Audit Finds Overtime ‘Waste’ in Oakland, Suggesting a Widespread Spending Problem

Updated 3:18 p.m. Friday

Oakland has been paying employees in two departments excessive overtime for years, according to an investigation by the city auditor’s office, which said its findings likely indicate a wider organizational problem — costing millions the city doesn’t have as it faces a massive budget crisis.

The auditor’s office found that workers in the Transportation and Public Works departments have been overcompensated by more than $1.6 million for overtime hours since 2018.

Oakland is required to meet the overtime rates set by the federal Fair Labor Standards Act, which has payroll formulas that calculate compensation for employees who work beyond standard hours. However, the audit, conducted based on a tip from an anonymous whistleblower, found that the city had coded its own formulas for overtime into its payroll system that exceeded the act’s requirements.

“It is my job to call out waste of taxpayer dollars, especially during a time when the city administration is looking under couch cushions for spare coins,” city auditor Michael Houston said in a statement. “In that spirit, I hope the administration takes seriously our recommendations to develop, implement, and document overtime formulas in alignment with authoritative regulations and agreements.”

Although the city is allowed to set pay rates for employees that exceed the Fair Labor Standards Act’s minimums, the investigation found that it doesn’t have a record authorizing different rates, meaning that taxpayers are incurring “significant costs” that weren’t approved.

“Paying city employees more than what they are authorized to be paid may constitute a costly and unauthorized gift of public funds to individual employees from the City and Oakland taxpayers,” the report reads.

It says that the city was not able to explain why the codes it used to charge overtime were different from those in the Fair Labor Standards Act, or say when it began to use its current rates.

Houston said that the audit only looked into the two departments, but because the issue was found in the city’s payroll system, it could be citywide.

“It very likely is happening in other departments, and if so, we need to know,” he told KQED.

Houston said that the audit’s first recommendation is for city administrator Jestin Johnson to launch a citywide payroll review to find out just how much money in unauthorized payments has been used and implement formulas that are in line with the Fair Labor Standards Act.

Oakland is looking to recover any funds it can to trim a $130 million budget deficit that has forced major service reductions and layoffs in recent months. Residents have been especially concerned about the temporary closures of two fire stations in the fire-prone Oakland Hills and a plan to shutter four more.

City Council members have repeatedly implored the city administrator and budget team to find money to maintain services, especially to keep the firehouses open. Council members criticized the closures, but ultimately up to Johnson, who gained more control over Oakland’s spending last fall when the city had to enact a contingency budget due to the stalled Oakland Coliseum sale.

“We’re browning out fire stations, employees have been laid off due to just a lack of resources, and now we find that for years, the city has been wasting money on unauthorized overtime,” Houston said. “And at this time, we just need to be making the best use of every penny that we have, so I hope the city administrator rectifies the issue.”

Councilmember Janani Ramachandran, who voted against the contingency budget last summer, and two other council members have introduced legislation that could ward off additional fire cuts. The resolution, which would pay for the services with funding from the city’s transportation and self-liability fund and revenue from events held at the Coliseum, is set for a council vote next month.

The legislation also initially aimed to strip Johnson of his expanded fiscal power — which Ramachandran said at the time was supposed to be the power of the council — but that piece of the ordinance was removed during a budget committee hearing last week.

“This is a lot of money that we can’t afford, and we should be looking throughout the city to see if we can identify similar inefficiencies that could lead us to have more money in our budget to fund basic services,” Ramachandran told KQED.

Following the audit, Houston also said staff should work with the city attorney’s office to address past overpayments, but he didn’t offer any insight into what recourse could be taken.

“Every little penny counts,” Houston said. “So when you think of $1.7 million, that would be about half the size of the city auditor’s office, so that is a significant amount of money that needs to be put to good use and not be wasted.”

Interim Mayor Kevin Jenkins didn’t specify what steps he would take Friday, but he said he plans to meet with the city auditor and city administrator to “see what the best path moving forward” is.

“When it comes down to the $1.6 million, we have budgetary issues and any waste is a challenge for us as we are trying to get our budget together, as we are trying to do our statutory requirements as a city,” he told KQED.

KQED’s Alex Hall contributed to this report.