News

To stifle discord, Palo Alto prepares to shake-up auditor's office

City to look for outside firms to supervise voter-created office

The Palo Alto City Auditor's Office may soon see its most significant shake-up since its inception more than three decades ago after the City Council agreed on Monday to seek an outside firm to manage what has always been an in-house operation.

By a unanimous vote, the council directed its Council Appointed Officers Committee to craft the specifications for the city auditor position that would allow the city to consider firms, rather than individuals, to oversee the six-person office. This would be a marked change from the existing system, in which the city auditor is one of four city positions that report directly to the council.

The Monday decision was prompted by years of tension, turmoil and turnover in the City Auditor's Office, which has been without clear leadership since the city's last City Auditor Harriet Richardson departed a year ago. The city had hired a consultant, Don Rhoads, to supervise the office, but his contract expired last November and the office has since been without a leader.

In agreeing to consider outside firms, rather than individuals, for future oversight of the voter-created office, council members acknowledged that the present system isn't working. They were also persuaded by a recent report from Kevin W. Harper CPA & Associates, a firm that the council commissioned to survey auditing functions in other jurisdictions.

Additional involvement by the City Manager's Office, Harper wrote, "may improve cooperation with the City Auditor's Office and may improve the quality and quantity of implemented recommendations."

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The report concluded that Palo Alto has fewer audits and spends more per audit than other cities. While other cities had spent between $78,000 and $354,000 per audit, in Palo Alto the figure was $417,000. The city was also tied with Oakland for the lowest output, with 0.7 audits per full-time-equivalent position annually.

It wasn't just the numbers that troubled the council. It's also the office's priorities and inner dynamics. Several council members argued that the recent audits that have come out of the office — which pertain to issues such as code enforcement and business-license tax — don't really reflect the areas where the city has the highest risks.

In addition, council members were put off by the high turnover at the office, which has seen extensive bickering between employees and their former supervisor, Richardson. Councilman Eric Filseth noted that since 2008, the city has had four city auditors, not counting the various consultants and interim leaders. Before Richardson's five-year tenure, the typical auditor stayed on the job for about two years, he said.

"How do we have confidence that the next person we hire, we don't spend a lot of money to get them here and then they're gone in a couple of years too?" Filseth asked.

But even though the council proved open to changing the structure of the office, members were adamant about the fact that the auditor's office will remain independent. Two different auditing organizations had submitted letters in recent months pushing back against Harper's recommendation that the city manager has "administrative oversight" over the auditor's office.

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Additional involvement by the City Manager's Office, Harper wrote, "may improve cooperation with the City Auditor's Office and may improve the quality and quantity of implemented recommendations."

Two national organizations — the Institute of Internal Auditors and the Association of Local Government Auditors — submitted letters challenging that recommendation, which they argued could stifle the independence of the auditor. Richard Chambers, CEO of the Institute of Internal Auditors, which sets auditing standards, argued that an effective internal auditor must be "free from any undue influence of city management."

"This influence can appear in many forms, including inappropriate administrative or functional reporting relationships, budgetary constraints, and decision-making around personnel issues," Chambers wrote.

Sharon Erickson, who served as Palo Alto's city auditor between 2001 and 2008, also urged the council to reject Harper's suggestion and to retain the existing reporting structure. She acknowledged that there are ways to improve the office's performance and that some of the consultant's recommendations may help. But changing the reporting structure of the office would run against the city charter, which calls for an independent auditor, and is "totally unnecessary to the function of the office."

Current office employees have also been highly critical of the Harper report. The council recently received a letter from an attorney for Houman Boussina, a senior performance auditor, who reportedly had complained to the council in August 2018 about "serious problems in the office that had negatively impacted productivity and the ability of the office to achieve its mission."

The letter, Boussina's attorney Karl Olson wrote, "highlighted the retaliation against the office staff who had in good faith met their ethical obligations to report the issues to City management."

"Unfortunately, to our knowledge, the City has not acknowledged or taken corrective action to address the wrongdoing," Olson wrote. "Instead, the City made working conditions extremely difficult for the entire office starting in 2018 by denying supervision, performance evaluations, and the opportunity for merit-based pay increases that are provided to other City employees."

The letter urged the council to appoint a permanent city auditor who can "restore leadership and supervision and work with the City Council to restore operations at the office."

While the council has not publicly discussed the internal squabbles within the office, numerous sources have said in the past that employees have found numerous complaints against Richardson and that subsequent investigations had cleared her of wrongdoing.

The Monday vote was the council's most significant public action to date to address the years of turmoil at the office since spring of 2018 when the council's Finance Committee voted to eliminate five of the office's six positions, which would've left only the city auditor's position in place). After some public backlash, the committee voted days later to rescind the vote and to explore broader structural changes to the office.

In December, the Council Appointed Officers Committee discussed the Harper report and expressed interest in its recommendations to contract out certain audits and to conduct an annual citywide risk assessment to identify key risks and develop improvement plans to enhance controls.

Vice Mayor Tom DuBois, who served on the committee, lauded the recommendation for a risk assessment, saying that identifying areas where the city may have higher risk makes a lot of sense. He and his colleagues generally concurred that the office should maintain its independence, even if it's manned by an outside firm.

City Councilwoman Liz Kniss and Filseth led the push for having a firm, rather than an individual, lead the office, with Kniss pointing to Santa Clara County as an example of a government that uses outside consultants for auditing.

Mayor Adrian Fine suggested that having a person inside City Hall, rather than an outside firm, can have the benefit of bringing the office closer to the citizens. He also noted that it may take longer for outside firms to get up to speed on local issues. He ultimately agreed, however, to join the rest of the council in accepting Filseth's proposal to focus the city's search on an outside firm rather than on a new employee.

"We have a responsibility to the community to consider some alternative approaches," Filseth said. "I think there's a good chance we can do better."

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To stifle discord, Palo Alto prepares to shake-up auditor's office

City to look for outside firms to supervise voter-created office

by / Palo Alto Weekly

Uploaded: Mon, Feb 10, 2020, 10:27 pm

The Palo Alto City Auditor's Office may soon see its most significant shake-up since its inception more than three decades ago after the City Council agreed on Monday to seek an outside firm to manage what has always been an in-house operation.

By a unanimous vote, the council directed its Council Appointed Officers Committee to craft the specifications for the city auditor position that would allow the city to consider firms, rather than individuals, to oversee the six-person office. This would be a marked change from the existing system, in which the city auditor is one of four city positions that report directly to the council.

The Monday decision was prompted by years of tension, turmoil and turnover in the City Auditor's Office, which has been without clear leadership since the city's last City Auditor Harriet Richardson departed a year ago. The city had hired a consultant, Don Rhoads, to supervise the office, but his contract expired last November and the office has since been without a leader.

In agreeing to consider outside firms, rather than individuals, for future oversight of the voter-created office, council members acknowledged that the present system isn't working. They were also persuaded by a recent report from Kevin W. Harper CPA & Associates, a firm that the council commissioned to survey auditing functions in other jurisdictions.

Additional involvement by the City Manager's Office, Harper wrote, "may improve cooperation with the City Auditor's Office and may improve the quality and quantity of implemented recommendations."

The report concluded that Palo Alto has fewer audits and spends more per audit than other cities. While other cities had spent between $78,000 and $354,000 per audit, in Palo Alto the figure was $417,000. The city was also tied with Oakland for the lowest output, with 0.7 audits per full-time-equivalent position annually.

It wasn't just the numbers that troubled the council. It's also the office's priorities and inner dynamics. Several council members argued that the recent audits that have come out of the office — which pertain to issues such as code enforcement and business-license tax — don't really reflect the areas where the city has the highest risks.

In addition, council members were put off by the high turnover at the office, which has seen extensive bickering between employees and their former supervisor, Richardson. Councilman Eric Filseth noted that since 2008, the city has had four city auditors, not counting the various consultants and interim leaders. Before Richardson's five-year tenure, the typical auditor stayed on the job for about two years, he said.

"How do we have confidence that the next person we hire, we don't spend a lot of money to get them here and then they're gone in a couple of years too?" Filseth asked.

But even though the council proved open to changing the structure of the office, members were adamant about the fact that the auditor's office will remain independent. Two different auditing organizations had submitted letters in recent months pushing back against Harper's recommendation that the city manager has "administrative oversight" over the auditor's office.

Additional involvement by the City Manager's Office, Harper wrote, "may improve cooperation with the City Auditor's Office and may improve the quality and quantity of implemented recommendations."

Two national organizations — the Institute of Internal Auditors and the Association of Local Government Auditors — submitted letters challenging that recommendation, which they argued could stifle the independence of the auditor. Richard Chambers, CEO of the Institute of Internal Auditors, which sets auditing standards, argued that an effective internal auditor must be "free from any undue influence of city management."

"This influence can appear in many forms, including inappropriate administrative or functional reporting relationships, budgetary constraints, and decision-making around personnel issues," Chambers wrote.

Sharon Erickson, who served as Palo Alto's city auditor between 2001 and 2008, also urged the council to reject Harper's suggestion and to retain the existing reporting structure. She acknowledged that there are ways to improve the office's performance and that some of the consultant's recommendations may help. But changing the reporting structure of the office would run against the city charter, which calls for an independent auditor, and is "totally unnecessary to the function of the office."

Current office employees have also been highly critical of the Harper report. The council recently received a letter from an attorney for Houman Boussina, a senior performance auditor, who reportedly had complained to the council in August 2018 about "serious problems in the office that had negatively impacted productivity and the ability of the office to achieve its mission."

The letter, Boussina's attorney Karl Olson wrote, "highlighted the retaliation against the office staff who had in good faith met their ethical obligations to report the issues to City management."

"Unfortunately, to our knowledge, the City has not acknowledged or taken corrective action to address the wrongdoing," Olson wrote. "Instead, the City made working conditions extremely difficult for the entire office starting in 2018 by denying supervision, performance evaluations, and the opportunity for merit-based pay increases that are provided to other City employees."

The letter urged the council to appoint a permanent city auditor who can "restore leadership and supervision and work with the City Council to restore operations at the office."

While the council has not publicly discussed the internal squabbles within the office, numerous sources have said in the past that employees have found numerous complaints against Richardson and that subsequent investigations had cleared her of wrongdoing.

The Monday vote was the council's most significant public action to date to address the years of turmoil at the office since spring of 2018 when the council's Finance Committee voted to eliminate five of the office's six positions, which would've left only the city auditor's position in place). After some public backlash, the committee voted days later to rescind the vote and to explore broader structural changes to the office.

In December, the Council Appointed Officers Committee discussed the Harper report and expressed interest in its recommendations to contract out certain audits and to conduct an annual citywide risk assessment to identify key risks and develop improvement plans to enhance controls.

Vice Mayor Tom DuBois, who served on the committee, lauded the recommendation for a risk assessment, saying that identifying areas where the city may have higher risk makes a lot of sense. He and his colleagues generally concurred that the office should maintain its independence, even if it's manned by an outside firm.

City Councilwoman Liz Kniss and Filseth led the push for having a firm, rather than an individual, lead the office, with Kniss pointing to Santa Clara County as an example of a government that uses outside consultants for auditing.

Mayor Adrian Fine suggested that having a person inside City Hall, rather than an outside firm, can have the benefit of bringing the office closer to the citizens. He also noted that it may take longer for outside firms to get up to speed on local issues. He ultimately agreed, however, to join the rest of the council in accepting Filseth's proposal to focus the city's search on an outside firm rather than on a new employee.

"We have a responsibility to the community to consider some alternative approaches," Filseth said. "I think there's a good chance we can do better."

Comments

Sally
Downtown North
on Feb 11, 2020 at 9:40 am
Sally, Downtown North
on Feb 11, 2020 at 9:40 am
19 people like this

Two Words -- City Charter

This council is afraid to do its job, which includes managing the auditor directly. They are going to cost us big-time when lawsuits from aggravated parties come down.

Filseth's comments are most revealing. Don't you know that the auditor reported / reports directly to you? You are saying we can't trust you to be in charge of things?

Well noted.


Sally
Downtown North
on Feb 11, 2020 at 10:03 am
Sally, Downtown North
on Feb 11, 2020 at 10:03 am
17 people like this

Rethinking what I wrote 15 minutes ago.... In fairness to Mr. Filseth, he's just the one who got stuck with the quote. The entire council is essentially ducking their responsibility here. I am mortified at all of them, and should not single him out.

The council asking the "Council Appointed Officers Committee" to draft how this could possibly work without violating the City Charter is another huge attempt to duck responsibility (attempt #2 after commissioning a report that could spare them responsibility went very, very poorly). I'm sure they will ask the City Attorney to prepare some semi-plausible thread of legal viability, if they haven't already.

We will get sued by the employees they are clearly trying to fire indirectly... and yet have no independent audit function. Grow up, guys and gals.


Taxpayer
Old Palo Alto
on Feb 12, 2020 at 7:03 am
Taxpayer, Old Palo Alto
on Feb 12, 2020 at 7:03 am
18 people like this

If city management and the council are both disappointed by the performance of the auditor's office, why did they give Harriet Richardson the maximum performance-based raise each of the five years she was employed by the city? According to Transparent California, Richardson started out receiving $173,944 in 2015 and topped out at $191,287 in 2018. These raises are directly controlled (and given out) by the council. Apparently, the council has been very pleased with the performance of the auditor's office, as evidence by the performance raises the auditor received during her tenure.

Also, the council should look at Assembly Bill 5 as it relates to outsourcing a "core function" of duties/responsibilities of the auditor's office. If you try and outsource, you most likely will be in violation of this new state law. Do your homework council, before you start running your mouths as though you are experts in employment law, and embarrass yourself in front of the city.

What is not noted in the news article is that the council has already crippled the office by eliminating 50% of the staff. There used to be five auditors and the city auditor (for a total of six employees for the office). Within the last two years, the council has eliminated two auditor's positions when two employees of the auditor's office left employment with the city. Now that Richardson has left, the council has stalled on filling her vacant position for over a year, and is now wanting to outsource the auditor's position all in the name of productivity. How can you expect an office to meet your expectations as it relates to putting out product when time after time you eliminate a position of the auditor's office as soon as it becomes vacant? Sounds like a self-fulling prophecy to me..... eh council? Or would you rather complain about the performance of the office when it is running at 50% operational capacity, and with no leader?

For the council to state that they want to outsource in order to avoid having to manage a position that has high turnover is nothing more that side-stepping the council's own responsibilities. If you don't want to do all of the essential functions of your responsibilities as a council member, which includes managing the four council-appointed positions, then you need to step aside and make room for someone who won't whine about difficulties/inconveniences of the position as a council member. You asked for this position as an elected official, and all of the responsibilities that come with it. So quit complaining...... do your job and hire an auditor. Stop making excuses for yourself, your laziness, your lack of ability to fulfill you obligations as a council member, and your own incompetence.


Resident
Midtown
on Feb 12, 2020 at 8:14 am
Resident, Midtown
on Feb 12, 2020 at 8:14 am
10 people like this

Assembly Bill 5 does state that the provision of this measure shall not permit and employer to be able to reclassify job positions in which a person occupying the position was considered an "employee" on January 1, 2019, to an independent contractor simply due to the enactment of the new law. Richardson was still employed as the auditor until February 2019.

The City Council will need to find another solution. By law, you can't outsource the auditors position.

The City Council is putting the taxpayers of Palo Alto on the hook for massive lawsuits due to this talk about outsourcing. The City Council needs to do their job and hire an auditor, which would be an employee of the city, and report directly to the Council as part of the four employee positions they are supposed to oversee.


Susan
another community
on Feb 12, 2020 at 10:44 pm
Susan, another community
on Feb 12, 2020 at 10:44 pm
2 people like this

I was curious about the AB 5 comments and looked it up. I don't think it is as black and white as mentioned above. Although the language says you can't contract out work that is outside the usual course of the hiring entity's business, it also provides exceptions. One of them is for professional services, which I think the Auditor's Office could fall under. I also don't think the comment about not being able to contract out the Auditor because Richardson was there until February 2019 is completely accurate. AB 5 says you can't reclassify an individual who was an employee on January 1, 2019, to an independent contractor. It does not say you can't contract out the position or function after the person leaves. Since AB 5 seems to be to protect individuals, I don't think it applies to the City Auditor. But I do think it applies to the staff who are still there.

Regarding the comments about the council giving Richardson pay increases even though they weren't happy with the office's performance, maybe it was because the council's disappointment was not with her. I recall that when the staff positions were proposed to be cut, she acknowledged publicly that performance was under par and it seemed to be based on conversations she had already had where she said she thought performance should be better. I don't necessarily agree that she should have acknowledged that publicly, but it seems that if she had already discussed it with some councilmembers, she was probably trying to do something about it. It could also be that she got resistance from the staff and that could be one of the reasons that they complained about her management style - she wanted productivity that they either weren't capable of giving or didn't want to give. Richardson had a long history of experience, so I would guess that she knew from other places she worked what was an acceptable level of productivity. The council obviously has some unspoken agenda with the delay in hiring a new city auditor and with their recent actions, which is likely what Sally said - trying to find a way to indirectly fire the staff. If that is the case, I have to questions why something wasn't done about the staff performance much sooner than this. Government has a reputation of being difficult to get rid of bad employees, but this has gone too far.


Really?
another community
on Feb 16, 2020 at 12:33 pm
Really?, another community
on Feb 16, 2020 at 12:33 pm
12 people like this

Saw the May 2018 Finance Committee meeting and the February 10th Council meeting. The City and Council want to portray this as a staff productivity issue. I call bs on that.

Regarding not auditing risk areas – the former mayor even acknowledged that it is the Council that approves the workplan of the auditor. If Council wanted different audits, it should have so directed the auditor.

Regarding having too many outstanding recommendations, the auditor makes recommendations but it is the Council’s responsibility to hold the city manager accountable to implement the recommendations.

Council was aware of productivity concerns raised by staff in August 2018 and maybe even earlier than that. From the looks of it, Council tried to buy a consultant report to support their already made decision to outsource the office and get rid of complaining staff.

This reeks of whistleblower retaliation.

Maybe a civil grand jury investigation is in order?


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