200 S. Anaheim Blvd.
Suite #733
Anaheim, CA 92805
Tel: (714) 765-5162
Fax: (714) 765-5164
www.anaheim.net
CITY COUNCIL AGENDA REPORT
City of Anaheim
CITY MANAGER’S OFFICE
DATE: OCTOBER 17, 2023
FROM: CITY MANAGER’S OFFICE
SUBJECT: OVERVIEW OF THE CITY’S INTERNAL AUDITING
PROGRAM
ATTACHMENT (Y/N): NO ITEM # 25
GOVERNMENT CODE § 84308 APPLIES: NO
RECOMMENDED ACTION:
That the City Council, receive an overview of the City of Anaheim’s Internal Auditing Program.
DISCUSSION:
At the August 29, 2023 City Council meeting, Council Member Carlos Leon requested the City Manager to provide information on the City’s Internal Auditing Program.
Audit Division Background
The Audit Division is part of the City Administration Department and serves as the City’s independent and objective appraisal activity for the review and improvement of City operations. Organizationally the Audit Division reports directly to the City Manager and has done so for over thirty-five years. Anaheim is the only city in Orange County to have an Internal Audit function and one of only a few in Southern California.
Internal audit services are made available to all City departments with audits being performed based on request, risk assessment, and/or on a cycle basis. Audits are commonly requested by departments with efforts made to fit these requests in depending on urgency and audit staff availability. The Audit Division operates with the underlying goal of contributing to city resources by identifying monetary findings through contract compliance and tax revenue audits. In addition, the Audit Division strives to add value to city operations by providing economical recommendations to improve management processes and strengthen internal controls.
Audit Staffing
The Audit Division has an authorized staffing level of five auditors, one Audit Manager and one support staff. Currently, the Division has two vacant Senior Management Auditor positions with another auditor retirement anticipated in early December 2023.
Overview of the City’s Internal Auditing Program
October 17, 2023
The audit staff have one or more professional certifications including Certified Public Accountant, Certified Internal Auditor, or Certified Fraud Examiner.
Types of Audit Projects Performed by the Audit Division The core work of the Audit Division typically falls within one of five categories:
contract compliance audits, Transient Occupancy Tax audits (audits of hotels for compliance with the Transient Occupancy Tax Code), operational/performance audits, joint utility audits on behalf of Anaheim Public Utilities, and special studies as requested by management. The Audit Division oversees the City’s Fraud Hotline and the triaging of complaints received through the Hotline. In addition, the Audit Division performs special studies and reviews including ongoing monitoring for missing sales tax receipts and unlicensed businesses.
The following is a summary of the types of audits performed by the Audit Division along with the typical objectives for these audits:
Contract Compliance Audits – These audits are performed regularly with the purpose of ensuring City vendors or contractors are adhering to contract terms and fulfilling their contractual obligations. These audits often include the objectives of ensuring proper checks and balances are in place, confirming all required payments have been received, key deliverables provided, and expenditures billed the City are proper. The objectives are driven by the key terms of each agreement. Although not always the case, contract compliance audits are commonly initiated through requests from department heads either as a basis to independently confirm contractor compliance and/or to address a concern regarding the contract.
Transient Occupancy Tax Audits – The Audit Division audits the records of each hotel, motel, and timeshare in Anaheim to ensure all Transient Occupancy Tax and Anaheim Tourism Improvement District funds are collected and reported to the City. Auditors take a close look at the books and records of each hotel and test for compliance with the Anaheim Municipal Code. The Audit Division performs approximately 50 of these audits per year. All hotels, motels, and timeshares are on a 3-year audit cycle. Beginning in the 2nd quarter of FY 2023/2024 the Audit Division will commence our first audit of an Online Travel Company (OTC). The City has a number of OTCs that recently began reporting and remitting TOT to the City under Measure J. These companies have expressed an interest in undergoing an audit sooner than later to ensure they have created a solid foundation for their collection and reporting of TOT to the City.
Operational/Performance Audits – These audits evaluate the operations of a business unit to assess the business activities in relation to objective criteria such as administrative regulations, strategic plans, industry best practices, etc.
Although these reviews are less frequent, they typically require more staff time and resources.
Overview of the City’s Internal Auditing Program
October 17, 2023
Joint Utility Audits – The Audit Division routinely participates in audits of various power projects that are jointly owned by Anaheim along with other municipal utilities such as the Los Angeles Department of Water and Power. Our auditors work with the auditors of these jointly owned projects to evaluate the propriety of the amounts billed the power project participants.
Special Studies and Agreed Upon Procedures – The Audit Division provides assistance to departments in need of data analysis, sales tax research, cost allocations, rate reviews, financial reviews, policy and procedure reviews, and other specialized projects that can benefit from an independent review.
Audits Completed in FY 22-23
The Audit Division completed 80 audits during FY 22-23 with the majority being audits of Anaheim hotels/motels and their compliance with the Transient Occupancy Tax Code.
Our audits in FY 22-23 resulted in identifying over $1M in TOT, penalties, and interest due from hotels. The Audit Division also completed audit work on two contract compliance audits and three utility projects during FY 22-23. In addition, the Audit Division spent numerous hours assisting on special projects and with ongoing analysis and tax reporting and collection procedures in support of Measure J approved by voters in the November 8, 2022, election.
Audits Completed to date in FY 23-24
Audits completed to date in FY 23-24 include 11 TOT audits, two follow-up audits, one contract compliance audit, and two special reviews. In addition to several TOT audits currently in progress, the Audit Division is in various stages of contract compliance audits of the City’s Golf Operations Agreement, Encore Presentation Services Agreement (contractor at the ACC), and the Republic Services Agreement.
IMPACT ON BUDGET:
There is no impact on the budget.
Respectfully submitted, Concurred by,
Jim Vanderpool Joe Romines
City Manager Audit Manager