Eleven days before the June 5 election, incumbent San Bernardino County Auditor-Controller/Treasurer-Tax Collector Oscar Valdez offered a partial response to imputations that there are inherent conflicts between the functions of the different and combined offices he holds that have left the county vulnerable to violations of the public trust historically plaguing the treasurer’s office and its affiliated duty in overseeing the county’s investment portfolio involving hundreds of millions of dollars.
The county’s critics and reform advocates have taken issue with what they perceive as an unhealthy collusion between members of the board of supervisors, who are supposed to be subject to the oversight of the county auditor, and both Valdez and his predecessor, Larry Walker, as was first manifested in 2010 when the board merged the auditor-controller’s office and its function with the office and function of the treasurer-tax collector. Valdez succeeded Walker by appointment in 2016, six years after the merger occurred, assuming all four offices – auditor, controller, treasurer and tax collector – in one fell swoop. Despite the assertions by some that an inherent conflict of interest exists in the consolidation of the four functions, Valdez suggested that the faith the supervisors expressed in him two years ago when they appointed him to replace Walker is an indication of his fitness to hold the positions.
“Under my leadership, I have improved resources to provide better customer service to taxpayers and our county constituents,” Valdez stated in writing in a letter to the Sentinel dated May 25. “I have also reorganized the management structure to provide for better efficiencies and to position this office for the growing demands of the future. Further, this office has continued to receive the highest awards for excellence from the Government Finance Officers Association, California State Controller’s Office, and Fitch Ratings.”
Valdez first came to work with the auditor-controller’s office in 2000, two years after Walker, who had previously served 12 years as a member of the board of supervisors, was elected auditor-controller-recorder. Six years later, Valdez transferred to the county’s treasurer-tax collector division, which was headed by then-County Treasurer Dick Larsen. In 2010, the county engaged in a reorganization involving four of its elected offices. County officials eliminated the treasurer-tax collector position as one that stood alone and merged it with that of the auditor-controller. It moved the county recorder function to the county assessor’s office. Simultaneously, it had the public administrator function relating to the administering of decedents’ estates, which had until that time resided with the county treasurer-tax collector, handed off to the sheriff, who seven years before had absorbed the function of the coroner.
For many, the realignment was a curious one, particularly that involving the auditor-controller and the treasurer-tax collector. A little more than a decade before, in 1999, San Bernardino County’s highest ranking staff member, Chief Administrative Officer James Hlawek, elected Treasurer Thomas O’Donnell, County Investment Officer Sol Levin and Hlawek’s predecessor as chief administrative officer, Harry Mays, were indicted along with others, all of whom in rapid succession agreed to plead guilty. Among the indictment’s charges were those relating to O’Donnell, Levin, Hlawek and Mays having engaged in a series of kickback schemes. In one, in exchange for bribes and all-expenses-paid excursions to Costa Rica, Greece, France and Florida, from 1992 until 1998 Mays, Hlawek, O’Donnell and Levin provided Salomon Smith Barney and the New England Adjustable Rate Government Fund with contracts to invest more than $7.5 billion in public funds in financial instruments from which money was creatively spun off to brokers, resulting in an estimated loss or diversion of at least $20 million in taxpayer money over that six-year period.
The 2010 merger of the treasurer/tax collector’s office with that of the auditor-controller eliminated a crucial layer of independent scrutiny of the county treasurer’s function. In addition to having oversight and control of the funding for the county’s day-to-day, week-to-week, month-to-month and year-to-year operations, the treasurer and the investment officer, whom the treasurer appoints, oversee the investment and handling of the county’s reserves, which total in the hundreds of millions of dollars.
Prior to the board of supervisors voting to effectuate the reorganization, both former county assessor Don Williamson and Ensen Mason, a local certified public accountant, went on record against the merger. Mason in 2010 and 2014 opposed Walker for reelection and this year is opposing Valdez in his electoral bid.
Walker, who stood to gain a $75,000 enhancement to his yearly salary by taking on the treasurer’s function, offered assurances he was up to the demands of fulfilling the duties of the new role and that there were adequate facilities and personnel in place for the county to make the transition. Valdez upon the completion of the consolidation became one of Walker’s top assistants.
The following year, the San Bernardino County Grand Jury echoed Williamson’s and Mason’s concerns. In its 2010-2011 report, the grand jury stated, “It is notable that the grand jury found no county where as many important positions are held concurrently by one person as is the case with the San Bernardino County auditor-controller/treasurer/tax collector and county clerk. While the combination of offices is allowable under Government Code §24300, the grand jury finds, in practice, in San Bernardino County the controller’s office, not the auditor’s office, does the risk assessment that determines which departments are to be audited. This chain of authority may not have been anticipated when the consolidation was deemed to be beneficial to the county. San Bernardino County is not out of the norm in combining the controller/auditor function. However, we are not the first grand jury to point out the inherent problems in this and to recommend a separation of the auditor’s function from the controller’s function.” The grand jury said that was particularly the case in the aftermath of those offices being merged with that of the county treasurer.
According to the grand jury, the merger created a potential conflict and potentially tainted the autonomy and objectivity of the county’s audit function.
Of note was that in the early years of his tenure as auditor-controller, Walker had occasionally made a point of second-guessing, questioning, challenging or examining in some degree of detail the actions by, or circumstances with regard to, the decisions or activity of other county elected officials, including the board of supervisors. Two such efforts included the 1999 audit of the sheriff’s department’s contract for psychological services with the company owned by a woman, Nancy Bohl, who was cohabiting with the sheriff and would later become his wife, and the vigorous questioning of the board of supervisors’ vote in 2006 conferring a $102 million settlement of a lawsuit on the Colonies Partners and the immediate disbursement of a $22 million payment to that company within 24 hours of the vote. After the 2010 merger, Walker dispensed with any examination of the decision-making process of other county officials impinging on issues of public policy or public import.
During his reelection bid in 2014, Walker, then 63, provided voters with an assurance that he would serve out the entirety of the four-year term he was seeking if he were elected. In 2016, however, Walker abruptly resigned, recommending to the board of supervisors that they designate Valdez as his replacement. The board received applications from 17 individuals for the post, determining that nine, including Valdez and Mason, who in opposing Walker in 2010 received 52,445 votes and in 2014 polled 37,183 votes, met the minimum qualifications for the post. Five of those nine, including Valdez, were interviewed. The board, concerned that Mason might make an issue of the consolidation of the auditor-controller’s office with that of the treasurer-tax collector, chose not to interview him. Ultimately, the board complied with Walker’s recommendation and elevated Valdez to the auditor-controller/treasurer-tax-collector position. In accepting the appointment, Valdez inherited from Walker the $75,000 salary enhancement that came with the merger of the posts plus the subsequent raises. Valdez receives $461,088.42 in total yearly compensation as auditor-controller/treasurer-tax collector.
Valdez is now standing for election, to claim in his own electoral right the position that was conferred upon him by the board of supervisors. Challenging him in that effort is Mason. Of moment in the race is the degree to which Valdez essentially assimilated Walker’s policies and has accepted the arrangement under which the position of county auditor-controller does not exist independently of the position of treasurer-tax collector overseeing the county’s financial affairs and its investments.
Valdez offered a defense of the reorganization and his continuing to fill the roles of the four offices.
“With regard to the 2010 consolidation and reorganization of the offices of the auditor-controller/recorder, treasurer-tax collector/public administrator, and assessor, the authority to implement such a reorganization lies solely with the board of supervisors under statutory law and the county charter. My requirements as auditor-controller/treasurer-tax collector are to meet the statutory mandates of this office, to ensure the transparency of reporting and independence of auditing, to facilitate the proper separation of duties and responsibilities to avoid conflicts of interest and fraud, and to ensure that all transactions are properly executed, recorded, and accounted for. All auditing of the treasury and cash management functions that were performed by internal audits prior to the office consolidation are now performed by external audit firms to ensure transparency and separation of duties. This change has allowed internal audits to focus on conducting operational and compliance audits of county departments, offices, agencies, and special districts. All county stand-alone financial statements are audited by external audit firms. These include the consolidated annual financial report and financial statements for treasury, flood control, county fire, Special Districts, Arrowhead Regional Medical Center, First Five, the San Bernardino County Housing Authority, and other agencies. The county is also subject to annual federal and state audits. All audit reports issued by this office, or commissioned by this office, are available to the public on the department website and are reviewed by the San Bernardino County Audit Committee.”
In the slightly more than two years since moving into the auditor-controller/treasurer-tax collector’s post, Valdez, like Walker in the last six years of his tenure, has avoided taking the members of the board of supervisors or any of the other elected officials in the county to task over any of their actions, votes or policies, hiring or promotional practices or expenditures.
The Sentinel queried Valdez directly as to whether he had seen no action by other county officials that triggered his instinctive misgivings born of his role as auditor. He was further asked if he believed the consideration that he was elevated into the position of auditor-controller by the board of supervisors left him in any way less disposed to apply scrutiny to them, and whether, if he were to encounter some problematic action by a member of the board of supervisors or a combination of members of the board or the board collectively, he would be able to bring his authority to bear and carry out a public examination or challenge of that action. Valdez was clearly made uncomfortable by those questions, and essentially avoided answering them with any specificity, acknowledging only that he had been chosen by the board of supervisors to the auditor-controller/treasurer-tax collector’s post, which he suggested was an indication of his fitness for the role rather than something that limits him.
“I was unanimously appointed to the position of auditor-controller/treasurer-tax collector by the San Bernardino County Board of Supervisors in a public meeting following a publicized open recruitment process in which the board of supervisors interviewed several highly qualified candidates to complete the remaining term of then-retiring Auditor-Controller/Treasurer-Tax Collector Larry Walker. I was appointed by the board of supervisors because they believed me to be the best-qualified candidate of all those who applied, based on my (then) 20 years of governmental accounting and finance experience and knowledge of the county. I was the only candidate who had served in management and leadership roles in both offices of the treasurer-tax collector and the auditor-controller/recorder prior to their consolidation by the board of supervisors. My experience as finance officer for the treasurer-tax collector, chief deputy controller for the auditor-controller/recorder and assistant auditor-controller/treasurer-tax collector make me uniquely qualified to lead the auditor-controller/treasurer-tax collector’s office. To this day, I am the only candidate with experience in all of the office’s functional divisions.”
With regard to the watchdog function over the county’s operations in general, “Valdez said, “My office operates and administers the county’s fraud, waste, and abuse hotline, which is used by the public and employees to report suspected fraud, violations of county policy, and the misuse of county resources by vendors, contractors and employees.”
Valdez said he believes he merits being kept in office.
“Since I took office in 2016, the number of completed audits have increased by 43 percent. I have worked tirelessly to improve accountability and transparency in county government, and will continue to do so. Critical issues that have benefited from my active leadership and participation include the recent annexation of fire services from the City of San Bernardino to the county, and the statewide dissolution of redevelopment agencies. Both of these issues required a thorough understanding of the statutory, contractual, and bond document requirements to ensure that all taxing agencies were treated fairly and equally, and that the bond holders’ interests were protected.”
Valdez continued, “I work tirelessly to protect the interests of taxpayers by strictly enforcing compliance with all statutory and county investment policies to protect the principal and liquidity of the treasury pool. I diligently follow the law and the county charter. I have worked to enhance public service delivery by leveraging new technologies and services, and provide new technologies and services, and provide the necessary support to county personnel to meet customer service expectations. It is my commitment to the people of San Bernardino County to perform my duties with integrity, transparency, fairness, independent judgment, accuracy, and efficiency, and to provide outstanding customer service to the public.”