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HomeMy WebLinkAboutOB 3 AUDIT COMMITTEE 12-07-87TO: FROM: SUBJECT: HONORABLE-NAYOR & MEMBERS OF lltE CITY COUNCIL WILLIAM A. HUSTON, CIl~f I~IANAGER AUDIT COI~I~EE RECOI~NENDATION' In July, 1987, the City Council considered guidelines for an audit committee as suggested by the accounting firm of Price Waterhouse and the Municipal Finance Officers' Association. Following this discussion, staff indicated we would draft policies and guidelines for anJaudit committee. Attached are proposed audit committee polices and guidelines. A resolution creating the Committee has also been included in the event it is the City Council's desire to proceed. The policies and guidelines have been reviewed by staff, the City Attorney and the City's current auditors. William A. Huston City Ma na ger WAH: jh Attachment 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 23 24 25 26 27 28 RESO~ON 87-131 A RESO~~OF THE CITYCDUNCILOFTHECITYOFTUSTIN, CALIFORNIA' CREATING THECITYOFTUSTINAUDIT~TTEEANDESTABLISHINGTHE RESPONSIBILITIES OF THE AUDIT~TTEE. The City Council of The City of Tustin does hereby resolve as follows: ~{EREAS, the City Council ~of the City of Tustin recognizes the importance of the City's Annual Financial Report and the role of the independent auditor; and ~~%S, the City Council of the City of Tustin has determined that citizen participation in the audit process would provide additional assurance that the quality of the Audit and Annual Financial Reports will remain high; and WHEREAS, the City Council of the City of Tustin sees an independent Audit 'Con~ittee as a means of providing the citizens of the City an opportunity to participate in this important process. ~]W, THEREP(]RE, The City Council of the City of Tustin does hereby create the City of Tustin Audit Committee. The Audit Committee shall consist of three private citizens, selected at large, who will serve two year, staggered terms, subject to service at the pleasure of the City Council. The responsibilities of the Audit Committee shall be as follows: 1. Review and advise on the selection of external auditors; 2. Review and advise on the scope of the audit; 3. Review and advise on any accounting issues which may arise during the audit. 4. Review and comment on the progress of the external audit; 5. Review, evaluate and comment on the City's Financial Statements and on the Auditors Report; 6. Review and evaluate the Auditor's Management Letter and management's response thereto, including the adequacy of management's attention to corrective action; 7. Inquire into and obtain answers to any issue or item in question-included in the Financial Statements; 5 6 ? 8 9 10 11 12 14 15 16 17 19 21 22 23 24 25 26 27 28 8.- Maintain a public record of its proceedings and report to the City Council at least annually. PASSED AND ADOPTED at a regular meeting of the City Council of the city of Tustin held on the day of 1987. Richard B. Edgar, Mayor AT~EST: Mary E. Wynn, City Clerk -2- CITY OF TUSTIN PROI~SED AUDIT CO~4ITTEE POLICY AND i~0CEDURES The City Council of the City of Tustin recognizes the importance of the City's Annual Financial Report and the role of the independent auditor. The City Council has 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. To facilitate this citizen involvement, the City Council of the City of Tustin has created an independent Audit Con~nittee, made up of three citizens selected at large and appointed by the Council who shall serve for two-year, staggered terms, subject to service at the pleasure of the City Council. The following Policy and Procedures will govern the organization and operation of the City of Tustin Audit Committee. Audit Committees are an essential tool to ensure the quality of audits and the control structure in financial reporting. · The critical ingredient of effective Audit Committee operation is independence from management. The majority of Committee members shall always be citizens of the community. The independence of the majority will be the operational rule. Quorums will require a majority of Committee members and voting will require an affirmation of the majority of Committee members. The City Council shall appoint all members of the Audit Committee. The nomination and recommendation of members can come from the Committee members, the City Council or any source deemed appropriate by the City Council. The terms of members shall be two year, staggered terms. (Staggered terms will facilitate the continuity of the Committee operations.) A Chairman and Secretary shall be appointed by the Committee. The Chairman will be responsible for conducting Committee meetings and shall be the spokesperson for the Committee. The Secretary shall be responsible for maintaining the records of Committee business and coordinating the meetings with the independent auditors and City Council when appropriate. Since the role of the Secretary shall be to provide staff support and not be a member of the Committee, it will be appropriate to appoint a member of the Management staff of the City. COMMI~ RESP(]NSlBILITIES The following responsibilities are hereby assigned to the Committee: 1. Review and_advise on the selection of external auditors and on the e 3e e e Se e Be proposed' use of independent auditors for management advisory and other non-audit services; Review and advise on the scope of the audit; Review and advise~ on any accounting issues which may arise during the audit; Review and comment on the progress of the external 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; Maintain a public record of its proceedings and report to the City Council at least annually. The primary role of the Audit Committee is to ensure the independence of the auditor from 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. All proposals will be reviewed by the Audit Committee and selection recommendations made to the City Council. The Audit Committee will also 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. -2- 3. The financial disclosure laws of the State of California. At least three meetings annually are necessary for the Conmittee to fulfill its responsibilities. The first meeting shall begin the audit cycle by reviewing the audit plan for the year. The second meeting shall be to review and evaluate the Draft Financial Statements. The third and final meeting shall be to review the Management letter and management's response. Also, during this meeting, the Audit Committee shall draft its Annual Report for presentation to the City Council. In order to have effective communication in Audit Committee meetings, it is important that the Auditor and management be represented at the meetings of the Audit Committee. The final action of the Committee should be to outline the audit plan for the following year. RAN:ls -3- PRO~-S(~Ef~LE OF AUDIT ~T~EE ACTIVITIES FG~ FISCAL YEAR 1987-88 January 1988 Begin Co~nittee Selection Process. February 1988 Appoint Committee Members. March/April 1988 Meet with Auditors and City management. October 1988 Meet with Auditors and City management to review Draft Financial Statements. November 1988 Meet with Auditors and City management to review the Audit Management Letter, management's responses, and prepare the Annual Report of Activities and Recommendations to be presented to the City Council.