Millions in savings unclaimed; after audits, Muni revealed $20 million excess overtime

UPDATE 8/19/11: Hear reporter Angela Hart discuss her story with KQED News, a Public Press reporting partner (fast-forward to second item)

San Francisco could have saved at least $33.5 million over the last two years’ budgets if departments, commissions and contractors had acted on advice from regular audits pointing out government waste and inefficiencies.
The savings, much of it coming out of transit and police employee overtime, could have reduced the need to cut some vital services this summer as local government agencies faced $380 million in projected deficits over the next year.
Some of the audits produced by a unit of the controller’s office have been implemented swiftly. Yet as many as 40 audit reports out of 70 performed since 2009 linger officially unresolved. The problem is, there’s no recourse if departments choose to ignore auditors. And after two years, the office is not required to follow up on the reports, which could explain why 14 additional audits highlighting potential savings of $700,000 were not indicated on a list produced by the controller’s office.
Late in the summer, several department heads were dragged into hearings at City Hall to explain why they were slow to react to audit recommendations. Some responded that they disagreed with the findings. Others said they would change the way they did business if they had the staffing to do it, but layoffs and buyouts of policy personnel over the last three years had slowed following up on claims of waste.
As cities nationwide struggle to keep service levels up while facing annual budget cuts, elected officials are under increased scrutiny from the public to find savings wherever they can. In New York, a 2011 audit of the Port Authority of New York & New Jersey found the state could net $22 million a year if the port revised contracts with private contractors. In San Diego, an audit found $20,000 in annual savings if the city limited the number of city vehicles taken home by employees.
Further complicating the picture, San Francisco is blessed — or cursed, some say — with two auditing departments, the other headed by Harvey Rose, the Board of Supervisors’ longtime budget and legislative analyst.
The profusion of steps in budget oversight actually slows down the system and makes it hard to plan for the big picture. San Francisco’s budget process, according to a 2008 report from the San Francisco Municipal Executives Association, “is unique and arguably the most complex among peer jurisdictions,” in part because reviews by the controller’s office and the legislative analyst are necessary steps each year. San Francisco has an eight-step budget process. Los Angeles’ approval process has six steps. New York, Chicago, Boston and San Jose have five steps.
But the audit process in San Francisco has turned up some clear opportunities for pruning. Reports at outline where departments could be more efficient or collect more money:

  • A Fire Department payroll audit showed that administrative and pay errors in fiscal year 2009-2010 cost the city $690,000. Responding in a memo, department officials said they agreed with some recommendations and were already implementing them. They disputed other suggestions to change how they paid out employee benefits, asserting that their policies were constrained by union negotiations.
  • An audit of four parking garages owned by the San Francisco Municipal Transportation Agency revealed $106,000 in uncollected charges. In a written response, the agency said it was looking into some of the charges and had begun acting on some of the findings.
  • A Recreation and Park Department audit in 2009 said the San Francisco 49ers owed the city $569,041 in parking lot rent. In a response memo, the 49ers agreed with some of the recommendations, but disagreed with others regarding parking rent. (This audit was one of 14 too old to be listed by status, and that information is not available on the Web.)

Now, some San Francisco supervisors want to crack down on the inattention to municipal audits, saying many of the city’s 48 departments are unaccountable.

“There aren’t any punishments or penalties if they don’t comply,” said Mark Tipton, a performance audit manager. “It really takes decision-makers, elected officials and the media to keep pressure on them to make changes.”
Supervisors on the Government Audit Oversight Committee in recent months criticized the most delinquent departments, calling for more policing of  departments’ finances — specifically in overtime.
“Over my years in government, I’ve seen audits and reports come and go,” said David Campos, who chairs the committee. “They’re put on a shelf and never talked about again and the recommendations are never implemented.”


Campos said he discovered largely through audits that San Francisco spent about $40 million on unbudgeted overtime in the last year. About half of that was paid to Muni operators, he said.
Rose said that in one of his audits, published in May 2010, “our finding was that they don’t spend a lot of time monitoring or controlling overtime.” He added that Muni pays “virtually no attention” to audits indicating financial savings. “We’re not saying it wasn’t justified.”
And at an audit review board meeting on July 28, barely a month into this fiscal year, Muni’s director of transit, John Haley, reported that the agency was already projecting unbudgeted overtime spending for the next year that was approaching $20 million beyond the $33 million already accounted for.
Haley said unbudgeted overtime is “built into” the department’s standard operating procedures — used for extraordinary events such as parades or emergencies.
He also said, much to the surprise and consternation of the three supervisors on the committee, that Muni’s use of furloughs, intended to reduce overall labor costs, were themselves causing the agency to “backfill” unclaimed work shifts by paying overtime.
“When you underestimate your budget by 18 million, that could solve so many other problems in the city,” said Supervisor David Chiu, who is also president of the board. “It seems like this is Groundhog Day, year after year assurances keep coming up.
“How do we fix these costs, not just explain while we’re in this situation,” he added.
In response to Haley’s answers, and to details in an audit by Harvey Rose, Campos and fellow supervisor Mark Farrell proposed an ordinance in July to curb citywide overtime spending, requiring anything not budgeted to go through the Board of Supervisors for approval.


In addition to Muni, one police department audit that went unanswered for nearly a year found that the department did not accurately track and monitor how much overtime was paid for officers’ court appearances. And nearly $40,000 was overpaid to employees for uniforms. Chiu said he has had many conversations with Police Chief Greg Suhr about how to curb overtime.
“What I continue to hear are explanations and excuses, but no answers as to what has been happening with overtime,” Chiu said to Captain Albert Pardini, a police department spokesman, at the audit review board meeting.
“I don’t know why,” Pardini replied. “There are significant changes in the department — retirements, Chief Gascón leaving, and then the interim chief and our new chief, Greg Suhr. These individuals are all new.”
That the spokesman could not determine who wrote the initial response from the department underpinned the need for greater oversight, Campos said.
“It’s a pretty basic function that if a city controller makes recommendations on how to improve on issues, someone look at them,” he said. “Or maybe the answer is maybe no one was actually looking at it. This is why we need to monitor these reports as closely as we can.”


While recent pressure from City Hall has forced some departments to respond, the reports are nothing new. Voters called for more transparency and accountability in local government in 2003 when they passed Proposition C, ultimately creating a unit within the controller’s office called the City Services Auditor.
“I can’t say audits are something that we focus on,” said Rick Wilson, the mayor’s new budget director. “But the mayor is always looking for ways to be more efficient and save so city services aren’t impacted.”
Frustration among elected officials is not unique to San Francisco. After the start of the recession, there appears to have been an increase in municipal audits nationwide, said Kevin Duggan, West Coast regional director for the Washington D.C.-based International City and County Management Association.
“The severe economic challenges of the last three years has certainly caused public agencies to look closer at audit reports to identify inefficiencies that would result in service improvements or cost-savings. We need to make sure the public knows where funds are being spent and if that’s being done in a correct manner,’’ he said.
Duggan also said that many cities that are increasingly looking to organizational and financial audit reports to identify where they can save.
But in many cases there is no way to sanction the targets of audits if they blow off the findings.
“It’s frustrating when you have professional auditors look at something and say you can do it better, or it’s wasteful, or costly, and it can be ignored,” said
Max Neiman, senior resident scholar at the Institute for Governmental Studies at the University of California, Berkeley. “These kinds of situations are very likely to occur, unfortunately, because it’s not illegal to ignore or choose not to respond to the audits.”
The solution, San Francisco auditors said, is public and political pressure.
“We don’t have a hammer,” Tipton, the city auditor, said. “We can’t make them implement any changes, because if we did, it would compromise our independence. But we want to hold departments accountable. That’s why we’re excited about what’s going on with Campos and the Government Audit and Oversight Committee.”


But some city departments, such as the Public Utilities Commission, are quick to respond to and implement recommendations from auditors.
The commission was the subject of 31 audits over two years. Just seven are unresolved but have been addressed in some way.
Tonia Lediju, the director of audits under the controller’s office, said the Public Utilities Commission is a benchmark for how departments should deal with auditors. “They’ve worked very closely with us,” Lediju said. “We collaborate often so that we can get the work done.”
Two unresolved audits say the commission needs to improve inventory management, collect $73,320 in late lease payments on a golf course it owns in San Mateo County, and resolve problems related to lease management on a sand quarry the city owns in Sunol. The report says that at least $154,904 in additional rent, royalties and other charges is owed to the commission, and another $479,607 might be recovered after further investigation.
“We take the audit reports very seriously,” said Michael Carlin, deputy general manager for the Public Utilities Commission.
Tipton said some departments have a culture of taking audits seriously, and some pay no attention to them: “Many times when it’s a bigger department, auditing is just not something they look at.”
An audit of Office Depot, with which the city contracts for office supplies, found that the company overcharged the city $5.75 million for office supplies between January 2005 and July 2009.
Mayor Ed Lee in March approved an out-of-court deal with Office Depot. A resolution from the Board of Supervisors said Office Depot has to pay back $3.75 million and an additional $500,000 in credit toward future office supply purchases.
“That’s an extreme,” Tipton said. “But it’s real money that will go directly into the general fund — it’s an example of an audit that did what it’s supposed to.”

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