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Amid the revelation that the reimbursement of a fraudulent payment worth nearly $700,000 has been reversed by Wells Fargo Bank, the San Benito County Board of Supervisors agreed to ask the California State Controller’s Office for assistance with the matter.
During a special meeting on Oct. 21, the board voted 5-0 to send a letter to State Controller Malia Cohen asking for an audit “due to multiple failures of County Auditor’s internal controls to detect and prevent financial fraud and embezzlement against San Benito County,” and to “protect against any further fraud and embezzlement of County taxpayers’ money.”
The letter notes that the county has “suffered two incidents of fraud and embezzlement” over the past two years. These include the recent fraudulent payment of $696,600 on Oct. 15 associated with a vendor payment change request form submitted to the county Resource Management Agency by someone posing as a construction contractor in a suspected “phishing scam” involving a road project led by Teichert Construction which was subsequently approved by County Auditor Controller Joe Paul Gonzalez’s office.
The letter states that combined with a $360,755 loss as a result of “embezzlement activities” involving two San Benito County Library employees, the county is now out more than $1.1 million in taxpayer funds “due to failures in the county auditor’s internal controls to detect and prevent fraud.”
“We are afraid that there may have been other instances of which the Board is unaware and only an audit by your office will disclose whether that has occurred,” the letter reads, adding that Gonzalez is an “elected official who is not overseen, directed, or managed by the County Administrative Office or by the County Board of Supervisors.”
“In other words,” the letter continues. “we are fearful that this mismanagement will continue unabated, and taxpayers’ money will be at risk unless the State Controller’s Office immediately intervenes pursuant to its authority” under a state government code which allows the office to audit any local agency to ensure its internal controls are adequate for detecting and preventing financial errors and fraud.
In following County Counsel Gregory Priamos’ recommendation to seek help from the state controller, multiple supervisors expressed concern that other fraudulent financial activity had previously occurred, noting that both of the known incidents escaped the attention of the auditor’s office and were only caught by outside entities—Wells Fargo Bank, in the case of the fraudulent payment, and Amazon, in connection with the library embezzlement. It’s conceivable, supervisors said, the county might never have known about these actions otherwise.
“I’m very concerned this is not a one-time [occurrence],” Supervisor Kollin Kosmicki said, adding that’s why he wanted a review of payments “both large and small.”
“My gut says our red alarm should be at a very high level,” he said.
Supervisor Ignacio Velazquez said he had been concerned about the county’s fiscal oversight procedures since he was elected, adding that he had been unable to get clear information, including from Gonzalez’s office, despite repeated requests.
Velazquez said he had no faith in Gonzalez’s leadership and went so far as to say he should resign.
Priamos offered the board a series of options for responding to the issue other than the letter to the state controller, which included opening a new request for proposals aimed at reviewing the County Auditor’s Office and its internal controls, and seeking a San Benito County Superior Court order to compel the auditor to “properly perform his duties” as required under state law.
Gonzalez said he agreed “something needs to be done” but preferred the outside audit of his office to the state controller audit. He also noted that the fraudulent payment involved a series of errors that occurred at the county department level and at the bank, and pointed out that his office and the county Resource Management Agency were missing key financial oversight staff due to budget cuts which hampered its ability to prevent the fraud. It was a junior staffer who called the wrong number to confirm the fraudulent payment request, he said.
Last week, the county issued a request for proposals for an outside audit of the county’s processes that allowed the library embezzlement, which Gonzalez spoke out against, arguing that the issue was being handled internally.
Meanwhile, San Benito County Treasurer Melinda Casillas told the board early in the meeting that a previously reported reimbursement of the fraudulent payment had been reversed by Wells Fargo because the account used to receive the payment had been closed, so the bank had not been able to recover the money.
Quizzed by the Board of Supervisors about the likelihood of recovering the money, a Wells Fargo representative said the bank’s investigation is continuing and that recovery of fraudulent funds had been accomplished successfully elsewhere before, but the odds depended heavily on where and how the money was transferred.
After the county last week issued a news release about the fraudulent payment, Gonzalez issued his own release saying the funds had been recovered while lauding his office and other county officials, including Casillas’ office, for the recovery.
That drew criticism from Kosmicki and other supervisors who said Conzales should have been accepting full responsibility rather than congratulating himself.
Supervisor Angela Curro said the issue should not devolve into a “he said, she said” issue but instead required “teamwork” to address, adding that the county’s overall financial oversight is a “bigger issue.”
“It’s more than just this one incident,” Curro said.
Also during the meeting, Sheriff Eric Taylor confirmed reports that the FBI had taken the lead on the investigation into the fraudulent payment, noting that “white collar crime” is the federal investigative agency’s province.
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