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To Audit and Control 

The unprecedented battle for fiscal oversight of the county of Humboldt

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As a thought exercise, take out a piece of paper and write down the names of Humboldt County's last two auditor-controllers. It's a safe bet that if you correctly scribbled Joseph Mellett and Michael Giacone, you either work in county government or are the most dedicated of civic enthusiasts.

All that is to say, it's beyond noteworthy that incumbent Auditor-Controller Karen Paz Dominguez has become one of the most recognizable — and polarizing — names in local government since bursting on the political scene a handful of years ago. Then the assistant auditor-controller, Paz Dominguez stepped before the Board of Supervisors during the public comment period of its Nov. 7, 2017, meeting to charge her office was grossly understaffed and mismanaged to the point it was unable to carry out its essential functions.

Within months, Paz Dominguez's predecessor had retired and, in June of 2018, voters elected Paz Dominguez to fill his shoes with 55 percent of the vote. The ensuing four years have seen Paz Dominguez become increasingly embattled, as the Board of Supervisors has voted to censure her and passed a resolution declaring no confidence in her job performance, 13 of the county's 19 department heads signed a letter stating she "has failed to fulfill the duties and responsibilities of her position," increasingly putting millions of dollars of state and federal funding at risk, and the California Attorney General's Office has taken the extraordinary step of naming her personally in a lawsuit alleging she's violated state law by failing to file timely financial reports with the State Controller's Office.

All of this has come to a head as the June 7 election looms, with Paz Dominguez continuing to cast herself as a reform agent facing unprecedented backlash simply for doing her job and working to transform her office from one that "rubber stamps" other departments' fiscal documents to one that truly protects the public interest.

The Office

The Humboldt County Auditor-Controller's Office is tasked with providing financial and accounting support to the county's departments, special districts and a host of partnering agencies that have funding streams run through county coffers. The office is responsible for accounting for property tax revenues, while apportioning and distributing them to the various entities that rely on them, including school districts. The office audits and issues county payroll checks, audits and issues claims for payment, issues receipts for all payments received by the county, documents the county's financial transactions and prepares a host of financial reports.

The Candidates

Hired by the county in 2017 as the assistant auditor-controller, Paz Dominguez, 34, moved to Humboldt County 17 years ago after growing up in El Salvador and Los Angeles. She graduated from Humboldt State University with a degree in business administration with an emphasis in accounting, and says she spent 10 years working with two local CPA firms, where she got experience in "direct accounting, taxation and auditing," before joining the county's employment.

Challenging Paz Dominguez in the race is Cheryl Dillingham, 60, a career public employee who spent 30 years working for the county of Humboldt — including 12 years in the Auditor-Controller's Office, 10 years in Public Works and a stretch in the County Administrative Office — before stepping in as finance director for the city of Rio Dell three years ago. After growing up in the San Fernando Valley and Ventura County, Dillingham moved to Humboldt County 41 years ago and received a degree in mathematics and a master's in business administration, both focused on accounting, from Humboldt State University.

Announcing her campaign at a kickoff event in Eureka in April, Dillingham said she doesn't like "public speaking or politics," saying she's most comfortable "doing accounting and dealing with numbers," but said she was stepping into the race "because there is an urgent need to fix the county's accounting and reporting" and she is "uniquely qualified" to get things back on track.

With all the discord swirling around the Auditor-Controller's Office, it's noteworthy that the campaign's principals have so far refrained from the kind of trench warfare one might expect.

While Dillingham has run on a platform of competence, experience and "no drama," she's largely refrained from being directly critical of Paz Dominguez, who she worked with for a stretch of about eight months when she was appointed interim auditor-controller after Mellett's retirement and before Paz Dominguez assumed office.

In fact, Dillingham has been complimentary numerous times — saying Paz Dominguez has done an "excellent job of addressing issues" identified in a 2018 Humboldt County Civil Grand Jury report detailing deficiencies in the county's fiscal oversight and controls. She's also praised Paz Dominguez's efforts to modernize the office by automating certain functions.

Dillingham has also seemed sympathetic to many of the office's struggles. Asked about issues with county payroll at a recent forum, Dillingham said it's a heavy lift, pointing to the fact that the county turns around payroll in the same amount of time as little Rio Dell, despite having nearly 2,000 more employees still using paper timecards. She has echoed Paz Dominguez's claims that the department remains short staffed and struggles to recruit and retain employees, particularly trained accountants. And she has conceded the office faced unprecedented challenges in working through a global pandemic that forced most employees to work remotely, posing unique complications with the county's decentralized accounting systems.

But asked to differentiate herself from Paz Dominguez and pinpoint exactly what she views as wrong with the office as it currently functions, and what specifically she would step in looking to change, Dillingham circled back to a question both candidates had been asked at a recent forum hosted by KMUD News: Which is more important, timeliness or accuracy?

Paz Dominguez answered the question unequivocally.

"Accuracy. One-hundred percent. Accuracy is the most important thing. Otherwise, what's the point? I say this because you can be timely all day long but if the information is inaccurate, what purpose did you serve?" she said, adding that inaccurate work will lead to duplications of efforts, as it will have to be fixed. "Ultimately, it all about accuracy. That's why you hire accountants. We need to be very clear about what this function is and it's a function of enforcing accuracy."

Dillingham was more nuanced, countering that both are imperative, that completely accurate books filed years or months late are of little use to departments. The key, she said, is to communicate clearly and train other departments and office staff so everyone is aware of what must be provided when, and what documentation will be required. In response to a follow-up Journal inquiry, Dillingham pointed to prioritizing timeliness, in addition to accuracy, as a central differentiation between her and Paz Dominguez, deeming it "unacceptable" that the fiscal year 2019-2020 audit had yet to be completed.

The 2019-2020 Audit

If you look through the county's external year-end audits posted to the Auditor-Controller's Office website dating back to 2010, you'll notice external auditors repeatedly — year after year — noted the county's failure to reconcile certain account balances in its general ledger, noting it could require significant end-of-year adjustments to county accounts and would make it more difficult for the county to identify potential acts of fraud.

The 2018-2019 single audit report, the first — and to date, the last — of Paz Dominguez's tenure, notes: "There is no disagreement with the audit finding. The auditor-controller is in the process of hiring and training staff who will be tasked with these closing procedures."

But nearly two years after that audit report was signed by the accounting firm CliftonLarsonAllen LLP, the county's year-end financial reporting has seemingly ground to a halt, with the county having yet to close the books on either its 2019-2020 or 2020-2021 fiscal years as it currently budgets for 2022-2023.

In December, Department of Health and Human Services Director Connie Beck publicly expressed concerned the outstanding financial reports could jeopardize the more than $61 million in federal funds it depends on to run local programs.

County officials have said the outstanding 2019-2020 single audit has already caused tangible problems. Planning Director John Ford has said it's preventing his department from applying for more than $18 million in state funding. Public Works Director Tom Mattson said the outstanding audit has already resulted in the loss of $674,000 in state funding and put another $200,000 in road maintenance funds on hold, with CalTrans also having informed the county it will withhold all new funding until mandated reports are filed. This news comes as Congress' $715 bill infrastructure package is rolling out.

County Chief Financial Officer Tabitha Miller has also pointed out that discrepancies in county records from the 2018-2019 and 2019-2020 fiscal years amount to $55.6 million, leaving it in a place where the county "truly (does) not know where our fund balance is" as it begins budgeting for 2022-2023.

The issue of the outstanding financial reports came to a head in earnest last month, when the state Attorney General's Office filed a lawsuit against the county and Paz Dominguez personally, alleging the auditor-controller had failed to file the county's adopted budgets for fiscal years 2020-2021 and 2021-2022 with the State Controller's Office, while also failing to file Financial Transaction Reports for 2019-2020 and 2020-2021 "in the time, form and manner prescribed by the State Controller."

To Paz Dominguez's critics, the situation can serve as a case study for her tenure.

According to the lawsuit, the State Controller's Office initially reached out to Paz Dominguez about the 2019-2020 Financial Transaction Report (FTR) in November of 2020, reminding her it was her legal responsibility to file the report by Feb. 1, 2021. The office then reportedly followed up Feb. 26, 2021, advising the report was now delinquent but providing another 20 days to comply, warning that a failure to file could leave Paz Dominguez facing a fine of up to $5,000. The office followed up June 1, 2021, with an email and Paz Dominguez responded, offering to complete the report "using unaudited information" and indicated it would take two weeks to get the document filed, deeming it an "urgent priority." The State Controller's Office agreed, but Paz Dominguez never filed the document, according to the lawsuit.

The California Attorney General's Office then sent a "final demand letter" Feb. 24, giving Paz Dominguez 20 more days to file the report under threat of a lawsuit and the aforementioned fines.

Paz Dominguez responded to the letter by telling the Board of Supervisors on March 1 that she believed it was sent in error, and then delivering the "findings" of her ongoing review of the county's finances, which included a laundry list of alleged irregularities and deficient fiscal controls that left the county vulnerable to "opportunities for fraud," as well as a few straight allegations of impropriety. (It should be noted here that while the board urged Paz Dominguez to present evidence of her claims in a subsequent report to the board, she declined to do so, and documents released to date under a California Public Records Act request fail to substantiate the vast majority of her allegations.)

After learning the letter was not, in fact, sent in error, the county and Paz Dominguez mounted an all-hands-on-deck effort to file the outstanding FTR, filing it on the March 16 due date. But the state is alleging that in the section designated to document who specifically prepared the report, Paz Dominguez signed "under direction of the AG" rather than her name. The SCO returned the document, stating it required a first and last name and title of the person who input the data. According to the lawsuit, Paz Dominguez never responded and did not correct the document, prompting the lawsuit.

For her part, Paz Dominguez has said a lot of things have played into problems filing the 2019-2020 financial documents. When the COVID-19 pandemic hit, she says, her staff had already been outfitted with laptops and was prepared to work remotely. But that wasn't the case across other departments, Paz Dominguez says, explaining they were ill-equipped to deal with the new reality of remote work. This, she says, caused months-long delays in other departments submitting invoices and other financial documents to the Auditor-Controller's Office, causing a tremendous bottleneck. Currently, she says, outside firms are struggling to complete reconciliations from the 2019-2020 fiscal year, which she says are a product of deficiencies in other departments' reporting, though that's been disputed by Miller and County Administrative Officer Elishia Hayes.

Paz Dominguez's issues with meeting deadlines have extended beyond the year-end financial reports. (It's perhaps worth noting here that Paz Dominguez submitted the questionnaire sent out by the Journal to local candidates eight days after the paper's initial deadline.)

After Paz Dominguez aired the "findings" of her fiscal review at that March 1 meeting of the Board of Supervisors, the board asked her to return March 15 with a full report and underlying evidence, to which Paz Dominguez agreed. But she then failed to complete her report and provide the documents to the clerk of the board in time for that meeting. At the time, Paz Dominguez told the Journal that Clerk of the Board Kathy Hayes had been "very helpful" in scheduling a special March 21 meeting on the issue, adding she herself "made a commitment to the public that I would provide them the relevant information on the 15th and I will keep that promise." Paz Dominguez said she planned to release the report publicly that day. Instead of releasing the report and underlying documentation, she took to the Humboldt County Courthouse steps to announce her re-election bid in a speech that repeated many of the allegations made two weeks earlier.

Asked after the speech when she planned to release the evidence supporting her allegations, which she'd previously said she had at the ready, Paz Dominguez told the Journal it would be released in weekly response to a California Public Records act request filed by one of her campaign supporters. As the Journal went to press May 24 — 10 weeks after the promised release date — the Auditor-Controller's Office had disclosed three batches of records responsive to the request, the last coming on April 8, and the documents released leave the vast majority of her claims unsubstantiated.

Humboldt County Superintendent of Schools Michael Davies-Hughes, meanwhile, tells the Journal local school districts have not received interest apportionment payments, usually dispersed quarterly, from the Auditor-Controller's Office for any all of the 2020-2021 fiscal year or the first three quarters of 2021-2022. Davies-Hughes said a "conservative estimate" would be that the outstanding payments owed local districts combine to total $2.6 million.

'Growing Pains'

Back at the KMUD forum, Paz Dominguez characterized the tumult of her first term in office as a by-product of change.

"This is a growing pain," she said. "This is a time of growth. We are going to prioritize accuracy because we are correcting a culture, an entrenched culture of just getting things done regardless of accuracy."

In response to questions posed by the Journal, Paz Dominguez characterized the current state of the county's fiscal controls as "evolving" and "strengthening," noting the board's adoption of a cash handling policy and formation of an Audit Committee as signs "the tone at the top of the organization is shifting toward one of promoting strong internal controls." She pointed to staffing as an ongoing limiting factor for the office — it currently is budgeted for 14 employees, up from 11 before Paz Dominguez took office — but said she will look to increase automation where possible, and turn to recording video trainings for other departments to save time.

Dillingham agreed staffing is a significant issue, saying she would look to bring on interns from Cal Poly Humboldt in an effort to ease the workload, while putting an emphasis on recruitment and retention efforts. But D-illingham also intoned she believes staff time can be saved by working on strengthening internal controls to prevent reporting deficiencies rather than rectifying them after the fact. She also referenced the words of a mentor, who once told her, "The difference between being a bookkeeper and an accountant is knowing when to stop looking for pennies."

In preparing its election coverage, the Journal asked both candidates to fill out a questionnaire to give readers insight into everything from their backgrounds and plans on the office to their personalities. As a part of that, we asked both candidates to sum up their candidacy in a single haiku.

Here's how they responded:

Paz Dominguez:
"The truth is easy
When challenged, be like water
And wash off mistrust"

Dillingham:
"Cheryl Dillingham
for Auditor-Controller
on time no drama"

For more information about Paz Dominguez, visit her campaign website at www.kpd4ac.org. For more information on Dillingham, visit www.cheryld4ac.org.

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Thadeus Greenson

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Thadeus Greenson is the news editor of the North Coast Journal.

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