SAN DIEGO -- Prompted by an audit that accused the city of sloppy bookkeeping, Mayor Jerry Sanders on Monday suggested the City Council refund more than $1 million to San Diego's ratepayer-supported water and wastewater funds.

The company Mayer Hoffman McCann was retained to review financial transactions within the city's water and wastewater funds after a grand jury report questioned the city's use of inter-departmental contracts, known as service level agreements.

"I am pleased to announce that the auditors did not find any evidence of abuse of ratepayer funds or misuse of bond proceeds," Sanders said. "What the audits did find is sloppy bookkeeping and potentially inappropriate charges by the water and wastewater funds totaling $1 million."

The city should return $644,206 to the Water Department's enterprise fund, and $428,692 to a similar account of the Wastewater Department, Sanders said.

The grand jury was critical of the city for using water and sewer funds to subsidize the general fund through the use of service level agreements.

A 2004 10News investigation revealed how service level agreements were used to siphon off money from the water and sewer funds for use at city hall.

Millions of dollars that should have been used to pay for sewer and water system upgrades instead bought boats and popcorn machines.

The city charter mandates that fee-supported Water Department and Metropolitan Wastewater Department enterprise funds can only be used to enhance, maintain and improve the water and sewer systems.

Sanders said he convened a task force to further review the city's use of service level agreements and possibly eliminate the practice.

The agreements questioned by the grand jury have already been stopped, he said.

Among the money transfers from the Water Department to the general fund found in the audit were $280,000 for construction of a day-care facility playground, $238,475 for costs borne by the city's equal opportunity contracting program and $79,629 for lobbying contract expenses.

Another $254,302 came from the Wastewater Department to support the equal opportunity contracting program, according to the audit.

The grand jury called the city's practice of artificially inflating water and wastewater costs to subsidize the general fund for projects unrelated to water and sewer system a "hidden tax" on ratepayers.

Mayer Hoffman McCann looked into the use of increased revenues generated by water rate increases in fiscal years 2003-05, and use of higher income from wastewater rate increases in fiscal years 2002-05, and use of proceeds from the 2003 Water Revenue Bond and 2004 Wastewater Revenue Bond, among other things.

The mayor also said he will implement tighter accounting controls for water and wastewater funds.