Oceano Community Services District audit alleges that a staff member embezzled cash 

At least one Oceano Community Services District (OCSD) board member recently asked the county District Attorney's Office to investigate a former employee who allegedly stole cash and gave themselves more sick and vacation time than allowed.

"[The] employee designated to process payroll had too much system access," states a recently released district audit report. "The district should reevaluate receipt controls and system permissions to ensure there is proper segregation of duties."

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• File Photo By Jayson Mellom
• CASH PAYDAY? A 2022 audit report shows an employee allegedly allocated themselves extra sick and vacation time while also stealing cash payments from community members meant to go to paying their utility bills.

Due to a lack of management intervention, an OCSD employee responsible for processing payroll allegedly allocated themselves an extra almost 20 hours of combined vacation and sick leave than earned for the regular pay period, the report states.

The audit report also states that employees who receive cash payments from customers paying their utility bills shouldn't have permission to void a bill without proper authorization. After testing utility records and having discussions with district staff, auditors discovered that a "bill void" was occasionally entered into the utility billing system to zero out bills that were previously posted to specific customer accounts, the report states. The audit showed that the zeroed-out balance a customer owed on their account was the exact amount that the customer paid in cash at the district.

Adam Guise, a partner at the firm contracted by the OCSD to perform the audit—Moss, Levy & Hartzheim—said a bill void cancels out an incorrect bill on a customer's account.

"[It's] a function that would void a previously issued billing on a customer's utility account," Guise said.

According to the report, this was possible because the district employee had permission to void bills without oversight.

OCSD board member Charles Varni said a lack of checks and balances makes it easy for potential embezzlement to take place.

"This is the classic case in employee embezzlement situations like this, where a trusted employee has control of a process that includes cash monies from beginning to end," Varni said.

The audit report suggested that a designated manager should periodically review the employee leave reports and ensure that accruals are proper for each employee and that hours used match with timecards. It also suggests that the district should reevaluate its payroll controls and system permissions to ensure there is a proper segregation of duties.

Will Clemens, OCSD's general manager, said he couldn't comment on the claims about a lack of proper oversight that allowed the former employee to have unsupervised system access.

"The district also does not comment on personnel matters," he said.

Clemens added that he also couldn't comment on whether the district was looking to press charges against the former employee.

"We are not in a position to release any details regarding your inquiry because the board has not authorized us to discuss that matter," Clemens said.

Although the audit report was completed in June 2022, Varni said that he didn't know there was alleged embezzlement until nearly a year later, after the June 28, 2023, OCSD board meeting.

"The auditor's report was on the consent agenda, and there was no audit report available to look at for the public. There was no hyperlink from the agenda to the auditor's report, and the fact that it was on the consent agenda meant that the directors were basically being asked to, in this case, approve the auditor's report with nobody having read it," he said.

Varni said that he wasn't present for the June 28 meeting, but he received an email on July 1 from a community member who asked him if he'd seen the audit report. He hadn't.

"The first thing I did was I wrote and went to the [SLO County] District Attorney's website ... and I sent a very brief email saying that I had just learned that there was an issue of embezzlement at the Oceano Community Services District," Varni said. "I did not know anything about this, but I'm informing them and I sent them a link to the auditor's report."

Eric Dobroth, assistant district attorney, told New Times that the District Attorney's Office had received information but couldn't comment on the case.

"Right now, we have received some information that there is an allegation or belief that money was taken that shouldn't have been taken or misappropriated," Dobroth said. "The district believes someone stole from them in an official capacity as an employee, and we are looking into it."

Varni said that from the time he was elected as a board member in November of 2022 up until the June 28, 2023, meeting, he wasn't informed about the allegations of embezzlement, which he believes could have been worth as much as $30,000. The audit report, however, doesn't specify a dollar amount.

"I was never informed of this," he said. "After I found out ... I had an obligation to report that to authorities or to the higher-ups because I was in a situation where pretty much everybody else knew about what was going on and I was in the dark."

Clemens told New Times that all the board members found out about the embezzlement allegations at the same time.

"The audit findings were provided to the district on June 26, 2023, and made available to the public and the board on June 27, 2023, as an addendum to the June 28, 2023, board agenda," Clemens said.

Since then, Varni said, the district has implemented some changes to its protocols, such as now having two sets of eyes on processes that were originally all controlled by a single employee.

"One thing I suggested at our last board meeting was that we should have a complete review of all of our accounting purchasing agreements by an auditing firm—that it will be designed to point out any other areas where do not have in place the best management practices for accounting so that we can correct these, so that we lessen the possibility of this ever happening again," he said. Δ

Reach Staff Writer Samantha Herrera at [email protected].