San Diego On March 28, 2006, Diann Shipione, the one who blew the whistle on San Diego's pension mendacity, received a letter from the City of San Diego's Audit Committee, composed of forensic accountants Kroll, Inc., and a New York law firm. Said the letter, "As part of the Audit Committee's investigation, we will soon begin interviewing individuals who may have knowledge of facts relevant to the matters under investigation" (italics mine). The committee wanted to talk with her in mid- to late April.
So it was only this spring that Kroll and cronies began interviewing knowledgeable San Diegans. But on August 9 and September 26 of last year, Kroll told the city council that its report would be completed by the end of 2005. On October 25 of last year, the date was put off until mid-March of this year. But there was no report. Next target: June. That month came and went, and Kroll then talked July.
In early June, Shipione wrote the committee a 30-page, detailed, footnoted analysis of fiscal mismanagement, breaches of fiduciary duty, and illegalities in San Diego's government and pension administration. Later that month, she had a face-to-face interview with the committee in which, among many things, she mentioned a 2004 incident that might shed more light on the City's long-running practice of picking the pockets of the Water and Wastewater departments to prop up the general fund.
On December 6, 2004, William R. Newsome III, a lawyer with the city attorney's office for 22 years, penned a note to the offices of the U.S. attorney, attorney general, grand jury, Ethics Commission, district attorney, and city attorney. First, Newsome complained that in 1998, former city attorney Casey Gwinn had ordered him to stay home 40 days with pay and had allegedly given him a false reason for the action.
Then Newsome provided documentation that one or more deputy city attorneys were aware that the Water Department was being billed by the city attorney's office whether or not Water Department-related work was performed.
Two days later, on December 8, Newsome was fired on the recommendation of the office administrator for reasons having nothing to do with the false billing claims, says city attorney Michael Aguirre. It had been in the works before Aguirre assumed office four days earlier, and he accepted the recommendation of his staff.
Shortly, Aguirre learned through an attorney in the office that the billing practice was going on. He stopped it and launched an investigation. The investigator supposedly wrote a memo saying he was concerned that employees in the office might take the Fifth Amendment on the topic. That was a tip-off that the practice was widespread, but the memo -- suspected to be an ex post facto cover-your-ass letter -- reached Aguirre only last month.
"Normally, government-accounting irregularities are more subtle," says Shipione. "This was pretty obvious. It leads me to think they were desperate."
As soon as he learned the facts, Aguirre informed the Securities and Exchange Commission and KPMG, the accounting firm working on the 2003 audit. The investigator left the city attorney's office and the case languished. Aguirre had other fish to fry and admits he should have made sure some agency pursued it.
Journalists, including me, found out about the Newsome charge in late 2005. I had not heard it initially from Newsome. I put it on my list of future projects. In May of this year, Newsome contacted me. We discussed it by e-mail. The story had lost some of its potential sting, because in April, the county grand jury had issued a strongly worded report saying that the City was squirreling money out of the sewer and water departments to pay for activities that should have been supported by the general fund.
In January, the city council had discussed whether it was appropriate to pay part of Kroll's fat bills -- now up to $20.3 million -- with so-called enterprise funds, including Water and Wastewater. "Mike Aguirre raised the point of billing practices, taking money out of enterprise funds such as Water and Wastewater -- not just for Kroll, but for legal bills," recalls councilmember Donna Frye, noting that Kroll did not provide adequate billing records "or an explanation of why its bills were so high." Both Frye and Shipione had called for audits of the City's pickpocket billing practice more than two years ago.
On July 21 of this year, the Union-Tribune wrote a cockamamie (to put it charitably) hit piece, claiming that Newsome's unprobed allegations "are now a key factor holding up release" of Kroll's long-delayed report. Ergo, Aguirre got the blame for Kroll's remunerative lollygagging. Such poppycock. If Newsome's charges are one factor holding up Kroll's report, there is only one entity to blame: Kroll, because it waited until spring of 2006 to interview knowledgeable people such as Shipione. It had to know that talking with such experts would lead the committee down many trails.
If Kroll is indeed blaming Aguirre for the report's delay, it's guilty of gross hypocrisy, says Aguirre: "The very practices Kroll wants to go after me on, they themselves are engaged in -- being paid with Water and Wastewater funds." On April 10 of this year, Aguirre wrote the county grand jury, asking that it take a look at possible diversion of enterprise funds to the Audit Committee. He said that evidence shows Kroll and its law firm "violated the internal accounting controls of the City of San Diego, and the City of San Diego has inappropriately used monies from enterprise funds to pay invoices" submitted by the two.
The July 21 editorial by the Union-Tribune, always the apologist for Kroll, was mistitled "Selective Outrage: Aguirre Turns Blind Eye to Corruption in His Office." Of course, the alleged corruption was not in his office, but in that of his predecessor, Gwinn, whose executive assistant was Leslie Devaney, Aguirre's opponent in the 2004 election.
Aguirre on July 21 told people in his office that if they knew of the practice, they should come forward that day. "If it was found later that anybody was withholding information, it was grounds for termination," he told them. He got enough response to indicate that the practice may have been widespread. Last week, an investigator from his department confirmed that the faulty billing had been going on. "Gwinn and Devaney wouldn't cooperate," says Aguirre, who believes the practice probably extended to other City departments. He is now working with the attorney general's office to determine the course of further investigations.