The oversight monitor hired by the city of San Diego as part of its settlement with federal regulators says the city has begun to lay the framework for reform, but that it has a long way to go to solve the issues that caused its financial meltdown, according to the consultant’s first annual report.

San Diego’s remediation efforts will ultimately depend on “the City’s leadership having the will to face up to the fiscal realities confronting the City and upon the several groups within the City government operating together to create a culture of compliance rather than one of convenience and disharmony that would impede moving the City forward to address its problems,” the report states.

The annual report is a requirement of the 2006 settlement with the Securities and Exchange Commission, which sanctioned the city for securities fraud for failing to disclose to investors the true depths of its fiscal problems.

The rest of the conclusion of the 20-page report, authored by Boston attorney Stanley Keller, states:

The City has taken meaningful action to address various of the problems of the past and to begin to put control structures and procedures into place. However, much more needs to be done. The most progress has been made in establishing the structures needed for an effective disclosure and control environment, including a strong Mayor form of government with centralized responsibility and accountability, and Audit Committee to provide independent oversight, an independent and professional internal audit function, and effective [Disclosure Practices Working Group] and a revamped pension administration. These structural measures need to be completed and made permanent through Charter revision and, at least in the case of the internal audit function, require significant additional staff. Although the City has begun the process to improve its internal controls and procedures, less progress has been made in that area and a strong, concentrated effort will be required if sufficient progress is to be made in a timely fashion.

The City Council is scheduled to hear Keller’s report Tuesday.

ANDREW DONOHUE

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