COUNTY AUDIT SHOWS IMPROVEMENT, FLAWS
The Humboldt County Board of Supervisors approved the audit for fiscal year 2018-19 and additional audit services for the county’s Aviation Division during Tuesday’s meeting. The board’s discussion focused on several discrepancies in the audit’s findings and improving communication between county departments.
Humboldt County Auditor-Controller Karen Paz Dominguez was visibly enthusiastic about the audit’s findings.
“I am thrilled to be here,” she said.
“What’s important to know about (fiscal year 2018-19) is it was a year of change,” Paz Dominguez said. “There was an auditorcontroller in the beginning of the year, a different auditor-controller in the middle of the year and it ended with me, as the auditor-controller.”
Richard Gonzalez, a principal at CliftonLarsonAllen LLP, the firm that completed the audit reports for the 2018-19 fiscal year, delivered a presentation on the overall findings of the audit as well as “required audit communication to governance” and “new standards that will impact the county.”
Gonzalez reported several findings of “material weakness in internal control over financial reporting,” involving most notably Humboldt County trust funds, the Fortuna Fire Protection District, Public Works and the Aviation Division.
“I modified opinion — a clean opinion — on everything else, including the General Fund,” Gonzalez said. “As far as audit findings, briefly, we had weaknesses and we had one significant deficiency. This is not very different than what we’ve had in the past, unfortunately, but we are seeing some improvement.”
According to the report, Humboldt County is “maintaining more than 145 governmental trust funds with approximately $46 million in cash to track activity benefitting the General Fund and other primary operating funds in the county.” Although the county has boiled down some of these trust funds, “there is still the potential for double reporting of revenues and expenditures when resources are transferred from these trust funds into operating funds.”
“It’s not wrong to have trust funds, but it creates a lot of complexity,” Gonzalez said.
The report recommended the county work with the Fortuna Fire Protection District “to establish a system for tracking and reporting its capital assets, especially with the district’s recent purchase of a new fire engine” as well as “engage with its current auditors or another entity to audit its complete listing of capital assets to remove the adverse opinion from its audit report.”
Gonzalez also noted a discrepancy between Humboldt County Public Works and the county’s Aviation Division. The audit said the county misstated “revenues and receivables in the Road Fund and General Fund by $239,000 and $1.7 million, respectively,” adding that the county misstated “revenue and receivables in the aviation fund by $1.5 million.”
The significant deficiency identified in the audit was “an unreconciled variance in the county’s cash balance of $23,258.”
“Upon further review, we noted the Auditor-Controller’s Office is not reconciling the total cash and investments in the general ledger with the Treasurer’s daily cash report on a regular basis,” the report stated. “While the difference we identified was not material, small differences that are not reconciled on a monthly basis can build up to a significant amount over time.”
Later in the meeting, there was a misunderstanding between Humboldt County Treasurer-Tax Collector John Bartholomew and Paz Dominguez on the role of each department in the daily cash count.
“As far as audit findings, briefly, we had weaknesses and we had one significant deficiency. This is not very different than what we’ve had in the past, unfortunately, but we are seeing some improvement.”
— Karen Paz Dominguez
“(The Treasury Department has a) reconciliation, where you’re reconciling your accounts to the bank. That’s something you guys handle and then you provide a daily cash count of the reconciliation,” Gonzalez said. “The next step is for the auditor-controller to reconcile their cash in their reporting system to that daily cash and then make sure like every dollar transactions are accounted for.”
Bartholomew noted that it should not involve all county departments but should be between the Treasury Department, the auditor-controller and the bank.
“(The auditor-controller) is saying that all the transactions across all funds within the county need to be reconciled at that same time and I guess I disagree with that. I’m not saying she’s wrong, my understanding is different than that,” Bartholomew said. “…I’m happy to work with you, Karen, however, you want to get this done as long as we’re doing it properly.”
After the presentation, 3rd District Supervisor Mike Wilson asked Gonzalez how the findings of the audit compare to other counties he works with. Gonzalez noted that the county submitted its report “at the very last minute,” adding that there was a six-month extension due to COVID-19.
“The good news is … everything got done, but it was at the last minute,” Gonzalez said.
Acknowledging “multiple changes in leadership within the organization,” Wilson also asked if the change in findings was related to changes in policies. Gonzalez said, “I don’t think so.”
Speaking bluntly, 1st District Supervisor Rex Bohn asked Gonzalez, “If we were a private company, would you invest in us?”
“It seems like, hey, everything’s OK, I wish I had a better grasp of this but it doesn’t feel good to me, it feels like we’re missing something. I’m afraid — I’m waiting for the other shoe to drop or am I just being Pollyanna and saying everything’s golden?” Bohn asked.
“Everything’s definitely not golden, but again, you have a clean opinion and that’s the objective but it takes a lot of work to get there and it shouldn’t take that much work,” Gonzalez said. “I know the county is working on making improvements to some issues that have been around for a long time, such as the trust funds and some of the reconciliations.”
Gonzalez added that if the county does not resolve its “material weaknesses” it could get to the point where he cannot give a clean opinion.
“There’s no way I’d want to invest in the county if I can’t trust the financial position,” he said.
“At the end of the day, it comes down to us five (supervisors),” Bohn said. “I mean, the auditor-controller manages our finances but it comes down to us to manage those monies. It falls down on us, when it hits the fan we’re the ones standing in front.”
Second District Supervisor Michelle Bushnell asked Gonzalez if the auditor-controller’s decision to close fiscal year 201920 with outstanding items would have negative impacts on the 2020 audit.
“It’s a big issue unless we can get the information from the auditor,” Gonzalez said. “… It’s going to create some work and may create a change order because of the extra work that needs to happen but as long as we’re provided the information or we’re not the one’s finding it. Again, the goal is to give a clean opinion.”
Without a clean opinion, Gonzalez said the county could have trouble securing grants and funding for programs.
Last week, supervisors agreed to establish an audit committee to help avoid such errors in the future.
“I’m very excited at the prospect of the audit committee and will, of course, participate,” Paz Dominguez said. “… It would be helpful to me to get the feedback of the audit committee so that I know how best to implement (the corrective action plan).”
About an hour into the meeting, Wilson made a motion to adopt staff’s three recommendations, Bohn seconded. After a little over two hours, the board passed staff’s recommendation 5-0.