Monitor says San Diego making progress on financial reporting

An independent monitor hired three years ago to ensure the city of San Diego’s compliance with settlement terms of a securities fraud case brought by the Securities and Exchange Commission presented his final report Monday to the City Council.

Stanley Keller said San Diego has made significant progress in improving its financial reporting practices, but that areas for improvement remain.

“I think the bottom line is that the city has established a disclosure and control model that we can say with confidence is a model that others can look to,” he testified.

The SEC issued a cease-and-desist order in November 2006, finding after a lengthy investigation that the city committed securities fraud by failing to disclose to potential investors important information about its pension and retiree health care obligations.

As part of a settlement agreement reached with the SEC, the city agreed to refrain from future fraud violations and to retain an independent consultant for a period of three years to ensure compliance with securities laws.

The City Council hired Keller, a partner with a Boston-based law firm who has extensive experience in corporate and securities law, to act as independent monitor.

Keller’s contract is up this month. He was paid $1.8 million for his work.

In his final report to the City Council, Keller said the one area where “additional effort is needed” is in internal controls over financial reporting.

“I think this is really the one outstanding item,” he told the City Council.

In his report, Keller made 22 recommendations for improvement, ranging from regular oversight by the city’s Audit Committee to exploring ways to fund the city’s pension and retiree health care obligations.

Councilman Carl DeMaio described Keller’s departure as an “important milestone,” but said the city needs to continue its “vigilance” in ensuring the accuracy of its financial disclosures.

He disputed that San Diego is a model for municipalities across the nation.

“Right now a model we are not,” he said. “We may be on our path to becoming one.”

Mayor Jerry Sanders’ office was asked to draft a letter to the SEC documenting San Diego’s compliance with its order. Before the letter is sent, it will go before the Audit Committee and then the full City Council for vetting.