An arcane accounting system that led Mendocino County employees to think there was $200,000 more in county coffers than actually existed.

Payroll policies with so few regulations that the criminal prosecution of two county employees ensued.

And persistent staffing issues and turnover that left two county departments at nearly half capacity for almost a year.

These were just some of the findings in a report issued by the California State Controller’s office Friday that determined that those deficiencies — coupled by a merger of the county’s auditor-controller and treasurer-tax collector offices — led to the county failing to submit its annual financial transaction reports on time in multiple years.

Reports for each fiscal year, which runs from July 1 through June 30 are due to the controller six months after the fiscal year ends. Mendocino County has not filed a report on time since 2018-2019, according to the controller’s office.

Failure to submit such reports can result in fines, and more importantly, downgrade the county’s bond ratings, which are vital if the county needs to borrow money for multimillion-dollar road or infrastructure projects. The lower the rating, the more that taxpayers might end up paying in borrowing costs.

County supervisors requested the state controller perform the audit after they were unable to get timely financial reports from their own auditor-controller department for two years, according to Mendocino County Vice Chair John Haschak.

The failure came on the heels of the board of supervisors’ decision to merge the auditor-controller and treasurer-tax-collector’s offices in December 2021.

“The auditor-controller was retiring at the time, so the board thought it would be a good time to make this change,” Haschak said.

But employees in both the auditor-controller’s office and treasurer-tax-collector’s office opposed the merger. As a result, both the treasurer-tax-collector resigned and acting treasurer-tax-collector resigned before the merger began in 2023.

In addition, throughout 2022, office morale in both offices was low, resulting in a peak employee turnover rate of 40%, according to the controller’s report. At the same time, the individual chosen to lead the new office was ousted after being charged for misappropriation of public funds, spinning the office into further disarray.

Alleged improper use of public funds

In October 2023, then-Mendocino County auditor Chamise Cubbison and payroll manager Paulina Kennedy were charged with misappropriating $68,106 in public funds. If convicted, each could be sentenced to as much as four years in prison. They have both pleaded “not guilty.”

The controller’s office cited the criminal investigation but made sure not to cast judgment.

“During our review, we became aware that a former payroll supervisor may have received unallowable payments. This situation led to a criminal investigation conducted by county officials,” the report said. “Because this matter is the subject of litigation, we make no conclusions regarding the disposition or allowability of these payments.”

In the wake of the criminal case, Haschak said that instead of having payroll fall under the auditor-controller-treasurer-tax-collector’s office, the county has placed payroll management under control of the chief executive’s office.

“There are various people who work on it,” Haschak said. “Now there are redundancies.”

‘Accounts on Excel sheets’

Without a plan for moving forward in place and with key or experienced personnel in place, financial reports and accounting functions became too much for the new office to handle, the state reported.

The controller found that reporting delays were also a result of the county’s decentralized accounting system. While the county relied on software to track revenue and expenses, the state also found the county maintained 14 separate bank accounts and in some departments, tracked its transactions using Excel spreadsheets.

The state report noted that more than $1 million of public funds were tracked through the Excel spreadsheets.

“It’s nothing nefarious,” Haschak said. “But it was a surprise to find out we had all of these accounts we didn’t know about.”

When Sara Pierce, the county’s new auditor-controller-treasurer-tax collector, began to reconcile funds, county officials learned there was about $200,000 less in county coffers than originally thought.

Haschak said Pierce is working on bringing all accounts into a single system, known as MUNIS, where she will continue to centralize county finances.

The county has six months to respond to the state with a plan to fix the issues, which must include policies and procedures for payroll, handling cash and managing transactions.

Haschak said the county is well on its way to correcting the errors of the past two years, and he is cautiously optimistic the county will finish its 2023-2024 financial report on time.

“We have very competent people working on it,” Haschak said. “They ought to be able to do it.”

Amie Windsor is the Community Journalism Team Lead with The Press Democrat. She can be reached at amie.windsor@pressdemocrat.com or 707-521-5218.