Current state and federal laws lack the teeth needed to pursue criminal charges on those counts, said Montgomery County District Attorney Risa Vetri Ferman. The report recommends a list of reforms.
"Everything looked at might have been wrong, but they concluded it was not a crime under current law," she said. "If he had simply come in and told the truth, we would not be here today."
Matthews was arrested Tuesday morning at a Springfield Township, Montgomery County, convenience store and charged with one count each of perjury and false swearing. If convicted of both charges, he faces up to nine years in prison. He has denied the allegations.
After his arrest, Matthews resigned as chairman of the county's three-man governing panel, but said he intended to serve out the rest of his term, which ends this year, as a regular voting member.
"This is totally silly," he said as he was ushered into a courtroom for his arraignment just before noon. He was released moments later on a $50,000 unsecured bond.
His attorney, Tom Egan, described the charges as an unfounded political takedown.
Matthews, brother of MSNBC news host Chris Matthews, has frequently touted the achievements of his administration since announcing he would not seek another term earlier this year.
But the grand jury report paints a unflattering portrait of a dysfunctional county government that often ignored its own procurement policies, recklessly spent taxpayer money, and rewarded political cronies.
Among its findings:
Matthews purportedly spent at least $100,000 on personal credit cards, country club memberships, sporting goods, and rental fees for a car driven for personal use.
He participated in regular breakfast meetings in which he and fellow commissioner Joseph M. Hoeffel III allegedly discussed county business in private before they voted at public meetings.
He and his colleagues failed to follow their own policies in awarding $150 million in open space grants to local communities. In one case, the grand jury found, an award was given before the municipality had even submitted an application.
And policies for awarding government contracts were purportedly ignored several times to favor businesses owned by supporters.
Those contracts included a June 2010 deal worth millions awarded to the Ohio-based company CBIZ to regulate health insurance for county employees. Grand jurors described the contract as a "complete waste of taxpayer money."
But despite that long list of accusations, the grand jury said it felt hamstrung in that none reached the level of a criminal offense under current statute. Matthews never used these purported ethical lapses as a commissioner for personal gain, the panel found.
The questionable campaign expenses were not illegal, it reasoned, because the law only prohibits campaign spending meant as a bribe.
The specific incident that led to Matthews criminal charges stems from his testimony before the grand jury regarding his relationship to a title company hired to handle closings for government land purchases.
Matthews, president of the company Keegan Mortgage, claimed he did not know the owners of Fort Washington-based Certified Abstract when he voted to award it a contract this year.
But prosecutors allege his company did frequent business with Certified and he owned a share in another business with its owners.
"Matthews lied with such ease and frequency that he acted as though, as chairman of the Montgomery County Commissioners, he is above the law," the grand jury report states.
The allegations came as no surprise to fellow Republican Commissioner Bruce L. Castor Jr., a former district attorney who has viciously sparred with Matthews since the pair won election on the same ticket in 2007.
Days before taking office, Matthews announced plans to break with his running mate and form a bipartisan coalition with Hoeffel, the Democratic commissioner. The four years since have been marred by open hostility between Castor and Matthews.
"I hate to say, 'I told you so,' but I told you so," Castor said. "Jim Matthews is a man totally devoid of honesty and integrity and incapable of telling the truth."
Hoeffel did not wholly escape the grand jury's critical eye. The panel took issue with his involvement in the breakfast meetings as well as a vote to revise the county's ordinance governing the contract process. He has not been charged with a crime.
The Democratic commissioner said he had not had a chance to fully review the grand jury's findings Tuesday but was shocked to learn he played a prominent role.
"This sounds like a political document," he said. "Grand juries are very much creatures of the prosecutors who impanel them."
Ferman, the district attorney, acknowledged the awkward position of investigating her fellow elected officials during a news conference Tuesday morning, but maintained she would not have been doing her job had she ignored the allegations. (She previously served as chief prosecutor under Castor.)
First elected to countywide office in 2000, Matthews has been the lone staple in a period that saw a new set of commissioners elected nearly every term. In 2006, he lost a campaign to become lieutenant governor with gubernatorial nominee Lynn Swan.
His preliminary hearing is scheduled for Dec. 16
Contact staff writer Jeremy Roebuck at 267-564-5218, firstname.lastname@example.org, or @inqmontco on Twitter.
Staff writer Bonnie L. Cook contributed to this article.