2023-048 Cannabis Business Licensing

Audit Recommendations Disclosure

When an audit is completed and a report is issued, auditees must provide the State Auditor with information regarding their progress in implementing recommendations from our reports at three intervals from the release of the report: 60 days, six months, and one year. Additionally, Senate Bill 1452 (Chapter 452, Statutes of 2006), requires auditees who have not implemented recommendations after one year, to report to us and to the Legislature why they have not implemented them or to state when they intend to implement them. Below is a listing of each recommendation the State Auditor made in the report referenced and a link to the most recent response from the auditee addressing their progress in implementing the recommendation and the State Auditor’s assessment of auditee’s response based on our review of the supporting documentation.

Recommendations to Department of Cannabis Control

Recommendation 1

To better align its management of grant programs with best practices, by February 2025, DCC should institute a grants management policy. This policy should accomplish the following actions at a minimum:

• Designate the DCC staff member responsible for determining that proposed activities and costs are allowable during the grant review process.
• Establish a process to ensure that each element of the policy has been reviewed, such as reviewing costs for allowability.
• Establish benchmarks or other criteria in grant agreements for measuring grantee progress toward a grant program’s goals.
• Specify the preferred method for disbursing grant funds, taking into account common grant management best practices.
• Establish an amendment review process that includes internal and external deadlines to ensure DCC processes amendments in a timelier manner.
• Establish procedures for monitoring expenditures and determining their allowability.
• Establish a method to track the time that DCC staff spend working on grant-related activities.

Recommendation 2

To provide grantees with timely feedback about whether their spending is allowable or whether they will be required to return funds, DCC should immediately begin reviewing grantees’ expenditures to determine whether their expenditures are appropriate and begin communicating those determinations to the grantees.

Recommendation 3

To help ensure that state grant funds and related interest benefit only the Grant Program, DCC should immediately recommend that all grantees place any unspent grant funds in interest-bearing accounts. Further, DCC should direct grantees to track and report to DCC any interest accrued from those funds, and clarify that the accrued interest be used only for the purpose of the Grant Program.

Recommendation 8

To better monitor the timeliness of its license application process, by February 2025, DCC should identify the steps in the license application process, alter its license tracking systems as necessary to track relevant data related to that process, and begin analyzing the data to determine how to shorten the average time it takes to issue a license.

Recommendation 10

To give grantees sufficient time to spend the grant funds, DCC should immediately reassess whether its March 31, 2025, spending deadline is necessary. If that deadline is not necessary, DCC should change it to the June 30, 2025, deadline established in state law.

Recommendation to City of Commerce

Recommendation 4

To reduce the risk that DCC will require it to repay grant funds, the city of Commerce should immediately cease using grant funds in a manner that may supplant existing funding for its staff and contractors, review all expenditures it has paid for with grant funds, and reimburse Grant Program funds from its general fund for any unallowable or supplanted expenditures.

Recommendation to Humboldt County

Recommendation 5

To ensure that it pays for all grant-related costs from the grant funds it has received, by February 2025, the county of Humboldt should accurately reconcile its grant expenditures before its fiscal year-end close.

Recommendation to City of Long Beach

Recommendation 6

To improve its ability to appropriately budget its grant funds and DCC’s ability to determine how much of those funds the city is spending and how quickly it is spending them, by October 2024, the city of Long Beach should develop grant management procedures that establish a method for the accurate and timely accounting and reporting of grant-related expenditures.

Recommendation to City of San Diego

Recommendation 7

To reduce the risk that DCC will require it to repay grant funds, by October 2024, the city of San Diego should review all expenditures it has paid for with grant funds, clarify with DCC whether the expenditures are allowable, and reimburse the grant funds from its general fund for any unallowable expenditures.

Recommendation to the Legislature

Recommendation 9

To clarify the allowable use of grant funds, the Legislature should amend the definition of a provisional license for purposes of the Grant Program to mean a provisional license issued at any time.