Auditing Firm Issues Rebuttal Watsonville City Finance Critique

In the contentious, ongoing discussion of how city finances are managed in Watsonville, the firm that conducted a performance audit of the city last year has now published a rebuttal to the city staff's response to the original audit. 

The Santa Cruz County Grand Jury, which ordered the performance audit, released the rebuttal prepared by Harvey M. Rose and Associates. It was published on the Grand Jury's website this week. 

Here is the audit.

This is the city's response to the audit. 

Here is the rebuttal from the auditing firm. 

The 2011-2012 Santa Cruz Grand Jury commissioned an independent Performance Audit of the City of Watsonville, which the 2012-2013 Grand Jury released on Jan. 10. 

"The audit found that the City is in poor financial condition compared to cities of similar size and demographics, and that its financial decision-making process lacks consistent written policies and procedures. The audit contains recommendations for improvement," the Grand Jury reported in a prepared statement released Wednesday. 

The audit frowned some municipal financial practices, such as making no-interest loans between departments. It highlighted one such instance, where the city loaned the now-defunct Redevelopment Agency $4.4 million to construct the Civic Plaza. According to the auditors, that no-interest loan resulted in a $740,000 loss in interest earning to the city's General Fund.

Watsonville city staff presented a response to the audit in late January, after which the auditing firm, Harvey M. Rose and Associates, was allowed to make comments. 

The rebuttal makes few concessions but rather provides more clarity and specifics about issues raised in the original audit. 

Watsonville city staff have reported it took 500 employee hours to respond to the audit, at a cost of $25,000. Making the changes proposed in the audit, including updating the city's financial management system that departments use to stay on budget, would cost upwards of $575,000, according to city estimates.