Friday, March 18, 2011
Editor’s Note: In our on-going coverage of the $12.5 million insurance claim against various bonded county officials we noted that it appeared former DA Gary Woolverton, while listing CAO Rick Rudometkin among those with possible knowledge of the misappropriation of the treasury, had not actually interviewed Rudometkin. At the time the article was posted Woolverton was unavailable for comment. Since the article’s publication, we were able to reach Woolverton, and the following is his response as to why Rudometkin, in fact, was not interviewed.
Former DA Gary Woolverton, the only county official willing to pursue damages against various county officials in an effort to partially repay the misappropriated treasury, said that time restraints and Rick Rudometkin’s reputation for being uncooperative were the reasons why he did not interview the chief administrative officer.
“I didn’t try to interview Rudometkin because I didn’t think he would be cooperative,” Woolverton explained.
“The claim was brought to me many months after John Kenny had it and there was pressure to get it done,” Woolverton said, referring to the county’s legal counsel, who is also listed in the claim. “It was taking longer to get it done than I thought it would take. I didn’t think Rudometkin knew anything about the misappropriation and if he did he would not want to tell me.”
As reported in the March 14 article “Rudometkin’s Role: Vague or Significant?” the transportation department, also headed by Rudometkin, showed the single largest loss of money from the treasury at the end of the 2008-09 fiscal year, an estimated $5.5 million, raising the question; did Rudometkin know about the loss.
In the claim, now being processed by Trindel Insurance Fund, Woolverton stated it was not known if Rudometkin knew his restricted funds were being improperly used, but it was assumed Rudometkin had not seen financial reports that would have alerted him to the misappropriation.
Woolverton did write in the claim that Rudometkin was “presumably responsible for monitoring his restricted funds.”
“I thought he was like the rest of department heads who were not put on notice, that he wasn’t getting any more paper work than I was,” Woolverton said. “It was after the fact that I received some uncorroborated information that he might know more than I thought, but that’s hearsay. That’s untrustworthy. If I had had that information at the time I might have tried harder to interview him.
“All the interviewing for the claim was based on some cooperation,” Woolverton said. “If I thought anyone was not going to cooperate, I basically decided not to go after them, and based on his reputation of being uncooperative with other department heads. . .,” Woolverton added, not finishing his sentence.
Rudometkin was opposed to the filing of the claim with Trindel and at one Board of Supervisors meeting he said he did not think the claim had any validity. At the time it was not clear if Rudometkin had seen the claim.
“There is no way he could have knowledge of the claim,” Woolverton said, responding to Rudometkin’s assertion that the claim lacked validity. “He was not privy to what I was doing. He was not in the loop.”
(For a related article, see “General Fund Loses, Part V, March 2, 2011)
Wednesday, March 16, 2011
Under “Auerbach v Los Angeles”
Bizarre as it may seem outside the limits of Modoc County, last year the Board of Supervisors voted to draw funds from a misappropriated treasury, relying on an obscure court case known as Auerbach v Los Angeles (1999).
The misappropriation, discovered in about April of 2009, amounted to an estimated $20 million. There was a shuffling of funds and a $300,000 repayment to the county schools account leaving about $12.5 million still to be repaid to the treasury, under mandate of the State Controllers Office (SCO).
The $12.5 million has not been repaid since the state order came down in late 2009, but in the interim the county devised a way to continue its diversion of treasury funds in order to meet payroll and avert bankruptcy.
County officials rationalized that diversion of funds from the treasury was legal under Auerbach v Los Angeles, a decade-old court decision that upheld the Los Angeles County Board of Supervisors’ practice of making temporary transfers from its treasury under Government Code Section 25252 and Article 16 of the state constitution.
These are the same two sections of law the Modoc County Board of Supervisors is trusting will legally support its use of funds that are normally considered restricted for specific department and special districts.
Plaintiffs in the lawsuit against the Los Angeles County Board of Supervisors argued that the board did not have authority under the law to make transfers from the treasury to the county’s general fund to cover cash flow deficits. A lower court and an appellate court ruled that the county did have the authority.
In effect, the loophole in the law, as interpreted by Auerbach v Los Angeles, is that any treasury funds that are not under the jurisdiction of special districts can legally be transferred by the board for use in what’s termed “dry periods.”
Normally, “dry period” loans must be repaid by the end of the given fiscal year.
However, in Modoc County such treasury funds are now called “internal” funds rather than restricted or unrestricted. The so-called temporary use of “internal” funds as opposed to “external,” or protected treasury funds, has the apparent endorsement of state finance officials.
Unlike “dry period” loans, there is no provision or requirement that “internal” funds drawn from unguarded accounts in the treasury must be repaid, according to two resolutions passed by the board last year authorizing the withdrawals.
But, a copy of the insurance claim for $12.5 million against various county officials, obtained by the Modoc County Daily News, reveals there is some doubt as to the legal strength of Auerbach v Los Angeles and its application to Modoc County.
“At some level, the legal efficacy of the so-called dry period loan resolution is suspect,” states former District Attorney Gary Woolverton, who drafted the insurance claim.
Woolverton notes that while “there is evidence that Modoc County counsel, with the assistance of the AG’s office, has blessed this procedure,” he has reservations.
“At some level, the reliance on Auerbach may be suspect,” Woolverton states. “Some county departments are heavily funded by federal and state funds. Information received suggests some disagreement by state officials with respect to their funding, even if the funds on deposit in the county technically fit the “internal management” definition.
“Other questions concern the propriety of reliance on Auerbach, when the last dry period loan was not paid by June 30, 2010,” Woolverton continues, revealing that the county has not repaid treasury monies “borrowed“ under Auerbach. “Other questions deal with whether the funds at issue in Auerbach were the same type of sacrosanct funds at issue in this Modoc County situation.
“As to past 2009 fund diversion, the Board of Supervisors is apparently relying on county counsel’s interpretation of Auerbach and there does not appear to be a criminal act. This being said, legal minds frequently differ on the interpretation of a particular case and the application of law to differing factual circumstance,” Woolverton concludes.
Since the Board of Supervisors authorized the use of “internal” funds from the treasury under the Auerbach reasoning in mid-2010 the county’s treasury deficit has been escalating ever upward from the original $12.5 million.
At the end of the 2009-10 fiscal year (June 30, 2010) the county treasury was owed an estimated $16.3 million, up from the $12.5 million, because of transfers from the treasury to the county’s general fund under the Auerbach ruling, county records show.
Added to that $16.3 million, the Board of Supervisors has authorized the spending of $1.8 million from treasury funds since July 1, 2010, for a total of $18.1 million taken from the treasury.
The insurance claim, now with Trindel Insurance Fund, the county’s joint powers authority representative, is seeking a total of $12.5 million from various county official’s performance bonds as a means to replace the original deficit in the misappropriated treasury.
-- Barbara March and Ray A. March
For related articles see “BOS May Dip Into Treasury, This Time Legally,” July 23, 2010; “BOS To Raid Unguarded Funds,” July 26, 2010; and “BOS Approves Move On Treasury, Worried About Possible Litigation,” July 27, 2010.
Next: What Went Wrong
Tony Richno, deputy director of Emergency Services for Modoc County will be the featured speaker at the Surprise Valley Grange's monthly meeting, Friday March 25, 6 pm at the Cedarville Senior Center.
Richno will share information about the Modoc County Disaster Plan, with emphasis on Surprise Valley. He will also take questions from the audience. Richno's appearance is offered as a public service by the Surprise Valley Grange.
Please bring a finger-food snack to share. For details call 530/ 279-2099.
USDA Rural Development and North Cal-Neva RC&D invite you to an open forum discussing economic development issues in Modoc County. This open forum will be held on Monday, March 21, 2011 from 1:00-3:00pm at Alturas City Hall 200 W. North Street, Alturas.
This forum will focus on activities and initiatives that have resulted from USDA Rural Development’s Jobs, Economic Development and Sustainable Communities report. This report was compiled based on input provided by community leaders, citizens, business owners, and organizations from throughout rural California.
Please click on the link below for additional details about the forum.
A copy of USDA Rural Development’s report can be viewed and downloaded at:
Monday, March 14, 2011
In levels of culpability in the $20 million misappropriation of the treasury Modoc County CAO Rick Rudometkin is far down the list in the number six slot, but his role may be more significant than his ranking in the insurance claim filed against various county officials.
The significance lies in the claim’s report that the transportation, roads and engineering department, also headed by Rudometkin, shows the single largest loss of money, estimated at $5.5 million, as a result of the treasury raid.
The $5.5 million loss was as of June 30, 2009 and is included in Woolverton’s exhibits supporting the claim. (See “General Fund Loses, Part V, March 2, 2011)
What Rudometkin actually knew about the misappropriation remains a mystery.
He apparently is not in the class of such department heads as Karen Stockton, director of public health; and Pauline Cravens, director of social services. Both Stockton and Cravens had suspicions that restricted treasury funds were being misused, according to the claim.
Stockton took her suspicions to then-CAO Mark Charlton, who went to the State Controllers Office. Cravens had a forensic audit of her department, but was stopped short of auditing the Modoc Medical Center when former CAO Mike Maxwell fired the outside auditor.
As for Rudometkin?
“It is not known whether Rudometkin knew his restricted funds were being improperly utilized, but it is assumed that he has the same defense as Pauline Cravens and Karen Stockton, i.e. he did not receive enough accounting/financial reports to be placed on notice that his restricted funds were being improperly diminished,” states Gary Woolverton, the former district attorney who drafted the claim.
“During his tenure as director of transportation, he was, presumably, responsible for monitoring his restricted funds,” Woolverton observes.
However, Woolverton includes a catch-all condition that appears to keep Rudometkin on the list of county officials potentially involved in the misappropriation.
“If any department head had notice of improper invasion of restricted funds and did nothing about it, that department head would move into level two or possibly level one,” he states.
Woolverton’s brief and speculative opinion on Rudometkin’s awareness of the misappropriation asks still another question: Did Woolverton actually interview Rudometkin when he was preparing the insurance claim?
Repeated attempts to reach Woolverton for comment have been unsuccessful. However, Woolverton has alleged that the misappropriation of the treasury, discovered in early 2009, actually goes back to about 2000.
What is known is that Rudometkin, who became head of public works in November 2007 and CAO in February 2010, without demonstrating any qualifications for the job, advised the Board of Supervisors that the claim had no validity.
Dan Macsay, then-chair of the board, said following the contentious 3-2 vote appointing Rudometkin to the county’s head administrative job, that it was the board’s intention to move Rudometkin back to his job as director of the public works department when the financial crisis had passed.
A search for his replacement is now underway without explanation from the board or Rudometkin even though the financial crisis is far from being resolved.
Before coming to Modoc County as head of public works, Rudometkin was streets manager and public works inspector for the City of Dana Point.
Not to be overlooked is the fact that Rudometkin is Modoc County’s representative on Trindel’s board of directors, although Trindel’s executive director David Nelson told the Modoc County Daily News that his board will not be involved in the processing of the claim.
-- Ray A. March
For related articles see “Following the Rudometkin-BOS Trail,” April 5, 2010 and “Rudometkin Papers,” July 26, 2010
Next: Auerbach vs. Los Angeles
Claim Returned For Notarization
The insurance claim against various county officials seeking $12.5 million in damages for the misappropriation of treasury funds was returned last week because Supervisor Loren “Shorty” Crabtree’s signature was not notarized.
Crabtree, chair of the Modoc County Board of Supervisors, took the claim on Thursday, March 10 to Modoc County Title Company in Alturas for notarization, according to Stephanie Northrup, clerk of the board.
The claim was then taken to CAO Rick Rudometkin to return it to Trindel Insurance Fund. Because Rudometkin’s offices are closed on Fridays it is expected the claim will be returned today, March 14, Northrup said.