The Palo Alto City Auditor's Office may soon see its most significant shake-up since its inception more than three decades ago after the City Council agreed on Monday to seek an outside firm to manage what has always been an in-house operation.

By a unanimous vote, the council directed its Council Appointed Officers Committee to craft the specifications for the city auditor position that would allow the city to consider firms, rather than individuals, to oversee the six-person office. This would be a marked change from the existing system, in which the city auditor is one of four city positions that report directly to the council.

The Monday decision was prompted by years of tension, turmoil and turnover in the City Auditor's Office, which has been without clear leadership since the city's last City Auditor Harriet Richardson departed a year ago. The city had hired a consultant, Don Rhoads, to supervise the office, but his contract expired last November and the office has since been without a leader.

In agreeing to consider outside firms, rather than individuals, for future oversight of the voter-created office, council members acknowledged that the present system isn't working. They were also persuaded by a recent report from Kevin W. Harper CPA & Associates, a firm that the council commissioned to survey auditing functions in other jurisdictions.

Additional involvement by the City Manager's Office, Harper wrote, "may improve cooperation with the City Auditor's Office and may improve the quality and quantity of implemented recommendations."

The report concluded that Palo Alto has fewer audits and spends more per audit than other cities. While other cities had spent between $78,000 and $354,000 per audit, in Palo Alto the figure was $417,000. The city was also tied with Oakland for the lowest output, with 0.7 audits per full-time-equivalent position annually.

It wasn't just the numbers that troubled the council. It's also the office's priorities and inner dynamics. Several council members argued that the recent audits that have come out of the office — which pertain to issues such as code enforcement and business-license tax — don't really reflect the areas where the city has the highest risks.

In addition, council members were put off by the high turnover at the office, which has seen extensive bickering between employees and their former supervisor, Richardson. Councilman Eric Filseth noted that since 2008, the city has had four city auditors, not counting the various consultants and interim leaders. Before Richardson's five-year tenure, the typical auditor stayed on the job for about two years, he said.

"How do we have confidence that the next person we hire, we don't spend a lot of money to get them here and then they're gone in a couple of years too?" Filseth asked.

But even though the council proved open to changing the structure of the office, members were adamant about the fact that the auditor's office will remain independent. Two different auditing organizations had submitted letters in recent months pushing back against Harper's recommendation that the city manager has "administrative oversight" over the auditor's office.

Additional involvement by the City Manager's Office, Harper wrote, "may improve cooperation with the City Auditor's Office and may improve the quality and quantity of implemented recommendations."

Two national organizations — the Institute of Internal Auditors and the Association of Local Government Auditors — submitted letters challenging that recommendation, which they argued could stifle the independence of the auditor. Richard Chambers, CEO of the Institute of Internal Auditors, which sets auditing standards, argued that an effective internal auditor must be "free from any undue influence of city management."

"This influence can appear in many forms, including inappropriate administrative or functional reporting relationships, budgetary constraints, and decision-making around personnel issues," Chambers wrote.

Sharon Erickson, who served as Palo Alto's city auditor between 2001 and 2008, also urged the council to reject Harper's suggestion and to retain the existing reporting structure. She acknowledged that there are ways to improve the office's performance and that some of the consultant's recommendations may help. But changing the reporting structure of the office would run against the city charter, which calls for an independent auditor, and is "totally unnecessary to the function of the office."

Current office employees have also been highly critical of the Harper report. The council recently received a letter from an attorney for Houman Boussina, a senior performance auditor, who reportedly had complained to the council in August 2018 about "serious problems in the office that had negatively impacted productivity and the ability of the office to achieve its mission."

The letter, Boussina's attorney Karl Olson wrote, "highlighted the retaliation against the office staff who had in good faith met their ethical obligations to report the issues to City management."

"Unfortunately, to our knowledge, the City has not acknowledged or taken corrective action to address the wrongdoing," Olson wrote. "Instead, the City made working conditions extremely difficult for the entire office starting in 2018 by denying supervision, performance evaluations, and the opportunity for merit-based pay increases that are provided to other City employees."

The letter urged the council to appoint a permanent city auditor who can "restore leadership and supervision and work with the City Council to restore operations at the office."

While the council has not publicly discussed the internal squabbles within the office, numerous sources have said in the past that employees have found numerous complaints against Richardson and that subsequent investigations had cleared her of wrongdoing.

The Monday vote was the council's most significant public action to date to address the years of turmoil at the office since spring of 2018 when the council's Finance Committee voted to eliminate five of the office's six positions, which would've left only the city auditor's position in place). After some public backlash, the committee voted days later to rescind the vote and to explore broader structural changes to the office.

In December, the Council Appointed Officers Committee discussed the Harper report and expressed interest in its recommendations to contract out certain audits and to conduct an annual citywide risk assessment to identify key risks and develop improvement plans to enhance controls.

Vice Mayor Tom DuBois, who served on the committee, lauded the recommendation for a risk assessment, saying that identifying areas where the city may have higher risk makes a lot of sense. He and his colleagues generally concurred that the office should maintain its independence, even if it's manned by an outside firm.

City Councilwoman Liz Kniss and Filseth led the push for having a firm, rather than an individual, lead the office, with Kniss pointing to Santa Clara County as an example of a government that uses outside consultants for auditing.

Mayor Adrian Fine suggested that having a person inside City Hall, rather than an outside firm, can have the benefit of bringing the office closer to the citizens. He also noted that it may take longer for outside firms to get up to speed on local issues. He ultimately agreed, however, to join the rest of the council in accepting Filseth's proposal to focus the city's search on an outside firm rather than on a new employee.

"We have a responsibility to the community to consider some alternative approaches," Filseth said. "I think there's a good chance we can do better."