Tuesday, November 22, 2005 | New questions surrounding the budget and timeline of the pension system’s self-investigation have pricked worries among some pension board trustees that they are headed for the same consultant frustrations as their cousins at the city of San Diego.

Last week, a consulting firm investigating allegations of wrongdoing in the pension system alerted the city’s retirement system that it would exceed its $1.7 million budget and that it had not completed a large portion of its work because of unforeseen problems.

Members of the San Diego City Employees’ Retirement System board of trustees, which contracted the investigation, may call an emergency meeting in coming weeks to discuss the developments. Some pension trustees don’t want to repeat what’s happened at the city, where similar budget and deadline issues have plagued similar investigations.

“They are doing to the SDCERS board what is happening to the city of San Diego – consulting-firm extortion,” said trustee Thomas Hebrank.

The consultant problems at the city and the pension system stem from new accounting regulations crafted in the wake of book-cooking scandals that rocked corporate America. These guidelines call for the formation of an audit committee to deal with allegations of wrongdoing and financial disclosure issues.

In February, the city hired Kroll, Inc. to staff the city’s audit committee and investigate myriad allegations of wrongdoings in the pension system and the city’s financial disclosure practices. The firm has been beset by delays, technical errors and bills approaching $1 million a month.

Likewise, the pension system hired Navigant Consulting to constitute a similar audit committee and look into the allegations of wrongdoing specific to the pension system.

The Kroll investigation is vital to restoring the city’s financial credibility and cooperating with an ongoing investigation by the Securities and Exchange Commission. Navigant’s investigation is seen as important by the city’s outside auditors as well, as its release may preclude any investigative report from Kroll.

Lawyers representing Navigant told the board of administration of the San Diego City Employees’ Retirement System that the firm would exceed its original $1.7 million budget. But no one could say Monday how much more the probe would cost.

“They are on a course to exceed that original budget plan. We’re trying to figure out why,” said Nick White, a partner with the law firm handling fiduciary issues for the retirement system.

Lawyers said Navigant officials had only interviewed 24 of the estimated 100 people of interest it had hoped to question as part of the probe, a detail that also drew concern from some pension trustees.

That led many to question whether the investigation could possibly be completed by the January deadline Navigant had indicated that the pension board could count on.

Any delay or problems with the Navigant investigation could have an effect on investigations into the city of San Diego, which are proceeding at the same time.

Four separate firms are working to investigate and complete audits of both the pension system and the city of San Diego – two are working on the retirement system, two on the city.

Navigant had been contracted to investigate the actions of board and staff members for the retirement system from 1995 to 2002. Allegations of book-cooking and illegal deals have been lobbied against the pension system.

The firm auditing the pension system’s financial statements, Brown Armstrong, will most likely wait for that investigation to finish before blessing the pension system’s books.

If Navigant’s investigation is delayed, the entire cadre of consulting firms – already mired in unforeseen problems of their own – may postpone their work. Officials have said that Navigant will most likely present its work before any of the others.

Hebrank, the pension trustee, said Monday that Navigant’s potential delay and cost overruns were unacceptable.

Some of the newer members of the board were upset Friday when they heard the update, he said. Hebrank noted that the board was in a precarious position because if it pulled the plug on the Navigant investigation it might be perceived as a cover-up effort. Yet the board will now have to use more of the beleaguered retirement fund’s dollars to complete the probe.

The city’s pension fund is facing a shortfall of at least $1.37 billion. The deficit is a key player in a fiscal crunch that has forced the curtailing of basic city services and attracted local and federal criminal investigators.

Board member Bill Sheffler, who had served on the city’s Pension Reform Committee, supports Navigant’s investigation but also said a delay was unacceptable. He said it appeared a delay was likely because of how much work the firm had to do over a month like December with so many holidays and breaks.

He said that if the firm does announce that it will delay its work, he would support penalizing it, including firing the firm.

“I’m not going to be held hostage the way the city is being held hostage,” Sheffler said.

Consultants investigating the city have repeatedly requested additional funds for unforeseen problems encountered in their work while suggesting that the city must continue on the same track.

But Navigant has other problems as well.

To date, nine people have declined Navigant’s requests for interviews.

Diann Shipione chose not to speak with the firm. As a pension trustee, she first warned the public of pension deals that have threatened the city’s finances and attracted local and federal investigators.

Shipione said she asked to see documents explaining the firm’s engagement with the pension board and the scope of work its investigation would entail. When she was told those documents were not public, Shipione declined.

“It’s just a continuation of the fraud and I’m not going to be a part of it,” she said.

Shipione decided not to be interviewed by the city’s original investigators, Vinson & Elkins, using the same logic. That law firm’s investigation was eventually discredited by the Securities and Exchange Commission and the city’s auditing firm, KPMG.

“The city seems to hire consultants that are interested in the delaying and cover-up. That’s clear. They’re not interested in the truth,” she said.

The pension system has denied requests by the Voice of San Diego under the state Public Records Act for copies of the Navigant engagement letter and scope of work.

The Navigant firm wasn’t actually hired by the pension system. Instead, it was hired through the pension system’s fiduciary counsel, Reish Luftman Reicher & Cohen. Therefore, officials maintain that Navigant documents are subject to protection under the attorney-client privilege.

Pension officials also denied a Voice request for Reish’s engagement letter, saying that it, too, was protected by attorney-client privilege.

Engagement letters between municipal entities and hired help generally spell out the job the consultant is hired to do, the pay the consultant will receive and other terms of the consultants’ employment.

White, the lawyer from Reish, Luftman, Reicher & Cohen, said Monday that Navigant has no plans now to delay its work and that all the work it produces will be made public in January.

“It’s all going to come out,” White said.

He said the reason his firm actually contracted Navigant was that the board of administration of the pension system wanted to ensure that there could be no allegation that it influenced the investigation.

Please contact Andrew Donohue at

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