Audit finds $3.8 million in election funds improperly spent

The commission will review the audit and issue a final report to the state within 60 days, commission spokeswoman Jeannie Layson said. She said it is premature to speculate about possible remedies or penalties the state could face.

But the current secretary of state, Bruce McPherson, said California could be required to repay the money.

"In order to argue against a particular reimbursement, the secretary of state’s office must show proof of reasons why those funds should not be reimbursed,” said Jennifer Kerns, a spokeswoman for McPherson.

She said the state hadn’t been able to demonstrate those reasons, which could include the fact time cards were lost or contracts were misplaced.

Auditors said about $3 million in spending lacked documentation, such as paying salaries for people who didn’t submit time sheets, or was improperly awarded to consultants through no-bid contracts.

The audit, conducted by the Department of the Interior’s inspector general, also found another $777,502 was improperly spent on salaries, promotional memorabilia and other items that were unrelated to the Help America Vote Act.

Congress passed the act in 2002 after the problems with voting machines and access to polling places that surfaced during the 2000 presidential election. California has received about $180 million in federal money to upgrade voting equipment and procedures. Federal authorities froze another $170 million after questions arose about Shelley’s spending, money that was released in June after Shelley had been replaced.

Shelley, a Democrat, denied wrongdoing but resigned in February after he was accused of mishandling the money, bending state hiring rules to reward political allies and accepting questionable campaign contributions.

His successor, McPherson, agreed with some of the audit’s findings, but disputed the auditor’s claim that about $2 million in no-bid consulting contracts were inappropriate.

Those contracts were cleared for no-bid awards by the state Department of General Services because of a tight deadline to bring California into compliance with the federal law, McPherson said in his response to the audit.

In addition, the office was facing unprecedented pressure from the combination of three elections — the first-ever recall election for a California governor in 2003, followed in 2004 by a presidential primary and a presidential general election, McPherson said.

The federal audit confirms the findings of the California Bureau of State Audits. A state audit in December 2004 found that federal money intended for voter outreach was used by Shelley to pay for consultants who attended partisan Democratic events and promoted Shelley’s political achievements.

That audit said Shelley poorly managed the money and failed to properly oversee his staff and consultants. It suggested 17 changes in how the secretary of state’s office implements the Help America Vote Act.

McPherson told auditors his office has complied with most of those recommendations and is working to implement the rest.

A spokesman for Shelley said many of the changes recommended by the state auditor were started by Shelley.

"As the current administration points out, the office of Secretary of State Kevin Shelley was overburdened by a cyclone of unprecedented and historic forces,” said Shelley’s spokesman, Sam Singer. "This audit is reflective of the difficult circumstances the Shelley administration faced.”

State Sen. Dave Cox, who requested the state audit, said the federal report released Wednesday indicates that Shelley tried to politicize his office.

"Today’s audit by the EAC shows that while he was secretary of state, Mr. Shelley and his operatives ignored clear policies in order to hire political operatives,” Cox, R-Fair Oaks, said in a statement. "They improperly used taxpayer dollars for questionable and improper purchases of self-promotional items and other materials.”

In the campaign finance probe surrounding Shelley, San Francisco real estate agent Julie Lee is facing eight felony charges that she laundered a state grant for a community center into Shelley’s 2002 campaign. Lee has pleaded not guilty.

Singer said Shelley remains "quite active in both business and politics” and has not been questioned in the Lee case.