Report I2012-1 Summary - December 2012

Investigations of Improper Activities by State Agencies and Employees

Bribery, Conspiracy to Commit Mail Fraud, Improper Overtime Payments, Improper Use of Lease Proceeds, Improper Travel Expenses, and Other Violations of State Law

HIGHLIGHTS

State agencies and employees engaged in improper activities, including the following:

Employees at two state agencies and a courier service owner were convicted of bribery and ordered to pay the agencies more than $227,000 in restitution.
A former accounting technician and two accomplices were convicted of conspiracy to commit mail fraud for a scheme that fraudulently redirected nearly $93,000 of unemployment insurance benefits to the two accomplices.
A state agency overpaid nearly $118,700 to 18 employees for two years because it inappropriately paid them an overtime rate rather than a straight-time rate for their work.
A supervisor improperly directed the use of state funds to purchase more than $53,800 in goods and services not required by a lease and he also used $5,000 in gift cards but could not demonstrate that the purchases made were used for a state purpose.
The State improperly paid a total of 23 employees $55,000 in travel benefits after a manager allowed them to receive reimbursements for their commutes and for expenses incurred near their homes and headquarters.

RESULTS IN BRIEF

The California Whistleblower Protection Act (Whistleblower Act) empowers the California State Auditor (state auditor) to investigate and report on improper governmental activities by agencies and employees of the State. Under the Whistleblower Act, an improper governmental activity is any action by a state agency or employee related to state government that violates a law, is economically wasteful, or involves gross misconduct, incompetence, or inefficiency.¹

This report details the results of nine particularly significant investigations completed by the state auditor or undertaken jointly by the state auditor and other state agencies between April 1, 2011, and June 30, 2012. This report also outlines actions taken by state agencies in response to the investigations of improper governmental activities described here and in previous reports. The following paragraphs briefly summarize the investigations and the state agencies' actions, which this report's individual chapters discuss more fully.

FRANCHISE TAX BOARD AND OFFICE OF THE SECRETARY OF STATE

A Franchise Tax Board (board) employee, an Office of the Secretary of State (secretary of state) employee, and a courier service owner engaged in an elaborate scheme that enabled the courier service owner to steal nearly a quarter of a million dollars from the State. The three individuals were convicted of bribery and ordered to pay more than $227,000 in restitution to the secretary of state and the board. The failure of these state agencies to maintain adequate controls contributed to the individuals' ability to perpetrate the fraud.

EMPLOYMENT DEVELOPMENT DEPARTMENT

A former Employment Development Department accounting technician and two accomplices were convicted of conspiracy to commit mail fraud for executing a scheme to redirect unemployment insurance (unemployment) benefits from the State to ineligible recipients. By falsifying information related to a bankrupt company's laid-off employees, the accounting technician enabled her two coconspirators to file unemployment claims against those wages. During the duration of their scheme, the two accomplices illicitly received nearly $93,000 in unemployment claims for wages to which they were not entitled using the U.S. mail to deliver their benefits from August 2008 through October 2010. The accounting technician and one of her accomplices were sentenced to serve time in federal prison. The second accomplice was sentenced to three years of probation.

CALIFORNIA STATE ATHLETIC COMMISSION

The California State Athletic Commission overpaid a total of nearly $118,700 to 18 of its athletic inspectors from January 2009 through December 2010 because it inappropriately paid them an hourly overtime rate rather than an hourly straight-time rate for work they performed.

DEPARTMENT OF FISH AND GAME

A supervisor with the Department of Fish and Game improperly implemented an agricultural lease agreement. He directed the lessee to use the state funds derived from the lease to purchase more than $53,800 in goods and services that did not provide the improvements and repairs the lease required. In addition, he required the lessee to provide the State with $5,000 in Home Depot gift cards, but he could not demonstrate that the purchases he and other state employees made with the gift cards were used for required improvements or for any other identifiable state purpose.

CALIFORNIA CORRECTIONAL HEALTH CARE SERVICES AND DEPARTMENT OF CORRECTIONS AND REHABILITATION

A manager with California Correctional Health Care Services (Correctional Health Services) improperly authorized Department of Corrections and Rehabilitation (Corrections) employees to use rental cars and receive mileage reimbursements for commutes that Corrections approved improperly. The manager also authorized these employees to receive reimbursements for improper expenses they incurred near their homes and headquarters, and Corrections inappropriately approved for payment. As a result, the State paid 23 employees a total of more than $55,000 in travel benefits to which they were not entitled.

NATURAL RESOURCES AGENCY

From January 2009 through June 2011, an executive with the Natural Resources Agency (Resources) circumvented state travel regulations by improperly reimbursing an official and an employee approximately $48,000 in state funds for commutes between their homes and headquarters. In addition, Resources improperly reimbursed the official approximately $200 for lodging and meal expenses incurred near the Resources headquarters.

CORRECTIONAL HEALTH SERVICES AND CORRECTIONS

A supervising registered nurse at the California Training Facility in Soledad (facility) falsely claimed to have worked 183 hours of regular, overtime, and on-call hours that would have resulted in overpayments totaling more than $9,700. However, because staff at the facility's personnel office made numerous errors in processing the nurse's time sheets, the State ultimately overpaid the nurses roughly $8,600. In addition, the nurse's supervisor neglected her duty to ensure that the nurse's time sheets were accurate, thus facilitating the nurse's ability to claim payment for hours she did not work. The nurse returned to work at the facility in July 2012 after a nearly two-year absence on medical leave but left again after only one month. Staff at the facility's personnel office reported that they have begun the process to collect the overpayments identified in this report.

UNIVERSITY OF CALIFORNIA, OFFICE OF THE PRESIDENT

In December 2009 we reported that California State University, Chancellor's Office had wastefully reimbursed a high-level official more than $152,400 between July 2005 and July 2008 for expenses he improperly claimed. In July 2008—before the issuance of our report—this official accepted employment from the Office of the President at the University of California (university). Our review found that the university reimbursed the official approximately $6,100 in wasteful travel expenses from July 2008 through July 2011. Specifically, the official incurred $4,200 of the wasteful expenses before we issued our report in December 2009, and he incurred $1,900 after that date. We also determined that, although the university increased its monitoring of the official's travel expenses, its absence of defined limits for lodging expenses led to some of these excessive travel expenses.

CALIFORNIA DEPARTMENT OF EDUCATION

An employee at the California Department of Education misused state time and equipment when he posted nearly 4,900 comments on The Sacramento Bee's news Web site during state time. The employee also performed work for a third party using state resources during state time. Further, the employee's former supervisor failed to appropriately supervise the employee, thus enabling the employee's misuse of state time and equipment.

UPDATE ON PREVIOUSLY REPORTED ISSUES

In addition to conveying our findings about investigations completed from April 2011 through June 2012, this report summarizes the status of certain findings described in our previous reports. Chapter 11 details the actions that the respective agencies took—or declined to take—for 11 previously reported investigations. The following updates have particular significance:

In January 2012 Corrections reached an agreement with the California Correctional Peace Officers Association (union) that requires the union to pay the State a total of $3.5 million for all Corrections employees on full-time union leave through annual payments beginning that same month and continuing until the entire amount is repaid.
The California Energy Commission reported that in December 2011 a retired employee reimbursed it $6,589 for leave hours paid inappropriately before her retirement.

Table 1 summarizes the improper governmental activities appearing in this report, the financial impact of the activities, and their status.

Table 1:
The Issues, Financial Impact, and Status of Recommendations for Cases Described in This Report
					Status of Recommendations
Chapter	Department	Date of Our Initial Report	Issue	Cost to the State as of June 30, 2012*	Fully Implemented	Partially Implemented	Pending	No Action Taken
New Cases
1	Franchise Tax Board and the Office of the Secretary of State	December 2012	Bribery	$227,430	X
2	Employment Development Department	December 2012	Conspiracy to commit mail fraud	92,826	X
3	California State Athletic Commission	December 2012	Improper overtime payments	118,650	X		X
4	Department of Fish and Game	December 2012	Improper use of lease proceeds	58,813				X
5	California Correctional Health Care Services and Department of Corrections and Rehabilitation	December 2012	Improper travel expenses	55,053		X	X
6	Natural Resources Agency	December 2012	Improper travel expenses	48,153	X
7	California Correctional Health Care Services and Department of Corrections and Rehabilitation	December 2012	False claims, inefficiency, inexcusable neglect of duty	8,647		X	X
8	University of California, Office of the President	December 2012	Waste of state funds	6,074			X
9	California Department of Education	December 2012	Misuse of state resources, inexcusable neglect of duty	NA		X		X
10	Various	December 2012	Misuse of state resources	6,408	X
Previously Reported Cases
11	Department of Corrections and Rehabilitation	September 2005	Failure to account for employees' use of union leave	3,500,00	X
11	Department of Fish and Game, Office of Spill Prevention and Response	April 2009	Improper travel expenses	71,747	X
11	California State University, Office of the Chancellor	December 2009	Improper and wasteful expenditures	152,441		X
11	Department of Corrections and Rehabilitation	January 2011	Improper overtime reporting	446	X			X
11	Department of Corrections and Rehabilitation	January 2011	Delay in reassigning an incompetent psychiatrist, waste of state funds	366,656	X
11	Department of Transportation	August 2011	Inexcusable neglect of duty.	NA	X
11	Department of Industrial Relations	August 2011	Failure to monitor adequately employees' time reporting.	NA	X
11	Department of Fish and Game	August 2011	Misuse of state vehicle, improper travel reimbursements.	8,877	X	X	X	X
11	Department of Corrections and Rehabilitation	August 2011	Misuse of state resources.	212,261	X	X
11	State Controller's Office	August 2011	Failure to report absences, failure to monitor adequately an employee's time reporting.	6,591	X
11	California Energy Commission	August 2011	Falsification of time and attendance records.	6,589	X

Source: California State Auditor.

NA = Not applicable because the situation did not involve a dollar amount or because the findings did not allow us to quantify the financial impact.

* We have estimated the cost to the State as noted in individual chapters of this report.

¹ For more information about the state auditor's investigations program, please refer to the Appendix.