July 31, 1997

Re: Grand Jury's Final Interim Report "Audit and Finance", issued June 4, 1997

Per the Grand Jury's request, and as required by law, we are responding to the each of the recommendations in the subject report. The responses to those recommendations which pertain to the County Administratorís office are included with their concurrence.

Although we responded to the subject report in our letter dated July 1, 1997, we have been informed by County Counsel that our response needed to be in the format prescribed by a new statute, Penal Code section 933.05, effective January 1, 1997. We have revised the format of our response accordingly.

General Comment:

We value the Grand Jury's opinions and appreciate their continued interest in the efficiency of County operations. We intend to continue to utilize the Grand Jury's insights in supplementing our on-going efforts to continuously improve our internal controls and the efficiency and effectiveness of our business processes.

FINDING 1: The Grand Jury is a party to the contract to hire an independent auditor, but there is no provision for the Grand Jury to sign the extension of the contract with KPMG.

Auditor-Controller's Response: We agree with this finding. Although the Grand Jury's signature appeared on the initial contract, it was not necessary, according to the terms of the initial contract, that it appear on any contract extensions.


RECOMMENDATION 1: Provide for the Grand Jury's participation and signature in any future contract for an independent auditor and subsequent extensions.

Auditor-Controllerís Response: The recommendation will be immediately implemented. We agree with the Grand Jury that the signatures of all contracting parties (including the Grand Jury if they participate in future contracts) should appear on any and all future contracts and contract extensions.

FINDING 2: The Auditor-Controller has not given priority in the past three years to updating the fixed asset register on a regular basis during the year.

Auditor-Controller's Response: We agree with the finding. This item has not been a high priority in the past several years in the context of other established priorities.

RECOMMENDATION 2: The Auditor-Controller should set a firm date to establish and implement a plan to update the fixed asset register on a regular basis during the year.

Auditor-Controller's Response: The recommendation has been implemented. The fixed asset register is currently updated on a monthly basis in order to help accelerate year-end processing as recommended by the Grand Jury.

FINDING 3: Internal Audit Division is not represented when departments administering grants are being audited by outside auditors.

County Administrator's Response: We agree with the finding.

RECOMMENDATION 3: The County Administrator should establish, adopt, and implement a policy that whenever an outside auditor is auditing any program within the county, a county auditor is present during the audit process and interviews with county personnel.

County Administrator's Response: The recommendation will not be implemented. Discussions with Internal Audit division staff disclosed that it would neither be cost-beneficial nor practicable (due to the limited number of staff) to have an internal auditor present during the entire process when an outside audit is conducted. We do believe, however, that there would be value to having an internal auditor present at both the entry and exit interviews when audits of county programs are performed by outside auditors.

FINDING 4: The independent outside auditor (KPMG) does not thoroughly test and verify financial processing software.

Auditor-Controller's Response: We disagree with this finding. It should be noted that the annual audit is conducted by the outside auditors under strictly defined requirements promulgated by the Government Accounting Standards Board and other rulemaking bodies. The annual audit methodology, as currently defined, includes all the audit work considered necessary to allow the outside auditors to conclude as to the adequacy of internal controls and the fair and accurate presentation of the annual financial statements.

RECOMMENDATION 4: The Auditor-Controller and the Grand Jury should assure that the next contract with an independent auditor includes testing and verification of computer processed financial transactions by an expert in that field.

Auditor-Controller's Response: This recommendation will be analyzed further. The Auditor-Controller's office is not convinced that an additional expenditure of county funds to expand the scope of the annual audit is warranted. We suggest that our office and the Grand Jury discuss this subject with the outside auditors prior to the next audit.

FINDING 5: The county experiences delays in reimbursement of county funds spent on grant programs. The County Administrator has issued a directive to department heads to request frequent reimbursement from federal grants.

County Administrator's Response: We agree with the finding.

RECOMMENDATION 5: The County Administrator should review the frequency of grant reimbursement requests to assure that there is minimal delay in receiving the funds.

County Administrator's Response: The recommendation has been implemented. The County Administrator has sent a directive instructing each department to prepare grant reimbursement requests on the most frequent basis allowed under the terms of the grant.
Departments have been asked to report back on the status of implementation of this directive.

FINDING 6: The county is a public enterprise whose revenues are approximately half a billion dollars per year ($500,000,000). Publicly held corporations of this size publish an annual report containing financial highlights and quantitative product summaries.

Auditor-Controller's Response: We agree with this finding. For the past several years we have published an award winning financial highlights document.

RECOMMENDATION 6: The Auditor-Controller should publish an annual report to Santa Barbara county residents. This document should expand Financial Highlights to include all departments, with quantitative statements of services provided and comparisons to previous years.

Auditor-Controller's Response: The recommendation has been implemented. Santa Barbara County was one of only 35 local government entities nationwide to be awarded the Government Finance Officers Association's Award of Excellence for its "Financial Highlights" publication. This publication was prepared as an annual report to the county's citizens. In an effort to make the report reader-friendly, we presented data in a summarized fashion and have focused on those departments and activities of particular interest based primarily on the impact of those departments and activities to the county organization and to the community. Quantitative statements of services and comparisons to previous years, which will be included as an integral part of the countyís budget for the first time in FY 1997/98, will be extracted from that document and selectively included in our Financial Highlights in the future.

Respectfully submitted,

Robert W. Geis, CPA Michael F. Brown
County Auditor-Controller County Administrator
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