Report I960030 Summary - October 1996

Investigative Report:

Theft of Funds From a Long-Term Savings Plan by a State Employee

We investigated and substantiated this and other thefts totaling over $381,000. Specifically, we found the employee committed the following illegal and improper activities between 1984 and 1986 to steal funds from the Deferred Compensation Plan:

  • She forged one victim's name on a form to steal $230,930.

  • She designated her mother as another victim's beneficiary to steal approximately $85,000.

  • She falsified a death certificate and declared herself the beneficiary of a third victim, who was not dead, to steal $65,250.

  • She obtained a driver's license with a fictitious name and provided false information to a financial institution to open a bank account. She used the bank account to perpetrate two of the three thefts.

As a result of these thefts, the State is potentially liable for over $500,000 once accrued earnings are included.

The employee left the DPA in February 1985. Since that time, she has worked at four different state agencies. On September 24, 1996, the employee submitted her resignation from state service to the Department of Corrections.

Pending Action

The employee surrendered to law enforcement authorities on September 27, 1996, and was released on bail. The Sacramento County District Attorney's Office is pursuing criminal prosecution of the employee. The employee's next court appearance is scheduled for October 29, 1996.

Since we do not believe the employee declared the stolen funds as income on her tax returns, we have contacted the Internal Revenue Service and the Franchise Tax Board (FTB). On October 4, 1996, the FTB issued an order to the Department of Corrections to withhold personal income tax in the amount of over $71,000. This order prevents the employee from obtaining a lump-sum payment of $9,700 for accrued leave.

Since these thefts occurred, the DPA has strengthened its controls over the funds in the Deferred Compensation Plan. However, because of the previous weaknesses that allowed at least three thefts to occur, we plan to expand our review of the plan's internal controls. Also, we will continue to investigate the possibility of additional thefts.

Agency Response

The department cooperated fully with our investigation and has taken action to prevent similar thefts. The department is determining the precise value of each of the accounts involved and will fully restore those accounts. In addition, the department would like to reemphasize the following points made in our report:

  • The thefts occurred over ten years ago;

  • The employee has not worked at the department since February 1985; and

  • The employee resigned from state service in September 1996, and has been arrested.