WITH AUDITS LIKE THESE…
by Mark Scaramella
With great fanfare last July, Governor Jerry Brown launched an “investigation” into “the circumstances surrounding significant budgetary irregularities at the California Department of Parks and Recreation dating back to at least 2000.”
Governor Brown also directed the state Department of Finance to conduct “a comprehensive audit of Parks’ fiscal controls.”
The governor directed California Natural Resources Agency Secretary John Laird to conduct “a sweeping review of Parks’ management.”
Readers will recall that the investigation and audit were prompted by a “preliminary investigation into Parks’ finances” that revealed that “for at least 12 years the department under-reported tens of millions of dollars to the state Department of Finance.”
Back in the fall of 2011 the State Parks Department had ordered the closure of 70 state parks, eight of which were in Mendocino County, the majority in northern California. This was declared necessary because the Parks Department said they had to slice $22 million ($11 million per year for two years) to for their share of state budget balancing. But in June, thanks to some dogged reporters at the Sacramento Bee, they admitted that they had lost track of over $55 million, the equivalent of five years of the savings they expected by closing 70 parks.
The Governor had to do something to cool the outrage from the public and all those alarmed people who’d volunteered time and money to keep the parks going. Parks officials had made the closure announcements without explaining how they’d come up with the list of which parks to close (Mendo County took a big hit) later claiming that their notes had been “destroyed.”
It now appears that there were no notes, no record of decision-making. They just pulled the closure list outtatheirass.
TO THIS DAY the Parks department has not officially rescinded their closure announcements. We don’t know how that suddenly re-discovered $55 million is going to be allocated, and local groups and volunteers continue to limp along doing what they can to make sure their particular park doesn’t suddenly go dark. The state, natch, has not returned any of the money raised on false pretenses.
Just last month, the California Parks Association issued their 2013 forecast: “The forecast for this year is unclear but there are some good signs. After a slow beginning, there seems to be some forward motion on the agreements to match donor funds that were raised for the 70 state parks on the closure list last year. It would be great to see all those agreements completed soon.”
That from an organization that is supposed to be a parks advocacy group. Not a mention of the $55 million, the audit, or the grotesque mismanagement that produced it and the consequent panic of impending closures.
When Governor Brown made his audit announcement last July he said that “the Department of Finance was not aware that the State Parks and Recreation Fund and the Off Highway Vehicle Fund held $20,378,000 and $33,492,000 above their reported balances. The under-reporting occurred over the course of two prior gubernatorial administrations.”
“We will get to the bottom of this situation,” declared Resources Secretary John Laird, “and work with the Attorney General, the Legislature and the Department of Finance to make sure nothing like this ever happens again. We will also work with the Legislature to see how this money can be used to mitigate park closures.”
SO FAR, NADA. The Attorney General hasn’t done anything, the Department of Finance was and is still part of the problem, and the Legislature has still not even demanded that the $55 million be used to keep parks open or that the fraudulently raised donations be returned.
Governor Brown did fire (“accepted the resignation of”) Parks Director Ruth Coleman; and the department’s acting chief deputy Michael Harris was also “removed from his position.”
Brown then appointed Resources Agency Undersecretary Janelle Beland to be acting interim director of the Parks Department, directing her to “promptly report to him and Secretary Laird on further actions that should be taken to ensure that the Department is being managed with honesty, accountability and transparency.”
THEN A RETIRED Marine General named Anthony Jackson was appointed as Parks director. He looks like he means business, but he has no experience with state bureaucracy or parks operations and so far has been invisible and inaudible.
The $55 million in hidden assets were brought to light when new Parks fiscal staff began an internal review of accounts, following a separate investigation by the Attorney General over unauthorized vacation buy-outs which was initially triggered by the Sacramento Bee.
FAST FORWARD to last week when the long-awaited audit was finally released. Titled, “Weak Procedures Have Led to Inconsistent Budgetary Reporting and Difficulties in Measuring the Impact of Efforts to Keep Parks Open.”
Weak procedures?
Not incompetence, not political appointees, not high turnover, not self-serving bureaucrats, not do-nothing auditing and monitoring agencies, not bad management and supervision.
“Weak procedures.”
THE DEPARTMENT OF FINANCE duly announced, “Our audit … highlighted the following:
“• For years the department has continually reported different fund balance amounts-usually lesser amounts-to the Department of Finance (Finance) than it reported to the State Controller’s Office for both the State Parks and Recreation Fund and the Off-Highway Vehicle Trust Fund (off-highway vehicle fund).
“• Finance notified the department of those differences as early as April 1999, yet the issue was not resolved until the fall of 2012.
“• Although various budget officers — including the current one — raised concerns about the differences in reporting, the budget office continued to report the different amounts.
“• The former deputy director of administration and the former acting chief deputy director directed the current budget officer to continue reporting the information as in the past out of fear of a budget reduction.
“• In 2011 Finance significantly reduced the transfer amounts the department reported to the off-highway vehicle fund. This contributed to a $33.5 million understatement of the fund balance leading the public to believe that the department was hiding these funds.
“• The department lacks written analyses regarding how it selected 70 specific parks for closure and thus, may not be able to justify the reasonableness of the selections to the public.
“• The department does not budget or track expenditures at the park level and used outdated information to develop estimated operating costs for its parks.”
IN EXPLAINING how the “differences in reporting” came about, the Auditor goes out of his anonymous way to avoid naming names, simply regurgitating the gibberish of a few anonymous source-bureaucrats.
“Correspondence we reviewed in the department’s accounting and budget files show that Finance informed the department that differences existed between the amounts reported in the governor’s budget and those provided in the State Controller’s budgetary report as early as April 1999, yet neither current staff nor documentation we reviewed in the accounting and budget files at the department supplied an explanation regarding what originally caused the differences or why the issue was not resolved until the fall of 2012. The department’s former acting chief deputy director told us that when he started at the department in 2003 as the deputy director of administration he was informed by the budget officer at the time that the difference in reporting for the parks fund was the result of an error made several years earlier [by whom? why?] that understated the amount reported to Finance. Over the years, various individuals at the department became aware of the differences in the amounts being reported. According to the current accounting administrator, approximately one year after she became aware of reporting differences in 2002, she was directed by the accounting administrator at the time to begin preparing fund condition statements — which show revenues, expenditures, prior-year adjustments, transfers, and fund balances — and providing them to the department’s budget office. However, she stated that the department’s budget office continued to report its own amounts and that over the next six years three different budget officers, including the current one, came to her with concerns about the differences in reporting. According to the department’s current budget officer, she noticed the reporting differences when she started working at the department in February 2011. She stated that she discussed the issue with the former deputy director of administration and the former acting chief deputy director, and both told her not to change anything in the way the budget office was reporting, as they were concerned that, if the department reported the fund balances accurately, as shown in the State Controller’s records, the department’s General Fund appropriation could be reduced. Because amounts in the governor’s budget were inconsistent with amounts reported in the State Controller’s budgetary report, the difference created confusion among the public and decision makers regarding the actual balance in each fund. Additionally, such inconsistencies may have resulted in the Legislature and the governor using inaccurate financial information when making budgetary decisions concerning the department.”
TAKE THAT, Parks Department — whoever you are!
THE AUDIT goes on like that for page after page, explaining the obvious, repeating itself time and again, providing some basic financial mathematics, describing this report from that year from the other office or bureaucrat…
Pretty weak, indeed.
THE FINANCE DEPARTMENT, which conducted the audit, is part of the problem. They let this mess grow for over 12 years right under their anonymous noses without fixing it, so, of course, they can’t implicate themselves. In fact, it’s a clear conflict of interest that the Department of Finance — run by the same kinds of fools and hacks as the Parks department — even did the audit.
Instead, the Audit Report was reduced to sentences like this:
“During the preparation of the January 2012 Governor’s Budget, the department correctly used its year-end financial statements for fiscal year 2010-11 to report transfer amounts to the off-highway vehicle fund, however, we found that Finance significantly reduced these transfer amounts from $117.5 million to $62.6 million, based on proposed legislation. The reduction, totaling nearly $55 million, contributed to the department’s ending fund balance for the off-highway vehicle fund in the governor’s budget being understated by more than $33.5 million when compared to the ending fund balance in the State Controller’s budgetary report. According to a principal program budget analyst (principal analyst), Finance made the adjustment to avoid misleading the Legislature and other stakeholders that would need to consult the fund condition statement in the January 2012 Governor’s Budget, specifically, he stated that Finance reduced the amounts transferred to the off-highway vehicle fund because a state law that took effect in July 2010 resulted in an unintended increase in deposits to the off-highway vehicle fund.”
THEN WE GET THIS GEM: “The principal analyst agreed [sic] that the way the transfer was presented could be perceived as misleading if viewed in isolation.”
We can imagine that conversation:
Auditor: Don’t you agree that hiding $55 million might make the public think that the Parks Department is making this whole closure problem up out of whole cloth?
Principle Analyst: It might look that way, but if you read through our mountains of incompetent paperwork you’d see that we’re just morons, we’re not capable of misleading anyone.
ACCORDING TO THE AUDITOR lobbing softballs at the “Principal Analyst,” “He stated that Finance handles pending bills that may have an effect on fund condition statements on a case-by-case basis and that there are no specific guidelines for how it should treat funds that could potentially be influenced by pending legislation. He also stated that this is the only instance that he is aware of in which Finance made a major adjustment to prior-year actual amounts that in turn created a large discrepancy between the department’s accounting records and what was reported in the fund condition statement.”
CONCLUSION: “This adjustment and its presentation in the governor’s budget contributed to a $33.5 million understatement of the fund balance in the off-highway vehicle fund. When coupled with the $20.4 million that the department’s budget office underreported for the parks fund, the resulting difference led the public to believe that the department was hiding nearly $54 million.”
WHAT IS TO BE DONE?
“According to the Chief of Finance’s fiscal systems and consulting unit, Finance will consider implementing a policy to ensure that, in the future, when a decision is made to reflect the effect of pending legislation in a prior-year fund condition statement, any related adjustments will be made explicit and obvious.”
That’s the solution? “Consider” implementing a policy that will… um, er, uh, clarify something, maybe?
“According to the department’s budget officer, she discussed this issue with the former deputy director of administration and they were comfortable with Finance adjusting the transfer amount, since it was supported by proposed legislation to move the unintended additional funds out of the off-highway vehicle fund. However, the budget officer acknowledged that she did not document the discussion. At a minimum we would have expected to see such a significant change escalated within the department to ensure that the department’s highest levels of management were informed of the change and its effect on the fund balance.”
WHAT IS THE PARKS BUDGET?
“The deputy director of administration stated that the department has not determined the amount needed to fully operate the 278 parks at the 2010 level. As a result, the department *may have been premature* [our emphasis] in announcing that it would have to close up to 70 specific parks to achieve the General Fund reduction.”
Just a little premature? Maybe? Perhaps?
The implication being that if they had waited until they “determined the amount needed to fully operate the 278 parks at the 2010 level” — which is their job — they could have announced the unnecessary parks closure at a better time.
SO, DO ALL THE PRIVATE ORGANIZATIONS and donors who ponied up millions of dollars and thousands of volunteer hours for no reason at all get their money back, and their regular Parks staff back, now that there’s $55 million available?
“Because of concerns with the department’s outdated and incomplete cost estimates, we found it difficult to measure the impact of the department’s operating, concession, and donation agreements, collectively known as partnership agreements. To determine the effect of a partnership agreement on a park, the district would need to know the cost of operating that park; however, according to the deputy director of administration, the department does not budget or track expenditures at the park level. The methodology that the department developed to estimate operating costs for its parks, including those that it identified for closure, uses the proportion of a district’s costs that are attributed to each park in the district-proportions that were last determined in 2002-and applies these proportions to the actual district expenditures for fiscal year 2007-08 to divide up the costs among the parks. As a result, the department’s estimated park operating costs were outdated.”
In other words, they will keep the donations because their own estimates were not serious.
“FURTHER, the estimated costs included only the direct costs of the parks, not indirect costs such as a park’s share of statewide costs for accounting, payroll processing, and procurement. More recently the department asked the districts to develop new estimated operating costs for parks on the closure list. However, these estimates were difficult to compare to the department’s earlier estimates because the district estimates were not consistent in terms of the time periods they covered or their completeness. Nevertheless, the department’s estimates based on the older information were higher than the districts’ estimates for six of the seven parks we reviewed, and some were significantly higher. Without updated and complete estimates of the costs to operate each park, it is difficult to accurately estimate the amount the department would save by closing a given park, and to measure the impact of partnership agreements that provide funding to help pay parks’ operating costs and offset the effects of budget reductions.”
They have to keep the money because they have no idea what it costs to operate a park and they might need it.
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JEFF COSTELLO WRITES: Got my last issue here in Portland on Wednesday, as the next issue was being distributed in Mendo. Sometimes it gets here early as Saturday, but not often. Monday is the usual norm. Let me join the others in pleading for perpetuation of the print issue. I would sorely miss the margin quotes, some of which from over the years I have used again and again. And what would off-the-grid hermits like Bill Brundage do? I’ve concluded that the US postal service is constipated. Sometimes things move, sometimes they don’t.
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MANBEATER OF THE WEEK. (In the pink corner, weighing in at 100 pounds soaking wet, a ball of fire from Ukiah, Amberrrrrrrrrrr Cate!)
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CHRIS MULCAHY, 50, lately the chief financial officer of Brutocao Cellars based in Hopland with a branch in Philo in the Anderson Valley, was arrested Saturday on allegations of forging checks and embezzling roughly a quarter million dollars from Brutocao. Mulcahy is being held on $500,000 bail in the Mendocino County Jail. Mulcahy had worked for the winery for six years. Prior to Brutocao, he was with the Coca-Cola corporation for 14 years. Mulcahy presently co-owns Sapphire Hill Winery in Healdsburg with his wife, and also owns Family Wine Services, a consulting business.
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AN EARLY PEEK at Sen. Noreen Evans’ 2013-14 Legislative Agenda
By Hank Sims
Tomorrow is the deadline for members of the California legislature to introduce legislation that can be considered in this session. So let’s take an early peek at what our people are up to, shall we?
Sen. Noreen Evans has a pretty full plate going into tomorrow’s deadline — six bills introduced as of this moment, some of them real barnburners.
Senate Bill 121, which Evans introduced last month, is a fairly bold attack on corporate campaign financing and the Citizens United decision. It would require corporations to tally up and publish all their campaign donations yearly, and also to notify shareholders of any pending donations 24 hours before they are made. Evans took a run at a similar bill — SB 982 — last year; it died in committee after she canceled a hearing for reasons obscure.
Then you’ve got Senate Bill 241, a strike at the California oil industry. The bill would levy a 9.9 percent “severance fee” on every barrel of oil extracted from state lands or waters, with proceeds going to higher education and the California parks system. Last week the Press Democrat had some coverage of the bill, including a rundown of previous failed attempts and a brush-off from oil execs.
Senate Bill 59 attempts to close a truly bizarre loophole in the law that lets men sexually assault or rape unmarried women do so with impunity, so long as they accomplish their vile acts through impersonation of that woman’s significant other. The legislation follows from a repugnant case out of Los Angeles, in which the state’s 2nd District Court of Appeals was forced to overturn a man’s rape conviction because of the loophole. An LA Times report on the case notes that the court begged the legislature to fix the law, even as it set the man free.
Other bills include an extension of the commercial salmon stamp and a new system for tribal courts to recover civil judgments against non-tribal citizens. Finally, and perhaps closest to home, the senator proposes limiting state bar membership fees to their current levels; out-of-pocket expenditures are presumably ever a concern for the put-upon Evans, who has long protested the difficulty, for a working woman, of getting by on a mere $100,000 a year. (Courtesy, lostcoastoutpost.com)
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EXCELLENT REPORTING by Frank Hartzell in this week’s Advocate-Beacon on a no public allowed public meeting convened Tuesday at the Noyo Harbor Coast Guard station that specifically excluded media. The meeting, as Hartzell tells us, was to discuss “how to deal with the mountainous issue of Noyo Harbor dredge spoils. Who is not invited? The press and general public.” According to Hartzell, “The agenda says Noyo Harbor District commissioners Tommy Ancona and Joe Caito would attend along with new district Secretary-Treasurer Kevin Michel and Manager Jere Kleinbach.” The two board members are the “Noyo Harbor District’s Commission Infrastructure Committee…” “The meeting today [Feb. 19] is a Noyo Harbor District staff presentation of the history and current status of the dredge material holding area to bring Jared Huffman, our new US Congress Representative, up to speed on this issue. This is not a new story, just bringing new folks up to speed on past events.” Michel subsequently allowed Hartzell in, but not the public.
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MAN IN GARBERVILLE GUN CACHE CASE pleads not guilty — Ryan Floyd, 30, the Humboldt County gun guy, has pled not guilty to 11 felony drug and weapons charges. The Humboldt County Sheriff’s Office said last week that it found 110 guns stashed inside a cave on Floyd’s 55-acre property in Garberville. HumCo Sheriff Mike Downey says at least 20 of the weapons were stolen and likely bound for the black market. Deputies also found 117 pounds of dried marijuana, $12,000 in cash, thousands of rounds of ammunition and jewelry and vehicles that had been reported stolen. Floyd is due back in court on April 3.
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BLAZING SADDLES TOUGH,
By Matt Taibbi
I don’t want to sound like a broken record, but… the latest ploy by the government to insist it is “getting tough” on Wall Street is beyond laughable.
The tough new-and-improved regime, as described by the curiously credulous Dealbook, is a policy of extracting criminal guilty pleas from foreign subsidiaries, as opposed to the “usual fines and reforms.” This was the path chosen in the recent UBS deal (in which a Japanese subsidiary was charged while the parent company was given a complete walk, a non-prosecution settlement) and in the more recent deal with the Royal Bank of Scotland. Both of those banks were implicated in the LIBOR rate-fixing case, which is only maybe the most egregious and far-reaching financial scandal of our generation.
Criticized for letting Wall Street off the hook after the financial crisis, the Justice Department is building a new model for prosecuting big banks.
In a recent round of actions that shook the financial industry, the government pushed for guilty pleas, rather than just the usual fines and reforms. Prosecutors now aim to apply the approach broadly to financial fraud cases, according to officials involved in the investigations.
Lawyers for several big banks, who spoke on the condition of anonymity, said they were already adjusting their defenses and urging banks to fire employees suspected of wrongdoing in the hope of appeasing authorities.
The story was accompanied by a preposterous photo of Lanny Breuer angrily wagging a finger, suggesting a new, “get-tough” criminal division of the Department of Justice.
The article worried desperately over the issue of whether or not the Japanese subsidiaries would keep their licenses after these guilty pleas. As is often the case — I’ve personally heard this excuse about a dozen times coming from DC types — regulators are terrified of repeating an Arthur Andersen situation, i.e., punishing a company and seeing massive job losses as a result:
Critics point to the UBS case. Before UBS signed the deal, Japanese authorities assured the bank that a guilty plea would not cost the subsidiary its license, a person involved in the case said. While the case has weighed on the stock price, the subsidiary is operating normally and clients have stayed put, according to people with direct knowledge of the case.
Prosecutors defend their effort, saying it was born from painful experiences over the last decade.
After Arthur Andersen was convicted in 2002, the accounting firm went out of business, taking 28,000 jobs with it. The Supreme Court later overturned the case, prompting the government to alter its approach.
The Arthur Andersen case has become like Wall Street’s magic mantra — you hear the name whispered anytime any company gets in trouble. This is a tactic straight out of Blazing Saddles, with banks essentially taking themselves hostage, putting guns to their own heads as they creep sideways out the door: “Back off! Prosecute us and all these jobs will die!”
And prosecutors, just like the idiot town leaders of Mel Brooks’s Rockridge, are screaming, “They’re just crazy enough to do it!”
This isn’t brain surgery. You know what an effective deterrent to crime is? Jail! And do you know what kind of criminal penalty actually makes people think twice about committing crimes the next time? The kind that actually comes out of some individual’s pocket, not fines that come out of the corporate kitty.
I get that regulators are worried about job losses. They should be. But the long-term job losses are going to be much greater when investors around the world lose confidence in the US financial system because they recognize that individuals do not face punishment for criminal activity. The individual incentive not to commit crime on Wall Street now is almost zero. Even the worst of the worst — like, say, a certain unindicted co-conspirator in an evolving insider trading case — is only threatened with individual prosecution after years of monstrous and obvious market manipulation, resulting in massive profits that he’ll almost certainly get to keep most of, by the way, if previous settlements are any guide.
It continually amazes, the way all of these law-and-order types are so willing to pontificate about the importance of taking individual responsibility for one’s actions, until the guy in their crosshairs is someone he/she went to college with, or a former client of his or her law firm. Then, suddenly, their idea of drastic justice becomes maybe yanking the license of a foreign subsidiary.
Let’s make a new rule: The Department of Justice doesn’t get to call itself “tough” until a) it puts someone from one of these companies in jail for at least 24 hours, or b) it extracts fines from either companies or individuals that represent at least slightly more than laughable fractions of their ill-gotten gains. That’s setting the bar pretty low, but you have to start somewhere, right?