San Diego Audit Committee Meeting: 2020-05-20 Review of Financial Controls, Fraud, and Workforce Strategy
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San Diego Audit Committee Meeting: 2020-05-20 Review of Financial Controls, Fraud, and Workforce Strategy
The San Diego City Audit Committee met on May 20, 2020, via teleconference due to the COVID-19 emergency, to discuss and vote on several audit-related items. The meeting covered the 2019 annual report on internal financial controls, a hotline investigation into gifts received by a city employee, a performance audit of strategic human capital management, the quarterly fraud hotline activity report, and the city auditor's monthly activity report. All voted items were approved unanimously.
Consent Calendar
- The committee unanimously approved the minutes from the February 19, 2020 meeting.
- Item #1 (consent agenda) was approved without discussion or public comment. The motion was made by Councilmember Moreno, seconded by Committee Member Halpern, and passed unanimously.
Public Comments & Testimony
- Stacey Fulhorst (San Diego Ethics Commission) called in to note that expanding the Ethics Commission's jurisdiction to include approximately 750 classified employees, as recommended in the hotline report, would require additional staffing (estimated 2–4 new staff). She asked the committee to consider this cost.
- John Stump (public commenter) commented on the human capital management audit, noting that the compensation comparison was flawed because it did not include the general San Diego workforce, where city employees earn 2–10 times more. He also questioned the charter citation for police funding priority and suggested high turnover in the City Attorney's Office is due to trial experience seeking.
- Joy Sanyata (District 3 resident) expressed appreciation for the committee's work and urged focus on the challenges of the COVID-19 transition period.
Discussion Items
- 2019 Annual Report on Internal Financial Controls (Item #2): Jeff Peel (Assistant Director, Department of Finance) presented the report, highlighting the city's use of the COSO framework and seven new controls implemented since the FY2018 CAFR error. Management concluded internal controls are effective and certified. The committee voted unanimously to accept the report and forward it to the City Council.
- Hotline Report of Gifts Received by a City Employee (Item #5): Gina Ruza (Fraud Investigator, City Auditor's Office) presented a confidential report on a classified employee who received gifts (e.g., Vegas shows, golf events) from vendors in exchange for steering extra contract money. The employee had been in the position from approximately 2012 to 2016; the hotline complaint was made in 2015. The FBI investigated, and city management agreed to all four recommendations: add classified employees to Ethics Commission jurisdiction, investigate the employee, and consider debarment of two vendors. Chair Sherman and other members expressed frustration over the slow timeline (5 years from complaint to action). Matt Helm (Chief Compliance Officer) and James Nagelvoort (Director of Infrastructure Projects) confirmed that personnel action is substantially complete and debarment proceedings are underway for one vendor (suspension expected within weeks). The committee voted unanimously to accept the report and forward recommendations to the City Council.
- Performance Audit of the City's Strategic Human Capital Management (Item #3): Andy Hanaw (Interim Assistant City Auditor) and Nathan Otto (Principal Performance Auditor) presented the audit. Key findings: The city lacks a comprehensive compensation strategy; most employee groups are 14% or more below median compensation of benchmark cities, with police being the most competitive (5% below median for new hires, 12% for 5-year employees). Turnover rate is ~9% (FY16–17), but police quit rates were lower than city average (3.5%) while deputy city attorneys had 13% quit rates. The city does not comprehensively track or monitor key workforce metrics. Recommendations included developing a compensation strategy, creating an annual workforce report (HR proposed biennial, but committee agreed with auditor's recommendation for annual), and improving the special salary adjustment (SSA) process. Management agreed to 10 of 14 recommendations fully; partial disagreements on some timelines and methods. The committee voted unanimously to accept the report and forward to the City Council, with the motion emphasizing the need for an annual workforce report.
- Quarterly Fraud Hotline Activity Report, FY2020 Q3 (Item #4): Gina Ruza reported 74 reports received in Q3, 52 within purview. 28 cases were closed, leaving 80 open cases (the highest ever). One substantiated case involved personal use of city facilities for private fundraising, which will no longer occur. The committee voted unanimously to accept the report as information.
- City Auditor's Monthly Activity Report (Item #6): Kyle Elser (Interim City Auditor) reported five audit products issued since the last meeting, including the hotline report and a memo on independent legal counsel. He noted the mayor's proposed budget cut of 7.3% ($295,000) to the auditor's office, which would require leaving a vacancy unfilled and possibly layoffs or salary cuts. He emphasized the importance of audits during tight budget years. The committee took the report as information. Committee Member Spencer requested a future presentation on the peer review results.
Key Outcomes
- Unanimous approval of the consent agenda, minutes, and all four action items (Items 2, 5, 3, and 4) to forward to the City Council.
- Directive: Management will proceed with employee discipline and vendor debarment in the gifts case; suspension of bidding for the more egregious vendor expected within 1–2 weeks.
- Directive: The performance audit recommendations will be forwarded with the committee's support for an annual (not biennial) workforce report. The city auditor's office will continue to follow up on recommendations with partial agreement.
- Next steps: The committee requested an update on the peer review findings at the next meeting (scheduled for June 17, 2020, at 9:00 AM). The city auditor's budget will be discussed with the City Council in upcoming budget debates.
Meeting Transcript
Good morning, everybody. Per executive order 2990, which suspends certain requirements of the Brown Act. Some of the members will be participating via teleconference, and no member of the public will be in attendance at the audit committee hearing today in the interest of public health and safety. In addition, this meeting is being televised and live streamed on the city's website, and the council committee liaison has made arrangements for the public to comment via telephone and electronically. We appreciate the public's cooperation. We have several members of the committee and staff calling via teleconference. Dan, can you please proceed with the role? Thank you, Chair Sherman, for the record with us today via teleconference. We have Vice Chair Councilmember Marino, Committee Member Alan Spencer, Committee Member Stuart Halpern, Lisa Byrne with the IBA, Joan Dawson with the City Attorney's Office, and in attendance for the committee. We have Kyle Elser, our interim city auditor from the mayor's office, Matt Helm, Chief Compliance Officer, myself, Dan Manley with the audit committee as the audit committee consultant. And we have committee member Ricardo Valdivia absent. Thank you. My apologies, Miss Tevlin for IBA as well as attendance. Thanks, Dan. Uh just so we're all on the same page today. I just want to go over how we'll run the committee under these unprecedented times here. Once I introduce an item, that will begin the call-in period for the public to make a comment. This will give anyone from the public time to call in while staff presents. The number to make public comment is 619-541-6310. When prompted, please enter the access code 877861, followed by the pound sign. Also, since item one is a consent item, I will now open up the call-in window for this item while we continue on with the beginning of the meeting. So if members of the public want to call in on item number one, now is the time to do so. After staff gives a report, I will call on management staff for comment, and then I will call on Lisa Byrne from the IBA for any other comments. From there, we will take public comment. Each speaker will get three minutes. If we have any calls, Dan will take them in order as they appear on his screen. When the queue is empty, public comment on that item will be closed, and we'll move on to the committee member comments. All committee members' comments will be taken in the following order. Councilmember Moreno will go first, then committee members Halpern, Spencer, and then I'll go last. Unfortunately, Mr. Baldivia couldn't be here today. Also, as a friendly reminder to all members and staff on the line, please mute your phone when you are not speaking. So with that, I'll need to get a approval from the minutes of our last meeting, which was February 19th, 2020. We'll start with Councilmember Moreno. Do I have a motion and a vote? I'm so sorry. I I was I was self-muted. Good morning. Yes, I moved to approve the minute. And did you see the consent agenda as well? I'm happy to move the consent agenda as well. Yeah, we haven't got to consent, but we'll be there shortly. Thank you. Happy to move the minute. Thank you, Councilmember. Committee member Halpern. I will second. And that's a vote in the affirmative, I'm assuming. As well, yes. Thank you.
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