Overview
CCC experienced a breakdown in its management and personnel structure during the audit period, particularly among key administrative and legal personnel. As a result, CCC increasingly relied on external legal counsel to fill critical gaps, while remaining staff members have assumed multiple high-level roles without appropriate support or succession planning. These conditions have contributed to limited resources, increased legal costs, and elevated operational risk. Key observations include those described below.
Loss of Critical Personnel Members
CCC meeting minutes dated September 23, 2024 documented the departure or suspension of several high-level staff members, including the chief communications officer and the director of human resources. These departures left key positions vacant during a period of significant regulatory and operational activity at CCC.
Consolidation of Key Roles
CCC organizational charts indicated that administrative personnel members held multiple high-level positions simultaneously. The acting executive director retained their role as chief people officer and the acting general counsel retained their responsibilities as chief of staff. These dual-role assignments raise concerns about the capacity, objectivity, and effectiveness of internal leadership, as well as oversight of critical functions and segregation of duties.
Increased Reliance on External Legal Counsel
We confirmed through staff member interviews and document reviews that CCC had increasingly turned to external legal firms to address employment-related matters, internal investigations, and compliance issues. This reliance on contracted services resulted in elevated legal costs for CCC.
During our audit, we determined that throughout the audit period, CCC’s spending on legal fees increased significantly over time. See the chart below for more information.
Legal Spending Increases
Note: Legal spending figures are presented by calendar year. The amount shown for 2024 only includes the first six months of the year.
CCC’s breakdown of management structure and role consolidation will lead to several additional negative consequences, such as the following:
- CCC’s increasing reliance on external legal counsel resulted in higher operational expenditures and reduced capacity for internal improvements to CCC’s legal team. While specialized external support can be necessary in certain cases, the absence of sufficient internal legal staffing could limit CCC’s ability to maintain consistent legal administration and oversight. Furthermore, resources used for external counsel could instead support internal staffing or training to enhance long-term legal and compliance capabilities within CCC.
- Poor segregation of duties and the assignment of multiple high-level responsibilities to individual staff members increases the likelihood of operational bottlenecks and miscommunications. These conditions could create opportunities for error, mismanagement, employee conflict, and/or conflicts of interest.
- Staff members carrying excessive workloads and holding overlapping responsibilities may struggle to provide timely administrative decisions and services. Prolonged strain could lead to burnout, disengagement, and/or additional resignations, further compounding staffing issues.
- Frequent leadership changes, combined with ongoing legal challenges, may undermine public and stakeholder confidence in CCC. A lack of continuity in key roles could also impair long-term planning and disrupt the consistent execution of strategic initiatives.
- Employees placed in dual executive roles may lack the specific expertise or qualifications necessary to effectively fulfill both sets of responsibilities. The loss of experienced leadership, particularly when internal policies and procedures are undocumented, could result in the erosion of institutional knowledge and increased reliance on informal or inconsistent practices.
- The absence of documented controls over the areas reviewed during our audit may indicate broader organizational risks, particularly given CCC’s wide range of statutory responsibilities in regulating the cannabis industry in the Commonwealth.
Authoritative Guidance
According to CTR’s Internal Control Guide, CCC is required to establish a clear organizational structure and ensure proper segregation of duties to prevent inefficiencies, financial risks, and compliance failures. Section 3 of Chapter 1 of CTR’s Internal Control Guide states the following:
3.01. Organizational Structure
An organizational structure is necessary to enable a department to plan, execute, control, and assess the achievement of its objectives. Management develops and assigns these responsibilities to groups (divisions, offices, subunits, etc.) to enable the department to operate in an efficient and effective manner, comply with applicable laws and regulations, and reliably report quality information. Periodically, management should evaluate the organizational structure to ensure it meets its objectives (and makes changes accordingly).
3.02. Assignment of Responsibility and Delegation of Authority
As noted above, management develops and assigns responsibility. Management also evaluates the delegation for proper segregation of duties within the unit and in the organizational structure. Segregation of duties helps prevent fraud, waste, and abuse in the entity by considering the need to separate authority, custody, and accounting in the department.
3.03. Documentation of the Internal Control System
Effective documentation helps with the design an effective internal control as it communicates the who, what, when, where, and why of internal control execution to personnel. Documentation also provides a means to retain organizational knowledge and mitigate the risk of having that knowledge limited to a few personnel, as well as a means to communicate that knowledge as needed to external parties, such as auditors.
Reasons for Issue
CCC stated that it did not prioritize creating documented policies to support succession management or workforce planning because of the agency’s young age and small size.
Recommendations
- CCC should ensure that it has a succession plan to effectively administer general and executive staff member turnover.
- CCC should ensure that there is segregation of duties among all CCC executive staff members.
- CCC should refrain from using external legal counsel to perform core functions.
Auditee’s Response
CCC’s Recommendation 1 response was as follows:
The Agency is in agreement with the [Office of the State Auditor’s] recommendation. Succession planning efforts, as well as general recruitment and retention efforts, are a focus of the new Executive Director.
CCC’s Recommendation 2 response was as follows:
The Agency is in agreement with the [Office of the State Auditor’s] recommendation and it is the responsibility of the Executive Director to ensure this is achieved. It should be noted that implementation of structural changes to the organizational chart may be delayed substantially given the multi-year stagnation of the Agency’s budget.
CCC’s Recommendation 3 response was as follows:
The Agency is in agreement with this recommendation specific to the reference of “core functions” but is noting that use of external legal counsel will need to continue (as needed) to ensure access to any expertise that cannot be hired and maintained on-staff. Staffing constraints that impact this note can also be found in the [executive director] response to FINDING 1, Recommendation 4.
In addition, the Commission points out that external legal fees appear to be artificially inflated for 2023 and 2024 due, in part, to the fact that numerous investigations relating to employment issues took place during those years. Billing for the investigations was submitted through external legal counsel. As a result, external legal counsel fees did not spike as dramatically as suggested in the audit report. It is also worth noting that core legal functions were not outsourced but, rather, external legal counsel were used to supplement staff resources where specialized legal expertise was not available in-house.
Finally, the Commission’s Legal Department has added new attorneys, a paralegal and a legal assistant during the latter part of and subsequent to the audit period. This infusion of talent has enabled the Commission to reduce its reliance on outside counsel and perform more functions in-house. However, the flat budget for [fiscal year 2026] will limit the Commission’s ability to hire additional legal staff to keep up with the agency’s ever growing regulatory workload, and the current hiring freeze approved by the Executive Director may impact future backfilling of open legal positions.
Auditor’s Reply
- CCC stated in its response that succession planning efforts and general recruitment and retention efforts are a focus of the new executive director. As part of our post-audit review process, we will follow up on this matter in approximately six months.
- We believe that dual role assignments should be avoided, particularly in areas that involve both operational responsibilities and oversight functions. We reiterate that CCC’s assignments violated the principles of segregation of duties and internal control risk set by CTR. CCC should implement controls to mitigate the risks created by the absence of segregation of duties.
CCC stated in its response that it will continue to use external legal counsel to ensure access to legal expertise that cannot be hired and maintained by CCC itself. As part of our post-audit review process, we will follow up on this matter in approximately six months.
Our finding is that this increased spending was the result of CCC’s dependence on external firms to resolve labor issues, which resulted from the breakdown of its management structure. We would normally expect these issues to be investigated and resolved utilizing less costly internal resources. The lengthy investigations mentioned by CCC in its response are tied to the settlement agreements reviewed as part of this audit, and those labor issues, regardless of how they were billed, are costly for the taxpayers and may undermine the public’s confidence in CCC.
CCC stated in its response that its legal department has added several new staff members. As part of our post-audit review process, we will follow up on this matter in approximately six months.
| Date published: | August 14, 2025 |
|---|