AUDIT AND FINANCE

INTRODUCTION

The Santa Barbara County Grand Jury is mandated under California Penal Code Section 925 to ". . . investigate and report on the operations, accounts, and records of the officers, departments, or functions of the County . . ." The County decided some 35 years ago to retain an independent outside firm to audit the County’s financial statements. To avoid duplication of effort, the Grand Jury joined with the Auditor-Controller and the County Administrator to retain the same independent auditor.

The 2000-2001 Grand Jury decided to report on

GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT 34

The Governmental Accounting Standards Board is the authoritative accounting and financial reporting and standards-setting body for government entities. The new GASB 34 levies many new requirements on County government. Infrastructure assets have not been reported previously. According to the Auditor, "the County will be required to report financial operations and net assets, and the fund perspective for governmental activities, and will be required to prepare statements at the government-wide level. This level will distinguish between government and business type activities. All information at the government-wide level will be reported using the economic resources measurement focus and accrual basis of accounting, as enterprise funds do under the current mode. Fiduciary activities will be excluded from the government-wide level of reporting. General government fixed assets, including infrastructure, and long-term liabilities of the government will need to be reported with all other governmental assets and liabilities."

The Auditor-Controller has formed project teams to implement GASB 34 and has hired a Financial Systems Analyst to head a project to report on the infrastructure and fixed assets of the County.

A new asset management system is to be initiated. Tie-ins to the Auditor-Controller’s Financial Information Network (FIN) system will also be possible. A Capital Improvement Plan will begin in the near future.

OUTSIDE AUDITOR SELECTION

During the Grand Jury’s initial discussions with the Auditor-Controller, a suggestion was made by the Jury to write a Request for Proposal (RFP) for a new contract for the outside auditor. KPMG LLP, the present auditor, was in the final year of a six-year contract. The Auditor-Controller agreed and an RFP was sent to a number of auditing firms viewed as potential candidates to fill the function of outside auditor. The contract is for three years with the possibility of an additional three-year term. The selection committee was composed of one representative each from the County Administrator’s Office, the Auditor-Controller’s Office, and the Grand Jury.

Replies received from four organizations were reviewed, and representatives of those firms interviewed. KPMG was selected based on a combination of its knowledge of the County, its familiarity with the new requirements of GASB 34, and its proposal on man-hours versus cost to the County. It is important to note that the decision to initiate the RFP process was not based on any dissatisfaction with KPMG’s previous work, but rather on the fact that good management practice calls for a review of outside auditors on a periodic basis.

THE INDEPENDENT AUDIT

The independent audit is a single audit performed in accordance with the Single Audit Act of 1997 and the Office of Management and Budget’s Circular A-133, Audits of State and Local Governments and Non-Profit Organizations. The Single Audit Act allows or requires governments (depending on the amount of Federal assistance received) to have one audit performed to meet the needs of all Federal agencies. No problems were noted in the independent audit.

risk management

The County is a defendant in many litigation cases in the normal course of business. The County is exposed to various risks of loss related to torts, medical malpractice, errors and omissions, injuries to employees, etc.

For the past several years, the County has seen a dramatic increase in the amount of litigation. Litigation comes from many sources, including (1) oil companies, (2) large developments, (3) hotels, (4) large department stores or malls (1 through 4 are property tax disputes), and (5) the Ventura County Firefighters’ lawsuit, a dispute involving calculation of pension benefits. Worker’s Compensation is also a major source of litigation (See Chart 1).

GRant Management SYSTEM

Grants and grant activities have been a concern of past Grand Juries for several years. The 1999-2000 Grand Jury observed that there was no formal County-wide grant application process or grant maintenance function, making it difficult to identify and track Federally funded grants or identify new Federal or State grant opportunities. That Jury found that the County Auditor-Controller needed to appoint a "grants coordinator" who could service these needs and assist the County in identifying grants available that best support its service strategy.

In a July 31, 2000 letter to the Board of Supervisors, the County’s outside auditor, KPMG LLP, also reported that, "There is currently no formal County-wide grants application process or grants maintenance function. This makes it difficult to identify and track Federally funded grants that must be included in the Schedule of Expenditures of Federal Awards. It also makes it difficult to efficiently identify new Federal or State grant opportunities to meet the needs of the County."

The Auditor-Controller has added a financial systems analyst position to design a grant information system application, and has filled this position effective mid-May 2001 with a person who is familiar with accounting system applications. This position is also charged with developing an information system that will interface with the County’s FIN and the various departments accounting systems. The expected accomplishments of the grants management program information system include

The Grand Jury believes that successful accomplishment of this project will satisfy the concerns and implement the recommendations of the outside auditor and past Grand Juries. Future Grand Juries should monitor the progress of the new financial systems analyst.

COMMENDATION

The Grand Jury commends the Auditor-Controller, his staff, and the County’s outside auditor, KPMG LLP, for their cooperation and assistance.