June 23, 2016

A recent California Supreme Court decision has clarified the scope of activity that can be prosecuted as the misuse of public funds by public officials. The case involves a school district superintendent who was convicted under Penal Code section 424 for increasing the compensation for a contract employee without Board approval. Section 424 prohibits the misuse of public funds by public officials who are “charged with the receipt, safekeeping, transfer, or disbursement of public moneys.”

The Court of Appeal reversed the conviction, concluding that while the superintendent was generally responsible for the district’s budget and business affairs, he did not actually receive, transfer or disburse the money. However, in People v. Hubbard, the California Supreme Court reversed the Court of Appeal, noting that if a public official owes a duty to safeguard the funds of the public agency and exerts material control over how the funds are expended, they can be prosecuted under section 424 for misuse of public funds. If an individual merely plays a role in the first step of a process that results in the expenditure of public funds, that generally would not be enough to establish criminal liability.