Probe of water district finds ‘shocking’ misuse of public assets

An egret flies over a canal where the Panoche Water and Drainage District is reusing drainage water to keep farmland alive on Nov. 9, 2015, in Firebaugh, Calif. (Randy Pench/Sacramento Bee/TNS) An egret flies over a canal where the Panoche Water and Drainage District is reusing drainage water to keep farmland alive on Nov. 9, 2015, in Firebaugh, Calif. (Randy Pench/Sacramento Bee/TNS) Photo: Randy Pench, McClatchy-Tribune News Service Photo: Randy Pench, McClatchy-Tribune News Service Image 1 of / 1 Caption Close Probe of water district finds ‘shocking’ misuse of public assets 1 / 1 Back to Gallery

SACRAMENTO — State auditors on Tuesday blasted a small Central Valley water district for misusing public assets to give its employees perks that included interest-free loans, free homes and cars, and carte blanche use of the agency’s credit cards for booking trips to Las Vegas and buying concert tickets.

Dozens of questionable spending practices from 2013 to 2015 were highlighted in an audit released Tuesday by state Controller Betty Yee on the Panoche Water District, which spans 38,000 acres in western Merced and Fresno counties. Yee’s office said it will send the report to the Attorney General, IRS and Franchise Tax Board for possible further action.

“The district’s egregious lack of spending oversight is shocking,” Yee said in a statement. “It is especially troubling in a region where effective water governance is so vital for the agricultural community.”

The water district, about 160 miles southeast of San Francisco, serves about 60 farms in the Firebaugh area that grow cotton, tomatoes, grapes, pistachios, almonds and wheat. The district is overseen by a five-member board of directors made up of landowners and funded by a service charge on its customers. The district has also received state and federal loans and grant money.

According to the audit:

•The district gave more than $86,000 in interest-free loans to employees, which auditors said was outside the agency’s legal authority. In some cases, the district gave employees raises that matched the amount of the loan repayment. The audit also found a lack of oversight when it came to collecting on the loans, which ranged from $700 to more than $30,000. In one case, the district loaned $21,000 to an employee by paying one of his personal bills in 2014. The district did not process that loan through payroll, instead recording it as a district-related tax bill. Auditors also found examples of the district loaning employees more than they were required to pay back.

Auditors said “based on piecemeal district records” it was unclear whether the loans were reported to the IRS as taxable income.

The district said it authorized the loans to “retain qualified personnel who were facing personal financial crisis” but has since adopted a policy forbidding the practice.

•Auditors said $37,000 charged on the district’s 10 credit cards was identified by the district as being for personal expenses but that bad record keeping made it difficult to determine if more existed. Between 2013 and 2015, nearly half a million dollars was charged to district credit cards for business and personal use. Among the charges identified by the district as being for personal use were flights to Hawaii and Las Vegas, tickets to Oakland A’s and Oakland Raiders games, tickets for a Katy Perry concert, and merchandise from Amazon, Ralph Lauren and Macy’s.

Management paid the credit card balances in full and billed employees for personal expenses. In some cases, employees did not pay the district back for months or years after the purchases were made.

“We were unable to determine how much of the $478,973 in expenses was personal or business-related and could not determine if the $37,468 identified by the district as personal included all personal charges,” auditors wrote.

•Auditors found the district was providing free housing for six employees — including the general manager, risk controller and various maintenance workers. “The district did not maintain supporting documentation to justify its treatment of the lodging benefit,” auditors wrote. The general manager has lived in a district-furnished house since 1992. “In essence, he authorized himself to live there.”

•The district provided cars to 50 employees, who were allowed to use the vehicles to commute to work on a daily basis.

Auditors noted that the agency was helpful during the review and has “taken substantial corrective actions and continues to make efforts to enhance its administrative and internal accounting controls.”

Melody Gutierrez is a San Francisco Chronicle staff writer. Email: mgutierrez@sfchronicle.com Twitter: @MelodyGutierrez