A Long Winter’s Nap

Saturday, December 10, 2005 | Unable to get a firm grasp on when it might complete its work, the audit committee whose investigation is crucial to the restoration of city finances will remain in limbo without funds until after the New Year.

A spokesman for Mayor Jerry Sanders said Friday evening that audit committee officials expect their investigation of alleged wrongdoing by city officials to cost an additional $9 million to $11 million.

The committee has billed the city at least $6 million since February. In total, the city has spent $26 million to date on consultants and lawyers in connection with a financial crisis highlighted by severe pension problems and financial disclosure issues.

Officials with the audit committee had hoped to be able to return to the City Council this month with a timeline for the completion of an investigation that has routinely grown in cost and scope. However, they continue to experience problems loading and searching documents in an electronic database.

The investigation was originally expected to be finished by October and then December. Kroll partner Troy Dahlberg said this week they could finish as soon as April.

The revelation is the latest in what have become regular setbacks with the consultants hired to untangle the city’s financial mess. Kroll’s investigatory predecessor, law firm Vinson & Elkins, left town in August after completing two reports.

The firm collected $6 million and neither report was satisfactory for the needs of the investigating Securities and Exchange Commission and the city’s outside auditor, KPMG.

Without a complete independent investigation into allegations of wrongdoing, KPMG won’t bless the city’s long-delayed 2003 financial statements. The city’s credit rating, and access to Wall Street, will remain suspended pending the completion of the audit.

The audit committee’s work has been on hold since early November, when it discovered problems with the electronic database it uses to sort and search documents.

Sanders spokesman Fred Sainz said the mayor didn’t want to approve additional funds for Kroll without knowing when and how it would complete its work.

“These amounts of money are staggering,” Sainz said. “The mayor wants to make sure he has done his own thorough assessment of the situation to feel comfortable that this is the path we should proceed on.”

The city has already been forced to curtail its basic public services because of budget stress caused in part by ballooning payments into its pension system and the related consultant expenses.

“Over the course of the next few weeks we will continue to work with [the audit committee] so we can arrive at a point that [Sanders] does feel comfortable moving forward with the council. We’re just not there today,” Sainz said.

Lynn Turner, former chief accountant at the Securities and Exchange Commission and a leader of the audit committee, told the City Council when he was hired in February that a similar job he had conducted at an insurance company cost $300,000 to complete.

However, the audit committee added a team of lawyers months later as its investigation intensified, and its costs peaked at about $800,000 a month. Officials have said the scope of the investigation became wider than they expected, previous investigations proved unreliable and that new allegations surfaced at seemingly each turn.

Dahlberg said they were still working through a number of e-mails to determine how many they will need to sort through to complete their investigation.

City Attorney Mike Aguirre has said that the audit committee has more than enough information to complete its work and accuses its leaders of holding a desperate city hostage.

An entire half-floor of a city building is dedicated to store documents collected in connection with the probe and two online databases hold more documents and e-mails as well.

The audit committee’s investigation centers on the city’s pension system, which faces a deficit of at least $1.37 billion, and its wastewater system. The pension investigation focuses on whether laws were broken in the creation of funding deals and pension benefit enhancements for employees.

The committee is also looking at whether city officials committed fraud by not properly reporting to the investment community and general public the true size of its pension and wastewater liabilities.

As a result of these problems, six former pension officials have been charged by the District Attorney’s Office with criminal conflict of interest. The SEC is investigating the financial reporting issues and the Justice Department is looking at bringing charges as part of a public corruption probe.

One of the three major credit rating firms suspended the city’s credit rating in September 2004.

The pension system has its own audit committee that is also investigating allegations of wrongdoing. It recently reported that it would surpass its original budget estimate of $1.7 million.

Please contact Andrew Donohue directly at