Report 99101 Summary - July 2000

Office of the Attorney General:

It Diligently Investigated the Legality of Downey Community Hospital Foundation's Transactions, but Questions Remain About Sound Business Practices


Responding to complaints from citizens of the city of Downey, the California Office of the Attorney General (attorney general) in 1998 conducted an investigation of Downey Community Hospital Foundation (foundation), which has directed the hospital since it became nonprofit in 1956. Complaints against the foundation focused on its partnerships with for-profit entities, its use of charitable resources in these alliances, and its compensation of its chief executive officer. The attorney general's investigation was diligent in determining whether the foundation officers or board members committed any unlawful acts that caused the loss of charitable assets. However, because the California Public Records Act states that any investigation conducted by the attorney general is exempt from public disclosure, we are prohibited from commenting on the specific conclusions reached in its confidential report. Also, California Government Code provisions prohibit the release of private records obtained in the course of an investigation unless in a legal proceeding. The attorney general cited these provisions in refusing our written request to include in our report any of the information it had gathered or the conclusions it had reached.

Had the scope of the attorney general's investigation included determining if foundation directors and officers used good business judgment, its staff would have had to more thoroughly evaluate some actions of those individuals. For example, to determine whether the foundation exercised sound business discretion, auditors would have looked for evidence that officers and directors adequately analyzed the financial risks and viability of certain business ventures before committing the foundation's charitable resources. The attorney general's mandate was only to evaluate whether the foundation used its resources properly and legally, and additional scrutiny would be needed to show whether sound business practices dictated the allocation of those resources.


The Office of the Attorney General stated that it agreed with the conclusions reached in our report.