San Diego City Audit Committee Meeting - July 22, 2020

The Audit Committee of the City of San Diego met on July 22, 2020, via teleconference per Executive Order N-29-20. The meeting covered the auditor's monthly activity report, the city auditor recruitment update, a follow-up performance audit of the Public Utilities Department's industrial wastewater control program, the quarterly fraud hotline report, the FY2021 IT audit risk assessment and work plan, and the FY2021 citywide audit risk assessment and work plan. Several votes and directives were issued.

Public Comments & Testimony

• Non‑Agenda Public Comment:
  • Lewis Rotoliko expressed concerns about the Measure G ballot measure for the SDSU Mission Valley project. He argued that the land cost was improperly reduced from $508 million to $86 million through inflated deductions, resulting in a $400 million subsidy to SDSU. He questioned the fairness and legality of the process.
  • Martha Welch made brief, disconnected comments about audits and city hiring.
• Item 6 - City Auditor Recruitment Update: Martha Welch commented that the city cannot hire auditors because it eliminated pensions, and that the recruitment effort is flawed.
• Item 1 - Follow‑up Audit of PUD Industrial Wastewater Control Program: Martha Welch criticized the city’s handling of audit recommendations and the lack of progress since 1984.

Discussion Items

• Item 5 - City Auditor’s Monthly Activity Report:
  • Kyle Elser, Interim City Auditor, reported that since the last meeting, five audit products were issued (including a follow‑up audit of PUD’s industrial waste control program, quarterly hotline report, FY21 citywide and IT risk assessments, and a memo on office improvements). Three audits are in report writing (police crime data, street sweeping, central stores inventory), four in fieldwork (equal opportunity contracting, legacy IT applications, climate action plan, employee discipline and incentives), one in planning (IT service delivery), and three not yet started (real estate leasing, public works engineering charges, homelessness services). The homelessness audit was dropped because a prior audit was completed in February 2020. In FY20, 11 audit reports with 89 recommendations were issued. The committee discussed the annual central stores inventory audit, which is mandated by municipal code. Chair Sherman asked about freeing up staff time.
• Item 6 - City Auditor Recruitment Update:
  • Lisa Byrne (Office of the Independent Budget Analyst) presented the update. A subcommittee (Stuart Halpern and Ricardo Valdivia) was formed. The job posting was completed June 26 and posted on governmentjobs.com and LinkedIn. Outreach included the Association of Local Government Auditors, National Association of State Auditors, and Institute of Internal Auditors. 21 applications have been received, nearly half from the IIA posting. A tentative timeline: application cutoff August 9, first round interviews (subcommittee) mid‑August, second round (full committee) late September/early October, city council appointment October 27 (with possible extension to November). The committee praised the effort.
• Item 1 - Follow‑up Performance Audit of PUD’s Industrial Wastewater Control Program (IWCP):
  • Andy Henau (Interim Assistant City Auditor) and staff presented. The audit found that many fees have not been updated since 1984, and program cost recovery is very low: from FY10‑FY19, 86% of costs ($33.3 million) were passed on to other wastewater customers (residential/commercial), while only 14% ($5.5 million) was recovered from regulated businesses. This practice may violate city regulations and Proposition 218. The audit made six recommendations to achieve cost recovery and proper fee setting, plus recommendations to consolidate billing processes. PUD has begun a fee study (expected draft end of August) and plans to move IWCP costs to the Metro Fund. Shauna Lawrence (PUD Director) and Johnny Perkins (Deputy Chief Operating Officer) acknowledged the issues and committed to implementing all recommendations. Councilmember Moreno expressed shock that the issues from 2013 remained unresolved and questioned why three prior fee studies were never finalized. The committee discussed the need to accelerate negotiations with 12 participating agencies. A motion was made to accept the report and forward it to the City Council, with amendments: (1) that PUD staff return to the September 30 audit committee meeting with a granular project management work plan, and (2) that the City Attorney provide a closed‑session update to the City Council on potential litigation exposure. The motion passed unanimously.
• Item 2 - Quarterly Fraud Hotline Report:
  • Andy Corita (Fraud Investigator) presented. In FY20, 229 reports were received (similar to prior years). In Q4, 48 reports were received; 28 were within hotline purview. 80 reports were open at the start of the quarter, 59 were closed, leaving 49 open. Two city auditor investigations were substantiated (one involving an employee who accepted $3,000 in gifts from vendors). Six department‑referred cases were substantiated (including unrecorded snack sales, water billing issues, falsified inspection). Corrective actions were taken. The committee accepted the report unanimously.
• Item 3 - City Auditor’s IT Risk Assessment and Audit Work Plan for FY21:
  • Steve Gomez (Principal IT Auditor) presented. The risk assessment uses eight risk factors to rank IT applications and processes. Planned audits: audit of IT procurement and vendor management, and audit of the fire department’s emergency response management system. Two carryovers: legacy applications (in fieldwork) and IT service delivery (in planning). Three IT audits were issued in FY20. The committee approved the plan unanimously.
• Item 4 - City Auditor’s Annual Risk Assessment and Audit Work Plan for FY21:
  • Kyle Elser presented the FY21 plan, which includes 22 projects: 7 carryovers (including the IWCP audit just presented), 10 new proposed audits (e.g., SDPD crime data reliability, PUD reservoir recreation, user fees, CARES Act funding, real estate acquisition, community policing, park and recreation equity), and other activities (fraud hotline, follow‑up, IT plan, mandatory audits). Councilmember Moreno highlighted the park equity audit, noting that Carmel Valley’s rec center budget is 23 times larger than Robert Eger South Bay Rec Center. The committee discussed real estate acquisition audit (Item 16) and governance best practices. The plan was approved unanimously.

Key Outcomes

• Item 1 (IWCP Audit): Unanimously voted to accept the report and forward to the City Council, with amendments:
  • PUD staff to present a detailed project management work plan at the September 30 audit committee meeting.
  • City Attorney to provide a closed‑session update to the City Council on potential litigation exposure.
• Item 2 (Fraud Hotline): Unanimously accepted the quarterly report.
• Item 3 (IT Audit Plan): Unanimously approved the FY21 IT audit risk assessment and work plan.
• Item 4 (Citywide Audit Plan): Unanimously approved the FY21 citywide risk assessment and audit work plan.