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AMENDMENTS TO CHARTER ARTICLE XV AUDITOR
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Revise recommendation of the Charter Review Advisory Commission to amend Charter Article XV, based on Staff recommendations and forward to the full Council for approval to place on the November 2016 General Election ballot.
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Background
The Charter Review Advisory Commission was provided a Council approved scope of work during their initial meeting on June 26, 2013. The scope was divided into three block sections of work and the City Attorney reviewed the scope of work with the group at that time. In the CRAC meeting held October 30, 2013, CRAC began initial discussion of proposed changes to the Charter regarding the Auditor’s role and duties, although it was not a part of the original scope of work. CRAC created a sub-committee to discuss the proposed changes and met periodically over the next several months. Sub-committee reports were presented to the CRAC at monthly meetings. On March 25, 2015, CRAC approved the amendments to the charter for Section XV that are included with this report.
Unlike other sections under review by the CRAC, staff has not presented their recommendation for Section XV to the CRAC at the request of the CRAC members. Staff initially did not have a recommendation as it was not a section that staff or Council identified as needing a revision. Staff is now making a recommendation related to CRAC’s proposed revision.
Charter Review Advisory Commission Recommendation
CRAC recommendation for amending Article XV can be found as Attachment A of this report. A sub-committee met over several months to discuss the issues and provide language amending the charter. The changes include updates to Section 1500 and 1501, as well as, creation of Sections 1502 and 1503. CRAC’s proposal includes the following recommendation:
Section 1500
• City Auditor employment term of not less than four years
• City Auditor be an employee of the City
• In the event of a vacancy, City Council shall appoint a qualified independent auditor for period not to exceed one (1) year
• City Auditor will submit a proposed budget that shall be at least 0.15% of the City-wide budget
Section 1501
• Objective of the City Auditor will be to ensure the City produces timely and accurate financial statements and reports
• Completes required financial, compliance and specialized audits
• Provides timely and proper responses to findings
• Maintains effective internal controls
• Operations are economical, effective and efficient, and conducted without fraud, waste or abuse
Section 1502
• City Auditor will advise and report to the City Council
• Submit an annual audit plan to the City Council
• Undertake independent examinations, review, and investigations
Section 1503
• City Auditor will review quarterly and annual financial statements
• City Auditor will receive copies of all communications relating to internal and external audit requests, audit responses, program reviews, and monitoring visits.
For any proposed contract or agreement that entails a potential new or continuing obligation of $1 million or more, the City Auditor will provide an independent analysis of the possible effects on the current and next year’s general fund and city-wise financial statements
Although similar language currently exists in the Charter, CRAC redefined Sections 1501, 1502, and 1503 regarding objectives, oversight, duties and powers.
Staff Recommendation
Staff has reviewed the CRAC’s recommendation and has also conducted a thorough analysis internally. At the request of staff, Management Partners, has also provided an independent analysis of the proposed changes. Management Partner’s analysis raises some concerns and staff agrees they should be addressed prior to forwarding any changes to City Council.
The main concern is that the changes do not allow for the needed flexibility to best govern the City. A charter should be flexible to allow for proper management while providing guidance that will stand the test of time. In particular staff is concerned with the following:
City Auditor as a City Employee - restricting this role will be detrimental to the management of the City auditing function. The research shows that among eight charter cities surveyed, only one (Modesto) has a city auditor defined by city charter as an internal City employee. That position is combined with the position of the City Clerk. Restricting the City Auditor to be a City employee is overly prescriptive and locks in the options available to the City. The research concludes that among the eight cities surveyed, most of them contract with an independent certified public account to perform the internal auditing function. In these cities, internal staff do not perform the auditing function for the City. It is not in the best interest of the City to limit the options for this role, and there is no basis to indicate the City’s current contracted auditor is not meeting performance measures and objectives.
The current charter language requires the auditor to be a Certified Public Accountant or a Certified Internal Auditor and staff recommends continuing this requirement in the charter as recommended by the CRAC.
Minimum Budget for City Auditor - CRAC’s recommendation includes a minimum of 0.15% of the City-wide budget be allocated for the City’s Auditor. If implemented, given the current budget, it would apply an increase to the current budget of approximately $200,000. The City is currently utilizing the services of Moss Adams LLP to perform the auditing function and they are performing the work plan in a timely and efficient manner. There is no justification to increase the budget line item at this time. Also, in the future City budget’s may fluctuate substantially due to capital improvement projects or grant monies received and requiring a budget based on percentage for this function and not tying it to deliverables will create an unstable working budget for the City Auditor and open up the City for increased risk.
Staff recommends amending CRAC’s proposed recommendations prior to sending the language to the City Council. Staff’s recommendation incorporates all of CRAC’s changes except for those concerns noted in this report (Attachment E).
Attachment A - CRAC Recommendation to Article XV - Redline version
Attachment B - CRAC Recommendation to Article XV - Clean version
Attachment C - Management Partners Memo
Attachment D - Article XV - Current version
Attachment E - Staff’s Recommendation to Article XV - Redline version