Audit Finds Nepotism, Unlawful Hires at California Tax Board

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By Laura Mahoney

California state auditors have permanently revoked the State Board of Equalization’s authority to hire staff after finding widespread nepotism, disregard for civil service rules, and interference from elected board members in hiring decisions, according to a publicly available special investigation report.

In the sweeping report, the State Personnel Board (SPB) faulted the SBOE for a culture that enabled elected board members to exert influence on staffing and allowed multiple agency managers to circumvent employment rules. The SPB ordered the board to void the appointment of three people who got their jobs because of board member influence. Another employee will have the opportunity to respond to the report’s findings and recommendations, and if there is a showing of bad faith with the appointment, the recommendation is to void the appointment, according to the report.

“The culture of BOE was one in which board members and their staff and executives were perceived as having significant influence and power over civil service personnel matters,” the investigation report concluded. “As one witness stated, ‘What a board member wanted, he or she got.’”

The SPB launched the examination into suspected nepotism at the SBOE at the request of Fiona Ma (D), who was chair of the board from February 2016 to February 2017. Ma currently is an SBOE member.

The SPB report, released Nov. 15, comes five months after lawmakers stripped the SBOE of most of its tax administration duties. The move was prompted by a March 30 audit report from the Department of Finance and multiple news reports showing elected board members were interfering in day-to-day operations, intimidating employees, using staff and resources to promote themselves, and violating state spending rules.

General Nepotism Findings

On the issue of nepotism, the report found:

  •  At least 17.5 percent of nearly 5,000 SBOE employees were related to each other or had close personal relationships, and many of them worked in the same departments or within the same chains of command.
  •  The number could be higher because the SBOE didn’t track personal relationships among employees, and the 17.5 percent nepotism rate is based on a flawed survey the SBOE managers performed in April 2017.
  •  The SBOE lacked an adequate nepotism policy and failed to review or update its policy in a timely way.

Both the CDTFA and the SBOE have adopted new nepotism policies in the past month.

No Hiring Authority

The SPB report covers activity before July 1, when most of the board’s duties were shifted to a new California Department of Tax and Fee Administration. Under the SPB’s order accompanying the investigation report, the SBOE’s authority to handle personnel is revoked permanently and the CDTFA’s authority is suspended for one year. Both entities must go through the California Department of Human Resources for all “merit-related human resources functions,” including hiring, and the CDTFA will handle SBOE’s staffing once the CDTFA’s authority is restored, according to the investigation report.

The report singled out four employees improperly hired and ordered the SBOE to void three of their appointments. Although the investigation report refers to the employees by their initials only, Bloomberg Tax was able to identify the individuals through publicly available information and through interviews with current and former SBOE employees. A current SBOE member confirmed with Bloomberg Tax on background the identities of James Kuhl Sr., James Kuhl Jr., Jessica Cooper, and Dan Elliott in the investigation report.

According to the investigation report, James Kuhl Jr. was hired in 2012 as a tax technician after his father, James Kuhl Sr., influenced the agency to hire him quickly before new, less generous state retirement rules took effect in January 2013. The elder Kuhl was a senior tax adviser to board member George Runner (R).

‘Are You Going to Make This Work?’

According to the investigation report, Kuhl Sr. used his influence to encourage the hiring of his son. One witness told auditors that there was “a lot of pressure to make it work” and that Kuhl would ask “are you going to make this work?” The SBOE’s internal affairs division determined in March 2016 that Kuhl Jr.’s hiring was based on preselection during the hiring process, but allowed the appointment to stand, the report said.

By then, Kuhl Sr. was chief deputy to then-SBOE chair Fiona Ma. Ma announced March 7, 2016, that Kuhl was no longer working in her office, according to an email obtained by Bloomberg Tax March 8, 2016. He now works as a consultant on state and local tax matters at KPMG LLP in Sacramento.

Kuhl Sr. didn’t respond to requests for comment from Bloomberg Tax Nov. 15 and 17. Runner and Ma declined to comment Nov. 15 because it was a personnel matter. Kuhl Jr. moved to a position with the Victim’s Compensation Board in August 2016 and left state service in May 2017, but his employment will be voided so that he can’t claim reinstatement rights with other state jobs, according to the investigation report.

In a Nov. 18 email to Bloomberg Tax, Kuhl Jr. said he ranked first for the position based on his exam results. He was applying for many positions and had several offers but wanted to work for SBOE.

“My father tried to persuade me not to work for the BOE, so it’s hard to believe he influenced my hire,” he said.

Kuhl Jr. now works in the private sector.

Assemblyman’s Daughter

Jessica Cooper was hired in 2015 as an analyst in the outreach services division after board member Jerome Horton (D) and his chief of staff intervened on her behalf, the investigation report said. Cooper’s mother also works at the SBOE and her father is Assemblyman James Cooper (D). He was a member of the Assembly budget subcommittee that oversees the SBOE budget at the time, and became chair of that subcommittee in 2017.

According to the investigation report, the hiring manager, Trey Luzzi, didn’t include her in an interview pool for the job because she submitted a late application that was incomplete and contained multiple punctuation errors. The staff services manager, working for the acting chief, said to “go the extra mile” to consider Cooper for the job because she had contacted Horton’s office for help.

Cooper was interviewed and ranked lowest among interviewees, but the hiring manager was blocked from hiring the top candidate, according to the investigation report. Cooper was ultimately hired in November 2015 after the job was held open and reposted so she could apply again, although her application was late a second time, according to the report.

“There was influence and involvement by the highest levels of the organization, including Board Member Horton, his chief of staff, and B.H., the acting chief of the Outreach Services Division,” the investigation report said. Acting Chief Bill Hain, who was Luzzi’s boss, and Chief of Staff Kari Hammond both declined to comment to Bloomberg Tax Nov. 20.

Once hired, Cooper was assigned to assist Horton with events and outreach, Bloomberg Tax has previously reported.

Cooper didn’t respond to requests for comment Nov. 17. Luzzi also declined to comment Nov. 20.

Discrimination Concerns

In a written statement emailed to Bloomberg Tax Nov. 15, Horton said he got involved in Cooper’s application process because he was concerned about discrimination. Cooper is African-American.

“We simply notified the agency of our concerns of discrimination and inequity in the process and were not privy to the selection criteria/process or test results and learned of the hire after the fact,” he said.

The investigation report said SPB found no evidence that the hiring manager was biased against Cooper or treated her unfairly while she was being considered in the first round of interviews.

‘Sham Interview’

Andrew McElhinney was an information officer for board member Diane Harkey (R) in 2015 when his wife took a job in New York, according to the investigation report. Russell Lowery, Harkey’s chief deputy, told McElhinney that he could continue his job in New York while he submitted a hardship transfer for a different staff job in the office there, the investigation report said. McElhinney moved to New York and worked from home writing blog posts, newsletters, and event summaries for Harkey’s office.

After he moved to New York, managers said McElhinney was misinformed about his ability to transfer, and that no jobs in the New York office at his current pay were available, according to the investigation report. A lower-paying office technician position in the New York office was posted. He applied, and got the job. Auditors concluded the job posting and interview process was “a sham.”

“It is plainly evident that A.M. had been preselected for the OT position and that Member Harkey and her deputy director used their positions of authority to improperly influence, and arguably pressure, BOE executives to ensure placement of A.M. in the New York office,” the report said.

The report also faulted SBOE managers for failing to resist or question the job posting. “The fact that a job bulletin was posted, interviews conducted, and candidates rated does not cloak this appointment with ‘merit,’” the investigation report said.

Lowery confirmed McElhinney is the A.M. named in the report and told Bloomberg Tax Nov. 15 he merely asked former Executive Director Cynthia Bridges if McElhinney could transfer to New York but didn’t influence or pressure managers to make it work. Harkey, who is now SBOE chair, didn’t respond to a request for comment Nov. 15.

McElhinney didn’t respond to requests for comment Nov. 17.

Improper Exam

Also included in the investigation report was Dan Elliott, hired in May 2016 as an information officer after he took the exam for the position in January when he wasn’t eligible.

According to the investigation report, Elliott, whose wife works at the SBOE, first took the exam on May 6, 2015, and ranked third, making him eligible to interview for an information officer position for one year. Even though his personal list eligibility hadn’t expired, he retook the exam on Nov. 9, 2015, and ranked fifth, making him ineligible for a position. Under civil service rules, applicants can take exams every six months and are eligible for interviews if they rank third or higher on the exams.

According to the investigation report, Elliott improperly created a second account on the online civil service exam system in January 2016 using a different user name and password and took the exam again, placing third. He was hired in May 2016 based on his results from the improper exam, the investigation report said.

In an interview with Bloomberg Tax Nov. 17, Elliott said he wasn’t trying to go around the rules for testing to get his position. He was applying for many jobs in the time frame covering the investigation. In January 2016, the online exam system changed and he had trouble logging on, so he thought he needed to re-register. He doesn’t specifically remember taking the exam in again November 2015, he said, because he was applying for multiple jobs at the time.

Elliott said he realizes he should have sought help rather than creating a new registration with the system in January 2016.

“I was in no way trying to better the system,” Elliott said. “I was not trying to do anything illegal. I’m too stupid.”

Elliott said he hasn’t been notified that his position will be voided, but he plans to appeal the decision.

More Improper Hires

The report also found that SBOE managers violated hiring rules for multiple positions in an office in Santa Clarita, in Runner’s district, and in Culver City, in Horton’s district. Runner and Horton told Bloomberg Tax they had no involvement in those hiring decisions. The investigation report didn’t call for the employees to lose their jobs, but ordered improvements in hiring processes for the SBOE and the CDTFA.

Horton said in a Nov. 15 email to Bloomberg Tax that the Culver City hires, which mainly happened in late 2012 to secure more generous state retirement benefits, were part of an overall push to hire people before the deadline. He provided an October 2012 email from a senior SBOE manager to all department heads encouraging them to hire people before Dec. 31, 2012.

Runner told Bloomberg Tax Nov. 15 that the investigation is thorough and gives the SBOE and CDTFA direction to make changes.

“If other agencies were subject to the same evaluation, you’d find the same issues,” he said.

In a written statement, Ma said the investigation report is a step forward for the SBOE.

“This investigation demonstrates the mismanagement, flagrant nepotism, and abuse of authority I discovered upon my election and have spent my tenure on the Board trying to uproot,” she said.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif. at lmahoney@bloomberglaw.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bloombergtax.com

For More Information

The report, “Special Investigation Report: California State Board of Equalization,” is at http://src.bna.com/uia

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