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Audit Report Prison Health Care Receivership - Expenditures Apr 2006 - June 2008, CA OIG, 2007Review of Disbursements April 2006 through June 2007

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Office of the Inspector General
Matthew L. Cate, Inspector General

California Prison Health Care
Receivership
Review of Disbursements
April 2006 through June 2007

February 2008

State of California

Contents
Executive Summary ...............................................................................................1
Introduction
Background ................................................................................................4
Objectives, Scope, and Methodology........................................................7
Review Results
Compensation.............................................................................................8
Benefits......................................................................................................12
Professional Fees ......................................................................................13
Travel ........................................................................................................15
Other Expenses.........................................................................................18
Capital Assets ...........................................................................................19
Attachments
Receivership’s Agreement
Receivership’s Response

Executive Summary
In April 2006, the U.S. District Court for the Northern District of California gave the
California Prison Health Care Receivership Corporation broad powers over the California
Department of Corrections and Rehabilitation’s delivery of medical care to prisoners
after the court found the department’s medical care efforts were “horrifying” and
“shocking.” The court also found that continued medical malpractice and neglect existed
within California prisons. As a result, the court suspended the department secretary’s
authority over California’s prison medical system during the receivership and granted this
power to the receiver. The court also ordered the department to pay all costs the
receivership incurs in implementing policies, plans, and decisions to carry out its
responsibilities. Accordingly, the receivership requested and received from the state more
than $33 million between April 2006 and June 2007. To ensure the transparency and
accountability of its budget operations, the court required the receivership to coordinate
with the Office of the Inspector General to periodically review its expenditures.
Because the receivership is not a state entity encompassed by the Office of the Inspector
General’s statutory authority, we entered into an agreement with the receiver to perform
periodic reviews of the receivership’s expenditures––including this first review––to
produce a public report for the court that describes how the receivership uses state funds.
We included in this agreement a provision for the Office of the Inspector General to
report any instances of fraud, waste, or abuse discovered during the review. Therefore,
while these reviews are substantially less in scope than a typical audit, they will report
any instances of fraud, waste, or abuse that we identify.
During the period April 2006
through June 2007, the
receivership spent $20.6 million
for its operating costs and longterm capital assets purchased on
the department’s behalf. As
shown in Figure 1, the
receivership’s largest expense
category was personnel services,
comprising the receivership’s
employees and consultants.
During the period we reviewed,
the receivership spent
$5.9 million on employee
compensation and benefits.
Compensation that the
receivership paid to its employees
consisted mainly of salaries and
wages, but also included amounts
Office of the Inspector General
Bureau of Audits and Investigations

Figure 1

California Prison Health Care Receivership
Total Disbursements - $20.6 Million
April 2006 through June 2007
Compensation
$4,888,858
24%

Capital Assets
$8,719,171
41%
Benefits
$1,022,863
5%

Other Expenses
$742,902
4%

Travel
$352,816
2%

Professional Fees
$4,891,971
24%

Page 1

paid in lieu of benefits and amounts paid to its executives for vehicle allowance. The
receivership paid 29 of its 45 employees (64 percent) salary and other compensation that
equates to a projected annual amount of more than $100,000, including 12 employees
whose projected annual compensation exceed the department secretary’s $225,000 annual
salary. Included in this compensation is $610,642 the receivership paid employees in lieu
of receiving benefits. However, the receivership paid $218,790 of this amount even after
it began providing benefits. The receivership continued this practice until the judge who
created the receivership and oversees its operation ordered the receivership to end the inlieu-of-benefits compensation program in October 2007.
Besides the compensation the receivership paid to its employees, the receivership also
paid for employee benefits, such as pension contributions; medical, dental, and life
insurance; and payroll taxes. The receivership made most of its $4.9 million in consultant
payments to a single contractor––Maxor National Services Corporation––that provides
pharmacy management consulting services. During the period we reviewed, the
receivership paid Maxor almost $2.8 million.
The receivership also paid more than $350,000 for its employees’ and contractors’
reasonable and customary travel-related expenses, including lodging, transportation,
meals, and mileage. Although the receivership created a travel policy in February 2007 to
guide its staff in incurring travel expenses, the receivership does not always enforce this
policy. In our sample of lodging expenses, we found that the receivership had failed to
require staff members to provide proper support before paying $10,500 in lodging
expenses. Therefore, we could not determine whether the charges were appropriate.
Similarly, in our limited review of 23 travel-related expenses, we found 11 instances of
meal charges that exceeded the receivership’s policy limit or lacked the proper
documentation. These expense claims totaled $1,800. We also found that the receivership
does not always require its contractors to follow its travel policies. In one instance, the
receivership paid a consultant $125 a day for meals, totaling $12,000 during our review
period. Had the receivership restricted this consultant to the limits included in its travel
policy, it would have only compensated the consultant up to $4,800––a difference of
$7,200.
Finally, the receivership spent more than $8.7 million on capital assets, which are assets
the receivership purchased to carry out its responsibilities over a long period, such as
buildings, office equipment, and information systems. Although a small portion of this
amount was for the receivership itself, it made most of its capital asset purchases on the
department’s behalf.
In this report, we present information on the receivership’s use of state funds, in
accordance with our agreement with the receiver. Therefore, we generally do not include
analysis or conclusions on the appropriateness of the receivership’s use of state funds.
Nonetheless, we present the following recommendations to help the receivership ensure
that it uses public funds only for appropriate purposes.

Office of the Inspector General
Bureau of Audits and Investigations

Page 2

The Office of the Inspector General recommends that the receivership take the following
actions:
•

To ensure that the level of compensation paid to employees is an appropriate use
of state funds, regularly reevaluate the salary and wage package it provides to
staff members.

•

To help the receivership ensure that it uses public funds only for appropriate
business purposes:
o Ensure that employees and contractors properly support all travel expense
claims with original receipts or invoices and include a description of the
business purpose, and verify that the amounts are within established policy
limits.
o Ensure that employees properly support charges appearing on corporate credit
card accounts before paying the bill.

Office of the Inspector General
Bureau of Audits and Investigations

Page 3

Introduction
Background
The court created a receivership to correct the state’s failure to provide the
constitutionally required level of inmate medical care. In April 2001, California
prisoners filed a class action lawsuit1 against the state alleging that California officials
inflicted cruel and unusual punishment by being deliberately indifferent to serious inmate
medical needs. The state settled the lawsuit in 2002, agreeing to overhaul its medical care
policies and procedures and to significantly increase resources in prisons to ensure timely
access to adequate medical care. However, in 2005, the U.S. District Court for the
Northern District of California, which oversees the case, found that the California
Department of Corrections and Rehabilitation’s inmate medical care was “horrifying”
and “shocking,” and that medical malpractice and neglect continued.2
Therefore, in June 2005, the court decided to establish a receivership to control the
delivery of medical services to California prisoners. In its order, the court stated:
By all accounts, the California prison medical care system is broken beyond repair. The
harm already done in this case to California’s prison inmate population could not be
more grave, and the threat of future injury and death is virtually guaranteed in the
absence of drastic action. The Court has given defendants every reasonable opportunity
to bring its prison medical system up to constitutional standards, and it is beyond
reasonable dispute that the State has failed. Indeed, it is an uncontested fact that, on
average, an inmate in one of California’s prisons needlessly dies every six to seven days
due to constitutional deficiencies in the [department’s] medical delivery system. This
statistic, awful as it is, barely provides a window into the waste of human life occurring
behind California’s prison walls due to the gross failures of the medical delivery system.
It is clear to the Court that this unconscionable degree of suffering and death is sure to
continue if the system is not dramatically overhauled. Decades of neglecting medical
care while vastly expanding the size of the prison system has led to a state of institutional
paralysis. The prison system is unable to function effectively and suffers a lack of will
with respect to prisoner medical care.
Accordingly, through the Court’s oral ruling and with this Order, the Court imposes the
drastic but necessary remedy of a Receivership in anticipation that a Receiver can
reverse the entrenched paralysis and dysfunction and bring the delivery of health care in
California prisons up to constitutional standards. Once the system is stabilized and a
constitutionally adequate medical system is established, the Court will remove the
Receiver and return control to the State.

1

Plata v. Schwarzenegger, C01-1351 TEH.
Plata v. Schwarzenegger, C01-1351 TEH, May 10, 2005, Order to Show Cause RE Civil Contempt and
Appointment of Interim Receiver.
2

Office of the Inspector General
Bureau of Audits and Investigations

Page 4

The court gave the receiver broad powers over prison medical care. Effective
April 17, 2006, the court appointed Robert Sillen3 to serve as the receiver over the
department’s delivery of medical care to prisoners. The court suspended the department
secretary’s exercise of power related to the administration, control, management,
operation, and financing of the prison medical system during the receivership and granted
these powers to the receiver. The court also provided the receivership the power to
acquire, dispose of, modernize, repair, and lease property, equipment, and other tangible
goods as necessary to carry out its duties under the order. To carry out these duties, the
court provided the receivership unlimited access to all records, files, and facilities
maintained by the department, as well as access to prisoners and department staff, as
deemed necessary by the receiver.
The court established the following duties of the receivership:
•

Provide leadership and executive management of the California prison medical care
delivery system.

•

Develop a detailed plan of action designed to restructure and develop a
constitutionally adequate medical care delivery system.

•

Determine the annual medical care budget and implement an accounting system that
meets professional standards.

•

Provide the court with bimonthly reports addressing the receivership’s progress made,
particular problems encountered, successes achieved, and an accounting of its
expenditures and all other matters deemed relevant.

In carrying out his responsibilities, the court stated that the receiver should make all
reasonable efforts to exercise his powers in a manner consistent with California laws,
regulations, and contracts––including labor contracts. However, if the receiver finds that
a state law, regulation, contract, or other state
Table 1
action or inaction is clearly preventing the
receivership from developing or implementing a
State Payments to the Receivership
Through June 30, 2007
constitutionally adequate medical health care
system, the receiver may ask the court to waive
Date
Amount
the state or contractual requirement causing the
3/16/2006
$ 750,000
impediment.
6/16/2006
2,000,000
7/31/2006
10/17/2006
2/7/2007
5/2/2007

1,200,000
7,571,555
3,168,000
18,622,000

Total

$33,311,555

The court ordered the state to pay all costs the
receivership incurs in carrying out its
responsibilities. As discussed above, the receiver
controls the administration, management,
operation, and financing of California’s prison

3

In January 2008, the court terminated Robert Sillen as the receiver and appointed J. Clark Kelso in that
role.

Office of the Inspector General
Bureau of Audits and Investigations

Page 5

medical system. For fiscal year 2006–07, the department spent $925 million for its adult
medical services. The receivership expends most of these funds through the state’s
control agencies, including the State Controller’s Office. However, the department also
makes payments directly to the receivership to fund the receivership’s operations. As
shown in Table 1, between the date of the receivership’s inception and June 2007, the
department paid the receivership $33.3 million. The receivership’s office maintains these
funds in its own bank account, out of which it makes disbursements to pay its operating
costs.
To ensure the transparency and accountability of its budget operations, the court required
the receivership to coordinate with the Office of the Inspector General to complete
periodic reviews of its operations. To carry out these responsibilities, we reached
agreement with the receiver to perform periodic reviews of the receivership’s
expenditures––including this first review—to produce a public report for the court that
describes how the receivership uses state funds. We included in this agreement a
provision for the Office of the Inspector General to report any instances of fraud, waste,
or abuse uncovered during the review. We plan to complete similar efforts annually until
the receivership is terminated. Our agreement with the receiver is included in the
Attachments section of this report.
The receivership expends state funds to
finance its operations. To carry out its courtordered mandate, the receivership hires
employees, executes contracts, and otherwise
incurs costs of doing business. As shown in
Table 2, for the period April 2006 through
June 2007, the receivership spent $11.9 million
on operating expenses. Most of the
receivership’s operating costs relate to personnel
services. These costs include the salaries and
benefits for the receivership’s employees and the
amounts that the receivership paid to consultants
providing professional services.
The receivership also spent a significant
amount—$8.7 million––to acquire capital assets.
Although this amount includes the costs of
establishing and equipping the receivership’s
offices, it primarily comprises costs of an
information technology project the receivership
is developing on the department’s behalf and
construction costs the receivership incurred at
San Quentin State Prison.

Office of the Inspector General
Bureau of Audits and Investigations

Table 2
How the Receivership
Used State Funds
April 2006 through June 2007
Description
Salaries and Wages
Benefits
Rent or Lease
Professional Fees
Insurance
Office Expenses
Travel
Telephone and Network
Lines
Other Expenses
Total Operating Expenses

60,012
358,390
$11,899,411

Capital Assets
Deposits
Cash/Prepaid Balances

$ 8,719,171
353,220
15,907,890

Total

Amount
$ 4,888,858
1,022,863
198,146
4,891,971
55,737
70,618
352,816

$36,879,692*

* Difference between state payments to the
receivership and amounts used by receivership is
mainly attributable to $3.3 million in accounts
payable and other liabilities at fiscal year end.

Page 6

Objectives, Scope, and Methodology
Under a February 2006 order from the U.S. District Court for the Northern District of
California, the Office of the Inspector General periodically reviews the receivership’s
expenses. The purpose of these reviews is to issue a public report that describes how the
receivership uses state funds. Although these reviews are substantially less in scope than
a typical audit, they will report any instances of fraud, waste, or abuse that the Office of
the Inspector General becomes aware of during its review.
In conducting this review, we performed the following procedures:
1. To gain an understanding of the receivership’s operations and the nature and scope of
projects undertaken, we reviewed documents related to the receivership’s creation
and interviewed key receivership staff members.
2. To verify the amount of state funds that the department paid to the receivership
between its inception and June 30, 2007, we reviewed relevant documents and
interviewed key staff members from the receivership, the department, and the
California Department of Finance. We then reconciled this amount to the amounts the
receivership reported in its financial statements.
3. To learn about the goods and services for which the receivership expended state funds
during the review period, we obtained detailed accounting reports and identified
significant expense accounts. We then reviewed a sample of transactions from each
expense category and learned the purpose of the expense.
4. To determine whether duplicate payments occurred during the period of our review,
we obtained a list of payments made by the department to any receivership employees
or contractors.
5. To determine whether there were any potential instances of fraud, waste, or abuse at
the receivership, we contacted the public accounting firm that audited the
receivership’s financial statements. The firm told us that it did not become aware of
any instances of fraud, waste, or abuse, either as a result of its audit procedures
performed or through discussions with the receivership’s management during its audit
of the receivership’s financial statements.
6. To develop the information for this report, we analyzed the data gathered in the above
procedures.

Office of the Inspector General
Bureau of Audits and Investigations

Page 7

Review Results
In its first 15 months of operation, the California Prison Health Care Receivership spent
$20.6 million in state funds. The receivership spent almost $11 million of these funds for
personnel services, from both its own employees and from consultants. The receivership
also spent almost $9 million on capital assets, most of which were for the benefit of the
California Department of Corrections and Rehabilitation’s adult prisons. As shown in
Figure 1 of the Executive Summary, the receivership spent $20.6 million in six general
categories. In this report, we describe how the receivership used state funds in each of the
general categories.
Compensation

Figure 2

California Prison Health Care Receivership
Compensation
April 2006 - June 2007

To carry out its courtordered responsibilities,
the receivership hires
Compensation
employees who work out
$4,888,858
of three different offices.
24%
The compensation each
Capital Assets
Compensation
Amount
employee receives varies
• Salaries and Wages
$ 4,209,550
depending on the
• Compensation in
employee’s designation.
Lieu of Benefits
610,642
•
Vehicle
Allowance
68,666
But compensation may
Benefits
Total
$4,888,858
include salaries and
wages, compensation in
lieu of benefits, and a
Other Expenses
Professional Fees
Travel
vehicle allowance. As
shown in Figure 2, during
the period of our review, the receivership incurred almost $4.9 million in compensationrelated expenses, amounting to 24 percent of the receivership’s total disbursements.
The receivership designates employees as either executive or non-executive. Between
April 2006 and June 2007, the receivership employed 45 people––21 executives and 24
non-executives––including both full- and part-time employees who the receivership paid
either on an hourly or salary basis. The receivership also provided some employees an
option of receiving additional compensation––30 percent of base salary––in lieu of
receiving benefits. In addition, the receivership provided some employees a vehicle
allowance of $500 a month.
The receivership obtains advice from human resources consultants to identify competitive
compensation levels and to determine the salary or wage it will pay each employee.
During the period of our review, the receivership spent $4.2 million on employee salaries
and wages. Table 4 at the end of this section summarizes the salaries and wages the
Office of the Inspector General
Bureau of Audits and Investigations

Page 8

receivership paid to each staff member during the review period, as well as any additional
items of compensation the employees received. As shown on this table, the receivership
paid 29 of its 45 employees (64 percent) salary and other compensation that equates to a
projected annual amount of more than $100,000, including 12 employees whose
projected annual compensation exceed the department secretary’s $225,000 annual
salary.
The receivership did not provide benefits to its employees the first nine months of its
operation. Rather, the receivership provided its employees additional compensation––
30 percent of their base salary––in lieu of benefits, such as medical insurance and
pensions. Accordingly, from April 2006 through December 2006, the receivership paid
17 of its staff members $391,852 in lieu of benefits.
In January 2007, the receivership began
offering health-related benefits to its
Example of Executive Compensation
employees. At that time, the receivership gave
In Lieu of Benefits Payment
its executive employees the option of either
(annual amounts)
continuing to receive their complete in-lieu
payment or receiving health benefits and
Salary
$150,000
having the in-lieu payment reduced by the
In-lieu Benefit
receivership’s cost of providing medical
(30 percent of salary)
45,000
benefits. The receivership did not provide this
Cost of Medical Insurance
(20,000)
option to non-executive employees, electing to
discontinue the in-lieu-of-benefits
Cost of Pension Benefit
(15,000)
compensation for these employees. In
March 2007, the receivership also began
Residual In-lieu Amount
Paid to Employee
$ 10,000
offering pension benefits to its employees.
Again, the receivership gave its executive
employees the option of either continuing to receive the in-lieu payment or adding the
pension benefit and having the in-lieu payment reduced by the receivership’s cost of
providing the pension benefit (see example in Table 3). Similar to health benefits, the
receivership did not provide this option to non-executive staff members. From
January 2007 through June 2007, the receivership paid its executives $218,790 in lieu of
benefits.
Table 3

Therefore, between April 1, 2006, and June 30, 2007, the receivership paid 18 of its 45
employees (12 executives and 6 non-executives) $610,642 in payments in lieu of
benefits. For example, the receiver, Robert Sillen, received $12,500 each month as
compensation in lieu of benefits in addition to his $41,666 monthly salary. In
January 2007, the receivership began providing medical benefits to Mr. Sillen and
reduced his in-lieu-of-benefits payment by the monthly cost of the insurance, $259. In
March, the receivership began providing a 401(k) retirement contribution for Mr. Sillen,
and it again reduced his monthly in-lieu-of-benefits payment by the cost of the retirement
contribution, $2,344. Thus, between March and June 2007, Mr. Sillen received $9,897
each month as compensation in lieu of benefits, even though he received medical and
Office of the Inspector General
Bureau of Audits and Investigations

Page 9

retirement benefits. We detail the in-lieu-of-benefits payments in Table 4 at the end of
this section.
The receivership continued its in-lieu-of-benefits payments to its executives until
October 2007. We do not include in this review the in-lieu-of-benefits payments the
receivership paid its executives between July 2007 and October 2007 because our current
scope is limited to the period April 2006 through June 2007. In October 2007, the judge
who created the receivership and oversees its operation ended the receivership’s in-lieuof-benefits compensation program. In his communication to the receiver, the judge stated
that he was “under the impression that once an employee benefit package became
available that [receivership] employees would transition to the employee benefit
package.” The judge added that the “practice of paying [receivership] employees ‘cash in
lieu of benefits’ in addition to providing a benefit package was unacceptable given that
these are publicly funded salaries.…” Accordingly, he directed the receivership to
discontinue in-lieu-of-benefit payments effective October 31, 2007.
The final component of the receivership’s employee compensation was vehicle
allowance. The receivership provides an allowance, normally $500 a month, to executive
staff members. As indicated in Table 4, the receivership paid 18 employees, one of whom
was non-executive, a total of $68,666 during the period April 2006 through June 2007.
Recommendation
To ensure that the level of compensation paid to employees is an appropriate use of state
funds, the Office of the Inspector General recommends that the receivership regularly
reevaluate the salary and wage package it provides to staff members.

Office of the Inspector General
Bureau of Audits and Investigations

Page 10

Table 4

Total Compensation Received by Receivership Staff
Between April 2006 and June 2007

Employee

Position

No. of
Mos.

Salary &
Wages

C-I-L
Benefit

Vehicle
Allowance
$

Average
Monthly

Compensation
Projected
Total
Annual
Received

Sillen

Receiver

15.0

$ 605,468

$ 170,322

0

$ 51,719

$ 620,628

$ 775,790

Hill

Chief Medical Officer

12.5

364,751

98,398

6,250

37,552

450,624

469,399

Kagan

Director of Communications

15.0

219,285

47,111

7,250

18,243

218,916

273,646

McGrath

Director, Custody Support

12.0

261,521

0

0

21,793

261,516

261,521

Goldman

Staff Attorney

15.0

185,546

37,447

7,250

15,350

184,200

230,243

Wood

Chief Financial Officer

8.5

189,719

32,873

4,162

26,677

320,124

226,754

Graham

Chief Medical Information Officer

8.5

184,988

37,609

4,069

26,667

320,004

226,666

Hummel

Chief Information Officer

8.0

179,104

32,321

3,911

26,917

323,004

215,336

Buzzini

Staff Attorney

13.0

163,281

42,500

6,500

16,329

195,948

212,281

Estrada

Special Assistant

15.0

123,101

26,005

7,250

10,424

125,088

156,356

Russell

Health Care Project Officer

9.5

116,206

25,818

0

14,950

179,400

142,024

Turner

Statewide Nursing Officer

5.0

114,583

0

2,500

23,417

281,004

117,083

Hector

Inmate Prison Relations Manager

12.5

98,257

14,969

0

9,058

108,696

113,226

Clark

Director of Nursing Ops

5.0

104,167

0

2,500

21,333

255,996

106,667

Ha

Chief Nurse Executive

4.0

97,885

0

2,000

24,971

299,652

99,885

Scott

Nursing Director

5.0

93,450

2,700

2,500

19,730

236,760

98,650

Rea

Nursing Director

5.0

93,750

0

2,500

19,250

231,000

96,250

Robinson

Nursing Director

5.0

93,750

0

2,500

19,250

231,000

96,250

Weston

Special Assistant

7.0

95,410

0

0

13,630

163,560

95,410

Saich

Coordinator

12.0

81,000

12,000

0

7,750

93,000

93,000

Kirkland

Director, Plata Support

6.0

84,718

0

3,000

14,620

175,440

87,718

Meier

Custody Support Services

6.5

78,405

0

0

12,062

144,744

78,405

Honey

Construction Analyst

9.5

76,313

0

0

8,033

96,396

76,313

Marengo

Director of Facilities

4.0

51,923

15,577

1,909

17,352

208,224

69,409

Whittaker

Manager, Program Management Office

4.5

58,558

0

0

13,013

156,156

58,558

Bartle

Administrative Assistant

11.0

47,278

6,211

0

4,863

58,356

53,489

Hill

Custody Support Services

7.0

49,855

0

0

7,122

85,464

49,855

Huber

Administrative Assistant

9.5

38,258

4,082

0

4,457

53,484

42,340

Cameron

Controller

4.0

41,667

0

0

10,417

125,004

41,667

Uhler

Administrative Assistant

9.0

19,768

3,618

0

2,705

32,460

23,386

Sampson

Manager, Medical Records

4.5

21,757

0

2,000

5,279

63,348

23,757

Sandoval

Administrative Aide

7.0

21,776

1,081

0

3,265

39,180

22,857

Moy

Director, Health Information Integration

2.0

22,788

0

0

11,394

136,728

22,788

McPherson

Personnel Specialist

4.5

22,635

0

0

5,030

60,360

22,635

Norcio

Director, Clinical Integration

1.5

18,462

0

615

12,718

152,616

19,077

Lerner

Staff Attorney

6.0

16,647

0

0

2,775

33,300

16,647

Stuart

Administrative Assistant

3.5

14,905

0

0

4,259

51,108

14,905

Knox

Administrative Assistant

3.5

14,730

0

0

4,209

50,508

14,730

Dovey

Custody Support Specialist

1.0

12,093

0

0

12,093

145,116

12,093

Lucas

Investigation & Discipline Coordinator

1.0

9,083

0

0

9,083

108,996

9,083

Sgro

Administrative Manager

1.5

8,513

0

0

5,675

68,100

8,513

Matranga

Receptionist

3.5

6,969

0

0

1,991

23,892

6,969

Cambra Jr.

Custody Support Specialist

0.5

6,047

0

0

12,094

145,128

6,047

Dunn

Administrative Assistant

0.5

225

0

0

450

5,400

225

Durocher

Administrative Assistant

2.5

TOTALS

150

0

0

60

720

150

*$4,208,745

$610,642

$68,666

$610,029

$7,320,348

*$4,888,053

* Amount does not agree with total presented at the beginning of this section because of an immaterial difference of $805, which we did not pursue.

Office of the Inspector General
Bureau of Audits and Investigations

Page 11

Benefits

Figure 3

California Prison Health Care Receivership
Benefits
April 2006 - June 2007

In addition to the
compensation the
Capital Assets
Benefits
Amount
receivership paid to its
Compensation
• Payroll Taxes
$ 309,558
employees, the receivership
• 401(k) Contributions 217,050
also paid for certain
• Insurance
216,882
•
Paid
Time
Off
215,459
employee benefits. Although
• Workers’
the receivership provided
Compensation
54,456
some of the benefits during
• Relocation Expenses
9,458
Total
$1,022,863
the entire period of our
review, such as payroll taxes
Benefits
and paid time off, it offered
$1,022,863
Other Expenses
other benefit items for only
5%
Professional Fees
Travel
a part of the period. As
discussed in the previous
section, the receivership began providing health-related benefits to its employees in
January 2007 and pension benefits in March 2007. Nonetheless, as shown in Figure 3,
during our review period the receivership spent over $1 million on benefits for its
employees.
Payroll taxes represented the largest benefit expense during the review period. This
benefit included the employer portion of Social Security and Medicare payments, totaling
$309,558. The receivership also recognized a liability of just over $215,000 at
June 30, 2007, for the earned but unused vacation its employees had accrued.
In addition, the receivership paid a little under $217,000 for medical, dental, and life
insurance for its staff members electing to receive the benefit between January 2007 and
June 2007. The receivership pays the entire cost of these insurance items for its
employees.
Finally, the receivership contributed $217,050 to its employees’ 401(k) pension accounts
between March 2007 and June 2007. The receivership makes monthly 401(k)
contributions equal to 12.5 percent of base salary for executive employees and
7.5 percent for non-executive employees.

Office of the Inspector General
Bureau of Audits and Investigations

Page 12

Professional Fees

Figure 4

California Prison Health Care Receivership
Professional Fees
April 2006 - June 2007

The receivership has
entered into contracts to
Professional Fees
Amount
obtain the services of
• Pharmacy Consulting $2,796,459
certain professionals to
• Chief of Staff
605,526
carry out its duties under
• Legal
481,100
• Recruitment
362,269
the court mandate.
Compensation
• Nursing
195,600
Capital Assets
Accordingly, as shown in
• Physicians
115,700
Figure 4, the receivership
• Human Resources
93,551
Benefits
• Information Technology
87,586
spent $4.9 million on
•
Other
Professional
Fees
79,458
professional fees during
• Temporary Agencies
74,722
the period of our review.
Total
$4,891,971
Most of these payments
Professional
are to a single contractor
Fees
$4,891,971
Other Expenses
that provides pharmacy
24%
Travel
management consulting
services. However, the receivership also included costs related to its chief of staff, legal,
and recruitment services.
The single largest recipient of professional fees is Maxor National Services Corporation,
which is helping the receivership to improve the department’s prison pharmacy system.
From April 2006 through June 2007, the receivership paid Maxor almost $2.8 million.
According to its contract with the receivership, Maxor has seven specific goals:
1. Develop meaningful and effective centralized oversight, control, and monitoring
over the pharmacy services program.
2. Implement and enforce clinical pharmacy management processes.
3. Establish a comprehensive program to review, audit, and monitor pharmaceutical
contracting and procurement processes.
4. Develop a meaningful pharmacy human resource program.
5. Redesign and standardize overall institution level pharmacy drug distribution
operations.
6. Design and implement a uniform pharmacy information management system.
7. Develop a process to assure the department’s pharmacy meets accreditation
standards.
The receivership also included in this category payments to its chief of staff, John Hagar,
who is an independent contractor to the receivership rather than an employee. Under his
agreement with the receivership, Mr. Hagar is responsible for (1) coordinating the
receiver’s activities, (2) ensuring the flow of accurate information to and from the
receiver and the receivership, and (3) providing integrated policy analysis and strategic
consultation to the receiver and the receivership. The receivership compensates
Mr. Hagar $250 an hour for his services and pays for his ordinary and reasonable
expenses––such as travel expenses––incurred in performing his services. During our
review period, the receivership paid Mr. Hagar $605,526 for his services. The
Office of the Inspector General
Bureau of Audits and Investigations

Page 13

receivership accounts for Mr. Hagar’s expenses in its “travel” category, which we discuss
in the next section.
The receivership also spent $481,100 on legal services during the period under review.
For example, it paid the law firm Futterman & Dupree LLP just over $183,000 to serve as
the receivership’s attorney. According to its agreement with the receivership,
Futterman & Dupree LLP provides general legal services, including representation in
federal receivership proceedings involving the California prison health care system. The
agreement calls for the receivership to pay the firm’s attorneys rates that range from $225
to $350 an hour and the firm’s legal assistants rates that range from $75 to $160 an hour.
Finally, the receivership included in this category $362,269 in costs of recruiting its staff
members. The receivership paid just over $344,000 of this amount to one firm,
Korn/Ferry International. This firm recruited candidates for executive positions,
including the receivership’s chief financial officer, chief information officer, chief nurse
executive, and chief quality officer. In its contract with Korn/Ferry, the receivership
agreed to pay the firm a fee equal to 33 1/3 percent of the first year’s estimated cash
compensation of the positions being filled, with a minimum fee of $65,000 per position.
In addition to this fee, the receivership also agreed to pay Korn/Ferry’s direct, out-ofpocket expenses plus an amount equal to 12 percent of the fee to cover the firm’s other
search-related expenses.

Office of the Inspector General
Bureau of Audits and Investigations

Page 14

Travel

Figure 5

California Prison Health Care Receivership
Travel
April 2006 - June 2007

The receivership’s policy
is to pay for its
employees’ and
Compensation
Travel
Capital Assets
contractors’ reasonable
• Lodging
• Transportation
and customary travel
• Meals and
expenses incurred for
Entertainment
Benefits
authorized travel away
• Mileage
• Other
from their home or
Other Expenses
Professional Fees
Total
designated office to
conduct official business.
Travel
These costs include
$352,816
lodging, transportation,
2%
meals and entertainment,
mileage, and other minor expenses. As shown in Figure 5, the receivership spent
$352,816 on travel during our review period.

Amount
$132,413
103,736
57,095
53,499
6,073
$352,816

Lodging was the receivership’s largest category of travel expense incurred during the
period of our review, totaling $132,413. The receivership’s February 2007 travel policy
requires employees to substantiate the amount, time, location, and business purpose of
lodging expenses incurred while traveling away from home. Prior to this policy, the
receivership had not issued any policies guiding its staff members’ travel expenses. The
February 2007 policy states that the purpose of the lodging must be related to
receivership business, and that the employee must submit an expense report with receipts
to obtain reimbursement. The policy also specifies that expense reports must contain
“original invoices or receipts and not photo copies [sic]” [emphasis in original].
Further, instructions on the receivership’s travel expense form specify that credit card
statements are not acceptable as a receipt.
However, the receivership does not always enforce this policy. Two of the lodging
expense claims we reviewed amounting to just over $10,500 did not include proper
documentation. In one instance, the receivership paid a December 2006 corporate credit
card bill that included a charge for $4,271 from Hotels.Com. The charge was for lodging
expenses incurred by five receivership employees and the department’s director of
correctional health care services. Even though this charge occurred before the
receivership travel policy was in place, we evaluated the charge using the provisions of
the subsequently issued policy because the court order creating the receivership required
it to make all reasonable efforts to operate within California state regulations. The state
regulations contain even more stringent controls over travel than the receivership’s
February 2007 policy. When we asked the receivership for support for the charges, it
provided us a series of e-mailed room confirmations for a hotel in Houston that a
receivership employee had received from Hotels.Com. However, the date of the e-mails
is November 6, 2007—nearly a year after the receivership had paid the charge. Moreover,
the documents are merely confirmations, not receipts, and the documents do not indicate
the business purpose of the expense. Therefore, although the charges were likely for
Office of the Inspector General
Bureau of Audits and Investigations

Page 15

legitimate receivership business purposes, the receivership paid this item of expense
without adequate documentation. This practice increases the risk of the receivership
paying for improper travel or other expenses.
Similarly, the receivership paid an October 2006 corporate credit card bill that included
two charges for lodging: one for $5,862 in Corte Madera and another for $432 in
Hanford. When we asked for support for these charges, the receivership again provided
us with faxed copies of receipts from the hotels, both dated February 11, 2008––more
than one year after the receivership paid the charges. The support for the $5,862 charge
appeared to be for a conference, but the invoice does not indicate who participated in the
conference or the business purpose the conference served. The support for the $432
charge indicated that it was for a one-night stay for five receivership employees.
However, it did not include a description of the business purpose of the expense.
According to the receivership’s accountant, she often must pay credit card bills without
proper supporting documentation to avoid finance charges. She told us that she makes
efforts to obtain proper documentation after she has paid the bill, but she does not always
receive it from receivership staff members. Again, while we found no evidence of fraud,
this practice increases the risk of the receivership paying for improper travel or other
expenses.
The receivership also paid $103,700 in transportation charges claimed by its employees
and contractors. This amount includes charges for items such as airline and train tickets,
rental cars, taxicabs, and parking. We reviewed a sample of five separate claims totaling
$6,917 in transportation charges and found that the employees or contractors had
adequately supported the claimed costs.
However, we found that the receivership does not always follow its travel policy when it
pays its employees’ and contractors’ meals and entertainment expenses. Between
April 2006 and June 2007, the receivership paid $57,095 for meals and entertainment.
Similar to lodging expenses, the receivership’s policy requires employees to substantiate
the amount, time, location, and business purpose of meal expenses incurred while
traveling away from home. It states that the purpose of the meals must be related to
receivership business, and that the employee must submit an expense report with original
receipts to obtain reimbursement. Further, the policy limits meal expenses to $50 a day
during overnight travel. The policy does allow the executive staff to pay for other
business guests’ meals with prior receiver approval.
Nonetheless, the receivership did not follow these guidelines in several instances that we
reviewed. For example, the receiver, Robert Sillen, claimed a February 2007 meal
expense of $740 from a Sacramento steakhouse and provided no original receipt,
business purpose, or listing of other business guests joining him at the meal. The sole
support accompanying the documentation was a credit card statement showing the
charge. This same expense claim had two other charges for meals that exceeded the $50
policy limit. One charge was for $127 and the other was for $109. Similar to the $740
charge, Mr. Sillen provided only a credit card statement to support both of these charges.
In our limited review of 23 travel-related expenses, we found 11 instances of meal
Office of the Inspector General
Bureau of Audits and Investigations

Page 16

charges made by several receivership employees that exceeded the receivership’s policy
limit or lacked the proper documentation. These expense claims totaled $1,847. Again,
this practice increases the risk of the receivership paying for improper travel or other
expenses.
Finally, the receivership included in the meals and entertainment category $12,000 that it
paid to a contractor for per diem payments in her work for the receivership as a
corrections health consultant. The contract with the consultant calls for the receivership
to pay her an hourly rate for her services and travel time, actual expenses incurred in
carrying out her work, and a per diem amount of $125. The receivership reimbursed the
consultant for actual expenses such as airfare, lodging, car rental, mileage, and parking.
The only normal cost of travel for which the receivership did not reimburse the consultant
for actual expenses was meals. As discussed above, the receivership limits its own staff to
$50 a day for meals during authorized travel. Therefore, if the receivership had held this
consultant to the same standard as its own employees, the receivership would have only
compensated the consultant up to $4,800––a difference of $7,200 from the amount it
actually paid the consultant in per diem. According to a staff attorney at the
receivership’s office, the receivership revised the terms of its agreement with this
consultant effective July 1, 2007, to eliminate the per diem amount. The staff attorney
told us that the receivership revised the contract because it was not its normal practice to
pay per diem to its consultants.
Recommendations
To help the receivership ensure that it uses public funds only for appropriate business
purposes, the Office of the Inspector General recommends that the receivership take the
following actions to make sure its staff members adhere to its current travel
reimbursement policy:
•

Ensure that employees and contractors properly support all travel expense claims
with original receipts or invoices and include a description of the business
purpose, and verify that the amounts are within established policy limits.

•

Ensure that employees properly support charges appearing on corporate credit
card accounts before paying the bill.

Office of the Inspector General
Bureau of Audits and Investigations

Page 17

Other Expenses
We include in the other
expenses category all the
remaining minor expenses
incurred by the receivership.
As indicated in Figure 6, a
wide range of items is
included in this category,
totaling $742,902.

Figure 6

California Prison Health Care Receivership
Other Expenses
April 2006 - June 2007

Capital Assets
Compensation

Benefits

Other Expenses
Amount
• Conferences/
Seminars
$271,278
• Rent or Lease
198,146
• Office Expenses
70,618
• Telephone
60,012
• Insurance
55,737
• Leasing –
Modulars
27,019
• Dues and
Subscriptions
17,763
• Miscellaneous
16,769
• Employee
Development
12,934
• Minor Equipment
12,626
Total
$742,902

The largest item in this
category was expenses
Other
Professional Fees
related to conferences and
Expenses
Travel
seminars attended by the
$742,902
receivership’s employees.
4%
The receivership spent
$271,278 on these expenses during our review period. The receivership paid $263,750 of
this amount to the Association of California Nurse Leaders, which provided training to
nurses in supervisory and leadership capacities to learn key competencies and enhance
their communication effectiveness. According to the association’s summary of the
trainings, 212 nurses participated in the training program between November 2006 and
May 2007.

The receivership also spent almost $13,000 on employee development. This entire
amount was for the receivership’s purchase of 1,875 tote bags for department nursing
staff in May 2006. According to the receivership’s chief nursing executive, the
receivership purchased these tote bags and provided them to nurses as recognition during
the national nurses appreciation week. The nursing executive added that the bags were
custom printed with the department logo and a message stating “Correctional Nursing –
Excellence Begins with Caring.” The nursing executive also told us that the receivership
included in each bag a letter of thanks signed by the receiver, the chief nurse, and the
statewide nursing officer.
We did not review examples of expenses in the rent/lease, office expenses, telephone,
insurance, or minor equipment categories because of the low-risk nature of the expenses
or their relatively small amounts.

Office of the Inspector General
Bureau of Audits and Investigations

Page 18

Capital Assets

Figure 7

California Prison Health Care Receivership
Capital Assets
April 2006 - June 2007

During our review period,
Capital Assets
the receivership spent $8.7
$8,719,171
million on capital assets,
41%
Compensation
as shown in Figure 7.
Capital assets––sometimes
called fixed assets––are
assets the receivership
purchased to carry out its
Benefits
responsibilities over a long
period, such as buildings,
office equipment, and
Professional Fees
information systems. The
Other Expenses Travel
receivership capitalizes
asset purchases exceeding
$1,000 and depreciates the cost over the assets’ useful lives.

Receiver Capital Assets
• Furniture & Fixtures
• Computer Equipment
• Office Equipment
• Leasehold Improvements

Amount *
$ 180,582
126,025
110,845
13,388

Total
Capital Assets Receiver
Held for the Department
• Information Systems
• Construction/
Capital Projects
• Building and
Improvements
• Furniture & Fixtures
• Vehicles

$430,840

2,875,686
296,091
32,917
15,258

Total
$8,288,331
* Amounts shown net of depreciation

The receivership includes in this expense category two major subcategories: assets held
for receivership use and assets held for the department. The receivership includes in the
first subcategory long-term assets needed to carry out its court-ordered responsibilities.
Asset acquisitions the receivership made for its use included leasehold improvements,
cubicle/modular furnishings, office equipment including a comprehensive telephone
system, and computer hardware and software applications. From April 2006 through
June 2007, the receivership spent $430,840 on capital assets in this subcategory. The
receivership incurred almost all the furniture and fixtures expenses with one company,
Inter Form, which provided and set up the receivership’s office furniture. As an example
of the purchases the receivership made for office equipment, it paid VoicePro $42,378 to
provide and install a phone system at the receivership’s San Jose offices. The
receivership incurred almost all its computer equipment expenses with ZAG Technical
Services to provide computer-related equipment and services.
The receivership made most of its capital asset purchases on behalf of the department
rather than itself. Although the receivership made these purchases––amounting to nearly
$8.3 million––out of its own fund, the items or services it purchased were for the direct
benefit of a particular department institution or for all the department’s institutions.
Therefore, because the asset is not for the direct use of the receivership, it accounts for
them separately from those discussed above. Most of the receivership’s expenses in this
category were for an information system the receivership is developing for the
department and construction that the receivership began at San Quentin State Prison. In
the information systems expenses, almost $4.8 million went to Unisys Corporation to
implement an electronic medical contract and invoice processing system for the
department. The receivership also paid OVERRA Construction Company almost
$966,000 to renovate the triage and treatment building at San Quentin. In addition, the
receivership paid Ghilotti Brothers Contractors just over $233,000 for paving projects at
San Quentin.
Office of the Inspector General
Bureau of Audits and Investigations

Amount *
$5,068,379

Page 19

Receivership’s Agreement

Receivership’s Response

 

 

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