An irrigation district on the west side of the San Joaquin Valley possibly broke state and federal laws by providing its employees with interest-free loans, free housing, the use of vehicles to commute to and from work, and credit cards used to buy tickets for professional sports games and concerts, according to the State Controller’s Office.
Credit card purchases by employees included season tickets to the Oakland A’s and Oakland Raiders, Katy Perry concert tickets, and retail goods from Ralph Lauren, Nike, and Sunglass Hut.
On January 31, State Controller Betty T. Yee announced that her team’s detailed review of the Panoche Water District’s administrative and accounting controls found “prevalent and severe deficiencies, with 76 percent of internal control elements deemed inadequate.”
“The district’s egregious lack of spending oversight is shocking,” said Controller Yee, the state’s chief fiscal officer, in a news release. “It is especially troubling in a region where effective water governance is so vital for the agricultural community. I am looking into what options are available to ensure small entities like Panoche Water District are kept accountable.”
Yee’s Office is referring the report to state Attorney General’s Office to consider further action, including whether or not to file criminal charges. Yee is also considering referring the report to the IRS and Franchise Tax Board, for possible tax law violations, according to Taryn Kinney, Controller’s Office spokesperson.
Controller Yee announced in June 2016 that her team would review the water district’s finances over two fiscal years (FY 2013-14 and FY 2014-15).
The Panoche Water District, spanning 38,000 acres in the Central Valley, delivers water to western Merced and Fresno counties. The District receives exported Delta water from the federal Central Valley Project via the Delta Mendota Canal and the San Luis Canal. Crops found in the District include almonds, pistachios, tomatoes, cotton, wheat, asparagus and alfalfa.
The district is overseen by a five-member board of directors composed of landowners. “Though funded by a customer water service charge and not state or county taxes, the district has received state loan and grant money,” Yee’s Office noted.
Among the State Controller’s most significant findings, as outlined in the news release:
- “Without legal authority, the district gave more than $86,000 in interest-free loans to employees. “One employee received a $30,143 loan for personal bills and set up a payment plan of $50 per biweekly pay period, which would take more than 23 years to pay back. In some cases, the district increased employees’ salaries to match loan payments, did not timely collect loan payments, and processed loans through payroll as compensation. Based on piecemeal district records, it is unclear if these personal loans were reported to the IRS as taxable income.”
- As part of the “fringe benefits” package, the district provided free housing for six employees with no documentation justifying the need for it. “The General Manager had authorized himself to live in district-furnished housing since 1992. The district did not consider the free housing compensation and therefore did not subject the value to payroll taxes.”
- Without policies and procedures for use, the district provided approximately 50 vehicles that employees, including administrative staff, drove to commute from home on a daily basis.
- In addition to wages, the district provided an average of $57,600 per year to employees in rent checks without supporting documentation. One employee lived in a district-provided home while also receiving additional utility payments.
- District management permitted employees to use district credit cards for personal use, paying for more than $37,000 in personal spending from FY 2013-14 to FY 2014-15. Employee purchases included season tickets to the Oakland A’s and Oakland Raiders, Katy Perry concert tickets, and retail goods from Ralph Lauren, Nike, and Sunglass Hut. Reimbursement collection procedures were so lax that one employee did not repay personal expenses for nearly three years. Due to woefully inadequate controls, it is highly likely that personal charges were paid for with district funds.
- In total, 59 of 78 internal control elements were inadequate. The district lacked written policies, ignored administrative procedures, and potentially violated state law.”
The district documented corrective actions it has taken or plans to take in response to the Controller’s review, available here. The district is slated to give a progress report to the Controller’s Office on March 1 to update the actions they have take so far, said Kinney.
Delta advocates are appalled, but not surprised, by the State Controller’s report on Panoche’s lack of spending oversight.
“The Panoche District is part of the San Luis & Delta-Mendota Water Authority,” said Barbara Barrigan-Parrilla, Executive Director of Restore the Delta (RTD). “Consequently, the findings of this report are not surprising. These water districts use taxpayer water and infrastructure for personal gain. So now the Delta is not only being sacrificed for almonds, but for Katy Perry tickets also.”
On March 10, 2016, the Securities and Exchange Commission (SEC) charged the Westlands Water District, California’s largest agricultural water district and another member of the San Luis & Delta-Mendota Water Authority, with “misleading investors about its financial condition as it issued a $77 million bond offering.”
In addition to charging the district, the SEC also charged its general manager Thomas Birmingham and former assistant general manager Louie David Ciapponi with misleading investors about its financial condition.
“Birmingham jokingly referred to these transactions as ‘a little Enron accounting’ when describing them to the board of directors, which is comprised of Westlands customers,” the SEC reported.
The Water Authority and Westlands are well-known for their attacks on state and federal laws protecting fish and the environment. Westlands sued the federal government during recent summers in unsuccessful attempts to stop supplemental releases from Trinity Reservoir to prevent a massive fish kill on the lower Klamath River, prompting protests by members of the Hoopa Valley, Yurok, Karuk, Winnemen Wintu and other Tribes in 2013 and 2014 against Westlands’ litigation.
Several audits and reviews since Controller Yee took office have shown a lack of internal controls especially in smaller cities and government entities. Controller Yee and her audit team have identified more than $3 billion in misuse, waste, and fraud involving public funds since January 2015. The State Controller’s audits and reviews of local governments can be accessed here.