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HomeMy WebLinkAbout2019-07-03; Auditor Communications to the City Council; Rocha, LauraTo the members of the: COUNCIL oat c _jf_cc V CM / DCM {3) V 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