San Benito County officials have requested an audit and investigation services from the state controller’s office after a recent fraud incident brought the county’s total known loss of public funds to theft or embezzlement to more than $1.1 million in recent years.
Concerned that there might have been even more fraud or theft that has not been detected, the board of supervisors on Oct. 21 unanimously voted to request assistance from California Controller Malia M. Cohen’s office.
“In the past two years, we have suffered two incidents of fraud and embezzlement leading to a potential loss of over $1.1 million in taxpayer funds due to failures in the auditor’s internal controls to detect and prevent fraud,” says a letter from the board to Cohen. The letter was drafted by San Benito County Attorney Gregory Priamos and presented at the Oct. 21 meeting.
“We are afraid there may have been other instances of which the board is unaware and only an audit by your office will disclose whether that has occurred,” the letter continues.
The purpose of the Oct. 21 special board meeting was to discuss any “reforms that must be made to ensure against any further fraud, waste and abuse,” Priamos said.
The most recent fraud occurred Oct. 15, when a thief or thieves posing as a representative of a contractor doing business with the county was able to convince county staff to send a payment of $696,602. The payment request to the county originated from someone who posed as a worker for Teichert Construction, to whom the county owed money, according to authorities.
The other, unrelated known incident of theft of taxpayer funds occurred between 2019-23, when library employees Erin Baxter and Mary Alvarez purchased more than $360,000 worth of merchandise from Amazon using county money. The suspects submitted falsified invoices to County Auditor Joe Paul Gonzalez’s office to repeatedly embezzle from the county for several years.
Baxter and Alvarez were convicted and sentenced for embezzlement earlier this year.
In response to the library theft, the board of supervisors last month voted to request proposals from forensic accounting firms to investigate the library budget. The county has not yet selected a firm for that task, which may now become rolled into a broader investigation by state officials.
The sheriff’s office and FBI are investigating the Oct. 15 theft, and have not announced if any suspects have been identified or arrested.
The county has not recovered the nearly $700,000 stolen in the Oct. 15 incident—despite previous reports from the county administrator’s office.
County Treasurer Melinda Casillas said although the county’s bank statement had shown a credit of the fraudulent payment after the bank recognized it as fraudulent, by the morning of Oct. 21 that had been reversed and deducted from the county’s account. The bank, Wells Fargo, had informed the county that the account to which the stolen funds had been transferred was closed before the funds could be retrieved.
A representative of Wells Fargo told the board that the bank’s investigation is still open, and they might still be able to recover the stolen money.
County officials added more details about how the fraudster was able to commit the theft. It started with a “vendor change request form” submitted to the county by someone posing as a legitimate contractor. The form had requested that payments to Teichert Construction be made electronically instead of with paper checks, as they had been paid previously.
The form had been submitted to the county’s Resource Management Agency, which forwarded the change request to Gonzalez’s office, according to county officials.
Instead of calling the vendor phone number on file in county offices, a county staffer called the number on the fraudulent change request form and subsequently approved the payment, according to authorities.
“This breakdown in the auditor’s fraud preventative procedures clearly led to the fraudulent payment of $696,602.02 in county funds to a fictitious construction company,” says the board’s letter to Cohen.
The fraudster also may have hacked into an email account managed by Teichert Construction, monitored the account for some time and waited for the best opportunity to request a payment from the county, according to Wells Fargo’s representative.
Casillas and Wells Fargo immediately filed a fraud claim with the FBI and requested a reversal of the electronic payment.
The county auditor is an elected official whose office is not overseen or directed by the supervisors or county staff. Gonzalez, who was elected in 2022, was in the hot seat at the Oct. 21 meeting as Supervisors Ignacio Velazquez and Kollin Kosmicki criticized the auditor’s reaction to the recent fraud incidents.
“I have major concerns about what is going on. I don’t have confidence in your leadership in that department,” Velazquez said, addressing Gonzalez. “I think something should be done about it. Personally, I think you should resign. This is going to become a bigger issue than what we know right now.”
