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HomeMy WebLinkAboutAudit Advisory Committee ReportMEMORANDUM TO: Pedro H. Hernandez, Chief Administrator/City Manager City of Miami FROM: Stanley Foodman, CPA, Chairperson, Appointed by Commissioner Marc Sarnoff Ignacio J. Abella, CPA, Vice -Chairperson, Appointed by Commissioner Angel Gonzalez Sharon Lassar, Ph.D., CPA, Appointed by Commissioner Thomas Regalado Carol Gardner, CPA , Appointed by Commissioner Michelle Spence -Jones Vacant Position, Appointment to be made by Commissioner Joe Sanchez Date: January 7, 2009. Subject: Audit Advisory Committee Report pursuant to City Code Section 2-890. EXECUTIVE SUMMARY The purpose of this memorandum is to provide information pursuant to Section 2-890 of the City Code. We would also like to take this opportunity to make a few recommendations based on observations we have made over the past year. Recommendations: • In light of the internal control deficiencies disclosed in the internal and external audit reports relative to untimely filling of material amounts of grant reimbursements and lack of centralized grant management system citywide, we recommend that the City management consider creating a position high enough in the City's organization chart with sufficient authority to coordinate grant reimbursements and management citywide. The incumbent in this position will supervise and provide training to all grant Managers in the different departments to ensure proper compliance with grant provisions. This effort will enhance compliance and cash flow and funding to the City through timely filling of reimbursements. Pedro H. Hernandez, City Manager January 12, 2009 Page 2 of 7 • • Additionally, we recommend that all vacant key positions in the Finance Department be filled expeditiously and continuing education and training particularly in oracle and other financial accounting processes be enhanced. • The Committee recommends that appointments to fill vacant positions on the Committee be made promptly. Timely appointments will enable the Committee muster the required quorum for its meetings. This Committee currently has one vacant position. Is the Committee serving the purpose for which it was created? The Audit Advisory Committee was created to assist the Mayor, the City Commission, and the City Manager in their fiduciary responsibilities relative to accounting, auditing, and financial reporting. During the calendar year 2008, the Committee held eight (8) monthly meetings. The Committee did not meet during the August recess and three (3) other months due to difficulty in mustering the required quorum. At the monthly meetings that were held, it discussed several issues as noted below: (1) At the meeting of January 11, 2008, the Committee discussed how the Audit Committee can participate in the future selection of the City's external auditor, as stipulated in Section 2-950 of the City Code. Said City Code stipulates that the Audit Advisory Committee should be responsible for recommending the external auditor to the City Commission for approval. Among the issues discussed included but were not limited to (a) the current procedures for procuring external audit services, (b) the last request for proposal (RFP) that was issued for external audit services, (c) the written contracts relative to the Rachlin Cohen & Holtz (Rachlin's) and the MaGladrey & Pullen, LLP (MaGladrey) audit engagements, (d) and the related Professional Service Agreements for Pedro H. Hernandez, City Manager January 12, 2009 Page 3 of 7 Rachlin and MaGladrey. The next procurement of external auditors will be in the year 2011 and whatever procedures the Committee agreed upon will be provided to the Procurement and Finance departments and used for all future procurements. The members agreed that a representative from the Procurement Department will be invited to all future meetings to participate in the discussions relating to the Audit Committee's involvement/participation in the future selection of the City's external auditor. (2) The Committee met with the representatives of the external auditor (MaGladrey & Pullen, LLP) on February 1, 2008 before the commencement of its fieldwork and discussed how the following issues will be addressed/handled during the audit field work: (a) The auditor's responsibilities under generally accepted auditing standards; (b) Significant findings from the audit; (c) The auditor's views about qualitative aspects of the City's significant accounting practices, including accounting policies, accounting estimates, and financial statement disclosures; (d) How significant difficulties, if any, encountered during the audit filed work will be handled; (e) Uncorrected misstatements by management, other than those the auditor believe are trivial; (f) Disagreements with management, if any; (g) Material, corrected misstatements that were brought to the attention of management as a result of audit procedures; (h) Management's consultations with other accountants; and (i) Significant issues, if any, arising from the audit that were discussed, or the subject of correspondence with management. (3) In accordance with the provisions of Section 2-946(1) and (2) .of the City Code, the Committee met with representative of the City's external auditor (MaGladrey & Pullen, LLP) during its meetings of on March 05, 2008, May 05, 2008 and July 03, 2008 and discussed the progress and the issues being encounter by the external auditor in its ongoing audit of the City's Comprehensive Annual Financial Report for the fiscal year ended September 30, 2007. The issues discussed at these meetings included but were not limited to (a) the number of adjusting journal entries being proposed and the underlining Pedro H. Hernandez, City Manager January 12, 2009 Page 4 of 7 reasons necessitating those proposals; (b) the possibility of restating City's financial statements in connection with the grant monies (approximately $14 million) that were incorrectly recognized as revenue during prior year; (c) accrual/capitalization of construction in process expenditures totaling at least $9 million for capital improvement projects; (d) the accounting treatment for the financial settlement with the four (police, fire, general employee, and solid waste) bargaining units totaling approximately $40 million in fiscal year 2007 that were disbursed in the form of salaries (classified as "retro pay"); (e) the accounting treatment relative to the City of Miami and the Miami -Dade County joint agreement that guaranteed a $22 million of United States Housing and Urban Development (HUD) 105 loan that HUD advanced to Parrot -Jungle (Jungle Island); (f) the major Federal program (FEMA project/grant) relative to Single Audit that was never audited/tested as represented by the predecessor auditor. (4) At the meeting of September 04, 2008, the Committee discussed issues relative to the allegations made by the City's former Assistant Finance Director pertaining to certain financial transactions that were provided to the external auditor (MaGladrey & Pullen) in connection with the City's CAFR for the fiscal year ended September 30, 2007 and the related written response from the Finance Director. After much discussions and explanations provided by the Finance Director, the Committee concluded that it was not necessary for the Committee to take any additional action since the external auditor had already re-examined the alleged financial transactions and concluded that the original unqualified opinion that was issued will not be affected. However, the Committee encouraged the external auditor to confirm its re-examination and conclusions relating to the alleged financial transactions in writing as requested by the 1AG. The Committee also recommended that a similar written statement be provided by the City Manager. The external auditor and the City Manager provided said written assurances. (5) At the meetings of January 11, 2008, February 1, 2008, March 05, 2008, the Committee discussed the issues related to the impasse between the City and Rachlin Cohen & Holt Pedro H. Hernandez, City Manager January 12, 2009 Page 5 of 7 (predecessor external auditor) relative to Rachlin's prior year audit working papers, which Auditing Standards require MaGladrey & Pullen, LLP. (Successor auditor) to review prior to commencement of its external audit of the City. The issue at stake was Rachlin's contention for additional fees and its withholding of prior year's audit work papers. The Committee participated in the resolution of this impasse through discussions with the Finance Director, MaGladrey, and formal written recommendations to the City Attorney. (6) At the meeting of September 09. 2008 and December 12, 2008, the Committee discussed the amounts reported in the Comprehensive Annual Financial Report and the audit findings as disclosed in the Management Letter and the Single Audit Report for the audit of the fiscal year ended September 30, 2007. The discussions included the corrective actions being taken to correct the deficiencies noted by the external auditors. In accordance with the provisions of Section 2-946(3) of the City Code, the Committee has continued to review/discuss issues relative to significant internal control deficiencies disclosed in internal/external audit reports. Said deficiencies and how they affect fees/revenues, disbursements, assets and liabilities were frequently discussed, including recommendations that will mitigate operational/system deficiencies and enhance efficiency, effectiveness, compliance with related standards, and reduce unnecessary wastes. Is the Committee serving current community needs? The Audit Advisory Committee members are accounting professionals that either do business in the City or are City residents. The members are neither employed nor compensated by the City. By providing independent advice and oversight over the City's overall financial and internal/external audit functions, the Committee, therefore, serves a useful purpose to the community. Pedro H. Hernandez, City Manager January 12, 2009 Page6of7 What is the Committee's major accomplishment? As stated above, the Committee routinely discussed issues related to the external audit of the City's Comprehensive Annual Financial Report, the Single audit, and the significant internal control deficiencies identified in internal and external audit reports such as ensuring that vacant position are filled in a timely manner in the Finance Department, continuing education/training of City employees, and centralization of grant management for timely filling of reimbursements. Those discussions and how they affect fees/revenues, disbursements, assets and liabilities also included recommendations that will mitigate operational/system deficiencies, mitigate unnecessary wastes, and enhance efficiency, effectiveness, and compliance with related standards and good business practice. Is there any other Committee, public or private, which could better serve the functions of this Committee? The committee is not aware of any other committee that could better serve the functions of the Audit Advisory Committee. Should the Ordinance creating the Committee be amended to better enable the Committee to serve the purpose for which it was created? No. Should the Committee's membership requirements be modified? The Committee is satisfied with its membership requirements as established by the City Code Pedro H. Hernandez, City Manager January 12, 2009 Page 7 of 7 The total cost, both direct and indirect costs of maintaining the Committee? There is no material direct/indirect cost associated with the activities of this Committee. C: The Honorable Mayor and Members of the City Commission Victor Igwe, Independent Auditor General Priscilla A. Thompson, City Clerk Julie Bru, City Attorney Robin Jones -Jackson, Assistant City Attorney