UPDATE: After this story was published, Auditor-Controller Karen Paz Dominguez suggested that the Attorney General’s letter may have been sent in error, or perhaps as a result of an automatic, calendar-based notification process that ignored the specifics of the local situation.

The reasoning behind this theory, offered by Paz Dominguez, was that the letter was sent on behalf of the State Controller’s Office, an agency that recently sent an audit team to Humboldt County to conduct an investigation into the county’s financial reporting practices. That team has yet to issue its report, and Paz Dominguez said she was under the impression that the report will include instructions on how to proceed with filing the delinquent report. 

On March 2, we got some clarification from Jennifer Hanson, press secretary for the State Controller’s Office. She told the Outpost via email:

The State Controller’s audits team is conducting a review to determine whether the county’s inability to submit timely financial reports is due to a lack of internal controls. This review does not excuse the county from its responsibility for timely filing of required reports. The letter from the Attorney General was not sent in error. It was sent at the request of the State Controller.

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Original post:

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

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The California Attorney General’s Office on Thursday issued a final demand letter to Humboldt County Auditor-Controller Karen Paz Dominguez, threatening legal action for her failure to submit the county’s 2019/20 Financial Transactions Report (FTR), which is now more than a year overdue. 

The demand letter, signed by Deputy Attorney General Julianne Mossler and addressed to Paz Dominguez personally, says the A.G.’s Office was called in by the State Controller’s Office, which launched an investigation in December into the county’s financial practices and reporting. That investigation was initiated because of this same overdue financial report.

It’s not clear whether the State Controller’s Office has completed its investigation. Paz Dominguez told the Outpost earlier today, coincidentally, that she and her staff haven’t heard from the investigation team in a few weeks, “but they may be working with other departments. Can’t say for sure,” she said in a text.

According to the demand letter, the State Controller’s Office made several attempts over the past year to compel Paz Dominguez to submit the report, which is a state-mandated audit of the county’s financial transactions from the preceding fiscal year. 

The first attempt came via a letter sent February 26, 2021, in which the State Controller’s Office advised Paz Dominguez that the report was delinquent and gave her an additional 20 days to reply. The county did not respond and failed to meet the March 18 deadline, according to Mossler’s letter.

The State Controller’s Office followed up with an email on June 1, and Mossler tells Paz Dominguez, “You responded on June 14, 2021, stating that the County’s audit for FY 2019/2020 was underway, but not yet complete.”

She continues:

You offered to complete the report using unaudited information, and indicated it would take two weeks. The SCO [State Controller’s Office] agreed that you could use unaudited information and SCO would still accept the report in the agreed upon two week timeframe. On June 21, 2021, you informed the SCO that the data was collected and being processed, and completion of the report was an “urgent priority.” You have never submitted the report.

It’s now eight months later, and Mossler says the county is now delinquent in submitting its 2020/21 financial transaction report, too. It was due on January 31.

“At this point,” Mossler tells Paz Dominguez, “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.”

That code section says the state can charge Paz Dominguez $5,000 for failing to submit the financial transactions report within 20 days of receiving written notice that it’s overdue.

This marks the latest — and arguably most serious — development in an escalating series of repercussions and recriminations Paz Dominguez has faced during her three-plus years in office. In recent months she has received votes of “no confidence” from the Fortuna Union High School District, the county’s Workforce Development Board and the Humboldt County Board of Supervisors.

Earlier this month, Caltrans sanctioned the county and froze all federal and state reimbursement for new transportation-related projects as a result of the county’s delinquent financial reporting. Just this week, the state’s Employment Development Department placed about $3.5 million in Workforce Innovation and Opportunity Act (WIOA) funding on hold until the county submits its 2019/20 single audit, according to Economic Development Director Scott Adair.

First 5 Humboldt, an independent local government agency providing early childhood development services, is in the process of withdrawing its finances from county management. First 5 Executive Director Mary Ann Hansen told the Board of Supervisors in December that, for the first time ever, she’d been forced to request an extension from the State Controller’s Office for submitting First 5’s year-end audit. The delay was caused by the Auditor-Controller’s Office’s failure to perform its mandated accounting and oversight services, according to First 5’s independent auditor.

After obtaining a copy of the Attorney General’s Office letter this afternoon we reached out for comment from Paz Dominguez. She responded via text, saying she was in a meeting. We’ll update this post if we hear back from her before day’s end.

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DOCUMENT: FINAL DEMAND LETTER

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UPDATE: After this post was published, Paz Dominguez emailed the following press release:

Dear Taxpayers of Humboldt County,

The role of an elected official is easy to understand: to fulfill the duties they have been assigned in a manner which serves the best interests of the public. In the case of the Elected Auditor-Controller, the successful fulfillment of those duties is not up to the Auditor-Controller alone but relies on the good governance of the collective Board of Supervisors, the just administration of the County Administrative Office, the wise judgment of its County Counsel, and the responsible performance of County Department Heads. More importantly, it relies on all of these bodies working together toward a clear and shared goal of serving the best interests of the public it governs.

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. 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.

The County of Humboldt, as an organization, has not completed timely or accurately, several of its various centralized and decentralized financial reports. 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. 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 okay. The now decades-long power struggles, unethical exploitation of “friendships”, in-fighting, and scapegoating are coming to a head and action must be taken. 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 of 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.

A letter from the State Attorney General has been delivered to the County addressed to me demanding that action be taken. It is no longer prudent for me to wait for the results of nonexistent investigations or publicly announced audit reports that have yet to be issued to convince this County to respect the authority of the public that elected an independent Auditor-Controller or to inform the public of what is happening in its county government. And while this County has grown accustomed to being sued or threatened by State Agencies for the actions (or lack of action) by its County Departments, I will not be as complacent.

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 must become the leader.

On Tuesday, March 1, 2022, at the regularly-scheduled 9 am meeting of the Humboldt County Board of Supervisors, I will be presenting a report of my findings on the financial transactions, operations, and reporting practices of the County of Humboldt from my perspective as its Chief Accounting Officer and independently elected Auditor-Controller. I will also be discussing with the Board the status of the County’s audits. The meeting will be in person, live-streamed, and recorded. Please attend.

I write this to you today as a humbled public servant free from undue influence with no request of you other than to participate in Tuesday’s board meeting. Should you believe that the dysfunction of which I speak is new and/or unheard of in this County’s past, I invite you to read this 1997 North Coast Journal article titled “The New Majority” which can be found online at this link: https://www.northcoastjournal.com/may97/5-97.cvrstry.html

Sincerely and respectfully,

Your Auditor-Controller,

Karen Paz Domínguez
kpazdominguez@co.humboldt.ca.us

1st District Supervisor, Rex Bohn: rbohn@co.humboldt.ca.us
2nd District Supervisor, Michelle Bushnell: mbushnell@co.humboldt.ca.us
3rd District Supervisor, Mike Wilson: mike.wilson@co.humboldt.ca.us
4th District Supervisor, Virginia Bass: vbass@co.humboldt.ca.us
5th District Supervisor, Steve Madrone: smadrone@co.humboldt.ca.us

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