San Diego city auditor Eduardo Luna accused the managers of the city’s Southeastern Economic Development Corp. of fraud this week.
The agency — a nonprofit established by the city in 1981 to spur development in downtown San Diego — has been embroiled in controversy in recent months over executive pay. Mayor Jerry Sanders and other local officials have attacked SEDC president Carolyn Smith for granting pay raises to herself and 15 employees by $872,404 over five years.
The SEDC has a an annual budget of $25 million and listed about $83 million of debts — total payments due over the life of the debt, not par amount — in its most recent budget documents. The agency has sold municipal bonds, but it’s unclear from its reports how much debt it has outstanding. SEDC officials could not be reached for comment.
“SEDC omitted and concealed material information about employee compensation over a five-year timeframe, which led to the direct financial benefit of its employees,” according to the audit, which found inadequate internal controls and compensation practices that “rise to the level of fraud.”
The auditor listed questionable spending in addition to staff pay increases, including $156,700 for a 25th anniversary party for the community, $20,800 for meals that should not have been expensed, and a $3,000 payment to a civic group founded by Smith’s father.
The SEDC president told a local newspaper, the San Diego Union-Tribune, that the agency’s pay practices have been documented to the City Council, which also approves its budgets annually.
Smith was fired in July, though she will remain in her position until Oct. 21. Sanders has appointed four new directors to the agency’s board and asked the San Diego district attorney to investigate the fraud allegations.
San Diego has been struggling to return to the municipal market since a pension and municipal disclosure scandal in 2004. In that case, the Securities and Exchange Commission sanctioned the city for securities fraud. San Diego settled the case and agreed to reform its disclosure practices. Five former employees continue to fight the individual fraud charges against them.
This week’s audit did not list any irregularities or allege fraud relating to the SEDC’s municipal bond sales.