Audit - City and County of Denver

FINDINGThe City’s Medical Marijuana Licensing Practices are Inefficient andIneffectiveThe Department of Excise and Licenses (Department) should develop and implement asound governance and regulatory framework for its medical marijuana (MM) licensingprocess to ensure that its controls are properly functioning and that the Department canprovide up-to-date information to key stakeholders. Currently, the MM licensing processposes significant risks to the City due to the absence of any control framework.Additionally, in light of the recent passage of Amendment 64, which legalizesrecreational use of marijuana in Colorado, a control framework for MM should beestablished and fully operational before new regulations and licenses are issued forrecreational marijuana use to avoid similar control weaknesses and related risks.The root cause of the ineffective governance is based on the intentional decisions madeby Department management faced with many competing priorities. When theDepartment came under new management in 2011, they made a deliberate policydecision to prioritize the overall needs of the Department. Many of the issues discussed inthis report are the result of these decisions. Despite the fact that the Department hasbeen aware of many of the problems with the medical marijuana program for at leastthree years, management has taken few or no steps to address them due to certainlimiting factors, departmental constraints, staffing issues and intentionally holding off onaddressing known problems for specific department strategic reasons. This reluctance toaddress known problems is concerning because it suggests that the Department has notmade it a high priority to address ongoing problems, some of which were identified inprevious audit reports by the Auditor’s Office.Despite the weaknesses identified, the audit team is not stipulating that there have beenany instances of wrong doing or fraud in any processes mentioned in this report. Rather,we cannot provide reasonable assurance to the contrary due to the lack of controls,monitoring activities, and a basic internal control framework for the processes related tothe City’s MM licensing operations. We have identified weaknesses resulting from the lackof an internal control framework in the three distinct areas of the process: applicationprocess, licensing process, and renewal process.Medical Marijuana License ApplicationProcessDuring the MM business licensure applicationprocess, there are a number of stepsinvolved where applicants interface withCity personnel who gather importantinformation and collect fees. Steps in the• Application Process• Licensing Process• Renewal ProcessP a g e 11Office of the Auditor