“Inefficiencies … increased risk of noncompliance … erosion of public and stakeholder trust; operational inefficiencies … and potential for financial loss or fraud.”
Auditor of the Commonwealth Diana DiZoglio has been in the news a lot this year for her attempt to audit state lawmakers. Despite her pushing a successful ballot measure last November that would give her office that authority, the effort has run into hurdles, namely that of a less than accountable Mass legislature and complicit state attorney general who refuse to grant DiZoglio access.
Luckily for taxpayers and good government advocates, the auditor has other subjects in her purview too, including the Cannabis Control Commission. That’s an agency that other state officials are just fine with her impugning; over the past two years, both legislators as well as the state inspector general have come after the Worcester-based agency for a number of reasons.
DiZoglio jumped on the pile with both feet. On Thursday, her office released an extensive review mostly covering July 1, 2022 through June 30, 2024. “The purpose of [the] audit was to determine whether CCC administered the calculation, collection, and accounting for fees and fines collected in the marijuana regulation fund (MRF) in accordance with [Massachusetts law].”
Additionally, the auditor “determined whether CCC reviewed, approved, and certified host community agreements (HCAs) and Community Impact Fees (CIFs),” and “whether CCC followed a process—dating back to January 1, 2019—that was in compliance with the Office of the Comptroller of the Commonwealth’s (CTR’s) ‘Settlements and Judgments Policy’ when determining whether to enter into, and when reviewing and finalizing, employee settlement agreements.”
Findings of the auditor’s report on the Cannabis Control Commission
As DiZoglio noted in a media release accompanying the 68-page report: “Among the audit’s findings is that the CCC’s mismanagement of prorated fees for license extensions resulted in revenue loss, procedural inequity, noncompliance with state regulations, and the appearance of potential favoritism and/or impropriety with respect to some being required to pay fees, while others inexplicably did not need to do so.”
The summary continues: “CCC management failed to institute procedures to fully quantify and accurately and equitably administer license extensions. These failures, alongside the CCC’s failure to institute procedures to properly supervise licensing staff, contributed to a significant breakdown of the internal controls over requests for and approvals of extensions. As a result, not all fees were appropriately billed. The CCC did not maintain appropriate documentation regarding those instances where fees were not appropriately collected or waived, and did not follow its own stipulated process with respect to fee collection in these instances. Verbal conversations took the place of a documented process in instances where fees were not collected. These procedural inequities contribute to an appearance of potential impropriety, which could erode the public’s trust in the CCC.
“The CCC violated state regulations and applicable policies by failing to ensure that fines were assessed and collected within reasonable timeframes and by not designating a hearing officer to oversee related hearings.”
The impact of mismanagement on cannabis businesses and customers
According to the auditor’s report: “The absence of both timely enforcement and a hearing officer allows for unresolved compliance issues at marijuana establishments to persist or potentially worsen. Delays in enforcement undermine regulatory effectiveness by adversely impacting the CCC’s ability to administer and enforce applicable laws and regulations and may create an inequitable situation, especially for disadvantaged smaller establishments that lack the resources to independently navigate prolonged enforcement processes.”
The report continues: “Lengthy timeframes, especially around enforcement action, put customers at potential risk either of purchasing and consuming contaminated or expired marijuana products, or being exposed to other public health risks. Additionally, the lack of a hearing officer compromises due process rights for licensees subject to fines and enforcement actions.”
“Furthermore, the audit found the CCC’s failure to review existing host community agreements (HCAs) allowed agreements that contained unenforceable language and noncompliant provisions to remain in effect despite its authority and obligation to regulate these HCAs under Chapter 180 of the Acts of 2022. Noncompliant HCAs put undue financial burdens on small businesses in a burgeoning industry.
“Moreover, the audit found the CCC did not have a documented and transparent process for employee settlement agreements containing non-disclosure, non-disparagement, or similarly restrictive clauses.”
‘Operational and financial risks‘
According to the auditor’s report: “If the CCC does not have a documented and transparent process, which would hold itself accountable, to handle employee settlement agreements, especially those containing non-disclosure, non-disparagement, or similarly restrictive clauses, then it cannot ensure that employee settlements are handled in an equitable, ethical, legal, and consistent manner.”
“Additionally, the audit found that a breakdown of management structure and role consolidation contributed to operational and compliance risks. The CCC failed to implement sufficient controls related to the administration of the marijuana regulation fund (MRF) and its HCA review process and did not have a fully compliant internal control plan as required by the Office of the Comptroller’s Internal Control Guide.”
The auditor determined: “This inadequate internal control environment contributed to several operational and financial risks, including:
- absence of control testing, which resulted in inconsistent practices, a lack of clearly documented procedures, and diminished organizational accountability;
- deficient oversight in licensing, HCA reviews, and management of the MRF, as evidenced by missing documentation of final approvals and unreconciled financial activity, raising concerns about transparency, fairness, and regulatory reliability; and
- the lack of a fully compliant internal control plan leaves the CCC unprepared to address emerging risk posed by an unstable organizational structure.”
“Our audit identified a number of issues that undermine and negatively impact the Cannabis Control Commission’s mission to equitably and effectively oversee the cannabis industry in Massachusetts,” DiZoglio said in a statement. “Our team appreciates the Commission’s cooperation throughout this audit, which serves to identify areas for needed improvements to better serve the residents of the Commonwealth.
“We encourage the Cannabis Control Commission to adopt our office’s recommendations for improvement and will be revisiting the Commission’s progress in roughly six months as part of our post-audit review.”
You can view the full report here.
