Penal Code § 424 PC – Misappropriation of Public Funds in California

Penal Code § 424 PC makes it a crime for a public officer or a trustee of public funds to misappropriate the funds for improper use. A conviction is a felony punishable by up to 4 years in jail or prison, fines of up to $10,000.00, and permanent disqualification from holding public office.

Misappropriation of funds is most often charged against state and local public officials. But it can be charged against anyone who has control of government money. ^1 2

Examples

Examples of people who might be convicted of misusing public funds include:

• The mayor of a small city uses city funds to purchase himself a luxury automobile that he keeps even after his term is over.
• The founder and principal of a charter school takes public funds provided for the operation of the school and lends them to her sister, who is having financial difficulties.
• A city’s mayor has used public funds to buy gifts for his mistress. In order to help him avoid being caught, the city treasurer destroys the financial records that would prove that this happened.

Penalties

Misappropriation of public funds is a felony.³ The potential penalties include two (2), three (3) or four (4) years in jail or California state prison, and/or a fine of up to ten thousand dollars ($10,000).⁴

Legal defenses

Luckily, there are several common legal defenses that can be very helpful for defendants charged with Penal Code 424 misappropriation of public funds. These include:

• You lacked the required criminal intent or negligence (this usually overlaps with the defense of mistake of law/mistake of fact); and
• The misappropriated funds were incidental and minimal.

In this article, our California criminal defense attorneys will explain the following:

• 1. The Legal Definition of Misappropriation of Public Funds
  • 1.1. Appropriating public funds without authority
  • 1.2. Loaning, profiting from or misusing public funds without authority
  • 1.3. False accounts or fraudulently altering or destroying accounts
  • 1.4. Refusing to pay or transfer public funds
  • 1.5. Exception for incidental and minimal amounts
• 2. Penalties
• 3. Legal Defenses
• 4. Misappropriation of Public Funds and Related Offenses
  • 4.1. Penal Code 503 embezzlement
  • 4.2. Penal Code 67 & 68 bribery of public officials

If, after reading this article, you would like more information, we invite you to contact us at Shouse Law Group.

1. The Legal Definition of Misappropriation of Public Funds

The legal definition of misappropriation of public funds depends on which section of the law you are alleged to have violated.

Penal Code 424 PC lists several ways in which a person can commit the crime of misappropriation of public funds in California. These are:

 1.1. Appropriating public funds without authority

One way to misuse public funds in California is to appropriate funds to your own use or the use of another person, without authority of law.⁵

The “elements” of this form of misappropriation of public funds (that is, the facts a prosecutor must prove for a person to be guilty of this offense) are:

1. The defendant was either an officer of a state or local government entity or a person charged with the receipt, safekeeping, transfer or disbursement of public funds;
2. The defendant appropriated public money to his/her own use or to the use of someone else, without authority of law; and
3. The defendant either knew that the law prohibited this appropriation or was criminally negligent in failing to find out whether or not s/he had the legal authority to make this appropriation.⁶

Let’s take a closer look at these elements in order to understand their meaning better.

A public officer or a person entrusted with public funds

A “public officer” can be just about any sort of official or employee of a state or local government agency, including:

• An elected official;
• An appointed official;
• An accountant or lawyer employed by the government; or
• A rank-and-file government employee.

You can also be charged with misappropriation of public funds if you are entrusted with public money—which means that you are entrusted with responsibilities or duties relating to, and have some degree of control over, the receipt, safekeeping or disbursement of public moneys.⁷

Example: Lavern runs a nonprofit group home funded by the government, and she takes money out of the group home’s accounts to pay for his personal expenses. Lavern can be charged with misappropriation of public funds under PC 424 because the group home’s money was effectively public money, and Lavern was a person entrusted with it.⁸

Appropriated public money

Appropriating public money simply means to use it for your own purposes—or the purposes of someone else (such as a friend or family member).

Example: Amy is the finance director for the parks department of a small city. When her boyfriend gets arrested for California DUI, she transfers him money out of the parks department’s account to pay for his attorney. Amy is guilty of misappropriation of public funds even though she took the money for someone else’s benefit rather than her own.

Knowledge or criminal negligence

This is one of the most important elements of the crime of misappropriation of public funds. In order to be guilty under California Penal Code 424, you need to have either:

1. Known that it was against the law for you to appropriate funds the way you did; or
2. Acted with criminal negligence by failing to find out whether it was against the law or not.⁹

Knowing your behavior was illegal doesn’t mean that you necessarily knew all the details of the law. It just means knowing that a non-criminal law prohibited the conduct you engaged in.¹⁰

“Criminal negligence” means something more than ordinary negligence. Ordinary negligence is failure to exercise ordinary or reasonable care, while criminal negligence must be aggravated, gross or reckless.¹¹

Example: Teresa is serving as interim town manager. Jim asks Teresa for a loan and lies that the town had a welfare fund in the past. Teresa believes Jim and lends him the money. Even though Teresa appropriated public money for Jim, there is a strong argument that she acted with only ordinary negligence, not criminal negligence.

1.2. Loaning, profiting from or misusing public funds without authority

The second main way to misappropriate public funds is to make unauthorized loans.¹²

You violate this section of Penal Code 424 PC if all of the following are true:

1. You were an officer of a state or local government entity, or a person charged with the receipt, safekeeping, transfer or disbursement of public funds;
2. A nonpenal law authorized or prohibited you from loaning public money or using public money under certain circumstances;
3. You loaned public money, made a profit off of public money or used public money for a purpose not authorized by law; and
4. You either knew that what you were doing was illegal, or were criminally negligent in not finding out whether it was legal or not.¹³

Example: Ernie is a financial manager for a school district who secretly loans school district money to his friend. The friend soon pays it back, and Ernie returns the money to the school district account. Though he still violated California’s law against misappropriating public funds.

 1.3. False accounts or fraudulently altering or destroying accounts

Another way to misappropriate public funds in California is to do either of the following:

1. Knowingly keep a materially false account, or make any materially false entry or materially false erasure in any account of or relating to public moneys¹⁴; or
2. Alter, falsify, conceal, destroy, or obliterate any account of or relating to public moneys, with the intent to defraud.¹⁵

In other words, you can violate California’s misappropriation of funds law even if you don’t personally misappropriate any funds—provided that you knowingly tamper with the accounts for public money, or alter or destroy those accounts with intent to commit fraud.

Example: Vladimir knows that his government co-worker Ellen has been taking money from the office’s accounts, and he deletes incriminating financial records from the office’s computer system so she will not get caught. Because Vladimir destroyed financial records with intent to defraud his bosses, he is guilty of misappropriating public money under Penal Code 424 PC.

 1.4. Refusing to pay or transfer public funds

Finally, you can be convicted of misappropriation of public funds if you:

1. Willfully refuse or omit to pay or transfer any public moneys in your control when presented with a draft, order or warrant drawn upon those moneys by a competent authority, when you are required by law to do so; or
2. Willfully omit or refuse to pay money received by you to any officer or person authorized by law to receive it.¹⁶

As with other forms of misappropriation of public funds, you are only guilty of this form if you either knew you were required by law to pay the money, or were criminally negligent in not discovering that you were required by law to do so. ¹⁷

1.5. Exception for incidental and minimal amounts

California’s misappropriation of funds law makes an exception for misuse of “incidental and minimal” amounts of money.¹⁸ In other words, you are not guilty under this law for activities involving fairly small amounts of money.

Example: Lenny – a public library librarian – takes $10 out of the cash register and lends it to a high school student who needs bus fare. Lenny is not guilty of misappropriation of public funds for making an unauthorized loan of library money to the student because the amount qualifies as incidental and minimal.

2. Penalties

California Penal Code 424 PC misuse of public money is a felony in California.¹⁹

The potential penalties are:

• Felony (formal) probation;
• Two (2), three (3) or four (4) years in jail or prison; and/or
• A fine of up to ten thousand dollars ($10,000).²⁰

In addition, if you are convicted of this offense you will not be allowed to hold any public office in the state of California.²¹ This means that a PC 424 conviction is even more serious for California state employees than a typical criminal conviction.

3. Legal Defenses

Charges of misappropriation of public funds have the potential to ruin your life and career. They often attract attention from news media and can be humiliating as well.

We are here to help. Our California criminal defense attorneys are familiar with the most common legal defenses to PC 424 charges. These include:

You did not act knowingly or with criminal negligence

According to San Bernardino criminal defense attorney Michael Scafiddi²²:

“You are only guilty of misappropriating public funds if you either knew that what you were doing was illegal OR acted with criminal negligence by not finding out if it was illegal. Criminal negligence is a high bar; it has to be something more than ordinary carelessness. Prosecutors often have a tough time proving beyond a reasonable doubt that you knew something was against the law—or that your behavior was so negligent as to be criminally negligent.”

This is a version of the legal defense of mistake of law. If you had an honest but mistaken belief that what you were doing was legal, you may not be guilty of this crime, even if it was somewhat negligent of you to have that belief—as long as the negligence involved wasn’t so gross as to be criminal.

The amounts involved were incidental and minimal

California law does not provide a clear definition of “incidental and minimal.” But, as we discussed above, the serious crime of misappropriation of public money only applies to amounts of money that are more than incidental and minimal.

Whether an amount was incidental and minimal may depend on the circumstances. In some environments, a few thousand dollars might be substantial, whereas in others it could conceivably fall into the “incidental and minimal” exception.

4. Misappropriation of Public Funds and Related Offenses

Other “white-collar crimes” that are similar to misappropriation of public funds include:

 4.1. Penal Code 503 embezzlement

Penal Code 503 PC embezzlement is commonly charged instead of, or along with, Penal Code 424 PC misappropriation of public funds.

Embezzlement in California means fraudulently appropriating property that:

1. Belongs to someone else; and
2. Has been entrusted to you.²³

Several key differences between the crime of embezzlement and misappropriation of public funds are:

• You are only guilty of embezzlement if you fraudulently converted or used the embezzled property for your own benefit and intended to deprive the owner of the property’s use; and
• Embezzlement law applies to any property (including property that is not money and property that does not belong to the government).²⁴

In most cases, embezzlement is a California misdemeanor if the property taken is worth $950 or less, and a California wobbler—that is, a crime that can be charged as a misdemeanor or a felony—if the property taken is worth more than that.²⁵

However, if the property embezzled is the property of the government, then embezzlement—like misappropriation of public funds—is always a felony.²⁶

 4.2. Penal Code 67 & 68 bribery of public officials

Like misappropriation of public funds, Penal Code 67 & 68 PC bribery of or by executive officers or public employees is a crime that is often charged against government employees.

However, this form of California bribery can also be charged against people who are not government workers but who attempt to bribe government employees.

Essentially, these laws make it a crime for someone to offer money or something of value to a government employee—or for a government employee to solicit money or something of value—with corrupt intent.²⁷

People who bribe government officials may be charged with a misdemeanor or a felony, depending on the value of the money or property involved and the circumstances of the offense. But government employees who solicit or accept bribes are always subject to felony penalties.²⁸

For additional help…

For questions about misappropriation of public funds under California Penal Code 424 PC, or to discuss your case confidentially with one of our California criminal defense attorneys, do not hesitate to contact us at Shouse Law Group.

We have local criminal law offices in and around Los Angeles, San Diego, Orange County, Riverside, San Bernardino, Ventura, San Jose, Oakland, the San Francisco Bay area, and several nearby cities.

For more information on Nevada embezzlement laws, please see our page on Nevada embezzlement laws.

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Additional Resources:

California Attorney General Open Government Resources