Saturday, October 29, 2005 | City Attorney Mike Aguirre urged the City Council on Friday to hold out on a $3 million payment request from the audit committee investigating city finances until the committee provides more detailed billing, a solid budget estimate and a clear deadline for completing its work.
The request comes days after audit committee officials said their investigation into allegations of wrongdoing would be delayed by several months because of a number of technical glitches that have affected the collection of thousands of documents and the e-mail archives of current and former council members.
The audit committee, staffed by a crew of accountants from Kroll, Inc. and attorneys, had hoped to complete its investigative report by December. It began work in February and has charged the city more than $5 million.
The City Council was scheduled to approve an additional $3 million Tuesday, sparking Aguirre’s request. However, officials said the request made it on the docket by mistake and that the audit committee wouldn’t ask for additional funding until it had a better idea of its timeline and overall budget needs.
Aguirre accused the audit committee of creating delays to pad their own bills.
“We have in the city attorney’s office repeatedly warned the public and the city council and city officials that the Kroll company was engaged in a pattern of behavior that was driven more by fees than a bona fide of the investigative issues that the city faces,” Aguirre said.
The city attorney has battled for months with the audit committee regarding the manner in which they bill the city. The audit committee provides scant detail in their bills, listing employees’ names, hours worked and the billed amount.
Troy Dahlberg, a Kroll partner heading the investigation alongside former Securities and Exchange Commission Chairman Arthur Levitt, said the billing must be discreet in order to protect the integrity and investigation.
“We have consistently said the investigation needs to be conducted in a confidential manner so that we can gather evidence and it is not appropriate to detail out our investigation in invoices which can become public,” Dahlberg said.
Documents provided by Aguirre show that the audit committee’s law firm, Willkie, Farr & Gallagher, first provided detailed billing but later adopted Kroll’s manner of billing. City Manager Lamont Ewell has been managing the audit committee’s billing and payments.
Aguirre says the investigators must provide more detail so that the city can verify the hours worked and hold the audit committee responsible if necessary.
“How can we trust an audit firm to conduct an audit when they themselves do not maintain audit-traceable documents about what it is that they’ve done,” he asked.
The audit committee’s investigation is perceived to be vital to restoring San Diego’s fiscal credibility. Errors and omissions in its financial disclosures to Wall Street prompted an ongoing investigation by the SEC more than 21 months ago; the FBI and U.S. Attorney’s Office are also investigating possible political corruption.
Questions surrounding the city’s finances have repeatedly postponed the release of its 2003 audit. Officials at KPMG, the city’s outside audit firm, have said they won’t bless the city’s financial statements until an independent investigation is complete. SEC officials have said they won’t wrap up their probe until the investigation is completed, too.
The city began the process of self-investigation in February 2004. However, work done by the city’s law firm, Vinson & Elkins, at a cost of $6 million over 18 months was deemed by KPMG and the SEC to lack the independence to be seen as a true investigation.
The audit committee was hired to reconcile differences between the Vinson & Elkins investigation and one conducted by Aguirre. However, they have deemed neither to be sufficient and undertaken their own full-scale probe.
Aguirre said Friday the council should drop KPMG and the audit committee, and bring in a new audit firm and try to convince the SEC that the investigations conducted to date were sufficient to draw the city’s case to a close.
“How long will we go spending this type of money and getting no results?” Aguirre said.
Deputy Mayor Toni Atkins said the audit committee report is vital and didn’t see any alternative to staying the course.
“I’ve yet to hear anyone give a viable alternative that will satisfy the SEC and make sure our audits get done, and something that will make the credit agencies and Wall Street happy,” Atkins said.
Without access to public financial markets, the city has been forced to delay a number of basic infrastructure projects. It has begun to seek funding through private sources to deal with a backlog of projects.
Atkins proposed that a group of one representative each from the offices of the city attorney, city manager, auditor and mayor form a group to review the audit committee’s billing.
The audit committee will deliver its monthly progress report to the council on Tuesday. Officials said the audit committee will return to request additional funds once it can better estimate its timeline and overall budget projections.
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