HomeMy WebLinkAboutStaff Report 9318
CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR
June 12, 2018
The Honorable City Council
Palo Alto, California
Auditor's Office Quarterly Report as of March 31, 2018
RECOMMENDATION
The City Auditor’s Office recommends the Policy and Services Committee review and
recommend to the City Council acceptance of the Auditor’s Office Quarterly Report as of March
31, 2018.
SUMMARY OF RESULTS
In accordance with the Municipal Code, the City Auditor prepares an annual work plan and
issues quarterly reports to the City Council describing the status and progress towards
completion of the work plan. This report provides the City Council with an update on the third
quarter for FY 2018.
Respectfully submitted,
Harriet Richardson
City Auditor
ATTACHMENTS:
Attachment A: Auditor's Office Quarterly Report as of March 31, 2018 (PDF)
Department Head: Harriet Richardson, City Auditor
Page 2
Quarterly Report as of March 31, 2018
Office of the City Auditor
“Promoting honest, efficient, effective, economical, and fully
accountable and transparent city government.”
Attachment A
PAGE 2
Fiscal Year (FY) 2018 Third Quarter Update (January – March 2018)
Overview
The audit function is essential to the City of Palo Alto’s public accountability. The mission of the Office of the City Auditor,
as mandated by the City Charter and Municipal Code, is to promote honest, efficient, effective, economical, and fully
accountable and transparent city government. We conduct performance audits and reviews to provide the City Council
and City management with information and evaluations regarding how effectively and efficiently resources are used; the
adequacy of internal control systems; and compliance with policies, procedures, and regulatory requirements. Taking
appropriate action on our audit recommendations helps the City reduce risks and protect its good reputation.
Activity Highlights
Engaged our consultant, MuniServices, to conduct a study session for the City Council on March 26, 2018,
regarding sales taxes and their trends.
City Auditor Harriet Richardson accepted an invitation and went to Ohlone Elementary School to give a
presentation on the activities and responsibilities of the Office of the City Auditor as part of the students’
“Volcanic City” project for learning how the City of Palo Alto operates.
Received notification from the Association of Local Government Auditors that our audit, Accuracy of Utility
Meter Billing, will receive a Distinguished Audit Award at the May 2018 annual conference.
Audit and Project Work
Below is a summary of our audit and project work for the third quarter of FY 2018:
Title Objective(s) Start
Date
End
Date
Status Results/Comments
Enterprise
Resource
Planning (ERP)
Planning Audit:
Data and System
Governance and
Security
Evaluate the adequacy of data and
system governance and security in the
current SAP system and make
recommendations to ensure that
identified deficiencies are corrected for
the new ERP system.
05/17 06/18 In Process The audit is in the report
writing phase, and we expect
to complete the audit in mid‐
2018.
ERP Planning
Audit: Data
Reliability and
Integrity
Evaluate the integrity and reliability of
data in the current SAP system and
make recommendations to ensure that
identified deficiencies are corrected
prior to transferring data to the new
ERP system.
05/17 06/18 In Process This will be a series of reports
that focus on different aspects
of data reliability or specific
data sets. Our first two audits
are data standardization and
the human resources/ payroll
data set. These audits are
currently in the report writing
phase, and we expect to
complete them by mid‐ 2018,
with more audits to follow.
ERP Planning
Audit: Separation
of Duties
Evaluate the adequacy of separation of
duties for various activities in the
current SAP system and make
recommendations to ensure that
identified deficiencies are corrected for
the new ERP system.
05/17 06/18 In Process The audit is in the report
writing phase, and we expect
to complete in mid‐ 2018.
Attachment A
PAGE 3
Title Objective(s) Start
Date
End
Date
Status Results/Comments
Code
Enforcement
Audit
Evaluate the timeliness and
effectiveness of code enforcement
actions, the effectiveness of
communication with the public, and the
accuracy and completeness of code
enforcement case tracking for decision
making purposes. We conducted a
resident survey to help inform our audit
recommendations, as described below.
05/17 06/18 In Process The audit is in the report
writing phase. We expect to
complete the audit in mid‐
2018.
Mobile Device
Inventory and
Security
Determine if the City accurately
inventories and securely manages city‐
owned mobile devices, including
laptops, tablets, cell/smart phones, and
radios.
03/18 10/18 In Process The audit is in the planning
phase. We expect to complete
the audit in late 2018.
Business Registry Evaluate the rules and processes used
to establish the business registry and
make recommendations to help clean
up the data and ensure accuracy in the
future.
02/18 06/18 In Process The audit is in the report
writing phase. We expect to
complete the report in mid‐
2018.
ERP Nonaudit
Service
Provide advisory services to the
Department of Information Technology
regarding its planning of a new ERP
system.
09/16 Ongoing We attended 13 tactical team
meetings during the third
quarter of FY 2018 and
provided verbal and written
advice based on our technical
expertise and best practice
information readily available
to us. Our interaction with the
tactical team was limited due
to their participation in vendor
demonstrations and other due
diligence activities. We did not
issue a memo this quarter
because the fundamental
issues we communicated in
our previous memos continue
to be our main concerns.
Custom Citizen
Survey
Conduct a citizen survey, separate from
the annual National Citizen Survey™, to
obtain resident opinions about code
enforcement activities and the built
environment.
06/17 01/18 Completed The National Research Center
mailed the survey to 3,000
residents. We compiled the
results into a report and
presented them at the annual
Council retreat on February 3,
2018.
Attachment A
PAGE 4
Title Objective(s) Start
Date
End
Date
Status Results/Comments
National Citizen
Survey™
Obtain resident opinions about the
community and services provided by
the City of Palo Alto and benchmark
our results against other jurisdictions.
06/17 01/18 Completed The National Research Center
has mailed the survey to 3,000
residents. We received the
results, did some analysis of
the results, and prepared an
executive summary. We
presented the results at the
annual Council retreat on
February 3, 2018. We are
currently reviewing the
questions to identify ones that
can be deleted in the 2018
survey to potentially increase
the response rate.
Annual
Performance
Report
Provides citywide information for key
areas, including spending, staffing,
workload, and performance
08/17 01/18 Completed Departments provided data,
which we compiled into the
annual report and presented
at the annual Council retreat
on February 3, 2018.
Citizen Centric
Report
Provides City and community
information, performance results, and
summary revenue and expenditure
data in an easy‐to‐ready four‐page
format.
12/17 01/18 Completed We collected and compiled
data into the report, which we
presented at the annual
Council retreat on February 3,
2018.
Other Monitoring and Administrative Assignments
Below is a summary of other assignments as of March 31, 2018:
Title Objective(s) Status Results/Comments
City Auditor
Advisory Roles
Provide guidance and advice to
key governance committees
within the City.
Ongoing The City Auditor serves as an advisor to the Utilities Risk
Oversight Committee and Information Security Steering
Committee. We are also serving as an advisor for the
strategic and technical planning groups for planning the
new ERP system (see comment in the Audit and Project
Work section above).
Attachment A
PAGE 5
Title Objective(s) Status Results/Comments
Sales and Use
Tax Allocation
Reviews
1) Identify businesses that do
business in Palo Alto that may
have underreported or misallo‐
cated their sales and use tax and
submit inquiries to the state for
review and tax reallocation.
2) Monitor sales taxes received
from the Stanford University
Medical Center Project and
notify Stanford of any differences
between their reported taxes
and state sales tax information,
in accordance with the
development agreement.
3) Provide Quarterly Status
Updates and Sales Tax Digest
Summaries for Council review.
Ongoing 1) Total sales and use tax recoveries for the third quarter
of FY 2018 were $0 from our inquiries and $41,592 from
the vendor’s inquiries, for a total of $41,592 for the
quarter and $313,120 for the fiscal year‐to‐date. Due to
processing delays at the State Board of Equalization, 39
potential misallocations are waiting to be researched and
processed: 15 from our office and 24 from the vendor.
2) We receive calendar‐year sales tax information for the
Stanford Medicine development project about six months
after the end of the calendar year. We will report the
2017 sales tax information for this project in our June
2018 quarterly report. The City has received $2,896,941
for calendar years 2011 through 2016 as a result of this
agreement.
3) Quarterly sales tax reports are published on the Office
of the City Auditor website at
www.cityofpaloalto.org/gov/depts/aud/reports/default.asp.
Status of Audit Recommendations
Sixty‐four recommendations were open at the beginning of the third quarter of FY 2018, and 11 were closed. One status
report that was due in the third quarter of FY 2018 is scheduled to be presented to the Policy and Services Committee in
June 2018, but we have already verified the implementation of two recommendations for that audit. One status report
is past due, and five other status reports are due during the fourth quarter of FY 2018. Below is a summary of the open
audit recommendations as of March 31, 2018:
Audit Title and
Report Date
Due Date and
Prior Status
Report Dates
Total
Recommendations/
Number Open Summary of Open Recommendations
Citywide Cash
Handling and Travel
Expense
Issued 09/15/10
Due – 09/18
03/21/18
08/22/17
11/10/15
09/23/14
09/10/13
10/22/12
04/19/11
Recommendations: 11
Open: 1
Implemented during
quarter: 0
Review practice of reimbursing employee meals when
not in a travel status and report the amounts as income
to employees to conform to Internal Revenue Service
requirements (ASD)
Inventory
Management
Issued 02/18/14
Due – 05/18
11/02/17
09/23/14
Recommendations: 14
Open: 4
Implemented during
quarter: 0
Implement City’s inventory management policies and
procedures (ASD/UTL/PWD/IT)
Update and enforce inventory count policies and
procedures to ensure consistent and accurate
inventory records (ASD)
Identify, formalize, and communicate inventory
management goals and objectives to City
departments (ASD)
Ensure staff identify and use key SAP inventory
management reports and appropriately configure and
update SAP parameters that affect inventory levels
(ASD/IT)
Attachment A
PAGE 6
Audit Title and
Report Date
Due Date and
Prior Status
Report Dates
Total
Recommendations/
Number Open Summary of Open Recommendations
Utility Meters:
Procurement,
Inventory, and
Retirement
Issued 03/10/15
Due – 05/18
11/02/17
Recommendations: 15
Open: 1
Implemented during
quarter: 0
Correct purchase order documents to accurately
reflect engineering specifications (ASD)
NOTE: Two recommendations were closed because they
were deemed to be no longer relevant.
Parking Funds
Issued 12/15/15
Due – 05/18
11/14/17
Recommendations: 8
Open: 3
Implemented during
quarter: 0
Develop policies and procedures to clarify roles and
responsibilities and ensure accurate calculation and
reporting of parking‐in‐lieu fees (PCE, ASD, PWD, CLK)
Establish policies and procedures to clarify roles and
responsibilities for parking programs and parking
permit funds (ASD/PCE/PWD/POL)
Identify financial and performance data required for
effective evaluation of parking program
(PCE/ASD/POL)
Disability Rates and
Workers’
Compensation
Issued 05/10/16
Due – 08/18
02/13/18
Recommendations: 15
Open: 8
Implemented during
quarter: 7
Update the safety manual/supplemental tools (HR)
Review departmental procedures and safety
requirements to ensure they align with citywide
policies and procedures (HR)
Identify and provide industry‐specific ergonomics and
general wellness training opportunities (HR)
Address the disability leave benefits incorrectly
reported as compensation to CalPERS (HR)
Review claims that had differences in additional city
benefits and correct any errors identified (HR)
Determine optimal structure, update tools and
procedures, and allocate sufficient and skilled
resources to ensure accuracy of benefit eligibility and
work status of injured employees (HR)
Ensure that data for managing disability leave is
accurately captured through SAP time reporting (HR)
Identify useful performance measures and establish
procedures to ensure reliable reporting (HR)
Attachment A
PAGE 7
Audit Title and
Report Date
Due Date and
Prior Status
Report Dates
Total
Recommendations/
Number Open Summary of Open Recommendations
Cable Franchise and
Public, Education,
and Government
(PEG) Fees
Issued 06/14/16
Due – 09/18
03/21/18
08/22/17
Recommendations: 9
Open: 6
Implemented during
quarter: 0
Assess ongoing need for PEG fees; place fees in
restricted account until decisions are made about use
of fees (CMO/ATTY/ASD/IT)
Determine whether to allocate unrestricted funds,
instead of PEG fees, to subsidize the Media Center’s
operations. (CMO/ATTY/ASD/IT)
Send letters to cable companies to demand payment
of underpaid franchise and PEG fees
(CMO/ATTY/ASD/IT)
Develop criteria for assessing the accuracy of future
cable franchise and PEG fee payments and require
more detail with payment remittances (ASD)
Assign responsibility for the cable communications
program and provide effective oversight of the
program (CMO/CLK)
Draft an ordinance to update the Palo Alto Municipal
Code based on clarified assignment of responsibility
(CMO/ASD/ATTY/CLK)
Community Services
Department (CSD):
Fee Schedule Audit
Issued 02/14/17
Due – 05/18
11/14/17
Recommendations: 3
Open: 2
Implemented during
quarter: 0
Revise City’s cost recovery policy to align with
relevant laws and reconfigure the Questica budget
system to support fees that recover more than
100 percent of costs (ASD)
Configure SAP or the new ERP system to align cost
centers with CSD programs (CSD)
Continuous
Monitoring:
Payments
Issued 04/13/17
Due – 09/18
03/21/18
Recommendations: 7
Open: 5
Implemented during
quarter: 2
Build a continuous monitoring process into the new
ERP system to identify potential duplicate invoices
and seek recovery of duplicate payments (ASD)
Update invoice processing policies and procedures to
facilitate identification of duplicate payments (ASD)
Update policies and procedures to clarify guidance for
creation of vendor master records and develop
standardized coding vendor records (ASD)
Build a continuous monitoring process into the new
ERP system to identify duplicate, incomplete, or
unused vendor records (ASD)
Clean vendor master file before merging data into
new ERP system (ASD)
Attachment A
PAGE 8
Audit Title and
Report Date
Due Date and
Prior Status
Report Dates
Total
Recommendations/
Number Open Summary of Open Recommendations
Green Purchasing
Practices
Issued 04/13/17
Scheduled for
06/18
None
Recommendations: 8
Open: 6
Implemented during
quarter: 2
Clearly define department(s) responsible for
implementing green purchasing policies and
determine if additional staffing and funding are
needed to implement the policies (ASD/CMO)
Develop consolidated procedures to implement green
purchasing policies (CMO/ASD/PWD)
Educate City staff on green purchasing policies (ASD)
Evaluate if new e‐procurement system or other
technology solution can help with tracking and
reporting green purchases and establish appropriate
green purchasing performance measures (ASD/PWD)
Require vendors to provide data on amounts of green
products and services that City purchases from them
(ASD/PWD)
Utilities
Department: Cross
Bore Inspection
Contract
Issued 06/01/17
Past Due
None
Recommendations: 4
Open: 4
Implemented during
quarter: 0
Prioritize uninspected sewer pipelines for inspection
and disclose potential inspection challenges in future
contract solicitations (UTL)
Identify and update missing data in laterals database
(UTL)
Incorporate relevant provisions from National
Association of Sewer Service Companies’ contract
template in future sewer inspection contracts (UTL)
Identify gaps in staff expertise and develop a training
and certification plan for field staff who will monitor
field inspections (UTL)
Attachment A
PAGE 9
Audit Title and
Report Date
Due Date and
Prior Status
Report Dates
Total
Recommendations/
Number Open Summary of Open Recommendations
Accuracy of Water
Meter Billing
Issued 08/16/17
Due – 05/18
None
Recommendations: 11
Open: 11
Implemented during
quarter: 0
Correct billing errors identified (UTL)
Investigate 123 other meter records with
discrepancies and correct as necessary (UTL)
Review and correct meter records for meters larger
than 2 inches (UTL)
Explore options for addressing equity in meter size
rates (UTL)
Until new ERP system is implemented, implement a
temporary monitoring or reporting system to identify
and correct discrepancies that may result in billing
errors and ensure new ERP system has controls to
prevent and identify such discrepancies (UTL)
Develop a policy and procedures to report significant,
systemic infrastructure changes to Council and
update City of Palo Alto Utilities’ (CPAU) Rules and
Regulations as needed (UTL)
Seek direction from Council before proceeding with
installing additional electronic meters (UTL)
Determine if installed eMeters should be replaced
and if billing adjustments are required (UTL)
Clarify purchasing policy and procedures for product
standardization and sole source (ASD)
Retrain staff on purchasing policies and procedures
and completion of required forms (ASD)
Determine roles and responsibilities and develop a
procedure for tracking sole source purchases to avoid
overspending approved amounts (ASD)
Continuous
Monitoring:
Overtime
Issued 09/06/17
Due – 10/18
None
Recommendations: 2
Open: 2
Implemented during
quarter: 0
Explore potential of developing a continuous
monitoring process for overtime (ASD)
Form a work group to design standardized overtime
management processes in the new ERP environment
(ASD)
Attachment A
PAGE 10
Open Recommendations by Audit Issuance Date
Fiscal
Year
Audit Title Number of Open
Recommendations
2011 Citywide Cash Handling and Travel Expense 1 of 11
2014 Inventory Management 4 of 14
2015 Utility Meters: Procurement, Inventory, and Retirement 1 of 15
2016 Parking Funds 3 of 8
Disability Rates and Workers’ Compensation 8 of 15
Cable Franchise and Public, Education, and Government (PEG) Fees 6 of 9
2017 Community Services Department: Fee Schedule 2 of 3
Continuous Monitoring: Payments 5 of 7
Green Purchasing Practices 6 of 8
Utilities Department: Cross Bore Inspection Contract 4 of 4
2018 Accuracy of Water Meter Billing 11 of 11
Continuous Monitoring: Overtime 2 of 2
Fraud, Waste, and Abuse Hotline Administration
The hotline review committee, composed of the City Auditor, the City Attorney, and the City Manager, or their
designees, meets as needed to review hotline‐related activities. No complaints were received during the third quarter of
FY 2018. All prior‐year complaints have been closed. The chart below summarizes the status of complaints received in
each fiscal year since the hotline was implemented.
9
1
11
00
2
4
6
8
10
12
Q1 Q2 Q3 Q4
Number of Implemented
Recommendations by Quarter
23
17
13
0
20
40
60
80
100
Number of Open Recommendations
FY 18
FY 17
Prior Fiscal
Years
7
3 2
13
9
00
2
4
6
8
10
12
14
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Status of Complaints Received by Fiscal Year
Closed Complaints
Open Complaints
Attachment A