Auditor-controller Shaun M. Skelly County of Orange Senior Director Accounting & Technology*

The Treasurer produced financial statements with mark-to-market values for the County's investments in SIVs that were unsupportable according to the County's own internal auditors. Auditor-Controller Response: Disagree partially with the finding. The finding implies that a significant portion of the County's investment in SIVs had unsupportable values. In fact, there were three SIVs with a stated value of approximately $140 million of the total $837 million for which market values could not be reasonably determined. It is important to note that the Treasurer attempted to determine fair value. Unfortunately data necessary to support the Treasurer's estimates were neither available to the Treasurer nor the auditor.

The CAFR, released in December, 2008, states in the Notes to the Basic Financial Statement section that "the SIV investments were purchased in compliance with the IPS." Auditor-Controller Response: Concur.

County Counsel issued a legal opinion in November, 2008, stating that the SIVs facially meet the requirements of Government Code Section 53601, subsection (k) and the provisions of the County's 2007 IPS relating to medium-term notes. The opinion letter is qualified by stating that County Counsel has no experience or expertise in the legal structure of SIVs. Auditor-Controller Response: Concur.