HomeMy Public PortalAboutAudit Standing Committee - Minutes - 2014-10-31 (June 30, 2014 Financial Audit)CITY OF TEMPLE CITY
STATUS MEETING WITH THE AUDIT STANDING COMMITTEE
JUNE 30, 2014 FINANCIAL AUDIT
Date: October 31, 2014 (11:00 a.m.)
ATTENDEES
City of Temple City Audit Committee
• Tom Chavez, Mayor Pro -Tem
• Vincent Yu, Councilmember
• Steve Curran, Planning Commission Member
Vasquez & Co. Team
• Gilbert Vasquez, Managing Partner
• Peggy McBride, Engagement Partner
• Cristy Canieda, Quality Control Partner
• Mark Siegfried, Audit Manager
• Arlene Pingul, Audit Supervisor
• Marcy Caragan, IT Supervisor
• Jack Bautista, Audit Senior
VASQUEZ DELIVERABLES
ATTACHMENT A
City Finance Team
• Bryan Cook, City Manager
• Tracey Hause, Administrative Services Director
• Lee Ma, Accountant
• City's Comprehensive Annual Financial Report (CAFR) — in progress; on schedule
• Single Audit Reports and related filings with the Federal agencies — report in draft stage; on schedule
• State Controller's Report - Completed and submitted to SCO on October 13, 2014
• GANN Limit Report — to be provided later in November 2014
• Management Letter Comments — draft in development; points for discussion below
• Written Communications to those Charged with Governance (SAS 114) —see items below
AUDIT TIMELINE
See attached updated timeline.
Open Items
• East West Bank CD Cash Confirmation
° Calabee's Note Receivable Confirmation
MTA Prop A. C & TDA Remittances Confirmation
• Update on pending litigation and any such matters that require disclosure
REQUIRED COMMUNICATIONS TO THOSE CHARGED WITH GOVERNANCE (SAS 114)
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Accounting Principles - Management has primary responsibility for the accounting principles used.
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Accounting Policies - We believe the City's significant accounting policies are appropriate.
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Verifiable Information - Information underlying the financial statements has been generally verifiable,
with management being appropriately neutral.
Reasonable Estimates - Significant items subject to such estimates include: valuation allowances on
receivables, useful lives for property and equipment, claims payable and valuation of investments.
We evaluated management's assumptions used in developing the estimates and found them to be
reasonable.
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Misstatements- Management has corrected all misstatements noted during our audit.
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Disagreements with Management— None.
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Consultations with Other Accounting Firms - Management has advised us that it has not relied on
consultations with other accounting firms.
Significant Issues Discussed with Management Prior to Retention — None.
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Difficulties with Management — We encountered no difficulties with Management. Management
demonstrated an appropriate focus on internal controls over accounting, safeguarding assets and
financial reporting.
No Irregularities, Fraud or Illegal acts - None came to our attention.
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Independence — Vasquez & Company LLP is independent of the City within the meaning of the
independence, integrity and objectivity rules, regulations, interpretations, and rulings of the AICPA,
the State of California Board of Accountancy, the Government Auditing Standards, and other
regulatory agencies.
City audit participation — City staff were cooperative and forthcoming in providing the auditors the
information required to perform the audit procedures.
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Management's Representations — Management will provide us a representation letter stating that all
relevant information has been disclosed to us and that the information set forth in the financial
statements is complete and accurate.
t,II._ j .;
Financial Reporting
Condition:
As part of the year-end process, there were a number of audit adjustments required to bring the account
balances into agreement with the supporting detail schedules. Some of these adjustments are considered
essential to the preparation of accurate financial statements. The City does not have comprehensive written
monthly or year-end closing procedures to facilitate the timely review and monitoring of the accounts and the
financial reporting processes.
Recommendation:
We recommend the City develop and document monthly and annual closing procedures. These procedures
should include, on a monthly and annual basis, analyzing the accuracy of the month-end and year-end account
balances and correcting errors found during this process. Variances should be investigated before adjustments
are made, and all adjustments should be reviewed by qualified Finance Department personnel. These
procedures, when performed on a monthly and an annual basis, will substantially reduce the amount of
adjustingjournal entries at year-end, improve the reliability of interim financial statements and allow for more
timely completion of the annual financial statements and independent audit.
Accounts Payable
Condition:
Invoices submitted by vendors are directed to the ordering department for review and approval without being
first logged in and accounted for by the Finance Department. This practice can delay submission of approved
invoices to the Accounts Payable Division and potentially trigger past the due penalties and failure to record
the liability in the proper reporting period.
Recommendation:
We recommend that the Accounts Payable Division receive and open all invoices prior to the distribution to
individual departments and perform the following procedures:
• Review invoices for possible early payment discount
• Stamp with the date of receipt
• Record the liability in the financial system thus updating the liability accounts
• Distribute invoices to individual departments for approval by department heads
• Monitor and inquire about invoices that have been outstanding over 90 days
Implementing a centralized receipt of
invoices would assist
in retaining an updated
accounts payable
general
ledger and additional control over the
outstanding invoices.
Fixed Assets
Condition:
During our evaluation of Fixed Assets/Capital Assets, we noted the absence of a formal capital assets policy,
with the exception of a capitalization threshold. The adoption of and adherence to a written policy may
facilitate the accurate. recording of fixed asset activity and strengthen accountability for the City's capital
assets.
Recommendation:
We recommend the City develop and adopt a Fined Assets Policy addressing critical issues including:
• Procurement/Acquisition —Determine who will be authorized to acquire fixed assets. This should be
similar to the City's procurement policy.
• Disposal — Develop processes to authorize disposal of assets (auction, sale, donation, etc.)
• Useful life — Determine the fixed asset classifications and calculate a useful life for each class. The best
source of relevant information on the estimated useful lives of a government's capital assets normally
is its own past experience with similar assets or the experience of other governments and private -
sector enterprises with similar assets. In estimating a useful life, it is important to consider various
factors such as Quality (e.g., asphalt vs. concrete) and Application (road on a residential street vs, a
commercial street)
• Capitalization threshold — It was noted that the City has a threshold of $500. The Government Finance
Officers Association (GFOA) recommends that governments establish a capitalization threshold of no
less than $5,000. This level is also consistent with Federal guidelines.
o Physical inventory — Conduct a physical inventory in FY 14-15 to create an updated accurate inventory
of the City's fixed assets. Additionally, best practices as supported by GFOA guidelines recommend
that at least on a test basis, a physical inventory be done no less than once every five years.
• Establish the frequency as to how often the policy should be evaluated and/or updated. For example,
the useful life estimate should be compared with the City's actual experience and appropriate
adjustments should be made to reflect this experience.
Staffing Augmentation Within the Finance Department
Condition:
The City Finance Department monitored and accounted for more than $29 million of expenditures in fiscal
year 2014. Responsibilities include compliance with Federal, State and City laws and regulations,
implementation and monitoring of effective internal control systems, adoption and implementation of new
accounting pronouncements, processing of financial transactions such as billings, collections, procurement,
accounts payable, payroll, employee benefit payments and obligations, overseeing the recording of capital
assets, and accounting for financial transactions and the City's assets and liabilities. The additional burden
created by the year-end closing, reporting and auditing processes may place demands on Finance staff beyond
their available time. We note that many other cities augment their accounting staff as needed to
accommodate times of increased workload, whether caused by budget preparation, bond issuances or year-
end reporting and auditing functions.
Recommendation:
We recommend the City evaluate the potential need and benefit to be gained by additional staffing during
periods of peak workload. The addition of qualified accounting resources, while accompanied by a financial
cost, may also allow for improved internal controls, better management information, and more timely
financial reporting.
Information Technolaav General Controls (ITGC) Review
Condition:
While the City has made arrangements for backup of critical data, tests for recoverability of backup data have
not been performed for the financial reporting system data at the application service provider (ASP) and for
the data from different systems maintained by the City.
Recommendation:
The City's IT management should consider the following:
1. Obtain on a regular (annual) basis a copy of the SOC 1 report from the ASP to ensure that the
-controls are in place to secure the City data and to provide high assurance that the systems are
operating effectively.
2. Test on a regular basis the recovery of critical data and applications, both for the system
outsourced from the service provider and the systems managed by the City.
3. Develop formal recovery procedures for critical data and applications and establish a formal
disaster recovery plan (DRP). The DRP document should be communicated to all concerned
personnel and should provide for:
e Priority, recovery time and recovery point for each of the critical applications and data
Recovery team and contact information with call tree
e Offsite storage and alternate facilities or processing methods
• Regular testing and updating of the plan.
Condition:
While the City employs passwords to protect against unauthorized access to City records and transaction
capability, the City does not require strong passwords for network access and access to the Pentamation
system. In addition, a review of users for appropriateness of access on a regular basis is not performed.
Recommendation:
We recommend that the City consider the following:
1. Define and enforce a strong password policy both in the network and in the financial reporting
system.
2. Perform a periodic review of users and appropriateness of access for both the network and the
financial reporting system.
CITY OF TEMPLE CITY
UPDATED AUDIT TIMELINE
Description
Responsiblity
Scheduled Date
Interim Fieldwork
V & Co
Completed
Entrance Meeting
V & Co/City
Completed
Final fieldwork
V & Co
Completed
Final TB and all audit schedules provided to Vasquez & Company (see request
list for final fieldwork)
City
Completed
End of fieldwork
V & Co
Completed
Filing of State Controller's Report
V & Co
Completed
CAFR worksheets provided to the City
V & Co
11/7/2014
Preliminary draft Single Audit Report provided to the City
V & Co
11/17/2014
MD&A and Statistical Section provided to V& Co.
City
11/17/2017
Preliminary draft financial statements and footnotes (CAFR) provided to the City
V & Co
11/24/2014
Exit conference
V & Co/City
TBD
ReHew notes and changes to the CAFR provided to V & Co.
City
12/5/2014
Final review of the CAFR
V & Co/City
12/5/2014
Original signed management representation letter
City
12/12/2014
Final CAFR
V & Co
12/12/2014
Final Single Audit Report
V & Co
12/12/2014
Presentation to Audit Committee and/or City Council
V & Co
TBD
* We will provide the CAFR worksheets in advance to provide the city sufficient ti me to work on MD&Rand statistical
section.