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Recent Examples of Government Waste, Fraud and Mismanagement

Strange But True

  • State Spends $2.6 Million to Rent Vacant Building for Two Years. The state has spent $1.3 million a year to rent a vacant office building for the past two years, investigative reporter Mike Luery reported July 13.

    Mr. Luery, who frequently unveils government waste in his "On the Money" feature for Sacramento television station CBS-13, found that the building in Rancho Cordova is leased by EdFund, the non-profit auxiliary of the California Student Aid Commission, which had planned to move there.

    "CBS-13 learned that the Student Aid Commission was told not to move in," Mr. Luery reported. "The state was planning to sell EdFund and didn't want to have the Student Aid Commission move in to the empty building only to have the commission move out, in the event of a sale."

    Instead, the Student Aid Commission was moved to another location where the rent reportedly is cheaper than it would have been in the EdFund building. A spokesman for the state Department of Finance said that by not moving the commission into the empty building, the state saved more than $1 million.

    Still, the rent for an empty office is coming out of the student loan operating fund, and apparently will continue to be paid until EdFund is sold. The Student Aid Commission said the $2.6 million could have provided financial aid for up to 1,000 college students (while the money comes out of the "student loan" fund, the report said the aid to students would be in the form of grants, not loans, so the money would not have to be paid back by the students).

    When the television crew went to the property to film the empty office space, it initially was met by a security guard and EdFund lawyer who attempted to stop the cameraman from filming, and threatened to call police to remove the crew from the property. An EdFund spokeswoman later agreed to be interviewed and said the guard and lawyer may have been overprotective because of the "confidential nature of what we do."

    Commenting on the report, news anchor Sam Shane noted: "No private business would be in business if they ran it like this." (Source: CBS-13's "On the Money," July 13.)

    Cal-Tax recommendation: The state should identify any other unused properties that are being rented or maintained with tax dollars, and should take immediate steps to improve the management of its resources. It doesn't make sense that while taxpayers are paying $1.3 million a year to rent an empty building, the state is moving forward with plans to sell state-owned offices and then rent them back from the new owners.

  • Welfare Benefits Being Withdrawn at Strip Club ATMs. In a follow-up story to an investigative story cited in last week's Cal-Taxletter, the Los Angeles Times reports that welfare recipients withdrew $12,000 in cash from the Temporary Assistance for Needy Families program from ATMs in strip clubs throughout the state between 2007 and 2009.

    The California Department of Social Services said the governor has ordered the department to correct the problem by removing strip clubs and casinos from the list of businesses where recipients can withdraw taxpayer dollars. In an e-mail to the Times, department spokeswoman Lizelda Lopez said: "We'll take a wide-ranging look and apply some common sense to the list of outlets where cash assistance should not be withdrawn."

    The Times earlier reported that welfare recipients have been withdrawing cash benefits at ATMs in casinos and cardrooms. The state has now calculated the amount of money that has been withdrawn from the state's welfare program using ATMs located in casinos: $1.8 million in just eight months (October 2009 through May 2010). (Source: Los Angeles Times, June 30.)

    Cal-Tax recommendation: Kudos to the Los Angeles Times for revealing that cash welfare benefits are being withdrawn at casinos and strip clubs, where much of the cash probably remained. The state needs to find a better way to help those who truly need assistance, and to stop giving cash to those who are using it for extracurricular activities. The governor's orders are a step in the right direction, but welfare recipients can get around the orders by simply stopping at other ATMs on the way to the casino or strip club. More safeguards are needed.

  • Governor Issues Executive Order Banning Welfare Recipients From Accessing Taxpayer-Provided Benefits at Casino ATMs. The Los Angeles Times reported June 24 that "California welfare recipients are able to use state-issued debit cards to withdraw cash on gaming floors in more than half of the casinos in the state." The newspaper compared a list of ATM addresses on the California Department of Social Services' website to a list of casinos and poker rooms on the California Gambling Control Commission's site, and found that 32 of 58 tribal casinos and 47 of 90 poker rooms had ATMs that accept the state's welfare benefits cards.

    The amount of money withdrawn at these gambling facilities is not known, state officials said.

    Responding to the report, Governor Arnold Schwarzenegger on June 24 directed the Department of Social Services to take immediate action to prevent welfare recipients from being able to access state-provided cash benefits from ATMs in gambling establishments. "I will use every available power I have to protect taxpayers from waste, fraud and abuse in government," the governor said. "I urge the Legislature to pass more aggressive laws preventing benefit recipients from withdrawing cash assistance at casino and other gambling location ATMs that I will sign as soon as it hits my desk." (Sources: Los Angeles Times, June 24; News release from Governor's Office, June 24.)

    (Cal-Tax recommendation: The Legislature should follow the governor's suggestion, and all state officials should investigate ways to prevent misuse of state funds with the same intensity as the Times reporters who uncovered this hole in the state's welfare system.)

  • San Francisco Spends $175,000 to Move a Small Shrub. San Francisco Chronicle columnists Phillip Matier and Andrew Ross have uncovered a doozy: San Francisco taxpayers recently paid $175,000 to move an 8-inch-tall, 20-foot-wide shrub. They write: "Money may not grow on trees, but it sure cost taxpayers a bundle to move a bush that was found growing in the path of the Doyle Drive rebuild. Not just any bush this was the Franciscan manzanita, a city native that was thought for 60 years to be extinct until the bush was spotted late last year. With the final bills in, the cost of moving the bush in January came to $175,000 $140,000 to dig up and move the shrub, and $35,000 for "support" services from geological, botanical and climate experts in preparation for its new home in the Presidio less than a mile away."

    Cal-Tax recommendation: San Francisco officials need to find out how it could possibly cost $140,000 to dig up and move a shrub, and then must eliminate the waste that caused the price tag to grow like a weed.

  • County Builds $23 Million Pet Shelter, Then Ponders Closing the Facility. The Sacramento Bee reports on one of the more remarkable examples of poor long-range planning: "Six months after unveiling its $23 million shelter for unwanted dogs and cats, Sacramento County is contemplating getting out of the animal care business, a county executive acknowledged Thursday. The county has dismissed its shelter director, Pat Claerbout, and on Thursday met with area officials to discuss the possible consolidation of animal care services across the region."

    The county has faced deficits for three consecutive years, and a county official said, "Unless we come up with a different revenue stream, the current model (for sheltering abandoned animals) is not sustainable."

    "The gleaming new shelter on Bradshaw Road opened to fanfare in October," The Bee reports. "It was publicly financed, and the county inherited a $1.6 million annual bond obligation on the building." (Source: The Sacramento Bee, May 28.)

    Cal-Tax recommendation: Consolidating animal care services with city-run facilities sounds like a good idea, and the county also should consider eliminating its fiscal planning staff, since the taxpayers don't appear to be getting any benefit from their services. In addition to building a pricy high-end animal shelter when keeping it open should have been a foreseeable challenge, the county supervisors decided in mid-2007 to spend $295,000 on a handful of sculptures to beautify the building. The county needs to examine its priorities.

  • Audit Shows City of Los Angeles Misplaced 45 Percent of Purchases. A new audit reports that the city of Los Angeles, facing a budget deficit of $222 million, has misplaced hundreds of purchased items worth a total of almost $1 million. Auditors also found that the city spent taxpayer dollars on many items that were unneeded and sat in storage.

    Auditors could not locate 115 items (45 percent of the items purchased by the city), including a $60,000 video camera purchased by the Los Angeles Information Technology Agency (ITA).

    The audit also found that ITA and the Los Angeles Recreation and Parks Department purchased 138 items that were unneeded, including some that have remained in storage for more than seven years. These items include refrigerators, stoves, a swimming pool heater, a deep fryer, two televisions, nine microwaves, and several computers and printers. The unused items in storage are worth $237,000. (Cal-Tax: Of course, a seven-year-old computer isn't worth much now.)

    City Controller Wendy Greuel said: "With the city facing such a large budget deficit, it's essential that any equipment that we are able to purchase is easily located if needed and utilized immediately. It's critical that we keep tight controls on the city's scarce resources. Unfortunately, we found in this case that no one was minding the store."

    Ms. Greuel offered several recommendations: departments should update their inventories at least once a month when assets are disposed or transferred; departments should conduct biennial physical inventories of all equipment, as required; guidelines should be developed for departments to follow when conducting physical inventories of the city's assets; departments should use purchased items by putting them into service as soon as possible, and such items should not go into storage upon being purchased; departments should develop policies to monitor and track assets that cost less than $5,000 and are susceptible to theft or loss; and departments should place identification tags on every asset owned by the city, to assist in the inventory process. (Source: News release from Los Angeles City Controller, May 3.)

    Cal-Tax recommendation: Other cities and counties should follow Controller Greuel's lead and review recent purchases. It is critical that officials conduct oversight of taxpayer dollars, especially in times of fiscal hardship. The audit included a number of recommendations that all local governments should follow.

  • Tax Dollars for Job Creation Instead Spent on Trips to the Boardwalk. The San Francisco Chronicle reports: "Federal stimulus dollars intended for job creation in Oakland were spent instead on trips to the Santa Cruz Beach Boardwalk and a Concord water park, rent, church repairs, bus passes, salaries and car allowances, according to a state review."

    Oakland, which has a 17.7 percent unemployment rate, received $3 million last year for summer youth, adult and dislocated worker programs. But more than $830,000 of the money received under the American Recovery and Reinvestment Act from February to December 2009 was not properly accounted for or was misspent, according to the state Office of the Inspector General.

    In addition, state auditors found that the city inflated the number of jobs created, claiming 35 when only about six jobs were created with the stimulus dollars.

    Laura Chick, the state inspector general overseeing federal recovery dollars, found that stimulus funds were passed down from a city agency, the Oakland Workforce Investment Board, to a nonprofit, the Oakland Private Industry Council, which took control of the money despite the fact that the group had no valid contract with the city from July 2009 until earlier this month.

    Questionable spending included:

    • $2,806 given to the Spanish Speaking Citizens Foundation for food and field trips to the Santa Cruz boardwalk, Waterworld California and Washington Park in Alameda.

    • $5,415 given to the Alameda County Youth Development program for staff salaries, benefits and bus passes.

    • $9,100 given to the Watkins Memorial Church of God for salaries, maintenance and repairs, and rent.

    Auditors had trouble tracking money in part because the Industry Council drew stimulus funds based on arbitrary estimates rather than actual expenditures, Ms. Chick's report said. (Source: San Francisco Chronicle, April 21.)

    Cal-Tax recommendation: The federal government and the city should put some oversight measures in place, and funds should not continue to go to agencies who have misused the tax dollars they previously received.

  • San Francisco Library Spends Money on Social Worker Instead of Books. The main branch of the San Francisco Public Library has become the first known library in the nation to hire a full-time social worker for $85,000 a year to help homeless people.

    (Cal-Tax: It is interesting to note that in 1978, as Californians were preparing to go to the polls to vote on Proposition 13, the San Francisco libraries posted signs reading: "NOTICE! If Proposition 13 passes on June 6, the San Francisco Public Library WILL CLOSE EFFECTIVE JUNE 30, 1978." The library not only survived, but has expanded with a multimillion-dollar improvement program, and now is doing well enough to hire a social worker.)

    An Associated Press report explains that the library "is near a neighborhood of single-room occupancy hotels, soup kitchens and other service providers for the very poor." The story continues: "Some mornings, just after it opens, the library seems to have more people who appear to be homeless wearing half their clothes and carrying the rest than not."

    The San Francisco Chronicle describes the library's situation in more detail: "There has long been an unwelcome footnote at the San Francisco Main Library in the Civic Center: homeless people who hang out among the shelves, sometimes cursing loudly or threatening others. The bathrooms often have proved downright scary, with people doing drugs, bathing in the sinks and having sex in the stalls. Patrons' comments collected by the library over the past couple of years include, 'The Main Branch library, while well-intentioned, looks like a homeless shelter inside and out.' And, 'The homeless are driving me and many of my professional friends away.'" (Sources: Associated Press, February 22; San Francisco Chronicle, January 11.)

    (Cal-Tax recommendation: The city should differentiate between the library and a homeless shelter, rather than hiring a social worker and further blurring the lines. Turning the library into a homeless shelter is a disservice to taxpayers who want to use the library for its intended purpose, and a disservice to homeless people who would receive more compassion and care at a true shelter.)

  • Taxpayers Pay for Failed Waterless Urinal Experiment at Environmental Protection Agency. In 2007, a spokeswoman for the California Environmental Protection Agency told The Sacramento Bee that the EPA building's waterless urinals were a major success, because they saved millions of gallons of water per year, and saved energy that otherwise would be needed to pump that water around the 25-floor building. The Bee reported that the spokeswoman explained that "there's very little odor, since there's no smell-causing bacteria that are created by the urine and water mixing."

    Flush forward to this month, when the agency quietly removed the 56 waterless urinals due to complaints about odor and cleanliness.

    Sacramento's KXTV was the first to report on the removal of the fixtures, and it interviewed another EPA spokeswoman who said there were hundreds of complaints about strong odors and floors wet with splashed urine. The TV station also interviewed male CalEPA employees, including one who said of the urinals, "They were nasty."

    The total cost to taxpayers for this failed experiment is not known. The agency spent $25,000 to replace the waterless urinals with new ones that use a half gallon of water per flush, and the agency acknowledged that it had been spending the equivalent of $50,000 a year on the extra cleaning needed for the floors around the waterless urinals.

    Presumably, the agency also will spend tax dollars to replace the large sign near the men's restroom on the second floor, since the sign still brags about the benefits of waterless urinals and describes them as using the same technology developed by NASA for spacecraft. (Sources: KXTV Channel 10, February 23; The Sacramento Bee, May 14, 2007.)

    (Cal-Tax recommendation: The agency claims that the $25,000 spent on replacing the urinals will be recouped within six months in decreased cleaning costs, which indicates that its cleaning budget should be reduced by at least $50,000 per year after these six months are up. Also, the state should do more homework before implementing changes or ordering private businesses to implement changes based on claimed benefits that have not been proven.)

  • Dead People Received IHSS Benefits, Controller Reports. Lax state and county oversight of In-Home Supportive Services (IHSS) program payments may have cost the state more than $11 million in 2008, Controller John Chiang said, noting that this money was distributed despite the providers or recipients of care being deceased.

    As samples, the controller reviewed Fresno and San Diego counties, where questionable payments totaling $464,000 and $538,700, respectively, were made in 2008 in cases involving IHSS providers or recipients whose names and Social Security numbers were listed in the Social Security Administration Death Master File or the California Department of Public Health's Vital Statistics Death File.

    The IHSS program is administered by the California Department of Social Services. The program provides services such as housecleaning, meal preparation, shopping and personal care to keep eligible individuals in their homes instead of in nursing homes or board-and-care facilities.

    The controller's survey showed that counties were slow to take action to stop payment or to recoup overpayments, even when evidence suggested the payments were fraudulent.

    In one case, Fresno County referred a case involving a deceased recipient to the county fraud investigation unit on February 9, 2009. As of June 2009, the county was continuing to submit claims for services provided to this apparently dead recipient.

    The controller's report recommends that the Department of Social Services develop comprehensive policies and procedures for counties to follow to determine the validity of payments, and to improve case file tracking. In addition, the report recommends that the department conduct periodic field visits to ensure county compliance. (Source: State Controller John Chiang news release, February 1.)

    (Cal-Tax recommendation: We urge the state and local governments to implement the recommendations made by the controller. We also recommend that the controller build upon his good work by expanding the review of IHSS payments to additional counties.)

  • La Quinta Spends Big on Sculpture, Then Spends Again to Have It Removed. In 1996, the La Quinta City Council authorized spending $93,000 in tax dollars for a sculpture that was placed at a busy intersection as an attempt at public art. In 2001, the city spent an additional $34,900 for improvements. Now, responding to public complaints that the sculpture is an eyesore, the city is going to spend another $15,000 to remove and dispose of the piece.

    The sculpture, titled "Oasis One Eleven," is described as an "art piece-turned-blight" by The Desert Sun. The artist contends that city officials have failed to polish and maintain the bronze piece, but city officials say the now-dingy artwork "was not what was originally envisioned" and was "not in keeping with community design standards." (Source: The Desert Sun, January 20.)

    (Cal-Tax recommendation: Public art is a constant source of debate should government stay away from art entirely, or does taxpayer-funded art sometimes provide a public benefit by making an area more enjoyable and more attractive to tourists? The jury is still out, but this example illustrates that government officials would be wise to err on the side of caution, lest they follow in La Quinta's footsteps by spending almost $143,000 to install and then remove a hunk of bronze that has the look of a bunker for defending against Nazi attacks on the Maginot Line.)


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