Water District Employees Got Interest-Free Loans

Updated: May 22, 2018


State Controller Betty Yee announced January 31 that a review of the Panoche Water District, in the Central Valley, found “prevalent and severe deficiencies” in accounting, with 76 percent of internal control elements deemed inadequate.


“The district’s egregious lack of spending oversight is shocking,” Controller Yee said. “It is especially troubling in a region where effective water governance is so vital for the agricultural community. I am looking into what options are available to ensure small entities like Panoche Water District are kept accountable.”


The district delivers water to western Merced and Fresno counties, and is overseen by a five-member board of directors composed of landowners. Though funded by a customer water service charge and not state or county taxes, the district has received state loan and grant money.


Among the controller’s findings:

  • Without legal authority, the district gave more than $86,000 in interest-free loans to employees. One employee received a $30,143 loan for personal bills and set up a payment plan of $50 per biweekly pay period, which would take more than 23 years to pay back. In some cases, the district increased employees’ salaries to match loan payments, did not timely collect loan payments, and processed loans through payroll as compensation. “Based on piecemeal district records, it is unclear if these personal loans were reported to the IRS as taxable income,” the Controller’s Office stated.

  • District managers permitted employees to use district credit cards for personal use, paying for more than $37,000 in personal spending from 2013-14 to 2014-15. Employee purchases included season tickets to the Oakland A’s and Oakland Raiders, Katy Perry concert tickets, and retail goods from Ralph Lauren, Nike and Sunglass Hut. Reimbursement collection procedures were so lax that one employee did not repay personal expenses for nearly three years. “Due to woefully inadequate controls, it is highly likely that personal charges were paid for with district funds,” the Controller’s Office said.

  • As part of the “fringe benefits” package, the district provided free housing for six employees with no documentation justifying the need for it. The general manager had authorized himself to live in district-furnished housing since 1992. The district did not consider the free housing to be compensation, and therefore did not subject the value to payroll taxes.

  • Without policies and procedures for use, the district provided approximately 50 vehicles that employees, including administrative staff, drove to and from home on a daily basis.

  • In addition to wages, the district provided an average of $57,600 per year to employees in rent checks, without supporting documentation. One employee lived in a district-provided home while also receiving additional utility payments.

Controller Yee said she and her audit team have identified more than $3 billion in misuse, waste, and fraud involving public funds since January 2015.

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