California workers misused $613,000 in taxpayer funds, report finds

State Auditor Elaine Howe
(Rich Pedroncelli / Associated Press)

SACRAMENTO — State employees misused $613,000 in taxpayer funds through bribery schemes, mail fraud, waste, and improper billings for travel and pay, officials said Tuesday.

The misdeeds were detailed in a report by state Auditor Elaine Howle on whistle-blower investigations concluded by her office in the last two years. “This report details nine substantiated allegations involving several state departments,” Howle wrote to Gov. Jerry Brown.

The biggest loss occurred in the bribery case, in the Los Angeles offices of the state Franchise Tax Board and the Secretary of State. In each office, an employee engaged in a kickback scheme with the owner of a courier service that shorted the state of nearly $250,000 in public money overall, the report said.


The employees’ job required them to issue letters or certificates that let businesses know whether they were in good standing with the state agencies. The workers were supposed to charge a $15 to $20 processing fee for each one. Instead, they waived the fees and took bribes from the courier in exchange for the documents.

“To avoid paying this fee, the courier paid $300 to $400 a week to Employee 1 to supply him with letters for his clients,” the audit report said, adding that the employee used Franchise Tax Board computers to create up to seven letters daily for the courier’s clients from 2007 through 2009.

Howle said both of the state employees and the business owner were convicted of bribery. One employee received a seven-day jail sentence, the other received three years’ probation and the courier was sentenced to 14 days in jail.

The three were also ordered to pay $227,000 in restitution, but prosecutors said they could not immediately determine whether any of it has been paid. The two state employees were fired.

Margarita Fernandez of the auditor’s office cited state whistle-blower laws in declining to identify the two state workers. But the Los Angeles County district attorney’s office said those who pleaded guilty to one felony count each of accepting a bribe were Franchise Tax Board employee Terri Denise Hudgies, 49, and Secretary of State program technician Rosa Cordova-Miller, 56.

Howle said loose controls on office operations contributed to the thefts.

The auditor’s investigators found that two other employees participated in the scheme and were fired but not criminally charged. Two more were disciplined for knowing about the fraud but not reporting it, and a fifth was disciplined for telling others about the investigation.


Other findings in the report included:

• A former accounting technician for the state Employment Development Department and two accomplices were convicted of conspiracy to commit mail fraud for illegally directing nearly $93,000 in unemployment insurance benefits to the two accomplices.

• The state Athletic Commission overpaid nearly $118,700 to 18 employees for two years by inappropriately paying them overtime.

• A Fish and Game Department supervisor improperly directed the use of state funds to purchase more than $53,800 in goods and services and spent an additional $5,000 without being able to show that the expenditures were for a state purpose.

• The California Correctional Health Care Services improperly paid 23 employees $55,000 in travel benefits after a manager approved reimbursements for their commutes and for expenses incurred near their homes and headquarters.

• An official in the office of the president at the University of California wasted $6,000 on improper travel, including unnecessary expenses during a five-day trip to a conference in England. The conference was held in Birmingham for five days, but the official billed the state for three of the days in London, saying he stayed there to get a better airline fare home.

• An employee at the California Department of Education misused state time and equipment when he posted nearly 4,900 comments on the Sacramento Bee’s website during state time. Investigators said he averaged about 25 comments a day but posted up to 70 comments one day.

“The employee claimed that for the majority of 2011, he had a significant amount of available time because he had no assigned tasks to complete,” the auditor’s report said.

The worker voluntarily left the department, according to spokeswoman Tina Jung, who declined to identify the employee.