Monday, Dec. 17, 2007 | Employees at the city of San Diego still do not have an outlet for anonymously reporting financial misconduct to the City Council’s Audit Committee, even though a rule requiring the panel to field the concerns of whistleblowers was put in place seven months ago.

Instead, officials for Mayor Jerry Sanders are still in charge of the hotline. It keeps in place an arrangement in which City Hall’s boss oversees the very forum where potentially embarrassing complaints about his administration are registered, while also having the power to fire the thousands of city employees prone to use the hotline.

Dailing Out

  • The Issue: The whistleblower hotline is overseen by the Mayor’s Office even though city law says a City Council committee should field the complaints.
  • What It Means: That puts the mayor in the position of supervising the very hotline that could field embarrassing complaints about his administration.
  • The Bigger Picture: Along with the auditor and appointments to the Audit Committee, it’s recommended the hotline is also made independent of the mayor.

It’s a dynamic that concerns some officials who want to ensure the whistleblower process is an effective fix for a city that has suffered the scrutiny federal investigators and the loss of the its credit rating because of past breakdowns in financial controls.

“Any employees that might want to blow the whistle on something and it’s a particularly sensitive issue to the mayor’s administration, that might cause them to pause,” said Jeff Kawar, a fiscal and policy analyst at the council’s Office of the Independent Budget Analyst.

The hotline is among the several remedies recommended by outside consultants at Kroll Inc. and Vinson & Elkins. Together, the city paid more than $25 million to for the firms’ expert opinions.

The two firms were hired after the discovery of errors and omission in the city’s financial statements, in which the magnitude of the city’s looming multibillion-dollar pension and retiree health care liabilities were downplayed.

The inaccurate financial statements attracted the attention of the Securities and Exchange Commission, which has since sanctioned the city for securities fraud and fined its former auditor. Audit firms the city hired subsequent to the 2002 and 2003 disclosure problems have withheld their blessings of the city’s financial statements, which has in turn barred the city from Wall Street.

Vinson & Elkins and Kroll concluded that weak internal controls — the checks and balances of ensuring financial statements accurately reflect the city’s financial health — contributed to the city’s reporting errors in 2002 and 2003.

Objections to the city’s disclosures were first aired by pension trustee Diann Shipione, who didn’t have the luxury of a confidential hotline. Instead, when Shipione sounded the alarms on the reporting errors and the controversial deal forged between the city and its retirement board, she was derided as crazy and vindictive. Pension officials tried to embarrass her by taking out an advertisement in a local newspaper that compared her to Chicken Little and sought to have police arrest her at a meeting.

Kroll and Vinson & Elkins recommended setting up an employee hotline, where employees could report concerns of misconduct anonymously and confidentially. Both firms saw it as a way to bring to light the city’s financial reporting problems before they reach the desks of potential bond investors.

Each consultant advised the city to have a panel independent of the Mayor’s Office handle calls. In May, the council followed the path laid out by Kroll, who recommended that the Audit Committee review the complaints that were cataloged on the hotline.

However, establishing the hotline has become one of several growing pains for the new committee, which was created in January. Many of Kroll’s recommendations for the committee depend on the decisions of voters, who will need to change the city’s bylaws in order to remove many auditing powers from the mayor’s supervision as the firm recommended.

The Audit Committee expects to hear a presentation next month from outside consultants at Jefferson Wells about the best way to handle the hotline, said Councilman Kevin Faulconer, the panel’s chairman. Faulconer said he wants to know how other cities arrange their hotlines so that the city can follow the best practices of government.

One city where the mayor is not involved in overseeing the hotline is Los Angeles. Employee complaints are routed either through the controller, who is elected, or the Ethics Commission, which is appointed by various city officials.

Lee Ann Pelham, the executive director of the Los Angeles City Ethics Commission, said employees would be more reluctant to complain about misconduct at work if they knew their calls were being handled by someone who worked for their boss.

“The hallmark of a workable ethics system is the ability to refer something to an office independently and confidentially,” Pelham said.

Jo Anne SawyerKnoll, who heads Sanders’ Office of Ethics & Integrity, said concerns that the mayor is too close to the hotline are unfounded. Sanders and his staff don’t meddle in the complaints and because safeguards are in place, such as how the calls are fielded by a company outside the city.

“In theory, there is nothing wrong with the whistleblower line and program to be under the mayor as long as you have certain things in place that allow it to be confidential and anonymous,” SawyerKnoll said.

SawyerKnoll said that an overwhelming number of complaints don’t deal with misconduct. Her office doesn’t investigate the alleged malfeasance. Rather, it refers complaints to the city auditor, who also reports to the mayor. She said she welcomes the council committee’s involvement when it gets a process for reviewing complaints in place.

Until the Audit Committee takes over, the hotline rests with Sanders, who has gained more and more control of the complaint forum — both by his designs and others’ — since he took office.

Former City Auditor John Torell created the hotline in 2005 before the city switched to the voter-approved strong-mayor form of government, when his office was removed from the city manager’s administration and was instead controlled by the mayor and eight City Council members.

But once Sanders was put in charge of the entire city workforce, including the city auditor, in 2006, the hotline became the purview of the mayor. Torell bristled at the idea of reporting to Sanders, saying he didn’t have enough independence from the administration he was tasked with inspecting. The hotline became one of the many new internal controls that would be compromised if it remained in the custody of mayoral officials, he said.

Several months into the strong-mayor structure, Sanders plucked the hotline from Torell and handed it to the Office of Ethics & Integrity. Torell then became one of four officials to serve on a committee that heard the complaints that were left on the hotline before he departed City Hall in a huff because of his diminished independence nearly one year ago.

Please contact Evan McLaughlin directly with your thoughts, ideas, personal stories or tips. Or send a letter to the editor.

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