Auditors report misuse of bonds

Contra Costa Times ^ | 10/10/6 | Mike Taugher

[SmithL]

Millions of dollars from voter-approved bonds meant for parks, water and wildlife have been vulnerable to waste and misuse because of faulty controls at state agencies, according to a series of recent audits.

While agencies say the problems account for only a small fraction of the $10 billion from four environmental bonds voters passed between 2000 and 2002, state Department of Finance auditors have flagged questionable spending on public relations, lobbying and even yoga classes, documents show.

In addition, some groups that received grants from the bond funds failed to properly document expenses, claimed unallowable costs and went over budget because of inconsistent monitoring by state agencies.

"Without adequate oversight of grant expenditures, the potential for material undetected errors and irregularities is high," auditors said.

The findings come to light as voters prepare for the Nov. 7 election when they will be asked to double their investment with a pair of environmental bonds. Many of the same agencies highlighted in the audit will administer the bond money.

Proposition 84 would provide $5.4 billion for water quality and conservation programs while Proposition 1E offers $4.1 billion to fix levees and prevent floods.

The annual audits dating to 2002 show many examples of state agencies misspending or failing to keep track of the funds.

• The Department of Water Resources deposited into the general fund $4.8 million in repayments that were meant for a revolving loan fund for groundwater recharge. That meant less money was available for more loans as approved by voters, according to a March audit. State officials said the mistake was due to a software problem and the money would be returned.

The mistake was part of a pattern, according to several audits that faulted the water resources department for spending too much on program administration and failing to fix accounting issues that would allow the department to catch problems.

The lack of action on previously noted problems, the auditors said, impairs the department's ability to prevent and detect errors and abuse of bond funds. "The findings indicate continuing risks in the department's bond programs and require management's immediate attention."

The department, which has spent or committed $1 billion from the bond proceeds, says it is now fixing the recurring problems thanks to hiring new staffers, water resources director Lester Snow said.

"We have now filled the positions and plan to have these resources dedicated to ensuring that these types of problems do not occur in the future," he told auditors in a May 30 letter.

In an interview, Snow defended his department's handling of the funds.

"If you back up and look at what we've done, we've moved a lot of money and we have an audit system in place that gives us the ability to catch problems," Snow said.

• The Santa Monica Mountain Conservancy, which received nearly $100 million in bond proceeds, used some of the money to pay for the executive director's membership at an airport "Red Carpet Club," his wife's travel and $577 for room service.

Its overhead costs ran 350 times higher than other agencies', and millions were spent on questionable projects such as emergency preparedness kits, operating shuttle buses to run between parks, questionable legal fees and public relations, according to audits beginning in 2004.

The conservancy has been reimbursed by the executive director and others for many, but not all, of the expenses questioned -- including the Red Carpet Club membership

A follow-up audit this year said the conservancy corrected many of the weaknesses identified in previous audits. The conservancy also has obtained advice from the attorney general's office on the propriety of some of its contracts and grants and has sought reimbursement for some of those.

The conservancy's executive director, Joseph Edmiston, is in Italy on vacation and unavailable for comment, according to conservancy spokeswoman Dash Stolarz.

Proposition 84 holds an additional $36 million for the conservancy.

• The state Coastal Conservancy spent $38,000 in bond funds for questionable purposes, including $29,000 for lobbying in Washington, $5,000 for employee transit subsidies and $3,500 for employee yoga and weight-loss programs in the fiscal year ending June 2005, according to an audit report in March. The conservancy agreed to reimburse the bond funds.

The head of the state Coastal Conservancy, Samuel Schuchat, said his agency's spending on improper items amounted to a small fraction of 1 percent of the $431 million the agency has spent.

Schuchat told auditors that if other funds were unavailable, it would be justifiable to use bond money for employee benefits, including yoga, weight-loss programs and transit. But he backed off that stance in an interview.

"We will not spend bond money for yoga classes," he said. "People will make mistakes and the auditors will hopefully find them so we can fix them. ... That's why you do audits."

A spokesman for the state Resources Agency, which oversees many of the departments that were audited, said the problems were isolated and minor, and those that were found have been corrected.

"The truth is, we've done a good job controlling that money," said spokesman Sandy Cooney. "These are not significant in the grand scheme of things."

The audits do not attempt to assess how well bond-financed programs are working or whether the public gets a good deal on its investments. Rather, they assess the adequacy of agencies' accounting, monitoring and control of the money.

The most recent audit said recurring problems remain in the monitoring of grants and other accounting issues in some agencies. It said loan repayments were not always returned to bond funds but instead were deposited in funds where spending is less restricted.

In addition to the general audits, the auditors have issued dozens of management letters to individual agencies where they leveled more detailed findings.

Fred Silva, a fiscal advisor to New California Network, which seeks state government reform, said it is not unusual for state auditors to come down hard on other departments. But he said the audits' findings raise legitimate questions.

"We assume that when bonds are sold the proceeds are going to be used to build something or buy something," Silva said. "It's an obvious governmental operations issue: How effectively are the managers in government managing government."

Some of the irregularities appear to be the result of getting billions in bond funds at the same time departments' regular budgets were tightened because of declining tax revenues after the dot-com bust.

Like the water resources department, the Department of Fish and Game responded to a critical 2004 audit by saying it lacked the staff to administer the funds properly.

"The effects of recent budget reductions in personnel services have made it extremely difficult to ensure there are proper and adequate internal controls," the department wrote.

"The department understands the importance and significance of adequate internal controls, but is faced with the reality of being short staffed and left with doing our best, given our limited personnel resources."

The department is not criticized in the latest round of audit reports.

Mike Taugher covers natural resources. Reach him at 925-943-8257 or mtaugher@cctimes.com.

EYE ON BOND SPENDING

• The recent audits review money spent from four bond issues. In 2000, voters approved Proposition 12, which provided $2.1 billion in bonds for parks and watershed protection, and Proposition 13, which pegged $2 billion in bonds for water. In 2002, voters approved Proposition 40, which provided $2.6 billion for parks and the environment, and Proposition 50, which provided $3.4 billion in bonds for parks and water.

Those bonds have paid for salmon restoration projects in Northern California, programs meant to protect the Delta and land purchases throughout the state, including hundreds of acres on Mount Diablo.

• On Nov. 7, voters will decide on a bond package that includes two major parks and water bond measures that would be administered by many of the same agencies.

Proposition 1E, the Disaster Preparedness and Flood Prevention Bond of 2006, is a $4.1 billion measure that would allocate $3 billion to flood control and levee repair in the Central Valley and Delta.

Proposition 84, the Safe Drinking Water, Water Quality and Supply, Flood Control, River and Coastal Protection Bond Act of 2006, is a $5.4 billion measure that will raise money for environmental initiatives.

[SmithL]

Turn the politicians loose with taxpayers' money, and just see what happens.

[freekitty]

They and their friends will get richer while we get poorer.

[MonicaG]

Plus, and I've observed this first-hand until very recently, taxpayer-funded associations get "extra funding" approved and only after they obtain the extra millions approved by the California legislature do they attempt to determine HOW it will be spent, and how the expenditures will be tracked. Thomas Sowell's "Vision of the Annointed: Social Policy as a basis for Self-Congratulation" is so on-target about these bureaucratic parasites. (Was that redundant?)

[NaughtiusMaximus]

As PJ O'Rourke said, "Giving politicians money is like giving whisky and car keys to teenage boys."

Don't vote for any tax increase of any kind on anyone. All of us pay obscene amounts of direct and indirect taxes right now.

[calcowgirl]

. . .auditors have flagged questionable spending on public relations, lobbying and even yoga classes, documents show. In addition, some groups that received grants from the bond funds failed to properly document expenses, claimed unallowable costs and went over budget because of inconsistent monitoring by state agencies.

Yet another good reason to vote NO on ALL of the bonds (and taxes). I loved this comment from Lockyer today from the SF Chron:

Lockyer and Parrish disagree on whether the $37 billion in infrastructure bonds put on the November ballot by Schwarzenegger and lawmakers should be approved. If they are, the treasurer will be responsible for negotiating with and selling the bonds to Wall Street investors.

Lockyer supports the bonds but said he is a little concerned whether there is enough oversight to make sure the money is spent wisely.

"No one is really tasked with making sure the money is spent the way they say they will spend it," he said. "We have to do our best to demonstrate to people that they get a dollar's worth of services for very dollar of tax. They won't invest if they think we are wasting it."

And they want us to support $40 Billion more? HAH! No way!