Update: On Wednesday, May 23, the Palo Alto City Council's Finance Committee reversed its recommendation to eliminate five of six positions in the Office of the City Auditor. Read the story here.
When the City Council's Finance Committee made a surprise move last week to eliminate nearly every position in the Office of the City Auditor, council members framed the shift as one that will boost productivity and save money.
But Sharon Erickson, a Palo Alto resident who headed the office from 2001 to 2008 before becoming San Jose's top city auditor, sees things differently. From her point of view, the surprising vote was "a radical move that could have long-term consequences," Erickson told the Weekly.
Erickson said she was surprised by the May 15 vote, which seemed to come out of the blue. City Manager James Keene's proposed fiscal year 2019 budget didn't include any changes the city auditor's office. And even though the council often talks about rising employee costs and pension obligations, the idea of outsourcing performance audits and eliminating staff positions has not come up in any past public hearings.
Erickson said she was "shocked and confused" by the committee's action.
"Outsourcing almost an entire department is not something that gets done in five minutes," Erickson said.
She underestimated the time it took, but only slightly. The entire review of the Office of the City Auditor budget lasted seven minutes and concluded with the committee unanimously adopting a proposal by Chair Greg Scharff to eliminate five of the six positions in Office of the City Auditor and to start outsourcing performance audits. The only position that would be retained is that of the department head, the city auditor, a job currently held by Harriet Richardson.
As one of the smallest departments in an organization that has more than 1,000 employees, the Office of the City Auditor has a budget of about $1.27 million in a general fund of $214 million. Therefore it's not unusual for the department's budget to go through the express lane during budget-review season.
What was unusual was the decision to effectively dismantle it and outsource its functions to the private sector.
Erickson said she believes this is a mistake. While Richardson assured the committee that she will be careful about picking the appropriate performance auditors to get the work done, Erickson argued that relying on outside consultants will significantly change the efficacy of the office. Having in-house staff ensures that residents and city officials know whom to turn to with questions. It also creates continuity, builds internal and in-depth knowledge of the organization, and allows auditors to track the city's responses to audit findings.
"You have people there who can see whether the recommendations you make actually work in practice," Erickson said, "An outside consultant makes a profit, turns in their report and leaves."
"I'm not convinced that this gives Palo Alto residents that kind of assurance -- that someone is there watching in the same way."
For the committee, however, hiring outside firms carries some advantages. For one thing, it's cheaper. Scharff's motion allows Richardson to use 80 percent of the money saved from the staff cuts to hire outside firms to perform audits.
But for Scharff, the bigger issue is productivity. The auditor's office expects to produce about six audits per year, Richardson said during the hearing. So far this year, it is more or less on pace. Richardson said it has completed two audits and has five in progress, including four that are nearing completion.
But Scharff said the numbers don't tell the full story. He said he has often talked to Richardson about the long time it takes to get audits done. She shared his concerns, he said.
"It's my observation that they're not getting the audits done quickly," Scharff told the Weekly. "I've spoken to Harriet on several occasions and the responses I've gotten make me think that the department is not functioning at a high level."
Shortly after Scharff raised the issue of productivity at the May 15 meeting, Richardson intimated that she'd had similar thoughts.
"I raised the productivity questions in the past myself," Richardson said during the meeting.
Councilwoman Lydia Kou was the only Finance Committee member who questioned the outsourcing proposal. She asked Richardson whether she's confident that outside contractors can provide good service.
"Your office is very important," Kou told Richardson. "I want to ensure we have that service and that quality and productivity."
In response, Scharff told Kou that "the only way you really figure it out is to do it."
If the full City Council approves the committee's recommendation, it would transform an office that was established by the voters in 1983 and that has a mission to "promote honest, efficient, effective, economical and fully accountable and transparent city government," according to the City Charter. The city auditor is one of four positions -- along with city manager, city attorney and city clerk -- that reports directly to the City Council, which gives the office the independence it needs to scrutinize other departments.
While Scharff called the outsourcing experiment "worthwhile," Erickson argued that once the positions are eliminated, the action is hard to undo.
"Once you dismantle an office like that, how do get those positions back?" Erickson asked. "City managers are not advocates for having in-house auditors looking over their shoulders. Adding those position back would be extremely difficult."
The sudden move by the Finance Committee prompted some city observers -- including users of Town Square, the online discussion forum -- to wonder whether the move had less to do with inefficiency and more to do with personnel conflicts involving Richardson and her staff. Scharff said that while he was aware of employee complaints in Richardson's office, these complaints did not play a factor in his proposal to outsource auditing services.
"It seemed like an easy approach to get more productivity and more efficiency at a cheaper price," Scharff said.
Councilman Greg Tanaka, an outspoken fiscal hawk, agreed with Scharff and called the outsourcing proposal a "good move."
"A lot of audits are held by third parties -- it gives us some objectivity and some distance," Tanaka said at the May 15 meeting. "I think it's a good move and I support it."