Internal Audit: Sonoma County. Sonoma County Permanent Road Divisions. Auditor Controller Treasurer Tax Collector. For the Period Ended June 30, 2013

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1 Auditor Controller Treasurer Tax Collector Internal Audit Sonoma County For the Period Ended June 30, 2013 Report Date: August 4, 2014 Audit Chief: Kanchan K. Charan, CPA, CGMA Audit Supervisor: Damian Gonshorowski, CPA, CGMA Auditor: Carmela Boudreaux

2 Table of Contents Audit No For the Period Ended June 30, 2013 Executive Summary 1 Introduction and Background 2 Objectives and Scope 4 Procedures 5 Results 6

3 Executive Summary The Internal Audit division of the Sonoma County Auditor Controller Treasurer Tax Collector s Office (ACTTC) has completed an audit of the (Divisions). The objective of the audit was to evaluate the Divisions internal controls over revenues, disbursements, and compliance with the reporting requirements of the State Controller. The Divisions limited financial transactions and the segregation of functions, between the ACTTC Property Tax Division, the Department of Transportation and Public Works (DTPW) Accounting section and the ACTTC Client Accounting Division, significantly reduce the risk of errors and irregularities. The Divisions internal controls over the areas mentioned above are adequate to provide management reasonable assurance that transactions are executed as authorized and recorded in a timely manner. The Divisions complied with the reporting requirements of the State Controller. The Divisions had a combined fund balance of $171K as of the end of FY12 13, and annual revenues and expenditures of $23K and $9K, respectively, for the period then ended. The Divisions management intends to use the fund balance to cover future operating expenses. No portion of the fund balance is set aside for any major improvement. Page 1

4 Introduction and Background Introduction We have completed the audit of the Divisions for the period July 1, 2012 through June 30, We conducted our audit in accordance with the International Standards for the Professional Practice of Internal Auditing (Standards). These Standards require that we identify, analyze, evaluate, and document sufficient information and evidence to achieve our audit objectives. We believe that the evidence obtained provides a reasonable basis for the results, observations, and recommendations contained in our report. The purpose of this audit report is to furnish management independent and objective analyses, recommendations, and other information concerning the activities reviewed. The audit report is a tool to help management identify and implement improvements. We appreciate the courtesy and cooperation extended to us by the Divisions management and staff. Background The Divisions were formed by a petition to the Sonoma County Board of Supervisors under the California Street and Highways Code, Section : Name of the Division: Resolution # Resolution Date Bittner Lane Permanent Road Mill Creek Lane Permanent Road Mirabel Heights Permanent Road Monte Rosa Permanent Road # Peaks Pike Permanent Road The Divisions are governed by the Board of Supervisors and managed by the Department of Transportation and Public Works (DTPW). The purpose of the Divisions is to provide maintenance on non county roads in private subdivisions. Property taxes and voluntary assessments fund the Divisions. DTPW s Maintenance Division performs the road maintenance required of the Divisions. Maintenance work on the roads is done on an as needed basis and is subject to the availability of funds. As a result, expenditures of the Divisions can fluctuate significantly between periods. Page 2

5 Introduction and Background The Divisions do not directly employ any staff. The DTPW s Maintenance and Administrative Services and the ACTTC s Client Accounting Division perform road maintenance and accounting functions respectively for the Divisions. All staff costs incurred to provide these services is reimbursed to DTPW and the ACTTC. Per Article XIIIB of the State Constitution, also known as the Gann Initiative, the Divisions are subject to annual appropriation limits based on inflation and population growth as determined by the State Department of Finance. Annually, the County Board of Supervisors adopts the appropriation limits. Each of the Divisions is required to file annual financial reports with the State Controller demonstrating compliance with the spending limits. Page 3

6 Objectives and Scope Objectives The objective of this audit was to determine if the Divisions internal controls are adequate and functioning properly to: 1. Ensure that revenues from taxes and interest are accounted for properly and on a timely basis 2. Ensure proper accounting of cash disbursements from accounts payable and internal billings 3. Ensure that annual reports to the State Controller s office are accurate and submitted in a timely manner Scope The audit covered the period July 1, 2012 through June 30, The scope of our work included but was not limited to the following: o A preliminary survey to update our knowledge of the operating environment; identify changes in laws and regulations, systems, personnel and organization structure o A risk analysis to identify significant risks of non compliance with policies, procedures or laws, loss or misuse of assets and inefficiencies in processes o A review and evaluation of internal controls designed to ensure compliance with the above requirements and to adequately reduce the risks identified Our audit included inquiry, observation, and testing for assessing the Divisions controls over its revenues and disbursements, and reports to the State Controller s office. Page 4

7 Procedures We performed the procedures outlined below to achieve our audit objectives: 1. Confirmed that as part of the external audit of the County s financial statements, internal controls over the calculations and apportionment of property tax and interest was performed and no exceptions were noted. 2. Compared current year actual expenditures to budget and then to prior year actual and investigated material variances. 3. For a sample of expenditures, determined if they were properly authorized, correctly coded, recorded in the correct period, and properly supported by invoices, contacts, etc. 4. Reviewed expenditure transactions recorded in periods three months subsequent to the fiscal year end to identify unrecorded liabilities. 5. Obtained copies of all financial reports sent to the State and agreed amounts reported to FAMIS. 6. Reviewed State reports for supervisory approval. Page 5

8 Results Objective #1: Ensure that revenues from taxes and interest are accounted for properly and on a timely basis We confirmed that internal controls over the apportionment of interest and property taxes were performed by external auditors and that no exceptions were noted. We conclude that the Divisions property tax and interest revenues were recorded accurately and timely. Objective #2: Ensure proper accounting of cash disbursements from accounts payable and internal billings We reviewed the internal control procedures over cash disbursements and internal charges and tested a sample of transactions. We noted no exceptions. We conclude that the Divisions expenditure transactions for the audit period were properly accounted. Objective #3: Ensure that annual reports to the State Controller s office are accurate and submitted in a timely manner We reconciled the financial statements and the appropriation limit reports the Divisions filed with the State to the County s financial accounting system (FAMIS) and noted no exceptions. Sonoma County Lighting Districts Audit No: 3260 Page 6