HomeMy WebLinkAbout2019-07-03; Auditor Communications to the City Council; Rocha, LauraTo the members of the:
COUNCIL
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July 3, 2019
To:
From:
Via:
Re:
Council Memorandum
Honorable Mayor Hall and Members of the City Council
Laura Rocha, Deputy City Manager, Admj istrative Services
Elaine Lu key, Chief Operations Officer ~
Auditor Communications to the City Council
{cityof
Carlsbad
Memo ID# 2019077
This memorandum provides information on the regularly scheduled annual financial audit of
the city that will be conducted by Davis Farr LLP.
Background
The city has contracted with Davis Farr LLP, certified public accountants, to conduct the annual
financial audit of the City of Carlsbad for the fiscal year ending June 30, 2019. Professional
auditing standards require Davis Farr LLP to communicate certain matters and inquiries directly
to members of the City Council. Attached for your reference is a letter from Davis Farr LLP
partner Jennifer Farr regarding the timing and planning of the city's annual financial audit.
Discussion
The city's auditors are requesting that the City Council provide them with any information on
certain matters that might have a bearing on their risk assessment for the annual audit of the
city, from July 1, 2018, to June 30, 2019. These areas range from known or suspected instances
of employee fraud to areas in which the internal controls of the city are thought by the City
Council to be weak. In addition, the attached letter discusses the timing and scope of the
annual audit, and the expanded areas that the engagement team on the audit plan will do
additional testing on. The City Council is also provided with information on how to contact the
city's auditors to ask any questions or to provide additional information to them.
Next Steps
Finance Department staff will begin closing the financial books of the city beginning in July 2019
in anticipation of the year-end audit fieldwork commencing in September 2019. The audit
should conclude in November 2019, with the Comprehensive Annual Financial Report (CAFR)
and other related audit reports issued by Dec. 31, 2019. Finance Department staff will once
again submit the city's CAFR to the Government Finance Officers Association (GFOA) for their
consideration in their Excellence in Financial Reporting Award Program.
Administrative Services Branch
Finance Department
1635 Faraday Avenue I Carlsbad, CA 92008 I 760-602-2430 t
Honorable Mayor and Members of the City Council
July 3, 2019
Page 2
Attachment: Auditor Communication with the City Council Letter
cc: Scott Chadwick, City Manager
Celia Brewer, City Attorney
Kevin Branca, Finance Director
May 28, 2019
City Council
City of Carlsbad
Davis Farr LLP
2301 Dupont Drive I Suite 200 I Irvine, CA 92612
Main: 949.474.2020 I Fax: 949.263.5520
We are in the process of planning the audit of the City of Carlsbad (the "City") for the year ending
June 30, 2019.
Professional auditing standards require that, as a part of our audit, we inquire of those in
governance to ascertain whether or not the City Council (the "Council") has knowledge of matters
that might have a bearing on the auditor's risk assessment for the annual audit of the City's
financial statements.
Examples of these matters are:
• Known or suspected instances of employee fraud
• Areas in which the internal controls of the City are thought by the Council to be weak
• Known or suspected misstatements in the accounting records of the City
• Known or suspected use of improper accounting practices by the City
• Any awareness of pressure upon the City or City management with respect to achieving
certain financial results
• Matters that warrant particular attention during the audit
• Information about unusual transactions or other matters relevant to the audit
Generally, the scope of the audit is limited to matters involving amounts that would be significant
to the financial statements of the City taken as a whole. If additional time is required to respond
to the concerns of the Council, we will estimate for the City the costs involved.
Auditing Standards require the auditors to communicate the planned scope and timing of the audit.
Additionally, at the conclusion of the audit, we plan to meet with the Council to communicate the
auditor's responsibilities under generally accepted auditing standards and significant findings from
the audit. ·
Timing of Audit
We began the interim audit procedures in May 2019 and our final audit examination in
September 2019. We will finalize the Comprehensive Annual Financial Report by December 31,
2019. The scope of our financial and compliance audit includes all City funds, the Successor
Agency, the Single Audit of Federal Awards, and testing the Appropriations Limit.
May 28, 2019
City Council
Page 2
Planned Scope of Audit
In addition to our standard audit approach, our engagement team plans to expand our testing in
the following areas:
• Golf Course Management Agreement: We will obtain and review the golf course
management agreement and design tests to determine compliance with the agreement.
We will select a sample of expenses for testing and will evaluate internal controls over
cash receipting and cash disbursements utilized by the management company.
• Risk of federal grant noncompliance: We will evaluate the City's federal grants to
determine which grants are required to be audited under the Federal Uniform Guidance.
We will test those grants for compliance with the Uniform Guidance and the applicable
grant agreements. We anticipate auditing the Section 8 Housing Grant as one of the
major programs for the fiscal year ended June 30, 20189
• Data Mining of Payroll: We will download a payroll register and evaluate the
reasonableness of transactions using data mining software. Our evaluation will include
identifying employees with unusually low or high hourly rates, employees with unusually
low or high payroll deductions, and employees with the same last name. For the selected
employees, we will perform additional testing to ensure the employee exists and is paid
the correct amount using the City's personnel records.
If any member of the Council has information relevant to our audit (matters involving amounts
that would be significant to the financial statements of the City taken as a whole), please contact
the undersigned at (949) 783-1740 or JFarr@davisfarr.com .
. Very truly yours, t!:rJ:--
Davis Farr LLP