Panoche Water Districts misuse of funds called egregious by State Controller

Panoche Water District in Central California has come under review by the State Controller’s office for what is being deemed as a shocking misuse of funds.  State Controller Betty T. Yee’s team has reviewed the district’s administrative and accounting controls and found prevalent and severe deficiencies.

“The district’s egregious lack of spending oversight is shocking.  It is especially troubling in a region where effective water governance is so vital for the agricultural community,” said Controller Yee, the state’s chief fiscal officer. “I am looking into what options are available to ensure small entities like Panoche Water District are kept accountable.”

The Panoche Water District, located in Firebaugh, spans 38,000 acres in western Merced and Fresno counties. The district delivers water to 62 farms and is governed by a five-member board of directors composed of landowners.  Though the district in funded by traditional water service charges – not state or county taxes – the district has received state loan and grant money.

The State Controller’s review of Panoche Water District revealed that 76 percent or 59 of 78 internal control elements were deemed inadequate.  The district lacked written policies, ignored administrative procedures, and potentially violated state law. Discrepancies included:

• 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 announcing the findings of her team’s review of Panoche’s fiscal years 2013-14 and 2014-15 earlier this week, a Yee spokeswoman indicated that the state Attorney General’s is researching whether to file criminal charges and whether the case will be sent to state and federal tax authorities.