Assistant Auditor-Controller Karen Paz Dominguez addresses the Board of Supervisors at last week’s meeting. | Screenshot of county video.

Karen Paz Dominguez raised a lot of eyebrows last week when she stood before the Humboldt County Board of Supervisors, microphone in hand, and said there’s a “desperate situation in the Auditor-Controller Department.”

After three months as the assistant auditor-controller (the number-two position in that office), Paz Dominguez had found the office to be “severely understaffed,” to the point where the overworked employees may be incapable of ferreting out misstatements or even “unethical and fraudulent financial activity,” she told the board.

The Auditor-Controller’s Department may not be the most scintillating of county offices, but it performs important functions, such as overseeing the county’s finances, paying the bills, handling payroll, tracking the financial activity of dozens of county departments, special districts and trust funds and more.

There are currently eight people handling the accounting functions of the office, one of whom has been on medical leave for more than two months. The office also has four-and-a-half positions for handling payroll.

“Allocating only eight positions to the entire auditing function of this county is poor management,” Paz Dominguez said, “and [it] can lend to the judgment that transparency and accountability for public funds is not top priority.”

The supervisors were taken aback, partly by the allegations but also because of who was making them.

“I was very surprised it wasn’t Mr. Mellett himself,” Second District Supervisor Estelle Fennell said in a phone call, referring to Auditor Controller Joe Mellett. “I’d never spoken to Ms. Dominguez.”

Fifth District Supervisor Ryan Sundberg wasn’t at the meeting, but in a phone conversation the next week he said, “You’d just think the person in charge would write you a letter, have a meeting with you or talk to the CAO [County Administrative Officer]. If there’s any problems I want to fix it. But you gotta know [about them].”

First District Supervisor Rex Bohn was characteristically blunt when asked to comment. “If my number-two [employee] came to a meeting and made statements like she made … I think I woulda shit myself and then fired someone,” he said.

But Mellett hadn’t sent Paz Dominguez to the meeting; she’d come of her own volition after asking employees in the County Administrative Office to forward her request for more staffing to the Board of Supervisors and being brushed off, she told the Outpost. They told her the budget was already set for the year, she recalled, but that she could always show up at a meeting and use her three minutes of public comment time.

“I told staff, I said I will do it. I will be at every meeting,” Paz Dominguez said.

Though relatively new to her position, Paz Dominguez is on a mission to reform the Auditor-Controller’s Department. In a series of interviews in recent weeks she described a host of problems, saying the county isn’t following proper accounting and budgeting procedures. Large sums of money are being held in trust funds that aren’t documented in the budget. Utility bills get held up in inter-departmental shuffles, resulting in thousands of dollars in late fees. Last year, a $2 million discrepancy in the books went undetected for eight months.

Mellett, who was first elected to his position in 2010, says all these problems stem from the lack of staff. He believes that over the past three decades the Board of Supervisors and the County Administrative Office have deliberately taken over responsibilities that rightly belong to him, including compiling the county budget, leaving him without enough resources to function.

Mellett said he’s not aware of any financial fraud going on in the county finances, but he can’t be sure if that’s because it doesn’t exist or because he doesn’t have the resources to go find it. “We’re supposed to be auditing the organization and we can’t do it,” he said.

But not everyone agrees that the problem is understaffing — at least not exclusively. Several supervisors suggested that Mellett himself is largely to blame for mismanaging his department. And employees in his own office say Mellett doesn’t offer much in the way of oversight or management, that he shows up late and leaves early, and that even when he is in the office he doesn’t do much to help out.

In a surprisingly candid joint interview with Paz Dominguez, Mellett said he’s burning out, that stress from the job has caused insomnia and depression, and that he’s ready to retire.

“I got into this [job] with the idea that I was gonna be a change agent,” he said. “I was gonna help turn this around. But, you know, it didn’t work. It didn’t happen. And now I’m at the end of my career, pretty much. I’m 62, and I’m ready to let somebody else have it.”

But Mellett has more than a year left in his current term, and he said he plans to see it through. 

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In recent years, outside auditors and others who’ve looked into the county’s finances have found a variety of errors and weaknesses. Last year, for example, auditors found the $2 million cash discrepancy between the general ledger, bank statements and other documentation.

County Administrative Officer Amy Nilsen said this happened because a new employee made a correction to the books and didn’t realize she needed to report it to the Auditor-Controller’s Office, allowing the discrepancy to go unnoticed for at least eight months. But the money was never actually missing.

“Staff makes mistakes,” Nilsen said. “They’re fixable.”

But auditors cautioned that cash assets have “the highest risk of theft, embezzlement and misappropriation” and recommended that both the County Treasurer and Auditor-Controller review and reconcile the books more regularly.

Last year’s Grand Jury report found that the county lacks transparency, accountability and oversight when it comes to executing contracts and purchase orders. Part of the problem, the Grand Jury found, was the messy multi-department system in place, with no common terminology or consistent chain of command.

In other counties it’s the Auditor-Controller who oversees all this stuff, but the Grand Jury noted that “the Humboldt County Auditor has neither the necessary staffing nor authority to ensure that the vendor is performing according to the terms of the contract.”

Others have reached similar conclusions. In 2015 the Board of Supervisors hired Wendi Brown Creative Partners to analyze the Department of Health and Human Services, and the agency’s report on that department found room to note that the Auditor-Controller’s Office is understaffed and doesn’t conduct internal audits of other county departments.

The problems appear to stretch back more than a decade, at least. An April audit report from the State Controller’s Office found that between 2005 and 2013 the county underpaid the State Treasurer by $225,405. This error, the report said, was the result of a number of mistakes, including “incorrect entries” and omissions on official paperwork. 

There’s more. A 2010 management report from independent accounting firm Gallina LLP found that the county was making accounting mistakes, double-reporting revenues and expenditures because of a complicated fund structure. The county had — and still has — more than 150 independent trust funds, and transactions for these funds get recorded outside of the main budgetary process. This means “the County’s own financial reports are not complete,” the report concluded.

Paz Dominguez has been calling attention to these and other accounting practices in the county, alleging that they’re “out of compliance with generally accepted accounting principles.” But she said she’s been met with resistance and dismissals. 

Late last month Paz Dominguez sent an email to employees in the management and budget team, which is in the CAO’s office, saying that utility bills from other departments weren’t being forwarded to the Auditor-Controller’s Department until they were already past due. 

”The current process is not effective in preventing late fees,” she wrote, adding, “this will be the last claim I approve under these circumstances.” 

Mellett, who had been cc’d on the email, urged her to pump the brakes. “If we expect instant results we will only cause resistance and non-cooperation,” he wrote in a follow-up email. “I think the departments want to do things the right way but it takes a while to educate them … .”

But Paz Dominguez held firm. “We are the independent branch of accounting and the public expects us to do the right thing regardless of whose egos get bruised,” she wrote. “Some people will not like me and I have no control over that. … I can promise you that my efforts will always be in the interest of the public that voted to maintain independence in our office. I am committed to doing the job I was hired to do ethically and in support of your responsibilities.”

Mellett reiterated his warning. “Attempting to force rapid change will only cause resistance and non-cooperation, so I counsel patience.”

During an interview in his office, Mellett said the Auditor-Controller’s Department has been kept deliberately understaffed since the 1980s, following a power struggle between then-Auditor-Controller Neil Prince, on the one hand, and the CAO and Board of Supervisors on the other. With tax revenue dwindling as a result of Prop. 13, Mellett said, the county had to cut back on staffing, and he believes the board and the CAO used this as an opportunity to seize the pursestrings. 

“Bless their little hearts, but I think they really want to own that function,” Mellett said. He believes last year’s failed ballot measure to combine his office with the Treasurer-Tax Collector was another attempt by the CAO to consolidate financial power. “They really want control over the whole accounting function,” he said. “My sense is that doesn’t really serve the public correctly.”

Nilsen and the supervisors dispute his characterization. Nilsen says her office has been responsive to staffing requests in the Auditor-Controller’s Department over the past three years, awarding them a half-time position through Measure Z funding last year and loaning them an employee from the Department of Health and Human Services this year. (That employee recently left, however, and has yet to be replaced.)

“Humboldt County’s not a wealthy county, so resource allocation has always been a difficult enterprise,” Nilsen said. “I think we do a pretty good job of it, but sometimes not everyone will get what they want.”

Humboldt does spend less per capita on its Auditor-Controller Department than most other counties in Northern California. With a budget of $1.44 million, our local Auditor-Controller’s office costs each county resident about $10.60 a year, and we have more than 10,000 residents for each employee in the department. Mendocino’s Auditor-Controller Department, by comparison, costs that county’s residents $14.49 per capita and has only about 7,300 residents per employee. Del Norte County spends $31.41 per resident and has only about 3,200 residents per employee.

Mellett used these comparisons as evidence for his claims of understaffing, But when presented with this argument, Supervisor Sundberg said each county’s auditor-controller has different duties, so it’s not an apples-to-apples comparison.

Mellett’s job description includes compiling the county budget, but that task has long been handled by the county administrative office, and Mellett doesn’t even attend budget meetings. Nilsen said that’s his decision, not to attend, and that “the County Administrative Office welcomes participation from all departments in the budget process.”

Supervisor Fennell said staffing and funding requests should be made during the annual budget review, not mid-fiscal-year, where we are now.

Supervisor Bohn went further, suggesting the problem is Mellett. “My mama told me a long time ago, if I can’t say anything nice not to say anything at all,” Bohn said, but he proceeded to elaborate. “He’s cost us money, screwed up a lot of stuff.”

Sundberg agreed that it’s a management issue and said Mellett doesn’t seem to spend much time in the office. “We’re in the same building. All’s I see is him out and about, walking around,” Sundberg said.

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Some of Mellett’s employees feel the same way. Three members of the office’s auditing staff, who spoke on condition of anonymity due to fear of retaliation, said he’s not doing his job. 

“Joe regularly doesn’t show up for work until after 9 [a.m.], sometimes as late as 11:30,” one worker said. “I have watched him come in, put stuff on his desk and five minutes later go to lunch. He will not work past 4:30, and he recently decided he will not work on Fridays.” Even when he is there, she said, “He doesn’t roll up his sleeves and get in the dirt with the rest of us.”

“He is unaware of what we do and is often not here,” another employee said. “Aside from printing checks and signing whatever is put in front of him, he’s not particularly engaged or useful.”

A third worker said that the Auditor-Controller’s Department only functions to the degree it does because the rest of the staff covers for Mellett. “I don’t know why he’s the only one in the county allowed to be this late,” she said. “And he comes back from lunch smelling of beer.”

Mellett doesn’t think those are fair characterizations. He said his former assistant — Paz Dominguez’s predecessor — had more direct contact with “line staff” than he does, and he insisted, “I’ve got a huge workload of my own to deal with.”

He did acknowledge drinking beer at Lost Coast Brewery and said his doctor recommended he take walks to alleviate lower back pain. As for the hours he works, Mellett said government code doesn’t require him to put in a 40-hour work week, just that he discharge the duties of his office.

”I’m doing the best I can with what I’ve got,” he said. “That includes my personal resources of energy.” The job has weighed on him, he said, and he hasn’t taken a vacation since being elected seven years ago.

“Crap, I’m getting older. I’m tired in the mornings. Sometimes I come in an hour late, and lately I’ve tried taking Fridays off,” he said. “I’ve been getting so stressed out that I have problems with insomnia, and I’m kinda getting depressed. I talked to my doctor about it. It’s kind of a situational depression, but I don’t want it to turn into a chronic depression.”

For his own health, he said, “I’m taking my vacation an hour or two a day.”

# # #

Nilsen acknowledged that some of the county’s accounting practices should be changed. While some funding sources require money to be kept separate from the main county finances, Nilsen agreed with audit findings saying that the county maintains too many such funds. 

“It’s possible that in past years departments may have created trust funds to buffer themselves from cuts,” she said. “I would say simplifying the fund structure is an important project for the future.” Asked specifically when that might happen she said she’d have to talk with Mellett.

As for late fees, Nilsen noted that some utilities, including AT&T, have tight timelines that make it difficult to get all the bills in on time. Her office later provided data showing that the county has paid $1,513 in late fees so far this fiscal year (since June) on utility bills totaling nearly $880,000.

But Paz Dominguez said late fees shouldn’t be paid with public funds, period. And she thinks the county’s system for paying utility bills, which are generally funneled through the CAO’s office, is inefficient and even inappropriate considering that office has no licensed accountants.

Paz Dominguez has met a lot of resistance with her attempts to change long-established systems and get everyone to adhere to the letter of the law, but she said her stubbornness is rooted in idealism.

“I’ve dedicated my life to public service,” she said. “I became a citizen because I care about this place … and I want the society I live in to be a fair and just place.”

Her attitude provided a stark contrast to Mellett’s when she joined him in his office during his interview. While Mellett complained of depression and institutional gridlock, Paz Dominguez kept rattling off things she intends to do.

When asked why he ran for re-election four years ago, Mellett said, “I’ve just become more disillusioned in the last couple years. I think I had more hope [back then]. Plus I was younger. I had a little more energy than I do now. But I’m kind of done with it, really, at this point.”

He returned to this note of hopelessness a couple of times. 

”If I’m not gonna be a change agent, well, what am I doing? Putting out fires and collecting a paycheck,” he said.

That paycheck is not insignificant. Last year he earned more than $161,000 in salary and benefits. Is it fair to the residents of Humboldt County to stay in that position when his heart’s not in it.

“My heart is in the job,” he said. “It’s just very difficult dealing with this organization.”

We turned to Paz Dominguez, sitting beside Mellett, and asked if she thinks it’s possible to make changes from the Auditor-Controller’s Department. Before she could respond, Mellett answered for her. 

“No,” he said, staring down at his desk. “We don’t control the purse strings.”

Paz Dominguez wasn’t having it. “I’m actively working to change things,” she said defiantly, then listed some of the things she’s done, including removing cubicle walls to build teamwork and inviting elected officials and staff from other departments to come down to the office and look around, get to know people.

Mellett looked bemused. “That’s where I was about seven or eight years ago,” he said. “I was optimistic, positive, energetic.”

Paz Dominguez continued. “I think there is hope,” she said. “It will take someone who will keep going, keep persevering, so — .”

She left the thought unfinished, and Mellett didn’t appear to take any offense.