Audit Finds ‘Fraud’ in SEDC Pay Practices

A long-awaited audit into the Southeastern Economic Development Corp. released this morning found that the redevelopment authority’s hidden system of bonuses and extra compensation “rise to the level of fraud.”

The report, commissioned last year, issues a damning account of the public agency’s pay system and the staff’s interaction with its board and key city of San Diego officials.

Among its key findings:

• SEDC spent public funds inappropriately on such things as staff holiday luncheons and club membership dues. “Auto allowance increases and vacation and sick leave buy-outs for the SEDC President (Carolyn Y. Smith) were also inappropriately approved by the SEDC Director of Finance (Dante Dayacap),” the report by Macias Consulting Group states.
• The agency hid “significant salary compensation adjustments” such as cost of living increases and merit bonuses for staff in its annual budget without the knowledge of its board or the City Council, which is its ultimate overseer.

The hidden bonuses system was revealed in a voiceofsandiego.org investigation published in July, which has led to Smith’s termination and the replacement of a majority of the board members.

The audit found that, between fiscal year 2003-04 and fiscal year 2007-08, Smith authorized a total of $872,404 in supplemental compensation to SEDC employees and to herself.

“From a performance and internal auditing perspective, the compensation practices that we address in this report rise to the level of fraud,” the report states. It defines fraud as “the intent to conceal or omit information that leads to the direct benefit of an individual or organization.”

• The way in which SEDC selects outside consultants isn’t well-documented and “this may contribute to community concerns about how SEDC selects and has used it consultants.”
• The SEDC board had more than one-third of its meeting cancelled during the audit period “because of the lack of a quorum or from a decision by the SEDC president that the meetings were unnecessary given the absence of matters need board action.”

The report found that SEDC fails to follow accepted practices by not including community feedback into its formal staff reports to the board.

It also contained this statement:

The SEDC Board of Directors could not provide effective oversight because SEDC (staff) reduced the Board’s ability to do so because there was insufficient transparency of information and of SEDC internal operations to fully and adequately inform key officials at all levels. No matter how well-designed and operated, controls cannot provide absolute assurance that all SEDC objectives are met when critical data is systematically omitted.

Mayor Jerry Sanders has scheduled a 2:30 p.m. press conference to discuss the audit. We’ll have continued updates throughout the day.

— ANDREW DONOHUE