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HomeMy WebLinkAboutMINUTES - 05181993 - 1.45 THE BOARD OF SUPERVISORS OF CONTRA COSTA COUNTY, CALIFORNIA Adopted this Order on May 18 , 1993 by the following vote: AYES: Supervisors Powers, Smith, Bishop, MCPeak, Torlakson NOES: None ABSENT: None ABSTAIN: None ------------------------------------------------------------------ ------------------------------------------------------------------ SUBJECT: 1992-1993 Contra Costa County Grand Jury Reports The Board on this day received reports dated May 5 , 1993 , from the 1992-1993 Contra Costa County Grand Jury. Report No. 9307 "Contra Costa County Alternate Defender Office" ; Report No. 9306 "Status of the County Fleet Management" , and Report No. 9310 "KPMG Peat Marwick Audit Report" . IT IS BY THE BOARD ORDERED that the aforementioned reports are ACKNOWLEDGED and REFERRED to the County Administrator and the Internal Operations Committee. I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Boar+of Supervig4rs on the date shown. CC: CountyAdministrator ATTESTED: PHIL BATCHELOF Jerk of the Board Internal Operations Committee of Supervisors and C unty Administrator Grand Jury / Deputy " RECEIVE-D P' ( 11993 CLERK BOARD OF SUPERVISORS A REPORT BY CONTRA COSTA CO. THE 1992-93 CONTRA COSTA COUNTY GRAND JURY 1020 Ward Street Martinez, CA 94553 (510) 646-2345 Report No. 9310 KPMG PEAT MARWICK AUDIT REPORT Approved-by the Grand Jury: Datej5-ftV LT &4L.>nnemarie Gol in' Grand Jury Fo man Accepted for Filing: Date: �j Richard S. Flier Judge of the Superior Court cc: BOARD MEMBERS (Provided) E =PIVIG Peat Marwick Certified Public Accountants 2121 No. California Blvd.. Suite 840 Telephone 510 943 1555 Telefax 510 946 0371 Walnut Creek. CA 94596-7304 December 30, 1992 CONFIDENTIAL The Honorable Grand Jury The Honorable Board of Supervisors County of Contra Costa,California We have audited the general purpose financial statements of the County of Contra Costa for the year ended June 30, 1992, and have issued our report thereon dated November 13, 1992. In planning and performing our audit of the general purpose 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 general purpose financial statements and not to provide assurance on the internal control structure. We have not considered the internal control structure since the date of our report. During our audit we noted certain matters involving the internal control structure and other operational matters that are presented for your consideration. These comments and recommendations, all of which have been discussed with the appropriate members of management, are intended to improve the internal control structure or result in other operating efficiencies and are summarized in the attached letter. Our audit procedures are designed primarily to enable us to form an opinion on the general purpose financial statements and, therefore, may not bring to light all weaknesses in policies or procedures that may exist. We endeavor, however,to use our knowledge of the County's organization gained during our audit to make comments and suggestions that we hope will be useful to you. We would be pleased to discuss these comments and recommendations with you at any time. This report is intended solely for the information and use of the Grand Jury, Board of Supervisors and management of Contra Costa County. Very truly yours, c KPMGPeat Marwick 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 GAAP. CLAIM PAYMENTS The County contracts with an outside contractor,Delta Dental, to administer dental claims filed by County employees. The administrator submits a detail of the claims received during the month to the County. The County then remits to the administrator the amount of claims payable. Upon actual payment of the claims by the administrator,a confirmation of payment notice is sent to the County at which time the expenditure is recognized in the accounting records. The expenditures related to claims reported as of June 30, 1992 were not recognized in the financial statements. 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. ACCOUNTING POLICY AND PROCEDURES MANUAL As noted 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 recommend that the County continue its efforts to develop and complete this manual which addresses the various aspect_-,recommended in our previous year's letter. 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. In fulfilling this responsibility,the Treasurer is authorized to invest these monies in time deposits, bankers' acceptances, securities, mortgages, repurchase and reverse repurchase agreements. The Treasurer is able to identify the ownership of its investments, by fund, through the use of a sophisticated computer software system that generates a report indicating the respective ownership interests. 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. This system reports all of the assets, liabilities, revenues and expenditures of the County including cash and investments held by the Treasurer. We noted that a periodic reconciliation between the Treasurer's internal records and the County's general ledger is currently not performed. -3 - KPMGi Peat Marwick INTERNAL ADJUSTMENTS We noted the Auditor-Controller's department made a number of"post-closing" accounting adjustments and reclassifications to the financial statements. These adjustments were primarily an extension of the closing process which prepares the financial statements for audit and publication in the Comprehensive Annual Financial Report. We noted,however, a significant decrease in the number and dollar value of audit adjustments from the previous year. 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. OPERATIONS ENCUMBRANCES The County uses a system of encumbrances to reserve fund balance for goods and services for which it has a legal commitment. The encumbrance is relieved upon receipt of the invoice and an expenditure and payable is established. The County has a policy whereby encumbrances outstanding at the end of the next fiscal year are automatically purged from the purchasing system and the fund balance is released. A report is produced that details the encumbrances that were deleted. The Accounts Payable department is responsible for researching the status of these encumbrances and determining if they should be re- established into the system. An effort is made to obtain input from the departments in making this determination; however, in the absence of their response, the encumbrance is re-established This situation could potentially result in the unnecessary reservation of fund balance which could otherwise be used by the County to fund other needed expenditures. 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. 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 -5 - / ys RECEIVED CLERK BOARD OF SUPERV►SORS CONTRA COST4 CO. A REPORT BY THE 1992-1993 CONTRA COSTA GRAND JURY 1020 Ward Street Martinez, California 94533 (510) 646-2345 REPORT No. 9306 STATUS OF THE COUNTY FLEET MANAGEMENT 'Office space, arrangement of service areas, and obsolete or outmoded machinery and technology at the Shell Avenue site prevent efficient operations." Approved by the Grand Jury: Date: 5 /Y14•`r 9" Annemarie Gold Grand Jury F� Accepted for Filing: Date. t Richard S. Flier Judge of the Superior Court cc: BOA RU-P ERS3ERS (Provided) 10 • r` Summary ,1 Fleet Management is a division of the Contra Costa County General Services Department. It currently operates on an annual budget of$6,000,000. A comparison of the budget with fleet service operations in other counties and cities in California suggests this figure to be higher than the established norms. Shortcomings were noted in accounting systems, short and long-term planning, the vehicular replacement budget, diagnostic and service equipment, accuracy of parts inventory and controls, productivity objectives, and a lack of modem time-saving methodology. It is the opinion of the Grand Jury that many of these deficiencies are caused by maintaining the garage in an unsuitable and antiquated facility that was not designed for its present use. The Grand Jury found that the Fleet Management does not practice prudent fiscal planning because of a diminished source of funds and an inability to stay abreast of the newest developments in the field of government-operated fleet service. Findings 1. The annual budget for Fleet Management is in excess of$6,000,000, and is produced by charging other departments for the services it provides. 2. Fleet Management employs 28 persons and is responsible for repair and service of over 400 County-owned automobiles and 700 other units which includes trucks, road building machinery, and generators. 3. The budgets of individual general-funded departments are established by the managers of those departments, based on the prior fiscal year's experience and projections of expenses for the coming year. The service and maintenance costs of department-owned vehicles are included in the department budgets, but the amount of money is determined and spent by the managers of Fleet Management as vehicle service is provided. 4. Accounting practices do not include depreciation schedules for the funding of replacement of high mileage and aging vehicles. Depreciation schedules were established and commensurate funds retained on more recently purchased sheriff department vehicles,but the fund was appropriated by the County Administrator in the last budget cycle to offset the loss of state funds. 5. More than 75 percent of the vehicles owned by the County have over 100,000 miles of service according to staff testimony. Page 2 1' • Some oil changes are made without use of hoists or auto lifts and require that mechanics crawl under the vehicles. • On the day of inspection, the parts room was cluttered with parts and equipment was scattered on the floor. 13. Contrary to industry standards and prudent business practice, the responsibility for ordering, receiving, and maintaining parts inventory is not separated among stock room personnel. • A poor key control system results in lost time and additional charges while mechanics look for them. • Stock balances are not reviewed to establish minimum/maximum balances for each item. • The computer program for tracking costs, repairs, service history, and schedules of maintenance on individual vehicles is outdated. An upgraded program, although funded in 1991, is not yet on line. 14. Fleet Management has been located in the same inadequate building for over 40 years. 15. The County is negotiating for the sale of the present site of the Fleet Management garage- 16. Architectural Services are in the planning stages of a new garage to be located on presently owned County property. Conclusions 1. Individual departments are penalized with increased vehicle costs when the Fleet Management garage takes longer than the estimated-time to complete repairs, or if a vehicle is returned to the garage because the repairs were not properly done. 2. There is no incentive for the Fleet Garage to operate in the most modem or cost-effective manner when vehicles belong to other departments and charges to those departments are increased by delays in accomplishing repairs and service. 3. The high mileage of fleet vehicles adds dollars to the cost of upkeep and repair. Page 4 I �.1 8. Explore alternative providers for the routine oil change and service of vehicles by Fleet Management mechanics. Page 6 A REPORT BY THE 1992-93 CONTRA COSTA COUNTY GRAND JURY 1020 ward Street �EC�'�E® Martinez, CA 94553 (510) 646-2345 MAY 12 19M CLERK BOARD OF SUPERVISORS Report No. 9307 CONTRA COSTA CO. CONTRA COSTA COUNTY ALTERNATE DEFENDER OFFICE Approved by the Grand Jury: Date: Annemarie Gol in Grand Jury F an Accepted for Filing: Date: Richard S. Flier Judge of the Superior Court cc: BOARD MEMBERS (Provided) CAO 0 CGS. CONTRA COSTA COUNTY ALTERNATE DEFENDER OFFICE Report 9307 BACKGROUND: In criminal court cases wherein there is more than one defendant, circumstances exist which would create a conflict of interest. When one defense attorney represents two or more defendants, an alternative criminal defense system must be present. An example of the circumstances necessitating this alternative criminal defense system would be when two or more defendants are charged in one case and one of the defendants agrees to testify against the other(s). In Contra Costa County, until recently, the alternative defense need for indigent defendants was addressed exclusively by the courts through the appointment of private attorney members of the local bar association to represent them. The private attorneys' fees were paid by Contra Costa County. In the latter part of 1991, the Contra Costa County Office of Public Defender established an Alternate Defender Office (ADO). The positive theory of the Alternate Defender Office was to provide a legally sufficient, effective and ethical defense mechanism which would be available to indigent defendants in the Contra Costa County defense system at a lower cost to the taxpayers. An economy of expenditure with a balanced maintenance of service quality was and is particularly important during this time of fiscal shortfall for all public agencies. Systemically, the ADO is composed of county-employed attorneys who are assigned cases which cannot be defended by the regular Public Defender attorneys because of conflict of interest. Private attorneys are still utilized in this program, but to a lesser degree than in the past. A need still exists in some cases of conflict of interest which may involve both the Office of the Public Defender and the ADO. The operations of the ADO are directed by branch supervisors, who exercise sole control in decision making as it affects tactics, direction of attorneys and allocation of most resources in the conduct of the cases assigned to the ADO. An office manager reports.to the Public Defender. 1 5. The legal concept of "ethical walls" which had its etiology in the case of Castro v. Los Angeles County Board of Supervisors (1991) 232 Cal. App. 3d 1432, is a subject of debate among public and private attorneys. The public attorneys of the Office of Public Defender argue that the concept is valid for a public defender's office ADO program. Private attorneys argue that it is inappropriate in the present circumstances. An ADO program has existed for some time in San Diego County, but apparently no case decisions have arisen which would nullify the implementation of "ethical walls" in the structure of an ADO program like Contra Costa County's. 6. On April 1, 1993, Presiding Judge Richard L. Patsey ruled under Section V. of his.decision: Disposition The motion by Conflicts Amicus to strike brief and declarations is denied. The Court finds that James-Nolan have met their burden of proof that the architecture of the indigent criminal defense system in Contra Costa County does not create a substantial risk nor does it support the inference that any represented defendant in that system is denied due process of law, nor denied his or her Sixth Amendment right to counsel by virtue of that system. Were the matter to proceed to a trial, the likelihood that James and Nolan will not prevail on the merits is negligible. CONCLUSIONS: 1. Thus far, the ADO program has proven cost-effective and capable of conserving scarce public resources while providing a professional level of public service. 2. There is presently no known legal restriction, either statutory or in case law which impedes the implementation of an ADO program. 3. The ADO program, still in its infancy in Contra Costa County, needs to be monitored for an extended period in order that a longer-range evaluation can be made of its efficiency and continuing cost-effectiveness. 3 RECEIVE® MAY 1 1 1993 CLERK BOARD OF SUPERVISORS CONTRA COSTA CO. A REPORT BY THE 1992-1993 CONTRA COSTA GRAND JURY 1020 Ward Street Martinez, California 94533 (510) 646-2345 REPORT No. 9306 STATUS OF THE COUNTY FLEET MANAGEMENT "Office space, arrangement of service areas, and obsolete or outmoded machinery and technology at the Shell Avenue site prevent efficient operations." Approved by the Grand Jury: Date: Z9 0yp + Annemarie IFI Grand Jury F� an Accepted for Filing: Date. Richard S. Flier Judge of the Superior Court CC: BOARD-MEMBERS (Provided) CAO 10 • Summary Fleet Management is a division of the Contra Costa County General Services Department. It currently operates on an annual budget of$6,000,000. A comparison of the budget with fleet service operations in other counties and cities in California suggests this figure to be higher than the established norms. Shortcomings were noted in accounting systems, short and long-term planning, the vehicular replacement budget, diagnostic and service equipment, accuracy of parts inventory and controls, productivity objectives, and a lack of modem time-saving methodology. It is the opinion of the Grand Jury that many of these deficiencies are caused by maintaining the garage in an unsuitable and antiquated facility that was not designed for its present use. The Grand Jury found that the Fleet Management does not practice prudent fiscal planning because of a diminished source of funds and an inability to stay abreast of the newest developments in the field of government-operated fleet service. �ndinas 1. The annual budget for Fleet Management is in excess of$6,000,000, and is produced by charging other departments for the services it provides. 2. Fleet Management employs 28 persons.and is responsible for repair and service of over 400 County-owned automobiles and 700 other units which includes trucks, road building machinery, and generators. 3. The budgets of individual general-funded departments are established by the managers . of those departments, based on the prior fiscal year's experience and projections of expenses for the coming year. The service and maintenance costs of department-owned vehicles are included in the department budgets, but the amount of money is determined and spent by the managers of Fleet Management as vehicle service is provided. 4. Accounting practices do not include depreciation schedules for the funding of replacement of high mileage and aging vehicles: Depreciation schedules were established and commensurate funds retained on more recently purchased sheriff department vehicles,but the fund was appropriated by the County Administrator in the last budget cycle to offset the loss of state funds. 5. More than 75 percent of the vehicles owned by the County have over 100;000 miles of service according to staff testimony. Page 2 t• • Some oil changes are made without use of hoists or auto lifts and require that mechanics crawl under the vehicles. • On the day of inspection, the parts room was cluttered with parts and equipment was scattered on the floor. 13. Contrary to industry .standards and prudent business practice, the responsibility for ordering, receiving, and maintaining parts inventory is not separated among stock room personnel. • A poor key control system results in lost time and additional charges while mechanics look for them. • Stock balances are not.reviewed to establish minimum/maximum balances for each item. • The computer program for tracking costs, repairs, service history, and schedules of maintenance on individual vehicles is outdated. An upgraded program, although funded in 1991, is not yet on line. 14. Fleet Management has been located in the same inadequate building for over 40 years. 15. The County is negotiating for the sale of the present site of the Fleet Management garage. 16. Architectural Services are in the planning stages of a new garage to be located on presently owned County property. Conclusions 1. Individual departments are penalized with increased vehicle costs when the Fleet Management garage takes longer than the estimated time to complete repairs, or if a vehicle is returned to the garage because the repairs were not properly done. 2. There is no incentive for the Fleet Garage to operate in the most modem or cost-effective manner when vehicles belong to other departments and charges to those departments are increased by delays in accomplishing repairs and service. 3. The high mileage of fleet vehicles adds dollars to the cost of upkeep and repair. Page 4 8. Explore alternative providers for the routine oil change and service of vehicles by Fleet Management mechanics. Page 6 RECEIVED MAY 1 1 1993 CLERK BOARD OF SUPERVISORS , A REPORT BY I CONTRA COSTA CO. THE 1992-93 CONTRA COSTA COUNTY GRAND JURY 1020 Ward Street Martinez, CA 94553 (510) 646-2345 Report No. 9310 KPMG PEAT MARWICK AUDIT REPORT Approved-by the Grand Jury: Dater#Uw'qar nnemarie �Fo lds m Grand Jury man Accepted for Filing: Date: Richard S. Flier Judge of the Superior Court cc: BOARD MEMBERS (Provided) AUDIT REPORT-KPMG-PEAT MARWICK Report No. 9310 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 December 20, 1992 (copy attached). However, the Grand Jury emphasizes that the prompt completion of the Comprehensive Annual F'mancial Report (CAFR) must be assured. FINDINGS: 1. The Government Finance Officers' Association (GFOA) is a professional organization that issues Certificates of Achievement (COAs) for excellence in financial reporting by various governmental agencies. 2. The COAs are considered by the financial institutions that establish financial ratings for various businesses and other organizations. 3. A high financial rating allows the various organizations to have better access to and a lower rate of interest for borrowed funds. 4. To qualify for a COA, financial reports must be submitted on or before December 31. 5. Contra Costa County has received a COA Certificate from GFOA for the past ten years. CONCLUSION: Failure to submit the financial report to GFOA before the end of the year could ultimately result in a lower financial rating for the County. A lower rating restricts the ability of the County to attract needed funds and would increase the cost of borrowing funds. RECONEIIENDATION: The _1992-93 Grand. Jury recommends that the County Administrator work with the Auditor/Controller to insure the timely completion of the Comprehensive Annual Financial Report. If necessary, the assignment of additional personnel should be considered to assist in accomplishing its tunely completion. 1 WitM36" Peat Marwick Certified Public Accountants 2121 No. California Blvd.. Suite 840 Telephone 510 943 1555 Telefax 510 946 0371 Walnut Creek, CA 94596-7304 December 30, 1992 CONFIDENTIAL The Honorable Grand Jury The Honorable Board of Supervisors County of Contra Costa,California We have audited the general purpose financial statements of the County of Contra Costa for the year ended June 30, 1992, and have issued our report thereon dated November 13, 1992. In planning and performing our audit of the general purpose 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 general purpose financial statements and not to provide assurance on the internal control structure. We have not considered the internal control structure since the date of our report. During our audit we noted certain matters involving the internal control structure and other operational matters that are presented for your consideration. These comments and recommendations, all of which have been discussed with the appropriate members of management, are intended to improve the internal control structure or result in other operating efficiencies and are summarized in the attached letter. Our audit procedures are designed primarily to enable us to form an opinion on the general purpose financial statements and, therefore, may not bring to light all weaknesses in policies or procedures that may exist. We endeavor, however, to use our knowledge of the County's organization gained during our audit to make comments and suggestions that we hope will be useful to you. We would be pleased to discuss these comments and recommendations with you at any time. This report is intended solely for the information and use of the Grand Jury, Board of Supervisors and management of Contra Costa County. Very truly yours, ©ay Area Practice KPMG,Peat Marwick BUDGETARY PROCESS During the 1992-93 fiscal year, the State of California experienced significant difficulties in balancing its budget. The State implemented a realignment program which transferred a portion of property tax revenues from California counties to school districts in addition to reducing funding of various other programs. Additionally, the effects of the state and local economic recession have driven property values down causing a decrease in the growth rate of property tax revenues from the previous years. For the year ended June 30, 1992, the County's General fund had an operating deficit of approximately $10 million reducing its ending fund balance 24% from the previous year to$41.5 million, In response to these difficult economic 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_ POLICIES AND PROCEDURES INVESTMENT POLICY-REAL ESTATE We noted in the previous year that the investment policy of the Employees' Retirement Association (ERA)did not address how to account for temporary or long-term declines in the market value of its real estate investments. We also noted that the likelihood for a decline in market values has increased given the current condition of the real estate market. Our review of the real estate investments this year indicated that one of the portfolio properties had suffered an impairment which was deemed to be other than temporary. The total carrying value of real estate investments at June 30, 1992 was$74.4 million with a market value of $67 million. For the fiscal year ended June 30, 1992, the County recorded a loss of$2.5 million on one of its investment properties to reflect a decline in the market value of the property below its carrying value. An additional $1.35 million was recorded to reflect the decline in value of another property which was in the process of being sold. Generally Accepted Accounting Principles (GAAP) specify that long-term investments whose values have been impaired should consider whether the impairment is a temporary condition. If the impairment is determined to be other than a temporary condition--not necessarily permanent--a write-down of the investment is required Beginning in 1990, the 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. -2 - KPMG'Peat Marwick 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 GAAP. CLAIM PAYMENTS The County contracts with an outside contractor,Delta Dental, to administer dental claims filed by County employees. The administrator submits a detail of the claims received = during the month to the County. The County then remits to the administrator the amount of claims payable. Upon actual payment of the claims by the administrator, a confinnation of payment notice is sent to the County at which time the expenditure is recognized in the accounting records. The expenditures related to claims reported as of June 30, 1992 were not recognized in the financial statements. 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. ACCOUNTING POLICY AND PROCEDURES MANUAL As noted 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 recommend that the County continue its efforts to develop and complete this manual which addresses the various aspects recommended in our previous year's letter. 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. In fulfilling this responsibility,the Treasurer is authorized to invest these monies in time deposits, bankers' acceptances, securities, mortgages, repurchase and reverse repurchase agreements. The Treasurer is able to identify the ownership of its investments, by fund, through the use of a sophisticated computer software system that generates a report indicating the respective ownership interests. 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. This system reports all of the assets, liabilities, revenues and expenditures of the County including cash and investments held by the Treasurer. We noted,that a periodic reconciliation between the Treasurer's internal records and the County's general ledger is currently not performed. -3 - KPMG1Peat Marwick 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 worksheet in which all reconciling items are explained and supported by proper documentation. Upon completion of the reconciliation, a copy of the worksheet should be forwarded to the Auditor-Controllers 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. 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. Performance of this procedure will ensure that all reconciling differences are addressed satisfactorily and that 0 the investment account is properly stated. YEAR-END ACCRUALS We noted two revenue accruals made at the end of the 1990-91 fiscal year which were not reversed during 1991-92 fiscal year. This resulted in an overstatement of revenues and accounts receivable. The first accrual related to supplemental taxes in the special revenue fund for approximately $800,000. The other accrual,of approximately $115,000, related to the Health Services department. 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. 4. KPPMG;Peat Marwick INTERNAL ADJUSTMENTS We noted the Auditor-Controller's department made a number of"post-closing" accounting adjustments and reclassifications to the financial statements. These adjustments were primarily an extension of the closing process which prepares the financial statements for audit and publication in the Comprehensive Annual Financial Report. We noted, however, a significant decrease in the number and dollar value of audit adjustments from the previous year. 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. OPERATIONS ENCUMBRANCES The County uses a system of encumbrances to reserve fund balance for goods and services for which it has a legal commitment. The encumbrance is relieved upon receipt of the invoice and an expenditure and payable is established. The County has a policy whereby encumbrances outstanding at the end of the next fiscal year are automatically purged from the purchasing system and the fund balance is released. A report is produced that details the encumbrances that were deleted. The Accounts Payable department is responsible for researching the status of these encumbrances and determining if they should be re- established into the system. An effort is made to obtain input from the departments in making this determination; however, in the absence of their response, the encumbrance is re-established. This situation could potentially result in the unnecessary reservation of fund balance which could otherwise be used by the County to fund other needed expenditures. 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. FINANCIAL REPO.RTING 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 -5 - �CPMGIPeat Marwick 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 noted that the County encountered difficulties in preparing this year's report which lengthened the time to complete its publication. The preparation of a Comprehensive Annual Financial Report is a lengthy process which requires a sufficient amount of .resources both at the technical and clerical levels. Personnel assigned to the process should possess the necessary qualifications to adequately perform the tasks assigned to them. The preparation process should also include a system of independent review in which all sections of the CAFR are reviewed by a person independent of the one who prepared them.,, 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. -6 -