Stockton Homepage  For Residents  For Visitors  For Businesses  Helpful Resources  Contact Us  SEARCH

  Auditor Office
  Links
  Annual Audit Plan
  Audit Committee
      Minutes
  Audit Authority
  Audit Process
  Audit Trails
Newsletter
  External
Quality Control
  Reports
  Meet the Staff
  Mission Statement

  Service Efforts
    and Accomplishments

  Audit
  Organizations
  AGA
  AICPA
  ALGA
  GAO
  GFOA
  IIA
  ISACA
  Yellow Book

  Sitemap
  Site Search

Office of the City Auditor
Annual Report for 2001-2002

August 31, 2001

I am pleased to present this annual report of the Office of the City Auditor in accordance with City Charter Article XV, Section 1505.

The mission of the Office of the City Auditor is to assist the City Council, management and employees in the effective performance of their duties by providing them with objective analyses, appraisals, and recommendations for financial and related systems and activities. During the year ended June 30, 2001, we provided professional audit coverage of the City’s financial and related activities by examining and evaluating systems, including internal control systems, to determine that the systems are appropriately designed and functioning as intended. Some of our activities for the past year are described below.

Planning Process

In 1994, we established the foundation for annual ranking of audit assignments and for selection of those areas where we believe we can best serve the City. Each year we review and revise the risk assessment to identify those areas that, in our opinion, audit effort is most needed. During the past year, we revised our risk model to better reflect risks that face local government.

Other factors are considered in selecting areas for audit. We seek input from management and the City Council. We also match the background and skills of auditors with the technical requirements of audits.

Audits Completed during 2000-2001

Insurance Internal Service Funds - August 2000

In this audit, we sought to determine how Internal Service Funds were used to meet the City's insurance needs, how departments were charged for insurance related services, and whether sufficient controls were in place to ensure the attainment of program objectives, the safeguarding of assets, and regulatory compliance. We found the overall system of internal controls to be adequate.

USE Contract for Loan Servicing - August 2000

We evaluated compliance with the contract between the City's Housing and Redevelopment Department and USE Community Loan Services. The contract relates to servicing of loan portfolio for the Department of Housing and Redevelopment. We made a number of suggestions to ensure accurate turnover of loan servicing from the City to USE and to improve ongoing procedures.

Annual Follow-Up of Audit Findings as of June 30, 2000 - September 2000

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. We completed the annual follow-up of management action plans, and verified that 17 out of 20 audit findings scheduled for correction by or before June 30, 2000 were resolved.

VenueTech Contract - September 2000

Due to ongoing concerns with the operation of the Fox Theatre, we were asked to audit contract compliance. We found several areas where improvement was needed to comply with terms of the contract.

City Attorney Tort Claims System - February 2001

This audit examined practices used to monitor, examine and settle tort claims. The City Attorney requested the review to determine if internal control improvements to the tort claim process could be made. We found that the system was adequate, and made some suggestions where procedures and controls could be further strengthened.

Fire Department Permits - March 2001

We audited the process of issuing fire permits and approving plans. We also evaluated internal controls over the inspection duties, fee collections and record keeping associated with permits and approvals. We found the system to be adequate, and made a few suggestions and recommendations to strengthen the process.

VenueTech Contract Follow-Up - March 2001

Following our presentation of the results of the VenueTech contract audit to the City Council Audit Committee, the committee requested that our office conduct a follow-up audit after allowing the contractor three months to take corrective action. We found that a number of improvements had been made, but that procedures for cash receipts, payroll, and complimentary tickets needed additional improvement.

Payroll Testing - April 2001

We completed a limited scope audit of select payroll transactions, concluding that payroll transactions were properly authorized, calculated, and paid. We offered suggestions for improving processing guidance. This audit did not include all processes that make up the City's payroll system.

Golf Courses - May 2001

We audited the City's three municipal golf courses to evaluate internal controls and cash handling procedures. Based on the results of our audit, we made recommendations to improve accountability, enhance reporting capability and strengthen controls.

Management Information Services (MIS) - June 2001

Based on employee complaints, we audited MIS payroll, contracting, and related processes. We concluded that significant changes were needed. Results were presented to management and corrective action has been and continues to be taken.

Audits in progress at June 30, 2001

City Clerk

The City Clerk requested a management audit of City Clerk functions. In addition to working with the City Clerk and her staff, we have been working with the City's records management consultant. At June 30, we were in the risk assessment phase.

Administrative Directives

An important element in any audit is establishing the criteria against which performance can be evaluated. In prior audits around the City, we frequently find that written policies and procedures are out of date. Therefore, we have initiated an audit of the City’s Administrative Directives to determine if the directives are current and relevant. At June 30, we were in the risk assessment phase of this audit.

Recruitment and Hiring

The City is expecting significant turnover in the next few years. Because of the significant impact that turnover will have on the organization, we have initiated an audit of the City's recruitment and hiring process. The focus will be on the speed, quality and diversity of recruitment efforts. At June 30, auditing was in the data gathering phase

Fleet Maintenance

Along with full scope audits of entire systems, we also perform limited scope testing in selected areas. In fleet maintenance, we have been testing compliance with preventive maintenance schedules. Testing was nearly complete at June 30.

Annual Follow-up of Audit Findings as of June 30, 2001

Work on our annual follow-up began prior to June 30. Departments had been asked for status reports and we were preparing for tests to verify that corrective action had been taken on five open findings.

Coordination with External Auditors

Each year, our office works with external auditors on the City's financial statement audit. We all recognize that there are benefits to be derived from coordinating our audit efforts. Contact with other professionals helps individual auditors develop and improve their skills. It reduces waste from duplicated efforts. Also, it provides an opportunity for our staff to gain some exposure into systems that we plan to examine more closely in the future. Our participation this year included testing in payroll, state funding, internal service funds and enterprise funds. In addition, we provided our external auditors with copies of our internal audit reports to help them plan the financial statement audit.

This year, we completed a five year contract with Deloitte & Touche for external auditing services. After seeking and evaluating proposals from public accounting firms, the City Council selected Macias, Gini & Company. As is now required by the City Charter, our office will administer the contract for external auditing services.

Technical Assistance Provided

Formal audits are not the only service we provide to the City. In addition, we offer technical assistance to City departments on a request basis. Often, technical assistance requests are narrowly focused issues that we can help with quickly. At other times, questions are more complex and we may invest several hours researching issues and reviewing processes. Below are examples of areas where we are providing technical assistance.

Our office has participated on the City's GASB 34 implementation task force. The committee's role is to gather information necessary to meet reporting requirements of Governmental Accounting Standards Board (GASB) statement #34. Implementation of this accounting pronouncement will significantly change the appearance of the City's financial statements.

We reviewed alarm expenses paid to a vendor by the City and related controls over the payment of recurring expenses. In the November, 2000 edition of City Columns, we suggested that departments periodically test alarm systems to be certain the City is receiving services for which it is billed.

We assisted the City’s Housing and Redevelopment Department in determining audit requirements of a federal grant sub-recipient. Whenever an organization receives federal funds exceeding $300,000 in a fiscal year, provisions of the federal Single Audit Act apply.

Professional Proficiency

Professional certification is strongly encouraged in our office. Eighty percent of the professional staff possess one or more audit certifications. During the year, one auditor completed the requirements to become a Certified Internal Auditor. In addition, one auditor has passed the examination to become a Certified Public Accountant and is now in the process of accumulating the required experience to become licensed.

Each auditor is responsible for maintaining a high level of professional proficiency through a program of continuing education. Two members of the staff are MBAs, one of which was awarded this year. We are also members of and participate in activities of the following professional organizations:

During the year, all audit staff attended courses to satisfy the continuing education requirements of Government Auditing Standards and professional certifications.

Department Policies and Procedures

Policies and procedures manuals provide a written description of the rules and their application for operating a system or department. Such manuals are used for orientation of new employees, as a continuing reference source of departmental methods, to promote consistency, and to set standards for performance.

Auditing firmly believes that the foundation of a good system of internal control is documented policies and procedures. When properly documented, policies and procedures can be consistently applied and support the proper actions and decisions of employees and supervisors.

Our office has maintained a policies and procedures manual since 1994. During the year, we reviewed our manual and identified areas where changes were needed.

United Way Participation

Each year since 1995 we have earned the platinum award for giving to the United Way. We are proud to have earned the platinum award again for 2001.

Audit Standards

The Office of the City Auditor has adopted Government Auditing Standards to guide our work. Adherence to these standards provides a number of benefits to the City. The required quality of our audit effort allows the City’s external auditors to rely on work done by our department, providing an opportunity for the overall audit effort to be more efficient and effective. Standards offer benchmarks to individual audit professionals to measure their professional proficiency.

External Quality Control Review

To help ensure audit quality, Government Auditing Standards require audit organizations to have an external quality control review at least once every three years. Reviews of our office were completed in 1997 and 2000. In both cases, review teams from the National Association of Local Government Auditors (N.A.L.G.A.) concluded that we were operating in full compliance with Government Auditing Standards. N.A.L.G.A. does not charge a fee for this service. We only pay the travel costs of review team members and agree to provide similar review services for other audit organizations. During the year, we met that obligation by providing a team leader for a review of the Clark County, Nevada internal audit department, and by providing a team leader for the first quality control review of a California state audit agency.

Community and City Council Support

We are pleased to see the commitment the City Council and the citizens of Stockton have for auditing. A revision to the City charter that emphasizes performance auditing took effect in January 2001. We are working to live up to the responsibility placed on us by the new charter language.

Hopefully this report has provided you with some highlights of our past year. We look forward to a future of service to the City of Stockton guided by our department philosophy "to leave each place a little better than we found it."

If you have any questions, or would like more information about anything mentioned in this report, please call me at 937-8918. Thank you for your support of the City Auditor's Office.

F. MICHAEL TAYLOR, CIA
CITY AUDITOR