Duggan aide accused of obstructing audit contracting

Christine Ferretti
The Detroit News

Detroit — The city’s auditor general is accusing the Duggan administration of obstructing his choice of who reviews the city’s finances.

Under the city’s charter, Mark Lockridge is empowered to solicit bids and select a firm to conduct the annual audit of all the city’s financial statements.

But Lockridge contends his authority was compromised when the city’s administration dictated how the process would go this year, including pressuring him to have two of the chief financial officer’s staffers weigh in on picking a firm.

Lockridge’s concerns stem from the selection of Plante Moran PLLC in July for a three-year, $5.65 million contract to audit the city’s Comprehensive Annual Financial Report, which provides a detailed overview of the city’s financial position.

Auditing firm KPMG LLP had long been serving as the city’s independent auditor — most recently under a five-year contract that had three one-year renewal options. There had been one year remaining in the deal, and Lockridge said he was planning to use it.

But instead, Lockridge said the city’s procurement chief, Boysie Jackson, told him the contract had to go out for bid. And if he declined and continued with KPMG, he’d be “on his own.”

“He let me know in no uncertain terms, this was the way it was going to be,” Lockridge said during a subcommittee session this month.

The move, Lockridge said, threatens his ability to make sure the city is operating honestly.

“I explained to the procurement officer that I didn’t think anyone who was a part of finance or accounting should be a part of the selection process,” Lockridge told council members. “I felt that that was a problem.”

Several council members have also raised concern over the audit contracting process, as has the council’s legal staff.

Councilwoman Janeé Ayers said the situation has created unnecessary blurred lines for Detroit, a city operating under strict oversight after its past fumbles with finances led it to the largest municipal bankruptcy in the country’s history.

“What it comes down to is oversight and accountability, those things are crucial to us, as we are only one foot out of bankruptcy,” said Ayers, who sits on the subcommittee reviewing the audit contract. “We have to be more defined in what everyone’s role is in this.”

In a report last week, the council’s legislative policy division cited potential conflicts in having finance staff in on the selection of the firm auditing Detroit’s books and recommended an Inspector General probe to root out any “improprieties and ethics violations.”

The city’s Office of Inspector General is an independent agency set up under the city’s 2012 charter to ensure honesty and integrity in city government and investigating allegations of waste, abuse, fraud and corruption. The auditor general, appointed by a majority of council, is responsible for conducting audits of financial transactions, performance and operations of city agencies.

In a supplemental report released late Monday, council’s legislative policy director, David Whitaker, reiterated concerns and added it’s department’s opinion that it’s “illogical for the CFO, who is in charge of all financial management of the city, to be responsible for selecting the independent auditor to audit and review his own actions, when the city has created the auditor general position to fulfill the function.”

Whitaker further wrote the process was “compromised” because Lockridge was pressured to deviate from precedent.

“It was only after he was told multiple times ‘he would be on his own’ in this and future audits, did the auditor general relent to the pressure and allowed the OCFO into the process,” Whitaker wrote. “These details put a shadow over the selection process, which, particularly in these times, should always be avoided.”

But Detroit’s law department issued a legal opinion rejecting the assertion the selection process was handled improperly or there was a conflict of interest.

The law department argued the CFO has authority to create and maintain the annual financial report with oversight by the city’s Financial Review Commission.

“Best practices and state law require the inclusion of individuals most familiar with the actual audit process,” the Law Department response read.

Detroit CFO John Hill on Tuesday agreed there’s no basis for concern and he expects the contract with Plante Moran will be approved. The auditing firm, he said, conducts its audit work independently of the CFO’s office.

Ultimately, any selection has to be approved by the Detroit City Council and the Financial Review Commission, which was put in place during the city’s 2014 exit from bankruptcy.

When Detroit exercised the renewal of the KPMG contract for the audit last year, Hill said officials — council members, Mayor Mike Duggan, CFO staff and the Financial Review Commission — agreed the contract would be competitively bid in 2016.

Hill noted Plante Moran was the lowest bidder and was selected unanimously by the five-member panel, which included Lockridge and two members of his staff. The law department contends the agreement will save the city about $2 million a year.

“It’s very clear to us that the auditor general agreed to the selection and signed off on it,” Hill said. “The auditor general had three out of five votes on the committee. So the auditor general from that standpoint and his people would control whatever the result had been.”

Jackson, Detroit’s chief procurement officer, added the process was “very positive” and took place without argument.

Lockridge has said while he didn’t agree with the way the selection was handled, he did vote in favor of Plante Moran and believes the firm is qualified to conduct the audit.

KPMG did not have an immediate comment late Tuesday. A representative for Plante Moran could not be reached.

Council President Pro Tem George Cushingberry Jr., meanwhile, contends Plante Moran is qualified and “we need to move forward with the new firm.”

Council President Brenda Jones, also a member of the city’s review commission, said she remains concerned over “the keepers of the city’s financial record participating” in the audit selection.

The council’s Budget, Finance and Audit Standing Committee is slated to revisit the audit contract on Wednesday.