Misplaced Trust

An audit finds the city's public guardian shorting the treasury and misusing funds

Most San Franciscans are all too familiar with the insinuations of corruption that regularly swirl around several high-profile city agencies. The Human Rights Commission, for instance, has lately received visits from federal agents investigating possible fraud in minority contracting. The Department of Public Works, Muni, and the Airport Commission are periodically highlighted for suspicious contracts and apparent sweetheart deals. Even the once-sacrosanct Fire Department has been raked over the coals recently for its remarkable overtime expenses.

But few have heard of the public guardian. Like the Bureau of Agriculture, Weights, and Measures, the Office of the Public Guardian/ Public Administrator is blessed with a low profile. In light of a recent audit report, however, the public may want to pay more attention to this innocuous agency and its bleak history of official impropriety.

Every county in California has a public guardian, charged with taking care of people who fall between society's cracks, like indigent or mentally disabled people without friends, family or, even, concerned enemies. In San Francisco, the combined Office of Public Guardian/Public Administrator administers the estates of people who die without wills or heirs. The guardian is also the court-appointed conservator for people -- rich or poor -- who, for a variety of reasons, cannot take care of their own personal and financial affairs.

Ricardo Hernandez, public guardian.
Ricardo Hernandez, public guardian.



Public Administrator/Public Guardian/County Veterans Service Office
The official home page of the San Francisco public guardian

Panoramic Software Inc.
Site of the self-described "industry leader for software supporting California county offices"

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Right now, San Francisco's guardian controls about $32 million in estates and trust accounts for 2,000 individuals. Out of sight, Guardian Ricardo Hernandez and his staff of 50 have apparently been breaking the law in their handling of the funds.

According to a report issued by San Francisco Controller Edward Harrington on June 28, 1999, Hernandez has broken state law by using public money to create a million-dollar nest egg that doesn't appear on the city's books.

For eight years, the controller says, Hernandez used the hidden fund to buy computers, software, furniture, and consulting services from Panoramic Software Corp., a company located across the bay in Larkspur. The city's internal auditors also found that Hernandez violated the city charter when he deliberately bypassed all of San Francisco's contracting laws and fraud-detection systems to steer a multimillion-dollar contract to Panoramic. And the report concluded that Panoramic habitually overcharged the public guardian for its services. Indeed, according to the controller, Panoramic cannot even prove it did the consulting work for which it billed the guardian, because nobody kept hourly records of the work, or monitored the contract.

The city controller recommended that Hernandez be disciplined for these actions, but left the nature of the punishment up to the discretion of the guardian's now-retired boss, Steve Nelson, director of administrative services. Nelson summoned Hernandez to his office last summer for a private discussion of the charges, but only Nelson and Hernandez know what -- if any -- discipline was meted out, and they're not saying. The controller also recommended that Hernandez recover tens of thousands of dollars that his office overpaid Panoramic, but he has not done so.

Hernandez, 56, was appointed public guardian/public administrator shortly after his immediate predecessor, James R. Scannell, was arrested in December 1988 on 11 felony charges of conflict of interest, perjury, and bribery. Scannell was accused of accepting $25,000 in kickbacks from a Sacramento heir-finding company. In 1990, according to the District Attorney's Office and newspaper accounts, Scannell pleaded guilty in Municipal Court to one count of conflict of interest, paid a $1,000 fine, and did four months in county jail.

Scandal struck the Office of the Public Guardian again, in 1993, when a top official abruptly resigned after being accused by city investigators of embezzling more than $100,000 from indigent and disabled Social Security recipients.

State law requires the Public Guardian's Office to manage the assets of its clients, and to safely invest the money. The guardian deposits millions in cash, welfare checks, and unclaimed estates into accounts at the Bank of America. The office pays its clients' bills, plans their long-term care, and searches for heirs to estates. The guardian also uses the client cash to earn interest that is supposed to be deposited in the city's General Fund.

Keeping track of thousands of trust account payments, fees, and earned interest requires the use of customized software. And this is where Hernandez ran afoul of the law, according to the audit report.

Since the highest interest can be earned by pooling individual investments, the state's probate code allows the Office of the Public Guardian to lump all its clients' money together so it can buy relatively risk-free investments, such as municipal bonds. State law also allows the office to keep the "excess interest" it earns on these investments, basically the difference between the interest the accounts might have earned individually and the greater return from pooled investments.

The excess interest is supposed to be deposited in the city's General Fund, but the audit found that Hernandez has been keeping some of the money, and using it in questionable ways.

During 1996 and 1997, the city's guardian earned $1.3 million in excess interest; but Hernandez only deposited $530,000 into the General Fund. According to the controller, this oversight violated state law. After Hernandez became guardian in 1989, he moved excess interest money into a special fund and used it to pay Panoramic Software's bills. Panoramic was paid almost $500,000 a year for providing computers and consulting services.

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