With another deadline for completion of the city of San Diego's 2003 audit having come and gone, it is time for the city to stop pointing the blame at its auditors and redouble efforts to provide transparency to taxpayers about the specific steps the city is taking to resolve KPMG's outstanding concerns. The city must also work harder to foster open communication with its auditors and utilize the audit process as an opportunity to strengthen its system of internal controls over financial reporting in order to improve the city's performance and accountability to the taxpayers.
As San Diegans have become all too aware, all of KPMG's outstanding questions must be resolved before the auditors will issue the opinion letter essential for completion of the city's 2003 audit. Delay results in much higher financing costs to the city of San Diego, both in respect to desperately needed infrastructure projects as well as short term management of cash flow.
The ongoing dispute has devolved into predictable patterns. A deadline is set, new questions emerge, delays are announced and recriminations by city officials follow. From the perspective of an executive versed in complying with audits and public disclosure, the audit process has become wholly unproductive and one in which “getting the audit done” seems to have become the only imperative of the city.
One of the gravest failures in this entire process has been the city's inability to provide the public with concise information regarding why unanswered questions remain from KPMG or what efforts the city has made to respond to these inquiries. The taxpayers of the city of San Diego have the right to know, in terms they can understand, why the 2003 audit remains stalled despite millions of taxpayer dollars being spent over a period of several years to achieve this objective.
Rather than work toward those goals, city officials seem unable to stop themselves from insinuating that the delay is not the result of city problems but rather an underhanded way for the auditor to run up bills and bilk the taxpayers. Officials in all three branches have made threats to sue the auditors. Those who watched City TV on Feb. 8, the second meeting of the Audit Committee, got to watch City Attorney Michael Aguirre engage in what looked like a hostile deposition rather than a constructive dialogue with the external auditor.
How does the city move forward?
One positive step that could be taken is for city officials to publicly recognize that in carrying out their work, the auditors must adhere to “generally accepted auditing standards” – industry guidelines designed to ensure the accuracy, consistency and verifiability of the auditors' work.
The city must also redouble its efforts to provide the auditors with information needed so that KPMG can complete the audit in accordance with these standards. For example, has the city provided KPMG with timely access to all relevant documentation and to the people with knowledge of the city's processes and financial practices during the time period covered by the audit? Has the city scheduled regular project planning meetings with its auditors to anticipate and address information interdependency issues?
Another concern is how the city has planned for and addressed its audit staffing needs. This is critical since the longer the audit takes to complete, the greater the likelihood of turnover in key personnel that may impair the auditor's ability to obtain needed information.
More dramatically, it is well past the time for the mayor and City Council to tap into the accounting and managerial experience that exists throughout San Diego. There are hundreds of retired San Diegans who have experience with the auditing of complex organizations. I believe if they had been asked, scores of these individuals would have willingly stepped forward to help and advise city officials on how to get the audit done in a positive way that provided real returns on the taxpayers' investment. At the very least it would have increased transparency in the process.
The newly formed Audit Committee is a step in the right direction to improve communications between the city and its auditors. Requiring weekly progress reports on the audit from the city's in-house staff is another step in the right direction. But more may need to be done.
Has, for example, the city evaluated the need for daily reports? Has the city considered scheduling daily in-person meetings between the auditors and key city personnel and decision-makers to speed resolution of the outstanding questions?
All too often when things go wrong, politicians love to point the blame and shift the focus away from their own shortcomings and failures. Although the 2003 audit has been expensive, painful and protracted, it has provided valuable insight and information that can be utilized to strengthen the city's internal controls over financial reporting. Tighter internal controls over financial reporting should result in greater accountability to the taxpayers and enhance operational efficiency.
Francis, a former mayoral candidate, is chairman and founder of the San Diego Institute for Policy Research.
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