The Calaveras County Civil Grand Jury has recommended that Angels Camp city officials discuss dissolving the city because of financial problems, lack of public interest in running for elected office, and alleged misuses of public funds.

Mayor Scott Behiel blasted the report’s arguments for considering the dissolution of the city, which was incorporated in 1912, as “flimsy.” He also questioned whether there were political motives behind the complaint that led to the jury’s investigation.

“The report is just a rehashing of the audits thrown in with a frivolous case for dissolution,” Behiel said. “It’s not worth the paper it’s printed on.”

The 82-page document also includes reports on investigations the jury conducted over the past year into the Calaveras County Jail, Calaveras County Assessor’s Office, Calaveras County Child Protective Services, and Vallecito Conservation Camp.

However, none of the other findings in the report are quite as sensational as those about the City of Angels Camp.

The report stated that the jury discovered several areas of mismanagement within the city, including an employee who was allegedly misusing administrative leave, failing to adhere to the city’s payroll advance policy, and misusing city credit cards.

City Attorney Derek Cole confirmed that the employee in question, whose name and title are unspecified in the report, was former City Administrator Michael McHatten.

McHatten denied any wrongdoing when contacted by phone Wednesday, saying he mistakenly used his city-issued credit cards for personal purchases and has reimbursed the city for any extra leave pay-outs he took by accident.

McHatten was hired as the city administrator in August 2011 and left in early January after getting a job as city manager for the City of Soledad.

According to the report, audits of the city’s finances for the 2014-15 and 2015-16 fiscal years found that McHatten took pay-outs for his accrued administrative leave in excess of the maximum 240 hours in his employment contract.

The 2014-15 audit stated that over payments were accrued in the city’s general ledger as a loan because “the employee (McHatten) received 533 hours of administrative leave in the form of pay-outs over the amount available and the city internal controls did not detect these overpayments.”

A finding in the audit report for the 2015-16 fiscal year stated that the city’s finance department calculated over $29,000 had been paid out to McHatten in excess of the maximum 240 hours.

The report also stated that the council retained an outside accountant to review the potential overpayments and discussed the results behind closed doors at a meeting in December, though the finance department did not review the outside accountant’s work.

Management’s response was the city would record any amounts determined to have been overpaid and seek reimbursement, and the finance department staff would review any amounts calculated by outside contractors.

The grand jury’s report also cited the 2015-16 audit report alleging that McHatten didn’t follow the policy approved in 2015 for salary advances in which requests should be sent to the administrative services director, who would then forward it to the finance officer, city administrator, or mayor for approval.

Employees are also not allowed to take salary advances in back-to-back pay periods, according to the city’s policy, but the 2015-16 audit found that McHatten had taken advances within four days of each other for consecutive pay periods and signed the checks along with the administrative services director.

Neighboring counties and cities, including Calaveras County, Amador County, Sutter Creek, Sonora, Jackson and Ione do not have a payroll advance policy, according to the jury. The audit further stated that the city’s policy “has a high risk for fraud.”

The jury also cited the findings from the 2015-16 audit that showed McHatten made purchases with a city credit card on 12 separate instances that were not supported by a detailed receipt, five of which were later determined to be for personal items.

McHatten provided a handwritten explanation for a $148.91 charge on April 3, 2016, that stated it was to purchase deli trays and drinks for a League of California Cities meeting, the audit stated. However, a detailed receipt obtained from the store on July 8, 2016, showed what appeared to be many personal items, including a $36.99 bottle of Johnnie Walker Red Label Whiskey.

The audit also found a $99.61 charge at a restaurant on April 20, 2016, in which the credit card slip was presented without a detailed receipt, but the city obtained one that showed four 16-ounce beers, four meals, four sides, and a $20 tip on a $75 bill.

Since the instances were discovered, the jury noted that credit cards were taken away from those who were misusing them and a new training program was created for all card holders that emphasizes they are not for personal use and requires the employee to sign an acknowledgement and responsibility form.

Multiple city officials confirmed that McHatten reimbursed the city for all personal purchases that were made.

Mary Kelly, the current Angels Camp city administrator who was the city’s administrative services director at the time, said nine other employees have city credit cards and none have been found making personal purchases.

McHatten, who was contacted by phone Wednesday, said the purchase that included the bottle of Johnnie Walker was a mistake.

“At the time, I was talking to my oldest daughter who I had been estranged from for a number of years and just happened to call me while I was at the store. It was pretty emotional,” McHatten said. “I had two cards that looked remarkably the same, one is the city (card) and one is the personal, and I just used the wrong one for the purchase.”

When asked about the other purchases, McHatten said most of them were tied to a PayPal account that he would use to make both personal and business purchases and he accidentally made personal purchases with the wrong card.
As for the payroll advances, McHatten said many employees took them prior to the council adopting a formal policy in 2015. He said his advances were also signed off by the administrative services director.

“It wasn’t done in a vacuum,” McHatten said.

McHatten said he didn’t believe the $29,000 figure was accurate and blamed the overpayments for administrative leave largely on the city’s former finance director, whom he said wasn’t recording the leave properly when he took payouts so it appeared he had more leave than he really did.

Kelly said that finance director quit in 2012, but the audit stated that some of the payouts occurred as late as April 2015.

After the overpayments were discovered in the audit for the 2014-15 fiscal year, McHatten said he worked out a deal with the council in which he didn’t take any leave or payouts during the 2015-16 fiscal year as a form of repayment.

McHatten said he believes everything was square when he left in January.

“I view the position of city manager as holding the highest morals and ethics, and I feel I did,” McHatten said. “I owned up to the mistakes, I’m human and I make them, but as far as I know everything is resolved between me and the city.

Not so, according to Kelly and Angels Camp Police Chief Todd Fordahl, who both confirmed there is an open investigation into the matter.

Fordahl said he wasn’t authorized by the city to provide details on the scope of the investigation, though he said that part of it would “obviously” look at whether any criminal activity occurred.

“We’re looking at all options and possibilities, but it’s still in the early stages,” Fordahl said.

Behiel said the city is still trying to “get a good handle on the money that’s owed and do what we can to collect,” though he acknowledged the council had worked out a yearlong repayment program with McHatten.

The city-management response to the 2014-15 audit that first uncovered the overpayments, completed while McHatten was still city administrator, stated that “any advance or erroneous payments for accrued leave have been fully collected from the affected employee as of the date of this report.”

“This is where the accounting gets strange depending on who you talk to,” Behiel said. “Michael thinks he’s owed money at this point.”

Behiel said the council filed an insurance claim for the $29,000 somewhere between 60 and 90 days ago.

As far as McHatten’s performance as city administrator, Behiel called it “outstanding.”

“He seemed to know his stuff, he was on top of things, his reviews were very stellar,” Behiel said. “By and large, everyone thought he was doing a great job. That’s why when he said it was an accident or confusion, we didn’t have any reason to doubt him.”

However, Behiel is second guessing some of McHatten’s abilities.

“The employees seemed to respect him. He was very competent. Nothing seems to change that,” Behiel said. “Now when it comes to financial management, yeah, I’m starting to question some of his abilities there.”

All current city officials and council members interviewed stated the city has taken proactive steps to prevent any similar issues from occurring again.

The city-management response to the 2015-16 audit, completed after McHatten left, stated that a new policy requires checks to be signed by someone other than the recipient, new check signing authorizations were executed for all bank accounts due to changes in staff, and new policies were adopted regarding the appropriate use of credit cards and providing management review for charges.

Behiel was highly critical of the report’s recommendation to hold a public meeting to discuss the possibility of dissolution, especially over the report’s argument that there is a general lack of interest in running for city council.

Two people ran for three open seats during the election in 2016, requiring the council to appoint a member.

Kelly said Joseph Oliveira was appointed to an open seat at Tuesday’s meeting, but he was one of four candidates who applied. She added that she couldn’t remember another election with fewer candidates than open seats in her 10-plus years of working at the city.

“Don’t tell me there’s not interest in our city,” said Behiel. “Just look at scholarship night at Bret Harte (High School), Friends of the (Calaveras County) Fair, Destination Angels Camp volunteers, Utica Water and Power Authority employees and board members, public works employees.

“To not only imply but state there is a lack of interest in the city, that’s just frivolous. They don’t see what goes on, and the pride employees take everyday.”

The city is required to file a response to the grand jury’s report that the council must approve by its first meeting in August. Under state law, all agencies investigated in a grand jury’s report must file responses within 60 days of its release.

A grand jury is comprised of private citizens who either volunteer, or are selected from Department of Motor Vehicles and voter-registration files.

Grand jurors are mandated to investigate the conditions of all jails and state-prison facilities within a given county, but then are free to investigate any other public entity.

The jury can also launch an investigation based on a citizen’s complaint, which was how the City of Angels Camp came under the grand jury’s scope this year. The city had not been investigated by the jury for over a decade, according to the report.

Here are some of the other findings from this year’s report:

• There was inadequate staffing levels and overtime requirements at the Calaveras County Jail that could create potential health and safety issues, in part due to high turnover because correctional officers there have the lowest wages in the tri-county area that includes Amador and Tuolumne.

• Non-medical personnel were distributing medications to inmates at the jail.

• The jail budget was the lowest in the tri-county area.

• The furniture and TV room at Vallecito Conservation Camp were in disrepair and need to be replaced.

• Calaveras County Child Protective Services had no clear complaint process for grievances against the agency.

• There was a significant backlog in the Calaveras County Assessor’s Office due to a number of factors, which included understaffing, an extensive learning curve for new employees, environmental disasters like the Butte Fire, and difficulty identifying the correct property owner.

Contact Alex MacLean at amaclean@uniondemocrat.com or (209) 588-4530.

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