Humboldt County Auditor-Controller Karen Paz Dominguez. | Screenshot from a September meeting.


Humboldt County’s government is at serious risk of losing millions of dollars in reimbursement from state and federal agencies because of delays in the Auditor-Controller’s office, according to the staff report for what promises to be a contentious meeting on Monday.

The report is a doozy — seven pages sounding the alarm over “operational gaps” in the office of Auditor-Controller Karen Paz Dominguez. These gaps, which include delayed payments, overdue transfers and late posting of financial transactions, could have “massive implications, including service reductions, staff furloughs and/or lay-offs,” the report states.

Paz Dominguez, meanwhile, says she and her employees are simply being meticulous and responsible in managing public funds, refusing to “rubber stamp” and cut corners despite serious understaffing in her office.

Monday’s special meeting of the Humboldt County Board of Supervisors was initiated by First District Supervisor Rex Bohn and Fourth District Supervisor Virginia Bass. The two of them have fiscal oversight responsibilities as the board’s Budget Ad Hoc Committee.

In a statement emailed to the Outpost on Saturday, Bass said, “We find ourselves in a situation that has been brewing for a bit of time that has the potential to be very devastating for our county, both our employees and the citizens who live here.”

Bass said the situation is not adversarial — not the Board of Supervisors versus Paz Dominguez. Rather, the meeting is an attempt “to get all the information out on the table so that we can make informed decisions on how to best move forward … .”

Bohn said the delayed payments are having serious impacts. 

“My main focus is the numerous calls I’m getting from local vendors who aren’t getting paid in a timely manner,” he told the Outpost via phone on Saturday. “Especially in COVID times … if they don’t get paid in a timely manner, they don’t have enough cash to float.”

Paz Dominguez, for her part, emailed a lengthy statement saying that, since her election in 2018, she has been focused on making institutional changes in order to increase scrutiny and maintain fidelity to the letter of the law. She framed the situation as a matter of integrity.

“The challenge we face is that the County as an organization has not fully adapted to working with our department in its new form,” her statement says. “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.”

The details of the dispute are awash in wonky accounting jargon, but much of it concerns a budgetary planning document called a cost allocation plan (CAP). This plan is something that each county must submit annually to the State Controller’s Office (SCO) for review and approval. Once the plan has been approved, counties are eligible to get reimbursed from state and federal agencies for carrying out programs that are mandated by the State of California and the United States government.

However, in order for the county to get that money, the Auditor-Controller must post the qualifying charges in a timely manner. Paz Dominguez hasn’t been doing so, according to the staff report.

“As of this writing, the Auditor-Controller has not posted all of the SCO-approved CAP charges for FY 2019-20,” it says. “Approximately $12.67 million in internal service fund and $4.6 million in central service charges have not been posted.”

As a result, the county hasn’t been getting reimbursed, and with deadlines approaching it may lose its opportunity to recoup $14.2 million for 2019-20 fiscal year. That could set off “a domino effect,” leading to negative balances in multiple county funds.

“Going negative is like over-drafting the checking account,” the staff report explains. “The only way to bring it positive is to transfer money from somewhere else, like a savings account.” The county could transfer money from its General Fund, the report states, but this would be “highly unusual and terribly unsustainable.”

“In effect, Humboldt County would be subsidizing the state and federal governments, and losing out on $14.2 million for local needs if this came to pass,” the report says. “A transfer this large would all but wipe out the General Fund and the county would rely on its meager reserves for any future revenue shortfalls and/or emergencies.”

The staff report goes on to enumerate several other “gaps” in the Auditor-Controller’s operations: Her office is several months late in closing the books on fiscal year 2019-20; she’s more than a year behind reconciling the county’s cash and investment accounts; and she’s late counting the money in the county treasury, which means revenue from interest-bearing accounts isn’t getting distributed to schools, special districts or the county’s own General Fund.

In her emailed statement, Paz Dominguez recounts the history of the Auditor-Controller’s Office from the time she was hired as the assistant auditor-controller in 2017. Under Joseph Mellett, she says, the office lacked sufficient training and staff morale was low. After she took over the top job she decided, “I would need to make some institutional changes, starting with ending the ‘rubber stamp, get it done’ way of operating.”

The problem was that she didn’t have enough people. Indeed, Paz Dominguez first came to the public’s attention three years ago, when she took the microphone at a Board of Supervisors meeting and said severe understaffing in her office was leaving the door open to “unethical and fraudulent financial activity.”

Staffing in has been increased by 25 percent — the equivalent of three full-time employees — since Paz Dominguez took office, according to county staff. However, she says her entreaties for help have been rejected.

“[D]ue to the continued denial of our requests for additional staffing, we are having to revert back to that survival mode I walked into 3 years ago,” her statement reads. “The difference now is that we refuse to let go of our commitment to protecting public funds by ensuring that all transactions are accurate, appropriate, and authorized.”

She also says she’s relieved that Monday’s meeting has been called because it will allow the matters to be discussed in a public forum.

Paz Dominguez also forwarded an email she sent to Bass and Bohn last Monday, in which she explains that certain delays are the result of her scrupulous adherence to the rules.

“The Federal government is explicit about charges needing to be justified and provable by actual level of effort. Unfortunately, this County is basing charges upon estimates and projections, not actual costs or expenses,” her email stated. “The County is already being questioned about such charges and I certainly don’t want to add fuel to the fire by just posting them for the sake of ‘this is how we’ve always done it,’”

The staff report, on the other hand, says the county’s charging methods have been approved by both the State Controller’s Office and by an independent third-party review by “a reputable consulting firm.”

Paz Dominguez has support from employees in her office. Seven of them wrote a statement in her defense and sent it to the Board of Supervisors. They also forwarded it to the Outpost. It accuses supervisors, administrators and department managers of “scapegoating” Paz Dominguez while “seemingly undermining” the efforts of the hardworking public servants in her office, who suffer from burnout due to their “incredible workload.” You can read the full statement here.

Tensions between Paz Dominguez and other county officials seem to be boiling over with increased frequency this year, with tomorrow’s Board of Supervisors meeting being just the latest example.

“It is highly unusual to bring fiscal operational issues into a Board meeting,” the staff reports at the outset. “However, we are faced with highly unusual circumstances.”

The virtual meeting will begin at 9 a.m. A link to the county stream will be available via this county webpage starting shortly before that time.