CITY COUNCIL STAFF REPORT
Meeting: July 19, 2022
Subject
Consider the Fiscal Policy Inventory and Gap Analysis Final Report Recommended Action
Receive the Fiscal Policy Inventory and Gap Analysis Final Report Discussion
Background
In Fiscal Year (FY) 2019-20, the City began an internal audit program and issued a Request for Proposal (RFP) for internal audit services. After reviewing the proposals, the evaluation committee selected Moss Adams as the City’s Internal Auditor. Moss Adams serves as the City’s designated Internal Auditor and conducts projects focusing on:
Risks
Internal controls
Efficiency and effectiveness
Best practices
Compliance
Moss Adams reports to the City Council’s Audit Committee, which oversees the work and approves the annual internal audit work plan.
Enterprise Risk Assessment
In 2020, Moss Adams conducted an Enterprise Risk Assessment (ERA) to analyze the City’s risk areas. For each risk category assessed, the risk assessment included an overview of the risk condition in the City, including the current risk level, likelihood, impact, preparedness, and trajectory. In the ERA, Moss Adams identified policies and procedures as a moderate-to-high risk area.
Internal Audit Work Plan
In 2021, Moss Adams developed an internal audit work plan to guide activities for FY 2021-22. The Audit Committee and City Council approved the FY 2021-22 internal audit work plan, which included the following projects:
Procurement Operational Review
Policy Inventory and Plan
Capital Program Effectiveness Study
Fraud, Waste, and Abuse Program
Project Background
Moss Adams performed an inventory of all City fiscal policies and procedures (P&Ps) and a gap analysis to determine what gaps in coverage exist and developed a prioritized P&P work plan to support the City in addressing identified gaps. The objectives of this project were to:
Determine which fiscal areas are adequately covered by comprehensive current P&Ps.
Identify policy gaps, including areas where no policies to support fiscal functions are documented, existing policies are outdated or in need of minor updates or additions, and current internal control or gap coverage are missing key components.
Prioritize policy gaps based on overall risk, and develop an implementation plan to provide the City with recommendations for prioritizing and addressing the identified policy gaps.
Project Scope
This project was limited in scope to the City’s finance and accounting (fiscal) functional areas. All fiscal P&Ps available as of October 2021 were provided to Moss Adams to assess as part of this project. Other P&P documents, informal process documentation, or guideline documents that are not approved formal P&Ps at the City level may exist; however, they were not included in Moss Adams’ analysis and are therefore not included in the results presented in Moss Adams’ report.
Project Results
Moss Adams identified eight high-risk policy areas:
Accounting and Financial Reporting
Accounts Payable
Budgeting
Capital Assets
Cash Management
Payroll and Timekeeping
Procurement
Revenue and Accounts Receivable
The attached Moss Adams report includes a prioritized P&P work plan for all policy areas and recommendations for high-risk policy areas.
Management Response
Management agrees that formalized P&Ps are needed in the above areas. Staff currently utilizes non-formalized procedures. In response to the report, staff has drafted P&Ps for the high-risk policy areas mentioned above. The P&Ps are in the review process and expected to be approved by the Director of Administrative Services and the City Manager. Staff plans to implement formalized P&Ps for the high-risk policy areas at the beginning of FY 2022-23. Formalized P&Ps for the medium and low-risk policy areas are expected to be implemented by the end of FY 2023-24.
Next Steps
Staff will develop an implementation plan to implement the report’s recommendations. The implementation plan and status reports will be available on the City’s website at cupertino.org/budget under Internal Audit.
In addition, if approved as part of the FY 2022-23 internal audit work plan, Moss Adams would review the City’s formalized P&Ps and report back to the Audit Committee and City Council on the status of the P&Ps.
Sustainability Impact
No sustainability impact.
Fiscal Impact
No fiscal impact. The City’s Internal Audit contract is included in the contracts category of the accounting program in the FY 2022-23 Adopted Budget. _____________________________________
Prepared by: Thomas Leung, Senior Management Analyst
Reviewed by: Kristina Alfaro, Director of Administrative Services Approved for Submission by: Dianne Thompson, Acting City Manager Attachments:
A – Fiscal Policy Inventory and Gap Analysis Final Report