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HomeMy WebLinkAboutMINUTES - 06151999 - C155 TO: BOARD OF SUPERVISORS FROM: .�. Cod tr William J. Pollacek, Treasurer-Tax CollectorCosta � ,. RATE: June `l 5,'1999 :. County SUBJECT. AUDIT REPORT ON THE COUNTY TREASURY SPECIFIC REQUESTM OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATIONdS). ACCEPT the audit from the County Auditor-Controller on the activities of the County Treasurer and the Treasury Oversight Committee as required by Government Code Section 27134. ACCEPT the T'reasurer's response to the above audit. BACKGRO 1N IREASON(5) FOR RECC}MMENDATIONt }� Per Government Code Section 27134 and at the request of the Treasury Oversight Committee, the County Auditor-Controller audited the County Treasury for the period of January 1, 1998, through December 31: 1993. The audit and the County Treasurer's response were reviewed at the Treasury Oversight Committee meeting of May 11, 3999, The County Treasurer and Treasury Oversight Committee members agreed with the Auditor-Controller's recommendations and Treasurer's responses. Copies of the Auditor-Controller's audit and the County Treasurer's response are submitted to the Board of Supervisors for review and acceptance. JP:CVJ:ceb Attachments CONTINUED ON ATTACHMENT: YES SIGNATURE: RECOMMENDATION OF COUNTY ADMINISTRATOR -AV-COIv mENDATION OF SOARD COMMITTEE # APPROVE OTHER SIGN�LTt RE ACTION OF BOARD ON June 15 1949 APPROVED AS RECOMPM NOE � OTHER VOTE OF SUPERVISORS ��4 I HERE13Y CERTIFY THAT THIS IS A TRUE UNANIMOUS(ABSENT AND CORRECT COPY OF AN ACTION TAKEN AYES. ALOES: AND ENTERED ON THE MINUTES OF THE BOARD ASSENT:. ®„ ABSTAIN: OF SUPERVISORS ON THE DATE SI.OwN. Contact ATTESTED I QnA cc: PHIL BATCHELOR,CLERK OF THE BOARD OF SUPERVISORS AND COUNTY ADMINISTRATOR By DEPUTY Office of COUNTY AUDITOR-CONTROLLER Contra Costa County Martinez, California May 5, 1999 TO; Diane F. Meade, Chairperson, Treasury Oversight Committee FROM: Kenneth J. Corcoran, Auditor-Controller Audit Staff. Karen M. Watkins, CIA, Staff Auditor SUBJECT: Ex4a tination of the Activities of the County Treasurer and the Treasury Oversight Committee as required by Goverment Code Section 27134 I. SCOPE OF EXAIo rNATION We have exarnined the activities of the County Treasurer(Treasurer) and the Treasury Oversight Committee(Committee) as requested by the Committee and as required by Government Code Section 27134. Our examination covered the period of January 1, 1998, through December 31, 1998, and included such tests and other auditing procedures as we considered necessary to: 1. Determine the extent of compliance with Government Cade Sections 27131 through 27132.4 that govern the establishment, membership and meetings of the Committee. 2. Determine the extent of compliance with Goverment Code Section 27133 that governs the establishment, review and monitoring of investment policy. 3. Determine the extent to which the quality of the Treasurer's investment portfolio complied with applicable laws and administrative requirements governing investments, including Government Code Sections 53601-53607 and 53645 governing authorized investments and the County's investment Policy. 4. Determine if internal controls were adequate to ensure the safeguarding of the financial assets ander the Treasurer's control. 5. Determine if the Treasurer has contracted with financial entities for investment services and safekeeping and restricted investing transactions to brokers and issuers allowed by the County's Investment Policy. 6. Evaluate the accuracy of the Treasurer's Quarterly Investment Reports. 7. Determine the extent to which investments subject to the Treasurer's control were sold before maturity, Diane E. Meade, Chairperson, Treasury Oversight Committee May 5, 1999 Examination of the .Activities of the County Treasurer and the Treasury Oversight Committee as Required by Government Code Section 27134 II. SUMMARY AND CONCLUSIONS As a result of our examination, we have concluded that in all material respects; 1. The establishment, membership, meetings and other activities of the Committee were in compliance with applicable laws. 2. The establishment= review and monitoring of the County's Investment Policy were in compliance with the law. 3. The quality of the Treasurer's investment portfolio met or exceeded the requirements set forth in applicable laws and in the County's Investment Policy. 4. Internal controls were adequate to ensure the safeguarding of the financial assets under the Treasurer's control, except that bank reconciliations need to be more timely and investment respor4sibilities need to be further segregated (See Sections IIIA & III.E,). 5. The Treasurer has contracted with financial entities for investment services and safekeeping and has transacted investments with eligible brokers and issuers. The Committee should be notified when brokers and dealers are used which are not on the Investment Policy's approved list (See Section III.C.). b. The Treasurer's Quarterly Investment Report was accurate as of December 31, 199& 7. Our review of investment dispositions subject to the Treasurer's control did not disclose any that were sold before maturity. 111. FINDINGS AND RECOMMENDATIONS A. Timely Reconciliation of Bank Account Needed Condition. In October 1998, the Treasury fell behind in performing the monthly reconcilations of the Treasurer-Tax Collector's seven bank accounts to the corresponding checkbooks. Since the December 1998 quarterly cash count, the Treasury staff has reconciled the six minor bank accounts to the checkbooks. However, the staff has reconciled the ]Jells Fargo main bank account only through November 1998, and reports an $11,000 unidentified shortage between the December 1998 Wells Fargo grain bank statement and the checkbook balance. Management states that the Treasury reconciles daily to the daily bank report. However, the daily verification only includes the posting of all bank wires, all Automated Clearing House (ACH) debits and credits, and all deposits greater than or equal to $50,000. 2 ...................................... ............................................................................................... ......... ......... ....................... ..... ..... ......... ......... ......... ... ......... ......... .................... ..._ ....................... .............................................................. Diane E, Meade, Chairperson, Treasury Oversight Committee May 5, '1999 Exarnination of the Activities of the County Treasurer and the Treasury Oversight Committee as Required by Government Code Section 27134 r+ 111. FINDINGS AND RECOMMENDATIONS (CONTINUED) A. Timely Reconciliation of Bank Account Needed (Continued) Criteria: Timely and complete reconciliation of bank accounts allows detection of losses or errors. Bank reconciliations are a significant internal control, Effect: Financial assets could be lost or misappropriated without timely detection. Delayed detection of bank errors or disputed items may make there more difficult to , resolve. Causes: Management states that they have not had adequate staffing levels during the past year. The situation has since unproved with the return of an employee from farmily leave. Also, a full-time investment operations analyst was hired in December 1998. Management states that the reconciliation has also been delayed by seasonal increases in deposit volume which take more staff time. The Treasury's volume increases before the property tax deadlines in December and April. In addition to an increase in deposit volume, there is an increase in returned checks that the Treasury must process. Also, during the property tax season, the Treasury may receive tax payments that the bank credited to Contra Costa County in error. The Treasury staff`must research these payments, and send therm to the appropriate county. Recorn mend a tion: Bank, reconciliations are a critical control and should be given sufficient priority to ensure timely completion. If Treasury staffing is temporarily reduced, the Department should consider temporarily re-assigning someone in the Tax Collector's office or hiring a temporary accounting employee. B. ere ation of Duties Needy Improvement Condition: There is little segregation of duties for investment transactions in Fund 817740, General County Investment Revenue, Both the Assistant Treasurer and the Investment Officer evaluate and select the investments available, initiate investment purchases, prepare the investment tickets that authorize the purchase of an investment, and prepare Treasury Journals that past the principal and interest to the General Ledger for their investments. Another employee posts the investment to the internal investment ledger. The employee who pasts the ledger and the recently-hired analyst serve as alternates for the Assistant Treasurer and the Investment Officer. 3 Diane E. Meade, Chairperson, Treasury Oversight Committee May 5, 1999 Examination of the Activities of the County Treasurer and the Treasury Oversight Committee as Required by Government Code Section 27134 III. FINDINGS AND RECOMMENDATIONS (CONTINUED) B. Segregation of Duties needs Improvement(Continued) Criteria: Strong internal controls require adequate segregation of duties to detect errors and help prevent misappropriations. Good business practices include a minimum level of segregation between initiation, authorization, and posting functions. Effect: The risk of loss through undetected error or misappropriation is increased. Cause: Management states that the Treasury has not had the staffing level necessary to fully segregate duties. On a given day, either the Assistant Treasurer or the Investment Officer may not be available. Recommendation: When both are available, if the Assistant Treasurer or the Investment Officer initiates an investment, the other should approve it. This should be documented by signature or initials on the investment ticket. When one is absent, one of the alternates should review and approve the investments made. With the hiring of the new investment operations analyst, the Treasury should segregate the recording of investments from the Initiation and authorization of investments. C. Treasury Should Notify Committee When_Us n N pproved Brokers and Dealers Condition: The Investment Policy's list of approved brokers and dealers includes a provision that allows the Treasury to make purchases of investments from brokers and dealers that are not on the list, if needed. Three of the eight purchases reviewed had brokers or dealers that were not on the list of approved brokers and dealers. Criteria: The Treasury Oversight Committee should know which brokers and dealers the Treasury uses to effectively monitor its investment activities. Effect. The Committee may not have sufficient information about brokers and dealers used by the"Treasury. Cause: The Treasury needs some flexibility to accommodate changes in needs and iilk vendors during the year covered by the Investment Policy. 4 Diane E. Meade, Chairperson, Treasury Oversight Committee May 5, 1999 Examination of the Activities of the County Treasurer and the Treasury Oversight Committee as Required by Government Cade Section 27134 j III. FINDINGS ANIS RECOMMENDATIONS (CONTINUED) j" C. Treasury Should Notify Committee When Using Non-Approved Brokers and Dealers (Continued) Recommendation: The T reasury Oversight Committee should consider an amendment to the Investment Policy that requires the Treasury to notify the Coral-nittee when brokers and dealers are used which are not on the Investment Policy's approved list. The Treasury could include this information to its quarterly investment report. IV. STATUS OF PRIOR AUDIT RECOMMENDATIONS RECOMMENDATION STATUS 1997. The Treasurer should seek to amend This recommendation was implemented. the County's Investment Policy to include Dropped. L.A,1 . investments and other legal investments the Treasurer deems appropriate. 1997. The Treasurer sho=uld submit This recommendation was implemented. nominations for all future Committee Dropped. membership changes to the Board for appointment. 1997. The Treasurer should seek to amend The Treasurer amended the policy to require five the County's Investment Policy to include days notice and pending sale or maturity of the criteria for the withdrawal of funds by any investment. This should provide sufficient lead agency including an assessment of the effect time for the Treasury to accommodate of the withdrawal on the remaining withdrawals, Drop recommendation. investments in the County Treasury. 1997. The Treasurer should correct these This recommendation was implemented. No postings to properly state investment exceptions were found. Drop recommendation. categories and continue the review of daily postings to detect such misclassifications in the future. 5 Diane E. Meade, Chairperson, Treasury Oversight Committee May 5, 1999 Examination of the Activities of the County Treasurer and the Treasury Oversight Committee as Required by Government Code Section 27134 IV, STATUS OF PRIOR AUDIT RECOMMENDATIONS-(CONTINUED) RECOMMENDATION STATUS 1997. The County's Investment Policy This recommendation was implemented. should be revised to specify the distribution Dropped. of the Treasurer's Quarterly Investment Report to the Committee and any other required distributions, citing the appropriate Government Codes. We would like to express our appreciation to the Treasury staff, especially Clarissa Javier, Beverly Rellar and Janette San Luis for their assistance and cooperation during this audit. 6 ........................................ .................................................................................................. ........................................................................ ...................................................... .......................... .................................................................................. ................................................................................... ........................................... CONTRA COSTA COUNTY TREASURER-TAX COLLECTOR 625 COURT STREET, ROOM 100 MARTINEZ, CA 94553-0063 DATE: May 10, 1999 TO: Diane E. Meade, Chairperson, Treasury OversightGorrirruittee, FROM: William J. Pollacek, Treasurer-Tax Collector SUBJECT: RESPONSE TO EXAMINATION OF ACTI eES OF THE COUNTY TREASURER BY THE COUNTY AUDITOR-CONTROLLER DATED MAY 5, 1999 ---------- The following is the Treasurer's response to Section III of the Auditor's Findings and Recommendations: A. TimgyReconciliation of Bank Account Needed As of May 10, 1999, the Wells Fargo Bank statements have been reconciled through the month of February, 1999. The March, 1999, reconciliation is in progress. In the Wells Fargo Bank statement for the month of December, 1999, the $11,000 difference was composed of four items. Two items were listed as cleared items in the 'Treasurer's reconciling work sheets but were not per the bank statement. Two other uncleared items were not listed on the Treasurer's reconciling work sheets. December is an unusually heavy banking month due primarily to the first installment of property taxes. With the advent of"paperless" banking, one Treasury staff person has been assigned to review, analyze and reconcile all fed wires and automated clearinghouse activities (A.C.H.) for the past several years. used on the December, 19988 banking transactions, these two large components make up over 83% of the month's total entries. The total entries were composed of$1 a I I billion in credits and $1.12 billion in debits. The 83% for December converts to $929 million in debits and another $929 million in credits in fed wires and A.C.H.'s. These are reconciled within 48 hours or less. Also, all other entries $50,000 or more are reconciled within 48 hours or less. The remaining entries are reconciled when the bank statements are received. Diane E. Meade, Chairperson, Treasury Oversight Committee May 10, 1999 Page 2 Through the years the Treasury has prided itself on complete reconciliation of its records. An estimated 9510 of entries are reconciled within 48 hours. Since December, a Treasury Operations Analyst was hired and an Accounting Technician returned from maternity leave. B. Segregation of Duties Needs Improvement The recommendation to have two different staff members initiate and approve investments was implemented effective May 6, 1999. A new investment form is in place. The form has a specific box for the second authorized signature and approval (see Exhibit A). The completion of this box is an intrinsic part of the Treasurer's documentation., Additionally, if the investment is for a district, the primary authorization is a letter of instruction from the district's authorized personnel. This procedure has always been in place for directed investments. Journals are prepared primarily by either the Investment Officer or the Investment Operations Analyst, or by other available authorized staff as necessary. The prepared journals are then verified for completeness and accuracy by authorized staff, other than the preparer. This segregates the recording process. Two signatures or initials are on the journal (see Exhibit B). C. Trea§gaS,hould Notify-Committee When Using Non-Approved Brokers and Dealers The list of Brokers and Issuers has been updated and revised to include all the entities with whom the Treasury is currently doing business (see Exhibit C). This vein replace page 20 of the Investment Policy of February, 1999. In the future the Quarterly Report will include information on any new investment relationships. It will be noted on page 3, which lists other notes (see Exhibit D). CVJ:ceb Attachments cc: Clarissa V. Javier, Assistant Treasurer a:auditresponse599.dem too disk CONTRA COSTA CC)UN7YINV"ESTMENT TRANSAC770JV MATUpjTy Exhibit A nUDEDATF-- =rLZMENTDAMr 3771: i FUND NO. NAME AMOUNT MONEY MAX CONTAC .&WES fEN'r RPO CP CIS I CUSIP TYPE RIA NCD GOVT OTHER C`ERrNo DTD .SECURITY DESCRIP270N. MATUPI'TY: NO.OF DAYS- *RATE: COUPON: PRICE: FOR 1N f RESP" SEARING CRY�ELia: CJS= YIELD number €car lMAK instead of rate E PAR VALUE DATE OF LAST COUPON !NT'ERE.ST DUE. PRINCIPAi, COUPON DATES QUARTERLY DISCOUNT SEW-At 1AL ACCRUED�' i�A1'Ct£tII'Y "TOTAL.NET BRC KEM- CON'TACT- � S TTLEta INT THRU: HILD BY: NO TIFTED: Tom: .SPECIAL LNSTRUCIIONS: rNTER.EST. DATE RECEIVED AMOUNT DP NO. BIDS SALE E'LJR 516/,%l 0: ts`c ket599.wk3 Exhibit a S cr er' tz n e E i 0 F0 OU e 3 E E E 9 aPa Sri � .a.Y is e•a � era w E $� C C, 3 ° ° ' E m a s� E Exhibit C BROKERS AND ISSUERS ABN AMRO, Incorporated John Deere Capital Corporation American Express Credit Corporation J. P. Morgan Securities Incorporated Associates Corporation of North America Lehman Brothers, Incorporated Associates First Capital Mechanics Bark Bank of America Mellon Bark Bank of the Vest Merrill Lynch Bankers Frust Company Merrill Lynch Government Securities, Barclays Capital, Incorporated Incorporated Bear Stearns & Company, Incorporated Morgan Stanley Dean Witter California Arbitrage Management Program Morgan Stanley & Company, Incorporated Chase Securities, Incorporated NationsSanc Corporation Citibank NationsSanc Montgomery Securities LLC Civic Sank of Commerce Norwest Banks Credit Suisse First Boston Norwest Investment Services Deere & Company PaineWebber, Incorporated Donaldson, Lufkin & Jenrette securities Prudential Securities, Incorporated Corporation Public Financial Management, First Commercial Sank Incorporated Ford Motor Credit Company Rauscher Pierce Refsnes, Incorporated General Electric Capital Corporation Salomon Smith Barney, Incorporated General E=lectric Capital Services Sumitomo Sank of California General Electric Company Union Sank Gilford Securities, Incorporated Washington Mutual Glendale Federal Sank Wells Fargo Sank Goldman, Sachs & Company Westamerica Sank Government Perspectives Mote: The County Treasury will not be limited to the above list. Others will be included as long as all conditions for authorized brokers and dealers set forth in this policy are ret. Additionally, deletions and additions are based on the maintenance of required credit quality as rated by Standard and Poor's, Moody"s, GF1 (Gerry Findley Incorporated) and other recognized rating services and reliable financial sources. 20 Exhibit D NOTES TO INVESTMENT PORTFOLIO SUMMARY AS OF MARCH 31, 1999 1. All report information is unaudited but due diligence was utilized in Its preparation. 2. There may be slight differences between the portfolio summary page and the attached exhibits and statements for investments managed by outside contractors or trustees. The variance is due to the timing difference in recording transactions accomplished by contracted parties during interim periods and later transmitted to the appropriate county agency and/or the Treasurer's Office. In general, the Treasurer's records reflect booked costs at the beginning of a period. kNotes 3