Mayor's Office of Community Development : the nonprofit Filipino-American Council of San Francisco, Inc. mismanaged City grant funds

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DOCUMENTS DEPT.
JAN 1 2 2006

SAN FRANCISCO
PUBLIC LIBRARY

MAYOR'S OFFICE OF

COMMUNITY

DEVELOPMENT:

The Nonprofit Filipino- American
Council of San Francisco, Inc.
Mismanaged City Grant Funds

Not to be taken from the Library

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DOCUMENTS DEPT.
JAN 1 2 2006

SAN FRANCISCO
PUBLIC LIBRARY

MAYOR'S OFFICE OF

COMMUNITY

DEVELOPMENT:

The Nonprofit Filipino- American
Council of San Francisco, Inc.
Mismanaged City Grant Funds

Financial Audits
Division

January 5, 2006
04024

I

CITY AND COUNTY OF SAN FRANCISCO

OFFICE OF THE CONTROLLER

Ed Harrington
Controller

Monique Zmuda
Deputy Controller

January 5, 2006

Audit Number 04024

Dwayne Jones, Director

Mayor's Office of Community Development

25 Van Ness Ave, 7th Floor

San Francisco, CA 94102

Dear Mr. Jones:

The Office of the Controller presents its report concerning the audit of the nonprofit
Filipino-American Council of San Francisco, Inc. (nonprofit). The nonprofit received city
funding, under a grant with the Mayor's Office of Community Development of the City
and County of San Francisco (City), to provide a job readiness and training program, and
in the past has also had grants with the Department of Children, Youth and Their Families
and the Department of Aging and Adult Services.

We found that the nonprofit lacks adequate financial systems and records, including
adequate accounting records to support its billings to the City. We also found that the
nonprofit improperly billed the City at least $27,298 under two of the three programs
funded by city grants. However, because of the nonprofit's inadequate financial records, it
was not possible to determine the total amount the nonprofit overcharged the City. Our
audit also found that the nonprofit did not properly manage other aspects of its operations.

The response from the nonprofit is attached to this report. The Controller's Financial
Audits Division will be working with the city departments and the nonprofit to follow up
on the status of the recommendations made in this report.

Respectfully submitted,

Ed Harrington/
Controller

cc: Trent Rhorer, Executive Director, Human Services Agency

Margaret Brodkin, Director, Department of Children, Youth and Their Families
Circe McLeod, Board President, Filipino-American Council of San Francisco

City Hall • 1 Dr. Carlton B. Goodlett Place • Room 316 • San Francisco CA 94102-4694

FAX 415-554-7466

3 1223 07087 1067

SUMMARY

RESULTS IN BRIEF

We performed this audit in response to letters sent to the
Office of the Mayor and the Office of the Controller,
questioning the use of city funds by the nonprofit
Filipino-American Council of San Francisco (nonprofit). The
letters also stated concerns regarding the adequacy of the
nonprofit's controls over funds and the adequacy of the nonprofit's
management practices. As a result of these complaints, the
Controller asked the Financial Audits Division (division) to
investigate the allegations, and to determine whether the
nonprofit's billings to the City were accurate and in compliance
with the applicable grant agreements, and whether the nonprofit
used city funds in accordance with the terms of the grants. We
examined grants from the Mayor's Office of Community
Development (Community Development), Department of
Children, Youth and Their Families (Children, Youth and
Families), and the Department of Aging and Adult Services (Aging
and Adult Services), including some grants that had been
terminated.

Although the nonprofit's inadequate financial records prevented us
from completing a full audit, our results based on the records
provided to us show that the nonprofit overcharged the City and
has not properly managed its operations. The nonprofit:

• Failed to provide basic financial records, such as general
ledgers, financial statements, and adequate accounting
records to support its billings to the City.

• Lacks sufficient accounting staff.

• Lacks necessary controls over cash receipts and
disbursements.

• Made several inappropriate cash payments, including
payments to a board member that were not permitted under
the nonprofit's bylaws.

• Did not provide time sheets to support personnel costs
billed to two programs funded by city grants.

Audit Highlights...

Our audit of the
nonprofit revealed the
following:

0 The nonprofit lacks
adequate financial
systems and records.

0 The nonprofit
overcharged the City.

0 The nonprofit did
not properly manage
other aspects of its
operations.

1

Overtoiled the City at least $27,298 under two of the three
programs funded by city grants.

Failed to keep accurate attendance records for the
participants in its city-funded employment program.

Used an unlicensed electrician for electrical work at its
senior center building, thereby failing to ensure that the
electrical work complies with minimum standards of safety.

Operated its training center with an expired license for
more than five years.

Failed to provide the minutes of any board meetings, which
we requested to determine if the nonprofit held board
meetings, as required.

INTRODUCTION

BACKGROUND

Established by a group of Filipino- American community
leaders in 1969 to serve as an umbrella organization for
Filipino associations, the Filipino-American Council of San
Francisco, Inc. (nonprofit) is a California nonprofit community-
based organization. The nonprofit focuses on job readiness
training, nutrition services, and other support services to
economically disadvantaged immigrants newly arrived from the
Philippines, and other residents of San Francisco.

The nonprofit's brochure states that it operates a Senior
Opportunities Services Center (senior center), which provides a
subsidized meal program, recreational facilities, and resource and
referral services to inform seniors in San Francisco of other
available services for seniors. The nonprofit also operates the
Filipino-American Employment and Training Center (employment
training center) in a separate facility in the Mission District that
also houses the nonprofit's small management and administrative
staff. The nonprofit's employment training center offers a job
readiness and training program (employment program) that focuses
on skills such as computer literacy, resume writing, and job
interview techniques, and also provides referral and other services.
City College of San Francisco (City College) currently provides an
on-site instructor for noncredit City College classes in computer
applications, office technology, and word processing. The
nonprofit's director stated that participants in the employment
program are required to register in the noncredit classes.

In recent years, the nonprofit has received funding for its programs
from various sources, including the Mayor's Office of Community
Development (Community Development), Department of
Children, Youth and Their Families (Children, Youth and
Families), and the Department of Aging and Adult Services (Aging
and Adult Services), which is now part of the Human Services
Agency (Human Services). For fiscal year 2002-03, the nonprofit
received grants totaling $264,508 from these three city
departments.1

1 The term of the grant agreement with Children, Youth and Families, which
funded the nonprofit's Filipino- American Youth Empowerment Program (youth
program) started on or after March 2002 and ended effective December 2002.

3

For fiscal year 2003-04, the nonprofit received grants totaling
$165,931 from Community Development and Aging and Adult
Services. The Community Development grant had a budgeted
amount of $50,000, and provided funding for job training and
placement services for the nonprofit's employment program. The
source of this funding was a grant between the City and the United
States Department of Housing and Urban Development (HUD).
The grant from Aging and Adult Services, as amended, was for
$115,931, including $6,858 in United States Department of
Agriculture (USDA) funding, to provide funding for an on-site and
home-delivered meal program and nutrition education at the
nonprofit's senior center.

In July 2003, Aging and Adult Services made its 2003-04 funding
recommendation contingent on the nonprofit passing a six-month
probation period, and consequently terminated its grant with the
nonprofit effective January 2004. Explaining its decision to
terminate the grant, Aging and Adult Services staff stated that the
nonprofit did not meet all of the requirements necessary to
successfully complete its probation, was not able to stabilize its
operation, and did not have consistent leadership from its board.
The final probation assessment report completed by the Office on
the Aging (OO A) of the Department of Aging and Adult Services
stated that the OOA was still attempting to clarify the status of the
nonprofit's efforts to recruit and hire an executive director, and
that the nonprofit had not been providing health benefits to paid
employees as required.

For the 2004-05 fiscal year, Community Development awarded the
nonprofit its sole remaining city grant. As in the previous year, this
grant had a budgeted amount of $50,000 to fund job training and
placement services at the nonprofit's employment training center.

In October 2004, the Office of the Mayor received a letter, signed
by a number of individuals, stating that questions had been raised
regarding the legality of some of the nonprofit's expenditures and
the adequacy of the nonprofit's controls over funds. The Office of
the Controller also received a more detailed letter describing
various concerns regarding the operations of the nonprofit and its
use of city funds. As a result of these complaints, the Controller
asked the Financial Audits Division (division) to conduct an audit
to determine whether the nonprofit's requests for reimbursements
from the City complied with the applicable grants, and whether the
nonprofit used city funds in accordance with the terms of the
grants.

4

SCOPE AND METHODOLOGY

The purpose of the division's review was to determine whether the
nonprofit's requests for reimbursements from the City for costs
from July 1, 2002, through June 30, 2004, were accurate and in
compliance with the applicable grants, and whether the nonprofit
used city funds in accordance with the terms of the grants. After
discussing the review with representatives of Community
Development, Children, Youth and Families, and Human Services,
we chose to examine grants from each of the three departments.

To conduct the financial review, we interviewed key personnel
from the nonprofit and from Community Development, Children,
Youth and Families, and Human Services. We also reviewed the
applicable terms of the nonprofit's grants with the City and various
program and financial records, including payroll records, bank
statements, and expense vouchers. We evaluated whether the
nonprofit had adequate financial and management systems to
ensure that it complied with the terms of its grants with the City.

The division performed a detailed examination of invoices that the
nonprofit submitted to the City for reimbursement by examining,
on a sample basis, the financial records and documentation the
nonprofit maintained in support of the invoiced amounts. However,
the nonprofit did not have, or make available to us, all of the
financial statements, general ledgers, check registers, bank
statements, and supporting documentation that we requested to
complete the review.

We also conducted a limited review of public records, including
corporate records available from the California Secretary of State
and licensing records available from the California Department of
Consumer Affairs, and performed other steps we considered
necessary in order to investigate issues identified during the audit.

5

Inserted Blank Page Intentionally.

AUDIT RESULTS

THE NONPROFIT LACKS ADEQUATE
FINANCIAL SYSTEMS AND RECORDS

The Filipino- American Council of San Francisco, Inc.
(nonprofit) did not have, or make available to us, all of the
financial records that we requested to complete our review.
The nonprofit's failure to do so results from a lack of adequate
financial systems, records, and accounting expertise, in addition to
its failure to fully cooperate with our audit. We also identified
areas in which the nonprofit lacks key financial procedures and
controls.

The Nonprofit Could Not Provide
Basic Financial Records and Lacks
Sufficient Accounting Staff

The nonprofit's grants with the City during the audit period
required the nonprofit to maintain accurate financial books and
accounting records for a minimum of either four or five years after
the final payment or the completion of any final audit, whichever is
later. Required financial records include invoices, canceled checks,
payroll records, attendance and time records, and any other
documentation for costs that have been reimbursed, as well as tax
returns, financial statements, and other financial information. The
grants also provide the City access to all the nonprofit's books and
records during the agreement's term and for a minimum of four or
five years following the expiration of the term.

The nonprofit failed to provide many of the books and records we
requested prior to and during our audit. For example, the nonprofit
failed to provide financial statements, general ledgers, and tax
returns, and only partially provided records such as bank
statements and supporting records for expenses incurred. Also, the
nonprofit failed to provide bank reconciliations. Therefore, we
could not determine if the nonprofit had performed bank
reconciliations, as required by sound business practices. Because
the nonprofit did not provide requested documents, we were unable
to perform a comprehensive audit.

We asked to interview the nonprofit's accountant regarding the
nonprofit's accounting practices and records. The nonprofit's
director stated that the accountant was not available for us to

The nonprofit failed
to provide many of
the records we
requested prior to
and during our audit.

1

interview because she was busy during the tax season. However,
the director told us that she had given the accountant data to enter
into the accounting system. In June 2005, we again asked to
interview the accountant. However, the director did not provide us
information to contact and interview the accountant. Based on the
list of staff provided by the nonprofit's director, the accountant is
not an employee of the nonprofit. We did interview the nonprofit's
part-time bookkeeper. In response to our inquiries regarding the
nonprofit's accounting records and practices, the bookkeeper stated
that she primarily performs accounts payable and billing functions
and does not maintain the general ledger. She stated that she has
very limited knowledge of computer programs commonly used for
bookkeeping, such as Microsoft Excel, and she doesn't know how
to use the nonprofit's QuickBooks software to perform accounting
functions such as posting general ledger entries.

The Audit Identified Unsupported
Cash Payments

The nonprofit failed to provide all the bank account records we
requested such as bank statements and bank reconciliations.
However, we were able to identify several cash payments that did
not comply with the nonprofit's bylaws or sound business
practices. For example, we found that the nonprofit issued two
checks in 2003 to a board member. Each check was for $500, and
the nonprofit's records indicate that the payments were for
honorariums. However, the nonprofit's bylaws provided by the
director, which were unsigned and undated, state that its directors
shall serve without compensation, except that they shall be
reimbursed actual expenses incurred in the performance of tasks
assigned them by the board. We asked the director the reason for
the two honorariums totaling $1,000 paid to the board member.
The director, however, chose not to respond to our inquiry.

We also found documentation of six $1,000 payments, for a total
of $6,000, to an individual who, according to a former executive
director of the nonprofit, is a relative of the board member who
received the honorariums. The documentation included expense
voucher forms and copies of issued checks, but did not include
cancelled checks or copies of cancelled checks. The nonprofit
billed Children, Youth and Families for this $6,000 as consultant
services for the period July 2002, through December 2002.
However, the nonprofit's brief written agreement with this
individual did not adequately describe the services to be
performed. The agreement only described the services as services
in the area of organization development in various management

8

activities covering board development, program development and
fiscal management. The nonprofit's grant with Children, Youth
and Families did not list these types of consultant services in the
grant budget. As discussed later in this report, the $6,000 in
payments for consultant services should be disallowed.

The Nonprofit Lacks Necessary
Procedures and Controls Over Cash

We found that the nonprofit lacks adequate controls over cash
disbursements. The by-laws of the nonprofit furnished by the
director require two authorized signatures for all checks and drafts,
including the signatures of the treasurer and the president or the
vice president of the corporation. However, the nonprofit's records
show that the nonprofit's director signed some checks for program
and operating costs such as salaries, office supplies, and telephone
charges. The director was the only signatory for some of these
checks, and some of the checks were not pre-numbered. Dual
signatures and pre-numbered checks are basic controls to ensure
that cash disbursements are appropriate and properly authorized.
We asked the director several times during the audit to provide
minutes of meetings of the board of directors, so that we could
determine if board approval was received for these transactions.
However, we had not received any board meeting minutes as of
October 12, 2005.

We also found weaknesses in controls over cash receipts. For our
review of the nonprofit's on-site and home-delivered meal
program, which received funding under a grant with Aging and
Adult Services, we selected August 2003 as a sample month and
performed detailed testing of transactions for that month. For
August 2003, the nonprofit recorded $1,298 in voluntary cash
donations collected for daily lunch meals served at its senior center
and for home-delivered meals. Although the log sheet used by the
nonprofit indicated that donations were to be deposited into a
specified bank account, we were not able to verify that the amounts
had been deposited. The August 2003 bank statement for the
specified account does not reflect any deposits. We asked the
director to clarify if the nonprofit deposited the cash donations into
its bank account. The director, however, chose not to respond to
our inquiry, and we could not determine from available bank
records if the cash donations were deposited into the nonprofit's
bank accounts. Accurate recording and prompt deposit of cash
receipts are necessary controls to ensure that all cash receipts are
properly accounted for. Without adequate controls over cash

The nonprofit lacks
adequate controls
over cash
disbursements.

9

disbursements and cash receipts, we could not ensure that the
nonprofit properly administered city grant funds.

The nonprofit made
cash payments to its
employees without
withholding payroll
taxes, as required by
the IRS.

The Audit Could Not Determine if the Nonprofit
Properly Withheld and Paid Payroll Taxes

The United States Internal Revenue Service and the State of
California require employers to withhold and remit payroll taxes
and file quarterly payroll tax returns. However, we could not
determine whether the nonprofit always paid required payroll taxes
and filed the required tax returns, because the nonprofit failed to
provide all the payroll tax returns and other records we requested.
However, our audit was able to identify cash payments to
employees from which the nonprofit failed to withhold any payroll
taxes.

Our review of the nonprofit's on-site and home-delivered meal
program, funded by Aging and Adult Services, identified six
payments totaling $6,260 from which the nonprofit withheld no
payroll taxes. The payments included a $2,000 payment to an
employee for partial settlement of unused vacation, an additional
$2,320 payment to the same employee in lieu of vacation, and
several payments of differing amounts for bonuses to other
employees and for what the documentation referred to as extra
services.

As discussed in an earlier section in this report, the nonprofit did
not provide all the documents required for this audit, and we could
not determine the total amount of cash payments billed under the
grant with Aging and Adult Services. Failure to withhold and pay
required payroll taxes exposes the nonprofit to penalties and tax
liabilities.

The Nonprofit Did Not Provide Time Sheets
To Support Personnel Costs Billed to the City

Our audit found that the nonprofit routinely billed the City for
amounts in grant budgets for personnel costs, including salaries,
wages, and fringe benefits, but did not always maintain timesheets
or other records to support the hours and amounts billed. The
nonprofit did not provide timesheets or other records which could
support personnel costs billed to the youth program and
employment program. The documentation the nonprofit did submit
to support the amounts it billed was not adequate to demonstrate

10

that the nonprofit only billed the City for program costs it actually
incurred and which were allowable under the terms of its grants.

The Nonprofit Failed to Allocate Appropriately
Its Joint or Shared Costs

We found that the nonprofit also billed the City for amounts in the
grant budgets for other costs, and did not employ acceptable
methodologies for allocating joint or shared costs of programs to
the related grants. For example, we reviewed the nonprofit's
employment program and youth program, which received funding
under grants with Community Development and Children, Youth
and Families. We selected the period from July 2002, through
December 2002 as a sample period and performed detailed testing
of transactions for that period. We found that the nonprofit paid
$1,300 in office rent each month during this period, and each
month billed Children, Youth and Families and Community
Development 50 percent of this amount, or $650. This practice was
not adequate to ensure that the nonprofit billed each grant only for
program costs it actually incurred and which were allowable under
the terms of each grant.

Office of Management and Budget (OMB) Circular A- 122, Cost
Principles for Non-Profit Organizations, establishes principles for
determining costs of grants, contracts, and other agreements with
non-profit organizations. Circular A- 122 defines direct and indirect
costs, and provides guidelines for identifying costs considered
direct costs for a particular program, and for allocating indirect
costs among different programs. Because the nonprofit's grant
with Community Development provides for distributing, to the
nonprofit, funding provided to the City by the United States
Department of Housing and Urban Development, the agreement
states that the City will distribute these funds to the nonprofit in
accordance with the provisions of Circular A- 122. We found that
the nonprofit's procedures for allocating joint or shared costs failed
to meet these requirements.

THE NONPROFIT OVERCHARGED THE CITY

Although the nonprofit lacked adequate financial systems and
records, and failed to provide all the records we requested to
complete the audit, we were able to substantiate allegations that the
nonprofit overcharged the City.

11

From July 1, 2002, through June 30, 2004, the nonprofit
improperly billed the City at least $27,298 under two of the three
programs funded by city grants. This amount includes $21,298 in
personnel costs that the nonprofit billed Children, Youth and
Families and Community Development in excess of the costs it
actually paid, and $6,000 that the nonprofit billed Children, Youth
and Families for consultant services for the period July 2002,
through December 2002. As discussed in a prior section of this
report, without additional financial records, we could not
determine if there are additional amounts the nonprofit
overcharged the City.

TABLE 1

Filipino-American Council of San Francisco, Inc.
Grant Funding from City Departments

Mayor's Office of
Community
Development

Department of
Children, Youth and
Their Families1

Department of Aging
and Adult Services

Total Amounts

Period Covered

Budgeted
Amount

Paid
Amount

Budgeted
Amount

Paid
Amount

Budgeted
Amount

Paid
Amount

Budgeted
Amount

Paid
Amount

July 1, 2002, Through
June 30, 2003

$50,000

$50,000

$66,865

$57,902

$147,643

$144,981

$264,508

$252,883

July 1, 2003, Through
June 30, 2004

50,000

50,000

115,931

64,388

165,931

114,388

July 1, 2004, Through
June 30, 2005

50,000

50,000

50,000

50,000

Total

$150,000

$150,000

$66,865

$57,902

$263,574

$209,369

$480,439

$417,271

/. The term of the grant with Children, Youth and Families was on or after March 1, 2002, through December 31, 2002.
2. Aging and Adult Services terminated its grant with the nonprofit effective January 16, 2004.

The Nonprofit Billed the City for Personnel
Costs That It Had Not Paid

The nonprofit billed
the City $21,298 for
personnel costs that
it had not paid.

During the period July 2002, through December 2002, the
nonprofit billed Children, Youth and Families and Community
Development $34,886 in personnel costs for three staff members
billed under the youth program and the employment program.
However, our review of the nonprofit's bank statements showed
that payroll checks representing $21,298 of these billings had not
cleared the nonprofit's bank as of December 31, 2002. Although it
is possible that some of these checks may have cleared after

12

December 3 1 , 2002, we were not able to review later bank
statements to determine this, because the nonprofit did not provide
them. We asked the director why these payroll checks were not
cashed. The director, however, chose not to respond to our inquiry.
We found that the nonprofit intentionally billed the City for
personnel costs that it had not actually paid during the period for
which they were billed, and that the $21,298 in billed personnel
costs should be disallowed.

As discussed in the previous section of this report, the nonprofit
did not provide timesheets or other records to support personnel
costs. We were therefore not able to determine how much of the
remaining total billed amount was allowable under the terms of the
grants.

TABLE 2

Filipino-American Council of San Francisco, Inc.
Personnel Costs Billed for Employment and Youth Programs
July 1, 2002, Through December 31, 2002

Personnel

Actual Amounts
Paid by the
Nonprofit

Billed the
Employment
Program

Billed the

Youth
Program

Total Billed
to the City

Over Billings
by the
Nonprofit

Program Director

$7,234

$10,075

$9,286

$19,361

$12,127

Program Coordinator

6,054

7,852

7,223

15,075

9,021

Bookkeeper

300

450

450

150

Total

$13,588

$18,377

$16,509

$34,886

$21,298

The Nonprofit Also Billed the City for Consultant
Services Costs That It Had Not Paid

As discussed in the previous section, we found expense vouchers
for six $1,000 payments, for a total of $6,000, to a relative of one
of the nonprofit's board members. The nonprofit billed Children,
Youth and Families for this $6,000 as consultant services for the
period July 2002, through December 2002. However, the
nonprofit's brief written agreement with this individual did not
adequately describe the services to be performed. The agreement
only described the work as services in the area of organization
development in various management activities covering board
development, program development and fiscal management. The
nonprofit's grant with Children, Youth and Families did not list
these types of consultant services in the grant budget. Furthermore,

13

the grant states that all expenses must be paid by the nonprofit
prior to the submission of monthly billings. Our review of the
nonprofit's bank statements showed that these checks had also not
cleared the nonprofit's bank as of December 31, 2002. We asked
the director to clarify if the bank cleared these six checks. The
director, however, chose not to respond to our inquiry.

THE NONPROFIT HAS NOT PROPERLY
MANAGED ITS OPERATIONS

In addition to inadequate financial systems and records, we
identified other aspects of the nonprofit's operations that were not
properly managed. For example, the nonprofit failed to maintain
accurate attendance records for the employment program, and
failed to adequately ensure the safety of the seniors and others who
use its senior center building because it used an unlicensed
contractor to perform electrical work at the building and did not
obtain necessary permits. The nonprofit also failed to maintain a
required vocational license for its employment training center.
Finally, the nonprofit did not provide us board meeting minutes
and we were unable to determine if the nonprofit held regular
board meetings, as required.

The Nonprofit Did Not Maintain Accurate
Attendance Records for the Employment
Program

The nonprofit's grant with Community Development requires the
nonprofit to provide training in job readiness skills to 30
participants during the term of the grant, with 10 participants for
each four-month period. City College of San Francisco currently
provides an on-site instructor at the nonprofit's employment
training center, so that the nonprofit's employment program can
provide noncredit City College classes in computer applications,
office technology, and word processing. We found that the
nonprofit did not maintain complete and accurate attendance
records for the employment program. Furthermore, the attendance
records maintained by the City College instructor for the noncredit
classes were improperly completed in advance. As a result, we
could not conclusively determine that the nonprofit's employment
program met grant requirements for the number of participants.
The scope of our audit did not include the nonprofit's compliance
with other grant requirements, such as job placement and job
retention activities.

Attendance records
for the noncredit
classes were
improperly
completed in
advance.

14

For our review of employment program attendance records, we
selected February 2005 as a sample month and performed a
detailed review of daily and monthly attendance records for that
month. For the 10 participants in the employment program for the
month, we found 20 instances in which participants did not sign
out on daily attendance records, and 3 1 instances in which
participants did not initial daily attendance records to document
their attendance.

We also found discrepancies between the attendance records
maintained by the nonprofit and the attendance records maintained
by the City College instructor. When we compared these two sets
of records for a two week period for the 10 participants, we found
17 instances in which the attendance of participants was recorded
in the City College records, but not in the non-profit's daily
attendance records. The City College instructor we spoke to stated
that, in order to save time, she had asked participants to sign in for
all of the 10 days on the 2-week City College attendance rosters in
advance. We found this practice to be an unacceptable method for
keeping attendance records.

The Nonprofit Used an Unlicensed Electrician
For Electrical Work at Its Senior Center,
And Failed to Obtain Required City Permits

The Contractors State License Board of the California Department
of Consumer Affairs (state licensing board) regulates the
construction industry and requires licensing for contractors,
including those doing electrical work. The San Francisco
Department of Building Inspection (DBI) requires electrical
permits before alterations, extensions, or additions may be made to
electrical installations, unless the work meets certain criteria and is
therefore considered exempt from the permit requirement.

In fiscal year 1987-88, the California Department of Aging granted
the nonprofit $250,000 for the acquisition and renovation of a
building in the Mission District to be used as a senior center.
Between July and November 2003, the nonprofit paid a total of
$7,282 to an individual for the upgrade of electrical systems in the
senior center building owned by the nonprofit. The individual was
not a licensed contractor, as required by the state licensing board,
and a senior electrical inspector with the DBI stated to us that DBI
did not issue any permits for this work. We found that the
nonprofit's use of an unlicensed contractor, and the failure to
obtain the necessary permits, failed to ensure that the electrical
work complies with minimum standards of safety.

The nonprofit paid
an unlicensed
individual for
electrical work at its
senior center, and
failed to obtain
required permits.

15

The Nonprofit Operated its Employment Program
With An Expired License for More Than Five Years

The Bureau for Private Postsecondary & Vocational Education of
the California Department of Consumer Affairs (bureau) regulates
private postsecondary schools such as Filipino-American
Employment and Training Center, the nonprofit's employment
training center in the Mission District. According to an education
specialist of the bureau, the nonprofit's license for operating the
training center, as required by the bureau, had expired on
December 31, 1999. She also stated that the nonprofit was in re-
approval process with the bureau and that the nonprofit retained its
approval to operate according to law. We asked the director the
date the nonprofit applied for renewal of the license for the
employment training center. The director, however, chose not to
respond to our inquiry. According to the education specialist, the
nonprofit's reapproval application was submitted to the bureau on
January 8, 2004. Although the nonprofit was issued a current
license effective March 24, 2005, the nonprofit should have
maintained a current license at all times to ensure that the bureau's
educational standards were maintained and that the students'
interests were protected.

The Nonprofit Failed to Provide
Minutes of its Board Meetings

Because the nonprofit is a California nonprofit corporation, it is
required to comply with the Non-Pro fit Corporation Law of the
State of California and other applicable requirements pertaining to
corporate governance. These requirements include holding regular
meetings of the nonprofit's board of directors, and maintaining
minutes of those meetings. Prior to and during the audit, we asked
to review copies of board meeting minutes. However, the nonprofit
failed to provide or make available the minutes of any board
meetings. We were therefore unable to determine if the nonprofit
held board meetings and documented the meetings, as required.

RECOMMENDATIONS

To ensure that the nonprofit's requests for reimbursements from
the City are accurate and in compliance with the applicable grants,
the Mayor's Office of Community Development should do the
following:

• Suspend any current and future grants.

16

• Require corrective actions to address the recommendations
made above as a condition for continuing any grant funding for
the nonprofit.

• Recoup $27,298 in overcharges identified by this audit.

• Work with the Department of Children, Youth and Their
Families, the other department for which overcharges by the
nonprofit were identified, to determine the appropriate division
of recovered amounts between Community Development and
Children, Youth, and Families.

To ensure that Filipino-American Council of San Francisco, Inc.
(nonprofit) maintains adequate financial systems and records, the
nonprofit should take the following steps:

• Engage the services of a qualified accountant to complete
entries to the general ledger, starting with the fiscal year ending
June 30, 2002, and including all periods to the present.

• Retain the accountant to maintain the financial books and
records of the nonprofit and ensure timely preparation of
financial statements.

• Institute adequate procedures and controls over cash receipts
and disbursements, and identify and collect any improper cash
payments.

• Review its records to identify any payroll taxes it did not pay,
and work with federal and state agencies to determine all
interests and penalties due.

• Maintain time sheets to support program personnel expenses,
including amounts billed under city grants.

• Institute acceptable procedures for allocating joint or shared
costs of programs and correctly charging them to the related
grants.

• Keep complete and accurate records and documentation related
to program expenses, including support for amounts billed
under city grants.

To improve management of its operations, the nonprofit should do
the following:

• Maintain complete and accurate attendance records for the
employment program.

• Require City College to maintain accurate records for class
attendance, and to discontinue the practice of having
participants sign in on attendance rosters in advance.

• Have the electrical systems at the senior center inspected by the
City, and obtain any required permits or approvals.

• Maintain current licensing for the employment program at all
times.

• Hold regular board meetings and document the meetings, as
required.

We conducted this review according to the standards established
by the Institute of Internal Auditors. We limited our review to
those areas specified in audit scope section of this report.

Staff: Robert Tarsia, Financial Audit Manager
Lorita Chung

18

FILIPINO-AMERICAN COUNCIL OF SAN FRANCISCO, INC.
RESPONSE TO THE AUDIT

FILIPINO AMERICAN COUNCIL OF SAN FRANCISCO

New Immigrants and Seniors Services
3416 19th Street, San Francisco, CA 94103, Tel. 415.626.0773

Dec. 27, 2005

Mr. Robert Tarsia

Financial Audit Manager

Office of the Controller

City and County of San Francisco

Dear Mr. Tarsia:

We are in receipt of the Audit Report and we truly appreciate your teams' efforts in assessing
the condition of the FilAm Council. There were some aspects in the report that we are already
aware of and have done corrective measures, and some issues that we only have come across
now. We acknowledge some omissions on the present Board's part but other problems came
about long before our time. May we put in perspective that most of the present board officers and
members were only installed in February 2004, when the Council was already floundering.
These are composed of dedicated and hardy members of the community who honestly feel that
there's still hope in correcting the flaws in the system and this respected institution can still find
its bearing when given the chance.

Due to the severity of the report, we would like to answer all the issues point by point, however,
due to time constraints, with the holidays, and the Board Secretary out of the country, we would
like to request that we be given a little leeway to answer the other issues. This letter will try to
answer those that we readily have answers to.

We have consolidated all our services at our 19th Street head office. Since July of this year, we
have closed our 16th Street extension office and temporarily suspended our Training and
Employment program. We have since terminated the services of the Program Director, Norma
Tecson. The Program Coordinator, Josie Manalo, still assists us on a part time pro bono basis
and the bookkeeper, Dolores Maghari, is no longer in our employ.

Since terminating Mrs. Tecson, we found out to our dismay and disappointment that she did the
Council a great injustice by withholding important documents, and misleading Board members
from the actual position and occurrences at the training Center. We believe that Mrs. Tecson
willfully withheld incriminating documents that point to her incompetence, and still have in her
possession, if she has not destroyed them yet, other missing documents needed to complete your
audit and even our own internal review. We trusted Norma Tecson and thought we could depend
on her to supply all the needed documentation for the audit. She would always tell us that she has
submitted everything except the financial statement. We only found out that we could not

complete it because she misplaced or lost the financial statement that was given to her by the
former bookkeeper, Alma Animo.

We are at present still putting our books and documents together, reconciling bank statements
and financial records. Thereto, it was only after interviewing past staff members that we were
able to reconstruct who were the persons responsible for specific instances your audit referred to.

The following is the response to several issues mentioned in the Audit Summary. These in no
way substitutes all the documents needed to satisfy the audit and it's recommendations. We will
submit all the documents Norma Tecson failed to submit to the Audit team at the soonest
possible time.

- Failed to provide basic financial records, such as general ledgers, financial statements and
adequate accounting records to support its billings to the City.

We are reconstructing our records because Norma Tecson failed to submit or surrender to
the Board any of the financial records under her care.

- Lacks sufficient accounting staff.

We have hired an accountant, Mr. Paul Briones, to reconcile whatever records we have in
order to satisfy all accounting procedures, including IRS issues.

- Lacks necessary control over cash receipts and disbursements.

Although the Training Center had its accounting problems, the Senior Center's
accounting procedures were in order. The Board was not aware that Ms. Tecson was
signing checks other than those issued by the Board Treasurer and President, the two
officers who were authorized to sign pre-numbered Council checks. This is something
that we have to ask Ms. Tecson to explain in full.

- Made several inappropriate cash payments, including payments to a board member that
were not permitted under the nonprofit's bylaws.

Morgan Benedicto, the referred to Board Member, offered to act as interim executive
director of the Council when it found itself sans one and needed such an executive
immediately. Mr. Benedicto resigned from the Board before he was appointed acting ED
(Executive Director) He requested $500 every two weeks as compensation for
transportation and miscellaneous expenses. The Board then believed it was generous of
Mr. Benedicto to offer his services for such a small stipend.

- Did not provide time sheets to support personnel costs billed to two programs funded by
city grants.

This is still under review. These are the same records that we have been requesting from
Ms. Tecson to surrender to the board, to help us in our efforts to reconcile all pertinent
records related to the operation of the Training Center.

Overbilled the City at least $27,298 under two of the three programs funded by city
grants.

On the $6,000 in question: The written agreement with the FilAm council and the
recipient of the $6,000 payment failed to include that she was to perform other services
for the youth in other areas such as tutorial in English composition and ESL. We also
believe that Norma Tecson requested DCYF to allow her to use the funds for capacity
building, board development and fiscal management. She was subsequently given a
verbal approval thus the $6000 was released to the training program.

On the $21,298: The Board was not aware of the circumstances that the checks that were
issued to staff members were not being cashed. But we hope to find the answers after the
reconciliation of our records by our new accountant.

Failed to keep accurate attendance record for the participants in the city- funded
employment program.

It is our belief that there are ample records for attendance which were not submitted by
Ms. Tecson for the Audit. Although, there were instances that students failed to sign in,
in spite of the instructions to do so according to the program coordinator. On many
occasions, either the students forgot to do so or the staff were busy with other chores and
failed to monitor the sign-in sheet.

The Board had no knowledge of the City College instructor's unacceptable manner
of getting her students signature way in advance as proof of their actual daily attendance.
Although, Ms. Tecson should have been able to catch it were she diligent in doing her
job.

Used an unlicensed electrician for electrical work at its senior center building, thereby
failing to ensure that the electrical work complies with minimum standards of safety.

The person in charged to hire an electrician did not inform the Board that the contractor
was unlicensed. The Board has now hired a licensed electrician to check what has been
done. And to make sure that it is in accordance with the code.

Operated its training center with an expired license for more than five years.

Norma Tecson, the program director, misinformed the board that the licenses for
operating the training center were current.

- Failed to provide the minutes of any board meetings, which we requested to determine if
the nonprofit held board meetings, as required.

Board Secretary sent copies of the Board minutes to Norma Tecson for safe keeping.
Unfortunately to date the same has not been surrendered to us to comply with the
requirements of the audit. But we will try to extract it from her but in the meantime we
are trying to recover whatever minutes we have that is still on file with our Board
Secretary, who, however, is out of the country.

During the course of our interview with former Program Coordinator, Josie Manalo, we
were informed that the previous Program Director, Marivic Blanco, cleared out her desk
sometime in January 2001 and might have thrown many important documents due to her
temperamental behavior and lack of respect for the institution she worked for.

The FilAm Council has been serving the Mission District community for more than 35 years
honorably and with dedication. It has given needed services to the underserved members of the
community and are much appreciated by these citizens who are impacted by its presence. The
new Board members are doing their best to correct the deficiencies of the past to get the Council
back on track. We are desirous in getting its programs in full swing and will cooperate fully with
the City and the Audit team to satisfy all necessary documents and requirements to get the
Council in good standing once again.

We pray for your understanding and hope that you will give the Board more time to submit to
you all the documents that were not submitted by Norma Tecson.

Thank you.

Sincerely,

MAYOR'S OFFICE OF COMMUNITY DEVELOPMENT
RESPONSE TO THE AUDIT

Mayor's Office Of Community Development

City & Comity Of San Francisco

Gavin Newsom
Mayor

Dwayne Jones
Director

December 9, 2005

Mr. EJ Harrington

Ofike of the CuaLroJler

City and Coanty of San Francisco

Oily FJtilU Rutxm 476

Having reviewed the audit of the FiMpino-Ameiican Council of Sao Fotwpse-o, inc., ("Mi-Am
Council''} performed by the Office of the Controller of the City and County of San Francisco, the
Mayor's Office of Community Development f'MOCP") has the following f«SfipaSes:

1 . MOCD agrees to suspend my current and future grams the f il-Am. Cowiicjl.

2, MOCD agrees to require corrective actions to addre&s the audit's, recommendation* as. a
condition for continuing any grant Sanding for flic nonprofit, including but not limited to
all recommendations issued by the Controller to the Fil-Ara Coracil. found on page 19 of
the audit

. 3. MOCD agrees to work in ourtjutsction with the Controller's office and the Department of
Children, Youth and their Families f "DC YFM) to recoup the $21,29$ in personnel costs
that should be disallowed for the period of July 2002 through December 2002,
4. MOCD agrees to work with DCYF to determine the appropriate division of the $21,29S

in /covered amounts between MOCD and OC YF,
5- MOCD agrees to support DCYF in its recovery of the S6000 that was inappropriately
billed to DCYF fur consul Unit services costs from July 2002 through Decern her 2002,

J 'hank you for inviting our response to your draft audit. Please free to contact roc at 252-3 1 29
with any questions you might have regarding this response.

Sincerely,

Fred Black well
Deputy Director

25 Van Ness- Avenue, Suite 700, Bmi Francisco, CA :94102.
Phone; (415} 252-31®® * TDD: (415) 252-31117* www^fgov.or^moed

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