An attorney for Southeastern Economic Development Corp. Finance Director Dante Dayacap has written to the city’s auditor criticizing several findings of an audit of the agency that was released Wednesday.

The attorney, Audie de Castro, writes in the letter that Dayacap did not, as stated in the audit, set the level of the bonuses and extra compensation at the center of the agency’s troubles.

He writes:

The Report states “the Director of Finance decided how much to pay himself and other SEDC employees …” This is an overstatement. Mr. Dayacap was executing instructions from his direct supervisor. The evidence provided to the City of San Diego and Macias Consulting Group show that the SEDC President approved the compensation and bonuses. Mr. Dayacap reasonably believed that the President had the authority to do so.

De Castro also takes issue with the audit’s finding that the actions of SEDC “rise to the level of fraud.”

According to the auditors, this is defined as the “intent to conceal or omit information that leads to the direct benefit of an individual or organization.” There is no evidence that the President or any other staff intended to conceal or omit information. The total compensation, including the bonuses, fell within the budgeted amounts approved by the City of San Diego. They were also classified in the appropriate line items of the financial statements, which were audited each year.

As we pointed out in this story, SEDC President Carolyn Y. Smith has consistently argued that the bonuses were actually approved by SEDC’s board because the agency’s budget contains two line items titled “Misc. Salary & Wages” and “Allow. For Overtime/Bonus/Merit.”

Because the board approved of the budget, therefore, Smith has argued, it de facto approved the bonuses.

But, as we pointed out in our story, while the City Council and board approved the budget, the actual amounts SEDC paid out to employees for bonuses and extra compensation far exceeded the total amount they had budgeted for such payments.

For example, in fiscal year 2006-2007, the agency spent three times its budget for bonuses and extra compensation. It spent more than it was approved for the entire workforce’s bonuses that year on just one employee: Smith.

That year a total of $94,000 was earmarked in the budget for any additional compensation to the agency’s 14 employees. The documents show that year SEDC spent almost $313,000 on extra compensation. Smith herself received $94,853 in bonuses and extra payments.

As I point out in my story today, SEDC was able to pay its employees hundreds of thousands of dollars in bonuses because it has been constantly understaffed in recent years. By not paying salaries for positions that appeared on the agency’s budget, but were never filled, SEDC had a pool of money that could be spent on the bonuses.

De Castro’s letter takes issue with several other findings in the audit, and criticizes the whole ethos of the report. It states:

In summary, we find it difficult to see how the auditors, who were paid by the City, could have performed an impartial analysis, in light of the political controversy surrounding the City on this matter.


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