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									City calls audit an unneeded distraction
Stockton officials feel time spent on Chiang's team could be better used toward mediation efforts
By Scott Smith
Record Staff Writer
June 11, 2012 12:00 AM

STOCKTON - California Controller John Chiang's audit of Stockton's finances will not consider
anything more recent than 2 years old. And, in the end, Chiang will likely bill the broke city for
his team's work.

This irks officials at City Hall, feverishly at work as they are making a last-ditch effort to stave
off bankruptcy through confidential mediation required by law.

Results of the investigation will not be available until September. That is long after June 26, the
first possible day Stockton might turn to a federal bankruptcy court for relief from its creditors.
At this critical moment in Stockton's history, City Hall officials say the controller's work is more
distracting than relevant.

"It seems to be more for political reasons than practical reasons," Councilwoman Susan Eggman
said. "We're up against the clock as it is."

Chiang notified City Manager Bob Deis of the audit in April, saying in a letter he believed
Stockton could not perform accurate financial reporting. An initial review found inaccuracies,
Chiang said, prompting a deeper look.

The audit request came from the San Joaquin County Taxpayer's Association, Councilman Dale
Fritchen and Stockton resident and former state Assemblyman Dean Andal.

Chiang's intervention came after Stockton's administration had undertaken its own deep probe of
the city's beleaguered finances. City Hall also received a second opinion from an outside firm.

The audits by the city and by Management Partners of San Jose unearthed years of
mismanagement, such as millions in fund transfers that had gone unreconciled. A glaring
example of Stockton's mismanagement is $7 million in uncollected parking tickets four years old
and older.

Chiang's team is seen in City Hall as taking up valuable staff time when municipal employees
are busy providing data to creditors in mediation. Stockton officials also are troubled that the
historical probe to 2000 will not shed light on the pressing crisis.

David Millican, Stockton's interim chief financial officer, has said he does not expect Chiang's
team to find any hidden money that will start to patch over the city's $26 million shortfall.

Chiang spokesman Jacob Roper said this is not the first time officials in a city under
investigation have bristled. Chiang dispatched his auditors to Bell, and they are finishing up in
Hercules, Roper said.
Officials in Montebello were less than thrilled, but now the city is using audit recommendations
to rebuild its accounting system, said Roper, adding that the apparent mismanagement in
Stockton invited scrutiny.

"The public has a right to know how the city was led to the brink of insolvency, as well as how
the city can regain its fiscal health," Roper said.

Stockton officials also were critical of the apparent focus of Chiang's team. City spokeswoman
Connie Cochran said state auditors are reviewing:
» Mandated cost claims for domestic-violence reporting for 2001-10;
» The city's defunct Redevelopment Agency's last year and wrap-up;
» Federal and state money that Stockton dispersed to other programs and agencies;
» A gas tax report that state officials prepared themselves;
» Stockton's internal administrative controls.

Chiang's work has already cost Stockton as much as $60,000. The City Council on May 22
approved paying an audit firm to make sure Stockton answers all questions and requests for
numbers from Chiang's team.

Deis asked for the money, telling the council that Chiang criticized Hercules because city staffers
there could not provide the state auditors basic information. Deis said he did not want that
happening in Stockton.

Chiang's spokesman said the cost - whatever the bill comes to - will be worth it.

"The cost of this audit - indeed the price of transparency and accountability - pales in comparison
to the cost of keeping the public in the dark," Roper said.

Andal, one of the three who requested that Chiang audit Stockton, said he agrees.

"I don't think it’s irrelevant to the people of Stockton" Andal said. "Ask the average person. They
have no confidence in the accounting of the city."

Although the state auditors' results will not be immediately available, they could play a
significant role in Stockton's bankruptcy, said Andal, who also is a former member of the
California State Board of Equalization.

A first hurdle in bankruptcy is often getting all sides to agree on the figures.

"I think its a no-brainer that the auditor's report will be an important step toward restoring the
public's confidence," he said. "I think the controller has a duty to do it. That's his job."
SJTA Response
When one considers the magnitude of Stockton’s financial dilemma, it’s hard to imagine that city
leaders would label the State Controller’s audit as an unneeded distraction.

Simply put, an audit is the comparison of actual conditions to expected conditions. In
compliance auditing, the criteria are the regulations. A compliance audit will always produce
findings, even it what is being audited is in full compliance with criterion.

According to the Minutes of the July 11, 2011 City Audit Committee meeting, the City Auditor
said his office would like to do more work in the area of performance and internal controls but
that the city does not have the capacity to so some of the work in areas of performance
measurement. Therefore the city engaged outside auditors of their choosing.

The goal of the San Joaquin Taxpayer’s Association is to see the results of an audit that is
completely objective; performed by someone outside the selection of the city who will provide a
structured means of identifying deficiencies in the system and offer ideas for corrective action.

We believe the State Controller’s audit is worth the city’s time and, that whatever the outcome,
his review of the system will bring a renewed level of confidence to the citizens of Stockton.

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