This is a tale of audit failures. Bear with it, we have to slog through some technical data, but, I promise, there will be a plot twist and punch lines.
In July 2020, the firm of Dingus, Zarecor & Associates (DZA) completed its audit for the Mendocino Coast Health Care District (MCHCD). Within the audit's section on “Long-term Debt,” multiple references pop up with cautionary wording like, “The promissory note requires the District to submit audited financial statements within 120 days of year's end, which the District was not in compliance with for the fiscal year ended June 30, 2020.”
That quote was attached to a discussion of the long-term debt payments for a Help (Healthcare Expansion Loan Program) II loan. MCHCD still owes an annual debt of well over $100,000 annually to the California Health Facilities Financing Authority (CHFFA), which runs the Help II program. The Healthcare District owes about $400,000 yearly on its revenue bonds. Within Section XXIII of the basic agreement on these bonds is this statement, “The District shall deliver to the Office within thirty (30) days of the receipt by the District of its audited financial statements, and in any event within one hundred fifty (150) days after the end of each Fiscal Year, two copies of its audited financial statements as of the end of such year...”
Let's move on to state laws. The California Health and Safety Code, in Section 32133, has a basic requirement in regard to financial responsibility for the board of directors of a special district like the Mendocino Health Care District: “At least once each year the board shall engage the services of a qualified accountant of accepted reputation to conduct an audit of the books... The financial statement of the district with the auditor's certification, including any exceptions or qualifications as part of such certification, shall be published in the district by the board pursuant to Section 6061 of the Government Code.”
Here comes the first punchline: Despite those warnings in July 2020 about getting audit reports to the creditors behind their long-term debts, the Mendocino Coast Health Care District failed to perform any audits for fiscal years 2021 and 2022. Where does the responsibility rest?
Fiscal years 2021 and 2022 were the first after Adventist Health took over day to day operations of the coast hospital. The MCHCD Board of Directors found itself more or less bereft of support staff during that entire time span. Nevertheless, the full board should have been able to contract out an annual audit. During those 2021-22 years the MCHCD Board Treasurer likened himself the district's CFO (chief financial officer). He did so very publicly in a failed bid for countywide office during the spring of 2022.
Remember the long-term debt for the Help II loan? The California Health Facilities Financing Authority (CHFFA) remembered. On January 13, 2022, a CHFFA official sent the MCHCD Treasurer an email asking why no audit had been completed for the fiscal year ending (FYE) June 30, 2021. There is much documentation to show that the MCHCD Treasurer was well aware of the need for audits in FYE 2021 and 2022. He notes the need for an audit in supporting material for at least one board meeting. Yet, no audit was forthcoming for either FYE '21 or '22.
So, where do we look for responsibility beyond the board level at a special district? This takes us to the next punchline: California Government Code Section 26909, paragraph (a)(1), which states, “The county auditor shall either make or contract with a certified public accountant or public accountant to make an annual audit of the accounts and records of every special district within the county for which an audit by a certified public accountant or public accountant is not otherwise provided.”
At a September 13, 2022 Board of Supervisors meeting, Mendocino County's Auditor-Controller-Treasurer-Tax Collector stated, “The County Auditor and the county have not performed the specific audits of the special districts. The auditor's office does receive the audit reports from the special districts. We do track whether they have been audited recently... We have not pursued contracting for an audit for a special district at this time nor have any of my counterparts in the northern auditor region.”
So, multiple excuses and ironies apply here. A fundamental part of the Mendocino County Auditor's response was that we don't follow state government code because others in the region don't either. Always an effective answer when a student doesn't turn in their homework, say no one else did it either.
Pressed by supervisors to provide a simple pdf checklist of special districts, providing information such as when their audits are due and which ones are compliant, our county auditor claimed she would need more staffing to do this task. Questioned further as to a specific number of staff additions needed for this task the county auditor did not give a response.
The Mendocino Coast Health Care District Board of Directors failed to perform audits for FYE 2021 and 2022 in part because they lack sufficient staffing. California Government Code requires the county auditor's office to compel an audit of special district's like MCHCD, but our county auditor claims there isn't enough staff to do so. Keep in mind that immediately prior to speaking with the Mendocino County Auditor-Controller-Treasurer-Tax Collector the BOS chair stated that an ad hoc committee had met (via Zoom) with the state controller's office. The takeaway, according to the BOS chair, was that this was a local problem. After the September 13, Board of Supervisors meeting, the county contracted Regional Government Services (RGS) to provide assistance to the county auditor-controller-treasurer-tax collector. Nearly six months later, it appears that the county auditor-controller-treasurer-tax collector has yet to utilize RGS' services.
A bit of good news about the Mendocino Coast Health Care District: In early February, a new board of directors contracted with DZA to finally conduct audits for FYE 2021 and 2022. However, three months later, no substantive status update has been provided on the audit. The MCHCD board seems more preoccupied with quibbling over sentence structure in their bylaws.
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