SACRAMENTO — The California Department of Forestry and Fire Protection hid $3.6 million rather than depositing it into the state's cash-strapped general fund as required, interviews and documents reviewed by The Times show.
For seven years, Cal Fire placed the money with the nonprofit California District Attorneys Assn., paying the group to hold it. The department used the cash for equipment purchases and training.
The practice ended last year amid questions about whether the fund was legal.
The money came from legal settlements. Cal Fire's own regulations state that the proceeds of such settlements go to the state's general fund.
After questions from The Times last week, Cal Fire director, Ken Pimlott, notified the state Natural Resources Agency and state Department of Finance about the fund. The Department of Finance is planning an investigation.
The investigation follows revelations that the state Department of Parks and Recreation hid $20 million as parks were being closed because of budget cuts. In the wake of the parks scandal, the Department of Finance looked for secret funds in other areas but did not find Cal Fire's account with the prosecutors' association, a spokesman said.
Auditors found more than $200 million that agencies had squirreled away as lawmakers cut the state budget.
The Cal Fire fund is the latest discovery of money hidden by California agencies and raises questions of whether there are others that, like this one, were entirely off the state books.
In August, Pimlott froze money moving in and out that fund after receiving a briefing from his staff, said Janet Upton, a Cal Fire spokeswoman.
She said the department was determining how to deposit the remaining $810,000 into the state general fund. Upton said this was not an admission that there was anything wrong with Cal Fire's having established the fund.
Documents and emails show that top department officials were aware of potential problems with the fund as early as 2008, when an internal audit was launched.
In early drafts, auditors said Cal Fire needed Department of Finance approval for the fund, which it never requested. The auditors said Cal Fire's chief counsel expressed concern that if the Department of Finance learned about the fund, it would demand that the money be placed in the state treasury.
Another draft contains a September 2009 letter from Anthony Favro, head of Cal Fire's auditors, to Del Walters, then the agency's director, saying, "Of primary concern is the propriety of the fund ... and this conflict needs to be addressed by Cal Fire executive management."
In September 2009, Favro sent another email, saying: "I am concerned about the possible perception and allegation that we are using this fund to bypass state contracting, purchasing, and travel rules and guidelines."
Some of the most critical comments about the fund were cut in the final version of the audit.
Upton said Pimlott was not aware of the comments in the drafts until The Times asked about them. She said that spurred him to notify the other agencies.
Upton said she was told that the comments were dropped from the final report because auditors were treating the money as if it were part of the general fund. But because the district attorney's group is a nonprofit, different rules applied. .
Despite the audit, Cal Fire continued to send money into the fund. Pimlott had signed a new agreement with the association in 2011 before he froze the fund.
With an annual budget of about $600 million, Cal Fire is responsible for preventing and putting out wildfires on about 31 million acres.
The Legislature passed a law last year requiring rural homeowners who rely on state firefighters to pay $150 a year for fire prevention services, which could bring in $200 million. Gov. Jerry Brown said the state could no longer afford to pay the full cost of putting out blazes in fire-prone areas.
The Legislature established the agency's civil cost recovery program to force those responsible for starting a fire to pay the costs of putting out the blaze.
The program "helps offset the burden placed on the state's budget by returning recovered dollars to the state's general fund," according to a Cal Fire fact sheet.
The department established the fund with the district attorney's association in 2005. The association charged a fee to hold the money. The amount of that fee changed over the years. When it began, the prosecutors received 3% of the money when it came in and 15% when Cal Fire pulled money out for training or equipment.
Martin Vranicar, the association's assistant chief executive, said his understanding was that the department approached his group to set up the fund. "We were under the assumption that Cal Fire had the authority to do what they were doing," he said. "The presumption is that government knows what they're doing is correct and certainly proper."
The department used the fund to purchase equipment, such as 600 digital cameras and 26 evidence sheds for $600,000. According to the audits and emails, Cal Fire insisted that the equipment belonged to the association. That led Favro to send an email to Walters and Janet Barentson, the department's current deputy chief director, asking, "Isn't this a gift of public funds?"
Vranicar said his group definitely does not own the equipment. "I didn't want us responsible for equipment purchased on their behalf and be accountable if it was lost or misused," Vranicar said.
The association began to have doubts about the fund when its new accounting firm asked questions and a new memorandum of understanding was being negotiated in 2011.
It recently informed Cal Fire that the association will end its role as fund manager Feb. 10.