Balancing the County’s Budget Deficits

                              on the Backs of Children
                                                                   By Ray A. March

Part 23

Jan. 29, 2002
Misappropriation of Funds Suspected

On the day before the commission voted to fire Donna Michelson, CPA Kristin Domenichelli came to the embattled executive director’s defense once more with the skilled observation that Prop. 10 funds in the treasury were apparently being misused.
   
She did this by bluntly stating in an e-mail memo to Michelson that Treasurer Cheryl Knoch was using scare tactics to intimidate the commission into continuing depositing Prop. 10 funds in the county treasury rather than a separate bank account -- as required by state law.
   
It’s infrequent, if not extraordinarily rare, for contracted outside certified public accounts hired to audit an agency’s books to step outside their normally well-couched phrasing and be so straight forward in her criticisms, but that’s exactly what Domenichelli did.
   
“The second paragraph, in my opinion, is designed to scare members into thinking that this is a very risky proposition when, in fact, it is not,” Domenichelli wrote.
   
She was referring to Knoch’s warning of “implications and responsibilities this would place on your shoulders when you assume fiscal independence.” Knoch then went into her eight points that needed to be addressed before the commission considered removing Prop. 10 funds from the county treasury.
   
“Items one through eight are currently in place (although they are not being followed consistently by the county and all commission members),” Domenichelli wrote in her e-memo, contradicting Knoch.
   
Domenichelli then went through the eight points item by item, discrediting Knoch’s “scare” tactics and repeating her recommendation that Prop. 10 funds be removed from the treasury.
   
“The current system under the county does not provide for independent bank reconciliations,” she stated in her memo. “Removing the funds should allow you greater control and ability to ensure that transactions are being accounted for correctly.”
   
She then revealed her suspicions that something may be amiss in the management of Prop. 10 funds when she analyzed Knoch’s first option which  was to “maintain a separate checking account under the county treasury.”
   
“The commission received 3.279 percent interest on their funds (per Cheryl Knoch) compared to 5.7 percent overall earnings,” Domenichelli begins as she examines Knoch’s Option 1 more closely. “This was due to the fact that negative funds are not charged interest. This appears to mean that the commission’s funds are covering other fund deficits.” 
   
As for state statues requiring the Children and Families Commission to operate as a separate entity, Domenichelli went back to the ordinance adopted unanimously Jan. 5, 1999 by the Board of Supervisors when Patricia Cantrall was chair.
   
“Modoc County Ordinance 321-A specifically states that the commission shall be a public entity separate and distinct from the County of Modoc. The County of Modoc shall have no responsibility whatsoever for any financial obligation or other liability of the commission,” she  wrote.
   
Summing up her reaction to Knoch’s memo of the day before, Domenichelli was to the point:   
   
“I do not believe the issues raised by Cheryl Knoch should concern commission members,” she stated. “In fact, I believe it is somewhat jaded and may be misleading to individuals who are not knowledgeable in this area. I am also amazed at the effort that has gone into trying to keep the funds within the county and have to wonder what benefit the county could have by keeping the funds there if they are actually separate and distinct as required by law.”
   
The answer to her last question did not become public until 2009 -- seven years later -- when then-CAO Mark Charlton discovered that county officials had been misappropriating treasury funds since at least 2000 -- ostensibly to cover ever-escalating debts at the Modoc Medical Center and possibly other county departments.
   
Next: Part 24
    The dominoes were beginning to fall and Executive Director Donna Michelson was in their path, not commissioner Carol Harbaugh or the other members of a resistant Children and Families Commission.