The San Diego City Council designated a new audit committee to work with federal investigators and its outside auditor, KPMG, to complete a review of a previously completed investigation into the city’s financial reporting for fiscal 2003.
The committee consists of three people now working for the corporate advisory firm of Kroll Zolfo Cooper of New York: Arthur Levitt, the former chairman of the SEC for seven years; Lynn Turner, the SEC’s former chief accountant, and Troy Dahlberg, an attorney with Kroll.
At its March 8 meeting, the council affirmed the audit committee, and approved signing a letter that promised cooperation with both federal investigators and KPMG and to provide any requested information to the parties.
The entire council except for two members signed the letter. City Councilwoman Donna Frye and City Attorney Michael Aguirre declined to sign because they said it would infringe on their right to speak out publicly on the city’s financial situation. Councilman Tony Young was absent.
Last month, the council approved hiring Kroll at a contract not to exceed $250,000. Levitt is earning $900 an hour, and Turner’s fee is $750 an hour.
The council has paid KPMG more than $1.7 million since it was hired to conduct a re-audit of the city’s fiscal 2003 financial statement and its 2004 financial statement.
The city also hired the law firm of Vinson & Elkins last year, and paid about $2.6 million to conduct a review of the city’s practices relating to its financial reporting.
Because of revelations of errors made in the 2003 financial statement, Wall Street credit rating agencies have downgraded the city’s bonds, and one has stopped rating its debt all together. The revelations also led to investigations by the U.S. Attorney’s Office and the Securities and Exchange Commission into possible criminal actions.
Because it hasn’t completed a restatement of its 2003 financial report, the city has been unable to issue bonds to pay for things such as sewer and water pipes, and refinancing higher interest ballpark bonds.