After years of complaining about internal strife and subpar performance in the Office of the City Auditor, the Palo Alto City Council moved on Monday to cut every position in the small office and to outsource its operations to the Chicago-based consulting firm Baker Tilly US.
In a move that represents a dramatic shift for an office that voters created in 1983, the council voted unanimously Monday to sign a two-year contract with Baker Tilly for internal auditing services. The contract will cost the city $750,000 a year (prorated in the first year to $550,000) and the parties will have the option for renewing the deal for up to three additional years.
The council also moved to cut all four auditing positions at the Office of the City Auditor, effectively dismantling an office that had a budget of about $1.2 million. These include the three senior auditor positions as well as the position of the city auditor, which has been vacant since Palo Alto's last City Auditor Harriet Richardson resigned at the beginning of 2019 after a prolonged conflict with three of her employees.
The face of Baker Tilly in Palo Alto will be Kyle O'Rourke, a senior consulting manager who the council appointed Monday as the new city auditor. A certified internal auditor, O'Rourke has worked with more than two dozen state and local government clients over the past three years, according to the firm's proposal. O'Rourke's work includes reviewing policies at the Detroit Water and Sewerage Department, performing risk assessments for the city of Madison, Wisconsin, and auditing the public utility in the city of Riverside.
When the Santa Clara County's shelter-in-place order ends, O'Rourke will be expected to be in Palo Alto every other week, said Councilman Eric Filseth, who led the council's process in selecting the new auditor.
The council kicked off its effort to outsource city auditing services in February, when the council directed its Council Appointed Officers Committee to craft a request for proposals. The committee received six bids and narrowed down its search to two firms, Filseth said. After the full council interviewed both finalists twice in a closed session, it chose Baker Tilly US, which is the American affiliate of Baker Tilly's international network.
The $1.3 million contract that the council approved is expected to generate at least six audits per year, which includes four major audits and two minor audits. The firm also will be charged with conducting a citywide risk assessment every year — a project that it plans to embark on as soon as it starts its new role on Thursday, Oct. 1.
In its proposal, Baker Tilly touted its large workforce of more than 300 audit professionals and a client list that includes more than 1,000 state and local government clients, among them the cities of Fargo, North Dakota; Plano, Texas; and Lincoln, Nebraska. Its California clients include Burbank, Modesto and Richmond.
The firm's proposal cites Baker Tilly's expertise in utilities and in areas such as cybersecurity, fraud and financial management. The document lists case studies in which the firm tested the security of a client's internal information technology systems and identified gaps in another client's virus protection program.
Filseth said both finalists were "superbly qualified and we were wishing we could hire both if we could."
Not everyone shared his excitement. Sharon Erickson, who had served as Palo Alto's city auditor between 2001 and 2008 and then took on the same role in San Jose, called the move "a stunningly bad idea." For years, the city charter was interpreted to mean that that the city auditor is a city employee with an office at City Hall, she told the council.
"This is not the time to reduce accountability and transparency at any level of government," Erickson said.
The council, for its part, unanimously agreed that it's time to try the new approach. Over the past decade, the city has seen high turnover in the city auditor position, which was most recently held on an interim basis by consultant Don Rhoads.
The city's last permanent city auditor was Richardson, whose tumultuous five-year tenure featured audits on the city's animal services and code enforcement operations and internal conflicts inside her small office. Her stint was marred by an ongoing conflict with three employees, who accused her of mismanagement. Her predecessors in the positions, Mike Edmonds and Jim Pelletier, had also departed after short stints.
Employees of the office had opposed the city's move. In January, an attorney representing one of the auditors, Houman Boussina, criticized the report that the City Council commissioned last year as part of its process of exploring alternate service models for city auditing. The report from Kevin W. Harper CPA & Associates concluded that compared to other cities, Palo Alto has the lowest productivity (with 0.7 audits per year per full-time position) and the highest cost per audit ($417,000).
Boussina's attorney, Karl Olsen, argued that the Harper report had failed to acknowledge Richardson's mismanagement. As such, it "unfairly exposed the office staff, who have not had a supervisor since November 2018, to direct criticism and blame for the report's conclusions."
In approving the shift away from in-house staff to an outside consultant, council members expressed hope that the new arrangement would yield a superior product at a lower cost. Councilwoman Liz Kniss called the search for an auditor "one of the longest processes I've ever gone through."
"I'm looking forward to a wonderful new way to provide audits in the city of Palo Alto," Kniss said.
Mayor Adrian Fine agreed and welcomed the city's new partnership with Baker Tilly.
"I think that's a real opportunity for us to sync up what audits are being done, what the expectations are, what the costs should be, what the outcome should look like and how can we pass audits on to other city departments to make changes to make our cities better and safer," Fine said.
O'Rourke said the firm plans to get to work in Palo Alto in a few days when it begins the citywide risk assessment. He told the council that he is "very humbled and honored for the opportunity to serve in this position."
"There's a reason that I work exclusively with public sector entities, despite working at a private company," O'Rourke said, "It's what I love, what I very much enjoy doing, what I've done for a number of years."