HomeMy WebLinkAboutStaff Report 4411
CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR
January 13, 2014
The Honorable City Council
Palo Alto, California
Policy and Services Committee Recommendation to Accept the
Auditor's Office Quarterly Report as of September 30, 2013 and the
Revised FY 2014 Work Plan
The Office of the City Auditor recommends acceptance of the Auditor’s Office Quarterly Report
as of September 30, 2013. At its meeting on November 19, 2013, the Policy and Services
Committee approved and unanimously recommended the City Council accept the report. The
Policy and Services Committee minutes are included in this packet.
Respectfully submitted,
Houman Boussina
Acting City Auditor
ATTACHMENTS:
Attachment A: Auditor's Office Quarterly Report as of September 30, 2013 and Revised FY
2014 Work Plan (PDF)
Attachment B: Policy and Services Committee Meeting Minutes Excerpt (November 19,
2013) (PDF)
Department Head: Houman Boussina, Acting City Auditor
Page 2
CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR
November 19, 2013
The Honorable City Council
Palo Alto, California
City Auditor's Office Quarterly Report as of September 30, 2013 and
the Revised FY 2014 Work Plan
RECOMMENDATION
The Office of the City Auditor recommends the Policy and Services Committee review and
recommend to the City Council acceptance of the Auditor’s Office Quarterly Report as of
September 30, 2013 and the Revised FY 2014 Work Plan.
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 first
quarter for FY 2014 and an updated FY 2014 Work Plan.
ATTACHMENTS:
Attachment A: Quarterly Report as of September 30, 2013 and Revised FY 2014 Work Plan
(PDF)
Department Head: Houman Boussina, Acting City Auditor
Attachment A
Page 2
Attachment A
“Promoting honest, efficient, effective, and fully accountable city government."
Attachment A
2
Fiscal Year (FY) 2014 First Quarter Update (July – September 2013)
Overview
The audit function is essential to the City of Palo Alto’s public accountability. As mandated by the City Charter and
Municipal Code, the mission of the Office of the City Auditor (OCA) is to promote honest, efficient, effective, and fully
accountable city government. We conduct performance audits and reviews to provide the City Council and City
management with information and evaluations regarding the effectiveness and efficiency with which resources are
employed, the adequacy of the system of internal controls, and compliance with policies and procedures and regulatory
requirements. Taking appropriate action on our audit recommendations will help the City to reduce risks and protect its
good reputation.
Former City Auditor Jim Pelletier left the office on September 12, 2013. Houman Boussina, Senior Performance Auditor,
has been appointed as Acting City Auditor until the recruitment for a new City Auditor is completed.
Audits
Below is a summary of our audit work for the first quarter of FY 2014 (as of September 30, 2013):
Title Objective(s) Start
Date
End
Date
Status Results/Comments
SAM1 – Follow-up
to the 2008 Audit
of Employee
Ethics Policies and
Results of 2013
Ethical Climate
Survey
This Special Advisory
Memorandum (SAM)
provides an update to the
2008 Audit of Employee
Ethics Policies and also
includes the results of an
Ethical Climate Survey we
conducted in May 2013.
The objective of this survey
was to understand how City
employees view ethics at
work and identify any ethics
related risks that may need
to be addressed.
5/2013 8/2013 Complete The overall score of the City’s
first Ethical Climate Survey was
medium. Based on the Institute
for Local Government Scoring
Matrix, this means that the City’s
overall ethical climate is good
but has room to improve.
1 A Special Advisory Memorandum (SAM) is utilized to communicate the results of time critical engagements including limited assessments,
reviews, or evaluations as requested by management or the Council. These non-audit services do not typically conform to rigorous audit standards,
but allow for important information to be provided to management in a quick, flexible manner and can be focused on singular issues.
Attachment A
3
Title Objective(s) Start
Date
End
Date
Status Results/Comments
Inventory
Management
Audit (formerly
Utilities Asset
Management)
Specific concerns regarding
the effective and efficient
safeguarding of certain
assets were identified
during the risk assessment
process. This audit will
follow up on those concerns
and assess the adequacy of
controls over Utilities assets
including compliance with
relevant policies and the
Municipal Code.
2/2013 12/2013 In Process In process as of 9/30/13. Met
with management in September
2013 to discuss a preliminary
draft outline of issues.
Contract
Oversight Audit:
Trenching and the
Installation of
Electric
Substructure
This audit was initiated
based on concerns raised in
a hotline investigation. The
audit objective was to
determine if the Utilities
Department effectively
managed its $1.9 million
contract with Casey
Construction, Inc. for
trenching services and the
installation of electric
substructure, in accordance
with contract terms, the
City of Palo Alto Municipal
Code (Municipal Code), and
relevant policies and
procedures.
1/2013 12/2013 In Process In process as of 9/30/13. The
audit report was presented to
the Finance Committee on
11/5/13. To be scheduled on the
City Council consent calendar in
December 2013.
Solid Waste
Program Audit
To determine whether
there are adequate controls
in place to effectively
manage the City’s Solid
Waste Program to ensure
sufficient revenue to
recover the cost of services
while pursuing zero waste
goals in accordance with
applicable laws, regulations,
and City policies and
procedures.
5/2013 1/2014 In Process To be determined (TBD)
Attachment A
4
Title Objective(s) Start
Date
End
Date
Status Results/Comments
Performance
Report
(formerly the
Service Efforts &
Accomplishments
report) / Citizen
Centric Report
To provide consistent,
reliable information on the
performance of City
services to assist users in
assessing whether the City
is achieving its goals and
objectives in an efficient
and effective manner and
to assist the City in meeting
its responsibilities to be
publicly accountable in the
stewardship over public
resources.
8/2013 1/2014
In Process These reports for FY 2013 will
provide comprehensive and
historical data and analysis that
is not available in any other
single report in the City. The
reports will be available online
and in hardcopy. The FY 2013
Performance Report will
continue with last year’s
redesigned format to provide an
additional focus on performance
management.
Other Monitoring and Administrative Assignments
Below is a summary of other assignments as of the first quarter of FY 2014 (as of September 30, 2013):
Title Objective(s) Status Results/Comments
Sales and Use Tax
Allocation
Reviews
The OCA conducts sales and
use tax monitoring in-house
and also contracts with an
outside vendor.
Ongoing The OCA continues to submit inquiries to the State Board
of Equalization. As of the end of the first quarter, the City
received $93,331 in total Sales and Use Tax Recoveries.
Due to processing lags at the State Board of Equalization,
there are 41 potential misallocations waiting to be
researched and processed (16 from OCA and 25 from the
vendor).
Total Sales and Use Tax Recoveries: FY 2014 ($47,161
from OCA inquiries and $46,170 from vendor inquiries).
Quarterly
Reporting
Each quarter, the OCA
provides Quarterly Status
Updates and Sales Tax
Digest Summaries for
Council review.
Ongoing N/A
City Auditor
Advisory Roles
Provide guidance and
advice to key governance
committees within the City.
Ongoing The City Auditor is an advisor to the following: Utilities
Risk Oversight Committee, the Library Bond Oversight
Committee, the Information Technology Governance
Review Board, and the Information Security Steering
Committee.
Attachment A
5
Fraud, Waste, and Abuse Hotline Administration
On August 16, 2012, we launched the City’s Fraud, Waste, and Abuse Hotline. As of September 30, 2013, we have
received a total of eight complaints, of which all but two have been closed. One of the complaints resulted in an audit
we conducted to address concerns about contract oversight. The chart below summarizes the status of complaints
received in each fiscal year.
Source: City of Palo Alto hotline case management system as of September 30, 2013
The hotline review committee (composed of the City Auditor, the City Attorney, and the City Manager or their
designees) meets as needed to review all activity related to the hotline. During the first quarter of FY 2014, there was
one new complaint (complaint number 8) submitted, two complaints were closed, and two existing complaints
remained under investigation. Below is a summary of hotline activity during the first quarter of FY 2014 (as of
September 30, 2013):2
Complaint
Number
Category Date
Opened
Status Action Taken
4 Bribery/Kickbacks 1/2013 Closed Unsubstantiated – Closed3
5 Policy Violation/Theft of Time 2/2013 Open Investigation in Progress
7 Policy Violation/Theft of Time 5/2013 Open Investigation in Progress
8 Hostile Work Environment 7/2013 Closed Unsubstantiated - Closed
Source: City of Palo Alto hotline case management system activity (July 1, 2013 through September 30, 2013)
2 This table includes cases opened, closed, or ongoing during the quarter. Cases closed in prior periods are not included.
3 While the allegations in this case could not be substantiated, we detected a minor violation of the City’s gift policy and provided management
recommendations for corrective action. We conducted a contract oversight audit as a result of other concerns raised during the investigation (see
the Revised Fiscal Year 2014 Work Plan on page 6).
2
5
1 0
1
2
3
4
5
6
7
8
FY 2013 FY 2014
Status of Complaints Received in Fiscal Year
Closed Complaints
Open Complaints
Attachment A
6
Revised Fiscal Year 2014 Work Plan 4
The following table summarizes the revised FY 2014 work plan. The original work plan was presented to the Policy and
Services (P&S) Committee on September 10, 2013. The FY 2014 Work Plan includes three audits carried over from the FY
2013 work plan and four new audits.
Audit Department Preliminary Scope*
Planned
Hours*5
Council
Committee
Inventory
Management
(formerly Utilities
Asset Management)
ASD, Multiple Carryover from FY 2013. To determine if the City has adequate
controls to ensure accuracy and completeness of inventory
records, accountability for inventory movements, and the
safeguarding of inventory and associated assets at the
Municipal Services Center (MSC) and Regional Water Quality
Control Plant (RWQCP).
450 Finance
Solid Waste
Program
Public Works Carryover from FY 2013. To determine whether there are
adequate controls in place to effectively manage the City’s
Solid Waste Program to ensure sufficient revenue to recover
the cost of services while pursuing zero waste goals in
accordance with applicable laws, regulations, and City policies
and procedures.
650 Finance
Contract Oversight
Audit
Utilities, ASD Carryover from FY 2013. This is a new audit created as a result
of a hotline investigation. The audit reviews the efficiency and
effectiveness of controls over certain Utilities Department
contracts.
400 Finance
Software License
Management
IT, Multiple New in FY 2014. The Information Technology (IT) Department
has identified ~222 applications within the City. This audit will
evaluate controls over software license management to ensure
the City is in compliance with relevant agreements and is using
all licenses it is paying for. Will carry over into FY 2015.
500 P&S
Utilities – Contract
Solicitation and
Award6
Utilities New in FY 2014. To evaluate the efficiency and effectiveness of
controls over contract solicitation and award within the
Utilities Department.
1006 N/A6
Utilities Customer
Service - Rate and
Billing Accuracy
Utilities New in FY 2014. To evaluate whether rates are properly
implemented and whether customers are accurately billed by
the City. Will carry over into FY 2015.
800 Finance
Franchise Fee
Audit
IT New in FY 2014. To determine if the franchisees have
accurately calculated and remitted franchise fees in accordance
with the Palo Alto Municipal Code and whether the City has
adequate controls to discharge its responsibilities to administer
and enforce state franchises. Will carry over into FY 2015.
600 Finance
*Preliminary scope and/or planned hours may change based upon the preliminary survey of the audit.
4 The work plan includes audits identified and prioritized through the annual risk assessment process. The work plan does not include hours for the
Performance Report (formerly the Service Efforts and Accomplishments report and Citizen Centric Report).
5 Planned hours for audits carried over from FY 2013 indicate remaining hours budgeted for FY 2014. For new audits, planned hours indicate the
total budget for the audit.
6 Although originally planned as an audit, we plan to conduct this work as a non-audit service and to issue a Special Advisory Memorandum (SAM).
Attachment A
7
Audit Horizon
The table below summarizes one audit deferred from the original FY 2014 Work Plan and four audits suggested by
members of the Policy and Services Committee on September 10, 2013. While we plan to include these audits in our
annual risk assessment process, the Policy and Services Committee may request the Office of the City Auditor to either
substitute work planned for FY 2014 with one or more of these audits or to include one or more of these audits in the FY
2015 Work Plan.
Audit Department Preliminary Scope*
Planned
Hours*
Council
Committee
Construction Project –
Change Order
Management
Public Works Evaluate the efficiency and effectiveness of controls over
the change order process within a major construction
project.
800
P&S
Public Benefits Planning and
Community
Environment
Evaluate whether benefits and funds are properly
accounted for and if funds are utilized in accordance with
relevant regulations, policies, and governing documents.
600 P&S
Special Districts
(Parking) Funds
Planning and
Community
Environment
Determine whether parking funds (special assessment
districts or Planned Community zones) are properly
accounted for and utilized in compliance with applicable
laws, regulations, policies, and governing documents.
400 P&S
Disability Rates and
Workers’
Compensation
People,
Strategies, &
Operations
Assess the effectiveness and efficiency of activities to
manage and minimize disability retirements and workers'
compensation claims. May include a review of processes to
ensure employee safety, tracking and reporting activity,
contract administration, and efficiency of claim processing.
700 P&S
Procurement Administrative
Services
Assess the effectiveness and efficiency of the procurement
process, with a focus on efficiency and timeliness.
800 P&S
*Preliminary scope and/or planned hours may change based upon the preliminary survey of the audit.
Attachment A
Policy and Services Committee
Minutes Excerpt
Page 1 of
Special Meeting
November 19, 2013
6:00 PM
Chairperson Kniss called the meeting to order at 6:17 P.M. in the Council
Conference Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Holman, Klein, Kniss (Chair), Price
Absent:
Chair Kniss stated Agenda Item Number 2 would be discussed prior to
Agenda Item Number 1.
1. City Auditor's Office Quarterly Report as of September 30, 2013 and
the Revised FY 2014 Work Plan.
Houman Boussina, Acting City Auditor, provided written summaries of the
audit work in the Fiscal Year (FY) 2014 Work Plan, other monitoring and
administrative assignments, and the Fraud, Waste and Abuse Hotline
administration cases. A revised FY 2014 Work Plan was compiled with
considerations for new staffing and priorities. The Policy and Services
Committee (Committee) requested Staff consider five areas for possible
audits. Those areas were listed on the Audit Horizon. The Committee could
direct Staff to prioritize those areas within the FY 2014 or FY 2015 Work
Plans. Audit Staff utilized a risk assessment process that selected the audits
to be performed.
Chair Kniss asked if the audits on the Audit Horizon could be accomplished in
FY 2014.
Mr. Boussina replied no.
Chair Kniss asked if the Committee should select which audits Staff
performed.
Mr. Boussina indicated the Committee could do that. The existing FY 2014
Work Plan was based on a risk assessment process and the number of hours
budgeted for audits.
Council Member Price inquired whether the risk assessment for the
Committee's proposed areas was not sufficient to warrant modification of the
Attachment B
MINUTES
Page 2 of 3
Policy and Services Committee Special Meeting
Draft Minutes 11/19/13
Work Plan. The revised FY 2014 Work Plan included the audits with the
most risk and needed to be performed timely.
Mr. Boussina answered yes, to the best of his knowledge.
Council Member Holman inquired about the action Staff sought with respect
to the Audit Horizon.
Mr. Boussina noted the Committee requested Staff consider those areas for
audit. After speaking with departmental Staff, he felt those audits could be
accomplished. However, he asked the Committee to decide whether to
substitute one or more of those audits for audits in the FY 2014 Work Plan or
to add one or more to the FY 2015 Work Plan. Otherwise, he would proceed
with audits selected by the risk-based process.
Council Member Holman asked if Staff had insufficient time to accomplish
another audit.
Mr. Boussina responded yes. Audits would have to be substituted.
Council Member Holman inquired whether audits in the Work Plan were
based on existing evidence that they were the higher risk items.
Mr. Boussina answered yes.
Council Member Holman asked if the audit regarding Contract Oversight,
Trenching and Installation of Electric Substructure would be placed on the
Council Consent Calendar because of a unanimous vote by the Finance
Committee.
Mr. Boussina replied yes. He presented that audit to the Finance Committee
which voted unanimously to accept the audit.
Council Member Holman inquired whether Staff would add audits from the
Audit Horizon to the FY 2015 Work Plan unless circumstances changed.
Mr. Boussina explained the new City Auditor would include them as part of
the risk assessment model, unless the Committee requested they be
included in a Work Plan.
Chair Kniss indicated audits on the Audit Horizon did not fall into a risk
assessment category. She asked if the Committee could direct Staff to
substitute one of the audits.
Mr. Boussina replied yes.
Attachment B
MINUTES
Page 3 of 3
Policy and Services Committee Special Meeting
Draft Minutes 11/19/13
MOTION: Council Member Klein moved, seconded by Council Member Price
that the Policy & services Committee move the City Council accept the
Auditor’s Office quarterly report as of September 30, 2013 and the revised
FY 2014 Work Plan.
MOTION PASSED: 4-0
Attachment B