UNCHECKED SPENDING: ALAMEDA COUNTY BOARD OF SUPERVISORS DISCRETIONARY FUNDS

This is the Executive Summary, Conclusion, Findings and Recommendations only. For the entire report go to: Grand Jury Final Reports

EXECUTIVE SUMMARY

The Grand Jury received a citizen complaint stating that a member of the Alameda County Board of Supervisors gave a no-bid contract to a county employee on his staff doing business as Oakland & the World Enterprises, Inc. (OAW).

Upon investigation, the Grand Jury learned that the county employee has worked for Alameda County since 2013 as a salaried member of the supervisor’s staff. The Grand Jury also learned that the county employee is the co-founder of OAW and has been OAW’s unpaid chief executive officer and a member of its board of directors since its incorporation in April 2014.

Total FMRP (Fiscal Reward Management Program) balances for the five supervisors was $9,764,421 as of July 1, 2016, which is more than one year’s total budget for the Board of Supervisors.

OAW received funding from two sources in Alameda County government. One source of funding, totaling $102,527.24, was from money made available to nonprofit organizations through a program adopted by the Board of Supervisors in 2014 to meet affordable housing needs, known as the Boomerang program. The second source of funding, totaling

$710,000, was through the Alameda County Fiscal Management Reward Program (FMRP), from the FMRP account of the supervisor.

The Grand Jury concluded that the dual role of the county employee in these transactions constituted both a failure of good governance practices by the county of Alameda and a conflict of interest under the Alameda County Charter and the Alameda County Administrative Code. The county employee was wearing “two hats” in connection with these transactions, in that she was actively involved on both sides of those transactions, as both a county employee and as an advocate for OAW.

The Grand Jury also concluded that the process by which the Board of Supervisors makes donations to nonprofit organizations from county funds allocated to the Board of Supervisors through the FMRP constitutes a failure of good governance practices by the County of Alameda and does not comply with the county’s Manual of Accounting Policies and Procedures, which states that FMRP expenditures have the same requirements as other expenditures of county dollars.

The basis for these conclusions, and the Grand Jury’s recommendations, are described more fully below.

BACKGROUND

Alameda County Board of Supervisors

A five-member Board of Supervisors governs Alameda County. Each supervisor is elected from a separate district in which they reside. Within the limits established by applicable law, the board conducts both the legislative and the executive functions of government. Terms of office for the supervisors are four years. Each supervisor is allotted money to run his/her office and to serve the residents of his/her district.

As defined by the Alameda County Charter, the duties of the Board of Supervisors are as follows:

    • Appoint most county officers and employees, except elected officials.
    • Provide for the compensation of all county officials and employees.
    • Create offices, boards, and commissions as needed, appointing the members and fixing the terms of office.
    • Award all contracts for public works.
    • Adopt an annual budget.
    • Provide, publish, and enforce a complete code of rules prescribing the duties and the systems of office and management, accounts, and reports for each county department.
    • Have an annual audit made of all county accounts, books, and records.
    • Supervise the operations of departments and exercise executive and administrative authority throughout county government.
    • Serve as appellate body for employee grievances, planning and zoning.

Boomerang Funding

In 2012, the California redevelopment agencies were dissolved. As a result, millions of dollars of property tax monies were returned to local governments, providing local government crucial resources needed to preserve public services. These funds are referred to as Boomerang funds.

In 2014, the Board of Supervisors approved a proposal to allocate $9.8 million of Boomerang funds for the Affordable Housing Development Program. This allocation was divided up among the five county districts. The Alameda County Housing and Community Development Department (HCD) announced a request for proposals (RFP) for distribution of the funds. A portion of the Boomerang funds was set aside for the Innovation Funding Program, which was intended to be used by nonprofit organizations that were exploring new forms of affordable housing. HCD established a Housing and Community Development Advisory Committee to review applications submitted pursuant to the RFP and make recommendations. The recommendations were submitted to the Board of Supervisors. HCD administered the grants approved by the board.

Fiscal Management Reward Program

The Board of Supervisors implemented the Alameda County Fiscal Management Reward Program (FMRP) in 1993 as a means to incentivize departmental fiscal restraint and reduce expenses. County departments were operating their budgets on a “use it or lose it” basis, which was leading to large budget deficits and unnecessary spending. Departments and agencies that reduced their spending and realized budget savings were allowed to keep those savings to be carried over to the following year. Departments and agencies could then use those funds at their discretion for budget balancing, one-time expenditures, and/or program enhancements. For example, if a department or agency anticipated a revenue shortfall or unexpected expenditures in the following year, the carryover funds from previous years could be used to close the budget deficit. Each

The process by which the Board of Supervisors makes donations to nonprofit organizations … constitutes a failure of good governance.

annual carryover would be made available for a one-time-only expense. The carryover would not be considered or included when making calculations for any other appropriations or budget requests and could not be used to hire new employees. However, departments were allowed to “bank” those savings for multiple years. FMRP expenditures are subject to the county’s Manual of Accounting Policies and Procedures (MAPP), section 4.15, which says: “Fiscal Management Reward Program expenditures have the same requirements as other expenditures of county dollars (source: Board of Supervisors Resolution, FY 2003).”

Each supervisor is appropriated funds for his/her office during the applicable fiscal year, including compensation for staff, supplies, and rent. Any funds not spent by the supervisor during the applicable fiscal year are carried over to the following year in the individual supervisor’s FMRP account. The information below was provided to the Grand Jury by the county Auditor-Controller’s Office, which shows FMRP balances in the account of each supervisorial district as of the first day of the stated fiscal years:

FMRP BALANCE AS OF START OF FISCAL YEAR (JULY 1st)

FY 2014-2015

FY 2015-2016

FY 2016-2017

District 1

574,556

896,972

796,972

District 2

1,392,496

2,535,723

2,435,723

District 3

1,672,989

3,182,629

2,832,629

District 4

317,649

383,500

283,500

District 5

1,849,323

3,515,597

3,415,597

The chart shows that the total FMRP balances for the five supervisors was $9,764,421 as of July 1, 2016, which is more than one year’s total budget for the Board of Supervisors. The county’s final budget for FY 2016-2017, posted on the county website, states that the total budget for the Board of Supervisors was $8,265,982 for the 2015-2016 fiscal year and $8,631,192 for the 2016-2017 fiscal year.

The Board of Supervisors often donates FMRP funds to nonprofit organizations, with the understanding that the funds are used to provide services or benefits to the residents of Alameda County. (See Appendix– FMRP Expenditures by District, pages 46-50)

In order to make a donation of FMRP funds to a nonprofit organization, the applicable supervisor must submit a letter to the full Board of Supervisors, recommending approval of the donation. The letter is to include the name of the nonprofit organization, a brief statement about its mission and purpose, the name of its principal, and the amount of the proposed donation. Initially, this letter is sent to the County Administrator’s Office (CAO) for processing. Once processed by the CAO, the letter is placed on the Board of Supervisors meeting agenda and voted on for approval. Upon approval from the Board of Supervisors, the requesting supervisor’s office sends a direct claim form to the county Auditor-Controller’s office. The county Auditor-Controller then makes payment to the nonprofit organization and funds are removed from the appropriate FMRP account.

CONCLUSION

The Grand Jury has deliberately not investigated nor addressed the merits of OAW’s plans. OAW should have the opportunity to make its case for county funding just as any other community-based organization is entitled to do, especially those not closely associated with a county supervisor.

The foregoing demonstrates a failure of good governance practices by the county and the Board of Supervisors, in at least three respects:

    1. The supervisor hired the county employee, with at least one objective being that the county employee would form OAW and get it up and running. With the supervisor’s knowledge, the county employee has acted to accomplish that and has served as the organization’s chief executive officer and a director from its incorporation in 2014. The county employee is wearing “two hats” because she is acting and advocating on behalf of OAW in dealings with other county agencies and with non-county persons and organizations, at the same time as she is informing the supervisor as a member of his staff about OAW’s status and activities and advising him about whether he should appropriate substantial amounts of FMRP funds to OAW.
    1. The Board of Supervisors places no limit on FMRP funds that can be used for donations to nonprofit organizations. It appears the supervisors are free to spend as much of their FMRP money on donations to nonprofit organizations as they wish. Considering the substantial amount of funds in each supervisor’s FMRP account (totaling $9,764,421 as of July 1, 2016, for the five supervisors) and the lack of limitations, the possibility of discretionary spending abuse must be addressed immediately.
    1. The MAPP states, “Fiscal Management Reward Program expenditures have the same requirements as other expenditures of county dollars.” This rule requires that all FMRP disbursements be made according to the “County’s Procurement Policy and Procedures Overview – Guidelines for Acquisition of Goods and Services Including Professional Services,” which, in turn, sets forth bidding and contracting requirements for disbursement of county funds. Among other things, the procurement policy requires that for contracts and transactions when the amount involved exceeds $3,000, quotes or bids from multiple sources must be obtained and, for contracts or transactions when the amount involved exceeds $25,000, written contracts must be obtained.

This policy has not been followed for FMRP disbursements by the Board of Supervisors consisting of donations to nonprofit organizations. For such donations, no competitive bidding or application process is required, no RFP process is required, and no contract is required. There is no independent evaluation of the organization either before a donation is made or after the organization has received and spent the funds.

Although the Board of Supervisors formally approved the FMRP disbursements to OAW, the Grand Jury’s investigation revealed no independent evaluation by anyone and the FMRP disbursements were approved on the Board of Supervisors consent calendar without any discussion.

The difference between how the Boomerang funding and the FMRP funding were handled reinforces this point. OAW’s application for $790,000 in Boomerang funding was reviewed by a separate county agency, which conducted a competitive process and made a recommendation to the Board of Supervisors that OAW be awarded $290,000. That approval was subject to a written contract between the county and OAW that contains various conditions and requirements. The FMRP disbursements for $710,000 contain none of those requirements or provisions.

The Grand Jury also believes that the conduct described in this report constitutes a violation of the conflict of interest provisions set forth in Section 66 of the Alameda County Charter, and Section 2.02.170 of the Alameda County Administrative Code, each

of which says in pertinent part: “No officer or employee shall be interested directly or indirectly in any contract or transaction with the County . . . .” The Grand Jury believes this conflict of interest was created at the hiring of the county employee to work on the staff of the supervisor, and has continued thereafter. The county employee was hired, at least in part, to found and pursue the goals of OAW and has acted accordingly. This use of county staff resources constitutes a conflict of interest because it creates a situation in which, if the interests of the county and the interests of OAW differ, the county employee may be unable to fulfill her duties to the county while at the same time fulfilling her duties to OAW. This employment arrangement is inappropriate and should not be replicated in the future. Moreover, the Grand Jury believes the supervisor was aware of the conflict of interest and named a person other than the county employee as principal of OAW in the FMRP request letters to the Board of Supervisors.

FINDINGS

Finding 17-8:

The dual role played by the county employee in connection with county donations, appropriations, and disbursements to OAW, as both a county employee and as co-founder, chief executive officer and a director of OAW constituted a failure of good governance practices by the County of Alameda.

Finding 17-9:

The dual role played by the county employee in connection with county donations, appropriations, and disbursements to OAW, as both a county employee and as co-founder, chief executive officer and a director of OAW constituted a conflict of interest, in violation of Alameda County Charter Section 66 and Alameda County Administrative Code Section 2.02.170.

Finding 17-10:

The process by which the Board of Supervisors makes donations to nonprofit organizations from county funds allocated to the Board of Supervisors through the FMRP constitutes a failure of good governance practices by the County of Alameda, in that (a) large amounts of county funds can be, and are, donated to nonprofit organizations without a competitive process and without written contracts; and (b) there is little if any independent oversight of the use of such funds received by nonprofit organizations.

Finding 17-11:

The process by which the Board of Supervisors makes donations to nonprofit organizations from county funds allocated to the Board of Supervisors through the FMRP does not comply with the Alameda County Manual of Accounting Policies and Procedures, which states that FMRP expenditures have the same requirements as other expenditures of county dollars. The non-compliance consists of the Board of Supervisors failure to follow the county’s procurement policy and procedures for such donations that exceed $3,000.

RECOMMENDATIONS

Recommendation 17-7:

The Board of Supervisors must establish a policy prohibiting any member of the Board of Supervisors from hiring or directing a staff member to form a nonprofit organization or to take a management position in a nonprofit organization.

Recommendation 17-8:

In the interest of good governance practices and in recognition of limited county resources, the Board of Supervisors must adopt and follow a policy that MAPP rules and the “County’s Procurement Policy and Procedures Overview – Guidelines for Acquisition of Goods and Services Including Professional Services” are strictly followed, and that no nonprofit organization may receive more than an aggregate of $25,000 per fiscal year in donations from the FMRP accounts of members of the Board of Supervisors.

RESPONSES REQUIRED

Alameda County Board of Supervisors:

Findings 17-8 through 17-11

Recommendations 17-7 and 17-8