Investigations of Improper Activities by State Employees - January 2005 Through June 2005, CA State Auditor, 2005

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Investigations of Improper Activities by State Employees - January 2005 Through June 2005, CA State Auditor, 2005

• Feb. 16, 2016 • Locations: United States of America -> California • Topics: Misconduct/Corruption, DOC/BOP misconduct, Corrections Audits

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S
T
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D
U
A
E
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E

January 2005 Through June 2005

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California State Auditor

Investigations
of Improper
Activities by State
Employees:

September 2005
I2005-2

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September 21, 2005

Investigative Report I2005-2

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814
Dear Governor and Legislative Leaders:
Pursuant to the California Whistleblower Protection Act, the Bureau of State Audits presents its
investigative report summarizing investigations of improper governmental activity completed from
January 2005 through June 2005.
Respectfully submitted,

ELAINE M. HOWLE
State Auditor

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CONTENTS
Summary

Chapter 1
California Military Department:
Theft of State Funds

Chapter 2
Department of Health Services:
Improper Contracting Practices

Chapter 3
Department of Corrections:
Failure to Account for Employee Use of Union Leave

Chapter 4
Department of Forestry and Fire Protection:
Mismanagement, Funds Outside the State Treasury

Chapter 5
Employment Development Department:
Misuse of State Resources

Chapter 6
Department of Corrections:
Improper Travel Claims

Chapter 7
University of California, Los Angeles:
Improper Travel Expenses

Chapter 8
Department of Developmental Services:
Conflict of Interest

Chapter 9
California State University, Northridge:
Misuse of State Resources

Chapter 10
Department of Transportation:
Misuse of State Resources

Chapter 11
Update of Previously Reported Issues

Appendix A
Activity Report

Appendix B
State Laws, Regulations, and Policies

Index

SUMMARY
RESULTS IN BRIEF

Investigative Highlights . . .
State employees and
departments engaged in
improper activities, including
the following:

þ Embezzled $132,523 in
state funds.

þ Authorized holiday
pay for a contractor’s
employees, costing the
State $57,788 for services
it did not receive.

þ Failed to account for
10,980 hours of union
leave time at a cost to the
State of $395,256.

þ Improperly received
$5,072 in travel-related
costs.

þ Incurred over $1,000 in
additional flight costs
with stopovers that did
not involve state business.

þ Directed subordinates
to perform work on a
personal project while on
state time, costing the
State nearly $8,000.

he Bureau of State Audits (bureau), in accordance
with the California Whistleblower Protection Act
(Whistleblower Act) contained in the California
Government Code, beginning with Section 8547, receives and
investigates complaints of improper governmental activities.
The Whistleblower Act defines an “improper governmental
activity” as any action by a state agency or employee during
the performance of official duties that violates any state or
federal law or regulation; that is economically wasteful; or that
involves gross misconduct, incompetence, or inefficiency.
The Whistleblower Act authorizes the state auditor to
investigate allegations of improper governmental activities and
to report publicly on substantiated allegations. To enable state
employees and the public to report these activities, the bureau
maintains the toll-free Whistleblower Hotline: (800) 952-5665 or
(866) 293-8729 (TTY).
If the bureau finds reasonable evidence of improper governmental
activity, it confidentially reports the details to the head of the
employing agency or to the appropriate appointing authority.
The Whistleblower Act requires the employer or appointing
authority to notify the bureau of any corrective action taken,
including disciplinary action, no later than 30 days after
transmittal of the confidential investigative report and monthly
thereafter until the corrective action concludes.
This report details the results of the 10 investigations that the
bureau completed alone or jointly with other state agencies
between January 1, 2005, and June 30, 2005, that substantiated
complaints. This report also summarizes actions that state
entities took as a result of investigations presented here
or in earlier bureau reports. Following are examples of the
substantiated improper activities and actions the agencies have
taken to date.

CALIFORNIA MILITARY DEPARTMENT
A supervisor at the California Military Department (Military
Department) used Social Security numbers belonging to
former military personnel and others to initiate payments to
California State Auditor Report I2005-2

individuals with names corresponding to those of his family
members; he deposited most of these payments into his personal
bank account. The supervisor also failed to stop payments
to a retired service member who had died and then stole the
deceased individual’s retirement checks. In total, the supervisor
embezzled at least $132,523 in state funds over an eight-year
period, including $111,507 from the emergency state active-duty
payroll, $12,393 from the Military Department’s revolving fund,
and $8,623 from the retired state active-duty system.
After we reported our findings to the Military Department, it
requested that the California Highway Patrol (CHP) conduct a
criminal investigation. The supervisor admitted embezzling state
funds when questioned by CHP investigators, who later issued a
warrant for the supervisor’s arrest.

DEPARTMENT OF HEALTH SERVICES
The Genetic Disease Branch (branch) of the Department of
Health Services improperly paid a contractor for holiday time
and improperly purchased equipment under contracts for
personal services and computer services. The branch authorized
payment for 13 holidays to a contractor’s workers over a
one-year period, costing the State $57,788 for services it did
not receive. The branch also circumvented state procurement
procedures when it purchased computers, fax machines, and
printers totaling $40,698 under service contracts.

DEPARTMENT OF CORRECTIONS
The Department of Corrections (Corrections) failed to adequately
account for employee use of union leave time.1 Corrections
charged nearly 56,000 hours against the time bank for hours
that union members spent conducting union-related activities
between May 2003 and April 2005. However, Corrections did not
track the hours available in a time bank composed of leave hours
that union members donated. As a result, it released employees
to work on union business without knowing whether the time
bank had balances sufficient to cover the requests. We identified
10,980 hours, worth $395,256, during the same time period that
Corrections failed to charge against the time bank.

California State Auditor Report I2005-2

DEPARTMENT OF FORESTRY AND FIRE PROTECTION
A Department of Forestry and Fire Protection (CDF) conservation
camp manager directed sponsors of inmate work projects
to deposit over $12,500 in state funds into accounts with
local vendors. In addition, although we did not visit all
39 conservation camps, it is our understanding that this is an
accepted practice used by 16 of the 18 camps located in CDF’s
northern region, even though the practice violates state laws
prohibiting holding funds outside of the State Treasury. In
addition, the manager and, to a lesser extent, a manager of
another conservation camp, mismanaged state funds by failing
to document project costs and payments adequately.

EMPLOYMENT DEVELOPMENT DEPARTMENT
In violation of state law, a former executive in the Employment
Development Department (EDD) used state resources and state
employees to assist him in writing a book for personal purposes.
While working at EDD, the executive used his subordinates
during regular work hours to edit and review a book he
authored for personal purposes. The executive also used his state
computer to edit the book, send e-mails to his subordinates
about editing the book, and send e-mails to outside parties
requesting their review and information on possible book
publishers. The time that employees in EDD worked on the book
represents approximately $7,930 in state wages.

DEPARTMENT OF CORRECTIONS
Following the direction of her supervisor, a Corrections
employee changed the location of her headquarters on her
travel claims so that she could receive reimbursements for
travel expenses she was not entitled to receive.2 However, the
supervisor lacked the authority to make such decisions, and
we found no documentation in the employee’s personnel file
indicating that the change was officially approved. As a result,
the employee violated state travel regulations and received
$5,072 in commute and other travel-related costs that she was
not entitled to receive.

California State Auditor Report I2005-2

UNIVERSITY OF CALIFORNIA, LOS ANGELES
An official at the University of California, Los Angeles (UCLA),
arranged seven out-of-state business trips so that she could stop
over at locations where she did not have a business purpose. In
most instances, the official visited her family residence in the
Midwest. Because the official arranged her travel for personal
purposes, UCLA paid over $1,000 in additional flight costs that
it would not otherwise have incurred. n

California State Auditor Report I2005-2

CHAPTER 1
California Military Department:
Theft of State Funds
ALLEGATION I2004-0710

e received an allegation under the California
Whistleblower Protection Act that a supervisor at the
California Military Department (Military Department)
embezzled public funds.

RESULTS AND METHOD OF INVESTIGATION
We investigated and substantiated the allegation. The supervisor
committed the following acts between 1996 and 2004 to
embezzle at least $132,523 from the State’s General Fund:
• Fraudulently appropriated state funds under his control by
using Social Security numbers belonging to former military
personnel and others to initiate payments to individuals with
names corresponding to those of his various family members; he
deposited most of these payments into his personal bank account.
• Failed to stop payments to a retired service member who had
died and then stole the deceased individual’s retirement checks.
Over an eight-year period, the supervisor embezzled at least
$132,523 as follows: $111,507 from the Military Department’s
system for processing emergency state active-duty payroll
(emergency payroll); $12,393 from the Military Department’s
revolving fund; and $8,623 from the retired state active-duty
system used to process retirement payments. The supervisor
fraudulently initiated at least 60 checks in the names of his
family members, totaling a gross amount of $123,900.3 At least
43 of these payments, totaling $87,483, were deposited into his
bank accounts. In addition, the supervisor stole at least four
retirement payments totaling $8,623 that were payable to an
individual who had died.

At least six of these transactions involved payments totaling $12,393 from the Military
Department’s revolving fund. As this report later discusses, the supervisor initiated other
payments through the claim schedule process that were later used to reimburse the
revolving fund.

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California Military Department

Table 1 shows the disposition of the $132,523 in public funds
the supervisor embezzled.

TABLE 1
Sources and Disposition of Embezzled Funds
Amount

Acquisition

Disposition

Possible Penal Code (PC)
Violations*

Emergency State Active-Duty Payroll (Emergency Payroll)

Emergency Payroll
Subtotal

$ 87,483

Unauthorized emergency
payroll payments to Family
Members A through E

Deposited into the supervisor’s
personal bank accounts

Embezzlement (PC 504), grand
theft (PC 487), theft (PC 424), false
impersonation (PC 529), forgery
(PC 470)

11,702

Unauthorized emergency
payroll payments to Family
Member C

May have been deposited into
bank accounts belonging to the
supervisor’s family member

Embezzlement (PC 504), grand
theft (PC 487), theft (PC 424), false
impersonation (PC 529), forgery
(PC 470)

5,983

Taxes withheld from the
unauthorized emergency
payroll payments that the
supervisor initiated

Taxes withheld from payroll
and paid to federal and
state authorities

Embezzlement (PC 504)

5,039

Unauthorized emergency
payroll payments to Family
Member A

Disposition unknown;
checks unavailable

Embezzlement (PC 504), grand
theft (PC 487), theft (PC 424), false
impersonation (PC 529), forgery
(PC 470)

1,300

Unauthorized emergency
payroll payments to Family
Member A

Disposition unknown;
possibly deposited into Family
Member A’s bank account†

Embezzlement (PC 504), grand
theft (PC 487), theft (PC 424), false
impersonation (PC 529), forgery
(PC 470)

324

Unauthorized revolving-fund
payment to Family Member A

Revolving-fund check may
have been deposited into
Family Member A’s bank
account; emergency payroll
payment used to reimburse
the revolving fund

Embezzlement (PC 504)

12,069

Unauthorized revolving-fund
payments to Family Member E

Revolving-fund checks deposited
into the supervisor’s personal
bank account; emergency
payroll payments used to
reimburse the revolving fund

Embezzlement (PC 504)

Deposited into the supervisor’s
personal bank accounts

Embezzlement (PC 504), grand
theft (PC 487), theft (PC 424), false
impersonation (PC 529), forgery
(PC 470)

111,507

Military Department’s Revolving Fund

Revolving-Fund
Subtotal

12,393

Retired State Active-Duty System Payments
8,623

Total

Retirement payments issued
to a deceased retiree

$132,523

* For a more detailed description of the laws discussed in this table, see Appendix B.
†

One emergency payroll payment and one revolving-fund check bore the signature reflecting the payee’s name and may have been either
cashed by Family Member A or deposited into his account.

California State Auditor Report I2005-2

California Military Department

To conduct this investigation, we reviewed payroll records
related to Military Department employees and retirees. We also
reviewed the Military Department’s payments to its own fulltime employees, as well as to individuals on temporary active
military duty who work around the State on emergencies such
as fires, floods, and security issues. Further, we reviewed some of
the supervisor’s personal bank records to determine the sources
of deposits he made into those accounts but, because of the
records’ age, we were unable to obtain all of the information.
We were, however, able to obtain copies of 54 of 60 checks that
the supervisor falsely initiated from the Military Department’s
revolving fund and the State Controller’s Office (controller’s
office). The controller’s office had previously destroyed the
remaining six checks among other checks and records that
statute no longer required it to retain. Although all of these
checks were made out to individuals other than the supervisor,
we substantiated that at least 43 of them were deposited into his
bank accounts.

BACKGROUND
The Military Department is responsible for the command,
leadership, and management of the California Army and
Air National Guard, as well as five other related programs
(California National Guard). The purpose of the California
National Guard is to provide military service supporting this
State and the nation.
The adjutant general is the head of the Military Department
and is responsible for employing personnel and equipment
to support the emergency needs of a civil authority when the
governor calls him or her to duty during a domestic emergency
or natural disaster. To support civilian authorities, the California
National Guard deploys personnel in nine categories, including
state active-duty personnel who provide emergency support to
state and local agencies. The supervisor was on state active duty.
Under California law, public officials hold public funds in trust
and must use them only for authorized purposes.4 An officer of
the State who fraudulently appropriates state funds or property
for any unlawful use or purpose is guilty of embezzlement.
California law makes the crime of embezzlement by a public
officer a felony. We substantiated that, by virtue of his position,
the supervisor possessed and controlled various public funds
4

For a more detailed description of the laws discussed in this chapter, see Appendix B.

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California Military Department

The supervisor’s position
provided him with access
and control over the
Military Department’s
payroll systems for both
active-duty and retired
personnel, as well as its
revolving fund.

including the Military Department’s payroll system for state
active-duty personnel and retired personnel, as well as the
department’s revolving fund. We also substantiated that he
fraudulently appropriated funds from these sources by making
checks payable to individuals who were not entitled to these
payments. We further determined that a substantial amount of
these payments was subsequently deposited into the supervisor’s
bank accounts, as we will describe in detail. By fraudulently
appropriating these funds for unauthorized purposes, the
supervisor committed the crime of embezzlement.
In March 2004 we received an allegation that the supervisor
was embezzling state funds, and we began an investigation. In
May 2004 we met with Military Department executives because
we believed that we had sufficient evidence to lead a reasonable
person to conclude that the supervisor was, in fact, embezzling
funds. Department executives immediately took steps to remove
the supervisor from his position and discontinued his computer
and system access, thereby removing his ability to process
payments of state funds.
In this report, we explain that some of the funds the supervisor
embezzled were deposited into the bank accounts of Family
Members A and C. The state auditor’s authority to investigate
and report on improper governmental activities is limited to
state employees’ improper activities. We describe the possible
involvement of family members, who are not state employees,
only to the extent that their activities are directly relevant
to establishing the facts related to the supervisor’s improper
activities. We did not investigate nor reach any conclusions
concerning what, if any, improper or illegal activities family
members may have been involved in.
With the Military Department’s help, we reviewed e-mail and
other information stored on the supervisor’s computer. Also,
department representatives interviewed many of the individuals
whose names or Social Security numbers the supervisor used in
his embezzling activities.

THE SUPERVISOR EMBEZZLED PAYROLL AND
REVOLVING-FUND CHECKS
The supervisor had the ability to initiate at least three different
types of payments: (1) emergency state active-duty payroll
(emergency payroll), (2) retired state active-duty payments, both of

California State Auditor Report I2005-2

California Military Department

which are paid through the controller’s office, and (3) payments
from the Military Department’s revolving fund. The supervisor
embezzled public money by making unauthorized payments
from all three of these sources.

The Supervisor Embezzled Emergency Payroll
As we described earlier, the Military Department employs
personnel and equipment to support the emergency needs of state
and local agencies. Its state active-duty personnel, including the
supervisor, provide this emergency support. Among other duties,
the supervisor was responsible for initiating payments through
the emergency payroll system to service members who worked on
emergencies. The supervisor used this process to embezzle funds
by using the names and Social Security numbers of at least five
individuals to make unauthorized payments in the names of these
five and other individuals.

The supervisor had
the ability and the
authorization to
override the Military
Department’s emergency
payroll system controls.

As a control measure, the current emergency payroll system
requires that before someone can initiate a payment to an
individual, the individual’s name and Social Security number
must already exist in the militia database, which consists of
service members of the Army National Guard, Air National
Guard, and the State Military Reserve. However, the supervisor
was authorized to override that control measure manually,
which allowed him to initiate improper emergency payroll
payments. According to the supervisor’s superior, this override
capability is necessary for unusual circumstances, such as when
a new service member has performed work during an emergency
and must be paid, despite the fact that the service member’s
Social Security number is not yet in the militia database.

The Supervisor Initiated Payments in the Names of
Family Members
In 1996 the supervisor began fraudulently appropriating state
funds by initiating unauthorized emergency payroll payments
in the form of checks made payable in the names of family
members. We believe the supervisor overrode information in
the emergency payroll system to initiate payments for work
that each of the payees had allegedly performed on various state
emergencies such as fires and floods. We found no evidence

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California Military Department

that any of the supervisor’s family members are or were state
employees. The family members all had last names different
than the supervisor’s, making it more difficult for anyone at
the Military Department to suspect any connection between
the family members and the supervisor. We did not interview
the family members and do not know whether they were aware
of or involved in the supervisor’s activities. However, when
interviewed by California Highway Patrol (CHP) investigators,
the supervisor said that only Family Members A and C had
knowledge of checks being made in their names. Table 2
summarizes the gross payment amounts that the supervisor
fraudulently initiated in the names of different family members
over several years.

TABLE 2
Gross Emergency Payroll Amounts in the
Names of Various Family Members by Year
Family
Member

1996

1997

1998

$ 8,637

$10,992

$10,889

$ 30,518

3,410

12,749

4,790

20,949

19,580

11,192

30,772

2,609

6,458

9,067

$20,201

20,201

$12,047

$45,930

$33,329

$20,201

Totals by Year
Grand Total

2002

Totals

$111,507

Table 3 shows how much of the money issued in the names
of the supervisor’s family members during each calendar year
actually ended up in the supervisor’s personal bank accounts.

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California Military Department

TABLE 3
Amounts Issued in Family Members’ Names and
Proportion Deposited into the Supervisor’s Personal Bank Accounts
Year

Family
Member

1996

1997

1998

2002
Totals

Gross*
$

8,637

Net*
$

Number of
Checks

Totals

8,393

2†

$2,054

Percent of
Net Amount
24%

3,410

3,001

100

10,992

10,453

100

12,749

11,905

100

C‡

19,580

18,263

6,561

2,609

2,451

100

10,889

10,236

100

4,790

4,635

100

11,192

10,559

100

6,458

5,956

100

20,201

19,672

100

$111,507

$105,524

$87,483

83%

* The difference between the gross and net amounts shown here is $5,983, which is the amount of federal and state taxes that
the Military Department withheld from the unauthorized emergency payroll payments the supervisor initiated. See Table 1.
†

Six checks were not available: one was used to reimburse the revolving fund, and two others, including the revolving-fund
check, may have been either cashed by Family Member A or deposited into his account.

‡

The supervisor and Family Member C shared a joint account.

Family Member A’s Name Matched That of a Former Member of
the Army National Guard
In early 1996 the supervisor fraudulently appropriated state
funds by initiating unauthorized payments in the name of a
former member of the Army National Guard who separated
from service in 1994 and who has the same first name, middle
initial, and last name as Family Member A. An investigator with
the Military Department interviewed the former guardsman
in July 2004 and confirmed that he performed no work for the
Military Department during the period when the emergency
payroll documents in question were issued. Nevertheless,
between January 1996 and November 1998, the Military
Department issued 20 checks totaling a gross amount of $30,518
in the former guardsman’s name and processed them using his
Social Security number. Six of the checks are no longer available
because the controller’s office destroyed them (along with other
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California Military Department

aging records) in accordance with record retention law. Based
on the bank stamp and endorsement on one of the available
checks, along with a fingerprint presumably belonging to the
endorser, the evidence we reviewed suggests that Family
Member A either cashed that check or deposited it into his
own bank account.
Another of the available checks was redeposited by the Military
Department to reimburse the revolving fund, indicating
that a revolving-fund check was issued previously to the
same individual. That revolving-fund check also had a bank
stamp and endorsement, along with a fingerprint presumably
belonging to the endorser, indicating that check also may have
been negotiated by Family Member A. The remaining 11 checks
bore a signature reflecting the payee’s name, a notation to pay to
the supervisor, and a signature in the supervisor’s name.5 Those
checks were then deposited into the supervisor’s bank accounts.

Family Member B’s Name Also Matched That of a Former
Service Member
As he had done with Family Member A, the supervisor used the
name and Social Security number of a former service member
with the same first and last name as Family Member B to
appropriate funds fraudulently. This former service member
separated from the Army National Guard in 1989; however,
between November 1996 and February 1998, the Military
Department issued 11 unauthorized checks totaling a gross
amount of $20,949 in the former service member’s name and
processed them using his Social Security number. All 11 of the
checks bore a signature reflecting the payee’s name, a notation
to pay to the supervisor, and a signature in the supervisor’s
name. These checks were subsequently deposited into the
supervisor’s bank accounts.

Family Member C’s Last Name Matched That of a Former Army
National Guardsman
For Family Member C, the supervisor found a former National
Guard service member with the same last name but a different
first name, an individual who had separated from the Army
National Guard in 1989. We believe that the supervisor used his
5

Although the checks bore signatures on the back in the same name as Family Member A,
we did not determine whether those signatures were forgeries. However, in a subsequent
interview with CHP investigators, the supervisor admitted that he forged the endorsement
signatures on most of the embezzled checks.

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California Military Department

The supervisor used
the identity of a service
member who had
separated from the Army
National Guard in 1989
to fraudulently initiate
13 checks totaling a gross
amount of $30,772.

authority to override data that existed in the emergency payroll
system to alter the guardsman’s first name. This allowed the
supervisor to appropriate state funds fraudulently by initiating
13 checks that the Military Department issued between May 1997
and November 1998 in the name of Family Member C. The gross
amount of the 13 checks was $30,772. Four of these checks
(gross amount of $12,475) may have been deposited into
accounts belonging to Family Member C.6 Two checks (gross
amount of $3,684) bore a signature reflecting the payee’s name, a
notation to pay to the supervisor, and the supervisor’s signature;
these were deposited into a joint account that Family Member C
and the supervisor shared. Of the remaining seven checks (gross
amount of $14,613), three bore a signature reflecting the payee’s
name, and four simply contained a notation that they were for
deposit only; all seven were deposited into the joint account.

Family Member D’s Last Name Is That of a Former
Service Member
Family Member D also had the same last name but a different
first name than a former service member who separated from
the Army National Guard in 1993. Between May 1997 and
March 1998, the Military Department issued three unauthorized
checks totaling a gross amount of $9,067 made payable in
the name of Family Member D. We know that the supervisor
could override information in the emergency payroll system,
thus circumventing a control that should prevent initiation
of payments to nonservice members. All three checks bore a
signature reflecting the payee’s name, a notation to pay to the
supervisor, and a signature in the supervisor’s name. These checks
were subsequently deposited in the supervisor’s bank accounts.

Payments to Family Member E Came From Both the Emergency
Payroll System and the Revolving Fund
Family Member E’s situation differed from most of the others
in two ways. First, the supervisor initiated 13 checks in Family
Member E’s name, totaling a gross amount of $32,270. Eight
of these were from the emergency payroll and five were from
the Military Department’s revolving fund, which we will soon
discuss. Second, the Social Security number that the supervisor
used to issue payments in Family Member E’s name did not

As we discussed earlier, this report does not reach any conclusions concerning what,
if any, improper or illegal activities the supervisor’s family members may have been
involved in.

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California Military Department

belong to anyone with a similar first or last name. The Military
Department told us it does not believe that the owner of that
Social Security number was ever in the militia database, and it
subsequently discovered that the individual associated with that
Social Security number is deceased.
Family Member E is not a Military Department employee and
has never been eligible to be one. However, the supervisor had
extensive override capability and apparently entered both Family
Member E’s name and the Social Security number of the deceased
person into the system to appropriate state funds fraudulently
by initiating eight emergency payroll payments totaling a gross
amount of $20,201 in Family Member E’s name between May
and December 2002. Four of the eight checks, totaling $7,656,
were deposited into the supervisor’s bank account. The other four
checks, totaling a gross amount of $12,545, were endorsed by the
Military Department and deposited to reimburse its revolving
fund, from which the supervisor initiated five other payments in
Family Member E’s name.

The Supervisor Also Embezzled Public Funds by Using the
Military Department’s Revolving Fund

The supervisor was able to
initiate payroll advances
from the revolving fund
in the name of Family
Member E, totaling
$12,069, even though
Family Member E has
never been eligible for
military service.

The supervisor also fraudulently appropriated state funds by
initiating five payments, totaling $12,069, in Family Member E’s
name from the revolving fund.7 Revolving funds are often
used to issue travel and payroll advances to employees; the
fund is reimbursed after a check is issued through the regular
claim schedule or payroll process. To initiate payroll advances
from the revolving fund, the supervisor prepared fraudulent
documents claiming that Family Member E had not been paid.
As we mentioned, Family Member E is not and never has been a
Military Department employee; therefore, he was not eligible to
receive such payments. The fraudulent documents indicate that
the revolving fund would be repaid with the checks that would
come back from the controller’s office. All five of the revolvingfund checks were deposited into the supervisor’s bank account.
The supervisor used the emergency payroll process we described
earlier to initiate unauthorized payments to reimburse the
revolving fund for the amount he stole.

This amount differs from the $12,545 in the previous section that we indicated was
used to reimburse the revolving fund in that it does not include taxes withheld from the
emergency payroll payments.

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California Military Department

THE SUPERVISOR STOLE FUNDS FROM A
DECEASED RETIREE

After relieving the
supervisor of his duties,
the supervisor’s superior
discovered the retiree’s
death certificate in a
stack of paper on the
supervisor’s desk.

The supervisor also stole $8,623 in pension checks issued to a
retired state active-duty service member. In 2003 the supervisor
deposited into his personal bank account four retirement checks
(one in March and three in June) totaling $8,623 made out
to a former service member.8 The Military Department issued
a check for $2,155 in each of the four months from January
through April 2003.9 Although we learned from county records
that the retiree had died in December 2002, when we reviewed
the retiree’s personnel file we did not find the expected copy of
his death certificate. The supervisor’s superior later discovered
the retiree’s death certificate in a stack on the supervisor’s desk,
along with an associated court document dated February 3, 2003.
Regardless of when the supervisor became aware of the death,
all four checks that the Military Department issued to the retiree
after his death ended up in the supervisor’s personal bank
accounts, providing sufficient evidence that he stole those funds.
California Government Code, beginning with Section 13400,
requires each state agency to establish and maintain a
system or systems of internal accounting and administrative
controls. It requires that, when detected, weaknesses must be
corrected promptly.
The Military Department failed to follow existing controls
over retiree payments. Although it has a process for issuing an
annual certification to retirees, requesting that they complete
and return the form to affirm their continued eligibility, the
Military Department does not always follow this process. We
found no evidence of current annual certifications in six of the
10 files we reviewed. If it sends out the annual certifications and
the retirees or their beneficiaries fail to return them, the Military
Department would have an indication that the individual
authorized to receive the retirement benefit might be deceased.
Without such certifications, the Military Department relies
heavily on the next of kin to provide notice of a retiree’s death,

The supervisor apparently forged the retiree’s signature on one of the four checks and
simply wrote “for deposit only” on the other three. Because the supervisor deposited all
four checks into automatic teller machines, no bank teller directly questioned him about
why he was depositing checks that were made out to the retiree.

Each of the four checks was for $2,155.70, for a total of $8,622.80, which we rounded
up to the nearest dollar.

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California Military Department

but such reliance is misplaced in cases in which the deceased
leaves no survivors or when the family members simply fail to
notify the department of such a death.
Also, the Military Department does not always obtain the
appropriate documentation confirming the death of a retiree or
his or her beneficiary. For example, of the 10 personnel files we
reviewed pertaining to individuals who had previously received
retirement payments and later died, six did not include copies
of death certificates, which would clearly indicate when the
deaths occurred.

AGENCY RESPONSE
The Military Department reported that it enacted three internal
control measures to prevent further and/or future embezzlement
of state funds and to eliminate the fraudulent manipulation of
the payroll and payment system. The internal control measures
established include the following:
• The number of authorizations required to manually override the
emergency payroll system has been increased from one to two.
• Payroll advances from the revolving fund must now be requested
from payroll processing staff and approved by either the state
personnel programs director or deputy director.
• An Annual Certification of Eligibility of retirees will now be
obtained from retirees by the Military Department’s State
Comptroller Office. Certification will be sent out annually
with written follow-up to ensure eligibility and uninterrupted
continuation of retirement benefits.
After the Military Department was informed of our findings,
the National Guard’s Criminal Investigation Division (CID)
and the CHP were asked to investigate this case. The CID and
the CHP interviewed the supervisor and, after completing their
investigation, the CHP referred the case to the Sacramento
County District Attorney for prosecution. Subsequently, the
supervisor was served with an arrest warrant. n

California State Auditor Report I2005-2

CHAPTER 2
Department of Health Services:
Improper Contracting Practices
ALLEGATION I2004-0930

he Genetic Disease Branch (branch) of the Department
of Health Services (Health Services) improperly paid a
contractor for holiday time and improperly purchased
equipment using contracts for personal services and computer
services. In addition, the branch failed to properly administer the
contracts, which did not contain sufficient details or adequate
controls to ensure that state funds were spent judiciously.

RESULTS AND METHOD OF INVESTIGATION
We investigated and substantiated the allegation. We found
that branch contracts and related invoices lacked specifics,
leading to questionable and improper payments for holiday
pay and equipment. For example, the branch improperly
authorized payment for 13 holidays to a contractor’s workers
from December 2003 through November 2004, costing the
State $57,788 for services it did not receive. Also, the branch
circumvented procurement procedures by purchasing computers,
fax machines, and printers totaling $40,698 under contracts
for services. To investigate the allegation, we reviewed three
personal services contracts and one computer services contract
totaling $8,633,872. In addition, we reviewed contract payment
histories and specific invoices paid against these contracts. We
also reviewed relevant state laws, regulations, and Health Services’
contracting policies. Finally, we questioned branch employees
about the branch’s handling of these contracts.

BACKGROUND
The branch works to protect and improve the health of all
Californians. Its mission is to serve the people of California by
reducing the emotional and financial burden of disability and
death caused by genetic and congenital disorders. To fulfill this
mission, the branch screens newborns and pregnant women
for genetic and congenital disorders. The screening programs
provide testing, follow-up, and early diagnosis to prevent adverse
California State Auditor Report I2005-2

Department of Health Services

outcomes or minimize the clinical effects of such disorders. To
support its mission, Health Services charges fees for the services
it provides. Beginning in 2001, new legislation required the
branch to bill patients directly rather than billing hospitals for
the newborn-screening program. This change created additional
work for the branch and led to a backlog of billings. Legislation
further directed Health Services to undertake expeditiously
all steps necessary to implement the fee collection process,
including personnel, contracts, and data processing. That new
legislation was the impetus for the three personal services
contracts we discuss in this chapter. Table 4 summarizes the
three personal services contracts that the branch entered into
with Contractor A and the one computer services contract that
it entered into with Contractor B.

TABLE 4
Contracts Between the Genetic Disease Branch
and Contractors A and B

Contract Term

Contract
Amount

Scope of Work

Mar. 1, 2002, to
Feb. 28, 2005

$1,498,051

Contractor A to provide accounts receivable
services to process insurance claims for revenue
payments, necessary insurance billing data, and
technical assistance using the Genetic Disease
Branch’s current accounts receivable software. The
contract’s one amendment, effective 10/28/02,
added $850,000 to the original $648,051 to reflect
an increase in the volume of insurance claims
for revenue payments and expansion of work
projected for the second, third, and fourth years.

Nov. 1, 2003, to
June 30, 2006

3,450,003

Contractor A to continue services described above.

Apr. 1, 2004, to
Mar. 31, 2007

3,506,466

Contractor A to provide laboratory support services
to manage the operations of screening programs.

July 1, 2000, to
June 30, 2003

179,352

Total

Contractor B to provide maintenance of computer
hardware and software.

$8,633,872

THE BRANCH IMPROPERLY PAID FOR CONTRACT
WORKERS’ HOLIDAY TIME
Although the contract did not require the branch to do so, the
branch authorized payment for 13 holidays to Contractor A’s
workers from December 2003 through November 2004, costing
the State $57,788 for services it did not receive. In fact, the contract
18

California State Auditor Report I2005-2

Department of Health Services

under which the branch made these payments specifies that
services shall be provided Monday through Friday, 8 a.m. to
5 p.m., except for official state holidays.

The branch stated
that it amended the
contracts in 2004 to
allow the branch to pay
Contractor A’s employees
for holidays.

The branch informed us that it had agreed to pay the contractor’s
workers for holiday time because it believed that it was in the
best interest of the State to retain good workers once they were
trained in these temporary positions. However, the contractor’s
workers were paid an hourly rate for the time they worked,
and the branch also paid the contractor an overhead rate of
approximately 34 percent to 44 percent, which Contractor A
could use to retain workers and cover benefits such as holiday
pay. Therefore, we believe it was improper for the branch to pay
an additional amount to cover contract workers’ holidays. The
branch also stated that effective January 1, 2004, it amended
Contractor A’s three contracts to provide for holiday pay.
Because we did not find any such amendment with the contract
documentation we obtained, we asked the branch to provide
us with support showing that the contract had been amended.
The branch provided a holiday pay schedule developed and
approved by a former branch employee that was never processed
through Health Services’ contracts section and therefore did
not constitute a formal, authorized written amendment to
the contract. The branch suggested that its decision to enter
into this informal agreement did not require a formal contract
amendment because it did not change the scope of work or add
money to the contract. However, because the branch decided
to pay the contractor’s workers for holidays, the State spent an
additional $57,778 for personnel costs over a one-year period
without receiving any additional services in return.
Furthermore, we believe that the branch also may have violated
state law prohibiting gifts of public funds by paying contract
employees more than they were entitled to receive.10 Although
paying contract employees who provide services for the State
serves a public purpose, when such employees receive pay for
work not performed, that excess amount serves a purely private
purpose and violates the constitutional prohibition against
making public funds available for private purposes.

For a more detailed description of the laws, regulations, and policies discussed in this
chapter, see Appendix B.

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Department of Health Services

THE BRANCH ALSO CIRCUMVENTED PROCUREMENT
PROCEDURES
The branch circumvented state procurement procedures by using
services contracts with both Contractor A and Contractor B to
purchase computers, fax machines, and laser printers for the
branch. The computers cost $35,000, the fax machines $1,845,
and the printers $3,853.

The branch circumvented
state procurement
procedures by using
contracts for services to
purchase equipment.

The branch’s agreement with Contractor B was for the
contractor to provide maintenance of computer hardware and
software. Nevertheless, the branch circumvented the goals
of state law as well as state procurement procedures by using
money from this computer services contract to purchase two
computers, which the branch said it needed to replace aging
equipment. The branch informed us that continuous operation
of the computers is essential to support the daily screening of
births and pregnancies and that it had concerns about the
existing machines surviving an impending move to a new office
location. According to the branch, its network manager and
Contractor B agreed that the contract should be amended, and
they negotiated new contract terms and conditions. However,
these new terms and conditions were never put in the form of a
written amendment to the contract.
The branch then approved a $15,500 invoice from Contractor B
for, as the invoice stated, “time and materials not covered
under the terms and conditions of the regular maintenance
agreement” but was actually for the cost of two computers. We
believe that the information on this invoice was a misleading
statement about the true nature of the transaction. Further,
it appears that the branch was aware of the true nature of the
amount claimed on the invoice when it approved payment,
thereby not only circumventing state procurement procedures
but also approving and perpetuating misleading information.
The branch also approved a second invoice from Contractor B
for $19,500 with the same description of services. The branch
told us that this invoice was for the installation of emergency
backup computers in Sacramento, something that was necessary
as part of the recovery system required for critical public health
services. The branch further said that it had approved both
invoices under the mistaken impression that the contract had
been amended to provide for this equipment.

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Department of Health Services

Not only did the branch
fail to obtain bids to
ensure it was getting
the best price for the
equipment it purchased,
it paid Contractor A
another 10 percent
for “additional
administrative and
accounting expenses.”

Similarly, the branch used a personal services contract with
Contractor A to purchase fax machines and laser printers. The
branch circumvented state procurement procedures requiring
departments to obtain price quotes and compare prices.
Furthermore, the contractor charged the branch another 10 percent
for “additional administrative and accounting expenses.”
To make matters worse, we believe that the branch paid much
more for this equipment than it would have paid using the
State’s procurement procedures. For example, it paid a base
price of $520 for each of the three fax machines. In just a few
minutes on the Internet, we were able to find the same model
fax machine from three different vendors for prices ranging
from $299 to $332. Although our price comparison was done
approximately three months after the contractor’s purchase
of the fax machines, we do not believe that the prices would
have changed significantly during that time. The base price that
the branch paid for the laser printers was more competitive;
however, by circumventing the State’s procurement process, it
still paid at least 10 percent more than necessary because of the
contractor’s fee.
State law requires each agency to establish and maintain a
system of internal accounting and administrative controls.
Further, state law requires that, when detected, weaknesses
must be corrected promptly. In addition, California law states
that waste and inefficiency in state government undermine
Californians’ confidence in government and reduce the state
government’s ability to address vital public needs adequately.
By using personal and computer services contracts to purchase
goods, the branch used public funds for an unauthorized purpose.

THE BRANCH FAILED TO SPECIFY SALARY RATES AND
WORKERS’ QUALIFICATIONS
Although the main purpose of the three personal services
contracts with Contractor A was to provide human resources
to help the branch accomplish its goals, none of the contracts
specified salary rates or pay ranges for any of the positions, nor
did they specify the qualifications or number of workers needed.
The branch told us that the contractor submitted market-rate
pay scales in response to its invitation for quote; however, based
on the information in the contracts, it was not possible for the
branch to know what it was getting for its money or whether it
was paying a reasonable rate for the services that Contractor A

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Department of Health Services

None of the personal
services contracts with
Contractor A specified
salary rates or pay ranges
for any of the positions.

provided. This could also lead to disputes over the contract
workers’ salary rates and qualifications. The failure to specify
salary rates and worker qualifications leaves the branch with
no assurance that the billings for contracts totaling more than
$8 million are reasonable. In addition, because of this lack of
detail in the contracts, we could not always determine whether
the salaries that the branch paid were comparable to similar
positions within the state civil service system.
In one instance in which the branch provided us with sufficient
detail to compare with similar positions within the state civil
service system, it authorized payments to one of the contractor’s
workers at a rate of $117.92 per hour, which included 34 percent
in overhead paid to Contractor A, even though the civil service
classification that the branch identified as comparable to this
position had a maximum rate of $45 per hour, which included
salary plus state fringe benefits. The contractor’s employee
worked for the branch for only five months (872 hours) at a cost
of $102,826. The salary for the civil service position that the
branch identified as comparable for the same five-month period
would have been $28,770, or $38,848 with state fringe benefits.
The attachments to these contracts should specify an annual
budget with line items for personnel, fringe benefits, operating
expenses, equipment, travel, and indirect costs. However, rather
than include estimated amounts for each of these categories,
the budget indicates that the entire amount for each year is
simply “operating expenses.” As we explained previously, the
main purpose of the contracts was to provide staffing to help
the branch accomplish its responsibilities. Therefore, it is
reasonable to expect that a large portion of the expenses are
more appropriately charged to personnel, fringe benefits, and
the contractor’s indirect costs. Because of insufficient detail
in the contracts pertaining to salary rates, fringe benefits, and
overhead, the branch had no way of knowing how much it was
paying in indirect costs or whether those costs were reasonable.

THE BRANCH USED QUESTIONABLE JUSTIFICATION
FOR CONTRACTS
Because the branch failed to include any specifics pertaining
to the number or qualifications of workers and the applicable
salary ranges, we cannot know how it was able to conclude that
the costs were reasonable and at fair market value.

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Department of Health Services

Because the branch
failed to include any
specifics pertaining to the
number or qualifications
of workers and the
applicable salary ranges,
it is not clear how it was
able to conclude that the
costs “were reasonable
and at fair market value.”

On forms it prepared to summarize the proposed personal
services contracts, the branch provided information that we
believe gave insufficient and inaccurate justification for them.
For example, in response to a question about the basis for
determining that the price or rate is reasonable, the branch
responded simply, “[T]he program has reviewed all costs
associated with this contract and deemed these costs to be
reasonable and at fair market value for these services.” Because
the branch failed to include any specifics pertaining to the
number or qualifications of workers and the applicable salary
ranges, we cannot know how it was able to conclude that the
costs were reasonable and at fair market value.
Further, the branch justified contracting out for these services by
saying that “[T]he necessary knowledge and experience can only
be provided by a contractor who does this type of service. The
service is not available through the civil service system.” But the
branch told us that the positions and salaries were comparable
to civil service positions and salary ranges and that it is now
planning to recruit and hire civil service employees to fill the
positions. Therefore, we believe that the branch’s justification
for contracting out these services was not sufficient or accurate
and that, although these contracts may have been necessary to
help the branch achieve its goals, the individuals who approved
them did so based on misleading information.

AGENCY RESPONSE
As of the date of this report, Health Services’ review was
still ongoing. n

California State Auditor Report I2005-2

Blank page inserted for reproduction purposes only.

California State Auditor Report I2005-2

CHAPTER 3
Department of Corrections: Failure
to Account for Employee Use of
Union Leave
ALLEGATIONS I2004-0649, I2004-0681, AND I2004-0789

he Department of Corrections (Corrections) failed to
properly account for the time that employees used when
released from their regular job duties to perform unionrelated activities.11

RESULTS AND METHOD OF INVESTIGATION
We investigated and substantiated the allegation. We determined
that Corrections did not track the total number of hours available
in a rank-and-file release time bank (time bank) composed of leave
hours that union members had donated. As a result, Corrections
released employees without knowing whether the time bank
had sufficient balances to cover requests for leave. In addition,
the management reports that Corrections currently uses to track
time-bank use and donations did not capture a significant amount
of union leave used. Corrections charged nearly 56,000 hours
against the time bank for hours that members of the California
Correctional Peace Officers Association (Peace Officers Association)
spent conducting union-related activities between May 2003
and April 2005. However, we identified 10,980 additional hours
members used that Corrections failed to charge against the time
bank. Although Corrections asserts that it has reconciled its
time-bank balances, records from the State Controller’s Office do
not indicate that the 10,980 hours were charged to the time bank
through the State’s leave-accounting system. Thus, it appears that
these hours were paid through regular payroll at a cost to the State
of $395,256.
To investigate the allegations, we reviewed records from the
State’s leave-accounting system and union-leave reports that
Corrections derived from that system. These reports identify
the amount of union leave that Peace Officers Association
11

California State Auditor Report I2005-2

Department of Corrections

members donated and used from May 2003 to April 2005.
We also reviewed various union-leave request forms that
employee unions completed and forwarded to Corrections when
requesting that employees be allowed to perform union-related
activities. In addition, we obtained a description of the various
scenarios by which Corrections allows its employees to be
released to perform union-related activities, as shown in Table 5.
Although our investigation focuses on the time bank for rankand-file Peace Officers Association members, we have included
for informational purposes other circumstances whereby
Corrections released employees to conduct union-related
activities. Furthermore, we interviewed representatives from
Corrections and the Department of Personnel Administration
(Personnel Administration) regarding relevant union-related
issues and Corrections’ management of employees whom it
releases to perform union-related activities. Finally, we reviewed
pertinent state laws and union-leave provisions as outlined in
the union contract.

BACKGROUND

When a labor agreement
is in place, an employee’s
right to release time for
union-related activity
is determined primarily
in accordance with the
union contract.

In recognition of the right of state employees to join
organizations of their own choosing and to be represented by
such organizations in their employment relations with the
State, the Legislature enacted a state law intended to promote
peaceful and full communication between the State and its
employees by providing a reasonable method of resolving
disputes regarding wages, hours, and other terms and conditions
of employment.12 Generally, state law requires state employers
to provide reasonable release time to employee representatives
of recognized employee organizations (for example, unions)
meeting with the State on employment relations issues. Refusal
to provide reasonable release time violates the employer’s duty
to negotiate in good faith. More specifically, when a contract is
not in place, state law requires the State to grant reasonable time
off without loss of compensation or other benefits to employee
representatives when they are formally meeting and conferring
with state representatives on matters regarding wages, hours,
and other terms and conditions of employment. Once a labor
agreement is in effect, an employee’s right to release time for
union-related activity is determined in accordance with the
provisions of the agreement and other statutory provisions.

For a more detailed description of the laws and employee contract discussed in this
chapter, see Appendix B.

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Department of Corrections

The Public Employment Relations Board has found that release
time for other purposes, such as for attending conferences
for employee organization delegates or time to attend to
association business, is negotiable. Thus, an agreement may
provide for release time for union activities other than matters
relating to wages, hours, and other terms and conditions of
employment. Once an agreement is reached between the
State and the recognized employee organization on those
issues as well as others, both parties must prepare a written
memorandum of understanding (contract), which is presented,
when appropriate, to the Legislature for approval. The types of
leave that Corrections uses to address statutory and contractual
requirements are described in Table 5.

TABLE 5
Ways That Corrections Covers Union-Related Activities
Types of Leave
Available

Description

Funding Source and Users

Rank-and-file release
time bank (time bank)*

The union may request that rank-and-file employee
representatives be granted time off to conduct union
business using available time-bank hours.

Union members donate personal leave
(any type but sick leave); primarily used by
the California Correctional Peace Officers
Association (Peace Officers Association).

Union paid leave

The affected union may request that employee
representatives be granted union-paid leave to
conduct union business. The reimbursement rate is
equivalent to 135 percent of the employee’s salary
to cover employee benefits paid by the State.

The union initiating the leave request bears the
cost. The California State Employees Association
is the primary user; the Peace Officers Association
only rarely uses it.

Union activist
release time

The union activist release time is used for activities
related to collective bargaining. For example, the
Peace Officers Association uses it to cover employee
attendance at its annual training conference.

The State bears the cost; this is available only to the
Peace Officers Association.

Official business

Employees may be granted official business time off to The State bears the cost; various unions use this.
participate in activities such as contract negotiations
for the bargaining unit or meeting and conferring
with representatives of the State on matters within the
scope of representation.

Informal representation

Employee representatives may be granted time off
to represent employees for matters such as meetings
involving grievances and adverse action hearings.

The State bears the cost; various unions use this.

Personal leave

Subject to a supervisor’s approval, an employee may
request to use personal leave balances, except for sick
leave, to conduct union-related activities.

The employee bears the cost.

Unpaid leave of absence

Subject to a supervisor’s approval, an employee
may request an unpaid leave of absence to conduct
union-related activities.

The employee bears the cost.

* This report focuses on issues concerning Corrections’ management of the Peace Officers Association’s rank-and-file release time
bank. We mention other leave scenarios here, such as instances when Corrections allows employees to go on official business
status, for informational purposes only.

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Department of Corrections

In addition to the types of leave described in Table 5, as a
result of reopened negotiations, chapter presidents of the
Peace Officers Association are now allowed to be released from
their normal job duties once a week to assist in maintaining
harmonious labor relations and to address grievances.
Corrections reported that this provision pertains to as many
as 34 employee representatives at an estimated annual cost to
Corrections of over $570,000.

CORRECTIONS FAILED TO ACCOUNT FOR
TIME-BANK HOURS

Corrections released
employees to conduct
union-related activities
without knowing whether
the time bank had
sufficient balances to
cover the requested leave.

Although it has recently improved its monitoring of Peace
Officers Association members’ use of the time bank, Corrections
still lacks an adequate system of internal accounting and
administrative controls over the total number of hours in the
time bank. Because Corrections was unable to demonstrate that
it had ever established a time-bank balance, it allowed Peace
Officers Association members to take release time without
Corrections knowing whether the time-bank balance was
sufficient to cover the anticipated leave. Corrections indicated
that in late 2004 it developed a new automated process for
tracking and analyzing time donated and used; however, we
reviewed the reports that Corrections uses to track time-bank use
and found that it still failed to account for a significant amount
of hours used.
State law requires each state agency to establish and maintain
a system of internal accounting and administrative controls.
Internal controls are necessary for public accountability and
are designed to minimize fraud, errors, abuse, and waste of
government funds. Elements of a satisfactory system of internal
accounting and administrative control must include a system
of authorization and record-keeping procedures adequate to
provide effective accounting control over assets, liabilities,
revenues, and spending.
A provision of the contract between the State and the Peace
Officers Association requires each of the parties to be responsible
for and keep its own set of records for the time bank and to
compare, verify, and adjust its records as necessary. When we
initially contacted Corrections about its system for accounting
for time-bank balances, it was unable to provide us with
information about cumulative time-bank hours. Subsequently,
Corrections indicated that it had analyzed time-bank hours used
and donated and had determined that 8,653 hours existed in the

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Department of Corrections

time bank as of September 2004. However, Corrections obtained
this figure from the Peace Officers Association, and Corrections
could not demonstrate that it had established this balance from
its own records. After we made further inquiries about how
Corrections arrived at this figure, the employee who performed
this analysis clarified that it was based on the number of hours
donated and used over a specific period of time and did not
represent a cumulative time-bank balance. Without establishing
and continuing to track cumulative time-bank balances,
Corrections cannot be certain that the time bank has sufficient
balances to cover leave requests.
In addition, Corrections’ failure to establish and track cumulative
time-bank balances places an undue amount of reliance on
the Peace Officers Association. Corrections indicated it learned
in 2004 that time-bank hours were dwindling and in need of
employee donations only after the Peace Officers Association
made it aware of the situation. We believe that relying on the
Peace Officers Association to provide updates on time-bank
balances shows insufficient management control. Corrections
reported that employee members used nearly 56,000 hours of
time-bank resources between May 2003 and April 2005, the
equivalent of more than $1.4 million. Thus, the time-bank activity
is significant, magnifying the need for adequate controls.

Corrections failed to
account for at least
10,980 time-bank hours
used by three employee
representatives between
May 2003 and April 2005.

Corrections indicated that in the latter part of 2004, it began
generating management reports that included information
on time-bank use and donations and that it is analyzing this
information to better assess the overall impact of such unionleave activities. Although we acknowledge that Corrections
has considerably improved its monitoring of the time bank’s
activity, it still failed to account for a significant amount of
time-bank hours used.
Specifically, we identified three employee representatives whom
Corrections released for a combined total of 10,980 hours
between May 2003 and April 2005 to perform duties for the
Peace Officers Association and who were supposed to have
this time charged against the time bank. Because Corrections
was unable to demonstrate it charged these hours against
the time bank, it appears that these hours were paid through
regular payroll at a cost of $395,256. Representative A was
released on time-bank status for the entire two-year period we
reviewed. However, Corrections failed to account for 3,524 of
these hours that should have been charged against the time
bank. Representative B was released on time-bank status from

California State Auditor Report I2005-2

Department of Corrections

July 2003 through March 2004 for a total of 3,656 hours, but
Corrections failed to account for all of these hours. Although
Representative C worked on union business for the entire
two-year period we reviewed, Corrections charged only 176 of
the 3,976 hours against the time bank.
In addition, a Corrections employee at the facility where
Representative C is assigned informed us that over two years
ago, Corrections headquarters ordered the facility to release
Representative C full-time to work on union-related activities.
Departmental correspondence indicates that the former
Corrections director made an informal agreement to allow
Representative C full-time release. However, we found nothing
that gives the former director the authority to enter into
informal agreements obligating the State to fund a full-time
employee performing union-related activities. In fact, according
to an official at Personnel Administration, such release time is
considered a mandatory subject of bargaining and therefore is
granted in accordance with the terms of the union contract.
As we previously mentioned, Corrections’ records indicate that
it charged the time bank for only one of the 24 months the
employee was released full-time to conduct union activities.
Corrections has yet
to demonstrate that
its current method for
accounting for time-bank
activity captures all of the
time-bank hours used.

In the management reports that it used to assess current
time-bank activity, Corrections did not correctly account for
the hours that the three representatives used. Such errors
underscore the need for Corrections to perform its own
accounting to ensure that requests for time-bank use are
charged against its balance and are sufficiently funded by
employee leave donations.

AGENCY RESPONSE
Corrections reported that it is continually evaluating the impact
time-bank activity is having on department operations and
plans to discuss such issues during its 2006 contract negotiations
with the Peace Officers Association. Further, it reported that it
has updated policies and tracking codes pertaining to union
leave to more efficiently and effectively capture the time being
used by unions. However, Corrections has not demonstrated
that it has established and kept track of time-bank balances so
that it can be assured that the time bank has sufficient balances
to cover leave requests. Further, Corrections has yet to ensure
that its current method of accounting for time-bank activity
accurately reflects all of the time-bank hours used, which
indicates a serious flaw in Corrections’ tracking system. n
30

California State Auditor Report I2005-2

CHAPTER 4
Department of Forestry and Fire
Protection: Mismanagement, Funds
Outside the State Treasury
ALLEGATION I2004-0869

conservation camp manager of the Department of
Forestry and Fire Protection (CDF) mismanaged state
funds by directing state, federal, and local government
agencies (project sponsors) to establish accounts outside the
State Treasury without the approval of the Department of
Finance (Finance).

RESULTS AND METHOD OF INVESTIGATION
We investigated and substantiated the allegation as well as
other improper activities. Manager A, who oversees operations
at Camp A, mismanaged state funds and violated state laws and
policies by directing project sponsors to place state funds in
vendor accounts outside of the State Treasury without approval
from Finance.13 Official A, who oversees all conservation camps,
told us that using state funds in this manner is an accepted
CDF practice but added that he could not accurately determine
the extent of its use statewide. Although we did not review the
records of all 39 conservation camps, a regional manager told us
that 16 of the 18 camps in CDF’s northern region direct project
sponsors to deposit state funds into accounts with vendors;
however, a representative for the southern region told us that
camps in the southern region no longer follow this practice.
Finally, Manager A and, to a lesser extent, Manager B, who
oversees Camp B, mismanaged state funds by not adequately
documenting project costs and payments.
To investigate the allegation, we researched applicable state laws and
policies as well as CDF policies. We reviewed agreements, invoices,
and payments for projects that inmate fire crews (inmate crews)
performed for two of CDF’s 39 conservation camps, Camp A and
Camp B. Further, we interviewed CDF officials and conservation
camp employees, including Manager A and Manager B.
13 For

a more detailed description of the laws, regulations, and policies discussed in this
chapter, see Appendix B.

California State Auditor Report I2005-2

Department of Forestry and Fire Protection

BACKGROUND
Working in conjunction with the Department of Corrections
(Corrections) and the California Department of the Youth
Authority (Youth Authority), CDF operates 39 conservation
camps statewide, housing nearly 4,000 inmates and wards.14
When not responding to fires or other emergencies, the inmate
crews perform conservation and community service work (work
projects) for project sponsors.
California law gives CDF the authority to enter into contracts
with public agencies for work projects using inmate crews.
The law also allows CDF to seek reimbursements from project
sponsors, using a rate determined by the CDF director. In many
instances, conservation camps receive cash payments from project
sponsors for the work that inmate crews perform; however,
CDF policy also allows conservation camps to receive in-kind
expenditure recoveries (in-kind recoveries) as an alternative
method of payment. The in-kind recoveries policy states
that camps are allowed to charge up to $160 per day for each
inmate crew; however, they cannot take cash payments and the
recoveries must be items directly related to the project operation.
For example, according to Official A, camps are allowed to receive
fuel and other items such as tires and office supplies from project
sponsors in amounts equal to the operation costs incurred for that
project. The improper activities that we discuss in this chapter
relate to the state funds and in-kind recoveries that project
sponsors paid and conservation camps inappropriately received
for inmate crews’ nonemergency work projects.

MANAGER A DIRECTED PROJECT SPONSORS TO
DEPOSIT STATE FUNDS OUTSIDE THE STATE TREASURY

Manager A directed
project sponsors to
deposit their payments
for project work into
accounts with at least
10 different vendors.

In some instances, instead of accepting in-kind recoveries from
project sponsors, Manager A directed project sponsors to deposit
their in-kind recoveries in the form of cash payments into
accounts with local vendors. Specifically, over a two-year period,
Manager A directed sponsors to deposit more than $12,500 in
accounts with at least 10 different local vendors, even though
CDF policy for in-kind recoveries does not allow camps to
receive cash payments. Camp A employees then obtained items
from the vendors, who charged the value of the item against
14

After we completed our investigation, Corrections underwent an organizational
change and effective July 1, 2005, is now part of the California Department of Corrections
and Rehabilitation and is called Adult Operations and Adult Programs. Similarly, the
Youth Authority is now also part of the California Department of Corrections and
Rehabilitation and is now called the Division of Juvenile Justice.

California State Auditor Report I2005-2

Department of Forestry and Fire Protection

Although Official A stated
that directing project
payments to vendors is
an accepted practice,
Official B told us that
she advised Official A to
discontinue the practice
three years ago.

the account balances. Manager A told us that the items Camp A
obtained from the vendors were related to project operation;
however, because he did not adequately monitor the vendor
account balances, we are unable to determine the nature or
purpose of the items obtained. Further, because Manager A
failed to document the billings and payments for the inmate
crews’ work adequately, we are unsure of the exact amount of
state funds involved. When asked, Official A acknowledged that
he was aware that conservation camps allow project sponsors
to set up accounts with vendors and stated that this is an
accepted CDF practice; however, Official B told us that this is
not an accepted practice and that she had informed Official A to
discontinue the practice approximately three years before.
State law and administrative policies limit the circumstances
under which employees may hold state funds outside the State
Treasury. State law requires that all money belonging to the State
under the control of any state employee other than the state
treasurer shall be deposited under conditions that the director
of Finance prescribes. Further, state law also provides that any
state employee who deposits state money in any manner not
prescribed by the director of Finance may be subject to forfeiture
of his or her employment. Furthermore, state administrative
policy specifies that in order to open an account outside of
the State Treasury, a department must request approval from
Finance, justifying the need for such an account.
According to Manager A, the practice of directing project
sponsors to make deposits into vendor accounts existed before
he began managing Camp A more than seven years ago. He
further explained that he used this practice in three cases:
(1) when project sponsors were unable to provide or purchase
in-kind recoveries, (2) when Camp A had no immediate need for
typical reimbursements, or (3) when a project reimbursement
amount was so low that Camp A could not purchase a needed
item, such as a set of tires or a chainsaw, with it.15 Once the
camp needed an item or when adequate funds accumulated in
a vendor account, camp employees would pick up the item,
and the vendor would charge the cost against the account.
However, because Manager A directed project sponsors to send
cash payments to local vendors such as tire stores and saw
shops and allowed the vendors to hold these funds outside
the State Treasury, he unnecessarily exposed the State to risk,
violated state laws and policies, and circumvented the State’s
15

Typical in-kind recoveries include fuel, tires, gloves, safety equipment, chainsaws, and
chainsaw equipment.

California State Auditor Report I2005-2

Department of Forestry and Fire Protection

procurement process. By circumventing the State’s procurement
process, Manager A could not ensure that Camp A actually
received the items charged against vendor account balances, or
that Camp A paid fair market rate for those items.
Unlike funds held in the vendor accounts that Manager A used,
funds held in the State Treasury are safeguarded, and deposits
earn interest. California law provides that the state treasurer is
responsible for the safekeeping, management, and disbursement
of deposits received and the interest earned on those deposits.
California law also provides that the state treasurer shall receive
and keep in the vaults of the State Treasury, or deposit in banks
or credit unions, all money belonging to the State; and it requires
the State Treasury to keep an account of all state money received
and disbursed. Further, state law and administrative policies
provide safeguards over the disbursement of funds deposited in
the State Treasury, making the disbursements subject to audit by
the State Controller’s Office (controller’s office).

MANAGERS A AND B FAILED TO MAINTAIN
ADEQUATE RECORDS
In violation of state law and CDF policy, Manager A and, to
a lesser degree, Manager B, did not adequately document or
monitor project costs and reimbursements. CDF policy requires
camps to strictly account for payments from project sponsors.
The policy also requires that the rate charged to the sponsor
and the type of reimbursement provided be listed on a project
request form and be agreed to prior to the beginning of
project work.

In one instance, a vendor
went out of business,
leaving the State with no
means to recover $200
held in an account with
that vendor.

California law requires each state agency to establish and
maintain an adequate system of internal controls including a
system of authorization and record-keeping procedures adequate
to provide effective accounting control over assets, liabilities,
revenues, and spending. Camps A and B lacked such a system.
Manager A acknowledged that he was able to account accurately
for only one of the 10 vendor accounts that Camp A used. He
also acknowledged that in one instance a vendor went out of
business, leaving the State unable to recover $200 held in an
account with that vendor. As we stated previously, because
Manager A allowed project sponsors to deposit funds outside
of the State Treasury and did not monitor these state funds,
he could not account for the funds, and CDF could not ensure

California State Auditor Report I2005-2

Department of Forestry and Fire Protection

that spending against the accounts was appropriate or used for
inmate crews’ work. In addition, Manager A failed to monitor
billings and payments adequately when receiving in-kind
recoveries from project sponsors. In many instances, employees
at Camp A did not include on the project request form the rate
charged to project sponsors or the number of days that inmate
crews would require to complete the work. In addition, for
virtually all projects that its inmate crews completed, Camp A
did not list the reimbursements due to the State on the project
request form as required by CDF policy. Further, Manager A
acknowledged that in most cases, he could neither demonstrate
what specific items the camp received in exchange for the
inmate crews’ work nor recall when Camp A received those
items. He admitted that he did not maintain adequate oversight
of work projects.

Official A acknowledged
that, prior to our
inquiries, he had
not communicated
his expectation of
compliance with state
laws to conservation
camp managers.

Although employees at Camp B generally listed on the project
request forms the specific items that project sponsors agreed
to provide, they did not always document the cost of the work
provided or state the value of the items received. Although
Manager B told us that a review of internal records would make
it possible to determine the cost of providing inmate labor and
the value of reimbursements for projects performed by Camp B
inmate crews, we found project request forms that failed to list
either the project costs or the value of reimbursements. We also
discovered that employees did not use project request forms for
projects at local fire stations, even though these jobs accounted
for approximately 15 percent of the work that Camp B inmate
crews performed. Manager B stated that his staff did not complete
project request forms for small jobs, such as those at local fire
stations, because doing so was impractical. He added that the
camp maintains informal agreements for these projects and that
in most instances fire station employees would fill the fuel tanks
of CDF vehicles used to transport the inmate crews to and from
the fire stations as payment for project work.
Official A, who oversees CDF’s conservation camp program,
told us that conservation camps must enter into agreements
with project sponsors for each project before beginning any
work on the project, regardless of project duration or amount
of inmate crew time needed to complete the project. Official A
also stated that Camp A did not meet his standards when it did
not comply with CDF record-keeping policy. He acknowledged,
however, that he had not communicated his expectation of
compliance with state laws and CDF policies for work projects to
conservation camp managers prior to our inquiry.

California State Auditor Report I2005-2

Department of Forestry and Fire Protection

CAMPS A AND B RECEIVED ITEMS FROM PROJECT
SPONSORS THAT WERE NOT DIRECTLY RELATED TO
PROJECT OPERATION
As we stated previously, CDF policy allows camps to take
payment from project sponsors for work projects in the form
of in-kind recoveries directly related to project operation. The
acceptance of such recoveries concerns us because this method
of payment circumvents the State’s procurement process and
excludes any oversight from the State Treasury or the controller’s
office, giving the State little assurance that items are actually
received and appropriate.
Due in part to CDF’s inadequate oversight of its conservation
camps and in part to the camps’ violation of CDF policy,
Managers A and B received items not directly related to project
costs. Some in-kind recoveries related to already-funded overall
camp costs. For example, Camp A received general support items
such as postage stamps, office supplies, and the use of office space
and training facilities. We also found that for three of the projects
that Camp A completed, it received fish to stock a nearby creek
where inmates and others fish. Stocking a nearby creek with
fish may benefit inmate morale, but we believe that this in-kind
recovery does not directly relate to project operation.

CDF recently informed
its field units and camps
that the use of outside
vendor accounts is illegal
and is to be discontinued.

Manager B stated that in almost all instances, Camp B received
in-kind recoveries directly related to project operation but, in
rare instances for smaller projects, Camp B received items not
directly related to project costs, such as firefighting training.
Manager B added that this type of recovery is important
because it relates to Camp B’s primary mission, which is to
fight fires. Although this training may relate to the camp’s
primary mission, receiving it as payment for project work is not
in accordance with CDF policy. Further, our review of project
request forms at Camp B showed that in one instance it received
sprinkler components as an in-kind recovery. According to a
Camp B employee, the sprinkler components were used to water
vegetation at the facility. As with the fish that Camp A received,
we do not believe that this recovery related in any way to
project operation.

AGENCY RESPONSE
CDF issued a letter to all of its field units and camps, clearly
stating that use of vendor accounts is illegal and that it would
not allow any CDF camp to follow this practice. CDF also
36

California State Auditor Report I2005-2

Department of Forestry and Fire Protection

modified the biannual management review process that it
conducts at the camps to include a review of all records and
practices pertaining to the reimbursement process. CDF further
changed its conservation camps’ policy manual to direct
camps to discontinue the practice of using vendor accounts and
to provide instruction on maintaining records. Finally, CDF
reported that it served Manager A with a formal reprimand. n

California State Auditor Report I2005-2

Blank page inserted for reproduction purposes only.

California State Auditor Report I2005-2

CHAPTER 5
Employment Development
Department: Misuse of State
Resources
ALLEGATION I2004-0636

former executive of the Employment Development
Department (EDD) used state resources and state
employees to assist him in writing a book for
personal purposes.

RESULTS AND METHOD OF INVESTIGATION
We asked the Labor and Workforce Development Agency
(agency), which oversees EDD, to assist us with the investigation,
and it substantiated the allegation. The agency reported that
while working at EDD, the executive used his subordinate staff
on state time to edit and review portions of a book he wrote for
personal purposes. As a result, the executive violated the state
law that prohibits the use of state resources such as time and
employees for an outside endeavor not related to state business.16
To investigate the allegation, the agency reviewed information
stored on the executive’s computer as well as information stored
on his staff’s computers. It also interviewed EDD staff, executives
at the agency, and the executive.

The former executive’s
inappropriate use of state
employees cost nearly
$8,000 in state wages.

The agency found that the executive used his state computer
to work on the book and that he sent e-mails to employees
under his supervision about editing his book. Additionally, the
executive used his state computer to send e-mails to outside
parties, asking for their review and for information on possible
book publishers. Interviews with various high-level employees
of EDD and the agency indicate that the executive did not write
his book for a state purpose even though EDD employees spent
approximately 240 hours to format, review, and edit it. This
time represents approximately $7,930 in state wages used for the
executive’s personal purposes.

For a more detailed description of the law discussed in this chapter, see Appendix B.

California State Auditor Report I2005-2

Employment Development Department

Although the executive admitted writing the book while
working at EDD, he stated that he wrote it on weekends and
holidays and that his use of state resources was minimal. The
executive added that a former high-level official at the agency
was aware of the book. However, the agency was unable to find
any documentation supporting this claim. Further, the agency
determined that current executives at both EDD and the
agency did not sponsor the book. Additionally, high-ranking
officials at both EDD and the agency stated that they were
unaware that the executive was writing the book until after he
left the department.
The executive claimed that he received no cash advances for
this work and that it has not been published, and the agency
determined that his use of state time and resources did not result
in a gain or advantage for the executive. Although the executive
may not have received a financial gain as a result of book sales,
he nevertheless used state resources for this outside endeavor
by relying on editing services from state employees working on
state time.

AGENCY RESPONSE
The executive left state service prior to EDD’s investigation. n

California State Auditor Report I2005-2

CHAPTER 6
Department of Corrections: Improper
Travel Claims
ALLEGATION I2005-0643

n employee of the Department of Corrections
(Corrections) inappropriately changed her headquarters
from Sacramento to Riverside to be reimbursed for travel
costs that she was not entitled to receive.17

RESULTS AND METHOD OF INVESTIGATION
We investigated and substantiated the allegation. By
misrepresenting the location of her headquarters on her travel
claims, the employee gave the appearance of legitimacy to her
claims for reimbursement. As a result, the employee received
$5,072 in commute and other travel costs that she was not
entitled to receive. The employee’s supervisor, who knew that
the employee would be working in Sacramento for a prolonged
period, told her to change her headquarters so that the employee
would not have to pay for travel-related costs that she would be
incurring while working in Sacramento.
To investigate the allegation, we reviewed the employee’s
personnel file to determine whether Corrections documented
the headquarters change. We also reviewed the employee’s travel
expense claims from January 2003 through March 2005. In
addition, we reviewed pertinent state laws and regulations and
travel rules outlined in the employee’s bargaining unit contract.
Furthermore, we interviewed the employee, her supervisor, the
employee’s manager, and an administrator who oversees the
employee’s team.

THE EMPLOYEE LISTED A FALSE HEADQUARTERS
LOCATION ON HER TRAVEL CLAIMS
As her supervisor directed, the employee listed a false
headquarters location on her travel claims and, as a result,
received $5,072 in reimbursement of travel costs to which
17

California State Auditor Report I2005-2

Department of Corrections

she was not entitled. The employee is a member of a team
headquartered in Sacramento that consults with Corrections
facilities throughout California. From April 2003 through
October 2004, the employee listed Sacramento as her
headquarters on her travel claims. During this period, she
typically traveled to various locations throughout the State
and was eligible to receive reimbursement for travel expenses
incurred when those trips met the criteria for reimbursement in
state law.18

The employee’s supervisor
told her to change her
designated headquarters
because the supervisor
did not believe it was
fair for the employee to
pay for travel expenses
between Sacramento and
the employee’s home.

In November 2004, at her supervisor’s direction, the employee
changed the headquarters designation on her travel claims
from Sacramento to Riverside, despite the fact that she did not
move from Sacramento to Riverside. This change coincided
with the supervisor’s decision to reassign the employee to work
for an extended period at a facility in Sacramento rather than
to travel throughout the State as she had done previously. Her
new assignment was located 26 miles from the Sacramento
headquarters. Although the employee’s bargaining unit contract
permits an employee to receive reimbursement for mileage while
on state business, neither state regulations nor the bargaining
unit contract allow reimbursement for commute expenses.
Consequently, if the employee had maintained Sacramento
as the headquarters designation on her travel claims, as was
appropriate, she would have been eligible to receive mileage
reimbursement only from the Sacramento headquarters to the
facility where she was working.
The supervisor admitted that she told the employee to change
her headquarters to Riverside because she needed the employee
to work in Sacramento for as long as six months and did not
believe it was fair for the employee to pay for travel-related
expenses while traveling between the facility in Sacramento
and her residence, which is located in the central valley
over 140 miles away. As Table 6 indicates, this inappropriate
designation of Riverside as the employee’s headquarters created
the appearance that the employee’s claims for mileage, per
diem, and lodging expenses incurred while traveling from her
residence to the Sacramento facility were legitimate when they
were not.

For a more detailed description of the laws, regulations, and employee contract
discussed in this chapter, see Appendix B.

California State Auditor Report I2005-2

Department of Corrections

TABLE 6
The Employee’s Improper Travel Costs
November 2004 Through March 2005
Expense Type

Amount Claimed

Amount Allowable

Overpayment

Mileage

$3,095

$609

$2,486

Per diem

1,352

Lodging

1,217

Parking

Totals

$5,681

$609

$5,072

In justifying this change, the employee told us that both
her supervisor and manager told her to list Riverside as her
headquarters because they were planning to reorganize her team,
to assign her to Southern California, and to establish Riverside as
her headquarters. However, the reorganization did not take place.
State regulations require state agencies to appoint headquarters
for each employee and defines the term “headquarters” as,
among other things, the place where the employee returns on
completion of special assignments. According to the administrator
in charge of the employee’s team, team members typically spend
three weeks traveling and one week at headquarters. In April 2003
Corrections officially established Sacramento as the employee’s
headquarters. However, we found no official documents in the
employee’s personnel file changing her headquarters to Riverside,
even though she listed Riverside as her headquarters on travel
claims beginning in November 2004. Therefore, we determined
that the headquarters change was unofficial.

The employee’s
headquarters was never
officially changed.

As we previously discussed, the supervisor admitted that she
told the employee to list Riverside as her headquarters so that
the employee could receive reimbursement for travel-related
costs she incurred while working in Sacramento. The supervisor
also said that she might have discussed the possibility of a
headquarters change with the employee’s manager and the
administrator of the employee’s team, but the headquarters
change was informal and not documented in writing. The
employee’s manager said that he did not instruct the employee
to change her headquarters but that the employee’s supervisor
may have made him aware of the issue. The administrator

California State Auditor Report I2005-2

Department of Corrections

said that she was unaware that the employee had changed her
headquarters and added that if the employee’s headquarters did
change, the supervisor should have obtained the administrator’s
approval and kept documentation of the change.
Corrections should not have allowed the employee to list
Riverside as her headquarters because the employee’s bargaining
unit contract requires state agencies to determine the method
of and necessity for travel and to ensure that employees will
be reimbursed only for travel that represents the State’s best
interest. In this case, it was not in the State’s best interest to
have the employee misrepresent her headquarters as being in
Riverside or to reimburse her for travel expenses she was not
entitled to receive.
Moreover, by designating Riverside as her headquarters on her
travel claim, the employee may have violated a state law that
prohibits persons from submitting a false claim for payment
to the State. Corrections also may have violated a state law
prohibiting gifts of public funds by paying the employee more
than she was entitled to receive. Although reimbursing the
employee for legitimate travel costs clearly serves a public
purpose, any excess amount of reimbursement serves a purely
private purpose and violates the constitutional prohibition
against making public funds available for private purposes.

AGENCY RESPONSE
As of the date of this report, Corrections has not completed
its review. n

California State Auditor Report I2005-2

CHAPTER 7
University of California, Los Angeles:
Improper Travel Expenses
ALLEGATION I2005-0737

n official with the University of California, Los Angeles
(UCLA), incurred improper travel expenses by arranging
out-of-state business trips to include stays at locations for
purposes other than business.

RESULTS AND METHOD OF INVESTIGATION
We investigated and substantiated the allegation. We determined
that from April 2001 through March 2005, the official arranged
seven out-of-state business trips so that she could stop over at
locations for purposes other than business. In most instances, the
official stayed at her family residence in the Midwest. Because
the official arranged her travel for personal purposes, UCLA
paid over $1,000 in flight costs that it would not otherwise have
incurred. To investigate the allegation, we reviewed the official’s
travel claims and flight records. We also reviewed pertinent state
laws and university travel policies. Finally, we interviewed UCLA
employees, including the official.

THE OFFICIAL INCURRED IMPROPER TRAVEL EXPENSES
RELATED TO HER PERSONAL TRIPS
California law prohibits state officers and employees from using
state resources, such as travel or time for personal enjoyment,
private gain, or personal advantage or for an outside endeavor
not related to state business.19 In addition, travel policies for
UCLA staff state that when a traveler takes an indirect route
or interrupts travel by a direct route for reasons other than
university business, the traveler shall bear any additional
expenses. As shown in Table 7 on the following page, we
determined that the university paid an additional $1,010 in
flight costs for seven out-of-state trips the official took between
April 2001 and March 2005.
19

For a more detailed description of the laws and policies discussed in this chapter, see
Appendix B.

California State Auditor Report I2005-2

University of California, Los Angeles

TABLE 7
The Official’s Inappropriate Additional Travel Costs
April 2001 Through March 2005
Stated Purpose
To attend a conference in
Atlanta, GA, Apr. 25–27, 2001

To attend a conference in
Philadelphia, PA, June 6–8, 2001

To attend a conference in
Miami, FL, Mar. 6–8, 2002

To attend a board meeting in
Washington, D.C.,
Aug. 24–25, 2003
To attend a conference in
Tampa, FL, Oct. 8–10, 2003

To attend a conference in
Miami, FL, Jan 7–9, 2004

To attend a meeting in
Orlando, FL, Mar. 2–4, 2005

Totals

Dates of Travel

Destination

Wed., Apr. 25

Los Angeles to Atlanta

Fri., Apr. 27

Atlanta to Washington, D.C.

Sun., Apr. 29

Washington, D.C. to Los Angeles

Wed., June 6

Los Angeles to Philadelphia

Fri., June 8

Philadelphia to Chicago

Mon., June 11

Chicago to Los Angeles

Wed., Mar. 6

Los Angeles to Miami

Fri., Mar. 8

Miami to Chicago

Sun., Mar. 10

Chicago to Los Angeles

Fri., Aug. 22

Los Angeles to Chicago

Sun., Aug. 24

Chicago to Washington, D.C.

Mon., Aug. 25

Washington, D.C. to Los Angeles

Wed., Oct. 8

Los Angeles to Chicago

Wed., Oct. 8

Chicago to Tampa

Fri., Oct. 10

Tampa to Chicago

Sun., Oct. 12

Chicago to Los Angeles

Wed., Jan. 7

Los Angeles to Miami

Fri., Jan. 9

Miami to Orlando

Fri., Jan. 9

Orlando to Chicago

Sun., Jan. 11

Chicago to Los Angeles

Wed., Mar. 2

Los Angeles to Orlando

Fri., Mar. 4

Orlando to Chicago

Sun., Mar. 6

Chicago to Los Angeles

Flight
Cost

Allowable
Cost*

Difference

$ 362

$ 254

$ 108

334

286

310

159

151

792

582

210

576

333

243

387

258

129

317

196

121

$3,078

$2,068

$1,010

* To determine allowable costs, we obtained fare information from the official’s flight ticket and estimated the cost of a roundtrip flight by taking the cost of the trip between Los Angeles and the business destination as indicated on the flight ticket, then
multiplied that figure by two.

The official often began her trips by traveling to legitimate
business locations but arranged them to include flights to
additional locations unrelated to state business. We determined
that because the official arranged her flights for personal
reasons, UCLA incurred at least $1,010 in additional flight
costs. The official said that her staff had performed an analysis
showing that any out-of-state business trips that included
46

California State Auditor Report I2005-2

University of California, Los Angeles

weekend stopovers at locations for purposes other than state
business were no more expensive than what she would have
paid for round-trip flights to the business destinations in
question. We spoke with one of the official’s former assistants,
who corroborated that she had performed this analysis and
that the official’s flight costs were equal to or less than the cost
of a round-trip flight. However, we were unable to locate any
such analysis in the travel documentation we obtained from
UCLA’s accounting and travel offices, and neither the official
nor the former assistant could locate this analysis. In addition,
the official’s travel claims and related documentation made
no reference to her stops at locations for purposes other than
business, as university policy requires.
We spoke with a representative from UCLA’s travel office about
the official’s trips. The travel representative explained that most
university travelers, including the official, must arrange to book
their flights through the UCLA travel office. After the traveler
provides the relevant information needed to reserve a flight,
the travel office prepares a suggested itinerary. Once the traveler
approves the itinerary, the official’s office should provide an
authorization form that includes information pertaining to the
trip and any stopovers, including the traveler’s name, destinations,
business purpose, and relevant travel dates. However, the approval
forms that the travel office produced for our review made no
reference to stopovers that the official arranged.
We believe that the travel office had sufficient information to
question the official’s travel. It had information indicating that
the flight it had earlier reserved and was now preparing to issue
a ticket for was inconsistent with the business purpose reflected
on the authorization form. Further, we believe such oversights
were magnified by the fact that the official’s travel documents
made no reference to her stopovers at locations that were not
related to business.

AGENCY RESPONSE
Although UCLA did not conclude that the official intentionally
incurred these expenses, the official reimbursed UCLA the
$1,010 in improper travel costs that our report identified. UCLA
also reported that it modified its travel procedures for senior
management by including a separate level of review to ensure
that individuals do not inappropriately request reimbursement
for personal travel. It also now requires travelers to obtain a

California State Auditor Report I2005-2

University of California, Los Angeles

written cost comparison of fares for direct business trips and
proposed stops at locations not related to business from UCLA’s
travel office before approving such trips. n

California State Auditor Report I2005-2

CHAPTER 8
Department of Developmental
Services: Conflict of Interest
ALLEGATION I2004-0760

Department of Developmental Services (Developmental
Services) employee violated state contracting law
prohibiting conflict of interest by providing consulting
services for a third-party vendor (vendor) that contracts with
a regional center—an entity that is funded by the State—while
employed by Developmental Services.

RESULTS AND METHOD OF INVESTIGATION
We asked Developmental Services to assist us with the
investigation, and it substantiated the allegation. Developmental
Services reported that the employee worked as a consultant
for a vendor funded by a regional center that contracts with
Developmental Services while also employed by Developmental
Services. To investigate the allegation, Developmental Services
interviewed management from the community facility, the
regional center, and the vendor, as well as the employee.

BACKGROUND

The employee violated
state law by working for
a vendor funded by the
State while he was still
employed by the State.

Developmental Services is the agency through which the State
provides support services to individuals with developmental
disabilities (referred to as consumers). These services are
provided at five state-operated developmental centers and two
smaller state-operated community facilities, as well as through
contracts with 21 nonprofit regional centers. The regional
centers help coordinate support services that are provided
to consumers by regional centers or by vendors paid by the
regional centers. Developmental centers and community
facilities provide services to consumers who require programs,
training, care, treatment, and supervision in a structured health
facility on a 24-hour basis, as determined by the regional
centers. The point of entry for support services for an individual
with developmental disabilities is the regional center.

California State Auditor Report I2005-2

Department of Developmental Services

THE EMPLOYEE VIOLATED STATE CONTRACTING LAW
State law and Developmental Services’ policy prohibit
state employees from engaging in activities for which they
receive compensation that are funded by any state agency
or department. The employee violated these prohibitions by
providing psychological consulting services through a vendor
under contract with a regional center while he was employed
by Developmental Services at a community facility.20
The employee was a psychologist at one of Developmental Services’
two state-operated community facilities from July 2001 through
December 2004. However, he also worked as a psychological
consultant for a vendor under contract with one of the regional
centers from April 2002 through December 2004. Working
approximately three hours per week at a rate of $75 per hour, the
employee received approximately $23,100 from this vendor for his
consulting services. Additionally, the employee contracted with
another vendor in August 2003 and received $500 for providing
training to the vendor’s employees regarding one of its consumers.

AGENCY RESPONSE
Developmental Services informed the employee that his actions
constituted a conflict of interest, and he left state service before
Developmental Services completed its investigation. n

For a more detailed description of the laws discussed in this chapter, see Appendix B.

California State Auditor Report I2005-2

CHAPTER 9
California State University, Northridge:
Misuse of State Resources
ALLEGATION I2005-0683

California State University, Northridge (CSUN), employee
worked on personal projects for CSUN employees on
state time and with state equipment.

RESULTS AND METHOD OF INVESTIGATION
We asked CSUN to assist us with the investigation, and it
substantiated the allegation. To conduct the investigation, CSUN
reviewed correspondence and e-mail records, and it inspected
the employee’s workplace. CSUN also interviewed faculty and
staff, including the employee.
CSUN found that the employee had a history of working for
staff on projects unrelated to CSUN business, that on at least
two occasions he did so using state resources, and that he
continued to defy his superiors’ directive to cease such activities
in violation of state laws.21 Specifically, CSUN confirmed that
the employee received $870 from a former faculty member to
perform carpentry work on a project unrelated to the university,
using university time and resources. The employee admitted
to having worked on the project for approximately 20 hours
using university facilities, which cost the State $511 in lost
wages. Because the employee’s superiors were already aware of
this impropriety, the employee was directed to cease working
on the project. However, CSUN found that the employee
continued to use its facilities to work on at least one additional
personal project: the employee fabricated a trailer for a faculty
member from a state truck bed that was going to be disposed
of. Although the employee denied using state resources to work
on this project, the employee’s supervisor and two coworkers
said they observed the employee working on this project at his
work area. CSUN confirmed that this work occurred after the
employee received direction to cease such activities.

For a more detailed description of the laws and regulations discussed in this chapter,
see Appendix B.

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California State University, Northridge

AGENCY RESPONSE
CSUN concluded that there was insufficient cause for
disciplinary sanctions. It also reported that it discussed with
staff and faculty who work in the employee’s department
the state laws prohibiting state employees from using state
resources for personal enjoyment, gain, or advantage, and stated
that any future violations of these laws will result in serious
consequences. Finally, CSUN reported that it implemented a
work-order tracking system to facilitate monitoring the work
being done by those working in the employee’s department. n

California State Auditor Report I2005-2

CHAPTER 10
Department of Transportation:
Misuse of State Resources
ALLEGATION I2004-0733

supervisor in the Department of Transportation (Caltrans)
inappropriately used state equipment to view racial
and sexually explicit material, and he showed sexually
explicit material to his subordinates.

RESULTS AND METHOD OF INVESTIGATION
We asked Caltrans to assist us with the investigation, and it
substantiated the allegation. Caltrans found that the supervisor used
his state computer to access racial and sexually explicit materials
and showed sexually explicit material to his subordinates. One
employee stated that the supervisor called him to the computer and
showed him a sexually graphic picture of a woman on the computer
screen. In addition, Caltrans’ review of the supervisor’s e-mail
account indicated many of the e-mails were of a personal nature or
contained sexually explicit material. California law prohibits state
employees from using state resources for personal purposes.22 In
addition, state laws prohibit discrimination in the workplace on the
basis of race or gender (among other things) and require employers
to take all reasonable steps to prevent harassment in the workplace.
Under certain circumstances, sexually explicit jokes, comments,
or other materials may create a discriminatory or hostile work
environment. To investigate the allegation, Caltrans examined two
computers and e-mail accounts to which the supervisor had access
from December 2003 through May 2004. It also reviewed personnel
records, department policies, and state laws, and interviewed the
supervisor and other employees.

AGENCY RESPONSE
Caltrans gave the employee a corrective interview and put a
letter of warning into his personnel file for 12 months. The
employee was informed that further behavior of this type would
result in additional disciplinary action. n
22

For a more detailed description of the laws, rules, and regulations discussed in this
chapter, see Appendix B.

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CHAPTER 11
Update of Previously Reported Issues
CHAPTER SUMMARY

he California Whistleblower Protection Act, formerly
known as the Reporting of Improper Governmental
Activities Act, requires an employing agency or
appropriate appointing authority to report to the Bureau of State
Audits (bureau) any corrective action, including disciplinary
action, that it takes in response to an investigative report not
later than 30 days after the bureau issues the report. If it has not
completed its corrective action within 30 days, the agency or
authority must report to the bureau monthly until it completes
that action. This chapter summarizes corrective actions taken on
two cases since we last reported them.

DEPARTMENT OF CORRECTIONS
CASE I2003-0834
We reported the results of this investigation on March 22, 2005.
We found that the Department of Corrections (Corrections)
improperly granted registered nurses (nurses) an increase in pay
associated with inmate supervision that they were not entitled
to receive.23 Specifically, 25 nurses at four institutions received
increased pay associated with inmate supervision even though
they either did not supervise inmates for the minimum number
of hours required or they lacked sufficient documentation to
support their eligibility to receive the increased pay. Between
July 1, 2001, and June 30, 2003, Corrections paid these nurses
$238,184 more than they were entitled to receive.
Corrections reported that it could not provide documentation
to support the pay increase it authorized for 17 of the 25 nurses
because the institutions that employed these nurses either had
no inmate supervisory hours to report, did not require nurses to
track these hours, lacked sufficient documentation to support
the hours claimed, or had destroyed all timekeeping records
relating to inmate supervision. Although Corrections provided

California State Auditor Report I2005-2

figures showing that the remaining eight nurses did supervise
inmates, we found that in most instances these nurses failed to
incur the number of supervisory hours required to merit the pay
increase. For example, one nurse received approximately $7,983
due to the pay increase over a 16-month period. However, the
nurse met the inmate supervisory threshold of 173 hours per
month on only two occasions, resulting in an overpayment
of $7,030. Of the 25 nurses we reviewed who received this
premium pay, we found that $238,184 of the $255,509 in inmate
supervisory pay they received was not justified.
Because the issues raised in our report affected several areas
including personnel, inmate assignments, labor relations, and
business services, Corrections reported that it assigned a team to
research the various aspects of the report findings to determine
the best approach for correcting the problems we had identified
and to determine the extent of the problem throughout the
entire department.

Updated Information
As of June 9, 2005, Corrections reported that it initiated plans
to collect overpayments for three of the 25 nurses identified in
our report but had yet to complete its review of 12 nurses that
received the pay increase. In addition, Corrections reported that
it recently obtained sufficient documentation to justify the pay
increase for the remaining 10 nurses but has not yet provided
this documentation to our office for our review. Previously,
Corrections had reported that it was unable to provide sufficient
documentation to support the premium pay for these 10 nurses.

DEPARTMENT OF HEALTH SERVICES
CASE I2003-1067
We reported the results of this investigation on March 22, 2005.
An employee with the Department of Health Services (Health
Services), whose duties require her to travel regularly throughout
the State to monitor and provide training to retail businesses,
improperly received $3,068 by submitting false claims for wages
and travel costs. We determined that, by misrepresenting her
departure and return times on her travel and attendance reports,
the employee was paid $1,895 for overtime and regular hours she
did not work. We also found that the employee claimed and was
paid $1,173 for expenses related to her travel that she either did
not incur or was not entitled to receive. Specifically, the employee
claimed $253 for parking expenses that she acknowledged to us
56

California State Auditor Report I2005-2

she did not incur. The employee also improperly claimed $151
in mileage reimbursements by routinely overstating the distance
to and from the airport when conducting state business. Because
the employee presented false information on her travel claims,
she also received $259 for meal expenses that she was not entitled
to receive. Finally, the employee improperly received $510 for
travel expenses that she claimed on days she did not work or that
otherwise were not allowed.
Health Services reported that based on its preliminary review, the
employee’s supervisor should have identified and denied many
of the inappropriate charges on the employee’s travel claims.
Health Services also reported that it will provide training to all its
supervisors working in the employee’s branch so they can better
understand their responsibilities for reviewing travel claims and
overtime requests from those under their supervision.

Updated Information
As of August 31, 2005, Health Services reported that those
working in the employee’s branch will begin using the
State’s automated travel claims processing system (processing
system). Because the business rules for travel reimbursement
are programmed into the processing system, Health Services
believes this will greatly reduce the submission of improper
travel claims. Health Services also reported that it has prepared
a recommendation for disciplinary action for the employee
and that the recommendation is currently under review by
appropriate Health Services staff.

California State Auditor Report I2005-2

We conducted this review under the authority vested in the California state auditor by
Section 8547 et seq. of the California Government Code and applicable investigative and
auditing standards. We limited our review to those areas specified in the results and method
of investigation sections of this report.
Respectfully submitted,

ELAINE M. HOWLE
State Auditor
Date:

September 21, 2005

Investigative Staff:

Ken L. Willis, Manager, CPA
Scott Denny, CPA, CFE
LeAnn Fong-Batkin
Cynthia A. Sanford, CPA
Siu-Henh Ung
Mike Urso

Audit Staff:

Theresa M. Carey, CPA, CFE

California State Auditor Report I2005-2

APPENDIX A
Activity Report

he Bureau of State Audits (bureau), headed by the state
auditor, has identified improper governmental activities
totaling $15.6 million since July 1993, when it reactivated
the Whistleblower Hotline (hotline), formerly administered by the
Office of the Auditor General. These improper activities include
theft of state property, false claims, conflicts of interest, and personal
use of state resources. The state auditor’s investigations also have
substantiated improper activities that cannot be quantified in
dollars but that have had a negative social impact. Examples include
violations of fiduciary trust, failure to perform mandated duties, and
abuse of authority.
Although the bureau investigates improper governmental activities,
it does not have enforcement powers. When it substantiates
allegations, the bureau reports the details to the head of the
state entity or to the appointing authority responsible for taking
corrective action. The California Whistleblower Protection Act
(Whistleblower Act) also empowers the state auditor to report these
activities to other authorities, such as law enforcement agencies or
other entities with jurisdiction over the activities, when the state
auditor deems it appropriate.
The individual chapters describe the corrective actions that agencies
took on cases in this report. Table A summarizes all the corrective
actions that agencies have taken since the bureau reactivated the
hotline. In addition, dozens of agencies have modified or reiterated
their policies and procedures to prevent future improper activities.

TABLE A
Corrective Actions
July 1993 Through June 2005
Type of Corrective Action
Referrals for criminal prosecution
Convictions

Instances
77
9

Job terminations

Demotions

Pay reductions

Suspensions without pay

Reprimands

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254

New Cases Opened Between January 2005 and June 2005
From January 1, 2005, through June 30, 2005, the bureau
opened 261 new cases.
The bureau receives allegations of improper governmental
activities in several ways. Callers to the hotline at (800) 952-5665
or (866) 293-8729 (TTY) reported 128 of our new cases in this time
period.24 The bureau also opened 119 new cases based on complaints
it received in the mail and 14 based on complaints from individuals
who visited the office. Figure A.1 shows the sources of all the cases
opened from January 2005 through June 2005.

FIGURE A.1
Sources of 261 New Cases Opened
January 2005 Through June 2005
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Work on Investigative Cases
January 2005 Through June 2005
In addition to the 261 new cases opened during this six-month
period, 57 previous cases awaited review or assignment as of
January 1, 2005; another 40 were still under investigation by this
office or by other state agencies or were awaiting completion of
corrective action. Consequently, 358 cases required some review
during this period.

In total, the bureau received 2,479 calls on the hotline from January 2005 through
June 2005. However, 1,388 (56 percent) of the calls were about issues outside the bureau’s
jurisdiction. In these cases, the bureau attempted to refer the caller to the appropriate entity.
An additional 892 calls (36 percent) were related to previously established case files.

California State Auditor Report I2005-2

After examining the information gathered from complainants and
preliminary reviews, the bureau concluded that 219 cases did not
warrant complete investigation because of lack of evidence.
The Whistleblower Act specifies that the state auditor can request
the assistance of any state entity or employee in conducting an
investigation. From January 1, 2005, through June 30, 2005,
state agencies assisted the bureau in investigating 50 cases
and substantiated allegations on seven (24 percent) of the
29 cases completed during the period. In addition, the bureau
independently investigated 20 cases and substantiated allegations
on six of the 12 completed during the period. Figure A.2 shows
the disposition of the 358 cases the bureau worked on from
January 2005 through June 2005. As of June 30, 2005, the bureau
had 69 cases awaiting review or assignment.

FIGURE A.2
Disposition of 358 Cases
January 2005 Through June 2005
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APPENDIX B
State Laws, Regulations, and Policies

his appendix provides more detailed descriptions of the
state laws, regulations, and policies that govern employee
conduct and prohibit the types of improper governmental
activities described in this report.

CAUSES FOR DISCIPLINING STATE EMPLOYEES
The California Government Code, Section 19572, lists the
various causes for disciplining state civil service employees.
These causes include incompetence, inefficiency, inexcusable
absence without leave or neglect of duty, insubordination,
dishonesty, misuse of state property, and other failure of good
behavior, either during or outside of duty hours, that is of such a
nature that it causes discredit to the appointing authority or the
person’s employment.

CRITERIA COVERING EMBEZZLEMENT AND FALSE CLAIMS
Chapters 1 and 6 report on theft or false claims.
The California Penal Code, Section 504, states that every officer
of the State who fraudulently appropriates to any use or purpose
not in the due and lawful execution of that person’s trust,
any property under his or her control by virtue of his trust, or
secretes it with a fraudulent intent to appropriate it for such
purpose, is guilty of embezzlement. Section 514 provides that
if the embezzlement is of public funds, the offense is a felony
and is punishable by imprisonment in the state prison; and the
person convicted is ineligible thereafter to any office of honor,
trust, or profit in this State.
The California Penal Code, Section 72, states that every person
who, with intent to defraud, presents for payment any false
or fraudulent claim, bill, account, voucher, or writing, is
punishable by imprisonment in the county jail for a period
of not more than one year, by a fine not exceeding $1,000, or
by imprisonment and a fine, or by imprisonment in the state
prison, by a fine not exceeding $10,000, or both imprisonment
and a fine.

California State Auditor Report I2005-2

The California Penal Code, Section 470, states that every
person who, with intent to defraud, knowing that he or she
has no authority to do so, signs the name of another person or
fictitious person on a check, is guilty of forgery. According to
Section 473 of the California Penal Code, forgery is punishable
by imprisonment in the state prison or the county jail.
Further, the California Penal Code, Section 484, states that
every person who fraudulently appropriates property that has
been entrusted to him or her and who knowingly, by any false
or fraudulent representation or pretense, defrauds any other
person of money, is guilty of theft. Moreover, Section 487
states that grand theft includes theft of a value exceeding $400.
Section 489 specifies that grand theft is generally punishable by
imprisonment in a county jail or in the state prison.
In addition, Section 424 of the California Penal Code provides
that public officers or any other persons charged with the
receipt, safekeeping, or disbursement of public money who
knowingly keep a false account, make a false entry or erasure
in any account, use public money for a purpose not authorized
by law, or willingly fail to transfer the money as required by
law may be disqualified from holding office in the State and are
subject to imprisonment for up to four years.
California Penal Code, Section 529, states that falsely personating
another may be punishable by a fine not exceeding $10,000,
or by imprisonment in the state prison, or in a county jail not
exceeding one year, or by both such fine and imprisonment.
California Government Code, Section 6200, states that every officer
having custody of any record is punishable by imprisonment in
the state prison for two, three, or four years if the officer willfully
(a) steals, removes, or secretes; (b) destroys, mutilates, or
defaces; (c) alters or falsifies the whole or any part of the record.
Section 6201 states that every person not an officer referred
to in Section 6200, who is guilty of any of the acts specified in that
section, is punishable by imprisonment in the state prison, or in
a county jail not exceeding one year, or by a fine not exceeding
$1,000, or by both such fine and imprisonment.
Section 6203 of the California Government Code states that
every officer authorized by law to make or give any certificate or
other writing is guilty of a misdemeanor if he makes and delivers
as true any certificate or writing containing statements which he
knows to be false.

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CRITERIA GOVERNING STATE MANAGERS’
RESPONSIBILITIES
Chapters 1, 2, 3, 4, and 6 report on weaknesses in
management controls.
The Financial Integrity and State Manager’s Accountability
Act of 1983 (integrity and accountability act) contained in the
California Government Code, beginning with Section 13400,
requires each state agency to establish and maintain a system
or systems of internal accounting and administrative controls.
Internal controls are necessary to provide public accountability
and are designed to minimize fraud, abuse, and waste of
government funds. In addition, by maintaining these controls,
agencies gain reasonable assurance that the measures they
have adopted protect state assets, provide reliable accounting
data, promote operational efficiency, and encourage adherence
to managerial policies. The integrity and accountability
act also states that the elements of a satisfactory system of
internal accounting and administrative controls shall include
a system of authorization and record-keeping procedures
adequate to provide effective accounting control over assets,
liabilities, revenues, and spending. Further, the integrity and
accountability act requires that state agencies must act promptly
to correct weaknesses when they detect them.

GIFT OF PUBLIC FUNDS
Chapter 2 reports on a potential gift of public funds.
The California Constitution, Section 6, Article XVI, prohibits the
giving of any gift of public money or thing of any value to any
individual for a private purpose. This constitutional prohibition
is designed to ensure that the resources of the State will be
devoted to public purposes.

CRITERIA COVERING ACCOUNTING FOR UNION LEAVE
Chapter 3 reports on union leave.
California Government Code, Section 3512, contained within
the Meyers-Milias-Brown Act, recognizes state employees’
right to join organizations of their own choosing and be
represented by those organizations in their employment
relations with the State. This section also states the intent of
the Meyers-Milias-Brown Act to provide a reasonable method
of resolving disputes regarding wages, hours, and other terms
and conditions of employment between the State and public

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employee organizations. Section 3517.5 states that if an
agreement is reached between the governor and the recognized
employee organization, a jointly prepared written memorandum
of understanding shall be prepared and presented to the
Legislature for determination. Section 3518.5 allows a
reasonable number of employee representatives of recognized
employee organizations reasonable time off without loss of
compensation or other benefits when formally meeting and
conferring with representatives of the State on matters within the
scope of representation only for periods when a memorandum of
understanding is not in effect.
Section 10.13 of the State’s agreement with bargaining unit 6
(union) representing correctional peace officers establishes
a release time bank in which employees may contribute any
earned leave credits except sick leave. This agreement requires
each party to the agreement to be responsible for and keep its
own set of records. Records shall be compared, verified, and
adjusted as the parties agree is necessary. The granting of time
off shall be subject to the approval of the employee’s supervisor,
operational needs, emergencies, or other standards limiting use.
Formal decisions adopted by the Public Employment Relations
Board (PERB), which interpret the laws that PERB is charged with
administering, provide for paid release time for representatives
of employee organizations to meet and confer with employer
representatives.25 PERB also determined that release time
for other purposes, such as time for employee organization
delegates to attend conferences, time for conducting orientation
for unit employees to attend district board meetings, or time to
attend to association business, is a negotiable subject.26

CRITERIA COVERING MANAGEMENT OF STATE FUNDS
Chapter 4 reports on holding funds outside of the State Treasury.
The California Government Code, Section 16509, provides that the
state treasurer is responsible for the safekeeping, management,
and disbursement of deposits received and the interest earned
on those deposits. Section 12320 of the same code generally
provides that the state treasurer shall receive and keep in the

PERB Dec. No. 995-S, 17 Public Employee Reporter for California (PERC) ¶ 24091,
pp. 241-243.

PERB Dec. No. 790, 14 PERC ¶ 21051, p. 176; PERB Dec. No. 375, 8 PERC ¶ 15021,
pp. 138-139; PERB Dec. No. 179, 5 PERC ¶ 12150, p. 667; PERB Dec. No. 177, 5 PERC
¶ 12148, pp. 660-661; PERB Dec. No. 133, 4 PERC ¶ 1117, p. 498.

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vaults of the State Treasury or deposit in banks and credit unions
all money belonging to the State. Section 12326 requires the
state treasurer to keep an account of all money received and
disbursed. Section 12410 of the Government Code requires
the State Controller’s Office (controller’s office) to oversee the
fiscal concerns of the State and provides the state controller the
authority to audit the disbursement of any state money.
The State Administrative Manual, Section 8422, requires state
agencies to submit purchase and expense claims on a standard
state form to the controller’s office for its review before the
issuance of warrants and prescribes steps for state agencies
to follow to ensure that invoices are properly prepared and
comply with the appropriate rules and regulations. Further,
Section 12461(b) requires the state controller’s annual report to
include the receipts, disbursements, and closing balances of each
fund in the State Treasury for the preceding fiscal year.
Section 16506 of the California Government Code requires
that all money belonging to the State under the control of any
state employee other than the state treasurer shall be deposited
under conditions that the director of the Department of Finance
(Finance) prescribes. Further, Section 16510 provides that any
state employee who deposits state money in any manner not
prescribed by the director of Finance may be subject to forfeiture
of his or her employment. Furthermore, the State Administrative
Manual, Section 8002, specifies that in order to open an account
outside of the State Treasury, a department must request
approval from Finance, justifying the need for such an account.
California Public Resources Code, Section 4953, allows the
Department of Forestry and Fire Protection (CDF) to enter
into contracts or cooperative agreements with public agencies
to perform fire prevention, fire control, and other work of
the department by using inmates and wards assigned to the
department’s conservation camps.
CDF policy related to in-kind recoveries, Section 6531.1.4,
states that department conservation camps may receive in-kind
expenditure recoveries from state, federal, and local government
agencies (project sponsors) in an effort to recover project-related
costs. These expenditure recoveries will only be items that are
directly related to the project operation or crew availability
and will be strictly accounted for. The recoveries and rate will
be listed on a project request form and agreed to prior to the
beginning of the project by the project sponsor.

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CRITERIA COVERING CONTRACTING PROCEDURES
Chapter 2 reports on improper contracting.
Section 100 of the California Public Contract Code states the intent
of the Legislature in enacting various provisions of the Public
Contract Code. Among other things, those provisions are designed
to provide all qualified bidders with a fair opportunity to bid,
thereby stimulating competition in a manner conducive to sound
fiscal practices.
The State Administrative Manual, Section 5201, requires
competitive bidding on all departmental procurements of
information technology activities including telecommunications
goods and services unless the Department of General Services
determines that the required product is available from only one
source or must be acquired on an emergency basis. Section 3503
states that where the dollar volume involved is less than
$10,000, or where the competitive field is very limited, the
Office of Procurement will request informal quotations in lieu of
using the more expensive formal method. Informal quotations
will also be used to determine whether previous prices are still in
effect when dollar amounts are relatively small.

WASTE AND INEFFICIENCY
Chapter 2 reports on waste and inefficiency in state government.
The California Government Code, Section 11813, declares
that waste and inefficiency in state government undermine
Californians’ confidence in government and reduce the state
government’s ability to address vital public needs adequately.

CRITERIA COVERING TRAVEL EXPENSE REIMBURSEMENTS
AND PAYMENT OF COMMUTING EXPENSES
Chapters 6 and 7 report on improper payment of travel or
commuting expenses.
The California Code of Regulations, Title 2, Section 599.626,
disallows expenses that arise from travel between home or garage
and headquarters. When a trip begins or ends at the employee’s
home, the distance the employee travels shall be computed
based on the lesser of the employee’s home or headquarters.
Section 599.616 requires that headquarters be established for each
state officer or employee and defines the term as the place where
the officer or employee spends the largest portion or his or her
regular workday or work time, or the place to which he or she
returns after completion of special assignments.
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The State’s agreement with bargaining unit 17, Article 12,
Section G, requires each state agency to determine the method
of and necessity for travel and states that this travel shall be
accomplished and reimbursed in accordance with the best interest
of the State. For employees who choose and are approved to use
an alternate method of transportation, reimbursement will only
be for the method that reflects the best interest of the State.
The University of California (UC) Policy and Regulations
Governing Travel G-28, Section VII, requires advance approval
when a traveler takes an indirect route or interrupts travel by
a direct route, for other than UC business. The traveler shall
bear any resulting additional expenses. The reimbursement
of expenses shall be limited to the actual costs incurred or
the charges that would have been incurred through a usually
traveled route, whichever is less.
Section XII of UC’s travel policy requires the total amount of
all expenses and advances pertaining to a particular trip be
accounted for when submitting a travel expense voucher. It
further states that travel expense vouchers must include the date
and time of departure and return to the traveler’s headquarters
or residence, the origin and destination of the trip, and the route
taken. It must also include the purpose for the travel or the nature
of the business benefit derived as a result of the travel.

PROHIBITIONS AGAINST CONFLICTS OF INTEREST
Chapter 8 reports on a conflict of interest.
Section 10410 of the California Public Contract Code specifically
prohibits a state employee from contracting on his or her own
behalf as an independent contractor with any state agency to
provide services or goods. Further, it prohibits state employees
from engaging in any employment, activity, or enterprise for
which they receive compensation or in which they have a
financial interest and that is sponsored or funded by any state
agency or department through or by a state contract unless the
employment, activity, or enterprise is required as a condition of
the employee’s regular state employment.
The Department of Developmental Services’ Administrative Policy
Manual, Section 1.4, prohibits officers or employees in the state
civil service or other appointed state official from engaging in
any employment, activity, or enterprise from which the officer
or employee receives compensation or in which the officer or
employee has a financial interest and which is sponsored or funded,
California State Auditor Report I2005-2

or sponsored and funded by a state agency or department through
or by a state contract unless the employment, activity, or enterprise
is required as a condition of the officer’s or employee’s regular state
employment. This section further prohibits officers or employees
from contracting on his or her own behalf as an independent
contractor with any state agency to provide services or goods.

INCOMPATIBLE ACTIVITIES DEFINED
Chapters 5 and 9 report on incompatible activities.
Section 19990 of the California Government Code prohibits
a state employee from engaging in any employment, activity,
or enterprise that is clearly inconsistent, incompatible, in
conflict with, or inimical to his or her duties as a state officer or
employee. This law specifically identifies certain incompatible
activities, including using state time, facilities, equipment,
or supplies for private gain or advantage. In addition,
Section 19990 requires state employees to devote their full time,
attention, and efforts to their state office or employment during
their hours of duty as state employees.

PROHIBITIONS AGAINST USING STATE RESOURCES FOR
PERSONAL GAIN
Chapters 5, 7, 8, and 10 report on personal use of state resources.
The California Government Code, Section 8314, prohibits state
officers and employees from using state resources such as land,
equipment, travel, or time for personal enjoyment, private gain,
or personal advantage or for an outside endeavor not related to
state business. If the use of state resources is substantial enough
to result in a gain or advantage to an officer or employee for
which a monetary value may be estimated, or a loss to the State
for which a monetary value may be estimated, the officer or
employee may be liable for a civil penalty not to exceed $1,000
for each day on which a violation occurs plus three times the
value of the unlawful use of state resources.

CRITERIA COVERING DISCRIMINATION AND
HARASSMENT
Chapter 10 reports on discrimination in the workplace.
The California Fair Employment and Housing Act (employment
and housing act), contained in California Government Code,
beginning with Section 12900, prohibits an employer, because
of race, religious creed, color, national origin, ancestry, physical
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disability, mental disability, medical condition, marital status,
sex, age, or sexual orientation of any person, to refuse to
hire or employ the person or to refuse to select the person
for a training purpose from employment or from a training
program leading to employment, or to discriminate against the
person in compensation or in terms, conditions, or privileges
of employment. This act further requires employers to take
all reasonable steps necessary to prevent discrimination and
harassment from occurring. Under certain circumstances,
sexually explicit jokes, comments, or other materials may create
a discriminatory or hostile work environment (Ross v. Glickman,
1997, U.S. Appeals Court).

California State Auditor Report I2005-2

INDEX
Department/Agency

Allegation
Number

Allegation

Page Number

California Military Department

I2004-0710

Theft of state funds

California State University, Northridge

I2005-0683

Misuse of state resources

Department of Corrections

I2005-0643

Improper travel claims

Department of Corrections

I2004-0649,
I2004-0681,
I2004-0789

Failure to account for employee
use of union leave

Department of Corrections

I2003-0834

Update on improper payments
to employees

Department of Developmental Services

I2004-0760

Conflict of interest

Department of Forestry and Fire Protection

I2004-0869

Mismanagement, funds outside
the state treasury

Department of Health Services

I2004-0930

Improper contracting practices

Department of Health Services

I2003-1067

Update on false claims for wages and
travel expenses

Department of Transportation

I2004-0733

Misuse of state resources

Employment Development Department

I2004-0636

Misuse of state resources

University of California, Los Angeles

I2005-0737

Improper travel expenses

California State Auditor Report I2005-2

cc:

Members of the Legislature
Office of the Lieutenant Governor
Milton Marks Commission on California State
Government Organization and Economy
Department of Finance
Attorney General
State Controller
State Treasurer
Legislative Analyst
Senate Office of Research
California Research Bureau
Capitol Press

California State Auditor Report I2005-2