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WATSONVILLE — The Watsonville City Council and the city of Watsonville on Tuesday decided to mostly disregard a court-ordered independent performance audit of the city that pointed to a number of possibly irresponsible and questionable fiscal practices.

Less than three dozen residents attended the hearing held during the 4 p.m. session of the City Council as it voted 6-1 to approve the city’s response to the audit that, for the most part, it disagreed with it, though did accept some small suggestions.

“There’s always room for improvement, but there are limits based on the city’s resources,” said Ezequiel Vega, finance chief for the city of Watsonville

The audit was requested by the Santa Cruz Grand Jury as a follow-up to its initial investigation of the city, which excoriated Watsonville for creating unacceptable risk for misappropriation of funds regarding its cash-handling policies; providing incomplete, inaccurate and untimely information regarding government functions to the public; possibly misappropriating government funds and more. In its response to the report, the city administration disagreed with all the Grand Jury’s remarks. The City Council’s response was the same as the city’s word for word.

But the Grand Jury was able to persuade Judge Timothy Volkmann to order the audit in June. It was expected to complete in September and had been a secret until Jan. 10. Harvey M. Rose and Associates, a firm that specializes in public sector management consulting, finished the audit and agreed with the Grand Jury.

“The economy does not fully explain the City’s current poor financial condition. A pattern of spending beyond the City’s means, particularly in the case of the General Fund, has contributed to a depletion of the City’s reserves and net assets,” the 72-page audit starts.

“While information on the City’s financial condition can be distilled from reviewing publically (sic) available City documents, such as the City budget and the Comprehensive Annual Financial Report (CAFR), these documents alone do not include either sufficiently accurate or sufficiently analyzed and summarized data to enable the City Council and public to have a full accurate picture of the City’s financial state and trends,” it further reads.

The audit lists many problems with the way the city operates its budget, and the ways in which it has transferred funds within the budget through loans that were not properly paid back. It lists a number of problems regarding over expenditures, particularly for public safety employees’ overtime.

“The City lacks adequate management tools, reports, and resources to ensure expenditures are controlled and that all variances with the budget are clearly disclosed,” the audit reads.

Most alarming is that, according to the audit, prior to 2012, the city had no cash-handling policies and procedure in place, “in spite of the fact that tens of millions of dollars are collected each year Citywide. City staff reports that more such written procedures will be prepared in the near future.”

The audit also found irregularities with the city’s purchase orders, and that the city generally fails to find competitive bids. It also found problems with the way the city charges development impact fees.

“Many are not tied to clearly established standards or clearly linked to documented development-related costs. Some of the uses of these fees do not appear to be growth-induced, as required by State law,” the audit reads.

Auditor Fred Brousseau of Harvey M. Rose was at Tuesday’s meeting to explain the audit. Among his suggestions were that the city create an audit committee for the City Council; that the city create clear policies and procedures regarding its intra-fund loans; adopt a more realistic budget and stick to it; and to revamp the city’s development impact fees. Brousseau said the city’s development impact fees were not consistent with state law.

“There needs to be a basis for each fee that shows it is growth related,” he said.

“It’s an interesting document,” said Mayor Lowell Hurst at the end of the auditor’s presentation. “I know I read every word of it.”

A mild guffaw escaped some members of the audience.

Vega then launched into his presentation that mostly defended the city’s practices. He said the city uses intrafund loans and transfers “just like any other city uses them,” and pointed out where Watsonville compared favorably regarding its expenditures per capita. For instance, Watsonville pays $431 per capita for public safety, whereas in Santa Cruz it is $570 and it is $444 in Gilroy.

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