25250 Audit Review Co Finan State Section925Report

User Manual: 25250

Open the PDF directly: View PDF .
Page Count: 15

Download
Open PDF In Browser	View PDF

Issue | Background | Findings | Conclusions | Recommendations | Responses | Attachments

Audit and Review of County Financial Statements
Issue
To what extent (i) is San Mateo County fulfilling its duties under law to properly audit or
cause to be audited San Mateo County’s financial statements and the financial statements
of the various districts and governmental entities within San Mateo County, and (ii) are
such results being properly reviewed and acted upon by appropriate county agencies,
elected officials and the San Mateo County Civil Grand Jury?

Background
Section 25250 of the California Government Code (Section 25250) requires a county,
through its board of supervisors to conduct certain audit-related functions. The following
excerpts from Section 25250 define those obligations. A county must, at least biennially:
“examine and audit, or cause to be audited, the financial accounts and
records of all officers having responsibility for the care, management,
collection, or disbursement of money belonging to the county or money
received or disbursed by them under authority of law.”
“This financial examination or audit may be performed in coordination
with the investigations conducted by the grand jury under Section 925 of
the Penal Code… In connection with the requirements of this section...,
the board of supervisors may employ the services of an independent
certified public accountant or licensed public accountant to perform an
examination of the financial statements in accordance with generally
accepted auditing standards.”

A county grand jury under California Penal Code Section 925 (Section 925) also has
obligations. The Grand Jury
“shall investigate and report on the operations, accounts, and records of
the officers, departments, or functions of the county ...” [emphasis added]

“The investigations may be conducted on some selective basis each year,
but the grand jury shall not duplicate any examination of financial
statements which has been performed by or for the board of supervisors
pursuant to Section 25250 of the Government Code. This provision shall
not be construed to limit the power of the grand jury to investigate and
report on the operations, accounts, and records of the officers,
departments, or functions of the county. The grand jury may enter into a
joint contract with the board of supervisors to employ the services of an
expert as provided for in Section 926.”
The 2006-2007 San Mateo County Civil Grand Jury (Grand Jury) decided to investigate
whether San Mateo County (County) and its Board of Supervisors are fulfilling their
obligations under Section 25250, and the role and responsibility of the Grand Jury itself
in connection with the audits and investigations provided for under Section 25250 and
Section 925.

Investigation
Members of the Grand Jury reviewed documents related to the County’s financial
statements for the fiscal years ended June 30, 2005 and 2006, including the following:
•

Comprehensive Annual Financial Report (CAFR) prepared by the County
Controller (Controller)

•

Report to Board of Supervisors and Grand Jury issued by Macias Gini &
O’Connell LLP, the County’s independent auditors (Independent Auditors)

•

A letter agreement dated March 11, 2003, as amended (the Engagement
Letter) between the Board of Supervisors and the Grand Jury, on one hand,
and Macias Gini & O’Connell LLP, on the other. This agreement describes
the conduct of audits of the County’s financial statements for the fiscal years
2003-2008

•

The Controller’s Office Audit Plan for the fiscal year 2006-2007

•

Numerous financial statements and reports related to many of the
approximately 90 governmental entities (Districts) operating within the
County. The Grand Jury did not systematically analyze or review these
statements and reports.

The Grand Jury interviewed representatives of the Controller’s Office and representatives
of the Independent Auditors. The Grand Jury also considered the role of the Board of
Supervisors in connection with the County’s responsibilities under Section 25250.

Findings
•

The County Controller annually prepares and issues a Comprehensive Annual
Financial Report (CAFR) that contains, among other information, the
County’s general purpose financial statements and notes thereto and an
independent auditors’ report, as required by Section 25250. The CAFR is due
by December 31 of each year and has been completed and filed by such time
in the fiscal years reviewed by the Grand Jury. The CAFR is in addition to
numerous other financial statements and audits prepared in connection with
County financial matters. The financial statements in the CAFR for the fiscal
years reviewed by the Grand Jury, except as noted, were audited by the
Independent Auditors, whose unqualified opinion was included. The CAFR
also contains, as required by the Government Finance Officers Association
(GFOA):
o An introduction prepared by the Controller
o An extensive management discussion
o Analysis of the financial statements
o Notes to the financial statements
o Various other unaudited supplementary information

•

The Independent Auditors prepare an annual “Report to Board of Supervisors
and Grand Jury.” It is referred to in this report as the SAS 61 letter, or the
“Management Letter” because it is similar to the management letter issued by
auditors in connection with their audits of financial statements of nongovernmental entities. The Management Letter includes, among other things:
o For the fiscal year ended June 30, Information related to the auditors’
responsibilities
o Significant accounting policies
o Audit adjustments
o Disagreements with management, and difficulties with the audit
o Information regarding material weaknesses, if any, in the County’s
financial controls and procedures, with recommendations for improvement

•

2005 certain reports related to the County’s financial statements were delayed
because of delays in the completion of the San Mateo County Medical Center
financial statements.

1

•

The Management Letter for the fiscal year ended June 30, 2005 is dated May
23, 2006, and was received by the Controller in August 2006, more than a
year after the end of the County’s fiscal year. The Management Letter for the
fiscal year ended June 30, 2006 is dated November 9, 2006 (the last day of the
Independent Auditors’ field work) and was received by the Controller in late
April 2007, nearly 10 months after the end of the County’s fiscal year. The
Grand Jury was told that some of the delay resulted from the need to complete
the Single Audit 1 (due March 31st) before release of the Management Letter.
Release of the Management Letter also had to await the completion of
financial statements not yet prepared by the Controller but incorporated into
the County’s financial statements.

•

The Engagement Letter covers audits for fiscal years 2003-2008.
Supplemental pre-audit communications (covering details of how the audit
would be performed, what would be reviewed, etc.) were received from the
Independent Auditors to the Board of Supervisors and the Grand Jury.

•

The Independent Auditors helped the Grand Jury understand audit issues
related to the County’s financial statements and their helpful assistance was
important to the investigation. The Independent Auditors can be a significant
resource for future grand juries.

•

Historically, the Grand Jury has had little involvement in the process of
auditing the County’s financial statements or reviewing the independent
audits.

•

On February 4, 2003, the Board of Supervisors created an Audit Committee
consisting of two Supervisors and the Controller (or his representative) to
oversee the audit of the County’s financial statements, however no Board
members were appointed, and the committee never met.

•

On October 4, 2005, the Board of Supervisors created an Audit/Management
Committee to oversee performance audits of County departments and
functions, and to evaluate the recommendations and their implementation.
Two supervisors were appointed as members.

•

On December 12, 2006, the Board of Supervisors consolidated the two audit
committees; and two Supervisors were appointed to the new
Audit/Management Review Committee. The consolidated committee last met
on January 31, 2007 to review a performance audit of the Housing
Department. Neither the prior Audit Committee nor the consolidated
committee has met with the Independent Auditors. The consolidated
committee appears to have the purpose of reviewing operational audits rather
than the role of a traditional audit committee.

The Single Audit is done for Federal grant purposes.

•

The Controller annually determines whether the Districts have completed
financial statement audits, but neither the Controller nor the Grand Jury
reviews such reports.

•

The County Counsel annually provides a letter to the Independent Auditors
regarding lawsuits against the County involving amounts exceeding a certain
materiality threshold, currently $500,000. The letter specifically excludes
matters handled by other lawyers. Apparently, claims covered by insurance or
other contracts are not reported by the County Counsel. The Independent
Auditors do communicate with outside legal counsel based on information
received from the County during the course of the audit. Claims (incurred but
not reported) covered by insurance or other contracts are analyzed by the
Independent Auditors in the course of the audit and reported in the CAFR.

•

The Government Finance Officers Association has “Recommended Practices
for Public Agencies” that recommend the formation of an Audit Committee,
the primary purpose of which shall be to independently oversee the audit of
the Government Code-required financial statements.

•

The Government Finance Officers Association awarded a “Certificate of
Achievement for Excellence in Financial Reporting” to the Controller for the
2005-2006 CAFR, the 7th consecutive year that the County has received this
award.

•

The 2006-2007 San Mateo Civil Grand Jury has written a separate letter to the
Hon. John L. Grandsaert, Judge of the Superior Court and Grand Jury Judge,
recommending that the rules governing Grand Jury operations be amended to
provide for the establishment of an Audit Committee.

Conclusions
The County prepares financial statements required under Section 25250 in a timely
manner and has them independently audited.
The Board of Supervisors does not have a separate audit committee to deal with auditrelated issues, a much needed governmental function; one should be established.
The time schedule for the Independent Auditors to prepare, discuss with the County and
deliver the Management Letter makes it difficult for the Board of Supervisors and the
Grand Jury to identify early on financial issues that might affect the County’s financial
condition. The Board of Supervisors should be more diligent in its insistence that the
Management Letter be delivered in a timely fashion.
Numerous Special District financial reports are not reviewed by County officials or the
Grand Jury.

The Grand Jury has no formal procedures for handling audit issues related to its
obligations under Section 925; it should establish such procedures.

Recommendations
The Grand Jury recommends that the San Mateo County Board of Supervisors:
1. Establish an Audit Committee to advise the Board of Supervisors regarding the
selection of San Mateo County’s independent auditors and regarding a review of
the County’s financial statement auditing process. The Audit Committee should
be composed solely of members of the Board of Supervisors.
2. Establish an Audit Committee pursuant to a resolution containing substantially the
matters set forth in Exhibit A to this report.
The Grand Jury recommends that the San Mateo County Controller:
1. Establish procedures to identify those financial reports of the approximately 90
governmental entities operating within San Mateo County that evidence material
weakness or other financial irregularities and report such conditions to the Grand
Jury.
2. Meet with the Grand Jury at least annually to review the Grand Jury’s
responsibilities under California Penal Code Section 925, the Comprehensive
Annual Financial Report, the performance of the independent auditors, and any
other matters relating to San Mateo County’s financial statements that are
appropriate.
3. Work with the independent auditors to ensure that the Report to Supervisors
(management letter) is delivered promptly following completion of the audit.
The Grand Jury recommends that future San Mateo County Civil Grand Juries
establish an audit committee. This audit committee should advise the entire Grand Jury
regarding its duties under California Penal Code Sections 925 and 926 and shall have the
objectives and responsibilities as set forth in Exhibit B of this report. The Grand Jury
should establish procedures for reviewing the financial reports of the approximately 90
governmental entities operating in the County to identify actual and potential financial
problems.

EXHIBIT “A”
Board of Supervisors
Audit Committee Resolution
COMMITTEE

The Board of Supervisors (the “Board”) of San Mateo County
(the “County”) has established a standing committee to be
known as the Audit Committee (the “Committee”).

OBJECTIVES

The purpose of the Committee is to act in an advisory capacity
to the Board, recommending the selection of the County’s
independent auditors and reporting annually to the Board of
Supervisors and to the Grand Jury regarding the County’s
auditing, accounting and control functions and financial
reporting process.

COMPOSITION

The Committee’s composition shall consist of two (2)
members of the Board. One of the members so appointed will
be designated by the Board as the Chairperson of the
Committee. It is desirable for one member of the Committee
to have past employment experience in finance or accounting,
requisite professional certification in accounting, or any other
comparable experience or background which results in the
individual’s financial sophistication.

SCOPE OF ACTIVITIES

The Committee shall exercise the following powers and
duties:
(a) Recommend to the Board and the Grand Jury the firm
of independent auditors to be selected to audit the
County financial statements;
(b) Meet with the County’s independent auditors at least
annually and review the scope of the annual audit
(inclusions and exclusions), any open questions as to
the choice of acceptable accounting principles to be
applied and all other matters relating to the auditors’
relationship with the County;
(c) Advise the Board as to the auditors’ performance,
including the scope and adequacy of the auditors’
review;
(d) Recommend, where appropriate, the removal or
replacement of the independent auditors;

(e) Review the County’s annual financial statements,
including the footnotes, and discuss such statements
with the auditors prior to release of the County’s
annual report;
(f) Receive and consider the auditors’ comments and
suggestions as to internal audit and control procedures,
adequacy of staff, and other matters;
(g) Receive and review periodic reports of the County’s
Controller and internal audit staff; meet with the
Controller and internal audit staff to review and
approve the internal audit staff to examine and
approve the internal audit programs; review the
executive management’s responses to internal audit
staff reports; review the adequacy of the County’s
internal audit staff and report thereon to the Board;
(h) Approve non-audit services to be rendered to the
County by the independent auditors, if any, after
considering the effect on audit independence;
(i) Meet with and obtain reports and information from
such County officials, employees, suppliers and others
as the Audit Committee shall determine to be
necessary in carrying out their duties as set forth
above;
(j) Take, or recommend that the Board take, appropriate
action to oversee the independence of the outside
auditors;
(k) Receive and review periodic written statements from
the independent auditors delineating all relationships
between the auditors and the County; and
(l) Engage in an active dialogue with the auditors with
respect to any disclosed relationships or services that
may impact the objectivity and independence of the
auditors.
MEETINGS

The Committee shall hold regular meetings on such days as it
shall determine. Other meetings of the Committee will be
held at the request of the Chairperson of the Committee.
Minutes shall be regularly kept of the Committee proceedings,
by a person appointed by the Committee to do so.

AGENDA

Prior to each regularly scheduled meeting, the Committee will
receive a prepared agenda for the meeting. Other topics for
discussion may be introduced at the meeting at the request of
any Committee member.

ATTENDANCE

Such County officials and other employees of the County, as
the Committee may regularly or from time-to-time designate,
shall attend the meetings.

OUTSIDE ASSISTANCE

Subject to the prior approval of the Board, the Committee is
authorized to engage or employ such outside professional or
other services as in its discretion may be required to fulfill its
responsibilities.

EXHIBIT “B”
Grand Jury
Audit Committee
COMMITTEE

The San Mateo County Grand Jury (“Grand Jury”) has
established a standing committee to be known as the Audit
Committee (the “Committee”).

OBJECTIVES

The purpose of the Committee is to be responsible for (i)
advising the Grand Jury regarding its duties under California
Penal Code Section 925, (ii) jointly with the Board of
Supervisors (Board) recommending the selection of the
County's independent auditors and (iii) reporting annually to
the Grand Jury regarding the County's auditing, accounting
and control functions and financial reporting process.

COMPOSITION

The Administration & Finance Committee may serve as the
Audit Committee or the Grand Jury may establish and appoint
a separate committee. One of the members so appointed will
be designated by the Grand Jury Foreperson as the
Chairperson of the Committee. It is desirable for one member
of the Committee to have past employment experience in
finance or accounting, requisite professional certification in
accounting, or any other comparable experience or
background which results in the individual’s financial
sophistication.

SCOPE OF ACTIVITIES

The Committee shall exercise the following powers and
duties:
(a) Recommend to the Board and the Grand Jury the firm
of independent auditors to be selected to audit the
County financial statements;
(b) Meet with the County's independent auditors and
Controller at least annually and review the scope of the
annual audit, any open questions as to the choice of
acceptable accounting principles to be applied and all
other matters relating to the auditors' relationship with
the County;
(c) Advise the Grand Jury as to the auditors' performance,
including the scope and adequacy of the auditors'
review;

(d) Recommend, where appropriate, the removal or
replacement of the independent auditors;
(e) Review the County's annual financial statements,
including the footnotes, and discuss such statements
with the auditors prior to release of the County's
annual report;
(f) Receive and consider the auditors' comments and
suggestions as to internal audit and control procedures,
adequacy of staff, and other matters;
(g) Receive and review periodic reports of the County's
Controller and internal audit staff; meet with the
Controller and internal audit staff to review and
approve the internal audit programs; review the
executive management's responses to internal audit
staff reports;
(h) Meet with the request and obtain reports and
information from such County officials, employees,
suppliers and others as the Audit Committee shall
determine to be necessary in carrying out their duties
as set forth above; and
Engage in an active dialogue with the auditors with respect to
any disclosed relationships or services that may impact the
objectivity and independence of the auditors.

August 20, 2007

Hon. Joseph L. Grandsaert
Judge of the Superior Court
Hall of Justice
400 County Center; 2nd Floor
Redwood City, CA 94063-1655
Hon. Joseph L. Grandsaert:
Regarding the recommendations in the Grand Jury AUDIT AND REVIEW OF
COUNTY FINANCIAL STATEMENTS Report to the Controller:
1. Establish procedures to identify those financial reports of the approximately 90
governmental entities operating within San Mateo County that evidence material
weakness or other financial irregularities and report such conditions to the Grand
Jury.
Response: The Controller concurs with this recommendation.
Government Code Section 26909 requires the county auditor to perform an annual
audit or contract with a CPA to perform an annual audit of the accounts and
records of every special purpose district within the county. The Code Section
further requires the special purpose districts to file a report thereof with the
county auditor within 12 months of the end of the fiscal year or years under
examination. For entities in the County that fall under the purview of this
statutory authority given to the County Controller, the Controller has established
procedures for reviewing compliance with the Code Section. The Controller will
submit an annual report to the Grand Jury that will identify reports that disclosed
material weaknesses or other financial irregularities and provide details of such
conditions.

1

2. Meet with the Grand Jury at least annually to review the Grand Jury’s
responsibilities under California Penal Code Section 925, the Comprehensive
Annual Financial Report, the performance of the independent auditors, and any
other matters relating to San Mateo County’s financial statements that are
appropriate.
Response: The Controller concurs with this recommendation.
At the behest of the Grand Jury, the Controller will meet to review their
responsibilities under California Penal Code Section 925, the Comprehensive
Annual Financial Report, the performance of the independent auditors, and any
other matters relating to San Mateo County’s financial statements that are
appropriate.
3. Work with the independent auditors to ensure that the Report to Supervisors
(management letter) is delivered promptly following completion of the audit.
Response: The Controller concurs with this recommendation.
The Controller’s Office will continue to work with the independent auditors to
ensure that the Report to Supervisors is delivered promptly following completion
of the audit. The Controller’s Office will also propose that future contracts with
independent auditors of the County’s financial statements include a clause to
ensure timely delivery of this report.
Respectfully submitted,

Tom Huening
Controller

TH:RGA:of
ferrando\hue\finanstatementsrespo.doc

cc: Thomas F. Casey III
Dennis O’Rourke

2

COUNTY OF SAN MATEO
Inter-Departmental Correspondence
County Manager’s Office
DATE:
BOARD MEETING DATE:
SPECIAL NOTICE:
VOTE REQUIRED:
TO:

Honorable Board of Supervisors

FROM:

John L. Maltbie, County Manager

SUBJECT:

2006-07 Grand Jury Response

September 20, 2007
October 2, 2007
None
Majority

Recommendation
Accept this report containing the County’s responses to the following 2006-07 Grand
Jury report: Audit and Review of County Financial Statements.
VISION ALIGNMENT:
Commitment: Responsive, effective and collaborative government.
Goal 20: Government decisions are based on careful consideration of future impact,
rather than temporary relief or immediate gain.
This activity contributes to the goal by ensuring that all Grand Jury findings and
recommendations are thoroughly reviewed by the appropriate County departments
and that, when appropriate, process improvements are made to improve the quality
and efficiency of services provided to the public and other agencies.
Discussion
The County is mandated to respond to the Grand Jury within 90 days from the date
that reports are filed with the County Clerk and Elected Officials are mandated to
respond within 60 days. To that end, attached is the County’s response to the Grand
Jury report regarding the Audit and Review of County Financial Statements, issued
on July 11, 2007.

Audit and Review of County Financial Statements
Findings:
Staff is in general agreement with the Grand Jury’s findings.

Recommendations:
The Grand Jury recommends that the San Mateo County Board of
Supervisors:
1. Establish an Audit Committee to advise the Board of Supervisors regarding
the selection of the San Mateo County’s independent auditors and regarding a
review of the County’s financial statement auditing process. The Audit
Committee should be composed solely of members of the Board of
Supervisors.
Response: Concur. The Board created and appointed two Board members to an
Audit/Management Review Committee in October 2005. On April 10, 2007, the
Board established five standing committees to streamline committee assignments.
The standing committees, each consisting of two Board members, subsumed
numerous, sometimes duplicative and often narrowly focused subcommittees to
improve the County’s efficiency and effectiveness in developing and setting policy.
One of the Board’s standing committees is the Finance and Operations Committee,
which has been meeting regularly since July. A resolution with proposed changes to
the committee structure will be brought to the Board in December, which will include
a change indicating that the Finance and Operations Committee will serve as the
County’s Audit Committee.
2. Establish an Audit Committee pursuant to a resolution containing
substantially the matters set forth in Exhibit A to this report.
Response: Concur. A resolution with proposed changes to the Board committee
structure will be brought to the Board in December, which will include a change
indicating that the Finance and Operations Committee will serve as the County’s
Audit Committee. If approved, the Committee will consider the scope of activities
described in Exhibit A at a future meeting.



---

Source Exif Data:

File Type                       : PDF
File Type Extension             : pdf
MIME Type                       : application/pdf
PDF Version                     : 1.6
Linearized                      : Yes
Tagged PDF                      : Yes
XMP Toolkit                     : 3.1-701
Producer                        : Acrobat Distiller 7.0 (Windows)
Keywords                        : 
Mail Msg Id 1                   : AFAANHCo7T+WhnQQsBAsKMJ/e5PIF7Avn5VDq+15iNFGKhq8LA7XGBgX55FhCGXvhmUfCY0mR+F7dima.s5r5wR3bp5lrEMYbpUnja8ibrrz9h/+EaNyvjqV3wk2AM8Pt/R2xyGuxQUXXpAKLkHH/r9i/Lh6P.wgFP41WjgcbVg6B5cwkkdraxJjR2NEjYYDX5M1M6m4vgG9em9HFf2Gz3o0ScxrK1TEDIcGTc2Wdc.9mcQPFa5WYCVJCagG
Mail Msg Id 2                   : 1C6UTSq9F7aEMAnmG2i3Dn53BMZC0pxt+MMYvhYi0pHdS63HItbyQEEaFNR.M4IgQg==
Response Sender Name            : gAAAJ+PfKkF/6hiUk6xiarGiApWrAmgrP32p
Company                         : 
Comments                        : 
Manager                         : 
Source Modified                 : D:20070621152535
Category                        : 
Email Owner Address             : 4AAAUmLmXdMZevS+kJyPD57R09zr0+eWPqcR4cPnKc8ENKqqcC8UBfC3kg==
Creator Tool                    : Acrobat PDFMaker 7.0 for Word
Modify Date                     : 2007:10:19 11:30:44-07:00
Create Date                     : 2007:06:21 08:28:01-07:00
Metadata Date                   : 2007:10:19 11:30:44-07:00
Document ID                     : uuid:6d11c5f3-6c98-412b-86f6-3fb21ec8ce43
Instance ID                     : uuid:8c64abde-504a-40c6-ad87-1ccf0b6413ca
Version ID                      : 3
Format                          : application/pdf
Title                           : 
Creator                         : 
Description                     : 
Subject                         : 
Headline                        : 
Page Count                      : 15
Page Layout                     : OneColumn
Author                          : 
MAIL MSG ID1                    : AFAANHCo7T+WhnQQsBAsKMJ/e5PIF7Avn5VDq+15iNFGKhq8LA7XGBgX55FhCGXvhmUfCY0mR+F7dima.s5r5wR3bp5lrEMYbpUnja8ibrrz9h/+EaNyvjqV3wk2AM8Pt/R2xyGuxQUXXpAKLkHH/r9i/Lh6P.wgFP41WjgcbVg6B5cwkkdraxJjR2NEjYYDX5M1M6m4vgG9em9HFf2Gz3o0ScxrK1TEDIcGTc2Wdc.9mcQPFa5WYCVJCagG
MAIL MSG ID2                    : 1C6UTSq9F7aEMAnmG2i3Dn53BMZC0pxt+MMYvhYi0pHdS63HItbyQEEaFNR.M4IgQg==
RESPONSE SENDER NAME            : gAAAJ+PfKkF/6hiUk6xiarGiApWrAmgrP32p
EMAIL OWNER ADDRESS             : 4AAAUmLmXdMZevS+kJyPD57R09zr0+eWPqcR4cPnKc8ENKqqcC8UBfC3kg==

EXIF Metadata provided by EXIF.tools