News

Former city auditor slams plan to gut office

Finance Committee proposal would cut five of the six positions in Office of the City Auditor

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.

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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."

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Comments

56 people like this
Posted by Curmudgeon
a resident of Downtown North
on May 22, 2018 at 9:56 pm

"Outsourcing almost an entire department is not something that gets done in five minutes."

It can be done when the intent is to defang and destroy the department. As Ms Erickson knows well, the products of a competent city auditor's office can be major embarrassments for inept city officials.

The following parallels are eerie but not surprising:

City Auditor's Office = Environmental Protection Agency
Harriet Richardson = Scott Pruitt
Former Mayor Scharff = President Trump


33 people like this
Posted by Henry Mudd
a resident of Monroe Park
on May 22, 2018 at 10:02 pm

Outsource Richardson; keep the staff. Department effectiveness triples.


41 people like this
Posted by Sally
a resident of Downtown North
on May 22, 2018 at 10:37 pm

I am so sure effectiveness will go up once Ms. Richardson is overseeing external contractors from her home in Washington.
And that sure sounds like a role that should continue to cost us taxpayers (all-in) close to $300k a year. </sarcasm>

Yes, the productivity has been abysmal. Cleaning house makes sense, but it clearly needs to include the top.

There's a guy (whose name I forget) who is a retired government auditor that has served as an interim for us here in Palo Alto as well as down in San Jose... let's get him in to oversee our new contracting approach for a short while we patiently rebuild with A+ personnel (including the head) as we can find them.


52 people like this
Posted by Anon
a resident of Another Palo Alto neighborhood
on May 22, 2018 at 10:46 pm

This is a terrible idea. Scharff is being penny wise and pound foolish. If a city wants to avoid corruption, incompetence, and all manner of shannanigans, it must have top notch auditing.

It is foolish to fix what isn’t broken - our in-house auditor is working. Read the article - there are no flagrant problems . Keene is known as not wanting oversight - he gives but doesn’t take. But he’ll be gone in a few months as will Scharff. Both should be ignored on this. The finance committee too - it was wrong to ram this through. The auditor should stay in house


29 people like this
Posted by Bob
a resident of another community
on May 23, 2018 at 4:25 am

Given that the department was established by the voters, does the city even have the authority to eliminate it?


14 people like this
Posted by Sally
a resident of Downtown North
on May 23, 2018 at 7:05 am

@Bob -- I'm fairly sure that what you say is true of the City Auditor role itself, but not proscribe details office structure, staffing, or funding. Those are up to council.


35 people like this
Posted by JCP
a resident of Old Palo Alto
on May 23, 2018 at 10:46 am

JCP is a registered user.

Every wrong turn City Council makes is lead vociferously by Scharff.


32 people like this
Posted by Outsource survivor
a resident of Another Palo Alto neighborhood
on May 23, 2018 at 10:55 am

There is always the false claim that outsourcing will return a fiscal savings with increased productivity. It is unfortunately not a claim to be believed. The criticism is all valid.


2 people like this
Posted by member
a resident of Greenmeadow
on May 23, 2018 at 11:15 am

Whenever possible city services should be outsourced. When you figure comp and benefits taxpayers pay plenty and most city departments are overstaffed. Studies have shown outsourcing is more effective at a lower cost to the community.


6 people like this
Posted by member
a resident of Greenmeadow
on May 23, 2018 at 11:16 am

Whenever possible city services should be outsourced to local companies. When you figure comp and benefits taxpayers pay plenty and most city departments are overstaffed. Studies have shown outsourcing is more effective at a lower cost to the community.


29 people like this
Posted by Very concerned resident
a resident of Professorville
on May 23, 2018 at 11:47 am

It is obvious on its face that this is about reducing accountability of elected officials and reducing transparency. The idea that you can save money by outsourcing to a group that requires substantial profit is a joke. And all the intangible assets that in-house, long term, accountable auditors bring, which includes accountability to the public, all described in the article, are lost. The external folks are accountable only to those hiring them, who often have an interest in hiding what they are doing, or the implications of what they are doing. The fact that this was done quickly, with minimal discussion, is all you need to know. Something very pernicious is afoot here, and PA residents should demand answers. There are few functions more critical to honest governance than proper and effective accounting, so one seriously wonders here whether dishonesty was actually the prime goal.


22 people like this
Posted by Curmudgeon
a resident of Downtown North
on May 23, 2018 at 12:32 pm

"If a city wants to avoid corruption, incompetence, and all manner of shannanigans, it must have top notch auditing."

Scharff knows that. [Portion removed]


"Scharff is being penny wise and pound foolish."

More like, Scharff is being crazy like a fox.


21 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on May 23, 2018 at 12:38 pm

Online Name is a registered user.

We need accountability and oversight now more than ever. We've got huge unfunded pension liabilities and wasteful spending. Why the rush to eliminate oversight?


16 people like this
Posted by Another hypothesis
a resident of Old Palo Alto
on May 23, 2018 at 12:55 pm

Erickson asked. "City managers are not advocates for having in-house auditors looking over their shoulders..."

Maybe the low productivity is the result of auditors _finding_ wild overspending and being prevented from reporting.

For example, the over $4 MILLION spent on the City Hall lobby, with huge useless computer screens on the walls,totally unnecessary re-carpeting and very expensive re-upholstering, (except the sound system was not improved)

and the bizarre EXPENSIVE bollards installed all along Middlefield Road
cluttering up dozens of right turns that have been functioning just fine (and uglying up the roadway) why?

and over-doing Ross Road circle, way more expensive than necessary,
and the ridiculously padded and unreadable Performance Report. It's a PR joke.

There could be MILLIONS of $ special deals involved in just these fiascos. The auditors need to work on those.


8 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on May 23, 2018 at 1:09 pm

Online Name is a registered user.

And right now Zero Waste is on Next Door promoting the availability of free Party Packs! Talk about a waste of our tax dollars!

"Zero Waste Party Packs are FREE and available for you to borrow. Party packs come with complete table settings for 24 people � that�’s plates, bowls, tumblers, utensils and cloth napkins. You can borrow a party pack from a Zero Waste Block Leader near you. Zero Waste Block Leaders are neighborhood 'experts' available to answer your recycling, composting and reuse questions. Most block leaders have party packs available for you to borrow. If they don't, they'll get you in touch with a block leader who does.


15 people like this
Posted by Annette
a resident of College Terrace
on May 23, 2018 at 2:37 pm

Annette is a registered user.

@Anon - you wrote "If a city wants to avoid corruption, incompetence, and all manner of shannanigans, it must have top notch auditing."

Operative word: IF.


16 people like this
Posted by Curmudgeon
a resident of Downtown North
on May 23, 2018 at 4:02 pm

"Given that the department was established by the voters, does the city even have the authority to eliminate it?"

No, but the city can fatally cripple the auditor's office, as Scharff & Co. are doing here.

And I must wonder why our (nominal) auditor Richardson is so enthusiastically in favor of this trashing of her (nominal) job. Maybe she could explain on this forum, citing City Auditor audits supporting this proposal


3 people like this
Posted by senor blogger
a resident of Palo Verde
on May 23, 2018 at 4:39 pm

Sounds like there is an anterior motive here. Depts can run amuck


1 person likes this
Posted by Floggrgurl
a resident of Embarcadero Oaks/Leland
on May 23, 2018 at 8:16 pm

This is NOT a problem created by our former mayor, Scharff or by Councilmember Tanaka who is VERY fiscally wise, this is a problem created by the department itself. It boggles my mind that PA Online would reach out to someone who hasn't held a position within this department for 8 YEARS, to even give an opinion on the matter. Having an independent agency act as an auditor is an incredibly smart financial decision, that will likely turn out to be the most impartial decision as well. Who better to keep a watchful eye than someone with no direct ties to the community?

Enough of blaming every decision you don't like on the former leaders of our city. When Scharff was mayor, our meetings were well run, ended in a timely manner, and things were managed professionally and with a sense of fairness. Nothing like the sideshow mentality that I witness every Monday night currently.


8 people like this
Posted by Curmudgeon
a resident of Downtown North
on May 23, 2018 at 8:35 pm

"When Scharff was mayor, our meetings were well run, ended in a timely manner, and things were managed professionally and with a sense of fairness. Nothing like the sideshow mentality that I witness every Monday night currently."

Well said, Mr. Scharff.


7 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on May 23, 2018 at 8:54 pm

Online Name is a registered user.

Great. Now we can expect councilman Sharff to call for immediate audits of many departments to identify the waste and mismanagement so the city's not constantly polling us on what taxes we want raised and telling us our cut-through traffic problems will be solved if we just put up more signs saying ENTERING RESIDENTIAL AREA, higher utility rates, road furniture, employees getting 17% annual raises, multi-million dollar council chambers, wayfinding systems, junkets to DC and our sister cities, why the Utilites Dept. got away with charging us an extra 6 months in drought surcharges netting $4,000,000. etc etc.

I look forward to the astronomical savings.


1 person likes this
Posted by Floggugurl
a resident of Embarcadero Oaks/Leland
on May 23, 2018 at 9:40 pm

@Curmudgeon- You amaze me with your overactive imagination. I follow our cities ever-changing political landscape VERY closely and admire those who can lead staff, citizens and the rest of the council as even-handedly as he did.

Here's a thought, instead of offering the usual barrage of complaints, why don't some of you do something, constructive, like run for public office, and be a part of the process you are so fond of dismantling with your negative comments and entitled opinions.

Perhaps then you'll see the change you are so desperately in search of.

Sincerely,
NOT GREG SCHARFF..


6 people like this
Posted by Annette
a resident of College Terrace
on May 27, 2018 at 12:12 am

Annette is a registered user.

@Floggugurl: I also follow civic affairs in Palo Alto and I have a different take on Scharff. Even-handed is not what comes to mind. He tended to an imperious style, prone to what I will call an "al dente" approach to policy making, meaning he would throw things out to see what stuck. The single most memorable example was his tossing out what would give teeth to the Comp Plan after the CAC had worked for close to two years on It. That led to a veritable uproar and he dialed it back. So that one didn't stick. Now he promotes gutting a department. I do not pretend to have inside knowledge about the Auditor or her staff, but that is a critical City function and Scharff et al were pretty darn sure of their position a week ago. And now a week later, the story flips. So that one didn't stick. I suspect most of us have no idea what's going on there, but obviously something's amiss.

Residents should pay attention. Often, comments are warranted. Also, speaking at City Council is a constructive part of the public participation process. Or so I thought. Turns out public participation is currently subject to erosion. Just last week, the mayor again shortened public comments to 60 seconds. Finally, you suggest running for office. Good suggestion, in theory. Unfortunately, not all City observers have access to developer and corporate dollars. That's a deterrent. And a problem.


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