HomeMy WebLinkAboutStaff Report 7353
CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR
October 17, 2016
The Honorable City Council
Palo Alto, California
Policy and Services Committee Recommendation to Accept the
Auditor's Office Quarterly Report as of June 30, 2016
The Office of the City Auditor recommends acceptance of the Auditor’s Office Quarterly Report
as of June 30, 2016. At its meeting on August 16, 2016, 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,
Harriet Richardson
City Auditor
ATTACHMENTS:
Attachment A: Auditor's Office Quarterly Report as of June 30, 2016 (PDF)
Attachment B: Policy and Services Committee Meeting Minutes Excerpt (August 16, 2016)
(PDF)
Department Head: Harriet Richardson, City Auditor
Page 2
CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR
August 16, 2016
The Honorable City Council
Palo Alto, California
Auditor's Office Quarterly Report as of June 30, 2016
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, 2016.
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 2016.
Respectfully submitted,
Harriet Richardson
City Auditor
ATTACHMENTS:
Attachment A: Auditor's Office Quarterly Report as of June 30, 2016 (PDF)
Department Head: Harriet Richardson, City Auditor
Attachment A
Page 2
Attachment A
Quarterly Report as of June 30, 2016
Office of the City Auditor
“Promoting honest, efficient, effective, economical, and fully
Accountable and transparent city government.”
Attachment A
Fiscal Year (FY) 2016 Fourth Quarter Update (April – June 2016)
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.
Highlights of Activities During the Quarter
• Published and presented the performance audit on Cable Franchise and Public, Education, and Government (PEG)
Fees.
• Published and presented the performance audit on Disability Rates and Workers’ Compensation.
• Harriet Richardson, Mimi Nguyen, and Lisa Wehara each gave presentations at the annual conference of the
Association of Local Government Auditors (ALGA) in May:
o Harriet gave a joint presentation with an auditor from Portland, OR, that discussed how each of our offices
conducts its annual citizen survey; Harriet also discussed our approach to using a citizen survey for the Animal
Services audit that we completed in April 2015.
o Mimi’s presentation demonstrated how our office has implemented SharePoint as a means of documenting our
audit work. Several other audit offices are replicating what we have done as an economical and efficient way to
document their work.
o Lisa’s presentation provided an overview of the Animal Services audit in a session devoted to the Knighton Award
winners in the small, medium, and large audit office categories.
• Harriet participated in an all-day session at the U.S. Government Accountability Office (GAO) and subsequent task
force conference calls to discuss proposed changes to the Government Auditing Standards and the GAO requested
her input on a proposed tool that it developed for auditors to use to assess internal controls in performance audits.
Below is a summary of our audit and project work for the fourth quarter of FY 2016:
Title Objective(s) Start
Date
End
Date
Status Results/Comments
Cable Franchise
and PEG Fees
Audit
Determine if 1) the City accurately
accounted for its receipt of franchise and
public, education, and government (PEG)
fees and met its oversight responsibilities
regarding the Media Center’s use of the
PEG fees, 2) AT&T and Comcast collected
and remitted the appropriate amount of
franchise and PEG fees, and 3) the City
established and sufficiently defined roles
and responsibilities to administer its cable
communications program and state
franchises.
02/14 05/16 Complete Presented the report to the
Policy and Services
Committee at its meeting on
May 10, 2016.
Attachment A
Title Objective(s) Start
Date
End
Date
Status Results/Comments
Disability Rates
and Workers’
Compensation
Audit
Assess the effectiveness of activities to
manage and minimize disability
retirements and workers’ compensation
claims. Review of processes to ensure
employee safety, tracking and reporting
activities, contract administration, and
efficiency of claim processing.
06/15 06/16 Complete Presented the report to the
Policy and Services
Committee at its meeting on
June 14, 2016.
Citywide
Analytic
Development
and Continuous
Monitoring:
Procure-to-Pay
Determine if data analytics and
continuous monitoring can help the City
detect duplicate vendor or vendor
payment records.
06/15 11/16 In
Process
We are performing
additional field work, at the
request of the Administrative
Services Department, to
verify if potential duplicate
payments we identified were
indeed duplicate payments.
We will revise our draft
report based on the results
and extend the planned date
of presentation to Policy and
Services Committee to
November 2016.
Fee Schedules
Audit
Evaluate City processes for establishing
fees to determine if the fees cover the
cost of services provided when expected.
The specific fees to be reviewed will be
narrowed down during the planning
phase of the audit.
06/15 11/16 In
Process
The audit is focusing on
Community Services fees and
is in the field work phase.
Estimated date of
presentation to Policy and
Services Committee is
November 2016.
Utilities
Customer
Service: Rate
and Billing
Accuracy Audits
Evaluate whether the Utilities
Department properly implements rates
and accurately bills customers.
06/15 12/16
and
04/17
In
Process
The audit is in the field work
phase and, thus far, has
focused on water billings.
Due to the variety of issues
we have identified, we will
issue a separate report on
the accuracy of water billings
and then do the field work
for gas and electric billings.
Estimated date of
presentation of water billings
to Policy and Services
Committee is December
2016; estimated date of
presentation of gas and
electric billings is April 2017.
Attachment A
Title Objective(s) Start
Date
End
Date
Status Results/Comments
Citywide
Analytic
Development
and Continuous
Monitoring:
Overtime
Determine if implementing a continuous
monitoring process for overtime could
improve the City’s oversight and
management of overtime.
06/15 11/16 In
Process
The project is in the field
work phase. Estimated date
of presentation to Policy and
Services Committee is
November 2016.
Sustainable
Purchases
Assess the City’s purchasing practices to
determine if environmental sustainability
is adequately considered in all purchases
as appropriate.
03/16 11/16 In
Process
The project is in the planning
phase. Estimated date of
presentation to Policy and
Services Committee is
November 2016.
Other Monitoring and Administrative Assignments
Below is a summary of other assignments as of June 30, 2016:
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
misallocated 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 were $43,249 from our inquiries and $11,098
from vendor inquiries, for a total of $59,551 year-to-
date: $44,084 from our office and $15,467 from the
vendor. Due to processing delays at the State Board of
Equalization, there are 63 potential misallocations
waiting to be researched and processed: 21 from our
office and 42 from the vendor.
2) The City of Palo Alto received $963,464 as a result of
the development agreement with Stanford University
Medical Center. The amount included $884,649 for
calendar year 2015 and $78,815 for prior-year
adjustments. The City has received $2,017,656 for 2011
through 2015 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.
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, Information Security Steering
Committee, and Information Technology Governance
Review Board. We have recently taken on an advisory
role for the strategic and technical planning groups for
planning the new Enterprise Resource Planning (ERP)
system.
Status of Audit Recommendations
Sixty-six recommendations were open at the beginning of FY 2016, and we added 32 recommendations during the year;
seventy-three recommendations remain open at this time. Twenty-five recommendations (38% of the 66) from prior
Attachment A
years were implemented during the fiscal year: 0 during the first quarter of FY 2016, 21 during the second quarter, 4
during the third quarter, and 0 during the fourth quarter. Below is a summary of open audit recommendations, by audit,
as of June 30, 2016:
Audit Title
Report
Date
Status
Report
Dates
Due Date of
Next Status
Report
Total
Recommendations
Implemented
During Quarter Open
Citywide Cash Handling and
Travel Expense
09/15/10 11/10/15
09/23/14
09/10/13
10/22/12
04/19/11
Past Due 11 0 2
Contract Oversight: Trenching
and Installation of Electrical
Substructure
11/05/13 12/15/15
09/23/14
Past Due 6 0 2
Inventory Management 02/18/14 09/23/14 Past Due 14 0 14
Utility Meters: Procurement,
Inventory, and Retirement
03/10/15 None Past Due 15 0 15
Police Department: Palo Alto
Animal Services
04/22/15 03/22/16 09/13/16 8 0 8
Parking Funds 12/15/15 None 09/13/16 8 0 8
Disability Rates and Workers’
Compensation
05/10/16 None 02/14/17 15 0 15
Cable Franchise and Public,
Education, and Government
(PEG) Fees
06/14/16 None 03/08/17 9 0 9
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. We received two hotline complaints during the fourth
quarter of FY 2016. The chart below summarizes the status of complaints received in each fiscal year since the hotline
was implemented.
0
21
4 00
5
10
15
20
25
Q1 Q2 Q3 Q4
FY 2016 Quarter
# Implemented Recommendations
41
32
0
20
40
60
80
100
FY 2016
# Open Recommendations
From Prior Fiscal Years From Fiscal Year 2016
Attachment A
Source: City of Palo Alto hotline case management system as of June 30, 2016
We recently sent a survey to about 60 local government audit offices that manage a hotline to seek input about how
they manage their hotlines to ensure they receive calls when fraud, waste, or abuse are suspected and how they triage
and investigate valid complaints. We have received about 25 responses so far and are compiling the results. We will
present a discussion item on this topic at the September Policy & Services Committee meeting.
1
7
3 2
12
0
2
4
6
8
10
12
14
FY 2013 FY 2014 FY 2015 FY 2016
Status of Complaints Received by Fiscal Year
Closed Complaints
Open Complaints
Attachment A
CITY OF PALO ALTO
MEMORANDUM
TO: POLICY AND SERVICES COMMITTEE
FROM: CITY AUDITOR
AGENDA DATE: August 16, 2016 ID# 7194
SUBJECT: Correction to sales and use tax recoveries figures
On page 4 of the City Auditor’s Office Quarterly Report as of June 30, 2016, under Other
Monitoring and Administrative Assignments – Sales and Use Tax Allocation Reviews, the
language should read:
1) Total sales and use tax recoveries for the fourth quarter were $27,845 from our inquiries and
$9,590 from vendor inquiries, for a total of $59,551 year-to-date: $44,084 from our office and
$15,467 from the vendor. Due to processing delays at the State Board of Equalization, there are
63 potential misallocations waiting to be researched and processed: 21 from our office and 42
from the vendor.
___________________________
HARRIET RICHARDSON
City Auditor
Attachment A
Special Meeting August 16, 2016
Chairperson DuBois called the meeting to order at 6:01 P.M. in the
Community Meeting Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Berman, DuBois (Chair), Kniss, Scharff
Absent:
Oral Communications
None.
Agenda Items
1.Auditor's Office Quarterly Report as of June 30, 2016
Chair DuBois: So our first item on the agenda is the Auditor’s Office
Quarterly Report.
Harriet Richardson, City Auditor: Is this on? Good evening, Mr. Chair and
members of the committee; Harriet Richardson, City Auditor, here to present
the Auditor’s Office Quarterly Report as of June 30, 2016. So couple of
highlights during the audit, during the quarter we completed, published, and
presented two audits, the Cable Franchise and Public Education Government
Fees Audit and the Disability Rates and Workers Compensation Audit. Also
three people in my office, me and Mimi went in and Lisa Wehara each gave
presentations at the annual conference for the Association of Local Government Auditors in May. I gave a presentation with an auditor from
Portland on how we conduct our National Citizens Survey compared to how
they conduct their citizen’s survey and also discussed our approach using
the Citizen’s Survey in an audit which we did with our Annual Services Audit.
Mimi’s presentation discussed how our office has implemented SharePoint as
an efficient means for documenting our audit work and quite a few other
audit offices around the country are replicating what we've done as an
economical and efficient way to document their work. Lisa’s presentation
Attachment B
provided an overview of the Animal Services Audit at a session that was
devoted to winners of the annual Knighton Award for the best audit shop.
She presented in the medium size office category and I mentioned last time
that we would be getting the award and I did bring the award so you could
see it. And then I participated in an all-day session at the United States
(U.S.) Government Accountability Office and subsequent task force
conference calls to discuss proposed changes for the government auditing
standards and to provide input on a proposed tool that is being developed
for auditors to use to assess internal controls in a performance audit. So summary of the audits, so I already mentioned that we completed the Cable
and Disability Rates Worker's Compensation Audits. We are in the process
of completing an audit for continuous monitoring. We call it [inaudible] pay.
It's really accounts payable and that's looking at determining if we can use
data analytics to identify, to prevent or identify if we do pay a vendor twice
on the same invoice. So where we have a draft report on that says in
progress due to preforming additional field work. They have completed that
field work at this point and we are in the process of drafting that report now.
We expect to present that to this committee in November. We are also
working on a fee schedule audit. Originally we had a broad scope that said
we’d narrow it down to what we were going to look at as we got into the
audit and some cost of services at were some fees were already audited or reviewed under cost of services study and so we're focusing on Community
Services and we're in the fieldwork phase of that. We expect to finish that
by November also. So the next audit was one audit that we are actually
splitting into two, the Utilities Customer Service Rate and Billing Accuracy
Audits. We plan to look at water, gas, and electric and we have done most
of the work on water based, but based on the number of issues we’re
identifying we have determined that we will separate that into two audits
and we expect to present the water portion of it in December. I have on
here that we will present the gas and electric in April. That may get
deferred depending on how we do on our other audits that we have planned
on our new audit plan that I'll be presenting next. And then we're also doing
continuous monitoring audit of overtime to see if there's ways that we can
use data analytics to identify trends and how we use overtime and
determine if there's ways that we could better manage our overtime based
on that data. And then we also have an audit in progress on sustainable
purchasing to look at whether or not the City is complying with the City's
environmental sustainability purchasing requirements as required when that
opportunity is available. We do have several of these scheduled to end in
November, but it's unlikely that we’ll put all of those on a single agenda so
and you have other things besides our audits. So it will likely be that some
of those will get delayed into December or January for presentation. We
continue to monitor Sales and Use Tax. You do have a correction memo for
the numbers that are in here. During this quarter we collected $27,845
Attachment B
from our efforts and $9,590 from our vendors’ efforts for a total of $59,551
for the year. That is quite a bit lower than what we've collected in previous
years, but we just got notification that for the next quarter we're going to
have a very large sum coming in from a very old vendor form request for to
the State Board of Equalization that’s going to be over $200,000 so that
one’s for a multi-year collection of state sales tax, of sales tax. And then in
June we always report the sales tax that we get from the development
agreement with Stanford University. That's based on a calendar year so it's
for calendar year ‘15 and we get the information in the May/June timeframe. So for this year we received $963,464 as a result of that development
agreement. To date we’ve received 2,000 about approximately $2 million
for 2011 through 2015 as a result of that agreement. We continue to
participate in our advisory roles: the Utilities Risk Oversight Committee, the
Information Security Steering Committee, and the Information Technology
Governance Review Board. We recently have taken on an advisory role to
participate in both the strategic and technical planning groups for the new
enterprise resource planning system. The purpose of that is really to see as
they're planning the audit if we see something that looks like it may be
going astray from what we'd expect to see if we audited after the fact that
we try and get it corrected and get them on course, the right course before
it gets, gets there. The next section of the Report is the Status of the Audit Recommendations. So we have what, two… four, five, six, seven, eight
audits with open recommendations dating, the audits dating from 2010 until
the two most recent ones in 2016. The graph below that shows that none of
the recommendations were reported as implemented during this quarter.
During the year a total of 25 were implemented. There is still 41
outstanding from audits prior to 2016 and 32 from the audits that we
conducted this fiscal year. And then the last item on here is the Fraud Waste
and Abuse Hotline. During fiscal year 2016 we received 13 complaints. One
of those is still open. We continue to receive complaints that primarily are
personnel types of issues rather than fraud, waste or abuse types of issues
and we’ll be coming back at the Council’s request to Policy and Services next
month with a report about how we might address that. And that completes
my report for our Quarterly Report right now. [Inaudible] Answer any
questions.
Chair DuBois: Thank you for the report. You had some questions?
Council Member Kniss: So I’ve got a couple of things, right? Maybe we’ll go
backwards. So you said that the about the hotline which has been a hot
topic since I’ve been here. It's something that you wanted to reevaluate
because you're saying it's primarily about… am I not on?
Attachment B
James Keene, City Manager: Oh, no. Excuse me, I’m sorry. It’s just moving
the mic just in case I had to say anything, but I’ll happily move it away.
Council Member Kniss: So we have been discussing this for a long time and I
think as you said it’ll come up next month?
Ms. Richardson: Yes.
Council Member Kniss: But I think it's important that we really take a good
look at it. I don't think our City Manager is very enthused about it as I recall
and so maybe we need to take a look at if it's not fraud abuse and so forth,
but instead is personnel kinds of issues that that may not be worth our time. And I don't remember what it cost, but I'm going to presume that it’s
everything [inaudible].
Ms. Richardson: I’ll be presenting that and looking at do, do we keep it and
just define fraud waste and abuse better and advertise it to employees so
they know what types of things to report or to do we do something
different? So it will be a discussion item for next month.
Council Member Kniss: And if you look back to seven, Page 7 and look at
this for overtime it seems to me that whenever we've had these discussions
that all overtime is not created equal.
Ms. Richardson: That's correct.
Council Member Kniss: So I'm not quite sure how you're going about that. I
think you understand my… what I’m saying. So could you say a little more about that?
Ms. Richardson: What we're looking at is if you look at data and really focus
on when overtime is used and what the purpose of the overtime is and you
start disaggregating the data instead of just looking at it in the aggregate
can you identify trends that might help you look at different ways to staff
that might be more efficient than using overtime?
Council Member Kniss: Well, I’m also thinking that overtime for the Fire
especially at this time of year is different.
Ms. Richardson: Right.
Attachment B
Council Member Kniss: When Police are short on staff that's different.
Ms. Richardson: Right, we understand …
Council Member Kniss: And the same with Utilities with rights …
Ms. Richardson: We’re looking at four departments primarily: Police, Fire,
Utilities, and Public Works.
Council Member Kniss: And [inaudible] seem to usually have very good
reasons for why they have overtime. So that's what I, I guess what you're
saying is it's the aggregation of this information is going to give you the data
that you want?
Ms. Richardson: Disaggregation.
Council Member Kniss: The… Ok, the disaggregation.
Ms. Richardson: De-aggregation? You choose the right one.
Council Member Kniss: Ok, ok. I hear that, but that seems to be…
Ms. Richardson: It's another way of looking, looking at data that might help
you see things in a different way.
Council Member Kniss: Ok, I’ll wait to see that. Those are my questions
Tom.
Chair DuBois: Great. Greg, Marc?
Vice Mayor Scharff: I’m good.
Chair DuBois: I just had one question which was seems so we had $200,000
in sales tax coming in, again on from a total basis where does that put us compared to last year?
Ms. Richardson: Well that will count for the, to the first for the first quarter
for this coming year.
Chair DuBois: Ok.
Attachment B
Ms. Richardson: For this for Fiscal Year (FY) ‘17 and that puts us way ahead
of anything we’ve collected in prior years.
Chair DuBois: Ok, well we did have …
Ms. Richardson: It’s a single, pardon me?
Chair DuBois: We did have some large [inaudible]
Ms. Richardson: Right, we… it's kind of up and down. This year was quite
low compared to previous years.
Chair DuBois: Ok, and then again there’s that backlog that you’re waiting to
hear?
Ms. Richardson: Correct.
Chair DuBois: Has that backlog gotten larger?
Ms. Richardson: It fluctuates. You might get a few that get resolved and
then you add a few and so there's a little bit of up and down there. Last
time that we had 50, last quarter we had 56 outstanding so we're up to 63
right now.
Vice Mayor Scharff: So I just want to follow up, maybe I misunderstood.
The $200,000 that you’re talking about I thought that was past collections
[inaudible] the State didn’t give us that they were supposed to or is this?
Ms. Richardson: It’s past collections that a vendor misallocated to other
jurisdictions.
Vice Mayor Scharff: Ok, that’s what I thought, right? So it's not, yeah. So
when would that if that had normally come through, come in and…
Ms. Richardson: It would have been spread out over the period of time that
it should have normally come in, which was actually it was a long period of
time. Third quarter of… third calendar quarter of 2007 or 2006 through the
second quarter of 2014.
Vice Mayor Scharff: So here again I think disaggregation is better than
aggregation in that when we look at our 2016 sales tax and our 2017 sales
Attachment B
tax are we going to include that $200,000 in those numbers as if we, as if
we collected it in 2017, which we show off the…
Ms. Richardson: Yes, yes.
Vice Mayor Scharff: But that’ll screw up the numbers in terms of a trend of
are we collecting more sales tax or less sales tax because that sales tax
really should've been counted in previous years.
Ms. Richardson: Correct and I’m not sure how Administrative Services
Department (ASD) reallocates that, is anyone?
Vice Mayor Scharff: [inaudible] cash based accounting.
Ms. Richardson: So we’re going to be getting a large sum, I already told Jim
about that. A large sum of money; it’s sales tax, but it’s from the this these
different years and he’s saying it’s going to throw off our how it looks like
how much we collect this year when it’s really.
David Ramberg, Assistant Director of Administrative Services: It will, yeah.
We’ll accrue it in the current year.
Vice Mayor Scharff: Right here you just do a footnote.
Mr. Keene: We’ll do a footnote.
Vice Mayor Scharff: Just says it so it's not… That would be great. Ok, sorry.
Chair DuBois: But overall it sounds like sales tax has gone down.
Ms. Richardson: Well, I wouldn't say in general. It's just that the
misallocations that we've identified have gone down.
Chair DuBois: Right, that’s yeah.
Vice Mayor Scharff: Ok, sales tax receipts have not gone down. Just so
we’re clear.
Chair DuBois: Any other questions? Get a Motion?
Attachment B
Council Member Kniss: We’d like to have sales tax going through. I move
adoption of the report from the Auditor.
MOTION: Council Member Kniss moved, seconded by Chair DuBois to
recommend the City Council accept the Auditor’s Office Quarterly Report as
of June 30, 2016.
MOTION PASSED: 4-0
Attachment B