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‘Fraud, waste and abuse.’ Modesto auditor’s review of road project sparks controversy

Buildings in downtown Modesto, Calif. including Tenth Street Place (right), site of the City of Modesto administration building, are pictured from 11th and J streets on Sept. 13, 2018.
Buildings in downtown Modesto, Calif. including Tenth Street Place (right), site of the City of Modesto administration building, are pictured from 11th and J streets on Sept. 13, 2018. jlee@modbee.com

The Modesto City Council cut ties with its first auditor on grounds he didn’t uncover wasteful spending.

The current auditor is in hot water with top city officials perhaps because she’s doing too much.

Top city officials started to scrutinize the work of auditor Monica Houston two weeks after she advised the city, in a July 19 memo, not to use the Meyers Nave law firm for eminent domain legal services for the Highway 132 realignment. In her memo to city Audit Committee members, Houston said it could expose the city to risk of fraud, waste and abuse.

It was a stinging critique for City Attorney Adam Lindgren, who’s a principal in Meyers Nave and serves as the city’s top legal adviser through a contract with the Sacramento firm.

Houston suggested that Lindgren could personally benefit if Meyers Nave provided the legal services in acquiring property for the long-awaited highway project on the western side of Modesto. “Awarding a contract on a noncompetitive basis by the city attorney to a firm wherein he holds an interest and could benefit personally from could be a conflict of interest,” the memo says.

According to two city elected officials, Lindgren reacted with an Aug. 3 email, which suggested that the auditor retract the report and the city initiate a performance evaluation of Houston, who had then been on the job for four months. Lindgren denies he suggested a retraction.

Some have suggested the ongoing performance review of Houston, favored by council members Mani Grewal, Jenny Kenoyer, Doug Ridenour and Bill Zoslocki, was precipitated by that July 19 memo. But Lindgren disagreed Monday, saying he raised issues with her work a month earlier — when she drafted a proposed charter for the City Council’s Audit Committee.

Those who defend Houston have said the performance evaluation has undertones of retaliation, harassment and even racism. Houston, who is African-American, did not respond to requests for comment this week.

“It looks a lot like retaliation,” Mayor Ted Brandvold said.

The auditor’s critics said they have not been hostile toward Houston and take exception to the claims of harassment. The process began in August to develop performance measures for the auditor and then changed to a personnel evaluation when additional information came to light, one councilman said.

“She is making accusations and assumptions in her report (on Meyers Nave) without knowing all the facts,” Grewal said.

Officials cited a number of factors to justify the evaluation including the July 19 memo, the proposed Audit Committee charter, her actions related to an Office of Inspector General investigation into the city’s Housing and Urban Development programs, and other issues not yet disclosed.

Regarding the OIG audit, Grewal said, “it was an internal investigation and there have been some things brought up in that investigation that did not need her intervention at all.”

The city auditor position was created by a 2008 reform initiative approved by city voters. Replacing an auditor formerly in the city clerk’s office, the internal watchdog is supposed to work directly with the City Council to uncover wasteful spending and inefficiencies in city operations.

The first auditor was terminated after 18 months on the job, which was followed by a contract with Moss Adams LLP to perform the duties from 2011 until last year. Brandvold persuaded the council to return to an in-house auditor and Houston was hired in April.

Houston proposed a charter for the City Council’s three-member audit committee that some saw as an attempt to expand the independence and power of the auditor’s office. A disagreement arose when the city attorney’s office, in June, was asked to comment on the proposed charter, which required City Council approval.

Among other things, the city attorney’s office questioned if the proposed charter granted powers to the auditor’s office in conflict with authority vested in the City Council, city manager and city attorney in the City Charter. Houston also proposed making the mayor the permanent chairman of the committee and making committee members responsible for her job evaluations

In her response to the city attorney, dated July 10, Houston said that the comments were “not representative of the meritorious work the city of Modesto has come to expect from Meyers Nave.” Houston noted that the proposed charter did not delegate final approval authority to the Audit Committee — the City Council has that authority.

Zoslocki, a councilman involved with her evaluation, said there were problems with Houston’s proposal. “It was in conflict with what the charter of our city says,” Zoslocki noted.

Councilwoman Kristi Ah You, who supports Houston, said council members have badgered the auditor with questions about her qualifications and acted as though they don’t understand the role of an auditor. She said Houston’s previous experience, as chief audit officer for a retirement investment system in South Carolina, was reviewed before she was hired for the job.

According to her memo, Houston looked into Meyers Nave’s work for the Highway 132 project after seeing communications on the subject. She wrote that the state Department of Transportation had not wavered in its position that choosing a legal firm for eminent domain services required competitive bidding.

Meyers Nave provides eminent domain legal services for Modesto as part of its ongoing contract with the city and did preliminary work for the 132 project. Grewal and Zoslocki variously said the firm’s services were needed to keep the project going to meet deadlines for funding and there were communication lapses with Caltrans over the bid requirement.

In May, John Rawles, Highway 132 project manager for Modesto, expressed concern in an email that the city “did not have time to procure contracts for litigation support, and that due to the interpretation, we will not be able to submit any invoices to Caltrans unless we get a more favorable interpretation.”

Brandvold said an important agreement between the city and Caltrans was hung up over the issue until early August, putting funding for the project at risk. By the time a decision was made to seek bids from legal firms, the city had only 13 days for the process, Brandvold said.

In September, the council approved a legal services contract with Nossaman LLP of Southern California for up to $2 million.

Lindgren claimed Monday that Houston’s assessment of the situation contained factual errors. He said Meyers Nave never asserted that its staff members are city employees, as suggested in her report. Council members said Caltrans didn’t want city employees providing the legal services.

“Her conclusions were completely wrong,” Lindgren said. He claimed that Meyers Nave never pushed to do the work for the 132 project, though Brandvold and Ah You suggest internal emails dating to 2017 show otherwise.

Lindgren said the city notified Caltrans in a contract proposal in 2017 that Meyers Nave would be providing legal services. He said it took nine months for Caltrans to respond. An opinion also was sought from top Caltrans legal officials.

Grewal said the mayor called for a performance evaluation of Lindgren’s conduct — Lindgren said he volunteered to have the review done. Grewal, Lindgren and Zoslocki point to an Aug. 8 report out of closed session that the council’s evaluation determined Lindgren “has performed satisfactorily and appropriately.” The council vote was 7-0.

Grewal said the Meyers Nave estimate for the legal services was $200,000 to $300,000 less than the contract with Nossaman.

When The Modesto Bee inquired about the matter in September, a Caltrans spokesman replied that the “insertion of Meyers Nave into this agreement, without the competitive bidding process, would put the project financing at risk.”

Grewal said Houston has not been grilled in six different meetings, as some have suggested, but attended two of the six meetings on her evaluation. The results of the evaluation have been given to Houston and she will have time to develop a response before it goes to the council.

Zoslocki said that Houston’s July 19 memo, claiming risks of “fraud, waste and abuse”, was far different in tone than Moss Adams’ auditing reports, done at the direction of the council. He said Houston’s work thus far bears the markings of political influence. He would prefer that the city employ a totally independent auditor and provide a sufficient budget for the office.

Ah You said: “We need to retain our auditor. We need to allow her to do her job.”

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