State Controller Betty Yee blasts financial practices of Panoche water agency

The Panoche Water District, a small water agency in western Fresno and Merced counties, is being taken to task by state Controller Betty Yee for what she called an “egregious” lack of oversight of how the agency spent its money from 2013 into 2015.

In addition to what Yee said were “prevalent and severe” deficiencies in financial controls, auditors raised concerns about a range of ways in which money was spent in apparent violation of both California’s Government Code and Penal Code. Those findings are prompting Yee to forward the audit report to the state Attorney General’s Office to determine if legal action needs to be taken against the district, its board or management.

“From an audit perspective, it’s always about a lack of oversight and documentation,” Yee told The Bee on Tuesday. “But the purposes for which these dollars were expended are a concern, and the lack of accountability for those dollars.”

“What we uncovered raises issues about whether some of these actions were legal,” she added. The Panoche Water District is funded by water service charges to its customers, but it has also received state loan and grant money.

Among the problems cited in the 176-page report were:

▪ More than $86,000 was loaned interest-free by the district to employees, including one person who received a loan for more than $30,000 with a scheduled repayment plan of $50 every two weeks – a 23-year payback period.

▪ The provision of free housing to six employees as part of a fringe benefits package without counting it as compensation for payroll tax purposes.

▪ Letting employees use about 50 vehicles to commute to and from their homes on a daily basis.

▪ Providing an average of $58,600 per year to employees in rent checks without supporting documentation.

▪ Permitting employees to use district credit cards for personal use, including the purchases of such things as season tickets to Oakland A’s baseball games, Oakland Raiders football games, a Katy Perry concert and retail purchases at a variety of stores, all without adequate controls or reimbursement collection processes.

The audit findings for the Panoche district illustrates that California likely has many other small public agencies, including water districts and special districts, “that are operating without strong internal controls,” Yee told The Bee on Tuesday. “It heightens our concern about what else is out there, so this should serve as a wake-up call to other small districts.”

The Panoche Water District encompasses about 38,000 acres, mostly in Fresno County west of Firebaugh. Its 63 landowners and 62 farming companies are represented by a five-person board elected from among the landowners. It provides water for irrigation and operates a ditch system to deliver water to its customers.

In the report, audit division chief Jeffrey V. Brownfield said the district “has taken substantial corrective action and continues to make efforts to enhance its administrative and internal accounting controls.”

“The district should be commended for taking these matters seriously and being proactive in resolving the noted deficiencies,” Brownfield added.

In the district’s response to the audit report, Panoche board president John Bennett said the agency was, “at the commencement of the audit, already in the process of taking actions that have resulted in the full implementation of many recommendations of the draft report and substantial implementation of the remaining recommendations.”

Those recommendations include discontinuing the practice of issuing loans to employees and moving to recover outstanding balances; toughening up its enforcement of rules over the use of district credit cards; revising its fringe benefits policy in terms of housing, rent and use of vehicles; and establishing written policies to separate various financial oversight responsibilities and strengthening financial controls.

“The district intends to provide the State Auditor’s Office with a proposed updated action plan by March 1 … that describes additional actions taken and outlines remaining tasks to be performed, milestones and timelines,” Bennett wrote.

Yee, however, is taking a wait-and-see attitude toward the district’s progress. “It’s too early to tell,” she said Tuesday. “We’re looking forward to a progress report (from Panoche) on March 1. But it appears that the audit has met its intent, to get the attention of the board and the district.”

This story was originally published January 31, 2017 at 1:17 PM with the headline "State Controller Betty Yee blasts financial practices of Panoche water agency."