Friday, Dec. 14, 2007 | Picture the image of a balance scale, with the hanging plates on each side of the scale. Now picture the plate on one side holding 15,000 pounds of weight, while the plate on the other side holds a billion pounds of weight. Such an exaggerated image might bring to mind something seen in a cartoon. In this case, though, the image, and what it represents, hardly brings about laughter or levity; quite the contrary.
I use this image to illustrate the roughly billion-dollar city of San Diego employee pension deficit on the one hand, and the recent $15,000 fine from the U.S. Securities and Exchange Commission (SEC) against an accountant at the city’s former, “independent” auditing firm on the other hand. The SEC alleged that the auditing firm, Calderon, Jaham and Osborn, and its accountant, Thomas J. Saiz, engaged in fraud by knowingly under representing the size of the city’s retirement costs and liabilities. Subsequently, in 2002 and 2003, financial documents containing this fraudulent information were used to secure public bond offerings to pay for city expenses. Had the full scope of the city’s liabilities to the employee pension fund been known to bond ratings agencies and to potential investors, some of the bonds might never have been offered; or the bonds might still have been offered, but with a lower credit rating, making them more expensive to the city.
More importantly, though, San Diego taxpayers might very well have learned, at a much earlier point in time, how huge the employee pension costs were becoming. Armed with that critical information, I contend that the second round of employee pension benefits, granted in 2002, might never have happened. With the knowledge that the city was not in nearly as good a financial condition as was being (mis)represented by some city officials, the outside auditor, and other special interests feeding at the taxpayer-supplied trough, we might not be in the perilous fiscal straightjacket that we’re in today.
Oh, yeah, I also have to mention that members at the Calderon firm made financial contributions to members of the City Council at the time!
Now the SEC has reached a so-called “settlement” with the Calderon accounting firm, which includes the $15,000 fine and what is essentially a “promise” by the firm not to engage in such violations in the future. Say what?! First, I would argue that the Calderon firm should be barred from providing accounting or auditing services to a local government or the state, or any government or public agency in California. Second, the particular accountant who engaged in the fraud, Mr. Saiz, should have his professional license or credentials (permanently?) yanked by the state of California and the SEC. And finally, given the magnitude of the financial fallout from the fraud perpetrated by Calderon, the SEC fine should be much higher and more punitive than a measly $15,000. San Diego taxpayers deserve much more accountability.