Special Procedures Audit Report

Dear Carmichael Water District Customers,

Since December 2019, the Carmichael Water District Board of Directors has been proactively investigating three former top managers who together abused their positions of trust and the authority vested in them to secretly create new unapproved categories of employment benefits for themselves.

This extensive review, which included an independent special audit, determined that these individuals committed fraud by misrepresentation and concealment.  Specifically, it appears that the employees conspired to create new “employee handbooks” that were never presented to the board for approval as required by law.  These handbooks implemented new and unapproved benefits which each of these three managers received.

Over the course of several years, the audit report establishes that each of these three individuals received literally tens of thousands of dollars in compensatory time-off, unauthorized insurance premiums, leave pay-outs, and excess reimbursements…all without the knowledge, authorization, or approval of the board of directors.

While these three individuals received the majority of the unauthorized and illegal benefits and public monies, other employees also benefitted.  However, they apparently did so unknowingly, not realizing that those specific employment benefits were not authorized or approved.

Overall, the external audit reported that these employees received – and the District lost – approximately $640,000. While the loss is most certainly significant, it occurred over a 10-year timeframe and, therefore, has not had a material impact on rates.  As outlined below, the Board will take all steps necessary to recover these funds.

As a result of this exhaustive sixteen-month internal review, investigation, and external audit, the District has filed a criminal complaint against three former top managers:

  • Former General Manager Steve Nugent
  • Former Assistant General Manager Lynette Moreno
  • Former Human Resources Director Lori Kalisiak

The District is also filing a civil litigation suit against these same three individuals with a complaint for damages for:

  • Fraud by Misrepresentation and Fraudulent Concealment
  • Breach of Contract
  • Civil Conspiracy
  • Constructive Trust
  • Unjust Enrichment
  • Restitution

To improve internal controls and transparency, the District is:

  • Reorganizing the District to establish separation of duties;
  • Increasing staff professionalism by hiring managers with specialized skills, training and licensures, such as in finance and engineering;
  • Implementing an additional special procedures audit as part of the annual audit;
  • Updating the annual budget to include additional details on pay and benefits; and
  • Reviewing and revising existing policies for additional transparency and controls.

For more detailed information regarding the Board’s investigation, please see the Employee Investigation Chronological Summary and independent external audit report located on our website.



Carmichael Water District Board of Directors


Click here to view the Special Procedures Audit Report 

Click here to view the Employee Investigation Chronological Summary

For any inquiries, please contact Mr. Richard Mahan with the Gavrilov and Brooks law firm at (310) 490-2860.