HomeMy WebLinkAbout09-09-2002 Audit Committee MinutescfOO. (}j1/1
Minutes
AUDIT COMMITTEE MEETING
City of Orange - Weimer Room Monday,
September 9, 2002, 4:00 p.m.ATTENDEES:
AUDIT
COMMITTEE Voting
Members)Present
David
E. Sundstrom CPA, Chair David
L. Rudat, City Manager Jeanne
Arehart CPA, Internal Audit Mgr.Eric
H. Woolery CPA Dwight
Nakata CPA David
Piper Non-
Voting Members)
Present
Carolyn Cavecche, Council Member
CITY STAFF
Helen Bell, Finance Director
Richard Jacobs, Assistant Finance Director
David Christian, Accounting Manager
EXTERNAL AUDITORS
Ken AI-Imam CPA, Partner, Conrad & Associates,
LLP Steven Dobrenen, Conrad & Associates,
LLP Dean Votava CPA, Sr. Mgr., Conrad & Associates,
LLP I. Call to Order - Chairman David Sundstrom called meeting to order at 4: I 0 p.m.
2. Approval of Minutes ofJanuarv 31. 2002 -reviewed and approved as submitted.
3. Update on Transit Occupancv Tax (TOT) Audit - Steven Dobrenen of Conrad and Associates.
The two year audit is nearly complete. Last year there were 10 audits for the
calendar year 2000. This year there were 9 audits for the calendar year 2001 plus one
additional due to an ownership change. Compliance is getting a lot better.Additional
revenues were under $2,000. We should continue auditing on some sort of
cycle due to management turnover and to keep motels/hotels honest.4.
Status of 2001-02 Citv/Agencv Financial Audit - Ken AI-Imam of Conrad and
Associates. September 9 is the first day of the year end audit, and the interim audit
has been completed. During the interim audit, internal controls were reviewed, and
compliance tested with the internal controls by looking at support for transactions.
The investment portfolio was tested for compliance with the investment policy in the
government code. A substantial amount of the single audit compliance testwork is
done. The Finance Department is in very good readiness for the start of the audit.
Last year Conrad & Associates prepared the financial statement and it was the year
that GASB 34 was implemented. This year the financial statement will be prepared
in-house by the Finance Department. Conrad & Associates will be assisting on
that transition as will the prior Accounting Manager who had quite a key role in doing
a lot of prep work for the GASB 34 financials. Last year, II cities in
California implemented GASB 34 and submitted their CAPIR's for both the CSMFO Award
for recognition and the GFOA Award for recognition. One of 5 cities that did
received the award was the City of Orange. The GFOA comments were recently
received regarding their review of the CAPIR. The most serious comment was that we did
not include in the CAPIR a combining schedule for any internal service funds.
The Finance Department has contracted with Berryman & Hinegar to complete
their infrastructure paths. There is also a fiscal inventory being done on furniture
and equipment and Berryman and Hinegar is also completing their work on sewers,
storm drains and
bridges Chair Sundstrom relayed the question asked by Jeanne Arehart as to whether
Conrad will, at a later date, present their recommendation for the frequency on the
TOT audits. We now do them every other year. Sundstrom asked if we might go to
tri-annial or step it back a little bit. Steven Dobrenen said in 2001 the cost was $10,
645 and for the 10 in 2000 it was $13,000. Chair Sundstrom said that absent to
going every third year, we should continue to do this every other. Perhaps the hotels/
motels that pose a problem should be stepped up to make sure they are
continuing compliance, and also when we have a change of ownership. Chair
Sundstrom commended Helen and Jeanne on a fine
job.5. Miscellaneous Audits bv Other Agencies - The 2000-01 single audit report
was reviewed by the State Controller and again, there were no findings and all is
in comformance with OMB circular
A133.6. Status of2001-02 AuditPlan - Jeanne Arehart. A review of the policy procedure
for signature authorization has been implemented. With the 2001-02 audit plan,
the first item was the review of the third party administrator of flexible spending
and that report was submitted at the January meeting. Also, the review of the
third party administrator of worker's compensation claims. The City recently
changed third party administrators. The former third party administrator, Hazel-Rigg
had done a thorough job on their claims administration. It did not go into some of
the areas that auditor wanted to look at such as what internal controls there were
over the joint checking account but it was pretty thorough in all of the other areas.
In talking with the Risk Manager, it was decided to wait and do the audit with
the new administrator with the understanding that if we deem necessary, we can always go
back and audit Hazel-Rigg. However, at this point with the audit that has been
done, it is probably safe to forego that and look at the new third party administrator after
they
get up and runnmg.Regarding review of internal control over
posltJon control, Conrad and Associates has completed the audit. We are in the
was brought today and has not been reviewed by the Auditor at this time. A
final report will be given at the next meeting.
A review of cash controls in the recreation program is currently underway and
should be completed in the next couple of weeks and the draft report issued.
Currently working with personnel Review of the employee evaluation
tracking process. That should be completed with a draft report issued shortly.
Auditor is working with the Finance Department on the review of the controls
of our trust and agency funds and is looking over all those funds and making
sure that the proper reconciliations are done and funds are being used
properly.
The review of segregation of duties between personnel and payroll functions
should really be combined because the review was combined with that of the
internal controls over position control. They are so inter-mixed that
they really became one review. The final report is almost ready to send
out.The draft report is circulating on the use of city vehicles and comments
are being received. It is along the same lines of the signature authorization.
It should be finalized
shortly.In the process of reviewing our processes and policies for monitoring the
use of City
telephones.The waste management contract compliance is both an annual and a
bi-annual audit. The in-house internal audit ensures that Public Works
is in compliance to the contract. This is done annually. We contract out for
certain areas of contract compliance every two years. This will be
done
again next September.A petty cash and cash drop drawer surprise audit was
performed and copies are in the agenda packet. Every department has
responded and remedied whatever the issues were. This is an annual and a
bi-annual audit. We contracted with Diehl-Evans & Company to
do the review of inventory controls at our corp yard, garage and water yard, and
do that review and the draft report. The comments went back to Diehl today
on the draft report after it was reviewed by staff. We will get a final report
in a week or so.The State Department of Finance has been to the City and
is doing an audit of our used oil block grant. We get money from the
state for used oil collection and disposal and they have spent a tremendous
time out here auditing us.We're having an exit meeting with them on Wednesday
and hope to get
7. Approve 2002-03 Audit Plan - Jeanne Arehart. Business licenses are calculated
based on self-reporting of their gross reports. We need to put together some
kind of audit plan where they can be audited to make sure gross receipts are
properly
reported.Review of the fire department's procedures for Issumg permits
for hazardous materials
occupancy.Reviewing department's procedures for reporting overtime on time
cards.Review of internal controls over receipt of redevelopment loan
payments.Review of Ongoing cash
audits.Review of cell phone use. Procedures and controls in place for
monitoring their use as opposed to regular phones. There has been a lot of
discussion on this as it is an area where there can be a lot of abuse if not
monitored.The Waste Management of Orange contract
compliance.Review of cash receipts module of building permit software to
verify accuracy of cash receipts reported versus actual cash
receipts Review Public Works rate and methodology for billing out the use of
City equipment on work
orders.Review of Community Development's Departments process
for calculating and collecting fees on behalf of other departments
and
agencies.Review annual rate increase requests by Waste Mgmt of Orange
County.Contract audit. Will be seeking outside firm to look at compliance
with
FLSA.Annual financial
audit.Review of purchasing
process.TOT
Audit.Chair Sundstrom asked City Manager Dave Rudat if Auditor's 25 hour work
week offers appropriate coverage. City Manager stated he feels it is adequate due to
the expertise of the current Auditor. City Manager suggested a look at the audit
universe at the next meeting, pass it around to the departments, bring it up to date and
present that to the committee the next time we meet. A suggestion was also made to
evaluate. Steven Dobrenen suggested that Auditor get copies of audit plans for other
cities. Jeanne Arehart was commended on a job well done by Chair Sundstrom and
Steve Dobrenen.
8. GAO's New Independence Standards for Entities Receiving Federal Funds - KenAl
Imam of Comad and Associates. The General Accounting Office addresses and
provides audit standards for local governments that receive federal funds.These
new independence rules become effective for the City of Orange for the year
ending June 30, 2004. The new rules have two overarching principles that I)external
auditors cannot perform management functions; 2) they cannot audit their own
work. The old rules that are currently in place are that the external auditors can
provide bookkeeping services as long as they were not having access to assets.
The new rules are much more stringent. They don't want us to monitor our own
work or perform management functions. They are putting out a 70 page document
of questions and answers dealing with practical issues in the implementation
of this new standard. What is prohibited is for us to maintain the accounting
records during the year. One of the areas that will be of interest to this committee
is that they've touched on the area of internal audit. Ken AI-Imam did
a study of the 68 questions that were put out by GAO. They indicate that the
External Auditor can do the TOT Audits. You cannot outsource the internal audit
to your external auditor. Auditor, Jeanne Arehart, is very independent in
developing her audit plan and in managing this area. This committee may want to
early implement these GAO standards. If we ever did become the successful
bidder on any of the services that are being outsourced through external auditing
firms, we would need to make sure that our report was structured in the form of a
performance audit report as well as the GAO employees to let's say be the acting
accounting mgr. We might want to take more conservative tact on that and maybe
not engage in any outsourcing from your independent auditor
9. Audit Committee Meeting Schedule 2002 & 2002 - DavidSundstrom. Financial statements
will be brought to the Audit Committee before they go to Council.The
next meeting is Thursday, December 19 at 4:00 p.m.10.
Receive and File Annual Write Off Report - Jeanne Arehart. All responsible collection efforts
have been made. These are now turned over to collection agencies.11.
Public
Comment There was
no public comment.12. Adjournment -
A motion was made to adjourn the meeting, which was seconded.Motion carried and
David Sundstrom adjourned the meeting at 5: 17 p.m.Approved: December 19,
2002 vn