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HomeMy WebLinkAboutMINUTES - 08031993 - 1.5 (2) 1 . 50 TO: BOARD OF SUPERVISORS s Contra CostaFROM: •�' Phil Batchelor, County Administrator County DATE: June 15 1993Cum SUBJECT: Response to the 1991-1992 Management Letter SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATION: ACCEPT the Departments ' responses to the 1991-1992 Management Letter. BACKGROUND: The general purpose financial statements of Contra Costa County for the year ended June 30, 1992 were audited by KPMG Peat Marwick, Certified Public Accountants, and a report was issued thereon dated November 13, 1992 . During the audit certain matters involving the internal central structure and other operational matters were presented and discussed with appropriate members of County management. These comments and recommendations are intended to improve the internal central structure or result in other operating efficiencies and were summarized in a December 30, 1992 letter. This report provides a synopsis of these comments and the recommendations and the responses from the appropriate department head. CONTINUED ON ATTACHMENT: YES SIGNATURE: RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE (S): ACTION OF BOARD ON AUG 3 1991 APPROVED AS RECOMMENDED OTHER VOTE OF SUPERVISORS �[ I HEREBY CERTIFY THAT THIS IS A TRUE UNANIMOUS(ABSENT ) AND CORRECT COPY OF AN ACTION TAKEN AYES: NOES: AND ENTERED ON THE MINUTES OF THE BOARD ABSENT: ABSTAIN: OF SUPERVISORS ON THE DATE SHOWN. ATTESTED �AUGUG I+`13 1993 Contact: PHIL BATCHELOR,CLERK OF THE BOARD OF CC: -1- SUPERVISORS AND COUNTY ADMINISTRATOR SEE LAST .PAGE BY ��' DEPUTY COMMENTS/RECOMMENDATIONS: BUDGETARY PROCESS In response to these difficult conditions, the County eliminated some 560 positions including the layoff of over 300 employees in the 1992-93 fiscal year. Because the economy has not shown marked improvement over the past year, it is possible that further reductions in personnel and/or programs will have to be made in the future. Therefore, we urge the County to continue to evaluate its operations in light of these conditions and incorporate their potential impact into the annual operating budget. RESPONSE FROM THE COUNTY ADMINISTRATOR: The County will continue to evaluate its operations in concert with the needs of its citizens, the State budget and economic conditions . COMMENTS/RECOMMENDATIONS: POLICIES AND PROCEDURES INVESTMENT POLICY - REAL ESTATE Beginning in 1990, the Employees ' Retirement Association (ERA) implemented an informal policy to have its real estate properties appraised every two years by an independent appraiser. Subsequent to June 30, 1992, the ERA' s Board amended its investment policy to include a section for real estate .market value declines . Where a property is repeatedly appraised at a value lower than its cost, the Board stated it would consider reflecting the market value in the ERA' s financial statements . Additionally, where the Board has determined that a property will be sold in the near future, the lower of market value or cost would be reflected in the financial statements . With respect to the Board' s policy, we recommend that the ERA be more definitive in its proposed treatment of a situation in which a property is repeatedly appraised at a value below its cost. We support a two year appraisal period in which to re-evaluate the market value of a property. However, a property that has been appraised a second time at a value below its carrying value should reflect the appraised value unless there is persuasive evidence indicating that the property value will recover. Such treatment is consistent with Generally Accepted Accounting Principles . RESPONSE FROM THE RETIREMENT ADMINISTRATOR PAT WEIGERT: The audit comment regarding the Investment Policy for Real Estate has been discussed with both the Auditors and the Retirement Board for the second year. The Board' s Investment Policy was amended in 1992 but was considered too vague by the Auditors and needed to be more specifically addressed. The Retirement Board approved a second modification to their Investment Policy for Real Estate at the regular board meeting on February 9 , 1993 . This modification addresses the Auditor' s recommendation. The Investment Policy is considered by the Board to be a "living" document and will continue to be reviewed and revised on a regular basis . OVERALL COMMENTS : The audit of Contra Costa County covers all the funds of the County, including the Retirement Association. There appears to -2- have been a lack of communication between the County Auditor' s Office, KPMG and Retirement Association Management on an ongoing basis during the past few audits . For the past two years, the Retirement Association seems to be in the dark as to when the audit is in progress, when it is complete and any important deadlines in between. This is usually accomplished during an entrance conference. We suggest that County Management pass this information on to affected departments . At the end of the 1991-1992 Audit, for example, our office was faxed a draft copy of the Management Letter and given 24 hours to respond before it was finalized. This is insufficient time to formulate a response with the appropriate personnel . In spite of the short time frame, a quick reply was faxed to the KPMG Auditors on that occasion. Despite this, no acknowledgement was made by KPMG as to whether the response was considered or ignored. Communication is very important in all aspects of work and life, but it' s critical when dealing with the complicated work product of an audit which crosses department lines . COMMENTS/RECOMMENDATIONS: CLAIM PAYMENTS The County contracts with an outside contractor, Delta Dental, to administer dental claims filed by County employees . We recommend that the County recognize the liability and related expenditure for the dental claims filed by employees through fiscal year-end at the time it receives notification of the claims from the administrator rather than when the claims are paid. Implementation of this procedure will improve the County' s financial reporting. RESPONSE FROM THE RISK MANAGER: Corrective action has been taken by the Benefits Unit to change the account number so that charges will be made directly to the expenditure account at the time checks are drawn. This will be implemented immediately. COMMENTS/RECOMMENDATIONS: ACCOUNTING POLICY AND PROCEDURES MANUAL As nnoted in our previous year' s letter to management, we recommended that the County develop a comprehensive written manual to document its accounting policies and procedures . Although we noted that the County was in the process of compiling such a document, it has not yet been completed. We recommended that the County continue its efforts to develop and complete this manual which addresses the various aspects recommended in our previous year' s letter. RESPONSE FROM THE AUDITOR-CONTROLLER: We would like to continue updating and writing an Accounting . Policies and Procedures Manual . However, the task is hampered by the fact that workload of existing staff precludes assigning an individual to be responsible for the task. The production of an Accounting Policies and Procedures Manual is not a mandated requirement for the Auditor-Controller. Since the County is faced with severe budget cuts, the Auditor-Controller' s Office is evaluating our statutory requirements and the ability to allocate staff to this project. -3- COMMENTS/RECOMMENDATIONS: INTERNAL ACCOUNTING CONTROLS ASSET ACCOUNTABILITY The County Treasurer is responsible for safekeeping and investing the cash of all County funds, school districts, and other entities for which the County is a custodial agent of cash deposits . The County Auditor-Controller's department is responsible for maintaining an accounting system which represents the official accounting records of the County. These records are maintained on the County' s general ledger system. We recommend that the Treasurer reconcile its internal reports to the general ledger on a monthly basis. This reconciliation should be documented in the form of a work sheet in which all reconciling items are explained and supported by proper documentation. Upon completion of the reconciliation, a copy of the work sheet should be forwarded to the Auditor-Controller's department for concurrence with its records . This reconciliation is an important internal control for the County in that it establishes accountability over its liquid assets . Implementation of this procedure will significantly improve the County's internal control structure over cash and investments by helping the County ensure that: ♦ Cash and investments recorded in the general ledger are properly accounted for; ♦ Cash and investments under the control of the Treasurer are properly recorded in the County' s general ledger; ♦ The possibility of misappropriation of assets is significantly reduced. RESPONSE FROM THE AUDITOR-CONTROLLER: We concur with KPMG' s recommendation that the Treasurer' s Office reconcile their internal records to the General Ledger on a monthly basis . RESPONSE FROM THE TREASURER-TAX COLLECTOR: The monthly reconciliation was submitted to the County Administrator and Auditor-Controller. COMMENTS/RECOMMENDATIONS: INVESTMENT ACCOUNT RECONCILIATION The ERA has numerous investments in its portfolio. One such investment is with an international fund (Brinson Partners) . We noted that a reconciliation of this investment account, as recorded in the County' s general ledger, to the monthly investment statement was not performed at year-end. We noted a difference of approximately $3 million between the County' s general ledger and the fund statement. This situation was caused primarily by timing differences that were eventually reconciled when brought to the attention of County management. We recommend that a reconciliation of the international fund account be made between the general ledger and the fund statement on a monthly basis . This reconciliation should be performed by the ERA and may be reviewed by the Internal Audit department during the course of their annual audit of the ERA' s financial statements . -4- Performance of this procedure will ensure that all reconciling differences are addressed satisfactorily and that the investment account is properly stated. RESPONSE FROM THE RETIREMENT ADMINISTRATOR: The comment that a reconciliation of the International Fund (Brinson .Partners) was not performed at year-end is incorrect as stated by the Auditors . Reconciliations are performed on a monthly basis on this account. Since this account is recorded differently from our domestic managers, there are unique procedures that must be followed. It appears that' the main claim was that there wasn't a KPMG ready made statement for them to review. We also feel that the Auditors did not understand that they needed to view an additional account when performing this analysis. Reconciliations are being performed to satisfy Retirement personnel and the County Internal Auditors that this investment is being properly and adequately recorded. Timing differences are not mistakes or errors of omission, they are just differences in time frames . COMMENTS/RECOMMENDATIONS: YEAR-END ACCRUALS We recommend that the County establish a system of controls to ensure that all year-end revenue accruals are reversed in the beginning of the next fiscal year. Implementation of this procedure will improve the accuracy and reliability of the County's financial statements and ensure that they are in conformity with generally accepted accounting principles . RESPONSE FROM THE AUDITOR-CONTROLLER: We will reacquaint pertinent department staff with the procedure and also include accrual reversals as a check list item on the year-end closing schedule which is sent to all departments . COMMENTS/RECOMMENDATIONS: INTERNAL ADJUSTMENTS We recommend that the County address internal adjustments as part of its closing process to ensure that all necessary adjustments are completed prior to commencement of the year-end audit. A comprehensive closing checklist should be used to assist the county in this regard. RESPONSE FROM THE AUDITOR-CONTROLLER: We can improve the accuracy of preliminary reports, but it will require that all departments adhere to the year-end closing schedule and that pertinent information be forwarded to General Accounting. Adjustments that require information produced by external parties cannot be included until the external party completes their work. OPERATIONS ENCUMBRANCES We recommend that the County purge all encumbrances outstanding longer than one fiscal year. The departments which originally established the encumbrance should be notified and allowed to determine whether it should be re-established. This will place the responsibility of determining the validity of the encumbrance on the respective departments, ensuring that only necessary encumbrances are established and that the County makes efficient use of its available resources . -5- RESPONSE FROM THE AUDITOR-CONTROLLER: We agree with this recommendation. At year-end Accounts Payable will notify departments that all encumbrances outstanding longer than one fiscal year will not be re-established unless specifically instructed to do so by the responsible department. RESPONSE FROM THE COUNTY ADMINISTRATOR: We agree that we should be more vigorous in purging encumbrances . Large encumbrances and encumbrances from departments with a projected negative net county cost are examined at the end of the fiscal year. The Audit letter recommendation would expand this to all encumbrances . Such a policy should be supported since it will result in an increase in fund balance in cooperation with the Auditor- Controller: ♦ All 1990-91 and prior year encumbrances will be identified as prime candidates for liquidation; and ♦ The CAO staff will be brought into the process earlier than in the past in order to perform an adequate review. I would expect action to comply with this recommendation to be initiated in April and May and be completed by the end of August. COMMENTS/RECOMMENDATIONS: FINANCIAL REPORTING REPORT PREPARATION The Comprehensive Annual Financial Report represents the culmination of effort on the part of many departments and individuals in the County. This report, which is submitted annually to the Government Finance Officers Association (GFOA) , has received from this organization a certificate of achievement for its excellence in financial reporting for ten consecutive years . In order to qualify for this award, the report must conform with rigorous standards of financial reporting and disclosure. It must also be submitted to the GFOA by December 31 . The receipt or lack of receipt of an award may impact the County with respect to its investment ratings by such investor agencies as Moodys and Standard and Poor. This, in turn, may directly impact the County' s cost of issuing debt.. Therefore, it is important that the County receive this award annually. We recommend that the County evaluate the adequacy and sufficiency of its resources in determining the necessary steps to ensure adequate preparation of its CAFR. RESPONSE FROM THE AUDITOR-CONTROLLER: -The production of the CAFR is not a mandated requirement for the Auditor-Controller. Since the County is faced with severe budget cuts, the Auditor-Controller's Office is evaluating our statutory requirements and the ability to allocate staff to the CAFR process . Contact: Dean Lucas 646-4077 Orig. Dept. : County Administrator cc: Auditor-Controller Risk Manager Retirement Administrator Treasurer-Tax Collector Grand Jury Foreman -6-