Auditor's Response to Grand Jury

June 2, 1996

Hon. William L. Gordon

Presiding Judge of the Superior Court

100 Anacapa Street, 2nd Floor

Santa Barbara, CA 931121-1107

Grand Jury Interim Final Report - Performance Audits

Per the Grand Jury's request, and as required by law, we are responding to those recommendations in the subject report which pertain to our Department.

General Comments:

The Auditor-Controller's office recognizes, as does the Grand Jury, the value of performance audits both as a management tool and as a means to ensure better accountability to the public.

Almost without exception, each of the audits conducted by the Internal Audit division contain "performance audit" elements. That is, whether an audit is classified as a "financial", "compliance", or "performance" audit, a strong focus is placed upon the business processes utilized in the area being audited.

This ongoing emphasis on the efficiency and effectiveness of business processes is driven by the commitment of the Auditor's office to the Deming management philosophy. According to the Deming approach, the keys to effectiveness and efficiency are found in well designed business processes. It is management's responsibility to provide all employees with business processes that foster the output of superior products and services at optimal cost.

It is within this context that Internal Audit has focused on the examination of business processes and has made recommendations for re-engineering those processes when appropriate. Inherent in each audit is an evaluation of management's effectiveness in providing both a cooperative environment and business processes which permit the organization's continuous improvement.

Finally, a comment on the nature and scope of performance audits: Generally, performance audits are not all-encompassing examinations of every aspect of an organization's mission, goals, objectives, operations, and management structure. More typically, the scope of a performance audit will be, in the interest of efficiency, more narrowly defined, often focusing on the business processes and management of a single program or activity. This second, more typical approach, has been the primary methodology followed by the Internal Audit division. Such an approach, we believe, facilitates a broader range of audit coverage and optimizes resources expenditures.

Comments to specific recommendations follow:

Recommendation 1a: The Grand Jury recommends that the Board of Supervisors enter into an agreement with the Auditor-Controller to conduct performance audits of each department under the Board's control on a five year cycle, and report the results to the Board.

Auditor-Controller's Response: The Auditor's Five Year Audit Plan provides information to the Board concerning the Auditor's judgment of audit priorities. Those priorities are re-evaluated continually based upon changing needs and available resources. The Auditor's office could neither commit nor guarantee that performance audits would be completed in every department on a five year cycle since that outcome would be dependent on the occurrence or non-occurrence of specific events unforeseen at the inception of the plan as well as upon variances in available resources during the period.

The Auditor's office will continue to optimize its Internal Audit resources with ongoing input from the Board of Supervisors, the County Administrator, and Department heads.

Recommendation 1b: The Grand Jury recommends that the Board direct the County Administrator to coordinate the initiation of an effective annual self-audit by each department managed by a non-elected department head, and report the results to the Board within 30 days of its completion.

Auditor-Controller's Response: We believe that the Internal Control Survey circulated by Internal Audit to all departments (both elected and non-elected) will serve the purpose envisioned by the Grand Jury in this recommendation. While it is the County Administrator's role to monitor management effectiveness including the development of department goals, objectives, and performance measurements, it is the Auditor's role to audit departmental financial and operational activities. It is essential that the County Administrator's management responsibilities not be confused with the Auditor's audit responsibilities.

Recommendation 1c: The Grand Jury recommends that each department headed by an elected official should initiate a self-administered performance audit program, and request an outside review audit every five years by the Auditor-Controller or an outside consultant, and publish the results and recommendations.

Auditor-Controller's Response: See response to Recommendation 1b above. We believe that the Internal Control Survey will serve the purpose of the self-administered review.

Each department headed by an elected official will be included in Internal Audit's Five Year Audit Plan.

Recommendation 2: The Grand Jury recommends that the Board of Supervisors restore three positions to the Auditor-Controller Department in order to assure a better probability that performance audits will be accomplished.

Auditor-Controller's Response: The Auditor-Controller's office, as a result of ongoing business process improvements, has reduced its staffing from 61 FTEs to 48 FTEs. Our goal since 1991 has been to redirect some of these resources to enhance Internal Audit activities. Our Five Year Audit Plan was predicated on this re-direction of resources, which due to budget constraints, has not been achieved.

Recommendation 3: The Grand Jury recommends that a performance audit of the Personnel Department be given a high priority on the schedule for upcoming performance audits.

Auditor-Controller's Response: Due to current scheduling commitments, the earliest that Internal Audit could begin such an audit would be March of 1997. Its effective accomplishment by Internal Audit depends upon the willing cooperation on the part of Personnel department management to make such an effort a productive one.

Recommendation 4: The Grand Jury recommends that the 1996-1997 Grand Jury review a representative sample of the results of these surveys in the larger departments to include: Assessor-Clerk-Recorder, District Attorney, Health Care Services, Mental Health, Planning and Development, Probation, Public Works, Sheriff and Social Services.

Auditor-Controller's Response: We will assist the 1996-1997 Grand Jury in this review to the extent we are requested to do so.

Exhibit A

This Exhibit on page 7 of the Grand Jury report indicates that three management audits were performed during the period 1991 through 1995, and that no management audits had been performed in seventeen departments during that period.

Auditor-Controller's Response: Due to miscommunication between our office and the Grand Jury, the list of performance (operational) audits in Exhibit A is incomplete. Page

two of the Grand Jury Report states that "management" audit and "performance" audit are terms often used interchangeably. Although the term "performance " audit is used throughout the Grand Jury Report, Exhibit A refers to "management" audits and inexplicably omits other "performance" audits accomplished during the period. In addition to the three audits listed, performance (operational) audits were performed and filed on the Board of Supervisors Agenda as follows:

Auditor-Controller's Office:

1. Report on Encumbrances/Anticipated Revenues, April 29, 1991

2. Financial Systems Acquisition Project, July 12, 1994

3. Payroll Simplification Project, March 3, 1994

General Services Department:

1. Data Services - Audit of Selected Activities, November 19, 1991

Public Works:

1. Audit of Construction Projects, August 25, 1992

2. Jail Reception Center, January 1993

3. Solid Waste Disposal, March 1993

County Administrator's Office:

1. Countywide Contract Management, May, 14, 1991

2. Multiple Contractors (Non-profit Agencies), June 7, 1994

County Clerk-Recorder-Assessor:

1. Proposed Consolidation Review for Board of Supervisors, November 1, 1993

Social Services Department:

1. Audit of the Greater Avenues for Independence (GAIN) Program, April 1994

In addition, most financial and compliance audits of various County departments and activities include performance audit elements (e.g. Review of Treasurer-Tax Collector activities included an evaluation of the County written investment policy; Review of Sheriff Department's asset forfeiture fund and inmate welfare trust funds included management recommendations).

If we can be of further assistance in clarifying or adding to any of our responses, please do not hesitate to call upon us.

Respectfully submitted,

John Torell, CPA , Ass't. Auditor Controller

c. Spencer Boise, Grand Jury Foreman; Kent Taylor, County Administrator

June 2, 1996

Hon. William L. Gordon

Presiding Judge of the Superior Court

100 Anacapa Street, 2nd Floor

Santa Barbara, CA 93112-1107

Grand Jury Interim Final Report - Audit and Finance

Per the Grand Jury's request, and as required by law, we are responding to those recommendations in the subject report which pertain to our Department.

General Comments:

The Auditor-Controller's office appreciated the Grand Jury's active participation this past year in the evaluation of the outside auditor's prior performance as well as in the decision to exercise the KPMG's contract renewal option. We believe that the Grand Jury's review of the most recent and several prior Management Letters serves to point out the long term nature of the implementation of those recommendations that have been repeated in successive letters. We feel that the implementation of Management Letter recommendations for which our office is responsible has been given the priority appropriate, in our judgment, in the context of the nature of those items, current resources available, and the demands of ongoing operations.

Comments to specific recommendations follow:

Recommendation 1: The option to renew the (KPMG) contract for fiscal year 1995-96 be exercised.

Auditor-Controller's Response: The option to renew the KPMG contract was exercised for the 1995-96 audit. The agreement was signed by the contracting parties on March 18, 1996.

Recommendation 2: The quarterly audit (of the County's investment policy recommended by the Grand Jury) be continued.

Auditor-Controller's Response: The Auditor-Controller's office concurs with the recommendation and by ordinance will continue to perform this audit on a quarterly basis.

Recommendation 3: The Board of Supervisors should require periodic updates from the affected agencies in order to monitor the progress of corrective action (re outside auditor's recommendations in the Management Letter).

Auditor-Controller's Response: Under generally accepted auditing standards, the outside auditors (KPMG) are required to follow up on prior Management Letter recommendations on an annual basis. Because of the long-term nature of the implementation of those recommendations, we believe that this annual update is sufficient to bring implementation status to the Board's attention.

Recommendation 4: The 1996-97 Grand Jury should follow up on each subject listed (in the Management Letter) and report on actions completed or not completed by the county in next year's Grand Jury audit and finance report.

Auditor-Controller's Response: We concur with the Grand Jury's recommendation and will assist the Grand Jury to the extent we are requested to do so.

Recommendation 5: The 1996-97 Grand Jury should follow up on changes made to bring the employee compensated absences liability within reason.

Auditor-Controller's Response: We concur with the Grand Jury's recommendation.

Recommendation 6: All credit card charges for county business be in the name of the person who creates the debit. Employees should be reimbursed after department management approval and Auditor-Controller department inspection.

Auditor-Controller's Response: We do not concur with this recommendation. Page three of the Grand Jury Report states, pertaining to individual MasterCards, that "Individuals having a county card are responsible for paying the credit card invoices. They are reimbursed for business expenses after department manager approval. The manager approval provides a control measure and this is the standard practice in business and industry" (Italics added).

Although, as the Report points out, general use credit cards (i.e. cards assigned to a department rather than to an individual) account for most county credit card expenditures, it should be noted that the controls over the general use cards are at least as stringent as the controls over the individually assigned cards. Each expenditure, whether made via a general use card or an individual card, must receive department manager approval prior to payment by the Auditor's office. In addition, general use cards are safeguarded by department administrative personnel and must be requested prior to a purchase being made.

Respectfully submitted,

John Torell, CPA

Ass't Auditor-Controller

c: Spencer Boise, Grand Jury Foreman

Kent Taylor, County Administrator

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