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Tuesday, August 16, 2005 | The board that administers the city of San Diego’s pension system decided Monday to bring in its own group of outside auditors to study the beleaguered fund and perhaps review documents sought by federal investigators and the city’s outside auditors.
The move appears to be a baby step with uncertain ends in a process key to restoring the city’s tattered financial reputation and will draw in another level of outside consultants into the complex unraveling of allegations of wrongdoing at the city and pension system.
It also draws out a process that has left the city financially crippled for nearly a year, as the auditors aren’t expected to issue a report for at least three months.
“I think that it is an attempt on our part to put aside the continual allegations that there was wrongdoing,” said retirement administrator Larry Grissom. He said it won’t be known until negotiations with a given audit committee are held whether the board will grant unfettered access to its archives.
The pension board has been under pressure for months to release documents central to allegations that sit at the heart of numerous ongoing local and federal investigations.
The city’s outside auditor, KPMG, has refused to certify the city’s long-delayed 2003 financial disclosures without first being granted access to the documents. The archives are believed to contain vital information regarding possible violations of conflict-of-interest laws by pension officials and detail what officials knew about the true financial state of a pension system that carries a deficit of at least $1.37 billion.
The validity of the city’s financial statements was called into question last year after errors and omissions were discovered in declarations to potential investors.
Since taking over the pension system in April from a board shrouded in controversy, the new pension board has remained resistant to pleas from the U.S. Attorney’s Office, outside auditors and city officials to turn over its documents, which are currently protected by attorney-client privilege.
Without the completion of the audit, the city remains frozen from public finance markets and access to cash needed to do the things cities do: fix roads, replace sewer lines and build new fire stations.
National experts brought in to resolve the situation say the board’s refusal to waive attorney-client privilege is unprecedented when compared with similar cases in the private sector, such as scandal-rocked corporations Enron and WorldCom.
However, pension board members say they are worried such a waiver would leave themselves or the system as a whole vulnerable to lawsuits.
Grissom said he and board President Peter Preovolos, both public opponents of releasing the documents, would be in charge of interviewing and selecting a firm to serve as an audit committee. The selection would need to be ratified by the full board.
Although neither would say the move signaled that an audit committee would receive open access to pension documents, trustee Bill Lopez said the committee “would be empowered to do any reasonable thing necessary to do their work including unfettered access to all documents and an illegal acts investigation.”
“I believe it is a step in the right direction,” said Lopez, a representative from the City Manager’s Office. “I believe it will please the city attorney and other interested parties in that an independent audit committee will objectively review all their requests and pursue those requests to their end.”
City Attorney Mike Aguirre, who last month filed dual lawsuits against the pension system and its officials, was unimpressed.
“This is delay tactic number 10 or 11,” Aguirre said, noting that the city already has an audit committee of its own.
The committee, comprised of a group of nationally renowned auditors and attorneys, is charging the city $800,000 a month to serve as the point men in ongoing self-investigations at City Hall. They are also acting as liaisons between the city at the U.S. Attorney’s Office, FBI and the Securities and Exchange Commission, who are investigating city politics and finances.
Additional teams of outside lawyers and auditors have been brought in to help resolve the city’s suffocating legal, political and financial problems. Their services, deemed necessary to lead San Diego out of the current crisis, have cost the city at least $15 million to date.
Grissom said the audit committee wouldn’t come cheap to the pension system, but asserted that the system is independent of the city and, therefore, needed its own audit committee.
Deputy Mayor Toni Atkins applauded the idea of the board conducting its own analysis and investigation – as long as it didn’t preclude the board waiving the attorney-client privilege.
“The waiver is still the biggest issue we face,” Atkins said.
The council revisits pension board issues Sept. 6 when it returns from legislative recess. It must replace four resigned pension trustees, who stepped down in the wake of lawsuits filed by Aguirre and political pressure they received after refusing to waive the privilege. Also on the docket will be Councilwoman Donna Frye’s bid to remove Preovolos from the board.
Please contact Andrew Donohue directly at