AUDIT AND FINANCES OF COUNTY GOVERNMENT
Released May 4, 1998
The Grand Jury is mandated by state law (Penal Code Section 925) to "investigate and report on the operations, accounts, and records of the officers, departments, functions" of the county. As part of that responsibility, we have selected these areas of county operations to study:
1. Independent audit of county finances
2. Independent Auditor's management letter and County responses
3. Role of the Auditor-Controller
Information was gathered through interviews with department heads and staff from the offices of the Auditor-Controller and County Administrator, documentation research, and use of the Internet.
1. Independent Audit of County Finances
Part of the Grand Jury's state mandated responsibilities is to oversee the audit of the County's finances. In the 1960's, the Grand Jury directly contracted to retain an independent outside auditing firm to audit the county's financial statements. In an effort to avoid duplication of services, the Grand Jury joined with the Auditor-Controller and County Administrator to retain the independent auditor, being a party to the contract, and paying a portion of the fee.
In 1994, KPMG Peat Marwick (KPMG) was selected, on a competitive basis, to conduct the independent audit for fiscal year 1994-95. The contract with KPMG contained options for renewal of the contract for two succeeding years. The county’s fiscal year is from July 1 until June 30. The Grand Jury’s term is the same as the fiscal year, which means that one Grand Jury is at work when the audit process begins, and another is empanelled when the audit work is completed.
The contract was renewed for 1995-96, and for 1996-97. For 1997-98, a new contract was to be considered. The need to change auditors periodically has been debated by experts, but "no clear consensus has emerged in favor or against the concept of auditor rotation." The Auditor-Controller’s Department recommended that KPMG be retained to conduct the audit for fiscal year 1997-98, because that firm supplies qualified staff, is familiar with county processes, and has demonstrated proven performance.
The Grand Jury participated in the drafting of the new contract. The first draft of the contract had Recitals and Scope of Work at the end of the document as Exhibits, following the signature page, rather than in the body of the contract. The Grand Jury recommended revisions that, among others, placed the Recitals and Scope of Work sections into the body of the contract, before the signature page. These revisions strengthened the contract and were
incorporated by the Auditor-Controller into the new document.
The 1997-98 Grand Jury decided not to be a party to the contract. According to County Counsel, our decision does not necessarily preclude future Grand Juries from participating if agreed to by the contracting parties. (See Attachment 1, December 2, 1997 letter)
FINDING 1: The Grand Jury determined that a conflict of interest might be perceived if we were a party to the contract with the independent auditor.
RECOMMENDATION 1: The 1998-99 Grand Jury should review whether the Grand Jury should be a party to the contract with the outside auditor.
2. KPMG Report (Management Letter and County Responses)
As a part of each audit, the independent auditor, in its Management Letter, makes findings and recommendations for improvements in the county’s operations. The KPMG Management Letter and county responses are a matter of public record. In this year’s management letter, several topics were addressed, with the County’s responses. The Grand Jury looked into these three: disaster recovery plan, status of employees who work on grant-funded projects, and grants management.
Disaster Recovery Plan
In the event of a disaster such as earthquake or flood, the county’s computers and data bases must be protected. The Information Systems Advisory Committee (ISAC) has adopted guidelines, making each department responsible for its own plan to protect its computer systems. The ISAC guidelines describe the role and responsibilities of each department: "Provide IS (Information System) disaster planning consistent with the policies and guidelines stated or referred to in this document for those computer and communication systems under their stewardship." Only two departments have complied with the ISAC guidelines.
The Auditor-Controller has prepared a plan for his department. General Services Data Services Division has prepared a plan consistent with the ISAC guidelines for protecting the functions accomplished on the county’s main frame computer. These functions are Payroll, Sheriff’s Records Management, Sheriff’s Wants and Warrants, Sheriffs Jail Management, Social Services, Property Systems, and Probation, and are scheduled to go off the main frame by 2001, which will require revisions to the Disaster Recovery Plan. Data Service’s roles and responsibilities in the ISAC guidelines include: "Provide procedures for supported PC backup software and training for departmental personnel in the use of this software, upon request."
FINDING 2. There is no requirement in the ISAC guidelines for compliance, nor is there a tracking system in place for completion of the plans.
RECOMMENDATION 2(a): The county should revise the disaster recovery plan to require that departments comply with the guidelines.
RECOMMENDATION 2(b): The county should devise a system to track completion of these plans.
Status of employees who work on grant-funded projects
When a grant is awarded to a county department, additional staff may be needed to implement the project. County policy on these additional employees is governed by union contracts and Civil Service Rules. The Personnel Department explained the types of job appointments that the County could use to complete grant projects.
If the public supports the work done by the grant project, there may be political pressure for the county to continue the work. This pressure makes it necessary for the county to fund these positions on a permanent basis, even though the grant funding has ended. The County Administrator estimated that the county has $5.1 million in added payroll due to continued project work that is no longer grant funded.
FINDING 3: Employment positions created by grant projects have no specific ending date.
RECOMMENDATION 3: The county should implement a procedure to have a specific ending date for employment positions created to work on grant projects.
KPMG found that there is no countywide method for applying for grants, identifying active grants, or for keeping track of the grants. In Fiscal Year 1996-97, the County received $84,708,779 in federal grants. (See Attachment 2) For example, these include U.S. Department of Agriculture, $22,683,928; and Department of Health and Human
Services, $47,257,301. Rather than hire a grants coordinator as KPMG suggested, the County Auditor-Controller has proposed a plan that would have all grant money separated
from the county’s locally generated money. Each department that has large dollar grants would have a cost analyst, to be trained by the Auditor-Controller for about six months, with annual training updates. According to the plan, grants must have a close-out line, as suggested above. Each grant project would be a part of the county’s standard project management system.
The County Administrator plans to have a staff person design the project management system, including an assessment of the ongoing grants, periodic progress reports, and fund status.
According to the County’s 1997-98 budget, page C-1 of the budget shows intergovernmental transfers of $210,942,688, or about 45 % of the total revenue of the County. Grants are part of these funds. Federal grants are listed in the KPMG Single Audit Report. (See Attachment 2) However, grants are not readily identified in the budget.
FINDING 4: The budget document does not identify grant revenue.
RECOMMENDATION 4: The budget document should clearly identify grant funding from all sources.
FINDING 5: There is a need for a grants management system.
RECOMMENDATION 5 (a): The county should implement a grants management system that would keep track of grant applications, active grants, revenue and expenses involved in grant funded projects.
RECOMMENDATION 5(b): The County should explore ways to make its grants management services available to small cities and districts at a nominal administrative fee. This should include locating and applying for grant funds.
3. Role of the Auditor-Controller
As the Grand Jury began its mandated responsibility to oversee the audit of the County's finances, we learned that the role of the Auditor-Controller encompassed a broad range of responsibilities, much more than we expected. In Santa Barbara County government, the Auditor-Controller is an elected official whose responsibilities combine the function of auditing (examining and verifying accounts) with that of controller (chief accounting officer).
Since 1970, various Grand Juries of Santa Barbara County have considered moving the audit function to other departments such as the county administrator’s office. The 1997-98 Grand Jury considered the possibility of transferring some of the Auditor-Controller responsibilities to a new position that would be titled Director of Finance, reporting to the Chief Administrative Officer. We studied the financial organization of California counties, and surveyed how counties are structured.
State law (Government Code 24000) enumerates the officers of a county. Those that concern finances include the following titles:
Auditor, who shall be ex officio controller
Director of Finance
Government Codes 24300 and 24301 allow the Board of Supervisors to organize delivery of services into departments or agencies, but not certain duties of elected officials. Therefore, the Board can consolidate certain offices, such as Treasurer-Tax Collector or Clerk-Recorder-Assessor and they can also separate consolidated offices.
Of the 58 counties in California, 32 have combined the functions of Auditor and Controller. Of those 32, only three have combined the Auditor-Controller with other offices: Alameda included the Recorder; Fresno included the Treasurer and Kern combined them with the County Clerk. (See Attachment 3)
To qualify as a County Auditor, Government Code 26945 requires that the person meet at least one of four criteria:
1. Be a Certified Public Accountant or authorized to practice as a public accountant; or
4. Served for three continuous years as County Auditor, chief deputy county auditor, or chief assistant county auditor.
These requirements are repeated throughout various California Codes.
The Board of Supervisors created the office of Controller by adopting Resolution 9020 in 1949. According to state law, the Auditor is ex officio Controller, thereby expanding the responsibilities of the Auditor-Controller. The 1997-98 Grand Jury was provided with a
179 page index of code sections that pertain to the duties of the Auditor-Controller. Some of the topics listed in the index are: Accounts and Records, Apportionment, Audits, Borrowing, Budgets, Claims, Contracts, Exemptions, Fees, Franchises, Leases/Rents, Licensing, Public Assistance, Settlements, Service Charges.
According to the Santa Barbara County Budget, the responsibilities of the Auditor-
Controller’s Department are significant during the preparation of the budget, including
Hold training sessions for department heads,
Plan for technology requirements,
Help the county administrator comply with state and federal requirements,
Review expenses and revenue projections,
Recommend revisions to the budget, and
Review capital and operating budgets.
The Auditor-Controller has also developed budget tools such as the Financial Information Network (FIN). In addition, the Auditor-Controller provides services to other county departments, and administers the property tax disbursements for school districts and special districts.
FINDING 6: The present functions of the Auditor-Controller's office are being carried out in an efficient and effective manner.
RECOMMENDATION 6: No reorganization of the auditor-controller function should be considered at this time.
The Santa Barbara County Auditor-Controller has contributed many accomplishments over and above the usual requirements of the function. These include:
2. Creation and development of the Financial Information Network computer system;
3. Increased productivity while decreasing staff;
4. Timely preparation of the county's financial statements and departmental reports.
Some Performance Measures listed in the Budget and achieved by his department are:
The Grand Jury commends the Auditor-Controller and his department for demonstrating leadership and progress in conducting the County's business.
Robert W. Geis
AFFECTED AGENCIES (Parties or entities required to respond):
1998-99 Grand Jury (Finding and Recommendation 1)
Board of Supervisors (Findings and Recommendations 2 through 6)
County Administrator (Findings and Recommendations 2 through 6)
We want to advise you that California Penal Code Section 933.05 requires that responses to Grand Jury Findings and Recommendations must be made in writing to the Presiding Judge of the Superior Court and the Grand Jury Foreperson within 90 days (Governing bodies) or 60 days (Department heads) of the issuance of the report
Therefore the Grand Jury requires that you respond to each of the Findings and Recommendations that applies to your agency.
Please send your response to:
Honorable Judge Frank J. Oachoa
Presiding Judge, Santa Barbara County Superior Court
1100 Anacapa Street
Santa Barbara, CA. 93121
Grand Jury Foreperson at the same address.
Responses to the Grand Jury should be submitted on a 3 ½ inch computer disk (preferably in Word) along with the printed response.