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HomeMy WebLinkAbout07-15-2008 Audit Committee MinutesOR \~OD", 0.. :Jl. (1 Minutes AUDIT COMMITTEE MEETING City of Orange - Weimer Room Tuesday, July 15,20083:00 p.m.ATTENDEES: AUDIT COMMITTEE Voting Members)Present David E. Sundstrom CPA, Chair Nancy Loughrey, CPA Dwight Nakata, CPA David Piper, CPA John W. Sibley, City Manager Jeanne Arehart CPA, Internal Audit Mgr.EX- OFFICIO MEMBERS Carolyn Cavecche, Mayor Not Present Denis Bilodeau, Councilmember CITY STAFF Richard Jacobs, Finance Director David Christian, CPA, Assistant Finance Director EXTERNAL AUDITORS Ken AI-Imam, CPA, Partner - Mayer Hoffman McCann P.C. 1. Call to Order: Chairman David Sundstrom called the meeting to order at 3:12 p.m. 2. Approval of Minutes of December 18.2007: Minutes approved as read. 3. Status of 2007-08 Financial Audit: Ken AI-Imam.On-site preliminary procedures are complete. There are new authoritative pronouncements that will affect this year's audit. SAS 114 ( Statement on Auditing Standards) is designed to give more information about the audit process to those charged with governance. SAS 114 defines those charged with governance to be responsible for the strategic direction of the entity being audited. That would be the City Council for the City of Orange. SAS 114 recognizes that when it comes to communicating audit matters, the governing board can delegate to the audit oversight committee, on occasion, if they choose. The party receiving these communications,for the City of Orange will be the Audit Committee. We want to ensure a good communication link between the Audit Committee and the City Council.Eight new risk assessment standards take effect this year. The two biggest areas of impact are: 1) an expanded evaluation of entity-wide control issues and 2) we're required to more rigorously document the linkage between each financial statement,misstatement risk and each key internal control that addresses that risk and the audit steps, and the audit test that speaks to that Weare now required to give the audit committee some general commentary about our audit approach. Here are a couple of examples: 1. There are two primary ways in which we go about performing our audit tests. One of those relies upon internal controls. We also perform tests that directly look for significant error or misstatement. Our tests are done on a spot check type of basis, but with investments, for example, it's very practical for us to confirm every dollar of your cash and investment balances. The financial statements are required to disclose certain matters relating to the risk profile of your investments with respect to their sensitivity to interest rate fluctuations and compliance issues with respect to your own investment policy and state law. 2. Another item to point out is the risk of unallowable transfers between funds. Local governments typically receive restricted monies and one of the risks in a financial statement audit is that monies might be transferred from a restricted fund to an unrestricted fund. We want to make sure that the fund receiving those restricted transferred monies has enough eligible expenditures to cover the amount of the transfer. We are also concerned about grant compliance. The federal government has required us to do a single audit to ensure that your federal funds have been expended in accordance with federal laws and regulations and the State of California has required that we do an audit of compliance with redevelopment agency law. When it comes to other aspects of compliance, we're not doing a compliance audit. What we're doing is a financial statement audit. In our random statistically valid test of expenditures, one of the attributes that we're testing for is to make it clear that when those expenditures are charged to restricted fund, that the underlying supporting documentation for the sample expenditures conforms to the requirements of that funding source. GASB 45 is a new accounting pronouncement that requires that local governments disclose in the financial statements certain actuarial data relating to your actuarial liability for promises made to employees. And under the auditing standards, we're not skilled to perform actuarial techniques but what we do when we receive the actuaries report is we study the report, make sure it conforms to the requirements of GASB 45 and we make sure that the data in your financial statements conform to GASB 45. 4. Status of2007-08 Audit Plan: Jeanne Arehart.Audits completed are a city ordinance that restricts. certain businesses from deriving more than 25% of their income from massage services. It's a zoning issue. As Business Licensing doesn't have a means of controlling/monitoring this, we' re monitoring it through the Police Department in their vice operation. If they see something out of the ordinary, they come to me then we'll look at more specifics.Mayor Cavecche asked which businesses have to comply with the 25% maximum.Jeanne Arehart replied that there are only about 8 that have to comply. They're zoned so that they can only have that percentage. (David Sundstrom asked if there is an audit requirement in our ordinance and how would you look at the books if there's no audit requirement?) Jeanne Arehart responded that we're not required to audit. And that she will check on an answer. TOT Audits: Lance SolI Lunghard performed audits on 18 or 19 businesses. A couple of hotels overpaid and we're paying them back. They found net $8,000 in underpayments including penalties and interest and the cost of the audit was $27,000. When we first started doing these audits, it was the other way around. That's why we only do them every few years. In most of the cases, it has to do with claiming exemptions that aren't valid. A lot of it is an education process in letting businesses know what qualifies as an exemption. The Doubletree was not complete and therefore not included in the report. Our business license group oversees the TOT and they and the business license inspector do a very good job. 5. Miscellaneous Audits: Jeanne Arehart. A review of the City's employee computer loan program was completed. This interest free program was begun approximately 20 years ago. A lot of things have changed during that time. We lowered the amount of an individual loan based on the fact that computers are less expensive. We also put in a provision that loans are not given to probationary employees. It's been a successful program. Several years ago, we hired Liebert & Cassidy to do an audit on our compliance with the Fair Labor Standards Act and we came up with a number of findings. We focused on the high to medium priority items and resolved most of them. There are a couple of issues in the Police Department. We're still working with them in getting their employees to fill out and sign their own time cards. Also, we are working on the process of approving overtime so we can be in compliance as FLSA says you need to pay them in the pay period in which they actually worked the overtime. Audits currently underway: One is a review of the Fire Department's compliance with the ordinance which requires hazard permits and inspections. There were clerical issues which have put them very far behind. They are working diligently to correct those problems. The first thing is for them to get caught up and the second thing is to ensure they are in compliance. In an effort to catch up, they are hiring a temp and are processing a lot of invoices. The main thing is to help them keep this from happening in the future. Also underway is the review of procedures related to reimbursable capital projects which includes grants and cooperative projects. Finance, Public Works and the Internal Auditor are working together to get this squared away. The last review is procedures for tracking the City's computer inventory. Another issue that came up is the issue of cell phone taxability. The IRS says a cell phone is listed property which requires you to keep track of personal use versus business use. Personal business is either reimbursed or you get taxed on it. Weare still deciding on how to deal with this issue. We performed a State audit of our special gas tax money and there were basically no findings. 6. 2008-09 Audit Plan: Jeanne Arehart.Audits in progress which are the reimbursable projects, city computer inventory and the Fire Department's compliance with the fire hazard permit inspections. New audits include Library procedures. They have automated payment machines for paying fines and they want to make sure they have good controls in place. Also, a review of procedures for grant administration in all City departments. We want to ensure good controls so we spend the grant money properly and don't have to give any back and that we're reimbursed in a timely manner. Also underway is the review of Community Services procedures for construction projects. Next is the review of processes and procedures related to the Finance Department's Check 21 processing of utility bill check payments. We scan every check and discard the check after approximately one week. The information is then sent electronically to the bank. We're also reviewing the process for reconciling daily cash receipts from all the different payment methods. Different payment methods make reconciling very cumbersome so we want to make sure we have good controls there. Also underway is a review of policies and procedures for the issuance, use and payment of city issued cell phones. This isn't the cell phone taxability. A couple of follow-up audits are a review of billings to outside agencies for traffic signal maintenance. Another follow-up is a review of the procedures used by some third party contractors for our parking citations, our paramedic billing and worker's comp claims administration.There was discussion regarding the Internal Auditor's temporary assignment in the Finance Department and how long she might be expected to be assigned in Finance.It was relayed that the time should be about 60 days.7. Draft Report to City Council: David Sundstrom The Auditors will be back around the middle of October for the financial audit.They'll do the final field work and we'll get a report around November. This audit is for the prior year.8. Public Comment: There was no public comment.9. Adiournment: The meeting was adjourned at 4:03 p.