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 fundsits a sacred thing. And those that abuse that trust arent just stealing from their agencytheyre damaging the publics perception of the good work that the rest of you do. Its abhorrent and sad and disappointing, and I feel for the honest majority of you that have to weather the repercussions of the dishonest few. Know that your dedication and efforts are very much appreciated.

    Okay, maybe not murder. How to Get Away With Fraud would be more accurate. Or How to Get Away With Other Peoples Money. That at least has a sexier ring to it.

    MELISSA DIXON FACTSMelissa is portraying Regan in a film adapta-tion of King Lear.

    your dedication and efforts are very much

    appreciated.

    *from the TV show White Collar

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

    A Viewpoint from a Managing Partner of an Audit Firm

    In light of the recent events at the City of Placentia, I would like to use this opportunity to share some of my thoughts regarding the audits of local governments. First of all, my heart aches for all who were closely affected by the recent occurrence: the City Council members, citizens and the hardworking dedicated honest employees of the City. Secondly, the thoughts in this letter are not just for myself, not just for the firm of LSL, but I believe all the other CPA firms conducting the audits of local governments. Hardworking and dedicated professionals who are passionately dedicated to abiding by professional standards and providing valuable information to the governing boards of governments throughout the country.

    Our world is ever changing and local governments are no exception. Over the recent years we have seen a significant strain on local government budgets caused by the overall economic climate and most recently with the tremendous and transparent rising costs of government pensions. Due to financial strains, budgets for local governments have been significantly trimmed. This has, among other things, resulted in reduced personnel for local government (which ultimately reduces internal controls due to lessened segregation of duties) and has required government officials to make difficult decisions on where to spend and how to cut.

    Governing Board Members and Administrators......my heart goes out to

    you! You are people who have chosen to put great efforts into government. To make a difference and serve the public. To tell you truthfully, that is why I personally have chosen the career of providing financial audits to governments and to give back to the community.

    The heart of the matter, in my opinion, is that there is disconnect between the objective of a financial audit and what governing board members are looking for in an audit. If I were to put myself in the shoes of the mayor of a city in 2016, I could tell you that, yes, I would be interested in what the fund balance is in the General Fund and how it compares to the budget. However, I would be much more interested that the City has sound internal controls and that the employees of the City are abiding by those policies. That would help me sleep at night knowing that the City is in compliance with Rules, Laws and Regulations, and that the chances of fraud are being mitigated to the extent possible.

    When the word audit or the term auditor comes to mind, there are a few things that most people think about. Most are not flattering! The vision of someone looking around at documentation, correcting mistakes, and asking penetrating questions and pointing fingers for not doing things right are certainly common.

    In actuality, in the world of accounting and auditing, there are numerous types of audits. Some examples of these are:

    Financial Audits Compliance Audits IRS Audits Internal Audits Forensic Audits

    CPA firms are often engaged to perform financial audits. The objective of which is to render an opinion regarding the material accuracy of the financial statements at the end of each year, in accordance with generally accepted accounting principles.

    The financial statements are basically a financial snapshot of the financial results at each year end. These financial statements are prepared by summarizing the amounts on the books and records

    of the City. In order to obtain assurance that the amounts on the accounting records are correct, financial auditors perform various types of test work. Some of these tests are looking at documentation, correcting mistakes, asking penetrating questions, reconciling account balances, etc.

    Before we even start testing the account balances, we look at the internal controls in place to obtain an understanding of the system of controls so that we might be able to plan the extent of our procedures on the financial statements.

    A financial audit, by its nature: Has the primary goal of issuing

    an opinion on the financial statements (whether the statements are materially correct or not),

    Requires the auditor to assess internal controls to determine extent that the financial reporting system can be relied on to correctly summarize the books and records

    Takes place, the same time every year. The audit is scheduled months in advance, because the goal is to get a timely financial statement out (that is materially correct) to bond agencies and other outside interested readers.

    As stated above, as financial auditors, like all financial auditors, our objective is to render an opinion on the year-end financial statements, and we use our assessment of internal control as a planning mechanism for our own audit. However, sound internal controls (policies and procedures) are only effective if they are being monitored by the local government and there is a culture of accountability. Bottom line, sound controls are essential, but if they are not followed and monitored, they can be rendered ineffective.

    I say all this in hopes of helping to create an understanding that what many citizens and governing board members think is an audit, is most certainly not what financial auditors are engaged to perform. I am an auditor, not a council member, but if I were a council member, I would want to know two things regarding finances:

    Number 1. What the financial

    By Richard K. Kikuchi, Partner Lance, Soll & Lunghard, LLP

  • CSMFO MAGAZINE MAY 2016

    11

    status of the organization is at any point in time and particularly year end.

    Number 2. And more importantly, are the internal controls and safeguards of the local government working and being followed?

    I personally, would be more interested in knowing that controls are in place and being monitored, the auditor being a watch dog and making sure people are doing what they should be doing. A watch dog is more aligned with activities of an internal auditor rather than a financial auditor.

    An internal auditor often does...and should:

    Be independent and work with the audit committee and staff. By creating an audit committee, this will create an opportunity for collaborative communications with the internal auditor or equivalent.

    Center their focus on policies and procedures of the local government (internal controls and safeguards). A watch dog is what governing members and citizens are looking for and that is what internal audit type work can focus on.

    Perform audits throughout the year and on a surprise basis. As financial auditors, we are usually at the local government one week in the spring and another week or two in the fall. So, only two to three weeks out of the entire year! Also, the local government knows months in advance when we are coming, it has been scheduled since there is a tight deadline to

    issue the financials after each year. To be a watch dog, it should also contain an element of surprise.

    So what are some final thoughts? Cities and other local

    governments require financial audits to make sure their records are accurate and issue financial statements for distribution to certain outside users. However, it is clear that cities and local governments need internal audit type work done throughout the year. Question, in light of tightened budgets, is this something that local governments can afford? Absolutely....they cant afford not to!

    Many CPA Firms have provided internal audit type work for local governments over the years who have been proactive and have seen the need for this watch

    dog type work. One example, which comes to mind, is a City where LSL reported directly to the audit committee. We compiled a listing of a couple of dozen internal audit type procedures that could be performed. Examples: review of journal entries, bank reconciliations, and wire transfers. The audit committee would randomly select three areas per quarter and we would test these areas and report back to the committee. These types of procedures done on a surprise basis and working directly with the audit committee is what I believe government officials are looking for!

    The City of Pasadena (a current client), is setting the ideal model for local governments. In light of the recent fraud that took place at the City, the City of Pasadena engaged LSL and has elected to:

    Spend more time and money with expanded scope audits (LSL has been asked to audit every fund of the City regardless of the dollar amount. The City made the investment of almost doubling the audit fees for the peace of mind in knowing all funds are being looked at. This resulted in feed back to the governing board of over 25 material weaknesses in the first year alone which are being addressed by management),

    Hire a separate firm to conduct internal audits,

    Hire an internal auditor employed by the City on a full-time basis.

    Audits and the term auditor mean different things to different people. With the recent occurrence at the City of Placentia, it is a call for all Local Government Officials to recognize the need for more internal audit type work!

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

  • CSMFO MAGAZINE MAY 2016

    13

    Managing the Independent Audit

    RFP ProcessMatt N. Pressey, CPA, Finance Director, City of Salinas

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

    With the May issue of CSMFO focusing on audits, this article is focused on managing the Request for Proposal (RFP) process for procuring audit services. For those who have never walked along this path, the fear of the unknown can be daunting, especially when it comes to the technical aspect of preparing a scope of service, were some of the requirements could be better written by the auditor themselves. Thankfully, the path and process from beginning to end is a well-trodden path.

    Preparing the RFPThere are plenty of good boiler plate

    RFPs found on the CSMFO website that have all of the important elements that you need: http://www.csmfo.org/resources/current-rfps

    This is a great place to start. Download a few samples, do a quick review, select the one you feel is the best and then incorporate the elements from the others that you like.

    I called a Partner of one of the firms I worked for for 8 years, who specializes in local government audits, and asked him for tips he would recommend to agencies going out for RFP. He mentioned that most of the RFPs he has seen are pretty boiler plate. He does, however, find himself asking the same questions each time and recommended that agencies include answers to these questions somewhere in the RFP package. See Tip #2 at the end of this article for a partial list of these questions.

    The answers to these questions will most likely be requested by the audit firms as part of the RFP process and the agency will typically respond to the questions in writing (Q&A) and send it out to all of the firms who responded. In a recent RFP from Feb/March 2016, the City of Monterey published a Frequently

    Asked Question supplement. The Frequently Asked Questions document can be found at this address: http://tinyurl.com/gpkq3nc

    Scope of ServiceThe boilerplate RFPs on the CSMFO website all

    have good scopes of services that cover the variety of services you may need. Aside from the main services, you should consider

    the other services you may need or want and

    include them. Other services may include a special audit of

    a Revenue Measures, TOT Agreed Upon Procedures, other specific audit requirements, other Agreed Upon Procedures, or preparation of the Financial Statements, notes, schedules, RSI, statistical in the Comprehensive Annual Financial Statements (CAFR). Most agencies have their auditors prepare the CAFR.

    the path and process from beginning to end is

    a well-trodden path.

  • CSMFO MAGAZINE MAY 2016

    15

    The most typical contract term in the industry is for three years plus two one-year extensions. A fixed maximum price will be given for each of the five years.

    The 2013 RFP for the City of San Mateo was particularly complete and included a few features that I have not seen before: http://www.cityofsanmateo.org/documentcenter/view/43690

    Issue RFPThe best way to send an RFP out is by

    email and to as many firms as you can. I searched the CSMFO website for a list of audit firms and email addresses, but did not find a list. The best way to get the list is to ask your fellow CSMFO members through the list serve to send you an email address of the contact for their firm. You will probably get close to 100 replies that same day and some will will send their email list they used (dont forget to publish your survey results for all CSMFO members to see).

    Publishing your RFP on your web site and on the CSMFO website is easy and always a good idea.

    Firms will review the RFPs and will mostly likely have additional questions. Setting a due date for the question period is a good idea so you have a cutoff and can respond timely to the email list the RFP was originally emailed out to.

    Bid Opening and EvaluationThis is the fun part. Hopefully you

    receive a good number of proposals and have a good selection to choose from. An evaluation committee can be formed with appropriate staff to help evaluate the firms. The evaluation criteria can be broken up where one committee member reviews all the firms for one or more criteria and scores them. Those evaluation criteria should be and are typically listed in the RFP.

    Most agencies evaluate firms in a two phase process. Phase I includes evaluating the proposals according to a standard set of criteria. I like to setup a selection matrix (grading card) with all of the evaluation criteria and a numeric point system that appropriately weights each scoring criteria.

    Also included in phase I is the evaluation of the price. The key to

    evaluating the price is to make sure your RFP has, not only the total cost for each of the audits (financial audit, the single audit, and any other audits) broken out, but also a matrix that shows each staff member (Partner, Manager, Supervisory Staff, Audit Staff, and other staff) and their respective hours, standard hourly rate, and total cost for each audit, as well as any other costs (out of pocket costs). This will allow you to see how many hours will be spent by the more experienced staff members and their hourly rates to compare between firms. You want to know what you are paying for. The firms are accustomed to filling out these tables.

    Firms successfully meeting the criteria in Phase I can be evaluated and invited to an interview with the evaluation committee in Phase II. You should make sure to require the firms to bring the Supervisory staff who will be running the day-to-day audit engagement. The Supervisory staff is in-charge of running and completing the audit and reports to the manager. He/She will be the main point of contact and your evaluation committee (agency staff who will work with the auditors) needs to feel comfortable with that person.

    SelectionSelecting new auditors is a big deal.

    Most all the firms are highly qualified so the selection may come down to price and personality. If price is close, select a firm based on customer service. They are there to provide you a service that you are paying for. Select the firm with the best people and the firm that treats their people good so they stay with the firm longer and are more likely will stay working on your audit longer.

    Tip #1: There is a lot of work that goes into orienting new auditors. You will need to orient them to your agency, all of the funds, and provide them with a lot of documents, which the auditors call permanent file documents. Your agency will need to pull and copy or scan all these documents that are not all in one location. It is standard in the audit industry for a predecessor audit firm to allow a new firm to review their audit workpapers, especially for getting comfortable with the beginning balances for each fund they will audit. In this digital age, you may consider

    requesting that your prior auditors provide you with a digital copy of the main permanent file documents that you provided them in the course of their years of auditing so that you can pass it on to the new auditors. This should be very easy for them since they are all located electronically in one place. This practice should be the standard in the industry but it is not. This will be a big time saver for you and the new auditors.

    Tip #2: Here are a few of the questions you may want to answer in the RFP or in a supplement to the RFP such as a Frequently Asked Questions:

    1. Has the organization changed recently?

    2. Does the organization anticipate changes in the period of audit?

    3. Were there recent changes in key personnel

    a. Managementb. Staff who work on the audit

    4. Is the City making any change in the financial system?

    5. In the most recent audita. Did the Auditor identify

    adjustments?b. Once the Trial Balances are

    provided to the Auditor, where there post-closing entries given to the auditors. If so, how many?

    6. Please provide a copy of the management letter (if not already published online).

    7. Why is the agency going out to bid?

    8. What is the agency looking for in an audit firm?

    These questions are obviously self-serving to the audit firm. If your agency typically has a clean and fast audit, then this is your chance to shine and it will require the auditors to be more competitive in their pricing. If your agency takes a little more time and work to close, that is okay to describe. The additional time the auditor may spend is just part of the cost and is worth it. The price will still be competitive.

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

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    17

    CSMFO Brings New Training Opportunities INSIDE LOOK

    SCOTT CATLETT

    If you attended the CSMFO conference in March, you may have heard about the Revenue Fundamentals pre-conference session that was very successful. Michael Coleman, as well as Paula Cone and Lloyd DeLlamas from HdL, presented to a sellout crowd. What you may not know is that this pre-conference session was the launch of CSMFOs latest core course offering Revenue Fundamentals I.

    For a number of years, CSMFO has offered both introductory and intermediate governmental accounting courses. These were supplemented later by a course in fiscal policies and long-term financial planning. Most recently, in 2012 CSMFO added a popular course on investment accounting. While the first three classes are offered 5-10 times per year throughout the state, the investment accounting offering marked a departure from that model with a more focused topic that is offered 1-2 times per year. As part of CSMFOs most recent strategic planning efforts, the CSMFO Board tasked the Career Development Committee with expanding this type of course offering. The Committees subsequent research indicated that CSMFO members have a strong appetite for a course covering government revenues, and so the Revenue Fundamentals course was born.

    In planning the pre-conference session, the Committee realized that there was too much information on government revenues to be packed into a single day course offering. The course launched at the Conference is therefore the first of two planned courses Revenue Fundamentals I and its first post-conference session is planned for San Leandro in the fall (date pending). The second course, Revenue Fundamentals II, will be launched later this year with the first session planned for Southern California in the fall. The courses are planned to alternate north to south every six months, so that members will be able to attend both courses in either Northern or Southern California in a single year.

    Both courses offer an introductory overview of local government revenues. Revenue Fundamentals I covers property tax, sales & use tax, state subventions, and other important revenues in depth. It also provides a history of the state/local fiscal relationship. Revenue Fundamentals II will cover uses fees & rate setting, property-related fees, development impact fees, benefit assessments, CFDs & other parcel taxes, and enhanced infrastructure financing districts. Each course is a single day in length, lunch is included in the cost of registration, and fees are a very reasonable $125 per person. Of particular value, attendees at the Revenue

    Fundamentals I course receive a copy of the League of California Cities Municipal Revenue Sources Handbook included with their registration fee.

    The Career Development Committee is very excited about these new course offerings. We hope that the sell-out attendance

    at the pre-conference trial run of the first course

    is a strong indication that these new courses will be as successful as CSMFOs other core courses. If you have ideas

    regarding possible future course

    additions or any other feedback related to

    CSMFOs career development efforts, please contact Scott Catlett, Career Development Committee Chair, at scatlett@yorba-linda.org. The Committee welcomes your feedback.

    Scott Catlett, City of Yorba Linda

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    the Revenue Fundamentals

    pre-conference session was very successful.

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

  • CSMFO MAGAZINE MAY 2016

    19

    Tips for Streamlining Audit Prep

    Debbie Harper, CPA, Audit Partner Lance, Soll & Lunghard, LLP

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

    As an auditor for over 15 years, a common question throughout the years has always been, How can we make the audit go smoothly? or Who is your best audit and why? There are key factors that come up every time there is a bump in the audit process. What is holding up the audit and who and when will it get done? An audit that is set up for success has a method for quickly identifying any delays and easily identifies who to contact to correct the process. This tool is not to point fingers, it is to effectively identify any obstacles so they can be addressed in an efficient manner. Even audits that deviate from the original audit plan, due to unforeseen obstacles, can be a successful audit.

    Audit Game PlanEvery successful audit has an

    accountability plan. Key players should be identified with clear expectation and goals, with hard dates for completing the expectations. These should be monitored frequently to hold key players accountable for their success and to identify problem areas in a timely manner, which will avoid surprise delays and frustration. For an audit, your plan should cover the entire process from

    meeting with departments throughout the agency that affect your general ledger preparation to financial statement presentation to the governing body.

    AccoutabilityIt is important to identify all the tasks

    needed to complete the audit and to identify an accountability person

    to monitor that task and make sure it gets completed. Ask

    your auditor for a PBC List (Prepared By Client List) well in advance. These items should be prepared and ready for the auditor upon their site visit. Many time

    these items are being prepared while the auditor

    is on-site, which delays the auditor in timely testing.

    These can be easily identified by management if monitored ahead of time. During the final exit meeting of an audit engagement, set clear goals for any pending item list. Identify who is to complete the item and provide a date for completion. Discuss and document clear steps to complete the final financial report in time for the governing board presentation.

    You can work backwards from the date of the presentation to set realistic goals.

    xx/xx/xxxx Governing board presentation

    xx/xx/xxxx Date to clerk for agenda

    xx/xx/xxxx Final partner review for release of opinion

    xx/xx/xxxx Final comments from management due for partner review

    xx/xx/xxxx 2nd Draft due for management review

    xx/xx/xxxx Review comments due from management

    xx/xx/xxxx 1st draft due for management review

    xx/xx/xxxx Manager/Partner review of financial report for management review

    xx/xx/xxxx Pending items due for financial statement preparation

    Be realistic with the dates. Dont expect to provide final pending items and receive the financial statements for review on the same date. Pending items delay the proper review process, so limiting these items is the key to a success audit. Allow for adequate review time at both the management level and auditor level. The goal is a quality report.

    This tool is not to point fingers, it is to

    effectively identify any obstacles...

  • CSMFO MAGAZINE MAY 2016

    21

    Status MeetingsSet frequent status meetings internally

    within the organization and externally with the auditor. A daily status report can be provided quickly through an email at the end of each day during the audit fieldwork. This provides timely feedback on any outstanding items requested by the auditors and status of the audit progress. A face-to-face meeting at the end of each week promotes healthy dialogue for audit progress and solutions to delays, if any.

    Proactive SolutionsYour financial report has many

    footnote disclosures about the entity that requires an annual review and updates each year. This review process can be time consuming and stressful during the end of the year, when time constraints are heightened. A proactive approach to this review can be to review the prior year financial report footnote disclosures ahead of time. Assign the footnote disclosures to the appropriate personnel with the proper expertise, such as, the Insurance footnote to the Risk Management Department.

    Add these items to your internal audit plan so they can be provided to auditors prior to financial report preparation. These items can easily be updated and addressed in the first draft provided to management for review.

    As the Director of Finance, it is important to stay involved in the progress reports from the beginning. This provides tone at the top with the entity. The audit is an important function for the entity and needs efficient and effective attention to make it a successful audit from all parties involved.

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

    The Environmental Quality Policy Committee (EQ) reviews issues related to air, water and water quality, climate change, CEQA, integrated waste management, hazardous materials, coastal issues, and utilities.

    In addition to review of proposed legislation, each Policy Committee receives relevant informational presentations. The EQ received 2016 presentations from CalRecycle, the State Water Resources Control Board, CalEPA, and the San Diego County Water Authority. Presentations covered the status of Californias waste diversion goal, CalRecycles budget challenges, emergency water conservation regulation, Cap and Trade Plan opportunities for greenhouse gas emission reductions, and an overview of the new Carlsbad Desalination Plant.

    This year, to date, the EQ has made the following recommendations:

    AB 1800 (Hadley) Utility Outage Compensation Claims: Annual Posting recommended support if amended.

    AB 2709 (Quirk) Mylar Balloons: Power Outages recommended support if amended.

    SB 1000 (Leyva) General Plan: Environmental Justice recommended oppose.

    S. 2533 (Feinstein) California Long-Term Provisions for Water Supply and Short-Term Provisions for Emergency Drought Relief Act recommended support.

    CSMFO has a long-standing partnership with the League of California Cities. As part of the Leagues Advocacy program, Policy Committees have been established by topic to review proposed legislation and make recommendations to the Leagues Board to support or oppose.

    There are eight Policy Committees: Administrative Services; Community Services; Employee Relations; Environmental Quality; Housing, Community and Economic Development; Public Safety; Revenue and Taxation; and Transportation, Communication and Public Works. Each year, the CSMFO President appoints one member to each Policy Committee. The Committees meet at least three times annually. Meetings begin with a general session briefing covering recent League efforts, state budget proposals, and other current issues. After the stage is set, the general session is adjourned to individual Policy Committee meetings. The CSMFO member of each Policy Committee serves an important role, especially as, in some cases, the only finance officer on the committee is the CSMFO appointee. It is the appointees role to provide a finance officers perspective.

    The CSMFO appointee reports to the CSMFO Board after each Policy Committee meeting, and prepares an annual report. Participation in the Policy Committees is a wonderful opportunity to see how League Advocacy works, and a great way to bring home information relevant to our agencies. If youre interested in learning more, tune into CSMFO Board meetings or contact the CSMFO appointee to the Policy Committee topic youre interested in. Appointees are listed in the CSMFO Directory each year or on the leadership contact spreadsheet on the website.

    League Policy Committee Update: Environmental Quality

    INSIDE LOOK

    Kathryn Downs, City of Carson

  • CSMFO MAGAZINE MAY 2016

    23

    CSMFO Reception at GFOA Conference

    Monday May 23, 20165:45pm 7:30pm

    CN Towers - Horizon301 Front Street W, Toronto ON

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

    The Trust FactorSpring is the season for planning,

    whether it focuses on spending time with family or pursuing our professional goals. For government agencies, its also the busiest time of the year. Management must not only prepare the next years budget, but also coordinate the audit for the current year. It can be a difficult balancing act, particularly when you look at whats on the line both financially and politically.

    The Risk of RoutineBecause municipalities are required

    by state law to be audited, the exercise frequently becomes a routine annual process. Between April and December, auditors come to your office and perform various audit procedures, obtaining sufficient evidence necessary to express their opinions concerning your financial statements.

    As government officials, no matter how much you may like your auditors, you would prefer to have the their work completed in the most efficient way possible, without adding disruption to your day-to-day operations. Thanks to the use of technology, auditors today

    enjoy an unprecedented ability to streamline the process for increased efficiency. Those advancements notwithstanding, the audit objective is to provide an independent opinion as to whether managements financial statements are accurate and fairly presented.

    Raising QuestionsThe Pun Group surveyed some 105

    cities and 14 counties across California over a 10-year period, examining each jurisdictions Comprehensive Annual Financial Report (CAFR) and performing a number of separate analyses on the data provided. One of the analyses involves reviewing the relationship between prior period adjustments due to correction of error (restatements) and the audit opinions issued.

    Interestingly, on average, about 65 cities and 8 counties reported restatements, yet received an unmodified opinion from their auditors. Experienced practitioners know that any prior period adjustments mean there are material misstatements noted in the financial statements that

    auditors were not able to identify in their procedures.

    Given that outcome, its fair to raise the question: By streamlining the audit process, are we substantially increasing the risk of leaving these material misstatements unidentified? That answer then leads one to the ultimate question: Can these financial statements be considered reliable and meet expectations from stakeholders?

    Why it MattersGovernment serves a broad cross-

    section of stakeholders, which generally fall into one of three groups:

    Taxpayers, citizens, and elected officials

    Because government revenues are generated on an involuntary basis rather than a willing exchange of values found in a typical business transaction, taxpayers and citizens have the right to know whether their jurisdictions or agencies are spending their tax dollars wisely. Correspondingly, they require assurance that their elected officials

    Kenneth Pun, The Pun Group

  • CSMFO MAGAZINE MAY 2016

    25

    prudently budget and allocate tax money to satisfy expectations regarding public safety, public works, and other community service needs. Taxpayers and citizens fully understand whether services provided by government are supported by tax revenues, thus providing them a basis for which to evaluate any new funding measures that may need to be imposed.

    Grantors and other oversight groups Government programs are often subsidized by federal, state, and other local grant funding. By providing the necessary financial support, grantors and oversight agencies have the responsibility to ensure that these programs are free of fraud, waste, abuse and other forms of mismanagement. The financial statements can provide information about the sources and programmatic uses for these funds, and effectively create the audit trail. Monitoring actual compliance with budgeted public policies can produce performance measures that promote transparency and accountability.

    Bondholders and others in the financial community

    Governments issue municipal securities to finance a wide variety of projects and generate necessary cash flows. The debt service payments may come from general revenues of the issuer, specific tax receipts, or even revenues generated from a public project. These municipal securities may be secured by letter of credit, other government guarantee, or an insurance policy. Audited financial statements are arequired part of continuous disclosures and provide bondholders with comfort and confidence regarding the

    repayment of the debt as well as the guaranteed return on their investment.

    Closing the Trust GapReliable financial statements represent

    the key to meeting stakeholder expectations. To ensure reliability and strengthen public trust, both auditors and auditees must pay close attention to detail when preparing for the audit. Im a firm believer in the philosophy of Garbage in, garbage out!

    Even though the process can be streamlined through technology,

    a good audit still requires a significant level of manual

    input. Otherwise, the process becomes robotic and the utility of the resulting information suffers. A good audit always starts with good planning - and that

    responsibility falls on the auditors, as well as the

    auditees. To ensure reliable financial statements, here are few

    guidelines to follow: 1. Understand the ordinance or

    charter and identify any unique requirements outside of those associated with a general-law city.

    2. Evaluate the Tone at the Top to ensure that the organization promotes high integrity and retains competent employees for its mission

    3. Evaluate internal controls and perform risk assessment. By understanding the risk appetite, you can deploy the necessary resources to those high-risk areas and eliminate any waste of resources.

    4. Organizations should embed design, implementation and proper internal control measures to mitigate risk.

    5. People are the key to any organization. However, agencies should ensure that information is transparent and properly communicated to the right audiences.

    6. Organizations should continuously monitor results and make necessary adjustments based on changing conditions

    7. Evaluate the user of the financial statements and put yourself in their shoes. Ask the question: If things go wrong, what are the major consequences?

    8. Identify any unique transactions that require additional attention. Invest the incremental resources needed to fully address them.

    TakeawayWithout auditors and auditees

    understanding and, more importantly, embracing proper process, the audit can become a commodity of questionable value.

    Kenneth Pun, CPA, CGMA, is Managing Partner of The Pun Group, a full-service CPA firm headquartered in Orange County, California.

    (Spring) For government

    agencies, its also the busiest time of

    the year.

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

    New webpage, same goal: Innovate to educate and develop our members

    INSIDE LOOK

    We are excited to provide a redesigned and engaging platform to connect you seamlessly, across all devices, to our www.CSMFO.org resources you need.

    Our goal was simple: Make easily accessible what matters to you most no matter what device platform you are using.

    As a membership of peers serving our peers, we endeavor to provide you with the most accurate, up-to-date information and share our collective knowledge and expertise to support innovation, education our members, and share best practices to develop our collective skills and experiences.

    What has changed?Weve enhanced our website to a

    responsive design that allows easier

    access across multiple device platforms. In addition, our pages are brighter; our homepage is more engaging and highlights key information with an uncluttered design and rotational photo format. Overall, we wanted to make the new website faster, easier to navigate, and more user-friendly.

    However, we found it useful to retain the overall structure of our website with our content divided into the same seven main sections: About CSMFO, Membership, Events, News, Careers, Resources & Professional Development.

    Why has it changed?The pages have been redesigned to

    be easy to browse and to help you get what youre looking for, with streamlined hover menus, wider pages and cleaner lines to provide engaging content.

    Were also incorporating our new style guide to provide a total structure and brand refresh. Finally, we upgraded our webpage structure to embrace a modern, responsive design.

    Our user research and website analytics, along with evaluation by subcommittees, our Technology Committee, resources from SMA, and our board has identified gaps with our current platform; ranging from limited use on multiple device platforms to overall layout and user interfaces gaps.

    During this time, our website analytics showed our members and guests were interested in training programs, in looking at job opportunities, in accessing list serve research, and in accessing their member account information. In addition, our review

    Marcus Pimentel, City of Santa Cruz

  • CSMFO MAGAZINE MAY 2016

    27

    INSIDE LOOK

    found that our former homepage was overwhelmed by too much text, that new member information was hard to find, that our overall design tended to feel cluttered and the former drop down lists were too intrusive once opened.

    Based on this information, we embarked with SMA to develop our new website that incorporates our new style guide design. Over the past several months, we have been testing new website approaches to see what works best for our users and are proud to now unveil our new website.

    What is a Responsive Design?

    Responsive web design allows the website to automatically respond to our members device screen size, platform and orientation. The practice consists of a mix of flexible grids and layouts, images and an intelligent use of CSS media queries. In other words, as you switch from a PC or laptop to any mobile or tablet device, our CSMFO website will automatically switch to accommodate for resolution, image size and scripting abilities. This eliminates the need for a different web design and development phase for each new gadget that comes on the market.

    Is anything else changing?Yes. The Technology Committee

    is embarking on a new content management system which will allow us to maintain the high standard of our information more easily, manage our list serve reference materials, while enhancing your membership benefits and ease in event registration. Although this change will occur behind the scenes, it will improve internal operations and ultimately may add new features to your membership portal.

    I cant find what Im looking for?

    If youre having problems with finding

    any content, please contact the

    CSMFO office at 877-282-9183.

    Is there a mobile version?

    Yes. All of our new

    sections are automatically

    optimized for any mobile and tablet

    platforms.

    Its for you?Were hoping what youll notice

    about our website is that soon it doesnt feel different, but rather you are more engaged and immersed than ever, getting exactly what you want, when you want it, wherever you are.

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

    STOP THIEF!Ernie Cooper, CPA/CFF, CFE, Former FBI Agent

    Fraud continues to be a prevalent issue for cities, counties, and special districts across the nation. This fraud cost can amount to thousands of dollars and in some cases disrupt operations, impact going concern, and significantly damage the municipalitys reputation among the community. And dont think it just happens to Enron-type organizationsit can happen to any organization or municipality. In my thirty-plus years of dealing with the fraud world, not only as a forensic accountant but also as an FBI Special Agent for over twenty years, I have seen first-hand many sad cases, where just an ounce of fraud prevention could have minimized and in some cases prevented these losses from ever occurring.

    While there is always the risk of being subject to fraud, there are some basic, key steps you can take to prevent and detect fraud at your municipality.

    Be Aware of the Prevalence of Fraud

    One of the best ways you can help protect your municipality is to first of all understand that fraud can happen and may even be happening at your municipality.

    According to the Association of Certified Fraud Examiners 2016 Report to the Nations on Occupational Fraud and Abuse, government organizations had a median loss to fraud of $100,000. Of governmental fraud cases, local governments were victims of 32.3% of the cases and state/provincial governments were victims of 31.3% of the cases. When ranking the percentage of cases by industry, government and public administration fraud cases came in second, only after fraud cases in the banking and financial services sector.

    Often organizations have the mentality that their auditor will catch any fraud occurring within their organization. Auditors are responsible for planning and performing an audit to obtain reasonable assurance about whether an organizations financial statements are free of material

    misstatement, which could be caused by error or fraud. As such, auditors dont always catch fraud, explained VLS Partner Rene Graves, CPA, CGFM, who specializes in audits of governmental entities. In fact, according to the Association of Certified Fraud Examiners, only 3.8% of fraud cases were initially detected by an external audit.

    Auditors can, however, help identify weakness in internal control systems and conduct forensic audits to support organizations in preventing and detecting fraud, Rene said. Be sure to discuss any concerns you have

    regarding fraud occurring within your municipality with your auditor so they can help you build your defense against it. Dont bury your head in the sand. It is real and it is happening in todays environment.

    Be Aware of Frauds Breeding Grounds

    Fraud breeds where there is a breakdown of internal controls.

    A recent scandal in the City of Placentia, which made headlines

    just this April, exemplifies this type of fraud scheme and

    how it can take place within a municipality. According to The Orange County Register, a Placentia finance official has been charged with embezzling $4.3 million from the city. The official transferred money to personal accounts, bypassing four

    accounting safeguards in the process. He also

    manipulated computer software to modify bank

    ledgers, which prevented city officials and auditors from

    noticing the true destination of the wired funds. This is a prime example of a

    municipality not consistently assessing risk and revising internal controls to protect itself against the risk, said Rene. It is the municipalitys responsibility to do this, but often they wait for their auditor to come in, gain an understanding of their systems, and then tell them where their systems are weak. By the time the auditor has done this, its too late. Municipalities need to be doing it on a pro-active and ongoing basiskeeping up with technology and electronic processing and the schemes that are out there creating risk.

    Another case that made headlines involved a former Southern California city employee being arrested in

  • CSMFO MAGAZINE MAY 2016

    29

    December 2014 on suspicion of embezzling at least $5 million from city coffers over the course of a decade, according to the Los Angeles Times. How is this possible? What happened to allow such a major fraud scheme to take place? According to published reports in newspaper articles, it appears that many opportunitiesalso known as internal control breakdownsmay have existed within the citys financial operations. This created an environment where financial irregularities can occur without detection.

    State Controller John Chiang found similar breakdowns within another Southern California city, noting the following: Among the most glaring problems was the lack of internal controls. We found [the citys] administrative and internal accounting control system to be, in effect, nonexistent, as all financial activities and transactions revolved around one individualthe former chief administrative officerwho apparently had complete control.

    According to published reports, here are just a few of the internal control issues that came to light in one citys case, which unfortunately are far too common:

    1. Excessive responsibility, control, and authority given to an employee perceived as being trustworthy

    2. Lack of written and documented policies and procedures

    3. Approval for payments of invoices without a proper purchase order, contract, or agreement

    4. Acceptance of vendor invoices lacking sufficient information

    5. Lack of segregation of duties in approving vendor invoices for payment, preparing invoice payment requests, and picking up check payments

    Keep an eye out for these types of internal control issues, remember the dangers of internal control breakdowns, and consistently and pro-actively assess risk to help protect your municipality against these common fraud schemes.

    Implement a Fraud Prevention Checklist

    The most cost-effective way to limit fraud losses is to prevent fraud from occurring in the first place. Start by implementing a Fraud Prevention Checklist to test the effectiveness of current prevention measures and to identify areas of weakness. The key questions to include in your Fraud Prevention Checklist (as developed by the Association of Certified Fraud Examiners) are as follows:

    1. Is the tone at the top a positive one of honesty

    and integrity? Does management lead by example or walk the talk? Inform, educate, and talk with your employees about the importance of basic

    core values and ethics, including transparency,

    accountability, and honesty.2. Are strong internal

    control systems in place and operating effectively? Keep an eye out for these common internal control weaknesses:

    - Lack of segregation of duties and/or no oversight

    - Inadequate cash receipts system and delayed deposits

    - Inadequate budget analysis- Bank reconciliations not

    prepared or incomplete- Cancelled checks missing or not

    reviewed by a third party- Employees with no vacations

    and very seldom out sick- Unusual or confusing adjusted

    entries- Original records not maintained,

    disorganized, or missing- Informal process for purchases,

    including conflicts of interest- Lax policy for use of the official

    credit card- Lack of computer, IT and

    electronic internal controls3. Is ongoing fraud and

    ethics training provided to all employees? Do employees understand

    what constitutes fraud? Have the costs of fraud to the municipality and everyone in it including lost profits, adverse publicity, job loss and decreased morale and productivity been made clear to employees? Do employees know where to seek advice when faced with uncertain ethical decisions, and do they believe that they can speak freely? Has a policy of zero-tolerance for fraud been communicated to employees through words and actions?

    4. Is an effective fraud reporting mechanism in place? Have employees been taught how to communicate concerns about known or potential wrongdoing? Is there an anonymous reporting channel available to employees, such as a third-party hotline? Do employees trust that they can report suspicious activity anonymously and/or confidentially and without fear of reprisal? Has it been made clear to employees that reports of suspicious activity will be promptly and thoroughly evaluated?

    5. To increase employees perception of detection, are the following proactive measures taken and publicized to employees? Is possible fraudulent conduct aggressively sought out, rather than dealt with passively? Does the municipality send the message that it actively seeks out fraudulent conduct through fraud assessment questioning by auditors? Are surprise audits performed in addition to regularly scheduled audits? Is continuous auditing software used to detect fraud and, if so, has the use of such software been made known throughout the municipality?

    6. Does the internal audit department, if one exists, have adequate resources and authority to operate effectively and without undue influence from senior management? Are they also conducting fraud risk assessments?

    just an ounce of fraud prevention could have minimized and in some cases prevented these losses from ever

    occurring

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

    7. Does the background policy for the hiring process include the following (where permitted by law)?

    - Past employment verification- Criminal and civil background

    checks- Credit checks- Drug screening- Education verification- References check

    8. Are effective human resource and management programs in place which:

    - Assist employees struggling with addictions, mental/emotional health, family or financial problems?

    - Provide an open-door policy that allows employees to speak freely about pressures, providing management the opportunity to alleviate such pressures before they become acute?

    - Assess employee morale via anonymous surveys?

    9. Do you have an oversight group responsible for implementing your anti-fraud program? Consider forming an anti-fraud group and select a chair person for the group. Each department should have input, including finance officers, human resource, general counsel, security, IT, audit committee, internal audit, etc.

    Putting these key steps in place will not only help you prevent and detect fraud within your municipality, but also arm your municipality against future fraudsters. Remember, just a few basic steps can save you from a large cost to fraud!

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    THE 57th CMTA ANNUAL

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    REACHING THE SUMMIT: CALIFORNIAS FINANCIAL FUTURE

    April 13 - 15, 2016

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    Reaching the Summit with CMTA

    Many finance officers are also city treasurers, and if you are a public treasurer in California, hopefully you are a member of the California Municipal Treasurers Association (CMTA). CMTA is a great organization, with a simple mission: To lead in promoting and enhancing the fiduciary responsibility and integrity of individuals responsible for public funds. CMTA does a wonderful job in hosting educational workshops for investments and treasury management, and often teams up with CDIAC and CSMFO in various trainings. If you or your staff have attended any of their trainings, I am sure you will agree they are top notch. If you have not, please check them out at www.cmta.org.

    So talking about trainingin mid-April I was able to join two close friends, Pamela Arends-Kings and Margaret Moggia, in Lake Tahoe at the CMTA Annual Conference. Actually, there were several people (~175) I know that were in Squaw Valley for the annual conference, many I had the privilege to see in March at the CSMFO Annual Conference. I attended the CMTA conference not just as a city treasurer, but as President of CSMFO, and I just happen to be the CMTA appointment to the League of California Cities Revenue & Taxation Policy Committee. Part of being the CMTA appointment is that I am invited to attend the CMTA Board Meeting.

    The CMTA Annual Conference is very intimate and really focuses on treasury and investing, which makes selecting a track or session very easy, especially for me. The conference kicked off with the State Treasurer John Chiang talking about many new initiatives in the Treasurers Office. I had the pleasure of sitting next to John at lunch, and one of the exciting things he talked about was the possibility of the Treasurers

    Office introducing a short/medium term pool as an investment option for local agencies through the Local Agency Investment Fund. He told me that his staff does not want him to talk about it at the luncheon, so I told him I would not tell anyone. So I have not, except that I would tell you that you should check out AB 2638 (Gatto), which is the Treasurers proposal to offer an alternative investment option offering longer maturities and higher returns.

    CMTA always has amazing speakers, like Tim Seufert, Rick Phillips, Doug Robinson, Susan Munson, Linda Patterson, Ned Connolly, Ellis Phifer, and Tim Schaefer, just to name a few! But the most interesting session occurred on Thursday at the luncheon led by Scott Johnson, partner at Macias, Gini & OConnell (MGO). The topic was Avoiding Headlines: Strategies for Mitigating Municipal Employee Fraud. The reason why this was the most interesting session is just an hour earlier the news broke about the fraud in Placentia. The speakers were not even aware of the breaking news. When the Q&A period started, there was a lot of discussion about the most recent fraud to occur at a local agency. This is what inspired me in writing this months CSMFO Presidents Message.

    On a lighter note, since I was in Lake Tahoe with my snowboard, I was able to join a few colleagues on the slopes Friday afternoon. I wont incriminate them by telling you their names, but hopefully you can see them in the picture. Also, my oldest son, who was

    on spring break, was able to join us skiing. An amazing way to end a conference, to be out on the slopes for what was a beautiful ski day in April. I will say that the best skier, lets call him Tim, did go down K2!

    A couple final thoughts on the CMTA Annual Conference. First, if you are in the field of public investing and treasury, CMTA could really use your help! CMTA is a tremendous organization, and it is because of the amazing people that are involved. CMTA is seeking out more people, like yourself, to get involved and volunteer. With that said, thank you to Rudy Livingston (Ojai) for volunteering to be President-Elect for 2017 and Tim McGallian (Concord) for volunteering to be the new North Division Chair. Way to go guys! Second, I just want to thank the following people: Pamela Arends-King for her leadership as the 2015 CMTA President, Margaret Moggia, for being the 2016 President, Lily Ng for her active participation in CMTA representing the commercial sponsors, and Michelle Durgy for getting me involved in CMTA several years ago. And finally, thank you to the whole CMTA Board for hosting me, and for Yelena Martynovskaya taking care of all the details. Adams Out!

    By John Adams, CSMFO President

  • CSMFO MAGAZINE MAY 2016

    35

    Message from CMTA

    PresidentMargaret Moggia, CPA, 2016 CMTA President and Past CSMFO Board Member

    For nearly 60 years, the California Municipal Treasurers Association (CMTA) has advanced the mission to lead and promote the fiduciary responsibility and integrity of individuals responsible for public funds.

    We do this by offering conferences, educational workshops, online training and certificate programs.

    In light of recent news, we believe it is useful to remind you to review your internal control procedures and ensure proper segregation of duties. In addition, your agency should evaluate who has security access to the banking and financial systems. We also encourage you to take some time to review best practices for cash and investment activities:

    1. Employ third-party custodians to hold securities, not broker-dealers with whom the agency effects purchases and sales.

    2. Utilize a dual approval system (requiring two approvers) for all account openings.

    3. Establish multiple levels of authorization for wires and dual signers for wire transfers, including separation between wire transfer personnel and approvers (reporting to different department heads).

    4. Create a separation between accountants who create monthly reports and CAFRS, and those approving/providing oversight (and multiple approvers), as well as those who are effecting securities purchases and sales.

    5. Employ external and internal audit team/s separate from any personnel performing tasks 2-4.

    6. Separating the asset custody from the reporting since this is a primary responsibility for an elected treasurer (and state treasurer).

    We recognize that many of you are working with a small staff and limited resources, so it may not be possible to implement all of these safeguards above to the best extent. We encourage your agency to utilize as many as you can to strengthen your agencys internal controls and guard against the possibility of future fraud and criminal activity. In addition, you already have a great resource in many of your business relationships like your auditors or banking professional that we anticipate would be available to identify appropriate safeguards and processes.

    Individuals responsible for public funds have diverse and challenging roles and we know the vast majority of us truly want to do a good job for the entities we serve. As events like this unfold, we cannot help but think about the importance of our mission.

    We ask you to join us to embrace a culture where the proper education and continual training of public stewards is a priority. The few thousand dollars a year it may cost to train elected officials, finance, accounting and treasury staff is the most crucial investment any public agency can make.

    CMTA stands by as a resource to help anyone interested in implementing a suitable training program for your agency.

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

    C S M F OCONFERENCE 2017

    SACRAMENTO

    FEBRUARY 7 - 10, 2017

    SACRAMENTO(Headquarters for CSMFO)

    HYATT REGENCY/SACRAMENTO CONVENTION CENTER

    SACRAMENTO, CALIFORNIA

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    37

    Diary of a Host Committee ChairINSIDE LOOK

    DREW CORBETT

    STORY BY DREW CORBETT

    As President-Elect and Host Committee Chair Drew Corbett works on preparations for the 2017 Annual Conference in Sacramento, he thought it would be fun to give the membership a glimpse into the process of putting the conference together. Each month, Drew will provide a running commentary on some of the work that goes into conference preparations.

    March 17-20, 2016: Continued to have email exchanges with Melissa, Janet, and Teri to exchange ideas, coordinate timelines, and lay the foundation for the Host Committees work, which will be ramping up soon. The four of us are set to meet with representatives from the Hyatt and the Sacramento Convention and Visitors Bureau on April 7th and then will have some members of the Host Committee (those tasked with planning the Thursday night event) join us for a site tour of the hotel, the convention center, and a few other locations in close proximity. This will give the members planning the Thursday night event an idea of what they have to work with for that night. Speaking of the Thursday night event, the ideas are already flying around, and they are good! Im not going to give anything away right now, but based on whats been brought up so far, the Host Committee is going put together a phenomenal event.

    Ive also had some email exchanges with Viki Copeland, chair of the Program Committee. Coordination between the Host and Program Committees is essential because so much of what each committee does has some overlap with the other. As such, it is really important that were on the same page about who is responsible for what and how we can best work together most efficiently and effectively. This is especially important during this planning cycle because the 2016 conference in Anaheim was a little later than usual and the 2017 conference is a little earlier than usual (February 7-10, 2017mark your calendars!!!). With about a month less than usual to pull everything together theres no time for duplicating efforts, and to that

    end, Viki and I are set to have a phone meeting, along with a few others, to get coordinated.

    March 25, 2016: David Cain, who is a member of the Host Committee, joined me on a conference call with Viki and Ronnie Campbell (Vice Chair of Program Committee) to discuss joint efforts between our two committees, with a focus on keynote and general session speakers. For those of you who have attended previous conferences, you know the caliber of keynote and general session speakers that we bring in to speak. Finding the right person for the keynotes and general sessions factors in a lot of different considerations with the intent of getting someone who will entertain, engage, and enlighten, all within the context of providing some linkage to us professionally. Thats a tall order and requires a lot of background work from both committees to ensure the right fit. The meeting itself went well, and we all left with a good understanding of next steps and are excited to start searching for our speakers.

    April 7, 2016: I drove to Sacramento for our first site visit. I met Melissa, Janet, and Teri at 11:30, and our first order of business was a lunch meeting with a representative from the Hyatt Regency and a representative from the Sacramento Convention and Visitors Bureau. Meetings like these remind me of how glad I am that we have SMA

    and M&AMS working on CSMFOs behalf. The level of detail and precision required to pull an event like the annual conference off is hard to comprehend. A number of issues to resolve came out of the meeting, but nothing insurmountable, especially with the folks we have on the case. After lunch we took a quick tour of our conference space at the hotel and convention center, and then we met up with members of the Host Committee who are working on planning the Thursday night event. At that point we did another quick look at the facilities that we have available at the hotel and convention center at our disposal for Thursday night, and then we left for a walking tour of a few offsite venues that could possibly be utilized for that event as well. As a side note, one of the great things about our location in Sacramento is that there is so much within a short walk of the conference hotel and

    convention center. It opens up so many opportunities for the

    Thursday night event, as well as the free night on Wednesday when many of the vendor receptions are held. There are lots of great restaurants within close proximity of

    the conference, so youll have plenty to choose from

    while you are there.After we finished the walking

    tour, we retreated to a conference room at the hotel to begin discussing ideas for the event. A lot of great ideas were brought up and the group left with some good direction about the event. More to come on that in future diaries as plans start to get firmed up, but needless to say, I am very excited about what the group has come up with so far for Thursday night. At about 4:00, we left the hotel to take a look at another few restaurants, but not for the Thursday night event. With plenty of overlap between the Thursday night event sub-committee and the Presidents Dinner sub-committee, we took the opportunity

    I am very excited about what the group has

    come up with so far for Thursday night.

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

    to check out a few potential options for the Presidents Dinner as well, including doing some impromptu tasting at the Empress Tavern. We wrapped up around 6:45 that evening and headed on our way energized from the day.

    April 8, 2016: After the busy and productive site visit, I started some email exchanges with Joan Michaels Aguilar, lead of the Thursday night event sub-committee, and Pamela Arends-King, lead of the Presidents Dinner sub-committee to discuss next steps and coordinate the best way for the sub-committees to move forward on the planning. With everyone in different locations, and of course, with regular day jobs, coordinating schedules can be tough. So with that, making the best of everyones time will be an important aspect of the Host Committee experience.

    April 8-14, 2016: Continued to exchange emails with Melissa, Janet, and other members of the Host Committee to discuss various conference-related topics, but predominantly focused on the planning for the Thursday night event and the Presidents Dinner. Based on a discussion I had with Janet while in Sacramento, I also worked on some adjustments to the conference scholarship policy to clarify logistical arrangements and expectations for scholarship recipients. You may not be aware of this, but CSMFO budgets to provide scholarships to potential conference attendees who meet the eligibility criteria and can demonstrate financial hardship that would otherwise prevent them from attending the conference. Its a great program and a great opportunity for our members to experience the conference, and (like most things) each year our experience provides us with ideas to improve the program and ease the administration of it. Im hoping to firm up my proposed adjustments soon so I can take it to the Board of Directors for consideration at one of our upcoming monthly meetings.

  • CSMFO MAGAZINE MAY 2016

    39

    Finance Director, ProthmanSalary Range: $100,484 - $148,499/yearApplication Deadline: Open Until Filled

    Finance Analyst, City of Monterey - Finance Dept.Salary Range: $73,104 - $88,872/yearApplication Deadline: 05/30/2016

    Controller, Oakland Housing AuthoritySalary Range: 9330 - 10819/monthyApplication Deadline: Open Until Filled

    Finance Operations Supervisor, MonroviaSalary Range: $73,105 - $97,969/yearApplication Deadline: 05/17/16

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    Finance Director, City of La Quinta, CASalary Range: 118,352 - $147,940Application Deadline: 05/30/2016

    Accountant, City of ParamountSalary Range: $25.80 - $31.35/hourlyApplication Deadline: 05/26/2016

    Accountant I, LancasterSalary Range: $4,605 - $6,194/monthlyPlus: 401(a) payment equal to 3%Application Deadline: 5/27/2016

    Audit Program Manager, Santa Clara Valley Transportation AuthoritySalary Range: 106,78 -140,950/year Application Deadline: Continuous

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    Administrative Analyst-Fiscal Operations, City of SacramentoSalary Range: $67,038 - $87,984/yearApplication Deadline: 5/13/2016

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    Accountant, City of Huntington BeachSalary Range: $5,513 - $6,829 MonthlyApplication Deadline: 5/10/2016

    Accounting/Compliance Manager, Orange County Treasurer-Tax CollectorSalary Range: $75,000-$134,000/yearApplication Deadline: Open Until Filled

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    Administrative Services Director, Ralph Andersen & AssociatesSalary Range: Up to $101,376/yearApplication Deadline: 05/20/2016

    JOB OPPORTUNITIES

    CAREERS

  • CSMFO.ORGCSMFO MAGAZINE MAY 2016

    www.csmfo.org 877.282.9183