RPVCCA_CC_SR_2013_12_17_C_Establishment_Of_A_Formal_Audit_CommitteeCITY OF
MEMORANDUM
TO :
DATE:
SUBJECT:
REVIEWED:
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: DENNIS McLEAN, DIRECTOR OF FINANCE & INFOR ~N
TECHNOLOGY ~
DECEMBER 17, 2013
ESTABLISHMENT OF A FORMAL AUDIT COMMITTEE
CAROLYN LEHR, CITY MANAGER ~
Staff Coordinator: Ryan Mills, S~or Administrative Analyst, Finance & Information
Technology V
RECOMMENDATION
1. Adopt Resolution No. __ establishing a Standing Audit Subcommittee; and
2. Adopt and File the City Council Policy titled "Audit Committee".
BACKGROUND
In June 2013, the County of Los Angeles published a 2012-13 Civil Grand Jury Report
titled "Fiscal Health, Governance, Finance Management and Compensation". As
discussed in the Staff report that went before the City Council on September 17, 2013,
the Civil Grand Jury sought to determine if cities in Los Angeles County were following
"best practices" for fiscal governance and financial management. Since 2008, the City's
Mayor has appointed an ad-hoc subcommittee of the City Council to serve as the Audit
Committee; however, the Civil Grand Jury recommended the formal establishment of a
standing audit committee, via City Council Resolution. The current ad-hoc subcommittee
is composed of two city council members appointed by the Mayor and is responsible for
meeting with the City's independent auditor, and to make a report to the City Council.
DISCUSSION
Audit Committees for local government agencies are considered a best practice and
encouraged by professional organizations such as the Government Finance Officers'
Association, the Institute of Internal Auditors (llA), the Association of Local Government
Auditors, and the American Institute of Certified Public Accountants (AICPA). An audit
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ESTABLISHMENT OF A FORMAL AUDIT COMMITTEE
December 17, 2013
Page 2 of 2
committee is a practical approach for the City Council to provide independent review of
the city's financial reporting process, internal controls, and independent auditors.
Audit Committee Policy
Along with the resolution to establish the standing Audit Committee, Staff has drafted a
proposed City Council Policy to define the responsibilities of the City's Audit Committee
(Exhibit B). The proposed Policy includes the purpose, composition, scope of
responsibilities, and required meetings for the Audit Committee. The Audit Committee
would continue to be a subcommittee of the City Council, comprised of two members of
the City Council annually, appointed by the Mayor.
FISCAL IMPACT
The Fiscal Impact cannot be estimated at this time, but is not expected to be significant.
The Audit Committee may wish to retain the services of a third party advisor with expertise
in municipal financial reporting to provide training and/or advice regarding the City's
financial statements and annual independent audit. If the Audit Committee wishes to
retain such third-party services, the estimated cost and recommendation for a budget
adjustment, if necessary, will be addressed at that time.
ATTACHMENTS
1. RESOLUTION NO. OF THE CITY OF RANCHO PALOS VERDES
ESTABLISHING A STANDING AUDIT SUBCOMMITTEE
2. Draft City Council Policy titled "Audit Committee"
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RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF RANCHO
PALOS VERDES APPROVING ESTABLISHING A STANDING AUDIT
COMMITTEE
WHEREAS , in June 2013, the Los Angeles County Civil Grand Jury released its
2012-13 Civil Grand Jury Report, including an investigative report on Fiscal Health,
Governance, Financial Management and Compensation for the Cities within Los Angeles
County; and
WHEREAS, a recommendation of the Civil Grand Jury Report was for each city in
Los Angeles County to formally establish an audit committee as a best practice to provide
independent review of the city's financial reporting process, internal controls, and
independent auditors; and
WHEREAS , since 2008 the Mayor of the City of Rancho Palos Verdes has
appointed an ad-hoc subcommittee of the City Council to serve as the Audit Committee;
and
WHEREAS, on December 17, 2013, the City Council reviewed the staff report and
the City Council Policy titled "Audit Committee";
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF RANCHO PALOS
VERDES HEREBY FINDS, ORDERS AND RESOLVES AS FOLLOWS :
Section 1. The City hereby establishes a Standing Audit Committee, comprised
of two council members appointed annually by the Mayor
Section 2. The City hereby approves the City Council Policy titled "Audit
Committee", which is attached hereto, and incorporated herein by this reference, that
defines the responsibilities of the City's Audit Committee.
MAYOR
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ATTEST:
Carla Morreale, City Clerk
I HEREBY CERTIFY that the foregoing resolution was adopted at a regular
meeting of the City Council of the City of Rancho Palos Verdes, duly noticed and held
according to law, on the __ day of December, 2013.
Date: -------
Carla Morreale, City Clerk
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CITY COUNCIL POLICY
CITY OF RANCHO PALOS VERDES
NUMBER: XX
DATE ADOPTED/AMENDED: December 17, 2013
SUBJECT: Audit Committee
PURPOSE
The Audit Committee will serve the City of Rancho Palos Verdes to provide review
and oversight of independent audit of the City's financial statements. The Audit
Committee shall report all findings to the City Council.
COMPOSITION, QUALIFICATIONS AND COMPENSATION
The Audit Committee is established as a subcommittee of the City Council,
comprised of two members of the City Council, annually appointed by the Mayor.
If the Audit Committee does not have a member that is technically qualified to
properly review the City's financial statements, the Committee may elect to retain
the services of a third-party professional, such as a Certified Public Accountant
with experience serving local government. The City's independent financial
statement auditor(s) shall report directly to the Audit Committee. Members of the
Audit Committee do not receive compensation, nor will be eligible for
reimbursement.
SCOPE OF RESPONSIBILITIES
The scope of responsibilities are summarized as follows:
1) Make a recommendation regarding selection of the City's independent
financial statement auditor during the procurement process. Typically , the
City issues a new contract for independent audit services every 3 to 5 years.
2) Meet with the independent auditor at least twice during each annual
engagement, including an audit planning meeting and an exit interview.
3) Analyze and report to the City Council any significant findings of the annual
audit and possibly make recommendations regarding such findings.
4) Provide findings, if any, to the City Council regarding the following reports :
a. City's Comprehensive Annual Financial Report (CAFR);
b. Separately issued financial statements of the Improvement Authority ;
c. Internal Control report prepared by the independent auditor;
d. Single Audit Report for federal financial assistance (if applicable);
and
e. Management Letter prepared by the independent auditor, and
management's response (if applicable).
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Annual Report to the City Council
After reviewing the City's CAFR, the Audit Committee shall make a report of its
findings, if any, to the City Council. In its annual report, the Audit Committee shall
specifically state whether it has discussed the financial statements with
management and the independent auditors .
Reports of Financial Malfeasance
If the City receives any reports of financial malfeasance, such as those from an
internal whistleblower or those from an outside party, the report shall be forwarded
to the Audit Committee for consideration. If the report is found to be credible, the
Audit Committee shall retain an independent third party with sufficient expertise to
conduct an investigation. Upon completion of the investigation, the Audit
Committee shall report its findings directly to the City Council and offer
recommended action.
MEETINGS
The City of Rancho Palos Verdes Audit Committee shall meet at minimum semi-
annually (one planning meeting and one exit meeting) with the City's independent
auditor. The Audit Committee shall schedule further meetings as they see fit. The
meetings of the City of Rancho Palos Verdes Audit Committee shall be subject to
the Ralph M. Brown Act.
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