Scandal Yields Auditor

Water district officials agreed this week to hire an internal
watchdog in the wake of a recent hiring scandal, but they are
struggling with how much money they should devote to keeping tabs
on the utility’s finances and personnel.
San Jose – Water district officials agreed this week to hire an internal watchdog in the wake of a recent hiring scandal, but they are struggling with how much money they should devote to keeping tabs on the utility’s finances and personnel.

The cost of a permanent auditor can reach $3 million annually, as in the case of San Jose’s 15-person auditor’s department, according to a staff study presented Tuesday to the governing board of the Santa Clara Valley Water District. In-house auditing services in the city of Palo Alto, which has a slightly bigger staff and budget than the water district, will cost that city $887,000 in the current fiscal year.

“All of these models are expensive,” said Tony Estremera, chairman of the water utility’s seven-member board of directors. “If we think we’re going to do it on the cheap, we’re fooling ourselves and the public.”

But Sig Sanchez, who represents South County on the board, said the agency could “start small” before investing heavily in the auditor’s position.

“I like the San Jose plan, but I don’t think we need 15 people in that office,” Sanchez said, adding that the auditor will “do as much work as he can” with the aid of a single assistant.

The debate, capped by a 6-1 vote to create an internal auditor’s position, is the latest installment in a drama that has engulfed the agency, which provides flood protection and water service to 1.8 million county residents. In early August, the board voted unanimously to strip Chief Executive Officer Stan Williams of his ability to hire top managers, a move that came in response to his controversial appointment of former board member Greg Zlotnick to a $184,000-a-year-job as in-house counsel. The board formalized Williams’ scaled-back powers this week by agreeing to retain final authority on appointments.

They also asked staff members to delve deeper into whether Zlotnick’s pay is appropriate compared to similar positions at other water agencies. A staff report shows that Zlotnick, who is serving as the district’s legislative point man in high stakes water politics surrounding the Sacramento-San Joaquin River Delta, earns slightly more than the average pay among seven positions at a handful of other water utilities. The board asked for additional information on how many people, if any, the other positions are charged with supervising. 

Zlotnick, who does not currently supervise any staff at the 800-person agency, said “this is an issue for Stan to deal with as CEO, and I’m just going to do my job. Things that are happening administratively are not within my purview.”

Board members did not explicitly demand a reduction of Zlotnick’s pay or an increase in his responsibilities, but Estremera said he expected Williams to make changes “reflective” of the findings.

“It’s an internal morale issue and an external issue of accountability,” Estremera said. “I would think that some action of the CEO should be reflective of this.”

In the meantime, staff members will assemble recommendations on how to structure the office of internal auditor.

The position plays different roles in different cities. The San Jose auditor’s office handles the full gamut of internal reviews for a city with more than 5,000 employees. Its duties include examining the efficiency and performance of departments and programs, as well as conducting annual financial audits. Palo Alto’s four-person department relies on a consultant to handle its annual financial audit. The city has 1,100 employees and a $400-million budget, compared to the 800-plus staff and $364-million budget at the water district. 

Before the board settled on hiring an internal auditor, board member Larry Wilson, the sole dissenting vote, urged his colleagues to consider using an outside contractor to perform audits on a case by case basis. 

“It’s a lot easier to let a consulting firm go than to fire someone,” Wilson said.

But such an approach ignores the virtues of a permanent auditor capable of overseeing the implementation of changes that emerge from audits and investigations, according to Sharon Winslow Erickson, Palo Alto’s city auditor.

With a full-time auditor, she said, “the knowledge doesn’t walk out of the door once they drop the report on your lap.”

In addition to approving an auditor’s position, the water board Tuesday voted to make the agency’s top legal counsel and its clerk answerable directly to the governing body.

Previously, the agency’s chief legal counsel and clerk reported to the CEO.