In July 2002, the City Council received the Final Report of the 2001-2002 Santa Clara County Civil Grand Jury, Examination of Audits and Financial Reports (hereafter "Report"). The Report recommended two findings relevant to cities and prescribed specific actions under California Penal Code Section 933 to which we must respond. This Penal Code section also requires that the City respond within 90 days to the Presiding Judge of the Superior Court on the findings and recommendations of the Report. The City’s Response to the 2001-2002 Examination of Audits and Financial Reports is due by September 25, 2002.

From November 2001 through March 2002 the Santa Clara County Civil Grand Jury examined audits, financial reports, financial statements and management letters of 32 cities and government agencies. When contacted, staff from the Grand Jury was unclear about when and how the first request for information was received by the City of Sunnyvale, as the only document reviewed by the Grand Jury was the City’s Comprehensive Annual Financial Report (CAFR).

After reviewing this information, the Grand Jury reported four findings, two of which are relevant to cities, the other two applicable to counties. The first finding concludes, "Management audits are not a routine function of the entities contacted by the Grand Jury." The second finding concludes "The activities necessary to meet the [new financial reporting] requirements of the Governmental Accounting Standards Board (GASB) Statement No. 34 and the current status of progress are not routinely addressed in public documents. This results in restricted information being available to the public."

Per Penal Code section 933, there are two central requirements to our response. First, we must agree or disagree with the findings, then explain our response in the event we disagree wholly or in part. Second, we must respond to each of the recommendations with one of four possible actions, namely whether the recommendations have been implemented, will be implemented, require further analysis before implementation, or will not be implemented. In each case an explanation must accompany the action taken.

Finding #1 – Management audits are not a routine function of the entities contacted by the Grand Jury.

Recommendation #1 – Implement a program of continuing management audits.

City Response to #1 – With regard to the first finding and recommendation, we disagree with the conclusion that management audits are not a routine function. To the contrary, the City of Sunnyvale routinely conducts performance and financial/operational audits as part of the Planning and Management System. County Grand Jury staff confirmed that the types of internal audits we conduct fit within the purview of their definition of "management audits." These audits are conducted by the Department of Finance and cover two key areas: Programs/Service Delivery Plans and Financial/Operational Management.

Though understaffed for a significant portion of FY 2001/2002, the Internal Audit division of the Department of Finance conducted several internal audits consisting of mini-performance audits of 16 Service Delivery Plans (mini because they focused on structure and outcome measures), 6 financial/operational audits and 5 follow-up audits. The follow-up audits included 2 major program performance audits conducted in FY 2000/2001 (Fleet Operations).

City Action to #1 – As noted above, the recommendation has already been implemented as part of the Planning and Management System.

Finding #2 – The activities necessary to meet the [new financial reporting] requirements of the Governmental Accounting Standards Board (GASB) Statement No. 34 and the current status of progress are not routinely addressed in public documents. This results in restricted information being available to the public.

Recommendation #2 – Modify and expand accounting procedures to encompass the requirements of GASB No. 34.

City Response to #2 – With regard to the second finding, we agree with the conclusion that the GASB No. 34 implementation status was not routinely addressed in public documents. At the time of the Grand Jury audit we had not informed the public of our progress on this implementation. However, in June of 2002 we did hold a Council Study Session in which we brought the council and the citizens up to date as to the requirements of GASB 34 and our progress in that respect. Staff is fully prepared to implement the requirements of GASB 34 for the fiscal year ended June 30, 2002. We will be conducting another duly noticed public forum when the June 30, 2002 financial reports are completed to familiarize the council and the public with the new reports.

City Action to #2 – The City has been actively involved in implementing the requirements of GASB No. 34 and expects to be in full compliance for the fiscal year ended June 30, 2002. In addition to the Study Session held in June 2002, we will hold one additional public forum when the June 30, 2002 financial reports are completed to familiarize the Council and members of the public with the new reporting structure. In addition, this RTC is also meant to inform members of the public of progress made to date.