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«Annual Assessment of Market Orders for 2012, 2013, and 2014 Department of Agriculture and Markets Report 2014-S-58 May 2015 2014-S-58 Executive ...»

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New York State Office of the State Comptroller

Thomas P. DiNapoli

Division of State Government Accountability

Annual Assessment of Market

Orders for 2012, 2013, and 2014

Department of Agriculture and

Markets

Report 2014-S-58 May 2015

2014-S-58

Executive Summary

Purpose

The purpose of this performance audit was to determine whether the Department of Agriculture

and Markets (Department) has adequate procedures in place to accurately report its assessable

expenses related to its administration of Article 25 of the Agriculture and Markets Law. We performed our audit pursuant to legislative mandates included in Section 294(8) of this Law, which direct that the Comptroller audit the expenditures for each market order. Our audit covered the period July 1, 2011 through June 30, 2014 for the Apple and Sour Cherry Market Orders and the period April 1, 2011 through March 31, 2014 for the Apple, Cabbage, and Onion Research and Development Programs.

Background Within the Department, the Market Order Administration unit is responsible for administration of all farm product market orders, except those involving dairy products. Each specific market order detailed in Department regulations is established to assist the industry in achieving a variety of objectives, including product promotion, advertising, and research. These market orders include: the Apple Market Order, the Apple Research and Development Program, the Sour Cherry Market Order, the Onion Research and Development Program, and the Cabbage Research and Development Program. Article 25 of the Agriculture and Markets Law authorizes the market orders and allows for the collection of funds by assessing growers to cover expenses.

Key Findings

• The Department has adequate procedures in place to ensure that it accurately reports its assessable expenses in all material aspects.

• The Department needs to improve its oversight of its Market Order Program, particularly its Apple Market Order, which is administered pursuant to a contract with the New York Apple Association, Inc. (NYAA).

Key Recommendations

• Follow up on the questionable expenses identified in our report and seek repayment for any inappropriate or ineligible expenses.

• Strengthen policies and enforce provisions of the Apple Market Order contract by:

◦ Developing written guidelines for expenses deemed necessary for NYAA’s performance under its contract, including travel reimbursement in excess of State rates and business entertainment expenses; and ◦ Enforcing contract criteria for maintaining documentation to support expenses, such as vehicle cost allocations, contractor bidding, and sole source justification requirements.

Other Related Audit/Report ofInterest Department of Agriculture and Markets: 2007 and 2008 Annual Marketing Orders: Statements of Revenues, Expenses and Changes in Fund Balances (2009-S-7)

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State of New York Office of the State Comptroller Division of State Government Accountability May 7, 2015 Mr. Richard A. Ball Commissioner Department of Agriculture and Markets 10B Airline Drive Albany, NY 12235

Dear Commissioner Ball:

The Office of the State Comptroller oversees the fiscal affairs of State agencies, public authorities, and local government agencies, as well as their compliance with relevant statutes and their observance of good business practices. This fiscal oversight is accomplished, in part, through our audits, which identify opportunities for improving operations. Audits can also identify strategies for reducing costs and strengthening controls that are intended to safeguard assets.

Following is a report of our audit of the Department of Agriculture and Markets entitled Annual Assessment of Market Orders for 2012, 2013, and 2014. This audit was performed pursuant to the State Comptroller’s authority under Article V, Section 1 of the State Constitution and Article II, Section 8 of the State Finance Law; and the legislative mandates included in Article 25, Section 294(8) of the Agriculture and Markets Law.

This audit’s results and recommendations are resources for you to use in effectively managing your operations and in meeting the expectations of taxpayers. If you have any questions about this report, please feel free to contact us.

Respectfully submitted, Office of the State Comptroller Division of State Government Accountability

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State Government Accountability Contact Information:

Audit Director: John Buyce Phone: (518) 474-3271 Email: StateGovernmentAccountability@osc.state.ny.us

Address:

Office of the State Comptroller Division of State Government Accountability 110 State Street, 11th Floor Albany, NY 12236 This report is also available on our website at: www.osc.state.ny.us

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Background The mission of the Department of Agriculture and Markets (Department) is to foster a competitive food and agriculture industry that benefits producers and consumers alike. Within the Department, the Division of Agriculture Development’s Market Order Administration is responsible for administration of all farm product market orders, except those involving dairy products. Article 25 of the Agriculture and Markets Law authorizes market orders and allows for the collection of funds by assessing growers to cover expenses.





Each specific market order is established within New York Codes, Rules, and Regulations (NYCRR) Title 1, Chapter IV, Parts 201-205 to assist the industry in achieving a variety of objectives that differ by individual order, but generally include product promotion, advertising, and research.

These market orders include: the Apple Market Order, the Apple Research and Development Program, the Sour Cherry Market Order, the Onion Research and Development Program, and the Cabbage Research and Development Program.

The Department contracts with organizations to advertise, promote, publicize, market, and/or conduct product research and informational services. For the Apple and Sour Cherry Market Orders, the Department contracts with the New York Apple Association, Inc. (NYAA) and the New York Cherry Growers Association to provide advertising, promotion, market research, and information services for respective products. The Department also contracts with the Cornell University College of Agriculture and Life Sciences to provide research services for the Apple, Cabbage, and Onion Research and Development Programs.

Title 1, Chapter IV, Parts 201 to 205 of the NYCRR stipulate that the total amount of the Department’s budgeted costs to administer market orders shall not exceed 5 percent of the total of each Market Order Program budget. Administrative costs include the personal service, travel, fringe benefit, and other indirect costs associated with administering the Market Order Program.

The assessment rates for each market order are also stipulated in the NYCRR. Section 294(8) of the Agriculture and Markets Law requires the Comptroller to audit market order expenditures.

Therefore, we focused our audit efforts on the Department’s procedures in place to accurately report its assessable expenses for each market order.

Two Department employees have duties over the market orders: the Market Order Administrator (Administrator) spends the majority of his time overseeing the market orders; and a Grants Administrator spends approximately a quarter of her time working with market orders. The Market Order Administrator’s efforts include reviewing and processing contract payments for each of the market orders. In addition, the Administrator is responsible for monitoring to ensure appropriate assessments are received from the growers for each of the five market orders. Steps are also taken by the Administrator to identify unknown growers as well as underreported sales and harvests. The Department developed comprehensive procedures for reviewing and approving reimbursement of Market Order expenses to various contractors, including the appropriateness and eligibility of the expenses submitted for reimbursement.

Division of State Government Accountability 4 2014-S-58 Audit Findings and Recommendations Overall, we found the Department had adequate procedures in place to report its assessable expenses accurately for the three years ending June 30, 2014 for the Apple and Sour Cherry Market Orders and for the three years ending March 31, 2014 for the Apple, Cabbage, and Onion Research and Development Programs. However, we also noted the Department could improve its oversight of the Market Orders Program, specifically the Apple Market Order, and should provide additional guidance to strengthen and to enforce provisions of the Apple Market Order contract.

In general, the Department agrees with our audit findings and recommendations.

Preparation of Statements of Assessable Expenses We found the Department accurately prepared, in all material aspects, the Statements of Assessable Expenses for the three years ended June 30, 2014 for the Apple and Sour Cherry Market Orders (presented, respectively, as Exhibits A and B to this report) as well as for the three years ended March 31, 2014 for the Apple, Cabbage, and Onion Research and Development Programs (presented as Exhibits C, D, and E, respectively). The Department’s administrative expenditures are within the 5 percent limit for each market order, as required by regulation. We also noted the Department needs to improve its oversight of the Market Orders Program, particularly the Apple Market Order, and could provide additional guidance to strengthen and to enforce provisions of the Apple Market Order contract.

Department Oversight: Apple Market Order Contract Requirements The Department reimburses the NYAA for expenses it incurs in performing the work specified in its Apple Market Order contract. The Apple Market Order contract is for the advertising, promotion, and publicity of New York apples and apple products. The contract includes an annual budget, which is monitored by the Administrator, and specifies that any modifications in excess of 10 percent of budget categories require prior written approval from the Department. The Department receives a monthly register of all expenditures made by the NYAA and performs an analysis of the expenditures compared with the contract budget.

We reviewed a judgmental sample of $1,185,566 of expenditures included in the $5,573,159 reimbursed to NYAA for the Apple Market Order for the three-year period ended June 30, 2014, and found the Department reimbursed the NYAA for questionable expenses. This occurred because the Apple Market Order contract does not specify which expenses are allowable for reimbursement and the Department has not provided any additional guidance. Additionally, the Department does not always enforce contract provisions that limit expense amounts, nor does it require justification for expenses that exceed set amounts. The following sections contain examples of our findings.

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Travel and Entertainment Expenditures The Department has not enforced the Market Order contract requirement that NYAA either only be reimbursed for travel expenses that do not exceed rates applicable to State employees, or that it document and justify in writing any instances when those reimbursement rates are exceeded.

Nor has the Department ensured that NYAA’s business-related entertainment expenses are properly documented.

We identified several instances where lodging and meal reimbursements substantially exceeded the allowable meal per diems without documentation to support the reasons for the excess cost. Department officials stated that NYAA employees are reimbursed in full for their actual meal expenses regardless of amount because they frequently incur these costs as allowable entertainment expenses (e.g., taking potential clients to dinner) in order to gain business.

Although some of these expenses appear to be possible business development efforts, the only documentation to support this contention was a list of the names written on travel documents signifying those who were reportedly at the meal. NYAA did not produce additional documentation to explain either the purpose of the business meal or the resulting outcome from the meeting (e.g., new marketing client gained, new promotion discussed).

For example, the Department paid NYAA $265 per night for an NYAA employee to attend a threeday conference in Chicago in August 2011, even though the allowable hotel rate for this location was $146 – a difference of $119 per night. Although the conference also provided attendees with at least five meals, the Department also paid NYAA $291 for additional meals during this trip – almost $100 per day. In another case, one NYAA employee charged an $85 dinner and reported on travel documentation the meal was for himself and a second NYAA employee. However, according to this other employee’s travel voucher, the employee had dinner on the same day, at a similar time, but in a completely different city as the first employee.

Based on the limited documentation maintained by NYAA, it is difficult for the Department to distinguish between business entertainment expenses and reimbursable meals due an individual NYAA employee who is in travel status. Department officials therefore agreed to provide additional guidance to NYAA regarding documentation of these expenses.

Documentation of Vehicle Use

The NYAA has purchased cars for the exclusive use of two employees and allows these employees to use the vehicles for commuting and personal use. The Department has reimbursed NYAA for all costs associated with these two vehicles. However, no documentation of vehicle usage is maintained, even though the Apple Market Order contract requires detailed records for all funds expended under the contract. As a result, the Department cannot determine what portion of these expenditures should be reimbursed as business-related vehicle expenses and what portion should be considered employee compensation.

Department officials told us that, based on their analysis of total vehicle operating expenses for the three-year scope period, the Department would likely be obligated to reimburse NYAA for

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