2007-2008 Santa Clara County Civil Grand Jury Report San Jose Finance Department Practices Cost Taxpayers Money

Conclusions 3

• CL1 Page 5
  The City Auditor found significant issues with the City Finance Department’s management of the tax exempt bond program and interfund loan processes that have resulted in foregoing interest to the City and have the potential to pose legal problems.
• CL2 Page 5
  The City Auditor issued a report in December 2007 which listed all of the
• CL3 Page 4
  The results of the audit demonstrated that in the last two years the Finance Department extensively used the City’s Cash Pool to finance bond-related projects, thereby reducing the City’s Cash Pool balance by an average of $40 million per month. Because of this deficit, the City’s Cash Pool lost approximately $2.5 million in interest over the last two years alone. The use of the Sewer Connection Fee Funds to bridge financing gaps is a questionable practice. The Finance Department needs to develop better controls for appropriately securing capital funding and for ensuring compliance with all applicable laws and regulations. The Finance Department has not complied with the voter bond requirements to have annual audits for two measures that were approved by voters in 2000. 4 Findings and Recommendations Findings were reviewed with the subject agency. Finding 1a The City Auditor found significant issues with the City Finance Department’s management of the tax exempt bond program and interfund loan processes that have resulted in foregoing interest to the City and have the potential to pose legal problems. Finding 1b The City Auditor issued a report in December 2007 which listed all of the recommendations and required 60-day implementation. To date, there has been little action from the Finance Department regarding these recommendations. Recommendation 1 The Finance Department should implement all Audit recommendations in the audit report immediately. 5 Key References Documents California Government Code Section 66012-66014. City of San Jose, City Auditor, to Grand Jury. Email, March 18, 2008. City of San Jose, Finance Department, to Grand Jury. Email, May 27, 2008. City of San Jose, Memorandum. Proposed Scope of Services with Macias Consulting to Address Debt Management Recommendations, February 7, 2008. City of San Jose, Memorandum. An Audit of the Management of the City’s Tax-Exempt Bond Program Use of Interfund Loans to Provide Financing for Capital Bond Projects, April 7, 2008. City of San Jose, Memorandum. Annual 2006-2007 Status Report On the Branch Library Projects, November 14, 2007. City of San Jose, Memorandum. Revised Library Board Oversight Committee Proposal, July 5, 2001. City of San Jose, Office of the City Auditor. An Audit of the Management of the City’s Tax-Exempt Bond Program and Use of Interfund Loans to Provide Financing for Capital Bond Projects, December 13, 2007. . City of San Jose, Public Safety, Finance and Strategic Support Committee. Agenda, April 17, 2008. .City of San Jose, Resolution No. 69822. A Resolution of the Council of the City of San Jose Ordering, On Its Own Motion, the Submission to the Electors of The City of San Jose, at the General Municipal Election to be Held on November 7, 2000, Two Measures Calling for the Issuance of General Obligation Bonds for the Acquisition, Construction and Completion of Certain Municipal Improvements in the City of San Jose, August 10, 2000. . County of Santa Clara. Sample Ballot , General Election, November 7, 2000. 6 Interviews March 12, 2008 Deputy City Auditor, City of San Jose April 7, 2008 Director, Finance Department, City of San Jose April 8, 2007 Registrar of Voters, County of Santa Clara April 9, 2008 City Auditor, City of San Jose May 14, 2008 Director, Finance Department, City of San Jose June 3, 2008 Director, Finance Department, City of San Jose 7 PASSED and ADOPTED by the Santa Clara County Civil Grand Jury on this 5th day of June, 2008. Raymond A. Blockie, Jr. Foreperson Tim Cuneo Foreperson pro tem Kathryn C. Philp Secretary 8

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