Since an in-depth audit in late March revealed the potential for a devastating budget deficit of nearly $100 million, Riverside County officials have labored in search of solutions to reconcile the potential shortfall.
An international auditing firm KPMG produced the concerning assessment. In addition, the auditor made what is being referred to as 41 high-priority recommendations to help mitigate the deficit concern. More than half of the recommendations targeted the Sheriff’s Department. This was largely because the department’s budget has increased from 58 percent to 67 percent of the county’s overall budget in ten years—much of the increase was allegedly driven by labor costs.
The audit team considered data from four key county agencies related to law enforcement; included among them were the sheriff’s department, the probation department, the District Attorney’s Office as well as the Office of the Public Defender.
Based on the data gathered from these entities, the auditors offered recommendations for improvements that were organizational, financial and operational in all four departments.
As the board grappled with the potential impact of a probable $100 million deficit it simultaneously approved a $15.7 million contract to keep the KMPG auditing team tethered to Riverside County for another three years to help implement the audit report’s recommendations. In addition, the board approved another contract valued at nearly three million dollars to conduct a similar audit for the entire county.
Recently in an exclusive interview with The Voice, Riverside County Public Information Officer Raymond Smith shared insights into the KPMG study and other issues related to the worrisome budget deficit. Many political observers have expressed concerns about spending so much for an outside contractor when the county is in trouble financially.
When asked what triggered this decision, Smith explained it was largely the result of ongoing discussions at Board of Supervisors’ meetings about the projected 50 to 100-million-dollar budget deficit in the coming fiscal year which begins July 1st. He further explained there was a desire by the board to review the rates charged to have the Sheriff’s Department provide police services to contract cities; as well as an overall desire to consider changes that would enable the Justice System departments, including the Sheriff, District Attorney, Probation and Public Defender, to be more efficient while also considering ways to increase data-driven decisions and assessments that will improve services and outcomes.
When asked why the county did not choose to use an internal audit team that could look at the various departments to mine out savings as way to avoid spending addition millions with an outside entity to do this he replied, “This is not an audit. An audit looks to see if expense and revenue accountings are in line. If you look at KPMG’s initial assessment of the Justice System departments, it offers recommendations that could fundamentally change some operational practices, not just accounting practices.”
According to Smith, “This is a change-management initiative. Such initiatives sometimes are successful initially but most often fail and cannot be sustained long-term unless they are carefully conducted.
To further substantiate the county’s approach, Smith referred to writings by John Kotter, the Konosuke Matsushita Professor of Leadership, Emeritus at the Harvard School of Business. Smith explained. “He has written about the eight mistakes organizations make when they try to make operational changes. Some of the mistakes he cites include not establishing a great enough sense of urgency, not systematically planning for and creating short-term success, and not anchoring change in the corporate culture.”
The KPMG audit report clearly identified areas for improvement and made recommendations regarding how to improve. As a result, many are critical of the board’s decision to now pay the contractor more money to implement the recommendations. Smith was asked why the auditor’s recommendations (beyond the ones that are Information Technology related and require special expertise) could not be handled by existing county staff? “First of all” Smith replied, “The KPMG report is an assessment with recommendations that require more study/discussion to determine how they can be implemented. The county, and other public and private agencies, do not have employees who are experts in change management. As I mentioned, most such efforts fail.”
Several years ago, Riverside County entered a contract with Huron Consulting, Smith pointed out to highlight his point. Huron assessed the county hospital’s operations when it was losing $50 million a year. After implementing changes and changing administrators, the hospital finished with a cash surplus last year. “The county hired experts who knew how to effectively change operations at [the] hospital to be efficient, capture available resources, and sustain changes over time,” Smith stressed. “Change management companies have teams with specific areas of expertise who work to bring officials/partners together and develop operational [strategies] that cross multiple departments or organizations. An organization such as the Sheriff’s Department would not be expected to independently offer broad operational recommendations about how the District Attorney’s office or the Probation Department can increase efficiency, nor vice versa.”
According to Smith, KPMG has been able to make such recommendations and gain concurrence from those departments. “Initial recommendations have been made. Now, KMPG’s team will remain here for three years to work with the departments and determine how to implement the recommendations to the greatest extent possible.”
When Smith was asked what potential existed for budget overruns if the recommended changes were not implemented? He responded, “We already know that the projected county budget deficit next year will be between 50 and 100 million dollars, largely based on a legal settlement that requires improved health and mental-health care in the jails. Those improvements will cost an estimated $40 million annually. That cost is one of the reasons for this effort.”
Smith was also asked whether the county was seriously considering withholding pay increases and if so, what work groups might be impacted? “Salaries and benefits are controlled by agreements negotiated with labor unions,” he explained. “The county abides by those agreements. In the near future, some agreements are coming to term and, as always, negotiations will be conducted in an attempt to reach new agreements.”
Earlier this month, Riverside County Supervisor Kevin Jeffries expressed his concern about the county’s debt, its 100-million-dollar budget deficit and the potential for the situation to become unsustainable unless the county considers austerity measures.
County officials are now engaged in very serious discussions regarding how to reconcile the projected budget shortfall without the stark slashes that result in layoffs and cutbacks in services. Other measures like a freeze in hiring; normal attrition; and deferred salary increases are certainly more palatable options to reducing costs in a county that experienced significant economic setbacks during the great recession and is still clawing its way back to a sure economic foundation.