California agencies lent millions to employees who never repaid

Reporting from Sacramento -- State agencies have handed out millions of dollars in interest-free salary and travel advances to their employees without collecting repayment, according to audits from the controller’s office.

Gov. Jerry Brown issued an executive order Wednesday halting the practice. He said he was working with state Controller John Chiang to determine how widespread the practice has been and how much California is owed from employees who never paid back their loans.

“This situation reinforces the worst stereotype of ineffective and inefficient government,” Brown said in a statement. “I have ordered state agencies to immediately investigate the backlog of uncollected debts and find every penny owed to taxpayers.”

Brown’s statement said a 2009 state audit found $13.3 million in outstanding loans at 11 agencies. “In most cases, employees were granted advances, and agencies were either slow to collect funds or failed to collect at all,” the statement said.

The administration expects to find millions more in unpaid loans at the California Department of Corrections and Rehabilitation, where auditors from the controller’s office are reviewing the books. Chiang spokeswoman Hallye Jordan said she could not comment on an ongoing investigation.

It is unclear how much of the outstanding debt is salary advances that should have been repaid or travel funds that were unaccounted for, said Brown spokesman Gil Duran.

State law allows employees to receive hardship advances on their paychecks and to obtain advances for work travel, Duran said. But the state has no mechanism for collecting on the loans, and after three years, a debt cannot be collected without the employee’s consent.

In a statement Wednesday, Chiang said “the state’s poor debt collection and accounting practices are fleecing public coffers at a time when vital public programs are being decimated by unprecedented budget cuts.”

Jordan said Chiang was in the Bay Area to attend meetings with President Obama and was not available for further comment. The audits show that Chiang has been investigating these unpaid loans for years.

Most state departments and agencies have discretionary funds that, according to the controller’s documents, are “used to pay for salary advances, travel advances, immediate vendor payments and travel expense claims.” The funds can be no larger than 3% of a department or agency’s total budget.

An audit of 11 such funds found that more than $13 million had gone uncollected. The Department of Transportation, the Department of Forestry and Fire Protection, and the California Highway Patrol were among the agencies scrutinized by the controller’s office.

Caltrans had the largest debt, more than $3.2 million. About $214,000 of that debt was more than three years old.

The CHP had uncollected debts of more than $2.6 million, with more than $89,000 more than three years old, the controller’s office found.

An analysis of the Department of Mental Health budget found that more than $2.2 million lent from the fund had not yet been collected. More than half of that money had been lent out for more than 60 days.

A July audit of Cal Fire found that the agency “had an outstanding balance of $1.44 million as of June 30, 2008. An overwhelming portion of that balance was related to employee salary and travel advances,” according to the audit.

All of the audited agencies issued written responses to the controller, vowing to tighten their internal accounting. Some agencies have made changes such as putting new combinations on office safes and requiring two authorized signatures from department leaders for expenditures of more than $15,000 from a discretionary fund. The agencies also agreed to turn over delinquent accounts to the controller’s office for collection.

“Ultimately, this is money that is owed to the state’s general fund,” Jordan said.

Chiang’s office had notified the Schwarzenegger administration of the audits. In a June 23 letter, Chiang’s chief auditor sent a letter to the Department of Finance summarizing the findings. Jordan said the Schwarzenegger administration never responded to the auditor’s letter and that no response had been requested.

“We didn’t create this mess,” Brown spokesman Duran said, “but we are going to get to the bottom of it.”

anthony.york@latimes.com