Travel funds misused at state agency, audit finds

The recently ousted executive director of the state panel on unemployment benefit appeals incurred “unnecessary and wasteful” travel expenses, including excessively costly hotels and rental cars that went largely unused, the state auditor said in a report Thursday.

The report by state Auditor Elaine Howle also noted concerns about widespread nepotism in the agency, saying its employees identified 94 colleagues -- about 15% of its workforce -- who were related to another employee.

The state Unemployment Insurance Appeals Board fired Jay Arcellana, executive director and chief administrative law judge, in July, saying he had failed to rein in nepotism and wasteful spending.

“This basically confirms many of the issues and concerns raised by board members over the last year,” said acting Chairman Fred Aguiar, regarding the audit requested by the board.

The audit also said the board may have violated conflict-of-interest rules by approving a contract in which a former board member had a financial stake.

Howle sent the information to the Sacramento district attorney’s office, which said it has opened an investigation.

The audit did not identify the former board member or the contract that gave rise to concerns about a conflict of interest.

The audit comes after the former board chairman and a second board member appointed by Gov. Arnold Schwarzenegger lost their posts because legislators refused to confirm their appointments.

The Times reported in July that the board was in turmoil and had been accused of nepotism at a time when a spike in unemployment meant a large backlog of appeals.

The audit said nearly half of the board’s employees who responded to a survey believed that hiring and promotion practices were compromised by familial relationships or employee favoritism.

“There was no evidence that managers conducted interviews for some hires, most notably when hiring two former board members as administrative law judges,” the report concluded.

Arcellana incurred $40,000 worth of expenses over the three years sampled by the audit, which recommends that the board look at all the expenses and seek reimbursement from the former director.

Auditors found eight instances in which the board reimbursed the former executive director for lodging costs that exceeded the state’s allowed rate. One reimbursement was $259 for one night at the Omni Hotel in San Diego, when the maximum allowed for the area was $110.

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patrick.mcgreevy@ latimes.com