The Morning Report
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A day after Mayor Jerry Sanders announced his hopes for returning to the bond market by June, a crucial domino in the series of events leading up to that goal may not fall into place as expected.
At Friday’s meeting of the San Diego City Employees’ Retirement System, some trustees hinted or outright said that they were considering whether auditing firm Brown Armstrong should be fired, a move that city officials said would slowdown the mayor’s timeline, although one SDCERS official said it would not.
Brown Armstrong’s work to audit and certify the 2004 and 2005 financial statements for SDCERS is long delayed. The firm has not provided a schedule for completing its work on the 2004 audit and has not started its field work for the 2005 statements, according to Bob Wilson, the pension system’s assistant administrator.
This angered several pension trustees Friday. The board is expected to hold a “discussion of whether to continue the retention of these people” at an upcoming meeting.
“We don’t hire people to be last,” trustee Steve Meyer said.
In this consultant pretzel, city and pension officials alike say that they believe the Bakersfield-based Brown Armstrong is withholding the 2004 pension audits until KPMG blesses the city’s 2003 financial statements. KPMG stated that it would not budge until it reviewed the recent Kroll report and the city’s plan for fixing its financial reporting system, which Sanders laid out Thursday.
Sanders said he expects KPMG to issue the 2003 audit by Oct. 27.
“I have no idea why they need to wait for the city to issue 2003,” SDCERS trustee Richard Kipperman said. He added that the board should “just fire their ass.”
SDCERS President Peter Preovolos said he thought Brown Armstrong was a “C-rated accounting firm” and are “very unprofessional,” although he said he was doubtful that he would vote to fire the firm for the 2004 audits.
Trustee Tom Hebrank said he was upset at Brown Armstrong, but added that the board must walk a careful line when dealing with the certified public accountancy house.
“If you threaten a CPA firm or sue a CPA firm, you’re compromising their independence,” he said.
Wilson at SDCERS said he thought Brown Armstrong was waiting for the city’s 2003 statements, but didn’t think the auditor of the city’s 2004 statements was waiting for Brown Armstrong.
The Mayor’s Office thought otherwise. Jay Goldstone, the city’s chief financial officer, said the SDCERS audit “rolls into ours,” meaning the multibillions in pension trust assets plays a part in assessing the city’s fiscal health.
“That would definitely affect our ’04,” said Goldstone, Sanders’ top financial aide.
Sanders predicted that Macias, Gini & O’Connell will release the city’s 2004 audit by Nov. 22, assuming Brown Armstrong finishes its work first.
Following that timeline, the city would have its credit rating restored by late February and be borrowing for much-needed water and sewer construction projects by June, Sanders said.
No meeting date for the Brown Armstrong discussion has been set. Goldstone said he will contact retirement officials regarding his concerns next week.