Bombshell 

In an unprecedented move, the Humboldt County Civil Grand Jury interjected itself directly into the county's auditor-controller race less than a week before Election Day.

On June 2, the Humboldt County Civil Grand Jury poured gasoline on what was already considered the county's most contentious political race, issuing a scathing report stating incumbent Auditor-Controller Karen Paz Dominguez's office's failure to file timely state and federal reports has already caused the county to lose more than $2.3 million in "non-recoverable funds," while placing more than $9.7 million in funding at "significant risk." The move of releasing such a report mere days before its subject is up for re-election drew immediate questions, prompting the Grand Jury foreperson to issue a follow-up press release June 3 clarifying that the report is the result of months of interviews and "exhaustive research," and was simply released when done and approved, with the Grand Jury's actions and decision making at no point "informed by politics."

In response, acting in her official capacity as auditor-controller but with her campaign videographer set up before her on the courthouse steps (his computer plugged into the generator powering the speaker at her lectern), Paz Dominguez held an hour-long press conference the afternoon of June 3, answering "any and all" questions, including some about how voters should view the report. She issued a full-throated denial of essentially all aspects of the report critical of her office, saying she is aware of no funds lost by the county due to delinquent financial reports, and that if any funds have been lost, there would be subsequent opportunities for seeking reimbursement. As Paz Dominguez spoke, flanked by the county's assistant auditor-controller, First District Supervisor Rex Bohn, with whom Paz Dominguez has repeatedly butted heads over the years through a series of cross allegations, sat on the courthouse steps looking on.

Immediately after Paz Dominguez finished the press conference, a process server officially served her with the county's cross complaint civil lawsuit, which the board directed county counsel to file May 10, while also directing the county's lawyer not to defend Paz Dominguez in a lawsuit brought by the California Attorney General against both her and the county over delinquent fiscal report filings with the state. (The county's cross-complaint makes the same allegations as the state, while also accusing Paz Dominguez of having misappropriated public funds when she paid a consultant for coaching services, allegedly sidestepping the county's contract process.) 

It's impossible to know to what degree the bombshell report may have swayed the election, which saw voters overwhelmingly cast their ballots in favor of Paz Dominguez's challenger, Rio Dell Finance Director Cheryl Dillingham, according to preliminary election night results. But the report and Paz Dominguez being served with the county's civil lawsuit just as she finished attempting to refute the Grand Jury's work seemed to provide further evidence the proverbial walls were closing in on the embattled auditor-controller, who had already faced a no-confidence vote and censure from the board, a letter from 13 of the county's 19 department heads charging that she has "failed" to fulfill her duties and the unprecedented state lawsuit. (State Controller Press Secretary Jennifer Hanson told the Journal her office has found "no record" of it previously having filed a lawsuit against an auditor-controller to force compliance with fiscal reporting mandates.) As the dust settles from Election Day, we take a look at the report and Paz Dominguez's response.

The Report

Grand Jury Foreperson Jim Glover described the investigative report as one of the most "exhaustive" in "recent years," saying it follows "dozens of hours of interviews and inquiries." Titled "Distrust, Disagreements, Dysfunction," the report looks at the county's notoriously troubled fiscal operations, finding that while Paz Dominguez stepped into an office rife with challenges and inadequacies, her office's poor communication and interdepartmental distrust have marred her tenure, leading directly to missed reporting deadlines and the loss of county, school district and city funds. Exacerbating and enabling these issues, the Grand Jury found, the Humboldt County Board of Supervisors failed to intervene in a timely manner to find solutions and effectively exercise its supervisory duties.

"County departments and the board are at continual loggerheads with the auditor-controller because of ineffective communication and procedural changes," the report states. "No consensus has been reached to resolve these issues. County services are in jeopardy due to overall financial dysfunction exacerbated by a breakdown of interdepartmental trust and communication on the part of the auditor-controller."

The report makes clear there are deep rooted issues within Humboldt County's fiscal systems and points to some significant improvements made, but repeatedly identifies instances in which "deficiencies in the performance of the auditor-controller" have worsened those issues, leading to missed reporting deadlines and errors that cost the county and other local government entities hundreds of thousands of dollars.

More specifically, the report states the Grand Jury received "verifiable information" that the county has "permanently lost" funds from a variety of federal and state reimbursements and grants due to its outstanding and now long overdue 2019-2020 fiscal year single audit. Additionally, the report states the county has paid penalties and fees to the IRS for late payroll tax reports and payments, lost interest apportionments and credit card late fees, noting the county employees' credit card account was at one point suspended when payment was 96 days overdue.

Additionally, local school districts and other entities have been impacted, according to the report. It alleges that due to auditor-controller errors, the Fortuna Union High School District suffered a cash shortage of nearly $200,000, forcing it to obtain supplemental bond funding. Another alleged error by the Auditor-Controller's Office resulted in the Fortuna district, College of the Redwoods and the Humboldt County Office of Education being collectively underpaid $475,304, while alleged "regular delays" in the Auditor-Controller Office's transferring funds from treasury accounts to school and special districts "have put payrolls at risk."

Further, the report alleges that delinquent Single Audits, Financial Transaction Reports and Cost Allocation Plans have put $9.7 million in state and federal funds at risk for things like grants for housing residents with disabilities, rural health clinics, workforce development, Mental Health Services Act funding, transportation project funding and future interest related to payroll.

And while Paz Dominguez has repeatedly argued the fiscal reports are primarily delinquent due to other departments' failures to get hers the documentation needed to complete them, the report lays much of the blame squarely at her feet. Specifically, the report alleges poor communication from the Aauditor-Controller's Office is responsible for much of the trouble, saying Paz Dominguez stopped taking phone calls from other department heads and county fiscal staff, instead insisting they contact her through a departmentwide email inbox, which many came to regard as a "black hole" as inquiries would often go unreturned for months at a time.

Further exacerbating communications issues, according to the report, is that Paz Dominguez would also make seemingly abrupt changes to policy and requirements, resulting in some departments' invoices and other documentation being rejected. Additionally, the report notes the new policies weren't always implemented uniformly across the Auditor-Controller's Office, meaning a department's documentation might be rejected one month but accepted the next, depending on its point of contact.

While the office faces formidable historic and systemic challenges — chronic understaffing and antiquated systems like county employees still using paper timecards — those have been further complicated by communication breakdowns and a lack of trust, the report found. And nowhere has this been clearer, the report states, than with the County Administrative Office and the County Tax Collector, entities the Auditor-Controller's Office needs to work well with to function, with the CAO having oversight of other county departments and the tax collector and auditor-controller needing to collaborate to perform regular cash reconciliations.

An Alarming and Unusual Disclosure

The report also begins with a potentially alarming disclosure, noting it made an "informal inquiry into allegations of willful misconduct by the auditor-controller" and, late in its investigation as this report was approaching completion, found "sufficient information that would require" it to conduct a formal investigation of those allegations. The Grand Jury will continue that line of inquiry, the report notes, and "can consider its legal options, up to and including an accusation."

The accusation referenced would fall under California Government Sections 3060 through 3075, which provide that a civil grand jury can file a formal accusation of "willful or corrupt misconduct" against an elected official and seek their removal from office. Such an accusation would be delivered to the district attorney and, if the elected official denies the misconduct alleged, tried in superior court before a jury, "conducted in all respects in the same manner" as a criminal case, with a conviction resulting in the official's removal from office.

It's unclear exactly what the Grand Jury is looking into but it could be the auditor-controller's having hired the Fortuna firm Edge Caliber as a consultant to provide coaching services to its employees. In its lawsuit, the county alleges Paz Dominguez misappropriated public funds, paying the firm $16,851 without a contract that had gone through the full approval process in place. Further, the county alleges, Paz Dominguez had a "financial interest" in the contract as she was seeking an endorsement from the Humboldt County Central Democratic Committee, of which Edge Caliber's owner is a voting member. (Conflict of interest experts previously interviewed by the Journal disputed this interpretation, saying they didn't believe Paz Dominguez had a legal conflict of interest, though they said the no-bid contract created "bad optics" and did not follow best practices.) Paz Dominguez has said everything about the agreement for coaching services was above board, with county counsel involved and numerous fiscal controls in place.

During her June 3 press conference, Paz Dominguez indicated she'd planned on presenting to the board of supervisors on June 7 about the coaching services Edge Caliber provided her office but the item did not make it on the board's agenda. Clerk of the Board Kathy Hayes told the Journal the matter was not approved for the meeting agenda because it is the subject of "current litigation."

An accusation from the Grand Jury would constitute an incredibly rare action. And mention of such an inquiry by the Civil Grand Jury — whose investigations and and processes are legally shrouded in secrecy — is in and of itself extraordinary.

Paz Dominguez's Response

The auditor-controller was unequivocal in disputing the report's findings, saying she "has seen no evidence" the county has lost any funds and that if anything has been lost, it can likely be reimbursed. Further, she asserted there is no proof that hundreds of thousands of dollars in late fees and penalties lost are unrecoverable, and definitely no evidence that an additional close to $10 million is at risk.

She classified much of the report's contents as "hearsay," saying they are the same talking points that have been repeated frequently by some members of the board of supervisors and appointed officials who have long pushed back against the Auditor-Controller's Office asserting its independent authority.

"What I will say is a report is only as good as the information provided to its authors," Paz Dominguez said, arguing grand jurors seem to have only interviewed the same people who have been vocal in warning of lost funds and laying the blame for blown deadlines at her office's feet.

Asked during the press conference why so many have pointed blame at her office — the board of supervisors, the Fortuna Union High School District, 13 of the county's 19 department heads, the state lawsuit and now the Grand Jury — Paz Dominguez said the answers are different for each. Some, she said, probably think they are doing the right thing but have been lied to, explaining, "I hate to say it, but if you repeat a lie 13 times, some people are going to believe it." Others, she said, are motivated by vendetta.

Paz Dominguez charged that her office is making constant improvements. It is functioning better than ever before, leading to improved morale and performance, she said, adding that payroll, "torn and tattered" when it was returned to her office, is now running smoothly. The failure to close books for previous fiscal years in a timely manner, she said, is partly the product of not wanting to harm special districts, schools and county departments, saying arbitrarily closing the books before receiving all appropriate documentation could impact their funding. 

Paz Dominguez released a host of documents — mostly select email exchanges — that she said constitute evidence refuting the Grand Jury's conclusions. While the emails seem to detail instances in which Paz Dominguez explained coming changes to various fiscal reporting policies and worked with other departments to implement them, as well as occasions when her department helped its counterparts solve problems, they do not in and of themselves paint a comprehensive picture.

At the press conference, Paz Dominguez said the biggest challenge facing her office is staffing level and other departments and outside entities failing to get it the timely documentation needed to perform its various functions. Among the few findings in the Grand Jury report Paz Dominguez indicated she agreed with were ones stating the board of supervisors should have done more to intervene and reconcile differences between hers and other departments, and that the county administrative officer should make sure all other departments timely file the documentation she needs to meet financial reporting deadlines.

"That's perhaps the most important one," Paz Dominquez said of the CAO.

Paz Dominguez also said she was only interviewed once by the Grand Jury at the investigation's start in August, then had a follow-up meeting May 26 after the report was complete.

A Rocky Rollout

It seems clear something was amiss in the Grand Jury's rollout of this report. According to numerous sources, including Paz Dominguez, the Grand Jury had informed some county officials last week that the report would be distributed to local media at noon June 3 and provided them an advance copy for review, prompting Paz Dominguez to send out an invitation Wednesday night to a press conference scheduled for 2 p.m. at the Humboldt County Courthouse called "in anticipation of a pending headline event."

But the report was then posted to the Humboldt County Civil Grand Jury's website sometime early June 2. Asked about the report that afternoon, Paz Dominguez said she was directed not to discuss it until the grand jury's anticipated release time of noon June 3, though she said she was "aware the [County Administrative Office] published it early."

Asked how she knew it was the CAO that published the report "early," Paz Dominguez said she knew because the "grand jury just told" her, saying she was told the "webmaster posted the report early" before noting the county's IT department falls within the CAO's office.

The Journal then inquired with the CAO's office, which said it was unaware of any instructions regarding the posting of the report. The Journal then obtained the Grand Jury's email request to IT. Sent from Glover to the county webmaster email at 6:46 a.m. June 2, the request, in its entirety, reads as follows: "Good Morning! Please post the attached report to the Grand Jury Reports listing on our webpage. The title of this report is: Distrust, Disagreements, Dysfunction. Thank you, Jim Glover, Foreperson."

No further direction — or embargoed release date and time — seems to have been provided.

It's also worth noting that the 2017-2018 Civil Grand Jury announced a new policy governing its release of reports in June election years under which no reports would be released from the second Monday of February until after Election Day. Contacted about the policy, Glover told the Journal that was "of great to concern to us many months ago" but the county has a different presiding judge now and is producing reports whenever they are cleared for release without restriction. (It was Judge Joyce Hinrichs then, and Judge Greg Elvine-Kreis has since taken over the role. Elvine-Kreis told the Journal the report was reviewed by Judge Kelly Neel, who informed Glover she would not be following the previous "informal" policy regarding release of reports around Election Day and would instead review the report for approval as soon as it was submitted.)

"That might change in the future with yet a different judge," Glover wrote, "but those are the guidelines we are operating under presently."

The Grand Jury's Methodology

According to its website, the 2021-2022 Humboldt County Civil Grand Jury comprises 18 members. According to prior Journal coverage, when the Grand Jury convenes each year, it splits into a half-dozen or so committees in varying subject areas, and then sifts through complaints and requirements to determine what inquiries and investigations will be undertaken.

The report notes the underlying investigation in this case was launched after the Grand Jury received "complaints of financial inefficiencies, ineffective communication and a lack of cooperation with various governmental entities on the part of the Auditor-Controller and the Auditor-Controller's Office. (The Journal first reported the existence of the investigation in November of 2021, after Fortuna Union High School District Superintendent Glen Senestraro told his Board of Trustees the Grand Jury was looking into allegations of "deficiencies" and "poor service" after the board voted in September to send in an official complaint.)

According to the report, the Grand Jury's investigation included interviews with "complainants," elected county officials, county department heads and county fiscal managers. Additionally, the Grand Jury states it reviewed documents provided by witnesses, including emails and financial reports, pertinent state and federal statutes, prior financial reports and correspondences from the state Controller's Office, Attorney General's Office and Department of Finances. Additionally, the report states the Grand Jury reviewed board of supervisors' meetings and "conducted internet research related to generally accepted accounting principles."

According to past Journal reporting, a Grand Jury committee's report undergoes three layers of review before it is released. First, the Humboldt County counsel looks it over to assess liability concerns — not for the county as a whole but for the jury itself. Then, the Humboldt County Superior Court's presiding judge is supposed to give it another review through the same lens or delegate the task to another judge. With the legal feedback in hand, the report then comes back to the full Grand Jury for review and a vote on whether to publish it, with 12 votes needed to move forward with releasing a report publicly.

In his email to the media announcing release of the report, Glover noted that "due to the complexity of this report," the report took longer to complete than most.

"It is the practice of any Grand Jury for reports to be released as soon as they are completed and authorized by the court, thus today's release," he concluded in the June 2 news release.

Unprecedented

The scathing Grand Jury report included ominous mention of an ongoing investigation is the latest domino to fall in what has become a simply unprecedented situation, even in Humboldt County's history of contentious and dysfunctional politics.

The Grand Jury has joined a chorus that now includes the California offices of the Attorney General and State Controller, the board of supervisors and the vast majority of county department heads in saying Paz Dominguez is failing to meet the duties voters entrusted her with four years ago. Paz Dominguez, meanwhile, remains unflinching in her own defense, insistent her office is doing its best with limited resources and the true blame for missed reporting deadlines lies with recalcitrant county officials who — after years of operating with impunity while her predecessors provided a rubber stamp — refuse to recognize her office's newly actualized role as a fiscal watchdog.

With the politics of campaign season behind us, at least for the time being, there's no escaping the reality that Humboldt County is in unprecedented fiscal territory. The full ramifications of that on both our politics and local programs, however, likely won't be clear for months, if not years.

Thadeus Greenson (he/him) is the Journal's news editor. Reach him at 442-1400, extension 321, or thad@northcoastjournal.com. Follow him on Twitter @thadeusgreenson.