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HomeMy WebLinkAboutMINUTES - 02262008 - C.93 r 9 TO: BOARD OF SUPERVISORS -=� Contr"'a FROM: INTERNAL OPERATIONS COMMITTEEof 7;ur��� . _� , Costa DATE: FEBRUARY 11 2008 ` County ' STa c----t SUBJECT: 2008 FINANCIAL AUDIT PLAN _ SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATIONS: 1. ACCEPT report from the Auditor-Controller on the financial audit activities in 2007 and the proposed schedule of financial audits for 2008. 2. NOTE that the internal audit staff also spends approximately 25%of its time helping to prepare the County's annual Comprehensive Financial Report (CAFR). 3. ACKNOWLEDGE that the proposed 2008 schedule of audits is more conservative than the 2007 schedule in recognition of the significant number of new audit staff and in anticipation of the retirement of the Chief Auditor in July. 4. RECOGNIZE the ongoing challenge to recruit and retain qualifed staff in a competitive market and under the more rigid and complex auditing and accounting requirements recently adopted by the Governmental Accounting Standards Board. CONTINUED ON ATTACHMENT: YES SIGNATURE: RF 'OMMENDATION OF COUNTY ADMINISTRATOR RF..COMMEN AT NOF BOARD COMMITTEE a/[PPROVE OTHER SIGNATURE(S): + SUSAN A. BONILLA, —H I YLE B. UILKEMA ACTION OF BOARD ONQ— (2e _APPROVE AS RECOMMENDED or ER VOTE OF SUPERVISORS 1 HI REBY CERTIFY THAT THIS IS A TRUE / AND CORRECTCOPY OF AN ACTION TAKEN y UNANIMOUS(ABSENT 0 ) AND ENTERED ON TIME MINUTES OF THE 130ARD OF SUPT KVISORS ON THE DATE AYES:_ NOES: SHOWN. ABSRNT: ABSTAIN: ATTESTED: FEBRUARY 26,2008 CONTACT: JULIE ENI?A(925)335-1077 JOHN CULLEN,CLERK OI'THE BOARD OF SUPERVISORS AND COUNTY ADMINISTRATOR CC: INTERNAL OPERATIONS COMMITTEE STAFF AUDITOR-CONTROLLER B�W— 1 F�1�DEPUTY r 2008.Financial Audit Schedule February 11,2008 Internal Operations Committee Page 2 BACKGROUND: On June 27, 2000, the Board of Supervisors reviewed the County's audit program and directed that each December,the County Administrator and Auditor-Controller report to the Internal Operations Committee on the proposed schedule of internal financial and management audits for the following year, including those studies requested by the Board of Supervisors. Attached is the 2007 status report and the 2008 internal audit plan proposed by Auditor-Controller. Our Committee is very appreciative of the efforts of the Internal Audit Division in completing much of the 2007 audit plan with severely reduced staffing and new hires. For 2008,the Auditor has proposed a more conservative audit schedule in acknowledgement of staffing constraints. The Auditor sets priorities for the audit program by consulting State statutes and County policies, and by conducting risk assessments that consider the amounts and frequency of cash handling. In recognition that many of department audit findings can be remedied through training,the Auditor's Office continues to develop training programs to address common fiscal procedures and control issues. Our committee recommends acceptance of the Auditor's report for 2007 and approval of the audit plan for 2008. Contra Costa County Office Of Stephen J.Ybarra F A � ��.,: . COUNTY AUDITOR-CONTROLLER Auditor-Controller _ .. . Elizabeth A.Verigin Assistant Auditor-Controller 625 Court Street Martinez, California 94553-1282 Telephone (925) 646-2181 Fax (925) 646-2649 February 11, 2008 TO: Internal Operations Committee FROM: Stephen J. Ybarra, Auditor-Contro 1 By: Tim Ernst, CPA, Chief Auditor SUBJECT: Annual Report on the Financial Audit Program The Board of Supervisor's directive of June 27, 2000, requires the Auditor-Controller to report to the Internal Operations Committee on the proposed schedule of financial audits for the following year. The attachment, "2008 Schedule of Audits", provides the audit schedule for 2008, and summarizes the status of the audit projects that were scheduled for completion in 2007. Status of 2007 Audit Schedule The Internal Audit division completed several scheduled audits including the Municipal Advisory Committees (MACS) and the District Attorney's Office, which previously were not audited by Internal Audit staff. The scheduled audits not completed in 2007 either are in progress or rescheduled to begin this year. During the summer of 2006, four auditors were hired. The 2007 audit schedule was aggressive and developed to maximize staff resources and expand the breadth of audit projects. However, of the four auditors hired in 2006, all but one tenninated employment mid-year and replacements were not hired until August of 2007. 2008 Audit Schedule The Chief Auditor and Assistant Auditor-Controller have performed a thorough review of existing, reoccurring audit projects and potential new projects. Although the 2008 Audit Schedule is conservative compared to the 2007 Audit Schedule, it allots time for the development and training of new staff and recruitment for a new Chief Auditor (Tim Ernst, Chief Auditor, is leaving at the end of July, 2008). This year's schedule also includes, for the first time, an audit of the "Transient Occupancy Tax" for one hotel. This tax is a revenue source for the County and is reported by each hotel. The objective of the audit is to test the integrity of the"self-reporting"by.auditing a sample hotel. I of 2 _ t Internal Operations Committee Annual Report on the Financial Audit Program February 11, 2008 The County's financial operations also are subject to audits by independent external auditors. Presently, the firm Capporicci &Larson is responsible for performing an annual audit of the County's general-purpose financial statement, Redevelopment Agency, Public Financing Authority, and Public Facilities' Corporation. Caporicci & Larson also perform the annual "Single Audit"of the County's federal financial-assistance programs.' Other outside auditors conduct annual audits of the Contra Costa County Employees' Retirement Association, Housing Authority, State grant programs, and the First Five Contra Costa Children and Families' Commission. In addition to performing financial audits, the Internal Audit Division is responsible for preparing the County's Comprehensive Annual Financial Report (CAFR) and providing assistance to County departments and the County's external auditors. The CAFR process consumes approximately three months of staff time. In order to prepare the CAFR, the audit staff must possess advanced-level accounting skills and in-depth knowledge of the requirements of the Government Accounting Standards Board and Government Finance Officers' Association. The Internal Audit Division also is the chief coordinator of the "Single Audit performed by the County's external auditor. Recruitment and Retention It is increasingly difficult to recruit and retain qualified staff. Primarily, this is due to a competitive market (supply and demand) and more rigid, complex auditing and accounting requirements. The Human Resources Department has informed our Office that a survey was conducted to determine the proper compensation for County accountant and auditing staff, however, our Office has not yet received the results of that survey. 2 of 2 ' Recent changes to the Statement on Auditing Standards (S'A,S) issued by the American Institute of Certified Public Accountants (AICPA) will affect the reporting of internal control deficiencies included in the annual external auditor report for the County. �� I � I � III ! I ! I jlll ! lil ! jllliil i TIN Tco iI � , I � IIIII � IIICD En II V I = !v I iol ► I i o i c:> c:, g !oio ' I to 0 0 0 jM M f'1 M m II Ia I I IyINI I Ixl ! ! j I x ' ixlx!xlx 'xx 'xjxixi j I !x 'xjxx � It, I I m ! I Cl) l i I of cI o c of of of o ' c of o j i c ' I o o 'o o , UI-w V U U � ,U� I U ' IU U U �U ,� IU I I IU UIUIU r un rA 3 CIC IO.IOIO . IOI ,O 100 OIOIpI� Ip 1— i— O I. OIO O O J Q �rC�rr N !� i :I•d- N M M Cl M C .. 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CD lzt lzt C5 co cn 00 I 0 C14 CO rj t C5 IL Cl) ch 4r, W, Qj ; � � I I i i o U°I c �N i� l I l j � l l LLJ 1 CAP) I zt CD it Cl. 88 I Imo . 42, I. > u Tz. I.< ,Yw • New Auditing Standard issued by the Accounting Standards Board of the American Institute of Certified Public Accountants (AICPA): Communicating Internal Control Related Matters Identified in an Audit (Summarized excerpts from the Standard) This statement lowers the threshold for reporting of f ndings with the objective of alerting the users of the financial statements to the potential for misstatements due to an inadequate internal control. The new standard requires the auditor to communicate, in writing, to management and those charged with governance, significant deficiencies and material weaknesses identified in an audit. The term those charged with governance is defined as "the person(s) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting and disclosure process." In most entities, governance is a collective responsibility that may be carried out by a board of directors, a committee of the board of directors (for example, an audit or legislative oversight committee), a committee of management (for example, a finance, budget, or governmental agency executive committee), partners, equivalent persons, or some combination of these patties. In some smaller entities, management and those charged with governance may be the same people. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. The significance of a control deficiency depends on the potential for a misstatement, not on whether a misstatement actually has occurred. Accordingly, the absence of identified misstatement does not provide evidence that identified control deficiencies are not significant deficiencies or material weaknesses. Each of the following is an indicator of a control deficiency that should be regarded as at least a significant deficiency and a strong indicator of a material weakness in internal control: ❑ Ineffective oversight of the entity's financial reporting and internal control by those charged with governance.Not having sufficient expertise in selecting and applying accounting principles. ❑ Restatement of previously issued financial statements to reflect the correction of a material misstatement- due to error or fraud ❑ Identification by the auditor of a material misstatement in the financial statements for which the auditor identifies likely material adjustments and corrections of the recorded amounts. (Even if management subsequently corrects the misstatement.) ❑ Identification of fraud of any magnitude on the part of senior management ❑ Failure by management to assess the effect of a significant deficiency previously communicated to them and either correct it or conclude that it will not be corrected. (Prior audit recommendations). ❑ An ineffective control environment. (This refers to the `tone at the top': control consciousness, integrity, ethical values, competence-the foundation of internal control, providing discipline and structure). See attached Appendix that was part of the Auditing Standard Controller's Office Audit Division AUDIT ALERT' New Auditing Standard issued by the Accounting Standards Board of the American Institute of Certified Public Accountants (AICPA): Communicating Internal Control Related Matters Identified in an Audit (Summarized excerpts from the Standard) APPENDIX Examples of Circumstances That May Be Control Deficiencies, Significant Deficiencies, or Material Weaknesses The following are examples of circumstances that may be control deficiencies, significant deficiencies, or material weaknesses [not a complete list]. Deficiencies in the Design of Controls ❑ Inadequate design of internal control over the preparation of the financial statements being audited. ❑ Inadequate design of internal control over a significant account or process. ❑ Inadequate documentation of the components of internal control. ❑ Insufficient control consciousness within the organization, for example,the tone at the top and the control environment. ❑ Absent or inadequate segregation of duties within a significa►it account or.process. ❑ Absent or inadequate controls over the safeguarding of assets (this applies to controls that the auditor determines would be necessary for effective internal control over financial reporting). ❑ Inadequate design of information technology(IT)general and application controls that prevent the information system from providing complete and accurate information consistent with financial reporting objectives.and current needs. ❑ Employees or management who lack the qualifications and training to fulfill their assigned functions. For example, in an entity that prepares financial statements in accordance with generally accepted accounting principles, the person responsible for the accounting and reporting function lacks the skills and knowledge to apply generally accepted accounting principles in recording the entity's financial transactions or preparing its financial statements. ❑ Inadequate.design of monitoring controls used to assess the design and operating effectiveness of the entity's internal control over time. ❑ The absence of an internal process to report deficiencies in internal control to management on a timely basis. Failures in the Operation of Internal Control ❑ Failure in the operation of effectively designed controls over a significant account or process, for example, the failure of a control such as dual authorization for significant disbursements within the purchasing process. o Failure of the information and communication component of internal control to provide complete and accurate output because of deficiencies in timeliness, completeness, or accuracy. ❑ Failure of controls designed to safeguard assets fi-om loss, damage, or misappropriation. ❑ Failure to perform reconciliations of significant accounts. ❑ Undue bias or lack of objectivity by those responsible for accounting decisions or overstatement of allowances at the direction of management. ❑ Misrepresentation by client personnel to the auditor(an indicator of fraud). ❑ Management override of controls. ❑ Failure of an application control caused by a deficiency in the design or operation of an IT general control. Controller's Office s Audit Division AUDIT ALERT.