A Closer Look At The State Controller’s Report

A postscript is in order for Mike Geniella’s interesting summary of the State Controller’s July 1 report and findings, basically blaming the Supervisors for the County’s financial difficulties.

Let’s focus on a few specific remarks from the State Auditor’s report:

State Controller: “A former payroll supervisor’s access to the payroll system was not adequately segregated, possibly resulting in unallowable payments.”

Where have we heard versions of that before? Oh, I know, every other criminal financial charge in Mendocino County history!

Over the last three and a half decades we have followed several cases of alleged financial fraud or embezzlement against County employees. Not one of them made it to trial, mainly because the County’s record keeping was bad.

There was the Court Clerk in Point Arena (who happened to a relative of mine) who was charged with embezzling about $3,500 from court collections by the mercurial then-jerk/judge Vince Lechowick, her boss, after the Point Arena Courthouse burned down in the late 80s and Lechowick checked some salvaged computer printouts. Turned out the records were a mess and my cousin-in-law got a $25k malicious prosecution and defamation settlement from the County.

Then there was the coast Librarian who was accused of skimming small sums of cash from the Coast Library till over a period of years back in the early 2000s. Almost two dozen boxes of computer records were turned over to the DA, but no charges were ever filed. Nobody could make sense of the piles of printouts and nobody could show where the librarian received any financial gain.

There were a couple of other smaller cases of misappropriation that never made it to charges being filed because investigators could never find substantiating evidence in the County’s poor records.

Now the State Controller tells us that “the payroll system was not adequately segregated…” Surprise, surprise.

The State Controller also reported:: “After learning of potentially unallowable payroll payments, we expanded our objective to include determining whether the unallowable payments were an isolated instance or pervasive.”

We read through the rest of the report and could find no mention of whether they met their objective either way. We are left with their observation about payroll access not being “adequately segregated.”

The State Controller said: “ACO [Auditor-Controller] and TTCO [Treasurer-Tax Collector] staff members confirmed many of the Grand Jury’s findings during our review. Some of these findings include the lack of an effective performance management process, a poor workplace culture, staffing shortages, high turnover, and a lengthy hiring process.”

This is a reference to the Grand Jury’s review of the Human Resources Department last summer. How did the Board respond? They agreed with the Grand Jury on a number of points, put a CEO staffer in charge of the Human Resources Department, made a few empty promises about making things better complete with long-lapsed completion deadlines last year… And then never discussed the subject again.

The State Controller reported: “Various county departments generate journal entries to record financial transactions, such as adjustments, allocations, and transfers. Fiscal staff members in each county department prepare these entries, which are then processed and entered into the general ledger by ACO [Auditor Controller] staff members.”

Before being unceremoniously fired, Auditor Controller Chamise Cubbison tried to tell the Board that a large part of the delays in closing the books had to do with delays in “various county departments,” not to mention entry errors (also noted by the State Controller) that had to be sent back for correction, but the Board ignored her and continued to unfairly blame Cubbison for the delays.

The State Controller reported: “We did not identify any additional unallowable payments to county supervisory staff during the review period. However, we did identify internal control deficiencies related to the payroll system.”

So neither Cubbison nor any other “supervisory staff” personally benefited. Instead, there were “internal control deficiencies related to the payroll system.” More evidence that the “system” which had been in place for years if not decades is the problem, not the people allegedly overseeing the departments. Despite numerous prior “audits,” internal and external, nobody mentioned much less paid any attention to the “internal control deficiencies.”

The State Controller reported: “The County does not have an official policy and procedure manual; existing written procedures have not been formalized through standardization. Furthermore, these procedures do not fully or accurately reflect the county’s current operational processes. Policy updates have been sporadic and haphazard, leading to confusion among staff who found these changes unclear, contradictory, and poorly communicated.”

Wait a minute. If “the County does not have an official policy and procedure manual,” how can “these procedures … not fully or accurately reflect the county’s current operational processes”? No wonder there’s confusion.

Then we have the State Controller’s cover letter which concludes:

“The county should develop a comprehensive plan to address these deficiencies. The plan should identify the tasks to be performed, as well as milestones and timelines for completion. The Board of Supervisors should require periodic updates at public meetings regarding the county’s progress in implementing this plan. Furthermore, we will require that the county provide the State Controller’s Office with a progress update of its plan six months from the issuance date of the final report.”

The State Controller expects the people she says are responsible for the financial problems, the people who rashly combined the two offices without a plan or follow-up that created most of the problem, the people who have never required any financial reporting from their CEO — the Supervisors and the CEO — to fix the problems they created and have ignored for years.

She expects the Supervisors to prepare a plan to address the deficiencies and “require periodic updates at public meetings regarding the county’s progress in implementing this plan.”

This proves that the State Controller has no idea who she’s dealing with.

She also wants “a progress update of its plan six months from the issuance date of the final report.”

What does that mean? What final report? When? To whom?

Given Mendo’s dismal track record — especially in the CEO’s office and in the Board chambers — which we have chronicled for years, much of it confirmed by the State Controller, compliance with this toothless “requirement” is about as likely as compliance with the Grand Jury reports, even the ones the Board agreed to comply with.

As we have noted time and time again, Mendo is allergic to “milestones and timelines for completion.” As CEO Darcie Antle told the Veterans Service Office advocates during the months-long relocation fiasco after being asked last March for a target date when the Veterans Service Office could move back: “I would hate to commit to a timeline.”

And the Supervisors backed her up.

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COUNTY AGENDA NOTES: Adventists Want Mendo To Help Them Get More Money From Medi-Cal.

No major controversies or issues were on Tuesday’s Board of Supervisors Agenda.

Of course, there’s the regular retroactive handout of almost $650k for the Schraeders on the consent calendar (Items 3k and 3m) with the usual minimal descriptions of “to Provide Specialty Mental Health Services, Medication Management/Support Services to Eligible Medi-Cal Beneficiaries of Mendocino County” ($541k), and “to Provide 24/7 Emergency Crisis Services, Outreach, and Engagement to Children, Youth, and Young Adults in Mendocino County” ($84k). But unless Supervisor Williams tries yet again to make another token objection to these retroactive consent calendar handouts, it will be approved without discussion.

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In a possibly related consent calendar item (3n) we see that four budget elements of the Mental Health department’s budget are being increased to almost $10 million: “Approval of Appropriation to Increase Budget Unit MH/4050 86-3113 to $3,000,000, Increase Budget Unit MH/4050 86-3164 to $790,000, Increase Budget Unit MH/4050 86-3280 to $1,050,000, and Increase Budget Unit MH/4050 82-5331 to $4,840,000.

There’s no explanation of why these increases are being made, what the previous budgets were, how much the increases are, nor where the additional money is coming from. There’s a hand-written note on one of the attachments that simply says there’s no budget impact because revenues and expenses are being increased by the same amount.

Apparently, it’s of no interest to anyone at 501 Low Gap Road why such large increases are being handled on the consent calendar and no one needs to ask. Since the increases are in the Mental Health budget it’s possible that we will see future agenda items handing out more of this money to the Schraeders, also on the consent calendar, perhaps retroactively, with minimal explanation or justification because it’s already budgeted. Excuse our suspicions about the Schraeders. But, we’ve come to suspect that the Schraeders are behind everything having to do with mental health funding in the County. Our apologies if our suspicions turn out to be unjustified in this case. It’s just this consent calendar item is so devoid of actual information that it’s impossible not to suspect that the Schraeders are behind it.

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The only “major” issue on next Tuesday’s agenda is a proposal, sponsored on the agenda by Supervisor Ted Williams, to conduct a feasibility study to establish a “Business Improvement District” for the Adventists’ three county hospitals “at the request of Mendocino County Acute Care Hospitals,” i.e., the Adventists.

We hesitate to inflict this rat maze of a proposal on readers because it seems to be an attempt to avoid coming right out and saying what it is. So readers may be excused if they choose to skip all this stuff, even in our boiled down summary. But there it is, on the agenda for the Board and perhaps the public (although we doubt it) to consider.

There’s an attached proposed “resolution” which would declare the Board’s intent to proceed with the hospital “BID” saying that it will provide “specific benefits to assessed businesses located in the County and licensed as acute care hospitals…” The Benefits being that the hospitals will receive “additional resources to support the Hospitals’ provision of healthcare services to low-income and needy members of the community.”

The proposed resolution adds that “the owners of the Hospitals that will pay 100% of the assessment under the district supported this action by signing petitions in favor of the formation of the district by the Board.”

The “territory” of the proposed district is the four incorporated cities in the County, three of which have Adventist-owned hospitals. So the resolution would require the four cities to agree with the formation of the district, even though one of those cities, Point Arena, does not have a hospital.

There’s half a dozen dense documents full of bureaucratese and legalese attached to the item, making it very hard to determine how the “district” would operate.

According to the form the cities are supposed to sign to agree to the proposal, the MCHID (Mendocino County Hospital Improvement District) will “promote the economic stability of acute care hospitals in Mendocino County.”

The attached “Management District Plan” says that the district would “levy a broad based and uniform assessment on all acute care hospitals …, the proceeds of which will be used to specifically and directly benefit the Hospitals.”

It’s hard to tell from the bureaucratese in all the attached materials how this would work or how it would translate to improved low-income healthcare, if at all.

As best we can tell, if such a District were established then somehow the Adventists could bill for more Medi-Cal dollars on top of their regular bills which at present are paid at small percentage of the cost of low-income patient healthcare. Those additional funds would then be collected from the hospitals by the “district,” i.e., the County, and then the County and would turn around and return the funds to the hospitals to supplement what they now get in low-income healthcare reimbursements.

The hospitals would be assessed 6% of their “net patient revenue” which “could generate approximately $20 million annually” and over five years would generate an average of over $22 million a year.

Mendo would be allowed to recoup its costs of administering the district as part of the arrangement.

While the idea appears to have some obvious benefit to the Adventists on paper, it’s hard to see how such a contorted scheme would actually improve healthcare per se, although it probably would garner more Medi-Cal money for the Adventists providing the healthcare.

It’s more evidence, if any was needed, that in today’s convoluted health care financing picture the lengths to which healthcare providers must go to try to get reimbursed for anywhere near their costs are downright byzantine.

We understand the Adventists’ desire to increase their revenue from Medi-Cal which pays only a small fraction of their itemized bills. But is it in the public interest for the County to participate in a convoluted quasi-money laundering scheme to get more money from Medi-Cal for a private business?