In 2013, then-City Manager John Russo secured approval from City Council—without discussion—to hire Municipal Auditing Services to conduct business license and sales tax audits; the company gets paid based on how much unpaid tax they identify and report.
Local businesses protested, with several business owners complaining they were unjustly targeted by the firm.
At the time, Action Alameda News reported that the American Institute of CPAs had issued a position statement saying that contingency fee audit arrangements are likely to compromise the integrity of the tax system, and that “the contract auditor also has an incentive to close the audit to the detriment of the taxpayer.”
Eight months later, then-Assistant City Manager Liz Warmerdam announced that the city was terminating its arrangement with Municipal Auditing Services, and apologized to the community.
Now, the current city council is wrestling with the fallout, as they deal with the lawsuit against the city filed by the firm.
The case is RG-15755722 in Alameda County Superior Court.