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Findings and Recommendations 8 findings
F1
1 The agenda reports for the Events Center project for the December 14, 2004 council meeting, and other major projects were presented to Council Members with inadequate time to review the complex issues. The same finding was disclosed in the 2005-2006 Grand Jury report City of Stockton Redevelopment. Response: The respondent agrees with the finding. Council has hired three new City Managers since then, the current one has brought in a new management team. The new City Manager has created expectations for transparency and high performance, including improvements to the Council agenda process. Council holds the City Manager accountable for the information presented and the recommendations made. The City of Stockton has taken additional corrective action for complex and high profile issues as described in the response to R 1.1 below.
Related Recommendations (1)
R1
1 Information regarding major new and/or complex projects or programs that have an adverse impact on the City's financial condition be provided to the City Council members and public not less than 10 calendar days before the date of proposed Council actions to allow for a thorough review of materials and an opportunity for the Council Members and public to ask questions. Response: The respondent partially agrees with this recommendation. The City Manager currently demands and the City Council expects that all major new and/or complex projects or programs are provided to Council well in advance of proposed Council action. The City Manager typically recommends complex projects and programs be considered at a study session or by Council Committee prior to Council taking any action. However, the respondent cannot guarantee that all information on complex projects will always be provided 10 days in advance, but will continue to strive for the provision of complete information for Council and the public with adequate time for review.
F2
1.1 While the City Auditor is accountable only to the City Council under the City Charter, city managers influenced the Auditor's day-to-day operations through recommendations on the City Auditor's budget, thus limiting the Auditor's direct interaction with department heads. Response: The respondent partially disagrees with this finding. The City Auditor has always been provided full access to City Council as an appointee. He received private performance reviews by the Council. In addition, the City Charter outlines the requirement to provide access to department heads, City personnel and City records in their role and That level of authority was never circumvented by responsibility. budgetary constraints imposed by the current City Manager. It is typical for the City Auditor, similar to other departments, to operate within budgetary constraints which require thoughtful planning to develop a risk Presiding Judge Of The Superior Court August 13, 2013 based approach to their audit strategy. However, the City Auditor has an added benefit of conferring directly with his appointing authority, the City Council. This enables the office to deploy the City's finite resources to those areas that pose the highest risk to the organization. The respondent does agree that the City Internal Auditor function was not as robust as it should have been and has accordingly taken steps to improve the audit function including outsourcing it to a reputable CPA firm. This has provided the City with an independent third party auditor that is current on standards and audit procedures. The contract City Auditor is currently conducting a thorough risk assessment in order to develop an effective but cost efficient audit plan that targets strategic risks and opportunities.
Related Recommendations (1)
R2
1 The City Council adopt a concise policy by December 31, 2013 identifying the City Council's oversight obligations of the City Auditor, whether an individual or a firm, and the review process of the Auditor's findings and reports. Response: The respondent agrees with this recommendation. The Council has a unique opportunity with the pilot project of outsourcing the City's audit function to evaluate this relationship and clarify the roles and responsibilities of the Council and the City Auditor. In addition, the Council Audit Committee has determined to undertake a review of their role and establish a Charter outlining their scope of responsibilities. This will include a schedule of the types of reports and audits they expect to be provided by the City Auditor. Those elements of this review that are appropriate for inclusion will be adopted into a new version of City Council Presiding Judge Of The Superior Court August 13, 2013 Policy 100-4, Mayor Appointments to Council Committees and Committee Structure/Function. The review of City Council Policy 100-4 is also related to the City's response to R 5.3 and R 6.1.2 discussed below. Council Policy 100-4 will be reviewed and updated by no later than December 31, 2013.
F3
1 The long-term nature of the contract with the former External Auditor firm may have been a major cause of complacency by both the auditors and City staff. The friendliness between the auditors and finance staff undermines the integrity and objectivity regarding the thoroughness of the audit process. Response: The respondent agrees with this finding. It is worth noting that being long-term or friendly are not criteria that specifically impair independence, however long-term contracts and failure to rotate firms to obtain fresh perspective may impair independence. The City previously contracted with the same audit firm for ten years. This was too long. This is why city management encouraged the change. The term of the agreement expired in May 2011, and the City determined it was most appropriate to competitively bid the contract and seek out a new auditor to complete an in-depth review of the City's finances. Though the City is not required to rebid the contract every five years this will continue to be the City's practice.
Related Recommendations (1)
R3
1 The City Council adopt a policy no later than November 1, 2013 that stipulates all contracts for external audit services, including the preparation of the CAFR, be awarded for three year terms, with a maximum of two one-year extensions. Response: The respondent agrees with the concept but disagrees with the recommendation there must be a firm policy. The City supports awarding external financial contracts for terms that balance continuity with complacency. However, it is overly prescriptive to establish a policy stipulating that all contracts for external audit services have a particular term, three year terms with a maximum of two one-year extensions. There may be unique circumstances or audits that merit different terms. City management plans to award future external financial audit contracts according to the terms outlined in this recommendation, but does not intend to create a policy stipulating this term for all external audit services. We need to balance price, learning curve costs, performance and other emerging factors. At some future date we may want to contract for auditing for less than 5 years.
F4
1.1 The Finance Department under the prior city government did not provide other City departments with timely or accurate information regarding financial status of expenditures versus budget appropriations. Response: The respondent disagrees with this finding. Financial reporting tools and systems for the City of Stockton could be improved. Due to antiquated accounting systems the departments have had difficulty understanding how to use the system to get the information they need. However, City departments have staff with access to the City's General Ledger and the ability to print various financial reports. The Finance Department has an advisory and oversight role, but it is the Departments' responsibility to manage their funds and programs and ensure compliance with City policies and procedures including budgetary compliance. The Finance Department has developed improved financial monitoring tools and is working with departments for roll out.
Related Recommendations (1)
R4
1 No later than December 31, 2013, the City Council approve a study for an approach to replace or upgrade the finance operation's computer and software to current technology standards, and to develop a plan under the Direction of the City Manager and Chief Financial Officer to implement such a change. Response: The respondent agrees with this recommendation. The City Technology Strategic Plan identified the City's financial system as critical for replacement. Staff is initiating plans to hire a consultant to perform a detailed requirements analysis as the first step toward system replacement. This analysis will identify technical and business needs, as well as the plan for conversion. It is estimated this activity will take 3 to 4 months and will be brought before the City Council when complete. The full implementation beyond this initial phase will take a long time and represents a significant financial investment for the City. Not all funds have been identified to complete the full implementation of a new financial system.
F5
1.1 A director's management of his/her department's budget relies on timely and accurate information on expenditures versus budgeted amounts. Failure to have the information available to the directors reduces their ability to be financially accountable. Response: The respondent agrees with this generic finding. Within the limitations of the antiquated Stockton financial system, departments do have the ability to manage their budgets, but more must be done. See response to R.5.1.
Related Recommendations (1)
R5
1 Department heads be held accountable by the City Manager to stay within Council's budget appropriations, with quarterly public reports prepared identifying and explaining all significant deviations. Response: The respondent agrees with this recommendation. The City Manager does hold Department heads accountable to stay within their Detailed quarterly reports are prepared by operating budgets. Presiding Judge Of The Superior Court August 13, 2013 departments and verified by budget staff and management. These reports are then presented at Council meetings for all General Fund departments and for those departments that have funding sources closely related to the General Fund. Additionally, a financial management tool has been developed by finance staff that provides department heads with timely, high-level information regarding budget status. Department heads can use this tool to monitor their budgets and be quickly alerted to developing issues. Departments will also account for their budget status on a regular basis using this tool.
F6
1 Testimony from both elected and appointed City officials indicated the Audit Committee provided limited oversight of the City Auditor's function. Presentations on the annual financial audit were not detailed, and no witness recalled the Committee making inquiries into the External Auditor's results, findings or recommendations. Response: The respondent partially agrees with this finding. Additional oversight of the City Auditor was conducted in closed session performance evaluations. The City of Stockton has taken and will take corrective action as described below in the response to R 6.1.1 and R 6.1.2.
Related Recommendations (1)
R6
1.1 No later than November 1, 2013 the City Council amend Council Policy No. 100-4 to create a single Finance Committee to replace the current budget and audit committees, to allow the new Committee's involvement with the FY 2012-13 CAFR review and the FY 2014-15 budget adoption. The purpose of the new Standing Committee would be to review in detail and make comprehensive recommendations to the whole City Council on financial matters including, but not limited to, those related to the City's budget; internal and external auditor reports; proposed bonds or loans; any proposed fee or tax increases or modifications; and modifications to the City's account and/or budget structures. The Committee should meet no less than quarterly. The respondent disagrees with this recommendation. Response: Currently, the Audit Committee has expressed interest in reviewing their scope and responsibilities. In addition, given the financial condition of the City, the full Council has expressed an interest in hearing all financial issues as a body. Given the entire Council is immersed in the City's finances as we work our way out of bankruptcy, adding a Finance Committee is redundant and hugely time consuming for a greatly reduced staff. Staff is already stretched given competing demands. Having a committee weigh in on the budget and then the full Council, is simply redundant. This added measure will slow down efforts in other areas. In Presiding Judge Of The Superior Court August 13, 2013 addition, as the financial condition of the City stabilizes, the Council will have to determine the appropriate process for reviewing financial information in the future. As this determination is made, staff will provide for Council adoption an amended Council Policy 100-4.
F7
1 The degree of training and knowledge about municipal finance varies among the current council members who responded to the Grand Jury's survey. Response: The respondent agrees with this finding.
Related Recommendations (1)
R7
1 The City Council submit a policy resolution for consideration during the League of California Cities (LCC) annual conference for the League to establish training programs for local elected officials to learn about the various aspects of municipal finance similar to the depth and content of the California State Association of Counties (CSAC) courses. Response: Staff disagrees with this recommendation. The deadline for submitting to the League of California Cities was July 20, 2013. The City is supportive of municipal finance training for elected officials. However, given the demanding workload of the City, there were not sufficient resources to develop a LCC resolution prior to the July 20 deadline. Our priority is ensuring our Council is up to speed on financial matters, and they are.
F8
1 The behind the scenes actions and lack of complete and clear information from former city managers resulted in elected officials and the public having a false sense of confidence in the City's financial condition. Response: The respondent agrees with this finding. Additionally, a lack of proper auditing also led to a false sense of confidence in the City's financial condition. The Comprehensive Annual Finance Report for 2010- 11 contained 37 findings. The City received an unqualified audit opinion but only after making multi-million dollar adjustments to prior years final The City's prior audit contained only 3 findings, indicating a records. poorly conducted audit. The City of Stockton has taken corrective action as described below in the response to R 8.1.
Related Recommendations (1)
R8
1 The City Manager and his/her administrative staff provide detailed, timely, and accurate information supporting proposals with significant long-term financial implications for the City and that such documents be available to the public. Response: The respondent agrees with this recommendation. This has been the practice over the past three years. Staff has prepared extensive documentation for the City Council relative to the financial condition of the City in order to get the City's fiscal house in order. Council, staff and the community have a clearer picture of the long-term financial condition of Presiding Judge Of The Superior Court August 13, 2013 the City than they have had in the past 20-30 years. This practice will The City Manager personally reviews all continue into the future. information presented to Council. City Management expects thorough and complete information be presented to Council so they may make a thoroughly informed decision. Long term impacts of proposals to Council are always considered and discussed.
* 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.