CITY COUNCIL STAFF REPORT
Meeting: July 19, 2022
Subject
Consider the Capital Program Effectiveness Study Final Report Recommended Action
Receive the Capital Program Effectiveness Study 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 the Capital Improvement Program as a moderate 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
The City’s Capital Improvement Program (CIP) Division provides design and construction administration for all capital improvement projects, including streets, sidewalks, storm drainage, buildings, parks, bicycle and pedestrian infrastructure, and other public facilities. The CIP Division ensures that all public improvements are designed and constructed in accordance with community expectations and City standards, and places safety of the public, City employees, and workers as the highest priority in the delivery of capital projects.
Project Scope
As part of the FY 2021-22 internal audit work plan, the Audit Committee and City Council approved a CIP study to identify opportunities for improvement to the CIP’s operations, structure, service delivery, and process efficiency. Moss Adams conducted this engagement between October 2021 and February 2022. For this study, Moss Adams evaluated the structure, function, and role of the CIP Division to improve the operational effectiveness and efficiency of its program.
Within the past several years, the CIP Division has experienced significant staff turnover. The current team has been making progress toward improving the consistency and efficiency of its operations. The attached report details additional steps that can be taken by the CIP Division and City leadership to continue the positive trajectory of this work and ensure that this team has the resources it needs to be highly successful.
Project Observations and Recommendations
Based on the input gathered from interviews, document reviews, and focus groups, as well as comparisons to best practices, Moss Adams prepared a comprehensive set of observations and recommendations. The attached report discusses the observations and recommendations for the following areas:
Capital Planning and Prioritization
Capital Program Funding
Infrastructure Maintenance
Staffing
Policies and Procedures
Procurement and Contract Management
Information Technology Systems
Communication and Reporting
Management Response
In response to the report, the FY 2022-23 Adopted Budget, which City Council approved on June 9, 2022, included:
A Management Analyst position in Public Works to support the Public Works Senior Management Analyst A Purchasing Manager position in Administrative Services to provide a centralized role for purchasing compliance, administration, and policy development A one-time special project for grant management in Administrative Services to help identify citywide grant funding opportunities A $2.5 million annual transfer to the Capital Reserve in the FY 2022-23 Adopted Budget and ten-year forecast to facilitate CIP financial forecasting 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.
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 – Capital Program Effectiveness Study Final Report