jurisdiction: US

text: b' FOOD AND NUTRITION SERVICE\n CHILD AND ADULT CARE FOOD PROGRAM\n REVIEW OF STATE AGENCY OVERSIGHT\n STATE OF CALIFORNIA\n AUDIT REPORT NO. 27601-6-SF\n\n MARCH 1999\n\n\n\n\nUNITED STATES DEPARTMENT OF AGRICULTURE\n OFFICE OF INSPECTOR GENERAL - AUDIT\n WESTERN REGION\n 600 HARRISON STREET, SUITE 225\n SAN FRANCISCO, CA 94107\n\x0c UNITED STATES DEPARTMENT OF AGRICULTURE\n OFFICE OF INSPECTOR GENERAL\n Western Region - Audit\n 600 Harrison Street, Suite 225\n San Francisco, California 94107-1370\n TEL: 415-744-2851 FAX: 415-744-2871\n\n\n\n DATE: March 16, 1999\n\nREPLY TO\nATTN OF: 27601-6-SF\n\nSUBJECT: Child and Adult Care Food Program\n Review of State Agency Oversight\n State of California\n\n TO: Allen Ng\n Regional Administrator\n Western Region\n Food and Nutrition Service\n\n\nThis report presents the results of our audit of the State of California\noversight of the Child and Adult Care Food Program. Your written response to the\ndraft report is included as exhibit F to the report. For acceptance of your\nmanagement decisions on the report\xe2\x80\x99s recommendations, please provide the\ninformation described in the OIG Position sections of the report.\n\nIn accordance with Departmental Regulations 1720-1, please furnish a reply within\n60 days describing the corrective action taken or planned and the timeframes for\nimplementation of these recommendations. Please note that the regulation\nrequires a management decision to be reached on all findings and recommendations\nwithin a maximum of 6 months from report issuance.\n\nThe Office of the Chief Financial Officer (OCFO), U.S. Department of Agriculture,\nhas responsibility for monitoring and tracking final action for the findings and\nrecommendations. Follow your internal agency procedures in forwarding final\naction correspondence to OCFO.\n\nWe appreciate the cooperation and assistance provided by your staff during our\naudit.\n\n\n\n\nSAM W. CURRIE\nRegional Inspector General\n for Audit\n\x0c EXECUTIVE SUMMARY\n FOOD AND NUTRITION SERVICE\n CHILD AND ADULT CARE FOOD PROGRAM\n REVIEW OF STATE AGENCY OVERSIGHT\n STATE OF CALIFORNIA\n AUDIT REPORT NO. 27601-6-SF\n\n\n\n This report presents the results of\n our review of the State of\nPURPOSE California\xe2\x80\x99s oversight of the Child\n and Adult Care Food Program\n (CACFP). Our purpose was to\ndetermine why the State\xe2\x80\x99s oversight function had not detected\nand prevented the significant program abuses by CACFP sponsors\nthat had been disclosed in a series of OIG audits and\ninvestigations.\n\nDue to the serious problems found in the CACFP in California\nwe are issuing this report at this time to alert the Food and\nNutrition Service (FNS) that it needs to increase its\noversight and presence in the State to ensure that the State\nagency is capable of restoring integrity to the CACFP. We\nplan to issue additional State agency reports including a\nreview of 2-percent fund expenditures charged to the CACFP by\nthe State agency and a review of the quality of the audit and\nreview work conducted by the State agency.\n\nIn California, the FNS Western Regional Office administers the\nprogram through an agreement with the California Department of\nEducation (CDE). Program regulations require CDE to provide\nsufficient consultative, technical, and managerial personnel\nto administer the program, provide sufficient technical\nassistance to institutions, and monitor performance to\nfacilitate operation of the program. CDE\xe2\x80\x99s oversight\nresponsibilities include reviewing and approving sponsors\xe2\x80\x99\nbudgets, conducting administrative reviews of sponsor\nactivities, and conducting audits or reviewing audit reports\nconducted by independent CPA firms.\n\nAs of February 16, 1999, we had in process or had completed\naudits or investigations of 10 sponsors of providers and day\ncare centers participating in the CACFP. These sponsors were\nselected for review based on a problem sponsor profile we\ndeveloped and referrals from FNS, CDE, or other sources\n(whistleblower complaints, audit leads, etc.) In FY 1996, the\n10 sponsors received about 20 percent of California CACFP\n\n\n\n\n - i -\n\x0c funds expended for provider/center meal reimbursement, program\n administration, and cash in lieu of commodities.\n\n Based on our completed and ongoing\n audits and investigations, we\nRESULTS IN BRIEF concluded that CDE has been\n negligent in its administration of\n the CACFP. We found a high\n incidence of fraud and abuse in the program in California.\n Some cases we investigated have already resulted in\n prosecutions and the sentencing of the sponsor officials. In\n one case, a Field Services Unit manager for CDE was directly\n involved in the fraud. We concluded that FNS needs to\n increase its presence in the State program to ensure that the\n CDE is capable of restoring integrity to the CACFP.\n\n We found serious program irregularities at all 10 sponsors we\n reviewed. These irregularities included submission of false\n information to the State agency, failure to maintain adequate\n records, failure to disburse payments to facilities in\n accordance with management plans, and various schemes to\n divert program funds to the personal enrichment of the\n sponsors.\n\n It was CDE\xe2\x80\x99s responsibility to review the activities of\n sponsors and to enforce compliance with program regulations.\n CDE was required to declare that non-compliant sponsors were\n seriously deficient and terminate the sponsor from the program\n if the sponsor could not bring the program into compliance.\n CDE had not found any of the ten sponsors to be seriously\n deficient. However, we concluded that all 10 sponsors were\n seriously deficient, and to date four have been terminated as\n a result of our work.\n\n Eight of the ten sponsors also have been or are being\n investigated for program fraud. Suspected fraudulent\n activities include charging ineligible costs to the program,\n listing fictitious employees and providers, and diverting\n program funds for nonprogram purposes. Participants at three\n sponsors have already admitted to or have been convicted of\n program fraud:\n\n - A husband and wife who owned and operated a sponsorship\n were arrested and charged in a 23-count Federal\n indictment charging conspiracy, perjury, obstruction of\n justice, and mail fraud. Also, three of their employees\n pled guilty to mail fraud and have been sentenced.\n\n - The husband and wife who owned and operated another\n sponsorship were sentenced to over 2 years in Federal\n prison for program fraud and ordered to pay the\n Government $2.2 million in restitution.\n\n\n\n\n - ii -\n\x0c- A former program manager for another sponsor and her\n accomplice pled guilty to conspiring to create a\n fictitious child care provider and illegally obtain over\n $23,000 in CACFP funds. They were each sentenced to 3\n years probation and 6 months in a home detention\n program.\n\nAs part of our individual sponsor audits, we also completed\nunannounced reviews at 752 homes and day care centers. We\nattempted over 1,000 reviews but many sites were no longer\nparticipating in the CACFP even though CDE records indicated\nthat they were still active. Of the 752 sites visited, 66\npercent had discrepancies of some form. In some cases, the\nsites claimed meals served to more children than were present\nduring our visits. In most cases, the sites\xe2\x80\x99 meal service\nrecords were too unreliable to support the claims. Because of\nthe poor conditions of these records, it was impossible for us\nto determine if the CACFP was accomplishing its intended\npurpose: to provide nutritious meals to children in day care.\nWe also reported health and safety issues to the local\nauthorities.\n\nWe concluded that many of the problems we found with the\nsponsors should have been detected by CDE. The three\nmanagement tools used by CDE to provide oversight of sponsor\nactivities--budget review and approval, administrative review,\nand sponsor audits--had not been used effectively. For\nexample, suspicious budgetary information provided by sponsors\nwas not questioned, CDE audits did not find discrepancies that\nwere readily detectable, and no followup actions were taken\nwhen questionable activities were noted during administrative\nreviews or audits.\n\nOne primary cause of CDE\xe2\x80\x99s lack of effectiveness in preventing\nand detecting problems in the CACFP is the organizational\nstructure of its oversight function. We found that the units\nwithin CDE responsible for the CACFP displayed a lack of\ncoordination necessary to properly administer the program.\nThe External Audit Unit did not use the results of the\nadministrative reviews conducted by the Field Services Unit\nduring its audits, and the External Audit and Field Services\nUnits did not issue their audit and administrative reports to\nthe Programs Unit who would normally act on the audit findings\nand recommendations.\n\nOne reform we believe CDE can make to improve its oversight is\nto establish a universe of high-risk sponsors based on a\n"profile" or set of characteristics shared by sponsors found\nengaging in irregularities. We developed such a profile\nduring our fieldwork and were able to target those sponsors we\nregarded as potential problems. With such a profile, CDE can\nlikewise concentrate its resources to intensify oversight\nwhere it is most needed.\n\n\n\n\n - iii -\n\x0c During our audit, CDE submitted a list to FNS of 29 key\n actions which, if implemented, CDE believed would address some\n of our issues reported during our audit. While we support the\n action plan, we believe additional steps must be taken to\n improve CDE\xe2\x80\x99s oversight of the CACFP. At the time of our\n audit, many of the 29 points had not been implemented, and\n many of the planned actions did not directly address the\n CACFP.\n\n In our opinion, several recent steps taken by CDE should help\n improve the CACFP in California. Effective October 1, 1998,\n CDE reduced the maximum allowable amount that sponsors of day\n care centers\xe2\x80\x99 food reimbursement to cover the sponsors\xe2\x80\x99\n administrative costs. Previously the maximum was 30 percent\n but it has been reduced to 15 percent. Also, CDE reorganized\n its audit function. The audit unit is now independent from\n the Child Nutrition and Food Distribution Division. The\n Audits and Investigations Division reports directly to the CDE\n General Counsel who reports to the Chief Superintendent of\n Public Instruction.\n\n Audits and investigations are continuing on some of these\n sponsors, and individual audit reports will be issued for all\n of them. Although audit and investigative work on some\n sponsors has not been completed, we are issuing this audit\n report at this time to facilitate timely improvements to this\n important feeding program.\n\n We recommend that FNS work with CDE\n to identify its high-risk sponsor\nKEY RECOMMENDATIONS universe and direct its resources\n to those sponsors who fit the\n problem sponsor profile presented\n in this report. Also, instruct the CDE to establish a process\n which ensures coordination between the Child and Adult Care\n Food Program units. In addition, FNS should instruct CDE to\n develop formal procedures to ensure corrective actions\n recommended in administrative reviews and audit reports are\n implemented by the sponsors, thoroughly review each sponsor\xe2\x80\x99s\n budget and obtain support for all questionable amounts listed\n on the budget, and allow only one day care home agreement per\n sponsor.\n\n In its February 3, 1999, written\n response to the draft report, FNS\n AGENCY POSITION agreed with our audit results and\n recommendations. The response is\n incorporated, along with our\n position, in the Findings and Recommendations section of this\n report. The full text of FNS\xe2\x80\x99 response is included as exhibit\n F.\n\n\n\n\n - iv -\n\x0cTABLE OF CONTENTS\n\nEXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . i\n\n\nINTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1\n BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1\n\n OBJECTIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2\n\n SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2\n\n METHODOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3\n\n\nFINDINGS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . 4\n\nI. FNS NEEDS TO TAKE IMMEDIATE ACTION TO RESTORE INTEGRITY TO\n CALIFORNIA\xe2\x80\x99S CHILD AND ADULT CARE FOOD PROGRAM . . . . . . . . . . . 4\n\n FINDING NO. 1 Unscrupulous Sponsors Eluded CDE Detection for Years . 5\n\n Recommendations . . . . . . . . . . . . . . . . . . . 15\n\n FINDING NO. 2 CDE Was Negligent in Fulfilling its CACFP\n Oversight Responsibilities . . . . . . . . . . . . . 16\n\n Recommendations . . . . . . . . . . . . . . . . . . . 28\n\n\n\nEXHIBITS\n A - SUMMARY OF AUDITS AND INVESTIGATIONS IN CALIFORNIA . . . . 31\n\n B - CHARACTERISTICS OF SPONSORS DETERMINED TO BE SERIOUSLY\n DEFICIENT . . . . . . . . . . . . . . . . . . . . . . . . . 32\n\n C - CACFP MANAGEMENT ALERTS ISSUED . . . . . . . . . . . . . . 33\n\n D - RESULTS OF PROVIDER VISITS . . . . . . . . . . . . . . . . 34\n\n\n\n\n - v -\n\x0cTABLE OF CONTENTS\n\n E - CDE\xe2\x80\x99S KEY ACTIONS . . . . . . . . . . . . . . . . . . . . . 35\n\n F - FNS\xe2\x80\x99 WRITTEN RESPONSE TO THE DRAFT REPORT . . . . . . . . . 37\n\n\n\n\n - vi -\n\x0c INTRODUCTION\n\n\n The Child and Adult Care Food\n Program (CACFP) is designed to\n BACKGROUND ensure that children and senior\n citizens in day care facilities\n receive nutritious meals. Program\n funding nationwide for fiscal year 1996 was $1.58 billion.\n For fiscal year 1997, the appropriation was increased by about\n 10 percent to $1.74 billion.\n\n The program is administered at the Federal level by the Food\n and Nutrition Service (FNS) and at the State level by a State\n agency, except in Virginia, where it is directly administered\n by FNS. State agencies administer their programs through\n public or nonprofit sponsoring organizations which act as a\n liaison between the State agency and participating day care\n facilities. Sponsors are ultimately responsible for program\n operations in those facilities.\n\n Day care facilities participating in the program receive\n reimbursement for meals meeting specified nutritional\n requirements. Facilities eligible to participate include day\n care homes (homes) or child care centers (centers). A home is\n a day care facility located in a private residence. The\n operator of the home is referred to as the "provider." A\n child care center is operated by a public or private nonprofit\n organization, is licensed to provide child care, and primarily\n serves pre-school children. Homes and centers must be\n licensed by a State or local licensing authority.\n\n Under Title 7 Code of Federal Regulations (CFR) 226.4(h)\n funding is authorized to States specifically for the purpose\n of conducting audits and administrative reviews of\n institutions. These funds are designated to pay the cost of\n required organizationwide or program-specific audits of\n institutions. 7 CFR 226.6(l) also specifies that State\n agencies perform administrative reviews of sponsors on a\n periodic basis.\n\n Administrative reviews and audits examine some of the same\n program compliance areas. An administrative review performed\n by the California Department of Education (CDE) Field Services\n Unit evaluates eligibility and meal requirement compliance.\n However, an audit is performed by the External Audit Unit or\n an independent certified public accountant (CPA) in accordance\n with Government auditing standards (GAS) and is larger in\n scope than an administrative review.\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 1\n\x0c The CDE had the responsibility to monitor the CACFP on behalf\n of FNS. Within CDE, the External Audits Unit, Field Services\n Unit, and Program Unit were all involved in the monitoring\n process. The External Audit Unit conducted audits to\n determine sponsor\xe2\x80\x99s compliance with program requirements. The\n Field Services Unit performed administrative reviews to verify\n the sponsor\xe2\x80\x99s latest meal claim reimbursement and review the\n most current month of operations. In addition to budget\n approval, the Programs Unit approved sponsor applications,\n interacted with sponsors on a daily basis, provided technical\n assistance, and had the authority to take administrative\n action against a sponsor.\n\n In terms of program expenditures, California has the largest\n CACFP program in the nation. In fiscal year 1996, program\n expenditures in California were about $176 million of total\n program expenditures of about $1.46 billion, or about 12\n percent of the program. As of March 1997, California had\n direct agreements with 503 day care centers, 14 sponsors of\n after school care, 100 sponsors of day care homes only, 6\n sponsors of day care centers only, and 10 sponsors of both\n homes and centers. Approximately 400,000 children are\n enrolled in the CACFP in California.\n\n Our audit objectives were to (1)\n report the serious sponsor abuses\n OBJECTIVES prevalent in the CACFP in\n California, and (2) determine why\n the State\xe2\x80\x99s oversight function had\n not detected and prevented the significant program abuses that\n had been disclosed in a series of OIG audits and\n investigations.\n\n The scope of our review was the CDE\n oversight of sponsors participating\n SCOPE in the CACFP. As of February 16,\n 1999, we had in process or had\n completed audits and/or\n investigations of 10 sponsors of providers and day care\n centers participating in the CACFP. These 10 sponsors\n received $45.3 million of the total $246.7 million in meal\n reimbursement, administrative program funds, and cash in lieu\n of commodities for fiscal years 1996 and 1997 paid to sponsors\n of day care homes and centers. The sponsors were selected for\n an audit, and if necessary, an investigation based on a\n problem sponsor profile we developed and referrals from FNS,\n CDE, or other sources (whistleblower complaints, audit leads,\n etc.).\n\n We selected audit reports and administrative review reports\n for these ten sponsors to determine if CDE and/or CPA\xe2\x80\x99s\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 2\n\x0c discovered the same type of problems we encountered with these\n sponsors.\n\n Audit work was performed from January 1996 through August 1998\n at the FNS Regional Office in San Francisco, California; the\n CDE in Sacramento, California; at sponsors offices in Visalia,\n Long Beach, Pasadena, Inglewood, Yucca Valley, Diamond Bar,\n Reedley, Fallbrook, Pomona, and Thousand Oaks, California.\n\n The audit was conducted in accordance with the U.S. General\n Accounting Office\xe2\x80\x99s "Government Auditing Standards (1994\n Revision)."\n\n To accomplish our objectives and\n support our findings, we performed\n METHODOLOGY the following steps:\n\n\n At the CDE, we evaluated program oversight to determine the\n effectiveness of the budget process, administrative\n reviews, and audits.\n\n At the CDE, we also (1) reviewed program files for each of\n the ten sponsors, and (2) interviewed program staff to\n determine the universe of sponsor data.\n\n We examined audit reports and administrative reviews to\n determine if the CDE and/or CPA discovered the same types\n of problems we discovered in our audits.\n\n We interviewed the sponsor\xe2\x80\x99s staff to obtain an\n understanding of their operating procedures. We also\n reviewed their supporting documentation for claims for meal\n reimbursement and administrative expenditures.\n\n We judgmentally selected homes or centers operating under\n the sponsor and completed reviews at the provider sites.\n Criteria for the judgmental sample were as follows: (1)\n providers with a high reimbursement, (2) providers with\n high enrollment, and (3) providers who consistently claim\n the same number of children for meals.\n\n At each of the homes or centers, we interviewed providers\n or other persons present, and reviewed their records.\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 3\n\x0c FINDINGS AND RECOMMENDATIONS\n\n\n I. FNS NEEDS TO TAKE IMMEDIATE ACTION TO RESTORE INTEGRITY\n TO CALIFORNIA\xe2\x80\x99S CHILD AND ADULT CARE FOOD PROGRAM\n\n\n Based on our completed and ongoing audits and investigations\n of individual day care sponsors, we concluded that CDE has\n been negligent in its administration of the CACFP. We found\n a high incidence of fraud and abuse in the program in\n California. Some cases we investigated have already resulted\n in prosecutions and the sentencing of the sponsor officials.\n In one case, a Field Services Unit manager for CDE was\n directly involved in the fraud. We concluded that FNS needs\n to increase its presence in the State program to ensure that\n the CDE is capable of restoring integrity to the CACFP.\n\n We found serious program irregularities at all 10 sponsors we\n reviewed. Serious deficiencies are considered grounds for\n termination from the program. These deficiencies include\n submission of false information to the State agency, failure\n to maintain adequate records, and failure to disburse payments\n to facilities in accordance with management plans.1\n\n Four of the ten sponsors we audited have been terminated from\n participating in the CACFP, and the State agency is initiating\n the termination of a fifth sponsor. Additionally, eight of\n these sponsors are being investigated for program fraud.\n Fourteen individuals have been indicted for program fraud, and\n 9 of the 14 have pled guilty.\n\n Most of the problems we found with the sponsors should have\n been detected by CDE. CDE was not fulfilling its oversight\n responsibilities to maintain the integrity of the program.\n CDE had at its disposal several management tools--including\n budget reviews, administrative reviews, and sponsor audits--\n that could have been used to alert State managers to potential\n problem areas. However, these tools were either not used or\n were not used to any consequence.\n\n For the 10 sponsors we audited, the reviews and audit that CDE\n performed and the audits it had contracted with CPA firms to\n perform consistently found few problems in sponsor operations,\n even though the irregularities we found were readily\n\n\n\n\n 1\n 7 CFR 226.6 (c), dated January 1, 1995.\n\n\n\nUSDA/OIG-A/27601-6-SF Page 4\n\x0c detectable through normal auditing procedures and had been\n ongoing for years under CDE\xe2\x80\x99s oversight. In those cases we\n reviewed, in which CDE did detect irregularities, it failed to\n act.\n\n We are recommending that FNS involve itself directly in CDE\xe2\x80\x99s\n program activities to increase the effectiveness of the\n State\xe2\x80\x99s oversight. One measure we believe FNS and CDE can\n take to reform State oversight is to establish a universe of\n high-risk sponsors based on the characteristics we observed in\n the sponsors we found engaged in irregularities. With such a\n universe, CDE can concentrate its resources to intensify\n oversight where it is most needed.\n\n In the following two findings, we (1) summarize the results of\n the CACFP audits we performed in California and describe the\n sponsor characteristics or "profile" that emerged from those\n audits, and (2) identify the tools CDE had at its disposal but\n failed to use to enforce program integrity.\n\n OIG audits and investigations\n disclosed widespread fraud and abuse\n FINDING NO. 1 in the CACFP in California. Much of\n the abuse had existed for a number\n UNSCRUPULOUS SPONSORS of years. This was caused in part\n ELUDED CDE DETECTION FOR because of ineffective reviews and\n audits being conducted by either CDE\n YEARS or the CPA firms that CDE had\n contracted with. We concluded that\n CDE needs to develop a profile of\n the characteristics common to problem sponsors and target\n these sponsors for indepth audits. We developed such a\n profile during our review and found that all 10 of the\n sponsors met one or more of the elements of the profile.\n\n In 1996, we initiated an extensive audit of private, nonprofit\n sponsors participating in the CACFP in California. This audit\n was conducted because a review of another sponsor we performed\n in response to a whistleblower complaint demonstrated that the\n potential existed in the State for other sponsors to be\n seriously deficient. The work in California was the precursor\n of our national initiative (Operation Kiddie Care) to identify\n problem sponsors participating in this program.\n\n So far, the results of our sponsor audits and investigations\n in California have been significant. As stated previously, we\n found program irregularities at all 10 sponsors we reviewed.\n These 10 sponsors annually received approximately $22.6\n million in meal reimbursement, administrative program funds,\n and cash in lieu of commodities. The deficiencies included\n lack of recordkeeping, claims for unsupported and ineligible\n costs, lack of provider training and monitoring, and numerous\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 5\n\x0c health and safety violations which were reported to the local\n authorities.\n\n The results of each sponsor audit will be reported in\n individual audit and/or investigation reports. While some of\n these reports are not yet final, and more audits are\n anticipated, the following audit reports have been issued or\n are in process of being issued at this time:\n\n\n Audit\n Audit Number Sponsor Report\n Issued\n\n 27010-02-SF Angela\xe2\x80\x99s Angels Preschool, Inc. Yes\n 27010-04-SF Pacific Asian American Family Care,\n Inc. Yes\n 27010-09-SF Community Business Improvement\n Association, Inc. Yes\n 27010-11-SF Aladdin Child Care Services, Inc. Yes\n 27010-13-SF Children\xe2\x80\x99s Spectrum Child Care\n Services, Inc. Yes\n 27010-14-SF A Perfect Balance, Inc. Yes\n 27010-15-SF Sponsor A. No\n 27010-16-SF Sponsor B. No\n 27010-17-SF Sponsor C. No\n Unassigned Sponsor D. No\n\n The sponsors were able to abuse the program in several ways,\n including submitting false claims for fictitious providers,\n employees, and businesses, and by using program funds to pay\n for personal expenses such as vacations, food, clothing,\n tuition, and vehicles. Additionally, administrative funds\n were inappropriately used to pay rent for buildings owned by\n related parties.\n\n We developed a profile because some sponsors that engaged in\n irregular activities exhibited certain shared characteristics.\n They were more apt to be family-run operations than\n organizations that employed nonfamily members. Seven of the\n ten sponsors we found deficient were family-run operations.\n\n Similarly, we found problems with sponsors whose officials\n held outside employment, or whose only source of funding was\n the CACFP. Officials with outside employment have been found\n to neglect their sponsorship duties while claiming their\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 6\n\x0c salaries as sponsor officials. Officials for 6 of the 10\n sponsors with serious program irregularities held outside\n employment; 9 of the 10 sponsors derived their income solely\n from CACFP funding.\n\n Another characteristic that problem sponsors often seem to\n have in common is their claim for the maximum administrative\n expenses allowable for sponsoring child care centers. The\n State of California allows sponsors of child care centers to\n reimburse themselves for administrative expenses by\n withholding up to 30 percent of the centers\xe2\x80\x99 food cost\n reimbursements. Five of the ten sponsors we reported on were\n withholding the full 30 percent.\n\n Exhibit B identifies the common characteristics that the\n problem sponsors exhibited.\n\n The following is a summary of the individual audits and\n investigations of CACFP sponsors in California:\n\n Angela\xe2\x80\x99s Angels Preschool, Inc. (Report Issued August 1996)\n\n Angela\xe2\x80\x99s Angels Preschool, Inc. (Angela\xe2\x80\x99s Angels) of\n Visalia, California, was the first CACFP sponsor we\n reviewed and was the precursor to our nationwide review of\n CACFP sponsors. FNS referred this sponsor to us based on\n an anonymous complaint received by another State agency and\n passed along to CDE. During our review we noted that the\n sponsor was a family-run operation, received only CACFP\n funding, and was claiming 30 percent of its centers\xe2\x80\x99 food\n costs for administrative expenses.\n\n Based on our audit results, the sponsor was found to be\n seriously deficient in administration of the CACFP and was\n terminated from the program. The sponsor\xe2\x80\x99s onsite reviews\n of its providers were not thorough, were always announced\n in advance, and all required reviews were not conducted.\n The sponsor did not keep accurate and complete records and\n did not adequately review and verify the provider\xe2\x80\x99s claims\n for reimbursement prior to payment. The sponsor also did\n not timely disburse program funds to providers as required.\n\n This sponsor is under investigation for defrauding the\n program of over $340,000 from USDA and CDE. The husband\n and wife who owned and operated the business were arrested\n and charged in a 23-count Federal indictment. The charges\n included conspiracy, perjury, obstruction of justice, and\n mail fraud.\n\n It is alleged that the couple paid themselves\n reimbursements for meals claimed on behalf of providers who\n no longer participated in the program, paid meal\n reimbursements to full-time employees based on false claims\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 7\n\x0c which the employees submitted, and created false home\n inspection reports to conceal the fact that employees were\n not making required home inspection visits.\n\n Three of Angela\xe2\x80\x99s Angels employees have pled guilty to mail\n fraud associated with the submission of false day care home\n provider claims. They were sentenced to 5 years probation\n and 90 days home detention, and also ordered to pay USDA\n $12,000 in restitution.\n\n Angela\xe2\x80\x99s Angels had been engaging in the activities with\n which it is charged since 1989. In September 1995, CDE\n issued an audit report on this entity covering fiscal years\n (FY) 1992-1993 and issued an unqualified opinion.\n\n Pacific Asian American Family Care, Inc. (Report Issued in\n August 1997)\n\n We reviewed Pacific Asian American Family Care, Inc. (PAAM)\n of Long Beach, California at the request of the CDE, which\n had expressed concerns about the sponsor\xe2\x80\x99s operation of the\n program. This sponsor exhibited all the characteristics of\n a problem sponsor: it was a family-run operation, it\n received only CACFP funding, it claimed 30 percent of its\n centers\xe2\x80\x99 food costs, and its officers engaged in outside\n employment.\n\n Based on the results of our audit, the sponsor was found\n seriously deficient in administration of the CACFP and was\n terminated from the program. Specifically, the sponsor\n failed to provide support for the administrative costs it\n claimed. Furthermore, the limited records we were provided\n indicated that excessive and unallowable personal expenses\n may have been charged to the program.\n\n Criminal charges were filed against the husband and wife\n who owned and operated PAAM. The couple was charged with\n defrauding the program of approximately $2.2 million by\n submitting inflated budgets and by diverting CACFP funds to\n themselves through "payments" to nonexistent employees and\n bogus business entities. The couple was also charged with\n using numerous aliases to conceal their interest in the\n sponsor. The wife was also a manager for the CDE, which\n was responsible for administering the program. As a\n manager for the CDE, the wife was responsible for\n overseeing this and other sponsors in Southern California.\n\n PAAM\xe2\x80\x99s former executive director and program director\n engaged in a separate fraud scheme. They submitted false\n claims for nonparticipating providers, and, as a result,\n PAAM was reimbursed in excess of $60,000 for these claims.\n The executive director and program director used these\n funds for their own personal use.\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 8\n\x0c The husband was sentenced to 2 years in Federal prison and\n the wife to 3 years. They were ordered to pay the\n Government $2.2 million in restitution and had already\n forfeited four residential properties they owned, including\n their 5,000 square-foot home in an exclusive neighborhood\n in Southern California. USDA has received over $1 million\n from the sale of the four properties. Also, the former\n executive director and program director were convicted and\n sentenced to 7 months in prison and 5 months in a community\n correctional facility. They were ordered to pay $60,000\n restitution.\n\n PAAM had been defrauding the CACFP for over 5 years. The\n CPA who performed the FY 1995 audit for PAAM issued an\n unqualified opinion. As a result of our audit, CDE\n referred the CPA to the California Department of Consumer\n Affairs Division of Investigations.\n\n Community Business Improvement Association, Inc. (Report\n Issued September 1998)\n\n Community Business Improvement Association, Inc. (CBIA) of\n Pasadena, California was selected based on a whistleblower\n complaint received from a source other than CDE. CBIA is\n currently under investigation for fraud. Like PAAM, CBIA\n exhibited all the traits of a problem sponsor: it was a\n family-run operation, it received only CACFP funding, it\n claimed 30 percent of its centers\xe2\x80\x99 food costs, and its\n officers engaged in outside employment.\n\n We issued three management alerts to FNS notifying them of\n the following: 1) a key employee of the sponsor had\n admitted participating in a scheme to misappropriate CACFP\n funds by submitting false claims for a nonexistent\n provider, 2) CDE had taken funds which were owed to child\n care centers for their food expenses to settle the debt\n owed by the sponsor, and 3) the sponsor had consistently\n been late in reimbursing its providers and centers for the\n cost of meals served to the children. The sponsor also\n admitted to falsifying home inspection reports for 20 to 50\n percent of the required home inspection visits.\n\n Based on the results of our audit, the sponsor was found\n seriously deficient in administration of the CACFP. We\n found that the sponsor claimed unsupported payroll costs,\n most of which was paid to the executive director and three\n other key employees, all of whom were related. The sponsor\n claimed rent that was unallowable because the property was\n owned by the executive director and her husband. The\n sponsor also failed to perform a number of monitoring\n visits, and failed to pay all its providers and centers\n within the time period allowed.\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 9\n\x0c The former manager for CBIA and her accomplice pled guilty\n to making a false statement in connection with CACFP\n provider claims. They conspired to create a fictitious\n child care provider and illegally obtained over $23,000 in\n CACFP funds.\n\n They were each sentenced to 3 years probation and 6 months\n in a home detention program, and ordered to pay a $100\n fine. They were also ordered to pay the total restitution\n amount of $23,340. In addition, the investigation\n disclosed that a former California Health Department\n employee furnished the former manager with a fictitious\n state child care license.\n\n CBIA\xe2\x80\x99s fraud had been ongoing since 1994. As of December\n 31, 1994, the CPA issued an unqualified audit opinion for\n all three of CBIA\xe2\x80\x99s agreements with the CDE.\n\n Aladdin Child Care Services, Inc. (Report Issued February\n 1999)\n\n We selected Aladdin Child Care Services, Inc. (Aladdin)\n after an OIG auditor pursued a lead on a complaint made\n against the sponsor. CDE had adverse information about\n Aladdin, but it did not share that information with us. We\n obtained Aladdin\xe2\x80\x99s records with a subpoena when we found\n out that the sponsor was removing itself from program\n participation while still owing its day care centers\n thousands of dollars in food reimbursements.\n\n Like PAAM and CBIA, Aladdin was a family-run operation,\n received only CACFP funding, and claimed 30 percent of its\n centers\xe2\x80\x99 food costs. Also, three of Aladdin\xe2\x80\x99s officials\n received salaries both as sponsor officials and as\n operators of an independent day care center.\n\n We found that this sponsor, before terminating itself from\n participation in the CACFP, used funds for unsupported and\n unallowable purposes. Although an absence of records\n prevented us from quantifying all of its questionable\n activities, we still identified about $800,000 in\n questionable costs and payments. The majority of day care\n centers were not paid for all meal reimbursements they were\n entitled to, and if they were paid, they were not paid on\n time. While the sponsor underpaid many of its day care\n centers, it usually overpaid the day care center that it\n owned. We found a large amount of unexplained payments to\n the sponsor\xe2\x80\x99s own day care center. The sponsor also used\n CACFP funds to pay for questionable administrative costs,\n such as construction costs, overdraft charges, and attorney\n fees.\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 10\n\x0c In October 1997, CDE issued an audit report on this entity\n covering FYs 1994-1996 and issued a qualified opinion\n because of "... a material overpayment of reimbursements to\n the centers and agency" and "material noncompliance".\n However, the CDE did not believe the findings were material\n enough to terminate the sponsor from the CACFP.\n\n Even though CDE knew about Aladdin\xe2\x80\x99s questionable\n activities as early as January 1997, it did not take the\n necessary steps to correct these deficiencies or terminate\n Aladdin\xe2\x80\x99s participation in the CACFP. In fact, Aladdin\n received approximately $460,000 in program funds after CDE\n became aware of these deficiencies. We also found that\n Aladdin began paying centers even less of the total meal\n reimbursements due them after CDE became aware of the\n sponsor\xe2\x80\x99s problems.\n\n This sponsor is currently under investigation for program\n fraud.\n\n Children\xe2\x80\x99s Spectrum Child Care Services, Inc. (Report Issued\n July 1998)\n\n Children\xe2\x80\x99s Spectrum Child Care Services, Inc. (Children\xe2\x80\x99s\n Spectrum) of Yucca Valley, California was originally\n selected by OIG based on its size and because it fit our\n profile of a sponsor using 30 percent of day care center\n food reimbursements to cover administrative costs.\n Subsequently, in response to our request to each of the\n States for potential review candidates, CDE suggested this\n sponsor for review. According to CDE, one of the reasons\n they suggested this sponsor was that the executive director\n was "not accessible."\n\n The sponsor is currently under investigation for program\n fraud. While residing and working in Wisconsin, the\n executive director claimed a salary and had the exclusive\n use of a leased vehicle which was charged to the CACFP. We\n also determined that for a 6-month period, the executive\n director received Unemployment Compensation Benefits from\n Wisconsin despite receiving his salary from the sponsor in\n California.\n\n On March 5, 1998, we issued a Management Alert recommending\n that FNS instruct the State agency to withhold any payments\n to this individual for salary and for the leased vehicle,\n and to recover $231,371 in program funds already paid for\n these purposes.\n\n Subsequently, a Criminal Complaint was filed in Wisconsin\n for "False Statements to Obtain Unemployment Benefits"\n against the executive director for allegedly receiving\n unemployment benefits in Wisconsin while being employed\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 11\n\x0c full-time in California as the executive director of a\n CACFP sponsor.\n\n The problems with Children\xe2\x80\x99s Spectrum date back to 1994.\n The CPA who performed the 1995 and 1996 audits for\n Children\xe2\x80\x99s Spectrum issued an unqualified opinion. We\n referred the CPA to the California Department of Consumer\n Affairs Division of Investigations for substandard audit\n work.\n\n A Perfect Balance, Inc. (Report Issued in December 1998)\n\n A Perfect Balance, Inc. (A Perfect Balance) of Diamond Bar,\n California was selected because, like Children\xe2\x80\x99s Spectrum,\n it used day care center food reimbursements to cover\n administrative costs. We also noted that the sponsor\n received only CACFP funding and that its officers engaged\n in outside employment.\n\n This sponsor is not under investigation for fraud, but we\n found its administration of the program to be seriously\n deficient. The sponsor delayed meal reimbursement to its\n day care centers and day care homes, used CACFP funds to\n pay for unallowable and unsupported administrative costs,\n and had not paid creditors for bills associated with the\n program. The sponsor also did not properly staff the\n office during normal business hours.\n\n Activities at this sponsor had been deficient since 1992.\n For FY 1996, the CPA issued an unqualified opinion for this\n sponsor.\n\n Sponsor A.\n This sponsor was selected for review based on a\n whistleblower complaint received by our investigative\n staff. The whistleblower alleged fiscal irregularities and\n based on our initial review of the allegations, these\n irregularities appear valid. We noted that this sponsor\n was a family-run operation and received only CACFP funding.\n\n We questioned program funds that were used for personal and\n non-CACFP related expenditures. In addition, the sponsor\n used program funds to purchase equipment without the State\n agency\xe2\x80\x99s approval, and the sponsor could not always support\n its expenditures. We also found that the sponsor did not\n provide adequate oversight of day care home providers.\n This lack of oversight may explain, at least in part, why\n most providers we visited had not complied with important\n program requirements. CDE has initiated the termination of\n this sponsor.\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 12\n\x0c This sponsor had been engaging in irregular activities\n since 1994. For FYs 1995 and 1996, the CPA issued an\n unqualified opinion for this sponsor.\n\n We have referred Sponsor A to OIG Investigations for\n program fraud.\n\n Sponsor B.\n This sponsor was selected for review based on the audit\n reports issued by the CPA. The CPA reports disclosed that\n Sponsor B had an overall negative fund balance and there\n were multiple "related party" (less-than-arms-length) loan\n transactions.\n\n Preliminary results showed more than half of the day cay\n home providers we visited did not have current attendance\n or meal count records. The sponsor also purchased $2,000\n of computer equipment which was not approved by the CDE.\n\n In addition, the sponsor advanced funds to employees who\n traveled to conferences. We determined that the sponsor\n claimed reimbursement for the amount advanced to the\n employees, not the amount spent by the employees. However,\n we were unable to determine if the funds returned by the\n employees were actually deposited and recorded as credits\n against program expenses.\n\n For FYs ended June 30, 1995, 1996, and 1997, the CPA issued\n an unqualified opinion.\n\n Sponsor C.\n This sponsor was selected for review based on our review of\n their budgets submitted to CDE. Preliminary results have\n shown serious potential program irregularities. We\n determined that during the 11 months we reviewed, the\n sponsor claimed numerous unallowable, unsupportable, and\n unreasonable expenditures totaling $115,397. These\n expenditures included about $15,000 in automobile lease\n payments for vehicles which were used for personal reasons\n and other unallowable administrative expenditures of almost\n $30,000. Thousands of dollars were also expended for\n unreasonable administrative costs.\n\n Records showed that the sponsor was a family-run operation\n and that it received only CACFP funding. We also found\n evidence that its officials may have been engaged in\n outside employment.\n\n It appears that this sponsor has engaged in irregular\n activities since 1992. For FY 1995, the CPA issued an\n unqualified audit opinion.\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 13\n\x0c Sponsor D.\n This sponsor, a family-run operation that receives only\n CACFP funding, is currently not participating in the CACFP\n and is being investigated for program fraud. It appears\n that the sponsor fraudulently claimed administrative funds.\n CDE initiated the investigation by seizing the sponsor\xe2\x80\x99s\n records through a search warrant.\n\n The CDE had conducted a compliance review in 1996, and\n determined Sponsor D was not in compliance with CACFP\n regulations. OIG initiated an investigation of this\n sponsor based on a request for assistance from the CDE.\n\n Criminal charges were filed against the husband, wife, and\n daughter who owned and operated this sponsorship. A 10-\n count indictment for mail fraud was filed against the three\n defendants for fraudulently obtaining over $95,000 from the\n CDE and the CACFP. The defendants used various schemes to\n inflate claims for reimbursement and also falsified reports\n to make it appear that they were properly monitoring\n approximately 1,000 day care homes which they sponsored.\n\n For FY 1995, the CPA issued an unqualified opinion for this\n sponsor.\n\n As part of the above audits, we visited or attempted to visit\n 1,009 day care homes and day care centers operating under\n eight of the ten California sponsors. For the other two\n sponsors we were unable to visit any sites because of ongoing\n investigations. We completed reviews at 752 of these sites.\n Two hundred and fifty-seven visits were not completed largely\n because there was nothing to review: no one was on the\n premises during the stated food service hours, or the home was\n no longer in the program. However, CDE records showed that\n these providers were still participating in the program.\n\n Of the 752 day care homes and centers we were able to visit,\n 66 percent had discrepancies of some form. In some cases, the\n homes recorded meals served to more children than were present\n during our visits. In most cases, the homes\xe2\x80\x99 meal service\n records were too unreliable to support the claims (see exhibit\n D).\n\n We found that sponsors gave little or no help to providers in\n terms of nutritional awareness. Additionally, for the\n sponsors of child care centers, the misappropriated program\n funds directly reduced the money available to purchase food\n for needy children. We also identified health and safety\n problems at numerous locations, including unsanitary feeding\n sites, the presence of dangerous animals, and inadequate\n supervision of children.\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 14\n\x0c We found serious program irregularities for the 10 sponsors\n selected for review. Exhibit A illustrates the types of\n program deficiencies identified and the results of our audits\n and investigations.\n\n We concluded that because CDE\xe2\x80\x99s audits and administrative\n reviews identified few, if any, of the problems we observed in\n these sponsors, CDE should target its oversight of sponsors\n which exhibit characteristics such as those listed in exhibit\n B and concentrate its resources on the sponsors targeted. In\n addition, CDE did not always take action on the problems\n identified. Consequently, CDE needs to determine which\n sponsors are high risk. We recommend this determination be\n based on an analysis of common characteristics, such as those\n we encountered during our review of the 10 sponsors we\n reported on. CDE should identify its high-risk sponsor\n universe and target these sponsors for limited scope audits if\n they fall below the OMB Circular A-133 threshold of Federal\n awards totaling $300,000 or more.\n\n Recommendations to address the individual conditions we found\n at the sponsors are specified in their respective audit\n reports.\n\n\n RECOMMENDATION NO. 1a\n\n FNS should work with the CDE to identify its high-risk sponsor\n universe and direct its resources to those sponsors who fit\n the problem sponsor profile.\n\n FNS Response\n In its written response to the draft report, dated February 3,\n 1999, FNS agreed with this recommendation.\n\n OIG Position\n To accept FNS\xe2\x80\x99 management decision on this recommendation, we\n will need to be advised of the date when the CDE expects to\n complete its identification of its high-risk sponsor universe\n and to direct its resources to those sponsors who fit the\n problem sponsor profile.\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 15\n\x0c RECOMMENDATION NO. 1b\n\n Instruct the CDE to compile a database of all CACFP sponsors,\n including a classification of high-risk sponsors.\n\n FNS Response\n In its written response to the draft report, dated February 3,\n 1999, FNS agreed with this recommendation.\n\n OIG Position\n To accept FNS\xe2\x80\x99 management decision on this recommendation, we\n will need to be advised of the date when the CDE expects to\n complete its database of all CACFP sponsors, including a\n classification of high-risk sponsors.\n\n The CDE was negligent in fulfilling\n its oversight responsibilities for\n FINDING NO. 2 sponsors participating in the CACFP.\n The CDE fostered a lax environment\n CDE WAS NEGLIGENT IN in which day care sponsors could\n FULFILLING ITS CACFP personally enrich themselves through\n various questionable or fraudulent\n OVERSIGHT RESPONSIBILITIES schemes which they could perpetrate\n with little likelihood of detection\n by the CDE. In addition, we believe\n that without a greater FNS presence in the State\xe2\x80\x99s conduct of\n the program, this lax environment may continue, and the\n integrity of the program may remain in doubt.\n\n Regulations state "Each State agency shall provide sufficient\n consultative, technical and managerial personnel to administer\n the Program, provide sufficient training and technical\n assistance to institutions and monitor performance to\n facilitate expansion and effective operation of the Program."2\n\n The CDE\xe2\x80\x99s oversight responsibilities for the CACFP included\n reviewing and approving the sponsor\xe2\x80\x99s budget, conducting\n administrative reviews, and conducting and/or reviewing\n audits. We determined that the CDE was deficient in its\n oversight responsibilities for all three areas.\n\n\n\n\n 2\n 7 CFR 226.6 (a), dated January 1, 1995.\n\n\n\nUSDA/OIG-A/27601-6-SF Page 16\n\x0c BUDGET CONCERNS\n Sponsors are required to submit a budget to their CDE program\n analyst by the end of September for the following fiscal year.\n Although not all of the problems could have been detected from\n a review of the budgets, our review of the budgets for the 10\n sponsors identified "red flags" that indicated potential\n problems or concerns which should have been questioned:\n\n Claiming Administrative Costs for Day Care Centers\n\n Reimbursement of administrative costs to sponsors of\n independent centers is not explicit in the regulations, as\n it is for sponsors of day care homes. On December 1, 1997,\n we issued a Management Alert recommending that FNS\n establish a rate that sponsors can retain for administering\n the program to the centers. However, FNS responded that\n "... State agencies are in the best position to evaluate\n the individual needs of their sponsoring organizations."\n California allowed sponsors of independent centers to\n retain up to a maximum of 30 percent of a center\xe2\x80\x99s meal\n reimbursement to cover their administrative expenses.\n (Because of our audit work, as of FY 1999, California is\n only allowing sponsors of independent centers to retain up\n to 15 percent.)\n\n Six of the ten sponsors we reviewed were sponsors of\n independent centers, and five of the six also sponsored day\n care homes. Five of the six sponsors retained the maximum\n of 30 percent of food reimbursement from their centers for\n administrative expenditures. The other sponsor owned its\n own center, prepared the meals for its centers, and claimed\n food reimbursement directly from CDE.\n\n Additionally, sponsors of day care homes receive an\n administrative payment according to the number of homes\n under their sponsorship. Therefore, for five of the six\n sponsors, the sponsor not only received administrative\n funds from the CDE for its day care home administration,\n but also retained 30 percent of center meal reimbursements\n for administrative expenditures.\n\n We concluded that 30 percent was excessive and created an\n opportunity for sponsors to abuse the program. A math\n computation when the budgets were approved would have shown\n the reviewer that the 30-percent retention was\n questionable. For example, for FY 1997, Children\xe2\x80\x99s\n Spectrum received $297,361 for administering an annual\n average of 493 homes and $188,773 for administering 49\n centers. Although oversight responsibilities for homes and\n centers are similar, the sponsor received about $50 per\n month for each day care home provider and $321 for each\n center.\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 17\n\x0c For FY 1997, CBIA\xe2\x80\x99s budget was approved for the following:\n $142,316 for its administration of 175 homes, $147,585 for\n its administration of 180 homes, and $301,321 for its\n administration of 38 centers. On average, the sponsor\n received about $68 per month for each day care home\n provider and $661 for each center. Based on our audit\n work, we could find no reason that sponsors should retain\n these large amounts of food reimbursement. In fact, we did\n not find that sponsors do any more administratively for\n centers than they do for home providers.\n\n For FY 1996, PAAM\xe2\x80\x99s independent center budget was approved\n for $840,628 for 63 centers. Thus, the sponsor\xe2\x80\x99s budget\n allowed $1,112 per month for administrative expenses for\n each center.\n\n For all three of these examples, we found that the sponsors\n were diverting funds made available in the 30 percent\n calculation to unauthorized uses.\n\n Created High Budgeted Amounts To Capture the 30 Percent\n from Centers\n As stated, sponsors of day care centers were permitted to\n retain up to a maximum of 30 percent of the food money\n intended for children attending day care centers, as long\n as the 30 percent did not exceed the "actual" or "budgeted"\n amounts. "Budgeted" amounts that equalled or exceeded this\n 30 percent should have been an automatic red flag and\n raised questions about the sponsors\xe2\x80\x99 budgets. This also\n applies to amounts that equal or exceed the new 15 percent\n maximum.\n\n We found problems with all six of the sponsors that were\n justifying the retention of 30 percent reimbursement.\n These sponsors created high actual or budgeted amounts to\n capture the maximum 30 percent. Five of the six are being\n investigated for program fraud.\n\n Having More than One Day Care Home Agreement\n Sponsors of homes are reimbursed for their actual costs of\n administering the program, not to exceed the lesser of:\n (1) the budget amount approved annually by the State agency\n or (2) a maximum amount per home established by FNS\n (referred to as "homes times rates").3 The maximum amount\n per home varies depending on the total number of homes\n participating (the more homes, the less per home). For the\n year ended June 30, 1997, the maximum ranged from $38 to\n $73 per home.\n\n\n\n\n 3\n 7 CFR 226.10 (c) and 226.12 (a), dated January 1, 1995.\n\n\n\nUSDA/OIG-A/27601-6-SF Page 18\n\x0c CBIA\xe2\x80\x99s budget showed that the sponsor had two agreements to\n sponsor day care homes. Sponsors are normally limited to\n only one home agreement to cover all homes sponsored. By\n having two home agreements the sponsor was paid a higher\n administrative reimbursement than if it had one agreement.\n\n The sponsor in question budgeted 175 homes under one\n agreement and 180 homes under the second agreement. By not\n budgeting all 355 homes under one agreement, the sponsor\n was able to circumvent the maximum-amount-per-home rule.\n We believe that CDE should only allow one day care home\n agreement per sponsor.\n\n Effect of Budgeting 355 Homes Under 2 Agreements Instead of 1\n Number of Homes\n No. of\n Agreements Initial Next 150 Next 800 Total Per Total\n 50 $73 $56 $44 Month Annually\n\n 1 $3,650 $ 8,400 $6,820 $18,870 $226,440\n\n 2 7,300 14,280 21,580 258,960\n\n Difference $ 2,710 $ 32,520\n\n Receiving Late Approval of Program Budget\n As stated, sponsors are required to have their budgets\n submitted to CDE by the end of September for the next\n fiscal year. CDE has 30 days from receipt of the completed\n budget in which to review and approve or disapprove the\n budget.4\n\n Sponsor C\xe2\x80\x99s budget for Federal fiscal year 1998 was not\n approved until July of 1998, 10 months into the fiscal\n year. In this case, CDE questioned an item in the\n sponsor\xe2\x80\x99s budget--an out-of-State training seminar--but by\n July the sponsor had already incurred the expense of the\n trip. CDE was obliged to honor the sponsor\xe2\x80\x99s claim for the\n expense because the sponsor learned after the fact that CDE\n would not allow it. Under OMB Circular A-122 guidelines,\n the expense may have been allowable.\n\n Other Questionable Amounts on the Budgets\n We found other questionable amounts on CDE-approved CACFP\n budgets. Our audit work generally determined that if these\n amounts had been questioned, serious deficiencies would\n have been detected and abuses possibly prevented.\n\n\n\n\n 4\n FNS Child and Adult Care Program Day Care Homes Handbook, page 13, dated October 1994.\n\n\n\nUSDA/OIG-A/27601-6-SF Page 19\n\x0c 1. Sponsor C\xe2\x80\x99s monthly employee benefits exceeded $8,000,\n much greater than any other sponsor we reviewed. This\n sponsor also budgeted 11,000 miles per month for mileage\n expenses incurred by employees who use their personal\n vehicles for monitoring, training, and workshops.\n However, the sponsor also budgeted expenses for leased\n vehicles.\n\n 2. Sponsor D\xe2\x80\x99s approved budgets for Federal fiscal years\n 1995 and 1996 showed that their rent expense increased\n from $16,200 to $30,298. The sponsor cited the need for\n adequate working space as its justification for this\n increase. This large increase was just one example of\n a "red flag" which should have required further\n followup. OIG-Investigations is currently investigating\n this sponsor for program fraud.\n\n 3. Four of the ten sponsors we reviewed also engaged in\n less-than-arms-length transactions for office space\n rent. The budget requires sponsors to identify whether\n the office facilities are partially or fully owned by\n agency, agency official(s), employees, or relatives of\n either officials or employees.\n\n Each of these sponsors incorrectly certified that they\n rented office space from unrelated parties. However,\n since some of the office space was located in a\n converted residential space (private residence), we\n believe that CDE should have asked additional questions\n to determine who actually owned the property.\n\n 4. The CDE program analyst for A Perfect Balance who\n reviews and approves the sponsor\xe2\x80\x99s budget, received\n information that the deputy director was employed full\n time at a California county agency. Although the budget\n analyst subsequently requested an explanation regarding\n this matter, the budget was still approved on September\n 18, 1997.\n\n Since the deputy director was not available during\n normal business hours, we believe that this condition\n did not allow the sponsor time to properly administer\n the CACFP. We believe a sponsor must have trained staff\n members at the office at all times during normal\n business hours when providers are usually caring for\n children.\n\n ADMINISTRATIVE REVIEW AND AUDIT CONCERNS\n Administrative reviews and audits examine some of the same\n program compliance areas. An administrative review evaluates\n eligibility and meal requirement compliance. However, an\n audit is to be performed in accordance with Government\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 20\n\x0c auditing standards (GAS) and is larger in scope than an\n administrative review.\n\n Reviewers examine a sponsor\xe2\x80\x99s records, including participant\n eligibility, meal claim reimbursement, meal requirements, and\n license capacity. A limited review of the current year\xe2\x80\x99s\n budget and other fiscal information is also performed. The\n scope of the administrative review is always the most recent\n month for which the sponsor has submitted its final claim. In\n addition, followup is to be performed for issues identified in\n the previous administrative review. Administrative reviews\n are to be performed at least once every 4 years. For sponsors\n with over 200 sites, reviews are required once every 2 years.5\n\n An audit examines the sponsor\xe2\x80\x99s program and accounting records\n and an opinion is issued based on the examination. In\n addition, an audit determines the extent and impact of\n noncompliance issues on meal reimbursement claims. Auditors\n follow an audit program which details procedures to perform.\n CDE audits generally consist of examining a sample of program\n and accounting records for 3 months of the scope year.\n\n The audit reports issued for the 10 sponsors we reviewed had\n either unqualified or qualified opinions. Eight were\n unqualified and two were qualified. An unqualified opinion\n states that the financial statements present fairly, in all\n material respects, the financial position, results of\n operations, and cash flows of the entity in conformity with\n generally accepted accounting principles.\n\n A qualified opinion states that, except for the effects of the\n matter(s) to which the qualification relates, the financial\n statements present fairly, in all material respects, the\n financial position, results of operations, and cash flows of\n the entity in conformity with generally accepted accounting\n principles.6\n\n Only one of these audits was performed by CDE. The remainder\n were performed by CPA firms.\n\n We believe CDE did not perform adequate followup actions when\n administrative reviews or audits detected that the sponsor may\n not be complying with all program requirements. The CDE also\n did not have formal procedures to ensure corrective action had\n been implemented, and it did not question "unqualified" audit\n reports when administrative reviews had noted potential\n problems. Consequently, there was no assurance sponsors\n\n\n\n\n 5\n 7 CFR 226.6 (l), dated January 1, 1995.\n\n 6\n AICPA Professional Standards, U.S. Auditing Standards, Section 508, dated July 1, 1997.\n\n\n\nUSDA/OIG-A/27601-6-SF Page 21\n\x0c implemented corrective action and complied with CACFP laws and\n regulations.\n\n One primary cause of this lack of effectiveness by CDE to\n prevent and detect problems in the CACFP is the organizational\n structure of its oversight function. We found that the units\n within CDE responsible for the CACFP displayed a lack of\n coordination necessary to properly administer the program.\n The External Audit Unit did not always use the results of the\n administrative reviews conducted by the Field Services Unit\n during its audits, and the External Audit and Field Services\n Units did not issue their audit and administrative reports to\n the Programs Unit who would normally act on the audit findings\n and recommendations.\n\n Administrative Reviews\n The administrative reviews performed by the Field Services\n Unit disclosed material findings for 5 of the 10 sponsors\n we subsequently audited. If CDE had investigated these\n problem areas, they would have found additional evidence of\n serious program violations. However, the administrative\n review results were rarely shared with the Program or\n External Audit Units for followup. Because of our audits\n of these five sponsors, all five are being investigated for\n fraud in the CACFP.\n\n For Children\xe2\x80\x99s Spectrum, the 1996-97 administrative review\n disclosed that the total administrative cost for the month\n reviewed was reported in the claim for reimbursement for\n centers and again in the claims for reimbursement for\n homes. The total administrative cost should have been\n prorated to the centers and homes. The sponsor was\n required to submit adjusted claims for October 1997 through\n January 1998. The adjusted claims were submitted to CDE in\n July 1997.\n\n For Angela\xe2\x80\x99s Angels, the 1996-97 followup administrative\n review included a finding that administrative costs claimed\n could not be reconciled to the sponsor\xe2\x80\x99s records.\n\n The 1995-96 administrative review for Aladdin concluded\n that the sponsor had an inadequate understanding of the\n CACFP requirements and the sponsor was negligent in its\n CACFP responsibilities.\n\n The 1994-95 administrative review for CBIA included the\n finding that provider advances were issued as a payment for\n meals claimed rather than an advance.\n\n And finally, for Sponsor D the 1993-94 administrative\n review disclosed many fiscal findings. The sponsor\n exceeded its budget for several line items; advance funds\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 22\n\x0c were incorrectly used, only 7 out of 713 active providers\n were receiving advances that could be reconciled; funds\n were not disbursed within 5 days of receipt; and the\n sponsors record of advance funds did not agree with CDE\xe2\x80\x99s\n records.\n\n Although material findings were discovered for 5 of the 10\n sponsors during administrative reviews, the CDE did not\n adequately followup to ensure corrective action had been\n implemented.\n\n Audits\n CDE or its contract CPA\xe2\x80\x99s gave an unqualified opinion to 8\n of the 10 sponsors. As stated, administrative reviews\n noted potential material problems at five of these\n sponsors, and these five sponsors are being investigated\n for program fraud. Also, two of the CPA firms that\n conducted these audits were referred to the California\n Department of Consumer Affairs Division of Investigations\n for substandard audit work. We found that audit results\n were not communicated to the Program or Field Services\n Units for followup.\n\n The External Audit Unit of the CDE performed a CACFP audit\n of 1 of the 10 sponsors that we audited. This audit was of\n Aladdin and covered the period October 1, 1993 through\n September 30, 1996. We concluded that CDE\xe2\x80\x99s work on this\n audit did not meet GAS and was substandard.\n\n The CDE became aware of Aladdin\xe2\x80\x99s serious problems on April\n 24, 1996, when the CACFP Program Unit manager expressed her\n concern over the sponsor\xe2\x80\x99s accounting procedures for\n administrative costs.\n\n On July 29, 1996, an administrative reviewer originated a\n request for an audit. The audit was requested because\n there appeared to be a gross lack of program management,\n eligibility applications were not collected annually, and\n the sponsor did not verify meal counts. The External\n Audit Unit began the audit in September 1996.\n\n On January 28, 1997, the auditors notified the sponsor that\n the audit fieldwork would be completed in approximately 1\n week. At this time the auditors knew the findings and\n should have informed the CACFP Program Unit so possible\n termination of this sponsor could begin.\n\n However, in March 1997, the auditors were removed from the\n audit and reassigned to help review CPA audit reports. The\n auditors did not notify the CACFP Program Unit about the\n severe problems found with Aladdin until July 21, 1997, 6\n months after the auditors completed work at the sponsor\xe2\x80\x99s\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 23\n\x0c office. The audit report was finally issued in October\n 1997, 8 months after the auditors completed work at the\n sponsors office.\n\n In its audit report, dated October 17, 1997, CDE reported\n that the sponsor had unallowable administrative expenses.\n CDE also reported that the sponsor incurred costs that were\n not reasonable and necessary to the overall operation of\n the sponsoring organization. Such costs included payments\n for its own center, employee bonuses, contributions and\n donations, security deposits, transferring funds between\n bank accounts, and refunds submitted to the CDE for the\n overpayment of meals claimed for reimbursement.\n\n However, the CDE audit report did not quantify the amount\n of these payments, nor were these costs disallowed. The\n audit report merely stated that these costs were incurred\n and recommended that the sponsor review and observe OMB\n Circular A-122.\n\n Additionally, CDE reported that this sponsor made payments\n to the IRS for fines and penalties pertaining to a prior\n year, and to a former landlord for office space the sponsor\n did not occupy. According to the audit report, these\n expenditures were disallowed. However, CDE also did not\n quantify these expenses in the audit report nor did it\n explain the result of the disallowed costs.\n\n CDE only recommended the sponsor pay its obligations when\n due and observe program instructions or regulations\n pertaining to the allowability of costs. CDE did not\n include recommendations for the sponsor to either pay the\n amount of disallowed costs to its centers (since money was\n withheld from center reimbursements to cover administrative\n costs) or return the amount disallowed to CDE. Thus, even\n though the costs were disallowed, the sponsor was never\n required to repay the disallowed expenditures.\n\n The CDE workpapers documented that this sponsor\xe2\x80\x99s\n administrative cost adjustments for the 3 years totaled\n $111,857 and noted that this should be disallowed.\n However, the audit report only disallowed payments to the\n IRS and the sponsor\xe2\x80\x99s former landlord, the total of which\n was not quantified in the audit report.\n\n The workpapers also documented that in fiscal years 1993\n and 1994 the sponsor exceeded its budget by $93,320 and\n noted this amount should be disallowed. However, this was\n never mentioned in the audit report, nor was there evidence\n CDE took any action in regards to this matter.\n\n Although CDE reported in its audit report that this sponsor\n had unallowable administrative expenses, the report did not\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 24\n\x0c quantify its administrative cost findings, and CDE did not\n act in a timely manner. This sponsor removed itself from\n the CACFP on September 30, 1997, 17 days before the final\n audit report was issued.\n\n CDE was well aware of the serious problems associated with\n this sponsor in January 1997 as a result of its audit\n fieldwork. However, CDE audit staff were reassigned and\n fieldwork was suspended for higher priorities. These\n problems included the submission of false information,\n failure to maintain adequate records, failure to disburse\n payments to its facilities in accordance with its\n management plan, instances of account overdrafts, and a\n history of administrative or financial mismanagement. All\n of these are grounds for termination from the CACFP.7 As\n a result of CDE\xe2\x80\x99s inaction in enforcing CACFP regulations,\n Aladdin was allowed to continue to spend thousands of\n dollars on unauthorized administrative expenses. In fact,\n approximately $460,000 in program funds were paid to this\n sponsor after CDE became aware of these deficiencies.\n\n Even though the CDE auditors documented these numerous\n problems, the CDE did not immediately act on these findings\n and allowed Aladdin to continue participating in the CACFP\n and continue to disregard regulations until the sponsor\n self-terminated on September 30, 1997. Had CDE acted\n within a reasonable time after discovering the problems,\n Aladdin could have been terminated earlier from the CACFP\n and saved taxpayers thousands of dollars.\n\n CDE STRUCTURE\n Program regulations state that, "Each State agency shall\n provide sufficient consultative, technical and managerial\n personnel to administer the Program, provide sufficient\n training and technical assistance to institutions and monitor\n performance to facilitate expansion and effective operation of\n the Program."8 Regulations further state that the State\n agency shall establish procedures to annually review\n information submitted by institutions to ensure that all\n participating child care centers and day care homes are\n complying with program requirements.9\n\n The CDE had the responsibility to monitor the CACFP on behalf\n of FNS. Within CDE, the External Audits Unit, Field Services\n Unit, and Program Unit were all involved in the monitoring\n\n\n\n\n 7\n 7 CFR 226.6 (c), dated January 1, 1995.\n\n 8\n 7 CFR 226.6(a), dated January 1, 1995.\n\n 9\n 7 CFR 226.6(d), dated January 1, 1995.\n\n\n\nUSDA/OIG-A/27601-6-SF Page 25\n\x0c process. The External Audit Unit conducted audits to\n determine sponsor\xe2\x80\x99s compliance with program requirements. The\n Field Services Unit performed administrative reviews to verify\n the sponsor\xe2\x80\x99s latest meal claim reimbursement and review the\n most current month of operations. In addition to approving\n sponsors\xe2\x80\x99 annual budgets, the Programs Unit interacted with\n sponsors on a daily basis, provided technical assistance, and\n had the authority to take administrative action against a\n sponsor.\n\n Interviews with External Audit and Field Services Unit\n personnel disclosed that the units worked independently\n without consulting or sharing pertinent information with each\n other. Additionally, the Program Unit did not receive\n pertinent information from the External Audit Unit and from\n the Field Services Unit. Also, there was no documented\n communication (i.e. memos, meeting minutes, etc.) between the\n three units.\n\n COLLECTION OF OVERPAYMENTS\n The CDE collects overpayments due from sponsors by offsetting\n the amounts owed from future claims for reimbursements. The\n amounts owed are usually the result of ineligible\n administrative or meal claims identified through an audit or\n administrative review, or the result of outstanding program\n advances. In our Management Alert, dated July 24, 1998, we\n reported our concern over this practice. Our primary concern\n was that CDE took the food funds, which were owed to all\n providers and child care centers, to settle the debts owed by\n the sponsor, a particular provider, or a particular center.\n CDE did not determine who actually owed the funds (i.e.,\n sponsor, provider, or center).\n\n During our audit of Aladdin, we noted that CDE offset the\n August 1997 payment to the sponsor by $34,383. This was to\n cover part of an $208,160 overpayment of meal reimbursements\n that had been identified during an audit performed by CDE\n auditors covering FY\xe2\x80\x99s 1994, 1995, and 1996. During the\n period March 1996 through December 1997, CDE offset another\n $83,889. The offsets against this sponsor totaled $118,271.\n\n In this case, CDE recovered overpayments identified as far\n back as FY 1994 with payments due to providers and centers in\n 1997. CDE made no effort to track the overpayments to the\n party that actually caused the problem--a provider, a center,\n or the sponsor itself. In fact, as we know in the case of\n this sponsor, the practice of offsetting future reimbursements\n penalizes all the sponsor\xe2\x80\x99s providers regardless of their\n involvement in the ineligible activities.\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 26\n\x0c CDE\xe2\x80\x99S KEY ACTIONS\n In response to our ongoing audits, CDE submitted an action\n plan dated April 17, 1998. We reviewed the list of 29 key\n actions which addressed some of the audit issues reported by\n OIG (see exhibit E). However, the plan did not specifically\n address the CACFP, and many of the actions were intended to\n improve oversight of all Child Nutrition Food Distribution\n Division (CNFDD) programs. While we agree with the action\n plan, additional steps must be taken to improve CDE\xe2\x80\x99s\n oversight of CACFP. Although some of the actions listed have\n been implemented, many have not.\n\n We acknowledge that CDE addressed some key issues, such as\n improving the audit and review process. However, many of the\n actions intended to improve oversight have not yet been\n implemented. For example, the list of actions states that CDE\n "published a formal, comprehensive audit review procedures\n manual for ... audit staff." This manual was last updated in\n March 1997 and does not include the revised OMB Circular\n A-133, FASB 116, or FASB 117, all critical to the audit of\n sponsors. Additionally, the list also stated that CDE\n "developed draft procedures for review and referencing."\n Government auditing standards require an internal quality\n control system. Currently CDE does not have formal procedures\n for a quality control review of audit reports. Until CDE can\n establish formal audit procedures to incorporate OMB Circular\n A-133 and Government Auditing Standards, CDE audits will\n continue to be substandard and ineffective.\n\n The list of actions also stated that CDE contracted with CPAs\n to conduct peer quality reviews of CPAs who audit sponsors.\n However, this has not occurred for any audits of sponsors who\n receive CACFP funds.\n\n Also, CDE "... added six new audit positions effective 7/1/97\n ..." to increase audits and peer quality reviews. However,\n there are currently eight audit positions open at the CNFDD,\n so we believe it is imperative these quality reviews of CPAs\n are performed to ensure the integrity of the CPA audits, a key\n element of monitoring CACFP.\n\n Actions that have been implemented include installation of a\n "toll-free whistle blower hotline", assigning auditors to\n accompany administrative reviewers during sponsor reviews, and\n providing audit, program, and field staff with a list of "red\n flags" for fraud.\n\n CDE has also "assigned additional audit staff to work with\n field staff to conduct field reviews of suspected fraudulent\n agencies." In addition, CDE instituted a policy of\n unannounced visits to child care centers and family day care\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 27\n\x0c homes. We believe these actions will improve oversight of\n problem sponsors.\n\n Coordination between CDE\xe2\x80\x99s External Audit and Field Services\n Units must improve significantly to ensure adequate monitoring\n of CACFP. Timely followup by CDE is crucial for all\n administrative review and audit findings to ensure corrective\n action has been implemented by the sponsor. We found that\n only monetary findings ever received followup action, and\n rarely was followup performed for administrative review\n findings. In some of the audits and reviews, the nonmonetary\n findings might have been indicative of more significant\n sponsor problems. We also believe that FNS needs to act\n aggressively in the State to ensure that CDE improves its\n oversight of the program.\n\n Also, audits were not always performed timely, exceeding the\n requirement that the report be completed no later than 13\n months after the end of the recipient\xe2\x80\x99s fiscal year10, and\n administrative reviews were only required at a minimum of\n every 2 years. We believe that this and the lack of followup\n also contributed to sponsor abuse. The External Audit Unit\n and the Field Services Unit must coordinate their efforts to\n ensure followup is completed on all findings.\n\n If CDE is unable to reform its oversight function to any\n satisfactory measure, FNS should act unilaterally to restore\n integrity to the CACFP in California.\n\n\n RECOMMENDATION NO. 2a\n\n Instruct the CDE to establish a management and accountability\n process which ensures coordination between the Child Nutrition\n and Food Distribution Division units and the Audits and\n Investigations Division.\n\n FNS Response\n In its written response to the draft report, dated February 3,\n 1999, FNS agreed with this recommendation.\n\n OIG Position\n To accept FNS\xe2\x80\x99 management decision on this recommendation, we\n will need to be advised of the estimated completion date of\n the CACFP Management Evaluation which will determine if the\n\n\n\n\n 10\n OMB Circular A-133, Paragraph 15(h), dated March 1990.\n\n\n\nUSDA/OIG-A/27601-6-SF Page 28\n\x0c CDE has established an acceptable management and\n accountability process.\n\n\n RECOMMENDATION NO. 2b\n\n Instruct the CDE to develop formal procedures to ensure\n corrective actions recommended in administrative reviews and\n audit reports are implemented by the sponsors.\n\n FNS Response\n In its written response to the draft report, dated February 3,\n 1999, FNS agreed with this recommendation.\n\n OIG Position\n To accept FNS\xe2\x80\x99 management decision on this recommendation, we\n will need to be advised of the date when the CDE expects to\n implement formal procedures to ensure corrective actions\n recommended in administrative reviews and audit reports are\n implemented by the sponsors.\n\n\n RECOMMENDATION NO. 2c\n\n Instruct the CDE to allow only one day care home agreement per\n sponsor and take action to ensure that all sponsors currently\n participating in the program have only one day care home\n agreement.\n\n FNS Response\n In its written response to the draft report, dated February 3,\n 1999, FNS agreed with this recommendation.\n\n OIG Position\n To accept FNS\xe2\x80\x99 management decision on this recommendation, we\n will need to be advised of the date when the CDE expects to\n implement its new methods to allow only one day care home\n agreement per sponsor.\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 29\n\x0c RECOMMENDATION NO. 2d\n\n\n\n\n Instruct the CDE to thoroughly review each sponsor\xe2\x80\x99s budget\n and obtain support for all questionable amounts listed on the\n budget.\n\n FNS Response\n This recommendation was added after the FNS response to the\n official draft audit report was received.\n\n OIG Position\n To accept FNS\xe2\x80\x99 management decision on this recommendation, we\n will need to be advised of the date when the CDE expects to\n implement its new methods to support questionable budget\n amounts.\n\n\n\n\nUSDA/OIG-A/27601-6-SF Page 30\n\x0cEXHIBIT A - SUMMARY OF AUDITS AND INVESTIGATIONS IN\n CALIFORNIA\n\n Summary of Audits and Investigations in California\n\n Sponsor Types of Program Deficiencies Identified Results\n Sponsor Reviews Determined\n Seriously Monitoring/ Administrative Provider Fictitious Sponsor Referred For\n Deficient Training Costs Payments Providers Terminated Investigation\nAngela\xe2\x80\x99s Angels X X X X X X X\nPreschool, Inc.\nPacific Asian American X X X X X X\nFamily Care, Inc.\nCommunity Business X X X X X X\nImprovement\nAssociation, Inc.\nAladdin Child Care X X X X X X\nServices, Inc.\nChildren\xe2\x80\x99s Spectrum X X X X\nChild Care\nServices,Inc.\nA Perfect Balance, Inc. X X X X\n\nSponsor A X X X X\n\nSponsor B X X X\n\nSponsor C X X X X\n\nSponsor D X X X X X\n\n TOTAL 10 10 10 4 3 4 8\n\n\n\n\n Exhibit A - Page 1 of 1\n\n\nUSDA/OIG-A/27601-6-SF Page 31\n\x0cEXHIBIT B - CHARACTERISTICS OF SPONSORS DETERMINED TO BE\n SERIOUSLY DEFICIENT\n\nSponsor CACFP Family Leased Outside Audit Admin. Audit and Centers Personal False Non-\n Only Run Vehicles Employment Opinion Reviews- Admin.- Expenses Claims disclosed\n Material Review (i.e., Related\n Findings Follow vacation, Party\n Noted up1 food, Transact.\n clothes, for Rent\n tuition)\n\nAngela\xe2\x80\x99s X X Qualified X No X X\nAngels\n\nPAAM X X X Unqualified2 No X X X X\n\nCBIA X X X X Unqualified X No X X X\n\nAladdin X X X3 Qualified X No X X X4\n\nChildren\xe2\x80\x99s X X X Unqualified X No X\nSpectrum\n\nA Perfect X X Unqualified No X\nBalance\n\nSponsor A X X Unqualified No X\n\nSponsor B Unqualified No\n\nSponsor C X X X X Unqualified No X X\n\nSponsor D X X Unqualified X No X X X\n\n\n\n\n 1\n Only monetary follow-up was performed.\n\n 2\n CPA audit report not accepted by the CDE because the report did not meet minimum requirements.\n\n 3\n Sponsor also owns a day care center that it operates.\n\n 4\n To be determined by OIG.\n\n\n\n\n Exhibit B - Page 1 of 1\n\n\nUSDA/OIG-A/27601-6-SF Page 32\n\x0cEXHIBIT C - CACFP MANAGEMENT ALERTS ISSUED\n\n Name of Sponsor Management Alerts\n\n Angela\xe2\x80\x99s Angels Preschool, Inc. None Issued\n\n\n Pacific Asian American Family Care, Inc. November 18, 1996\n Sponsor failed to provide records.\n\n December 4, 1996\n Potential conflict of interest involving a CDE employee and the\n sponsor.\n\n\n Community Business Improvement Association, Inc. October 15, 1997\n A key employee of the sponsor admitted participating in a scheme to\n misappropriate CACFP funds by submitting false claims for a\n nonexistent provider.\n\n October 29, 1997\n CDE had taken funds which were owed to child care centers for their\n food expenses to settle the debt owed by the sponsor.\n\n February 24, 1998\n The sponsor was consistently late in reimbursing its providers and\n centers for the cost of meals served to children.\n\n Children\xe2\x80\x99s Spectrum Child Care Services, Inc. March 5, 1998\n The executive director of the sponsor, who received a salary from\n the California CACFP, actually resided, and was employed in the State\n of Wisconsin. In addition, the sponsor also claimed the cost of a\n leased vehicle used by the executive director, while he lived in\n Wisconsin.\n\n Aladdin Child Care Services, Inc. July 24, 1998\n The CDE collected overpayments due from sponsors by offsetting\n the amounts owed from future claims for reimbursements, potentially\n harming the providers not responsible for the overpayments.\n\n A Perfect Balance, Inc. None Issued\n\n\n Sponsor A None Issued\n\n\n Sponsor B None Issued\n\n\n Sponsor C None Issued\n\n\n Sponsor D None Issued\n\n\n Review of State Agency Oversight April 29, 1998\n CDE improperly claimed CACFP audit funds (2-percent funds) for\n administrative reviews, and did not have an adequate system in place\n to support claims for audit staff charged to this 2-percent audit funding\n source.\n\n\n\n\n Exhibit C - Page 1 of 1\n\n\nUSDA/OIG-A/27601-6-SF Page 33\n\x0cEXHIBIT D - RESULTS OF PROVIDER VISITS\n\n Sponsor Attempted Review One or Type of Concerns Noted1\n Provider/ Completed More\n Center Concerns Record- Possible Health Meal\n Visits Noted keeping Over- or Components\n Claims Safety\n Issues\n\n Angela\xe2\x80\x99s Angels 158 125 75 48 X X\n\n Pacific Asian American Family 108 86 49 40 X X\n Care, Inc.\n\n Community Business 119 57 44 34 X X\n Improvement Association, Inc.\n\n Aladdin Child Care Services, N/A N/A N/A N/A N/A N/A N/A\n Inc.\n\n Children\xe2\x80\x99s Spectrum Child Care 270 187 122 110 X X X\n Services\n\n A Perfect Balance, Inc. 43 40 24 19 X X X\n\n Sponsor A 311 257 182 149 X X X\n\n Sponsor B No info\n yet\n\n Sponsor C No info\n yet\n\n Sponsor D2 N/A N/A N/A N/A N/A N/A N/A\n\n TOTAL 1,009 752 496 400\n (66%) (53%)\n\n\n\n\n 1\n For recordkeeping concerns, we counted specific instances. For the other concerns, we noted the existence of deficiencies.\n\n 2\n OIG site visit was not performed because the sponsor was terminated from the program.\n\n\n\n\n Exhibit D - Page 1 of 1\n\n\nUSDA/OIG-A/27601-6-SF Page 34\n\x0cEXHIBIT E - CDE\xe2\x80\x99S KEY ACTIONS\n\n State Oversight Actions\n Child Nutrition and Food Distribution Division\n April 1998\n\n 1. We added six new audit positions effective 7/1/97, and submitted Budget Change Proposals (in\n conjunction with CDD) for six more audit positions.\n\n 2. We established three investigative Auditor positions, and sent the fraud investigators through a 12-\n week intensive Peace Officer Standards and Training Academy. We have requested three more\n investigations for the 1999 state fiscal year.\n\n 3. We published a formal, comprehensive audit review procedures manual for our audit staff to\n ensure that our audit review processes and procedures are implemented in a consistent and\n thorough manner.\n\n 4. We established a procedure of assigning a staff administrator to close out the operations of\n agencies we terminated for fraud to ensure proper closeout, evidence collection, and timely and\n accurate payment to providers.\n\n 5. We contract with the State Department of Finance for auditors to assist in peak workload periods.\n\n 6. We established a professional working relationship with the USDA Investigative Unit of the Office\n of Inspector General to coordinate and collaborate on sensitive fraud cases.\n\n 7. We installed a toll-free whistle blower hot line to encourage identification and report of potential\n fraudulent activities.\n\n 8. We developed and are conducting training for our field, audit, program, and audit closure staff on\n early warning detection of fraud; proper procedures to follow when fraud is found or expected;\n how to handle calls or other information from individuals reporting fraud; and how to coordinate\n internally the information we receive to ensure timely referral, response, and corrective action.\n\n 9. We established clear work production standards for audit staff who perform desk reviews. We will\n also develop production standards for field audits.\n\n 10. We established program policy committees that meet regularly to ensure coordination and proper\n followup of reviews, complaints, and problem agencies.\n\n 11. We established procedures to increase the presence of auditors with our field and program staff\n on reviews needing strong fiscal scrutiny.\n\n 12. We hired private CPA\xe2\x80\x99s to conduct peer quality reviews of other private CPA work to ensure that\n the work is being done correctly and in accordance with proper auditing practices and procedures.\n\n 13. We conduct semi-annual (possibly annual in the future) training workshops for private CPA\xe2\x80\x99s to\n help ensure that annual independent audits are performed in accordance with proper program and\n auditing practices and procedures.\n\n 14. We are reevaluating our internal organizational structure and our compliance review procedures\n and responsibilities relating to field, program, audits, and audit closure functions.\n\n 15. We have established and implemented a policy of increasing the number and frequency of\n unannounced visits to child care centers and family day care homes.\n\n\n\n Exhibit E - Page 1 of 2\n\n\nUSDA/OIG-A/27601-6-SF Page 35\n\x0cEXHIBIT E - CDE\xe2\x80\x99S KEY ACTIONS\n\n State Oversight Actions\n Child Nutrition and Food Distribution Division\n April 1998\n\n 16. We have instituted new monitoring procedures to ensure the proper implementation of corrective\n action plans.\n\n 17. With USDA approval, we have added more criteria to the minimum federal requirements for\n screening applications for the Child Care Food Program to help ensure the integrity and\n administrative viability of organizations applying to participate in the Child Care Food Program.\n\n 18. We have requested a peer review of our audit functions by the California State Auditor\xe2\x80\x99s\n Association. We expect that peer review possibly by September 1998 depending on availability of\n peer review team.\n\n 19. We have assigned additional audit staff to work with field staff to conduct field reviews of\n suspected fraudulent agencies, and will use the "sweep" approach to conduct such reviews.\n\n 20. We have expanded the number of field reviews conducted by our audit staff by redirecting staff\n who previously conducted only desk reviews of CPA audits.\n\n 21. We provide a regularly updated list of "red flags" for fraud to all of our audit, program, and field\n staff.\n\n 22. We reorganized our audit structure so all auditors are assigned to conduct audits of all child\n nutrition programs, rather than specialize in conducting audits of only one or a few child nutrition\n programs.\n\n 23. Reports and a sample of work papers are reviewed by the Administrator, Audits, and\n Administrative Services, before reports are issued.\n\n 24. We will spread review and referencing workload for field audits reports between other auditors\n instead of concentrating all reviews and referencing with primarily one auditor.\n\n 25. Reviewers will ensure all reports and findings are "referenced" in accord with normal audit\n procedure. OEA developed draft procedures for review and referencing.\n\n 26. We train field auditors to look for fraud indicators, "red flag" those as part of field work, then issue\n "management alerts" as necessary to program staff and the Division Administrator of program area\n involved.\n\n 27. Audit findings will be aged with 60-day, 180-day, and one-year followups to ensure corrective\n action taken.\n\n 28. Audit Programs will be reviewed annually and before the start of each audit, then approved by the\n Administrator, Audits, and Administrative Services.\n\n 29. Food Distribution staff have begun working with audit and investigation staff to identify and review\n certain commodity processors.\n\n\n\n\n Exhibit E - Page 2 of 2\n\n\nUSDA/OIG-A/27601-6-SF Page 36\n\x0cEXHIBIT F - FNS\xe2\x80\x99 WRITTEN RESPONSE TO THE DRAFT REPORT\n\n\n\n\n Exhibit F - Page 1 of 6\n\n\nUSDA/OIG-A/27601-6-SF Page 37\n\x0cEXHIBIT F - FNS\xe2\x80\x99 WRITTEN RESPONSE TO THE DRAFT REPORT\n\n\n\n\n Exhibit F - Page 2 of 6\n\n\nUSDA/OIG-A/27601-6-SF Page 38\n\x0cEXHIBIT F - FNS\xe2\x80\x99 WRITTEN RESPONSE TO THE DRAFT REPORT\n\n\n\n\n Exhibit F - Page 3 of 6\n\n\nUSDA/OIG-A/27601-6-SF Page 39\n\x0cEXHIBIT F - FNS\xe2\x80\x99 WRITTEN RESPONSE TO THE DRAFT REPORT\n\n\n\n\n Exhibit F - Page 4 of 6\n\n\nUSDA/OIG-A/27601-6-SF Page 40\n\x0cEXHIBIT F - FNS\xe2\x80\x99 WRITTEN RESPONSE TO THE DRAFT REPORT\n\n\n\n\n Exhibit F - Page 5 of 6\n\n\nUSDA/OIG-A/27601-6-SF Page 41\n\x0cEXHIBIT F - FNS\xe2\x80\x99 WRITTEN RESPONSE TO THE DRAFT REPORT\n\n\n\n\n Exhibit F - Page 6 of 6\n\n\nUSDA/OIG-A/27601-6-SF Page 42\n\x0c'


type: caselaw

jurisdiction: EU

text:
 9.2.2015
 LV
 Eiropas Savienības Oficiālais Vēstnesis
 C 46/40
 Vispārējās tiesas 2014. gada 12. decembra spriedums – Repsol Lubricantes y Especialidades u.c./Komisija
 (Lieta T-562/08) (1)
 (Konkurence - Aizliegtas vienošanās - Parafīna vaska tirgus - Lēmums, ar kuru konstatēts EKL 81. panta pārkāpums - Cenu noteikšana un tirgu sadale - Pierādījums par aizliegtas vienošanās esamību - Pārkāpuma ilgums - 2006. gada pamatnostādnes naudas soda aprēķināšanai - Vienlīdzīga attieksme - Nevainīguma prezumpcija - Vainojamība pārkāpjošā rīcībā - Mātesuzņēmuma atbildība par tā meitasuzņēmumu izdarītiem konkurences tiesību normu pārkāpumiem - Mātesuzņēmuma īstenota izšķiroša ietekme - Pieņēmums pilnīga kapitāldaļu turējuma gadījumā)
 (2015/C 046/48)
 Tiesvedības valoda – spāņu
 Lietas dalībnieki
 Prasītājas: Repsol Lubricantes y Especialidades, SA, bijusī Repsol Lubricantes YPF y Especialidades, SA (Madride, Spānija); Repsol Petróleo, SA (Madride); un Repsol, SA, bijusī Repsol YPF, SA (Madride) (pārstāvji – J. M. Jiménez–Laiglesia Oñate, J. Jiménez–Laiglesia Oñate un S. Rivero Mena, advokāti)
 Atbildētāja: Eiropas Komisija (pārstāvji – F. Castillo de la Torre, F. Castilla Contreras un C. Urraca Caviedes)
 Priekšmets
 Prasība daļēji atcelt Komisijas 2008. gada 1. oktobra Lēmumu C(2008) 5476, galīgā redakcija, par procedūru saskaņā ar [EKL] 81. pantu un EEZ līguma 53. pantu (Lieta COMP/39.181 – Sveču vasks), kā arī prasība samazināt prasītājām uzliktā naudas soda apmēru
 Rezolutīvā daļa:
 1)
 prasību noraidīt;
 2)
 Repsol Lubricantes y Especialidades, SA, Repsol Petróleo, SA un Repsol, SA sedz savus, kā arī atlīdzina Eiropas Komisijas tiesāšanās izdevumus.
 (1) OV C 44, 21.2.2009.