CITY COUNCIL STAFF REPORT
Meeting: July 19, 2022
Subject
Consider establishing a Fraud, Waste, and Abuse Program and conducting a first reading of an ordinance amending Municipal Code Section 2.88.100 (Audit Committee –Duties–Powers–Responsibilities) Recommended Action
Conduct the first reading of Ordinance No. 22-________: “An ordinance of the City Council of the City of Cupertino amending Municipal Code Section 2.88.100: Audit Committee – Duties–Powers–Responsibilities.”
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 “ethics and fraud, waste, and abuse” 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
Fraud, Waste, and Abuse Program
In conjunction with staff, Moss Adams has developed a Fraud, Waste, and Abuse (FWA) Program. The attached program description describes the FWA Program, including:
Fraud, Waste, and Abuse Definitions
Fraud Categories
Ethics
Implementation
Whistleblower Protection Policy
Training
To improve transparency and provide oversight of the FWA Program, the Internal Auditor will prepare quarterly FWA Program reports. The quarterly FWA Program reports would include:
Statistics of calls received by the third-party hotline or the City’s Internal Auditor Summaries of completed investigations of fraud, waste, and abuse, where disclosure is permitted by law and would not materially jeopardize any pending or anticipated civil, criminal, or administrative proceeding Staff recommends an amendment to the City’s Municipal Code to allow the Audit Committee to review the quarterly FWA Program reports. The proposed Ordinance would amend Section 2.88.100 (Audit Committee Duties–Powers–Responsibilities) to include an additional duty: “To review quarterly Fraud, Waste, and Abuse Program reports.” Third-Party Hotline Administrator
The City has elected to contract with a third-party vendor to administer the offsite reporting system. Incident reports can be submitted in a number of ways and allow employees or members of the public to call and speak to an operator via a designated phone number staffed by the vendor. Services are available 24 hours a day, 7 days a week, 365 days a year. The vendor receives calls on the FWA hotline and forwards the incident report to the City’s Internal Auditor (Moss Adams).
After researching and obtaining quotes for companies that provide FWA hotline services, staff selected Syntrio Lighthouse Services. The cost for the hotline is $5,505 per year.
Sustainability Impact
No sustainability impact.
Fiscal Impact
The City has budgeted for the FWA Program in the contracts category of the accounting program in FY 2021-22. Unspent FWA Program funds will be recommended for carryover to FY 2022-23 for implementation and ongoing support of the FWA Program. _____________________________________
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 – Draft Fraud, Waste, and Abuse Program Description
B – Draft Ordinance