($2.5 Billion) MEDI-CAL FRAUD.

The Los Angeles Times’ Virginia Ellis reported on December 19, 1999 that the FBI estimated fraudulent spending of Medi-Cal funds cost taxpayers $1 billion. The system was “rife with fraud,” reaching 70 percent of billings for crutches, adult diapers, wheelchairs and other medical equipment.

On December 26, 2002, The Times, in an article by Ms. Ellis and Tim Reiterman, reported that Medi-Cal fraud costs taxpayers about $2.5 billion a year. They listed specific examples of theft and government reactions that have resulted in criminal charges filed against about 700 people and companies in the last few years, including almost $100 million in restitution as a result of state and federal prosecutions.

While state health officials believe civil enforcement actions have saved hundreds of millions more, the newspaper reported the state’s $25 billion-a-year Medi-Cal program “is so enormous, and the opportunities for fraud so widespread, that few think the efforts so far have done much more than hold the line.” The article quoted James Wedick, head of the FBI’s white-collar crime unit in Sacramento: “Health-care crime is rampant in California. Even though our efforts have increased and we’re getting good at it, I am still convinced there is as much fraud as ever.”

Some experts, The Times noted, figure 10 percent ($2.5 billion) of the annual Medi-Cal budget – half of it state general fund tax dollars – is stolen by doctors, dentists, pharmacists and others. For example, Medi-Cal was charged for perinatal services to women who had already undergone abortions; a dentist charged for filling teeth that had been extracted; a suspended doctor billed for hundreds of nuclear brain scans without proper equipment and expertise. A podiatrist, who used $24 generic shoe inserts, billed the state for $250 custom-molded supports.

The article noted a black market among body builders for Serostim, a human growth hormone used by AIDS sufferers. A one-month prescription costs almost $7,000. A San Diego County Grand Jury indictment in 2001 alleged that Medi-Cal was bilked for $3.5 million by a statewide ring using stolen beneficiary numbers and physician identities to create phony prescriptions, then peddling the drug at gyms and spas. (The San Diego Union-Tribune, on January 1, 2002, reported that nine persons used more than 500 fraudulent prescriptions at more than 75 pharmacies to defraud the Medi-Cal system.)

Cal-Tax searched news media reports for evidence of Medi-Cal fraud over the past two years and found that fraudulent activities apparently continue unabated and are much more pervasive than once thought. For example:

Owners of a Glendale medical laboratory pleaded guilty to billing the Medi-Cal program for $19 million worth of bogus blood tests, the Los Angeles Times reported on October 3, 2002.

Leaders of a criminal fraud ring with suspected ties to Russian organized crime were ordered to pay $1.6 million in connection with a scam that bilked the Medi-Cal program, (Los Angeles) City News Service reported April 3, 2002.

The state Bureau of Audits on December 12, 2002 released its annual report on the state’s Medi-Cal purchasing program, concluding millions of tax dollars have been wasted. The Department of Health Services’ “cost control procedures have been ineffective in reining in spending for items with no maximum allowable prices” for supplies such as hearing aids, canes, crutches, wheelchairs, bandages, diabetic tests, gloves and waterproof sheets, Auditor Elaine Howle concluded. The department is supposed to be surveying the market to update prices every 60 days and setting maximum prices based on lowest prices. It has delayed price updates for an average of 15.5 years, the audit found. DHS Director Diana Bonta responded to the audit, concurring savings could be achieved and saying steps are being taken. Her November 25 letter said a new contracting process and significant changes in the benefit administration will save taxpayers some $36 million a year, half of it state general fund dollars, when implemented. More than $356 million in state and federal money is spent annually on medical supplies for Medi-Cal patients. The state auditor replied that the department “overstates its efforts” to correct problems.

($500 Million) WELFARE FRAUD.

The Los Angeles County Grand Jury reported that welfare fraud may be costing taxpayers as much as $500 million a year. (Los Angeles Times, July 1, 1999.)

($280 Million) UNEMPLOYMENT INSURANCE FRAUD.

The Sacramento Bee (July 31, 2003) reported skyrocketing unemployment insurance claim fraud in 2002, totaling $280 million. That’s almost a fourfold increase since 2000, the newspaper said. There has been a significant increase in fraudulent claims stemming from stolen or compromised personnel records. The Bee, based on internal memos and information from Employment Development Department staffers, reported that there are key weaknesses in the state’s benefit system. For example, the department issues control numbers and benefits to people who file claims under a Social Security number that belongs to another person, living or dead. Claimants also can file for benefits over the phone or online, making it easier to falsify their identities. Criminals have been successful in the creation of fake employers, and the department depends on employers to report fraudulent claims. According to The Bee, insiders at the department say a search for quick fixes has resulted in “superficial seals on gaping holes.”

The Bee quoted EDD spokesperson Loree Levy as saying the department’s primary mission is to provide quick service to those out of work. She also said the department is spending $80 million to update its 30-year-old computer system so officials can cross-check claims with a state directory of newly hired employees.

Elsewhere on the UI front: Orange County Auditor Peter Hughes has concluded that the county may have to refund some unemployment insurance money back to state and federal agencies because $3.2 million was spent on things unrelated to unemployment expenses since 1998. For example, the Orange County Register reported (May 29, 2003) that the county’s human resources department used UI funds to pay for “enlightened leadership” management training.

False claims to the state for unemployment insurance have ripped off an estimated $16 million over the last five years, according to investigators. The Fresno Bee reported (May 3, 2003) that state and federal investigators found that most of the checks, totaling millions of dollars, went to about a dozen people. On May 2, six defendants from San Joaquin appeared in federal court in Fresno on charges of conspiracy and mail fraud. It is part of an ongoing investigation. The fraudulent payments have been uncovered since a Fresno County sheriff’s deputy, making a routine traffic stop early last year, noticed the driver had keys to several hundred post office boxes throughout the Central Valley.

($60 Million) VALLEJO SCHOOLS BAILOUT.

A $60 million state bailout to the seriously mismanaged Vallejo schools (SB 1190, Chesbro) cleared the Senate on May 18 on a party-line 24-12 vote. The bill also provides the state will take over the troubled district. Republicans, who opposed the bill, argued that it should contain reforms to prevent future state bailouts when local school boards give away the store to employee unions. Such reforms are contained in AB 2756 (Daucher).

Senator Wes Chesbro, who represents the district, argued that “I hope we can agree that we cannot punish the children of Vallejo for the mistakes of adults.”

Because of the Republican call for reform, Mr. Chesbro removed the urgency clause from the bill, reducing the vote requirement from two-thirds to a majority. According to the Vallejo Times-Herald, the school district needs the cash flow now, not next January when non-urgency bills take effect. As a result, the urgency clause will have to be added back in the Assembly, giving Republicans leverage to push for reform.

In a related development, the Times-Herald reported on May 19 that Vallejo district Superintendent Gladys Phillips-Evans, who is on administrative leave but still drawing her salary, was lambasted in a 231-page audit report for failing to spot problems in the InglewoodSchool District, where she was head of personnel from 1992 to 1995. During this period, a custodian supervisor who Ms. Phillips-Evans oversaw, embezzled $441,000 while the district teetered on insolvency. At the time, one of the authors of the audit, Leonard Faller, said, “The incompetence level is hard to fathom. It would have to take incompetence beyond belief.”

($30 to $100 Million) OAKLAND SCHOOLS.

A February 9, 2000 column by Phillip Matier and Andrew Ross of the San Francisco Chronicle cited an audit of the Oakland Unified School District that found, among other irregularities and mismanagement, 400 teachers who were on the payroll but were not included in the district’s budget. The state audit, according to the San Jose Mercury News in a February 2, 2000 report by Dana Hull and Renee Koury, included 1,000 recommendations, including fiscal management. Another Chronicle article, in 2000, cited a state audit that discovered suspiciously high attendance figures in Oakland schools that could have padded state funding by $10 million.

One would think that such scathing assessments of Oakland schools would have prompted improvements. Yet two years later the district’s fiscal performance is still in shambles. The Oakland Tribune on November 26, 2002 reported in a story by Alex Katz that there had been “gross overspending” by the district, leaving it with a $32 million deficit in 2001. County officials, according to the story, said the deficit in the current year could be “as high as $50 million.” The Chronicle (December 8, 2002) reported that Oakland’s 48,000-student district will ask the state for an estimated $100 million bailout. Among the district’s woes, the newspaper reported, was a 4,300-student drop in enrollment as students switched to charter schools, a 24 percent pay raise for teachers and an antiquated budgeting system that miscalculated overspending in nearly every department. The district failed to account for replacing 700 rookie teachers with credentialed teachers who are paid $8,000 more per year, according to the report by Meredith May.

S.F. SCHOOLS “FLUNKING PAYROLL”.

That was the San Francisco Examiner’s February 18, 2002 headline on a story about Proposition F on the March 5 ballot, a measure to create an oversight committee for spending San Francisco school construction bond money. Angie Marshall, in the summer of 2000, applied for a speech pathologist job with the district, then turned it down to take a better offer in San Bruno. Then, in September 2000, she got a paycheck from the S.F. district. Another came in October. November’s check included a raise. The three checks together exceeded $13,500. She sent them back, informing the district that she had never worked for it. Then, in September 2001, she got another check, with a bonus, despite her repeated phone calls. Ms. Marshall also wondered why the checks were sent to an old address in Spokane, Washington. She said, “I know that what happened to me is most likely indicative of a much larger problem. I have no clue what’s going on. I’m just glad I didn’t accept a job, because if I did, maybe I wouldn’t be getting a paycheck.” The Examiner said district officials refer to Ms. Marshall as an isolated incident and insist that no one else was paid accidentally. The district’s finances have been the subject of more than one newspaper report of questionable – if not illegal – spending practices. For example, it has been reported that the district didn’t know how many teachers were on its payroll. Also, an independent audit found the district misspent $140 million in bond money meant for school construction with most of the money going into paychecks for district staff. For reaction to the Marshall case, the newspaper quoted Kent Mitchell, teachers’ union president: “It’s disturbing, but not shocking. The number of payroll problems is much less than it used to be, but that doesn’t excuse even one. Doing payroll is not exactly rocket science.”

($185 Million) LOS ANGELES CITY SCHOOLS.

The Los Angeles Unified School District has leased a 29-story downtown office building for five years for the district’s administrative headquarters, even though the building has earned the “lemon award” twice from a downtown business group, the Los Angeles Daily News reported in October 2001.

Checking further reports, apparently things are getting worse with that expensive admin building. After spending $184.2 million to buy and renovate the structure, the district is spending $1.2 million a year to lease 1,166 parking spaces at three locations, the Daily News reported on November 27, 2002. Labor contracts ban the district from charging their employees to park, so the district must come up with the free spaces, said School Board President Caprice Young.

STATE STOPS AUDITS OF SCHOOL ATTENDANCE.

Bowing to pressure from school districts, the Davis administration said it was scrapping a program to audit school attendance. The action likely means that taxpayers will be paying for students not attending schools. (The Sacramento Bee, December 4, 2001.)

($10 Million) TURNING POINT ACADEMY.

The state spent more than $10 million to create and run (with a staff of 34) a military-style academy for troubled youths. A pet project of the governor, it opened in March 2001. As of November, it had eight students, which amounts to $500,000 per student. (Sacramento Bee, November 25, 2001.) The academy’s budget fell victim to the 2002 budget crunch.

($60 Million) S.F. SCHOOL SPENDING.

When voters approved bonds and special property taxes to build and fix San Francisco school buildings, they expected the money to be used for that purpose. San Francisco Unified, since 1989, spent $60 million from bond funds on operations, not buildings. (San Francisco Chronicle, November 21, December 2 and 5, 2001.)

($4 Million) HARASSED WHISTLE-BLOWER WINS.

A jury’s $4 million award of taxpayer money has been affirmed by a Sacramento County Superior Court judge for a state Department of Education whistle-blower, James Lindberg. The jury agreed with the veteran department employee’s claim that he was harassed and demoted for telling authorities about fraud in the spending of $11 million in federal funds for adult citizenship classes. Although tossing out the jury’s punitive damages award against then-Superintendent of Public Instruction Delaine Eastin, calling it based on “more speculation than the law allows,” Judge Brian Van Camp wrote that from testimony the jury could have believed Ms. Eastin “knew of the fraud perpetrated upon the state” and “either was not concerned about it or had political motivation not to curtail it sooner.” According to testimony at the trial, Ms. Eastin was pressured by Latino state legislators to fund community-based organizations to conduct the classes. The story was in The Sacramento Bee (February 11, 2003).

($175 Million) BELMONT LEARNING CENTER.

An earthquake fault running under Los Angeles Unified’s half-finished Belmont Learning Center may doom the often-ridiculed most-expensive high school in America. After years of controversy over the decision to build on an old oil field near downtown – with dangerous gases seeping from the ground – the school board voted to abandon the project. New Superintendent Roy Romer resurrected it in 2000. Now, after $175 million over 14 years, news of the seismic safety problem caused Mr. Romer to announce December 4 that the campus could not be completed as designed. The Los Angeles Times and Los Angeles Daily News reported on the apparent demise of the Belmont project, which has been described as the most mismanaged school construction project in California history. In a December 7 follow-up, the Daily News reported that school district officials ignored repeated warnings over the last seven years that the site could pose serious risks to students and faculty during an earthquake. A year and a half before ground was broken on the project, the school district’s own environmental consultant warned of “significant” seismic conditions at the site, the newspaper reported.

($9 Million) MILLIONS SPENT TO LURE TEACHERS.

With financially strapped school districts giving out thousands of layoff notices, does it make sense for the state to spend more than $9 million this year operating six teacher recruitment centers and holding job fairs? Since 2000-01, the state has spent more than $330 million on programs designed to increase the number of teachers. The $9 million would keep 200 young teachers on district payrolls. The report by columnist Daniel Weintraub was in The Sacramento Bee (March 18).

($200 Million) REPORT HITS CSU SOFTWARE CONTRACT.

In yet another example of expensive government problems with efforts to upgrade or install computer software, a poorly conceived California State University software contract is exceeding projected costs by $200 million. The Bureau of State Audits also said that a high-ranking CSU official was being paid as a consultant for the software firm that won the contract. The $662 million contract was poorly conceived from the outset, the bureau’s report said. Further, there are serious problems in the software that threaten the confidentiality of student information. According to Sacramento Bee columnist Daniel Weintraub, the software project “was never properly justified by university administrators, might not have been necessary and may not be accomplishing much of what the university set out to achieve.” The audit was released by State Auditor Elaine Howle (March 11, 2003).

MERCED CAMPUS BOONDOGGLE?

The University of California’s tenth general purpose campus, UC Merced, is a non-existent campus with a $7.8 million payroll. The campus, not slated to open until the fall of 2004, already has cost taxpayers a quarter of a billion dollars during 15 years of planning, and no building has been constructed. A $253,599-a-year chancellor has been hired and faculty are being recruited. Meanwhile, students attending other campuses of the university are calling for the campus to be deferred, calling the expenditure unwarranted at a time that student fees are skyrocketing due to the budget crunch. The story was in the San Francisco Chronicle (March 10, 2003).

CATEGORICALS: AN EDUCATION LABYRINTH OF DOLLARS.

The Legislature’s audit committee ordered a formal investigation of $11 billion in state education funding of categorical programs. The probe was prompted by a February 2-7 series by Deb Kollars in The Sacramento Bee that raised numerous questions about how the money is used and by whom. Categorical programs range from Special Education to Gifted and Talented Education. Senator Tom McClintock: “This is the big one. This is $11 billion of expenditures, and we really aren’t quite sure where they’re going.” The 100 programs soak up one-third of the state education budget. State Auditor Elaine Howle said the $185,500 audit will be finished by late summer. The story was in The Bee (March 13, 2003).

($13 Million) EXPENSIVE LEGAL BATTLE OVER SCHOOL CONDITIONS.

The state of California has spent $13 million in the last three years to fight a lawsuit that claims public school conditions are substandard. In an April 18, 2003 New York Times article, state Senator John Vasconcellos said, “To spend $13 million on lawyers from Los Angeles instead of on education is really a crime.” And, the newspaper reported, that figure is likely to increase. Williams v. State of California is a class-action suit filed by civil rights groups, and others, on behalf of school children. It contends the state allows students to attend poorly maintained schools, including unsanitary restrooms, with untrained teachers and inadequate resources (students having to share books). It focuses on 46 schools, where students are disproportionately non-white and many are learning English as a second language. According to the newspaper, the suit puts Governor Gray Davis in the awkward position of announcing state initiatives to improve education while his lawyers are arguing that many problems are not the state’s responsibility and should be dealt with by local districts.

HEFTY PAY RAISE FOR UC OFFICIAL.

The San Francisco Chronicle (June 19, 2003) slammed the University of California’s regents for approving a “generous raise” for a top official while the system is so financially stretched that it has to raise student fees. Senior Vice President Joseph Mullinix, who handles business and finance, received the 27 percent increase on May 1, after he received a competing offer from the University of Michigan. Thus Mr. Mullinix ‘s pay goes from $291,900 to $370,000, which exceeds the UC president’s salary of $361,400. The UC policy of handing out raises to keep key administrators from being lured away with better deals was articulated in a December 2002 letter from President Richard Atkinson. He said increases for senior administrators would be inappropriate because of budget problems – unless there was a firm job offer from elsewhere. He figured that it would cost UC more than just a talented administrator, but the costs of searching for another and possibly having to pay a replacement even more. Claudia Horning, leader of the UC clerical union, told the newspaper: “It is a crime against the taxpayers of the state. It is an insult to the students and to everybody who works for the university. They are managing it as though it is like Enron.”

($342,000) FIRED L.A. SCHOOLS LAWYER GETS SEVERANCE DEAL.

Los Angeles Unified School District is obligated to a severance package worth up to $342,000 for its fired chief counsel, the Los Angeles Daily News reported June 10, 2003. District superintendent Ray Romer, decided Hal Kwalwasser, his top counsel, had to go “for the good of the institution.” Mr. Kwalwasser, who was a consultant for Mr. Romer when he ran for governor of Colorado in 1994, had been under criticism for using outside legal counsel. His office expenditures jumped from $20 million in 2000 to $36 million in 2002.

($389,000) OAKLAND SCHOOLS SEVERANCE PAY.

While the state provides a $100 million bailout for Oakland schools, ousted superintendent Dennis Chaconas received 18 months of severance pay – or $389,000, the San Francisco Chronicle reported June 4, 2003. The severance pay was written into his contract, so the district had no choice, said Rick Miller, from the office of state Superintendent of Public Instruction Jack O’Connell. Mr. Chaconas agreed to leave after a brief telephone conversation with Mr. O’Connell. The Chronicle’s Phillip Matier and Andrew Ross questioned whether Mr. Chaconas might have been fired for cause, or at least be bought out for less, since the district has such severe budgetary problems. School Board President Greg Hodge, a Chaconas supporter, said there would have been a “long and messy” fight. It was better to let him leave “with his head up.” The newspaper quoted state and county officials as saying the severance deal was pretty much standard in superintendent contracts. When the state Senate on April 24 approved legislation to bail out the district with $100 million in state money, Senator Don Perata said Oakland’s mess was not a result of fraud or malfeasance – no criminal conduct is under investigation. He said a new school board and administration, in its zeal to turn around a chronic under-achieving system, “lost sight of a fundamental issue: They have to pay for everything they do. There is no excuse.”

($36 Million) REPORT: FUNDING PLOY ADMITTED.

The Orange County Register, which in December 2002 exposed community college classes for high school athletes that were no more than team practices if they met at all, reported that 37 of 72 districts admitted illegally claiming state funding through improper enrollments. The Register based its June 12, 2003 article on a review released by the state community college chancellor’s office that high school students represented 5 percent of the total enrollment at 108 community colleges in 2001-02, costing taxpayers up to $36 million in illegal enrollment. The Department of Finance’s Anita Gore said the report, while confirming the problem, doesn’t quantify it. She said the governor would ask the Legislature to approve a formal audit of the colleges.

($175 Million) BELMONT LIVES.

Like a cat with many lives, the poster child for waste in the Los Angeles Unified School District is once again alive. The half-built Belmont Learning Center should be resurrected, at least in a modified manner, according to district Superintendent Roy Romer. The Los Angeles Daily News (May 21, 2003) reported that Mr. Romer has reversed himself and now supports a 2,100-seat high school, along with a park, on the 35-acre site near downtown. The district board voted 4-3 on May 22 to go along with their superintendent, approving a $111 million plan that demolishes two school buildings directly on the earthquake fault line that, along with toxic gases from the oil and gas field that the site once was, caused abandonment of the half-finished high school. More than $160 million has already been spent on what is considered the most expensive high school in America. It was being revived when the earthquake fault was reported, seemingly dooming the project for good. But now Mr. Romer, five months after committing to abandoning the project, wants to pursue the smaller school to show the community that the district can achieve. He said the district will “require every step of the way that this meets the safety standards” of state toxic substance watchdogs. In the Los Angeles Times (May 23), Mr. Romer said the project will be completed in four years. “This is over the hump. This is going to happen.” The Times reports that $175 million has been spent on Belmont over the past six years, and current district figures would indicate that for $286 million, the district should be able to build two high schools and a middle school.

($3.4 Million) EDUCATION FALSE-CLAIMS SETTLEMENT.

Mandated Cost Systems, Inc., of Rancho Cordova has agreed to pay $3.4 million to settle a whistle-blower lawsuit that alleged the company, which contracts with hundreds of school districts, routinely filed false claims to get more money from the state. The whistle-blower, Chris Marquez, got $884,000 of the settlement, The Sacramento Bee reported on May 21, 2003. In the settlement filed April 2 in Sacramento County Superior Court, the company denied violating the state’s False Claims Act. However, Senior Assistant Attorney General Christopher Ames said: “They paid $3.4 million. That speaks volumes.”

MISUSING SCHOOL CONSTRUCTION MONEY?

Building schools, or rather, the lack of school construction, should be a sore subject by now in the Santa Ana Unified School District. Three years ago, voters in the district approved a $145 million bond to build schools. The Los Angeles Times (May 13) reported that the district has yet to build a campus with that bond money. Aggravating matters, the district borrowed $15 million from its apparently plush construction fund to cover a shortfall in its operations budget. The newspaper noted that the borrowed cash wasn’t from the voter-passed bond, but from a $60 million legal settlement with the city of Tustin, based on a federal pledge of land to local schools from the former El Toro Marine Corps Air Station.

BOULDER CREEK SCHOOL CLOSURE.

The San Lorenzo Valley Unified School District on April 8 decided to close a relatively new elementary school and keep open an older one needing $3.5 million in repairs, the Santa Cruz Sentinel reported on April 9, 2003.

WASTE IN SCHOOL BOND $ IN L.A.

According to an inspector general’s report obtained by the Los Angeles Daily News on April 19, 2003, the Los Angeles Unified School District paid enormous sums of school bond dollars for overhead. The report (which was obtained from a source after several district officials refused to release it) found that the district contracted with real estate consultants at “absurd” rates without competitive bidding or any performance evaluation standards. For example, one invoice charged $3,000 for 12 hours spent at a chamber meeting; another charged $1,440 for 4.8 hours spent at a school board meeting.