September 15, 2000

Stockton City Council

In accordance with our 2000-2001 audit plan, we have completed the annual follow-up of management action plans to correct conditions in audit findings. We conducted our follow-up in accordance with Generally Accepted Government Auditing Standards.

Our objective was to determine whether action plans were completed and conditions in audit findings corrected. We verified the corrective actions taken to ensure that control weaknesses were properly resolved. Included in this year's follow-up are action plans with implementation dates of June 30, 2000 or earlier.

We are pleased to report that out of the 20 audit findings that were reviewed, 17 were verified to have been properly resolved by implementation of management action plans. On the remaining 3 audit findings in our follow-up database, management requires additional time to fully implement their action plans.

The implementation of an action plan led to cost savings and a more effective and efficient payment processing of blanket vendor invoices. Another resulted in the collection of additional revenues from charges and penalty assessments from prior years by means of concerted collection efforts. Other corrective action plans enhanced internal controls in various operating systems.

Additional information about our audit can be found in the attached INTERNAL AUDIT REPORT.

original signed by:

F. MICHAEL TAYLOR, CIA
CITY AUDITOR

TABLE OF CONTENTS
Audit Follow-Up to Management Action Plans

Summary Letter

Audit Report

Attachments:

Unresolved Audit Findings

INTERNAL AUDIT REPORT
AUDIT FOLLOW-UP TO MANAGEMENT ACTION PLANS

In accordance with the City Auditor's 2000-2001 audit plan, we have completed our annual follow-up of management's action plans to improve conditions reported in internal audits. Our follow-up was conducted in accordance with Generally Accepted Government Auditing Standards.

As each internal audit assignment is completed, the conditions found by auditors are categorized as either audit findings, suggestions for improvement, or other comments. How a condition is categorized depends on its significance and its relationship to the audit objectives.

Audit findings are presented to management in writing. Management responds to the audit findings with action plans and target dates to make needed improvements. After Auditing receives the action plans, they are transmitted to the City Manager. We send our audit report to the City Council and City management. That report, which highlights any significant findings, is discussed with the Audit Committee.

Auditing uses a database to track audit findings. On a quarterly basis, all open findings are sent to the City Manager’s office to assist them in monitoring progress toward corrective action. On an annual basis, Auditing conducts a follow-up review for all findings which have passed the target implementation date.

Suggestions for improvement deal with conditions that are less significant. Generally, they are areas where procedures could be more efficient or where opportunities exist to make minor internal control improvements. No follow-up is done on suggestions for improvement.

Other comments appear in the body of our audit reports. This is done to highlight issues which apply to areas in addition to the specific audit assignment, or to call attention to actions that may be required of the City Council.

We conducted our follow-up on management action plans with target implementation dates of June 30, 2000 or earlier.

Much of the benefit from audit work is not in the findings reported or the recommendations made, but in the effective resolution of control weaknesses. Management is responsible for resolving audit findings and the City Auditor’s Office does follow-up to determine whether prompt and appropriate corrective action has been taken on reported findings.

On an annual basis, Auditing sends a written inquiry to management about the status of planned actions that have passed their target implementation date. For planned actions that have not been implemented, new plans and target dates are requested. Auditing verifies changes for planned actions represented by management as implemented.

In this audit finding follow-up, there were 20 open audit findings with management action plans due to be implemented by June 30, 2000 or earlier. The open audit findings reviewed were from the following audits:

Management's corrective actions resolved 17 out of 20 open findings and resulted in the following improvements:

• During the audit of the Purchasing System, there were 122 employees in operating departments that could control all aspects of a purchase transaction through the Purchasing/Inventory system. Upon Purchasing Division's review and evaluation of access to the system, they took corrective measures to significantly limit the number of employees that can control an entire transaction.

At the recommendation of the Purchasing Division, 12 employees from the City Manager's Office and Purchasing Division were granted authority by the City Manager to control an entire transaction from requisition, approval, receipt processing to payment authorization in the Purchasing/Inventory system.

• The processing by Accounts Payable of repetitive weekly invoices from a blanket vendor that was once a time consuming manual intensive process has been streamlined and changes resulted in cost savings. The Accounting Unit and Accounts Payable section asked the vendor to develop a monthly summary billing to replace the weekly stack of invoices that the vendor had been submitting to Accounts Payable for payment. This facilitated payment processing that benefited both Accounts Payable and the vendor.

The process reinforces the responsibility of departments that are receiving the services provided by the vendor, to review the validity and accuracy of charges to their department. A department is to notify the vendor for any addition/deletion of an employee to the billing, and for any errors or discrepancies noted in the billing.

• Revenue Services reviews the list of unpaid charges and penalty assessments on business licenses for prior years. Their efforts led to the collection of a significant amount of charges and penalty assessments from business owners. Follow-up collection is conducted on those that had judgments rendered by the small claims court. The corresponding charges and penalty assessments were reversed from the system on accounts that were evaluated and considered uncollectible by reason of bankruptcy or expiration of the statute of limitations.

Procedures were developed to provide proper guidelines to employees processing business license applications and renewals. Any significant variations in gross receipts between the current year and prior years are being reviewed. These are referred to the internal auditors in Administrative Services for inclusion in their audit schedule.

• The Administrative Services Department continues to evaluate cash handling procedures at various facilities. Management plans to revise the Administrative Directive on cash receipts to define and reinforce the responsibility and accountability for the proper control and use of sundry field receipts.

Additional work is needed by management before the conditions in three audit findings can be satisfactorily resolved. Attached to this report are forms that document the condition, action plan and status of each management action plan that has not been fully implemented.

We encourage management and staff to continue to implement the action plans on audit findings that have not been resolved. We commend the Accounting Unit and Accounts Payable section for working diligently to change certain operating procedures in the processing of payments to make it more effective and efficient. We also commend Revenue Services for taking corrective actions to resolve13 out of 15 audit findings on the Business License Tax System. We appreciate the cooperation and assistance extended to us by other departments in the course of our follow-up.