A critical audit released Friday found struggling History San Jose has been swimming in red ink because of weak financial management, fanciful fundraising goals and limited efforts to reduce expenses.

The Macias Consulting Group audit recommends the San Jose City Council grant the non-profit a relatively modest subsidy increase of $717,113, spread over the next four years in decreasing amounts. The audit also said History San Jose should reprioritize staffing to reduce personnel costs by 17 percent while adding employees who can manage finances and fund-raising.

History San Jose officials called the audit unfair and say the city needs to raise its subsidy to $1.2 million a year - more than three times the amount called for in its contract for the next several years - plus cost-of-living increases.