State Audit Scrutinizes Our County Fair

By Jondi Gumz

Longtime Santa Cruz County Fair CEO Dave Kegebein, who led a financial turnaround during 11 years at the helm, has lost his job after a state audit found the fair had no receipts and had no supervisory review for $163,442 of purchases from 2017 to 2021, including $31,345 for fuel for his truck.

On Oct. 4, the board voted 7-2 to terminate, with Loretta Estrada and Jody Belgard voting no.

Board president Don Dietrich is overseeing the operation until a replacement is hired. He said the board will take up the matter at a regularly scheduled meeting at 1:20 p.m. Oct. 25.

The fairgrounds in Watsonville, like 51 others in the state, is a state entity and required to follow state rules.

The state auditors found 12 problem areas and made 35 recommendations, requiring a response from the fair.

Most of the identified problems are due to lack of documentation and receipts for spending and travel, lack of an annual review and lack of oversight by the CEO, the fair board and California Department of Food and Agriculture, the agency overseeing county fairs.

Because of the fair’s lack of documentation, the relationship between the fair and the Santa Cruz County Fairgrounds Foundation, a 20-year-old nonprofit that raises hundreds of thousands of dollars for improvements such as water tanks, storage, and outdoor lighting, via events and alcohol sales, also came under scrutiny.

The audit said an equipment lease agreement between the two entities did not appear to be at arm’s length, as required.

Family Legacy

Dave Kegebein’s ties with the fair go back to his childhood when his father, John Kegebein, worked for the fairgrounds.

John Kegebein put in 50 years at the fair, most recently in 2007 as a volunteer CEO for two years to help bail out the fair, which was in financial straits, and he’s still active with the Ag History Project, which is based at the fairgrounds. John’s wife Jeannie, stepmother to Dave, is the volunteer executive director of the Fairgrounds Foundation.

Yvette Jordan ran the fair for three years, and left the budget in the red.

The next CEO was Michael Bethke, a building contractor with a master’s degree in urban planning, Rotarian and Santa Cruz Chamber Man of the Year.

Bethke faced a deadly horse disease, equine herpes myloencephalopathy, which shut the horse barns, lawsuits over a planned rodeo, and a threatened lawsuit by Max Kelley and his neighbors and did living close to the fairgrounds racetrack over noise from Speedway races.

Overspending was an issue, and after Bethke resigned, Dave Kegebein, a strawberry grower, offered to come in as a volunteer manager.

When his two-year stint was successful, Kegebein, 56, was offered a paying position to be in charge.

Accounting Manual

The fair, also known as the 14th DAA, is required to respond in writing on how its 35 recommendations to improve internal controls, operations, and compliance with state laws and regulations will be implemented.

Good internal controls are essential to assuring the accomplishment of goals and objectives, according to the University of Florida Office of Internal Audit. They provide reliable financial reporting for management decisions, and they ensure compliance with applicable laws and regulations to avoid the risk of public scandals.

John Skinner, a floriculture volunteer at the Santa Cruz County Fair rallying Kegebein supporters, contends the CDFA has not conducted any staff training for 10 years.

He said Kegebein was issued a state credit card and debit card in 2016 and he contends neither Kegebein nor the board was made aware of reporting requirements.

The CDFA has, however, produced regulations for county fair leaders, the 288-page Accounting Procedures Manual in 2009 and a 60-page update in 2017, both posted online.

In 2011, the Santa Cruz County fair board discussed the feasibility of hiring a comptroller for one to two hours a week to oversee finances as a third-party expert but concluded the fair could not afford it.

Patrice Edwards, publisher of Aptos Times, served on the fair board from 2006-2011.

“These are the same problems we had in the five years I was on the board and chair of finance,” she said.

“The Finance Committee had instituted a policy where every check needed two signatures and no reimbursement took place without a receipt or invoice,” she said. “Had the board followed through on this policy set forth by the Finance Committee, Dave would not have been put in this position.”

She credited Kegebein with orchestrating a “spectacular comeback” for the fair.

“Lack of oversight on the part of the board’s responsibility to review the finances created this situation, along with the state’s lack of follow-through and Dave’s lack of documentation,” she said. “Very sad for our community.”

Red Tape Compliance

In his departure letter, Dave Kegebein said CDFA did not provide training on procedures or audits when he started in 2012.

He called the issues in the audit “red tape compliance that we were not aware of.”

When he started, he said it was “chaos,” with multiple lawsuits and staff dysfunction.

He said his 11-year tenure improved the facilities, which had deteriorated to be unsafe, to the best condition ever, garnering praise from customers and the community.

He also said finances have improved, from 2012 revenue of $1.3 million, and no cash on hand, to revenue of $4 million in 2021 with cash on hand of $1.75 million.

He said he had supplied “$650,000 of various resources to the fairgrounds including two years of not accepting compensation and benefits, supplying multiple pieces of equipment for daily operations, and using my own truck for transportation.”

He said he put 200,000 miles on his pickup truck doing fair business.

He contended he could have been reimbursed $116,000 over the years for his vehicle use but he opted to ask only for fuel and oil consumed, which in the audit was $35,000.

Kegebein told the auditors that he brings tools from home to the fairgrounds every day, so he considered that mileage a business expense. The audit said expenses from commuting from home to work are not allowed under state code.

The audit said Kegebein was informed that if he uses his personal vehicle for business-related travel, this requires paperwork, Form 261 filed annually, plus a monthly travel expense claim with the dates, locations, and business purposes. Those forms were not completed or submitted.

Board President

Fair board president Don Dietrich said via email that the audit began “around February.”

He first “learned of the issues including inappropriate use of the credit/debit cards during the August exit interview with the auditor.

That prompted him to immediately implement “procedures that restricted the use of any charge account, credit, debit or cash transaction without prior review and approval by a board member.”

He recalled Kegebein reporting during board meetings that he “made some corrections to procedures as he was made aware of things during the audit process, however, it was a broad statement with little detail so I cannot comment on specific changes made.”

Dietrich added, “My opinion is the CEO is the person directly responsible to ensure that state rules and policies are being followed by all staff. The only employee who the board has oversight over is the CEO.”

Two board members, Bill Barton and Jody Belgard, are assigned to the Finance Committee, whose duties include regular review of the fairgrounds financials.

Since Dietrich joined the board, every president has assigned those two to the Finance Committee “due to their financial background as professionals,” Dietrich said.

Asked if the fair, which employs a bookkeeper, would benefit from a Certified Public Accountant, Dietrich had “no comment at this time.”

In his letter, Kegebein contended the CDFA staff, accompanied by Highway Patrol officers at the Oct. 4 board meeting, persuaded the 9-member volunteer board to fire him, alleging a threatened state takeover and their dismissal.

All fair board members are appointed by the governor.

Eight appointees — not Dana McRae, appointed in November 2021 — have terms that have expired, and the governor’s office in July said “appointees serve at the pleasure of the governor until a successor has been appointed.”

The governor’s press office did not respond to a query from the Aptos Times on the issue.

The Aptos Times asked Kegebein via email if he was familiar with the state’s accounting manual and when he realized the fair was out of compliance. He did not respond.

Response to Audit

Asked about the Highway Patrol at the board meeting where Kegebein was fired, Dietrich said, “I have never felt threatened by law enforcement. The officers were there to ensure the safety of all those in attendance.”

As a new appointee to the board in 2012, Dietrich had suggested Kegebein be hired in 2013 with salary and benefits after his efforts as volunteer manager made the 2013 fair a success.

In a 3-page letter to CDFA chief auditor Ron Shackelford dated Sept. 21, prior to the Oct. 4 fair board meeting, Dietrich, as fair board president, did not contest any of the 12 audit findings.

“As a result of the information you provided during the exit interview, I, as Board President, put the following controls in place as a temporary measure until a permanent policy can be developed and ratified by the full Board,” Dietrich wrote. “The temporary controls require that all purchases made on any account or with any debit or credit card be authorized in advance by either Director Dietrich, Director Belgard or Director McRae.”

He added, “Credit and debit cards are kept locked in the safe with access through the 14th DAA bookkeeper. A spreadsheet documenting the purchases has been developed and is inspected biweekly by me. This spreadsheet will be provided to the board as part of the Board Meeting Packet each month for review.”

He continued, “The long-term response is to develop a policy that provides controls over use of accounts and credit/debit cards in conformance with the requirements contained in the Accounting Procedures Manual…A policy will be adopted to ensure use of personal vehicles by any employee are strictly within the guidelines for use of personal vehicles as outlined in the Accounting Procedures Manual. Lastly, I will recommend that the Board seek legally permissible recovery efforts relating to the misuse of debit/-credit cards by Employee A (CEO).”

Dietrich then addressed each finding, explaining how the fair will comply.

He pointed out the board is made up of unpaid gubernatorial appointees who meet monthly, a schedule that will be impacted by the approaching holidays, and does not employ permanent staff “with the skill set to develop draft policies as recommended by the Audit Office. With that in mind, the board will work diligently to attempt adoption of the necessary policies and procedures …within the 6-month time frame.”

Asked if he spoke with the fair CEO before composing that letter,” Dietrich responded,

“I didn’t speak with Mr. Kegebein about my written response to the audit as it was tasked to me to respond on behalf of the board.”

Foundation

Michele Bassi, president of the 20-year-old Santa Cruz County Fairgrounds Foundation, said via email, “Dave Kegebein has given his time, talent and treasure to the Santa Cruz County Fairgrounds. We are truly disappointed in the outcome of Tuesday’s meeting.”

She pointed out the Santa Cruz County Fairgrounds Foundation is a 501c3 nonprofit, not a state agency, and raises money “to ensure our community has a vibrant, healthy fairgrounds. We are responsible to our donors and will continue to fiscally support the fairgrounds so it is ready for times of need as well as celebration.”

Funds raised through fundraising events, campaigns, and alcohol sales go to the betterment of the fairgrounds, work that will continue, she added.

“Our audited financials confirm that we adhere to strict financial standards and audits,” she noted.

Dennis Osmer, executive director of Central Coast Energy Services, said he had worked with Dave Kegebein when they were both members of the Pajaro Valley Water Management Agency board.

“Dave is more interested in achievement than paperwork,” Osmer said, adding the audit is “no reason for termination, it’s reason for correction.”

Osmer also asked, “Where was the board?”

Fair Audits Elsewhere

The Santa Cruz County Fair is not the only one to face CDFA scrutiny.

A 2018 state audit of the Orange County Fair found officials spent more than $220,000 in state money on food, beverage and catering without documentation of state business, paid for travel to states prohibited under the Attorney General, and didn’t report a suspected embezzlement of more than $9,000. The fair CEO was fired in 2019.

In 2019, a state audit found the Kern County Fair CEO allowed more than $300,000 in questionable spending between 2016 and 2018, much of it for travel, expensive meals, and alcohol. The audit did not identify the county but multiple sources told Eyewitness News it was Kern County.

The fair had no receipts for $132,000 worth of credit card purchases, $30,000 in “excessive and unauthorized” out of state travel, and $1,200 spent on alcohol.

The audit said more oversight by the board of directors and the CDFA is in order.

This year, the acting CEO of the Sacramento County Fair was fired after a state audit revealed she was unable to show documentation for $107,230 in reimbursements in Sacramento County and $73,973 in Tulare County where previously she was fair CEO. She reimbursed herself for $3,503 in food and meals she said were for business purposes but did not provide a list of people at the dinners required by Accounting Procedures Manual. She did not provide documentation for $4,392 in vehicle mileage reimbursement, and she didn’t keep attendance or vacation time records.

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Audit Findings: The Details

In reviewing the Santa Cruz County fair, auditors from the California Department of Food and Agriculture focused on 2019 and 2020, expanded their review to five years when requested documentation was not provided, interviewed staff and found:

• Of the $163,442 in purchases, $108,869 were made by the CEO.
• $2,237 in debit card purchases for the CEO’s vehicle maintenance, with only five invoices totaling $835.
• Spending of $5,905 for food for employee birthdays, lunches, holiday dinners and chamber mixers, which the state deemed unallowable.
• Travel expenses of $1,352 with no receipts.
• No travel expense claim form filed by the CEO as required.
• Travel expenses of $564 to a fair convention in Texas, one of 22 states for which California bans travel.
• $4,671 of debit card purchases at retailers with no receipts and $1,352 of travel expenses paid via debit card with no receipts.
• $68,489 in equipment purchased by the CEO for the nonprofit Santa Cruz County Fairgrounds Foundation when state employees are not allowed to conduct business for an outside entity on state time.
• A 2020 lease agreement for equipment signed by related individuals, Dave Kegebein and his stepmother, Jeannie Kegebein, who heads the Foundation, when the state requires an arm’s length agreement to avoid a conflict of interest.
• Not getting a share of revenue from Foundation events at the fairgrounds, when typically there is a revenue split. Holiday Lights, which raised $285,478, or the Crab Feed, which raised $65,773.
• Not charging the Foundation for office space at the fairgrounds, a loss of revenue for the fair.
• No documentation on alcohol sales by the Foundation when the fair requires 5% of sales go to the fair. Lacking fair records, the auditors researched the Foundation’s 2019 and 2020 tax returns, reporting alcohol sales of $333,819 based on concession receipts and an underpayment to the fair of $3,437.
• Improperly requiring the Speedway to donate $7,500 per year for the Fairgrounds Foundation as part of its lease.
• Failure to conduct an annual CPA review, as required.
• No log for $5,914 of propane; half the initials on logs of the fuel tanks could not be identified by fair staff.
• Eight contracts over $5,000 not bid, as required.
• 84 employees worked more than 8 hours in the day without overtime.
• CEO accrued 684 hours of vacation time; the state cap is 640 hours.
• Property register not provided; inventory is required every three years.
• No information on free tickets or courtesy and credential passes, as required.

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The Santa Cruz County Fair audit is posted on the fair website: www.santacruzcountyfair.com/images/stories/agenda/2022/oct/14th-DAA_Final-Compliance-Audit-Report_22-006.pdf

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Click HERE to read Dave Kegebein’s Departure Letter