Fiscal Sustainability: Financial Condition and Transparency Follow-up Report

Transcription

1 Fiscal Sustainability: Financial Condition and Transparency Follow-up Report June 2015 Office of the Auditor Audit Services Division City and County of Denver Dennis J. Gallagher Auditor

2 The Auditor of the City and County of Denver is independently elected by the citizens of Denver. He is responsible for examining and evaluating the operations of City agencies for the purpose of ensuring the proper and efficient use of City resources and providing other audit services and information to City Council, the Mayor and the public to improve all aspects of Denver s government. He also chairs the City s Audit Committee. The Audit Committee is chaired by the Auditor and consists of seven members. The Audit Committee assists the Auditor in his oversight responsibilities of the integrity of the City s finances and operations, including the integrity of the City s financial statements. The Audit Committee is structured in a manner that ensures the independent oversight of City operations, thereby enhancing citizen confidence and avoiding any appearance of a conflict of interest. Audit Committee Dennis Gallagher, Chair Maurice Goodgaine Leslie Mitchell Rudolfo Payan Robert Bishop Jeffrey Hart Timothy O Brien, Vice-Chair Audit Management Kip Memmott, Director, MA, CGAP, CRMA John Carlson, Deputy Director, JD, MBA, CIA, CGAP, CRMA Audit Staff Marcus Garrett, Audit Supervisor, CIA, CGAP, CRMA You can obtain copies of this report by contacting us at: Office of the Auditor 201 West Colfax Avenue, Department 705 Denver CO, (720) Fax (720) Or download and view an electronic copy by visiting our website at: Report number A

3 City and County of Denver 201 West Colfax Avenue, Department 705 Denver, Colorado FAX Dennis J. Gallagher Auditor June 15, 2015 Cary Kennedy, Deputy Mayor, Chief Financial Officer Department of Finance City and County of Denver Re: Audit Follow-Up Report Dear Ms. Kennedy: In keeping with professional auditing standards and the Audit Services Division s policy, as authorized by D.R.M.C , our Division has a responsibility to monitor and follow-up on audit recommendations to ensure audit findings are being addressed and to aid us in planning future audits. This report is to inform you that we have completed our follow-up effort for the Fiscal Sustainability: Financial Condition and Transparency audit issued December Our review determined that the Department has made significant efforts to implement all seven of the recommendations made in the audit report. Due to the evolving nature of financial condition, our Division may revisit various financial indicators in future audits to ensure appropriate and timely action is taken by the City. For your reference, this report includes a Highlights page that provides background and summary information on the original audit and the completed follow-up effort. Following the Highlights page is a detailed implementation status update for each recommendation. This concludes audit follow-up work related to this audit. I would like to express our sincere appreciation to you and to Department personnel who assisted us throughout the audit and follow-up process. If you have any questions, please feel free to contact me at or Marcus Garrett, Internal Audit Supervisor, at Sincerely, KRM/mg Kip Memmott, MA, CGAP, CRMA Director of Audit Services cc: Honorable Michael Hancock, Mayor Honorable Members of City Council Members of Audit Committee Ms. Janice Sinden, Chief of Staff To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

4 Mr. David P. Edinger, Chief Performance Officer Ms. Beth Machann, Controller Mr. Scott Martinez, City Attorney Ms. Janna Young, City Council Executive Staff Director Mr. L. Michael Henry, Executive Director, Board of Ethics Mr. Brendan Hanlon, Budget Director To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

5 City and County of Denver Office of the Auditor Audit Services Division REPORT HIGHLIGHTS Fiscal Sustainability: Financial Condition and Transparency Follow-up Report: June 2015 The Department of Finance has made efforts to implement all seven recommendations made in the December 2013 audit report and is identifying efforts for continuous improvement. Background The Department of Finance is responsible for the City s financial management, including collecting revenues and other funds, tracking and accounting for City funds, and creating the City Budget. The Department of Finance is led by the Chief Financial Officer. Key components of the Department include the Treasury Division, the Controller s Office, and the Budget and Management Office. Purpose This audit report contains the results of two audit objectives: to assess the City s current financial condition; and to assess the degree to which financial information is publicly reported in comparison to leading practice. The financial condition assessment included a review of thirteen financial condition indicators, such as revenues, liquidity, solvency, capital assets, debt management, expenditures, and post-employment benefits such as pensions. Highlights from Original Audit In December 31, 2012, Denver s overall financial condition was promising. For example, since 2009, the City s ability to handle unforeseen resource needs over the short-term trended upward. Moreover, since 2009, the City had reduced reliance on general revenues (primarily taxes) and increased the self-sufficiency of basic government services. While Denver s current financial outlook is promising, the audit identified several less favorable indicators of financial condition which warranted further analysis. These included primary government debt burden per resident, the sufficiency of Denver s Enterprise Funds resources to repay debt, and the City s maintenance of capital assets. These indicators are intended to provide a snapshot of potential financial concerns so the City s leadership can conduct further assessment and implement appropriate and timely responses. The audit also found that, while the City has increased transparency and accessibility of financial information through its reports and website, more could be done to enhance transparency for its various stakeholders by adopting recently articulated leading practices in financial reporting. Findings at Follow-up The Department of Finance has made efforts to implement all seven recommendations. This has included updating the City s Debt and Investment Policies; collaborating with students from the University of Denver; and working in conjunction with Technology Services to continue to provide citizens with improved transparency and access to financial information on Transparent Denver. For a complete copy of this report, visit Audit Contact Person: Marcus Garrett Marcus.Garrett@denvergov.org

6 Recommendations: Status of Implementation Recommendation Auditee Action Status Finding 1: Denver s Financial Condition Is Promising but There Are Some Key Unfavorable Financial Indicators That Warrant Additional Attention 1.1 The Chief Financial Officer should perform a more detailed analysis of the unfavorable trends identified in our financial condition analysis to determine why the financial condition ratios exhibit weak financial performance and what policy decisions can be made to mitigate the weaknesses. 1.2 The Chief Financial Officer should develop and implement a methodology including trending and benchmarking to periodically analyze financial ratios and determine the City s ongoing financial condition. 1.3 The Chief Financial Officer should disclose the outcome of the financial analysis on the City s Transparent Denver website to promote enhanced transparency and accountability with Denver s citizens. As a result of the review, the City's Debt and Investment Policies have been amended. On-going discussions with the Executive Director of the Denver Employees Retirement Plan (DERP) and his staff have occurred related to the findings in the report concerning Pension Funding. Please see our response to recommendation 1.2. Participants in the Daniels Business Graduate School undertook a project to determine comparable cities and benchmarked Denver's financial performance to them. This study is on the City's website and with the conclusion of the 2014 audit, will be up-dated later this year. In conjunction with the Technology Services Department (TS), the Finance Department has continued to provide financial information on the City's website. However, since Transparent Denver is an application, improvements are limited. TS is in the process of implementing a new Content Management System. While Transparent Denver is not part of that transition, TS is evaluating how the City can enhance the application going forward Finding 2: Department of Finance Provides Financial Transparency and Can Implement Additional Leading Practices P a g e 1 Office of the Auditor

7 Recommendations: Status of Implementation Recommendation Auditee Action Status 2.1 The Chief Financial Officer should add analyses and explanations to regularly updated financial information. 2.2 The Chief Financial Officer should disclose regularly updated financial information. 2.3 The Chief Financial Officer should disclose financial forecasts in a centralized location on the Transparent Denver webpage. 2.4 The Chief Financial Officer should further enhance Transparent Denver by providing details of what financial information is available to citizens within the Related Resources quick links. In addition to our response to recommendation 1.3, the Department of Finance has created a DoF Web Team that manages all DoF sites. This team has developed digital and Social Media with standards that will: 1. create a strong and unified identity, 2. create a positive experience for visitors, and 3. establish consistency. We believe our efforts and response to recommendation 1.3 has helped facilitate implementation of recommendation 2.2. Quarterly forecast have been provided on the Transparent Denver webpage. We consider the new budget software part of this effort. The software will allow us to provide more dynamic updates and an automated system in the fall. The Finance Department is committed to continually trying to improve the transparent website and the quality of information available to citizens. However, because Transparent Denver is an application, the ability to make modifications is limited. DoF was able to add a hyperlink to the Financial Sustainability Report in the Available Resources drop down menu. This was done as we are unable to add a report to the site; however, the hyperlink provides the connection to the Department of Finance webpage where the report is accessible and is explained. City and County of Denver P a g e 2

8 Conclusion We found that the Department has made efforts to fully implement all recommendations and mitigate risks identified during the original audit. As a result, we conclude our follow-up effort related to Fiscal Sustainability: Financial Condition and Transparency. Due to the evolving nature of financial condition, the Audit Services Division may revisit various financial indicators in future audits to ensure appropriate and timely action is taken by the City. On behalf of the citizens of the City and County of Denver, we thank staff and leadership from the Department for their cooperation during our follow-up effort and their dedicated public service. P a g e 3 Office of the Auditor