As previously reported, the 2003 City CAFR did not materialize last Friday, but a few more (114) questions from KPMG did.

Some of these are housekeeping type stuff (lots of references to the city’s work being “confusing”). But, others are more substantial.

5) Balance Sheet needs to be in order of “liquidity.”

They want to know what assets are easily turned into money (which is the same as cash). Lack of liquidity has been a big problem here for some time.

25) KMPG needs a “reconciliation of cash and cash equivalents” for the financial statements.

This is something KPMG has requested for months and months. The CFO has repeatedly assured the council that this was going to be sent. You would think this would be relatively easy to produce. It’s about your cash.

57) KPMG states that it can not “rely” on the work of the former auditors of the SDCERS. Apparently the 2003 sdCERS CAFR is part of this “not-reliable” stuff. And this material was specifically included in the City’s draft 2003 CAFR. This approach is now a “No-Go”. So, KPMG will need the City to audit sdCERS 2003 Financial Statements since KMPG is going to assume there is no separately issued CAFR for SDCERS.

Looks like KPMG doesn’t think too much of the way sdCERS keeps its books. Can’t blame them for that.

41) KPMG notes, “there appear to be significant derivatives” in the sdCERS assets.

Did you know that?

55) KPMG wants to see a copy of all the SGAS 13 “fraud audits” for each operating and capital lease. Also, copies of the Padres ball park lease.

An interesting statement from the city:

57) The City has determined that the sdCERS financial statements are incorrect, e.g. the actuarial information.

Couldn’t have said it better myself.

58) Regarding DROP, KPMG wants to know “how does this work?”

59-61) KPMG has a hard time with the City’s discussion of the NPO disclosures.

67) The City has a “fund deficit” of $139 million for “claims liabilities” for the “internal service fund” which to KPMG “seems very large”.

68) City confirms the EPA settlement is still not final.

69) They want more specifics on what the City is doing to correct the overcharging the public for sewer and water.

The mayor says the total amount owed is just one million dollars and that will be repaid in 2007. That number seems small-ish?

70 and 72 and 73) These issues are blacked out for some reason. Item 71 is on the 401h violations, which relate to retiree health care payments through sdCERS. So, this may be about pending IRS issues at sdCERS.

75) City has “mortgage revenue bonds” which KPMG finds “very unusual”.

City is apparently a “conduit” for some other agency. City has agreed to “reveal” the identity of the third party.

79) KPMG wants to know more about the “lease/ownership” of the Padres in the “tenant improvements” at Petco.

96) KMPG says the CAFR text re the US attorney investigations was ” limited to disclosure practices” while later indictments were on issues beyond disclosure so the City “should reconcile this.”

109) KPMG asks if the City Council is “balking” at remediation, shouldn’t that be disclosed.

The City responds, that “would be a strange disclosure.”

114) KPMG notes there is no description of the SEC investigation and that the general terms of the “settlement” should be disclosed.

City responds, yes, we could be on the hook for some big (but unquantifiable) number if the SEC takes enforcement action.

PAT SHEA

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