SunnyvaleRTC

December 18, 2003

SUBJECT: Adoption of Performance Audit Charter, Work Plan and Workflow Processes

REPORT IN BRIEF

This report presents for Council’s review and approval the proposed Performance Audit Charter, Work Plan and Workflow processes. Although the procedures and processes presented here are being formalized for the first time, they are largely consistent with existing procedures.

The proposed charter sets forth the mission and scope of work of the performance audit function, as well as the accountability, responsibility and authority of performance audit staff. The work plan process employs risk assessment tools and management input to develop a plan for audits for the coming year that would then be presented to Council for review and approval.

This report also sets forth the procedure by which an audit is conducted, beginning with the first meeting with the auditee and ending with the release of the final report and associated documents. Additionally, this report provides for Council’s review of the existing Performance Audit Work Plan for FY 2003/2004. This plan calls for completion of three new audits and the provision of extensive implementation assistance and consulting services to recently audited and/or restructuring programs.

BACKGROUND

As Council is aware, the City of Sunnyvale has for many years employed a budgeting and performance measurement system designed to ensure that resources are allocated and accounted for on the basis of measurable performance results.

To be effective, the measurement system must adequately capture results that reflect the true performance of the City’s programs. For many years, City staff have provided management with feedback and suggested improvements regarding the performance measurement system and its results. These quality-control reviews are the essence of the City’s longstanding performance audit function.

On September 16, 2003, Council directed staff to prepare and bring to Council by calendar year’s end a Performance Audit Charter and a description of the performance audit process. This report and the attachments are offered in fulfillment of that directive. Staff also is providing the existing performance audit work plan for Council’s review. The current Work Plan is included as Attachment D to this report.

EXISTING POLICY

Currently, no formal Audit Charter is in effect. However, present and previous performance audits have been conducted in accordance with the proposed charter and work processes as presented in this report. In addition, Fiscal Sub-Element Policy 7.1D.2 contains the following action statements:

7.1D.2a: “Conduct periodic financial, operational, and management audits to assure that adequate internal controls exist and that management practices are in compliance with Federal, State and City rules and regulations.”

7.1D.2b: “Maintain an internal audit program as a management tool.”

DISCUSSION

This report presents the proposed Performance Audit Charter, the Work Plan Development Process, the Workflow Process for performance audits and the current Work Plan.

Proposed Performance Audit Charter

The proposed Performance Audit Charter (Attachment A) provides a general framework for conducting performance audits and follow-up audits. It describes the mission and scope of work of the performance audit function, as well as the accountability, responsibility and authority of performance audit staff. Although this charter has not been formalized previously, it is reflective of existing practices.

Work Plan Development Process

Attachment B depicts the proposed process for development and approval of the annual Performance Audit Work Plan. Only those programs or Service Delivery Plans that are eligible for an audit may be included in the plan. To be eligible, a program must be on outcome measurement and its structure must have been in place for at least one or two years. In any given year, there will be more programs eligible to undergo an audit than staff available to audit those programs. To determine which programs become part of the Work Plan for that year, staff will employ risk assessment tools along with management input. For instance, staff will consider factors that increase the risk that a program will have performance reporting problems. Such factors include the length of time since the last audit, the complexity of the program and its measures, and any apparent discrepancies or inaccuracy in reported results. Although only a few programs will be audited in any given year, over time, every program will undergo a performance audit at least once every eight years.

After development by staff, the audit plan will then be presented to Council for approval or revision. Upon its adoption, staff would adjust the performance audit outcome measure goals and activity products, if necessary, to conform to the approved plan.

Performance Audit Workflow Process

Attachment C depicts the proposed audit workflow process for performance audits. To summarize the proposed process: after an initial meeting with the relevant management and staff of the audited entity, audit staff gather written procedures, reported performance results and supporting documentation. The audit staff conduct relevant interviews of staff and management. Audit staff then assesses the accuracy and validity of reported results and examines the measures and activities themselves. If there are unresolved questions or issues, audit staff meets with the auditee to discuss them before preparing a preliminary draft report. This preliminary draft is provided to the auditee, who then provides feedback to audit staff. Auditors revise the draft to improve clarity or correct any errors or omissions. This draft is then provided to the Director of Finance for review and this feedback is incorporated into the final report, which is then provided to the auditee. The auditee issues a written response to the audit staff indicating agreement or disagreement with each finding and recommendation included in the final audit report. The final report and the auditee’s response then is issued to the Office of the City Manager, which prepares a memo indicating approval or disapproval of implementation of recommendations. The audit report, the auditee’s response and the City Manager’s Office memo then are provided to the auditee, the Council and the public.

The process for follow-up audits would be similar, except that the process would begin with a review of the initial performance audit’s findings and recommendations. Audit staff would then assess which findings and recommendations are still applicable. Of those that still apply, audit staff would ascertain whether the recommendations have been implemented or not and meet with the auditee to resolve questions before preparing a preliminary draft. This draft would follow the same process as a draft for an initial audit.

With the exception of the memo from the City Manager’s Office, and the issuance of the final reports to the Council and public, the processes described reflect practices that have been in effect since the performance audit program was initiated a number of years ago. In the event that staff must deviate from the process as described, staff will note the change in a written addendum to the final audit report.

Current Performance Audit Work Plan

The existing FY 2003/2004 Performance Audit Work Plan as developed by staff is presented as Attachment D for Council’s review. The plan includes three performance audits and audit implementation assistance and consulting services to five programs. The work on these projects is well underway.

FISCAL IMPACT

Funds for the current performance audit staffing are included in the current budget. There is no additional expense associated with adoption of the proposed charter and process plan. Unless Council wishes to expand the annual Work Plan, no additional funds are needed.

PUBLIC CONTACT

Public contact was made through posting of the Council agenda on the City's official notice bulletin board, posting of the agenda and report on the City's web page, publication of the Council agenda in the San Jose Mercury News, and the availability of the report in the Library and the City Clerk's Office.

ALTERNATIVES

1. Adopt the proposed Charter, Workflow Processes, and Work Plan as depicted in attachments A, B, C and D.

2. Adopt the proposed Charter, Workflow Processes, and Work Plan as amended by Council.

3. Do not adopt the proposed Charter, Workflow Processes, or Work Plan.

RECOMMENDATION

Staff recommends Alternative #1, adoption of the Charter, Workflow Processes, and Work Plan as depicted in attachments A, B, C and D.

Prepared by:

Pablo Federico
Administrative Analyst

Cheryl Solov
Management Analyst/Performance Audits

Reviewed by:

Mary J. Bradley
Director of Finance

Approved by: