BEPOBT. CITY COUNCIl. Item 27 ACTION - BACKGROUND ANALYSIS & ASSESSMENT. Meeting Date: August 25, Development of the Audit Plan

Transcription

1 Item 27 CITY COUNCIl BEPOBT Meeting Date: August 25, 2015 Charter Provision: Provide for the orderly government and administration ofthe affairs ofthe City Objective: Adopt Annual Audit Plan ACTION - Adoption of the City Auditor's Fiscal Year 2015/16 Audit Plan. Consider and approve the City Auditor's FY 2015/16 Audit Plan, as recommended by the Council's Audit Committee at its June 22, 2015, meeting. BACKGROUND Scottsdale City Charter establishes the City Auditor as a Council-appointed officer and City Code provides parameters for operation of the City Auditor's Office. The Office was established to independently evaluate the operational efficiency and effectiveness, compliance and accountability of City departments, offices, boards, activities and agencies. The Office conducts its audits in accordance with generally accepted government auditing standards, which provide a framework for conducting high quality audits with competence, integrity, objectivity and independence. City Code also establishes an Audit Committee of three City Council members appointed by the Mayor with the approval of the Council. Councilwoman Suzanne Klapp is currently serving as the chair; Councilmembers Virginia Korte and Kathy Littlefield are serving as committee members. At least annually, the City Auditor is required to submit to the Audit Committee for its review and recommendation an Audit Plan listing the areas to be audited. The City Auditor is then to submit the recommended Audit Plan to the Council for its review and approval. The City Auditor presented potential audit topics for the FY 2015/16 Audit Plan at the Audit Committee's March 16 and May 18, 2015, meetings. On June 22, 2015, the Audit Committee reviewed and approved the proposed FY 2015/16 Audit Plan (Attachment 1) for recommendation to the Council. ANALYSIS & ASSESSMENT Development of the Audit Plan The City Auditor's office has implemented a Risk Assessment Model to inform its annual audit planning process. This model, designed to facilitate evaluation of City activities for prioritization, assesses factors such as the following: Size and significance, such as full time equivalent positions, revenues or expenditures, and critical nature of the function. Action Taken _

2 Known significant changes to a program, related legal requirements or key information systems. Performance measures; safety and liability measures; known Council, management and/or public interest; accessibility and reliability of financial and/or operational reports. Mitigating factors, such as external agency reviews or recent City audits. Proposed Plan for FY 2015/16. As listed in Table 1, the FY 2015/16 Plan proposes 14 audits or projects, including completing one audit from the FY 2014/15 audit plan, which is currently underway. Table 1. FY 2015/16 Proposed Audit Plan Audit/Project Division/Department Ongoing from FY 2014/15 Audit Plan: 1 Selected Construction Contract - Scottsdale Road Improvements (Phase 1) Public Works Recurring: 2 FY 2014/15 External Financial & Compliance Audits - Contract Citywide Follow-up on Status of Audit Recommendations Citywide 4 Cash Handling Controls and Accountability Citywide 5 Integrity Line Citywide Proposed: 6 Development Fees Contracted Audit Water Resources 7 Special Event Contracts Tourism & Events ^ SCADA Network Contracted Audit Water Resources 9 Preserve Operations Community Services 10 Human Resources Compliance Programs Administrative Services 11 McCormick-Stillman Railroad Park Community Services 12 Preventative Repairs and Maintenance Public Works 13 Transit Service Contracts Transportation 14 Human Services Information Controls Community Services Other: 1. Taxpayer Problem Resolution Officer 2. Sunset Reviews support: Building Advisory Board of Appeals Board of Adjustments Environmental Quality Advisory Board Historic Preservation Commission Human Relations Commission 3. Audit Risk Model maintenance 4. Special Requests during the Audit Plan year Page 2 of 5

3 In addition to audits and related projects, the City Auditor serves as the City's Taxpayer Problem Resolution Officer (TPRO) and supports the Audit Committee's sunset reviews of the City's boards and commissions. As TPRO, the City Auditor reports quarterly on taxpayer surveys regarding the quality of service provided by the City's tax-related functions. Additionally, the TPRO may issue a taxpayer assistance order that suspends or stays an action that causes a taxpayer undue hardship due to the manner in which the City's tax laws are being administered. In supporting the Audit Committee's sunset review process, the City Auditor notifies the scheduled boards and commissions in advance of their upcoming review dates and gathers their annual reports and supplemental information forthe Audit Committee's review. Status of FY 2014/15 plan. Table 2 provides the status of last year's plan. A total of 16 reports were completed and presented to the Audit Committee and 6 Sunset Reviews were supported. Table 2. Status of FY 2014/15 Audit Plan Audit/Project Report Issued 1 Scottsdale Stadium Lease Agreements September Boys & Girls Clubs Lease Agreements September FY 2013/14 Financial & Compliance Audit November Police Overtime December 2014 Procurement Policies and Practices December City Court's Compliance with Minimum Accounting Stds January 2015 ' Disaster Recovery/Business Continuity March Library Business Operations May Controls Over Surplus Property Dispositions May Contracted Network Security Assessment June Fairmont Scottsdale Princess Lease Agreement June Photo Enforcement Contract June Review of Super Bowl/Open Overtime June Peer Review of City Auditor's Office June FY 2014/15 Report on Integrity Line June FY 2014/15 Follow-Up on Audit Recommendations June Selected Construction Contract In Progress Sunset Reviews 1 Parks & Recreation Commission September McDowell Sonoran Preserve Commission November Development Review Board January Planning Commission January Neighborhood Advisory Commission May Library Board June 2015 Page 3 of 5

4 Historical trend of Audit Plan completion. Table 3 illustrates the Office's productivity trends over the last several years. Table 3, Historical Trend of Audit Plan Completion and Staffing Fiscal Audits/Projects Year Planned Completed Staff 2005/ / / / * 2009/ * 2010/ * 2011/ / / t 2014/ * April 2009, staffing level reduced to 7 PTEs. Further, during FYs 2011/12 and 2012/13, two extended staff absences occurred, so actual staffing was approximately 5 and 6 PTEs, respectively. The Special Events/Off Duty Coordination audit was completed during FY 2009/10, but issued in FY 2010/11. t March 2014, staffing level reduced to 6 FTEs. Salary savings will be used to contract for specialized IT audits. RESOURCE IMPACTS Available funding The adopted FY 2015/16 budget for the City Auditor's Office provides $873,324 and 6 FTE, which includes the City Auditor and 5 professional audit staff. The budget includes contractual services funding for the FY 2014/15 financial and compliance audits and other planned contracted audits. Staffing, Workload Impact The FY 2015/16 Audit Plan includes 14 planned audits or related reports, such as follow ups on prior audit recommendations. This proposed Audit Plan is achievable based on the Office's funding, staffing, experience levels and productivity. The staff has extensive knowledge of City operations as well as advanced degrees and certifications such as Certified Public Accountant, Certified Fraud Examiner, Certified Internal Auditor and Certified Law Enforcement Auditor. Cost Recovery Options FY 2014/15 audits identified approximately $3 million in potential financial impact and recommended ways to improve controls and accountability over various activities. It is expected that the proposed audits for FY 2015/16 may also identify some potential cost savings or revenue enhancements. Page 4 of 5

5 OPTIONS & STAFF RECOMMENDATION Prior to plan approval, the Council can direct the addition or deletion of any proposed audit. The Audit Plan may be amended during the year after review by the Audit Committee. Additionally, the City Auditor may initiate and conduct any other audit deemed necessary or as directed by the Council. At its June 22, 2015, meeting, the Audit Committee reviewed and approved the proposed FY 2015/16 Audit Plan. Recommended Approach Approve the FY 2015/16 Audit Plan as proposed. Description of Option B Modify the FY 2015/16 Audit Plan and approve the modified plan. RESPONSIBLE DEPARTMENT City Auditor's Office STAFF CONTACTS Lai Cluff, Senior Auditor, LCIuff(5)ScottsdaleAZ.gov Sharron Walker, City Auditor, SWalkerOScottsdaleAZ.gov APPROVED BY sharron Walker, r. City Auditor Date , SWalker(5)ScottsdaleAZ.gov ATTACHMENT 1. Proposed Audit Plan for FY 2015/16, with the planned audit objectives. 2. Audit Committee draft minutes for June 22, 2015, meeting. Page 5 of 5

6 City Auditor PROPOSED FY 2015/16 Audit Plan Brought forward from FY 2014/15 Audit Plan 1. Selected Construction Contract - Review the procurement, compliance with terms and contract administration of a selected City construction contract. [Scottsdale Road Improvements (Phase 1) has been selected.] Recurring 2. External Financial/Compliance Audits - The City's Charter requires the City Council to designate a CPA firm to perform an independent audit of the City's annual financial statements, with the audit reports to be submitted to the Council. The City Auditor's office will coordinate the external audit firm's contract and reports to the Audit Committee and the Council. These audits include the City's Comprehensive Annual Financial Report and Single Audit as well as state-required reports (Annual Expenditure Limitation, Highway User Revenue Fund (HURF) compliance) and the Municipal Property Corporation, Scottsdale Preserve Authority, and Community Facilities District annual financial reports. 3. Follow-up on Status of Audit Recommendations - Review, assess and report on the status of management's corrective actions taken in response to prior audit findings and recommendations. This review, implemented in late 2009, is now required by City Code. 4. Cash Handling Controls and Accountability - At selected City locations, review cash-handling processes and controls for effectiveness and compliance with administrative regulations. These reviews are performed on a time-available basis during the fiscal year. 5. Integrity Line - Investigate tips provided through the City Auditor's fraud, waste and abuse hotline and annually report on the results. Proposed 6. Development Fees Contracted Audit - Contract for the state-mandated audit of the City's development fees. 7. Special Event Contracts - Evaluate compliance with terms and effectiveness of controls in City's bed tax-funded special event contracts. 8. SCADA Network Contracted Audit - Using contracted services of a specialist, evaluate the network security and management of the Water Resources SCADA system. This information system is a key control point for water services. 9. Preserve Operations - Evaluate Preserve operations and sustainability. Although having a relatively low risk rating, this area has not been audited since its inception. 10. Human Resources Compliance Programs - Evaluate compliance with City's driver's license and fingerprinting programs. 11. McCormick-Stillman Railroad Park - Evaluate controls over and accountability for park operations. 12. Preventative Repair and Maintenance - Evaluate the City's preventative repair and maintenance program, including costs and controls. 13. Transit Service Contracts - Evaluate compliance with terms and effectiveness of controls established in the City's transit contracts. We have not audited transportation-related contracts since Human Services Information Controls - Review the Human Services information controls, particularly security management and information system access, to protect personally identifiable information. ATTACHMENT 1

7 Contingency 15. Information Technology Contracted Audit - Contract with a specialist for follow up on network security vulnerability assessment or additional audits ofthe City's information technology management. This audit would be contingent on availability of funds, with SCADA audit being a higher priority. 16. Street Overlay and Maintenance - Evaluate the current status and effectiveness of the street overlay and maintenance program. 17. Fleet Parts Inventory Controls - Evaluate controls over and accountability for Fleet parts inventory. 18. Office Supply Contract - Review compliance with terms of the City's office supply contract. Other cities have identified noncompliance issues in past audits. Other: o o Taxpayer Problem Resolution Officer - quarterly and annual reports; required by the City's Tax Code (Scottsdale Revised Code Appendix C, Art. V 515 and 516). Sunset Reviews (support): Building Advisory Board of Appeals - August 2015 Board of Adjustments - August 2015 Environmental Quality Advisory Board - September 2015 Historic Preservation Commission -January 2016 Human Relations Commission - April 2016 Audit Risk Model maintenance Special requests during the Audit Plan year