City’s Development System a Major Fraud Risk, Says Auditor

City’s Development System a Major Fraud Risk, Says Auditor

Photo by Sam Hodgson

City Auditor Eduardo Luna

 

Imagine you’re a developer with a pal who handles permits for the city of San Diego. And say you thought the permitting fees were a little too high. Not to worry, your pal says, and he knocks down the price for you.

The city is at risk for this simple bit of municipal corruption, according to a new report from City Auditor Eduardo Luna. He examined the city’s Development Services Department, which handles permitting, and found serious problems. In short, weaknesses in the department’s computer system could allow employees to commit fraud without being detected.

“It creates an environment where someone lone or rogue could do it,” Luna said in an interview.

The finding is one of the most substantial in Luna’s 80-page review of development services’ computer system, which helped the department process $1.16 billion in city permits in 2011. Luna calls the computer system development services’ “central nervous system” because it manages all permitting and development functions.

Standard industry and city practices require employees to have no more access to alter the overall computer system than what they need to do their limited jobs, such as reviewing plans or charging fees, the audit says.

In this case, the audit contends that too many employees have too much access to various functions of the computer system, and its cumbersome process makes it impossible to figure out if employees are committing fraud. The audit outlined a possible situation where a development services employee could charge a customer a discounted fee through making a project seem smaller than it is. They then could sign off on the building inspection so the discrepancy would never be discovered.

To reduce risk, the employee that deals with fees shouldn’t be able to touch the building inspection, which is a separate service.

Auditors also said it’s unclear if the department is charging accurate fees and deposits: Projects have been overcharged by as much as $345,000 and undercharged by $37,000.

To be sure, the audit didn’t uncover any examples of fraud and the $345,000 overcharge was discovered and refunded within days. But that doesn’t make the situation any less significant, Luna said.

“The risk is there,” he said.

Luna recommends 13 changes to the Development Services Department including restructuring its management to create greater internal controls, separating employees’ responsibilities so they can’t access as much of the computer system and documenting more changes to individual permits. He attributed much of the failures to inefficient staffing, high workloads, limited supervision and deficiencies with the computer system itself.

Department head Kelly Broughton disputed almost all of Luna’s findings, contending that his auditors didn’t understand how the computer system worked and that its internal controls were strong.

The department, Broughton said in its official response, “follows appropriate access protocols; and documents and records changes in the system appropriately. We believe the authorities currently granted to employees are appropriate and proper.”

Broughton emphasized that the audit did not document any examples of fraud.

Two other points are worth noting for now. Last year, the city merged its planning department with development services, giving Broughton’s department authority over neighborhood growth issues. Luna said his audit didn’t examine that restructuring.

You might also be familiar with the city’s new multi-million dollar computer system, One SD, which was created with much fanfare and cost overruns. Development services uses a separate system, which was developed in-house, that links to OneSD, Luna said.

I’ve emailed Broughton and the Mayor’s Office and will update this post if they respond today.

Liam Dillon is a news reporter for Voice of San Diego. He covers San Diego City Hall, the 2012 mayor’s race and big building projects. What should he write about next?

Please contact him directly at liam.dillon@voiceofsandiego.org or 619.550.5663.

Like VOSD on Facebook.

 

Voice of San Diego is a nonprofit that depends on you, our readers. Please donate to keep the service strong. Click here to find out more about our supporters and how we operate independently.


Liam Dillon

Liam Dillon

Liam Dillon is senior reporter and assistant editor for Voice of San Diego. He leads VOSD’s investigations and writes about how regular people interact with local government. What should he write about next? Please contact him directly at liam.dillon@voiceofsandiego.org or 619.550.5663.

  • 903 Posts
  • 29
    Followers

Show comments
Before you comment, read these simple guidelines on what is not allowed.

22 comments
john eisenhart
john eisenhart subscriber

Developmental services billing has been completely broken. Permit fees, plan check fees , developmental permits are all getting very expensive for my clients. The billing for developmental permits is typically 6 months late. (I just recieved a bill from two years ago last week!) Listing of time spent by various disciplines leads me to believe some employees "pad" their time during review. Kelly needs to fixed his house. If I billed clients the way the city does I would be legally in trouble and out of business.

mr architect
mr architect

Developmental services billing has been completely broken. Permit fees, plan check fees , developmental permits are all getting very expensive for my clients. The billing for developmental permits is typically 6 months late. (I just recieved a bill from two years ago last week!) Listing of time spent by various disciplines leads me to believe some employees "pad" their time during review. Kelly needs to fixed his house. If I billed clients the way the city does I would be legally in trouble and out of business.

Richard Ross
Richard Ross subscribermember

Something is wrong with the DSD computer system...anyone surprised? Has anyone figured out why the provider of the city's computer system is spelled SAP? Could it be thats what its clients are?

Activist
Activist

Something is wrong with the DSD computer system...anyone surprised? Has anyone figured out why the provider of the city's computer system is spelled SAP? Could it be thats what its clients are?

Chris Brewster
Chris Brewster subscribermember

I disagree. The DA prosecutes if a crime occurs; if she finds out about it; and if she elects to use her discretion. That's a lot of its. She takes no action proactively, so we would have to be ripped off before some action might take place. The role of the auditor, in this case, is to act as a citizen's advocate for good government, encouraging the department to take actions to prevent abuse or fraud. It is clear that the department head disagrees that any change is needed and is resistant thereto. Thus, change would not even be contemplated without this report. Whether change will in fact occur in light of this report remains to be seen, but those with the power to make change are on notice and that is valuable in my view.

B Chris Brewster
B Chris Brewster

I disagree. The DA prosecutes if a crime occurs; if she finds out about it; and if she elects to use her discretion. That's a lot of its. She takes no action proactively, so we would have to be ripped off before some action might take place. The role of the auditor, in this case, is to act as a citizen's advocate for good government, encouraging the department to take actions to prevent abuse or fraud. It is clear that the department head disagrees that any change is needed and is resistant thereto. Thus, change would not even be contemplated without this report. Whether change will in fact occur in light of this report remains to be seen, but those with the power to make change are on notice and that is valuable in my view.

Chris Brewster
Chris Brewster subscribermember

Under the strong city manager form of government, there was a charter section prohibiting departments from doing things at the direction of individual council-members, including the mayor. The idea was to insulate the bureaucracy from making decisions to benefit political aspirations, donors, and supporters of specific politicians. The strong mayor form of government essentially empowers the mayor to direct the bureaucracy to do just that, under the theory that if you don’t like it, you vote the mayor out. Corruption can occur in either circumstance, but the incentive in this system is to dance with the partner who brought you to the party.

B Chris Brewster
B Chris Brewster

Under the strong city manager form of government, there was a charter section prohibiting departments from doing things at the direction of individual council-members, including the mayor. The idea was to insulate the bureaucracy from making decisions to benefit political aspirations, donors, and supporters of specific politicians. The strong mayor form of government essentially empowers the mayor to direct the bureaucracy to do just that, under the theory that if you don’t like it, you vote the mayor out. Corruption can occur in either circumstance, but the incentive in this system is to dance with the partner who brought you to the party.

Carrie Schneider
Carrie Schneider subscribermember

Mr. Boughton, for cryin' out loud stop defending your department and just make the changes that Mr. Luna recommends. Why not?

Carries
Carries

Mr. Boughton, for cryin' out loud stop defending your department and just make the changes that Mr. Luna recommends. Why not?

Fred Williams
Fred Williams subscriber

But that's San Diego for you, shiny on the outside, rotten at the core.

Fred_Williams
Fred_Williams

But that's San Diego for you, shiny on the outside, rotten at the core.

Jim Jones
Jim Jones subscriber

We don't need an auditor to tell me that our bureaucracies could be corrupt. We need a DA that roots out the corruption and puts it in the public light, then puts the corrupt where they belong.

Jim Jones
Jim Jones

We don't need an auditor to tell me that our bureaucracies could be corrupt. We need a DA that roots out the corruption and puts it in the public light, then puts the corrupt where they belong.

Omar Passons
Omar Passons subscribermember

BTW: Ditto what Mr. Brewster said, can we start a fund to get Sam over to City Hall to snap a new photo please?

omarpassons
omarpassons

BTW: Ditto what Mr. Brewster said, can we start a fund to get Sam over to City Hall to snap a new photo please?

Bill Bradshaw
Bill Bradshaw subscribermember

As for development services, Brewster has it right. But, wait! Didn’t Wild ERP solve all their problems? Uh.......apparently not.

toulon
toulon

As for development services, Brewster has it right. But, wait! Didn’t Wild ERP solve all their problems? Uh.......apparently not.

Chris Brewster
Chris Brewster subscribermember

BTW: I feel badly for Mr. Luna that VOSD continues to use this unfortunate photo of him, seeming shifty eyed. It really is not flattering and there must be something better.

B Chris Brewster
B Chris Brewster

BTW: I feel badly for Mr. Luna that VOSD continues to use this unfortunate photo of him, seeming shifty eyed. It really is not flattering and there must be something better.