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Facing a threat from the State Controller’s Office sent through the California Department of Justice that it intends to exercise all of its authority under the law — including pursuing a $5,000 against her personally — if Humboldt County fails to turn over a statutorily mandated financial statement that’s more than a year overdue, embattled Humboldt County Auditor-Controller Karen Paz Dominguez issued a letter to county taxpayers today indicating she intends to “take direct action,” beginning at Tuesday’s Board of Supervisors meeting.

Paz Dominguez’s letter comes a day after she was sent a “final demand letter” from Deputy Attorney General Julianne Mossler on behalf of the State Controller’s Office (SCO), which had launched an investigation late last year into Humboldt County’s still delinquent 2019-2020 Financial Transactions Report. The state government code mandates these annual financial reports be filed with the state and on Feb. 26, 2021, the SCO sent Humboldt County a letter advising its report was delinquent and giving it 20 days to come into compliance. The letter reportedly received no response, so on June 1, 2021, the SCO followed up.

According to Mossler, Paz Dominguez responded to this second notice on June 14, 2021, stating the delinquent audit was in the works and offering to complete it using “unaudited information” within two weeks. The SCO agreed to the offer and on June 21, according to the letter, Paz Dominguez advised the needed data was being collected and processed and the matter was an “urgent priority.”

“You have never submitted the report,” Mossler states in her Feb. 24, 2022 letter to Paz Dominguez, adding that the report is now more than a year overdue and, according to the SCO, Paz Dominguez’ office has also failed to comply with a deadline for the county’s 2020-2021 report, as well.

Mossler advises Paz Dominguez that California Government Code section 53895 provides that any officer of a local agency who fails to file their report within 20 days of an official written notice from the SCO shall forfeit $5,000 to the state.

“At this point the SCO is prepared to exercise all of its authority under Government Code 53895 to request the Attorney General to prosecute an action for forfeiture, and any other remedies afforded under the law,” Mossler writes, warning that failure to provide the 2019-2020 report “within 20 days of of the date of this letter will result in legal action against you.”

It’s worth noting that, at least in her public comments, Paz Dominguez welcomed the SCO’s investigation into the county’s outstanding report, telling The Lost Coast Outpost she was “thrilled about it” and looking forward to “an objective analysis” of the county’s finances that was free of politics.

In her letter to county taxpayers, Paz Dominguez seems to make clear she is both taking the matter seriously — she advises that while “the county has grown accustomed to being sued or threatened by state agencies,” she “will not be as complacent” — and that she is not taking sole responsibility, if any, for the county’s fiscal dysfunction.

“The long-term decentralization of financial and accounting operations has resulted in decades-long patterns of misfilings, misinformation and misreporting, which have throughout the years resulted in penalties, returned funding, and have paved the way for confirmed cases of errors and fraud,” writes Paz Dominguez, who took office in 2019. “The inter-personal relationships of county officials have yielded both great, innovative ideas that have benefited the county and they have also led to inhumane conditions for county employees and coverups under the guise of confidentiality. Today, the buck stops here. The county of Humboldt, as a government organization, is not OK.”

Elected in 2018 after raising alarm that the county’s auditing practices amounted to little more than a rubber-stamp, leaving the county gravely at risk of fraud and waste, Paz Dominguez has become increasingly embattled on the job. While several outside reports have seemingly buttressed her statements that the county’s accounting practices were inadequate and her office as short staffed, her office has also repeatedly failed to meet basic deadlines and perform essential functions. Paz Dominguez has often noted that her office is dependent on other departments to partner in good faith and meet their obligations for it to meet county reporting deadlines, but other department heads and outside agencies have criticized her office for failing to respond to emails and requests in a timely manner and meet its basic functions.

The discord has increased markedly in recent months, with the Fortuna unified High School District Board, the Humboldt County Workforce Development Board and the Humboldt County Board of Supervisors all issuing votes of no confidence in her office. The Humboldt County Civil Grand Jury, meanwhile, has also launched an investigation into her office and the fallout continues. The Fortuna Union High School District reported late last year it had yet to receive any interest payments from the county for the 2020-2021 fiscal year — which the district alleges total roughly $80,000, with a total of $2 million owed to districts countywide. Just last week, Fortuna City Manager Merritt Perry told his council that the auditor-controller’s office’s failure to submit a distribution report was interfering with the city’s ability to calculate administrative cost allowances, potentially jeopardizing $200,000 to $300,000 in revenue — “a very big hit.”

The Lost Coast Outpost, meanwhile, reported that Caltrans has frozen all federal and state reimbursements for new transportation projects due to the county’s outstanding financial reports, while the state Employment Development Department has frozen about $3.5 million in workforce development funds until the county turns in its outstanding 2019-2020 single audit.

In her letter to taxpayers, however, Paz Dominguez doesn’t address any of this directly, but intones she intends to lay her proverbial cards on the table publicly during Tuesday’s Board of Supervisors meeting.

“When a county does not have a clear and shared goal that is agreed upon by its board of supervisors and leadership body (and when the fear of responsibility and accountability is made legitimate by irresponsible reporting and sensationalism), confusion and dysfunction can quickly devolve into power struggles, political hits and scapegoating of responsibility — all at the expense of taxpayers,” she writes. “When the conflict involves the management of public funds and the reporting of that management, the attacks can become personal, coordinated and reckless — again, all at the expense of taxpayers.”

Paz Dominguez reiterates that she sees the current situation as part of a “decades-long” pattern.

“The now decades-long power struggles, unethical exploitation of ‘friendships,’ in-fighting and scapegoating are coming to a head and action must be taken,” she writes. “It has become painfully clear to me that ‘working within the system’ and shielded from the public’s view will not yield the desired results for transparency, accountability or integrity. The county’s failure to take seriously the function and authority of its elected office of the auditor-controller is now raising the stakes for me to take direct action. … The only way out of this long-term dysfunction is to responsibly inform the public of the inadequate financial operations of the county and take ownership and responsibility for the active efforts toward resolution. In the absence of leadership, one most become the leader.”

Paz Dominguez then concludes by urging the public to attend Tuesday’s board meeting, which starts at 9 a.m. and can be attended in-person or watched online, when she will present a report on her “findings on the financial transactions, operations and reporting practices of the county” and discuss the status of the various outstanding audits. She then urges those who think the county’s fiscal dysfunction is “new and/or unheard of in this county’s past” to read a 1997 Journal story, which can be found here, and includes information about financial irregularities and fiscal strife dating back decades.

The agenda for Tuesday’s board meeting had net yet posted to the county’s website when this article published. Find the full demand letter from the California Attorney General's Office here, and Paz Dominguez's letter to county taxpayers here.