SWEEPING UP THE KRUMS: CALIFORNIA STATE POLICE INVESTIGATE THE BUSINESS ENTERPRISE PROGRAM by Barbara Pierce Anyone who has ever suffered an injury knows that, unless you take great care to rehabilitate and strengthen the affected part, you will always experience twinges of pain and weakness in the area. Unfortunately, the same phenomenon is also frequently true of institutions. Old habits of sloppy practice and impulses to cut corners and blur distinctions die hard in bureaucracies. New brooms must sweep very carefully and very zealously indeed if they are to clean up old messes. Early in 1977 the San Francisco Examiner ran a series of articles exposing to the light of public notice a number of unsavory problems in California's Business Enterprise Program (BEP). Briefly, these included overpricing of equipment and supplies, disappearance of millions of dollars of inventory, and misappropriation of considerable amounts of the trust fund intended to assist the vendors in the BEP. Despite the then Director of the Division of Rehabilitation Ed Roberts's characterization of the problems as "minor administrative and bookkeeping" difficulties, major investigations were undertaken, and heads rolled as a result. One Roger Krum was brought in to head the BEP, and many thought that he was being demoted or punished (according to his own statement in the Examiner) by being handed this assignment. But he went on to assure the reporter that he wanted the job because he knew that the man who could clean up this mess and did so would have his reputation made. He allowed as how he welcomed the challenge, or was it the opportunity. In the light of recent events in California, it is instructive to read the final article in the newspaper series. It appeared in the San Francisco Examiner on January 14, 1977. Here it is: Brown's Help to be Sought on Blind Mess by Jim Wood and Larry Kramer Senator Bill Greene, D-Los Angeles, says he will go personally to Governor Brown in an attempt to straighten out the state's tangled program for blind businessmen. Greene also has called on the state auditor general's office for a full report on the Business Enterprise Program. Greene said he was requesting action because the Department of Rehabilitation has never been able to present an accurate, definitive accounting of the BEP trust funds. "For well over 10 years requests for precise figures have been met with evasions," he said. Greene also noted that there are "compelling reasons" to believe that accepted accounting and fiscal procedures have been violated. He said that disbursements have been made for purposes other than those spelled out in the state and federal laws concerning the BEP. "Some of these have been challenged and others have been arbitrarily continued for lack of challenge," he said. Greene met last week with critics of the fund's management and with representatives of the auditor general's office to plan the investigation. Greene urged that particular note be taken by the auditors of using trust funds for administrative purposes and consultants' fees. Calling the program a "morass of mismanagement," he said that the department had used single source vendors when competitive bids could have been obtained, spot purchases made for expediency, and obsolete equipment continued in use in the name of economy. "All the foregoing has been done at costs far beyond any reasonable standards of good business practices and management," he said. Greene also told the auditor general's office that "there is no precise central inventory of BEP equipment." "Over the years, a considerable amount of BEP equipment has been disposed of in one way or another," he said. "The accounting for this equipment, if any, is very suspect." At a news conference yesterday, Edward Roberts, director of rehabilitation, said the "state auditor general has been quoted as saying there is no scandal" in the fund. John Williams, the state auditor general, said, however: "There is no way I can say at this time whether allegations that have been made are or are not true. That is the purpose of this audit." "We don't have any documentation at this point that indicates any form of scandal, but we've just barely begun our field work," Williams said. At the news conference, Roberts called reports in the Examiner concerning the program "false and misleading" and said he fears they may do irreparable damage to "our service for the blind generally." Roberts said he was proud of the program and "regretted seeing it bruited in the public press." "The program has minor administrative and bookkeeping problems. These have been rectified and have been corrected" he said. The series, quoting from taped interviews, said that Roger Krum, the program administrator, called the problem "mind boggling" and "an eightball situation," and former administrator Robert Melody said the program faced "a hell of a serious problem." At the news conference Elliott Allen, deputy director for administration, was asked whether it was possible for an individual to misappropriate funds or property from the program. The series had quoted a state report noting such a potential. "The potential does exist" Allen answered. "We are concerned about it. That is one of the things we are working on." Roberts added, however, that he is convinced that "no corruption exists, even though central inventory is not complete." Krum was asked if the existence or location of equipment could be verified. He replied: "The equipment in location can be verified. The equipment in the warehouses, most of it, can be covered. One of the things we're working on is a problem of having stuff not show up on a printout, or show up two or three times." Roberts said that "we think of it in terms of a problem in accounting and the inventory system. We are in the process of rectifying these problems by establishing a new system." That's what the Examiner had to say twelve years ago. And what--it is fair to ask--has happened in the intervening years to rectify the situation? Surely with the computer revolution an inventory-management system has been put in place to keep track of the materials in use and warehoused in the nation's largest BE Program. At the very least the Trust Fund is now safe from sticky fingers, and the administrative staff has come to work with the BEP business people in an atmosphere of mutual respect and good will. After all, Mr. Krum came in intending to make his reputation for better or worse on what he could do with the Business Enterprise Program. And so he has! His attitude toward vendors has been clear for years. The BEP vendors report that he refers to them as the "boys," a term which even the male vendors find demeaning. Mr. Krum also enjoys putting his feet up on his desk in his office and on tables when he is taking part in meetings in other rooms. Participants in these gatherings report that he points the toe of one shoe at the person whom he is addressing, particularly if he does not agree with or respect the individual. These are small things, but Californians find them indicative of his general attitude toward blind people who are not willing to be subservient. On May 5, 1989, the Vendors' Chapter of the NFB of California conducted a seminar for interested business people with an emphasis on issues of concern to those associated with the Business Enterprise Program. Jim Gashel, Director of Governmental Affairs for the Federation, was the keynote speaker, and the seminar was scheduled so that those interested in attending the spring meeting of the California Vendors Policy Committee (CVPC) could do so since both events were taking place in Sacramento at different times on the same day. The seminar was by all accounts a great success, and most of the attendees went on to the CVPC meeting. The regulations that established the Vendors Policy Committee stipulate that the Director of the Business Enterprise Program or his or her designee should attend this meeting, but Roger Krum has always brought a crowd of staffers (six were present on May 5) to participate in the meeting and, many vendors feel, to keep the Policy Committee in line. But this time a number of CVPC members requested that Mr. Krum or his designee stay in the room and that the rest of the staff members leave. Instead of complying with state regulations, Krum, his staff, and several members of the CVPC (including Krum's hand-picked Chairmen of the Policy Committee) walked out. A quorum of the Committee was left, however, and John Friesen was elected as chairman. So the group got down to work on the agenda of the meeting. Without the usual help of the BE Program support staff, minutes were taken, duplicated, and circulated. But Krum has steadfastly refused to recognize the actions of the Policy Committee taken that day, and one more festering problem has been added to the concerns of blind people in California. Sharon Gold, President of the NFB of California, wrote a long and informative letter to the state's vendors on May 20, 1989. She reviewed for them several issues and cases of general interest to blind vendors and offered the Federation's assistance to those who needed it. Then, in an effort to prepare the ground generally for the dispute that was clearly on the horizon, she raised several points for vendor consideration. The concluding paragraphs of her letter read as follows: ____________________ As you know, the California Vendors Policy Committee (CVPC) is mandated by federal and state law. The CVPC is to function separately from the Business Enterprise Program to present the views of the vendors to the licensing agency and is to represent the interests of the vendors in the policy-making decisions of the agency. Recently, certain disputes have arisen between the CVPC and Roger Krum, the Administrator of the Business Enterprise Program. Throughout California vendors are being prevailed upon to pass judgment and take sides. Information from both sides has come to me as well, and I have considered the following: Has the CVPC been functioning separately from the Business Enterprise Program as mandated by federal and state law? Have members of the CVPC been free to express their concerns during committee meetings without a threat of reprisal? Do vendors want a committee which is free to present the views of vendors to the BEP administration or a committee which is expected to transmit to the Business Enterprise Program policy suggestions which have been planned and solicited by the BEP administration and which rubber stamp the actions of the administration? Are the elected delegates taking an active part in the Vendors Policy Committee meetings? Does the Business Enterprise Program administrator have a moral or legal right to declare a CVPC meeting concluded when the delegates have not chosen to adjourn the meeting? Should the elected delegates be required to submit to the orders of the administrator and leave a CVPC meeting without carrying out the business on the agenda? To whom do the set-aside fees belong, and should the Policy Committee or the Administrator of the Business Enterprise Program have control over the expenditure of these funds? Do the delegates to the CVPC have authority to choose the chair of the Committee, or does the chair serve at the pleasure of the Administrator of the BEP, to be automatically accepted by the committee? These questions sent me to reread federal and state statutes relevant to the Business Enterprise Program. For the Vendors Policy Committee to function properly, it must be free to hold its meetings and conduct its business without undue influence of the licensing agency. It is not an accident that neither federal nor state statutes or regulations mandate that the licensing agency send a representative to the meetings of the Vendors. Policy Committee Bylaws (as amended January 17, 1989) do not mandate the presence of an agency representative but state that "(m)eetings of the Committee may be attended by the Director or his designated representative..." [not Directors or representatives]. The responsibility of the Licensing Agency is to provide to the Vendors Policy Committee such information as may be necessary for the Committee to make reasonable and educated decisions on behalf of the blind vendors. Further, the Licensing Agency must consider and respond to the recommendations of the Vendors Policy Committee. Where a licensing agency makes an effort to intimidate or otherwise to control the process of the functioning of the Vendors Policy Committee, it is almost certain that vendors will eventually notice the development of dissension between the administration and the vendors. A final note: following the May 5th CVPC meeting and under dates of May 8th and May 9th, letters were sent to Westley Whitelaw [the CVPC Chairman who walked out of the May 20 meeting] stating the Department's position concerning the chair of the Vendors Policy Committee. One letter was signed by Roger Krum, Administrator of the Business Enterprise Program, and one was signed by Hao Lam, Deputy Director, Program Management and Support Division. In reading the two letters, one finds much identical language. One also finds that the letters were prepared by the same secretary and that they were both printed on letterhead bearing the telephone number of the Office of the Business Enterprise Program. The program for blind vendors is an old and respected business opportunity for blind persons. The National Federation of the Blind of California stands firm in support of this program and the California vendors who are striving to bring their program into conformity with federal and state statutes and regulations. Cordially, Sharon Gold, President National Federation of the Blind of California ____________________ That is what Sharon Gold wrote on May 20, in the wake of the high-handed actions of Roger Krum and company. Life in the Business Enterprise Program apparently went on pretty much as usual across the summer. Then, on September 2, the Friday of the Labor Day weekend, the California State Police blew the whistle on what had been going on under the table. Officers escorted Krum and three others from their offices and off State property, and they changed all the locks on the warehouse doors so that no one could tamper further with the equipment and supplies supposed to be available for vendors. A Department of Rehabilitation spokesman repeatedly assured the Braille Monitor that the disappearance of 1.2 million dollars worth of inventory had been discovered during an internal Department audit and not by the police. Given the department's track record in identifying fraud, embezzlement, and payoffs in the past, perhaps the fact that the 1989 problems were discovered through an internal audit is worthy of commendation, but it hardly generates confidence in the objective observer or the vendor whose livelihood depends in significant measure upon the honesty of the Business Enterprise Program managers. Regardless of who discovered the discrepancy, however, the fact of the missing material was of real importance to California's blind vendors, so the NFB of California circulated a letter to them that weekend. Here it is: September 2, 1989 Dear California Vendors: An investigation has been launched in Sacramento which is of great importance to blind vendors in the Business Enterprise Program (BEP). According to the Sacramento Bee, Channel 3 News, and other informed sources, on September 1, 1989, four executives of the Business Enterprise Program were escorted from the Department of Rehabilitation BEP Office by State Police after an internal audit revealed that part of the Program's multi-million dollar equipment inventory is missing. While the news reports did not cite names, informants have identified the officials as Roger Krum, BEP Administrator; Jim Flint, Assistant Administrator; Joe Parlio, Supervising Business Enterprise Consultant (SBEC); and Tony Budmark, Property Manager. The four officials were placed on administrative leave until State Police can complete their investigation. During the investigation Hao Lam, Deputy Director, Program Management and Support Division of the Department of Rehabilitation, is serving as Acting Administrator of the Business Enterprise Program. The investigation reportedly involves 1.2 million dollars worth of allegedly missing BEP equipment--equipment purchased with California Vendor Trust Fund monies. The National Federation of the Blind of California has received anonymously a copy of the Conference Notes concerning the missing equipment, which outlines eight findings concerning BEP equipment: 1. Physical Inventories 2. Correction Documents 3. Decal Tagging 4. Surveys and Dispositions 5. Transfers to Outside State Agencies 6. Lack of Monthly Reconciliation 7. Volunteer in Los Angeles Office 8. Notification of Alleged Theft of Equipment For your information a copy of the Conference Notes is included herewith. All five Business Enterprise Program equipment warehouses have been searched, and State Police have changed the locks on each warehouse to prevent tampering. The Department has announced that the BEP officials have been notified not to return to their BEP offices until further advised, not to go to BEP locations, and not to communicate with BEP staff, vendors, and contractors. A similar situation was discovered in 1976, shortly before Roger Krum became Administrator. During the week of January 10, 1977, a series of articles which revealed much about the 1976 investigation was published in the San Francisco Examiner. For your information, the 1977 series of articles is included with this letter. It is amazing how easily one could shift the date from 1977 to 1989 and have the content of the articles apply to the many problems which continue to plague the Business Enterprise Program today. For some time there has been rising dissension throughout the Business Enterprise Program between the vendors and the administrator. Blind vendors throughout the state have expressed concern about the unwillingness by the BEP Administration to disclose information relevant to the Vendors Trust Fund, into which each blind vendor pays the monthly six percent set-aside fee. An increasing number of vendors have been speaking out about irregularities and unfair practices in the Selection Committee process used to assign vendors to locations. The California Vendors Policy Committee Bylaws (as amended January 17, 1989) do not mandate the presence of an agency representative but state that "meetings of the Committee may be attended by the Director or his designated representative..." (not Directors or representatives). Therefore at the May California Vendors Policy Committee meeting, the delegates insisted that the Bylaws of the Committee be followed and invited Mr. Krum or his designee to remain in the meeting and instructed that the remaining six staff members leave--in the past there have been as many as 8 staff members present at a given CVPC meeting for which there are 14 elected delegates. When Roger Krum tried to cancel the meeting, an intimidated few Policy Committee delegates followed Mr. Krum's orders and left the meeting, leaving behind a quorum to conduct the May business of the CVPC. Since the Committee meeting, Roger Krum has failed to recognize the CVPC's selection of its new Chairman, John Friesen. He has refused to address the new Chair or to recognize the other Committee-elected officers. This is a critical time for the Business Enterprise Program. If there was ever a time for vendors to unite, it is now! Inquiry should be made as to the management of the Vendor Trust Fund monies and the management of the equipment purchased with these monies. If a new administrator is to be chosen, vendors should insure that they play a role in the selection process. Some vendors have suggested the establishment of an Escrow Account to handle Vendor Trust Fund monies until the completion of the current investigation and until vendors receive assurances from the Department of Rehabilitation that proper audit controls are established for the Vendor Trust Fund and the equipment purchased from the Fund. Vendors wishing to join the Merchants Chapter of the National Federation of the Blind of California or to make a donation to help with the distribution of these materials may send $10.00 annual dues and/or donations to Nick Medina, Treasurer, Merchants Chapter, NFB of California, 2018 Newton Way, Concord, CA 94518. Vendors may also contact Frank Rompal, Jr., President of the Merchants Chapter of the NFB of California, at 415-236-3800. Cordially, Sharon Gold, President National Federation of the Blind of California ____________________ That was the news that the NFB of California communicated to the vendors around the state the day after the police escorted Roger Krum and his minions off State property. Federationists were pleased to know that state government was prepared to hunt for the missing inventory and assign responsibility for the disappearances, but there were very real fears that the trouble ran still deeper. As in the late Seventies there was worry about the trust fund. Vendors pay a monthly charge (six percent of net proceeds in the case of California). This is called a set-aside, and out of this pool the Department of Rehabilitation pays certain costs of conducting the Business Enterprise Program. With so much else going wrong in the BEP, Vendors were naturally worried about the safety of the trust fund. Blind people began asking whether it wouldn't be prudent to appoint a conservator to manage the trust fund until the investigation was completed. Sharon Gold approached Congressman Robert Matsui's staff with our concerns, and they too were alarmed. As a result, on September 11 Congressman Matsui's office asked the Attorney General of California to appoint a conservator, and he agreed to do so within ten days. Meanwhile, the NFB called a meeting of all interested parties for September 22 so that vendors could hear from everyone involved and make up their own minds about what was happening. A staffer from Congressman Matsui's Sacramento office came, as did Sharon Gold and other Federationists; John Friesen, the newly elected chairman of the California Vendors Policy Committee; and concerned vendors--approximately fifty in all. Some of these were concerned about Department practices, and some (about ten in number) were there to cause trouble and stir up ill-feeling any way they could. The one group that was conspicuous by its absence was the Department of Rehabilitation. Neither Hao Lam nor those whom he appointed to administer the Business Enterprise Program during the crisis were available to explain things to the vendors or reassure desperately worried people that the Department wanted to preserve their livelihoods--perhaps no one in the Department was prepared to give such comfort. An attorney representing the Department of Rehabilitation did try to slip in unobserved, but he was forced to introduce himself and admit who he was and whom he represented. According to Federation participants, at one point during the meeting the Matsui staffer said to the Department's attorney that he was glad that the attorney had come because he had a message he wanted carried back to the Department. He said that he, as Congressman Matsui's representative, found it "outrageous" that members of the Department of Rehabilitation staff were not present, and he then announced that the Attorney General had indicated that he intended to appoint a conservator for the trust fund very soon. This article is being completed in late October. The California Attorney General has changed his mind about appointing a conservator, having decided (with who knows how much externally-applied encouragement) that, since the Department of Rehabilitation is undergoing an investigation, he will wait until it is completed before determining whether or not a conservator is necessary. There is no way of telling how long the investigation will take. The State Police recently told Sharon Gold that it would probably be eight months to two years, during which time the trust fund continues to be vulnerable. And in the meantime, the people of California will pay Roger Krum's salary and those of his cronies sharing his administrative leave. No one can know with certainty whether the trust fund is safe, and no one is looking into the question of whether funds have disappeared from it in recent months or years. But Roger Krum is keeping busy despite his paid leave from state employment. Again this year he is the director of a local jazz festival, for which he receives a hefty salary of some $43,000, according to sources in the community. It is comforting to know that his cultural work this year runs no risk of interfering with his state job. In the past some people have expressed concern that a man who was holding down two full-time jobs might be tempted to short-change one employer or both, but the festival people, at least, seem satisfied with Roger Krum's performance. In many ways the saga of the California Business Enterprise Program is a disturbing story. It is far from over, and the vendors of California are very far from being able to count on their state agency to help them or protect their interests. The good news is that the National Federation of the Blind is still on the job, working with the State Police, attempting to persuade the Attorney General to protect the trust fund, and informing vendors about what is happening and what their rights are. In the midst of all this, the affiliate goes right on doing all the other things that Federationists should be doing week in and week out. In September the state organization contacted Governor Deukmejian to request his annual proclamation of October 15 as White Cane Safety Day. The Governor wrote the proclamation, but he also wrote a letter to the NFB of California. It is clear that the work of the organized blind movement is not going unnoticed, and it is good to know also that at some levels of state government our efforts are receiving the recognition they deserve. Here is what the Governor of California spontaneously and without solicitation wrote: ____________________ October 4, 1989 TO: National Federation of the Blind of California On behalf of the citizens of California, I would like to commend your dedicated efforts to provide services and programs to meet the special needs of visually impaired citizens throughout our state. Visually impaired citizens rely on organizations such as the National Federation of the Blind of California to provide counseling and support, job training, and employment opportunities so that they may realize a greater sense of independence and self-sufficiency. As October 15, 1989, is White Cane Safety Day in California, I would like to join in this celebration by honoring your many contributions to the health and productivity of blind and visually impaired citizens throughout our state. Your efforts are most commendable and have earned the respect and appreciation of all Californians. Please accept my best wishes for every future success. Most cordially, George Deukmejian Governor of California