The Morning Report
Get the news and information you need to take on the day.
Wednesday, July 12, 2006 | Imagine never having a deadline to complete your job. Imagine being able to bill your client endlessly with no overseer. Imagine your client being so desperate for a product that it doesn’t dare question you.
Now imagine being paid $900 an hour.
How motivated would you be to wrap up this engagement?
Not too motivated, we presume. Such has been life for the clan of private consultants investigating city finances since they arrived in San Diego a year and a half ago. The highlight of their tenure: repeated delays and a budget that’s grown from $250,000 to more than $20 million.
On Tuesday, somebody actually threatened Kroll Inc. where it counts – its reputation.
Mayor Jerry Sanders broke with his tepid support for Kroll’s audit committee by unleashing a roaring speech to the City Council in which he offered to spread the word high and low – from the national press to the halls of Congress – about how the private consultants from New York-based Kroll have held a desperate city hostage.
We applaud the mayor for both the tone and content of his remarks. We hope he follows up on his stern threats, regardless of the date in which the audit committee completes its report – if it ever completes its report.
This is the strong mayor we saw enter City Hall at the beginning of the year but disappear when confronted with tough choices on the budget and airport. This is the Jerry Sanders we were promised on the campaign trail. This is also the bold leadership we will need to survive the coming years of struggle at City Hall.
We offered the Kroll group an ultimatum in these pages in early May: finish your report by July 1 or you should be promptly fired and sued. We accused the consultants of taking advantage of a desperate city, of using the outside auditors for independence as a shield against the questioning of its big bills and using every bump in the road as a reason to prolong its vital probe.
In his remarks Tuesday, the mayor adopted the same stance. We return the favor by choosing his method for fighting this arrogant behavior. Rather than engage the city in another lawsuit, a public-relations campaign against Kroll seems the most effective action at this time.
The mayor is right to put the blame in three places: Kroll, a private corporation with a profit motive; the original contract with the firm, structured by city officials and Kroll; and the imposition of the Sarbanes-Oxley Act upon the city – the first instance of a municipality facing it in the post-Enron era.
The result: an ill-defined engagement that has allowed Kroll unfettered power to run roughshod over the city.
To do so, Kroll has ironically used the very controls Congress implemented to curb corporate excesses. The Sarbanes-Oxley Act was Washington’s reaction to the accounting scandals that led to the wild, fraudulent successes of corporate America a half-decade ago. However, the financial controls aren’t made for municipalities – they’re made for corporations. The attempt to force these mandated corporate practices on a taxpayer-funded organization has proved to be a costly disaster for the residents of San Diego. The audit committee that has resulted looks little like those envisioned in Sarbanes-Oxley.
In the future, other municipalities will surely run afoul of the Securities and Exchange Commission and will be in need of the type of services Kroll was supposed to produce for San Diego.
A few choice appearances or phone calls by Sanders could ensure that Kroll never gets a similar gig again and that taxpayers of some other city be spared this costly endeavor. A similar path should be considered for KPMG if it is determined that some of Kroll’s delays have come at the request of the auditing outfit.
It feels tempting to allow the audit committee to continue its work because the report, so vital to city finances, seems so close to completion. But take a step back. This was the same rationale used to justify the regular stalls that have taken place since December.
This group of high-priced consultants has been allowed to run this city without the fear of consequences for too long. It’s time they be given some motivation for putting an end to this sordid campaign.