Committee opts not to slash auditor positions

Finance Committee reverses course in recommending approval of fiscal year 2019 budget

The Palo Alto City Council's Finance Committee moved Wednesday to reverse a recommendation it issued last week that would have dramatically downsized the Office of the City Auditor.

As part of its vote to recommend adoption of the fiscal year 2019 budget, the committee agreed to rescind its May 15 decision to eliminate five out of six positions in the Office of the City Auditor, leaving City Auditor Harriet Richardson as the office's sole employee. The committee had also recommended using 80 percent of the savings from the position cuts to contract with outside firms for performance audits.

On Wednesday, the committee revisited its earlier recommendation after City Manager James Keene recommended taking more time to consider the staff cuts and after Richardson expressed major reservations about the quality of work produced by outside firms.

In Stockton, for example, city officials had eliminated their audit function several years ago and switched to a consultant to serve as their internal auditor. The city is now spending about $450,000 annually and is not getting real performance audits, Richardson said. Instead, the auditor mostly deals with "internal control reviews" and helps departments develop policies and procedures. Modesto had also outsourced its audit function, Richardson said, but there is no indication on the city's website whether the contractors are actually doing any work.

Richardson also cited Valley Metro, a transit agency in Arizona that recently hired a consultant for the auditing function. Richardson said that after discussing the auditing function with someone she knows at the agency, she learned that the contractor's work does not meet the government standards for auditing and that its reports often have to be rewritten.

She also discussed her experience in the Washington State Auditor's Office, her former place of employment. The state brought her in to "transition out of contracting because the cost was so high for contracting," Richardson said.

"They were spending an average of about $1 million for contracts and getting very voluminous reports," Richardson said. "I do recall those reports weren't well received by the agencies."

Though Richardson did not object to the Finance Committee's original May 15 recommendation, this week she advocated for a more cautious approach. She noted that her staff is working on City Hall's pending switch to a new Enterprise Resource Planning system, a complex project that involves many city departments.

"I think it's important for you to think about whether this is the right time to think about contracting out and what you will get for your money," Richardson said.

The committee also heard from several public speakers, at least two of whom had been employed in the Office of the City Auditor. Former City Auditor Sharon Erickson, who vehemently criticized the committee's May 15 recommendation, appealed to the committee Wednesday to reconsider it.

In-house auditors, she said, are there to "follow up on recommendations and make sure the residents of Palo Alto actually see the benefits of service improvements and cost savings."

"The proposal to outsource all audit work to consultants ignores the value of in-house auditors who provide continuing oversight," said Erickson, a Palo Alto resident who now serves as city auditor in San Jose.

Though the committee agreed at the May 15 discussion to outsource auditing work, one committee member had second thoughts even before hearing from Richardson. Councilwoman Lydia Kou said at the beginning of the Wednesday meeting that after giving this matter more thought and hearing from the community, she'd like to rescind her vote to eliminate the positions.

The office, she noted, was created in 1983 by a vote of the people.

"To eliminate it and to cut it out without any discussions with the auditor herself -- that was not wise at all," Kou said.

The committee's Wednesday vote restores all five performance-auditor positions in the 2019 budget. The office's long-term future, however, remains hazy. At the end of its meeting, the committee voted 3-1, with Kou dissenting, to revisit the topic after its summer break and consider other staffing models.

Committee Chair Greg Scharff, who made the initial proposal to eliminate the five positions, said Wednesday that the goal was to boost the office's productivity. Richardson had told him that she believes the office should be able to produce about 10 audits per year; their current goal is six audits.

Scharff said he has no problem "taking a step back," but did not back away from his earlier position that the office isn't as productive as it should be.

"I view it as very unfortunate that audits are taking longer than they should and that we're having productivity issues in the auditor's office," Scharff said.

The committee's recommendation means that the City Council will now be confronted with what City Manager James Keene described as a "status quo" budget. The biggest change will take place in the Fire Department, which will see 11 positions eliminated. The staffing change has already been implemented, however, and the budget will reflect – rather than shape -- the new reality in the department, which is now relying more on cross-staffing.

Another change will be in the Office of Sustainability, which will no longer be a separate entity. The position of Chief Sustainability Officer Gil Friend will be eliminated and the office's function will be subsumed within the work of Keene's office and the various department work plans.

The status quo is not, however, expected to last for too long. As part of its recommendation, the Finance Committee agreed that at least $4 million needs to be trimmed from the $214 million general fund in the coming year. As such, they adopted a $210 million budget, with the $4 million in cuts to be identified over a series of meetings that the committee plans to hold after the council's July break.

Following last week's direction from the committee, Keene brought forward a list of ideas that the city can explore to reduce costs and address its ballooning pension liabilities. These include regionalizing police dispatch, "civilianizing" the medical-response positions in the Fire Department that are currently occupied by firefighters and creating new cost-sharing arrangements with the Palo Alto Unified School District for Project Safety Net and the Cubberley Community Center.

Rather than make the cuts as part of the budget process, Keene suggested revisiting the various proposals after the summer break.

"I don't think we ought to have ad hoc decisions," Keene said. "I think we want to be able to endorse the most cost-effective ones and the ones that provide the most value to the community."

The Finance Committee agreed, with Councilman Eric Filseth calling the proposal "pragmatic and sensible." But Filseth also underscored the need to make the budget cuts in the coming months and noted that every delay will only add to the budget pains down the road.

"The reality is that this year, we are on line to spend $8 million more on pensions than we have. … And we don't have the money to pay for it," Filseth said. "The way we fund it, is we write an IOU that our children will have to pay for.

"By the time we have to pay it back, it won't be $8 million. It will be $30 million or $40 million by the time our children will have to pay it back. They will pay in the future for the services we are consuming now."


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53 people like this
Posted by Finally
a resident of Downtown North
on May 23, 2018 at 5:50 pm

Did anyone watch the finance committee webcast earlier today? It was pathetic to see Ms.Richardsom squirm her way out of this mess she created. Tanaka asked her what made her change her mind when she was supportive of this last week. Her lame response was that she was not supportive of outsourcing, but that she only provided answers to council members. And Scharff tried wiggling out of this by saying repeatedly that “ we are not outsourcing the auditors office. You are the auditor. We are only providing tools to increase your departments productivity”. Seriously? If he was providing tools, did he ask anyone what would help them increase the productivity before gutting the entire Dept?
I think it is time for Richardson to go. It will be impossible for folks to work under her leadership anymore. Will be hard to trust her. I mean, who would want to work with a boss who will throw you under the bus anytime? Has anyone questioned how this impact the teams productivity? Thanks to Richardson and Council for rushing into this ( staging it?) without a proper discussion and making a royal mess.

57 people like this
Posted by Resident
a resident of University South
on May 23, 2018 at 6:12 pm

Sharff is who the public needs to be most wary about. He dominates hearings through abusing the chair position or just ignoring rules. His tactics are Palo Alto’s version of what our president employs. His ego is uncontrollable, but he is smart. He makes one reckless proposal after another. When his proposals blow up he returns another day, but with slippier back door tactics. [Portion removed.]

36 people like this
Posted by Sally
a resident of Downtown North
on May 23, 2018 at 6:15 pm

In agreement with "Finally" above, Ms. Richardson's behavior throughout this ordeal has been bizarre. Today was the capstone.

What seems to have happened is that Ms. Richardson thought for a hot moment that she could squirm out of accountability for her office's pathetically low output AND poor quality by simply blaming staff. Then she realized that her machinations (i.e. eliminating her entire staff as an end-around to oust a group of under-performers and wash her hands of accountability) would leave her head as the next obvious one on the chopping block.

If we can stomach a little bit of nuance, here's the thing... Although I support fully the calls for a clear-minded, credible, and independent internal audit function, we will not get that with any iteration of Ms. Richardson or the current work-group. {After this ordeal, do we have any hope for a healthy functioning unit?} While I do endorse Ms. Erickson's appeal for a strong audit function in GENERAL, she did nothing to help Palo Alto out of our PARTICULAR disfunction of this capacity. The worst outcome would be that the status quo should hold.

So... this is all by way of asking council and citizens to support the current axing of a woefully ineffective and expensive work group. Demand commitments that the total budget not be squeezed further in cycles to come. Ms. Richardson can then be replaced shortly, with contractors helping us get over the interim. [Many local cities and counties use contractors. It's not ideal, but can hold as an interim, and the sky will not fall.]

By the way, to all those cursing council's sinister motives -- Auditors are a council's friend. It is city managers and department managers, not council, who dread internal audits. Council members are heavily restricted on interaction with staff, and thus have a really hard time getting the real scoop. Auditors help bridge that gap. Council can score points by shining light on disfunction, cursing bureaucrats, and cleaning things up. Healthy auditors and council members usually make naturally allies.

Apologies for being so verbose.

28 people like this
Posted by Annette
a resident of College Terrace
on May 23, 2018 at 6:16 pm

Annette is a registered user.

Curiouser and curiouser. It was just a few days ago that we were reading of Ms. Richardson's support for the outsourcing plan. Scharff's, too. What changed, really?

Sometimes City Hall acts as though they think no one is paying attention and other times City Hall acts as though they don't much care if residents are paying attention. It's a tremendous disservice to the "regular" staff when management and CC make conflicting moves like this one.

As for the pension issue, it is good that it is getting light, but I am wary of election season comments from a candidate and late-in-the-game concern from our city manager who has spent much of his tenure here growing the problem. Tanaka is proving to be the voice of fiscal reason on our CC.

15 people like this
Posted by Curmudgeon
a resident of Downtown North
on May 23, 2018 at 8:31 pm

Busted 'em this round, but they'll be back with lots more quiet. Somebody with clout at 275 doesn't want the auditor's office functioning.

21 people like this
Posted by Resident
a resident of South of Midtown
on May 23, 2018 at 9:46 pm

Coincilmember Koi acknowledged in the meeting that the proposal was made without any discussion with Richardson and Richardson publicly acknowledged that today. If something like that was pounced on me in a meeting without my prior knowledge, I would probably have been cautious about how I answered the questions, especially with a bulldog like Scharff proposing it. That may be the reason she didn't either directly support or object to it last week. She seemed much more prepared for today's meeting knowing what she was up against. The focus did seem to be on office productivity. You can easily fire unproductive employees in the private sector but it is almost impossible to do in government. It seemed that the committee supported her and Tanaka tried to engage her in some conversation about employee performance, but both she and Keene shut him down. It seems that there is a lot we don't know here, but obviously there's something going on there.

27 people like this
Posted by To Serve Man
a resident of another community
on May 23, 2018 at 10:03 pm

I was pretty creeped out by her “thank you!” and evil grin as she stood up after the finance committee voted to eliminate all of her staff at the 5/15 meeting.

With respect to the efficiency problems, were there any concerns before she arrived? Richardson has virtually the same staff as when she arrived... she seems to be the only difference between the award-winning internal audit function that was in place before she arrived and the inefficient group there now.

Does she want to rid herself of some pesky competent internal auditors so that no one can complain about her frequent travel home to Washington?

12 people like this
Posted by The Insider
a resident of Downtown North
on May 23, 2018 at 10:18 pm

To Sally, re: "Auditors are a council's friend. It is city managers and department managers, not council, who dread internal audits."

Very true. But Department Managers and the City Manager of Palo Alto don't dread Richardson's audits. She's "best friends" with all of them (or tries to be), and rarely issues any significant findings on any City Departments. She puts on her "hard hitting auditor" persona only with audits that involve outside entities/agencies that have dealings with the City (contractors, consultants, etc).

A good article,, but the statement that "She [Richardson] also discussed her experience in the Washington State Auditor's Office, her former place of employment." That sentence should more accurately read, "one of her MANY former places of employment". Her stint in Palo Alto is about the longest she's been able to hold onto.

27 people like this
Posted by Tall Tree
a resident of Professorville
on May 23, 2018 at 10:38 pm

Tanaka and Kou seemed to be the only ones asking real questions today. And they either got shot down or not answered. Tanaka kind of asked in the wrong way about Richardson's employees (he asked about performance evaluations of her employees and that is protected by HR rules) and Keene was hostile to him. But Tanaka was on the right track - getting at the question of what's really going on in her office? Why did she seem to support contracting last week but today she claimed she didn't support it?

Watch the webcast from last week: it seemed very pre-planned and Richardson did not seem the least bit upset about contracting. What kind of boss goes along with getting rid of everyone in her office? A boss that doesn't like her employees, that's who. It seems like a Machiavellian plot gone wrong. Seems like she just wants to clean house to make her life easier. Maybe this is her way to sweep everyone out (she "inherited" four staff she said today when asked by Kou - a great question) and then try contracting for a bit. She could then say it doesn't work and then propose hiring the people she wants. She was not upset about the idea of contracting out last week - not one bit in that 5/15 webcast.

11 people like this
Posted by Seelam Prabhakar Reddy
a resident of College Terrace
on May 24, 2018 at 12:29 am

Seelam Prabhakar Reddy is a registered user.

Independent audits are essential for good governance.
PMust have them.

14 people like this
Posted by Sally
a resident of Downtown North
on May 24, 2018 at 9:42 am

@"Resident" -- Ms. Richardson's behavior in the first meeting is not as you describe it. I suggest you rewatch (or re-live?) the video. It shows clear support for the proposal, and went so far as to discuss details assuming its adoption

And yes, we the public can infer quite a lot about the likely ugly innards of this story, including speculations on the difficulty of relationships between staff and managers, council and HRs tied hands, terrible play-acting by non-professional thespians, trying to get 411 and make good decisions without violating the Brown Act, employees's recourse when their livelihood is threatened, the difficulty of managing well when you live in a different state, who has strong incentive to comment on P.A. Online, and much much more.

Your continued suggestion that "there's a lot we don't know" seems to be a plea for leniency in judging Ms. Richardson's quality of service. We see more than you think.

Sadly, it seems the status quo will hold, and we'll continue to have a weak and expensive audit function in Palo Alto.

40 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on May 24, 2018 at 9:42 am

Online Name is a registered user.

Lydia Kou, thanks once again for listening to your constituents and doing the right thing. Greg Tanaka, thanks for your continued attention to the bottom line.

6 people like this
Posted by observer
a resident of South of Midtown
on May 24, 2018 at 11:00 am

[Post removed.]

7 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on May 24, 2018 at 11:30 am

Online Name is a registered user.

Remember the old "Golden Fleece" awards one of the US Senators issued decades ago for wasteful spending and pork projects on the federal level? Maybe we need something similar plus a special waste/mismanagement reporting system here possibly similar to 311?

7 people like this
Posted by Novelera
a resident of Midtown
on May 24, 2018 at 12:35 pm

Novelera is a registered user.

Having the money back spent on the Ross Road bike lane fiasco could have helped out the "trim" the Finance Committee says we need for the upcoming general fund budget.

2 people like this
Posted by David
a resident of Another Palo Alto neighborhood
on May 24, 2018 at 1:06 pm

While you're considering a regional approach to the 911 dispatch center, do the same thing for the fire department. The fire department was the only city department not to offer up permanent budget cuts when the city manager requested $4 mil reduction. Do away with the City kingdom model and merge with County Fire.

7 people like this
Posted by Chris
a resident of South of Midtown
on May 25, 2018 at 8:27 am

I's wager a bet that Finally et al are employees who lack the maturity to admit that they are disgruntled - and perhaps not very productive. Ms. Richardson or any manager would not be able to discuss issues like that in a public forum.

The quality of this shop's work is very, very high. That takes leadership.

9 people like this
Posted by Annette
a resident of College Terrace
on May 25, 2018 at 11:05 am

Annette is a registered user.

Re: "the difficulty of managing well when you live in a different state" . . .

That data point adds critical context to this unnecessary mess.

2 people like this
Posted by Deb
a resident of Adobe-Meadow
on May 25, 2018 at 5:20 pm

@Annette - The "data point" you mention does not add critical context and seems to be anecdotal. Any proof she actually tries to manage from a different state? I find it hard to believe that the city council would allow one of their four appointed officers to not have a daily presence in the office.

6 people like this
Posted by Rex
a resident of Downtown North
on May 26, 2018 at 1:18 pm

And Richardson is still deemed competent to continue auditing city finances after raising no objection to gutting her staff previously? Scharff and Keene remind everyone where their interests lie, and it's not with serving the tax payers. A very sad state of affairs in City Hall.

12 people like this
Posted by Bill Ross
a resident of College Terrace
on May 26, 2018 at 9:33 pm

Respectfully the Finance Committee Majority's decision deserved to be reversed. The Auditor's Office is a required check on Council and City Manager expenditures to ensure that they are legally authorized. To keep the Office without adequate Staff or clearly vetted procedures subject to public review as to how consultant services were to be obtained would have been an effective elimination of the Office. The real issue is the independence of the Office. Council Member Kou got it right both times.Thank you for assuring a possibility of efficient and non-political accountability.

Sorry, but further commenting on this topic has been closed.

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