HomeMy WebLinkAboutStaff Report 349-09TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: CITY MANAGER
DATE: AUGUST 3, 2009 CMR: 349:09
REPORT TYPE: REPORTS OF OFFICIALS
SUBJECT: Acceptance of City Manager's Responses to Independent Police Auditor's
Systemic Recommendations Regarding the Children's Theatre Criminal Investigation
RECOMMENDATION
Staff requests that Council review, provide comments, and accept the City Manager's responses
to the systemic recommendations presented by the Independent Police Auditor in his report
regarding the Children's Theatre criminal investigation.
DISCUSSION
On June 1, 2009, the City Council received a report from Michael Gennaco, the City's
Independent Police Auditor, regarding his review of the Children's Theatre criminal
investigation (Attachment A). The City Council took various actions related to the report at the
June 1 and June 8 meetings, including issuing a formal apology to the employees of the
Children's Theatre. At the meetings, the City Manager indicated that he would return to the
Council with responses to the systemic issues identified atthe end of Mr. Gennaco's report. This
report provides the City Manager's response to these systemic issues.
On a general note, the City Manager will be working with the City Attorney, the City Auditor,
and Human Resources staff to develop a more formalized and unified approach towards future
personnel investigations involving City staff. Although each investigation has different
circumstances, there is a strong need for coordination among the key City departments
responsible for addressing and investigating these issues. The ability to have early and frequent
conversations regarding the approach towards personnel' investigations will greatly assist the
City team in resolving these matters in a fair and timely manner.
Recommendation 1: Allegations of financial crimes are often fraught with complexity.
Accordingly, it is recommended that in future cases, the Police Department should consult early
with the District Attorney regarding the structure, form, and strategies of the criminal
investigation.
CMR: 349:09 Page lof4
Staff Response: Staff agrees with the recommendation of the auditor and will consult with the
District Attorney's Office at the outset of potential criminal investigations involving complex
financial matters, particularly those involving City employees or City funds. In cases involving
City employees or funds, the Police Chief would consult with the City Manager and City
Attorney as appropriate.
Recommendation 2: In consultation with the District Attorney, the Department should determine
whether an independent financial audit should be requested before a financial crimes
investigation is begun in earnest.
Staff Response: In the Children's Theatre criminal investigation, the Police Department did hire
a former Internal Revenue Service (IRS) agent at the recommendation of the District Attorney to
assist with the investigation. In the future if a similar situation arises, the Police Department will
consult with the City Manager and the City Auditor to determine whether the situation warrants
an independent financial audit before a financial crimes investigation is initiated. Staff
recognizes that, in such situations, additional complex background research and work may need
to occur before a criminal investigation is warranted.
Recommendation 3: In similar cases, the Police Department should consider the advantages of
referring the investigation to an outside agency.
Staff Response: In the future, the Police Department will seek to determine whether another
agency could perform the investigation. This decision would be made on a case by case basis in
consultation with the City Manager,City Attorney, and the Human Resources Director. A
potential conflict of interest could exist if the Police Department investigates the wrongdoing of
City employees in the course and scope of their duties. It is the City Manager's expectation that,
in complex and high profile cases, staff would be more likely to refer these types of
investigations to outside agencies.
Recommendation 4: Investigators assigned to lead financial crimes investigations should have
training and experience in the conduct of financial crimes investigations.
Staff Response: Staff agrees with this recommendation and will work to ensure the appropriate
assignment of Police personnel if and when future investigations arise. Police Department
command staff will also be preparing a training schedule and proposed curriculum for review
with the City Manager.
Recommendation 5: Ongoing criminal investigations should not be tried in a public forum and
the Department should refrain from substantive public comment during a pending criminal
investigation.
Staff Response: Staff agrees with this recommendation. During criminal investigations, Police
Department staff will work with the City Manager to determine if and when public
communications are necessary.
CMR:349:09 Page 2 of4
Recommendation 6: In cases in which no charges have been filed, the City should consider the
advisability and appropriateness of releasing related police reports, taking into account any
legal requirements that may mandate release.
Staff Response: Typically, police reports are not released in these types of investigations.
However, based on previous public records litigation brought against the City as well as
subsequent case law involving similar issues in other jurisdictions, there has been a precedent set
to release investigation reports involving management employees accused of financial
misconduct. If a future similar situation arises, Police staff will assess the appropriateness of
releasing police reports after consultation with the City Manager and City Attorney. In. those
situations where this may be legally required, the City will make every effort to provide the
appropriate context for the release of the report and the investigation more generally.
Recommendation 7: Police reports should not include conjecture and investigative theories; the
Department should ensure that its detectives receive appropriate training about .compiling
appropriate police reports consistent with the Department's current Report Writing Manual.
Recommendation 8: Training should also be provided to Departmental staff on the need to
search for and document both evidence showing guilt as well as evidence indicative of innocence
consistent with the Department's Report Writing Manual.
Staff Response to Recommendations 7 & 8: Staff agrees with both recommendations.
Conjecture in police reports can demonstrate bias in a report and should be avoided except in
special cases where a report calls for the opinion of an officer based on that officer's specific
expertise in a given area. Police Department staff receive periodic training on report writing
through continuous professional development training seminars that each officer attends
annually. An update to the Department's Report Writing Manual is not warranted at this time.
However, the review of report writing mostly goes back to appropriate and effective supervisory
oversight and work with the Investigations team. The Department will be working to enhance
current investigation oversight practices. Additionally, Police Department command staff will
work to instill in staff members the practice and ability to pause at various points during the
investigation to seek advice from other department members on the approach and efficacy of the
investigation to that point. During high profile and sensitive cases, a team approach should be
utilized so that the investigation does not become the sole responsibility of one individual. This
. team approach will encourage dialogue between department members and will likely result in a
more coordinated and well-developed investigation.
Response to Request from Friends of the Children's Theatre for Legal Fees Reimbursement
While this request technically does not fall within the scope of the necessary staff response to the
auditor's recommendations, staff wanted to provide additional information given the public
attention to this matter; The City Manager and City Attorney believe that the best way to address
this request would be to return to Council in closed session to discuss the matter further. The
closed session would likely be scheduled for late September.
RESOURCE IMPACT
CMR: 349:09 Page 3 of4
There is no resource impact associated with the recommendations in this report.
POLICY IMPLICATIONS
This report is consistent with prior Council direction on this issue.
ENVIRONMENTAL REVIEW
The actions in this report do not constitute a project under the California Environmental Quality
Act (CEQA) guidelines; therefore, no environmental assessment is required.
ATTACHMENTS
Attachment A: Independent Police Auditor's Review ofthe PAPD Children's Theatre Criminal
Investigation
PREPARED BY:
CITY MANAGER APPROVAL:
CMR: 349:09
DENNIS BURNS
Interim Police Chief
~
KELLY MORARIU
Assistant to the City Manager
Page 4 of4
Attachment A
INDEPENDENT POLICE
AUDITOR'S REVIEW OF THE PAPD
CHILDREN'S THEATRE CRIMINAL
INVESTIGA TION
May, 2009
Prepared by Michael Gennaco
OIRGroup
323-890-5425
www.laoir.com
INTRODUCTION
On June 18, 2007 the Children's Theatre ('ICT") in Palo Alto was burglarized.
Officers from the Palo Alto Police Department responded and began a criminal
investigation into the burglary. As with any other burglary investigation, the employees of
the Theater were asked to identify missing items. Several days later, P APD was informed
that pursuant to an investigation being conducted by another law enforcement agency,
traveler's checks made out to employees of the Children's Theatre had been recovered.
Eventually, additional traveler's checks were located and presented to PAPD from another
source.
The traveler's checks that were located had not been reported by the CT employees
as missing from the burglary. As a result, suspicions were raised about actions of certain of
the CT employees. As a result, the tenor ofthe Police Department's investigation
transformed from a routine burglary investigation to suspicions of fraud and
embezzlement on behalf of certain CT employees. A detective was aSSigned full time to the
investigation to attempt to determine whether financial crimes had been committed by any
of the suspected CT employees.
As a result of the PAPD investigator's initial investigation, search warrants were
eventually applied for and o1:ltained for CT offices, residences of certain CT employees, and
storage lockers maintained by the CT. In addition, judicial authority was also obtained to
search lockers maintained by the Friends of the Theatre, a non-profit group formed to
support the CT. After the search Warrants were obtained and as the sear~h warrants for
the CT were being executed, the targeted CT empioyees were visited at work and asked to
travel to the police station for interviews. In the meantime, PAPD personnel were assigned
to search the remaining targeted locations. In order to effectuate the search of the CT, the
theatre was closed.
At that time, the investigation drew significant attention from the citizens of Palo
Alto and local media. As the investigation proceeded, questions and concerns were raised
by the community about the nature of the investigation. The investigation eventually
concluded with a public announcement that no criminal charges would be filed against the
targeted CT employees. At the same time, a redacted version of the lengthy investigative
report was voluntarily released by PAPD. Rather than resolve issues, the clOSing of the
criminal case and the release of the report only served to heighten concern about the
criminal investigation itself. As a result, your Council requested that the Independent
Police Auditor conduct a review of the investigation to assess the decisions made by PAPD
officials as the investigation progressed and offer any recommendations for reforms to
address issues arising out of that assessment. Please consider this report as the IPA
response to that request.
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DISCUSSION
I. IPA's Assessment Protocol
It was not the intent of IPA to ttre investigate" the investigation in any formal sense.
However, in order to ascertain the thoughts, theories, and steps of the investigation, it
became important to talk with those involved or connected with the investigation. In the
same way, targets of the investigation and actual and potential witnesses to the
investigation had important perspectives to provide on these salient issues. Finally, it was
critical to review the investigative report and related materials in order to address issues
that arose after the investigation became overt. During this analysis, the IPA was able to
gain the cooperation of each of these important sources of information save one.
Unfortunately, the former and now retired Detective Supervisor assigned to lead the
criminal investigation for PAPD declined to speak with the IPA regarding his mindset and
investigative decision making. While that individual's participation in this process would
certainly have provided another important perspective, the cooperation from PAPD and
City officials as well as those directly and indirectly impacted by the criminal investigation
provided the IPA inquiry a wealth of information and perspectives from which to asses~ the
matter.
II. Answers to Questions Presented
The following questions were presented to the IPA for consideration:
Question 1: Based on the information initially presented, was it appropriate to
initially proceed with a criminal investigation?
Answer 1: Perhaps, but for the reasons delineated below, better alternatives
existed that could have eventually obviated the need for a criminal investigation.
Moreover, as detailed below, the Department may not have been appropriately equipped to
conduct a criminal investigation of the sort envisioned.
Question 2: Did the conduct of the criminal investigation follow accepted
practices?
Answer 2: The conduct of the criminal investigation was lacking in several
dimensions as detailed below.
Question 3: Were internal and public communications accurate and consistent
with the evidence obtained and accepted practices?
Answer 3: The decision about what information to release and when to release it
deserves to be revisited for future occurrences.
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The review also requested recommendations for reforms which are included at the end of
this document. To further flesh out the answers to the questions presented above, it is
important to discuss relevant aspects of investigative decision making as the matter
progressed.
III. The Decision by PAPD to Pursue an Embezzlement Investigation
Certainly, PAPD's initial response to the burglary of the CT was appropriate and
professional. Moreover, when additional information was received about the recovered
traveler's checks, additional inquiry was appropriate about whether irregularities were ,
being undertaken by employees of the CT. While the failure to report the missing traveler's
checks to the responding burglary investigators could have been a simple failure to
remember to report them, a more sinister interpretation could have been, and clearly was
formulated by PAPD personnel. This interpretation was buttressed by the admittedly
"strange accounting" practices for expense reimbursement in place for CT employees. As a
result of these suspicions, the focus of the criminal investigation shifted from one of
commercial burglary to one of financial embezzlement. When the investigative focus '
shifted, a detective supervisor took over responsibility of the investigation. At that time,
some efforts were made to develop a "paper trail" through requests for documents from
City officials and financial institutions. However, most ofthe resource dedication at this
juncture oft-he investigation consisted of interviews with various city officials and other
individuals familiar with City procedures and the financial workings of the CT.
The point at which suspicion began to shift from that of a commercial burglary to a
potential embezzlement investigation was a pivotal moment in the case. At that point, the
Department was faced with various options besides the path taken, namely, the decision to
move ahead on its own with a criminal embezzlement investigation:
• The Department could have recommended that an independent audit be conducted
of the CT's "strange accounting" practices, reimbursement requests, contracts,
dealings with the Friends, and other assorted monetary dealings.
• The Department could have considered referring the matter to an outside agency.
• The Department could have requested an early consult with the District Attorney's
Office.
In retrospect, either of these options, or a combination thereof. may have been the
road better taken. If the Department had worked with City leaders to request an
independent audit, a disciplined professional group could have been tasked to identify
irregularities. A methodical paper trail could have been developed by persons trained,
experienced, and equipped to "follow the money" and then assess how the CT accounted for
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its expenses, requests for resources and reimbursements, as well as any evidence of undue
financial gain. Once such an audit was completed, the information elicited from that
assessment could then have been used to revisit whether a criminal investigation was
warranted, and if so, what the scope of that investiga~ion should be. Alternatively, the
audit's results could have indicated that a criminal investigation was not appropriate but
that CT financial practices were in need of clear reform and/or that the audit results .
suggested potential violations of City policy indicating an internal administrative
investigation was necessary.
The only real potential disadvantage of conducting an audit of this sort was that it
could "tip off' those involved in potential criminal wrongdoing. While there is certainly a
likelihood that those gUilty of criminal activity might be placed on guard with any overt
financial review, it is much more difficult to cover the tracks of financial crimes cases than
other crimes. The paper trail is difficult to erase, particularly in these days of computer
databases and electronic storage and any real effort to destroy evidence often places the
perpetrator in peril of being caught not for the crime itself but for the criminal "cover up".
In addition, if there is any concern about records being destroyed during an audit,
protective mechanisms can be devised to lessen the likelihood of such occurring. Finally,
those suspected of criminal activity can be interviewed before the audit is begun, "locking
them in" to statements before they are aware of the suspicions against them.
The hand offto an outside agency also has inherent advantages over continued local
control. First, an outside agency may have more expertise and resources at its behest. It is
undisputed thatthe resources eventually dedicated by PAPD to this investigation placed a
significant strain on the Department's other law enforcement responsibilities. Second, an
outside agency will not be potentially subject to attacks from the community ef partiality,
i.e., that the "iconic" status of the CT and its managers caused PAPD to either pursue that
icon with too much or too little zeal. An outside agency is better insulated from both
ongoing and subsequent criticism that the local law enforcement agency may suffer, i.e.,
that a local law enforcement agency cannot be impartial in determining the appropriate
degree of investigative energy to be deployed because of its closeness to the situation and
the persons and organizations targeted for investigation. In fact, when PAPD determined
to continue on with the case, it clearly did recognize from the outset that it was
investigating an organization and individuals which were seen by many as pillars of the
community. That recognition raised concern from PAPD managers that a tepid
investigation might be viewed as an unwillingness to investigate robustly those entities and
may have resulted in conscious or subconscious overcompensation regarding the vigor
with which the investigation was conducted. In any event, outside agencies are certainly
more immune from charges of partiality, either in favor or against the subjects of potential
criminal activity.
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For financial crimes cases, early and frequent discussion with the prosecuting
agency is a desirable and important feature. White collar crimes are usually complex and
unique and discussion with the prosecutorial entity regarding the necessary evidence and
potential defenses is a discussion that should be had early on in the life of an investigation.
In this case, PAPD eventually did bring the District Attorney's Office into a substantive
discussion but by then much investigative work had already been conducted.1 As a result,
the ability for the District Attorney to meaningfully counsel PAPD regarding the strength of
the evidence, the potential existence of significant defenses, and appropriate investigative
strategies was significantly diminished.
In sum, while PAPD cannot be faulted for its decision to proceed with a criminal
investigation based on the information initially available, it is mindful for future cases to be
aware that other options exist. That behlg said, the decision for PAPD to move forward
with a criminal investigation was not in and of itself inappropriate. It is quite likely that the
decision not to proceed with a criminal investigation would also have subjected the
Department to criticism, as it has regarding recent alleged acts of City employees in
another department that were not investigated criminally. Nonetheless, and as explained
further below, the execution of the criminal investigation was problematic in several
regards.
IV. The Assignment of the Investigation to a Detective with No Apparent
Formal FInanctal Crimes Training
By opting not to avail itself of these alternative paths, the Department was left to its
own devices, resources, and abilities to pursue the investigation. In this case, a veteran
police detective supervisor assigned himself to the case, with his supervisors' approval, and
was largely responsible for the shape and path of the investigation. Unfortunately, while
this individual had a wealth of experience and detective work in other criminal arenas, his
experience in working financial crimes case was not nearly as robust. Even more
importantly, this individual who quarterbacked the investigation may not have received
any formal financial crimes training in his years as a police officer. For financial crimes in
particular, training In how to conduct such investigations is critical. The assignment of an
officer to investigate this complex financial case with no significant formal training in the
1 While there was at least one telephone conversation about the matter with other District Attorney
representatives earlier on in the investigation, the understanding from this review was that the first substantive
meet to consider the state of the evidence with a representative of the District Attorney's Governmental Integrity
Unit occurred in November of 2007, after the Investigation had been well underway. It should also be noted that
the investigative report reflects a telephone conversation between the lead PAPD investigator and a
representative in the District Attorney's Office. While the report reflects support from the DA representative for a
criminal investigation It also recommends conducting an aUdit, a recommendation apparently not carried forward
by the Investigator.
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area was an unfortunate decision that likely worked to the disadvantage of the resulting
investigation.
V. The Import of Interviews of City Employee Witnesses
As the criminal investigation progressed. numerous City employees were
interviewed in an effort to divine City policies regardIng reimbursement procedures,
approval requirements for contracts, how excess property was to be handled, and the like.
While there is no evidence of dissembling by those witnesses, the focus on ((appropriate"
procedures did not sufficiently consider what procedures and processes had been ('de
facto" tolerated over years and years of operation. In other words, the investigation failed
to sufficiently pursue and assess how City officials had been aware of, allowed, and
endorsed procedures that may have been against the letter of City policy but were both
implicitly and explicitly authorized for years.
For example, one focus of the criminal investigation was the allowance by CT
managers of the Friends to sell costumes that had been created with City funds. The
criminal investigators interviewed City officials and learned that in order to conduct such a
transaction, the CT managers would have needed to obtain authorization for the
transaction at the highest levels of City governance. However, the investigation also
learned that the decision to begin a costume sale did not originate from the current CT
managers and targets of the criminal investigation. Most importantly, the investigation
also learned that the costume sales had been occurring openly and with at least implicit
authorization for years, a fact fatal to any successful criminal prosecution. The failure to
recognize the import of this information was a Significant shortcoming of the investigation.
This recognition fail~re also appears in the investigative report prepared in thIs
matter. For example, the report discusses an incident in which a City employee allegedly
discovered a "misappropriation" by the CT· Director at which time he informed the Director
to cease the activity but she did not do so. The witness further indicated that he then
requested an audit be conducted of CT operath;ms but that because of a friendship with the
Director, the audit did not occur. The report however, fails to recognize the import of this
exchange. If "misappropriation" is in fact going on and the City indeed became aware yet
took no action to learn more about the actions, an embezzlement criminal action cannot
survive years later.
Later in the report, a witness is reputed to have told the investigator that the CT
Director admitted that she was aware of policy but failed to follow it. The witness further
indicated, according to the report, the Director fai~ed to follow the policy, her supervisor
failed to follow the policy, and the staff of the witness failed to follow the policy. Again, the
import of this statement is apparently not recognized by the investigator. The unchecked
policy violations that immediate supervisors and other City staff became aware of and
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chose to do nothing about provide a strong defense to the CT Director with regard to
potential criminal charges.
From a review of the evidence, it appears that with regard to every other allegation
of criminality, the City's awareness, authorization, and/or tolerance of the actions of CT
managers was devastating to any viable criminal prosecution of the acts being investigated.
In other words, the City's awareness, toleration, and endorsement of the various financial
undertakings by CT authorities provided a complete defense to the criminal charges being
considered. The failure of the investigation to fully understand the import ofthis potential
defense and learn the depth of any such authorization over the years is a fatal flaw.
VI. The Search of the Children's Theater, Personal Residences, and Interview
of CT Officials
After the interviews of the City officials and other witnesses had been undertaken and
some financial documents had been collected, the investigation proceeded to another
phase. At this pOint, affidavits were prepared by the investigatiVe team requesting judicial
authority to search the CT office, residences of CT officials, lockers of the CT and CT
officials, and lockers maintained by the Friends. While the application for the search
warrants was approved by the judge, there is some question about the appropriateness of
the affidavits. The affidavits only contain evidence indicative of guilt and do not iterate the
potential defenses of prior authorization exemplified in the proceeding section. In
addition, it was learned during this review that rather than seek counsel and authorization
from the Deputy District Attorney of the Government Integrity Unit who had been
previously consulted, the affidavits were apparently presented for review to a Deputy
District Attorney unfamiliar with the investigation. As a result, the sifting mechanis.m role
often assumed by the District Attorney's Office was compromised as a result of the initial
consulting Deputy District Attorney not having the opportunity to review the search
warrant applications.
Once the search authorization was obtained, a plan was devised that while the
search of the numerous locations was underway, the subjects of the criminal investigation
would be interviewed. It has been suggested that in order to ensure that the CT employees
would be found at work, recommendations from persons outside the Police Department
that the search of the CT be conducted while the theatre programs were on hiatus were not
accepted. In any event, while there were apparent attempts to conduct the search at the CT
in a way to shield children partiCipants from the law enforcement activity, the success of
these efforts is still open to considerable debate.
As the search and interview operation progressed, it became apparent that the plan
to interview all CT subject employees and all of the search locations was impracticable. As
a result, padlocks were placed on several of the search sites and they were searched several
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1 ,
days later. More problematic, while the lead subject did agree to be interviewed and was
interviewed for several hours, two other subjects of the investigation were not
interviewed. The fallure of the Department to interview these two individuals on the date
of the search resulted in them never being interviewed as part of the criminal investigation.
Accordingly, the inability of the Department to take advantage of their availability on the
date of the search resulted in critical information, namely the account of two of the subjects
of the criminal investigation not being available to that investigation.
VII. The Processjng of Evidence Obtained During the Search
The search of the CT office, the storage spaces, and residences of the subjects of the
investigation resulted in a raft of documents and other materials. The sheer number of
materials seized overwhelmed the resources available for the investigation. As a result, a
significant portion of the materials collected were not analyzed by investigators and the
depth of the import of some documents was not realized. The investigative report itself
admits that not all of the seized documents were analyzed during the criminal
investigation. Subsequent to the closure of the criminal investigation, other Interested
parties have actually identified documents seized by the investigators that contain
significantly eXCUlpatory information.
Costume Sales
The following documents were retrievable pertaining to the costume sales issue:
• A 2002 memorandum to the City Manager from the CT Director requesting
authorization to donate costumes to the Friends. The approval signature lines
include representatives of Finance, the Director of Community Services, the Director
of Arts and Culture, and the Assistant City Manager. Both the Director of Arts and
Culture and Assistant City Manager's signatures are identifiable.
• A 2004 memorandum to the same effect with similar approval signatures.
[Apparently, no costume sale was held in 2003.]
• An email message in 2006 from the City Community Services Director to
Department Heads setting olit new disposal procedures for department surplus
property.
• An email message in 2006 from the CT Costume Supervisor to the CT Director
requesting direction on whether she needed to fill out a surplus property form for
approval before discarding damaged costumes and the new procedures' on how to
provide costumes to the Friends for sale. The CT Director than forwards these
questions on to an Administrative Services employee.
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• A return email in 2006 from the Administrative Services Deputy Director to the
Children's Theater Director indicating that the request had been passed on the City
Attorney and City Auditor for feedback given newly instituted policies and
procedures. The email indicates that if there are any issues that need vetting, he
would do so.
• An email message in 2006 from the CT Costume Supervisor to staff detailing a list of
discards for either the Friends costume sale, the EPA job reentry program, or to be
thrown away.
• Several follow up emails in 2006 from the CT Costume Supervisor updating CT staff
on additional information regarding costumes to be donated or discarded.
• An email from the Administrative Services Manager to the CT Director indicating
that current practice is "consistent with the new policy and procedures".
• A flyer announcing the·2006 costume sale by the Friends of the Theatre to be held in
the Ballroom at the Lucie Stern Community Center.
The above documents indicate that the CT Costume Supervisor was made aware of the
new policies for handling surplus property instituted in 2006 and asked her supervisor
whether current practices o(donating to the Friends [which had been authorized in 2002],
the EPA job reentry program, or throwing damaged costumes away was still acceptable.
The CT director forwarded on to the Administrative Services Deputy Director the questions
raised by the CT Costume Supervisor and received a response indicating that he would
forward the question to the City Attorney and City Auditor and that if the current
procedures needed to be revised, he would let CT staff know. In the meantime, the CT
Costume Supervisor dutifully kept track of costumes to be allocated waiting for an answer
from the City. The group of documents finishes with a flyer announcing the fall 2006 sale
of costumes by the Friends.
This trail of documents demonstrates the existence of an overt practice before 2006
of allowing costume sales to be donated to the Friends. When discard practices were due
to be changed in 2006, CT Staff dutifully asked the City whether their practices also needed
to be changed. After hearing from the Administrative Services Director that the current
policies were consistent with the new policy/later that year the costume sale was held.
Surely, the City was placed on notice about the costume sales in 2006 and could have
caused the CT to change their practices at that time had it desired. The evidence also
shows intent on behalf of CT to comply with any new practices and a search for direction
froin City supervisors on how to proceed. The existence of this group of documents is most
likely fatal to any potential prosecution for the sale of costumes by CT staff in that it
demonstrates both City authorization and awareness of the costume sale procedures and
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the intent by CT staff to follow any new procedures regarding surplus sales instituted 'by
the City.
Agreements for Special Performances
The following documents were retrievable pertaining to the agreements for special
performances:
• A 1988 agreement between the Friends and the Children's Theater whereby the
Friends will hold fund raising events for the CT.
• A 1996 agreement between the Friends and the Children's Theater whereby the
Friends will receive funds from the Children's Theater in exchange for volunteer
help provided by the funds with the understanding that all funds to the Fri~nds will
be used for the benefit of the CT program. The contract is apparently signed by
someone from the City Manager's, Risk Manager, Purchasing and Contract
Administration Departments.
• A 1997 agreement to the same effect.
• A 1998 agreement and purchase order to the same effect.
• A 1999 agreement and purchase order to the same effect.
• A 2000 agreementto the same effect.
• A 2002 agreement and purchase order to the same effect.
The above documents first illustrate a years long practice of contractual arrangements
between the CT and the Friends. The documents are accompanied by receipts showing
payment in support of the contract. Some of the agreements have empty boxes on approval
signature lines for various City entities. On the other hand, some of the agreements do
have approval signatures for City entities, including the City Manager's Office. (There was
no evidence put fol'\tVard in the criminal investigation that these signatures were not actual
signatures of the various department representatives.) While the existence of these
contracts may be contrary to City ordinance and should have been vetted and approved by
both the City Attorney's Office and possibly City Council, the evidence of the contracts and
accompanying purchase orders indicates City knowledge, tolerance, and apparent
authorization for the CT staff to enter into such contracts. The fact that the City paid on the
contracts is further evidence for CT staff to believe that they were authorized to continue to
enter into such contracts. The failure of the City to correct this belief likely provides a
complete defense to CT staff to any criminal prosecution focusing on the execution of
"illegal" contracts.
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Inquiry Whether the Friends Could Pay CT Staff Expenses
The following documents exemplify CT Staffinquiring of City officials whether
certain actions are permissible:
• An email from the CT director to her supervisor regarding whether the Friends
could pay for CT staff to attend a music festival in Atlanta. The email asks that the
supervisor check into this and ends: "We want to be sure we don't end up doing
something that is deemed unacceptable or can be considered a gift."
• A forwarding email from the supervisor to the City Attorney's Office requesting an
opinion.
• An opinion from the City Attorney's Office authorizing the request and indicating:
"The employees attending need not report the value of the travel OR worry about
the gift limits."
Again, this email chain is indicative of CT staff seeking approval to not violate City policy
and requesting and receiving assurances from the City Attorney that they are not doing so.
Requests for Other Financial Adjustments
The following documents exemplify the looseness with which financial accounts are
"adjusted" with the full knowledge and cooperation of City staff:
• An email "ok" to the CT director from City staff to "adjust)) an account from the
Community Theater to the Children's Theatre because of a mistake made by City
staff.
• An em'ail from the CT Director to her supervisors requesting authorization to
transfer funds from an overspent account because of mistaken charges to that
account and a list of the various mistaken charges. A reply email authorizing the
request for transfers.
• An email from a City official authorizing the juggling of moneys from various
accounts.
The emails above suggest issues regarding the moving of monies among contracts and
accou~ts and "mistakes" by both City and CT staff regarding the charging of expenses to
wrong accounts. However, the em ails also are indicative of CT Staff bringing to the City's
attention such mistakes, requesting authorization to adjust accounts, and receiving such
authorization. The above emails are tip offs to faulty and insuffiCiently monitored
accounting. They also, however, provide an excellent defense to any criminal charge of
embezzlement.
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A fact soon learned by the criminal investigators and documented in their
investigative report is the disarray of record keeping and documents seized from the
various sites. While that disarray is indicative of poor record keepIng, the disarray is not
consistent with the investigator's criminal theoryj namely, the existence of a group of crafty
criminals carefully counting the days in which the traveler's checks could be cashed free of
detection from the City. Rather the more accurate picture painted by what the
investigators found when they searched the office and other locations was a "rat pack"
collection of materials in disarray that provide no particular sense of purpose, but that
contained a good deal of exculpatory information for those with the stamina, acumen, and
resources to sort the documents out.
The failure of the investigation to possess sufficient resources to process the seized
materials and gain understanding from them caused a good deal of exculpatory material
not to be sufficiently considered by the criminal investigation. Moreover, the gestalt of
what was learned the day of the search aboutthe recordkeeping style of the subjects of the
investigation was not consistent with the theory promoted in favor of criminal prosecution,
VIII. The Determination Not to Interview Certain Witnesses
The actions of the Friends, a non-profit support group of the CT, became a centerpiece
to some of the alleged criminal activity. At some point, the investigator declined to
interview the Friends witnesses due to their having obtained counsel and a stated view
that, as a result, those interviews would have been unhelpful to the investigation.
However, investigations should seek out all potential sources of relevant information. The
mere fact that a witness has retained counsel does not mean that the witness account will
not be helpful to the investigation.
Moreover, an investigator should not equate eXCUlpatory information with unhelpful
information. In many ways, the plumbing of information tending to exonerate criminal
subjects is more important than incriminating evidence. A full examination of potentially
exculpatory information is essential for investigators and prosecutors to determine
whether a crime has been committed and the earlier such information is accessed and
analyzed the better. Any concern that the attorney will be able to strategically gain
knowledge about the details of the investigation can be mitigated by the careful
development and asking of questions. Finally, the mere fact that a witness has retained
counsel does not necessarily mean the witness will be unhelpful; particularly in financial
crimes investigations the wise counsel of an attorney instructing the witness of the need
for honesty will often result in more truthful information being provided to the investigator
than less.
According to the investigative report, another witness to the investigation was not
interviewed due to "scheduling conflicts", Such scheduling conflicts should not have
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prevented the investigator from obtaining information from this witness. The import of
this investigation and the potential consequences to the City and the subjects of the
investigation demanded a greater effort to obtain any relevant information this witness
could provide. Sometimes grave illness, an ability to locate a witness, great distances, and
non-cooperation can justify the failure to obtain information from a witness; the Report
however, only points to "scheduling conflicts" as a reason for this investigative lead not to
have been pursued.
The failure of the investigation to fully explore the authorization provided CT
managers to conduct the activities that were the focus of the investigation, the decision not
to interview Friends witnesses and another witness because of scheduling issues, and the
failure to fully assess documents that supported an "authorization" defense all point to the
investigation's tendency to ignore facts that suggested a crime may not have been
committed. This failure to evaluate exculpatory information is apparent throughout this
criminal investigation. For example, the original suspicion cast on CT staff stemmed from
their failure to report the missing traveler's checks in the original burglary report.
However, as learned later in the fall, the CT staff also failed to list $17,000 worth of video
projectors as missing during the burglary. This fact tends to suggest a reassessment that
the failure to report the missing traveler's checks may have been more demonstrative of
poor inventory tracking by CT staff rather than a calculated attempt to shield them from
public purview.
As new facts become available, an investigator must reassess the viability of a
criminal prosecution and retain the flexibility to discard original suspicions. Moreover,
complete witness statements must be obtained and analyzed for evidence helpful and
harmful to the criminal investigative theory; certain witness statements cannot be
selectively "shoehorned" to fit the theory while others are discarded. A robust
investigation develops and seeks all of the facts; those helpful to show gUilt as well as those
pointing toward innocence. An investigation that fails to pursue all the relevant facts is not
a complete investigation.
These concepts are well recognized by the PAPD. In its Report Writing Manual, it
explicitly states: "Normally facts which tend to minimize or disprove the subject's guilt
should be documented in your report." It is apparent that in this case, the investigative
report did not fully subscribe to this principle.
IX. The Role of the City Manager In the Investigation
Numerous allegations were raised about the City Manager's role in the criminal
investigation. This review revealed no significant evidence that the City Manager
improperly directed the police investigation, including which witnesses to interview or
how to proceed with the investigation.
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X. Public Comments from PAPD During an Ongoing Investigation
. At times, police officials commented publicly about the pending criminal investigation.
For example/ at one pOint, a witness who had been interviewed by the investigation
reported to the media about his account of the interview. In response. the Department
contested the witness' account of the interview by referring to the tape recorded witness
interview. While it is sometimes difficult to stand mute while a witness is contesting the
integrity of an ongoing investigation, the. better practice is to hold comment until the
investigation has taken its course. To do otherwise, is to potentially compromise a pending
investigation.
XI. The Preparation of the Investigative Report
From the inception of the financial crimes investigation, a narrative report was
prepared by the lead investigator. In several respects, the report lacks the dispassionate
qualities expected of police reports. First, the report is an amalgam of facts, theories, and
conjecture. While summaries of interviews and investigative tasks provide a helpful road
map to the investigation and are appropriately part of a report, investigative reports
should be free of conjecture, inferences, and investigative theories. In addition, extraneous
information and unattributed and irrelevant statements and acts regarding the subjects of
the investigation should not be included in the official report. For example, unless a
connection can be shown, the fact that CT managers may have gone on expensive trips are
not appropriate for inclusion into a police report. Finally, the use of first names when
referring to some of the witnesses detracts from the professionalism expected of police
reports.
These concepts are recognized and accepted by PAPD. In the I?epartment's Report
Writing Manual, it is noted that "a police report should be written using facts, not
conclusions or opinions. Avoid making inferences about what something means, and
instead just stick to reporting facts." It is apparent that the report eventually released by
the investigator in the CT investigation did not always subscribe to these admonitions.
XII. The Statute of Limitations Issue
The Statute of Limitations issue and the failure of the investigation to recognize how
a prosecution was time barred is worthy of further comment. Crimes such as
embezzlement have provisions for extending the ordinary three year statute oflimitations
to the time at which the scheme is discovered or should have reasonably been discovered.
This legal extension exists so that persons who successfully conceal their financial crimes
can be held criminally accountable when those crimes are discovered.
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However, in the instant case, the extension of the statute of limitations was not
available since each of the acts investigated had been conducted openly by each of the
subjects. In other words, the weight of the evidence was that the CT employees did little, if
anything, to hid~ their actions or cover their tracks. As exemplified above, numerous
communications were discoverable among the seized materials demonstrating overt
submissions and questions by the subjects to City authorities regarding each of the type of
transactions investigated. The City was placed on clear notice regarding the actions that
became the subject of the criminal investigation, yet little action was taken to address or
sanction the activities. To the contrary, many of the actions were authorized, and thus,
there was no basis for the tolling of the statute of limitations in this case.
XIII. The Stolen Traveler's Checks: Lack of Conversion
As noted above, the criminal investigation was instigated when stolen traveler's
checks were recovered by a neighboring agency. Those checks became the starting point of
the ensuing criminal investigation. However, as eventually pointed out by the District
Attorney, because the checks had never been "converted" by the subject employees of the
CT, an essential element to the misappropriation charge was arguably misSing. The
investigation apparently learned this fact very late in the investigative process. An earlier
consult with the District Attorney could well. have educated the PAPD investigation of this
fact farther upstream and curtalled the need to criminally investigate these transactions
since a key element of the crime being investigated might never be provable.
XIV. The Decision to Close the Investigation and Release a Redacted
Investigative Report
At some point, PAPD revisited the Deputy District Attorney and was told definitively
that there was no case in support of criminal prosecution. However, rather than quietly
close the investigation, the decision was made to release a redacted copy of the
investigative report to the public. This controversial decision was not without some logic.
First, after the investigation became known in the community, there was considerable
pressure from the media, the general public, and elected officials to provide information
about the criminal investigation. Second, it was expected that should the City decide not to
release the report, media outlets and other community entities would seek access to the
report through a Public Records Act request, and the City might well be required to release
the report should it attempt to shield it from public purview.
As a result of these concerns, but contrary to the advice of the Deputy District
Attorney, the report was released. Once released, the report did serve the purpose of
transparency. In fact, and ironically, much of the tumult and criticism raised by concerned
community members about the criminal investigation came from exposure and access to
the information contained in the report ~~ information that might not have been available if
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the report had not been released. Accordingly, the release of the report did better inform
the public about the nature of the criminal investigation.
On the other hand, various aspects of the report made its release problematic. First,
unlike situations in which criminal investigations result in charges being filed, in this case
no charges were filed. Accordingly, activities about targets of the investigation that were
not subj ect to criminal prosecution were detailed in a report for all to see. While such a
release might be appropriate and helpful to subjects who are exonerated by the criminal
investigation, what made the release of the report in this case particularly problematic was
the continued insistence by PAPD authorities that the subjects of the investigation had
actually committed the criminal acts alleged. A PAPD press statement accompanying the
release of the report indicated that there was evidence of "significant instances of serious
financial misconduct and other possible criminal activity." The release of the report was
not accompanied by a clean bill of exoneration by investigative authorities, rather, the
Department continued to maintain that criminal acts had been committed but that
technicalities such as the statute of limitations were the only reason these subjects could
notbe brought to answer in a criminal prosecution.
The combination of the release of the report and the use of information in the report
to continue to assert that the criminal subjects actually committed criminal acts is
problematic. This is particularly so in this matter in which complete defenses available to
the subjects of the investigation may exist but are not fully set out in the report. And it is
inaccurate to assert that the subjects committed the alleged criminal activity but that
prosecution was not available be<;ause of the technical defense of the statute of limitations.
In this case, the real defense of authorization meant that no criminal actions had been
committed by the subjects.
,Finally, the way in which the report was prepared did not lend itself to public
release. As noted above, the report was an amalgamation of facts, witness summaries,
investigative tasks. as well as investigative theories, unsupported inferences, and
conjecture. Moreover, because the investigation was not focused on cataloguing and
collecting eXCUlpatory evidence, such evidence is not prominently featured in the police
report. In short, the way in which the report was prepared led to justifiable criticism of the
report when i~ was released.
CONCLUSIONS
This review is not intended to render judg~ent on the gUilt or innocence of the
subjects of this investigation. The decision by the District Attorney not to file charges has
already answered that question. Rather, this review is intended to provide an analysis as
to why the investigation took the path it did and suggest areas for reflection and reform.
However, it would be remiss to not indicate that there was no evidence from this review
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that indicated malice on behalf of anyone affiliated with the investigation, either from the
Police Department or the City. While miscalculations were made during this investigation,
they can be attributable to the milieu in which the suspicions arose and a lack of training
and expertise rather than a calculated plan to investigate and attempt to prosecute certain
individuals, exculpatory evidence notwithstanding. In addition} the poor recordkeeping,
laxity of control, intermixing between public and private entities, poor and outdated
financial practices for reimbursement of CT employees, and the toleration of these
arrangements by City officials that went outside the bounds of appropriate checks and
balances presented a perplexing fact set that was left for PAPD authorities to attempt to'
sort out. As it turned out and for the reasons elicited above, a criminal prosecution was not
viable. However, had both CT employees and City oversight'officials been more attentive
over the years to these administrative financial matters farther upstream, the trauma
wrought on the City and its community by the resulting criminal investigation could have
well been avoided.
With regard to the way financial matters were handled by the CT, the City and its
employees, this review found no heroes. The "system" set up decades earlier by which CT
employees could seek reimbursement was an outdated relic that should have been
reformed years ago. Saddled with such a system, the CT employees dId a poor job of
ensuring appropriate reimbursement, at times seeking multiple reimbursements for the
same expenses and then at times not seeking reimbursement at ail for legitimate expenses.
There were no effective "checks and balances" to the reimbursement system and the
arrangement was permitted to bounce around unregulated and largely unmonitored for
years and years. While there were some attempts over the years during the evaluation
process to message the CT Director of the need to improve accounting practices, there was
no significant follow up to ensure that the accounting practices were, in fact, improved.
The same can be said with regard to the relationship between the CT and the
Friends. Monies and resources were permitted to slosh between the two entities with very
little questioning of whether the transactions were appropriate and consistent with City
policies. Because the entities were seen as working together for the common good, persons
in positions of authority not only tolerated the arrangement but at times endorsed and
authorized it, sometimes contrary to City policy.
As a result, when the police began to be exposed to this "crazy accounting system",
suspicions were raised that persons were stealing city monies. Instead of seeking the
answers through an audit or consulting with an expert, the Police Department decided to
go it alone with a lead investigator not trained in the niceties of financial crimes
investigations. The resulting criminal investigation inevitably was destined to make
mistakes as detailed above. The mistakes of the criminal investigation were made available
to all when the investigative report was released for public scrutiny.
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It cannot be disputep by the managers of the CT that legitimate expenditures and
reimbursements did not always match up. It also cannot be divined the degree to which CT
employees may have "benefited" from the discrepancies, if at all. On the other hand, the
financial records are iI,1 such disarray that the CT employees may be owed further monies
for expense reimbursements not sought While these discrepancies are disconcerting, the
way in which the City failed to monitor, regulate. and reform the system left any potential
criminal case dead upon arrival.
Many in Palo Alto would agree that there are heroes with regard to the years of good
work of the CT. Once the investigation became overt, CT supporter have been concerned
that the financial irregularities uncovered that ended up not being prosecutable not detract
from the positive experiences the CT provided youngsters in Palo Alto. In fact, because the
energies of the CT managers were almost exclusively focused on providing this service, the
financial issues of keeping track of money and operating according to Hoyle unfortunately
took a back seat. The positive aspect of the attention drawn to this affair is that state of the
art financial systems will replace the anachronistic ones and appropriate controls will
ensure that the CT's financial recordkeeping will not jump the rails in the future. ,
SYSTEMIC RECOMMENDATIONS
1. Allegations of financial crimes are often fraught with complexity. Accordingly, it
is recommended that in future cases, the Police Department should consult early
with the District Attorney regarding the structure, form, and strategies of the
criminal investigation.
2. In consultation with the District Attorney, the Department should determine
whether an Independent financial audit should be requested before a financial
crimes investigation is begun in earnest.
3. In similar cases, the Police Department should consider the advantages of
referring the investigation to an outside agency.
4. Investigators assigned to lead financial crimes investigations should have
training and experience in the conduct of financial crimes Investigations.
5. Ongoing criminal investigations should not be tried In a public forum and the
Department should refrain from substantive public comment during a pending
criminal investigation.
6. In cases in which no charges have been flled, the City should consider the
advisability and appropriateness of releasing related police reports, taking into
account any legal reqUirements that may mandate release.
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7. Police reports should not include ~e and ~ the
Department should ensure that its detectives receive appropriate training about
compiling appropriate police reports consistent with the Department's current
. Report Writing Manual.
8. Training should also be provided to Departmental staffon the need to search for
and document both evidence showing guilt as well as evidence indicative of
innocence consistent with the Department's Report Writing Manual.
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