121211 State Employee Audit

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Investigations o ImproperActivities by State Agenciesand Employees

Bribery, Conspiracy to Commit Mail Fraud, ImproperOvertime Payments, Improper Use of LeaseProceeds, Improper Travel Expenses, and OtherViolations of State Law

April 2011 Through June 2012

December 2012 Report I20121

IndependentTRANSPARENT Accountability

NONPARTISAN


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Te rst ve copies o each Caliornia State Auditor report are ree. Additional copies are $3 each, payable by

check or money order. You can obtain reports by contacting the Bureau o State Audits at the ollowing address:

Caliornia State Auditor

Bureau o State Audits

555 Capitol Mall, Suite 300

Sacramento, Caliornia 95814

916.445.0255 or Y 916.445.0033

OR

Tis report is also available on the World Wide Web http://www.auditor.ca.gov

Te Caliornia State Auditor is pleased to announce the availability o an on-line subscription service. Forinormation on how to subscribe, please contact the Inormation echnology Unit at 916.445.0255, ext. 456,

or visit our Web site at www.auditor.ca.gov.

Alternate ormat reports available upon request.

Permission is granted to reproduce reports.

For questions regarding the contents o this report ,

please contact Margarita Fernndez, Chie o Public Aairs, at 916.445.0255.


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CALIFORNIA STATE AUDITORB u r e a u o f S t a t e A u d i t s

Doug Cordiner

Chief Deputy

Elaine M. Howle

State Auditor

5 5 5 C a pit o l Ma l l , Su i t e 3 Sa c ra m ent o , C A 9 5 8 4 9 6 .4 4 5 . 5 5 9 6 .3 7 . 9 fa x www.a ud it o r .c a .go v

December 11, 2012 Investigative Report I2012-1

Te Governor o CaliorniaPresident pro empore o the SenateSpeaker o the AssemblyState CapitolSacramento, Caliornia 95814

Dear Governor and Legislative Leaders:

Pursuant to the Caliornia Whistleblower Protection Act, the Caliornia State Auditor presentsits investigative report summarizing investigations completed between April 2011 and June 2012concerning allegations o improper governmental activities.

Tis report details nine substantiated allegations involving several state departments. Troughour investigations, we ound bribery, conspiracy to commit mail raud, improper overtimepayments, improper use o lease proceeds, and improper travel expenses. As an example o oneo these improper acts, we determined that a Franchise ax Board employee, an Oce o theSecretary o State employee, and a courier service owner engaged in an elaborate scheme thatenabled the courier service owner to steal nearly a quarter million dollars rom the State. Tethree individuals were convicted o briberyand ordered to pay more than $227,000 in restitution.In addition, a ormer Employment Development Department employee and two accompliceswere convicted o conspiracy to commit mail raud or executing a scheme or more than twoyears to raudulently redirect nearly $93,000 in state unemployment insurance benefts to thetwo accomplices, who were ineligible or the benefts.

In addition, this report provides an update on previously reported investigations anddescribes additional actions taken by state departments to correct the problems we previouslyidentifed. For example, in September 2005, we reported that the Department o Correctionsand Rehabilitation (Corrections) had ailed to track hours available in a release time bank andhad inappropriately paid leave to certain union representatives. In January 2012 Correctionsreached an agreement with the Caliornia Correctional Peace Ocers Association (union) thatrequires the union to pay the State a total o $3.5 million or all Corrections employees on

ull-time union leave.

Respectully submitted,

ELAINE M. HOWLE, CPAState Auditor


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Blank page inserted or reproduction purposes only.


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Investigations of ImproperActivities by State Agenciesand Employees

Bribery, Conspiracy to Commit Mail Fraud, ImproperOvertime Payments, Improper Use of LeaseProceeds, Improper Travel Expenses, and OtherViolations of State Law

April 2011 Through June 2012

December 2012 Report I20121


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California State Auditor Report I2012-1

December 2012

Contents

Summary 1

Chapter Franchise Tax Board and Ofce o the Secretary o State: Bribery 7

Chapter Employment Development Department: Conspiracy to Commit

Mail Fraud 13

Chapter 3Caliornia State Athletic Commission: Improper Overtime Payments 17

Chapter Department o Fish and Game: Improper Use o Lease Proceeds 25

Chapter Caliornia Correctional Health Care Services and Department o

Corrections and Rehabilitation: Improper Travel Expenses 31

Chapter Natural Resources Agency: Improper Travel Expenses 37

Chapter Caliornia Correctional Health Care Services and Department o

Corrections and Rehabilitation: False Claims, Inefciency, and

Inexcusable Neglect o Duty 41

Chapter University o Caliornia, Ofce o the President: Waste o State Funds 49

Chapter Caliornia Department o Education: Misuse o State Resources,

Inexcusable Neglect o Duty 57

Chapter

Other Investigative Results 65

Chapter Update o Previously Reported Issues 67

AppendixThe Investigations Program 77

Index 81


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December 2012

Summary

Results in Brie

Te Caliornia Whistleblower Protection Act (Whistleblower Act)empowers the Caliornia State Auditor (state auditor) to investigateand report on improper governmental activities by agencies andemployees o the State. Under the Whistleblower Act, an impropergovernmental activity is any action by a state agency or employeerelated to state government that violates a law, is economicallywasteul, or involves gross misconduct, incompetence,or ineciency.

Tis report details the results o nine particularly signicant

investigations completed by the state auditor or undertaken jointlyby the state auditor and other state agencies between April 1, 2011,and June 30, 2012. Tis report also outlines actions taken bystate agencies in response to the investigations o impropergovernmental activities described here and in previous reports. Teollowing paragraphs briefy summarize the investigations andthe state agencies actions, which this reports individual chaptersdiscuss more ully.

Franchise Tax Board and Oce o the Secretary o State

A Franchise ax Board (board) employee, an Oce o the Secretaryo State (secretary o state) employee, and a courier service ownerengaged in an elaborate scheme that enabled the courier serviceowner to steal nearly a quarter o a million dollars rom the State. Tethree individuals were convicted o briberyand ordered to pay morethan $227,000 in restitution to the secretary o state and the board.Te ailure o these state agencies to maintain adequate controlscontributed to the individuals ability to perpetrate the raud.

Employment Development Department

A ormer Employment Development Department accountingtechnician and two accomplices were convicted o conspiracy tocommit mail raud or executing a scheme to redirect unemploymentinsurance (unemployment) benets rom the State to ineligiblerecipients. By alsiying inormation related to a bankrupt companyslaid-o employees, the accounting technician enabled her twococonspirators to le unemployment claims against those wages.During the duration o their scheme, the two accomplices illicitly

For more inormation about the state auditors investigations program, please reer tothe Appendix.

Investigative Highlights . . .

State agencies and employees engaged in

improper activities, including the ollowing:

Employees at two state agencies and a

courier service owner were convicted o

bribery and ordered to pay the agencies

more than $227,000 in restitution.

A ormer accounting technician and

two accomplices were convicted o

conspiracy to commit mail raud or a

scheme that raudulently redirected

nearly $93,000 o unemployment

insurance benefts to the two accomplices.

A state agency overpaid nearly $118,700

to 18 employees or two years because it

inappropriately paid them an overtime

rate rather than a straighttime rate or

their work.

A supervisor improperly directed the

use o state unds to purchase more

than $53,800 in goods and services

not required by a lease and he also

used $5,000 in git cards but could not

demonstrate that the purchases made

were used or a state pur pose.

The State improperly paid a total o

23 employees $55,000 in travel benefts

ater a manager allowed them to receive

reimbursements or their commutes and

or expenses incurred near their homesand headquarters.


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December 2012

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received nearly $93,000 in unemployment claims or wages to whichthey were not entitled using the U.S. mail to deliver their benets rom

August 2008 through October 2010. Te accounting technician andone o her accomplices were sentenced to serve time in ederal prison.Te second accomplice was sentenced to three years o probation.

Caliornia State Athletic Commission

Te Caliornia State Athletic Commission overpaid a total onearly $118,700 to 18 o its athletic inspectors rom January 2009through December 2010 because it inappropriately paid them anhourly overtime rate rather than an hourly straight-time rate orwork they perormed.

Department o Fish and Game

A supervisor with the Department o Fish and Game improperlyimplemented an agricultural lease agreement. He directed the lesseeto use the state unds derived rom the lease to purchase more than$53,800 in goods and services that did not provide the improvementsand repairs the lease required. In addition, he required the lessee toprovide the State with $5,000 in Home Depot git cards, but he couldnot demonstrate that the purchases he and other state employeesmade with the git cards were used or required improvements or orany other identiable state purpose.

Caliornia Correctional Health Care Services and Department oCorrections and Rehabilitation

A manager with Caliornia Correctional Health Care Services(Correctional Health Services) improperly authorized Department oCorrections and Rehabilitation (Corrections) employees to use rentalcars and receive mileage reimbursements or commutes that Correctionsapproved improperly. Te manager also authorized these employees to

receive reimbursements or improper expenses they incurred near theirhomes and headquarters, and Corrections inappropriately approved orpayment. As a result, the State paid 23 employees a total o more than$55,000 in travel benets to which they were not entitled.

Natural Resources Agency

From January 2009 through June 2011, an executive with the NaturalResources Agency (Resources) circumvented state travel regulationsby improperly reimbursing an ocial and an employee approximately$48,000 in state unds or commutes between their homes


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December 2012

and headquarters. In addition, Resources improperly reimbursed theocial approximately $200 or lodging and meal expenses incurred

near the Resources headquarters.

Correctional Health Services and Corrections

A supervising registered nurse at the Caliornia raining Facilityin Soledad (acility) alsely claimed to have worked 183 hours oregular, overtime, and on-call hours that would have resulted inoverpayments totaling more than $9,700. However, because sta atthe acilitys personnel oce made numerous errors in processing thenurses time sheets, the State ultimately overpaid the nurses roughly$8,600. In addition, the nurses supervisor neglected her duty to

ensure that the nurses time sheets were accurate, thus acilitating thenurses ability to claim payment or hours she did not work. Te nursereturned to work at the acility in July 2012 ater a nearly two-yearabsence on medical leave but let again ater only one month. Staat the acilitys personnel oce reported that they have begun theprocess to collect the overpayments identied in this report.

University o Caliornia, Oce o the President

In December 2009 we reported that Caliornia State University,Chancellors Oce had wasteully reimbursed a high-level ocialmore than $152,400 between July 2005 and July 2008 or expenseshe improperly claimed. In July 2008beore the issuance o ourreportthis ocial accepted employment rom the Oce o thePresident at the University o Caliornia (university). Our reviewound that the university reimbursed the ocial approximately$6,100 in wasteul travel expenses rom July 2008 through July 2011.Specically, the ocial incurred $4,200 o the wasteul expensesbeore we issued our report in December 2009, and he incurred$1,900 ater that date. We also determined that, although theuniversity increased its monitoring o the ocials travel expenses,its absence o dened limits or lodging expenses led to some o

these excessive travel expenses.

Caliornia Department o Education

An employee at the Caliornia Department o Education misusedstate time and equipment when he posted nearly 4,900 commentson TeSacramento Bees news Web site during state time. Teemployee also perormed work or a third party using state resourcesduring state time. Further, the employees ormer supervisor ailed toappropriately supervise the employee, thus enabling the employeesmisuse o state time and equipment.


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Update on Previously Reported Issues

In addition to conveying our ndings about investigationscompleted rom April 2011 through June 2012, this reportsummarizes the status o certain ndings described in our previousreports. Chapter 11 details the actions that the respective agenciestookor declined to takeor 11 previously reported investigations.Te ollowing updates have particular signicance:

InJanuary2012CorrectionsreachedanagreementwiththeCaliornia Correctional Peace Ofcers Association (union) thatrequires the union to pay the State a total o $3.5 million or allCorrections employees on ulltime union leave through annualpayments beginning that same month and continuing until the

entire amount is repaid.

TeCaliforniaEnergyCommissionreportedthatinDecember 2011 a retired employee reimbursed it $6,589 or leavehours paid inappropriately beore her retirement.

able 1 summarizes the improper governmental activities appearingin this report, the nancial impact o the activities, and their status.

Table 1

The Issues, Financial Impact, and Status of Recommendations for Cases Described in This Report

CHAPTER DEPARTMENT

DATE OF OUR

INITIAL REPORT ISSUE

COST TO THE

STATE AS OF

JUNE 30, 2012*

STATUS OF RECOMMENDATIONS

FULLY

IMPLEMENTED

PARTIALLY

IMPLEMENTED PEN DING

NO

ACTION

TAKEN

New Cases

1 Fran chise Tax Board and

the Ofce o the Secretary

o State

December

2012

Bribery $227,430

2 Employment Development

Department

December

2012

Conspiracy to commit mail

raud

92,826

3 Caliornia State

Athletic Commission

December

2012

Improper overtime payments 118,650

4 Department o Fish

and Game

December

2012

Improper use o lease

proceeds

58,813

5 Cali ornia Correctional

Health Care Services and

Department o Corrections

and Rehabilitation

December

2012

Improper travel expenses 55,053

6 Natural Resources Agency December

2012

Improper travel expenses 48,153

7 Cali ornia Correctional

Health Care Services and


and Rehabilitation

December

2012

False claims, inefciency,

inexcusable neglect o duty

8,647


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December 2012

CHAPTER DEPARTMENTDATE OF OUR

INITIAL REPORT ISSUE

COST TO THE

STATE AS OFJUNE 30, 2012*

STATUS OF RECOMMENDATIONS

FULLYIMPLEMENTED

PARTIALLYIMPLEMENTED PENDING

NO

ACTIONTAKEN

University o Cali ornia,

Oce o the President

December

Waste o state unds $,

Caliornia Depar tment

o Education

December

Misuse o state resources,

inexcusable neglect o duty

NA

Various December

Misuse o state resources ,

Previously Reported Cases


and Rehabilitation

September

Failure to account or

employees use o union leave

3,,

Department o Fish and

Game, Oce o Spill

Prevention and Response

April Improper travel expense ,

Caliornia State University,

Chancellors Oce

December

Improper and wasteul

expenditures

,


and Rehabilitation

January Improper overtime reporting


and Rehabilitation

January Delay in reassigning an

incompetent psychiatrist,

waste o state unds

3,

Department o

Transportation

August Inexcusable neglect o duty NA

Department o

Industrial Relations

August Failure to monitor adequately

employees time reporting

NA

Depar tment o Fish

and Game

August Misuse o a state

vehicle, improper travelreimbursements

,


and Rehabilitation

August Misuse o state resources ,

State Controller s Oce August Failure to report absences,

ailure to monitor adequately

an employees time reporting

,

Caliornia Energy

Commission

August Falsication o time and

attendance records

,

Source: Caliornia State Auditor.

NA = Not applicable because the situation did not involve a dollar amount or the ndings did not allow us to quantiy the nancial impact.

* We estimated the costs to the State as noted in the individual chapters o this report.


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Chapter 1

FRANCHISE TAX BOARD AND OFFICE OF THE SECRETARYOF STATE: BRIBERYCase I20090634

Results in Brie

A Franchise ax Board (board) employee, an Oce o the Secretaryo State (secretary o state) employee, and a courier service ownerengaged in an elaborate scheme that enabled the courier serviceowner to steal nearly a quarter o a million dollars rom the State.Te three individuals were convicted o briberyand ordered to pay

a total o $227,430 in restitution to the board and the secretary ostate. Te boards and the secretary o states ailure to maintainadequate controls contributed to these individuals ability toperpetrate the raud.

Background

Tis investigation involved employees rom two state agencies.Te board primarily administers the personal income tax andcorporation tax programs. It also operates other programsand maintains eld oces throughout the State with assistanceoered at public counters. In providing its various services, theboard issues entity status letters (letters) that generally disclosein writing whether a business is in good standing with respect toits legal status and outstanding tax liability. Until February 2012,the board released letters only in response to requests made at itspublic counters upon payment o a $20 processing ee. Tereore,businesses wanting letters commonly have used courier services torequest and obtain letters.

All board employees under investigation worked at the Los Angeleseld oce. Employee 1 and Employee 2 were both compliance

representatives at the eld oce who occasionally assistedthe boards public service counter sta by completing letterrequests. Employee 3 was a tax technician. Employee 4 was anadministrator II who supervised Employee 2. Employee 5 was acollections supervisor who oversaw Employee 1.

Tis investigation also involved employees rom the secretary ostate. Te secretary o state primarily administers and enorcesCaliornias election laws and governs activities relating to elections,business, and legislative advocacy. Among its responsibilities,the secretary o state maintains records related to corporationsand other business entities that wish to do business in Caliornia.

Franchise Tax Board and Ofce o the Secretary o State


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Similar to the board, the secretary o state oers certicates ostatus (certicates) certiying businesses current status regarding

compliance with state laws concerning corporate status, or whichit charges $15. Businesses oten use couriers to present the secretaryo state with certicate requests.

Te secretary o states employees involved in this investigationworked in the Los Angeles regional oce, which is located in thesame building as the boards Los Angeles eld oce. Employee Awas a program technician who was responsible or processingvarious legal corporate documents, including certicates, andor providing public counter customer assistance. Employee Bwas a supervising program technician who oversaw Employee A.Employee C, who perormed over-the-counter services such as

issuing certicates, was also supervised by Employee B.

Like all other state employees, the boards and the secretary ostates employees must comply with state laws and regulationsrelated to their conduct and to the proper use o state resources.Specically, Penal Code section 67.5 species that every person whooers bribes to state employees may be punished by imprisonment.Similarly, Penal Code section 68 species that state employeeswho receive bribes in their ocial capacities may be punishedby imprisonment or up to our years and by nes o at leastthe actual amount o the bribes. In addition, Government Codesection 8314 prohibits state employees rom using or permittingothers to use state resources, including state-compensatedtime and equipment, or private gain or advantage. Further,section 19990 o the Government Code prohibits state employeesrom engaging in any employment, activity, or enterprise that isclearly inconsistent, incompatible, or in confict with their duties asstate employees. Tis prohibition includes receiving money romanyone who is doing or seeking to do business o any kind withthe state employees appointing authority under circumstancesrom which it reasonably could be substantiated that the git wasintended to infuence the employee in his or her ocial duties orwas intended as a reward or any ocial actions by the employee.

Regarding the condentiality o the investigation, GovernmentCode section 8547.6 provides that no inormation obtained by anydepartment, agency, or employee as a result o the Caliornia StateAuditors (state auditor) request or assistance should be divulgedor made known to anyone without the prior approval o the stateauditor. Finally, Government Code section 19572 identies variouscauses or which the State may take disciplinary action against anemployee, including incompetency, ineciency, inexcusable neglecto duty, dishonesty, willul disobedience, misuse o state property,and other ailures o good behavior that discredit the appointingauthority or the persons employment.

The boards and the secretary o

states employees must comply with

state laws and regulations related

to their conduct and to the proper

use o state resources.



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December 2012

Upon receiving an allegation o thet at the board, we asked or theboards assistance in conducting an investigation. When the board

obtained evidence suggesting that similar misconduct had occurredat the secretary o states Los Angeles regional oce, we asked thesecretary o state to assist us in conducting an investigation thereas well.

Facts and Analysis

Employees at both the board and the secretary o state perpetrateda raud scheme that resulted in three bribery convictions orstealing rom the State. Consequently, both entities determinedtheir existing internal control environment had weaknesses

contributing to the raud and reacted appropriately to strengthentheir processes.

To Deprive the State o Revenue, a Courier Bribed Employees From

Two State Agencies

As the Background section discusses, the board charged $20 oreach letter. o avoid paying this ee, the courier paid $300 to $400 aweek to Employee 1 to supply him with letters or his clients.From at least 2007 to 2009, Employee 1 used the boards computersystem to prepare about six or seven letters or the courier eachday without charging the required ee and without making entriesto a control log or photocopying the letters, thus eliminating anyevidence o the arrangement. She then axed the letters to thecourier, provided them to the couriers runner at the public servicecounter, or gave them directly to the courier. Te board estimatedthat Employee 1s and the couriers thet caused it to suer a loss oup to $150,000.

Te courier engaged in a similar arrangement with Employee Aat the regional oce o the secretary o state. When that oceinvestigated, it ound that Employee A accepted checks rom the

courier service in exchange or providing certicates withoutcharging the appropriate service ee. Although the secretary ostate could not establish the exact number o certicate requestsEmployee A processed, it ound that the courier service had inits possession carbon copies o checks or amounts ranging rom$175 to $500 payable to Employee A rom March 2006 throughNovember 2008; altogether, these checks totaled $54,625. Wheninterviewed, Employee C stated that he was aware that Employee Areceived the couriers requests or certicates by e-mail orphone, processed the requests when the courier service arrivedat the public counter, and then provided the courier service withthe certicates without collecting the required ees.

Employees at both the board and

the secretary o state perpetrated

a raud scheme that resulted

in three bribery convictions or

stealing rom the State.



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For their involvement in this scheme, the Los Angeles CountySuperior Court convicted Employee 1 and Employee A o bribery

under Penal Code section 68, and the courier o bribery underPenal Code section 67.5. Te court required Employee 1 to perorm400 hours o community service, and it sentenced her to seven daysin county jail and our years probation. Te court sentencedEmployee A to three years probation, and ordered her to serve400 hours o community service. For the couriers participationin the thet scheme with Employee 1, the court sentenced him to14 days in custody and placed him on three years probation. Forhis participation in the thet scheme with Employee A, the courtordered the courier to serve 200 hours o community service andthree years o probation.

Furthermore, the court ound each o these three participantsjointly and severally liable or their participation in the scheme andrequired them to make restitution. Specically, the court orderedEmployee 1 and the courier to pay the board $14,500 and $92,200,respectively. Te court ordered Employee A and the courier toeach pay the secretary o state $54,625. Finally, the board seized$11,480 rom the couriers residence related to the letters.

Te State terminated the employment o Employee 1 and Employee Aunder Government Code section 19572 or a series o violationsinvolving neglect o duty, dishonesty, disobedience, misuse ostate property as well as or incompatible activities, includingviolating Government Code section 19990. Teir circumvention oestablished internal controls prompted the board and the secretaryo state to conduct reviews o their processes related to issuingletters and certicates, the results o which we discuss later.

Other Board and Secretary o State Employees Were Involved in the Fraud

Although Employee 1, Employee A, and the courier were the onlyindividuals convicted o bribery, the board and the secretary o stateound that other state employees either had knowledge o the raud,

participated in the illicit scheme, or compromised the investigation.Specically, the board determined that employees 2, 3, 4 and 5 hadknowledge o Employee 1s illegal conduct but either ailed to reportit to board management or ailed to report it timely as ollows:

Employee2wasawareofEmployee1sactionsbutdidnotbring them to the attention o her supervisor. In act, the boarddetermined that Employee 2 directly assisted Employee 1 bydelivering improper letters and bribe money and by shreddingax conrmations related to illegally axed letters. Consequently,the board terminated Employee 2 or her violation oGovernment Code section 19572.

For their involvement in the scheme,

the Los Angeles County Superior

Court convicted Employee 1 andEmployee A o bribery under Penal

Code section 68, and the courier

o bribery under Penal Code

section 67.5.



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December 2012

Employee3liedduringtheinvestigation.Hedeniedknowledgeabout Employee 1s illegal activities even though the boards

review o his e-mails revealed that he knew o the illicit scheme.Employee 3 also ailed to inorm the board o Employee 1swrongdoing or seven months ater he ound out about it; hissilence allowed Employee 1 to continue to engage in the raud.Te board thereore suspended him without pay rom his statejob or 30 workdays.

Employee4hadnoknowledgeoftheillegalactivitiesbeforethewhistleblower complaint. However, when advised o the issueduring the investigation, she shared the substance o thecomplaint with another board employee. Her inappropriatedisclosure o the condential inormation contributed to the

board demoting her.

Employee5knewaboutEmployee1sillegalactivitiesforthree months beore she reported them to the board. As aresult, the board ormally counseled her.

Te secretary o states investigation ound that Employee B alsoaccepted bribes or providing the courier with certicates withoutcharging the required ees. Further, she instructed Employee C toprepare the certicates and waive the ees. Although Employee Bwas not charged with bribery, the secretary o state terminatedher as the result o her dishonesty, inadequate managementoversight, and violations o Government Code section 19572.Employee C admitted that his role in the scheme was similar toEmployee Bs; however, he had let employment with the secretaryo state by September 2009, beore the secretary o state completedits investigation.

In Response to the Bribery Scheme, the Board and the Secretary o State

Strengthened Their Internal Controls

Following the investigation, the board made changes to the

procedures used in its eld oces to process legal status requestsand store checks. It also initiated an internal control audit o itsprocedures related to processing letters, which it completed inJuly 2010. Te board has already implemented many o the auditsrecommendations. For example, while it planned to automate itsprocess or issuing letters in the uture, it restricted access to theletter template to designated sta. In February 2012 it implementedan automated letter process ree o charge, eliminating thepossibility o urther bribery schemes occurring with this service.Te board also now reconciles monthly its cash receipts, its letterlog, the volume o letters produced by its employees, and itstime-reporting system to ensure that it has accounted or all o the

Although Employee B was

not charged with bribery, the

secretary o state terminated her

as the result o her dishonesty,

inadequate management oversight,

and violations o Government

Code section 19572.



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December 2012

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letters its employees produce. Further, its management has metwith all sta in the Los Angeles eld oce to reiterate the boards

expectations regarding accountability and oversight.

In January 2010 the secretary o state ordered that its Los Angelesand San Diego oces cease issuing certicates and that itsSacramento headquarters instead handle all certicate requests.It then conducted an internal control audit o its Sacramentoheadquarters public counter to determine the adequacy andeectiveness o its controls. Tis audit resulted in the secretaryo states strengthening its controls over the cash receipt andcounter processes, increasing its oversight o its counter processes,and ensuring proper segregation o duties or employees whohandle cash and reconcile receipts. It also issued an e-mail to sta

reminding them o the consequences o violating the secretary ostates incompatible activities policy and state law.

Because the board and the secretary o state have addressed ullythe improper activities identied in this report, we have made norecommendations to them.



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Chapter 2

EMPLOYMENT DEVELOPMENT DEPARTMENT:CONSPIRACY TO COMMIT MAIL FRAUDCase I20081217

Results in Brie

A ormer Employment Development Department (EDD)accounting technician and two accomplices were convicted oconspiracy to commit mail raud or executing a scheme to redirectthe States unemployment insurance (unemployment) benets toineligible recipients. Because she alsied a bankrupt companys

wage inormation or its laid-o employees, the accountingtechnician enabled her two coconspirators to le unemploymentclaims against those wages. During the duration o their scheme,rom August 2008 through October 2010, the two accomplices usedthe U.S. mail to receive illicitly $92,826 in unemployment claimson wages they did not earn. Te accounting technician and one oher accomplices were sentenced to serve time in ederal prison. Tesecond accomplice was sentenced to three years o probation.

Background

EDD administers the joint ederal-state unemployment program,which provides unemployment benets to individuals who losetheir jobs through no ault o their own. A ormer worker who lesor these benets is known as a claimant. EDD uses the claimantswages earned over a 12-month period to determine the amounto the unemployment claim. EDD veries that the claimants lastemployer reported to EDD the wages or the claimant. Ater theclaimant les a claim, EDD sends notication to the employer thatits ormer employee has led a claim or unemployment benets,and it provides the employer with the opportunity to contestthe ormer employees claim or benets. Once EDD accepts an

unemployment claim, the claimant must veriy his or her continuedlack o employment by completing a claim orm and mailing it toEDD to receive payment.

Te United States Code, title 18, section 1341, denes mail fraudas a scheme or plan to obtain money or property by raudulentpretenses that uses the mail or a private interstate carrier to carryout the scheme. Anyone who knowingly devises such a schemecan receive a maximum sentence o 20 years o incarceration,a $250,000 ne, a three-year period o supervised release, and a



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December 2012

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special assessment o $100. Section 1349 states that anyone whoattempts or conspires to commit mail raud is subject to the same

penalties prescribed in section 1341.

When we received a complaint that an EDD accounting technicianused her position to acilitate unemployment benets or ineligibleindividuals, we requested that EDD assist us in conductingan investigation. In 2009 and 2010, EDD conducted a jointinvestigation with the United States Attorneys Oce.

Facts and Analysis

For a two-year period spanning 2008 to 2010, the ormer

EDD accounting technician helped two accomplices obtainunemployment benets illegally in a conspiracy to deraudEDD. While working at EDD beore she was red in 2008 ormatters unrelated to the raud, the ormer accounting technicianwas authorized to adjust base wages o workers enrolled inthe States unemployment insurance program and to makeroutine adjustments o unemployment claims. Ater it led orbankruptcy in 2006, a Caliornia employer reported its laid-oemployees wage data to EDD or entry into the unemploymentsystem. In August 2008, using her access, the ormer employeemanipulated several months o the bankrupt employers 2007wage data by substituting the names and social security numberso her two riends or those o two other individuals who actuallyworked or the bankrupt company. Te company did not noticethe ctitious employees on its payroll reports because it wasconducting massive layos and ceasing operations. By alsiyinginormation related to the bankrupt companys wage data,EDDs ormer employee provided the two individuals with theopportunity to le raudulent unemployment claims and to collectbenets illegally.

From August 2008 through October 2010, the ormer accountingtechnicians two riends led EDD unemployment claims against

wages they never earned, and they raudulently received benetsto which they were not entitled. Te investigation established thatthe accomplices led their unemployment claims within hours oeach other and that they listed the same bankrupt company andthe name o the same company manager. Ater it processed theunemployment claims based on the alse inormation submittedby the two coconspirators, EDD mailed unemployment checksto these accomplices along with the next claim orms that wouldallow them to le or continuous unemployment benets. In Juneand July 2009, surveillance captured the two accomplices on videoas they retrieved the unemployment checks rom their mailboxesin Sacramento.

For a twoyear period spanning

2008 to 2010, the ormer EDD

accounting technician helped

two accomplices obtain

unemployment benets illegally in

a conspiracy to deraud EDD.



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December 2012

As a result o this scheme, the ormer accounting technicianand her two coconspirators were convicted o conspiracy to

commit mail raud according to the United States Code, title 18,section 1349. For her role in executing the raudulent scheme,the ormer EDD employee was sentenced in December 2011 to21 months in ederal prison as well as to three years o supervisedrelease. One o her accomplices received the same sentencein February 2012. Te second accomplice was sentenced inJanuary 2012 to 36 months o probation. Each individual wasassessed a $100 criminal penalty and ordered to make collectiverestitution totaling $92,826 to EDD.

Recommendation

o minimize the potential or unauthorized changes toemployers wage inormation, EDD should strengthen its controlssurrounding employees access and authorization to change dataor companies reporting employment inormation used in EDDsunemployment system.

Agency Response

EDD reported in October 2012 that it created a new dailytransaction report to alert managers when changes are made tothe employment records. Most importantly, this report identieschanges made to names, social security numbers, or wage recordson the unemployment system by EDD employees when no businessneed or such changes appears to exist. Finally, this new reportprovides managers with a necessary tool to monitor transactionsperormed by accounting technicians.



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16



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December 2012

Chapter 3

CALIFORNIA STATE ATHLETIC COMMISSION:IMPROPER OVERTIME PAYMENTSCase I20091341

Results in Brie

Te Caliornia State Athletic Commission (commission) overpaida total o $118,650 to 18 athletic inspectors rom January 2009through December 2010 because it inappropriately paid them anhourly overtime rate rather than an hourly straight-time rate orwork they perormed.

Background

As part o the Department o Consumer Aairs (Consumer Aairs),the commission sets standards or amateur and proessionalboxing, kickboxing, and martial arts; conducts examinationsand regulatory inspections o these sports; and issues licenses topromoters, managers, reerees, trainers, and ghters. o accomplishits objectives, the commission employed 58 athletic inspectors asintermittent employees rom January 2009 through December 2010.Te athletic inspectors responsibilities included enorcing state lawsand commission rules at athletic events, recommending the issuanceo licenses to event participants, and evaluating the perormance oreerees and judges. wenty-our o the athletic inspectors thecommission employed also held ull-time positions with the Stateeither at the commission or at other state agencies.

Te Fair Labor Standards Act o 1938 (Fair Labor Act) providesor overtime compensation at one and one-hal times the regularrate at which an employee is paid when the employee worksmore than 40 hours during a workweek. However, section 207,subdivision (p) (2), o the Fair Labor Act also recognizes that

employers should exclude part-time work rom overtime calculationsi the part-time work is voluntary, occasional or sporadic, and in adierent capacity than an employees regular work.

Te Code o Federal Regulations, title 29, section 553.30, providesguidance on how to determine i part-time work meets thesecriteria. Specically, it states that when employees voluntarilyperorm occasional or sporadic part-time work or the same publicagency in a dierent capacity rom their regular work, the agencyshould not combine the part-time hours with the employeesregular hours to determine i overtime is owed. Te regulationsdene occasional or sporadic as inrequent, irregular, or occurring



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December 2012

18

in scattered instances. It urther claries that employment may beoccasional or sporadic even when it recurs or occurs seasonally and

uses ociating at youth or other recreation and sports eventsas examples o occasional or sporadic work. Te regulations alsostate that part-time work that alls within a dierent United StatesDepartment o Labor (Labor) general occupational category cannotresult in an employees receiving overtime.

Upon receiving an allegation that the commission overpaid athleticinspectors or work they perormed, we initiated an investigation.

Facts and Analysis

Our investigation revealed that rom January 2009 throughDecember 2010, the commission overpaid 18 athletic inspectors atotal o $118,650 because it improperly paid them an overtime rateor certain hours that they worked. We determined that anovertime rate was unwarranted in these instances because thework the athletic inspectors perormed was voluntary, occasionalor sporadic, and dierent in nature rom the work they otherwiseperormed as state employees. Tus, the work did not meet theFair Labor Acts criteria or overtime. Although the commissionpaid these athletic inspectors overtime because o advice it obtainedrom the Department o Personnel Administration (PersonnelAdministration), Personnel Administration based its advice oninaccurate inormation provided by Consumer Aairs.

In addition, we ound that the commissions hiring process otenled it to hire athletic inspectors who had other ull-time state jobs.As a result, the States costs increased because the commission paid$29,051 more in overtime than it would have i it hired individualsnot employed ull-time by the State.

The Work Hours or Athletic Inspectors Did Not Qualiy or Overtime

Under the Fair Labor Act

Our analysis determined that the work o 18 athletic inspectorswas voluntary, occasional or sporadic, and in a dierent capacitythan their ull-time state positions. Tus, the commission shouldhave excluded the work these employees perormed as athleticinspectors rom its calculations to determine whether overtimewas warranted. Because it did not exclude their work as athleticinspectors rom its overtime calculations, the commission overpaid

Efective July 2012, the Department o Personnel Administration merged with certainprograms o the State Personnel Board, and this merger created the Caliornia Department oHuman Resources.

From January 2009 through

December 2010, the commission

overpaid 18 athletic inspectors

a total o $118,650 because it

improperly paid them an overtime

rate or certain hours that

they worked.



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December 2012

these employees during the two-year period we reviewed. able 2identies the commissions improper payments to each o the

employees who worked intermittently as athletic inspectors.

Table 2

The Caliornia State Athletic Commission Overpaid 18 Athletic Inspectors

INSPECTOR OVERPAYMENT

A $,

B ,

C 3,3

D ,3

E

F 3,

G ,

H ,

I ,3

J 3,

K ,

L 3,

M ,

N

O ,

P ,3

Q ,3

R ,

Total overpayments $118,650

Sources: Caliornia State Auditors analysis o State Controllers Oce records and Caliornia StateAthletic Commission time sheets.

The Work That the Athletic Inspectors Perormed Was Voluntary

Te 18 intermittent athletic inspectors are ull-time employees at the

commission and other state agencies. Tese individuals voluntarilyapplied or the intermittent athletic inspector position: Teir otherull-time positions with the State did not require them to apply tobe athletic inspectors. Moreover, all o the commissions athleticinspectors can accept or decline assignments based on their statedavailability. According to the commissions ormer executive ocer, thecommissions scheduling sotware identies athletic inspectors in closeproximity to a sporting event who have stated that they are available orwork. I these athletic inspectors decline the assignment, the schedulingsotware identies additional athletic inspectors who state that they areavailable but who may live urther away rom the event location.



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December 2012

20

The Work That the Athletic Inspectors Perormed Was Occasional

or Sporadic

Our analysis o athletic events and athletic inspectors time sheetsconrmed that the work the 18 athletic inspectors perormed wasoccasional or sporadic as dened by title 29, section 553.30(b) o theCode o Federal Regulations. Specically, our analysis determinedthat the athletic events the commission approved during thetwo-year period covered by this investigation occurred irregularly.Te ormer executive ocer stated that the commission approvesa requested event only i it can provide sucient numbers o sta.Our review o events rom July 2009 through June 2011 showedthe total number o events varied rom one scal year to another(that is, 174 events versus 159 events) and rom month to month.

Figure 1 highlights those months in which an increase or decreaseo the number o events in one scal year did not match whatoccurred in the other scal year. For example, the number o eventsdropped rom 20 to 13 rom July to August 2009. Te ollowingyear, the number o events increased rom 14 to 16 during the sametwo-month time rame.

Figure 1

YeartoYear Comparison o the Number o Caliornia State Athletic CommissionApproved Athletic Events

Fiscal Years 200910 and 201011

Fiscal year 200910

Fiscal year 201011

21

12

19

16

July

Augu

st

Septem

ber

Octobe

r

Novembe

r

Decembe

r

Janu

ary

Febr

uary

March

April

May

June

Numberofevents

Months

0

5

10

15

20

25

Events in fiscal year 201011

increased from 12 to 19, whereas

events in fiscal year 200910

decreased from 21 to 16.

Source: Caliornia State Auditors analysis o Caliornia State Athletic Commissions record o events.

Note: The green and blue arrows highlight an example o how the months in which an increase or decrease o the number o events in one scal yeardid not match what occurred in the other scal year.

3 The commissions records do not include data or events held rom January through June 2009.



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December 2012

In addition, the events did not occur on certain days o the week.Te events tended to occur on weekends rom Friday through

Sunday but were not limited to those days. For example, o the159 events that occurred during scal year 201011, 21 percentoccurred on Monday through Tursday.

We also reviewed the athletic inspectors time sheets romJanuary 2009 through December 2010 to determine i any o theathletic inspectors worked any observable patterns (that is, everyFriday, every other Friday, once a month). Instead, we ound thatthe days and the requency o days worked by inspectors variedrom month to month and year to year; thus, we ound no regularwork pattern. For example, our analysis o one o these athleticinspectors showed the ollowing:

enumberofdaysheworkedeachmonthrangedfromnoneto 18.

enumberofdaysheworkedinaspecicmonthvariedfromyear to year by as much as 16 days.

HeworkedsomeFridaysbutnoteveryFridayoreveryother Friday.

Heworkedsomeweekends(FridaythroughSunday)butnot consistently.

Heoccasionallyworkedonweekdays.Whenhedidso,thedayso the week varied.

Tis particular athletic inspector worked a high volume o daysduring the two-year period; however, our analysis ound a lack o aregular work pattern or this inspector and or the other 17 athleticinspectors as well. For example, our analysis o athletic inspectortime sheets revealed the number o events each inspector workedvaried widely each month; in act, the athletic inspectors workedbetween zero and 12 events each month. In addition, one athletic

inspector worked at events or the commission in only 13 monthso the 24-month period while another worked at events or thecommission in every month except one.

Te commission provided us with additional inormation indicatingthat the work the athletic inspectors perorm is occasional orsporadic. Specically, the ormer executive ocer stated that thenumber o commission events depends on inspector availabilityrather than on a predetermined schedule. Because stang an eventtypically requires six to seven inspectors, the commission cannotschedule events until it has conrmed that multiple inspectors areavailable to work.

The days and the requency o

days worked by inspectors varied

rom month to month and year to

year; thus, we ound no regular

work pattern.



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December 2012

22

The Work That Athletic Inspectors Perormed Diered From the Work

Required by Their Regular FullTime State Positions

As discussed previously, the Code o Federal Regulations, title 29,section 553.30, states that agencies should use Labors categorieso occupations to determine whether an individuals employmentin a second capacity substantially diers rom his or her regularemployment. Our review determined that the athletic inspectorposition best ts in the category o Inspectors and Investigators.Te ull-time state positions that 18 o the inspectors held ell intodierent categories. Specically, their ull-time job classicationsincluded administrative positions, such as oce technician andsta services analyst, and law enorcement positions, such ascorrectional ocer and special agent.

Personnel Administration Based the Advice It Provided to the

Commission on Inaccurate Inormation

In 2010 Consumer Aairs requested an opinion rom PersonnelAdministration about whether the commission was required to payovertime to athletic inspectors it employed on an intermittent basiswho were also ull-time state employees. Personnel Administrationadvised Consumer Aairs in March 2010 that the commissionshould pay overtime to these athletic inspectors. However,Personnel Administration based its advice in part on inaccurateinormation that Consumer Aairs provided to it. Specically,Consumer Aairs stated that athletic inspectors regularly worked attwo to our events each month. As discussed previously, the athleticinspector time sheets we reviewed during a two-year period did notsupport this statement.

When we interviewed the Personnel Administration attorneywho advised Consumer Aairs, the attorney stated that she reliedupon the acts provided by Consumer Aairs when she ormedher advice and did not conduct any additional work to determinethe accuracy o the inormation. Tus, Personnel Administrations

advice was based on inaccurate inormation and did not supportthe commissions payment o overtime to the athletic inspectors.

The Commissions Hiring Process Increased the States Overtime Costs

Te commissions hiring process or athletic inspectors hascontributed to both its proper and improper overtime payments,thus increasing the States costs. As previously mentioned,24 (41 percent) o the 58 athletic inspectors the commissionemployed rom January 2009 through December 2010 also heldull-time jobs with the State. In addition to paying overtime

Personnel Administrations

advice was based on inaccurate

inormation and did not support the

commissions payment o overtimeto the athletic inspectors.



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December 2012

improperly to 18 o these athletic inspectors, the commission alsoproperly paid overtime to the six remaining inspectors who were

also ull-time state employees. Because their regular ull-time workwas similar to athletic inspectors work, we excluded them rom ourcalculation o the improper overpayments. Nevertheless, becausethey hired these athletic inspectors, the commission paid $29,051more in overtime than it would have i it hired individuals whomthe State did not employ ull time.

When we asked the ormer executive ocer why the commissionhired individuals as intermittent employees whom the State alreadyemployed in ull-time positions, he stated that Consumer Aairsinormed him that he could not exclude ull-time state employeesrom the commissions hiring process. In addition, he stated that

i state employees applied, he had to oer positions to them ithey scored well during the exam and interview processes. Whenasked why so many state employees applied or athletic inspectorpositions, the ormer executive ocer speculated that currentathletic inspectors inormed work colleagues at other state agenciesabout open positions, increasing the likelihood that state employeessubmitted applications. Furthermore, the ormer executive ocerstated that most applicants have a limited understanding o athleticinspectors work requirements and that individuals who arenot already employed by the State may not be ully aware o thecommissions hiring process or know where to obtain inormationabout open athletic inspector positions.

We also asked the ormer executive ocer about any eorts thecommission has made to broaden the number o applicants orathletic inspector positions. Te ormer executive ocer statedthat the commission advertises athletic inspector positions throughthe States sta vacancy database. Moreover, he inormed usthat potential applicants oten ask commission sta members atcommission-approved events about the hiring process or becomingathletic inspectors. Te ormer executive ocer stated that in suchinstances, commission sta members provide individuals withinormation about the application process and explain where to get

up-to-date inormation about athletic inspector openings. However,he stated that potential applicants must take responsibility to ollowup by contacting the commission.

Because they hired these athleticinspectors, the commission paid

$29,051 more in overtime than it

would have i it hired individuals

whom the State did not employ

ull time.



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December 2012

24

Recommendations

o address the improper governmental activity identied in thisinvestigation and to prevent similar improper activities romoccurring, the commission should do the ollowing:

Immediatelyceasepayingthe18athleticinspectorsdiscussedinthis investigation an overtime rate or work they perorm, andinorm all athletic inspectors that it will compensate them at theclassications straight-time rate unless their work meets the FairLabor Acts criteria or receiving overtime.

Makegreatereortstobroadenitshiringandincreasethenumber o applicants who are not ull-time state employees

by posting hiring announcements at locations where thecommission has a presence, such as gyms, promoter oces, andvenues at which it holds events.

Agency Response

Consumer Aairs reported that it sought another opinion romPersonnel Administration in June 2012 about whether or notthe overtime rate is justied or athletic inspectors who work asecond ull-time job or the State. In August 2012 the CaliorniaDepartment o Human Resources, which took over PersonnelAdministrations unctions, provided an opinion to ConsumerAairs that the work did not meet the criteria or overtime pay. Asa result, the commission ceased paying overtime to the aectedemployees beginning in October 2012. In addition, ConsumerAairs stated that it is reviewing the records and will devise a planto address the overpayments to the athletic inspectors. Further, inNovember 2012 the commissions new executive ocer began theprocess to broaden the base o potential applicants or the athleticinspector classication.



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December 2012

Chapter 4

DEPARTMENT OF FISH AND GAME: IMPROPER USE OFLEASE PROCEEDSCase I20091218

Results in Brie

A supervisor with the Department o Fish and Game (Fish andGame) improperly implemented an agricultural lease agreement.He directed the lessee to use state unds derived rom the leaseto purchase $53,813 in goods and services that did not providethe improvements and repairs the lease required. In addition, the

supervisor required the lessee to provide the State with $5,000 inHome Depot git cards, but this supervisor could not demonstratethat the purchases he and other state employees made with thegit cards paid or improvements or or any other identiable statepurpose.

Background

As part o its responsibilities, Fish and Game maintains native sh,wildlie, plant species, and natural communities or their intrinsicand ecological value and benets to the State. It also protects andmaintains habitat to ensure the survival o all species and naturalcommunities. Fish and Game manages over one million acres osh and wildlie habitat, including 110 properties designated aswildlie areas.

o meet this part o its mission, Fish and Game entered into anagreement rom October 2008 through September 2011 to lease711 acres o armland within a wildlie area to a local armer inexchange or custom tractor work and direct habitation restorationin the overall wildlie area. According to the lease, instead operorming this work, the armer could improve or repair the

wildlie area; both Fish and Game and the armer interpreted thisclause in the lease to mean that the armer could either makethese improvements or repairs itsel or pay third parties to makethem. Te value o the lease was $29,862 a year, or $89,586 or thethree-year period. A Fish and Game supervisor in the region wasresponsible or managing the day-to-day operations o the wildliearea, including supervising construction, maintenance work, andhabitat development work. He also was responsible or managingthe lease with the armer.



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26

Caliornia Fish and Game Code section 1501.5 authorizes Fishand Game to enter into contracts or sh and wildlie habitat

preservation, restoration, and enhancement when it nds thatthe contracts will assist Fish and Game in meeting its mission.Section 1348, subdivision (c) (2) o the same code authorizes Fishand Game to lease real property in its jurisdiction and requiresit to deposit proceeds in the Wildlie Restoration Fund. Inaddition, section 9.04 o the State Contracting Manualstates thatthe contract manager must maintain contract documentation.Further, Government Code section 16301 requires state agencies toreport to the State Controllers Oce all money received. Finally,section 12320 o the Government Code requires the deposit othose unds into the State reasury.

When we received an allegation that the supervisor at the wildliearea had improperly used unds derived rom the agricultural leasein question, we initiated an investigation.

Facts and Analysis

Te supervisor improperly implemented the agricultural lease bydirecting a local armer to pay more than $53,000 to third-partyvendors or the wildlie areas regular operating expenses ratherthan requiring the armer to perorm the work required by thelease to restore the wildlie area or to pay a third party or suchrepairs or improvements. In addition, the supervisor requiredthe armer to provide him with $5,000 in Home Depot git cardsthat the supervisor asserted he spent on purchases that servedstate purposes but or which he could provide no documentationto show what he bought. By directing the armer to pay Fishand Games operating expenses and provide the git cards, thesupervisor ailed to ollow the terms o the lease, which requiredthe armer to perorm direct habitat restoration. Moreover, he alsoprevented proceeds rom the leased property rom being depositedinto the Wildlie Restoration Fund as state law requires.

In addition, Fish and Game did not collect the ull lease amount thearmer owed to the State until ater we inquired about uncollectedsums. As a result o our inquiry, Fish and Game collected more than$30,000 o the $89,586 lease amount in November 2011.

The supervisor improperly

implemented the agricultural lease

by directing a local armer to pay

more than $53,000 to thirdparty

vendors or the wildlie areas

regular operating expenses rather

than or repairs or improvements.



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December 2012

The Supervisor Implemented the Lease Improperly by Not Requiring

the Farmer to Perorm the Specied Work or Pay or Repairs

and Improvements

Te supervisor did not require the armer to perorm the customtractor work or pay or the repairs and improvements speciedin the lease; thus, Fish and Game did not implement the leaseaccording to its own requirements. As discussed in the Background,the State agreed to lease to the armer 711 acres at the wildlie areaor a three-year period in exchange or the armer perormingcertain tractor work or making improvements and repairs to thewildlie area. However, the supervisor did not require the armerto perorm work equaling the rental value o the leased property.In act, the armer perormed custom tractor work only once, in

February 2009. Instead, the supervisor directed the armer to paya number o third-party invoices. A ew o these invoices related toimprovements and repairs to the wildlie area as the lease required;however, contrary to the terms o the agreement, the armer paidmost o the invoicescovering costs that totaled $53,813or Fishand Games routine operating and equipment expenses.

According to the Department o Finance (Finance), the Statepermits the lease o state property in exchange or improvement,maintenance, agricultural, or similar services provided by a lesseeon the leased property in limited situations. However, Financestated that the parties must have a written agreement, the leasemust refect air market values, and the exchange must providepublic benet to the State. In this case, the terms o the writtenagreement did not support the actual exchange that took place.

The Supervisor Held Lease Proceeds Outside the State Treasury and

Failed to Ensure Their Appropriate Use

Fish and Game had an approved budget or operating andequipment expenses at the wildlie area, which included xingstate vehicles, repairing the roo o the wildlie area housing and

oce building, and purchasing an air conditioner or the oce.Tus, these routine operating or equipment expenses had alreadybeen unded in the States Budget Act and did not directly involveimproving or repairing the wildlie area, as the lease required.

By improperly directing the armer to pay $53,813 to third-partyvendors and to purchase $5,000 worth o Home Depot git cards(which we discuss urther in the next section), the supervisorcircumvented state law regarding the use o those unds.Section 1348, subdivision (c) (2) o the Fish and Game Codeauthorizes Fish and Game to lease real property in its jurisdictionand requires it to deposit proceeds in the Wildlie Restoration Fund.

By improperly directing the armer

to pay $53,813 to thirdparty

vendors and to purchase $5,000

worth o Home Depot git cards, the

supervisor circumvented state law

regarding the use o those unds.



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December 2012

28

Te Wildlie Conservation Board (wildlie board) administers thisund, which receives its revenues rom several sources, including

the rental o state property. Moneys rom the und are appropriatedto the wildlie board to acquire lands and construct acilities suitableor recreation and adaptable or conservation, propagation, and useo sh and game resources. I the States lease agreement with thearmer had required cash payments, existing state law would haverequired Fish and Game to deposit this revenue into the WildlieRestoration Fund. Instead, the supervisor improperly directedthe collection and expenditure o these unds outside the Statereasury. Because o this decision, he circumvented the WildlieRestoration Funds cash receipt processes and accounting controls.

Furthermore, unless otherwise provided or by statute, Government

Code sections 12320 and 16301 require state agencies that receivemoney to report those receipts to the State Controllers Oce sothat the unds may be accounted or and to deposit those unds intothe State reasury. By directing the armer to directly pay certainstate expenses with money that was owed to the State under theterms o the lease agreement, the supervisor violated these codesections that otherwise govern the receipt o state revenues.

Moreover, Finance stated that leases must not circumventadministrative and legislative oversight. Te Legislature mustapprove department budgets, including the budget or Fish andGames operational costs. Tereore, by using lease proceeds oroperating and equipment expenses, the supervisor circumventedlegislative oversight o Fish and Games budget.

According to the supervisor, the ormer area manager paid orimprovements to the wildlie area through agricultural leasesas a way to keep local money local. Te supervisor stated thatunder the ormer area manager, Fish and Game subtracted thevalue o the tractor work or improvements made to the wildlie areaby the armer and rolled over overpayments or underpaymentsrom year to year. Te supervisor explained that he thereorebelieved that this process was appropriate to ollow when Fish

and Game put him in charge o the wildlie area ater the ormerarea manager retired. Te ormer area manager stated that heintroduced the concept o exchanging work in lieu o rentalpayments and that the activities he authorized directly created,improved, or enhanced wildlie habitats. However, the supervisorailed to ollow the terms o the lease agreement, which requiredthe armer to either perorm custom tractor work or to makeimprovements or repairs to the wildlie area. Te lease did notauthorize the supervisor to direct the armer to pay or the ongoingoperating expenses o Fish and Game, nor could the lease have done

The supervisor improperly

directed the collection and

expenditure o these unds outside

the State Treasury, circumventing

cash receipt processes and

accounting controls.



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December 2012

so without violating the laws and procedures governing the WildlieRestoration Fund and the receipt, deposit, and accounting o state

agency revenues.

The Supervisor Failed to Account Properly or Git Card Purchases

In addition to directing the armer to pay or operating expenseinvoices, the supervisor also required the armer on three occasionsto provide him with a total o $5,000 in Home Depot git cards romDecember 2008 through July 2009. Te supervisor stated that he andother wildlie area sta used the cards to purchase or state purposessuch items as oce and cleaning supplies, hand and power tools,nuts and bolts, lumber, and cabinetry. However, the supervisor could

not produce any receipts to support these purchases: He asserted thata ormer employee took the receipts rom the wildlie area oce. Byailing to retain control o these receipts, the supervisor violated theState Contracting Manual, which states that contract managers mustmaintain contract documentation. Without evidence to support thesupervisors assertion that he used the git cards to purchase items orthe wildlie area, Fish and Game cannot ensure that it has a properaccounting o state equipment and property in the wildlie area.

Moreover, assuming the supervisors assertions are accurate,requiring the armer to provide git cards to pay or the wildlieareas operating expenses was inappropriate or the same reasonsthat requiring the armer to directly pay Fish and Games operatingcosts was inappropriate. Because the wildlie area sta improperlyaccepted and used the git cards to pay or operating expenses,Fish and Game ailed to ollow the terms o the lease agreementand violated state laws and procedures that govern the deposit andaccounting o state agency revenues.

Fish and Game Did Not Collect the Full Amount or the Leased Property

Until Ater Our Inquiry

Fish and Game did not collect the ull lease amount or the wildliearea property until ater we inquired about uncollected unds. Ouranalysis o the invoices the supervisor directed the armer to payrevealed that it still owed the State $30,773 at the end o the leasein September 2011. Ater bringing the matter to his attention, inOctober 2011 the supervisor inormed us that he requested theregional oce to collect all lease proceeds still owed to the State andthat he provided a senior ocial a list o invoices the armer had paidthus ar to support the amount still owed. Fish and Game reportedthat it collected the $30,773 owed to the State in November 2011.We noted that the lease did not speciy how Fish and Game

By ailing to retain control o

these receipts, the supervisor

violated the State Contracting

Manual, which states that

contract managers must

maintain contract documentation.



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December 2012

30

should collect lease payments in the event that the armer didnot perorm the necessary work or provide the required repairs

and improvements.

Recommendations

o address the improper use o lease proceeds, Fish and Gameshould seek either corrective or disciplinary action or the supervisoror his ailure to ensure that Fish and Game used lease proceedsin accordance with the terms o the lease and to ensure that theseproceeds were accounted or in the State reasury when necessary.

o ensure that similar problems do not arise in the uture, Fish

and Game should amend the terms o its leases either to requirethat the lessee make lease payments to the State or to includespecic inormation about the improvements and repairs that alessee must perorm instead o paying the lease and about the valueo these improvements and repairs. In either instance, Fish andGame should include a provision in the lease or payment i thelessee owes money to the State at the end o the lease period. I itdecides that uture leases should require a lessee to make specicimprovements and repairs, Fish and Game should do the ollowing:

Developasystemtotrackallpertinentinformationrelatedto a lessees cost or improvements and repairs to be creditedagainst the lease. Tis system should include a description oall payments the lessee makes, the reasons or the payments, anexplanation o how payments either restore wildlie habitat orimprove or repair the wildlie area, and indicate updated balanceso the amount the lessee still owes on the lease.

Requirethesupervisortoreconcilepaymentrecordsatleastannually with a lessee to ensure that the States records areaccurate and that the State receives the ull benet rom leasingthe state property.

Finally, Fish and Game should provide training to those involvedwith the lease to ensure that it properly accounts or and reconcilesuture work and payments related to the leased property, that itdoes not pay operational and equipment expenses with proceedsderived rom the lease, and that all parties understand what workFish and Game expects as the result o the agreement.

Agency Response

Fish and Game had ailed to provide us with its response to thisinvestigation as o November 29, 2012.



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December 2012

Chapter 5

CALIFORNIA CORRECTIONAL HEALTH CARESERVICES AND DEPARTMENT OF CORRECTIONS ANDREHABILITATION: IMPROPER TRAVEL EXPENSESCase I20090689

Results in Brie

A manager with Caliornia Correctional Health Care Services(Correctional Health Services) improperly authorized Departmento Corrections and Rehabilitation (Corrections) employees touse rental cars and receive mileage reimbursements or their

commutes that Corrections improperly approved. Te manager alsoimproperly authorized these employees to receive reimbursementsor expenses they incurred near their homes and headquartersand or which Corrections inappropriately approved payment.As a result, the State paid a total o 23 employees $55,053 in travelbenets to which the employees were not entitled.

Background

Correctional Health Services is responsible or developing,implementing, and validating the health care systems withinthe States correctional acilities to ensure that inmates receiveadequate medical care. As part o its mission, Correctional HealthServices manages the day-to-day operations o medical sta inthese acilities. Although Correctional Health Services is managedindependently rom Corrections, the workorce is part o the statecivil service. It also relies on Corrections employees to provide itwith administrative support, such as processing travel claims.

A Correctional Health Services manager was responsible orsupervising the 23 employees. Te employees responsibilitiesincluded traveling to 10 prisons in Southern Caliornia to conduct

on-site health care program monitoring to ensure that nursingservice activities met the needs o inmate patients and compliedwith inmate medical services policies and procedures. In addition,the employees assessed the standard o inpatient care at acutecare hospitals, correctional treatment centers, and skilled nursingacilities. Further, the employees provided on-site training toinstitution sta as necessary and developed management plans orthe institutions where health care practices required improvement.

As the entity exercising powers vested in the secretary o Corrections,Correctional Health Services must comply with state laws,regulations, and administrative policies that govern state travel

Caliornia Correctional Health Care Services and Department o Corrections and Rehabilitation


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practices unless the ederal court exempts it rom doing so. odate, the court has not exempted Correctional Health Services

rom the requirements governing state travel. Tus, it must ollowstate laws and regulations intended to ensure that it properlyreports travel expenses and maintains adequate administrativecontrols to ensure the propriety o that reporting. Specically,Caliornia Code o Regulations, title 2, section 599.615.1,subdivision (a), requires each state agency to determine thenecessity or travel by its employees and to ensure that such travelrepresents the best interests o the State. In addition, this sectionrequires the approving ocer to certiy that the expenses incurredare appropriate and within the States travel rules. Section 599.631o these regulations prohibits employees rom claiming expensesarising rom travel between their homes and headquarters. Further,

labor agreements between the State and the relevant collectivebargaining units (units 1, 6, 16, 17, and 20) govern the terms oemployment or the employees involved in this investigation.Tese labor agreements speciy that the State will reimburseemployees or actual, necessary, and appropriate businessexpenses and or travel expenses incurred 50 miles or more romtheir home and headquarters. Te labor agreements also speciythat when employees travel to alternative work locations otherthan their headquarters, the State will reimburse them only ormiles driven beyond their normal commutes.

When we received a complaint that a manager authorized heremployees to receive improper travel expenses, we initiatedan investigation.

Facts and Analysis

Our investigation revealed that rom December 2007 throughMay 2009 the manager improperly authorized 23 employees toreceive $55,053 in travel-related benets. Specically, the managerregularly allowed employees to rent vehicles to use or theircommutes. She also authorized employees to receive excessive

mileage reimbursements when driving their personal cars to theirheadquarters or to locations near their homes or headquarters.In addition, the manager authorized nine employees to receivereimbursement or lodging and other expenses that they incurrednear their homes or headquarters. Corrections accounting staailed to adequately review the travel claims these employeessubmitted to ensure the expenses they claimed were allowed bystate travel rules.

From December 2007 through

May 2009 the manager improperly

authorized 23 employees to receive

$55,053 in travelrelated benets by

allowing them to rent vehicles to

use or their commutes.



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December 2012

The Manager Authorized Employees to Receive CommuteRelated

Benets to Which They Were Not Entitled

Te manager violated state travel regulations by authorizingemployees to receive commute-related benets to which theywere not entitled. Specically, the manager authorized employeesto use rental cars at the States expense or their commutes and toreceive mileage reimbursements when driving their personalvehicles or their commutes despite state regulations prohibitingthese reimbursements. In addition, she authorized employees touse rental cars or to receive mileage reimbursements in excess owhat they were entitled to when using their own vehicles to travelbetween their homes and prisons or other alternate work locations.As a result, the State incurred $44,997 in improper expenses related

to the employees commuting to headquarters and prisons oralternate work locations.

In many instances, the misuse o rental cars occurred whenan employees initial rental o a car constituted an appropriatetravel expense; however, the employee then kept the car or anextra day or two to use or his or her commute to work. In otherinstances, employees rented cars when they had no state-relatedreason to do so. We ound that 20 o the 23 employees improperlyused rental cars, at a cost to the State o $33,534. Five o theseemployees misused rental cars to a particularly egregious extent:Each incurred more than $3,000 in improper rental car expenses.One employee, Employee A, improperly used rental cars regularlyrom March 2008 through April 2009 at a cost to the Stateo $9,577.

Te manager also violated state travel rules when she authorizedemployees to receive reimbursements to which they were notentitled or commuting to their headquarters or other locations intheir personal vehicles. As previously mentioned, state regulationsand the employees collective bargaining agreements prohibit thepayment o expenses arising rom travel between an employeeshome and headquarters and limit reimbursements when driving

to alternate work locations to include only miles in excess oan employees regular commute. However, we ound that themanager authorized seven employees to receive reimbursementsin violation o these conditions. For example, the State paidEmployee B $496 or nine trips he made between his home andheadquarters even though he was not entitled to any compensationor his commute.

The amount includes the cost o uel associated with Employee As misuse.

In many instances, the misuse

o rental cars occurred when an

employees initial rental o a car

constituted an appropriate travel

expense; however, the employee

then kept the car or an extra day or

two to use or his or her commute

to work.



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December 2012

34

The Manager Authorized Employees to Claim Noncommute Expenses

Incurred Near Their Homes or Headquarters

Te manager authorized seven employees to claim noncommuteexpenses incurred within 50 miles o their homes or headquarterseven though the relevant laws and collective bargaining agreementsapplicable to the employees prohibit the reimbursement o theseexpenses under these circumstances. As a result, these employeesreceived $10,056 or meal expenses they incurred when theyworked at their headquarters and or lodging expenses theyincurred as close as two miles rom their headquarters.

For example, Employee C claimed improper lodging and mealexpenses incurred near her headquarters or a total o 29 nights

at a cost to the State o $3,659. On all o these nights, she stayed atmotels located less than our miles rom her headquarters.

When we spoke about these improper expenses with theCorrectional Health Services executive who supervisesthe manager, she stated that in some instances the job duties ocertain employees required them to visit dierent institutions withlittle notice and to monitor inmates at specic 12-hour increments.However, the executives explanation does not justiy violatingstate travel rules: Te employees could have driven rom theirrespective residences and still perormed their duties adequately.Further, state regulations and the employees collective bargainingagreements do not allow or an exemption to the 50-mile expenseprohibition under the circumstances the executive provided.

Te ndings o our investigation indicate that Correctional HealthServices should have taken into account the actors that contributedto the payment o improper expenses and consequently providedgreater administrative oversight to the manager so that she wouldhave provided clearer direction to her employees. Specically,the Correctional Health Services executive who supervised themanager stated that the manager had no prior state experienceand was unamiliar with state travel rules. In addition, beore 2008,

the manager and the employeesmany o whom were also new tostate serviceused their homes as their hubs or travel becauseCorrectional Health Services had not assigned them to specicheadquarters. Ater Correctional Health Services assigned theseemployees to oces, some continued to submit expenses as thoughtheir homes were still their headquarters. Given these uniquecircumstances, the executive should have provided clear directionto the manager and to the employees regarding the appropriatenesso claiming reimbursements or expenses incurred nearheadquarters and when commuting to headquarters or prisons.

Employee C claimed lodging and

meal expenses when she stayed at

motels located less than our miles

rom her headquarters.



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December 2012

Corrections Accounting Sta Failed to Review Employee Travel

Claims Adequately

Corrections accounting sta ailed to adequately review theemployees travel claims even though numerous expenses violatedstate travel rules. As mentioned previously, in many instancesemployees claimed meals and lodging near

121211 State Employee Audit

Documents

Transcript of 121211 State Employee Audit