Good morning and welcome to the audit committee meeting of November 12th, 2025.

Our committee liaison, Natalie Kessler will go over instructions for today's meeting.

Thank you, Chair.

While members of the public are able to attend the meetings in person, this meeting is being televised and live streamed on the city's website, and council administration will continue to make arrangements for the public to comment using the Zoom webinar platform.

Members of the public who wish to provide virtual testimony must enter the virtual queue by raising their hand before the virtual queue closes.

The queue will close when the last virtual speaker finishes speaking or five minutes after in-person testimony ends, whichever occurs first.

This will allow for better meeting management between the two platforms and ensure the committee is able to manage and conduct city business.

We appreciate the public's cooperation.

Chair.

Vice Chair Whitburn.

Sure.

Committee member Halpern.

Present remotely.

Committee member Mafia.

Present.

Committee member Tapshery.

Uh present remotely.

And Chair, Councilmember Moreno.

Present.

Committee member Halburn, can you please state your virtual declaration?

Yes, thank you.

I'm notifying the audit committee and the public that I will be attending the meeting today remotely due to just cause related to contagious illness.

Pursuant to the Brown Act, I'm disclosing that there are no individuals 18 years of older in the room with me.

I will update this disclosure if it changes during the course of the meeting.

Thank you.

Committee member Tap Shuri, can you please state your virtual declaration?

Yes.

I'm notifying the audit committee and the public that I will be attending the meeting today remotely due to just cause related to child care.

Pursuant to the Brown Act, I'm disclosing that there are no individuals 18 years of age or older present in the room with me.

Thank you.

Chair Moreno.

Also attending uh the meeting is Andy Hanao, this our city auditor.

Uh Jeff Peel, Assistant Director for the Department of Finance, Kathy Steinman with the City Attorney's Office, Erin Noel with the IBA, Kevin Smith, committee consultant, and Natalie Kessler, committee liaison.

Natalie, please uh continue with the public comment instructions.

If you're in person, please complete a speaker slip located at the entrance of chambers and place it on the box near the public comment microphone.

Please do so in a timely manner to ensure proper meeting management.

In-person testimony will conclude before virtual testimony begins.

Members of the public can join the webinar by computer, tablet, or smartphone by accessing the link listed online in the preamble language of the agenda on the city's webpage.

If you need to participate by phone, please style 16692545252.

The webinar ID is 1600 three three seven four two two pound.

This information is also available on the agenda and will appear on the screen during the public comment period for each agenda item.

Members of the public who wish to provide virtual testimony must enter the virtual queue by raising their hand before the queue closes.

The queue will close when the last virtual speaker finishes speaking or five minutes after in-person testimony ends, whichever occurs first.

Please note that if you're watching via City TV 24 or online, there may be a delay, so please participate via the audio on your phone and mute your TV or computer when it is your turn to speak.

If you wish to speak on a particular item, wait for that item to be called and then raise your hand to speak by tapping the raise your hand icon, or if you're a call and participant, press star 9 on your phone.

If you raise your hand during a non-comment period, your hand will be lowered.

Chair.

Thank you.

A quorum is now present, and we will now take up non-agenda public comment.

Uh, the council members respect and appreciate the public's input and are fully committed to protecting every participant's free speech rights at council and committee meetings.

Uh, Natalie, please proceed with non-agenda public comment.

For rule 2.7 non-agenda public comment is an opportunity for members of the public to comment on items that are not on the agenda but within the subject matter jurisdiction of the committee.

Each speaker will have two minutes.

And chair, we have not received any speakers' lips from individuals in chambers.

There are four hands raised in the virtual queue.

I've started the five-minute timer.

Andrea Ebbing, please unmute and begin your non-agenda public comment.

Good morning.

My name is Andrea Ebbing.

I'd like to talk about public safety today.

I would like to talk about all of the reasons why I will not be calling and wasting my time reporting anything to SDPD in regards to the tracker that was found in my vehicle hardwired into my battery last night.

This is a new item.

I purchased my car at um Kearney Mesa Volkswagen and confirmed with everyone there that it was not installed.

Confirmed with my insurance company that it was not installed, and confirmed with my bank that it was not installed by any of them.

But you know who probably did install it over the last 60 days because I have pictures of the inside of my vehicle from 60 days ago when I jumped my neighbor.

Um was probably my exes who partnered together to murder me.

And I've been denied access to the law despite felony strangulation, child abduction, and so much more.

Now, the reason I won't report this to SDPD is number one, because it's gonna go to the DV unit.

And there's a uh Sergeant Detective Oliver in the DV unit who is paid 425,000 of something called other pay by my ex, who he is a partner with.

He is a partner of Apex Recovery, he's the president of the Black Police Officers Association, and he is a partner in kickback, kickbacks and bribery.

So there will be no justice for the stalking of me, their victims.

But I can assure you, I will track this back to them, and I will file lawsuits against them.

I also don't want any of my police reports to go missing, like the five years of uh police reports that went missing in my strangulation and abduction case.

So um, I won't be reporting.

I won't be sitting for seven hours waiting to uh get a hold of dispatch or 24 hours waiting.

Thank you for that concluding statement.

Our next speaker is Becky Rapp.

Please unmute and begin.

Good morning, Chair and members of the audit committee.

My name is Becky Rapp, and I'm a member of my local planning group.

Last week at the economic development and intergovernmental relations committee meeting, an item requesting committee action was discussed regarding the establishment of a cannabis delivery service business permit and enhanced commercial cannabis enforcement mechanism.

Before this proposal moves to full council, I, along with other members of the public, would like to again call for a full audit of the city's marijuana business department.

There are ongoing concerns as taxes have not been consistently collected and penalties are continuing to occur.

While the proposed ordinance rightly seeks to collect fines from illegal delivery services, which is a good idea, it raises a serious question.

How will this enforcement be effective if the city has not yet collected from our own permitted marijuana businesses currently operating within the city?

The proposed high penalties for the illicit market, upwards of 20,000 per day, are encouraging, although enforcement must begin with accountability within our existing system.

If permitted businesses have not been held fully accountable, we need to know why.

I respectfully request that this committee agendize this item so that the public can understand and ensure full transparency in how the marijuana department is being managed before expanding delivery services.

The community deserves confidence that the city is responsibly overseeing tax collection penalties and compliance in the marijuana industry.

Transparency and accountability must come first.

Thank you.

Thank you.

Our next speaker is Peggy Walker.

Peggy Walker, please unmute and begin.

Good morning, thank you.

I'm a public health educator and a youth mentor.

And in my work at SAMS Reports of New Scientific Studies, Fast My Desk just weekly demonstrating the harms of high potency THC, particularly to those under H26.

In light of the staggering scientific evidence of marijuana's harms, I came to call attention to a state auditors' report addressing unclear rules and insufficient enforcement regarding marijuana packaging and marketing to use.

These recommendations to the State Department of Cannabis control are pending action and include require licensees to use plain packaging, not attractive to children, better specify prohibited design elements, including colors, images, and cartoon creatures attractive to kids, ensure marijuana beverage cans, properly identify a single serving size, establish a cap on THC per beverage container, and enforce flavor bands and inhaled products.

It's unfortunate that as the state audit department reported, these recommendations for youth safety have remained pending for months.

Meanwhile, new studies link PAT use to diabetes, oral and testicular cancers, human ACL damage, and fetal harm, even to a shocking 25% increased risk of heart attack and 42% increased risk of stroke in young users never before seen.

You, this committee can help stop the marijuana's industry shameful targeting youth by encouraging their immediate implementation by the State Department of Cannabis control or through local implementation of these recommendations.

Please consider these steps to keep our kids safe.

Thank you.

The five-minute timer has concluded.

We have one hand remaining in the virtual queue.

Madison, please begin.

You're our last non-agenda public comment.

Thank you.

Good morning.

My name is Madison, and I appreciate the opportunity to speak with you today about a growing financial and oversight concern related to the commercial marijuana industry.

As you know, this committee is charged with avoiding exposure to liabilities that could impact city services or taxpayer dollars.

A recent national law review article from October warns that the cannabis industry nationwide is facing a six billion dollar debt wall by the end of 2026.

Many of the largest marijuana companies, multi-state operators with licenses here in California, are deeply overleveraged and burning cash.

Several are already selling off licenses, laying off staff, or shutting down operations entirely just to keep up with debt payments.

What does this mean for San Diego?

If we expand or continue permitting marijuana businesses, we risk tying city resources like regulatory oversight, public safety, zoning, and tax collection to companies with a high probability of default.

The report also warns of quote zombie operators, businesses that are financially insolvent but still active.

These pose long-term risks for compliance enforcement, tax collection, and local neighborhood impacts.

This committee should be aware of the potential mess from this unstable industry and consider whether further investment or partnership with the cannabis industry aligns with the city's long-term financial stability and risk management goals.

Thank you.

Thank you.

And Chair, this concludes non-agenda public comment.

Thank you.

We will now move to committee members, mayoral staff, city attorney, or the IBA for any comments.

Um, hearing none, do we have any request?

Others?

Okay, wonderful.

Um IBA has a few comments.

Um thank you, and good morning, Chair Marino and members of the committee.

I'm Aaron Noel with the office of the IBA.

I'm just providing an announcement for anyone who may be interested in serving that the committee continues to have an open recruitment for Mr.

Tabsuri's public member member position on the audit committee.

Per the city charter, eligible applicants must have at least 10 years of experience as a certified public accountant, a certified internal auditor, or other professional legal or financial experience in audit management.

There is a link on the audit committee website with information and an application.

And anyone interested can reach out to the Office of the IBA for additional information or if you have questions.

Uh this concludes my announcement.

Thank you.

Thank you.

Uh, do we um have any requests for continuance?

No, any continuances in that hearing none.

We will take up our consent agenda.

Do we have any requests to pull an item from the consent agenda?

Okay.

We're gonna move forward with public comment on the consent agenda.

Natalie, please proceed.

Thank you, Chair.

The public comment period for the consent agenda is now open.

The consent agenda includes item one approval of the committee minutes of October 8th, 2025.

And Chair, we have not received any slips in chambers, and we do not have any hands raised in the virtual queue.

So this will conclude public comment.

Thank you.

I'm gonna turn it over to committee members for questions, comments, and also to entertain a motion.

Thank you, Council Member Whitburn.

I'm happy to second.

Um so let's go ahead and put the vote up.

Committee member Tapchery, can you please register your vote?

I vote yes.

Committee member Halburn, can you please register your vote?

I also vote yes.

Thank you.

And that passes unanimously 5-0.

Thank you so much.

We're now going to take up our discussion agenda.

Natalie, please introduce item number two.

Item number two, performance audit of the city's key performance indicators.

And if you're watching on City TV and would like to call in to provide comment on item two, please call 16692545252 when prompted.

Chair?

Wonderful.

And um, if staff could please introduce yourself for the record and also let us know how much time you need and proceed accordingly.

Uh good morning, uh Chairman Committee members, and you honour city auditor.

Uh, this is our performance audit of the city's key performance indicators or KPIs, and we need about 12 minutes, please.

Uh according to the city's strategic plan, the city values transparency and the use of data to make better informed decisions.

To that end, uh KPIs should be a key management and transparency tool, but we found the city underutilizes them due to concerns about accuracy and relevance and a lack of venues for the city council to discuss and provide feedback on the KPIs city departments produce.

Uh, we really want to thank uh the performance analytics department for all their assistance uh on this audit uh and all the city departments and council offices who took our survey on how they use KPIs and their suggestions for improvement.

We heard back from almost every department and council office, and we appreciate all the time and feedback they provided to help this audit identify many key issues and make actionable recommendations to improve the value of KPIs for key stakeholders.

Uh with that, the audit team with me here today is Principal Performance Auditor Nathan Otto, Senior Performance Auditor Nikki Kalmas, and performance auditor Alberto Marillo, and I'll turn it over to them to go over the details of what we found and recommended.

Great.

Thanks, Andy.

Good morning, everyone.

Uh so for any large complex and multi-billion dollar organization, uh performance man measurement is an essential transparency tool.

Uh, in this case, allowing our residents and taxpayers to monitor and engage with how we as a city are performing.

Uh, as you're aware, the city has a structural budget deficit for the foreseeable future, uh, which makes performance monitoring and management that much more important.

So we had three formal audit objectives, which are up here on the slide.

Uh we analyzed city departmental KPIs published in city budgets from FY22 through 26.

Uh we also reviewed committee discussions and surveyed and interviewed council offices as well as departments throughout the city.

Uh we had two formal findings, but broadly we found that KPIs are underutilized due to concerns about accuracy, relevance, and comparability.

And the result is that we as uh a city are missing chances to make the best data-driven decisions and monitoring for key city services.

We made five recommendations to address this, and management agreed to all of these recommendations.

Excuse me.

Uh so just for some background, KPIs are reported annually and are published for each department in the city's proposed and adopted budget documents.

They're also reported on a KPI dashboard.

And departments themselves are responsible for selecting, monitoring, and reporting their KPIs.

And uh PANA, uh, several of whom are here today supports departments in those efforts.

So as you can see on the slide here, this is what KPIs look like in the budget.

This is just a generic form.

The KPIs include a baseline, which is based off of recent historical data and a goal set by the department.

And uh Nikki and Alberta will go through some additional information on the findings and recommendations.

Thanks, Nathan.

Uh Alberto Morio, performance auditor on this project.

In finding one, we found that KPIs are underutilized for a variety of reasons, including low council confidence in the current KPIs for improved service delivery, council concerns about KPI accuracy, and limited opportunities to discuss KPIs because KPIs are only presented in the budget.

For example, we surveyed city council offices and city departments on the city's KPIs as currently presented in the budget and the performance monitoring process.

Only one out of seven council offices and nine out of 27 departments that responded to our survey reported routinely using KPIs to inform budget, policy, andor operational decisions.

Thus, the city is not using KPIs to inform high-level decisions.

When used correctly, KPIs can lead to meaningful improvements.

We found examples of city departments and other cities using KPIs to help deliver improved outcomes for residents and evaluate programs and services.

For example, the quotes on the slide are from our survey showing specific examples of how departments have used KPIs for decision making.

Through monthly reviews and conducting further analysis of performance data, the Office of the City Clerk improved its customer satisfaction scores.

Similarly, the library department noticed that it was not achieving its accessibility satisfaction score KPI.

Library user KPI to not only improve their future performance but also taking action to meet the accessibility needs of the community.

We also looked at the city's guidelines and oversight to ensure key performance indicators are accurate, reliable, and useful.

However, they are limited.

Part of council policy 000-02 requires departments to provide explanations for performance measures not meeting or trending towards performance targets.

Shown on the slide, we found that in the FY2026 adopted budget, eight of 27 departments did not fully explain unmet performance targets, while 13 of 19 departments in the explanation provided category only provided some of their unmet targets, which does not align with the council policy's intent.

Additionally, the statement of budgetary principles has included KPI review and frequency guidelines at the budget and government efficiency committee, or BNGU for short, for the several past years.

While some KPIs may be discussed from time and time as a part of related agenda items, we found no evidence that KPIs have been discussed in a systematic or regular manner at BNGE from FY 2015 through FY 2025.

Reviewing performance data on a regular basis can help identify trends before they become problems and help ensure timely performance management.

Because KPIs receive limited scrutiny and examination, a standalone performance report specifically for KPIs could strengthen oversight, create a culture of continuous improvement, and promote performance monitoring as a year-round activity.

Inaccurate or unreliable KPIs put the city at risk of inaccurate performance assessments, resulting in incorrect policy or management decisions.

Shown on this slide, 11 different audits by OCA have identified various issues with KPIs that were irrelevant, unrealistic, and accurate or do not follow best practices.

We also found that council offices have concerns regarding the accuracy of the current KPIs reported in the budget.

Although PANDA requires all the city's KPIs to meet certain standards, such as calculation methodology, PANDA does not have the capacity to check KPIs for accuracy.

Publishing the KPI calculation methodology and the annual performance report can strengthen oversight of KPIs by providing by providing a dedicated form for departments to provide their KPI methodologies and potentially discuss them with the city council and city leadership.

The city's KPIs are currently presented in tables in the annual budget and in the performance dashboard.

However, the city does not publish tables or graphs with historical KPI data, which would help identify performance trends over time to improve monitoring and oversight.

When benchmarking with eight comparable cities, we found that all eight publish historical data in some capacity.

Furthermore, six of the eight benchmark cities publish their historical performance and online dashboard.

Therefore, the city can improve its online KPI dashboard by incorporating visuals and historical data.

As a supplement to this audit report, we build the performance dashboard as an example of how the city's dashboard could be improved and to provide easier access to viewing the city the city's historical performance.

The left side of the exhibit shows what the current dashboard looks like.

The dashboard we made with historical data is on the right.

You can access the dashboard we created to view with the city's current KPIs at the link on the slide and in our report.

To improve the city's oversight of KPIs to help ensure greater accuracy, transparency, and value, we made three recommendations to PANA in this finding.

The recommendations include developing and publishing an annual performance report for the city's KPIs, creating a KPI data validation process to ensure accuracy of the city's KPIs, and developing a publicly accessible dashboard that includes historical performance data.

Nikki would now walk you through finding two.

Thank you, Alberto.

Good morning.

My name is Nikki Kelmis.

In finding two, we found that PANA encourages departments to select aspirational and or realistic targets.

But while PANDA provides support, training, and guidance to departments for their KPIs, the city does not have a formal enforceable policy on whether KPIs should be aspirational or realistically achievable.

Further, our furvey found mixed beliefs on whether KPIs should be more realistic or aspirational.

As a result, as you can see on the slide, the percent of KPIs that met their targets varied widely across city departments, ranging from zero to 100%.

On average, the city met 48% of its KPI targets.

But due to differing ways in which departments select KPI goals, it is unclear what conclusions decision makers and the public are supposed to reach.

For example, one department may not be meeting its KPI goals because the goals are aspirational but not achievable with current resource levels.

At the same time, another department may meet its KPI goals, but only because they were set to be easily attainable.

Whether or not these departments are meeting these goals is driven by how their KPIs were designed and not necessarily indicative of if they are performing well or poorly.

In addition, city departments and council offices do not agree on whether these KPIs should be aspirational or realistic, but most agree that departments should have at least one of each.

The quotes on the slide are from our survey.

One response is that KPIs should be aspirational so that council can decide if increased budget is required, and the other states that aspirational KPIs could lead to unreasonable expectations.

A citywide philosophy on KPIs would enhance accountability and expectations management for services across city departments.

Clearly defining if a target is realistic or aspirational would help city council and the public compare KPIs across the city and understand how a KPI should be used.

For example, both the federal government and the city and county of San Francisco have two sets of KPIs.

One set of aspirational, more long-term goals, and another set of realistic and short-term goals.

Finally, when we looked further into comparability across city departments, we found that all city departments except the city attorney's office has KPIs.

The city attorney's office expressed the concern that certain KPIs could lead to the perception of improper motives or incentives to meet them.

However, we benchmarked against eight city attorney offices and municipal courts and found that five out of eight have performance measures.

For example, Seattle has a case file integrity KPI, which measures the accuracy and completeness of case files, and San Francisco has a number of hours required to respond to requests for advice council and council KPI.

So, to enhance accountability, KPI comparability and expectation management for key city services, we recommend PANDA work collaboratively with city leadership to create a formal policy documenting the city's KPI policy, and that the city attorney's office work with PANDA to establish and report a KPI or KPIs.

PANDA and city management agree to all five recommendations.

We ask that the audit committee accept this report and forward it to city council, and we're happy to answer any questions that you have.

Thank you.

Wonderful.

Okay, thank you.

We will turn it over to public comment for item number two.

The IBA, sorry, Erin.

Thank you, and good morning, Chair Marino and members of the committee.

I'm Erin Noel with the Office of the IBA, and with me is Helen Welda Gorgis from Race and Equity, which is now under our office.

Our office did not have concerns about this item, but I would like to provide some brief comments on three items.

After I conclude, I'll pass it off to Helen to make some brief comments regarding the importance of KPIs in race and equities work.

First, as OCA noted, this report is intended to help start a broader conversation on the city's use of key performance indicators.

The audit highlights and we agree that KPIs are essential for transparency, accountability, and data-driven decision making, especially as the city faces ongoing fiscal challenges.

In the context of tight financial constraints, KPIs can be valuable tools for prioritizing programs and services, evaluating program effectiveness, and enabling course correction and ensuring that limited resources are allocated to areas with the greatest impact.

This means focusing on outcome-oriented KPIs rather than just outputs or activities.

For example, DSD has a current output-focused KPI, measuring the percentage of building inspections completed by the target date, which provides more actionable insight than simply counting the number of inspections.

Second, our office is actively talking with the performance and analytics department to explore the role we can play in providing input for key department KPIs, which may benefit from implementing more impactful KPIs.

That includes providing input on existing KPIs as well as suggesting additional KPIs that could further support the city's strategic goals and fiscal priorities.

Lastly, regarding the budget and government efficiency committee's review of KPIs, referenced in the annual statement of budgetary principles.

Our office is working to coordinate with the chair's office and PANDA to provide an update on KPIs at committee early in the new year.

This will help initiate regular systematic review and discussion of KPIs.

Now I will pass it off to Helen from Race and Equity.

Thank you, and good morning, Chair Moreno and members of the committee.

My name is Helen Will Degorgas.

My pronouns are she, her, and hers, and I am with the Office of the Independent Budget Analyst Division of Race and Equity.

I will be providing comments under three categories.

One, the importance of key performance indicators, KPIs, to the division of race and equities, Dre's work.

Two, how KPIs interact with tactical equity plans, TEPs.

Three, equity implications for a public KPI dashboard and more formal processes.

I apologize for interrupting you, but it's really hard to hear you, so maybe get the mic a little closer.

Thank you.

Is that better?

Okay.

Importance of KPIs to Dre's work.

Equity is about outcomes.

So one of the first projects Dre tackled upon its inception was in partnership with the performance and analytics department, PANDA, to launch a new tactical equity plan process citywide in 2022.

This merged legacy tactical planning and equity action planning.

By bringing these two processes together, departments can better integrate equity into how they operate both now and in the future.

KPIs are embedded within TEPs and are a critical component for TEPs to serve as an effective data-driven decision-making tool.

Departments set universal equality standards for each objective within their TEP.

Wherever departments are falling short of that standard, exists an equity opportunity to address the identified disparity gap or deficiency.

DRE relies on KPIs to highlight if and where a disparity gap or deficiency exists between our desired future state and our current state.

KPIs are a vital piece of the city's existing budget equity framework.

It's worth noting that disparities, gaps, and deficiencies are not limited to race and other social identities, but rather operate at the city under four equity factors: access, assets, neighborhoods, and processes.

How KPIs interact with TEPs.

A department TEP should capture all identified disparities, gaps, and deficiencies within their operations to inform decision makers in their policy, operational, and budgetary considerations.

Accurate KPIs are essential within each department's TEP so that DRE's staff can assess equity implications and follow up accordingly.

Race and equity staff meet with the department leaders to update TEPs and ensure KPI alignment.

If when KPIs should be enhanced, DRE also works with PANDA to get operating departments all of the subject matter expert support they require.

The absence of data is data.

So where departments need more data to inform sound KPIs is also something we support collaboratively.

We see this as concrete action in service of transparency and look forward to continued progress in this arena.

Just as the TEP dashboard supports equity work via increased access and transparency, a public KPI dashboard could meaningfully enhance stakeholder understanding of the policy, operational, and budgetary decisions made during and outside of the city's annual budget development process.

With that being said, launching a public KPI dashboard and more formal processes comes with operational, budgetary, and policy implications that must be judiciously considered, especially given the forecasted budget per the Office of the City Auditor OCA's report.

In closing, KPIs are an essential component of equity work, and we are committed to continued collaboration with PANDA in our shared goal of making citywide progress.

That concludes my comments.

I'm happy to answer any questions.

Thank you.

Uh Natalie, please proceed with public comment on item two.

Thank you, Chair.

The public comment page for item two is now open, and we have not received any speaker slips from individuals in chambers, so we will move to the virtual queue.

I've started the five-minute timer.

We have one hand raised in the virtual queue.

With the username Zoom user, please unmute and begin.

Well, thanks for taking my call.

I suggested a few meetings ago that you guys hire a forensic accountant outside the city purview to look at different things about where's the money going.

And one thing with the trash thing, the trash ends.

The company said they're gonna recycle them.

Now I originally I thought that was grind them up and turn them into lawn chairs.

But they're gonna sell them.

They're gonna sell them to like La Mesa or sell them to other cities in Arkansas or somewhere.

They're gonna take the old ones that are a lot of them are good.

And they're not gonna grind them up.

They're gonna take them somewhere else and sell them.

They said it was you're doing us a favor.

So the people that own those trash cans, the people in San Diego, don't give them your trash cans, sell them to La Mesa.

Take your trash can off the street and let them give you a new one, and take you take your trash cans to the oceanside and sell them up there.

You know, they're just gonna take them.

And that's why we need a forensic auditor outside the city to find out where the money's going.

The one thing with the city, they have all these laws, but they don't follow them.

Like you just got through explaining.

Half the guys aren't even doing it.

There's a law as typical though on most things, like the deal down in the mission bay, or they're gonna start auctioning off property that's no good, supposedly.

So it's it's not I'm not telling you guys nothing you don't know.

So a forensic auditor and pay them a buck to work for the city and give them a piece of the action.

That's the performance.

The piece of the action he finds in fraud, he gets part of it.

So who's ever stealing the money, follow the money, different things, and when he finds the money, he gets a piece, he doesn't need city money.

He'll take the part of the settlement of the money that he exposes, or he or she's real in that this concludes your time and chair with no other hands in the virtual queue.

This concludes public comment.

Thank you.

I'm now gonna turn it over to committee members for any questions or comments.

And for the members online, if you could raise your hand, I do believe I see uh committee member Halpern.

Thank you, Chair.

Um you know, I first want to say um this is probably the most important audit done in my years of service on this committee, because you know, as anybody who's studied or engaged in management, the lack of effective use of KPIs severely challenges organizational effectiveness.

And as somebody who spent most of my career as a CFO of complex organizations, I wholeheartedly endorse the plan to create a performance report distinct from the budget process.

Um, so I've got a couple of questions.

First, a general one.

The conclusion that Panda and Management agrees with the recommendation, who's the whose management in this case?

Because it strikes me that to some degree, every department has to cooperate to or to actually implement these recommendations.

So I'm curious who the quote unquote management, in addition to Panda, who has agreed to this.

Uh Mr.

Halbin, so we wrote it up that way just because most of the recommendations are directed to Panda, and then uh, for example, there's one to the city attorney's office, so to kind of capture that.

Um, but I agree, and maybe Panda can speak to this more.

Obviously, yeah, it's gonna involve convening, you know, management across the city and leveraging uh other key stakeholders, especially the city council, uh, to make uh KPIs as valuable as possible.

So I don't know if Panda can speak to their plans.

Sure.

Alex Hampton, uh acting director in performance and analytics.

When formulating our management response, we coordinate with the city's exec team and uh have their support in our management response.

Gotcha.

Okay, so that that's helpful to know that the senior leadership of the city is behind this.

It's much appreciated.

So um, and then another question for Panda.

You know, I know you guys have limited resources, um, and it's well, two questions actually.

And it's a really big job to implement some of these recommendations across the city.

So, two questions.

First, um, have you thought about the notion of to make this a little bit more manageable to try to do this in somewhat of an experimental form with just a couple of departments to you know have focused effort, um, perhaps shorter time frame to um to results, just and just to see how it works.

Um without you know, the taking the the huge bite of trying to implement the entire thing across the whole city.

And then the second question is um, again, going back to the limited resources.

I don't know if you guys are familiar with Bloomberg Associates, which is um an entity set up by former New York City Mayor, uh Michael Bloomberg, which does pro bono consulting for cities.

They actually did a project to do KPI dashboard for the city of Paris, and I'm wondering if either you're permitted or open to the notion of seeking outside resources like that to uh to augment the resources of your own department.

Well, uh, thank you for the suggestion for the the first part.

I think that realistically, because we do have limited resources, and that that impacts the scope and the time with which we can respond or complete some of the work that we have underway.

So your suggestion of focusing in uh with certain departments uh makes a lot of sense, and we've been taking that approach with our performance collaborations that we've been doing with some departments, um, particularly transportation and fleet.

And so I think that's a good model for us to follow as we try to tackle you know the all all the KPIs at once can be a little overwhelming, but we're also looking to the IBA and uh race and equity division for assistance and helping to analyze the KPIs.

So we welcome their support and an involvement.

Um and then I'll hand it over to Justin for the second uh question.

Sure, thank you.

Good morning, uh counseling committee members.

My name is Justin Ellsworth, acting deputy director for performance and analytics.

Um, thank you for the suggestion for um Bloomberg.

We actually do have an existing partnership with Bloomberg through their What Works Cities program uh focused on public sector solutions around um best practices and data management and strategic management.

Uh we can certainly follow up and look into the other program that you mentioned, though.

Great, thank you so much.

Appreciate that.

Um, and then if I could, I don't know.

I I just had a couple of follow-up questions related to the um uh the city attorney office um response.

I don't know if there's anybody here who can speak to that.

I guess my starting question was that um I was a little bit confused about the target date, the reference of the target date for implementation is um to be included in the 27 budget, and uh I'm I'm not sure what that actually means in terms of a target date.

Could somebody provide any clarification?

Certainly, thank you for the question.

Jim McNeil, Assistant City Attorney.

And what we were looking to do is work through this particular fiscal year and identifying what the key performance indicators or indicator would be that we would include working with Panda, and then implement that into uh the next budget cycle for FY27.

So we in other words, we wouldn't be reporting at the in in fiscal year 26, which we're in now because we aren't tracking a particular KPI on a public basis.

Right, okay, got it.

Okay, so that would be done in advance of the uh of the next budget cycle.

Got it.

Thank you for the clarification.

So then the other thing I just want to ask about is in the response, um, and I'm kind of quoting here, there's a reference to the auditors' desire for consistency with other departments, the already reported measures may be identified as a KPI.

And then the response also mentions the number of cases and volume of services.

Uh are those the already reported measures that are envisioned as KPIs.

Uh there are already reported measures that we're considering to include as reported KPIs.

In other words, as we mentioned, there's already reports that are done by the criminal and community justice division on the volume of services that they provide through their diversion programs, cases charged, et cetera.

Your safe place, uh Family Justice Center, San Diego Family Justice Center also comes in, makes a report on the number of calls it takes in, the number of uh people that it serves, uh, and where those people are within the city.

Um, and then we also report, generally speaking, around the time that we're trying to deal with our budget funding on the uh the crush of civil litigation and other services that the office is required to provide.

Got it, great.

Thank you.

So, you know, I don't know if you were in the room when the IBA's representative spoke, but um uh, you know, just sort of captur the the spirit of those words, those things that were that you just mentioned, those are output measures, they're not actually performance measures.

And so when I look at the volume two of the department of detail um that was provided as part of the budget process, you guys list five goals, and I think they're beautiful goals.

Um, but those volume measures really don't speak to performance as it relates to the goals.

So I guess my question then is are you guys committed to not just you know uh say that our reported volume measures are gonna be our KPIs, or are you committed to work with PANDA to come up with actual performance focused KPIs that are consistent with the five goals that are described in the volume two department detail?

Are you committed to work with Panda to come up with actual performance focused KPIs that are consistent with the five goals that are described in the volume two department detail?

I I believe I can say that the city attorney is definitely committed to uh providing KPIs that are valuable and not just simply a measure of an output on the number of cases that we have.

And that becomes sort of the rub on where we are in terms of what is a valuable KPI in terms of a performance matrix, because quite frankly, one of the other things we're looking at is not to have the KPIs weaponized against the office in the work that it does.

And what I mean by that is a lot of the work that the city attorney's office does is adversarial in nature, uh charging criminal prosecutions, defending litigation, et cetera.

And so the notion on KPIs in relation to some of those is not to have those KPIs used against us to indicate that we're simply taking an action to meet some particular KPI.

So that's sort of the balancing act we do there, and then it's looking at other measures in terms of the performance of the office, its response rate to LSRs or its its response times to drafting resolutions requested or ordinances.

A lot of those are difficult to pin down on how that really measures performance, because the work required for each one can differ so much based on what it's actually asking for.

So, yes, we are committed to trying to find KPIs that actually demonstrate performance, but we want those to be real.

Yeah, I think we're all in the same boat there.

And uh, you know, thank you so much for um elaborating on the my questions and as well for that commitment.

Much appreciated.

Thanks.

Uh, those are all my questions, Chair.

I appreciate it.

Thank you.

Thank you.

Committee member Tapsuri.

Thank you, Chair.

Um I do have some comments, if I may.

Um, so this was a very good audit in my view.

I I did um I do have a background in uh KPI work, but I did learn quite a bit from reading the audit.

I learned that the KPIs are not as useful.

Uh they're not used as much as they could be, in part because they're not as useful to council members uh during the budget process, which is understandable, I guess if they're not that useful and you don't have the time to use them or to get into them in any depth, then you're not gonna use them.

Um I'm gonna add a couple of things.

I I mean, I think also they're just not any strong legal mandates or requirements to employ KPIs.

I think we have a city council policy on on KPIs, and the government finance officers association at GFOA, it does encourage their use in city or municipal budgets, but it's not a mandate, you know.

And so if you contrast that to let's say this, you know, to anything having to do with money, the city is legally required to prepare and pass a budget, it's legally required to um have uh to to prepare financial statements annually that are then audited.

So that legal mandate and that process is fairly robust, and there's nothing really like it when it comes to the operational aspects of city management.

So my view is is that a robust KPI system would be a great idea.

It would sort of function like a management information system that will provide assurance to city leaders and city managers, either that operations are working as expected, or it can also function as a warning system when operations are not working as expected.

And that would be a better approach than finding out that things are not working as expected, either through resident complaints or through some kind of breakdown, which is how we find out about things these days.

Um I also appreciate the perspective of many staff that you know implementing a robust KPI system is going to be uh is gonna require substantial effort, and I can appreciate sometimes the leariness of staff to be sort of subject to such a system where they're being measured on maybe operational aspects that they don't have full control of.

Uh I would say though, that if if you have a good KPI system and that it's really used as a system to provide feedback rather than punishment, it will work well.

And and thank you.

Those are my comments.

Thank you very much.

Any members?

Uh member Mafia.

Thank you, Chair, and thank you for the fine report.

It was noted that the KPIs perhaps were underutilized because of the accuracy of the information.

I was wondering if you could maybe speak to that a little bit.

Is that the data that is going into the KPIs?

Is that the KPIs themselves being underutilized because just not certain about the accuracy of the KPIs themselves or the actual information going into it?

And perhaps, you know, what would be the cause for that?

Because obviously the KPIs are only as good as you know, the accuracy of the information being delivered.

And so I'm not sure if this is a question for the auditors or uh or who, but thank you for the question.

I are comments on the accuracy were from our survey results, and so that came directly from the statement of concerns about accuracy due to the amount of past reports that we have done on and that have identified issues with KPIs.

We did not for this audit scope look into actual accuracy of KPIs.

So if I could just add to that, um you you may have seen an exhibit in the report.

So we we have identified numerous issues with KPIs on audits going back many years, and accuracy is one of them.

Sometimes it's the data, sometimes it's the methodology.

I think another thing that's probably contributing to the low confidence in our survey results is maybe a lack of familiarity with the methodology.

You know, they're not really discussed during budget.

It's not a great time to discuss them as many council members indicated in their survey results.

Um yeah, they there needs to be a check and balance, uh, which we recommended to ensure that they're accurate because we have found accuracy issues before, but also having a separate um conversation at the budget uh committee or uh you know different council committees so that the council members are more familiar with the methodologies that are used, can ask questions, suggest different KPIs they would like to see to help everyone understand them and get by in.

Thank you.

Thank you.

Thank you very much.

Uh well and thank you for the presentation.

Um key performance indicators are important tools for not just the department using them as metrics throughout the year, but also for the public and the city count in the city council, uh which is why um I requested for this audit to be done uh when done right, KPIs allow us to make budget decisions based on data and allow us to see the effectiveness of spending taxpayer dollars.

Um unfortunately, the way many KPIs are used and produced here in the city of San Diego, um, they're not very helpful for the members of the public or the city council to use when evaluating the effectiveness of a department in providing a service.

The annual budget includes KPIs within each department, and I could attest to the fact that there are often simply just not a good metric to use to determine a department's effectiveness at providing a service.

Uh, this creates a scenario where the KPIs are not reliable and they're just not relied upon by the city council during the annual budget uh discussion, and I think that's very unfortunate.

Uh, we love to say that we're a data-driven city, but this audit shows we're budgeting year in and year out without good data to support budget allocations.

One part of the problem is that the KPIs are just all over the place and are not consistent in what is being measured.

Some are aspirational goals while some are focused on realistic outcomes based solely on what can be done down to the dollar.

These inconsistencies make them less meaningful measures for policymakers to consider when balancing the budget.

To ensure these are improved and helpful to the public, the council and public must have more opportunities to interface with department staff to create meaningful KPIs.

Uh recommendation 1.1 is to develop and publish an annual performance report for the city's KPIs separate from the city budget document and to discuss it at the budget and government efficiency committee.

This makes sense and it's a good start to making improvements to our KPIs.

In fact, our own statement of budgetary principles says that KPIs will be reviewed and discussed at committee.

Uh so we should already be doing this.

Um, I do very much agree with the recommendation regarding the city having a publicly accessible dashboard that includes historical data to demonstrate department's performance over time.

Other cities do this and they update it regularly.

The City of San Diego should do this as well.

This is just good transparent government policy, and it would be very useful to members of the public, especially when discussing the budget each year.

I also want to say that the performance and analytic department is doing well with the resources that they have in assisting departments with their KPIs.

But any real success at updating the metrics we use comes down to the management within the department that is going to PANA with accurate and meaningful metrics to be considered and then using their expertise to refine them.

I appreciate committee member Halburn's question about who in the city's executive team is handling this.

I think this is a great example of what our CEO needs to be overseeing.

The city council could have meeting after meeting after meeting.

Um we as the charter, we cannot um tell staff what to do.

So therefore, this really does sit within the mayor's peripheral.

Um, and um I certainly hope that um he as a CEO takes this up.

Uh so again, thank you for the audit.

Um, it is there.

Um I will make a motion to accept the audit, and if I may have a second.

Wonderful.

Uh Councilmember Whitburn, and let's go ahead and vote.

Committee member Halpern, can you please register your vote?

I vote yes.

Committee member Tapcherry, can you please register your vote?

I vote yes.

And motion passes unanimously.

Thank you.

That concludes item number two.

Thank you for the audit.

Uh Natalie, please introduce item number three.

Item number three, performance audit of the Mission Bay and San Diego Regional Parks Improvement Funds fiscal year 2024.

Chair.

Thank you and staff.

Please introduce yourself for the record and let us know how much time you need for your presentation and uh begin when you're ready.

Uh good morning.

Uh, Chairman Committee members Andy Henau City Audit.

Can we have about 12 minutes, please?

Uh before we get started, this audit involves the cooperation of many departments and entities.

Um next slide, please.

Um entities, and you can see them uh all in the slides.

So we really appreciate all their uh cooperation uh and assistance.

As you know, the city charter requires that our audit um conduct this audit annually uh to report the extent and nature of the Mission Bay and San Diego Regional Park Improvement Funds revenues, expenses, and improvements.

Our objectives were to verify the collection, allocation, and use of mission bay lease revenues from fiscal year 2024 complied with charter requirements, as well as determine if the improvement uh fund oversight committees are properly informed to fulfill their responsibilities.

We found that expenses uh from the funds were in compliance with charter requirements.

As far as revenues, we could not verify that all revenues were collected and deposited into the funds as required due to a management imposed moratorium on the city treasurer's lease revenue audits and issues with the application of lease payments.

Management has taken substantial steps to resolve those issues, and we will continue to monitor them as part of our fiscal year 2025 Mission Bay Audit.

Uh with me uh today is Principal Performance Auditor Nathan Otto, Senior Performance Auditor Danielle Kish, and Performance Auditor Jermaine Brooks, and I'll hand it over to them to go over the details.

Thanks, Andy.

Good morning, everyone.

I'm still Nathan Otto, uh principal on this project.

Uh, and just a little bit by way of background, I know we do this audit every year, but uh city council ordinance established the Mission Bay Park and San Diego Regional Park Improvement Funds way back in 2002.

So Mission Bay Park lease revenue is deposited to a general fund account throughout the fiscal year and allocated to the improvement funds after the fiscal year end.

The city charter specifies how to allocate the revenue.

This is a lot.

The first 20 million dollars goes to the general fund, and then 35% of the revenues in excess of that 20 million dollar threshold is transferred to the San Diego Regional Parks Improvement Fund with the remainder of the access, the other 65% uh going to the Mission Bay Improvement Fund.

We found that total adjusted mission bay lease revenues were approximately 37 million dollars.

That is an approximately 7% decrease from FY23.

The first 20 million dollars did go to the general fund timely and appropriately, and a total of 16.9 million dollars was distributed to the improvement funds, as you can see in the exhibit on this slide, and that did follow the formula.

So normally that's the meat and potatoes of the audit.

But one wrinkle in this year's audit was the question of how accurate that that uh number was that was distributed to the improvement funds.

So earlier this year, the city's annual report on internal controls for 2024 stated there were issues with EDD's lease management as well as invoicing and payment processing, which resulted in a large backlog of unresolved lease payment discrepancies and an understatement of city lease revenue.

Over the course of this audit, uh like Andy said, EDD appears to have taken steps to subsequently resolve this issue.

However, due to this understatement of lease revenue during this time period, we could not confirm that all mission bay lease revenue payments in FY24 have been applied appropriately and that the correct amount of funds were transferred to those improvement funds.

Our primary reservation is that the lease revenue collection process issues identified and detailed in findings one, which is on the lease revenue audit moratorium, and two, which is late fee accounting issues, may have contributed to a lower revenue distribution to the improvement funds.

We do want to note again that the expenditures charged to the improvement funds appear to be in compliance with city charter.

Uh, and I will hand it over to Jermaine and Danielle here to talk more about the findings.

Thanks, Nathan.

I am Jermaine Brooks, performance auditor on this project.

We found that due to a lease audit moratorium that began at the beginning of July 2024, the office of the city treasurer could not complete and formally close all planned audits, which included lease revenue for fiscal year 2024.

The audit moratorium was included in the city's annual report on an internal controls for 2024, which was published and presented to audit committee in March 2025, eight months after the moratorium was implemented.

While City Council policy requires the Office of the City Treasurer to conduct an audit of each percentage lease at least once every five years, EDD stated that the moratorium was implemented to improve business practices and perform accurate financial reporting.

However, limiting the treasurer's revenue auditing role weakens an important financial control and can result in loss revenue to the city, as well as the city not identifying money in May owe to tenants.

EDD stated it is in the process of resolving these issues, and we will review the department's resolution of this matter further during our FY 2025 audit of the funds.

Therefore, we recommend that the chief financial officer or other city executive leadership should issue a memorandum or other written guidance that discourages future audit moratoria and which requires promptly informing the office of the city auditor and the chair of the audit committee if the ability to perform lease revenue audit functions is restricted in the future.

We found that the city did not assess late penalties for FY2024 due to a large backlog of unapplied payments, totaling $8 million for all city lease revenue, which included mission bay lease revenue for FY2024.

Therefore, we were unable to determine if revenue from late payments were accurately included in the split of revenue.

EDD shared that when the lease makes a rental payment, the rental payment must note the accurate contract invoice number to ensure the payments are applied to the correct contract account.

As you can see in the exhibit on the slide, when the lease payments do not include or do not have accurate contract invoice numbers, the payments post to a credit account.

Both to the Office of the City Treasurer and EDD review this credit list to apply payments to the correct accounts.

EDD stated due to this large backlog of unified payments, no fee penalties were applied for late lease payments for FY2024.

However, not assessing late fees when warranted results in a potential loss in revenue for the city and undermines the importance of timely payment.

We also found that a small amount of lease penalties from non-mission bay leases were included in the split of revenue to the improvement funds.

Therefore, we recommend that EDD should develop and utilize a lease management process narrative that includes the verification of lease terms and agreements at least annually and a process for lease renewal.

Additionally, a process narrative should be developed and utilized that includes a periodic quality control check of revenue received from lease concessions to ensure the revenue received is uh timely and accurately.

We also recommend that EDD should create and document procedures to reconcile RA portfolio payment data to SAP in accordance with the existing city policy.

We found that 35 35% of the city's mission bay rental agreements are in a holdover status, which may be leading to foregone revenue for the city as well as perceived favoritism amongst leasees.

As you can see in the exhibit on this slide, 11 of the 31 mission bay lease and permit agreements have been in holdover for at least one year, and many have been in holdover for eight years or more.

Most of the lease and permit agreements require appraisals to be conducted while the agreements are in holdover status.

Most agreements also require city council approval to extend the lease beyond the agreement terms.

However, EDD has not renewed the expired leases, sought council approval or conducted site appraisals to ensure the expired leases agreements have provided revenue to the city at fair market rent rate.

We found that EDD does not have a well-defined or documented prioritization process to ensure lease agreements' terms are routinely reviewed for accurate lease management practices and billing.

Additionally, EDD does not have a documented process for renewing expired leases.

EDD stated efforts have been made have been done to ensure the mission bay agreements are currently leased after market rate, and that it is currently monitoring tenants and holdover and seeking to renew lease agreements.

However, by holding leases and holdover, the city may be losing out on potential lease revenue.

And additionally, the city may be potentially conferring an unfair benefit to the current tenant, which could be perceived as favoritism amongst leasees.

Therefore, we recommend that EDD should ensure the lease agreements which have extended beyond lease agreement terms received the require council approval and appraisal to ensure lease agreements are binding and fair market rental rate is received for the lease property.

I'll now hand it over to Danielle to cover finding for and the rest of our presentation.

Thank you, Jermaine.

I am Daniel Kish, a performance auditor on this project.

We found that throughout fiscal year 2024, city departments provided several high-level project status updates to the Mission Bay Park and San Diego Regional Parks Improvement Fund Oversight Committees.

However, both oversight committees expressed they did not receive sufficient information to execute their responsibilities.

We found the city's presentations did not include the detailed expenditure information.

The oversight committees stated they need to ensure projects have appropriate funding and to discuss project status.

We found that project information provided by city departments has often not aligned with the oversight committee's request because there is no guidance stating which project information the departments should provide regularly to ensure the committees can effectively oversee project expenditures and outcomes.

We also found that historically the information requested by the oversight committees regularly changed with changes in committees board membership.

A standardized comprehensive report would allow the oversight committees to more easily analyze project information against previous reporting periods and would allow city departments to more efficiently generate and share project status and expense information.

Therefore, we recommend that parks and recreation and ENCP work with both improvement fund oversight committees to reach an agreement on which specific project elements should be provided and the frequency that the departments should generate and share the reports.

During the course of this audit, we also reviewed that two outstanding recommendations from the fiscal year 2021 mission bay performance audit.

Recommendation five called for including a facility condition inspection clause in future leases involving in-water improvements to ensure that docks, peers, or marinas are properly maintained.

Recommendation seven called for the Office of Boards and Commissions to bring appointment and reappointment resolutions to the city council on a routine basis to maintain proper active standing members on both improvement fund oversight committees.

We found that both of these recommendations have been implemented.

City management has agreed to all five of our recommendations.

Therefore, we request that the audit committee accept this report and forward it to the city council as an informational item.

We are happy to answer any of your questions.

Thank you.

We're going to turn it over to public comment.

Thank you, Chair.

The public comment period for item three is now open, and we have not received any speaker slips from individuals in chambers, and we do not have any hands raised in the virtual queue.

So this will conclude public comment.

Thank you.

Turn it over to committee members for any comments or questions.

Committee member Tepshire.

Thank you, Chair.

Um brief comments.

I mean, for what is normally and what should be a routine audit, the findings were pretty bad.

They're not bad in the sense that they're gonna have a material effect on the city's finances or anything like that.

But they're bad because the mistakes were pretty basic.

And I basically show that EDD just mishandled an issue that they were struggling with.

Um, if if they're having problems with the accuracy of lease payments, the answer was not to cut off treasury's ability to do audits.

And so that is what troubles me the most is the decision making process.

Whoever made those choices, I'm happy that the city auditors recommending that this never happen again.

I'm happy that the issue is being attended to, but this is uh completely sort of unnecessary on goal, I would say.

Uh thank you, Chair.

Thank you, Committee Member Tep Shuri.

I'm sorry, committee member Halpern.

Um thank you, Chair.

You know, I would uh uh first agree with um committee member Tepchuri's comments, particularly with regard to the cutting off the access to do the audit work.

Um that's in my view, that's really compounding the problem.

It's not helping to solve the problem.

But the one question I had is going back to I think it's page uh 10 of the slide presentation.

Um somebody could just elaborate on the reference to late fees were assessed for some non-mission day leases.

Um does the reference there to some just simply mean that there were a handful of instances, or is it like some were assessed out of a universe of many that should have been assessed but weren't assessed?

Could somebody just clarify what that means?

And and the reason I'm asking is I'm just I'm wondering if in the there's any remote possibility for liability of selective enforcement.

Thank you.

Thanks for your question.

Uh so there are specific GL accounting codes to basically split the revenue from other lease city lease properties versus mission bay.

Uh, what we found is some of those from other lease properties that belong for city rentals were included in that.

So it's in addition, some mission bay, but then also um for other city lease properties, those late fees were included in that split, which should not have been included.

Okay, so you're referring specifically just to the categorization of um some of those late fees were inappropriately applied as opposed to you're not speaking to a problem of assessing non-mission bay late fees for some but not all, if you understand the just my question.

Um what I'm really trying to ask is to the degree to which um our late our policy for assessing late fees is applied equally across all um people who were delinquent.

Yeah, Jermaine, let me let me take a swipe at that, Mr.

Helper.

Thanks, thanks for the question.

Um, to answer your question, we did not see anything that suggested that they were um uh inappropriately or uh not homogenously enforcing rental agreements.

It looked like it was basically a uh recognition error in the in the accounting of it.

And so that's we've worked I mean we've had discussions with them about that, but the the the number was um basically taken from two other accounts and put put in there uh unintentionally, uh we think, but there's nothing to suggest that it's a policy process where they're enforcing late payments on some but not others.

We didn't see any that that directly responds to my question.

Thank you so much.

No more no more questions, Chair.

Thank you.

And um thank you for the presentation.

Uh the issue of the city not being able to properly distribute lease payments to the correct amount was something this committee first learned of at the March meeting when it was disclosed in the internal controls, uh, which was apparently eight months um after the issue happened.

Um at the time staff indicated that the problem was being addressed and expected it to be resolved by the end of the fiscal year.

As the auditor noted, this problem resulted in a large backlog of unresolved lease payment discrepancies.

Um in March, I did have great concern, uh, not just about the actual dollar amount that had not been uh distributed to the right account, but more importantly, whether this issue was a symptom of something larger and might need a higher level of disclosure.

Uh my concern increased when it was um revealed that a moratorium had been placed on the city treasurer's ability to continue auditing the situation.

The office of the city treasurer is required per council policy 700-10 to conduct an audit of each percentage lease for the first year of operation and at least once every five years.

Restricting their ability to do this is a significant action.

On page seven of the audit, it states the following Economic Development Department limited uh re-portfolio access to only its staff and removed access from the office of the city treasurer.

Umieved it was counterproductive to allow access to leasing management software, uh continuing um inaccurate information while it was actively working to reconcile uh reconcile accounts so that the accurate payment could be applied and correct revenue could be realized.

According to economic development, it provided all data and information to the city treasurer upon request to continue review audits despite not having access to the software.

However, the city treasure indicated that its ability to complete revenue audits was limited by the moratorium, which explicitly instructed the city treasurer to pause audits and restrict contact with economic development.

No direct access to the actual data for the city treasurer and the city auditor, two top officials in the city for an extended period of time.

I and everybody in this building should find this very concerning.

As the auditor states, these actions weaken an important internal financial control, hinders oversight and transparency, and damages the city's reputation and credibility for billing practices and financial reporting.

I appreciate the auditor's first recommendation, which speaks to discouraging future moratoriums, and which requires prompt information, uh promptly informing the city auditor and the chair of the audit committee if the ability to perform lease revenue audit functions is restricted in the future.

This is absolutely critical, and I'm glad to see that management agreed to providing that direction to the department staff in compliance with council policy 700-10.

The audit states that the economic development department appears to have taken steps to subsequently resolve this issue.

Can staff uh expand upon exactly what steps have been taken to resolve this issue, and that's economic development staff.

Thank you for the question, Chair Moreno.

Monica Hardman, assistant director with the economic development department.

We have been very diligently working to deal with this issue.

The first thing that we did in coordination with support from the chief financial officer and the finance department is that we have a consultant that came on board to assist us in a reconciliation of the information regarding SAP and our existing leasing system.

At the time, we were in the process of going through a contract for a new leasing software.

Unfortunately, that did not materialize, so that contract was terminated, and we then began on a plan B in which we're currently working to upgrade the existing system.

So we had the consultant assist us to make sure that we could reconcile and clean up the existing information at the same time while we're also upgrading our new system so that we know that the information in the system is complete and accurate.

Thank you.

Um if you could speak to the moratorium though, what steps are you guys taking to make sure this more a moratorium like the ones you guys imposed does not happen again?

Because I don't think outside uh folks were the ones that put in the moratorium, right?

So I'm glad to hear that you're reconciling that information.

Um, but what steps are you taking to make sure that this moratorium that more you guys don't do a moratorium again?

Thank you for that question.

And building upon what I just stated, we took those efforts so that we wouldn't have to be in this position again.

So everything that we're doing to date, we do not anticipate that there being a need for any future moratoriums.

Got you.

So if you are in that position, you will impose a moratorium again?

No, um, let me clarify.

So what we have in the audit statement is that there would be conversations with city management, and we would make sure that we would notify you.

But I'm saying from economic development's perspective, we don't anticipate a need.

Thank you.

And um to the auditor, um, can you expand on what needs to be done for this issue to be resolved in your eyes?

Uh I'd say right now it's it's a commitment from city leadership.

Um our first recommendation was uh essentially saying, hey, if if this happens again, as you noted, there was an eight-month leg between a moratorium and when it was brought to the audit committee's attention.

So I think right now what we have in hand is a commitment from them saying uh to actually produce a memo to have a written record of a commitment of not doing this again, and if they do to to notify the audit committee promptly, uh and that's from uh the CFO.

Thank you.

Thank you for that.

Oh, Christina Bibler.

Hi, good morning, Chair Marino.

Can you hear me okay?

Yes, we can.

Great.

I wanted to add what uh Ms.

Hardman had been um sharing with you that you know, at the time the moratorium was a consensus between the CFO and the city treasurer as in integrating the real estate functions into economic development, it unveiled that there were some unfortunate not only practices but um information within our system that frankly was inaccurate.

And with the 38% vacancy, we have taken steps to just basically bring this down to the foundational level and rebuild.

And I'm very proud of where we are today and have worked very closely with the auditor's office.

We don't shy away from the decision that was made.

It was an it was unfortunate that it had to happen, but we were also working with a system that hadn't been updated in about a dozen years.

And so if you think about the compounding issues upon all of those things, it was a perfect storm.

And so to your question, um, we absolutely would be happy to notify, but I don't anticipate ever needing to be at this level again.

We've taken significant steps in protocols and with hiring practices and with our consultant to ensure that this is not something that the city faces again in the future.

Um thank you for answering that, and um thank you for being here.

Um so are you saying that the city treasurer thought this was the right course of action?

Because you said it was a decision.

Yes, the moratorium was in direct coordination with the CFO and the city treasurer.

The three of us agreed that this would be the course of action collectively, and also at that same time agreed to hire the consultant to then further identify what some of the systemic issues and foundational issues have been, and we have retained that consultant through this process.

Okay, thank you.

Is there anybody from the city treasurer's office?

Chairman's unfortunately uh Liz had a family medical issue.

I should she couldn't be here, but I can answer questions on their behalf.

Okay, so I just want to correct c I just want to make sure this is an accurate statement.

The CFO and the city treasurer and economic development agreed to hold a moratorium on this.

That is correct.

Okay.

Okay, thank you for answering that.

Um moving forward, um, according to the audit, which looks at fiscal year 24 of the 11 leases that are on holdover, uh, six of them have been on holdover for more than eight years.

Uh when were the other leases in Mission Bay up uh updated Monica Hardman, assistant director.

Um, as of FY25, the real estate division began with a backlog of 10 holdover leases and permits, and to date, six of those 10 approximately 45 percent are in negotiations or in process for a competitive solicitation, and the remaining ones are advancing through internal processing, treasury coordination, and tenant engagement.

So I have staff currently getting more details for you, so we should be able to provide that later today.

Wonderful.

Thank you.

And you said 10, and I have here 11.

Yes, I believe, staff, that there was one difference.

Good morning, Lucy Contreras, Deputy Director of Real Estate.

Just to clarify, um, the 10 was that between FY24 and FY25, one of the leases was terminated.

Oh, one of the leases was okay.

That's correct.

Okay.

And uh what is the current backlog of leases in the city and and how long do you guys think it will take uh to get through it and catch up?

I think to build on what Ms.

Hardman just indicated, um, we do have the 10, six of which are moving forward.

Um, in terms of timeline, as you know, every negotiation is unique.

They take a little bit of time.

We have to work through the CAO as well as um in terms of our resources.

I can't give you a specific time frame, um, but I can tell you that we're making very concerted efforts to move those forward.

We're also, in addition to that, looking at some additional outside support to assist us with uh moving forward and removing holdover status, not only in Mission Bay, but in our portfolio in general.

What let me ask you a question based on um the leases that have not been negotiated, um what was the year of the lease term, the oldest one?

Or just you know, and any one of the ten.

I I well hold on one second, if you don't mind.

No, I don't want to look at this really quick.

I want to say that the last one was it the 12 years ago?

12 years ago.

So that would make it 2013.

Yeah.

And that's not to say that they're paying 2013 dollars.

No, that's correct.

They're not paying 2013 dollars.

The holdover provision is put into they're probably paying 2007 dollars because their lease was negotiated further back.

Not necessarily.

So every lease has CPI adjustments.

So that's the same.

Which is what, 2%?

3.5%.

Typically three percent.

I wish I was paying rent based on 2013 rent on a 2.5% escalator.

I think not, you know, I think a lot of San Diegans would be liking that.

And it just it points to just the unfairness of this, and I understand that these negotiations take a while.

Um, you obviously have a very difficult job and you have um a lot of these holdovers.

Uh but this administration has known about uh these lease holdovers for years, and we still have leases in mission just in mission bay.

If we look at mission bay alone, um, as you stated, that have not been updated in 12 years.

Um obviously this issue applies to leases throughout the city, I think which makes the problem just you've heard us especially when we're talking about the budget.

Um I have colleagues, you know, thinking of every idea under the sun to get the city revenue, and here we are sitting on potentially um I'll just say a lot of money.

It's very frustrating.

Um losing out on revenue.

Um, but the city auditor states that the city may be potentially conferring an unfair benefit to the current tenant, uh, creating a necessary uncertainty for both the city and the lessee, and limiting the city's ability to enact and enforce updated contract provisions.

Um this also can lead to perceived favoritism from other lessees.

Um the auditor also states that in reviewing the annual mission bay revenue allocation, um, he identified roughly $933,000 in deferred revenue to the city for fiscal year 24.

Um can the auditor speak to this finding and also explain for the public what deferred revenue is in this case.

Sorry.

I know that's okay.

Thank you for uh asking that.

So deferred revenue is basically money that the city has not received for FY 2024.

Um the Department of Finance also does this reconciliation process, and that was noted in the split amongst the funds, how much had not been received for those mission bay properties.

Thank you.

Um and can staff speak to whether this deferred revenue was ever received.

Right, seeing Channel assistant debut director of economic dividend department.

Uh we are like working with DOF on an annual basis to re to review the deferred revenue as they come in later because this is uh a very typical accounting process we go through every year.

So uh we'll need to like spend some time to confirm our data to make sure all the defer revenue books through that 60 windows are received, so we can get back to you on that.

When do you think you can get back to us on that?

How long will that take?

Got it to you on that today.

Oh, wonderful.

We just want to confirm the data first before we provide firm confirmation.

Thank you.

Um and if I may add to your previous question, just to provide a little bit of context, um, I think it is important to um note that while there are leases in holdover status, uh the CS do have ability to impose market rate.

That is to be co-allowed by the holdover class.

It doesn't necessarily mean that only CPI adjustments were made during the holdover period.

In fact, we did provide some examples with auditors that show uh we were able to charge market rate, even if those uh leases are in holdover status.

Got you.

And out of the 10 yes, there was four.

Um that was one of them left, right?

Or is no longer doing business with the city.

Yeah, so all of the 11 the audio report, one of them was terminated.

Um, and two of them, in fact, the 12 of them were the longest holdover period are non-revenue agreements with the city has not been generating any revenue from them, and of the remaining, I don't have the specific number, but for many of them, we are charging the market rate.

Okay, thank you for that.

Um moving forward, I also share the concern of the oversight committee that expressed that they were not getting sufficient information on projects and projects expenditures that are so that um that they're supposed to monitor.

Uh, their role is oversight, and the city has a duty to get them all the relevant information they require to fulfill their duty.

Uh, I was glad to see in the audit that in mid uh fiscal year 24, both committees began to get expanded project information, uh, but implementing recommendation 4.1 uh to reach an agreement and mechanism to specify which specific project element should be provided and the frequency that the department should generate and share the report is critical to implement by the end of fiscal year.

Um, I will end by saying that when the city cannot properly keep track of lease revenues and associated late fees, uh, there is great potential for the wrong amount to be deposited in the mission bay improvement fund.

Uh when that happens, we're potentially running afoul of the charter requirement.

That was approved by voters to fund the mission bay improvement fund at a specific and prescribed level.

Hearing that steps have been taken to resolve the issue is good, uh, but I will not be satisfied until the city auditor can fully confirm this.

Um, additionally, even if it is resolved as far as uh refining the process by which we collect and distribute lease revenues, I do not think it was proper uh to restrict the city treasurer's access to the data they needed to do the lease revenue audit.

They are specifically tasked with doing, nor was it appropriate to restrict the auditor from from seeing that data firsthand for the purpose of performing this audit.

Um, I do want to just put a pin and say we're talking about taxpayer dollars here.

Um neither of those things should have happened.

And additionally, um, I would ask that our outside auditor uh crow keep tabs on this issue for their external audits.

Um this concludes my comments, and I do see uh committee member Halburn on the lights.

Yeah, thank you, Chair.

Just had a follow-up on your line of questioning about the moratorium.

Could somebody excuse me, could somebody um just uh correct my memory if I've got this wrong?

I was under the impression that part of how this came up was that the treasury folks were cut off from access to the data that they needed to do the their audit work.

Is it was that correct that there was actually they were cut off from the access to the data?

Uh that is correct.

Got it.

Okay.

So um in that regard to the chair's concern about making sure this doesn't ever happen again.

Wouldn't there be a um sort of a system approach to ensuring that this doesn't happen again?

In other words, to disempower whoever made the decision to cut off data access so that there needs to be a higher level of decision making around cutting off access to data in an instance like this.

I'm gonna say this is I'm asking this as an IT question more than a policy question, but I realize there's also a policy component to the question.

Commissioner Halpern, if I may, this is Christina Bibler, Director of Economic Development.

In regards to controls, this was a situation whereby the information that the treasurer's office was receiving was not correct data.

And we were transitioning from an old system that was 12 years old into the new system.

So whereby the statement was made in the auditor's report that data was provided by economic development.

It was not simply a IT controls that they did not have access.

They were given access through economic development because access was then restricted as we were transferring to a new system.

And so I just want to clarify the record that that's why access was restricted.

There was a new process in place.

Okay, so um, I have to apologize and say that I'm confused because I think the auditor answered the question quite simply, and I can't reconcile what you just said with what the auditor just said.

Okay.

So the moratorium went in place prior to the restriction of RE portfolio because the data that was coming into the audited reports was incorrect data.

The RE portfolio data and the system was not presenting correct data both for the city and for the lessees.

So that was primary one.

Primary two is that we needed to be able to foundationally look at where the errors were happening, either on the city side or in the system.

And in order to do that, we provided as the conduit to the information city treasurer's office needed to conduct their audits.

Once it was true that the information even being pulled from the treasurer's office was likely incorrect, therefore the moratorium went in place.

It was very systematic what happened.

Gotcha.

Okay.

So in other words, when Mr.

Charvel just said that the CFO agreed with the decision, it was a case where prior to this cutoff of access, there was consultation with the CFO, and there was a mutual agreement.

And then subsequent to that agreement, access was cut off, as opposed to it's like, hey, what's going on?

My guys can't get access to the data.

And then you explained, and so the agreement was after the fact.

Yes, you're correct.

That was in consultation with the CFO and the city treasurer's office.

Prior to the restriction of access.

Correct.

Got it.

Okay.

Thank you so much for clearing that up.

No more questions, Chair.

Thank you.

Thank you.

And CFO.

I just wanted to address the question of the moratorium in the maybe a little bit bigger picture context.

I agree that moratorium should not really should be avoided, absolutely.

And uh the treasurer's office work that they do is part of the internal control framework that ensures that to the extent that there are weaknesses in the lease process, those get identified and those get addressed.

I think in this case, and I was not part of the decision, but I was uh I did have conversations with our former CFO, that the discussion was can we spend the time that we would typically do responding to audits, providing information on the audits, and focus at energy on trying to resolve some of the structural issues that Ms.

Bibbler was addressing when she took over that department.

She saw that there were systemic issues with the processes, and those are the things that have been trying to be addressed with this time with this moratorium.

Now, recognizing that these the the lease audits and the frequency of the audits relate to the council policy, we fully agree that at any time a moratorium is taken, that should be immediately communicated to both the auditor and uh the audit committee chair, so that there is an open and transparent discussion about the issues that we're facing.

So I just wanted to keep just give a little bit of that context.

If we resolve the internal control issues and the processes improve, there shouldn't be a need for a moratorium.

So it it really the the improvements that we would be implementing really fix the problem at the root cause.

Thank you for explaining that.

Um where I'm having trouble um agreeing with administration here is that if there are systematic issues or weaknesses, um, that shouldn't call for a moratorium, in my opinion.

Um, as I stated, this is public dollars.

Um do I trust you, Sherville?

Yes, absolutely I trust you.

Um, is this a small amount of money?

As we discussed in March, relatively according to the city and the budget, it's a relatively very small amount of money.

Um this be weaponized in the future if we don't do something about it, potentially, right?

If if three administrators can arbitrarily choose to do a moratorium on access to information in the city, I have a big issue with that.

Um, and then to add to that, this was um we're doing this based on what the public, what the city elected us to do and asked for us to do based on elect and in an based on an election.

So that makes it even to me, it makes it harder to swallow.

Um we have an administration federally that's doing a lot of things that make me very afraid.

And so, yeah, I'm gonna look at every single dollar and how it's being addressed and what this administration is choosing to the method in which this administration is choosing to utilize its power.

Um, so that's where this comes from, and that's the issue I take with it.

Um we heard all the answers and asked all the questions here, and so we obviously I obviously have a lot of follow-up to do, uh, but I do appreciate um the um audit, and I do appreciate management's uh response to the audit.

Uh, but I do appreciate um the um audit, and I do appreciate management's uh response to the audit.

And if there are no more questions, that will conclude um item number three.

Oh, I'm sorry, we need a motion on this.

I'm happy to make the motion on this item.

May I have a second?

Uh committee member Mafia.

Committee member Halpern, can you please register your vote?

I vote yes, thank you.

Tap Shuri, can you please register your vote?

I vote yes, thank you.

And this motion passes unanimously.

Thank you.

And that concludes item number three.

Uh, the next item is an informational item.

Item number four, Natalie.

If you could please introduce the item.

Item number four is city auditors quarterly fraud hotline report, fiscal year 2026, quarter one.

Chair.

Staff, please introduce yourself for the record and tell me uh tell us how much time you need on this item.

Good morning, Chair Marino, Andy Harita, senior fraud investigator in the office of the city auditor.

I'll need uh maybe four minutes for so as this first slide uh lists the reports that we received during the quarter of uh first quarter of fiscal year 2026 and how they were assigned.

Eleven reports were assigned to the Office of the City Auditor to investigate.

26 reports were assigned to departments for investigation for a total of 37 reports that were within the purview of the fraud hotline to investigate.

Uh 48 reports were not within the purview of the fraud hotline to investigate or did not involve city operations.

In total, we received 85 fraud hotline reports during the quarter, which was on par with prior quarters.

Moving from the numbers of reports received.

This next slide is a summary of the reports closed during the quarter.

There were 34 city-related reports open and unresolved on July 1st, 2025 that required investigation.

We added 37 new reports to our inventory for a total of 71 active reports, and 30 active reports were closed during the quarter, leaving 41 open cases at the end of the quarter.

As shown on this slide, one OCA investigation and three department referred investigations were found to be substantiated.

The allegations related to a parking citation, two theft of time allegations by city staff, and unsafe driving in a city vehicle.

As shown here, three department referred investigations resulted in corrective action during the quarter.

The allegations related to improper use of break periods, a billing issue, and a leaking fire hydrant that was repaired.

This concludes my report, and I'd be happy to answer any questions the committee may have.

Thank you.

Um we will now go to public comments.

Thank you, Chair.

The public comment period for item four is now open, and we have not received any speakers' lips and chambers, nor do we have any hands raised in the virtual case.

This will conclude public comment on item four.

Thank you.

Any committee members have any questions or comments?

Hearing and seeing none, uh it does conclude item number four.

Thank you so much.

Uh Natalie, please introduce item number five.

Thank you, Chair.

Item number five is city auditors' monthly activity report.

Uh staff, please introduce yourself for the record and let us know how much time you need and begin when you're ready.

Uh good morning again, committee members.

Andy Hanaus City Auditor.

I'll just uh quickly go over our recent activities.

Uh, since we last met, we've issued three reports, and we just discussed all three of them this morning, so you're familiar with those.

Uh we have uh nine total projects uh in uh process, uh including six in the field work stage that includes audits of citywide cybersecurity, uh golf course leases, brush management on private property, fire rescue dispatch, police internal affairs, uh, and the unsafe camping ordinance.

We also have three audits in the planning stage, including audits of citywide vehicle rentals, streetlight equity, uh, and arts and culture funding uh is just about to begin as well.

We're working through some issues with the department on that one.

This slide lists the audits that have not uh started yet.

Um that list is getting smaller.

As far as other activities, as you know, we are audited every three years through a process called peer review.

And our next peer review has been scheduled for next month.

So we're working on preparations for that.

We are also working on implementing new standards put out by the U.S.

government accountability office, which are the standards that we follow.

Those take effect next month as well.

The evaluation panel for independent legal council is reviewing uh proposals.

So we expect to have a firm uh on board in the next couple months here.

So thank thanks again to Committee Member Mafia for his uh service uh on that panel.

Uh, and we made a uh presentation to the commission on police practices last week uh about our office admission and our ongoing audit of police internal affairs.

Overall, so far in FY26, we've issued six reports, including three audit reports that contain twenty recommendations to approve the efficiency, uh, effectiveness and equity of San Diego City government, as well as one agreed upon procedures review, our first quarterly fraud hotline report of the year, and our first recommendation follow up report of the year.

And that concludes my presentation.

Thank you.

Natalie, please proceed with public comment for item five.

Thank you, Chair.

We've received no speaker slips here in chambers, and seeing no hands go up in the virtual queue.

This will conclude testimony for item number five.

Thank you.

I'm now going to turn it over to committee members for questions and comments and hearing and seeing none.

That concludes item number four.

Thank you.

Um, if you could please introduce item number six.

Item number six is public employment performance evaluation pursuant to California government code, section five four nine seven, excuse me.

Five four nine five seven B one city auditor.

And please note that item number six will be held uh during closed session.

So this closed session meeting is being held in accordance with California Government Code Section Five Four Nine Five Seven B One.

Any reportable action for the closed session item will be posted on the audit committee's website.

Um let's go ahead and proceed with public comment on the closed session.

Thank you, Chair.

We've received no speaker slips here in chambers and no hands have gone up in the queue.

So this concludes testimony for item number six.

Thank you.

We will now adjourn this meeting to go into closed session.

We're going to return very briefly uh to report out after closed session concludes.

And now I will call the audit committee meeting in closed session.

Wonderful.

Okay.

Um, I will call the audit committee meeting back to order.

Uh, Natalie, if you could please call the roll.

Vice Chair Whitburn.

Here.

Committee member Halburn.

Present remotely.

Committee member Mafia.

Present.

Committee member Tab Sheri.

Uh, present remotely.

And Chair Council Member Moreno.

Present.

Okay.

Wonderful.

Um, does the city attorney have anything to report out from closed session?

There is nothing to report out from closed session.

Wonderful.

This brings us to the end of today's agenda.

Thank you to the members of the public and staff for your participation.

I will now adjourn this meeting of the audit committee to our next regularly scheduled meeting, which is on Wednesday, January twenty first, twenty twenty-six at nine A.

M.

Have a wonderful happy new year and happy birthday to our city auditor.

Say happy birthday to him.

We will not sing to you.

You're welcome, and we'll officially adjourn the meeting.