Report 2022-112 Recommendation 4 Responses

Report 2022-112: CalOptima Health: It Has Accumulated Excessive Surplus Funds and Made Questionable Hiring Decisions (Release Date: May 2023)

Recommendation #4 To: CalOptima Health

To ensure that members of CalOptima's board do not violate state law by entering into employment contracts made by the board on which they serve, by June 2023 CalOptima should amend its bylaws to prohibit all CalOptima board members from being employed by CalOptima for a period of one year after their term on the board ends.

6-Month Agency Response

Government Code Section 1090 already prohibits Board members from being financially interested in any contract made by them, such as entering into a CEO contract. CalOptima Health's Bylaws reiterate that prohibition, as of April 6, 2023, (Attachment A1) which addresses the specific past example raised in the audit report. However, no other agency is required to subject its Board members to a blanket employment prohibition for any position that is not appointed by the Board itself.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

CalOptima has merely reiterated the legal requirements that already apply to it, and that its board previously disregarded when a former board member engaged in the apparent conflict of interest we described in our report. CalOptima's past actions demonstrate that the existing safeguards in its bylaws are insufficient. Thus, we stand by our recommendation that CalOptima should implement stronger safeguards by expanding the prohibition on its board members being employed by CalOptima to apply to all board members, instead of only those who are also members of the Board of Supervisors.

60-Day Agency Response

CalOptima Health's By Laws reference and restrict Board Members' employment with the Agency pursuant to Section 14087.59 W&I and Section 1090 of the Government Code. Neither statutory provision includes a blanket restriction of employment with CalOptima Health for one year for all Board Members.

California State Auditor's Assessment of 60-Day Status: Will Not Implement

CalOptima's response does not address the facts described in the report. Government Code section 1090 generally prohibits state and local officers or employees from being financially interested in any contract made by them in their official capacity or by any boards of which they are members. Nevertheless, a former CalOptima Board member entered into a contract with CalOptima, that appears to have violated state law, to serve as its interim CEO. The prohibition in CalOptima's bylaws related to former board members serving as employees would not have applied to this board member, and enacting a blanket restriction on employment with CalOptima Health for one year for all Board Members could help prevent such situations from occurring in the future. Thus, CalOptima's decision not to implement this recommendation puts it at risk of actual and perceived impropriety. As we describe in the report, CalOptima's decision to hire a member of its board created an appearance that it acted in the interest of that individual, rather than in the interests of those CalOptima serves. Thus, we stand by this recommendation and strongly encourage CalOptima to reconsider its decision not to implement this recommendation.

All Recommendations in 2022-112

Agency responses received are posted verbatim.