CITY COUNCIL STAFF REPORT
Meeting: September 19, 2023
Subject
FY 2023-24 Internal Audit Program
Recommended Action
Approve FY 2023-24 Internal Audit Program
Reasons for Recommendation
The Internal Audit Program, conducted by Moss Adams, LLP (“Moss Adams”), the City’s contracted Internal Auditor, will provide direction to the projects undertaken in Fiscal Year (FY) 2023-24. Projects included in the program are prioritized by the Audit Committee and City Council and considered available staff resources for FY 23- 24 completion.
Background
As of FY 2021-22, Moss Adams serves as the City’s designated Internal Auditor and conducts projects focusing on:
Risks
Internal controls
Efficiency and effectiveness
Best practices
Compliance
Internal Audit Work Plan
Moss Adams develops an internal audit work plan to guide activities for each fiscal year. The Audit Committee and City Council approved the internal audit work plan for FY 2021-22 and 2022-23, which included the following projects:
FY 2021-22:
Procurement Operational Review
Policy Inventory and Plan
Capital Program Effectiveness Study Fraud, Waste, and Abuse Program FY 2022-23:
Budget Process Review
Enterprise Leadership Effectiveness Study
Library Construction Audit
For FY 23-24, Moss Adams recommended the following internal audit work plan in chronological order:
Ongoing Internal Audit Services: Attend Audit Committee and Council meetings; prepare status reports, manage internal audit program, and prepare FY 23-24 Internal Audit Program. (52 weeks) Enterprise Risk Assessment: Identify, analyze, and measure risks by the level of inherent vulnerability, the level of preparedness to mitigate them, and the impact such negative events could have on the City should they occur. This assessment serves as management’s and the internal auditor’s basis for determining possible actions for managing and mitigating uncertainty, both on an inherent and a residual basis, and informs the three-year internal audit work program. (20 weeks) Inventory City policies in each department, identify gaps, and review policies for opportunities for update and alignment with best practices. Provide a prioritized implementation plan for policy updates. (35 weeks) Audit Committee Recommendation
At the July 24, 2023, Audit Committee Meeting, Moss Adams proposed two projects for the FY 23-24 program, including a list of potential future projects; the committee voted to include an additional task, Grant Management Performance Audit, to the program and forward its recommendation to City Council for consideration.
Grants Management Performance Audit: Assess the City’s grant policies and procedures, application, reporting, compliance, accounting, controls, and management for efficiency and alignment with best practices. (16 weeks) The additional project requested by the committee would require an increase in budget appropriations and a third amendment to the Moss Adams contract. The additional project is not included in the staff recommendation.
Although staff recognizes the benefits of the Grants Management Performance Audit, the Finance Division workload will likely not accommodate the additional project in the same year the City is performing its first audit with a new external auditor, The Pun Group, and implementing a new Enterprise Resource Planning (ERP) software, a comprehensive Financial and Human Resource application.
FY 2023-24 Program:
Ongoing Internal Audit Services $10,000
Enterprise Risk Assessment $50,000
Citywide Policy Review & Gap Analysis $40,000
Additional project recommended by the Audit Committee
Grants Management Performance Audit $35,000
Potential Future Internal Audit Projects:
IT General Controls Review
Succession Planning Study
Contract/Vendor Management Performance Audit
Next Steps
If City Council approves staff’s recommended internal audit program, Moss Adams will complete the recommended projects and present the audit reports to the Audit Committee for review and City Council for acceptance. The audit reports will be available on the City’s website at cupertino.org/finance under Internal Audit.
Should City Council prefer Audit Committee’s recommended Internal Audit Program, staff will return to City Council with a third Moss Adams contract amendment and resolution for additional budget appropriations at a subsequent City Council Meeting.
Sustainability Impact
No sustainability impact.
Fiscal Impact
In the FY 2022-23 Adopted Budget, the City has budgeted $100,000 for the internal audit contract in the contracts category of the accounting program. No additional appropriations are requested. _____________________________________
Prepared by: Jonathan Orozco, Finance Manager
Reviewed by: Kristina Alfaro, Director of Administrative Services Approved for Submission by: Matt Morley, Assistant City Manager Attachments:
A – FY 23-24 Internal Audit Program