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HomeMy WebLinkAboutStaff Report 2502-4230CITY OF PALO ALTO Policy & Services Committee Special Meeting Tuesday, March 11, 2025 6:00 PM     Agenda Item     2.Presentation of the Office of the City Auditor Quarterly Report for the Period of October - December 2024 Staff Presentation 6 6 4 2 Policy & Services Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: City Auditor Meeting Date: March 11, 2025 Report #:2502-4230 TITLE Presentation of the Office of the City Auditor Quarterly Report for the Period of October - December 2024 RECOMMENDATION The City Auditor recommends that the Policy and Services Committee reviews and recommend that City Council accept the Office of the City Auditor’s Quarterly Status Report covering October – December 2024. BACKGROUND Task 5 of the six required internal audit tasks in the agreement between the City of Palo Alto (City) and Baker Tilly Advisory Group, LP (Baker Tilly) is to provide a quarterly report of the status and progress toward audit completion as information reports to the City Council. ANALYSIS The internal audit activities from October – December 2024 are listed below by task as set forth in Baker Tilly’s agreement with the City: •Task 1 – Citywide Risk Assessment The Citywide Risk Assessment was completed in November and presented to the Policy & Services Committee and City Council in December 2024.1 •Task 2 – Preparation of the Annual Audit Plan The FY2025 Audit Plan was approved by City Council in December 2024.2 •Task 3 – Selection of External Financial Auditor and Annual Audit Coordination 1 Staff Report 2411-3841 2 Staff Report 2411-3841 6 6 4 2 The City’s external auditor, Macias Gini & O’Connell, LLP (MGO) completed the FY2024 Financial Statement Audit and Annual Comprehensive Financial Report (ACFR)3 also known as the Single Audit and presented the results at the December 3, 2024 Finance Committee meeting. MGO issued a clean opinion on each audit report and reported no findings within the Agreed-Upon Procedures report. •Task 4 – Execute Annual Audit Plan Presented two audit reports to the Policy & Services Committee ADA Compliance on November 6, 20244 Recruitment & Succession Planning Audit on December 10, 20245 Several Audits from the FY2024 Audit Plan[5] were in reporting in the 2nd quarter of FY2025 including: Grant Management Audit (Task Order 4.24) Emergency Preparedness Audit (Task Order 4.25) Utility Billing Audit (Task Order 4.26) Payment Card Industry Data Security Standards Audit (Task Order 4.27) Dispatch Center Program Assessment (Task Order 4.28) •Task 5 – Periodic Reporting, Hotline Monitoring, and Other Administrative Functions No hotline allegations were received during this period. One hotline allegation was closed with no remediation needed. One hotline allegation is still being investigated. The City Auditor’s Office provided the FY2025, Q1 update on October 8, 2024.6 Baker Tilly participated in various meetings including City Council, Executive Leadership, Agenda Planning, and Committee Meetings. •Task 6 – Evaluation and Benchmarking The City Auditor began a Benchmarking Assessment of audit activity costs. The results of this work will be presented as part of this Quarterly Status presentation. FISCAL/RESOURCE IMPACT The Quarterly Status Report does not have a resource impact. 3 Staff Report 2404-2912 4 Staff Report 2409-3476 5 Staff Report 2410-3633 6 Staff Report 2409-3519 6 6 4 2 ENVIRONMENTAL REVIEW APPROVED BY: Baker Tilly US, LLP, trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2022 Baker Tilly US, LLP. City of Palo Alto Office of the City Auditor (OCA) Policy & Services Committee Meeting FY2025, Q2 - Quarterly Status Report March 11, 2025 Baker Tilly US, LLP, trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2022 Baker Tilly US, LLP. Agenda •Audit Activities •Task 4 – Execute Annual Audit Plan – Project Status •Task 5 – Various Reporting & City Hotline •Task 6 – Evaluation & Benchmarking 3 Quarterly Report for October – December 2024 AU D I T AC T I V I T I E S Task Key Activities 1 Citywide risk assessment FY2024 risk assessment was presented to the Policy & Services Committee on 12/10/24. 2 Annual audit plan FY2025 audit plan was adopted by City Council on 12/16/24. 3 Financial statement audit FY2024 Audited Financial Statements scheduled for presented to the Finance Committee on 12/3/24. 4 Execute annual audit plan Policy & Services Committee approved: •ADA Compliance Audit (11/6/24) •Recruitment & Succession Planning (12/10/24) 5 Periodic reporting, hotline monitoring, admin. function •One hotline allegation investigation was closed with no remediation needed and one investigation is still in process from the first quarter of FY2025. •No hotline allegations received in Q2 of FY2025. •Quarterly Status Report for Q1 presented to Policy & Services on 10/8/24. 6 Evaluation and benchmarking Benchmarking study began 4 Quarterly Report for October – December 2024 TAS K 4 – E X E C U T E AN N U AL AU D I T P L AN Status of FY2024 Audit Plan Projects* Department Project Title Task Order Status Public Works ADA Compliance Audit 4.22 Completed Human Resources Recruitment & Succession Planning Audit 4.23 Completed Citywide Grant Management Audit 4.24 Completed (02/25) Utility Utility Billing Audit 4.26 Completed (02/25) Citywide Emergency Preparedness (Wildfire) Audit 4.25 Reporting Police/Citywide Dispatch Center Program Assessment 4.28 Reporting Citywide Payment Card Industry Data Security Standards Audit 4.27 Reporting * Completed projects are removed from the list the following Quarter’s Status Report 5 Current Projects TAS K 4 – E X E C U T E AN N U AL AU D I T P L AN Status of FY2025 Audit Plan Projects Started in January 2025* Department Project Title Task Order Status Administrative Services Purchasing Card 4.29 Planning Planning & Development Building Permit & Inspection Fees 4.30 Planning Community Services Junior Museum & Zoo Operations 4.31 Planning Community Services Equipment & Materials Inventory Management 4.32 Planning Police/Citywide Public Safety Staffing and Overtime 4.33 Planning Citywide Follow-up on Prior Audit Recommendations 4.34 Planning * Completed projects are removed from the list the following Quarter’s Status Report 6 Quarterly Report for July – September 2024 TAS K 5 – VAR I O U S R E P O R T I N G & C I T Y H O T L I N E Fraud, waste & abuse Hotline Reports & Updates Quarter Received In Process Closed FY25, Q2 0 1 1 7 Benchmarking Analysis TAS K 6 – E VAL U AT I O N & B E N C H M AR K I N G •Comparative Analysis of several Bay Area Cities •Highlights from the Association of Local Government Auditors 2024 Benchmarking Survey 8 Benchmarking Analysis TAS K 6 – E VAL U AT I O N & B E N C H M AR K I N G •Roughly 50 local government agencies that are part of the Association of Local Government Auditors (ALGA) •Berkeley Glendale •Long Beach Oakland •San Jose •Benchmarking Criteria •Population •Audit Budget •No. of FTEs •Number of Reports Issued •Cost per Audit 9 Benchmarking Analysis TAS K 6 – E VAL U AT I O N & B E N C H M AR K I N G City Population Audit Function Outsourced?Audit Budget No. of FTE’s No. of Audits Issued Average Cost per Audit (Audit budget/ No. of Audits) Berkeley 118,932 No $3,124,862 14.75 1 $3,124,862 Glendale 203,000 No $796,575 2 9*$88,508 Long Beach 449,468 No $3,507,601 18 10 $350,760 Oakland 436,504 No $3,528,626 12 5 $705,725 San Jose 969,655 No $3,641,097 14 17**$214,182 Palo Alto 65,882 Yes $366,755 14+3 $122,252 Comparative information for FY 2024 * Three of Glendale’s audits appear to be PCI Compliance Audits **Based on San Jose’s budget document of expected audit outputs, however, their website shows 9 audits issued in FY2023-24 Palo Alto 65,882 Yes $695,124 14+7 $99,303 Comparative information for FY 2025 10 Benchmarking Analysis TAS K 6 – E VAL U AT I O N & B E N C H M AR K I N G Some metrics from ALGA’s 2024 Benchmarking Survey •Small shop is defined as 3 to 5 auditors •Approximately 14 Baker Tilly staff worked on Palo Alto audits in FY24/FY25 •On average, 57% of staff hours are allocated directly to audits for small shops •Over 70% of Baker Tilly contract hours in 2024 were allocated directly to audits •95%of management agreed with audit recommendations •100% of management agreed with audit recommendations in 2024 •Estimated financial impacts related to audit findings and recommendations •We will look at the feasibility of tracking this in the future 11 Benchmarking Analysis TAS K 6 – E VAL U AT I O N & B E N C H M AR K I N G From ALGA’s 2024 Benchmarking Survey: Audit plans compared to ranked audit risk categories 12 Quarterly Report for October – December 2024 R E C O M M E N D AT I O N The Office of the City Auditor recommends that the Policy and Services Committee recommend the City Council accept the Office of the City Auditor’s Quarterly Status Report covering Q2, FY2025.