San Diego Audit Committee Meeting: Building Acquisition, CARES Act Audits, and FY22 Work Plans - July 28, 2021

On July 28, 2021, the San Diego City Council Audit Committee met to discuss performance audits of major building acquisitions and CARES Act funding, approve audit work plans for fiscal year 2022, and receive updates on office activities. The meeting took place virtually via Zoom, with all committee members participating. The committee approved previous actions, heard public testimony, and deliberated on several key items.

Consent Calendar

• Unanimously approved the committee actions from June 9, 2021 (Vice Chair Lakava moved, seconded by Member Mafia, all yes).

Public Comments & Testimony

• Lori Saldania (former state assemblymember) spoke during non-agenda public comment: expressed concerns about lack of oversight in housing and homelessness agencies, referencing the 101 Ash Street transaction and internal process problems. She urged greater transparency and diligence.
• Item 1 (Building Acquisition Audit): Saldania commended the auditor's work and criticized the mayor's office for not fully implementing recommendations, emphasizing the need for checks and balances. She also noted that previous reports about malfeasance were met with pushback during the mayoral campaign.
• Item 2 (CARES Act Audit): Saldania criticized the city's use of the convention center as a congregate shelter for unsheltered individuals during the pandemic, arguing that alternative non-congregate housing using hotel rooms would have been safer. She referenced a 4% mortality rate during the hepatitis A outbreak to underscore risks.
• Item 3 (FY22 Work Plan): Saldania raised concerns about the city's contract with ShotSpotter gunshot detection technology, questioning the city's ability to audit proprietary systems and citing instances of potential algorithm manipulation in other cities.
• Item 5 (Monthly Activity Report): Saldania noted that a special event (Holiday Bowl) may violate an MOU and that she had submitted public records requests to assess city costs.

Discussion Items

• Item 1: Performance Audit of the City's Major Building Acquisition Process

  • City Auditor Andy Hanna and his team presented findings on five acquisitions: 101 Ash Street, Civic Center Plaza, Housing Navigation Center (former indoor skydiving center), Kearny Mesa Repair Facility, and Palm Avenue Hotel. The audit found a serious lack of policies and oversight, leading to skipped due diligence steps and misrepresentations to the City Council.
  • Key findings:
    • No key decision-maker for acquisitions; due diligence responsibilities unclear.
    • At 101 Ash, the city was told it was a Class A building in excellent condition needing only $5 million in tenant improvements; actual costs: $26 million in tenant improvements and an estimated $115 million in additional repairs (total $141 million). Total estimated cost over 20 years rose from $128 million to $264 million.
    • The city used an uncontracted real estate advisor who was paid $9.4 million by the seller without disclosure.
    • For the Housing Navigation Center, the city relied on a seller-provided appraisal that valued the building at $15-22 million, but an independent appraisal later valued it at $7.2 million (close to the purchase price).
  • The audit made 10 recommendations, including creating due diligence checklists, requiring contracts and economic disclosures for advisors, and establishing an enforcement mechanism for providing accurate information to the council.
  • The city attorney's office disagreed with some recommendations; the mayor's office initially disagreed but later issued a memo agreeing to implement a due diligence checklist.
  • Committee members expressed strong disapproval of the prior administration's actions and the city attorney's response, calling for full implementation of all recommendations and suggesting law enforcement investigation into potential fraud.
  • Chair Moreno moved to accept the report, forward it to the City Council, and request staff to work with the auditor to revise management responses with updated timelines by the September meeting. The motion was seconded by Vice Chair Lakava and unanimously approved.

• Item 2: Performance Audit of the City's Use of CARES Act Funding

  • Principal Auditor Chris Kime presented the audit, covering $250 million in Coronavirus Relief Fund (CRF) expenditures. Overall, the city developed sound financial controls, but three issues were identified:
    1. Overpayment for portable showers: Vendor charged $44,800 per trailer per billing cycle vs. a contracted rate of $20,000, totaling $1.74 million overpaid. Management is consulting with the city attorney on potential refund.
    2. $1.74 million in leave expenditures that may not meet CARES Act requirements; the city replaced those with eligible public safety payroll costs.
    3. Emergency rental assistance program documentation gaps (29% of awards had residents without income disclosure; 11% lacked hardship documentation). The San Diego Housing Commission has since updated procedures.
  • All four recommendations were accepted by management. The committee voted to accept the report and forward it to the City Council as an information item (motion by Vice Chair Lakava, second by Member Halpern, unanimous).

• Item 3: FY22 Citywide Risk Assessment and Audit Work Plan

  • Andy Hanna presented the proposed work plan with 18 audits, including ongoing and new audits of Get It Done app, SDPD towing, code enforcement, homeless services contracts, and more. The committee approved the work plan unanimously.

• Item 4: FY22 IT Audit Risk Assessment and Work Plan

  • IT Auditor Steve Gomez presented the IT audit work plan, including three new audits (fire department network security, SDPD community policing integrated with performance audit, Get It Done app integrated audit) and one carryover (fire department emergency response system). The work plan was approved unanimously.

• Item 5: City Auditor's Monthly Activity Report

  • Andy Hanna reported on recent audits issued, staffing updates (new hire Rushin Shen), and ongoing efforts to secure independent legal counsel. He noted that the mayor's office directed HR to delay meet-and-confer on a ballot measure for independent counsel until approximately January 2022, making the June 2022 ballot deadline challenging. The item was informational; no vote taken.

Key Outcomes

• Item 1: Accepted the building acquisition audit report and forwarded to City Council; directed staff to work with auditor to revise management responses by September 2021.
• Item 2: Accepted the CARES Act audit report and forwarded to City Council as an information item.
• Item 3: Approved the FY22 citywide audit work plan.
• Item 4: Approved the FY22 IT audit work plan.
• Item 5: No action; informational.
• The committee also acknowledged the resignation of Chief Compliance Officer Matt Helm and thanked him for his service.
• Meeting adjourned; next meeting scheduled for September 29, 2021 at 9:00 AM.