September 18, 2002

Honorable Richard C. Turrone, Presiding Judge
Santa Clara County Superior Court
191 North First Street
San Jose, CA 95113

Dear Judge Turrone:

This letter is in response to the findings and recommendations of the 2001-2002 Santa Clara County Civil Grand Jury Examination of Audits and Financial Reports. There were two findings and related recommendations in this report that pertain to the City of Sunnyvale. Our response is transmitted below. As a point of clarification regarding your initial request for information, upon review of the documentation provided to us by the Civil Grand Jury, Attachment A references that you received from Sunnyvale only its Comprehensive Annual Financial Report (CAFR). Staff from your office could not confirm for us how and when the initial request was forwarded, or if additional information was requested. It is possible that we could have provided information relative to Finding #1 that would have clarified current City policy and practice for ongoing management audits. That said we welcome this opportunity to explain our internal audit program to you.

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

Recommendation: Implement a program of continuing management audits.

City Response: We disagree with this finding. The City of Sunnyvale routinely conducts internal audits as part of its Planning and Management System. As confirmed by your staff, the internal audits we conduct fit within the purview of management audits as defined by your correspondence. These audits are conducted by the Department of Finance and cover two key areas: Programs and/or Service Delivery Plans, and financial/operational management. Qualitative and quantitative measures are employed to ensure a thorough and meaningful review, and follow-up audits are conducted to assist with the implementation of audit findings. During FY 2001-2002 the following management audits were conducted:

Performance Audits – Transportation Operations (4 Service Delivery Plans), Public Works Support Services (2 Service Delivery Plans), Library Collection Management (3 Service Delivery Plans), Library Programs & Management (3 Service Delivery Plans) and Library Learning Environment (4 Service Delivery Plans).

Financial/Operational Audits – Accounts Payable, Asset Forfeiture, Cash Receipts, Investment Policy, Purchasing Cards and Standby Program.

In addition follow-up audits were conducted for Fleet Operations (2), Community Development Block Grant Funds, One-Stop Permits/SunGIS and AT&T Cable Franchise.

Finding #2: GASB 34 requires revised financial reporting standards. These revised standards identify the changes necessary for governmental agencies to comply with the new requirements. When implemented, annual reports will be more comprehensive and easier to understand. The activities necessary to meet those requirements and the current status of progress are not routinely addressed in public documents. This results in restricted information available to the public.

Recommendation: Modify and expand accounting procedures to encompass the requirements of GASB No. 34.

City Response: The City agrees with this recommendation. The City has been actively involved in implementing the requirements of GASB No. 34 and we expect to be in compliance for the fiscal year ended June 30, 2002. Our accounting staff has been preparing for this implementation for over a year by attending training sessions offered by audit firms and consultants as well as those offered by the California Society of Municipal Finance Officers. We have been preparing the information necessary for this implementation and we have performed a full practice implementation on the June 30, 2001 financial statements. We also have all the information for inclusion of infrastructure assets in our financial statements even though this information is not required to be included until June 30 2006.

At the time of the Grand Jury audit we had not, however, informed the public of our progress on this implementation. In June of 2002 we held a public hearing during which we brought our City Council and members of the public up to date as to the requirements of GASB 34 and our progress in that respect. We will be conducting another public forum when the June 30, 2002 financial reports are completed to familiarize the council and the public with the new reports.

Please let us know if there is any additional information we can provide. You may reach me by contacting (408) 730-7473.

Very Truly Yours,

Frederik M. Fowler
Mayor