HomeMy WebLinkAboutStaff Report 9493
CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR
September 11, 2018
The Honorable City Council
Palo Alto, California
Auditor's Office Quarterly Report as of June 30, 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 June
30, 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 fourth
quarter for FY 2018.
Respectfully submitted,
Harriet Richardson
City Auditor
ATTACHMENTS:
Attachment A: Auditor's Office Quarterly Report as of June 30, 2018 (PDF)
Department Head: Harriet Richardson, City Auditor
Page 2
Quarterly Report as of June 30, 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 Fourth Quarter Update (April – June 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
Senior Performance Auditor Mimi Nguyen presented a brown bag session to Utilities staff on the annual
performance report and key performance indicators.
City Auditor Harriet Richardson was nominated for and received the David M. Walker award for Excellence in
Government Performance and Accountability at the Biennial Intergovernmental Audit Forum in May 2018.
City Auditor Harriet Richardson, at the request of the Government Accounting Standards Board (GASB),
attended a GASB Board meeting to present the Association of Local Government’s position on the GASB’s
invitation to comment on major issues related to revenue and expense recognition.
City Auditor Harriet Richardson accepted an invitation and went to Keys School, along with other City staff, to
discuss activities and responsibilities and respond to students’ questions about how City government works.
Audit and Project Work
Below is a summary of our audit and project work for the fourth 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 Complete This audit is complete and was
presented at the June 2018
Policy and Services Committee
meeting.
ERP Planning
Audit: Data
Reliability and
Integrity – Data
Standardization
This is the first in a series of audits that
focus on evaluating the integrity and
reliability of data in SAP and making
recommendations to ensure that
identified deficiencies are corrected
prior to transferring data to the new
ERP system. This audit focuses on
identifying where standardizing data
would be beneficial when
implementing the new ERP system
05/17 08/18 In Process This audit is in the report
writing phase, and we expect
to complete it in August 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 08/18 In Process The audit is in the report
writing phase, and we expect
to complete it in August 2018.
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 08/18 In Process This audit is in the report
writing phase, and we expect
to complete it in August 2018.
ERP Planning
Audit: Data
Reliability and
Integrity – Data
Standardization‐
Human
Resources/
Payroll Data
This is the second in a series of audits
that focus on evaluating the integrity
and reliability of data in SAP and
making recommendations to ensure
that identified deficiencies are
corrected prior to transferring data to
the new ERP system. This audit focuses
on assessing the accuracy of employee
master data, such as name, address,
birthdate, and social security number.
09/17 08/18 In Process This audit is in the report
writing phase, and we expect
to complete it in August 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 08/18 In Process This audit is in the report
writing phase, and we expect
to complete it in August 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 This audit is in the planning
phase. We expect to complete
the audit in late 2018.
Transferable
Development
Rights
Determine if the City maintains an
accurate and complete record of the
transferable development rights (both
City‐owned and non‐City‐owned) that
have been certified, transferred, and
used to date.
06/18 02/19 In Process This audit is in the planning
phase. We expect to complete
the audit in early 2019.
Nonprofit
Organizations
Audit
Evaluate whether nonprofit
organizations that receive City funding
are achieving the outcomes we expect
from the funding we provide.
06/18 02/19 In Process This audit is in the planning
phase. We expect to complete
the audit in early 2019.
Attachment A
PAGE 4
Title Objective(s) Start
Date
End
Date
Status Results/Comments
Contract
Oversight
Select a sample of contracts to evaluate
the contract oversight process by
determining if the City has adequate
processes to ensure that the City
receives the goods and services it paid
for, that contracts did not result in
unnecessary overlaps in services, and
that contract extensions and change
orders were appropriate.
06/18 02/19 In Process This audit is in the planning
phase. We expect to complete
the audit in early 2019.
ERP Nonaudit
Service
Provide advisory services to the
Department of Information Technology
regarding its planning of a new ERP
system.
09/16 N/A Ongoing We attended 10 tactical team
meetings during the fourth
quarter of FY 2018 and
provided verbal advice based
on our technical expertise and
best practice information
readily available to us. Our
interaction with the tactical
team was limited because the
team was focused on
evaluating the responses
received to the Request for
Proposals for the new ERP
system. Once the City has
made a decision regarding
how to move forward with a
new ERP system, we will
resume our involvement in
this nonaudit service, with a
focus on assisting the City with
addressing the issues we
identified during the ERP
planning phase and prior
audits.
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.
06/18 01/19 In Process Surveyed City departments
and Councilmembers to
identify questions that could
be eliminated to reduce the
length of the survey and
potentially increase the
response rate. Coordinated
the changes with the National
Research Center to finalize the
survey document. Survey is
expected to be distributed to
4,500 residents, an increase of
1,500 residents over previous
years, in early August 2018.
Attachment A
PAGE 5
Other Monitoring and Administrative Assignments
Below is a summary of other assignments as of June 30, 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).
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 fourth quarter
of FY 2018 were $56,810 from our inquiries and $100,333
from the vendor’s inquiries, for a total of $157,143 for the
quarter and $470,263 for the fiscal year‐to‐date. Due to
processing delays at the State Board of Equalization, 36
potential misallocations are waiting to be researched and
processed: 15 from our office and 21 from the vendor.
2) The City of Palo Alto received $784,802 as a result of
the Stanford Medicine development project for calendar
year 2017. The amount included $785,687 for calendar
year 2017 and reduction of $885 for prior year
adjustments. The City has received $3,681,743 for
calendar years 2011 through 2017 as a result of the
development agreement for this project.
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
Fifty‐three recommendations were open at the beginning of the fourth quarter of FY 2018, and six were closed. We
added four recommendations during the quarter, which resulted in 51 recommendations open at the end of the quarter.
Five status reports were presented during the quarter, and two are past due. Those two, plus four others will be
scheduled for updates during the first quarter of FY 2019. Below is a summary of the open audit recommendations as of
June 30, 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)
Attachment A
PAGE 6
Audit Title and
Report Date
Due Date and
Prior Status
Report Dates
Total
Recommendations/
Number Open Summary of Open Recommendations
Inventory
Management
Issued 02/18/14
Past Due
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)
Utility Meters:
Procurement,
Inventory, and
Retirement
Issued 03/10/15
Past Due
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 – 12/18
06/21/18
11/14/17
Recommendations: 8
Open: 1
Implemented during
quarter: 2
Develop policies and procedures to clarify roles and
responsibilities and ensure accurate calculation and
reporting of parking‐in‐lieu fees (PCE, ASD, PWD, CLK)
Disability Rates and
Workers’
Compensation
Issued 05/10/16
Due – 08/18
02/13/18
Recommendations: 15
Open: 8
Implemented during
quarter: 0
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 – 12/18
06/21/18
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: 0
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
Due – 12/18
06/21/18
Recommendations: 8
Open: 6
Implemented during
quarter: 0
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 potential for use of 40 percent post‐
consumer fiber paper towels/other green janitorial
products and monitor janitorial contractor’s
compliance with green purchasing requirements
(PWD)
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
Due – 12/18
06/21/18
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)
Accuracy of Water
Meter Billing
Issued 08/16/17
Due – 12/18
06/21/18
Recommendations: 11
Open: 7
Implemented during
quarter: 4
Review and correct meter records for meters larger
than 2 inches (UTL)
Explore options for addressing equity in meter size
rates (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)
Attachment A
PAGE 9
Audit Title and
Report Date
Due Date and
Prior Status
Report Dates
Total
Recommendations/
Number Open Summary of Open Recommendations
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)
Information
Technology and
Data Governance
Due – 2/19
None
Recommendations: 4
Open: 4
Implemented during
quarter: 0
Assign roles and responsibilities for IT governance to
ensure that governance coveralls all key aspects of
the City’s information systems (IT)
Adopt an industry standard IT governance framework
and create a plan to achieve a process capability
model of “established” or higher (IT)
Assign roles and responsibilities for data governance
to ensure that governance coveralls all key aspects of
the City’s information systems (IT)
Adopt an industry standard data governance
framework and create a plan to achieve a process
capability model of “established” or higher (IT)
9
1
11
6
0
2
4
6
8
10
12
Q1 Q2 Q3 Q4
Number of Implemented
Recommendations by Quarter
21
17
13
0
20
40
60
80
100
Number of Open Recommendations
FY 18
FY 17
Prior Fiscal
Years
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 1 of 8
Cable Franchise and Public, Education, and Government (PEG) Fees 6 of 9
Disability Rates and Workers’ Compensation 8 of 15
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 7 of 11
Continuous Monitoring: Overtime 2 of 2
Information Technology and Data Governance 4 of 4
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 fourth 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.
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