U.S. Orders State to Repay $536,000 in Election Funds

The federal government on Friday ordered California to give back $536,000, saying that funds allocated to improve elections were misused by former Secretary of State Kevin Shelley.

A federal audit found that Shelley either misspent or didn’t properly account for more than $3 million of the $8 million reviewed. The federal government also ordered $2.5 million to be returned to state election coffers.

Much of the $536,000 that federal elections officials ordered returned to the U.S. Treasury was spent mailing absentee ballot applications to voters, a duplication of counties’ efforts, according to auditors.

A spokeswoman for Secretary of State Bruce McPherson, who was appointed by Gov. Arnold Schwarzenegger after Shelley resigned in disgrace in March 2005, said his office is reviewing the report but expects to ask the Legislature for money to send back to the federal government.

“I am pleased that this chapter of California’s history is today a step closer to being behind us,” McPherson said in a written statement.

Shelley, a Democrat from San Francisco, resigned from office as federal and state authorities investigated his campaign finances and official conduct.

One of Shelley’s top campaign fundraisers, Julie Yang Lee, was indicted by a federal grand jury last May on charges of diverting $125,000 from a taxpayer-funded grant to Shelley’s campaign coffers. Shelley had helped to secure the grant, to build a San Francisco neighborhood center, when he served as an assemblyman. Lee is awaiting trial.

At the time of his resignation, Shelley faced a threat of subpoena to appear before the bipartisan Joint Legislative Audit Committee to answer questions about how his office spent money given to California under the Help America Vote Act, which was passed by Congress in 2002 to improve election systems.

California has received roughly $360 million under that legislation, much of it given to counties for such work as voter education and purchase of new voting machines.

After a state audit found problems with how Shelley’s office spent some of the money in 2004, the U.S. Elections Assistance Commission requested its own audit.

Based on that audit, which examined the expenditure of $8 million, the Federal Elections Commission has ordered the state to return $536,000 to the federal treasury, saying it was spent on things “clearly impermissible” under the federal law.

The $2.5 million in spending that may have met the purposes of the legislation but lacked proper documentation was ordered returned to the state election fund to be used to improve the administration of federal elections in California.

Federal auditors concluded that Shelley’s office improperly extended a contract for a law firm in order to avoid competitive bidding and skirt cost restrictions in the contract. The law firm provided advice on dealing with the media in matters unrelated to improving the voting system.

Auditors also found it impossible to determine whether workers employed by Shelley’s office for “voter outreach efforts” actually performed work in line with the Help America Vote Act because their work statements and invoices were so vague.

Shelley’s spokesman, Sam Singer, said he had not had time to fully review the report, but said he “flat-out” disagreed with the recommendation that California repay money.

“This report confirms for the most part that the secretary of state’s office acted appropriately,” Singer said. “While there may be some incidences of a bookkeeping error, the intent was to properly implement HAVA in California.”

Singer said Shelley is working as a legal consultant in San Francisco.

Sen. Dave Cox (R-Fair Oaks), who had requested the state audit, said he wasn’t surprised by the federal request.

“Thankfully, it wasn’t worse,” Cox said.

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Times staff writer Jordan Rau contributed to this report.