The URL can be used to link to this page

Home My WebLink About2021-07-27; City Council; ; Fiscal Year 2021-22 Internal Audit PlanMeeting Date: July 27, 2021 To: Mayor and City Council From: Scott Chadwick, City Manager Staff Contact: Robert Threatt, Internal Audit Manager robert.threatt@carlsbadca.gov, 760-602-2418 Laura Rocha, Deputy City Manager, Administrative Services laura.rocha@carlsbadca.gov, 760-602-2415 Subject: Fiscal Year 2021-22 Internal Audit Plan Recommended Action Approve the fiscal year 2021-22 Internal Audit Plan as presented by the city’s internal audit manager Executive Summary/Discussion According to City Council Policy No. 89, the internal audit manager presents an internal audit plan for the City Council’s review and approval each fiscal year. This report presents, for the City Council’s approval, the FY 2021-22 Internal Audit Plan (Attachment A to Exhibit 1) and provides an update regarding open audit recommendations from internal audits performed in previous fiscal years. Annual Internal Audit Plan The city’s internal audit manager performs independent and objective assurance services to safeguard city resources and improve city operations. Such services may include internal audits of any city department, division, function or program. The purpose of the FY 2021-22 Internal Audit Plan is to outline internal audits and other value-added engagements the internal audit manager proposes to conduct during the fiscal year. The internal audit plan includes information about the basis for the audit engagements selected, preliminary objectives and the consideration of resources. Once approved, the internal audit plan serves as the operating roadmap for the city’s internal audit manager. Open internal audit recommendations With each year’s internal audit engagements comes an audit report which includes the internal auditor’s observations and any relevant audit findings. The findings, if there were any, are accompanied by specific and detailed auditor recommendations. In fiscal year 2019-20 and 2020-21 there were internal audit engagements for which there remain open audit recommendations. Those audit engagements were the audit of The Crossings Golf Course and an audit of the city’s credit card program, respectively. During the City Council meeting, the July 27, 2021 Item #12 Page 1 of 8 city’s internal audit manager will present an update on the status of open internal audit recommendations. Internal audits for FY 2021-22 The internal audit engagements to be conducted in fiscal year 2021-22 are: • Code Enforcement program audit • Transient Occupancy Tax agreed upon procedures engagement • Procurement program audit • Vice Narcotics Intelligence Unit (VNIU) “Buy Fund” • Citywide risk assessment (of major programs and processes) • Fraud and ethics hotline evaluation Fiscal Analysis There is no immediate fiscal impact to approving the FY 2021-22 Internal Audit Plan as there is sufficient funding in the FY 2021-22 budget to execute the proposed Internal Audit Plan Next Steps If accepted as presented, the city’s internal audit manager will conduct the engagements as cited in the FY 2021-22 Internal Audit Plan. Environmental Evaluation (CEQA) This action does not constitute a “project” within the meaning of the California Environmental Quality Act under California Public Resources Code Section 21065 in that it has no potential to cause either a direct physical change in the environment 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. Open FY 2019-20 and FY 2020-21 internal audit recommendations July 27, 2021 Item #12 Page 2 of 8 RESOLUTION NO. 2021-186 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, APPROVING THE FISCAL YEAR 2021-22 INTERNAL AUDIT PLAN WHEREAS, the city's internal audit manager performs independent and objective assurance services to safeguard city resources and improve city operations; and WHEREAS, the services provided may include internal audits of any city department, division, function or program; and WHEREAS, as required by City Council Policy No. 89, the internal audit manager has presented a FY 2021-22 Internal Audit Plan (Attachment A) for the City Council's review and approval; and WHEREAS, the purpose of the FY 2021-22 Internal Audit Plan is to outline internal audits and other value-added engagements the internal audit manager proposes to conduct during the fiscal year; and WHEREAS, the FY 2021-22 Internal Audit Plan includes information about the bases for the audit engagements selected, preliminary objectives and the consideration of resources; and WHEREAS, once approved, the FY 2021-22 Internal Audit Plan will serve as the operating roadmap for the city's internal audit manager. 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 approves the FY 2021-22 Internal Audit Plan as shown in Attachment A. // // // // // // // // July 27, 2021 Item #12 Page 3 of 8 PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of Carlsbad on the 27th day of July, 2021, by the following vote, to wit: AYES: Hall, Blackburn, Acosta, Bhat-Patel. NAYS: None. ABSENT: None. tcfra/-.//ze/ MATT HALL, Mayor BARBARA ENGLESON, City Clerk (SEAL) July 27, 2021 Item #12 Page 4 of 8 Fiscal Year 2021-22 Internal Audit Plan July 27, 2021 Item #12 Page 5 of 8 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 improvements to the city’s internal controls and governance, risk and compliance processes. 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 value-added engagements 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 audit plan comes from auditor observations, inquiries of management, audit requests from the City Council and senior management, and programs or processes with inherently higher risk levels. The internal auditor’s strategy in developing this plan seeks to identify, prioritize and manage audits 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. The following page identifies the list of prioritized internal audit engagements for FY 2021-22, along with their preliminary objectives. At the beginning of each engagement, the internal auditor will establish familiarity with the department, function or process identified for audit. During that initial period, audit objectives may be refined and the methodology will be established. July 27, 2021 Item #12 Page 6 of 8 Fiscal Year 2021-22 Internal Audit Engagements Entity, Function, Program or Process to Audit Type of Engagement Primary Stakeholder/Audit Lead Preliminary Objectives Carryover from FY 2020-21 Code Enforcement Internal Audit Community Development Department (Code Enforcement Division)/Internal Audit Manager •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. Transient Occupancy Tax Agreed Upon Procedure Various hotels as determined by the city/External audit firm •To determine if hotels are properly reporting and remitting occupancy taxes in compliance with city ordinance. Procurement Internal Audit Various departments/ Internal Audit Manager •To assess the city’s compliance with applicable procurement guidelines. •To evaluate whether the city’s procurement process is effective and adhered to. Vice Narcotics Intelligence Unit (VNIU) “Buy Fund” Internal Audit Police Department/Internal Audit Manager •To determine whether the fund was managed and accounted for in accordance with authorized policies and procedures. New for FY 2021-22 City of Carlsbad Risk Assessment Various departments/Internal Audit Manager •Perform a formal, citywide internal audit risk assessment to identify programs with elevated inherent risk and opportunities for improvement. •Prioritize internal audit engagements for FY2022-23 based on findings. Fraud (Ethics) Hotline Program Evaluation & Recommendation for implementation Administrative Services Division/Internal Audit Manager •Evaluate the benefits of a dedicated fraud and ethics hotline and reporting process. •Present the findings and recommendations to the City Council. July 27, 2021 Item #12 Page 7 of 8 No.Recommendation Mgmt. Response Department(s):Deadline:Status 1 Evaluate advance balance: To ensure the city is appropriately recording the advances to the Golf Course Enterprise Fund, the Finance Department should return to the City Council by the end of calendar year 2020 with its assessment and any proposed changes. Management agrees with the recommendation and analysis. We concur with the factors highlighted in the report and agree that the golf course advances are not likely recoverable at this point. Therefore, the advances should no longer be recognized as an asset for financial reporting purposes. Management plans to continue tracking all advances and transfers made from the General Fund to the golf course to ensure the data is available. Management has also consulted with its external auditors and they are in agreement with the proposed accounting treatment. We are proposing to eliminate the advances from our accounting records. Finance/Steering Committee 10/31/2021 Finance Director to bring to City Council by October 2021 with recommendations. No.Recommendation Mgmt. Response Departments:Deadline:Status 1 The Finance Department should communicate guidance citywide about the taxability of employee appreciation related items and gifts to ensure that city departments give and report them in compliance with the Internal Revenue Code. The Finance Department will send an annual citywide email reminding all employees and managers of the Internal Revenue Code, with specific examples to ensure compliance, and setup a process whereby departments report any renumeration to employees. Finance End of Calendar Year 2021 In progress - Obtaining clarification on tax codes for gifts, clothing, etc. 2 To ensure that lodging purchases made during city business-related travel are appropriate, the Finance Department should update its travel guidelines and procedures to adopt either the state or the federal government’s annual lodging rates by geographic location, and require employees to submit written justification when rates must exceed these established maximums. The Finance Department will update the travel guidelines and procedures to include a maximum reimbursement based on the Federal Travel Regulations, which may be overridden with appropriate justification and approval. Finance End of Fiscal Year 2021-22 In progress 3 For the city to keep track of employee flight purchases made using city funds, the Finance Department should inventory and track unused travel funds so they are used for city travel-related purposes in the future. The Finance Department will review the city’s travel guidelines and procedures and travel reimbursement form (travel log) and explore the feasibility of tracking unused travel credits reimbursed to employees, and explore the possibility of using a travel agency or require only fully reimbursable travel purchases for future travel. The Finance Department recognizes that many travel plans were canceled due to COVID-19 and are exploring how to request reimbursement from all employees who received and used a credit due to the cancellation for personal use. Finance End of Calendar Year 2021 In progress Audit Recommendation Tracking July 19, 2021 City of Carlsbad Internal Audit: The Crossing Golf Course Audit Recommendation Tracking July 19, 2021 Internal Audit of City Credit Card Program (CAL-Cards) City Of Carlsbad Exhibit 2 July 27, 2021 Item #12 Page 8 of 8 Fiscal Year 2021-22 Internal Audit Plan & Update Laura Rocha, Deputy City Manager, Administrative Services Robert Threatt, Internal Audit Manager July 27, 2021 {city of Carlsbad THE HIGHLIGHTS •Fiscal Year 2021-22 Internal Audit Plan –Comprised of carryover (FY 2020-21) and new engagements –Preliminary objectives of each engagement •Provide update regarding open internal audit recommendations •Fiscal Year 2019-20 •Fiscal Year 2020-21 {city of Carlsbad ENGAGEMENTS CARRIED OVER FROM FY 2020-21 3 Engagement Type Code Enforcement Program Audit Auditor Internal Audit Manager Preliminary Objective ·Assess whether division has reliable policies and procedures to support effective code enforcement ·Evaluate whether a selection of case files from the most recent three-year period adheres to applicable guidelines · Assess whether city uses case data and metrics to provide meaningful information to management Transient Occupancy Tax evaluation External audit firm · Determine if hotels are properly reporting and remitting occupancy taxes in compliance with city ordinance Procurement Program audit Internal Audit Manager · Assess city’s compliance with applicable procurement guidelines · Evaluate whether city’s procurement process is effective and consistently followed Vice Narcotics Intelligence Unit “Buy Fund” audit Internal Audit Manager · Determine whether fund was managed and accounted for in accordance with authorized policies and procedures NEW ENGAGEMENTS FOR FISCAL YEAR 2021-22 4 Engagement Type Risk Assessment Auditor Internal Audit Manager Preliminary Objectives · Perform a formal, citywide internal audit risk assessment to identify programs with elevated levels of risk and opportunities for improvement · Prioritize internal audit engagements for FY 2022-23 based on findings Fraud and ethics hotline evaluation Internal Audit Manager ·Evaluate benefits of a dedicated fraud and ethics hotline and reporting process ·Present findings and options to the City Council Open internal audit recommendations •Fiscal Year 2019-20 –The Crossings Golf Course audit •Fiscal Year 2020-21 –City credit card program audit {city of Carlsbad The Crossings Golf Course Audit Open internal audit recommendation (1): •Accounting treatment regarding advance to Golf Course Enterprise Fund –Presentation to City Council in fall 2021 {city of Carlsbad City’s Credit Card Program Audit Open internal audit recommendations (3): -Annual citywide communication regarding taxability of employee gifts and awards. (Completion by 12/31/2021) -Update travel guidelines to adhere to federal lodging rates. (Completion by 6/30/2022) -Update travel procedures to track unused travel credits that originated with city funded travel. (Completion by 12/31/2021) {city of Carlsbad RECOMMENDATION •That the City Council adopt a resolution approving the Fiscal Year 2021-22 Internal Audit Plan {city of Carlsbad Thank you! Fiscal Year 2021-22 Internal Audit Plan {city of Carlsbad