OAKLAND -- Top Port of Oakland executives Omar Benjamin and James Kwon violated spending policies by using a port credit card on two separate occasions at strip clubs then falsified information about who was present, an outside investigation concluded in a report released Monday.
As a result, Kwon on Monday became the second top executive to step down because of inappropriate expenses billed to the port, including a $4,500 strip club tab from 2008 disguised as a drink and dinner reception, which already led to the ouster of executive director Benjamin in November.
The investigation also found the men charged $925 at another strip club in Minneapolis in September 2009 and passed it off as a "business retention meeting" even though no port customers, tenants or vendors were present, according to Arnold & Porter LLC investigators hired by the port to look into the incidents.
Investigators found only one other possible violation in which an employee expensed an item twice.
"This has been a difficult time for the entire organization," acting Director Deborah Ale Flint said Monday evening.
But an internal audit of $1.9 million spent in 2011 by 82 port staff members and board commissioners with agency credit cards flagged numerous examples of potentially wasteful and unnecessary expenses, some of which possibly violated federal and state laws.
Gifts and expensive giveaways by the port totaled $67,404 and included Tiffany sterling silver key rings, U2 concert tickets, wine, perfumes, jewelry, sporting event tickets and apparel.
The California Constitution forbids gifts or loans of public funds. Federal law does not allow reimbursements for costs of gifts and certain entertainment, such as tickets to sporting events.
And the U.S. Foreign Corrupt Practices Act prohibits bribes to foreign government officials, including employees of state-owned business enterprises, to help get or keep business. The ban extends to travel and entertainment.
Auditors also found at least 16 instances in which card holders circumvented spending limits on single purchases by splitting purchases totaling $89,319, the audit released Monday also found. More than $10,000 was for Christmas gifts, Golden State Warriors tickets and Oakland Raiders season tickets.
They singled out another $200,000 in other expenses as questionable, including purchases totaling $90,098 from a vendor whose license the state of California suspended; a lush $2,842 managers retreat; a $2,500 two-hour holiday cruise; $1,409 for four rental cars to transport participants from a conference to a training venue two blocks away.
The port defended the spending as part of attracting and keeping clients, and emphasized the audit did not yet identify whether the spending was in fact inappropriate.
"There's a story attached to each of those," Port Commissioner Gilda Gonzales said Monday afternoon by telephone. She said that she "would give people benefit of the doubt."
But she and other port officials admitted to a culture of lax oversight and acknowledged that the finance staff has been identifying questionable charges for many years but were afraid to question them once approved by directors unless an audit caught the discrepancies.
The port has notified authorities about the possible state and federal violations and will cooperate with them if they have any questions, Flint said.
Kwon's resignation as maritime director, called a retirement by the port, is effective as of Dec. 28 but he will continue to receive his $214,248 salary for seven months as an adviser until a replacement maritime director can be hired. Like Benjamin, who made $257,508, Kwon will retire with his CalPERS pension intact.
Kwon's lawyer Kenneth Katzoff, a former port commissioner, said he and his client would not comment until after reading the full report. Kwon, however, has said he kept his distance from Benjamin and the women at the strip club -- an account contradicted by Benjamin.
The men knew neither were business expenses but Kwon submitted the bills anyway and Benjamin authorized them. In addition, Benjamin knew that as Kwon's superior he should have been the one to pay. They have reimbursed the port for the strip club expenses.
Gonzales said the board assumed policies were being followed. Now the agency will begin setting in place a series of reforms to clarify policies, and training employees so they know the ethics policies.
"Today was a real step forward," Gonzales said. "We no longer buy into the culture of secrets."