San Diego Officials Approve $10 Million More for City Audit

SAN DIEGO - The City Council voted on Tuesday to pay consultants working on the city's 2003 fiscal audit an additional $10 million to find the bottom line.

Kroll Inc., a risk management firm, and Willkie, Farr & Gallagher, a law firm paid by the city to represent Kroll, have already received more than $6 million for an independent investigation into the city workers' pension fund crisis and discrepancies in the city's past financial disclosures. The escalating predicament has triggered service cuts and prevented San Diego from issuing an annual audit for three years, putting the brakes on the city's capital projects.

Although Major Jerry Sanders recommended the money be paid from the city's general and enterprise funds, the City Council decided instead to pay the fees from property tax revenues. The additional $10 million will bring the total paid to consultants to $16.2 million.

The city's general fund pays for daily operating costs, and the enterprise funds come from fees from specific service programs, such as water and sewer services.

Councilman Brian Maienschein questioned the legality of diverting money from water, sewer, golf and trash enterprise funds to pay the consultants. The City Council altered Sanders' plan when Deputy City Attorney Mark Blake told them that no one knew if diverting the funds was legal.

Maienschein said the spending plan was "very, very sloppy and put the council needlessly at risk."

According to the mayor, the accounting firm KPMG requires the investigation of alleged wrongdoing by city employees, and won't issue the city's 2003 audit without it. The city is forced to wait for the long overdue audit, which has also caused the 2004 and 2005 fiscal audits to be delayed. All of the audits must be completed before bonds can be offered to fund city projects.

"Every month the city does not have access to the public finance markets is another month that the city is not able to make improvements to basic infrastructure," Sanders said.

Although Sanders said the final report would hopefully be completed by May, the consultants have indicated that it might take longer.

According to Troy Dahlberg, managing partner of Kroll Inc., the consultants will most likely return in a few months asking for more money to complete their task before they submit their final report. On Friday the consultants asked the council for between $10.3 million and $13.3 million, including $3.3 million for outstanding bills.

Dahlberg and attorney Benito Romano met privately with Sanders on Tuesday and revealed a budget and schedule for their work. Those documents won't be subject to public scrutiny, however, as revealing them would ostensibly jeopardize the independence of the investigation. The City Council was likewise denied access to the budget and schedule.

Councilwoman Donna Frye was the only member of the council to oppose paying more money to the city's consultants. She said she couldn't support the measure without seeing a detailed work plan and budget.

"I guess I just can't go on blind faith any more, because I just have this terrible feeling," said Frye. "My gut instincts tell me that we're going to be having this conversation again and again and again."