APPEAL from an order of the Superior Court of Riverside County, James T. Warren, Judge. (Super. Ct. No. RIF10005439)
The opinion of the court was delivered by: O'rourke, J.
CERTIFIED FOR PUBLICATION
Reversed and remanded with directions.
The People appeal from an order granting in part the Penal Code*fn1 section 995 motions of defendants and respondents Lavern Johnson and Purcell Johnson to dismiss certain counts of a 149-count indictment charging them with criminal offenses in connection with their operation of "T-Town," a nonprofit group home. In the indictment, defendants were charged with conspiracy to commit fraud (§ 182, subd. (a)(4)); 24 counts of misappropriation of public funds (§ 424, subd. (a)(1));*fn2 24 counts of grand theft (§ 487, subd. (a)); 24 counts of embezzlement of public funds (§ 504); four counts of identity theft (§ 530.5, subd. (a)); 41 counts of forgery (§ 470, subd. (a)); and 31 counts of money laundering (§ 186.10, subd. (a)). The trial court dismissed all 24 counts of misappropriation of public funds, ruling defendants could not be held criminally liable under section 424 because they were not public officers and T-Town was not a public agency. It also dismissed the identity theft counts, ruling there was insufficient evidence to bind defendants over for trial.
On appeal, the People contend the trial court erred as a matter of law by dismissing the charges of misappropriation of public funds because the moneys received and disbursed by T-Town are "public moneys" within the meaning of section 424, subdivision (a)(1). The People further contend the court erred as a matter of substantive law and violated their right to due process of law by setting aside the four counts of identity theft.
We conclude, based on the evidence before the grand jury, defendants are "person[s] charged with the receipt, safekeeping, transfer, or disbursement of public moneys" within the meaning of sections 424 and 426, and thus there was probable cause to hold defendants to answer for the misappropriation of public funds counts. We further agree with the People that the trial court erred by dismissing the four identity theft counts. Accordingly, we reverse the order dismissing those counts and remand with directions set forth below.
FACTUAL AND PROCEDURAL BACKGROUND
We state the background facts from the record of testimony before the grand jury, as well as the relevant California law and regulations*fn3 governing group home providers.
Purcell Johnson and Laverne Johnson are the operators of T-Town, a nonprofit group home child care facility*fn4 licensed by the Community Care Licensing Division of the California Department of Social Services (DSS). Group homes receive payments from a mix of federal, state or county agencies (50 percent federal, 20 percent state and 30 percent county) based on a "rate care level" assigned to that home at the time it receives its license. The state of California sets group home rates via a point system established by the Foster Care Rates Bureau of the Foster Care Audits and Rates Branch (Branch). (See Sacramento Children's Home v. Department of Social Services, supra, 81 Cal.App.4th at p. 789.) Each rate is a dollar amount provided every month for the care of a single child, and that amount consists entirely of government funds. The monthly checks are generated via an automated system within a division of Child Protective Services. Child Protective Services is itself a division of DSS. Each check is made out to the group home payee, and has a field identifying the child's name and pertinent month.
Because DSS is a federal grant recipient, group homes, which are subrecipients of the federal funds passed down from the state and county, must follow federal rules and regulations. The funds provided to each group home are subject to state and federal regulations that identify allowable and disallowed costs. Federal requirements (Office of Management and Budget circular A-122) provide more details of what are allowable and unallowable costs, and also mandate and provide guidelines for independent audits. Those federal requirements also outline how a provider is to record its direct costs for items such as food and clothing, as well as indirect costs for items such as overhead and insurance.
California regulations require group homes to undergo various audits to ensure compliance with all DSS requirements. (DSS Manual, §§ 402.5, 402.51, 405.1-405.2; Sacramento Children's Home v. Department of Social Services, supra, 81 Cal.App.4th at p. 790.) California law also authorizes such audits and requires group homes to maintain specified records for at least five years. (Welf. & Inst. Code, § 11466.2, subd. (a)(1) ["The department shall perform or have performed group home program and fiscal audits as needed. Group home programs shall maintain all child-specific, programmatic, personnel, fiscal, and other information affecting group home ratesetting and AFDC-FC payments for a period not less than five years"].) A fiscal audit assesses the financial condition of the nonprofit entity to see how it has spent its foster care funds, and ensures the funds were spent for allowable and reasonable costs.
The Program and Financial Audits Bureau (Audits Bureau) of the Branch oversees and receives the financial audits of group homes either annually or tri-annually. Group home providers are informed at the outset of the audit requirements and are told they must maintain at least five years of receipts and supporting documentation for all expenses to show they are allowable. Providers are required to provide DSS immediate access to its program records or facilities when given notice of a fiscal or program audit, or be subject to termination of its rate. (See DSS Manual, §§ 402.524, 402.525.)
Starting in 1999, group homes are also required by California law and regulations to submit a financial audit report conducted in accordance with specified government auditing standards by an independent licensed certified public accountant within the state of California in order to receive a rate each year. (See Welf. & Inst. Code, § 11466.21; DSS Manual, §§ 405.2, 405.211, 405.212.) State law and federal regulations determine the frequency and time frame within which such a report must be submitted, depending on whether the home's combined federal revenues are above or below a particular amount. (See Welf. & Inst. Code, § 11466.21.) A group home is notified of this requirement, and provided with a copy of the pertinent regulations, at the time it receives its rate letter. This information is also given to applicants interested in becoming a group home provider.
An "overpayment" occurs when a provider receives more benefits then what it was entitled to receive. If a group home provider has extra funds that are not spent on 24-hour care for the children in its care, the provider must put the funds back into the program. DSS has a recovery department whose employees collect overpayments in connection with public assistance programs, including foster care group homes.*fn5 A DSS eligibility worker determines when an overpayment occurs, enters the information in the system, and the recovery technicians pursue debt collection efforts: they notify customers of the fact of overpayment and specify why it happened, notify them of a right to an administrative hearing on the matter, make arrangements with them to make repayments, monitor payments, and conduct skip tracing to locate customers in order to set up repayment agreements. If a state audit reveals unsupported costs or funds that have been misused by a group home provider, the state must immediately repay 50 percent of the disallowed costs to the federal government. If the home is unable to repay those costs, the law permits them a maximum period of nine years to make monthly payments to DSS. (See Welf. & Inst. Code, § 11466.22, subd. (d)(3).)
A group home is selected for a fiscal audit based on a review of its financial audit report and assignment of a risk rating based on matters such as negative cash balances, overpayments, and debt. Providers with a risk rating of 7 or above (out of 10) would be referred for audit. T-Town fell within a high risk rating: in the 7 to 10 range, but it was not audited for some years due to budget constraints.*fn6 As of 2006, when DSS began running audits again, T-Town owed overpayments of $213,232 going back as far as 1999.
In May 2010, the Riverside County District Attorney charged defendants with numerous crimes in connection with their operation of T-Town: conspiracy to commit fraud, misappropriation of public funds, grand theft, embezzlement of public funds, identity theft, forgery, and money laundering. Both pleaded not guilty to the charges.
Defendants thereafter separately moved under section 995 to dismiss the misappropriation of public fund charges in the indictment. Purcell Johnson argued for dismissal of all of the counts alleging a violation of section 424, subdivision (a)(1) on grounds he was neither an officer of the state, county, city, town or district of the state, nor a person charged with the receipt, safekeeping, transfer, or disbursement of public moneys.
Lavern Johnson likewise argued section 424, subdivision (a)(1) did not apply because the funds were not public moneys. She conceded that T-Town obtained its funds from public sources, but maintained once the nonprofit corporation received the funds they were no longer public, even though they were to be used for public purposes.
The People opposed the motion, summarizing much of the evidence presented to the grand jury. Addressing defendants' assertions regarding the nature of the funds, it argued that the proper ...