San Diego Audit Committee Meeting: Performance Audits of Water Billing and Real Estate Assets - July 30, 2018
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San Diego Audit Committee Meeting: Performance Audits of Water Billing and Real Estate Assets - July 30, 2018
The San Diego City Council Audit Committee met on Monday, July 30, 2018, at 8:00 AM, chaired by Councilmember Zapf, with members Scott Sherman, Thomas Hebrink, Ricardo Valdivia, and Alan Spencer present. The committee reviewed two performance audits: one on the Public Utilities Department's (PUD) water billing operations and another on the Real Estate Assets Department's (READ) portfolio management. City Auditor Eduardo Luna and staff presented both reports, and management responded. The committee accepted both reports and forwarded them to the City Council with additional recommendations from members.
Public Comments & Testimony
- No public comments were made.
Discussion Item 1: Performance Audit of Public Utilities Department Water Billing Operations
City Auditor Eduardo Luna, along with Shine Pickney and Stephen Gomez, presented findings from an audit triggered by customer complaints about rising water bills despite conservation efforts. The audit analyzed 1.3 million single-family residential meter readings and bills from calendar year 2017.
Key findings included:
- Higher water bills resulted from multiple factors: an extended billing cycle (late 2017), scheduled rate increases (effective July 1, 2018), warmer weather, unidentified leaks, and human error in meter reading. A specific meter reader generated over 300 corrections in December 2017.
- PUD performed 57,000 quality reviews (4.4% of readings) and adjusted 21,000 reads (1.7% of the population). Of those, 18,728 were corrected before billing; 2,750 were corrected after billing. The median error among re-billed customers was 31 HCF, more than doubling the average bill from $141 to $408.
- Human error was the primary contributor: 10 meter readers accounted for 71% of the 2,750 post-billing corrections. Estimated readings and lack of performance metrics worsened the problem. Meter readers did not enter trouble codes for at least 80% of skipped reads due to conflicting management instructions.
- PUD did not communicate the billing cycle extension or rate increases to customers in advance, exacerbating discontent. During December 2017–February 2018, abandoned call rates were 15%, 21%, and 23%.
- AMI (smart) meters comprised only 2% of flagged readings, and corrective actions were taken before billing—though known issues with three specific models were identified.
PUD management, represented by new Deputy Chief Operating Officer Johnnie Perkins, acknowledged the problems and committed to implementing all 10 audit recommendations. Perkins stated: "If there is an issue, we are going to own it. If there's a question, we're gonna answer it. And if there's a problem, we are going to solve it." He outlined plans for new training, route audits, enhanced internal controls, and improved customer communication.
Committee members asked detailed questions about error rates, trouble codes, performance metrics, and the role of smart meters. Councilmember Sherman noted meter readers are overworked (some walk 17-mile routes) and urged better support. Councilmember Hebrink questioned whether the audit clears smart meters; staff clarified that the single-family sample had few AMI meters, and a broader audit is ongoing. Councilmember Valdivia focused on retraining and accountability for supervisors. Councilmember Spitzer inquired about the dispute resolution process; PUD reported 1,096 escalated cases with all but 13 resolved. The committee commended the thoroughness of the audit.
Discussion Item 2: Performance Audit of Real Estate Assets Department Portfolio Management
Assistant City Auditor Kyle Elser, Kevin Christensen, and Greg Cleary presented findings from an audit of READ's property classification and portfolio management practices. The audit followed up on issues raised by a 2007 Grubb & Ellis consultant report.
Key findings included:
- READ's current-use classifications do not always match actual property status. A statistical sample of 126 properties over a quarter-acre (from Parks & Recreation) found that 20 parcels (16%) had classifications inconsistent with current use. For example, Pacific Breezes Community Park was classified as a park but was actually undeveloped vacant land.
- A similar sample of 111 PUD properties over a quarter-acre found 29 (25%) mismatches between READ's data and PUD records. READ lacks formal internal controls requiring departments to notify READ when property use changes.
- There is no standardized procedure for land-managing departments to periodically review their property inventory. Without such guidance, properties with higher potential may remain underutilized.
- READ does not present its annual Portfolio Management Plan (PMP) to the City Council at a public hearing. Instead, it distributes the plan via email and posts it on its website. This contradicts Council Policy 710, which states READ "shall prepare and present" the PMP to the council. READ management argued the policy language is ambiguous and that council members have not requested a presentation.
READ Director Sibel Thompson acknowledged the issues and committed to implementing the four audit recommendations by the end of the fiscal year. She noted the department has come a long way since 2005, when the city did not know what it owned.
Committee members raised concerns about accountability and data accuracy. Councilmember Hebrink questioned whether the PMP process could serve as an annual review mechanism. Councilmember Sherman offered a motion with additional recommendations: (1) READ provide updated current uses by the next PMP; (2) publish a separate report alongside the next PMP listing all undeveloped city properties with designated and current uses; (3) include a standardized form for categorization; and (4) bring documentation for implementation of recommendations to the Smart Growth and Land Use Committee before sign-off by the Auditor's Office. Councilmember Valdivia asked about potential impacts of misclassifications on grant funding; READ staff were not certain but acknowledged it could be a risk. Councilmember Spitzer questioned the sampling methodology used in the audit (statistical vs. judgmental). Staff clarified they used a statistical sample of properties over a quarter-acre, but did not project results to the entire population.
Key Outcomes
- Motion on Water Billing Audit: Councilmember Sherman moved to accept the performance audit report and forward it to the City Council. The motion passed unanimously.
- Motion on Real Estate Assets Audit: Councilmember Sherman moved to accept the report and forward it to the City Council, with four additional recommendations (outlined above). Councilmember Hebrink seconded. The motion passed unanimously.
- Next Steps: PUD will report monthly on implementation progress. READ will work with land-managing departments to improve classification and present updated current uses by the next PMP. The next Audit Committee meeting is scheduled for September 12, 2018.
Meeting Transcript
All right, for the record, everyone was here before me, and I arrived. So I appreciate everybody's um being here this morning, eight o'clock on a Monday morning with Council Members Scott Sherman, Mr. Thomas Hebrink, Ricardo Valdivia, Alan Spencer. So we have full compliment of our audit committee. And also Eduardo Luna, who is our city auditor, Priscilla Dugard, our deputy city attorney, Scott Clark, Department of Finance, Assistant Director Lisa Byrne from the IBA's office, and my committee consultant Bruce Williams. Do we have any non-agenda? None? Okay. Committee, any members of the committee? Anything? All right. Moving on for uh requests for continuances. I haven't received any, and I see none. So move right into our first item, our discussion agenda, which is the performance audit of the public utilities department, water billing operations. And our city auditor will introduce the report and uh turn it over now to Mr. Eduardo Luna. I think first of the large technology on my office. Um the office and contributed to this project. Um was your mic on, Mr. Luna? There you go. Oh, you want to say just the elevator? Certainly, I'll make really quick speech version, so it's on the recording. Okay, Eduardo Luna, city auditor. We're here to present our results of a report on the public utilities department, but first I'd like to acknowledge the efforts of the staff just to run everyone in the office contributed to this project under really difficult circumstances. Um, and especially it was led through the leadership of Shine Pickney and Stephen Gomez who are here to present the report. Good morning. Oh, good morning. We'll start today's presentation with an explanation of why we completed this audit. In fiscal year 2018, our office was originally scheduled to review PUD's customer service and call away times. In December 2017, after request by President Pro Tem, Barbara Bree, and Mayor Faulkner, the focus of our audit shifted to customer billing and a review to understand why customer bills were increasing despite as customers complained efforts to conserve water. Moreover, customers also expressed dissatisfaction with PUD's customer service response. So for single family residential accounts, we focused on the three objectives outlined here. To address these objectives, we answered five key questions, which we will discuss in more detail. One, in calendar year 2017, what contributed to higher water bills, two, how often are meter reads inaccurate, three, what factors potentially cause inaccurate meter readings? Four, did customers pay more due to the extended billing cycle? And five, did PUD's methods of communication exacerbate public discontentment with the increase in water bills? And now, Steve, we'll just discuss our audit scope and methodology. To answer these questions, we assess PUD's billing process controls and their impact on meter reading accuracy by identifying and analyzing all single-family residential customer reading records for calendar year 2017, which resulted in the review of approximately 1.3 million water meter readings and bills. Analyzing meter reading data to identify factors that may have resulted in increased quality assurance reviews, such as meter reading adjustments or inaccurate bills that were adjusted after impacting customer. The factors we reviewed include new meter installations, AMI red meters, and employee employee red meters. We further analyze meter make and model information for AMI meters to determine if any specific models resulted in more modified meter readings. We assess meter reading and installation processes by reviewing the meter reading and installation processes, policies, and procedures that included meter reading guidance, analyzing meter route information, as well as reported meter issues identified in the field, reviewing daily read reports and supervisory review logs used by PUD to monitor meter reader productivity, interviewing meter readers, meter read supervisors, and management to understand how PUD assigns routes, the typical issues encountered on a route, protocols related to entering data into the handheld devices and other operational issues. We further conducted our own quality assurance review of 455 single family residential water meters throughout the city to evaluate such issues as compatibility of parts, whether customer information in the billing system was tied to correct addresses in the field, and the conditions of meters citywide. Our quality assurance field sample of 455 single family residential customers were randomly selected from the population where water usage increased by at least 100% from the previous water billing period. To evaluate PUE's response time on billing issues, we attended town hall meeting, made home visits to a few customers, and reviewed customer account inquiries that came to our office and forwarded forwarded these cases to PUD. To perform our quality assurance field review, we identified all customers whose water bill increased at least 100% and at least 20 HCF to select a random sample of 455 customers to perform our assessment. This analysis resulted in identifying approximately 21,000 customers out of 1.3 million or about 1.6% who experienced a billing period over billing period increase of this magnitude. While these increases may be large, it does not mean they are inaccurate. As we graph this usage over time, we see the most significant increases coming from water usage in San Diego's warmer months, which is where we would expect the more significant increases, while the late fall of 2017 experienced an extended water billing cycle, likely contributing to other increases.
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