Briefing Report: Lessons from the Scandals at the Department of Parks and Recreation and CalFire

Wednesday, June 5, 2013


It might seem odd to be talking about "early" lessons in the financial scandals at the Department of Parks and Recreation (DPR) and the Department of Forestry and Fire Protection (CalFire), nearly one year after the public disclosure of one and several months after the other.  Yet, we are still months away from the full results of the various state investigations and audits.   But important lessons can be drawn from what we now know about these affairs, including the structural weaknesses in the state’s ability to investigate its own wrongdoing, as well as the need for the Legislature to play a substantial role in holding the Executive Branch to account and deterring future malfeasance on the part of state employees.


Last July, the Brown Administration revealed tens of millions of dollars had been systematically hidden by management at DPR over a number of years.  The DPR Director resigned and a deputy with intimate knowledge of the situation was reportedly fired.  Yet to this point, no one has been held criminally liable, though, as the Department of Justice’s (DOJ) summary to the investigation states, the funds were hidden deliberately – out of a “fear that the department’s general fund appropriation would be cut” if appropriators learned of the money. 

The DOJ opened a criminal investigation on the matter sometime in February of this year, but Californians may never know the true extent of the alleged wrongdoing by state employees at DPR.  Deposition transcripts from a prior investigation showed that the DOJ knew of the existence of these funds as early as April 2012, when dozens of park closures were under active consideration by the Legislature, but did not begin an inquiry until after the news broke in July 2012.

The DOJ’s investigation failed to interview the previous director of DPR or others, and revealed little new information beyond what was largely known from press reports –there was extensive knowledge of the hidden funds across DPR management and its employees, and confirming their motives.

Six months later, the Los Angeles Times and the Wall Street Journal reported that another state agency – CalFire - had stashed over $3.6 million in an off-budget account (the Wildland Fire Investigation Training and Equipment Fund, or WiFITER), controlled by a committee of CalFire management through a third-party, nonprofit entity.  CalFire diverted a portion of legal settlements intended to recover taxpayer costs for fighting wildfires, to the WiFITER fund, where a CalFire-controlled committee was able to spend those funds as it saw fit.  All of this occurred outside the oversight of the Legislature and the Department of Finance (DOF).  As was reported in the press, CalFire’s internal audit division became aware of the situation in 2009, but its findings were ignored by officials at the time.  Source documents suggest that both former and current CalFire officials were aware of the potential violation of state law, but CalFire refuses to comment on these matters pending the outcome of a civil lawsuit.

Though relatively small in terms of the overall state budget, the amount of funds were not insignificant in terms of the impact to their respective departments; as mentioned previously, the amount of money missing in the Parks budget was approximately equal to the reductions that were supposed to result in the closure of nearly 70 state parks.

At this time, a DOF audit of the WiFITER fund is due, at last report, sometime in late July.  Reportedly there is also an open criminal probe at the DOJ on the Parks matter, though the extent and timing of that effort is unknown.  Finally, a State Auditor’s report on Parks with respect to a prior scandal on vacation buy-backs, plus a review of other budgetary and accounting issues at Parks, is expected in late summer.

DOJ and its Conflicting Roles

The DOJ’s inquiry into this matter raises questions of whether there is sufficient distance between itself and the various state agencies it often represents in other matters.  Multiple such conflicts arose during the course of the Parks and CalFire investigations that appeared to make it difficult for DOJ to investigate and consider prosecution.

The DOJ’s May 3rd response to a letter from Legislative Republican leadership on the CalFire scandal highlighted this issue of DOJ’s conflicting duties.  The DOJ offered that the evident financial impropriety, “is a matter in which this Office is currently engaged in litigation on behalf of CalFire.  Accordingly, we are not in a position to investigate our client in regard to an issue that is the subject of ongoing representation.  For the same reason, we are also not in a position to refer the matter to the United States Attorney.”

Another key conflict for DOJ is its capacity as both a civil and criminal inquisitor.  In response to the Sacramento District Attorney’s decision not to prosecute the Parks case, the Attorney General’s Office wrote, “That parallel’s this office’s decision not to conduct a criminal investigation, and there is the added benefit that your office cannot be considered compromised due to possession of any compelled statements” (emphasis added).  In other words, DOJ knows that any defense attorney can reasonably accuse its criminal and civil divisions of cross-pollinating their criminal case with immune civil evidence.

These conflicting roles could also be viewed as having played a part in the DOJ’s initial decision not to pursue a criminal probe.  Though the actions of state employees may have given rise to criminal liability (Penal Code Section 424, misrepresentation of public accounts), the Attorney General decided to conduct a “fact-finding” civil investigation into the case.  Intentional or not, that approach had the effect of protecting DPR employees and managers from potential prosecution.  Under a Supreme Court decision known as Lybarger, any compelled testimony from government employees in a civil investigation cannot be used in a criminal proceeding.  While the immunity extends only to the testimony and not the individual, its presence can taint the gathering of evidence for criminal prosecution.  Upon its review of the evidence submitted in January from DOJ, the Sacramento District Attorney’s Office stated that any evidence for prosecution was “hopelessly intertwined” with evidence that was immune from use.

Executive Branch Self-Exam: The Friday Audits

Audits are a necessary part of investigating financial improprieties, but in some cases they are also insufficient.  An audit is not an investigation: audits do not uncover motives, and often fail to identify wrongdoers.

Auditing has other weaknesses, including the inherent delay in getting results.  The Parks audits averaged five to six months in duration.  There may also be political influences on the Executive Branch entities that perform these audits,   as evidenced by the apparent effort to minimize audit results and other information releases. In what quickly became a pattern for disclosing information about this financial mismanagement, news of the hidden funds was revealed to the public on a Friday – a day traditionally designated for the release of information one wishes to minimize.

  • On Friday, August 3rd, two Fridays after the Administration’s July 20th announcement, DOF concluded that there were “no other hidden pots of money” in the state’s special funds.  Within months, subsequent events cast doubt on those findings with the revelations regarding CalFire’s hidden funds, as would a discovery of the diversion of agricultural lease-revenue monies at the Department of Fish and Wildlife (DFW).

  • On Friday, August 17th, the Natural Resources Agency released deposition transcripts related to the investigation of DPR vacation buy-backs, which contained testimony relevant to the hidden funds matter.  Coincidentally (or not), this was the day after the Senate Budget Committee held its only hearing into the matter.

  • A week before Christmas, the Controller released its audit of DPR’s financial records, finding several payroll discrepancies, particularly with payment of lower-level staff for work beyond their job description.

  • On Friday, December 21st, DOF issued its audit of all DPR accounts and financial controls, including the discovery of several million dollars in additional funds.

  • On Friday, January 4th, the DOJ released the results of its investigation into DPR’s activities, including some 3,000 pages of transcripts.  The investigation provided additional details on events and people involved.  It also cast doubt on earlier testimony implicating the former Director at DPR, though DOJ never obtained her testimony. 

Conclusion: A Necessary Role for the Legislature

Oversight of the Executive and its agencies is a key role for the Legislative Branch.   Acting at arms-length from the Executive Branch, the Legislature is the appropriate place to ask questions the Executive’s own agents will not ask, subpoena the witnesses they will not question, and weigh evidence independently, just as it did in issues surrounding former Insurance Commissioner Chuck Quackenbush, former Secretary of State Kevin Shelley and staff for former Governor Gray Davis.  The Legislature can also act with greater immediacy, as opposed to the delays inherent in extensive audits or closed-door depositions.  Indeed, Legislative Republicans called for full hearings with witnesses sworn under oath, but were met instead, with a single oversight hearing and the assignment of the State Auditor to an extended, and still ongoing, review of a number of issues at DPR.  Barring federal or other intervention, the Legislature needs to assert a role for itself in investigating misconduct of this kind if we wish to avoid repeat performances.

For more information on this report or other Natural Resources and Water issues, contact Steve McCarthy, Senate Republican Office of Policy at 916/651-1501.