Audit Committee Optimistic Despite Potential Roadblocks

Saturday, September 24, 2005 | The consultants hired to help the city issue certified financial statements and comply with federal investigators said Friday that they believe they are on track to finish work by the end of the year despite several obstacles that stand in their way.

The outside audit committee, in a prepared report the City Council will discuss Monday, said that the City Attorney’s Office, the retirement board and a labor leader central to controversial pension deals have been slow to release documents that are needed to cooperate with prosecutors and are crucial to auditor KPMG’s examination of the government’s books. The audit committee also said it may be delayed because it has to wait for the completion of a similar group’s probe into the troubled retirement plan.

“The pension board I still find problematic,” Deputy Mayor Toni Atkins said Friday. “I’m sticking to my earlier concerns that there are some outstanding documents that need to be fully disclosed so we can take a look at them.”

City Attorney Mike Aguirre, various council members and the audit committee – which is comprised of consultants from Kroll, Inc. and their attorneys from Willkie, Farr & Gallagher – have all asked for the SDCERS board to unconditionally waive attorney-client privilege.

The report also noted that out of 12,000 city employees, City Firefighters Local 145 union president Ron Saathoff was the only one not to pledge that they had turned over every document they possessed that could be relevant to investigators. Saathoff and five other former and current pension trustees were charged by District Attorney Bonnie Dumanis in May with breaking state conflict-of-interest laws.

“From the fact that they are city documents, I don’t understand why they aren’t being released,” Atkins said.

Kroll consultants Lynn Turner and Troy Dahlberg also stated in their letter that Aguirre’s office has “fallen behind” in turning over requested documents, which will ultimately delay ongoing investigations by the U.S. Attorney’s Office and the Securities and Exchange Commission.

Also, Kroll said it has met with Navigant, a firm similar to the city’s audit committee that was hired by SDCERS in August. Kroll said Navigant’s investigation into the pension plans appears to be in the preliminary stages and could impede the audit’s issuance.

Aguirre said he believes Kroll is citing potential obstacles as a way to drag out its work with the city, which is believed to be at least $800,000 per month.

“When are they going to start drafting the report?” said Aguirre, who claims that his office has turned over every document requested by the Audit Committee. “They’re looking to find anyway that they can to stall, and at some point they will be held accountable for the damage they’ve inflicted on this city. This, I pledge.”

According to the timetable laid out in Kroll’s report, the group is slated to begin preparing a draft report by September. A final report is due to commence in October, the timetable states.

Nonetheless, Kroll believes it is on pace to finish its work by December, a goal the group set this summer. The high-priced consultants, who are constantly criticized by Aguirre for their high costs and perceived coziness with officials he deems responsible for illegal acts, received some positive reinforcement from KPMG. In a letter to the council dated Thursday, the auditor said they thought retaining Kroll was a “very positive step toward completion of an independent investigation.”

The city has also hired an actuary from PricewatershouseCoopers to test the accounting performed by the pension system’s actuary, Rick Roeder, the report said. The retirement fund’s shortfall was estimated by Roeder to be $1.37 billion in 2004, but many say they deficit has grown significantly since then. The outside consultants urged him to step down in June.