Audit: SD Broke Law in Connection with Pension Debacle

August 9, 2006 ( - San Diego officials flouted the law when they approved pension agreements that allowed withholding full contributions to the city's pension plan and made false disclosures to investors, an audit released this week found.

Bloomberg reports the independent audit, led by former Securities and Exchange Commission (SEC) Chairman Arthur Levitt, accuses pension officials of deliberately violating the law in agreements made with labor unions in 1996 and 2002.

“Under the pressure of short-term needs, city officials gave expedience a higher priority than fiscal responsibility and came to view the law as an impediment to be circumvented through artful manipulation,” the committee wrote in its report, according to Bloomberg.

The committee found that one benefit increase in 2002 was given only to Ron Saathoff, a firefighter union leader and pension board member whose muscle was seen important to the decision to underfund the system. Saathoff is one of six board members accused of breaking conflict-of-interest laws (See  Six ex-SD pension Officials Bound Over for Trial ).

The 266-page release by the committee will nudge along an audit by KPMG of San Diego’s 2003 financial statements, which were expected to be out in January. Part of the hold up was the report they were waiting on from Kroll Inc., the risk management firm hired to investigate accounting irregularities and possible fraud by city employees.   The release of KPMG’s 2003 audit would speed the release of two audits for fiscal 2004 and 2005 and allow the city to resume borrowing from the bond market for many government-mandated capital projects that are on hold (See   San Diego Consultants: 2003 Audit Could be out by January ).

San Diego’s pension problems stretch as far back as 2004, when a law firm representing the city to the SEC found widespread irregularities in city finances, but attributed them to inattentiveness and poor management. The finding triggered an even harder look from the regulator and the US Attorney’s Office (See SEC Demands San Diego Pension Testimony, Documents).