title
ADOPT THE FISCAL YEAR 2020-21 INTERNAL AUDIT PROGRAM
recommended action
RECOMMENDATION
The Council Audit Committee recommends that by motion action the City Council adopt the Fiscal Year (FY) 2020-21 Internal Audit Program.
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Summary
The Internal Audit function of the City is designed to provide objective analysis, evaluation, and recommendations for improvements to City systems and activities. This is accomplished through an annual Internal Audit Plan that tests internal controls, evaluates processes, and completes projects to improve operations. This function is distinct from the annual review of City financial statements conducted by external financial auditors.
In early 2013, the City of Stockton contracted with Moss Adams to complete a risk assessment and internal control review. The recommendations resulting from this work were translated into an initial multi-year Internal Audit Plan designed to strengthen internal controls and processes for the City, as well as make improvements to priority programs and initiatives of the City Council. In subsequent years, Moss Adams recommended and implemented annual audit plans to continue strengthening controls and processes of the City through the term of their contract, ending June 30, 2019.
During the 2018-19 Fiscal Year, the City conducted a competitive Request for Proposals process to identify an audit firm to continue providing internal audit services for the City. Moss Adams was selected as the winning firm given their vast experience in municipal internal audit services, quality of work and strategic fit with the City. The new contract with Moss Adams includes continuation of the annual internal audit plan cycle. This staff report covers recommendations for the Fiscal Year 2020-21 Internal Audit Plan.
The FY 2020-21 Internal Audit Plan was presented to the Council Audit Committee on June 15, 2020. The Council Audit Committee adopted a motion to recommend to Council approval of the Fiscal Year 2020-21 Internal Audit Program with a recommended budget of $325,000 (Attachment A). This one-year plan maintains focus on improvements to citywide policies, processes, and controls, while supporting ongoing capital program improvements and efficiency studies. The proposed plan also provides for continued general program management, audit findings validation, and ethics hotline administration.
DISCUSSION
Background
Stemming from the City Council Strategic Initiatives adopted in 2011 designed to attain fiscal sustainability and address a multitude of audit findings, the City Council decided in 2012 to solicit Internal Audit Services by contract. There is a growing trend for municipalities to contract for internal audit services. This is similar to the historical practice of contracting for external financial audit services, however, the nature of internal audit services is distinct and typically provided by different audit firms. The successful firm in 2012, Moss Adams, was selected to provide audit services as a pilot project while also conducting a risk assessment and internal control review. The risk assessment and internal control review outlined the work that would be required to strengthen its control processes and procedures. The recommendations included in the internal control review provided a road map for carrying out this work.
In September 2013, the City Council approved a contract with Moss Adams to complete an Internal Audit Plan that would begin implementation of the most critical improvements recommended by the assessment. The City Manager and Moss Adams as the City Auditor brought forward the initial Internal Audit Plan, which included 24 projects covering two primary types of activities: 1) internal controls improvement and 2) performance improvement. The Plan organized the work based on priority, timing, and workload capacity. The initial Internal Audit Plan was completed during the 2015-16 fiscal year. Annual internal audit programs have been executed each year subsequent year.
Regular progress updates have been provided at monthly Council Audit Committee meetings. Project reports and recommendations from Moss Adams have also been provided to the City Council as informational items in regular City Council agenda packets.
The term of the initial contract with Moss Adams for internal audit services expired June 30, 2019. During the 2018-19 Fiscal Year, the City conducted a competitive Request for Proposals process to identify an audit firm to continue providing internal audit services for the City for a five-year period. Through this competitive process, Moss Adams received the highest ranking based on the criteria for their written proposals and for their performance in an interview of potential firms. The City Council approved this contract at its June 18, 2019 meeting. The new contract with Moss Adams includes continuation of the annual internal audit plan cycle. This staff report covers recommendations for the Fiscal Year 2020-21 Internal Audit Plan.
Present Situation
The FY 2020-21 Internal Audit Plan maintains focus on improvements to citywide policies, processes, and controls, while supporting ongoing capital program improvements and efficiency studies. The proposed plan also provides for continued general program management, audit findings validation, and ethics hotline administration.
The FY 2020-21 Internal Audit Plan was presented to the Council Audit Committee, reviewed with City Management, and is recommended for Council adoption. At their June 15, 2020 meeting, the Council Audit Committee adopted a motion to approve the FY 2020-21 Internal Audit Program with a recommended budget of $325,000.
FINANCIAL SUMMARY
Internal Audit activities are funded from the $421,000 annual budget for Internal Audit Services. The proposed budget of $325,000 for Moss Adams to carry out the FY 2020-21 Internal Audit Program is within the budget allocation for Internal Audit Services. There are sufficient funds in the 010-1901-510 account for these purposes. The intent is for the annual Internal Audit Program to be the funding plan each year for these budgeted dollars.
Attachment A - Fiscal Year 2020-21 Internal Audit Program