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California State Auditor Report Number : 2015-116

City of Irvine
Poor Governance of the $1.7 Million Review of the Orange County Great Park Needlessly Compromised the Review’s Credibility



Summary

HIGHLIGHTS

Our audit concerning the performance review of the Orange County Great Park contracts (park review) revealed the following:

Results in Brief

Our examination of the review of the contracts related to the city of Irvine’s Orange County Great Park (Great Park) concluded that Irvine could have better managed this contracted review. Also, greater transparency could have increased public confidence in the process of selecting and monitoring the consultants that conducted the review and in the results. Specifically, the city council members had expressed the desire to contract with consultants for an audit but ultimately required those consultants to meet standards significantly less rigorous. Further, Irvine did not always follow its policies and procedures when selecting and overseeing these consultants, and we found little evidence that the subcommittee that oversaw both phases of the performance review of Great Park contracts (park review) added value. As a result, Irvine spent about $1.7 million related to the park review in a manner that compromised the review’s credibility.

Irvine’s decade‑long effort to develop Great Park on the site of the former United States Marine Corps Air Station El Toro has come under scrutiny in recent years. In 2013 the Irvine city council began the park review and retained the firm of Hagan, Streiff, Newton & Oshiro, Accountants, PC (HSNO) to conduct it. In January 2014, HSNO presented its first report to the city council and made a number of recommendations for additional work. As part of its work, HSNO reported that Irvine had spent more than $210 million on Great Park as of the end of 2012. After receiving HSNO’s first report, the city council approved a second phase of the review and retained special counsel to assist HSNO and issue subpoenas to individuals involved with developing Great Park. In March 2015, HSNO and the special counsel for the park review at that time—Aleshire & Wynder, LLC (Aleshire)—each issued a report critical of certain entities involved in the project.

In contracting with HSNO and Aleshire, Irvine did not ensure that the park review was conducted according to the industry standards most appropriate for achieving the city’s goals for the review. Specifically, city council members had stressed the importance of commissioning an independent audit. However, the standards under which Irvine chose to conduct the park review did not require the independence or rigor intrinsic to an audit, and the city’s request for proposal (RFP) for the park review did not stipulate that Irvine was seeking bids for an audit. City staff informed firms submitting proposals that the city wanted a performance review of contracts and that the winning consultant would conduct such a review in accordance with the Statements on Standards for Consulting Services (consulting standards) promulgated by the American Institute of Certified Public Accountants (AICPA)—the national organization that promotes and maintains high professional standards of practice for certified public accountants. However, these consulting standards are less rigorous than other standards used within the auditing profession. In fact, one firm that had worked with Irvine in the past declined to bid on the park review because it felt that consulting standards would reduce its ability to operate as a neutral, independent analyst.

Further, toward the end of its competitive bidding process, Irvine altered the way it evaluated bidders. For reasons it could not adequately explain, Irvine modified its selection and evaluation process after it had accepted bidders’ proposals and interviewed selected firms. Following city policies, city staff evaluated the proposals of the five firms that responded to the park review RFP. After this process, however, Irvine added an additional phase to the selection process—interviewing the top four firms—a practice the city’s purchasing agent stated was rare, although she also noted that interviews have been used for certain city projects and services. Although Irvine had informed bidders that it might interview the highest‑rated firms, the city’s RFP did not explicitly state that interview performance would be part of the selection criteria. Further, Irvine did not finalize the priority it would assign to its criteria for evaluating firms’ proposals until after it had conducted the interviews, nor did it inform bidders of the methodology it would use to evaluate their proposals. During the initial review of proposals, city staff rated HSNO’s proposal as tying for third among the five bidders; HSNO received about 80 percent of the points that the first‑ and second‑place candidates received. However, after the interviews with bidders, the scores for HSNO’s proposal notably increased—by about 12 percent—whereas the scores for the other firms’ proposals remained unchanged. According to our analysis, by changing the selection methodology, Irvine made HSNO the top‑ranked firm for the park review. Coupled with not notifying the other bidders of the changes to the process, this unnecessarily cast doubt on the impartiality of Irvine’s selection of HSNO as the park review consultant and increased the risk that the city did not select the most qualified vendor to meet its needs.

Irvine also structured its park review RFP in a manner that all but ensured that the winner would receive another contract without having to undergo a competitive bidding process. The city’s RFP stated in its scope of services that the chosen consultant might need to perform additional procedures based on findings in the report, and other parts of the RFP encouraged bidders to consider this additional work when submitting proposals. The RFP’s allusion to this additional work made it more likely Irvine would be able to justify a later sole‑source contract from the winner of the initial contract. In fact, in January 2014, HSNO received a $400,000 sole‑source contract partly based on recommendations from its own initial report; most of these recommendations advised additional work related to the report’s findings. By soliciting the procurements in a manner that all but assured a future sole‑source contract for the winning bidder, Irvine missed the opportunity to solicit competitive bids for these services and to ensure that the city received the best value for its procurement. Further, Irvine risked that the winning bidder would structure its work to promote the need for additional work through a sole‑source contract, raising further questions about the credibility of the park review.

Moreover, Irvine’s city council did not review and approve a 2014 contract with Aleshire, the special counsel for most of the second phase of the park review, even though the value of that contract exceeded the contracting authority of city staff. The contract for legal services did not state a maximum amount; however, city staff authorized a purchase order for $30,000. A subsequent increase caused the value of Aleshire’s services to rise from $30,000 to $285,000—well above the $100,000 threshold amount requiring city council approval. According to the purchasing agent, because the contract did not have a stated maximum budget, Irvine’s policies allowed its staff to increase the budget using a revised purchase order without obtaining approval for a contract amendment for the amount. Irvine’s policies do not specifically allow for or prohibit this exception; however, such an exception is counter to the spirit of Irvine’s policies. Although subsequent purchase orders served to increase Aleshire’s contract and received council approval, the council never approved the contract itself. Ultimately, Aleshire’s contract cost the city more than $600,000. Maintaining a policy that lacks clarity and allows Irvine to approve high‑value contracts without public consideration by the city council limits transparency and creates the appearance that staff and not the council made significant financial decisions without council or public scrutiny.

When it decided to conduct a review of Great Park contracts, the city council elected to form a two‑member advisory subcommittee in January 2013 to oversee the park review; however, the city council did not adequately ensure that the subcommittee undertook the activities it was tasked with performing. State law allows such committees to meet and conduct their business without adhering to the rules prescribed by state law for open meetings, such as announcing meeting dates, times, and locations or publishing agendas. Although the subcommittee operated within this authority, we believe Irvine would have been better served had the city council chosen not to establish a subcommittee for this high‑profile review but had chosen instead to deliberate and decide openly at city council meetings the issues regarding the park review. There is little evidence to indicate that the subcommittee advised the council, even though such advice is a key function of such subcommittees. According to city council minutes, the subcommittee presented no reports or recommendations to the council until January 2014, when it recommended conducting the second phase of the park review. The subcommittee also made no recommendations to the city council after January 2014. Because Irvine created a subcommittee that did not need to meet openly, the city reduced the park review’s transparency. Further, we found little evidence that the subcommittee added value to the process.

Finally, Irvine could have better handled the deposition transcripts created as a result of subpoenas of individuals who testified to HSNO and Aleshire regarding Great Park. State law, regarding depositions that may be used in court, requires that the individual giving the testimony—the deponent—be given 30 days to correct and sign the transcript of the testimony, unless both parties agree upon another due date. State law further requires that the deposition officer certify the transcript before it may be admitted in court. Between April 2014 and May 2015, Irvine posted 24 deposition transcripts from 23 individuals to its website. Of those 24 transcripts, only one original transcript was signed by the deponent, and only one was signed by the individual taking the deposition. Irvine may or may not have intended to use these deposition transcripts in court proceedings; nevertheless, waiting to publish signed and dated deposition transcripts would have demonstrated that the city and its representatives followed established procedures for ensuring the accuracy of the transcripts by giving the deponents adequate time to review and make any needed changes to the transcripts.

Recommendations

To ensure that local government audits are conducted with independence and rigor, beginning immediately Irvine should incorporate into its RFPs and contracts the requirement that consultants follow appropriate, sufficient audit standards when performing audit services.

To make certain that it conducts its competitive bidding process in a more transparent and fair manner, Irvine should do the following by December 2016:

To make certain that Irvine complies with the intent of competitive bidding for professional services, beginning immediately it should not include provisions in its RFPs for potential future services that are above and beyond the desired scope of work.

To maintain appropriate, transparent fiscal accountability, Irvine should amend city contracting and purchasing policies by December 2016 to make certain that all of its contracts and contract amendments with a proposed cost exceeding the threshold requiring city council or other approval receive the appropriate approvals. Further, city policies should require appropriate approvals when increases in spending authority are accomplished through a purchase order or other means.

To foster public confidence in its processes and findings, Irvine should conduct self‑initiated investigations, reviews, or audits in an open and transparent manner that ensures independence. Specifically, Irvine should not establish advisory bodies exempt from open meeting laws to oversee these investigations, reviews, or audits. Instead, any required reports from contractors conducting such investigations, reviews, or audits should go to the city council or a standing committee of the city council to be discussed in either open or closed session, as appropriate.

To ensure that Irvine follows best practices related to depositions as outlined in state law, the city council should adopt a policy requiring that Irvine only post deposition transcripts for the public after the deponents have had adequate opportunity to correct and sign their depositions.

Agency Comments

Irvine disagreed with various conclusions in our report; however, it indicated that it would implement some of our recommendations.






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