Cover Story - September 12, 2007

Deep divisions: Another controversy erupts in Atherton town hall

by Andrea Gemmet

Just when it seemed as if things were quieting down, Atherton town hall is once again a house divided. This time, the lightening rod at the center of the storm is Finance Director John Johns.

To his supporters, Mr. Johns is a vigilant public servant whose efforts have put Atherton's financial house in order and introduced much-needed controls on how money is handled.

To his detractors, he's an ambitious man angling to get the city manager's job at any cost.

And to anyone who's been following Atherton's municipal soap opera, it all seems to lead back to lingering resentments stemming from the town's troubles in its busy building department.

Finance director suspended

The storm broke on Monday, Aug. 27, when Interim City Manager Wende Protzman placed Mr. Johns on paid administrative leave following a complaint that he created a hostile work environment. That same day, outside auditors from Caporicci & Larson arrived to conduct the annual audit of the town's books.

A door had to be installed on Mr. Johns' office so it could be sealed off, and the key is being held in the police department, Ms. Protzman said. The town hired attorney Mary Topliff to investigate the complaint, and Atherton police opened up their own investigation into a computer in the finance director's office that was allegedly vandalized or destroyed. Both investigations are ongoing.

Mr. Johns said he believes he is being targeted for turning up financial misdeeds in the town, and said that he's been threatened with physical harm on three occasions. He has hired an attorney, and said that the town's handling of the complaint against him may be a violation of whistleblower protection provisions in Atherton's fraud policy.

Councilman Charles Marsala told the Almanac he believes that Mr. Johns has been using his audits of the Atherton Building Department as a springboard to getting the city manager job. He is accusing Mr. Johns of overstating problems he turned up in the building department last year, focusing on "a few minor errors" instead of finding that staff "had done a great job managing approximately $1 billion in residential construction under (former Building Official Mike) Hood."

The citizen members of the town's audit committee are staunchly defending Mr. Johns, and questioning why the town suspended him.

Despite being removed from his job, Mr. Johns notified a Caporicci & Larson auditor that he'd turned up problems with employee expense accounts — including some in the Atherton Police Department.

Outside auditor Brian Kelly of Caporicci & Larson said he had a brief conversation with Mr. Johns outside town offices, but it was interrupted when Mr. Johns received a citation from the police.

Neither Mr. Johns nor police Chief Bob Brennan would comment on reports that Chief Brennan cited Mr. Johns for driving on an expired license on Aug. 29, as he was leaving the town's administrative offices.

The next week, two police officers stationed themselves outside a closed session council meeting, raising the hackles of a group of residents who showed up to comment on Mr. Johns' suspension.

And to top it off, Ms. Protzman and Mr. Johns both said they intend to apply to become Atherton's next city manager, a post that's been vacant since the retirement of Jim Robinson in July. Ms. Protzman, Mr. Robinson's assistant, was tapped by the City Council to serve as interim city manager while a headhunting firm conducts a search for a permanent replacement.

Police affairs

Mr. Johns said he believes the complaints against him are: making verbal threats against a peace officer; and acting in a disruptive or aggressive manner that is creating morale problems.

"If my understanding of the nature, scope and source of the allegations is correct, I'm confident I will be exonerated," he said in a letter to auditor Steve Larson that was distributed to the audit committee.

Mayor Alan Carlson, City Attorney Marc Hynes and Ms. Protzman said they can't comment on the complaint against Mr. Johns, due to the confidentiality of personnel matters.

Mr. Johns told the Almanac that the police department is not being audited, but that he encountered a pattern of "minor infractions of the town's purchasing ordinance. These observations suggested a tightening up was in order over purchasing controls."

Upon reviewing expense reports in several town departments, the Caporicci & Larson auditors found violations of the town's policies, but the amounts of money were not enough to materially impact the town's financial statements, Steve Larson told the audit committee at its meeting last Friday. Some expense reports submitted by the Police Department and the Public Works Department lacked preapproval, and there were a couple of charges disallowed under town policy — one for valet parking reimbursement and one for the purchase of alcohol.

However, it involved only a couple of thousand dollars and the reports had the required supporting documentation, he said.

"I'd recommend a complete review of all expense reports over the past year," Mr. Larson said, adding that the town should tighten up its expense report policy.

City manager job

According to Mr. Marsala, he met with Mr. Johns in October, as the town was struggling to right itself after a series of embarrassing revelations about the town's building department.

Mr. Marsala, who was serving as Atherton's mayor last year, said that Mr. Johns "said I looked bad as mayor with the problems in the building department and it was because Jim Robinson had not supervised the building department. He suggested I fire Mr. Robinson and name him to replace (Robinson)."

When informed of Mr. Marsala's allegation, Mr. Johns told the Almanac, "I'm not going to dignify that accusation with a response."

At the time, outraged citizens were lining up to ask why the town hadn't kept closer watch over the building department.

A three-phase internal audit conducted by Mr. Johns from June through October 2006, turned up problems with permits, sloppy and incomplete records, a lack of checks and balances, and a terribly inadequate computer system. It also found the department failed to charge a total of $134,000 in excavation surcharge fees.

The San Mateo County Civil Grand Jury initiated an investigation, and one employee of the building department revealed that she had been reprimanded following a personnel investigation.

On the other side of the issue, a group of residents and builders joined forces to defend the building department and Mr. Hood, and threatened to hold a recall election against Councilwoman Kathy McKeithen, whose complaints spurred the town's scrutiny into the department.

Councilman's allegations

Mr. Marsala called Mr. Johns' audit findings "inflammatory," saying they implied that favoritism was at play.

"The residents were using the (audit) reports to conclude that corruption was going on," he said.

Mr. Johns should not have been interpreting building codes, and the $134,000 in uncharged excavation fees can be explained away as an appropriate use of the building official's discretionary authority, Mr. Marsala said. The fate of the uncollected fees became moot when the council rescinded the fee in September 2006 amid threats of legal action.

"So the question is, were the audit reports intentionally presented in a way to discredit both Mr. Robinson and Mr. Hood for the purpose of getting Mr. Robinson's job?" Mr. Marsala said. "No one on ... the finance committee, audit committee or grand jury challenged Mr. Johns' allegations nor asked for worksheets or background information. Whatever he claimed was accepted."

Mr. Marsala sent a four-page letter detailing his position to the Almanac, along with a binder of town staff reports, newspaper clippings and his two public records requests, both denied, that sought background information on the audit findings.

Both Mr. Johns and Sam Goodman, chairman of the audit committee, object to Mr. Marsala's assertions.

"The letter casts aspersions about the financial function of the town, the audit committee and the auditors in an attempt to convince of the accuracy of the letter," Mr. Goodman said.

He accused Mr. Marsala of attempting to influence the personnel investigation of Mr. Johns, and said the findings of the audits were thoroughly reviewed and are not in dispute.

Mr. Johns said that the finance department's audits of the building department were examined by the City Council as well as the audit committee.

"The record will also reflect that the findings were discussed in detail with the former city manager and with the building department," Mr. Johns said in an e-mail to the Almanac. "Additionally there is a substantial body of documentation available that will demonstrate that management was in complete agreement with our findings and fully committed to implementing the recommendations contained within said reports."

On Oct. 18, the council approved a laundry list of recommended changes to the building department, including an expensive permit-tracking software system and new computers, additional staff, a review of zoning codes and building regulations, updated procedures and a division of responsibilities to place checks and balances on the building official. Most of the changes are under way or have already been implemented under the direction of new Building Official Mike Wasmann.

Earlier this year, the council also voted 4-1, with Mr. Marsala opposed, to pursue action against several construction projects identified in the audits that were issued permits but appear to violate town rules. In one case, the owners are now suing the town; in another, the town dropped its abatement proceedings after owners demonstrated that it had been town practice over 14 years to allow other homes with mansard roofs to use the same loophole that they had.

Letter "not helpful"

Councilman Jerry Carlson, who is also a member of the audit committee, said he was perplexed by Mr. Marsala's letter.

"This is dealing with subjects that are either in litigation or under investigation, and I don't think that's correct," he said.

Mayor Carlson admonished audit committee members and the public for repeating rumors and speculation, and asked everyone "to take a step back" and let the investigation run its course.

"I don't find the letter by Charles Marsala to be particularly helpful, nor do I find the comments from this committee very helpful," he said. "Nobody is criticizing (Mr. Johns') competence. I understand that what is under investigation is his conduct."

"Untenable position"

Councilwoman McKeithen was in Russia when the controversy erupted. She said that, after working with Mr. Johns for seven years, he has her support and that she hopes the complaint investigation can be resolved amicably.

"I found, without exception, John to be one of the most hard-working, honest, loyal employees, totally without any kind of guile," Ms. McKeithen said. "I've seen him consistently put the town's well-being before his own self-interest."

However, she said the council should have foreseen the potential for problems among town staff when they asked Mr. Johns to examine the building department.

"Without question, he was put in an untenable position," she said. "At the time, he seemed to be the best person to do the job. But who likes having one's actions reviewed by a fellow employee, and potentially reported on?"

According to Mr. Goodman, the audit committee chair, if town employees cooperate with audits, there's no reason for hostility to exist. "After all, audits are conducted for the benefit of the populace that pays taxes," he said.

This month, the audit committee plans to ask the City Council to expand the committee's charter so that it can work more closely with the finance director and help conduct operational audits of town departments, Mr. Goodman said.

"I wish Atherton was a sleepy town that doesn't shoot itself in the foot, but we're not. We keep hurting ourselves," Mr. Goodman said.

Key Players

John Johns: Atherton Finance Director John Johns is accused of creating a hostile work environment and has been suspended pending an investigation. He has been credited with cleaning up the town's finances and securing a series of "unqualified" audits attesting to its financial health. In 2006, at the City Council's behest, he conducted a three-phase audit of the building department that resulted in a series of changes in its operations.

Charles Marsala: Councilman Charles Marsala said he now believes the building department audits conducted by Mr. Johns in 2006 were flawed. He's accused Mr. Johns of inflating the problems in the building department in order to position himself to be named city manager.

Sam Goodman: The chair of the Atherton Audit Committee, Sam Goodman has staunchly defended Mr. Johns' performance as the town's finance director. He's a former Realtor and an Atherton Civic Interest League director. The audit committee is an advisory body tasked with overseeing the annual outside audit of the town's books, as well as providing guidance to town staff on financial controls throughout the year. It's made of up two council members and five council-appointed residents.

Kathy McKeithen: A councilwoman since 2000, Kathy McKeithen ran for office as an outsider seeking a more open and trustworthy town government. She is one of two council members on the audit committee, and she pushed for the audit of the building department. She supports Mr. Johns and says the council put him in an "untenable position" when it directed him to audit the building department.

Wende Protzman: In August, the council appointed Wende Protzman, the assistant to city manager Jim Robinson, to serve as interim city manager following Mr. Robinson's retirement at the end of July. She said she acted on the advice of the city attorney when she placed Mr. Johns on leave after receiving a complaint about him. A head-hunting firm has been hired to search for city manager candidates; Ms. Protzman has said she is interested in applying for the job.


Posted by Concerned Citizen, a resident of Atherton: West Atherton
on Sep 12, 2007 at 11:33 am

Our city council is an embarrassment for our town! The council is filled with people who have nothing better to do with their time than to spend the towns money on things it has no business being involved in. The council is also to blame for all the Audits that have taken place in the Building Department and now the Finance Department. It doesn't take a rocket scientist (or Audit)to tell you that the town has antiquated computers and systems, with little revenue coming in it is hard to keep up with all the modern technology out there. Many of the council members are on the council with their own agendas and axes to grind! This is not how a town should be run. If we are not careful and don't get control of the town council this town could be run into the ground very quickly. Has anyone seen what the town has spent on legal fees in the past year...the dollars spent to defend the council and it's bad decisions could have been spent in much better ways!

Posted by Charles Marsala, a resident of Atherton: West Atherton
on Sep 13, 2007 at 11:06 am

For those who want to read my complete letter and my opinion see below:

Dear Editor,

In 2006 I had the privilege, honor, and responsibility of serving as Atherton's Mayor. Atherton is a town blessed not only with great business, government, and philanthropic leaders, but also a talented and dedicated staff.

Last year a survey of our Police Department received a 97% customer satisfaction, our Public works repaved major streets of Valpariso and Selby, repaired the Atherton Channel, and many other streets. The Town Arborist created the first Atherton Earth Day; and our Finance Dept achieved its sixth consecutive non-qualified Audit.

Our Building Dept was audited, but rather than report the successes of the large picture- approximately $1 Billion in new construction; 6,647 permits processed under Mike Hood's elevan years; and strict requirements in place to to prevent homes being built too large or too tall, and no findings of appropriate funds not being collected- the negatives of a few minor errors were reported. The Financial Audit reports misinterpreted building codes and were presented in a manor that suggested the errors were favoritism.

This was not the case and as the smoke has settled after three Financial Audits, two Grand Jury Audits, and two reviews initiated by the City Manager the integrity of the Building Department deserves to be reinstated.

Former Building Official Mr. Hood needs to be thanked and praised for his knowledge and service to the residents of Atherton. Former City Manager Mr. Robinson needs to be thanked and praised not only for supervising the success of all departments, but for within days obtaining Gary Binger, Former Deputy Executive Director and Planning Director of the Association of Bay Area Governments to be interim Building Dept Director and do a report on the Building Dept to present an unbiased and impartial finding to the allegations from the Audits.

Mr. Binger's report differed from the Finance Director's which alleged errors were intentional because of favoritism. Mr. Binger's report supported the personal integrity of individuals in the Building Dept, stated that the staff was overworked needed to be increased, software upgraded, some duties should be separated, and the Building Code updated. Mr. Binger was critical of having the Finance Director interpret Building Codes and did not support Finance Director John Johns' interpretations.

In March of 2005, Mr. Johns proposed that the Council pass a fee of $22 per cubic yard (CY) for off hauling of dirt, to recover damages to roads. Council passed the proposal and after a 60 notice to residents the fee went into effect. At the June 2006 budget meeting, he proposed increasing the fee. Approximately 25 cities in CA have an off-haul fee; the closest being San Carlos ($4 CY) and Belmont ($12 CY). The following week Mr. Hood told me that he thought the fee was a tax and was illegal. At that point I asked the City Manager and City Attorney to get a second opinion on the Off-Haul fee.

At a friend's July 4th Bar-B-Que I had a discussion with a resident being faced with a $90,000 off-haul fee and shortly after heard from his neighbor who was facing a $60,000 off-haul fee, and was preparing for legal action against the town. In September 2006 the council voted to end the fee and return all funds collected. I wonder if Mr. Hood retired in June to avoid trying to collect something he felt was wrong.

A Finance Committee meeting was called for June 28, 2006, and somehow the press was informed that something "news worthy" would be reported. The Finance Director reported that he had audited the collection of the Off-Haul fee from May 2005 to June 2006 and uncovered eleven cases totaling $134,000 where the Off-Haul fee was not charged and should have been.

In my opinion Mr. Johns made several errors during this meeting or "press conference". These eleven cases were either before the May 17, 2005 effective date of the fee or the day after; there were no findings of the fee not being collected after May 18, 2005. In fact the Building Dept had collected approximately $500,000 in Off-Haul fees from May 2005 to June 2006 without exception and that was not reported.

Mr. Johns did not show the eleven cases to the building dept for comment prior to issuing the report; maybe Mr. Hood would have explained that you can not charge a fee before the effective date it goes into place- so there was no wrong doing. Mr. Johns claimed that the town would seek to recover the $134,000, but he did not have support of the city manager to do so; and he never received it.

In his Phase 2 audit Mr. Johns claimed that he had found another $6,193 dollars of apparent under charges and that 23% of the 6,647 files he had reviewed during Mike Hoods' eleven years had "exceptions". In June, 2007 I asked Mr. Johns for worksheets to support those finding. After six weeks of delays I finally requested them under the Freedom of Information Act and then was told they were not readily available and a full council vote would be needed to compile them as more than 30 minutes would be needed. I think Mr. Johns should have had both the city manager and building department comment on his findings before going public.

What I did receive from Mr. Johns showed nine cases with "Apparent Undercharges" and eight cases with "Apparent Overcharges" for a net Apparent Undercharge of $6,193 but under "Possible Reason" what it is reported as "Do Not Know". The 23% "Exception" Findings have no financial errors, no size or height errors, and only clerical. Almost half of the "Exceptions" are because the Building Dept used forms with the numbers preprinted and if a form was voided or not returned by a resident a gap in sequence occurred as was counted as an "exception".

Webester's defines "Exception" as "something excepted from a general rule." If the rule was not to save voided forms,then what was the exception?

Thirty- four percent were "exceptions" because "expired permits were listed in active status", but residents have challenged this finding because you can not get your PG&E turned on without a closed permit. Hence Mr. Johns' Phase 2 audit could have been that of the 6,647 files audited there were little to no findings of funds not being collected, no homes being built to large or to tall and that the Building Department had done a great managing approximately $1 billion in residential construction under Mr. Hood.

In his Phase 3 Audit Mr. Johns reviewed 48 permit files and reported apparent violations on 4 files. One apparent violation was a Mansard roof. Mansard roofs were developed during Napoleon's time as he forbid second story homes, and second floor living space under a Mansard roof did not count. Currently in America it is about 50-50 as to weather a city counts Mansard Roof space towards living space. In Atherton the practice for at least the last 14 years had been not to count the space and once the resident presented those facts to the council the abatement was dropped.

The second apparent violation is on Tallwood, Mr. Johns reported that a home on a steep slope with a basement was 2,500 feet over allowable square footage. However Mr. Johns miscalculated the square footage of the lot and the house is actually 1193 square feet over allowable square footage. That error is explained as the architect used Woodside rules and previous Atherton rules would not have resulted in the basement counting towards living space as is the case in the Tallwood neighbor's home. The building dept did not catch the error. Atherton should change its method for hillside basements to be similar to Woodside which would make this property legal. Currently Atherton adds the first floor foundation towards basement height, and that put the basement over the allowable height limit.

The third apparent violation involved a doctor who had pulled permits back in 1978 and was building his own home, Mr. Hood inherited this project when he started back in 1995. The project was keep alive by requesting inspections every six months, and was completed this year.

The fourth apparent violation involved a family who had received approved permits in 2002 and failed to start the project on time due health concerns with their children. Instead of requiring the homeowner to use the "Golden Shovel" to mark the start of construction and do minimal work to keep the permit open; the Building Dept erred in giving to many extensions. That project has been complete for some time and the issue now resolved.

Mr. Binger reported to me that Mr. Hood had in place building requirements that many other cities do not require, such as having an independent licensed professional verify setbacks and building heights.

Mr. Robinson also brought in Mike Cully as a consultant to review Building Department procedures. During the Audits Mr. Cully informed Mr. Johns he had discovered that one page of the Permit price list was overcharging residents and contractors. This information would contradict any favoritism of the undercharging reported in Mr. Johns' Phase one Audit. Mr. Johns elected to disregard the information.

The Grand Jury stepped in after the audits and did two studies. It did agree with the findings of the audits, but I do not know how it varified those findings. Since I have been told worksheets to not exist.

The Grand Jury also that only 63 out of 189 active permits had been sent to Menlo Fire for review. The current Atherton Building Official and a representative of Menlo Fire went over the files and found different numbers. They found that since Atherton had put in a sprinkler requirement in 2004, 100% of the files for new home construction had been sent to Menlo Fire for review. They found that 208 out of 229 files had been sent to Menlo Fire.

While it is clear that there were positive suggestions the Audit, Grand Jury, and Gary Binger Reports, it is also clear that there were no findings to suggest favoritism by allowing funds not to be collected, homes to be built too tall or too large. The final conclusion is that Mr. Hood had done a great job managing the 6,674 permits and approximate $1 Billion in construction during his tenure and that Mr. Robinson was on top of the situation and all departments preformed at 97% or better during his tenure.

I thank these men for all they have done for our town and wish them a happy and successful retirement.


Charles Marsala

Posted by Carole Parker, a resident of Atherton: other
on Sep 17, 2007 at 12:05 pm

It would seem to me that Charles Marsala has a major ax to grind. Could it be that he or his friends worry about what else might be out there? I couldn't figure out for the life of me what point he was trying to make in his incomprehensible letter. At the end, all I could tell was that he didn't like that the building dept. was audited and he wants everything his own way. Most of the letter doesn't even address the substance of the on-going investigation. It is just unsupported opinion.

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