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HomeMy WebLinkAbout11 AUDIT COMM POLICY 11-01-99DATE: November 1, 1999 .; : ~ NO. 11 ! ·; 11-1-99 Inter-Com TO: FROM: SUBJECT: Honorable Mayor and Members of the City Council Walter T. Sullens, Audit Committee Chairman AUDIT COMMITTEE POLICY AND PROCEDURES SUMMARY: The Audit Committee, now in its tenth year of service to the City of Tustin, has reviewed the ten year old Audit Committee Statement of Policy and Procedures to find that certain changes and additions are in order to reflect current practices with the Audit Committee and in the auditing profession. RECOMMENDATION' Approve the attached "City of Tustin Audit Committee Policy and Procedures" which was accepted by the Committee at its regular meeting on September 16, 1999. FISCAL IMPACT: None. DISCUSSION: The recommended changes to the Policy and Procedures reflect actual practices of the Audit Committee, which are: 1. from two year staggered terms to four year staggered terms 2. from appointment in February to appointment in July The recommended additions are: . The chairperson shall serve on a calendar year basis which encompasses the beginning and conclusion of each annual audit and also concludes with the outgoing chairperson's report to Council at the joint meeting in January. . The external auditor shall disclose, in writing, in accordance with the Independence Standards Board Standard No. 1, "Independence Discussions with Audit Committees", that they are independent of the City of Tustin. I will be available at the City Council meeting to address any questions from the Council. Walter T. Sullens, CPA, Chair Audit Committee, City of Tustin CITY OF TUSTIN AUDIT COMMITTE,- POL,CY AND PROCEDURES The Tustin City Council recognizes the importance of the City's Annual Financial RepOrt and the role of the independent Auditor. They determined that citizen participation in the audit and financial reporting process would provide a vital link in ensuring the quality of the audit and the resulting Annual Financial Report of the City. Therefore, in December 1987, the Tustin City Council passed a resolution that created the City of Tustin Audit Committee. The following Policy and Procedures governs its organization and operations. This Audit Committee Policy and Procedures is a living document and changing conditions may encourage periodic review and updates. PURPOSE The Audit Committee is an essential tool to ensure the quality of audits and the control structure in financial reporting. The primary functions of the Audit Committee shall be to provide assistance to the Tustin City Council in fulfilling their responsibility to Tustin residents relating to municipal accounting, reporting practices of the City, and the quality and integrity of the financial reports of the City. In doing so it is the responsibility of the Audit Committee to maintain free and open means of communication between the City Council, the independent Auditors, and City Management. One critical ingredient to the effectiveness of the Audit Committee is its strict independence from City Management, and any relationship that, in the opinion of the City Council, would interfere with the exercise of independent judgment as a Committee member. ORGANIZATION The original Audit Committee was comprised of three Tustin citizens selected at large, and appointed by the City Council. In March 1989, the City Council changed the membership to five; four of whom shall be registered voters of the City during all times they hold office, and one who shall be a registered voter within the area served by the Tustin Water District. However, each of the persons heretofore appointed to the Audit Committee may continue to serve without compliance with the foregoing, so long as they are (1) a registered voter of the City; (2) a registered voter within the area served by the Tustin Water District; or (3) the owner of a business in the City. The City Council shall appoint all members of the Audit Committee. The nomination and recommendation of members may come from .the Committee members, the City Council or any source deemed appropriate by the City Council. The terms of members shall be four-year, staggered terms, which will facilitate the continuity of the Committee operations. A Committee member's term begins after the appointment by the City Council. All members of the Audit Committee shall serve at the discretion of the City Council and may be removed upon motion of the City Council adopted by at least three affirmative votes. All members of the Audit Committee shall serve until their respective successors are appointed and qualified. The independence of the majority will be the operational rule. Quorums will require a majority of Committee members and voting will require an affirmation by a majority of Committee members. Page 1 of 3 ,,:,iTY OF TUSTIN AUDIT COMMITTEE POLICY AND PROCEDURES On an annual basis, members of the Committee shall appoint a Chairperson. and a Secretary. The Chairperson is the Committee spokesperson at City Council meetings and other meetings, and will be responsible for conducting Audit Committee meetings. The Chairperson shall serve on a calendar year basis, which brackets the beginning and conclusion of each annual audit. The Secretary will be responsible for maintaining the records of Committee business and coordinating the meetings with the independent Auditors and City Council when appropriate. It may be appropriate to appoint a member of City staff as Secretary. GENERAL The primary role of the Audit Committee is to ensure the independence between the external Auditor and City Management. This begins with the Audit Committee's involvement with the selection of the Auditor. Requests for Proposals for audit services shall be reviewed and commented upon by the Audit Committee. The Audit Committee will review all proposals and make their selection recommendation to the City Council. The Audit Committee will review the Annual Financial Statements and Auditor's opinions. Included in this review will be the adequacy of disclosures and statements, the consistency with prior disclosures and statements, and the needs of financial statement users.' Another significant role of the Audit Committee is the review of the Auditor's Management Letter and Management's response. Comparisons to prior Management Letters and corrective action reports shall also be reviewed by the Audit Committee so that it can determine that Management is properly responding to expressed concerns with internal controls. The Audit Committee and its members shall be subject to: 1. Provisions of the Brown Act, Open Meeting Law 2. Conflict of Interest Codes of the City of Tustin and Conflict of Interest Law of the State of California 3. The financial disclosure laws of the State of California COMMITTEE RESPONSIBILITIES The City of Tustin conducts an annual financial audit using a qualified external Auditor. The following responsibilities are hereby assigned to the Audit Committee as it relates to their role in the annual financial audit process' , Review and advise on the selection of external Auditors and on the proposed use of independent Auditors for Management advisory and other non-audit services; 2. Review and advise on the scope of the audit; Page 2 of 3 CITY OF TUSTIN AUDIT COMMITTF_= POLICY AND PROCEDURES o Review and advise on any accounting issues, which may arise during the audit. The external Auditor shall inform the Audit Committee with each of the following: a. The Auditor's responsibility under generally accepted auditing standards b. Significant accounting policies c. City Management judgments and accounting estimates d. Significant audit adjustments e. Other information in documents containing audited financial statements f. Disagreements with City Management g. City Management consultation with other accountants h. Major issues discussed with Management prior to retention i. Difficulties encountered in performing the audit j. Disclose in writing, in accordance with ISB Standard No. 1--"Independence Discussions with Audit Committees", that they are independent of the City of Tustin; 4. Review and comment on the progress of the audit; . , . Review, evaluate and comment on the City's Annual Financial Report and. other City financial statements; Review and evaluate the Auditor's Management Letter and Management's response thereto, including the adequacy of Management's attention to recommended corrective action; Inquire into and obtain answers on any issue or item in question included in the financial statements or requested by the City Council; 8. Maintain a public record of its proceedings and report to the City Council at least annually. MEETINGS At least three meetings annually are necessary for the Committee to fulfill its responsibilities. Tasks of the Audit. Committee are to review the audit plan for the year, review and evaluate the Draft Financial Statements, and review the Management Letter and Management's response. Projects to be performed by the Audit Committee will be directed by the City Council or determined by a majority vote of the Committee members. The Audit Committee shall draft its Annual Report for presentation to the City Council. In order to have effective communication in Audit Committee meetings, City Management be represented at the meetings of the Audit Committee. it is important that The final action of the Committee should be to outline the current audit plan for the following year. Page 3 of 3