Concerns Arise over Auditor’s Role

Monday, Dec. 4, 2006 | Laura Chick was busy last week.

The elected city controller of Los Angeles was among the first to call for the fire chief’s dismissal after antics at one firehouse resulted in a $2.7 million discrimination settlement. A day later, Chick rebuked the agency that oversees the city’s 86 neighborhood councils, saying the department hadn’t yet lived up to its goals.

As Los Angeles City Hall’s official watchdog, Chick has made city officials bristle with her office’s reports on waste, fraud and even contracting scandals that plagued the last mayor and resulted in criminal charges for others. The teeth of her office’s audits, she says, are sharpened by her detachment from the city administration she regularly investigates.

“If I had to get permission from the council and mayor about what I say and how I say it,” Chick said in an interview Friday, “the public wouldn’t know half of what it knows.”

In San Diego, Auditor & Controller John Torell is tasked with similar duties of inspecting the city’s operations. But he lacks the same independence afforded to Chick.

Torell has reported directly to Mayor Jerry Sanders, whose administration he is assigned to audit, since the city switched to the voter-approved strong-mayor form of government earlier this year.

Since then, the Mayor’s Office has exerted growing control over the Auditor’s Office. For example, audit officials now must conduct interviews with the press on teleconferences under the supervision of one of the mayor’s spokespeople.

Sanders maintains that the placement of the auditor under his purview has not weakened the government’s checks and balances. “I have not noticed that John Torell is afraid to speak out,” Sanders said with a chuckle about the auditor, who is known for his outspoken, New Yorker demeanor.

But personality aside, observers say the Mayor’s Office’s chaperoning of the watchdog position dilutes its effectiveness at a time when City Hall is trying to escape the shadow of a financial scandal that that has captured the attention of the financial world and federal investigators. And Torell’s presence has wilted in the year since the city shifted to the strong-mayor form of government.

“You’d think that after everything the city’s been through, that we’d be particularly mindful of the advice of the professionals who do this,” said Councilwoman Donna Frye, who will state at a Wednesday council meeting her preference for an elected auditor.

Errors in the city’s bookkeeping have resulted in the city’s exclusion from Wall Street, where the municipality is urgently seeking its reinstatement so that it can borrow funds for necessary improvements to its infrastructure. The city’s failure to candidly report its growing financial problems to the investing public also spurred into action the Securities and Exchange Commission, which found that the city committed securities fraud and has ordered the city to hire an outside overseer at its own expense.

Torell walked into the position in March 2005, right as the financial reporting rumpus was reaching its zenith. The City Council, which used to have hiring-and-firing authority of the auditor before the strong-mayor system, hired Torell just as former top officials from the office were lined up in the crosshairs of fraud investigations.

Billed as a no-nonsense, straight-talker, Torell won the praise of council members who appreciated his candor, as well as the financial reporting expertise he brought from Santa Barbara County, where he served as assistant auditor.

Torell presented his take on the city’s internal controls earlier this year, opining that his placement in the organization comprised his independence and thereby the very value of his job.

“In order to effectively carry out the role of the Auditor & Comptroller, the office must be independent or free from the control or influence of others in the normal chain of command,” he stated in a January report.

But as hearings on the matter continued, Torell toned down his warnings, saying he “could live within the structure,” and was even absent from a number of the subsequent public discussions on the issue.

The new, hushed behavior of the auditor did not go unnoticed.

When the assistant auditor was a no-show for a January committee hearing to discuss a citizen’s proposal to make the city auditor an elected post, Councilman Jim Madaffer said his absence “speaks volumes” of his changed demeanor.

Torell refused to comment for this article, referring a reporter to a November 2005 memo in which he advocated for greater independence for his office.

Over the past year, Torell’s reports have been released to the public after having gone through the channels that any other report by a mayoral department would have to navigate. His reports frequently wind up with the signature of one of his superiors tacked on to the bottom.

The telephone hotline that Torell established in 2005 so employees could in confidence report fraud and waste was transferred away from his office to the mayor’s newly formed Office of Ethics and Integrity. He is now one of three mayoral officials who vet the complaints.

Sanders spokesman Fred Sainz said Torell, as the head of a city department, was free to speak to voiceofsandiego.org for this story under the mayor’s communications policy. Other staff members, however, are required to have their interviews conducted through the Mayor’s Office to ensure that the information they provide doesn’t conflict with the mayor’s position.

Chief Financial Officer Jay Goldstone, who is Torell’s direct supervisor, reiterated Sanders’ focus on Torell’s candid personality, saying, “Every position depends on the person in it.” But he also said the strong-mayor form of governance hasn’t co-opted the auditor’s oversight function.

“I haven’t seen anything under the new structure would compromise Torell and his position,” Goldstone said.

The City Council will be considering the future of the auditor’s role in the city government on Wednesday at a hearing about Sanders’ recommendations to improve the city’s financial reporting process. The mayor’s recommendations mirror those laid out in the report by private consultants from Kroll Inc., who compared San Diego’s financial mismanagement to some of the greater financial scandals in recent history, including Enron and Orange County.

Kroll suggested that the watchdog role be filled by a new position known as the auditor general, which would be appointed by the mayor and confirmed by a City Council majority. Also, Kroll advised that a three-member audit committee, consisting of one council member and two citizens appointed by the mayor and council, should be in charge of overseeing the city’s financial reporting methods.

The move would split up the Audit & Comptroller’s Office so that the accountants handling the Sanders administration’s ledger are separated from those who scrutinize the work for accuracy. In addition to checking financial records, the auditor general would inspect waste and fraud and the city’s operations – an expansion of the office’s audit powers.

For skeptics, the legitimacy of the city’s audit function is only as good as the process used to draft the players involved.

City Attorney Mike Aguirre, who does not have a vote on the matter, and council members have other ideas for how the auditor should be selected.

Aguirre wants the audit committee to consist of a City Council member, the independent budget analyst and an elected city auditor. Aguirre said that the Kroll recommendation to include two mayor-appointed private citizens on the panel, and to allow the mayor to select the auditor general, will leave the city’s audit function beholden to the mayor.

Goldstone said he was skeptical of electing the auditor, cautioning that the office could attract candidates with more political ambition than qualifications.

Council President Scott Peters said he wants the auditor to report to the City Council, a proposal that Torell called “the recommended practice.” That power dynamic, however, was the structure in place during the city’s bookkeeping problems earlier this decade.

Experts outside the government have been watching the situation in San Diego develop too.

Board members for the Association of Local Government Auditors pointed out at a Nov. 15 council meeting that Kroll’s recommendation for restructuring the audit function is based on an outdated endorsement by another government finance trade group.

The trend in the financial world – both in the public and private sectors – is to separate the auditor from the administrators that are subject to review.

“They are only as independent as the process that selected them,” said Ann-Marie Hogan, the elected city auditor for Berkeley and an ALGA board member.

Sanders said he wants the city to implement the best safeguards available, adding that he trusts that the suggestions of Kroll reflected those best practices. However, he said he is not afraid of changing his mind if he’s convinced otherwise.

“It doesn’t mean I’m wed to these things in their entirety,” Sanders said.

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