HomeMy WebLinkAboutMINUTES - 05311994 - IO.3 I0.3
To BOARD OF SUPERVISORS s L Contra
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FROM: Costa
Internal Operations Committee 8 s CC
x�, _._:....: ,•40¢ County
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DATE: May 23, 1994
coon
SUBJECT: Response to the 1992-1993 Management Letter
SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION
RECOMMENDATION:
ACCEPT the Departments ' responses to the 1992-1993 Management
Letter.
BACKGROUND:
The general .purpose financial statements of Contra Costa County for
the year ended June 30, 1993 were audited by KPMG Peat Marwick,
Certified Public Accountants, and a report was issued thereon dated
November 1, 1993.
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' February 28, 1994 letter.
On March 22, 1994 the Management Letter was referred to the County
Administrator and Internal Operations Committee.
This report provides a synopsis of the Management Letter comments
and recommendations and the responses from the appropriate
department head.
CONTINUED ON ATTACHMENT: X YES SIGNATURE:
RECOMMENDATION OF COUNTY ADMINISTRATORRECO ENDATION OF BOARD COMMITTEE
APPROVE OTHER
SIGNATURES : SU ervisor Jeff Smith % Su ervisor Mark DeSaulnier
ACTION OF BOARD ON 1 1 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
Contact: PHIL BATC LOR.CLEWK OF THE BOARD OF
CC: SEE LAST PAGE SUPERVISORS AND COUNTY ADMINISTRATOR
BY `_ DEPUTY
COMMENTS/RECOMMENDATIONS:
FINANCIAL REPORTING
REPORTING ENTITY
In June 1991, the Governmental Accounting Standards Board (GASB)
issued Statement No. 14, "The Financial Reporting Entity" which
establishes standards for defining and reporting on the financial
reporting entity. It also establishes standards for reporting
participation in joint ventures . It applies to financial reporting
by primary governments, governmental joint ventures, jointly
governed organizations, and other stand-alone governments as well
as to separately . issued financial statements of governmental
component units . Additionally, this Statement should be applied to
governmental and nongovernmental component units when they are
included in a governmental financial reporting entity. This
statement is effective for the. 1993-94 fiscal year.
We recommend the County review, in conjunction with GASB Statement
No. 14, the various `entities currently included in its reporting
entity as well as related organizations that are currently excluded
in its reporting entity to determine whether changes need to be
made in the presentation of the fiscal 1994 financial statements .
We would be glad to assist the County in its efforts to implement
this new standard.
RESPONSE FROM THE COUNTY AUDITOR-CONTROLLER:
We have been reviewing, in conjunction with GASB Statement No. 14,
the structure of various entities not currently a part of our
reporting entity to :determine whether changes need to be made in
the presentation of the fiscal 1994 financial statements. In
addition, the audit request for proposals included the requirement
for the 1993-94 auditors to assist us in our analysis and
implementation of GASB Statement No. 14 .
COMMENTS/RECOMMENDATIONS:
POLICIES AND PROCEDURES
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 as discussed in our previous year's letter.
RESPONSE FROM THE COUNTY 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 the workload of existing staff precludes assigning an
individual to be responsible for the task.
COMMENTS/RECOMMENDATIONS:
FIXED ASSET CAPITALIZATION POLICY
The County' s policy with respect to the capitalization of equipment
is that acquisitions greater than $1,000 are capitalized. For
items less than $1,000, a judgment is made whether the asset will
be useful for a period greater than one year. If this is the case,
the asset will be capitalized. A significant amount of time
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appears to be spent by County personnel at both the department
level and in General Accounting to determine what should be
capitalized.
We recommend the County modify its capitalization policy to
describe in detail which assets should be capitalized at the
department level. The Auditor-Controller's Office should emphasize
to the departments the importance of adherence to this policy.
Alternatively, the County may decide that purchases under the
$1,000 threshold not be capitalized. Such a modification would
eliminate unnecessary time spent in determining whether a specific
asset should be capitalized. A periodic review of the acquisition
report and repairs and maintenance account by the Auditor-
Controller's Office or Internal Audit would facilitate compliance
with the capitalization policy.
RESPONSE FROM THE COUNTY AUDITOR-CONTROLLER:
We are currently pursuing the modification of our fixed asset
capitalization policy. Once the modifications are finalized we
will emphasize to departments the importance of adherence to the
policy.
COMMENTS/RECOMMENDATIONS:
REAL ESTATE APPRAISALS
The Employees ' Retirement Association's . (ERA) policy with respect
to its separately owned real estate holdings requires property
appraisals every two years . During our review of the ERA' s real
estate portfolio for the year ended December 31, 1992, we noted
several properties that had not been re-appraised in accordance
with the stated policy.
We recommend the ERA arrange for the appraisals to be performed on
the appropriate properties in accordance with its policy. Due to
the continued weakness in the real estate market, it is important
that management have timely information to assist in properly
accounting for its real estate holdings .
RESPONSE FROM THE RETIREMENT ADMINISTRATOR:
We concur with the audit comment regarding the need to adhere to
the Investment Policy for Real Estate Appraisals and it is
currently being met. The policy states that a market appraisal
shall be conducted by an independent appraiser every two years.
The three properties referenced in the audit comment had a written
appraisal done within two years and six months . As of July 1,
1994, the two-year time schedule is in place and will be followed
for all current and future appraisals of properties held by the
Retirement Association.
COMMENTS/RECOMMENDATION:
VALUATION OF REAL ESTATE HOLDINGS
In relation to the aforementioned comment on real estate
investments, the ERA revised its policy with respect to the
valuation of its separately owned real estate investments . The
policy states three conditions in which the ERA will write-down
real estate holdings to their market value:
1. "If the Board determines that a property shall be sold in the
near future, the lower of market value or cost shall be
reflected in the system's financial statements . "
2 . "If it can be identified that the physical condition of the
property has deteriorated substantially, this shall be
immediately reflected in the system' s financial statements . "
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3 . "For each year that a property is appraised at a value lower
than cost and where there is no persuasive evidence to
indicate this is due to factors which are other than
temporary, the system's financial statements will reflect a
decrease in that property's value calculated to be 20% of the
difference between appraised market value and the cost value
at the time of appraisal. "
Because of the considerable judgment 'involved in determining
whether a decline in market value is caused by factors which are
"other than temporary, " it is essential that the ERA continue to
analyze the nature of any declines in value of its real estate
holdings, especially where they are repeatedly appraised at values
below their carrying cost, and account for such declines in
conformity with generally accepted accounting principles (GAAP) .
GAAP requires that assets with impairments deemed "other than
temporary" be written down to market value at the time this
determination is made.
RESPONSE FROM THE RETIREMENT ADMINISTRATOR:
VALUATION OF REAL ESTATE HOLDINGS
The Retirement Board revised its Investment Policy with respect to
valuation of its separately owned real estate investments at the
regular board meeting in February 1993 . The Investment Policy
specifies three conditions where properties will be written down,
which removes the "judgement" call that would occur if the policy
did not contain these specific conditions . This Investment Policy
will be followed as written and properties will continue to be
monitored.
To reiterate our comment from the prior year response, the
Investment Policy is considered to be a "living" document and will
continue to be reviewed and revised on a regular basis .
COMMENTS/RECOMMENDATIONS:
OPERATIONS
FINANCIAL ACCOUNTING MANAGEMENT SYSTEM
The County's current financial accounting and reporting system is
over 20 years old. The system requires a significant amount of
staff resources to maintain the level of reporting required by
state and federal funding agencies as well as in the yearly
preparation of the Comprehensive Annual Financial Report.
Additionally, the system does not consistently allow for the timely
production of financial and other operating information that
management could be using to assess the financial condition of the
County on a monthly or quarterly basis .
We recommend the County investigate the feasibility of implementing
a new financial accounting and reporting system. A new system
should be capable of providing useful and timely information to
management and not require a significant amount of resources to
maintain its operation. Reliable and timely information will
assist management to better assess the results of its operations
and financial condition and to identify potential problems earlier
for faster resolution.
RESPONSE FROM THE COUNTY AUDITOR-CONTROLLER:
We concur with the recommendation that the County investigate the
feasibility of implementing a new financial accounting and
reporting system. We have taken initial steps in our feasibility
study and we have determined that software development has not
reached the level of sophistication that we require. We will
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continue to evaluate the availability of software and develop a
thorough needs assessment in preparation for technological
improvements in financial accounting software.
COMMENTS/RECOMMENDATIONS:
CONTRIBUTED CAPITAL
In our review of the Hospital and HMO enterprise fund's contributed
capital accounts, we noted the County does not maintain a detail of
the composition of this balance. Additionally, the County has not
consistently recorded the depletion of its contributed assets by
reducing the contributed capital account. Rather, the disposition
or loss on those assets are recorded as charges to retained
earnings causing an overstatement of the contributed capital
account and an understatement of retaining savings . Because the
expenditure budget is based.on retained earnings, this has resulted
in the County not having full use of its expendable resources .
We recommend the County review the detail of contributed capital to
ascertain what the proper balance should be based on the value of
assets still remaining. As contributed assets are transferred from
one fund to another and disposed, the related amounts should be
appropriately added to or deducted from the contributed capital
account and not charged against retained earnings, Proper
accounting for contributed capital will ensure the County fully
utilizes its available resource.
RESPONSE FROM THE COUNTY AUDITOR-CONTROLLER:
We concur with KPMG Peat Marwick' s recommendation to review the
detail of contributed capital to ascertain what the proper balance
should be based on the value of assets still remaining. This task
has already been undertaken. We are currently in the process of
developing a recommendation regarding what entries should be made
and anticipate that prior to June 30, 1994, we will have met with
the Health Services Controller to review our recommendations and
make any appropriate entries to the finance system.
Contact: Dean Lucas (646-4077)
Orig. Dept. : County Administrator
cc: Auditor-Controller
Retirement Administrator
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