The state Auditor’s Office says the county Board of Supervisors bears significant responsibility for the mess rocking Mendocino County’s finances.
The state auditor specifically noted that the board did not conduct a “risk assessment” of the controversial merger of two major county finance offices, despite opposition from senior county finance officials. Other factors cited in the state report included leadership changes at that level, high employee “turnover” and a decentralized accounting system.
“Our investigation uncovered internal control deficiencies and other challenges that caused the county to fail to promptly prepare and file its annual financial reports,” said Kimberly Tarvin, a certified public accountant and audit director for the Comptroller’s Office.
But the state investigation was inconclusive about a local criminal investigation into the now-suspended county auditor and former payroll manager, both of whom were separately charged last October by District Attorney Dave Eyster with felony use of public funds.
“During the investigation, it was discovered that the former payroll administrator may have received improper payments. This situation has led county officials to conduct a criminal investigation. Because this matter is the subject of litigation, no conclusions can be reached regarding the disposition or admissibility of these payments,” the state report states.
A state investigation has uncovered some elements of what local legal circles have called a “melodrama” ahead of a trial scheduled for later this month, but not all of it.
Elected Auditor Chamis Cubbison and former county payroll manager Paula June Kennedy have denied any criminal wrongdoing in a case involving local politics. The case is scheduled for a preliminary hearing July 25 in Mendocino County Superior Court.
The 17-page state report was issued by State Comptroller Maria Cohen’s office and is limited to the county’s internal controls over financial reporting.
Last week, the state Legislature approved a broader audit of all county functions, including finances, contracts, procurement and elections. The expanded state audit will cost taxpayers an estimated $800,000 over 18 months.
The Comptroller’s Office report supports the arguments made by Cubbison, former county treasurer and tax collector Shari Shapmire and other former senior county finance officials who challenged the Board of Supervisors’ forced consolidation of the two main county finance offices in December 2021. They warned at the time that the consolidation, combined with chronic staffing shortages, would disrupt the county’s finances.
Board members Chairman Mo Mulheren and Supervisors Ted Williams and Glenn McGourty, who have raised questions about the county’s financial practices, did not respond Saturday to written requests for comment on the state report.
The delays in financial reporting sparked a political firestorm, led by Coastal Manager Ted Williams, who publicly accused the county of having three “different books.” The firestorm escalated when District Attorney Dave Eyster filed a criminal complaint in 2023 accusing Cubbison of using “confusing pay codes” to allow former paymaster Kennedy to receive an extra $68,000 in pay during the pandemic.
Eyster, who has been at odds with the county auditors over their own spending practices since 2011, specifically targeted Cubbison when he confronted her over her questioning the county auditor’s expenses, including a dinner for staff and their guests at a local steakhouse that the county auditors hosted for “staff training.” In an unprecedented move, Eyster publicly appeared before the county Board of Supervisors in 2021 to block Cubbison’s appointment as interim auditor when former county auditor Lloyd Weir retired early and selected Cubbison to fill his term.
Eyster then launched a year-long criminal investigation based on information from the county executive and board members that Kennedy allegedly received additional unauthorized pay with Cubbison’s permission.
But Mr Cubbison alleges that the special compensation agreement between Weir and Mr Kennedy was reached before she officially took up her post in January 2023.
The state report chose not to get involved in the pending criminal and civil litigation arising from the indictments and suspensions of Cubbison and Kennedy, but noted that the county had “inadequate internal controls over its payroll system” that may have led to “improper payments to a former payroll administrator.”
State investigators found that the county’s payroll system allowed employees responsible for processing payroll “to adjust their own payroll records. At the time, the system lacked “proper separation of duties,” preventing employees from initiating, recording, approving or adjusting transactions without the intervention of other employees.”
The county Board of Supervisors has blamed senior finance officials from the two formerly separate county offices for the uncertainty surrounding the real state of county finances since 2021. The county ignored warnings from Cubbison and other senior county finance officials that a forced consolidation would cause serious disruptions to operations.
The state report concluded that the controversial merger and the early retirement of former Auditor Lloyd Weir have thrown the county’s finance department into disarray, leading some supervisors to advocate for creating a new county finance department to replace both departments.
Despite the warnings, the county commission did not conduct a “risk assessment” of the merger or work with department heads “to address concerns and mitigate the impact of the merger on their departments.”
“Collaboration would have allowed the merging offices to anticipate and plan for structural, staffing and technology impacts and would have mitigated the risk that the county would not be able to meet key responsibilities, such as timely financial statements and required FTRs (financial transaction reports) to state and federal agencies.”
The state investigation also concluded that staffing shortages prevented the offices from “performing their duties and responsibilities in a timely manner” both before and after the merger.
Board members were aware of the staffing concerns presented by Cubbison.
“The departure of key staff (in the Treasurer’s and Tax Collector’s Office) and a shortage of adequately experienced staff have made it difficult for the (Comptroller’s and Accountant’s Office) to carry out its financial and accounting functions,” according to the report.
The board-forced consolidation “further compounded these difficulties,” the state auditor concluded.
“Maintaining sufficient levels of qualified personnel is important to ensure effective internal controls in key departments such as the Auditor-General and Comptroller-General and the Financial Officer-General and Collector-General of Taxes.”
Below is a link to the State Comptroller’s Office report on Mendocino County’s internal controls over financial reporting.
https://www.sco.ca.gov/aud_special_reviews_audits_local_governments.html
