Role of Auditor Controller | Lost Coast Outpost | Humboldt County

County Employee asks Cheryl Dillingham, Karen Paz Dominguez

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Role of Auditor Controller

If a county employee contacted you with concerns regarding fiscal operations at their respective department, what if anything would you do?  What is the role of the A/C in such a situation? What would be the nature and scope of your investigation, if any?

— County Employee

Responses

Cheryl Dillingham

The job of the Auditor-Controller is not just to catch fraud or reporting discrepancies after the fact, but rather to work proactively and collaboratively with all County departments and other agencies to develop strong internal controls that prevent such occurrences from happening in the first place. 

In my 20 plus years of experience working both in the Auditor-Controller’s office and in the County Administrative Office, I was contacted many times by employees who had concerns about potential fraud, theft, reporting discrepancies or other concerns. In these cases, I would talk with the employee, their supervisor and the department head as necessary and review any documents or reports to investigate the claim. If the investigation indicated that theft or fraud had occurred, then the issue and any evidence would be referred to HR, the Sheriff and/or the District Attorney for appropriate action and I would assist and cooperate with any further investigation.

Whether the issue involved fraud or theft, or whether it was merely an error or reporting discrepancy, in all cases I would then work collaboratively with the department to determine how the fraud, theft or error had occurred and to develop stronger internal controls to prevent it from happening again in the future. I would review existing processes and procedures and work with the department to develop a corrective action plan that includes best practices to eliminate the risk. I have done this many times with issues such as petty cash, prepaid gift cards and large cash deposits.

I am proud of my 30 plus years of service to the County and have a strong track record of working collaboratively with all parties to develop solutions that ensure transparency and fiscal responsibility by preventing fraud and reporting errors before they occur.

Karen Paz Dominguez

Generally speaking, my response would depend on the circumstances.  I would want to know and understand why the employee is coming to me rather than their own supervisor.  I would seek to understand the situation before making a judgment and involving the employee’s supervisors and department head.

This question is not hypothetical for me as I have previously been contacted by county employees who expressed concerns regarding fiscal operations within their departments. The first thing I did was thank them for their engagement and interest in protecting public funds. They were very brave! Without going into revealing detail, I will describe one of those cases and the steps I took after communicating with the reporting employee.

An employee reported to me that their department was transferring operating funds into a trust fund and “hiding” them so that they wouldn’t be reported in the budget process and be redistributed to other departments as General Fund contributions.

Step 1 - Fully understand the situation and surrounding factors - I researched the department to understand what services it provides and compared that with its reported financial activity. I needed to understand the nature of the transfers in question and narrow the potential explanations.  I reviewed the previous years’ activity and noticed that these transfers had been taking place routinely for several years and that transactions were posted with little to no backup to justify them. The descriptions provided on the journal entry forms were vague and provided no context beyond “transfer to trust”. I researched the historical records of the trust’s creation and learned that it was not a mandated trust. There was no need for money to be stored there  separately from the General Fund. I recalled that government code requires that expenditures be authorized by appropriation of the Board of Supervisors unless legally exempted and made the preliminary determination that these transfers of operating funds into non-mandated trust funds and subsequent transactions within these nonbudgeted trust funds were unlawful. 

Step 2 - Discuss the situation with relevant parties - I contacted the department’s fiscal staff and inquired about the transfers. I learned that the fiscal staff were submitting them for posting because that’s what they were trained to do, but could not explain why. They were surprised to learn that the transfers violated government code. The staff wanted to do the right thing and asked if my office could train them. But when I tried to explain the problem to the department head, the person pushed back. The department head was under the impression that the funds in the trust belonged to their department and therefore believed it was inappropriate to leave the funds in the General Fund. I told the department head that transferring General Fund dollars into a separate, non-mandated, and nonbudgeted trust denied other departments the opportunity to receive equitable distribution of General Fund allocations and that issuing payments outside of the budget process was a violation of government code. I told them that I was duty bound to correct the situation.

Step 3 - Resolve the issue or delegate to higher authorities - In this case, I did not need to refer the matter to any higher authorities because I was able to resolve the matter directly. I described the necessary steps to the department to rectify the issue and the department modified its practices. The department subsequently presented a request to the Board of Supervisors to adopt a supplemental budget and appropriation transfer to formally recognize the funds back into the budget process and have since stopped operating outside Board-approved appropriations.  Problem solved.

Step 4 - Debrief and update internal controls as necessary - In resolving this reported issue, I learned that there were a number of departments which did the same thing. Some of these departments were also operating directly out of those separate trust funds without Board-approved appropriations. I learned that these trust funds were specifically set up to be excluded from the budget process with the use of inappropriate coding within the financial software. I immediately corrected this practice by notifying the departments via reply to their journal entry submissions and invoice payment requests that payments would no longer be issued outside of the budget process without legal justification and that transfers into funds would need to be proven to be mandated. I also changed the inappropriate coding within the financial software for over 350 funds by reassigning them to departments within the budget process. I trained A-C staff on this specific issue and set up an approval process related to making changes to the coding in the financial software thus implementing internal controls that were not previously in existence and reducing the risk that this would happen again in the future.

I was elected to the position of Auditor-Controller, and as the elected Auditor-Controller, I am independent in my authority and a staunch advocate of the public’s interest above all else. When an employee reports that there exists a threat to the public’s interest, that it is occurring within their department, and there is objective evidence of it, it must be taken seriously and rectified as soon as possible, if not immediately. This can sometimes mean that a department is forced to change its practices despite not wanting to. My role as elected Auditor-Controller requires me to be independent in such a situation, and my purpose must always be to act in the interests of the public. This may put me into an awkward position with regard to another department, or even the County Administration itself. If a department or County Administration is working against the public’s interest, then I must take appropriate action.

As much as I want to foster cooperation and collaboration within the other departments as well as my own, there are necessary boundaries that must be upheld. This is where I distinguish myself from my opponent. Respectfully, I cannot agree with my opponent that it is appropriate to “in all cases work collaboratively with the department” because in some cases the department itself may be willfully in the wrong or the department’s management may be willfully obstructing progress. As auditors, we cannot become complacent in our desire to be complaisant.

This election is very much about the independence of the Auditor-Controller, as my opponent’s response to this question makes abundantly clear. Auditor-Controllers in other counties have experienced similar issues and challenges in correcting accounting practices or protecting public funds, and recognize what I have done to address them. This is why I have the support of Arlene Barrera, appointed Auditor-Controller of Los Angeles County, the Honorable Juan Raigoza, elected Auditor-Controller of San Mateo County, the Honorable Robert Campbell, elected Auditor-Controller of Contra Costa County, the Honorable Andrew C. Sisk, CPA, elected Auditor-Controller of Placer County, and the Honorable Jeff Burgh, elected Auditor-Controller of Ventura County and President of the California State Association of County Auditors.  

“Speaking truth to power when necessary is a quality you want in your elected Auditor-Controller. In Karen Paz Dominguez, the constituents of Humboldt County can rest assured they have just such an A-C. Throughout her first term, Karen has demonstrated a true commitment and passion for protecting Humboldt County resources, ensuring those resources are available to serve the community. This is why I am happy to endorse Karen for re-election.” 

 

— Jeff Burgh, Auditor-Controller, Ventura County and President of the California State Association of County Auditors