Inspector General Chick: Governor's Recovery Act Funding Watchdog

By executive order last year, Governor Schwarzenegger appointed you state inspector general and asked that you keep tabs on how California spends the estimated $50 billion it expects to receive from the American Recovery and Reinvestment Act. Elaborate on this job assignment and the challenges you have faced to date in carrying out your responsibilities.

Governor Schwarzenegger, I believe, is the only governor who created such a position, and he did so based on his concern that there isn't as much robust oversight of the public's dollars as he would like.

The challenges are huge. First of all, to watch that much money up and down a state as big as California is a tall order, and quite a bit of the money-and California is getting more recovery dollars than any other state-is not coming through Sacramento. There are billions of dollars that are going directly out, in competitive grants, to cities, counties, non-profits, and private sector companies. Some of those dollars are next to impossible for me to keep an eye over, even though the governor, when he hired me, said "I'm not making a distinction between the money coming through the state indirectly. It's all coming to California, so I care about all of it." I do too, but I don't have the authority to look at those dollars. Challenges-besides the fact that it's a lot of money to watchdog and a big territory to cover-have centered on getting staff resources and responding to resistance.

As we all know, the state and the nation are in an economic crisis, so it impossible to create an inspector general's office and then give me a blank check to hire top notch people to work here. I have had to beg for and borrow a small number of auditors from recovery-funded state departments, and no director is eager to give away staff. For the first six months I was working with a staff of, counting myself, five people.

After the first of the year I received increased resources; but, I'm still, including myself, a shop of about 14 people. Admittedly, it includes top notch auditors with experience in state government under their belt, but even so, it is a small shop.

My job is all about the three D's: to deter, detect, and disclose waste, fraud, abuse, and a category I call stupid spending. The first six months when I had so much trouble with resources, it was acceptable because I was focused on the prevention part. For the deterrent part. I joined forces with the FBI, with the Western Regional Association of Inspectors General-the feds, DOJ, Attorney General, and U.S. Attorneys-concentrating on fraud detection and fraud awareness training. What I found was that inspector general offices were running around starting their own fraud trainings. That didn't make sense to me; that's a duplication of effort; it's a waste of recovery dollars. I went and pitched the Western Association, "Come on, isn't there a state of the art fraud training? Aren't all of these fraud trainings saying the same thing? Why can't we get together and do one, generic fraud training?" So we came together as a team and trained well over two thousand people: California state workers, local government workers, and non-profits. We did a webinar on one of the trainings, and we sent out several different advisories to local government and to all of the recipients receiving recovery money. We're trying to raise their consciousness and to do "lessons learned."

As city controller in L.A., I was often criticized for being too public with audits. The Recovery Act has a huge piece about transparency and accountability, based on the president's understanding that the public wants to know what's happening with their tax dollars. For me, it was always a frustration that I was seeing the same mistakes made over and over again. I blast things out publicly, not only to educate the public how their money is being used, but also to share lessons learned.

The first report we did was on a work investment board; I wanted the 49 work investment boards that are receiving recovery dollars up and down California to look at the mistakes that we found in one so that they're not making the same mistakes. It really stretches taxpayer dollars that way. I don't have the resources to do reports or investigations of every single work investment board, but I know that they do business in similar ways, so if I find a mistake in one, I want to put them all on notice: think twice, take a look at what you're doing, don't make the same mistake.

Prior to assuming your state responsibilities, you were the controller of the city of L.A. for eight years, before that you were on the city council, and before that on the staff of a councilmember. From experience, how does the culture of the political body and the political community impact the ability of an overseer to deter, detect, and disclose what happens within a bureaucracy?

Very early on in this new job, I was banging my head against a culture in state government that says, "We don't want to air our dirty laundry; we don't want to cause grief and aggravation; we don't want to make anyone look bad. We want to get along and go along." It's not such a different culture than what I started with as city controller in L.A. It is a traditional public sector mentality that doesn't want to open the books and show what's happening. There's resistance, reluctance, and a belief that the media is going to write a story to make everybody look bad and disenchant the public further. I had someone here in state government imply that their loyalty to the governor was a better approach than how I do things. My push back was I care about that too; I happen to think that the governor looks really good when he is standing up and exposing a problem, mistake, or flaw by saying, "We found this and we're going to fix it. This is what we're going to do to make it better." That's how I define my job: it's not about making people look bad; it's about putting the light of day on areas that need improvement.

It was estimated that there would be about $50 billion total that would be coming to California from the ARRA. You've commented often that as much as seven to ten percent of these federal funds might be at risk for fraud. Can you elaborate on the significance of both these numbers?

We are receiving at least $50 billion in funding, and if you start figuring in some of the Build America bonds, the low-interest and no-interest loans, and some of the financing mechanisms, best estimates are that California could received as much as $80 billion. I prefer to use the $50 billion figure, which is accurate. The FBI put the fear of god in me as I was assuming my responsibilities by telling me that based on their long experience, when they see large infusions of federal dollars being dispersed that they predict, on average, seven to ten percent fraud. The aftermath of Katrina saw 17 percent fraud.

Given the FBI's experience, you are suggesting that $5-8 billion may be fraudulently expended?

Yes, it's staggering, and when I throw out that figure I always immediately follow it with a statement that those figures are completely unacceptable. I would like to say any dollars lost to fraud are unacceptable, but $5-8 billion is breathtaking and cannot happen. That's why I was running so hard at the front end, putting people on notice.

There are benefits coming from the governor creating this position and the way I'm doing the job. It is hard for me to concretely give you evidence of it, but I know that it's been effective from the feedback I get from department directors, etc. Since nobody wants to air their dirty laundry, but they know that the governor has someone trolling for problems, it has raised the bar a little bit.

It's good that department managers are nervous; that's not a bad thing. In my meeting with department directors, and I met with all of them that are receiving recovery dollars, I asked them "What are you goals? What are you objectives for this money? What is your oversight plan? What concerns do you have? Please do not hide your concerns because they're going to come out." This made some of them go back to their drawing boards and say, "Whoops, maybe we better look a little bit harder at some of these agencies that we're giving money to."

There are higher standards now; there's more accountability. The state, I believe, needs to change the way that it's watching the people's money. It's clearly starting to happen, with the added requirements of the recovery act and the creation of the IT office combined; it's making a dent.

Applying your experience in the state capitol to local government, what responsibilities does the L.A. city controller have to the public to assure L.A. city's finances and fiscal policies are prudent and transparent?

When I was city controller, my definitions of my job were as follows: one was taxpayer watchdog, one was to improve city services through a variety of aspects of the city controller's office, one was to weed out waste and fraud wherever we found it and eliminate it, and the last one, which answers your question, to open up the city's books. I didn't just open the ledgers, I opened up the activities of city government to more awareness and understanding on the part of the public so they could, much more easily, see how their taxpayer dollars were being spent.

As city controller I was operating one of those big movie spotlights, turning it into the darker corners and recesses of city hall to show the public what was going on. I'm a firm believer that when you shine the light of day, interesting things crawl out, and that's exactly what you want to have happen. When no one is watching, when no one is paying attention it's in human nature, much less organizational nature, to do a little slipping and sliding.

I don't think anyone should trust government to operate in their best interest just on a matter of good faith. You have to constantly watch and expose to make sure that that's the case. The controller's job is to constantly put the rest of government on notice that there are standards to meet and that the controller's job is to expose-expose what they're doing it right if they are doing it right and to expose what they're doing incorrectly if they're doing something incorrectly-to constantly expose areas of needed improvement.

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Your successor, a respected councilwoman, no doubt understood how unpopular the position of controller can become, but appears to have come into the office wanting to be everybody's friend. How personally challenging is it to be the watchdog uncovering what nobody wants uncovered in a local jurisdiction?

It's a huge challenge. Wendy Gruel and I have had several conversations along these lines since she became city controller. When she was a candidate I shared with her the advice or words of wisdom that Rick Tuttle shared with me. He told me that the City Controller's Office was a lonely place, meaning a lonely place in City Hall, meaning that you couldn't be a part of the camaraderie of city council. You couldn't be buddies with general managers or commissioners because you never knew when you needed to scrutinize their shop and produce reports that would not be favorable to them. And you couldn't let personal friendships and relationships sway you. I cannot remember how many times I had people with whom I'd had friendly relationships, who had been political supporters, who had made political contributions, who had raised money for me, had traveled with me, etc., saying to me, "Do you have to look at this? Do you have to include that in your audit? I don't think that's really relevant to the subject," and on and on. I had to take pretty tough positions with people. It is a lonely place, and you can't be part of a team; you are a lone player. It was part of the reason I didn't endorse in the city controller's race; I felt I needed to keep myself above that fray and let the public decide. You might remember that I was accused of being too political as city controller, when I got met with all of the mayoral candidates. That was a real lesson for me when I realized that in certain ways the public and the media thought of me as apolitical even though I was an elected official-that the controller's office needed to be above the fray to be seen as independent and very objective.

The size of the city of L.A.'s budget deficits has caused some to predict bankruptcy, What's the role of the controller-above and beyond doing departmental audits-to alert the public of the consequences of deficits?

The more visible part of the office was the auditing arm, but in many ways the city controller can be seen as the chief financial officer of L.A. The CFO role is very chopped up in the city: the CAO has a piece of it; the Treasurer's Office has a piece of it; the Office of Finance has a role. Especially because the controller is elected and answerable directly to the public, I always felt that the CFO aspects of the Controller's Office were exceedingly important: to make the public aware and to put the mayor and council on notice of the precarious cash flow situations, bond raiding situations, etc. The March revenue estimate reports, the cash flow reports, and others that came out of the controller's office were key, and in this era, even more key. Really the city controller could elevate that role in times of financial precariousness. In a way, that is what John Chung does here in his role as state controller: to be the spokesperson, warning the governor and the Legislature of the cliff that they're walking toward.

What are the problems of trying to balance that apolitical watchdog role with being an elected official when the largest campaign contributor is the most powerful interest group in the city? How do you do that? How do you balance those pressures?

I don't want to sound disingenuous in the answer because it's real. You have to amnesia about who supported you and who didn't-total amnesia. It was a rule I followed my whole political career because I had some early lessons before I was elected, watching other elected officials with lists-written or mental lists-of who gave to them, who didn't, and who had given to their opponents. I always felt I didn't have time to pay attention to that; I had a job to do. As I became more experienced I learned, especially as controller, that it really was essential to forget who were my donors and who weren't. Some savvy political people will read a comment like that and say, "She's a fool." But I don't think the public and the people I represented think I was a fool. I was criticized by people, such as airport commissioners, public relations CEOs, general managers of the port, and heads of the CRA, who gave quotes in the newspaper saying, "She doesn't remember who her friends are; there's something wrong with her sense of loyalty, etc." No. My loyalty was to voters and to taxpayers. I always felt I shouldn't remember that an airport commissioner had been my finance chair when I ran for city council, and when I did an audit of the airport commission it was very good for me not to remember that because there were actions on the part of the commissioner that needed to be exposed.

Looking back in your rearview mirror at your role as controller of L.A., what's this watchdog role all about? Why is it important to the public process?

One of the awesome and distressing things that I found early on in Sacramento is the lack of accountability that exists in state government-the fact that no one is pushing change and reform. There's a state auditor who does a very good job of putting out audits, particularly audits that the legislature asks for. It's a series of good exposures, but with disconnected dots, that get produced, and then there's no real follow through in pushing. Now let's go to the city of L.A.; if the City Controller's Office is not shining the light of day on problems and issues-through exposure, media, and being vociferous about it publicly-nothing changes. It is very clear that the city of Los Angeles is facing big trouble and issues and needs to do things differently. Where is the impetus for reform and change if it isn't from the Controller's Office? It does not exist unless it's there, just like up here, as of this moment, there is no place in Sacramento that is that voice as the Controller's Office is in Los Angeles.