Committee Alleges Problems with Auditor-Controller's Office Could Cost County $14 Million in State, Federal Reimbursements

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Karen Paz Dominguez. - SUBMITTED
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  • Karen Paz Dominguez.
The Humboldt County Board of Supervisors will meet in special session tomorrow morning to discuss what its ad-hoc budget committee has deemed “operational gaps” in the Auditor-Controller’s Office that it contends could result in the county losing more than $14 million in state and federal reimbursements if looming deadlines are not met.

“If the county were to lose out on these reimbursements, there would be a domino effect,” the staff report states, adding that it could lead to employee layoffs or furloughs, depleted reserves and impacts to county services.

County Auditor-Controller Karen Paz Dominguez has been a controversial figure in county government since November of 2017, when as the assistant auditor controller she took concerns about understaffing and other issues in the office directly to the Board of Supervisors during the public comment portion of a public meeting. Within months, the sitting auditor-controller, Joseph Mellett, resigned and Paz Dominguez announced what would be a successful bid for the office as a reform candidate. Since taking office, Paz Dominguez has repeatedly clashed with others in county government but has remained steadfast in saying she is trying to get her office to fulfill the responsibilities of public auditing and accounting despite pervasive understaffing.

In an email to the Journal, Paz Dominguez wrote that she is “relieved” this issue will be discussed in a public forum, saying she believes the situation stems from her reforming the Auditor-Controller’s Office from one that simply “rubber stamps” fiscal documents from other departments to one that truly protects the public interest, and the county’s unwillingness to adequately staff her office to perform its required functions. She doesn’t dispute that her office has fallen behind on fulfilling its various required functions but says to fulfill those tasks properly with the full oversight her office is mandated to provide would require more staff than she has, leaving her and her employees in constant “triage” mode.

“Due to the continued denial of our requests for additional staffing, we are having to revert back to that survival mode I walked into three years ago,” Paz Dominguez wrote. “The difference now is that we refuse to let go of our commitment to protecting the public funds by ensuring that all transactions are accurate, appropriate and authorized. It is the one function that inspired the formation of this office and it is the most important when considering that we are elected by the public to serve the public.”

The fact that this will be discussed in a public meeting of the board is, itself, a departure from the norm, as the staff report notes at the outset.

“It is highly unusual to bring fiscal operational issues into a board meeting,” the staff report states. “However, we are faced with highly unusual circumstances.”

The board’s ad-hoc committee — comprising First District Supervisor Rex Bohn and Fourth District Supervisor Virginia Bass — state in the staff report that there are layers of problems with the way the Auditor-Controller’s Office is currently operating.

“Over the past several months, the board of supervisors has received several concerns from various entities, including other public agencies and vendors regarding the actions of the Auditor-Controller,” the staff report states. “Of note, these concerns center around delays in payments, transfers and reconciliation of accounts. We have also heard from staff that there continue to be significant delays (in) the Auditor-Controller posting financial transactions, which at this point is putting the county at serious risk of potentially losing millions in reimbursements from state and federal agencies. Not receiving reimbursement from state and federal agencies would have massive implications, including service reductions, staff furloughs and/or layoffs. This also negatively impacts current year and future financial planning, as well as the completion of labor negotiations.”

The ad-hoc committee’s concerns seem to largely center around the county’s cost allocation plan for the 2019-2020 fiscal year. Essentially, this is a plan that needs to be submitted to the State Controller’s Office for approval before the county can be reimbursed for the costs of administering state and federal programs. According to the staff report, the county received the State Controller’s Office’s approval of its plan through a negotiated agreement on May 6 but the Auditor-Controller had yet to post all the charges — leaving more than $12 million of county expenses in danger of not being reimbursed.

Further, the ad-hoc committee states an “independent third-party review of the charges by a reputable consulting firm” has affirmed that the formula the county used to calculate the reimbursements are “legally compliant and are consistent with industry standards.”

But the committee points to other issues, too: a continued delay in closing the county’s books for the 2019-2020 fiscal year; a more than 12-month delay in reconciling cash and investment accounts; delays in payments and disbursements to outside agencies and special districts that rely on the county to provide fiduciary services; and delays in payments to county vendors.

In her lengthy statement to the Journal, Paz Dominguez does not specifically dispute that there have been issues with any of these functions. Rather, she argues that her office simply has far too many functions to perform well and that she refuses to allow them to be done in a way that doesn’t protect taxpayers from mismanagement or a lack of transparency.

“The challenge we face is that the county as an organization has not fully adapted to working with our department in its new form,” she wrote. “There are still several key players that still yearn for the ‘rubber stamp’ days and are hoping that by placing increased pressure on us to cave, we will do so. This finds us in the unfortunate position of frequently being at odds with those key players.”

Some county departments have come around and now appreciate her department’s more thorough approach, Paz Dominguez wrote, but others clearly have not. As such, she said she’s happy to have this conversation in full public view so local residents can weigh in on whether they elected her to reshape and reform the office, as she pledged to do, or because they wanted it to continue on as it used to operate.

“It is only with the board’s acceptance to make transparent and accurate accounting the priority that this county will course correct,” she wrote. “After all, they are the ‘tone at the top’ and what they direct is what appointed departments will follow.”

Of course, Paz Dominguez is not an appointed official but an elected one, which raises some questions about what authority the board really has in this conversation and what it can do to resolve the current impasse. The staff report recommends the board “take direct action and develop concrete steps” to protect the county’s fiscal operations and financial condition but does not specify what those might be.

Find the staff report for tomorrow’s meeting here and Paz Dominguez’s full statement here. We’ll follow up with a more in-depth report on the situation when we can.

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