At the regularly scheduled meeting of June 25, 2002, Council approved the Finance Department’s restructured programs, outcome statements, outcome measures and weightings, with the request to add one additional outcome measure relative to performance auditing (see RTC 02-266 attached). Finance staff was directed to return to Council with a proposed outcome measure for internal performance auditing that ties directly to the number of City operating programs, and the regular auditing thereof.

Staff recommends that Council approve Alternative 1 consisting of the following outcome measure for performance auditing:

• A minimum number of service delivery plans, or an equivalent number of operating programs, representing in dollar value at least 12.5% of the budgeted amount for all operating programs, shall be audited annually such that every program is audited within an eight-year period.

It is further recommended that Council approve a weighting of 4, to be consistent with the weighting for the outcome measure associated with the Annual Internal Audit Plan, as approved by Council on June 25, 2002.

Legislative Policy Manual, Goal 7.1B, Financial Practices: Maintain Sound Financial Practices Which Meet All Applicable Standards And Direct The City’s Financial Resources Toward Meeting The City’s Long Term Goals; Policy 7.IB.5, Performance Budget System: "Maintain and refine the Performance Budget System to assure its use for multi-year planning, full-cost accounting, and budget monitoring."

At the Council meeting of June 25, 2002, staff was asked to propose an additional outcome measure for performance auditing that incorporated a defined number of programs to be audited annually. Currently the City has approximately 60 operating programs, not including the Employment Development Department. Each program is comprised of several Service Delivery Plans, or SDPs.

The dollar value of each operating program varies widely. For example, the Solid Waste program is budgeted at approximately $45 million, while the Public Parking Lot Maintenance program is budgeted at just $87,000.

To ensure that a minimum number Programs of sufficient importance and size are audited annually, staff is proposing an outcome measure that ties directly to the total dollar value of the City’s various operating programs. Though difficult to measure over time, mostly due to program consolidations/revisions during successive budget cycles, staff believes this proposed measure comes closest to a performance auditing schedule that seeks to audit all City programs at least once every eight years.

The Department of Finance restructure is included in the Adopted Budget for FY 2002/2003.

Public contact was made through posting of the Council agenda in public places, on the City’s web page, and the publication of the general business/public hearing items in the San Jose Mercury News.