Misappropriation of Public Funds

Misappropriation of public funds is prohibited under Penal Code section 424 PC.  Simply put, this code section prohibits the misuse of public funds by government officials and agencies or anyone who has control of the money allegedly being misappropriated.    This offense is similar to the crime of embezzlement, with one key difference—misappropriation of public funds under Penal Code section 424 PC prohibits acts committed with public funds, whereas embezzlement prohibits the misuse of any funds, whether public or private. 

Examples of misappropriation of public funds include the following:

  • The mayor of a small town uses public funds to buy his mistress a home;
  • The assistant head of treasury at a public university uses the university’s money to fund his daughter’s college education.

Misappropriation of public funds under Penal Code section 424 PC is prosecuted as a felony in California.  It is punishable by 2, 3, or 4 years in state prison and a maximum fine of $10,000.00.

THE LAW

There are several forms of misappropriation of public funds under Penal Code section 424 PC.  Appropriating public funds without authority, loaning or profiting from public funds without authority, and creating false accounts or tampering with accounts in order to profit from public funds are all prohibited under Penal Code section 424 PC.

Misusing public funds without authority

If you misuse public funds for your own benefit or the benefit of another, you can be charged with a violation of Penal Code section 424 PC.  In order to prove you guilty of this form of misappropriation of public funds under Penal Code section 424 PC, the prosecutor must prove beyond a reasonable doubt the following:

  1. You are an officer of a state or local government entity, or you are a person entrusted with the receipt, safekeeping, transfer, or reimbursement of public funds;
  2. You appropriated the public fund for your own use or the use of someone else;
  3. You did so without authority of law;
  4. You knew that your conduct was prohibited or you were criminally negligent in failing to take the necessary measures to ensure that your appropriation of the funds was lawful.

Let’s discuss the elements

Officer of a state or local government agency or person entrusted with public funds

An officer of a state or local government—i.e., a “public” officer—is any official or employee of a local, state, or federal government agency.  Examples of a public officer include an elected official, an appointed official, or anybody employed by the government (for example, an accountant or a lawyer).  Note, however, that you do not need to have a government job to be charged with a violation of Penal Code section 424 PC.  You only need to have control of public funds—that is, you have been entrusted with responsibilities relating to the management, safekeeping, receipt, or disbursement of public funds.

For example, Jill works in the registrar office of a public university, where she collects and manages monies paid by students.  Jill takes $10,000.00 of these monies and uses it to vacation in Europe.  Jill can be charged with misappropriation of public funds under Penal Code section 424 PC.  Even though she is not a government official, she was entrusted with the handling of public funds.

Appropriated

To appropriate public money is to use that money for your own or another person’s personal benefit.   For example, Joseph is the finance director of child protective services.  The agency is governmentally funded and is a government entity.  Joseph has access to the agency’s money.  When his wife gets charged with a DUI, Joseph uses some of the agency’s money to pay a lawyer to represent his wife.   Joseph is guilty of misappropriation of public funds under Penal Code section 424 PC because he used public money for the personal benefit of another, his wife.

Criminally negligent

In order to prove you guilty of misappropriation of public funds under Penal Code section 424 PC, the prosecution has to prove that you either had knowledge that you could not appropriate the public funds in the manner that you did, or that you disregarded any reasonable steps to discover whether or not your conduct was lawful.   The prosecutor must at the very least prove that you were “criminally negligent.”

Criminal negligence” is a higher degree of culpability than ordinary negligence.  Ordinary negligence means that you failed to exercise reasonable or ordinary care.  Criminal negligence means that you acted with reckless or gross disregard.

For example, Joe is the town manager of a small town.  He is responsible for managing the town’s finances and paying the town’s expenses.   One of the town members, Jack, comes to Joe and asks him for money from the town’s public treasury.  Jack tells Joe that town managers in the past have used some of the town’s public funds for charity purposes, and that charity up to a certain percentage is allowed.  Joe asks other town members for advice and they all express that charity is allowed.  However, he does not take the extra measure of examining the town’s ordinances to verify this information.  Joe gives Jack the money but later discovers that charity to a single private individual is prohibited.  Joe is not guilty of a violation of Penal Code section 424 PC because she acted with ordinary negligence, and not gross negligence.

Loaning or profiting from public funds without authority

Making unauthorized loans is also misappropriation of public funds under Penal Code section 424 PC.  In order to prove you guilty of this specific violation of Penal Code section 424 PC, the prosecutor must prove beyond a reasonable doubt the following:

  1. You are an officer of a state, local, or federal entity, or you have been entrusted with the receipt, safe-keeping, or handling of public funds;
  2. You were not authorized to loan public money or use the public money under certain circumstances;
  3. You loaned public money or made public money in a manner that was not authorized by law;
  4. You either had knowledge that your conduct was illegal, or were criminally negligent in failing to find out whether or not your conduct was legal.

For example, Joseph is the financial manager of a public university.  Joseph’s takes money out of the school’s financial reserves and pays for the first year of his daughter’s college education.   Joseph knows that this “loaning” of money to himself is prohibited by the university’s ordinances. Months later, after Joseph refinances his home, he returns the money to the school.   Joseph is guilty of misappropriation of funds under Penal Code section 424 PC because he acted with knowledge that his conduct was prohibited. It matters not that Joseph later returned the money to the university.  While Joseph’s reimbursing the university is a mitigating factor relevant to what punishment should be ascribed to him, it is not a defense to a violation of Penal Code section 424 PC.

Creating false accounts, altering accounts, or destroying accounts

Fraudulently altering accounts, creating false accounts, or destroying accounts with the intent to defraud is another way of committing misappropriation of public funds under Penal Code section 424 PC.  In other words, you need not personally misappropriate public funds to be charged with a violation of Penal Code section 424 PC.   Altering or destroying an account designated for public funds is also a violation of Penal Code section 424 PC, so long as it was done with a fraudulent intent.

For example, Jill and Jack work in the treasury office of a public university.  Jill knows that Jack has been taking money from the university for his own personal use.  To help Jack, Jill destroys all financial records that incriminate Jack.  Jill is guilty of misappropriating public funds under Penal Code section 424 PC, because she destroyed financial records with the intent of defrauding the university.

Failing to pay or transfer public funds

If you willfully and intentionally fail to transfer any public funds in your control when you have been required by law to do so, you can be charged with misappropriation of public funds under Penal Code section 424 PC.  You are guilty of this specific violation of Penal Code section 424 PC only if you knew that you were required by law to transfer the money, or were criminally negligent in not discovering that you were required by law to do so.

Exception to a violation of Penal Code section 424 PC—incidental or minimal amounts

You are not guilty of a violation of Penal Code section 424 PC if your activity involved a small amount of money.

For example, Joseph is the cashier at the registrar office at a public university.   One evening, Joseph is short of money for the evening bus. He takes $20 from the cash register to pay for his transportation to home.  Joseph is not guilty of misappropriation of funds under Penal Code section 424 PC because the amount that he took qualifies as incidental and minimal.

PENALTIES FOR MISAPPROPRIATION OF PUBLIC FUNDS UNDER PENAL CODE SECTION 424 PC

Misappropriation of public funds under Penal Code section 424 PC is prosecuted as a felony in California.  If you are convicted of this offense, you face felony (formal) probation, two (2), three (3), or four (4) years in state prison, and a maximum fine of $10,000.00.  If you are convicted of a violation of Penal Code section 424 PC, you will not be able hold any public office in California.

DEFENSES TO MISAPPROPRIATION OF FUNDS UNDER PENAL CODE SECTION 424 PC

  • You had no knowledge and did not act with criminal negligence

You are guilty of misappropriation of public funds under Code section 424 PC only if you knew that your conduct was illegal or were criminally negligent in failing to find out whether or not your conduct would be illegal.   As mentioned before, criminal negligence is a much higher culpability than ordinary negligence.  The prosecutor has to prove that you acted with reckless or gross disregard, and this level of culpability is difficult to prove.  Also difficult to prove is actual knowledge.  If you had an honest and reasonable but mistaken belief that your conduct was lawful, you cannot be found guilty of misappropriation of public funds under Penal Code section 424 PC, even if acted with some negligence.

  • The amount that you supposedly took was only incidental and minimal

It is not clear what the law means by “incidental and minimal.”  But what is clear is that the amount that you allegedly misappropriated has to be considerable.  What is deemed a considerable amount depends on the circumstances.  In some situations, a thousand dollars might be considered a sizable amount, whereas in other situations that same amount of money is considered only a small and incidental amount.  For example, Joseph works in the treasury department of an army base funded by the government.  Joseph has access to the funds that enter the base. Every year, the base gets millions of dollars of donations and funding.  In 2017, the total funding to the base was 10 billion dollars.  Joseph takes a thousand dollars from this funding and uses it to fix his car.  Though Joseph clearly knows that his conduct was unauthorized, he is probably not guilty of misappropriation of public funds under Penal Code section 424 PC.  The amount that he appropriated was incidental and minimal compared to the 10 billion dollars in funding that the base had just received.  Joseph, however, is guilty of embezzlement.

HOW CAN THE LOS ANGELES CRIMINAL ATTORNEY HELP

Misappropriation of public funds under Penal Code section 424 PC has far-reaching consequences.  Not only is the punishment steep, but the incidental effects—such the inability to work for a public agency again—are devastating.  If you are charged with this offense, you need a zealous criminal defense attorney who will thoroughly investigate the facts of your case and uncover any and all defenses as well as mitigating factors.  Negin Yamini, our lead attorney, is recognized for her relentless and conscientious approach to every case.  She will apply the same approach to your particular case.

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