Audit reveals flaws in children’s agency
October 26, 2011
More than a dozen years ago, California voters, by the slimmest of margins, passed a measure championed by actor/director Rob Reiner imposing a 50-cents-per-pack tax on cigarettes to infuse huge sums into programs aimed at lifting the lives of children 5 and under.
“This is a sweet victory,” Reiner elatedly proclaimed after a final tally of absentee ballots had given his Proposition 10 the edge. “It means so much for the young children of this state…”
But this week in Los Angeles, the mood was far more somber as the Board of Supervisors received a highly critical audit of how hundreds of millions of dollars of that money has been administered locally by an independent public agency called First 5 LA.
Although no malfeasance was uncovered, the board was so concerned about the findings that, by a 4-1 vote, it set in motion a plan to strip First 5 LA of its independence and turn it into a county agency, like the majority of its companion organizations across the state.
The audit, requested by Supervisor Michael D. Antonovich, who’s currently serving as chairman of the First 5 LA commission, was performed by Harvey M. Rose Associates and bluntly details a series of risks that the firm says may be undermining the performance and integrity of First 5 LA. Among the findings:
- First 5 LA has been significantly under-spending its revenues, placing the organization “at risk of not fulfilling its mission and goals to the extent possible and consistent with the Board of Commissioners policy and program objectives.” With a fund balance of more than $800 million, the organization has spent comparatively less on its programs than California’s other First 5 groups.
- The First 5 commission receives such insufficient information from the organization’s staff that its ability to oversee spending, program activity and outcomes is compromised. “Most grant and contract awards, representing hundreds of millions of dollars of annual agency expenditures, are not submitted for approval or review.”
- In the last fiscal year, the agency awarded more than $200 million in contracts, but failed to report them all to the First 5 commissioners, which “raises the risk of agreements being in place for inappropriate purposes or with unqualified vendors or grantees.” In fact, the commission approved only 28% of First 5 LA contract awards. In many cases, contracts were awarded without competitive bidding—and without notifying the commission. Auditors could not determine how some contracts were awarded because documentation was not properly retained.
- The staffing of First 5 LA is high compared to other First 5 agencies and is “not configured to best enable development and administration of new programs and initiatives,” thus contributing to the under-spending problem and delays in launching health, safety and educational programs for the county’s children.
- During the past four fiscal years, First 5 LA has had an annual staff turnover rate ranging from 8 to 19 percent a year, generally higher than other First 5 organizations surveyed by the auditors. This, along with the absence of a commission-approved compensation policy, “raises the risk of First 5 LA not being able to attract and retrain qualified, high-performing employees.”
After the audit findings were presented during Tuesday’s Board of Supervisors meeting, Supervisor Zev Yaroslavsky offered a particularly blunt assessment.
“The lack of transparency, the lack of accountability, the lack of competition in proposals, the lack of information sharing between the staff and the commission itself, any one of these things would be a bell and whistle. And all of them together is a siren,” said Yaroslavsky, who praised Antonovich for initiating the audit process.
No representatives from First 5 LA testified during Tuesday’s session. But the organization’s chief executive officer, Evelyn V. Martinez, later released a statement noting that, since 1998, First 5 LA has undergone annual independent audits of its financial statements and controls “and at no time have these audits resulted in any material findings.”
First 5 LA, she said, “takes its fiduciary responsibilities seriously and has been a responsible caretaker of the public funds entrusted to it.” While acknowledging the Board of Supervisors’ authority to exert greater control over the organization, Martinez said that “I hope we can continue to maintain our focus on improving the lives of our youngest children in Los Angeles County.”
Among chief executives of First 5 commissions in California’s 58 counties, Martinez’ annual compensation of nearly $250,000 in 2009-2010 topped the list. That included a $10,000 performance bonus.
Supervisor Gloria Molina cast the sole vote against the motion authored by Antonovich and Supervisor Mark Ridley-Thomas, which directs the county counsel and chief executive officer to prepare a proposed ordinance establishing First 5 LA as a county agency and report back within 30 days.
“I don’t see where one dollar was stolen, one dollar was misappropriated, one dollar was mishandled,” said Molina, who was chair of the First 5 LA commission during some of the audited period. (That position is held by the sitting chairman of the Board of Supervisors, a position that rotates annually. Each supervisor also appoints a member to the commission.)
Molina added: “I think it’s a shame that we are moving so drastically to take over this agency.”
The audit process began earlier this year when the governor proposed diverting half of the current and future Proposition 10 tobacco-tax money from the county commissions established to administer it. For First 5 LA, according to the Antonovich/Ridley-Thomas motion, this would divert about $450 million from its current reserves and $50 million annually in the future.
The audit, conducted in two phases, initially was intended to identify First 5 LA’s reserves and ensure the most efficient use of future allocations. But, in the end, serious issues were uncovered that led to Tuesday’s vote.
The First 5 commissions have sued the state to block diversion of funds. The case is pending.