Posted on 03/16/2007 7:44:57 PM PDT by NormsRevenge
SAN DIEGO – San Diego's laborious and long-delayed 2003 annual financial audit is finished after three tortuous years in which the city's credit rating and reputation tumbled to unprecedented lows following a wide range of accounting errors. Mayor Jerry Sanders is set to announce at an afternoon news conference Friday that auditors from the giant accounting firm KPMG have finally stopped being suspicious of the city's accounting.
The Mayor's Office said it received a two-page letter from the firm Friday. The letter, dated Monday, says that KPMG has concluded its audit and found that San Diego's financial statements “present fairly, in all material respects,” the city's condition, according to generally held accounting principles.
City officials are calling the development significant, but one accounting expert said the news won't matter for now to the rating agencies that will determine how quickly San Diego's credit rating can be restored.
Sanders' chief financial officer, Jay Goldstone, said the rating agencies would be encouraged by the news but that it won't have an impact on restating the city's credit rating.
He said the city has a better working relationship with Macias, Gini and O'Connell, the firm auditing the remaining financial statements, than it did with KPMG, and now expects to release its next two annual audits by August.
“The significance is huge,” Goldstone said. “Obviously this completes our relationship with KPMG.”
Michael Granof, a government accounting professor at the prestigious McCombs School of Accounting at the University of Texas, said the immediate impact for San Diego now is negligible.
“I think the rating agencies will just sort of yawn at this,” he said. “They've known this is going on. This is not news to them. What the rating agencies are concerned about is how are they correcting the problems of the past.”
Sanders has repeatedly said that this development would be followed within months by the city's release of three other overdue audits for 2004, 2005 and 2006. That in turn would allow the city to resume borrowing money at lower interest rates for a slew of stalled construction projects before year's end.
The issuance of KPMG's so-called opinion letter ends what began as a seemingly routine task in April 2004 on a $250,000 retainer and grew into a $7.4 million scouring of the city's wildly inaccurate books from fiscal 2003.
The council has authorized paying KPMG $6.6 million in a series of amendments to the city's contract with the firm.
By comparison, Macias, Gini and O'Connell has been authorized to bill $2.3 million on both the 2004 and 2005 audits. A typical municipal audit costs hundreds of thousands of dollars.
The last annual audit that San Diego released publicly covered the 2002 fiscal year and cost $300,000. It was riddled with errors and omissions related to a growing pension deficit and other financial sore spots for officials who hoped to hide bad news.
Officials from the Auditor's Office have warned for months that the city's 2003 financial statements will include more than five dozen restatements, or acknowledgments of past mistakes, totaling well over $1 billion.
Such problems led to federal investigations, five indictments of pension officials by a federal grand jury and a finding by the Securities and Exchange Commission that as yet unidentified city officials committed securities fraud by including the woefully inaccurate financial disclosures in bond offerings.
San Diego's lack of audited financial statements forced Wall Street to slash or suspend the city's credit rating, preventing the city from benefiting from historically low interest rates on the public bond market.
In 2004, officials began shelving a range of construction projects and paying higher interest rates in bank deals for pressing needs. Just last month, the city paid a penalty that will ultimately cost the city more than $16 million over 25 years to refinance its downtown ballpark bonds.
After reading the city's opinion letter from KPMG, Granof said it was clean without qualifications, but that the restatements tell another story.
“What it says is that the financial statements are an absolute disaster and they're trying to repair them as best they can,” he said.
KPMG cover letter (PDF)
http://www.signonsandiego.com/news/metro/images/070316kpmg_coverletter.pdf
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City's 2003 annual report (PDF)
http://www.signonsandiego.com/news/metro/images/070316cityaudit2003.pdf
Any word on the 2004 audit?
No. There is plenty of meat in the stew already.
As is, the unsorting of this mess looks to be a long sordid affair, very draining of resources too.
A lot of the same players will have popped up in the end and hopefully get a good thrashing.
There is this from the article page, a Overview sidebox with info re: audits.. within a year , they should be done, for now anyway.
''San Diego expects to issue annual audits for 2004 in May, for 2005 in August and for 2006 in November. A 2007 audit would follow in February 2008. ''
Overview
Background: San Diego's credit rating has slid and in one case was suspended because of a wide range of city accounting failures. The accounting firm KPMG spent three years auditing the city's 2003 books.
What's changing: KPMG issued a clean audit opinion letter yesterday, letting the city shift its focus to three remaining overdue annual audits.
The future: San Diego expects to issue annual audits for 2004 in May, for 2005 in August and for 2006 in November. A 2007 audit would follow in February 2008. City officials hope to restore San Diego's credit rating and resume more affordable borrowing on the public bond market when the '04 and '05 audits are done.
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