Balancing the County’s Budget Deficits

 on the Backs of Children

By Ray A. March

Part 13

Oct. 10, 2001
First Hint of Misappropriation Appears

Buried in the minutes of  the Oct. 10, 2001 meeting is a comment by commissioner Phillip Smith that Auditor Judi Stevens told him “we (meaning the commission) have run out of money in our operating account and the county has continued to honor our warrants.”

Smith went on to report that Stevens told him, “We should have money in our operating account from the (Prop. 10) Trust Fund to cover all our expenses. I suggest we get an idea of what those expenses are monthly.”

A source familiar with the auditor’s office who would not speak publicly explained the underlying message in the Smith’s comments.
   
“When a county auditor says a department has run out of money, in this case Auditor Stevens, she is most likely saying that the department has spent what was budgeted for it,” the source explained. “This is a troubling statement. Prop. 10 funds can only be used to fund certain activities and only those activities.”
   
The fact that the commission did not know what its monthly expenses were goes to Michelson’s argument that Prop. 10 Trust Funds should be kept in a separate account accessible to the commission.
   
“When Judi Stevens said the county will continue to honor the department’s warrants, that meant the county would supplement whatever was budgeted,” the source said.
   
“It also implies that the county would continue to support the expenditures,” the source explained. “Now, Judi Stevens cannot just say the county will do this. Because this department has spent all funds budgeted and allocated to it, the Board of Supervisors needed to take a new action to amend the budget and allocate additional funds to the Children and Families Commission.”
   
Revealing is Stevens’ purported statement, according to Smith’s comments in the minutes “that there should be money in our operating account from the Prop. 10 Trust Fund to cover all our expenses.”
   
“It implies that Judi Stevens was using Prop. 10 funds for purposes other than First 5 (Children and Families Commission),” the source said, referring to a section of the state law requiring that “monies allocated and appropriated to county commissions shall be deposited in each local Children and Families Trust Fund administered by each county commission, and shall be expended only for the purposes authorized by this act and in accordance with the county strategic plan approved by each county commission.”
   
The minutes of the Oct. 10, 2001 meeting also reveal that Supervisor Cantrall apparently had a discussion with Kristin Domenichelli, the certified public accountant, who “suggested having another officer for the commission such as treasurer to keep the books and give a monthly budget report.”
   
While it is not clear in the minutes as to the “treasurer” reference, or who that person might be, there was discussion of “separation of duties” by establishing both a bookkeeper and treasurer to avoiding any conflict of interest. However, no action was taken by the commission.
   
Later in the meeting Supervisor Cantrall made a motion, which was unanimously passed, to hire Lynn Talbott as its outside auditor to examine the commission Prop. 10 funds for the fiscal year ending June 2001. Talbott apparently shared office space with Domenichelli, according to records made available to the Modoc Independent News.
   
While the commission took no action on Domenichelli’s recommendation that an officer of the commission keep the books and provide a monthly budget report, Domenichelli wrote a critical letter to Michelson detailing her audit to date of the Children and Families Commission and included a strong recommendation that the commission’s Prop. 10 funds should be kept separate from the county treasury and auditor.
   
“There appears to be a problem in getting questions resolved with the various county offices,” Domenichelli stated in her letter. “Some of this may be due to personality conflicts or uncertainty as to whom is ultimately responsible for maintaining the commission’s financial records.
   
“Again, it is your responsibility as the executive director to know exactly what funds you have and what expenditures have been made. It appears the only way to accomplish this given the circumstances is to maintain the records independently,” the outside auditor wrote.
   
Domenichelli went on to observe that there was “confusion regarding the trust fund” and apparently a lack of cooperation from the treasurer and auditor’s offices.
   
“You have repeatedly requested information on the whereabouts of the trust fund, with no results,” she wrote in confirming what Michelson already knew -- Prop. 10 Trust Fund monies were not being openly accounted for.
   
Michelson, the only person arguing for a separate Prop. 10 Trust Fund account, now had an ally. Ironically, that ally was the very outside auditor the commission had agreed to hire to investigate its financial records.
   
But, Domenichelli’s letter to Michelson was to trigger a sensitive response -- not from either commission Chair Philip Smith or Vice Chair Dr. Edward Richert -- but from Supt. of County Schools Carol Harbaugh, who did not specifically respond to Domenichelli’s remarks of confusion and unaccountability, but instead suggested the Prop. 10 funds could be better managed by Harbaugh’s county office of education.
   
Next: Part 14
    As we shall see in the next installment, this is not the last encounter
 between Harbaugh and Domenichelli.