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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: City Auditor
Meeting Date: September 8, 2025
Report #:2508-5095
TITLE
Approval of the Purchasing Card Audit and Extension Deadline for Two FY2024 Audit Project Task Orders and Amendment of the FY2024 and FY2025 Task Order Budgets to Realign the Authorized Budgets with a Net Zero Impact, as Recommended by the Policy & Services Committee; CEQA – Not a Project
RECOMMENDATION
The Policy & Services Committee recommends City Council approve the results of the Purchasing Card Audit Report and approve the extension of two task orders from the FY2024 Audit Plan that are in reporting, as well as, amending FY24 and FY25 task order budgets for three audits to better align budgets to the tasks with a net zero financial impact.
BACKGROUND
Baker Tilly Advisory, in its capacity serving as the Office of the City Auditor (OCA), performed a citywide risk assessment that evaluated a wide range of risk areas, including strategic, financial, operational, compliance, technological, and reputational risks. The purpose of the assessment was to identify and prioritize risks to develop the annual audit plan.
During the FY23 risk assessment, the OCA identified purchasing card processes as a potential area of risk and was originally included in the FY24 Audit Plan but was deferred to prioritize other audit projects. The audit was reintroduced and included as part the FY25 Audit Plan.
ANALYSIS
The Policy & Services Committee approved the results of the Purchasing Card Audit and a request to extend and amend task orders for FY24 and FY25 projects.
Purchasing Card Audit Report
The objective of the Purchasing Card (P-Card) Audit was to:
Determine whether P-Cards are used appropriately in compliance with the City’s policies and pertinent laws and regulations.
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Evaluate the administration of the P-Card Program for adequate internal controls to safeguard the City from fraud, waste, and abuse.
The City’s P-Card Program is intended to streamline and simplify the Purchasing and Accounts Payable (AP) functions by eliminating steps for low dollar purchases below $10,000. The Program is administered by the Administrative Services Department (ASD), but P-cards are used by all City departments. The P-Card is a tool that can reduce transaction costs, facilitate timely acquisition of materials and supplies, automate data flow for accounting purposes and offer flexible controls to help ensure proper usage.
OCA assessed P-Card transactions from FY2023 through the first 6 months of FY2025, interviewed key program administrative staff and users, analyzed policies, procedures and internal controls governing the program, and assessed the overall efficiency and effectiveness of the program’s oversight functions, as well as the program itself. Audit findings and recommendations focused on the following areas for improvement:
While the City’s P-Card Program demonstrates strong internal controls and sampled purchases are in line with procurement policies, user compliance with program policies and procedures could be improved.
Some P-Card Program oversight and administrative functions are not consistently completed and documented. Also, more efficient review processes could save staff time.
OCA made an additional observation that the City may be able to increase operational efficiencies and save staff time by increasing P-Card spending limits which have not been updated since 2016. As this observation is outside of ASD’s direct control it is not a finding since it would most likely require amending the municipal code to increase the maximum threshold at which designated employees are authorized to make purchases to $15,000 from $10,0001.
During the discussion at the Policy & Services Committee, it was noted that a section of the report regarding the amount of cost-splitting that occurred during a one-month testing period was unclear. A subsequent review of this section by the audit team found that some words had been mistakenly deleted during final report edits. This section, on page 16, has been revised to reflect that while approximately 4% of the sample transactions tested by ASD for the month of December 2024 showed cost-splitting, this represents less than 1% of the total transactions for that month. Since ASD’s testing methodology includes all of the transactions most likely to include cost-splitting, it is likely that for this month, less than 1% of the total transactions involved cost splitting. While this is a small percentage, cost splitting still represents a policy violation.
1 Municipal Code Section 2.30.230 Designated Employee Purchases of $10,000 or Less https://codelibrary.amlegal.com/codes/paloalto/latest/paloalto_ca/0-0-0-61903 8 0
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The attached report (Attachment A) summarizes OCA’s analysis, audit findings, and recommendations.
Budget Extension and Amendment Request
Due to the complexity of the audit topics and management discussions they have generated, as well as, additional analysis required, reporting has been delayed. Requesting the deadline for these projects be extended from June 30, 2025 through October 31, 2025:
FY2024 Task 4.25: Emergency Preparedness (Wildfire)
FY2024 Task 4.28: Dispatch Center Assessment
Amendment of the FY2024 and FY2025 task order budgets is recommended to realign budgets with a net zero impact as well:
FY 2025 Task 4.34: Follow-Up Audit Activities - decrease budget by $14,500 FY 2024 Task 4.25: Emergency Preparedness (Wildfire) - increase by $1,500 FY 2024 Task 4.28: Dispatch Center Assessment - increase by $13,000
FISCAL/RESOURCE IMPACT
The timeline and resource needs for implementation of management’s corrective action plans are identified by management within the attached report. The task order extensions and amendments have a net zero impact on the FY24 and FY25 task order budgets.
STAKEHOLDER ENGAGEMENT
The OCA worked with and would like to thank the Administrative Services Department for their assistance in conducting this audit. In particular, we would like to thank the Purchasing Card Program and Accounts Payable staff for their thorough review and collaboration on this audit.
ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by CEQA because contracting for auditing services is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5).
ATTACHMENTS
Attachment A: Purchasing Card Program Audit
Attachment B: Budget Extension and Amendment for FY24 and FY25 Task Orders APPROVED BY:
Kate Murdock, City Auditor