Pictures really can be worth a thousand words.
The images below and related evidence demonstrate conclusively that many, perhaps most, CalPERS board members have been filing fraudulent expense forms on a regular basis, some over a period of years. This is a written policy, codified in CalPERS’ board manual and is clearly intended to circumvent California state requirements.
The Board Services Unit, which reports to the Board President, asks board members to pre-sign blank sheets of paper with just a blank signature line printed on them. The Board Services Unit later prints onto that signed blank page the body of the travel claim form, with the dollar amounts and date filled in, and submits it on board members’ behalf.
Importantly, the form that CalPERS board members have been endorsing in blank requires the signature to certify a statement contained immediately above the signature that validates the accuracy of the information submitted on of the form. As you can see in one of the photos below, that certification is deliberately omitted from the nearly blank page that the board members sign in advance.
That means the Board Services Unit, the Board President as their supervisor, and the board members pre-signing these forms are systematically producing false documents.
This practice is a prescription for fraud. The board members who autograph these pieces of paper are knowingly allowing other individuals to present cobbled-together travel expense forms illegally, as bona fide originals. Under the California Government Code, this is considered to be providing a false account, a form of misappropriation of funds. That is a crime pursuant to Penal Code 424(a)(3).
In addition, what is to prevent members of the Board Services Unit from using these pre-signed forms to embezzle or create entirely different cobbled together document from the many undated, almost entirely blank pages board members have supplied to them?
Anyone, whether a board member or a CalPERS employee, who knew about this practice and failed to try to stop it is unfit to serve as a fiduciary and needs to resign. They have demonstrated a complete disregard for proper controls and compliance with the law. If they are so casual about risks to themselves, which we will discuss further below, how can they be regarded as competent to act as stewards of hundreds of billions of dollars of CalPERS beneficiaries’ funds?
As Andrew Silton, former Chief Investment Officer for North Carolina, said by e-mail:
There’s a pretty simple rule in the realm of public pension management. You don’t sign blank signature pages whether it’s an investment management contract or an expenditure report. During my tenure as CIO for North Carolina we sometimes had to go to great lengths to get entire contracts and reports into the hands of the State Treasurer (the sole fiduciary) because he had to know what he was signing. Whether he was committing the pension to a multi-million dollar contract or requesting reimbursement for a few hundred dollars of travel expenses, he was drawing funds that belong to the pension trust. His signature, and at times my signature, had to be attached to completed documents.
Filling out expenditure reports was often a cumbersome task, and I needed help on numerous occasions to get the figures into the correct boxes on North Carolina’s expenditure form. So I suppose it would have been convenient to just sign a bunch of blank forms and dump a stack of receipts on someone’s desk. Aside from violating the law, this would have sent a terrible signal to staff and invited abuse.
Travel expenditures are a precious commodity in pension management. They allow fiduciaries and staff to perform proper due diligence. When abuses are unearthed (e.g. padding expense reports) public pensions tend to crack down. Not only is the abuse addressed, but legitimate travel is also curtailed.
The board of CalPERS shouldn’t need any training or lawyers to help them understand the importance of protecting the expenditure process. It’s amazing to me that all but a few board members at CalPERS seem to have no qualms about signing blank expenditure forms. Once again, it appears that senior staff rather than the board is in control at CalPERS.
And our banking expert Clive remarked:
What’s especially shocking is the casual blasé attitude which was exhibited to Brown. This is obviously endemic maladministration – if not an open invitation to dip one’s hand into the well stocked and easily accessible cookie jar.
The Pre-Signed Form Fraud Is Official CalPERS Policy
On January 15, the day before Margaret Brown’s first day as a board member at CalPERS, she attended an orientation meeting with fellow incoming board member David Miller. Members of the Board Services Unit, all but one of whom are relatively low-level administrative staff, led the briefing. They gave Brown a raft of forms to sign and hand back to them. This is what she was given:
Brown signed them in front of staff before saying she wanted to look at them some more and took the folder with the signed copies with her. She did not return them. David Miller says he did not turn in any pre-signed forms either.
In the interest of not taxing reader patience, we’ll focus on the second form; for those who are curious, the first is the Excess Lodging Rate Request form (STD 255C), which you can view here.
Note that the second image, with the almost entirely blank page, is in fact the last two lines of the official State of California travel expense claim form embedded at the end of this document. Note that the certification language that sits right above the signature line has been omitted from the blank form Brown was asked to sign:
I HEREBY CERTIFY That the above is a true statement of the travel expenses incurred by me in accordance with DPA rules in the service of the State of California. If a privately owned vehicle was used, and if mileage rates exceed the minimum rate, I certify that the cost of operating the vehicle was equal to or greater than the rate claimed, and that I have met the requirements as prescribed by SAM Sections 0750, 0751, 0752, 0753 and 0754 pertaining to vehicle safety and seatbelt usage.
And it is no accident that Brown and Miller were asked to sign about 20 copies of each form. This is a page from the CalPERS Board Manual:
As the images show, the Board Services Unit instructs board members sign undated forms in blank, with the body of the form, including critically, the certification language removed.1 Staff prints the rest of the form, including the missing certification language, into the pre-signed document when they also fill in expense information and submit it on behalf of the board member.
Board President Priya Mathur and General Counsel Matt Jacobs Refuse to Stop the Fraud
On January 17, 2018, during a break at a board offsite, Brown told a fellow board member, Richard Costigan, who is also an attorney, that she was concerned about being asked to sign blank forms. Costigan said in no uncertain terms that she should never sign a blank document. General Counsel Matt Jacobs overheard the discussion, and spoke up to confirm that it was improper and also said it needed to stop. He said he would speak to the Board President, Priya Mathur, about it.
More than a week later, on January 25, Brown and Mathur had a scheduled introductory phone meeting. By e-mail that day, Brown told Mathur she was troubled about the practice of asking board members to sign blank documents and also told her that Matt Jacobs had said the process needed to be discontinued. Mathur replied by e-mail she would look into it and get back to Brown. Brown’s impression was that this was the first time Mathur had heard any objection.
Brown has heard nothing further about the issue. There is no evidence that Mathur has taken any action. There have been no new pages issued to the board manual to replace the instructions now in there, nor have there been an e-mails to board members outlining changes in procedures.
We e-mailed Priya Mathur and asked for her to comment on how, as a vocal proponent of sound “Environmental Social and Governance” (“ESG”) practices, could she justify having board members pre-sign undated blank forms. We did not receive a response.2
Why Filing Pre-Signed Expense Forms is a Felony
The implication of the institutionalized practice of: 1) using pre-signed partial forms, 2) using them to fabricate documents that are falsely submitted as complete originals, and 3) using them as the basis for making of payment is that the current Board President, Priya Mathur, her predecessor, Rob Feckner, and members of the Board Services Unit have suborned board members to provide false certifications on an ongoing basis.
In addition, both the pre-signing of the travel claim forms and the submission of the false certifications is criminal conduct. Per Title 12 OF CRIMES AGAINST THE REVENUE AND PROPERTY OF THIS STATE, Section 424:
(a) Each officer of this state, or of any county, city, town, or district of this state, and every other person charged with the receipt, safekeeping, transfer, or disbursement of public moneys, who either:
3. Knowingly keeps any false account, or makes any false entry or erasure in any account of or relating to the same; or,
4. Fraudulently alters, falsifies, conceals, destroys, or obliterates any account;
Section 424(a)3 is colloquially called the “misappropriation of public funds” statute. Merely providing a “false account,” as in false certifications or doctored records, is a crime in and of itself.
In addition, Chapter 8 of the California Government Code makes conspiracy a crime, and defines it broadly in Section 182:
(a) If two or more persons conspire:
(1) To commit any crime.
This means that not only have the “officers of the state” meaning Board Presidents Mathur and Feckner, along with any board members who pre-signed travel expense forms, apparently misappropriated public funds as defined under the law, but they and the members of the Board Services Unit who prepared and submitted the forms also look to have committed an additional felony, that of conspiracy.
All board members who engaged in this practice need to resign, starting with former Board President Rob Feckner and current Board President Priya Mathur. This institutionalized flouting of California law designed to deter expense abuses by upping the ante for violations by requiring a certification shows they are incapable of handling their own affairs.
How Phony Travel Claim Forms Are Business as Usual at CalPERS
It is not hard to see how handing over multiple copies of blank signed documents is reckless. Any board members who did so set themselves up to be blackmailed for submitted false expense claims.
Recall how common it was during the housing bubble to have brokers tell unsophisticated buyers, “Just sign the mortgage application. I’ll fill it out for you based on what you told me and I’ll submit it.” They then would inflate the borrowers income…and it was the borrower, not the broker, who was guilty of defrauding the lender, because the borrower’s signature was on the form.
If you say, “Oh no, you are exaggerating. There’s nothing that can go wrong. The board member approves the document before it is turned in,” I have a bridge I’ve already sold you.
Board members have no control over what is submitted in their name once they have handed over their signature without a date on a virtually blank piece of paper. They have nothing in writing restricting the use of that signature and thus are solely responsible if that signature were abused.3
For instance, a staff member could use the pre-signed forms to embezzle by putting in expenses under a board member’s signature and then depositing the check to their own account. A staffer could also use the pre-signed forms to blackmail a board member by submitting phony expenses, and then send the check to an organization that the board member could be depicted as supporting, like their alma mater. They wouldn’t even have to risk committing forgery by endorsing the check over; organizations of any size have their checks bulk processed and no one seems to verify the payee name.4
In California, any individual convicted of a felony is ineligible to run for office. The behavior exposed by this post would appear to make them legally ineligible to serve if convicted, since “falsification of public account records” is a blanket disqualification from holding office in California.
While only a prosecutor could bring a case against CalPERS board members, any government body that is a CalPERS member would have standing. There are a lot of small districts that are mighty unhappy with the bills CalPERS has been sending to them. District attorneys are elected officials. It would be popular in a lot of corners of the state right now to take down some CalPERS board members. It’s also conceivable that some jurisdictions could team up on a filing.
Another benefit for a politically ambitious prosecutor is that any board members who engaged in this practice weren’t guilty of mere negligence but gross negligence (the sending back of the e-mail with the false certification and the repeat nature of this practice means it’s hard to depict a board member’s participation as an accident). This mean their directors’ and officers’ insurance carrier would likely dispute any claims to cover their legal defense.
CalPERS board members are fiduciaries. The relevant standard for the performance of their fiduciary duties is set forth in Article XVII, Section 16 of the California constitution:
(c) The members of the retirement board of a public pension or retirement system shall discharge their duties with respect to the system with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims.
No “prudent person” acting with care and diligence would give others the ability to steal from CalPERS or the to give people over whom you have no control the ability to blackmail them by signing blank forms authorizing the movement of money. This is common sense. The fact that CalPERS board members failed such a basic test means they have proven they are unfit to oversee a dog pound, much the less hundreds of billions of beneficiary funds.
This practice confirms that CalPERS is rotten top to bottom. All board members who have signed these blank forms or promoted their use need to resign. I hope you will circulate this post widely and encourage everyone you know in California to write their state Senator and Assemblyman about this immediately. We’ve written for years that CalPERS is a governance train wreck. A $300 billion pool of money with a board that refuses to ask even the most basic questions is a prescription for rampant incompetence and looting. This example is simple and egregious enough that it might galvanize long-overdue corrective action.
1 Note even the certification language on the form does not comply with the statutory requirement. Per Section (f), the missing language is in italics below:
I hereby certify that the above is a true statement of the travel expenses incurred by me in accordance with the Department of Human Resources’ regulations in the service of the State of California, and that all items shown were for the official business of the State of California.
2 One has to wonder why Mathur has not halted this practice, since it is clearly indefensible, particularly in a financial institution. Mathur may be the reason this dodgy procedure was dreamed up in the first place. Mathur has had six separate instances of failing to file state-mandated disclosure forms on time. both personal conflict of interest documents and campaign finance filings. She was fined four times. At least once, her late conflict of interest consisted entirely of blank entires (note that that is an entirely plausible submission). The fact that Mathur seems to have a deep-seated difficulty with processing documents suggests that someone had the not-too-bright idea of helping her by filing forms on her behalf, and if the staff provided that service to her, they’d have to do it for all other board members.
3 Priya Mathur, no doubt, if pressed, will try to defend this practice by claiming no board member was over-reimbursed. First, it would take a huge forensic exercise to determine if that were true, since there is no good reason to trust an institution that would put this scheme in place. Second, it isn’t necessary for CalPERS to have actually overpaid a board member for the institution to have leverage over them. All that has to be the case is for that the board member to be unable to prove that he was overpaid. In other words, it’s not sufficient for a board member to check every payment received and make sure it isn’t higher than what he submitted. He would have to retain all the backup documentation, for years, to be able to show that the amount he eventually received added up to expenses he could prove he incurred. How many board members do you think were that meticulous?
4 For instance, a few years ago, a small check to my cat sitter wound up instead in an envelope to Cigna with a payment coupon calling for much larger amount. Not only did Cigna process the payment, but it was more disconcerting that my bank had no trouble sending money to Cigna when the check didn’t have “Cigna” anywhere on it. Banking experts advised me that bulk processing of checks is so highly automated that this is a very common outcome.California Travel Reimbursement Expense Form