ANNUAL REPORT INSIDE. Office of the City Auditor FISCAL YEAR Message from the City Auditor

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1 INSIDE Budget ANNUAL REPORT Office of the City Auditor Our Mission: Promoting Accountability and Integrity in City Operations FISCAL YEAR 2011 Who Audits the Auditors? Professional Development Presentations and Other Activities Leadership Community Involvement Teamwork International Interest Continuous Learning Attestation Engagements Performance Audits Preventing, Detecting and Reporting Fraud Integrity Connection Quality of Work Life Survey Organizational Independence Message from the City Auditor Fiscal year 2011 (FY11) was a period of continued productivity for the Office of the City Auditor. We appreciate the Audit Committee, City Council and City Management for their strong support of our Office s function. In FY11, we released nine audit reports. A summary of each report is included. In addition, city departments agreed and committed to implementation of 100% of our FY11 audit recommendations. In FY11, our office underwent our first peer review since I have been at the helm. The peer review team provided us with a fully compliant audit opinion stating the staff members of the Office of the City Auditor have achieved an impressive level of competency in the performance of the audits. We look forward to continuing to work with City Council and management to find ways to strengthen public accountability, improve the efficiency of City operations, reduce costs, increase revenues and provide information to facilitate decision-making. Sincerely, S. City Auditor

2 Budget: Stretching the Dollar and Maximizing Resources For a city the size of Virginia Beach, we are a small audit department with a total budget of $601,776. Salary and fringes for the department make up 96% of our budget for six full-time employees (FTEs). In FY11, we completed nine attestation engagements and performance audits resulting in improved financial and management controls, processes, contract performance, system efficiency and quality of services. Our office is also responsible for managing the state mandated fraud hotline that is open and marketed to employees and citizens. We manage the City s annual external audit contract that is also mandated by the state. We advise departments on various issues or questions and oversee federal and state auditors when City programs are audited. To maximize our resources, the Office of the City Auditor continues to utilize audit recovery firms to provide a broad range of audit coverage. In FY11, we continued to utilize Healthcare Horizons to review the City and School healthcare claims. We also have engaged BC Compliance to perform a review of all of the City s lease agreements. These firms work on a contingency basis at no cost to the City. The Office of the City Auditor was very fortunate to have two volunteers and an intern that assisted in administrative tasks and support for audits. Our volunteers were very experienced and brought a wealth of knowledge to our office. Our volunteers and interns were invaluable resources that increased our manpower and productivity. Our total budget: $601,766 96% is for our six full-time employees Per Capita: We have one auditor for every 86,715 citizens of Virginia Beach One of the lowest staffing levels compared to other localities Who Audits the Auditors? The Office of the City Auditor underwent an external peer review in October A peer review provides reasonable assurance that an audit organization is complying with professional auditing standards. It determines whether the audit organization s internal quality control system is adequate and the audit organization is in compliance with its quality control policies and procedures. The review team found that the Virginia Beach Office of the City Auditor excelled in two areas: Under the leadership of the City Auditor [ S. ], the staff members of the Office of the City Auditor have achieved an impressive level of competency in the performance of the audits. Recent conversion to automated audit work papers has improved consistency with all aspects of the audit projects. Interning with the Office of the City Auditor was a memorable way of learning about the internal complexities of city government. It was a joy working closely with incredibly hardworking people. Thank you for the opportunity! Melissa Delima Norfolk State University The review also found that the office s internal quality control system was suitably designed and operating effectively to provide reasonable assurance of compliance with Government Auditing Standards for audits and attestation engagements during the period July 1, 2009 through June 30, Visit to view the entire External Quality Review Report Our next peer review is scheduled to be in 2013.

3 Professional Development The professional audit staff of the Office of the City Auditor has extensive knowledge of auditing methods and techniques. The certifications and graduate degrees are listed on the right. To stay abreast of best business practices within the auditing profession, our auditors are members of the following organizations: Association of Certified Fraud Examiners (ACFE) Association of Local Government Auditors (ALGA) Institute of Internal Auditors (IIA) Tidewater Chapter of the Institute of Internal Auditors (IIA - TC) Virginia ACL Users Group Virginia Local Government Auditors Association (VLGAA) Virginia Society of Certified Public Accountants (VSCPA) Tidewater Chapter of Virginia Society of Certified Public Accountants Presentations and Other Activities National Reading Month at Birdneck Elementary Certifications and Degrees Held by City of Virginia Beach s Office of the City Auditor Number Held Certified Public Accountant (CPA) 2 Certified Internal Auditor (CIA) 2 Certified Internal Controls Auditor (CICA) 2 Masters Counseling of Psychology 1 Bachelor of Science - Business Administration 1 Bachelor of Science - Accounting 3 Bachelor of Arts - Business Administration 1 Bachelor of Arts - History 1 IIA Tidewater Chapter President, Gretchen Hudome with Jody Clark at the registration table during the 2010 IIA District Conference. VLGAA Fall Conference - Show me the Money! How to Effectively use Cost Recovery Firms to help Augment your Audit Plan Integrity Connection for Members Department Leadership Meeting - Fraud, Waste and Abuse Professional Development Conference Speaker at Association of Government Auditors - Virginia Peninsula and Richmond Chapters - Data Privacy: How Private is it? IIA Seminar for Certified Internal Auditor Certificate Program - George Mason University - Online Instructor Association of Government Accountants (AGA) VA Peninsula Chapter and the American Society of Military Comptrollers (ASMC) - Show me the Money! How to Effectively use Cost Recovery Firms to help Augment your Audit Plan Budget/CIP Open House at the Virginia Beach Convention Center Audit Team Leader of City of Chesapeake Peer Review ODU MAAC Club - Characteristics of Effective Leaders Sharon Hayes Sharon Hayes Chris Ford Gretchen Hudome, City Auditor, with Al Albowich at the Budget and Capital Improvement Project Open House at the Virginia Beach Convention Center. Leadership Institute of Internal Auditors Tidewater Chapter President Virginia Local Government Auditors Association (VLGAA) President Tidewater Community College Advisory Committee for Accounting Community Involvement Gretchen Hudome United Way Stumpy Lake March of Dimes March for Babies Walk 5K at the Oceanfront Walk Like MADD Event at Mount Trashmore City of Virginia Beach Intern Networking Event United Way Day of Caring at Creeds Elementary School and Hope Haven JT Walk for Lou Gehrig s Disease Ground Breaking Ceremony for Operation Smile Ribbon Cutting Ceremony for Cracker Barrel Stumpy Lake Natural Area Overlook Ribbon Cutting Official for a Day City-wide Student Cooperative Association Shamrock Marathon Volunteer

4 The City s organizational values define our desired organizational culture. The Office of the City Auditor supports the City s value of teamwork which fosters collaborative decision-making. Our Office participated in various City committees and teams during FY11. Department Communication Representatives Team (DCRT) Department Leadership Team (DLM) ECRM - Enterprise Content and Records Management Employee United Way Campaign Ethics Taskforce Committee HIPAA Steering Committee Teamwork InSITE Financial User Group InSITE Purchasing Users Member Advisory Committee Managers Technology Symposium Pagemasters Group Wellness Ambassadors International Interest, City Auditor, met with Dr. Yutaka Suzuki from Japan in Washington D.C. They discussed current activities of the ALGA, methods for peer review, contents of internal audits for the City of Virginia Beach, status of single audits and issues, status of internal controls in place, status of compilation of SEA reports, processes and manuals for compiling financial statements, status of international harmonization in accounting standards (e.g. IFRS) and status and methods of program evaluations. Dr. Suzuki is a Professor and Head of Research Section at the Aoyama Gakuin University Graduate School, member of the Committee on Policy Evaluation under the Ministry of Internal Affairs and Communication (MIC), and chairman of the Task Force on Local Public Corporation Accounting Systems in Minami Aoyama, Minato-ku, and Tokyo, Japan. Dr. Suzuki has published in Japanese: The Analysis of Japan s Government Accounting towards the Reform of Special Accounting System, The Standards and Procedures for Public Financial Auditing and Tax and Accounting Laws. Dr. Suzuki s recent publications include: Report: Audit Standard Structure of National and Local Governments and Public Audit Standards for National and Local Government and for the Public Sector. Continuous Learning Government Auditing Standards require auditors to obtain 80 hours of continuing education every two years. Auditors must obtain at least 20 hours in each year. To ensure auditors remain current on issues affecting the audit environment, auditors attended the following conferences and seminars: 2010 ACFE and IIA - Fraud Prevention and Detection Workshop 2010 ACFE - 21 st Annual Fraud Conference & Exhibition 2010 ACFE - Hiding in Silos - Leveraging Disparate Data to Detect and Prevent Fraud 2010 ACFE - Webinar - Leveraging Data to Detect Fraud 2010 Cherry, Bekaert and Holland (CBH) Lunch and Learn 2010 IIA - Conference - Construction Activity: Audit Strategies 2010 IIA - Webinar - An Effective Framework for Continuous Audits 2010 IIA - Detecting and Preventing Travel and Entertainment and P-Card Fraud Using Data Mining 2010 IIA - Mid-Atlantic District 1 Conference 2010 IIA - Webinar - Improving Operational Performance: Preventing and Detecting Fraud, Waste and Abuse 2010 IIA - Webinar - Transforming an Audit Function to World Class 2010 Integrity Connection for Leaders 2010 NASACT - Webinar - Government Auditing Standards: 2010 Revisions 2010 NASCAT - Audit Evidence and Documentation 2010 VLGAA - Fall Conference Come Out of Your Comfort Zone 2011 ACFE - Developing a Fraud Risk Management Program for Your Organization 2011 ALGA National Conference 2011 Annual Williamsburg Fraud Conference 2011 CBH - Governmental Accounting and Auditing Update 2011 EEO - Workplace Harassment for Leaders 2011 IIA - Tidewater Annual Tax Update 2011 IIA - Tidewater Chapter - Annual Williamsburg Fraud Conference 2011 IIA - Tidewater Chapter and AGA Peninsula Chapters - Communicating with Mass Media 2011 IIA - Tidewater IT Day 2011 IIA - Webinar - 10 Imperatives for Change: Key Insights from the IIA s Global Internal Audit Survey 2011 PSDT - Conference - Becoming Leaders of Tomorrow 2011 VBGOV Power User Training 2011 VLGAA - Annual Conference - Racing towards Audit Excellence City Auditor,, with Dr. Y. Suzuki 2011 Webinar - An Ideal Alliance - Audit Partnering with the Business to Identify Risk

5 Attestation Engagements In an attestation engagement, auditors will issue an examination, review, or agreed-upon procedures report on a subject matter, or an assertion about a subject matter that is the responsibility of another party. The following attestation engagements were performed during FY11: Western Bayside Area Grant Examined financial expenditures related to the Western Bayside Area Grant awarded to Enoch Baptist Church for the summer camp program serving Bayside Area youth. Oceanfront Lifeguard Services Performed agreed upon procedures to ensure that Virginia Beach Lifesaving Services is in compliance with terms specified in the Lifeguard Services contract. Stumpy Lake Golf Course Lease Compliance Verified compliance with the lease between the City of Virginia Beach (lessor) and Stumpy Lake Golf Course Inc. (lessee). CIP Project - Witchduck Phase I Verified that the City s contract payments for the design and construction phases of the Witchduck Phase I roadway project are being made in compliance with the contract terms; that federal and state revenue is being properly accounted for and that the project is complying with all American Recovery and Reinvestment Act (ARRA) reporting requirements. Striving for Excellence Report Assisted the committee responsible for gathering, complying and editing the departmental submissions for the widely-distributed Striving for Excellence Report by reviewing the submissions for fiscal reasonableness. Performance Audits These audits are intended to assess the quality of performance by City agencies in carrying out their assigned responsibilities. Performance audits completed during FY11 include: American Recovery Reinvestment Act (ARRA) Conducted an examination of the City s American Recovery and Reinvestment Act (ARRA) expenditures for supporting documentation, applicability of the expenditure to the purposes of the ARRA grant and agreement of expenditure amounts of the supporting documentation with the City s InSITE financial system. Department of Human Services: Access to Information Systems Part II Determined whether Human Services employee access and use of information through the Virginia Department of Social Services system, referred to as SPIDeR, was reasonable and in compliance with guidelines established for the uses of client information. Focused on the Financial Assistance and Adult and Family Services Divisions. Police Property and Evidence Unit Cash Handling Reviewed the cash handling processes in the Police Property and Evidence Unit to ensure cash seized and/or found was appropriately recorded and inventoried. City-wide Overtime Determined if the City was utilizing and managing overtime in a cost effective manner. Preventing, Detecting and Reporting Fraud From time to time, every organization experiences employee dishonesty, theft or fraud; the City of Virginia Beach is no exception. When these cases occur, they must be handled carefully and expeditiously. Reputations of employees and the City are at stake and in instances where criminal charges may be brought, a sufficient gathering of evidence must take place to support any actions. The Fraud, Waste and Abuse Prevention and Detection program, coordinated by the Office of the City Auditor, employs a strategic approach to align the City s organizational values and ethics with performance. The key objectives of the program are: Prevention - reduce the risk of fraud Detection - discover fraud when it occurs Reporting - provide multiple ways of reporting allegations Investigation - have a process to conduct prompt investigation. During FY11, the Office of the City Auditor received 36 allegations involving theft, misuse of city resources, intentional and unintentional waste and abuse of employee s position. Out of the 24 completed investigations, 11 were substantiated as involving fraud, waste or abuse. Investigations which were not completed are either on-going or have been referred to outside agencies. Integrity Connection The Office of the City Auditor coordinates the City s Integrity Connection initiative that promotes our Organizational Values and Code of Ethics by providing awareness tools and encouraging integrity throughout the organization. Integrity Connection includes many aspects: the Fraud, Waste and Abuse Hotline; prevention and reporting; whistleblower protection; marketing campaigns; and mandatory training for the entire workforce. Part of the initiative s goal is to provide Ethics training for employees. The training consists of classes for leaders and members. To date, 4,606 members have received the training that was conducted by 25 in-house instructors. The Office of the City Auditor is responsible for certifying the instructors. In FY11, we certified 2 new instructors.

6 Contact Us, CPA, CIA City Auditor Chris Ford, CPA Deputy City Auditor Gretchen Hudome, CIA Deputy City Auditor Sharon Hayes, CICA Senior Auditor Timothy Bell, CICA Senior Auditor Jody Clark, APS Executive Assistant City of Virginia Beach Office of the City Auditor 2401 Courthouse Drive Municipal Center, Building 1 Virginia Beach, VA Direct: Fax: Quality of Work Life Survey 2010 Citywide OCA Work Environment Training & Development Recognition Communication Leadership Conducted by: Your Market Research, LLC The City member survey on Quality of Work Life was created to provide perspective to management regarding work environment, training and development, recognition, communication and leadership in their department with anonymous feedback results. The scores of the Office of City Auditor (OCA) denote positive feedback. Organizational Independence Terms are three years and members may be reappointed by City Council. City Auditor reports directly to City Council through the Audit Committee. Two members are nonvoting City Council Members: Council Member Jim Wood and Council Member John Uhrin. Three are voting citizens appointed by City Council: Stanwood Dickman, CPA, Chairperson JoAnn Augone, CPA Dr. Douglas Ziegenfuss, CPA Fraud, Waste and Abuse Hotline Callers may remain anonymous. Caller ID and call back features have been disabled to maintain confidentiality.