California State Departments Funded Raises with Ghost Employees

Seven months after a Sacramento Bee investigation revealed how State of California departments play a personnel shell game to pad their budgets with millions in tax dollars earmarked for staffing salaries, an audit released Friday on the Department of Finance’s website confirmed that phantom employees are very widespread, and some of the cash allocated for salaries has been used to pay for raises and other unauthorized spending instead.

The Bee found that employees were “transferring” between positions in as little as two days. One Department of Food and Agriculture worker allegedly moved 14 times into 9 different positions in a single fiscal year. Her title and workplace never changed, but the serial numbers the state used to identify her position allegedly changed regularly.

California law requires that departments lose budgeted funds if they leave any staff position unfilled for a period of six months. But in one of a number of gaming strategies allegedly played to pad budgets and squirrel away cash, department heads have been engaging in multiple paper transfers of employees by altering personnel identification numbers to make it appear that none of their jobs were vacant for any six-month period.

The state audit concluded that California state departments illegally padded their budgets to avoid the losing millions in earmarked funds back to the state Treasury. The unspent salary then became a cash slush fund to pay for non-budgeted raises, accrued eave balances, higher office rents or purchases of new equipment.

Confirming earlier reporting by the Bee, the audit found instances of employees “transferring” between positions in as little as two days. The transfer data obtained by the Bee through Public Records Act requests demonstrated there were more than 17,500 transfers at about 110 departments. According to California State Controller’s Office records for the last three fiscal years, roughly 5,200 state employees shuttled between three or more job positions without changing departments or job titles.

The audit found, based on a forensic sample of 798 “transactions” in which multiple transfers occurred in 10 departments, that there was “widespread noncompliance” with the law. Approximately 58 percent of the tracked transactions “lacked adequate justification or documentation to determine compliance or were found to be noncompliant.”

Although the report did not name individual departments, it described a “general lack of commitment” by state managers and other top department officials to follow the vacancy rules. It also stated that officials willfully plotted to avoid the rules.

“We observed a culture at some departments where circumvention of the code was commonplace and even encouraged by management,” the audit stated.

The published Department of Finance audit lacked any estimate of how much money the illegal vacancy maneuvers diverted from other state programs and uses. But the Bee’s 2014 investigation conservatively estimated that the ghost employee shell game generated an average of $40 million per year in funds that should have been forfeited.

The newest scandal in the Brown Administration regarding dicey gaming of state departmental budgets follows the 2013 probe of activity by the California Department of Parks and Recreation to hide cash surpluses, while moving to shut down 70 of the state’s 278 parks. Also first revealed by the Bee, a subsequent investigation by the California State Auditor found that the Park Service had secretly squirreled away $33.5 million in park entrance fees and other revenues over a 20-year period.

Mike Genest, the former Finance Director for Republican Governor Arnold Schwarzenegger, called the pattern of the transfer data as “smoking-gun stuff” that strongly suggests departments were gaming the law. “If you think about it, people had to scheme to do this,” he told the Bee last year.

Genest said he became familiar with the ghost employee activity as a Deputy Director for the Department of Social Services and the Department of Health Services in the 1990s. But he tried to stamp it out during his tenure as finance director: “It constitutes a conspiracy, and it’s going on throughout state government.”