To: Board of Supervisors
From: Internal Operations Committee
Report Title: REPORT ON 2024 INTERNAL AUDIT ACTIVITIES AND 2025 AUDIT PLAN
☒Recommendation of the County Administrator ☐ Recommendation of Board Committee
RECOMMENDATIONS:
1. ACCEPT report on the Auditor-Controller's audit activities for 2024 and APPROVE the proposed schedule of financial audits for 2025.
2. REFER to the Internal Operations Committee a review of the County’s policy on gift cards and other program incentives.
FISCAL IMPACT:
There is no fiscal impact related to approving the annual audit schedule. The financial auditing process may result in positive and negative fiscal impacts, depending on the audit findings.
BACKGROUND:
The Internal Operations Committee was asked by the Board in 2000 to review the process for establishing the annual schedule of audits, and to establish a mechanism for the Board to have input in the development of the annual audit schedule and request studies of departments, programs or procedures. The IOC recommended a process that was adopted by the Board on June 27, 2000, which called for the IOC to review the schedule of audits proposed by the Auditor-Controller and the County Administrator each December. However, due to the preeminent need during December for the Auditor to complete the Comprehensive Annual Financial Report, the IOC, some years ago, rescheduled consideration of the Auditor’s report to February of each year.
In past years, the Auditor's Office sometimes found a lack of adherence to several of the County's administrative requirements for cash collection; discharge of delinquent accounts; inventories of materials, supplies and capital assets; and petty cash. Noncompliance with procurement card policies, contracting policies and procedures, and MAC fiscal procedures have also been among past findings.
Internal Audit Division Manager Sandra Bewley presented the 2025 report to the Internal Operations Committee at its regular meeting on March 24, 2025. The Internal Audit Division completed twenty-seven (27) of the thirty-four (34) examinations on the Schedule of Internal Audit Examinations for 2024, attached. Of the remaining seven (7) examinations scheduled, fieldwork has been completed for four (4) examinations and three (3) examinations were postponed to calendar year 2025 due to the hiring of new staff and additional training time needed in the Office of the Auditor-Controller.
Examination Reports
Objectives:
The necessary tests and procedures were conducted to determine if, within the scope of the examinations, the following financial conditions existed:
• Assets were adequately safeguarded.
• Appropriate internal controls were in place and functional.
• Records were accurate and reliable.
• Statutory, contractual, and administrative requirements were followed.
General Findings:
There is an overall lack of adherence to several of the County's administrative requirements. Many of the departmental examinations included recommendations due to the following:
• Lack of compliance with the Administrative Bulletins established to ensure accurate and reliable records;
• Lack of compliance with the Administrative Bulletins established to safeguard assets;
• Lack of accurate and reliable records for inventory activities; and,
• Lack of adherence to the procurement card manual.
Conditions:
Approximately forty-six percent (46%) of the findings in 2024 were repeated from previous examinations. Common examination conditions included:
• Lack of segregation of duties,
• Lack of safeguarding of inventories and assets;
• Lack of reconciliation of subsidiary ledgers to the general ledger;
• Lack of adequate procurement card supporting documentation; and,
• Unauthorized charges on procurement cards.
To correct issues timely and mitigate repetitive findings, the Internal Audit Division follows-up with auditees six months after the issuance of the examination report to determine if the recommendations were implemented. No data is available yet on the status of the 2024 findings.
Procurement Card
The quarterly procurement card review continues to reflect compliance issues in the use of the card for services, memberships, meal payments, gifts, fuel, cash instruments, and items of a personal nature, all of which are prohibited per the Procurement Card Manual, Section V.G Cardholders are also prohibited from using the procurement card for purchases not authorized in the County's Administrative Bulletins. Additionally, the required supporting documentation often is missing or inadequate.
Staff noted that the County Administrator is in consultation with Public Works and the Auditor’s Office to update the County’s procurement card policy to provide increased flexibility.
2025 Scheduled Examinations
The Auditor-Controller Division Manager of the Internal Audit division and the Auditor- Controller performed a thorough review of existing and recurring examinations that should be incorporated in the 2025 schedule. The emphasis and priority in scheduling examinations is based on the perceived risk to the County. The schedule is composed of legally required examinations, such as the Treasury cash counts, and recurring examinations. Twenty-seven (27) examinations have been scheduled for the calendar year 2025 (see attached Schedule of Internal Audit Examinations, Calendar Year 2025).
Legally required examinations have their basis in government code. Recurring examinations have a preferred cycle attached to them based on the perceived amount of inherent risk. If a
concern comes to the attention of the Internal Audit Division, a recurring examination may be scheduled prior to it being due based on the preferred cycle.
The County's financial operations are subject to audit by a firm of independent external auditors, Macias Gini & O'Connell, LLP. The external auditors are responsible for performing an
annual audit of the general-purpose financial statements of the County. The external auditors also
perform an annual "Single Audit" of the County's federal financial-assistance programs. Other independent auditors perform annual audits of the Contra Costa County Housing Authority, state
grant programs, and the First 5 Contra Costa Children and Families Commission.
The IOC was particularly concerned that adequate controls and training are in place on the issuance of gift cards and other program incentives, and wishes to review the pertinent County policy and procedures.
CONSEQUENCE OF NEGATIVE ACTION:
None. This report is informational and provides an opportunity for the Board of Supervisors to provide input on the Auditor’s internal audit plan for the coming year.