Grand jury: City lacked proper grant oversight when it lost over $700,000 to alleged fraud

A Riverside County Civil Grand Jury investigation found the city of Palm Springs lacked adequate policies and procedures to safeguard taxpayer funds from fraudulent use by nonprofits, resulting in a loss of over $700,000, according to a report released last month.

The report is titled “City of Palm Springs: Lacked Proper Procedures for Vetting and Monitoring of Grants.” It was released eight months after the October 2024 indictment of Queer Works CEO Jacob Rostovsky on 53 criminal counts related to the alleged theft of more than $940,000 in public funds. The criminal case against Rostovsky is ongoing, with a trial readiness conference scheduled for mid-October.

The report was released after the Riverside County District Attorney’s Office requested that the grand jury investigate potential government malfeasance or misconduct in the administration of the contracts following Rostovsky’s indictment.

The investigation centered on a Universal Basic Income pilot program that the city funded through a partnership between Queer Works and Desert AIDS Project. The Palm Springs City Council initially approved $200,000 in March 2022, then added an additional $500,000 in July 2022 for the program designed to support transgender and nonbinary individuals.

The grand jury found that Palm Springs “heavily relied upon the endorsement by [DAP Health] to approve the Queer Works grant.” According to the report, “Without DAP’s endorsement for QW (Queer Works), the City of Palm Springs indicated it would not have supported the funding for QW.”

The investigation revealed that Palm Springs lacked proper auditing procedures and failed to request monthly reports and invoices as required by the Memorandum of Understanding with the nonprofit organizations. The grand jury also found there was no formal training in fraud prevention or detection for those responsible for reviewing grant claims.

Problems with the program became apparent when then-Palm Springs City Councilmember Lisa Middleton raised concerns about Queer Works’ activities and lack of required financial reporting in late 2023. The city had received only six progress reports from the organizations between 2022 and April 2023, according to the grand jury.

As a result of the alleged misappropriation of funds, DAP Health assumed full responsibility and control of the Universal Basic Income program on July 11, 2024.

In its response, the city acknowledged the grand jury’s findings and said it had already begun addressing the issues identified in the report. “The Grand Jury’s findings echo concerns the City identified and began addressing last year,” the city stated.

The city said it has implemented six specific reforms since November 2024 to enhance oversight and accountability. These include eliminating lump-sum payments for grants exceeding $75,000, mandating regular reporting from organizations receiving city funds, and establishing enhanced vetting processes.

The grand jury issued 10 recommendations for reform, including developing comprehensive guidelines for processing and monitoring grants by the end of this year. Other recommendations call for annual fraud detection training for city employees, clearly defined vetting processes, and hiring an independent auditing firm to conduct internal operational audits.

The city said it will provide a formal response to the grand jury’s report within the required 90-day period, detailing corrective actions already taken and future plans for continued improvement.

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