2023-048 Cannabis Business Licensing

As of October 2024, DCC’s Administration Division has developed a formal Grant Management Manual and has implemented its use. The Grant Management Manual requires that each DCC grant program have an accompanying grant procedural manual that incorporates each of the best practices recommended by CSA. DCC finalized the Local Jurisdiction Assistance Grant (LJAG) Procedural Manual in September 2024.

As included in its response to CSA’s audit report, since January 2024, DCC began performing a more extensive review of grantee expenditures dating back to the inception of the grant program by using an expenditure review checklist. DCC’s review of grantee expenditures involves the reconciliation of grantees’ reported expenditures with supporting documentation and the scheduling of individual technical assistance meetings with local jurisdictions to review reporting requirements and questionable or unallowable costs. As of October 2024, DCC continues to review grantee expenditures and has since notified five local jurisdictions that they are required to return portions of their award funds due to ineligible expenditures and/or lack of supporting documentation.

In an email dated September 24, 2024, DCC notified grantees that they have authority to deposit grant funds in their custody into interest-bearing accounts. Per DCC’s guidance, local jurisdictions are instructed to deposit and track any interest generated by its grant funds into the account in which the original award funds were initially deposited. Local jurisdictions have since been instructed to return any accrued interest that has not been spent on grant related activities to DCC.

DCC anticipates fully implementing this recommendation as a part of its singled unified licensing system. Currently, DCC is targeting the submission of a Stage 1 Business Analysis for its proposed unified licensing system for approval by the Department of Technology by late 2024 or early 2025. In the interim, DCC will continue to explore methods to track its license application processing timelines that leverage its current resources, and the data provided by its two licensing systems. The development and implementation of these methods will be triaged alongside other high-priority planned licensing system updates required to meet current regulatory mandates.

While DCC understands CSA’s rationale behind its recommendation, DCC continues to respectfully disagree with the recommendation on the grounds that the recommendation does not account for the appropriate use of DCC’s discretionary powers. DCC has determined the March 31, 2025, deadline to be necessary and appropriate. Item 1115-101-0001 of Section 2.00 of the Budget Act of 2021, Provision 6, subdivision (a) specifically allows DCC to establish a date by which the funds must be expended; furthermore, Provision 8 provides authority to adopt guidelines. Accordingly, DCC included a date by which the funds must be expended. Therefore, DCC exercised its discretion provided by Provisions 6 and 8 to establish the March 31, 2025, date in its guidelines to allow the review and reconciliation of expenditure records prior to the reversion of funds on June 30, 2025.

We stand by our recommendation. Given the short lifetime of the Grant Program and the fact that grantees were slow to spend the funds, the March 31, 2025 deadline that DCC established may not provide sufficient time to allow grantees to spend the grant funds.

Following the recommendations made by the California Audit Report and the original grant agreement, the City has prepared to adjust internal financial reports to reverse all unallowable expenses within our internal systems. The City is in the process of reimbursing $299,664.62 to the DCC, which was part of the 80 percent, a total of $333,055.88 that was originally issued to the City.

After reviewing the recommendations from the audit report, the City will only be requesting for the DCC to recognize 17 months of labor reimbursement, from July 1, 2022, through November 12, 2023, for the time the Management Analyst worked on grant-related activities.
This request was first made on February 28, 2024, and April 10, 2024, in response to concerns brought to light from the audit report, which was denied and the DCC requested the complete reimbursement of the $333,055.88 of the grant amount.

Following the recommendations received from the audit report, the City ceased to utilize grant funds for unallowable or supplanted expenditures.
The City made a final request to the DCC’s Office of Grants Management (OGM) to elect to recognize the previously approved position of the Management Analyst for labor reimbursement for the 17 months spent towards the grant and align with the recommendations made by the recent audit report and provided the same documents to OGM to justify the time, which was denied as insufficient.

As of October 27, 2024, the OGM had never clarified what specific criteria would constitute approval despite the City providing timesheets, canceled checks, and payroll records for the Management Analyst’s position.

The City does not intend to request approval for any additional funding beyond November 12, 2023.

The County of Humboldt has taken actions to implement the recommendation which has a deadline of February 2025. The County of Humboldt Planning and Building Department developed and implemented a policy to ensure financial records are reviewed by the fiscal team on a quarterly basis for accuracy. The County has established procedures to capture grant-related costs in a timely manner so the costs can be paid for by the grant funds. The 2023-24 fiscal year is still in the process of being closed and it is anticipated a full reconciliation will be complete by the deadline of February 2025.

The County of Humboldt has taken actions to implement the recommendation which has a deadline of February 2025. The County of Humboldt Planning and Building Department developed and implemented a policy to ensure financial records are reviewed by the fiscal team on a quarterly basis for accuracy. The County has established procedures to capture grant-related costs in a timely manner so the costs can be paid for by the grant funds. The 2023-24 fiscal year is still in the process of being closed and it is anticipated a full reconciliation will be complete by the deadline of February 2025.

The City of Long Beach improved its ability to appropriately track expenditures by requiring interdepartmental costs to be transferred to the grant budget on a quarterly basis or sooner (depending on the grant reporting period), in alignment with the City’s standard accounting procedures.

The city of Long Beach did not provide documentation to substantiate that it fully implemented the recommendation.

Implemented. This recommendation has been implemented with two actions: 1) In February 2024, the City backed out the $6,000 charge for the room rental and interpreter expenses and utilized the general fund to pay for the ineligible expenses. 2) As of October 2024, the City contacted the DCC regarding other expenditures and reviewed all expenditures associated with the grant to ensure they were allowable.

The city of San Diego provided evidence that it reimbursed grant funds in the amount we identified as not allowable. Additionally, DCC sent the city a letter in September 2024 that indicated a review of supporting expenditure documents had been performed and that the city had requested to return grant funds to DCC. The city and DCC’s actions demonstrate that the recommendation has been resolved.