The Morning Report
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So, the audit committee led by the consultants over at Kroll Inc. is delaying the release of its report again.
What better time then to revisit the entire sordid audit saga?
We called around and found out a couple more tidbits about the audit. As Kroll tries to document and judge the allegations of wrongdoing so that the city can return once again to fiscal credibility, there are a few more things going on behind the scenes that must be resolved before outside auditors will certify the veracity of the city’s financial statements.
KPMG, the outside auditor, has now decided to audit the 2003 financial records of both the city’s pension system and the Housing Commission, according to Assistant Auditor Larry Tomanek.
The ongoing audit of the city’s books has turned up a startling result: the city, through either overestimating or underestimating, was about $1 billion off in evaluating its assets and liabilities in its annual financial statements. Such statements are used by investors to gauge an entity’s financial health.
In total, the city overvalued its net worth by about $550 million for fiscal year 2003, according to Tomanek. (The $1 billion refers to both undervaluing and overvaluing assets, while the $550 million figure refers to the difference between those two.) He said poor recordkeeping was largely the culprit, as systems were not in place to record when city buildings were completed, for example. Why is that important? A building normally begins to depreciate once it opens.
Tomanek said KPMG found the disparity to be so large that it decided it couldn’t rely on similar audits from fiscal year 2003 that were performed by the firm Caporrici and Larson on two subunits of the city, the troubled pension system and the Housing Commission.
“If you’ve got a billion in adjustments at the city, how many things were overlooked at (the San Diego City Employees’ Retirement System) and the Housing Commission. You just don’t know until you look,” Tomanek said.
Will this cause any further delays in already oft-delayed process?
“We’re hoping it doesn’t,” Tomanek said.