no reportable concerns” for many of the audit’s main objectives. Auditors tested 40 random procurements and found they were all competitively bid and there were no found cases of splitting contracts to avoid bidding laws. They also found that the council’s contracting manual and bidding process is consistent with state law.

Director Tidwell said the relatively few recommendations by the auditor are “positive reflections of the hard work and professionalism of the Judicial Council’s contracting and procurement staff” and that it will “carefully consider” the suggestions.

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