'Conflict of interest' claims cloud Sioux Falls audit manager pick

Correction: An earlier version of this article incorrectly stated the Sioux Falls Audit Committee recommended Shana Nelson for internal audit manager. A hiring panel composed of City Councilors and audit committee member made the recommendation.

There's another political battle brewing over a potential hire in Sioux Falls city government.

The City Council Tuesday night will consider the appointment of Shana Nelson to run the city's internal audit division, which reviews the books and management practices of other city departments.

Nelson is up for the internal audit manager at the recommendation of a hiring panel composed of city councilors and a citizen. 

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Councilor Greg Neitzert, chair of the audit committee, touts Nelson's experience in the city's finance department scrutinizing budgets, her character and her institutional knowledge.  

But some being asked to confirm Nelson's nomination oppose the appointment, criticizing both the hiring process, her experience as both a manager and auditor and her ability to be independent in an oversight watchdog role.

Nelson has been a business analyst in the city finance department since 2012 and is married to Matt Nelson, Sioux Falls parking manager.

"The conflict of interest is what grabbed everybody's attention," said Janet Brekke, an at-large city council and former assistant city attorney at City Hall.  "After I found that out, that's just one of several things that make me want to say 'slow down.'"

Former audit manager Kim Schroeder resigned in August 2018, at which point Neitzert began leading an effort to reorganize the internal audit division. When that work finished earlier this year, the audit manager position was listed publicly.

In the three weeks the position was advertised, 15 applied and three candidates were interviewed.

Neitzert said Nelson rose to the top as the obvious best choice for the job due to her experience finding red flags in department budgets and her understanding of the city's financial system.

"In her current role, she is already scrutinizing department budgets and asking tough questions, saying no and holding peoples feet to the fire," he said. "It’s exactly the sort of thing that we’re looking for."

The internal audit division was formed in 2007 after the South Dakota Department of Legislative Audit urged the city to create an independent auditing arm when it was learned that city officials misspent millions of dollars on the Phillips to the Falls project.

Prior to that, Sioux Falls had an internal auditing function, but it wasn't independent. The auditors reported to the mayor's administration. And the reports they generated weren't released to the public.

"The position was created to root out fraud and abuse and we need a person at the helm of this that has auditing experience and management experience, and no intimate relationships with city staff," Councilor Theresa Stehly said about the Nelson nomination. 

Councilor Pat Starr, who served on the hiring panel that interviewed Nelson, said he's uncomfortable with the nomination. The internal audit division will likely audit both the parking division and the process used by the city to build the downtown Village on the River parking ramp and other projects. Matt Nelson, as city parking ramp manager, was a key player in advocating for the Village on the River project. 

But Neitzert dismissed those concerns, citing ethical protections built into city policies, charter and ordinance. In the event the parking division or other areas where Nelson's husband is involved, she'd have to step back and hand oversight duties to someone else in the department. And when construction projects get audited, Neitzert said those efforts would likely be outsourced to a private, independent auditor anyway.

"There are certain types of audits that are so specialized that it's more efficient to hire outside people where that's all they do," Neitzert said. "And she'd be required to recuse herself if they did an audit of parking. She’d have to be completely fire-walled from it."

In an organization with as many employees as the city of Sioux Falls, Neitzert said delegating tasks due to personal relationships happens frequently. As an example, Sioux Falls City Attorney Stacy Kooistra relegated his duties during the most recent labor negotiations with the police union because his brother is a law enforcement officer with the Sioux Falls Police Department.

"This is not atypical," he said.

A vote on Nelson's nomination is scheduled for the City Council's Tuesday night meeting, which begins at 5:30 p.m. at Carnegie Town Hall.