HomeMy WebLinkAboutCity Manager's Report - City of Huntington Beach Report on CCity of Huntington Beach
Report on City Audits
and Financial Controls
Presented by: Finance Department June 6, 2016
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What are Financial Controls?
Financial or internal controls consist of policies and
procedures designed to provide management with
reasonable assurance that the business entity
achieves its objectives in the following categories:
➢ Effectiveness and efficiency of operations
�� Reliability of financial reporting
,P-- Compliance with applicable laws and regulations
COSO's* Internal Control Framework
Effective internal control consists of five interrelated
components:
* Committee of Sponsoring Organizations of the Treadway Commission
Control Environment
Effective policies and procedures put into place
by the City include the following:
■ Administrative Regulations
■ Financial Policies and Procedures
■ Purchasing Manual
■ Ongoing training for employees, including
ethics seminars
Risk Assessment
Multi -step process:
1. Identify goal and objectives of the City
A. Operations
B. Financial Reporting
C. Compliance
2. Identify risks to the achievement of these
goals/objectives, and
3. Do what is necessary to manage those risks
Risk Assessment
As part of the annual financial statement
audit, the City's external auditors perform risk
assessment procedures to understand and
assess internal controls related to the
preparation and presentation of the City's
financial statements.
This engagement is renewed with a new set
of auditors every 3 years on average.
Control Activities - Two Types
Preventive Controls
■ Help avoid errors and thereby assist in
mitigating the cost of correction
■ Discourage fraud
Detective Controls
■ Measure the effectiveness of preventive
controls
■ Uncover errors and misappropriations
■ Provide the means to establish accountability
Control Environment
Examples of Preventive Controls:
■ Increased segregation of duties
■ Multiple sets of checks and balances
■ Proper documentation (" audit trail")
■ Completely separate reporting structures
■ Differing levels of authorization and approvals
■ Staff training
■ Automation/technology controls in applications
■ Physical control over assets
Control Environment
Examples of Detective Controls:
■ Bank Reconciliations
■ Physical inventories
■ Audits
■ Variance analyses
■ Integrity reports
Control Environment
The City reviews its control procedures on an
ongoing basis for weaknesses and areas for
improvement.
Regular audits and reviews by external parties
provide additional opportunities for the City to
obtain an outside perspective on its internal
control procedures.
Example - Wire Transfer Process
1. Requisition initiated by staff and approved by
Manager or Department Head. cp 1
2. Reviewed for accuracy and processed by
Purchasing Unit. cp2
I Wire transfer is initiated and then approved by
two separate individuals in Finance: Deputy
City Treasurer and Chief Financial Officer. cp3
4. Accounts Payable Division enters the wire
transfer into the Accounting System. cp4
Example - Wire Transfer Process
5. Senior Accountant reviews wire transfer during
the monthly bank reconciliation process. cps
6. Finance Manager -Accounting reviews the
completed bank reconciliation. cp6
7. Wire transfer process and bank reconciliations
reviewed by City's external auditors as part of
annual financial statement audit. cp7
8. City Treasurer reviews Daily Cash Flow
including wire transfers. cps
Monitoring
The City undergoes the following audits on an
annual basis:
■ Financial Statement Audit
■ Single Audit of Federal Award Expenditures
■ Financial Statement Audit of AB 2766 (Air Quality)
■ Annual State Controller's Reports (Street Report
and Employee Compensation)
Monitoring
The City is also regularly subject to various
program -specific audits and reviews of
grants and other sources of revenues to
assess compliance with federal, state, local,
and/or program requirements.
Since 2011, the City successfully underwent
over 45 audits with minimal findings.
City Audits and
Financial Controls
QUESTIONS?
June 6, 2016 Study Session