CSMFO Magazine May 2016

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Articles and features on finance in California by the professionals who make it happen and how.

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  • CSMFO M A G A Z I N E

    C A L I F O R N I A S O C I E T Y O F M U N I C I P A L F I N A N C E O F F I C E R S

    MAY 2016 #3

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

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    CSMFO M A G A Z I N E

    C A L I F O R N I A S O C I E T Y O F M U N I C I P A L F I N A N C E O F F I C E R S

    MAY 2016 #3

    2016 Board of DirectorsPresident John Adams, City of Thousand OaksPresident-Elect Drew Corbett, City of San MateoPast President Jesse Takahashi, City of CampbellBarbara Boswell, City of LancasterJimmy Forbis, City of MontereyBrent Mason, City of RiversideMarcus Pimentel, City of Santa CruzKaran Reid, City of ConcordChu Thai, City of Monterey Park

    Executive Director/Editor Melissa Dixon, MBA, CAE

    Editorial Designer David Blue Garrison

    Photography ByDavid Blue GarrisonPexels

    The California Society of Municipal Finance Officers is the statewide organization serving all California municipal finance professionals. We promote excellence in financial management

    through innovation, continuing education and the professional development of our members. CSMFO

    members are deeply involved in the key issues facing local agencies. We value honesty and

    integrity, and adhere to the highest standards of ethical conduct.

    Thank you to all the authors in this issue for sharing with us their time and expertise. If you have an idea for a future article, please contact Melissa Dixon at the CSMFO office at melissa.dixon@staff.csmfo.org.

    For more information on CSMFO or this Magazine, please contact the CSMFO office at

    916.231.2137 or visit the website at www.csmfo.org.

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  • CSMFO MAGAZINE MAY 2016

    5

    CONTENTSMAY 2016

    6 Presidents LetterJohn AdamsExecutive Directors LetterMelissa Dixon

    A Viewpoint from a Managing Partner of an Audit FirmRichard K. Kikuchi

    Managing the Independent Audit RFP ProcessMatt N. Pressey

    CSMFO Brings New Training OpportunitiesScott Catlett

    Tips for Streamlining Audit PrepDebbie Harper

    League Policy Committee Update: Environmental QualityKathryn Downs

    The Trust FactorKenneth Pun

    New webpage, same goalMarcus Pimentel

    STOP THIEF!Ernie Cooper

    Reaching the Summit with CMTAJohn Adams

    Message from CMTA PresidentMargaret Moggia

    Diary of a Host Committee ChairDrew Corbett

    Job Opportunities

    9

    10

    13

    17

    19

    22

    2426283435

    3739

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

    Richard K. Kikuchi, CPA, Managing Partner with Lance, Soll, & Lunghard, LLP (LSL).

    Hopefully you will take the opportunity to read Margarets message to CMTA members, which she allowed us to reprint in this issue of CSMFO Magazine. The message

    reminds us of the importance of a strong internal control

    framework regardless of the size of the agency;

    that following best practices is crucial and policies & procedures are a must; that you should engage your

    staff, management, and business

    partners to assist you in strengthening your controls

    as our environment has changed with new technologies and processes that are developed to be more efficient, potentially making controls weaker. But the most important part of her message is that embracing a culture where proper education and training is a requirement must be a priority. For agencies not to invest in training is penny wise and pound foolish. CSMFO, CMTA, and GFOA provide tremendous trainings that are well worth the investment.

    PRESIDENTS LETTERJOHN ADAMS

    For over half a century, the California Society of Municipal Finance Officers has promoted values of honesty and integrity, and expects its members to adhere to the highest standards of ethical conduct in performing their duties. In light of recent news, I thought I would write on our responsibility as municipal finance officers to be more diligent in promoting a higher standard in financial management by increasing transparency and engaging our governing boards.

    Unfortunately, fraud does occur and impacts both private and public entities. And no matter how strong the controls, you cannot eliminate fraud; you can only mitigate it and reduce the potential for it to occur. As a government finance officer that has a fiduciary responsible in managing public funds, I want to share my thoughts with the members of CSMFO on fraud that impacts local agencies.

    Before doing so, there are two people to whom I want to express my appreciation for sharing their thoughts with me:

    Margaret Moggia, CPA, Finance Director with West Basin Municipal Water District and President of the California Municipal Treasurers Association;

    It is our Responsibility to Set the Tone

    As I started writing this months Presidents Message, I quickly recognized that it will probably be one of the more challenging messages for me to write because of this months focus on fraud and audits. Not to mention, it does not really help if you start it late, thus the primary reason why the Magazine is a little late this month!

    JOHN ADAMS FACTSJohns dream car is a Porsche 911. I am blessed to

    work for a premier agency that has a governing board

    that sets the tone at the top

  • CSMFO MAGAZINE MAY 2016

    7

    Also included this month is an article written by a close colleague that I have known for almost 20 years, Rich Kikuchi with LSL. After the news regarding Placentia broke, I reached out to Rich to see how he was doing, get his thoughts, and to provide him support, as LSL is the external financial auditor for Placentia. Over the next couple of weeks, LSL provided email updates to their clients regarding the incident. The alleged incident in Placentia really impacted Richs perspective on the challenges that exist within the municipal finance profession. When fraud does occur, the perpetrator is ultimately held accountable. Unfortunately, it is often assumed that the agencys external financial auditors also share some responsibility. That perspective is usually wrong, as it is management and governing boards who are responsible for internal controls that mitigate risks like fraud.

    Please read his article and consider how you as a finance officer can set the tone for your agency and enhance your internal audit functions.

    Now, as for my perspective, I am blessed to work for a premier agency that has a governing board that sets the tone at the top. Honesty, integrity, and the highest ethical standards are the starting point for my City Council. I am fortunate that they have allocated the resources to safeguard the public assets that I have a fiduciary responsibility to protect.

    With the recent news, we have an opportunity to engage with those that are in charge of governance. We need to educate them on internal controls, specifically discussing COSOs Internal Control Integrated Framework and focusing on the five components; 1) Control Environment, 2) Risk Assessment, 3) Control Activities, 4) Information and Communication, and 5) Monitoring Activities.

    From my experience, you have to advocate for and emphasize: 1) the importance of highly trained and technical staff, 2) the need for an internal auditor, 3) the establishment of an audit committee, 4) development of comprehensive policies and procedures, 5) annual funding for internal control audits, 6) deploying an employee fraud hotline, and 7) preparation of a city-wide risk assessment. These items should be your baseline, and are well worth the investment.

    To conclude, I want to leave you with a quote from Winston Churchill. A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. Please take this opportunity to talk to your staff, management and governing board and discuss how you can improve your organization to avoid being the next headline.

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

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    Kentucky Municipal Power

    Agency

    Power System Revenue

    Refunding Bonds, Series 2015-A

    Town of Clayton, New Mexico

    Jail Project Improvement

    and Refunding Revenue Bonds,

    Series 2015

    South Tahoe Joint Powers Financing

    Authority

    Refunding Revenue Bonds, Series 2015-A

    Rhode Island Infrastructure

    Bank

    City of Pawtucket, Refunding Water Revenue Bonds,

    Series 2015

    Harris County Municipal Utility District No. 433

    Unlimited Tax Bonds, Series2016

    $210,600,000 $57,535,000 $23,680,000 $24,265,000 $4,575,000

    Community Redevelopment

    Agency of City of Montebello

    Subordinate Tax Allocation Refunding

    Bonds, Series 2015-A & 2015-B

    City of Coffeyville, Kansas

    Electric System Revenue Bonds, Series 2015-B

    Dawson County Hospital District

    Limited Tax General Obligation Refunding Bonds,

    Series 2015

    Port of Redwood City

    Refunding Revenue Bonds,

    Series 2015

    Far Hills Utility District

    Unlimited Tax and Revenue

    Refunding Bonds, Series 2015

    $25,180,000 $48,900,000 $9,000,000 $6,940,000 $2,535,000

  • CSMFO MAGAZINE MAY 2016

    9To learn more about building stronger bonds with insurance from National, visit www.nationalpfg.com

    Stronger Bonds.Insured by National.

    Kentucky Municipal Power

    Agency

    Power System Revenue

    Refunding Bonds, Series 2015-A

    Town of Clayton, New Mexico

    Jail Project Improvement

    and Refunding Revenue Bonds,

    Series 2015

    South Tahoe Joint Powers Financing

    Authority

    Refunding Revenue Bonds, Series 2015-A

    Rhode Island Infrastructure

    Bank

    City of Pawtucket, Refunding Water Revenue Bonds,

    Series 2015

    Harris County Municipal Utility District No. 433

    Unlimited Tax Bonds, Series2016

    $210,600,000 $57,535,000 $23,680,000 $24,265,000 $4,575,000

    Community Redevelopment

    Agency of City of Montebello

    Subordinate Tax Allocation Refunding

    Bonds, Series 2015-A & 2015-B

    City of Coffeyville, Kansas

    Electric System Revenue Bonds, Series 2015-B

    Dawson County Hospital District

    Limited Tax General Obligation Refunding Bonds,

    Series 2015

    Port of Redwood City

    Refunding Revenue Bonds,

    Series 2015

    Far Hills Utility District

    Unlimited Tax and Revenue

    Refunding Bonds, Series 2015

    $25,180,000 $48,900,000 $9,000,000 $6,940,000 $2,535,000

    EXECUTIVE DIRECTORSLETTERMELISSA DIXON

    I imagine the audits I go through are markedly different than yoursin scope, if nothing else. But I still get asked all the standard audit questions, my favorite of which is How could someone commit fraud within this organization? Its a question that forces you to think like a criminal, and I find it fascinating. I fancy myself Danny Ocean trying to steal from the Bellagio, or Mark Wahlberg from The Italian Job. (InterestingI cant come up with any female movie criminal masterminds. Maybe Kathleen Turner in Body Heat, but then you get into the femme fatale caricature. Are there any movies that feature a female criminal mastermind that doesnt somehow use sex to get away with the crime? If you can think of any, let me know! But I digress.) I begin thinking of the ways CSMFO brings in moneyits easier, at least at the association level, to commit fraud as the money comes in rather than goes out. We have checks and balances on outgoing checks, multiple people looking at bank reconciliations and approving check runs and I just dont see a possibility there without getting all Neal Caffrey* about it. So, incoming fundschecks coming into the office are all addressed to CSMFO. Credit card transactions deposit directly into CSMFOs bank account. The only weak link is when someone pays onsite. And typically that happens at the chapter level. A couple years ago, I was asked this question from CSMFOs auditor and my response was that to commit fraud against CSMFO, someone could become a Chapter Chair because, at the time, CSMFO

    How to Get Away With Murder

    wasnt monitoring those dollars. Chapter bank accounts were typically held by the chairs agency or, worse, in the chairs name directly. Nothing was under CSMFOs tax ID, though the chapters were affiliated with CSMFO and operating under its name. This response spawned an audit comment that later led to CSMFO handling the banking/accounting for the chapters. Now, chapter chairs provide meeting

    information to the CSMFO office, and we take payments here

    at headquarters (credit card and check). While I

    suppose theres still the possibility of someone paying with cash onsite and the person at the door pocketing the money, the risk of fraudulent activity is

    greatly reduced. Its a satisfying thing, feeling

    like you had a hand in making the organization a

    tighter ship.In light of the recent headlines out of

    Placentia, I questioned whether to be so flippant on the title of this article. I decided it was catchy, and I dont believe in not being fun or creative simply because there are people in the world who do bad things. What you dothe trust inherent in your positions as keepers of public funds...