Contra Costa County Grand Jury
• 2012-2013
• Agency Response
Response from the Cities & Towns of Contra Costa County, School Districts and other Special Districts in Contra Costa County, and LAFCO (Local Agency Formation Commission)*
⚠️ Translation Notice: This content has been automatically translated. The original English text is the official version. Translation may contain errors.
⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.
Note: Missing finding numbers detected: F10, F11, F12, F13, F14, F16, F17, F18, F19, F20
Findings and Recommendations 11 findings
F1
Several of the entities reviewed showed Material Weaknesses, Significant Deficiencies and other deficiencies in Internal Controls each year as reported by the external auditors. City response: Agree. However, note that Lafayette has not had the opportunity to evaluate the audits of any of the reviewed entities so the City is relying on the Grand Jury's first hand investigation that this is true.
Related Recommendations (1)
R1
Financial management of the County, all cities, all school districts and all special districts remedy the Material Weaknesses, Significant Deficiencies and other deficiencies in Internal Controls reported by the external auditors. This recommendation has been implemented. Lafayette has had no Material Weaknesses or Significant Deficiencies reported, however, the auditor has on occasion made suggestions to tighten some internal controls. In all cases, these recommendations have been implemented 2.0
F2
In several instances, the Material Weaknesses, Significant Deficiencies and other deficiencies were repeated from one year to the next by the external auditors without being remedied. City response: Agree. However, note that Lafayette has not had the opportunity to evaluate the audits of any of the reviewed entities so the City must rely on the Grand Jury's first hand investigation that this is true.
Related Recommendations (1)
R2
County Organizations maintain or add audit report results to appropriate financial managements' performance goals to ensure such individuals are held accountable for promptly remedying deficiencies identified in audit reports and consider the legality of maintaining or adding such performance qoals on audit reports to financial managements' evaluations. Lafayette has implemented the addition of audit results to financial managements' annual evaluations.
F3
Weaknesses in Internal Controls could ultimately result in financial losses, loss of public confidence (reputational risk), inaccurate or faulty financial reporting and decision making based on incomplete or inaccurate information. City response: Agree. The ability to spend wisely and account accurately for constituent's money is fundamental to the process of competent public governance.
Related Recommendations (6)
R3
The County Organizations improve direct financial oversight and assessment of the control environment including: c. The governing board of school districts appoint a formal Audit Committee from among their members and provide direct oversight to district operating and financial management to ensure that Internal Control deficiencies are promptly remedied. Response This recommendation has been implemented. The Governing Board of the Contra Costa Community College District has a sub-committee consisting of two Governing Board members acting as the "Governing Board Finance Committee." This committee meets quarterly and is kept updated on the financial status of the Contra Costa Community College District through reports from the external auditors, the internal auditor, and District finance staff. The charge of the Committee includes responsibilities towards policy issues connected to external audit function and internal audit program and special projects assigned by the Governing Board. Special projects would generally be considered topics which relate to major financial matters affecting long-term financial commitments or the Governing Board's role. The Board of Supervisors have the County internal audit staff report directly to the Board g. of Supervisors rather than the Auditor Controller. The governing boards of other County Organizations have the internal audit groups of other County Organizations maintain their independence and not report to financial management but instead to the City Council in the case of cities and the governing boards in the case of school districts and special districts. Response The recommendation has been implemented. The internal auditor at Contra Costa Community College District currently reports to the Board Finance Committee, a sub- committee consisting of two Governing Board members. The charge of the Committee includes responsibilities towards policy issues connected to external audit function and internal audit program and special projects assigned by the Governing Board. Special projects would generally be considered topics which relate to major financial matters affecting long-term financial commitments or the Governing Board's role. We welcome the opportunity to address any questions the Grand Jury may have regarding our responses. Please do not hesitate to contact me (925-229-6820, hbenjamin@4cd.edu), should you have any further questions. Sincerely, Helen Benjamin, Ph.D. Chancellor Governing Board CC: Chancellor's Cabinet Contra Costa Community College District 500 Court Street, Martinez, California 94553 925.229.1000 www.4cd.edu JOHN SWETT UNIFIED SCHOOL DISTRICT Office of the Superintendent Mike McLaughlin, Ed. D. Parker Avenue, Rodeo, CA 94572 (510) 245-4300 • FAX (510) 245-4312 June 13, 2013 Mr. Marc Hamaji Foreperson Court St. PO Box 431 Martinez, CA 94553-0091 Dear Mr. Hamaji, John Swett USD is in receipt of your report "Assessing Fiscal Risk". Your report states that the district is subject to findings 1-9. Unfortunately the report has no documentation of such findings. The district's 2011-12 Audit (attached) shows no "material weaknesses". Thus John Swett respectfully disagrees with findings 1-8. We do, however, agree with finding 9 which you note is common in school districts. Since no material weaknesses were found, we disagree with all recommendations except recommendation 3c that we will endeavor to implement. With regards to
R3b
The City Councils more actively provide oversight by appointing an Audit Committee from among their members as well as an ad hoc citizens' committee to ensure that Internal Control deficiencies are promptly remedied. July 17, 2013 Response: The recommendation will not be implemented because it is not warranted or is not reasonable. Any Internal Control deficiencies would be addressed by Danville's existing Finance Committee. The Committee is comprised of two council members and meets monthly, subject to the procedures set forth in the Ralph M. Brown Act.
R3c
The City Councils more actively provide oversight by appointing an Audit Committee from among their members as well as an ad hoc citizens' committee to ensure that Internal Control deficiencies are promptly remedied. Lafayette has a Finance Subcommittee that is appointed by the Mayor each year and consists of two councilmembers. This subcommittee acts as the Audit Committee as well as provides general oversight and guidance regarding the financial operations of the City. When internal control deficiencies have been noted by the auditors, the Finance Subcommittee has taken the lead to ensure that they are remedied in a timely manner. On occasion, when necessary, the Council has appointed ad hoc citizen's committees to analyze the finances of the City and provide recommendations.
R3e
The County Organizations improve direct financial oversight and assessment of the control environment including: The Superintendent of the County Office of Education continue to provide e. oversight over governing boards of school districts and continue to use the power of this office to compel remediation of Internal Control deficiencies. Response to Recommendation #3e: The recommendation has been implemented based on procedures in effect under current state law. We currently are required under state law to report all audit findings and corrective to the School Board of Education, the CCCOE, the SCO and the CDE. Sincerely, Jdseph A. Ovick, Ed.D. County Superintendent of Schools JAO:tf CONTRA COSTA LOCAL AGENCY FORMATION COMMISSION 651 Pine Street, Sixth Floor • Martinez, CA 94553-1229 e-mail: LTexe@lafco.cccounty.us (925) 335-1094 • (925) 335-1031 FAX MEMBERS ALTERNATE MEMBERS Donald A. Blubaugh Dwight Meadows Candace Andersen Public Member Special District Member County Member Federal Glover Mary N. Piepho Sharon Burke Lou Ann Texeira County Member County Member Public Member Executive Officer Michael R. McGill Rob Schroder Tom Butt Special District Member City Member City Member Don Tatzin George H. Schmidt City Member Special District Member July 17, 2013 Marc Hamaji, Foreperson 2012-13 Court Street P.O. Box 431 Martinez, CA 94553-0091 Dear Mr. Hamaji: On June 6, 2013, the Contra Costa Local Agency Formation Commission (LAFCO) received Grand Jury Report No. 1311, entitled "Assessing Fiscal Risk: Who is Minding the Store?" On July 10, the Commission reviewed the draft response to the Grand Jury, provided input and directed LAFCO staff to submit a response by the September 4th deadline. We hereby submit the response below, which addresses the findings and recommendations contained in Grand Jury Report No. 1311.
R3g
The Board of Supervisors have the County internal audit staff report directly to the Board of Supervisors rather than the Auditor Controller. The governing boards of other County Organizations have the internal audit groups of other County Organizations maintain their independence and not report to the financial management but instead to the City Council in the case of cities and the governing boards in case of school districts and special districts. Response: Danville has implemented this recommendation. Danville's Finance Committee reports directly to the Town Council at least quarterly. The Town appreciates the time and effort spent by His Honor and the Grand Jury in consideration of these matters. Sincerely, TOWN OF DANVILLE Newell America Mayor CERRIT OFFICE OF THE CITY MANAGER November 5, 2013 Mark Hamaji, Foreperson Court Street P O Box 431 Martinez CA 94553-0091 RE: Grand Jury Report No. 1311, "Assessing Fiscal Risk" Dear Mr. Hamaji: On behalf of the City of El Cerrito, this letter serves as a response to your June 4, 2013 letter regarding Grand Jury Report No. 1311, "Outsourcing Municipal Services" by the 2012-2013 Contra Costa Grand Jury. In accordance with your request and Section 933.05 of the California Government Code, the City is responding as required to Findings 1-8 and Recommendations 1, 2, 3b and 3g as outlined in the Grand Jury Report. Please note that the responses are based on information as it reflects to the City of El Cerrito, since the City does not have knowledge of the financial information of the other County Organizations referenced in this report.
R3q
The Board of Supervisors have the County internal audit staff report directly to the Board of Supervisors rather than the Auditor Controller. The governing boards of other County Organizations have the internal audit groups of other County Organizations maintain their independence and not report to financial management but instead to the City Council in the case of cities and the governing boards in the case of school districts and special districts. Lafayette is a small organization with a limited number of employees and therefore does not have separate internal audit staff. We hope this letter is responsive to your request. Sincerely, Steven Falk, City Manager MARY City of Martinez 525 Henrietta Street, Martinez, CA 94553-2394 (925) 372-3505 FAX (925) 229-5012 July 25, 2013 Marc Hamaji, Foreperson 2012-13 Contra Costa County Civil Grand Jury P. O. Box 431 Martinez, CA 94553-0091 Dear Mr. Hamaji: On behalf of the Martinez City Council, this letter responds to Contra Costa County Grand Jury Report #1311: "Assessing Fiscal Risk." The City Council authorized this response at its meeting on July 24, 2013. In accordance with your request and Section 933.05 of the California Penal Code, the City will respond to each finding and recommendation separately.
F4
Several of the entities reviewed showed issues (including Material Weaknesses/Significant Deficiencies) with respect to compliance with grants which they have been awarded. City response: Agree. However, note that Lafayette has not had the opportunity to evaluate the audits of any of the reviewed entities so the City must rely on the Grand Jury's first hand investigation that this is true.
Related Recommendations (1)
R4
Several of the entities reviewed showed issues (Material Weaknesses/Significant Deficiencies) with respect to compliance with grants which they have been awarded. The City of Pinole agrees that this may occur in some entities. Response:
F5
Unresolved problems with grants could potentially result in the loss of future grants and require repayment of expended grant funds. Where repayment of grant funds is required, unrelated general fund resources are being used. This can result in a loss of public confidence (reputational risk). City response: Partially Disagree. Without knowing the specifics of the grants, how funds were spent and what sources of funds may have been used to repay the grants, we cannot comment on whether general fund resources may be affected. 3675 Mount Diablo Boulevard, Suite 210, Lafayette, CA 94549 Phone: 925.284.1968 Fax: 925.284.3169 www.ci.lafayette.ca.us We do agree, however, that misuse of grant funds could have a negative effect on future grants as well as result in a potential loss of public confidence.
Related Recommendations (1)
R5
Unresolved problems with grants could potentially result in the loss of future grants and required repayment of expended grant funds. Where repayment of gnat funds is required, unrelated general fund resources are being used. This can result in a loss of public confidence. * 6 * Response: The City of Pinole agrees that this may occur in some entities.
F6
There is a significant difference among County Organizations as to the level of importance placed on the control and grant compliance findings of the outside auditors and need to remedy, on a timely basis, the issues noted. City response: Agree. Organizations generally do differ as to the level of importance placed on various issues within their span of control. Note, however, that Lafayette has not had the opportunity to evaluate the audits of any of the reviewed entities, nor are we familiar with how each responded to the various compliance findings specific to their organization, so the City must rely on the Grand Jury's first hand investigation that this is true.
Related Recommendations (1)
R6
There is a significant difference among County Organizations as to the level of importance placed on the control and grant compliance findings of the outside auditors and need to remedy, on a timely basis, the issues noted. The City of El Cerrito partially disagrees with this finding in that the City has not thoroughly analyzed each of the entities' responses to grant compliance findings and does not have the knowledge to agree or disagree. The City of El Cerrito places high importance on control and grant compliance findings of outside auditors and takes necessary steps to address any issues noted on a timely basis. Many of the entities reviewed had communications from the auditors indicating that a significant number of audit adjustments were required to the financial statements as prepared by the organization. This may suggest that monthly or interim information prepared during the year was incorrect, potentially impacting budgetary controls and/or information presented to management/governing boards for decision-making or oversight purposes. The City of El Cerrito partially disagrees with this finding in that the City has not thoroughly analyzed each of the entities' audit reports and does not have the knowledge to agree or disagree. The City of El Cerrito does agree that inaccurate financial information could potentially impact budgetary controls, decision-making and oversight by management and governing boards.
F7
Many of the entities reviewed had communications from the auditors indicating that a significant number of audit adjustments were required to the financial statements as prepared by the organization. This may suggest that monthly or interim information prepared during the year was incorrect, potentially impacting budgetary controls and/or information presented to management/governing boards for decision- making or oversight purposes. City response: Partially Disagree. Without knowing the specific types of adjustments that were made, it is difficult to draw a conclusion based solely on the number of adjustments. Some adjustments may have been minor and reflect only a difference of opinion as to how certain items should be classified. These types of adjustments may have no material effect or impact on the overall budget or on the information that was used to make budgetary decisions. Likewise, in some cases, a single adjustment, if significant or large enough, could well have a major (negative) impact on the overall financial picture.
Related Recommendations (1)
R7
Many of the entities reviewed, had communications from the auditors indicating that a significant number of audit adjustments were required to the financial statements as prepared by the organization. This may suggest that monthly or interim information prepared during the year was incorrect, potentially impacting budgetary controls and/or information presented to management/governing board for decision making or oversight purposes. Response: The City of Pinole agrees that this may occur in some entities. When and if this should occur in the City of Pinole, it is reported out to the City Council in a public meeting. We provide quarterly updates to our City Council on the performance of the budget and any audit findings that may have occurred.
F8
Based on the entities reviewed, the County Board of Supervisors, the City Councils and the governing boards in the case of school districts and special districts, are not providing adequate oversight over the entities that they govern to ensure that Material Weaknesses, Significant Deficiencies, and other deficiencies in regard to Internal Controls and outside grant compliance are being remedied in a timely manner. Most County Organizations do not have an Audit Committee, independent of the organization's financial management which is chartered to provide financial oversight. City response: Partially Disagree. Given that we do not have specific knowledge as to how any of the reviewed entities function, we cannot offer an opinion as to the competence of their oversight. In some cases, an Audit Committee might well be helpful, but the existence of such a committee does not necessarily guarantee improved financial reporting. There is no evidence in the Grand Jury Report that suggests that organizations with an Audit Committee have fewer Material Weaknesses/ Significant Deficiencies or tighter Internal Controls than those without one.
Related Recommendations (1)
R8
Based on the entities reviewed, the County Board of Supervisors, the City Councils, and the governing boards in the case of school districts and special districts, are not providing adequate oversight over the entities that they govern to ensure that Material Weaknesses, Significant Deficiencies and other deficiencies in regard to Internal CITY HALL 10890 San Pablo Avenue, El Cerrito, CA 94530 Telephone (510) 215-4300 Fax (510) 215-4319 http://www.el-cerrito.org CERRIT OFFICE OF THE CITY MANAGER Controls and outside grant compliance are being remedied in a timely manner. Most County Organizations do not have an Audit Committee, independent of the organization's financial management, which is chartered to provide financial oversight. The City of El Cerrito partially disagrees with this finding in that the City only has knowledge of its own oversight practices. The City of El Cerrito provides adequate oversight to ensure any issues are addressed in a timely manner. Recommendations:
F9
A recurring finding by the independent auditors with respect to school districts related to the need for improved controls over "Associated Student Body Funds" – the various student clubs and organizations for which the districts have financial oversight and accounting responsibility. The improved control recommendations involved controls over cash receipts, timely accounting and reconciliation of funds held by the organizations and controls over disbursements. Continued and significant problems in this area could result in both losses and negative publicity. City response: Agree. Anytime an organization has to deal with cash, there is a higher possibility for fraud and mismanagement. This, coupled with individuals who are not necessarily well trained and/or experienced with accounting procedures may lead to potential losses and negative publicity.
Related Recommendations (1)
R9
The District partially disagrees with Finding #9. For small school districts like Lafayette, it is financially NOT feasible to hire additional staff to achieve the "ideal segregation of duties" to further tighten internal control especially in relation to Student Body Funds and student clubs. The district has many competing priorities just to meet the instructional needs of students. The District does its utmost best given the limited staff and financial resources available. Response to Recommendations:
F15
. . . Finding #9: A recurring finding by the independent auditors with respect to school districts related to the need for improved controls over "Associated Student Body Funds" - the various student clubs and organizations for which the districts have financial oversight and accounting responsibility. The improved control recommendations involved controls over cash receipts, timely accounting and reconciliation of funds held by the organizations and controls over disbursements. Continued and significant problems in this area could result in both losses and negative publicity (reputational risk). Response to Finding #9: We agree with this finding. However, the nature of "Associated Student Body Funds" makes it economically impractical to provide the level of training and controls necessary to prevent every possible breakdown in cash receipts, timely accounting and other controls. Our agency takes every reasonable step to train and manage these funds.
No recommendations for this finding
F21
"KPPCSD has not completed a timely audit for either 2011 or 2012 due to the credit card charges allegations and investigations. Due to the inability to produce audited financial statements on a timely basis- there is deemed to be a Material Weakness." Per Section 933.05(a) of the California Government Code, we the respondent disagrees with the finding. Relevant Facts In the Controlled Environment Survey Questionnaire that was completed on November 26, 2012, I provided the following information in regards to the allegation of credit card misuse: "In July of 2011, KPPCSD Directors Cathie Kosel and Mari Metcalf accused General Manager/Chief of Police Greg Harman of misuse of the District's credit card, specifically, using the card for personal goods and services. A forensic audit was conducted by Hemming Morse following the accusations and was completed in December 2011 with a finding of no wrongdoing, however, best practices could be improved. This confidential personnel investigation is attached." "Following the finding of no wrongdoing by the forensic auditor, KPPCSD Director Cathie Kosel filed a complaint in January 2012 with the Contra Costa District Attorney's Office. In October 2012, The Contra Costa District Attorney's Office concluded their investigation with a finding of no criminal complaint." On February 4, 2013, at 4:28 PM, I received an e-mail from Paul Webber requesting our finalized 2011 and 2012 audits. My response to him at the time was: "Please note that our Fiscal Year ending June 30, 2011 audited financial statement has not been completed as of this date due to a District Attorney Office investigation into credit card usage. Our auditor, Steven Chang, has scheduled December 11th and December 12th, 2012, as meeting dates in order to complete the audit." "Steven Chang has been retained to complete our Fiscal Year ending June 30, 2012 audit." 1 The Grand Jury report lists this issue as a legend note to a chart in the report: "Summary of Material Weaknesses/ Significant Deficiencies." - Although the District Attorney's investigation into the allegations falsely made by Cathie Kosel was completed in October of 2012, our auditor Steven Chang was unable to complete our 2011 audit until April 30, 2013. The 2012 audit could not be started until the 2011 audit was completed. However, both the 2011 and 2012 preliminary audit reports were filed within the required time frame with the State Controller's Office. Only the finalized audit reports were delayed as a result of the politically motivated allegations of misuse of the District's credit card. Our preliminary audits were accepted by the State Controller, as were the reasons for the delay in filing the finalized reports. District Response Pursuant to Section 933.05(a) of the California Penal Code, KPPCSD disagrees with the foregoing finding. The Grand Jury's report's finding of, "Due to the inability to produce audited financial statements on a timely basis- there is deemed to be a Material Weakness" is incorrect and contrary to the evidence. Preliminary audits for both 2011 and 2012 were filed and accepted in a timely manner with the State Controller's Office.
No recommendations for this finding
* This report's PDF did not contain easily extractable text and required Optical Character Recognition (OCR) for analysis. There may be minor errors in the extracted findings and recommendations due to OCR limitations with scanned documents.