Audit Committee Meeting

MINUTES Audit Committee Meeting Monday, September 30, 2019 at 4:00 PM Carnegie Town Hall, 235 West 10th St., Sioux Falls, South Dakota 57104 1. Call To Order Present: Committee Member Janet Brekke, Committee Member Dean Buckneberg, Committee Member Tony Goettsch, Committee Member Rose Grant, Committee Member Rick Kiley, Committee Chair Greg Neitzert, Committee Member Curt Soehl Committee Chair Greg Neitzert called the meeting to order at 4 p.m. 2. Approval of Minutes A. Monday, April 22, 2019 A motion was made by Committee Member Soehl and seconded by Committee Member Goettsch to approve the minutes. Voice vote to approve. 7 Yes: Brekke, Buckneberg, Goettsch, Grant, Kiley, Neitzert, Soehl; 0 No: (None). Motion Passed. 3. Reports and Updates A. Audit Report 18-03: Purchasing Card Program Abby Vandelanotte, Internal Auditor, provided a summary of the report. The objectives of the audit were to: 1) determine if purchasing card transactions are appropriate & in compliance with City policy & procedure; 2) determine if City purchasing card program controls adequately mitigate risk; and, 3) determine whether the City’s purchasing card program is operating effectively in accordance with leading business practices & that cardholders have purchasing limits in accordance with actual purchasing activity. The City’s purchasing card program was implemented for small-dollar purchases as a cost-effective, simplified, and efficient alternative to the City’s existing purchase requisition and purchase order processes. The purchasing card program offers cost savings to the City and time savings to employees by reducing the amount of paperwork as well as administrative costs. Additional benefits include the ability to set & control limits on cards, control purchases to specific merchant categories, and rebates from the bank. From July 1, 2017 through June 30, 2018, the City spent approximately $5,661,822 through approximately 12,600 purchasing card transactions. The City has received approximately $360,490 back in rebates from the bank. There were three primary findings: 1) cardholder training provided by the  Purchasing department is inconsistent; 2) two individuals who have access to credit card allocations in the financial system, who also have a City of Sioux Falls purchasing card in their name, are allocating their own purchasing card transactions; and, 3) the City’s Purchasing Card Program Guide does not include any direction regarding the process required for an increased spending limit on an employee’s purchasing card, should a legitimate business need arise. The audit recommends: 1) both initial & ongoing training should be provided consistently to all cardholders who are issued a City of Sioux Falls purchasing card in their name. Trainings should be documented & filed as proof that cardholders attended required training; 2) management should ensure proper segregation of duties exists by ensuring those employees who have both purchasing ability with a City purchasing card as well as reallocation access in the financial system do not reallocate their own purchases; and 3) management should develop & document, in policy and procedure, a written process for requests for higher spending limits for all City of Sioux Falls purchasing cards. Management has addressed all recommendations. Discussion followed about the total number of cardholders in the City. Scott Rust, Purchasing Manager, indicated that the number of cardholders are reviewed regularly and the high number is attributed to the geographic separation of workers throughout the City. Rust also noted that misuse is addressed through the personnel system. The Committee further discussed credit card limits and different types of users. Rust explained the limits held by certain levels of users. A motion was made by Committee Member Buckneberg and seconded by Committee Member Kiley to accept the report and submit it to the Mayor and City Council . Voice vote to accept the report and submit it to the Mayor and City Council. 7 Yes: Brekke, Buckneberg, Goettsch, Grant, Kiley, Neitzert, Soehl; 0 No: (None). Motion Passed. B. 2019 Audit Plan Status Shana Nelson, Internal Audit Manager, stated that the following audits will be started in October and likely completed by year end: 1) Payroll-Employee Deductions; 2) SMG Management Agreement; and 3) Ovations Food Service dba Spectra Food Service and Hospitality Management Agreement. The Landfill- Licensing Audit is substantially complete, but receipt of management responses was delayed due to the tornadoes. The Damage Recovery Billing Process may be started in late 2019, but will likely be a carry-over to 2020. 4. Administration A. Audit Survey Nelson explained that the survey was furnished to key leaders in the City to include the City Council and Audit Committee. The survey focused on the composition and delivery of Audit Reports. Feedback generally included recommendations for an executive summary (implemented) and more readable reports. She further  explained that comments also addressed access to current and previous reports and the Internal Audit webpage. B. Management Contract Methodology This Committee discussed strategies to identify the best timing to conduct management contract audits. Presently, the contracts are on a three-year rotating audit plan. Nelson explained that she would like to work with the purchasing team annually to identify when these contracts are up for renewal so that the most appropriate type of audit can be done. Neitzert explained the history of the methodology and some shortcoming associated with it, primarily that some audits were ill-timed in a way that did not provide tremendous value. He asked if anyone on the committee had concerns about the proposed approach, there were none. C. Consulting Audits Nelson noted that most audits have traditionally been assurance audits, meaning the report is completed with recommendations that may or may not be systematically followed-up on. She is proposing a consultative role where the reports provide for a more interactive approach to the audit. This would include identifying best practices and other insights to provide departments with efficiencies in their processes. Buckneberg commented that the approach is sensible, but asked for additional information regarding implementation of the concept, which Vandelanotte provided. The goal of the approach is to primarily make the audit process more useful to the City. Neitzert asked when the consultative part of the audit would take place. Nelson explained it could take place at the end of the audit or be an ongoing part of it. Consulting audits could also be incorporated into the Audit Plan. D. Audit Engagement Process Nelson explained that she is working on new processes and procedures in the Office of Internal Audit, to include the engagement process before, during, and after audits. The proposed process would provide for greater clarity in the process so that expectations and requirements are firmly established. The engagement process will also include a post-audit satisfaction survey. E. Fraud Control Policy/Fraud Hotline Nelson stated the current Fraud Control Policy was adopted by resolution in 2012 and has not been re-evaluated since, which necessitates a review. Throughout the course of the review Internal Audit will seek to educate City staff about the policy and the Fraud Hotline. A proposal to amend the policy will be forthcoming at a future meeting along with a plan to ensure there is wide awareness of the hotline. Buckneberg asked how extensively the hotline is used and Nelson indicated there have been no calls this calendar year. Neitzert also provided background on the hotline and explained some ways that it and the fraud control policy can be best publicized among City employees. 5. Open Discussion Soehl and Kiley commended Internal Audit staff and Neitzert on the work they have been doing to re-energize the audit function. Neitzert also stated more information will be forthcoming regarding certifications for the auditors. 6. Public Comment There was none. 7. Adjournment Committee Chair Neitzert adjourned the meeting at 4:49 p.m. Thomas M. Greco, City Clerk