Wednesday, November 02, 2005 | San Diego city officials and the consultants investigating allegations of wrongdoing at City Hall undertook an extended discourse Tuesday on the way in which the investigators have billed the city $6 million and recent technical glitches that have delayed the completion of its critical report.

Officials from Kroll Inc., the company staffing the city’s audit committee, appeared before the City Council to deliver their monthly update. It is a ritual that has become a regular forum for discord and scuffling between City Attorney Mike Aguirre and the high-priced consultants and other city officials. Tuesday’s meeting attracted three FBI agents who watched the display from the audience in council chambers.

After a raucous discussion that lasted more than three and a half hours, a host of city officials reiterated that they didn’t like having to pay the audit committee at a rate of more than $800,000 a month, but that its work was essential to restoring the city’s tarnished fiscal creditability.

In the end, the council appeared to embrace Aguirre’s push for more transparency in the audit committee’s billing practices. Audit committee officials, weary of having their independence infringed upon, agreed to meet with City Auditor John Torell to find an acceptable compromise.

The committee’s investigative report is being prepared for the Securities and Exchange Commission, which has been investigating city finances for 22 months, and KPMG, the auditing firm working on the city’s long-delayed 2003 financial statements.

“There’s going to be a point where we don’t have the money to pay you … and we may just have to put ourselves at the mercy of the SEC,” said Councilman Tony Young.

The SEC requires entities under investigation to complete their own independent investigation into financial reporting issues; a city-hired law firm, Vinson & Elkins, completed two reports at a cost of $6 million that were deemed to lack the necessary independence.

Without KPMG’s blessing, the city’s credit rating will remain suspended, as will its access to public markets and the cash to complete basic municipal projects.

The audit committee was hired in February to reconcile investigative reports by the law firm and Aguirre. It has since deemed both parties’ reports to be insufficient and undertaken its own investigation.

Torell said the city was left with little choice but to continue with Kroll and that he had confidence in their work.

“It kills me to pay these guys this much, but we don’t have any other choice,” he said.

For months, Aguirre has pressed the audit committee to provide a more detailed billing, accusing the firm of taking advantage of a desperate city in order to pad its bills.

He seized Tuesday on recent statements from Kroll officials that technological glitches related to the city’s document production would delay their previous December deadline by a number of months.

“What we are discussing today is the lack of progress we are making at the Kroll firm,” Aguirre said.

During one hot exchange, Deputy Mayor Toni Atkins shut off Aguirre’s microphone three times. She then called a recess to calm tempers.

“I think it would be wholly irresponsible for the city to abandon Kroll,” said Councilman Jim Madaffer.

Kroll officials had originally asked for an additional $3 million from the City Council, but pulled back on that request when they determined their investigation would be delayed. Officials said they would return to the council to ask for further funding once they had a better idea how much more money they would need and when the investigation would draw to a close.

Its investigation has essentially been put on hold as the technical glitches are worked out.

Torell said the audit committee, which is led by former SEC Chairman Arthur Levitt, will have to provide him with more detailed billing.

The audit committee has been turning in records that show the name of the employee, the hours worked, their hourly rates and the total bill.

Benito Romano, audit committee attorney and a former U.S. Attorney for the area around New York City, said the spartan bills are necessary to completing a confidential investigation and to maintain their independence.

“This is such a basic investigation that anyone that has done or claims to be trained in it should know,” he said.

Romano said that if people knew who the investigators were talking to or how they were conducting their investigation, its perceived integrity could be corrupted and innocent interviewees could be publicly maligned.

Many council members said they understood this, but gave the audit committee grief when partner Troy Dahlberg revealed that the audit committee charged the city for its numerous trips to the editorial board of The San Diego Union-Tribune, a local newspaper. The editorial page has been very supportive of the audit committee’s work and critical of Aguirre’s opposition.

Councilwoman Donna Frye offered a motion to force the audit committee to provide more detailed billing directly to the auditor, but it failed by a vote of 4-to-2, with Madaffer and Councilman Scott Peters dissenting. The City Manager’s Office is currently handling the billing.

Peters said he preferred to let the two parties work out a protocol and approve it when the audit committee returns for its next monthly update.

“It’s just a matter of good business practices to turn in complete billing records,” Frye said.

Additionally, Aguirre called in officials from the city’s data processing arm to counter claims by audit committee officials that the city was to blame for technological problems. He said he had asked for the audit committee’s point person to answer questions before the council, but she didn’t arrive.

Gary Lee, an official with the San Diego Data Processing Corp., said that the city had provided the audit committee with full back up tapes of all the e-mail hard drives it had wished to view.

Audit committee officials said they learned in September that software used by SDDPC didn’t collect attachments on e-mails that needed to be searched as part of the investigation.

Vinson & Elkins located a similar problem in January, while the City Manager’s Office detected the problem in March. However, officials said, the audit committee wasn’t informed.

In addition to the SEC investigation into financial reporting practices related to the pension system and wastewater departments, the FBI and U.S. Attorney’s Office are investigating possible political corruption.

Please contact Andrew Donohue directly at

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