Thursday, Aug. 9, 2007 | The ongoing wrestle over the roster of a committee charged with inspecting City Hall’s finances is coming to a head, as Mayor Jerry Sanders is angling to appoint a majority of the members despite concerns that it could give him too much sway over the watchdog panel.
Sanders wants to handpick three of the five members of the Audit Committee voters will likely be asked to engrave into the city’s bylaws next year. But the council is jostling to dilute the mayor’s authority over the panel and craft it more as a committee of its own.
The debate is playing out in front of a citizen committee that is expected to propose carving a division of power between the mayor and City Council over the city’s auditing process, a function that’s been scrutinized in recent years because of the government’s high-profile troubles with regulators from the Securities and Exchange Commission.
Creating the committee, as well as the separation of the internal auditor from the bookkeepers it inspects, is among the reforms being pushed at the city of San Diego since its financial disclosure practices came under fire.
But the specifics of the new financial safeguards have divided city officials.
Sanders is attempting to harness control over the city’s future auditing arm, claiming that his plans mirror those of outside consultants who a year ago completed a $20.3 million report into city finances.
But the City Council and City Attorney Mike Aguirre argue the Mayor’s Office should be distanced from the internal auditor — whose job it is to critique his administration.
“The whole function of the auditor is to be very independent of who they are auditing,” said Andrea Tevlin, the independent budget analyst for the City Council. “Whether it’s a performance audit, a financial audit or a procurement audit, the mayor is responsible for those operations and the audit needs to be independent of that.”
The structure for conducting audits of the city’s departments and their ledgers has served as one of the major topics of debate since the strong-mayor form of government went into effect in 2006. Oversight of auditing shifted from the City Council to Sanders, who as the city’s first elected executive now oversees the day-to-day operations of the entire city as well as its finances.
The current discussion comes at a time when the city is trying to repair a financial reporting system that downplayed the city’s pension and retiree healthcare shortfalls, leading to fraud sanctions by the SEC and the city’s exile from Wall Street’s public borrowing markets.
The issue will likely make its way to the ballot box in June 2008, when voters are also expected to weigh in on several other changes to the city’s constitution, known as the charter. They include the proposed addition of new council districts, the strength of the mayor’s veto, and whether the strong-mayor structure that is set to expire in 2010 should be made permanent.
The Charter Review Committee’s suggestions will serve as the blueprint from which the City Council will draw up proposals for voters to approve or turn down in the June 2008 election. Panel members could make up their mind on the Audit Committee as early as Aug. 23.
Both Sanders’ aides and the City Council’s independent budget analyst have pitched ideas to the 15-member citizen committee.
Currently, auditing is overseen formally by the mayor’s chief financial officer, who also oversees the accountants whose work is under inspection. Three council members currently comprise an Audit Committee that meets to discuss financial reforms and vet disclosure practices, but the city charter does not currently prescribe any authority to them. The committee was created following the report from consultants at Kroll Inc.
Allowing the mayor to oversee auditing has been a tumultuous experience so far. Sanders had a sour relationship with the former auditor, John Torell, who departed the city of San Diego in January after complaining that the Mayor’s Office pressured him to tone down his criticism of the city’s financial operations.
Reforming the auditing process began gaining steam after Kroll’s report last year. The outside firm found the city’s financial controls were shoddy and led to the release of $2.5 billion in municipal bonds that were based on faulty financial information.
Kroll, led by former SEC Chairman Arthur Levitt, opined that the internal auditor should be severed from the Auditor & Comptroller’s Office, because “in substance the auditor audits his own work.”
Under Kroll’s plan, the auditor would report regularly to an Audit Committee, comprised of one council member and two citizens who would be appointed by the mayor and confirmed by the City Council. The committee would set the budget for the internal auditor and review and set the city’s auditing policies.
Both Sanders and Tevlin have adopted parts of Kroll’s recommendations into their own.
The Mayor’s Office believes the Audit Committee should consist of five members, three of whom would be private citizens appointed by the mayor and confirmed by the City Council. The remaining two panel members should hail from the council, he said.
In an interview, Goldstone argued that a majority of the committee should be made up of outside citizens who are chosen because of their proficiency in finance. Council members may not share that same know-how and could politicize their appointment, he said.
“They’re all going to be financially oriented,” Goldstone said. “It takes the politics out of the committee because you won’t have people with specific agendas.”
Tevlin said she prefers a majority of three council members to two citizens.
The panel should be more resembling of a council committee because its duties are legislative in nature, Tevlin said. Appointees have a tendency to show loyalty to the official who installed them, and the committee must be entirely independent of the mayor if it is going to lead the city’s audit function, she said.
“Appointment can lead to a certain allegiance,” Tevlin said. “It’s basically a human nature factor.”
The city’s monitor, Stanley Keller, is indifferent to the debate. He told the charter committee he sided with Tevlin’s proposal for three council members and two outside citizens, but added that he could be persuaded to approve the mayor’s proposal “if there were reasons for doing so.” He told the charter committee that independence from management and financial expertise are the two most important aspects of the Audit Committee.
But to Tevlin, the committee’s composition is crucial. She said she would reverse endorsing her position that the mayor can participate in the hiring of the auditor if he gets his way on the panel’s membership.
Tevlin said the committee needs to be independent because it will have a key say in how the internal auditor is terminated.
Sanders and Tevlin both propose that three-fourths of the Audit Committee should be able to remove the internal auditor, and that only a two-thirds vote of the full council could override that decision. However, Sanders also wants the ability to remove the auditor himself.
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