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HomeMy WebLinkAbout2020-06-09; City Council; ; Fiscal Year 2020-21 Internal Audit Plan and Update on Audit ActivitiesCA Review CKM  Meeting Date: June 9, 2020  To: Mayor and City Council  From: Scott Chadwick, City Manager   Staff Contact: Brigid Okyere, Internal Auditor  brigid.okyere@carlsbadca.gov, 760‐602‐2429  Laura Rocha, Deputy City Manager, Administrative Services  laura.rocha@carlsbadca.gov, 760‐602‐2415  Subject: Fiscal Year 2020‐21 Internal Audit Plan and Update on Audit Activities  Recommended Action  Receive a report on the results of internal audit activities and annual audit plan for fiscal year  2019‐20 and adopt a resolution approving the Internal Audit Plan for fiscal year 2020‐21.  Executive Summary   According to City Council Policy No. 89, the internal auditor presents an Internal Audit Plan for  the City Council’s review and approval each fiscal year. The City Council is being asked to  approve the Internal Audit Plan for fiscal year 2020‐21.   Policy No. 89 also requires the internal auditor to communicate results of audit activities and  progress on the annual audit plan twice a year to the city manager and the City Council. The  internal auditor is presenting a summary of the completed Citywide Cash Count audit results,  the status of the city’s corrective actions taken in response to audit recommendations and an  update on pending audit activities.  Discussion    The City Council approved City Council Policy No. 89 on Nov. 12, 2019, to create a framework  for the city’s internal audit activity. As described in this policy, the city’s internal auditor  summarizes proposed audits and other activities for the upcoming fiscal year in an Internal  Audit Plan. This serves as the primary work plan for the responsibilities of the internal auditor.  The attached Internal Audit Plan for fiscal year 2020‐21 includes information about the basis for  audit topics selected, potential objectives and the consideration of resources. It includes  carryover projects from the Internal Audit Plan for the previous fiscal year and several new  audits for consideration.  As part of the fiscal year 2019‐20 Internal Audit Plan, the internal auditor completed one audit  and has two other projects that are currently in progress. During this time, significant effort  also went toward formalizing the city’s internal audit activity, meeting with all city  June 9, 2020 Item #9 Page 1 of 20   departments, creating an internal audit manual, establishing a new contract with an external  audit firm to conduct compliance audits and other activities.     The internal auditor submitted the attached Report 2020‐01 August 2019 Citywide Cash Count  to the City Council in a council memo on Dec. 19, 2019. The report content includes the audit’s  objectives, methodology and findings and conclusions. At the end of this report, the internal  auditor recommended several corrective actions to city departments in response to audit  conclusions.     For this report, the internal auditor will present:   A summary of internal audit’s activities during fiscal year 2019‐20   A summary of the August 2019 Citywide Cash Count audit results   An update on the status of corrective actions taken in response to the audit   An update on the status of ongoing audits   The proposed Internal Audit Plan for fiscal year 2020‐21    Fiscal Analysis  There is no immediate fiscal impact to approving the fiscal year 2020‐21 Internal Audit Plan.  An  ongoing budget increase was approved in the previous fiscal year to cover the costs of hiring  the external auditor to perform transient occupancy tax compliance audits. Additionally, there  is no immediate fiscal impact to the city by implementing the recommendations cited in Report  2020‐01 August 2019 Citywide Cash Count.    Next Steps  If approved by the City Council, the internal auditor will conduct the activities as cited in the  fiscal year 2020‐21 Internal Audit Plan.     Environmental Evaluation (CEQA)  In keeping with Public Resources Code section 21065, this action does not constitute a "project"  within the meaning of the California Environmental Quality Act in that it has no potential to  cause either a direct physical change or a reasonably foreseeable indirect physical change in the  environment, and therefore does not require environmental review.    Public Notification and Outreach  This item was noticed in accordance with the Ralph M. Brown Act and was available for viewing  at least 72 hours prior to the scheduled meeting date.    Exhibits  1. City Council resolution  2. Report 2020‐01 August 2019 Citywide Cash Count  June 9, 2020 Item #9 Page 2 of 20 RESOLUTION NO. 2020-107 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, APPROVING THE INTERNAL AUDIT PLAN FOR FISCAL YEAR 2020-21 Exhibit 1 WHEREAS, the Council Policy No. 89 internal audit framework sets forth the qualifications, duties, and powers of the city's internal auditor; and WHEREAS, the City Council shall review and approve an annual Internal Audit Plan that provides visibility of the City of Carlsbad's overall internal audit effort. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1. That the above recitations are true and correct. 2. That the City Council hereby approves the Internal Audit Plan for fiscal year 2020-21 as shown in Attachment A. PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of Carlsbad on the 9th day of June 2020, by the following vote, to wit: AYES: NAYS: ABSENT: Hall, Blackburn, Bhat-Patel, Schumacher. None. None. MATT HALL, Mayor ~ Hec/(Jr G-omez. BARBARA ENGLESON, City Clerk Dep, 1 (SEAL) CJ-Fj Cler✓ June 9, 2020 Item #9 Page 3 of 20 Attachment A      Internal Audits  Fiscal Year  2020‐21  Internal Audit  Plan  June 9, 2020 Item #9 Page 4 of 20    Fiscal Year 2020‐21 Internal Audit Plan       OVERVIEW    The City of Carlsbad’s internal auditor performs independent and objective assurance services to  safeguard city resources and improve city operations. Internal audits help to mitigate risks by  recommending specific improvements to city processes and controls. Potential audits may include  any city department, division, function, or program administered by the city.    The purpose of the annual internal audit plan (audit plan) is to outline audits and other activities the  internal auditor proposes to conduct during the fiscal year. This document serves as the primary work  plan to carry out the responsibilities of the internal auditor. The basis for the plan comes from auditor  observations, inquiries with management, audit requests from the City Council and city management,  and potential areas of risk. The internal auditor’s strategy in developing this plan seeks to identify, prioritize and manage audits considered important to city operations, programs and systems.     Currently, the Internal Audit Division is comprised of one full‐time internal auditor. The audit plan  considers available staff hours, level of expertise and experience, estimated size and complexity of  audits, time allocated to satisfy continuing professional education requirements, time allocated to performing audit follow‐up procedures, and use of external consultants/auditors.     The audit plan is a working document. During the year, causes for changes to the audit plan may  include an increase or decrease in audit scope, additional or pressing audit requests, or an excessive  threat to auditor independence. As such, projects initiated in the current year may carry over into the  following fiscal year.    Planned audits are listed on the following page with potential objectives. During the preliminary work  period, the internal auditor will establish familiarity with the department and/or function by  conducting background interviews and research.  At that time, audit objectives may be refined and  methodology will be developed.     June 9, 2020 Item #9 Page 5 of 20    Fiscal Year 2020‐21 Internal Audit Plan       Fiscal Year 2020‐21 Planned Audits  Audit Topic Performed  by  Audited Entity Potential Objectives  FY 2019‐20 Carryover  The Crossings  at Carlsbad Golf Course  Internal  Auditor  The Crossings at  Carlsbad Golf Course; JC Resorts  Management; City  of Carlsbad  Finance  Department, Parks & Recreation  Department, and  other  departments as  necessary   To assess JC Resorts Management’s compliance  with the city’s sexual harassment policies and  procedures and other mandated guidelines.   To assess the financial performance of the pro  shop and food and beverage.   To review The Crossings’s overall financial health  against comparable nearby golf courses and the  general golf market to assess financial  sustainability.   To determine whether various city departments  provide adequate oversight of and services to  The Crossings.  Transient  Occupancy  Tax  External  firm  Various hotels as  determined by city   To  determine if a hotel is properly reporting and  remitting the tax in compliance with city  ordinance.  City Credit  Cards  Internal  Auditor  Various  departments   To determine whether the city’s credit card policies and procedures function as management  intended and comply with applicable state and  federal laws.   To assess individual and departmental  transaction, purchase, and issuance compliance.  New for FY 2020‐21  Procurement Internal Auditor  Various departments   To assess the city’s compliance with applicable  procurement guidelines.   To evaluate whether the city’s procurement  process is effective and consistent.  Vice Narcotics  Intelligence  Unit (VNIU)  “Buy Fund”  Internal  Auditor  Police Department  To perform a cash count of the fund and  reconcile with records.   To determine whether the fund was managed  and accounted for in accordance with authorized  policies and procedures.  Code Enforcement  Internal Auditor  Community Development  Department   (Code  Enforcement  Division)   To assess whether the division has reliable  policies and procedures to support effective  code enforcement.   To evaluate whether a selection of case files  from the most recent three‐year period adhere  to applicable guidelines.   To assess whether the city uses case data and  metrics to provide meaningful information to  management.       June 9, 2020 Item #9 Page 6 of 20 Exhibit 2 June 9, 2020 Item #9 Page 7 of 20 REPORT Internal Auditor Brigid Okyere, CPA________________________________December 2019 Citywide Cash Count August 2019 Report 2020-01 June 9, 2020 Item #9 Page 8 of 20 Report 2020-01 Citywide Cash Count August 2019 TABLE OF CONTENTS INTRODUCTION Scope and Objectives ...................................................................................................................1 Methodology ................................................................................................................................1 Overall Conclusion........................................................................................................................1 Background ..................................................................................................................................2 AUDIT RESULTS Cash Count Results .......................................................................................................................4 Employee Cash Reimbursements Review ....................................................................................6 Conclusion ....................................................................................................................................8 SUMMARY OF RECOMMENDATIONS ...........................................................9 June 9, 2020 Item #9 Page 9 of 20 1 Report 2020-01 Citywide Cash Count August 2019 INTRODUCTION Scope and Objectives Perform unannounced cash counts at city facilities with cash funds during August 2019. Determine if the petty cash and change funds issued to departments are properly accounted for. Identify if additional procedures or best practices can improve current cash controls and safeguarding of cash. Review city policies and test historical cash reimbursement documents from fiscal year 2018-19 for compliance with those policies. Methodology • Examined city records, including the June 2017 internal audit cash count and information from the city’s accounting system, to determine the amount of the city’s petty cash and change funds; • Performed unannounced cash counts at all city facilities with petty cash or change funds and compared to city records to identify cash overages and shortages; • Obtained and reviewed applicable citywide and departmental policies and procedures; • Interviewed city employees regarding petty cash and cash handling practices; • Judgmentally selected sixteen cash reimbursements to review for compliance with city policies and procedures; and • Followed up on recommendations from June 2017 internal audit cash count. This audit was a limited review of controls over petty cash funds; accordingly, no conclusion is provided on the overall adequacy of cash controls or internal controls in other areas of operations within the departments reviewed. Overall Conclusion Three of the city’s cash funds varied from the city’s records. City departments can improve certain aspects of their cash handling practices to better safeguard cash. Internal controls for cash reimbursements were not always effective to ensure compliance with the city’s policies. The Finance Department’s oversight of the city’s cash funds could be further improved by updating policies and providing training. June 9, 2020 Item #9 Page 10 of 20 2 Report 2020-01 Citywide Cash Count August 2019 Background Departments use cash at various facilities located throughout the city. As of August 2019, the city had sixteen facilities with recorded cash funds totaling $10,405, as shown in Table 1 below.1 The city uses one account to record the total amount of cash funds outstanding at all facilities citywide, including both petty cash and change funds. Prior internal audit records demonstrate how the total is divided across city facilities. In general: • A change fund is a separate amount of funds used to make change during daily operations. • A petty cash fund is a small amount of cash kept at a city facility for minor expenditures, such as office supplies. An employee submits a form with proper supporting documentation signed by an approving official and is reimbursed by petty cash. Table 1: City Departments and Facilities with Petty Cash and Change Funds as of August 2019 City Department and Facility Petty Cash Fund Change Fund City Manager’s Office Carlsbad City Hall X Community & Economic Development Department* Tyler Court Senior Apartments X Finance Department City of Carlsbad Faraday Center (cashier) X Library & Cultural Arts Department Carlsbad City Library X Carlsbad City Library Learning Center X Georgina Cole Library X Parks & Recreation Department Alga Norte Aquatic Center X Calavera Hills Community Center X Harding Community Center X X Leo Carrillo Ranch Historic Park X Monroe Street Pool X Pine Avenue Community Center X Stagecoach Community Center X Carlsbad Senior Center X Police Department City of Carlsbad Public Safety and Service Center X X Utilities Department Carlsbad Municipal Water District (CMWD) X Total 5 13 Source: June 2017 cash count, August 2019 cash count, and the city’s accounting system. Privileged and Confidential Information: The dollar amount of cash held at each facility is withheld from the report for security reasons. *The Community & Economic Development Department is responsible for the contract with the management company for Tyler Court Senior Apartments; the management company oversees its petty cash. Because in certain cases it is neither practical nor desirable to use a purchase requisition, a city employee may purchase an item that costs less than one hundred dollars and receive cash reimbursement from either: 1) one of the departments’ petty cash funds or 2) the Faraday Center 1 Prior to any adjustments made as a result of the August 2019 cash count. June 9, 2020 Item #9 Page 11 of 20 3 Report 2020-01 Citywide Cash Count August 2019 cashier. In practice, employees also submit other employee expenses for reimbursement through these two methods, such as for mileage costs to travel to other city facilities. The Finance Department primarily administers the city’s reimbursement process but relies on approving officials in each department to perform decentralized reviews of purchases. For items that cost one hundred dollars or more, or for costs incurred during a trip, employees submit reimbursement requests to the accounts payable staff in the Finance Department (accounts payable) for review and payment. See Figure 1 below for a description of these various employee expense reimbursement methods. Figure 1: Current Methods for a City Employee to Obtain Expense Reimbursement Source: The city’s Administrative Order No.12, purchasing policies and procedures manual, and the Finance Department’s cashier procedures. *Employees may submit reimbursements under one hundred dollars to accounts payable at their discretion. PETTY CASH FUND Reimburse employee through petty cash fund for expense under $100 •Employee submits form with proper backup signed by an approving official and is reimbursed by petty cash. •To replenish the fund, an approving official signs off on the packet of collected support and submits it to accounts payable. •Accounts payable reviews the support and replenishes the petty cash fund. FARADAY CENTER CASHIER Reimburse employee through Faraday Center cashier for expense under $100 •Employee submits appropriate backup and slip signed by an approving official to the cashier at Faraday Center and is reimbursed using money from the cashier's change fund. ACCOUNTS PAYABLE Reimburse employee through accounts payable for expense of $100 or more, or costs incurred on a trip* •Employee submits appropriate backup and documentation signed by an approving official to accounts payable. •Accounts payable reviews and processes employee's reimbursement through electronic transfer or physical check. June 9, 2020 Item #9 Page 12 of 20 4 Report 2020-01 Citywide Cash Count August 2019 AUDIT RESULTS Cash Count Results The internal auditor performed unannounced cash counts during August 2019 at city facilities with cash funds. During each visit, the internal auditor physically counted the cash and compared it to the city’s records to identify overages and shortages. Additionally, the internal auditor performed work to identify the cause of variances and asked about cash handling processes at each facility. See Table 2 for a summary of the results and subsequent report text for an explanation of each variance. Table 2: Summary of City Facilities with Cash Fund Variances City Department and Facility Variance* Cash Fund Type Reason for Variance City’s Response Parks & Recreation Department Pine Community Center $200 Change Fund Unknown Adjusted Records Stagecoach Community Center $(672) Change Fund Alleged Theft Investigated & Adjusted Records Senior Center $200 Change Fund Unknown Adjusted Records Source: August 2019 cash count, June 2017 cash count, the city’s accounting system, and department records. *Noted variances greater than ten dollars. Variances at the Pine Community Center and Senior Center The Pine Community Center had an additional $200 change fund not identified in the city’s accounting or prior internal audit records. When asked about this variance, Pine Community Center’s current recreation supervisor asserted he took over management of this fund in September 2018, at which point it contained $700. Of this amount, he kept $200 for Pine Community Center events and deposited the rest. However, because there is no record that anyone established this fund in the city’s accounting records, this deposit incorrectly reduced the city’s total account balance. Additionally, a Parks & Recreation Department senior management analyst asserted that she counted $1,020 in the fund now held at Pine Avenue two years prior in June 2017. Parks & Recreation Department staff currently employed with the city could not provide an explanation for the apparent $320 decrease from June 2017 to September 2018, when the current recreation supervisor took over the fund. The personnel who previously managed this fund are no longer employed with the city. Similarly, the Senior Center had an additional $200 change fund not identified in the city’s accounting or prior internal audit records. For both the Pine Community Center and Senior Center, it is unclear who established the additional change funds, when, and using what cash. It is possible that staff created the change funds by collecting cash receipts and not recording the revenue or depositing the cash. This goes against the Parks & Recreation Department’s policy requiring staff to immediately record all revenue. Further, the fact that Parks & Recreation Department staff can potentially avoid recording and depositing revenue, without the knowledge of the Finance Department, indicates a larger problem—staff could also potentially misappropriate cash using the same process. Therefore, leadership from the Finance and Parks & Recreation departments should meet to discuss whether current controls over cash receipts are adequate and implement necessary improvements. June 9, 2020 Item #9 Page 13 of 20 5 Report 2020-01 Citywide Cash Count August 2019 Given the examples at both the Pine Community Center and Senior Center, the Finance Department should also require that all departments obtain its approval to establish and make changes to cash funds so it can monitor them and ensure proper recordkeeping. In the past, the internal auditor maintained a list of facilities with cash funds and their associate balances. Moving forward, the Finance Department should maintain this list to preserve the internal auditor’s independence. To increase accountability, the Finance Department should expand this list to track designated custodians and ensure it is updated. Variance at the Stagecoach Community Center Stagecoach Community Center’s change fund for special events contained significantly less cash than recorded due to alleged theft by a part-time employee with safe access. Stagecoach Community Center keeps its cash in two different safes: one for daily use and another for special events. The recreation supervisor responsible for special events asserted she last counted the cash on May 20, 2019 after her last event with no issue. However, on Aug. 8, 2019, the recreation area manager identified a small discrepancy in the cash used daily, prompting the recreation supervisor to count the cash for special events and identify a significant $607 shortage. The following morning on Aug. 9, 2019 she identified an additional $65 missing from special events. That morning, the staff notified both Parks & Recreation Department leadership and the internal auditor of the shortage. The internal auditor counted the cash that afternoon and confirmed the total shortage of $672 in special events. Together with the Human Resources and Police departments, the city investigated the alleged theft and ended the suspected employee’s appointment with the city within a week of identifying the shortage. The Police Department submitted this case to the San Diego District Attorney’s Office. The excess cash not regularly used for special events at Stagecoach Community Center has since been deposited. Although the Parks & Recreation Department employees who identified the shortage should have immediately notified leadership the first day they identified it, as required by the department’s policy, this incident demonstrates the city’s overall swift response and cooperation. To ensure the city reduces its overall risk exposure and encourages employees to promptly identify and report suspected theft and loss, the Finance Department should do the following: • establish a citywide method for employees to report suspected theft or loss of cash; • prohibit departments from maintaining large cash funds not used in the normal course of business; and • require that appropriate staff count cash funds at least monthly and reconcile to their authorized balances; records should be kept for a reasonable period. Further, departments should implement stronger controls around access to cash funds. In general, there is no requirement that departments maintain an updated list of staff with access to areas containing money (i.e. keys to petty cash boxes, codes to safes). This increases the risk that current staff can access money inappropriately and terminated staff may retain access to restricted cash. As an example of a good practice, an administrative employee with the Library & Cultural Arts Department maintains a comprehensive list of staff with access to each area of safekeeping and require staff to sign safe confidentiality agreements that are kept on file. The Finance Department should require that all facilities with cash implement a similar practice for those with safe access. June 9, 2020 Item #9 Page 14 of 20 6 Report 2020-01 Citywide Cash Count August 2019 Additional Observations Internal controls for the Library & Cultural Arts Department’s copy and self-check machines could be improved. These machines operate separately from the city’s cashiering system; thus, library staff must manually track and record cash transactions. One administrative employee at each library collects, tracks, records, and deposits cash receipts from these machines. However, the principle of segregation of duties recommends dispersing critical functions of a process to more than one person to help manage fraud and error risks. Therefore, the Library & Cultural Arts Department should create procedures to ensure cash receipts from its libraries’ copy and self-check machines are recorded and deposited appropriately. As of October 2019, the Library & Cultural Arts Department had started creating procedures to strengthen internal controls for this process. Employee Cash Reimbursements Review The city’s records indicate the city reimbursed employees in cash for over $10,500 through three of its four departmentally-managed petty cash funds and over $9,700 through the Faraday Center cashier during fiscal year 2018-19.2 These petty cash funds may be used to reimburse employees from various departments. For example, the Police Department’s petty cash fund at the Safety Training Center may process reimbursements for both the Police and Fire departments. The internal auditor judgmentally selected four reimbursements processed at each of the three departments’ petty cash funds and the Faraday Center cashier, for a total of sixteen, and assessed compliance with the city’s policies and procedures. Although all sixteen items appear reasonable and for city business purposes, there were several areas of noncompliance with city policies: • A Utilities Department employee received reimbursement through the department’s petty cash fund for over $50 to pay for lunch with a new employee as part of the city’s peer advisor liaison (PAL) program; however, a flyer for this program states that the maximum reimbursement allowed is $30. An employee from the City Manager’s Office asserted she sends an email containing this flyer to employees when assigning them a PAL. • Despite the city’s purchasing policies and procedures manual limiting cash reimbursements to items that cost less than $100, three reimbursements exceeded this threshold. For example, a Police Department employee received a reimbursement of $99.99 through the Police Department’s petty cash fund for sunglasses that cost $101.05. Additionally, the Utilities Department used its petty cash fund to reimburse an employee for $200 for food for an all-hands meeting (60+ attendees) but split the reimbursement into multiple reimbursements. • An employee of the City Manager’s Office twice received an incorrect reimbursement for mileage costs through the petty cash fund maintained at City Hall. The city’s travel guidelines and procedures state that mileage reimbursement requests should not cross calendar years to avoid issues with changing reimbursement rates. However, the employee’s mileage reimbursements crossed calendar years and were partially calculated using the wrong year’s mileage rate. The dollar amount of the miscalculation was insignificant. 2 Tyler Court Senior Apartments’ petty cash fund is managed by an outside management company. Therefore, it is excluded from this review. Additionally, Harding Community Center obtained its petty cash fund at the end of fiscal year 2018-19; therefore, it had no reimbursements during the review period. June 9, 2020 Item #9 Page 15 of 20 7 Report 2020-01 Citywide Cash Count August 2019 • Three Police Department employees attended the Pala shooting range and received reimbursement through the Police Department’s petty cash fund for these training costs. Although the amount reimbursed agrees with the prices posted on Pala’s website, the employees did not include a valid receipt or appropriate documentation as required. One of these employees also inappropriately signed as the approver of his own expense reimbursement. This indicates the employee processing the reimbursement did not verify the appropriateness of the approving signature. • Three Police Department employees received reimbursement for out-of-state travel expenses through the Police Department’s petty cash fund, despite the city’s travel guidelines and procedures requiring that these expenses be processed through accounts payable and with an appropriate travel log form. • Several reimbursements either did not have an approving signature or had a signature from someone not designated as an approving official, as required by the city’s purchasing policies and procedures manual. According to the Finance Department, approving officials are those who have filled out an authorization form that accounts payable maintains for each department. • Several mileage reimbursements for employees in the City Manager’s Office and City Clerk’s Office did not include support for the mileage claimed—such as a printout from Google Maps—for non-standard travel destinations, as required by the city’s travel guidelines and procedures. For these items, the mileage claimed appears reasonable. Based on assertions from employees, the noncompliance may have occurred because employees did not know the actions were noncompliant, thought it was acceptable because the Finance Department did not take issue in the past, and been uncertain as to who is considered an approving official. For the items reviewed, it appears requiring an approving official to review and sign off on a reimbursement request was not an effective internal control to ensure reimbursements complied with city policies and procedures. Additionally, there is evidence that the Faraday Center cashier processing employee cash reimbursements did not have an updated list of approving officials to reference prior to August 2019. Therefore, the cashier could not verify reimbursement requests were signed by an approving official before processing them. To ensure the city continues to reimburse employees for appropriate and allowable business expenses, the Finance Department should train staff who oversee cash funds, approving officials, and Faraday Center cashiers, at least annually. As illustrated throughout this report, cash transactions are inherently risky and susceptible to theft and errors. The Finance Department stated it has considered, but not implemented, a comprehensive cash training program because it relies on departments to train their employees and the Finance Department has historically trained employees as it implemented new systems or system upgrades. However, this training could reinforce that only approving officials designated through the list maintained by accounts payable can approve expense reimbursements and that petty cash fund custodians are responsible for ensuring employees submit appropriate documentation before processing reimbursements. If instances of policy noncompliance continue, the Finance Department can consider whether it will instead eliminate or consolidate petty cash funds as appropriate. Further, given the complexity of the city’s travel guidelines and procedures and noncompliance noted above, the Finance Department should disallow petty cash reimbursements for these costs. Instead, it should require that employees submit all reimbursements for costs covered under the travel policy—including miscellaneous meals and mileage—to accounts payable. June 9, 2020 Item #9 Page 16 of 20 8 Report 2020-01 Citywide Cash Count August 2019 Conclusion A citywide cash policy covering the findings and recommendations throughout this report could strengthen cash controls. Although some departments have their own cash handling policies, without one comprehensive city policy staff at different facilities may diverge in how they handle cash and risk doing so inappropriately. The Finance Department stated it has provided informal cash handling guidance to departments and does not have a citywide policy, allowing departments to establish their own practices. However, the Finance Department should create a formal policy covering both petty cash and general cash handling to ensure that important internal control processes are established and communicated to departments. June 9, 2020 Item #9 Page 17 of 20 9 Report 2020-01 Citywide Cash Count August 2019 RECOMMENDATIONS SUMMARY SUMMARY OF CURRENT RECOMMENDATIONS Finance Department and Parks & Recreation Department Recommendation #1: To ensure that cash receipts are appropriately collected, recorded, and deposited at Parks & Recreation Department facilities, leadership from both the Finance and Parks & Recreation departments should meet to discuss whether controls are adequate and implement necessary improvements by March 2020. Management’s Response: Finance Department: We agree and will implement the recommendation. Parks & Recreation Department: We agree with the report and will implement the following:  Maintain a comprehensive list of staff with access to each area of safekeeping.  Have those staff with access to each area of safekeeping sign a safe confidentiality agreement that will be kept on file.  Meet with the Finance Department to discuss whether controls are adequate and implement necessary improvement(s) by March 2020. Finance Department Recommendation #2: The Finance Department should create one policy covering both petty cash and general cash handling procedures to strengthen internal control and address the findings and recommendations mentioned throughout this report, as summarized below, by the end of fiscal year 2019-20: • Require that all departments establish and make changes to cash funds with the approval of the Finance Department. • Establish a citywide method for employees to report suspected theft or loss of cash. • Prohibit departments from maintaining large cash funds not used in the normal course of business. • Require that appropriate staff count cash funds at least monthly, reconcile to their authorized balances, and keep a record for a reasonable period. • Require that facilities with cash maintain a current list of all employees with access to cash (i.e. lock box or safe) and have employees sign safe confidentiality agreements kept on file. As part of this requirement, instruct managers with responsibility for cash funds to limit safe access and avoid granting access to part-time employees. • Establish that only approving officials as designated by accounts payable’s signature authorization form have the authority to sign both petty cash and expense reimbursements and custodians must ensure employees have received appropriate approvals before processing reimbursements using petty cash. • Require that employees submit all reimbursements for costs covered in the travel guidelines and procedures, including miscellaneous meals and mileage, to accounts payable. June 9, 2020 Item #9 Page 18 of 20 10 Report 2020-01 Citywide Cash Count August 2019 Management’s Response: We agree and will implement the recommendation. Recommendation #3: The Finance Department should maintain a comprehensive list of all facilities with authorized cash funds, their authorized amounts, and their designated custodians by January 2020 to strengthen departmental accountability and its ability to monitor cash funds. Management’s Response: We agree and will implement the recommendation. Recommendation #4: The Finance Department should coordinate cash training at least annually for those who oversee cash funds, cash fund custodians, departments’ approving officials, and Faraday Center cashiers, by the end of fiscal year 2019-20. Management’s Response: We agree and will implement the recommendation. Library & Cultural Arts Department Recommendation #5: The Library and Cultural Arts Department should implement controls to help ensure that cash receipts from the self-check and copy machines are recorded and deposited appropriately by February 2020. Management’s Response: We agree and will implement the recommendation. SUMMARY OF PRIOR RECOMMENDATIONS FROM JUNE 2017 Previously, the city’s internal auditor reported audit results informally to members of city management. A formalized process did not exist to ensure the internal auditor’s recommendations were implemented. However, the recommendations included in the prior internal auditor’s most recent June 2017 citywide cash count were relevant to the conclusions made in this report. Therefore, the current internal auditor followed up on all four recommendations from the previous June 2017 report and included the results below. Prior Recommendations Not Implemented Prior Recommendation #1: The prior cash count report for June 2017 recommended that Alga Norte Aquatic Center implement controls to ensure that entrance fees are collected and immediately entered into the recreation activity management software system for all individuals using the facility. The recommendation suggested that because the facility already has ticket booths with turnstiles available, using these features and then comparing the number of patrons entered per the turnstiles to the total fees collected could be one way of evaluating whether total fees per the system agrees to the total of people that entered the facility. The recommendation suggested that pre-numbered wristbands could also be used for this purpose. In its June 2017 response, Parks & Recreation Department staff stated that it would not use the ticket booths and turnstiles for this purpose due to undesirable environmental conditions within the ticket booths, such as the temperature within the booth. June 9, 2020 Item #9 Page 19 of 20 11 Report 2020-01 Citywide Cash Count August 2019 Follow-up Assessment: During the cash count visit in August 2019, the internal auditor noticed staff using the ticket booth. The facility’s recreation area manager stated that the air conditioning was repaired approximately May 2018 and Alga Norte Aquatic Center uses the ticket booths for inflatable rentals and large special events. Additionally, she asserted that pool staff perform reconciliations and issue wristbands for inflatables. Given this information, the Finance and Parks & Recreation departments should consider this new information and what impact it could have in the recommended meeting to strengthen controls around cash receipts. Prior Recommendation #2: The most recent prior cash count report for June 2017 recommended that citywide cash handling policies and procedures be issued and that all individuals handling cash be trained on these policies and procedures. Follow-up Assessment: As of August 2019, the city does not have formally documented citywide policies and procedures and has not provided training to all individuals handling cash. This is included in the list of current recommendations based on the conclusions reached in this report. Prior Recommendations Implemented Prior Recommendation #3: Library & Cultural Arts Department management appropriately adjusted the recorded cash balance at the Carlsbad City Library to reflect the amount of cash on hand, as recommended in the June 2017 internal audit cash count. Prior Recommendation #4: Library & Cultural Arts Department management reduced the amount of cash in all the self-service machines at the city’s three libraries based on their needs, as recommended in the June 2017 internal audit cash count. June 9, 2020 Item #9 Page 20 of 20 Tammy Cloud-McMinn From: Sent: To: Subject: Jennifer Siemer <jensiemer@gmail.com> Monday, June 8, 2020 12:38 PM City Clerk Regarding agenda item 9 Dear Mayor Hall and Council Members, 0 All Receive ~ Agenda Item # 7 For the Information of th;,- CIJX COUNCIL Date Lp/ (/ CA v✓cc ~ CM ,/ACM 1,./DCM (3) ,./ I have been a in ember of this community for 4 years. It wasn't until this weekend, participating in the peaceful protests and discussions that resulted, that I have truly felt proud to be from Carlsbad. I am proud that the city allowed such an event to take place, I am proud of the leadership that created the event and the people of color that had the courage to speak out, I am proud bf the police that were a positive, friendly and helpful presence on the streets and in the park, I am especially proud of the council members who decided to become uncomfortable and join in the discussions Sunday afternoon about next steps, accountability and ensuring that . . people of color feel h·eard and respected in Carlsbad. In regards to agenda itein number 9 and the budget audit, I'm asking the council members to please consider moving more of our social services type work from the responsibility of the police force to social service professionals who do not carry a gun or baton and are trained in their respective field. I'm asking that homeless outreach and services be a separate department that is not part of the police department. I'm asking for mental health professionals to be called when someone is experiencing a mental health crisis rather than a police officer. I'm asking for the demilitarization of our police force, in a city our size with the population we have, we do not need to have military grade weapons or gear for our officers. Finally, I'm asking that the conversations that we have been having all weekend continue at the city level. I'm aski'ng for a community forum in which people of color feel safe to share their experiences of what it is like to live in Carlsbad and that city leaders will be open to hearing and enacting changes is necessary. I thank our Mayor and Council for the tireless work you do for our city at all times. With respect, Jennifer Siemer Homeowner Carlsbad, Ca 92008 CAUTION: Do not open attachments or click on links unless you recognize the sender and know the content is safe. 1 Laura Rocha, Deputy City Manager, Administrative Services Brigid Okyere, Internal Auditor June 9, 2020 Internal Audit Update and Plan for Fiscal Year 2020-21 Recent Activities •Met with all city departments •Spoke with numerous internal audit divisions from cities and counties across California •Council Policy No.89 Internal Audit Framework Recent Activities Internal Audit Division Fiscal Year 2019-20 Internal Audit Plan (City of Carlsbad II partment5 s indepeno audits ace, ; to the eff ;tablishes ,r. performs' Audit rep, OVERVIEW lMCitylA~•---....._,.,..,_...,..._.....,_..,.-.ce_11 ~oty-Mllll.,.._.oty....,....____...ailsMlplO.._..nibll'I' ~s,-afil:~looty,,-ocflMSNu.tfds.~..trs-,act.dit -,ary......._ ....... .____.,nic,-_____ .,.,_dly. w,...,._.,.,..11a1.,..aoa-10...,_ .. ,,_C--'t,._>•wClllldine..-. ... -... ~tMilllllfMl ___ ,rcip,Nft_/;ll;lllllw;l .... chtfllail'f'NF. Thoscb~Mt"5Htht ,,_.,.-"(lltllllto~CMtM~oftMiM__,...,_TMbualottMp&M (fflm ........................... -.-.audilr...,.mhatMdrycowncl .. oty........,..,...Mlll,OC ..... 1rNJGff1a1Mn9"Mll_._,,_...,11 .......... N ,-1Na1oiNnbfy,,,.,..._andfNNIPIUdit:54"med~woty...-.~Md --~ .... IMIMll .... ~■c....-.-io1-u.... ....... a11Mar.TMaudit-- CCINdltl..,......Qfl"'-1. ...... ol~W...-,IISbn'Wll.dAlllN~GI ..... -.llaotMIO~~~~~t,-.-OC.IICI IO ,......_,_.....,.,,......._._"' ___ ~ ,.__.,._. •• _._. ....... 0.-.dle,._.,~b"'-callDIM_.,.__, _...,•~•-.-•--tc0flll.......,_...,Pfft11111_,,.r~or .. _ .............................. fl"ll9Cb ........ cwreM,..-,c.ry ___ _ ----....._ ....................... ,ac.blf-..a-s.OW.C .. .........,-' ,... .. __. ............. ~---~-,J., ...... .,., ~ ....... ---~ ...... --.Ndt~alat' .. ,.... ... ........................ {°City of Carlsbad FY 2019-20 Audit Plan •Citywide cash count •The Crossings at Carlsbad •Transient Occupancy Tax (TOT) compliance audits •City credit cards Cash Count –Audit Objectives •Objectives: –Perform unannounced cash counts August 2019 –Identify improvements over safeguarding of cash –Test historical cash reimbursements for compliance with city policies Cash Count –Variances City Department and Facility Variance Reason for Variance City’s Response Parks & Recreation Department Pine Community Center $200 Unknown Adjusted Records Senior Center $200 Unknown Adjusted Records Stagecoach Community Center $(672)Alleged Theft Investigated & Adjusted Records Audit Results –Cash Reimbursements •Reviewed 16 employee cash reimbursements processed at four different city locations •All 16 reimbursed employees for legitimate business expenses •Several areas of noncompliance with city policy/procedure Audit Results –Cash Reimbursements •Examples of noncompliance with city policy/procedure: –Travel costs improperly reimbursed through petty cash –Lack of proper receipt/documentation for costs claimed –Missing or improper approval signatures –$200 reimbursement split up as to not exceed $100 threshold Audit Results –Key Findings •Internal controls for cash reimbursements were not always effective to ensure compliance with the city’s policies •The Finance Department could improve its oversight by updating policies and providing training Recommendations -Implemented •Finance Department –Maintain list of facilities with cash funds, authorized amounts, and custodians –Create cash policy to address report findings –Provide cash training to appropriate personnel Recommendations -Implemented •Finance and Parks & Recreation departments –Meet and discuss adequacy of controls over cash receipts •Library & Cultural Arts Department –Implement controls over recording and depositing of self-check and copy machine revenue Proposed FY 2020-21 Audit Plan •Serves as the primary work plan for the year •Includes: –Audit topics –Potential audit objectives –Entity performing the audit (external/internal) Topic Auditor Potential Objectives The Crossings at Carlsbad Golf Course (in progress) Internal auditor •To assess golf course/management company’s compliance with city’s sexual harassment policies and procedures and other mandated guidelines. •To assess the financial performance of the pro shop and food and beverage. •To review the golf course’s overall financial performance against comparable nearby golf courses and the golf market to assess financial sustainability. •To determine whether various city departments provide adequate oversight of and services to the golf course. Transient occupancy tax (ongoing) External audit firm •To determine if the hotel is properly reporting and remitting the tax in compliance with city ordinance. The city’s credit card program (carryover) Internal auditor •To determine whether the city’s credit card policies and procedures function as management intended and comply with applicable state and federal laws. •To assess individual and departmental transaction, purchase, and issuance compliance. FY 2020-21 Audit Plan -Carryover Audit Plan -New Topic Auditor Potential Objectives Procurement Process Internal Auditor •To assess the city’s compliance with applicable procurement guidelines •To evaluate whether the city’s procurement process is efficient and consistent. VNIU Buy Fund Internal Auditor •To perform a cash count of the fund and reconcile with records •To determine whether the fund was managed and accounted for in accordance with authorized policies and procedures Code Enforcement Internal Auditor •To assess whether the division has reliable policies and procedures to support effective code enforcement. •To evaluate whether a selection of case files from the most recent three-year period adhere to applicable guidelines. •To assess whether the city uses case data and metrics to provide meaningful information to management. Recommendation •That the City Council adopt a Resolution approving the FY 2020-21 Internal Audit Plan Thank You