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HomeMy WebLinkAboutMinutes - Minutes - Audit Committee - Meeting Date: 11/7/20191 Glendale A R � % O N " MINUTES AUDIT COMMITTEE CITY HALL, CONFERENCE ROOM 3A 5850 W. GLENDALE AVE. GLENDALE, ARIZONA 85301 NOVEMBER 7, 2019 2:00 P.M. 1. CALL TO ORDER The Chair, Councilmember Hugh called the meeting to order at 2:09 p.m. 2. ROLL CALL Councilmember Hugh announced all members were present. Present: Raymond Malnar, Councilmember Ian Hugh, Councilmember Lauren Tolmachoff, Councilmember Irene Avalos, Member Rusty Simmons, Member Kevin Phelps, City Manager, Ex -officio Non-voting Member Lisette Camacho, Interim Budget and Finance Director, Ex -officio Non-voting Member Also Present: Emmanuel Ogutu, Internal Audit Program Manager Jean Moreno, Director, Department of Organizational Performance James Gruber, Deputy City Attorney 3. CITIZEN COMMENTS No comments from the public. 4. APPROVAL OF THE MINUTES Councilmember Malnar motioned to approve the Audit Committee minutes of the October 3, 2019 meeting as written. Councilmember Tolmachoff made the second. Motion carried unanimously. 5. ISSUE FINAL AUDIT REPORT/S Mr. Emmanuel Ogutu presented the Final Audit of the Fire Prevention Office which was done by the previous audit organization and announced the former Interim Audit Manager provided the draft audit to the Audit Committee last meeting. Mr. Ogutu stated that his role was just to finalize the report, nothing has changed. The only thing Mr. Ogutu indicated he added was an Executive Summary, which summarized the findings. He is requesting direction from the Committee, in accordance with City Code, authorizing staff to move forward with the final audit results of this report to City Council. Councilmember Malnar asked if there was any additional information or feedback since the committee reviewed the report last month. Mr. Ogutu replied in the negative. Councilmember Malnar motioned to move the final audit of the Fire Prevention Office presented forward to the next level of presentation to Council. Councilmember Tolmachoff made the second. Motion carried unanimously. 6. PROPOSED AUDIT PLAN Mr. Ogutu made the following comments: • Consistent with the City Code, part of the role of this Committee is to develop an annual risk assessment and develop an Audit Plan for the Audit Program. • The former Audit Manager conducted an extensive risk assessment, which he discussed at the last Committee meeting. • Out of that assessment, 56 areas with the potential for conducting audits were identified. • They were vetted and six areas were removed and were earmarked for process improvement rather than audit. This left 50 areas that are potential for audit. • Out of these 50 areas, 39 were medium risk, 11 were high-risk. • Based on this, Mr. Ogutu developed an Audit Plan that spans 18 months, beginning January 2020 through June 2021. • He distributed the Audit Plan, which isolated 29 areas from the 50 areas, which will be prioritized for the next 18 months. • Out of those 29 areas, 11 high risk will be done and 18 medium risk. • Based on budget and staffing resources, out of the 29, 11 will be done by the Internal Audit Manager and the rest will be done via outside vendors to leverage the audit resources. *The other areas of the 50 that were not included in the 29, will be subjected to future risk assessment, which is expected to take place in FY21. The list can also be revised based on the Committee's recommendation. Mr. Ogutu concluded his presentation. Councilmember Malnar suggested, in a report column, summarizing the risk factors in the plan. Mr. Simmons asked for the legend to be included as well. Councilmember Malnar would like the Committee to get into performance type audits but understood the nature of the types of audits included. Councilmember Malnar appreciated the information in the document. Councilmember Tolmachoff asked if there wert any budget concerns regarding the third -party audits and asked if they were covered in the budget. Ms. Camacho replied in the positive and stated that there is also a little room for anything that may come up that is not included in the current scope. Councilmember Tolmachoff asked if it was sixteen or eighteen in total. Mr. Ogutu replied that it was eighteen this fiscal year. Councilmember Malnar asked if Mr. Ogutu would conduct the internal audits or if there would be other assistance. Mr. Ogutu responded that it would be him and if at a point hours are constrained by budget, he will have to reevaluate. Mr. Simmons noted there are items planned for April through June of 2021, things may change, and wondered if the plan would be continuously evaluated. Mr. Ogutu replied in the positive. Ms. Avalos inquired about Item 12 in the plan and wondered if she would get more details on the ASTA contract. Mr. Ogutu replied in the positive. He added that detailed information regarding the scope will be available when the specific engagement is done. Mr. Simmons clarified that Ms. Avalos was inquiring about what the ASTA contract is. Mr. Ogutu will provide information as a follow up. Councilmember Tolmachoff motioned to approve the eighteen -month Audit Plan as presented. Councilmember Malnar made the second. Councilmember Malnar asked for confirmation that the plan is subject to change and if the Committee would like to move an item into the plan, it could be open for discussion. Mr. Ogutu replied in the positive. Councilmember Hugh called for the vote. Motion carried unanimously. 7. PROCUREMENT OF THIRD -PARTY FIRMS Mr. Ogutu stated that this agenda item was also part of City Code as the Committee is required to procure the third -party audit firms in order execute the Annual Audit Plan. Mr. Ogutu announced the process staff is working on to fulfill this requirement. Highlights from Mr. Ogutu's presentation included the following: • He is working with Procurement to establish an RFQ for internal audit services firms. • Once the document is published, the firms can submit qualifications. • Those who meet the minimum qualifications will be added to the list. • The list will be approved by the Committee, which will then authorize City management, when wanting to conduct an audit, to issue quotes to those firms on the approved list. Mr. Simmons asked why the same firm would not be used over and over again, as this would result in certain efficiencies of scale. Mr. Ogutu replied that some of the areas may be highly specialized and a specific firm may not have the staff or resources to do the audit. Mr. Ogutu stated that this is a way to leverage resources but added that in case there is a specific firm that could do all of the areas, it could be a good way to move forward. Councilmember Malnar asked how much was budgeted for the outside firms this year. Mr. Ogutu relayed that is was approximately $165,000. Councilmember Malnar inquired how many audits were left this year. Mr. Ogutu replied that number was eight. Councilmember Malnar asked if the amount was sufficient. Mr. Ogutu replied in the positive. Mr. Simmons thought that the figure and amount of audits was aggressive and a low budget number, as costs could be $70 to $120 per hour, though some could be flat fee. Mr. Ogutu had looked at the previous audits done, which were typically in the range of $25,000 to $35,000. Ms. Avalos asked if the cost depended on the items requested by the audit team. Mr. Ogutu replied in the positive. Mr. Ogutu stressed clearly defined scoping up front and indicated he can also perform end -review as well. Mr. Phelps noted that this was a huge issue and stressed having a well-defined scope on the front end to avoid unproductive hours. He added that a tightly written scope is the best way of controlling costs. 8. UPDATED INDEPENDENT INTERNAL AUDIT PROGRAM ADMINISTRATIVE POLICY Mr. Ogutu stated that, in accordance with City Code, the Audit Committee is to ensure that the Internal Audit Program conducts itself with quality to ensure audit standards. Mr. Ogutu included in the policy items that ensure the Program achieves the minimum requirements in terms of delivering its mandate as to satisfy its quality control standards for auditing. Mr. Ogutu prepared a draft Administrative Policy to include: an Audit Charter which shows the authority and responsibility of the City Internal Audit Program, a Code of Ethics for internal staff and contracted firms regarding how they should conduct themselves and audits, and Quality Assurance Standards which will include peer reviews internally and externally, consideration of information systems, and consideration of fraud and abuse. He relayed this all ensures the Internal Audit Program meets and exceeds the requirements of the Yellow Book, the GAGAS standards, and the Institute of Internal Auditors (IIA) Quality Assurance and Improvement Standards. Ms. Avalos inquired about the review of the internal audits that Mr. Ogutu is performing. Mr. Ogutu replied that he has been thinking of this as well. He stated that the standards for review of the audit firms could be used or to use counterparts in other cities. Ms. Avalos asked if the audit reviews would be covered by the budget. Mr. Ogutu replied in the positive. Mr. Simmons requested a presentation at a later meeting on audit analytics. Mr. Phelps noted peer review would be done via sharing with other governmental agencies, which is pretty common. He noted that this is investment in time as staff would perform audits on the other cities, but it is a generally cost-effective way to do peer review. Mr. Phelps stated that this is a new item included in the Audit Program. Councilmember Tolmachoff asked if it was customary to call the document an Internal Audit Charter. Mr. Ogutu replied in the positive. Councilmember Tolmachoff motioned to approve the Administrative Policy. Councilmember Malnar made the second. Councilmember Malnar asked if the peer review was incorporated into the Administrative Policy. Mr. Ogutu replied in the positive and relayed the verbiage. Mr. Phelps clarified the difference between Quality Assurance and Quality Control. Motion carried unanimously. 9. COMMITTEE COMMENTS AND SUGGESTIONS Councilmember Malnar inquired if there was a chance to perhaps include performance audits in the budget or timeframe, or if the plan was more of a management function to do performance audits, such as how a department operates. Mr. Simmons commented that Mr. Ogutu is focusing on the right things in the plan. Councilmember Malnar asked if this group should do that at all. Mr. Simmons stated that the plan is packed right now and more money would need to be spent to add those types of audits. Mr. Sweeney commented that there was another alternative and that generally on compliance and accountability, if there are things of high risk, it is in the best interest of the organization to do those. He said as the level of risk goes down, the item could be delayed and integrated. He relayed that from a management perspective, the internal controls are pretty well developed and significant issues are not expected. He added that the Audit Committee could consider adding one or two targeted performance audits, understanding that it might be done within the next 24 -months, not 18 -months. Mr. Simmons stated that, in running the analytics, some could be done within the next 24 months. Councilmember Malnar agreed. 10. FUTURE MEETINGS The next Audit Committee meeting is scheduled for Thursday, December 5, 2019 at 2 p.m. and the following meeting is scheduled for Thursday, January 2, 2020 at 2 p.m. Staff is seeking direction from the Audit Committee regarding the January meeting given the proximity to the New Year holiday and direction on any potential agenda items for future meetings. For discussion and possible action. 11. MOTION TO CALL FOR AND ENTER INTO EXECUTIVE SESSION Councilmember Tolmachoff motioned to enter into Executive Session at 2:45 p.m. Councilmember Malnar made the second. The motion carried unanimously. 12. EXECUTIVE SESSION Session was held 13. ADJOURNMENT The Chair, Councilmember Hugh confirmed there were no further comments and adjourned the meeting at 2:51 p.m. The Audit Committee meeting minutes of November 7, 2019 were submitted and approved this 5th dayof December 2019. Er Int nal Audit Program Manager