Audit Says Shelley Mishandled Vote Funds

Secretary of State Kevin Shelley mismanaged millions of dollars in federal funds intended for voter education and new election machines, a blistering state audit concluded Thursday.

The report asserted that Shelley used some of the $46 million from an election reform program to pay contractors who attended partisan political events and wrote speeches for him. At the same time, counties were waiting months for their share of money to buy sorely needed voting equipment.

State Auditor Elaine M. Howle’s findings not only confirm many allegations raised in recent news reports but for the first time demonstrate the depth of management problems attributed to the state’s chief elections officer -- and the state’s potential liability for his lapses.

The 70-page assessment concluded that no one was in charge of California’s efforts to implement the sweeping reforms adopted by Congress after the 2000 presidential election. It portrayed Shelley’s office as poorly run, willing to bend the rules and overwhelmed.

Auditors also suggested that the state elections office may have paid too much for services such as legal advice, information technology and voter outreach. Shelley repeatedly circumvented state regulations by awarding dozens of no-bid contracts, some to his Democratic political associates.

The audit warned that state taxpayers may be required to repay the federal government for questionable spending but did not state an amount.

“We do not dispute that, overall, we could have done a better job,” Shelley said in a statement. “Any mistakes that were made were certainly not intentional.” Shelley blamed the problems in part on having to supervise three elections in one year -- the gubernatorial recall, the March primary and the November presidential election.

Shelley said he has taken several steps to improve control over money provided under the federal Help America Vote Act: His office has fired voter outreach consultants, instructed his staff to avoid partisan activity and reorganized his management team. He also hopes to soon hire a contractor to help oversee the program.

The audit was performed at the request of Sen. Dave Cox (R-Fair Oaks), who said it raised serious questions of “malfeasance” that need to be investigated.

Soon after the findings were released, lawmakers announced that they would conduct hearings Jan. 11 to review Shelley’s handling of election funds. “No stone will be left unturned,” said Assemblywoman Nicole M. Parra (D-Hanford), chairwoman of the Joint Legislative Audit Committee. An aide to Shelley said the secretary of state “fully expects to participate” in the hearings. A spokesman for Gov. Arnold Schwarzenegger said his office was researching whether it had legal authority to take back oversight of the state’s voting-act program.

In a separate action, a federal grand jury is investigating campaign contributions given to Shelley by individuals and companies in San Francisco, where he lives. Shelley has said he was unaware of any improper contributions.

The head of the federal Election Assistance Commission, the agency Congress formed to monitor voting-act spending, said he had not yet read the entire audit. But commission chairman DeForest Soares Jr. said the report’s cover letter had enough “disturbing” findings to leave him “gravely concerned.”

He said the commission will consider whether to conduct a special audit of California’s voting-act spending to date -- the first such audit in the nation -- and whether to seek reimbursement for improperly spent funds.

The federal law was designed to address problems including incomplete voter registration lists, inaccurate voting machines and inefficient election administration. California officials expect to receive $350 million in voting-act funding through 2004-05. Of the $81 million Shelley’s office was authorized to spend in 2003-04, it has used more than $46 million.

The audit noted that state employees whose work was paid for with $1 million in federal funds last year did not even fill out time cards showing how much work related to the voting act they really were doing.

In addition, voting-act funds paid for one employee to attend a legislator’s reception to “spread the word” about Shelley’s office and a governor’s rally to get a firsthand sense of Schwarzenegger. Another employee was paid to attend a Black Women Lawyers Assn. holiday mixer.

The audit also found that many voting-act consultants hired by Shelley did not appear to be doing voting-related work.

Of 169 “activity reports” submitted by consultants, 37% listed one or more activities that auditors found had no relationship to voting reforms or voter participation. Some consultants attended political fundraisers and a state delegation meeting for the Democratic National Convention on behalf of Shelley.

The auditors said they could not quantify the amounts paid for such events because Shelley’s office did not require contractors to itemize how they spent their time until mid-September, after critical news reports.

The audit noted that Shelley’s office did not have written policies prohibiting partisan political or other activities that would undermine the office’s appearance of impartiality.

Also scrutinized was a $220,000 contract to a law firm that provided advice on voting-act legal issues facing local election officials. But auditors found that the firm was paid $1,000 to write three speeches for Shelley in January that had little to do with the election reforms.

Much of the voting-act money was earmarked for new voting machines for counties and for creation of a statewide database of registered voters, which the audit said was behind schedule.

But the audit found that rather than deliver money to counties for new machines within 60 days as planned, Shelley’s office took an average 168 days to provide the money. Such a delay prompted Los Angeles County to submit a claim for lost interest, which was rejected by Shelley.

“The audit seems to confirm what the registrars have suspected for well over a year,” said Conny B. McCormack, Los Angeles County registrar of voters and president of the statewide election officials association.

McCormack called on the governor’s office and Legislature to take a more active role in managing the federal funds.

Legislative hearings are commonplace, but ones with a constitutional officer -- like Shelley -- at center stage are rare.

In 2000, the Assembly investigated Insurance Commissioner Chuck Quackenbush for allegedly channeling insurance company money into a nonprofit organization. He later resigned.

The Joint Legislative Audit Committee, with seven members from each house, has the power to subpoena witnesses.

Parra is the only member appointed thus far to serve on the committee when the new legislative session reconvenes in January, but Assembly Speaker Fabian Nunez (D-Los Angeles) said he expects to make bipartisan appointments next week.

Republican lawmakers say the Democrats have been slower to investigate Shelley than they were to investigate Quackenbush, a Republican. But partisan loyalties may not last, depending on what the hearings uncover, said Bruce Cain, director of the Institute of Governmental Studies at UC Berkeley.

“At some point you trip a threshold where they really believe he’s guilty and can’t be saved, and at that point the party doesn’t matter,” said Cain. “But up until they believe he’s guilty, they’re going to give him the benefit of the doubt.”