The California Performance Review (CPR) Audit Team set out to define the concept of a “line-by-line” audit, to determine how to approach it, and finally to complete the audit work necessary to report it. Appendix I discusses the “line-by-line” concept in greater detail. This report details how we believe the state can address the “line-by-line” audit through its ongoing monitoring and control functions. The Audit Team’s findings are detailed below. The review was conducted in accordance with generally accepted government auditing standards (GAGAS) applicable to attestation engagements. We performed the agreed-upon procedures listed below to provide information and analysis to CPR and to assist the CPR effort. The sufficiency of the procedures is solely the responsibility of CPR management. Consequently, we make no representation as to the procedures’ sufficiency for the purpose of the report or for any other purpose.

Agreed-upon procedures:

Budget Review:

• Provide an overview of the state’s budget process—from budget development, through enactment, appropriation, mid-year adjustments, total expenditures, deficiencies and future period activities.
• Identify and assess the mid-year appropriation adjustment process when revenue projections and other funding sources vary from estimates.
• Display historical data and trend analysis of state revenues, expenditures and encumbrances for the past five FYs, 1998–1999 to 2002–2003.
• Display historical data on state operations and the state’s balance sheet to identify the amount of, and to determine reasons for, deficiency funding.

Financial Review:

• Assess whether state agencies have effective systems of internal control to help detect errors and to help prevent fraud or waste.
• Verify assurances that state agencies’ financial information is timely, reliable and fairly stated—the external reporting.
• Assess whether timely, accurate and appropriate financial information is available to program managers—the internal reporting.
• Validate that chief financial officers have an adequate basis to attest to their financial statements’ fair presentation.

Performance Review:

• Assess the applicability and enforcement of strategic planning/performance-based budgeting Government Code Sections and Department of Finance Budget Letter 98-07.
• Determine levels of compliance, i.e., the extent to which Agencies, Departments, Boards, Commissions, or Offices are preparing and using strategic plans.
• Assess effectiveness of agencies’ strategic planning efforts and whether adopted performance measures are useful to measure agency performance (outcome/results oriented rather than output measures).
• Review other audits of agencies’ strategic plans and/or performance measures; assess the results; and analyze the level of statewide audit coverage of strategic planning/ performance-based budgeting processes.

In addition, we surveyed the state’s audit community to identify the extent and use of audit resources. To supplement the Budget Review information, we have developed a methodology to drill down to the object of expenditure level for most of the entities that experienced the largest expenditure growth for FYs 1998–1999 through 2002–2003.

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