January 29, 2019
The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
Sacramento, California 95814
Dear Governor and Legislative Leaders:
As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report concerning California Department of Veterans Affairs (CalVet) and Department of General Services’ (DGS) leases and other third‑party uses of veterans home property. CalVet operates eight veterans homes across the State that provide residential and medical care to eligible veterans. State law authorizes DGS, with CalVet’s consent, to lease property at the homes to third parties so long as the lease terms are in the homes’ best interests.
This report concludes that CalVet and DGS entered into agreements with third parties that are inconsistent with the homes’ best interests and that violate state law by allowing the third parties to lease property for decades. Although state law requires that the funds from veterans home leases supplement the funding that the homes receive, DGS and CalVet failed to ensure that $610,000 was appropriately directed to the homes. Additionally, DGS could not explain how it had established the rental rates for most of the leases we reviewed, and the rates for two leases are far below the current market rent. Finally, CalVet allowed some third parties to occupy veterans home property without written agreements to protect the State from liability, without charging rent that could have been used to benefit the homes, and without DGS approval.
Because of these significant issues, we determined that CalVet and DGS should define what constitutes the best interests of the veterans homes and deny any uses that are inconsistent with those interests. We also recommend that DGS set rental rates equivalent to market rent, and that both CalVet and DGS ensure that the proceeds from leases are directed to the veterans homes. Finally, CalVet should evict the entities occupying space without a lease or work with DGS to establish leases for them.
ELAINE M. HOWLE, CPA
California State Auditor