HomeMy WebLinkAboutMINUTES - 06091992 - 1.56 THE BOARD OF SUPERVISORS OF CONTRA COSTA COUNTY, CALIFORNIA
Adopted this Order on June 9, 1992, by the following vote:
AYES: Supervisors Powers, Fanden, Schroder, Torlakson, McPeak
NOES: None
ABSENT: None
ABSTAIN: None
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SUBJECT: 1991-1992 Grand Jury Reports
The Board received report Number 9217, dated
May 21, 1992, from the 1991-1992 Contra Costa County Grand Jury
Foreman with respect to the External Audit of Contra Costa County;
And report Number 9206, dated May 28, 1992 , with
respect to Replacement of Merrithew Memorial Hospital.
IT IS BY THE BOARD ORDERED that the aforementioned
reports are ACKNOWLEDGED and REFERRED to the Internal Operations
Committee and the County Administrator.
I hereby certify 'rlai this is a true and correct copy of
an action tais'.n and en!ered on the minutes of the
Boarr' of ,S.up rvij
on the date shown.
ATTESTED: ��-
PHIL BALOR,Clerk of the Board
of Supervand County Administrator
cc: County Administrator
Internal Operations Committee gy _ - - .Deputy
Grand Jury
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A REPORT BY
THE 1991-92 CONTRA COSTA COUNTY GRAND JURY
1020 Ward Street
Martinez, CA 94553
(510) 646-2345
Report No. 9206
REPLACEMENT OF MERRITHEW MEMORIAL HOSPITAL
We commend the Health Services Administration, the County
Administrator and the Board of Supervisors for a job well-done.
Approved by the Grand Jury: /� t `
Date: � tau�.ICJS�
Clyde Parkhurst ^�
Grand Jury Foreman
Accepted for Filing: _
Date:
ames R. Trembath
Judge of the Superior Court
•'t
SECTION 933 (c) OF THE CALIFORNIA PENAL CODE.
Sec. 933. Findings and recommendations; com-
ment of governing bodies, elective officers,
or agency heads
(c) No late;than 90 days after the Viand jury submits
a final repot on the operations of any public agency
subject to its reviewing authority, the governing body of
the public agency shall comment to the presiding judge of
the superior court on the findings and recommendations
pertaining to matters under the control of the governing
body, and every elective county officer or agency head.for
which the =and jury has responsfoility pursuant. to
Section 914.1 small comment within 60 days to the
presiding judge of the superior court,with an infor=don
copy sent to the board of supervisors,on the findings and
recommendations pertaining to matters under the control
of that county officer or agency head and any agency or
agencies which that officer or agency head supervises or
controls. In any city and county, the mayor shall also
comment on the findings and recommendations. All
such comments and reports shall forthwith be submitted
to the presiding judge of the superior court who impan-
eled the grand jury. A copy of all responses to grind
Jury reports shall be placid on file with the clerk of the
public agency and the office of the county clerk, or the
'mayor when applicable, and shall remain on file in those
offices. One copy shall be placed on file with the
applicable grand jury final report by, and in the control
of the currently impaneled grand jury, where it shall. be
maintained for a minimum of five years. (Added by
Starz 1961, c 1284, § 1. Amended by Start 1963, c 674,
11. Start 1974, c 393, § 6,• Stant 1974, c. 1396, § 3;
Stats 197 7, t 107, § 6,• Stars 1977, c 187, § 1: Stats
1980, c 543, § 1; Stars 1981, c 203, § 1; Stars 198? r-
1408,
1408, § 5, Start 1985, c 221, § 1; Start 1987, c 690,
§ 1; Stats 1988, c 1297, § I)
Former § 9_3, added by Scats.1982, c. 1403. § 6, amended by
Stats-1985.c.1-11,§ 2.operative Jan. 1, 1989,was repeaied by Stats.1987,
c 690, § 2.
Fortner § 933, added by Stam1959, c 501. § 2, was repealed by
Sm&1959, c. 1812, § 3.
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SUMMARY:
The approval by the Board of Supervisors on March 2, 1992 to proceed with building a
replacement for Merrithew Memorial Hospital (County Hospital) followed years of debate
and commissioned studies. The hospital will have 144 beds and architectural plans
include provisions for future expansion. Full financing was obtained with federal and
state funds. By enlisting broad community support for a new hospital, the County Health
Services Department (HSD) has succeeded in acquiring a vital resource for the future of
Contra Costa County.
FINDINGS:
1. State law mandates that the County "...relieve and support all incompetent,
poor, indigent persons, and those incapacitated by age, disease, or accident..."
• As the state-mandated "Provider of last resort..." County Hospital must
provide services for those persons without sufficient medical financial
support.
• "This aging facility has seen its day,"was a statement made by a State
official when citing County Hospital for lack of compliance with current
physical standards, and is an apt summary of several studies made over
the years to consider upgrading or replacing.
• These studies all conclude that replacement is the only reasonable
alternative open to the County.
2. In 1987, the Health Services Department formed an oversight committee to
determine the feasibility of replacing County Hospital. The Committee was
composed of a broad spectrum of professionals and volunteers concerned with
health and community issues.
3. A proposal was made in 1989 to build a 175-bed replacement hospital at a cost of
$124 million, plus costs of financing.
• The County Administrator found the maximum debt capacity was
inadequate to fund this replacement.
4. In March, 1992, after three major revisions to reduce facility size and cost, the
Health Services Director and the County Administrator submitted for Board
approval a scaled-down 144-bed facility, along with increased contracting with
District hospitals and additional use of clinics. Project cost of the hospital is
$81.8 million, plus financing costs.
• -State and federal funding have been located for full construction costs of
the hospital. No County funds will be required.
• The proposal was approved by the Board of Supervisors and design is
proceeding.
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CONCLUSIONS:
1. County Hospital should be replaced.
2. The Health Services Administration, the County Administrator and the Board of
Supervisors have worked diligently through many years of detailed studies to
support the need for replacement of the hospital as well as increasing the use
of contracting with other hospitals and adding clinics in other areas of the
County. Especially outstanding is the work of obtaining financing that will not add
an additional burden to scarce County funds.
RECOMMENDATIONS:
The 1991-92 Contra Costa County Grand Jury recommends that:
1. The Health Services Administration, the County Administrator and the Board of
Supervisors continue to operate in the manner so ably demonstrated by their
diligence and professional competence toward the goal of providing health care
to those who most need these services.
COMMENT:
We commend the Health Services Administration,the County Administrator and the
Board of Supervisors for a job well-done.
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156
A REPORT BY
THE 1991-92 CONTRA COSTA COUNTY GRAND JURY
1020 Ward Street
Martinez, CA 94553EBOARD
(510) 646-2345 ISORS
,
REPORT NO. 9217
EXTERNAL AUDIT
OF CONTRA COSTA COUNTY
APPROVED BY THE GRAND JURY:
DATE:
CLYDI PARKHURST
GRAND JURY FOREMAN
ACCEPTED FOR FILING:
DATE:.
(JA�IES R. TREMBATH
L OGE OF THE SUPERIOR COURT
SECTION 933 ( c) OF ME CAL-[FORNIA PENAL CODE
Sec. 933. Findings and rectmmendations; com-
ment of governing bodies, elective officers,
or agenc_r heads
(c) No late;than 90 days after the -.-na jury submits
a final report on the operations of any public agency
subject to its reviewing authority, the _overaing body of
the public agency shall comment to the presiding judge of
the superior court on the findings and rer^tamendations
pertaining to matters unde- the control of the ;overning
body, and every elective county officrr or aswcy head for
which the pand jury has res-consfbiliry pursuant to
Section 914.1 shall cotnxent within 60 days to the
presiding judge of the superior court, with an information
copy sent to the board of supe±visors, on the fadings and
recommendations perainiag to matters under the control
of that county ofn-c=or agency herd and any agency or
agencies which that otncer or agency head supervises or
controls. in any city and county, the mayor shall also
comment on the findinsts and recommendations. All
such comments and resorts shall.forthwith be submitted
to the presiding judge of the superior court who impan-
eled the grand jury. A copy of all responses to grand
,jury reports shall be placed on file with the cleric of the
public agency and the omcr of the county clerk, or the
-mayor when applicable, and shall remain on file in those
offices. One copy shall be placed on file with the
applicable gr..nd jury final report by, and in the control
of the cjrr--tly impaaeld grand jury, when it shall be
maintained for a minimuT of five years. (Added by
Stars 1961, a 1284, ¢ 1. Amended by Stam 1963, c 674,
� 1: Sra=1974, c 393, J 6,- Stars197., G 1396, § 3:
Stats 1977, c 107, § 6: Stag 1977, c 18Z � 1: Stam
1980, c 543, ¢ 1. Srars 1981, c 203, 3 1: St=198? c
1408. § S: Stars 1985, a 221, ¢ 1: Star+1987, c 690,
¢ 1: Stats 1988, c 1297, J 5.)
Former § 933. added by Sm=1987, c. 1403. § 6. amended by
Stats.1985,c.'.1. Z.Qperative Jan. 1. 1989,was rpealed by Stats1987,
C. 690. § 2.
Farmer § 953, added by Stats.1959, c. 501. § was repealed by
Statt.1959. c 1812 § 3.
EXTERNAL AUDIT
OF CONTRA COSTA COUNTY
SUMMARY
The Grand Jury accepts the audit report by KPMG Peat Marwick and
concurs with the observations and recommendations given in the
Management Letter of February 5, 1992 (copy attached) . However,
the Grand Jury emphasizes that accounting adjustments made
preparatory to the external audit were excessive and recommends
that procedures be developed by the County Auditor-Controller to
correct this deficiency.
FINDINGS•
1. A total of 27 journal entries totaling $130 million were
required prior to audit and publication of the County' s
financial statements. While some of these entries were
part of the year-end closing process, many were
substantive and should have been handled on a current
basis. The number of such year-end audit adjustments for
year ending June 30, 1991 almost doubled from prior years
and served to delay the audit process.
2 . Bank reconciliations for the First Choice account were
not prepared on a timely basis and these reconciliations
are used as a source for original accounting entries.
This caused misstatement of related financial reports as
well as a lowering of accounting control over the cash
account.
CONCLUSIONS•
1. The number of pre-audit accounting adjustments required
for release of year-end financial statements is
excessive. Procedures should be improved so that
adjustments are currently recorded as normal business
practice and not as a part of a pre-audit adjusting
process.
2 . Bank account reconciliations should be made currently.
Proper source documents should be relied upon as the
basis for accounting entries.
RECOM14ENDATIONS:
The 1991-92 Contra Costa Grand Jury recommends that the County
Auditor-Controller:
1. Modify and improve procedures to eliminate the need for
substantive year-end pre-audit adjustments. Any and all
necessary closing adjustments or consolidations should be
performed prior to commencement of the 1991-1992 audit.
2 . Insure timely reconciliation of all bank accounts. Use
appropriate source documents to support accounting
entries.
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KPMG Peat Marwick
Certified Public Accountants
2121 No. California Blvd.. Suite 840
Walnut Creek. CA 94596-3572
February 5, 1992
CONFIDENTIAL
The Honorable Grand Jury
The Honorable Board of Supervisors
County of Contra Costa, California
We have audited the financial statements of the County of Contra Costa as of and for the
year ended June 30, 1991, and have issued our report thereon dated November 13, 1991.
In planning and performing our audit of the financial statements of the County of Contra
Costa, we considered its internal control structure in order to determine our auditing
procedures for the purpose of expressing our opinion on the financial statements and not to
provide assurance on the internal control structure. However, we noted a matter involving
the internal control structure and its operation that we consider to be a reportable condition
under standards established by the American Institute of Certified Public Accountants.
Reportable conditions are matters coming to our attention that, in our judgment, relate to
significant deficiencies in the design or operation of the internal control structure and could
adversely affect the organization's ability to record, process, summarize, and report
financial data consistent with the assertions of management in the financial statements. Our
consideration of the internal control structure would not necessarily disclose all matters in
the internal control structure that might be reportable conditions.
The reportable condition, which has been discussed with the appropriate members of
management, relates to the Employees' Retirement Association's employee data base:
The Board of Retirement is responsible for maintaining a database of all current and former
employees covered by the County's pension plan. This database is used by the County's
actuary to calculate the annual pension benefit obligation and contribution rates for the
following year. Annually, specific data from the County's payroll database is extracted
onto a separate computer tape by the County's data processing department which is then
forwarded to the actuary. In this instance, the criteria used to extract the salary information
from the database was incorrect. The impact of this error was to understate the covered
payroll by approximately $10 million and the pension benefit obligation by approximately
$25 million or 2.2% of the total pension benefit obligation.
We recommend the Retirement Association establish the following procedures:
• Review the information contained in the data tapes for completeness and accuracy
prior to their submission to the actuary;
• Reconcile the Retirement Association's payroll information to the County's records
on an annual basis in order to determine the existence of any discrepancies;
AFORF Marwick
The Honorable Grand Jury
The Honorable Board of Supervisors
County of Contra Costa, California
February S, 1992
Page 2
• Review the actuary's draft report to ensure that the information being used in the
calculations agree to the Retirement Association's records.
• Internal audit should perform procedures to assure data which is sent to the actuary
agrees to the employee personnel files.
Implementing these procedures will result in a more accurate actuarial calculation of the
pension benefit obligation and contribution rates.
This condition, which we noted, was considered in determining the nature, timing, and
extent of the audit tests applied in our audit of the 1991 financial statements, and this report
does not affect our report on these financial statements dated November 13, 1991. We
have not considered the internal control structure since the date of our report.
Although not considered to be reportable conditions, we noted certain observations and
recommendations over the existing internal control structure which we would like to bring
to your attention, these are included in the attached letter.
This report is intended solely for the information and use of the Grand Jury and
management of Contra Costa County.
Very truly yours,
BUDGETARY PROCESS
The State of California and the entire country continue to face an economic recession, and
the outlook for improvement is unknown. The impact of this recession has been felt by all
levels of government including the County of Contra Costa_
The County's budgetary process is dependent upon many factors, including the state of the
economy, the ability of State and Federal governments to provide funds, and the County's
ability to contain costs. The current economic conditions may impact property values and
business operations which, in turn, will impact the County's collection of property and
sales tax revenues. Because of the difficult financial position that both the State and
Federal governments are in, funding of various County-run programs may be reduced or
eliminated altogether. It is imperative that the County continue its focus on the potential
impact of these factors on its operations and to incorporate their effect into the annual
operating budget.
POLICIES AND PROCEDURES
INVESTMENT POLICY-REAL ESTATE
We noted that the Retirement Association does not have an investment policy relating to the
accounting of temporary or permanent declines in the market value of real estate. Given the
current real estate market, the likelihood of declines in real estate market values is greater
than usual.
We recommend that the Retirement Association incorporate into its official investment
policy guidance on what constitutes a temporary decline in real estate versus what
constitutes a permanent decline. The accounting treatment for a decline considered
permanent should be specifically addressed.
PENDING LITIGATION
The County faces numerous lawsuits which can favorably or unfavorably affect the
County's operations. Litigation considered to have an unfavorable outcome should be
recorded as a liability at the time a loss is estimable. We noted a couple of lawsuits which
individually could have a significant impact on the County. The first is a land condemnation
case involving the real estate used in building the West County Jail_ During the audit, it
was discovered the County needed to record an additional liability of approximately $8.3
million to accurately account for this pending case. Additionally, there is pending litigation
involving Pacific Bell which currently is not anticipated to have an unfavorable outcome;
however, if the facts and circumstances change, this case could have a significant impact on
the County's operations.
We recommend the offices of the County's Auditor-Controller and County Counsel work
closely to assess the outcome of all pending litigation. For all cases considered to have an
unfavorable outcome an estimated liability should be recorded and evaluated quarterly as to
its accuracy. Continuing analysis of pending litigation will enhance the County's ability to
provide accurate financial informarion.
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ACCOUNTING PROCEDURES MANUAL
At present, accounting procedures and policies are not documented in a written manual.
Although employees are familiar with the accounting procedures in general, a manual
would serve to supplement their knowledge and would be especially useful during periods
of transition and for cross-training of various accounting positions. We understand that
such a manual is being compiled and should be completed by the end of the year.
We recommend that documentation of such policies and procedures be completed and
should include but not be limited to:
• A chart of accounts containing adequate explanation of the account's purpose, use
and content;
• Documentary flowcharts and detailed procedures of significant accounting systems
including purchasing and disbursements, revenue and receipts, and payroll;
• A list of standard forms used by the County with detailed explanations of their
purpose and preparation;
• Appropriate descriptions of all financial policies and accounting procedures and
routines regarding , but not necessarily limited to, the following:
1. Monthly review of internally generated reports;
2. Policies related to cash including the preparation of bank reconciliations, controls
over cash disbursements and cash receipts;
3. Purchase and capitalization of fixed assets and related procedures for calculating
depreciation thereon;
4. Reserves for doubtful accounts and/or related bad debt write-offs (for Enterprise
Funds).
This accounting manual should be updated periodically and should be distributed to or
made available to all accounting personnel. The manual should be changed as needed to
meet the needs of the County and should provide an accurate account of the current
accounting system. Preparation of an accounting manual will provide a tool for
consistency in the application of accounting and management policies,clarity in accounting
responsibility, and effective training of accounting personnel.
DEPRECIATION ON CONTRIBUTED CAPITAL
The County receives capital grants from the State of California for its proprietary funds.
According to the Governmental Accounting and Financial Reporting Standards section
G60 and NCGA Statement 2, revenues of this type should be recorded as nonoperating
revenues if the grants are not restricted as to their use. For grants restricted to acquiring or
constructing capital assets, the receipts should be recorded as contributed capital.
Depreciation recognized on any such capital assets should be included in the accumulated
depreciation account. The amount of depreciation on contributed capital should be shown
as an increase to retained earnings and a reduction of contributed capital.
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Historically, the County has not recorded depreciation on contributed capital as a increase
to retained earnings, therefore we recommend that the County change its depreciation
policy to conform to the accounting and reporting standards.
FIXED ASSETS
We noted that General Accounting does not maintain its own records of fixed asset
additions and deletions for the Airport Enterprise Fund. Rather, this information is
maintained and recorded to the general ledger by the Cost Accounting department which is
not under the control of General Accounting.
We recommend that accounting for the Airport Fund's fixed assets be performed by the
General Accounting department, and such records should be maintained in the general
ledger on an ongoing basis throughout the year.
INTERNAL ACCOUNTING CONTROLS
SAFEGUARDING UNUSED CHECKS
The Treasurer's office maintains a checkbook for recording cleared warrants on one of its
accounts with Bank of America. The checkbook contains register slips, which are used to
record information as the warrants clear the bank. We noted that all treasury employees
have access to the checkbook and the blank checks.
We recommend that the Treasurer's office use a separate log for recording cleared warrants
and that blank checks be kept under the control of designated personnel. This change will
enhance control over cash by preventing the possibility of unauthorized access to cash and
reduce the potential for misappropriation of County assets.
BANK RECONCILIATIONS
We noted that bank reconciliations for the First Choice account were not prepared on a
timely basis. This was apparently due, in part, to a shortage in staffing in the payroll
department. Since the County updates it general ledger cash accounts only after bank
reconciliations have been performed, the cash account was overstated by the amount of
checks cleared during this period.
Reconciliations between the bank statement and the general ledger should be performed
monthly. Timely and accurate bank reconciliations will improve accounting control over
the cash account by highlighting all reconciling items and resolving any discrepancies.
Further, the cash account will be properly stated and enhance management's ability to make
informed decisions.
JOURNAL VOUCHERS
We noted a number of journal vouchers were mis-posted to the general ledger. Some of
these mis-posting resulted in year-end audit adjustments.
We recommend that all journal vouchers be reviewed by a person independent of and,
preferably, senior to the person preparing the voucher. A secondary review will reduce or
eliminate errors in posting to the general ledger and result in more accurate and reliable
financial statements.
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INVENTORY
The department of Community Services expenses inventory at the time of purchase and,
thus, does not capitalize the unused amounts.
The County should track the inventory activity on a monthly basis and reconcile the account
to the actual amounts and quantities on hand at the end of the year. Proper accounting for
inventory will improve financial reporting and enhance the control over assets.
YEAR END AUDIT ADJUSTMENTS
Several audit adjustments were required to be made to the County's financial statements
prior to completion and publication in its comprehensive annual financial report. The
number of adjustments made was higher than normally expected in a year end audit. Such
adjustments were required for various reasons, as discussed in other sections of this letter.
We recommend that the Office of the County—Auditor Controller evaluate the source and
cause of such adjustments and consider modifying the year end closing procedures in the
future. The closing procedures should contemplate the adjustments required as well as
other aspects of its operations. Such procedures should be performed prior to
commencement of the year end audit
PUBLIC FACILITIES CORPORATION
Information contained in the financial statements of the Public Facilities Corporation
relating to the defeasance of debt did not agree with the information supplied to us by the
debt trust administrator.
We recommend that the County review the financial statements of the Public Facilities
Corporation and ensure that all information contained in the financial statements is accurate.
Although an independent accounting firm is responsible for the preparation of the report,
the County assumes responsibility for both the accuracy of the reported information and the
completeness and accuracy of any related disclosures. Therefore,it is important the County
communicate their approval of any financial statements prior to issuance.
SHORT-DOYLE
Although not engaged to specifically report on the Short-Doyle mental health program, we
reviewed the "County of Contra Costa Short-Doyle Cost Report" for the year ended June
30, 1990, as audited by another independent certified public accounting firm, and wish to
bring to your attention that certain reportable conditions matters were noted in their report.
For further detail of any particular matter, we direct you to their audited report. We
recommend that management review their findings and implement corrective action plans.
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