10.1 Effective Internal Controls

Lead Agencies must ensure the integrity of the use of CCDF funds through effective fiscal management and must ensure that financial practices are in place. Lead Agencies must have effective fiscal management practices in place for all CCDF expenditures. 10.1.1 Organizational structure to support integrity and internal controls Describe how the Lead Agency’s organizational structure ensures the oversight and implementation of effective internal controls that promote and support program integrity and accountability. Describe: State law, in Welfare and Institutions Code (WIC) section 10267 requires the Department to develop and coordinate resources to monitor program implementation. The Child Care and Development Division (CCDD), per WIC section 10267, delegates onsite program monitoring to the Program Quality Improvement Branch (PQIB) Consultants and program integrity staff. The review process includes a comprehensive review of the fiscal, program, and audit requirements of the program. The Program Integrity Monitoring Tool is used to complete a Contract Monitoring Review on all contract types held by the agency. Program consultants coordinate with fiscal and audit staff during the monitoring process. In addition to contract monitoring the review of fiscal, enrollment, and attendance reporting is reviewed by fiscal analysts quarterly. The Office of Audit Services (OAS) receives and reviews the annual financial and compliance audit submitted by child development contractors. Monitoring of program requirements is conducted by CCDD consultants and program integrity analysts per California Code of Regulations, Title 5, (5 CCR) Section 18023. Responsibilities include development of monitoring tools and resources, conducting onsite reviews of programs, and Error Rate Reviews. Additionally, there are Divisions within the Department such as Fiscal and Audit. These divisions have staff that provide oversight of child care and development programs. The California Department of Social Services (CDSS) fiscal team is responsible for the review of enrollment, attendance, and expense reporting by child care and development program contracts. Contractors are required per 5 CCR, section 18071 to submit an acceptable financial and compliance audit. The OAS within CDSS conducts reviews of the audits submitted by the contracting agencies and works collaboratively with other CDSS’ teams to address any findings. The program and fiscal staff review equipment and improvement expenditures for reasonableness and use allowance. If action is taken by the Department as a result of program, fiscal, or audit noncompliance, the three offices will work collaboratively to address the findings and identify any changes to the agency’s status with the Department through the contract review process titled a Case Conference Committee. Child Development Consultants determine which contractor requires review by conducting a risk assessment of existing contractors. The CDSS is required to conduct reviews at least once every three years, or as resources permit, to ensure programs are meeting the contractual requirements. Program Integrity and Improvement Section staff are assigned to complete Error Rate Reviews specific to the areas of eligibility, need for child care services, family fees, and reimbursement payments to child care providers. During the contract review process fiscal and audit staff will provide PQIB staff with information related to the verification of complete and accurate fiscal reports and addressing audit findings, if applicable. The PQIB maintains a working relationship with fiscal partners as well as audit partners within the Department. There are weekly meetings with program and fiscal staff. Program staff will ensure that the Finance and Accounting Division is contacted to support contractors as needs arise. The CDSS has divided the management of contracts amongst three separate offices to ensure that staff with expertise in each component of the contracts provides oversight, technical assistance, and monitoring of program regulation implementation, fiscal reporting, and audit requirements. Multiple activities conducted by the Department ensure checks and balances internally and externally. The OAS conducts a review of the annual compliance and financial audits submitted by the child development contractors in accordance with state regulations. The OAS provides fiscal and program staff summaries of any findings identified during the internal audit process via internal memos. Program consultants are responsible for addressing the findings with the contractor and ensure the findings are corrected via action plan. Serious and persistent audit findings are addressed through the Case Conference Committee process, which consists of staff from audits, program, and fiscal. The committee will review the severity of the program and/or fiscal violations along with relevant background information on the contractor to determine if the contractor will be placed on Conditional contract status. Conditional status requires a comprehensive action plan to address all programmatic and fiscal violations and successful progress towards addressing the findings. In instances of serious program violations including identified fraud the Case Conference Committee may rule to discontinue the relationship through what is called No Offer of Continued Funding. Substantiated fraud may be handed to the local district attorney for investigation and/or prosecution. In addition to the audit and contract review process the PQIB conducts Error Rate Reviews during the contract monitoring process. A random sampling of family data files is selected, and programs receive and error rate percentage along with guidance on current enrollment guidance. Include the following elements in your description: 1. Assignment of authority and responsibilities related to program integrity. 2. Delegation of duties. 3. Coordination of activities. 4. Communication between fiscal and program staff. 5. Segregation of duties. 6. Establishment of checks and balances to identify potential fraud risks. 7. Other activities that support program integrity. 10.1.2 Fiscal management practices Describe how the Lead Agency ensures effective fiscal management practices for all CCDF expenditures, including: a. Fiscal oversight of CCDF funds, including grants and contracts. Describe: The California Department of Social Services (CDSS) ensures adequate fiscal oversight of Child Care Development Fund (CCDF) funds through multiple reporting and monitoring functions. For example, the oversight in grants can be accomplished by providing reporting requirements to grantees to receive reimbursements once the expenses have been reviewed by the lead agency. In addition, grantees are required to retain records and comply with Department requests for records for a period of time following the grant award. Pursuant to a period of time established by federal or state law. All contracting agencies on Provisional or Conditional status are required to report program expenditures monthly while existing contractors on Clear contract status report expenditures quarterly. Fiscal Analysts monitor the expenditures and reach out to the agencies as needed to ensure they are reporting correctly. In addition to fiscal reporting contracting agencies are required to submit annual compliance and financial audits per state regulation at California Code of Regulations, Title 5, (5 CCR) Section 18071 and a review is conducted by the Office of Audit Services per 5 CCR Section 18072. The Child Care and Development Division (CCDD) in collaboration with fiscal and audit offices conducts contract monitoring review of each contracting agency every three years in which audit and fiscal reporting requirements are reviewed. In addition to the contract monitoring review the Program Integrity and Improvement Section conducts Error Rate Reviews. Fiscal analysts can also pull and review monthly and quarterly fiscal reports for oversight and technical assistance. The CCDD in collaboration with fiscal and audit offices conducts contract monitoring review of each contracting agency every three years in which audit and fiscal reporting requirements are reviewed. In addition to the contract monitoring review the Program Integrity and Improvement Section conducts Error Rate Reviews. Fiscal analysts can also pull and review monthly and quarterly fiscal reports for oversight and technical assistance. b. Tracking systems that ensure reasonable and allowable costs and allow for tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provision of this part. Describe: As described in section (a) the Lead Agency has systems within the fiscal, program, and audit offices to track the use of CCDF funds. The review of annual compliance and fiscal audits, monthly or quarterly fiscal reporting requirements, enrollment and attendance data, and contract monitoring all have been implemented to ensure program expenditures are reasonable and necessary to operate the contract and do not violate any state or federal requirements. During the contract monitoring review process Consultants are ensuring audit and fiscal reporting requirements are met through collaboration with the fiscal and audits offices. During contract monitoring the consultant provides technical assistance on any discrepancies in attendance and enrollment data or expenses reported through the Child Development Program Enrollment Attendance and Fiscal Reporting (CDPR) or CalWORKs/ Alternative Payment Program Online Reporting System in partnership with the assigned fiscal analysts. If an agency has audit finding from the independent audit the consultant works with the agency on a corrective action and requires documentation of resolution to be provided. Lastly, programs physical inventory, and procurement policies to ensure alignment with federal and state purchasing rules are reviewed through the contract monitoring process. c. Processes and procedures to prepare and submit required state and federal fiscal reporting. Describe: The Department has multiple systems to collect data on student enrollment as well as contract expenditures. Programs are required to submit quarterly fiscal reports to the CDSS on student enrollment and attendance as well as expenditures related to the program types held on the fiscal reporting system known as CDPR. Programs that are deemed high risk such as Provisional (new) and Conditional (ongoing program violations) contractors are required to submit monthly reports and are reviewed by the assigned fiscal analyst. Voucher based programs such as the Alternative Payment Program submit fiscal reports via the CalWORKs/ Alternative Payment Program Online Reporting System. Programs also submit an annual financial and compliance audit that verifies the program has accounting and procurement procedures in place that meet state and federal reporting requirements. Additionally, to meet federal student data reporting programs submit monthly enrollment and family data into the Child Development Management Information System. (Information on the reporting systems can be found on the CDSS Fiscal Resources page) d. Other. Describe: Not applicable. 10.1.3 Effectiveness of fiscal management practices Describe how the Lead Agency knows there are effective fiscal management practices in place for all CCDF expenditures, including: a. How the Lead Agency defines effective fiscal management practices. Describe: The California Department of Social Services (CDSS) has internal and external processes to ensure effective fiscal management procedures are in place and adhered to. The CDSS conducts internal audits to monitor activities within the offices responsible for the implementation and oversight of Child Care Development Fund (CCDF) funds. The Child Development Fiscal Services Office issues a fiscal handbook annually that describes the fiscal reporting and recording requirements for child development contractors providing direct and support services. The Fiscal Handbook is broken into sections and can be located on the CDSS Fiscal Resources page. Reporting requirements per the Funding Terms and Conditions are described by contract and program type. Internal audits of staff responsible for the implementation of CCDF requirements and external audits of contractors providing services ensures effective fiscal management practices are implemented for all CCDF expenditures. b. How the Lead Agency measures and tracks results of their fiscal management practices. Describe: The lead agency has multiple methods to track results of fiscal management practices. Direct service child development contractors submit fiscal reports monthly or quarterly through the Child Development Program Enrollment Attendance and Fiscal Reporting. Voucher based contractors submit caseload and expenditure reports through CalWORKs/Alternative Payment Program Online Reporting System (CDSS Fiscal Resources page). Each contracting agency is assigned a fiscal analyst that reviews expenditure data for reasonableness and alignment with program requirements. Program consultants work in collaboration with fiscal staff to address any discrepancies in fiscal reporting. Contracting agencies are responsible for submitting an acceptable fiscal and compliance audit that includes an independent review of operations in accordance with Funding Terms and Conditions including but not limited to; effectiveness and efficiency of operations and program, internal controls, safeguarding of assets; and compliance with laws, regulations, policies, procedures. In addition to external audit requirements of child development contractors lead agency staff participate in internal audits of program policies and procedures. Any findings identified during the internal audit process are addressed through an action plan. c. How the results inform implementation. Describe: The results of the internal and external audit procedures inform lead agency staff on CCDF requirements that require training, additional oversight, or implementation guidance. Audit, fiscal, and program leadership meet regularly to cross collaborate on the effective implementation of program requirements. Trends identified through the monitoring of child development programs, independent financial and compliance audits, and fiscal reporting are addressed through training, technical assistance, 1:1 support, reporting system infrastructure updates, corrective action plans, Child Care Bulletins, and resource documents. d. Other. Describe: California Government Code (GC) sections 13440 to 13407 requires each agency to establish and maintain effective systems of internal control, to objectively evaluate and monitor the effectiveness of those controls on an ongoing basis, document the system(s) and ensure the system(s) are functioning as prescribed and are modified as appropriate for changes in conditions. GC sections 13400 to 13407 also requires state agencies to biennially report on the adequacy of the systems of internal control and implement plan(s) to mitigate risks and weaknesses. To assist CDSS in meeting this requirement, the Office of Audit Services will: 1) Perform risk assessments by evaluating risk exposure relating to reliability and integrity of financial and operational information; effectiveness and efficiency of operations and program, internal controls, safeguarding of assets; and compliance with laws, regulations, policies, procedures, and contracts, to determine the adequacy of CDSS’ program monitoring. 2) perform audits of child care and development agencies and providers, provide technical assistance, and provide analysis and support for appeals of audit findings and testimony in hearings and other legal actions. 10.1.4 Identifying risk Describe the processes the Lead Agency uses to identify risk in the CCDF program including: a. Each process used by the Lead Agency to identify risk (including entities responsible for implementing each process). Describe: California Government Code sections 13440 to 13407 require each agency to establish and maintain effective systems of internal control, to objectively evaluate and monitor the effectiveness of those controls on an ongoing basis, document the system(s) and ensure the system(s) are functioning as prescribed and are modified as appropriate for changes in conditions. The Lead Agency’s Program Quality Improvement Branch (PQIB) developed a risk assessment process to assign selection criteria to ensure the contracting agencies with the highest potential risk receive priority when the team schedules annual monitoring reviews. The assessment criteria include initial visits on newly awarded contractors, whistleblower complaints, conditional contract status due to serious and ongoing program violations, follow-up visits to ensure previous corrective actions have been resolved and existing contractors on clear contract status are organized into cohorts to receive contract monitoring reviews. All contractors are required to conduct independent financial and compliance audits. To assist California Department of Social Services (CDSS) in meeting this requirement, the Office of Audit Services (OAS) will: 1) Perform risk assessments by evaluating risk exposure relating to reliability and integrity of financial and operational information; effectiveness and efficiency of operations and program, internal controls, safeguarding of assets; and compliance with laws, regulations, policies, procedures, and contracts, to determine the adequacy of CDSS’ program monitoring. 2) perform audits of child care and development agencies and providers, provide technical assistance, and provide analysis and support for appeals of audit findings and testimony in hearings and other legal actions. The Contract Monitoring Reviews are conducted by Child Development Consultants. The Error Rate Reviews which focus on need, eligibility, family fee assessment, and provider payments are conducted by staff in the Program Integrity and Improvement Section. The OAS have their own staff, as well as the Finance and Accounting Division. b. The frequency of each risk assessment. Describe: Pursuant to California Government Code 13440-13407, state agencies biennially report on the adequacy of the systems of internal control and implement plan(s) to mitigate risks and weaknesses. Contract Monitoring Reviews and Error Rate Reviews take place once every three years, as resources permit. Additionally, the PQIB reviews the risk assessment selection criteria annually to ensure contractors identified as high risk are prioritized for monitoring reviews. c. How the Lead Agency uses risk assessment results to inform program improvement. Describe: Annually the PQIB develops their monitoring scheduling around the risk assessment criteria. The risk assessment criteria ensures to prioritize high risk agencies for contract monitoring or individualized technical assistance. High risk agencies are identified through a variety of factors including newly awarded contractors who are new to the program requirements and agencies on Conditional Contract status due to program violations. Contract Monitoring Reviews and Error Rate Reviews provide consistent data on what information contractors are having difficulty understanding and/or implementing. This information is shared during regular check-ins with Program Quality and Improvement Branch staff and other partners within the Lead Agency as applicable. d. How the Lead Agency knows that the risk assessment processes utilized are effective. Describe: The PQIB uses data from contract monitoring, Error Rate Reviews, and annual self-evaluation surveys to measure the effectiveness of their risk assessment criteria. The PQIB staff will analyze data collected to determine if training, resources, and tools have supported the effective implementation of program requirements. Trends revealed within the data collected are used to modify existing risk assessment procedures to ensure the selection criteria is identifying the child development contractors that require more intensive supports and monitoring. e. Other. Describe: Not applicable. 10.1.5 Processes to train about CCDF requirements and program integrity Describe the processes the Lead Agency uses to train staff of the Lead Agency and other agencies engaged in the administration of CCDF, and child care providers about program requirements and integrity. a. Describe how the Lead Agency ensures that all staff who administer the CCDF program (including through MOUs, grants, and contracts) are informed and trained regarding program requirements and integrity. i. Describe the training provided to staff members around CCDF program requirements and program integrity: The Program Quality Improvement Branch (PQIB) staff meet annually, or more often (as needed), to receive training on program requirements, monitoring, and Error Rate Reviews. Project leads and leadership staff provide training on trends identified during monitoring, updates to program requirements or implementation guidance, and invite guest speakers to present on various topics (Ex: West Ed trains on updates to the Desired Results Developmental Profile online system). The PQIB staff meet bi-weekly and quarterly to calibrate staff’s understanding of implementation guidance and monitoring procedures. The PQIB leadership meets with staff individually to provide coaching on topics identified in their annual review as areas of focus. ii. Describe how staff training is evaluated for effectiveness: The PQIB staff conducts internal training annually for all PQIB staff responsible for providing direct support and monitoring of child development contractors using statewide data and latest research. To ensure training is effective, the Branch uses current data compiled from monitoring, in-person and webinar trainings, and annual evaluation data to determine the training and support needs of the internal staff as well as child development contractors. The PQIB staff calibrate their understanding of program requirements annually using the Program Integrity Monitoring Tool and Environment Rating Scales. The staff identify trends from monitoring and Error Rate Reviews. Annual training and calibration ensure statewide monitoring is uniform and aligned with regulations. Training PowerPoints are created and updated using the most up to date guidance and requirements. The material is reviewed by a training team and program leadership to ensure training materials align with all program requirements and implementation guidance. A survey is conducted at the end of the fiscal year to determine what changes and adjustments can be made to be more effective in the delivery of the training. iii. Describe how the Lead Agency uses program integrity data (e.g., error rate results, risk assessment data) to inform ongoing staff training needs: The PQIB staff use data from monitoring, program self-evaluations, and feedback from trainings provided to evaluate the needs of internal staff as well as Child Care Development Fund providers. The data is used to identify internal staff training topics as well as external training needed for child development contractors. Monitoring data is compiled by item and Error Rate Review results. Trends presented during monitoring reviews that identify a need for additional training are addressed through staff meetings which occur quarterly, monthly if needed, and professional development sessions which occur or annually. If inconsistencies are identified within current monitoring procedures the PQIB leadership team provides staff training and individual coaching on requirements. When a training topic requires subject matter experts PQIB will collaborate with policy, fiscal, and audit staff to provide in depth training to PQIB staff. Annually, the monitoring team reviews the tools and resources used by PQIB staff to conduct monitoring. Updates to materials are made each year and are reviewed by Child Care and Development Division leadership prior to being made available to the public. Policy staff provide training and overviews to PQIB on new or updated implementation guidance. b. Describe how the Lead Agency ensures all providers for children receiving CCDF funds are informed and trained regarding CCDF program requirements and program integrity: i. Describe the training for providers around CCDF program requirements and program integrity: The PQIB staff provides training through webinars, Child Care Bulletins, monitoring, and 1:1 technical assistance. The PQIB staff conducts annual webinar trainings on eligibility and need, attendance and family fees, fiscal and audit requirements, and monitoring and the self- evaluation process. The trainings are updated annually to ensure that any changes in guidance are provided to contractors. The webinars are recorded and posted on the contractor webpage. Child Care Bulletins are published to inform contractors of changes to guidance. The contract monitoring process is designed as a training and monitoring approach so that when onsite visits occur consultants are reviewing systems and providing technical assistance to ensure all regulations and requirements are adhered to. All contractors have an assigned consultant and fiscal analyst available to provide individual support and training on the effective implementation of program requirements and procedures to ensure program integrity. ii. Describe how provider training is evaluated for effectiveness: Training is delivered in a variety of modalities for meet the different learning styles of contracting agency staff. Trainings are delivered as follows: via online interactive webinar recorded and posted to the California Department of Social Services’ (CDSS’) website and available on demand to contractors (along with PowerPoint), via cluster trainings targeted to address specific geographic needs (typically done in person), and in collaboration with provider organizations via workshops (CDSS’ staff are requested to present on topics selected by the provider organization). A survey is conducted at the end of the fiscal year to determine whether there are suggestions and feedback from contractors to adjust future trainings and/or address and modifications that can be made. Contract monitoring and the annual program self-evaluation process are used to ensure provider training efforts are effective. Data trends by monitoring tool items reveal whether additional training or support is needed. iii. Describe how the Lead Agency uses program integrity data (e.g., error rate results, risk assessment data) to inform ongoing provider training needs: The PQIB team meets on a bi-weekly basis to discuss emergent trends discovered during the Contract Monitoring Review process. In addition, the Branch participates in a debrief session during the summer months where there are discussions regarding focus areas for the coming review year and promising practices from the prior year. This information is utilized to adjust practice and upcoming training efforts. 10.1.6 Evaluate internal control activities Describe how the Lead Agency uses the following to regularly evaluate the effectiveness of Lead Agency internal control activities for all CCDF expenditures. a. Error rate review triennial report results (if applicable). Describe who this information is shared with and how the Lead Agency uses the information to evaluate the effectiveness of its internal controls: The most recent review took place in early 2022. A random sample of 276 family data files were reviewed and an error rate for the state was assessed. The error rate for California was 1.9 percent. This error rate signified the total amount of payments for the random sample that were improper payments. This error rate assessment and review of the errors that caused the improper payments allowed the lead agency to identify and evaluate internal controls which allowed adjustments to guidance provided to the field in areas found to have produced the majority of the state‘s error rate. The results of the Error Rate Review are shared with the state legislature, stakeholders, and child development contractors. b. Audit results. Describe who this information is shared with and how the Lead Agency uses the information to evaluate the effectiveness of its internal controls: Annual compliance and financial audits are submitted in accordance with California Code of Regulations, Title 5, Section 18071 to the Office of Audit Services for review. Any concerns with internal controls are identified during the review of the fiscal audit and a memo describing the internal control findings are provided to the Child Care and Development Division and Finance and Accounting Division. Program and fiscal staff work with agency staff on corrective actions. Serious and persistent internal control concerns may result in loss of funding or programs placed on Conditional Status. c. Other. Describe who this information is shared with and how the Lead Agency uses the information to evaluate the effectiveness of its internal controls: Not applicable. 10.1.7 Identified weaknesses in internal controls Has the Lead Agency or other entity identified any weaknesses in its internal controls? a. ☐ X No. If no, describe when and how it was most recently determined that there were no weaknesses in the Lead Agency’s internal controls. The Child Care and Development Division (CCDD) has implemented several collaborative and communication systems with the Fiscal and Audit Divisions within California Department of Social Services (CDSS) to identify and/or eliminate any potential weaknesses in its internal controls. The review of alignment and implementation of internal control procedures is ongoing. The CCDD scheduled regular standing meetings to proactively address potential internal control weaknesses. The Program Quality Improvement Branch (PQIB) meets with the fiscal staff weekly to ensure consistency with fiscal practices in accordance with federal and state reporting. The staff participating in the weekly meetings disseminate guidance to internal staff as well as external agencies who hold child development contracts to ensure procedures are followed and align with federal requirements. In addition to ongoing meetings for calibration within fiscal reporting and accounting procedures the PQIB has a team that works directly with the Audits Division and their review of the annual financial and compliance audit. The CDSS Audits sends internal memos to PQIB staff to address findings within the independent audit findings. In collaboration the three offices collaborate on guidance, implementation, and ongoing compliance of internal control procedures as well as fiscal practices of child development contractors. As a best practice when a potential deficiency is identified the three offices connect and address through a variety of methods such as written guidance to the field, implement a new procedure, updates to fiscal reporting software or add additional monitoring procedures to ensure compliance. As contractors or community partners provide feedback, CCDD Leadership discusses areas of improvement, and a solution is quickly developed. b. ☐ Yes. If yes, what were the indicators? How did you use the information to strengthen your internal controls?. Not applicable.