Item No. 4 - CONSIDERATION OF RESOLUTION NO. 2021-33 - AUDIT COMMITTEEAGENDA ITEM NO. 4
AGENDA STAFF REPORT
City of West Covina I Office of the City Manager
DATE: May 4, 2021
TO: Mayor and City Council
FROM: David Carmany
City Manager
SUBJECT: CONSIDERATION OF RESOLUTION NO. 2021-33 AMENDING THE NAME,
PROCEDURES, RULES AND REGULATIONS OF THE FINANCE & AUDIT
COMMITTEE
RECOMMENDATION:
It is recommended that the City Council adopt the following resolution:
RESOLUTION 2021-33 - A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST
COVINA, CALIFORNIA AMENDING THE NAME, PROCEDURES, RULES AND
REGULATIONS FOR THE AUDIT COMMITTEE AND RESCINDING RESOLUTION NO.
2019-31
BACKGROUND:
In a 2012-2013 Los Angeles County Civil Grand Jury Report entitled "Cities of Los Angeles County - Fiscal
Health, Governance, Financial Management and Compensation," one of the Grand Jury's recommendations
was that the City formally establish an audit committee making it directly responsible for the work of the
independent auditor. On June 17, 2014, the City requested that the State Controller's Office (SCO) conduct an
audit of the City's internal control and fiscal management practices. One element of internal control that the
City did not have in place was an audit committee. Staff requested guidelines from the SCO, which referred
the City to the Government Finance Officers Association (GFOA) Audit Committee Best Practices. An audit
committee helps to ensure that management properly develops and adheres to a sound system of internal
controls. At the October 6, 2015 City Council meeting, the Audit Committee was formed with the following
members: the City Manager, the Finance Director, the City Treasurer, two City Council Members, and two
Members of the public (Resolution No. 2015-73). The duties of the Committee included the following:
• Recommending the selection of the independent financial auditor for the financial statement audit;
• Monitoring the progress fo the financial statement audit;
• Evaluating the results of the financial statement audit;
• Ensuring that any control weakness and legal compliance violations identified in the course of the
financial statement audit are promptly and effectively remedied;
• Serving as a direct communications link between the City Council and the independent auditor;
• Monitoring the adequacy of the City's internal control structure on an ongoing basis, such as cash
disbursements, cash receipting, treasury transactions, etc., as examined by the internal audit function and
the independent financial auditor;
Participate in meetings with the City's independent auditors and various County, State, and Federal
auditors as needed.
On May 16, 2016, the following recommendations were made and approved by the City Council regarding the
Audit Committee (Resolution No. 2016-40):
Staff recommended that the City Manager and Finance Director be removed as members of the Audit
Committee since they prepare the reports that are presented to the Audit Committee, such that the
Committee would consist of five members: the City Treasure, two City Council members, and two
members of the public;
Staff recommended removing the responsibility of participating in meeting with the City's independent
auditors and County, State, and Federal auditors. These meetings are often impromptu and the City's
auditors review their audit reports and incorporate any findings into their planning of the City's audit.
On May 15, 2018, the following recommendations were made and approved by the City Council regarding the
Audit Committee (Resolution No. 2018-60):
• Staff recommend that two additional members of the public be appointed to the Audit Committee.
On May 7, 2019, the following recommendations were made and approved by the City Council regarding the
Audit Committee (Resolution No. 2019-31):
• Change the name of the Audit Committee to the Finance & Audit Committee;
• Instead of meeting annually, meet at least quarterly with additional meetings scheduled on an as -needed
basis;
• Review audit and financial consulting contracts proposed scope of work. Make recommendations for
changes in scope of work if needed;
• Review actual revenue and expenditures compared to budget based on monthly financial reports detailed
by account. A monthly report is also produced by the Finance Department in order to develop accurate
projections;
• Review projected revenue and expenditures compared to budget;
• Review the preliminary budget to determine if expected revenue or expenses [e.g. litigation, equipment
replacement] are budgeted in accordance with historical trends;
• Review if the following objectives are being met:
o Projected expenditures do not exceed budget;
o Projected revenue approximates budget;
o Projected revenue meets or exceeds projected expenditures;
o Timely budget adjustments are prepared for projected overdrafts in expenditures;
o The City Council is informed in a timely fashion if revenue or expenditures deviates significantly
from budget.
• Provide quarterly reports to the City Council on the financial and audit status of the City;
• Report to the City Council if it finds that published financial information is believed to be inaccurate,
not timely, or if projections will result in shortfalls in revenue, overdrafts in expenditures, or deficits
caused by spending more than is received;
• Ensure the Finance & Audit Committee does not make budget priority recommendations.
In summary, the City Council established an Audit Committee with Resolution No. 2015-73, changed the
membership of the Audit Committee with Resolution No. 2016-40; rescinded and replaced Resolution No.
2016-40 with Resolution No. 2018-60; and rescinded and replaced Resolution No. 2018-60 with Resolution
No. 2019-31.
California Government Code section 8546.10 authorizes the State Auditor to establish a high -risk local
government agency audit program to identify, audit, and issue reports to local government agencies that are at
high risk for the potential of waste, fraud, abuse, or mismanagement, or that have major challenges associated
with their economy, efficiency, or effectiveness
Based upon risk indicators of general fund reserves, debt burden, liquidity, revenue trends, pension
obligations, pension funding, pension costs, future pension costs, OPEB obligations, and OPEB funding, the
California State Auditor was granted approval from the Joint Legislative Audit Committee to conduct a high -
risk audit of the City of West Covina.
In response to the State Auditor's December 1, 2020 report entitled "City of West Covina: Its Deteriorating
Financial Situation Threatens Its Fiscal Stability and Its Ability to Provide City Services" the City Council
unanimously approved a formal Financial Recovery Plan with specific timelines, monitoring, and reporting on
April 6, 2021.
DISCUSSION:
To improve the City's long-term financial health there is a need to monitor implementation of the Financial
Recovery Plan. Adoption of Resolution No. 2021-33 would rename Finance & Audit Committee as the Audit
Committee and assign major responsibility for monitoring progress in implementing the Financial Recovery
Plan to the Audit Committee, with written updates every six months to include specific timelines and
reporting. Resolution No. 2021-33 also changes the composition of the Committee to five members of the
public, appointed by the City Council, the City Treasurer, and two City Council members, with the City
Treasurer and Council members serving as ex-officio non -voting members.
Adoption the resolution would also rescind Resolution No. 2019-31.
LEGAL REVIEW:
The City Attorney's Office has reviewed the resolution and approved it as to form.
OPTIONS:
The City Council has the following options:
1. Approve staffs recommendation; or
2. Provide alternative recommendation.
Prepared by: David Carmany, City Manager
Attachments
Attachment No. 1 - Resolution No. 2021-33
CITY Achieve Fiscal Sustainability and Financial Stability
COUNCIL Financial Recovery Plan/Corrective Action
GOALS &
OBJECTIVES:
ATTACHMENT NO. 1
RESOLUTION NO.2021-33
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF WEST COVINA, CALIFORNIA, AMENDING THE
NAME, PROCEDURES, RULES AND REGULATIONS FOR
THE AUDIT COMMITTEE AND RESCINDING
RESOLUTION NO.2019-31
WHEREAS, California Govemment Code section 8546.10 authorizes the State Auditor
to establish a high -risk local government agency audit program to identify, audit, and issue
reports on local govemment agencies that are at high risk for the potential of waste, fraud, abuse,
or mismanagement, or that have major challenges associated with their economy, efficiency, or
effectiveness; and
WHEREAS, based upon risk indicators of general fund reserves, debt burden, liquid ity,
revenue trends, pension obligations, pension funding, pension costs, future pension costs, OPEB
obligations, and OPEB funding, the California State Auditor was granted approval from the
Joint Legislative Audit Committee to conduct a high -risk audit of the City of West Covina; and
WHEREAS, in response to the State Auditor's December 1, 2020 report entitled "City
of West Covina: Its Deteriorating Financial Situation Threatens Its Fiscal Stability and Its
Ability to Provide City Services," the City Council unanimously approved a formal Financial
Recovery Plan with specific timelines, monitoring, and reporting; and
WHEREAS, to improve the City's long-term financial health, the City recognizes the
need to monitor implementation of the Financial Recovery Plan; and
WHEREAS, the City Council established an Audit Committee through the adoption of
Resolution No. 2015-73 in October 2015, changed the membership of the Audit Committee
through the adoption of Resolution No. 2016-40 in May 2016; rescinded and replaced
Resolution No. 2016-40 with Resolution No. 2018-60 in May 2018; and rescinded and replaced
Resolution No. 2018-60 with Resolution No. 2019-31 in May 2019, renaming the Audit
Committee as the Finance & Audit Committee; and
WHEREAS, the City Council now desires to assign responsibility to the Audit
Committee for monitoring progress in implementing the Financial Recovery Plan with State -
required written updates every six months, including specific timelines and reporting; and
WHEREAS, the City Council fimher desires to rename the Finance &Audit Committee
as the Audit Committee and to clarify the duties of the Audit Committee.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF WEST COVINA,
CALIFORNIA DOES HEREBY RESOLVE AS FOLLOWS:
SECTION 1. AUDIT COMMITTEE RULES AND REGULATIONS
1. ESTABLISHMENT OF THE AUDIT COMMITTEE
The City Council of the City of West Covina hereby renames the previously
established Finance & Audit Commuttee as the Audit Conmuttee.
2. PURPOSE
The Audit Committee's primary purpose is to support improving the community
and to assist the City Council in discharging its responsibilities for (1) ensuring
financial stability and (2) monitoring the implementation of the corrective actions
identified in the Financial Recovery Plan, approved by the City Council on April 6,
2021.
3. MEMBERSHIP AND APPOINTMENT
The Audit Committee shall consist of five public members who will be appointed
by the City Council The City Treasurer and two City Council members shall serve
as ex officio non -voting members. The City Clerk shall post and advertise the
public positions and vacancies as provided for all other City commissions and
committees.
4. COMPENSATION
Members of the Coirnnittee shall serve without compensation
5. TERM OF MEMBERSHIP
The appointed members of the Commiittee shall be appointed for two (2) year terms
on a staggered basis, except for the initial appointment as provided herein. For the
initial appointments, one Council Member and one member of the public shall
initially be appointed to serve a one-year term in order to allow for the staggered
terms thereafter.
6. TIME AND PLACE OF MEETINGS
The Comiuittee will meet at least quarterly. All meetings of the Connnittee shall be
held at the City of West Covina City Hall located at 1444 W. Garvey Ave. S. in the
City of West Covina.
7. CONFLICT OF INTEREST
All members of the Corrmiittee are subject to the requirements of the Conflict of
Interest codes of the City of West Covina and Conflict of Interest laws of the State
of California.
8. HUMAN RESOURCES POLICIES
All members ofthe Committee are subject to the requirements of all Human Resource
Department policies of the City of West Covina.
9. DUTIES OF THE COMMITTEE
The role ofthe Committee is to help improve the City's long-term financial health by
(1) monitoring implementation of the Financial Recovery Plan, (2) monitoring the
monthly financial reports for the purpose of reporting potential deficits, (3) reviewing
the Comprehensive Annual Financial Reports, and (4) making periodic reports to the
City Council.
SECTION 2. This Resolution shall rescind and replace Resolution No. 2019-31, adopted
by the City Council on May 7, 2019.
SECTION 3. The City Clerk shall certify to the adoption ofthis Resolution and shall enter
it into the book of original resolutions.
APPROVED AND ADOPTED this 4th day of May, 2021.
Letty Lopez-Viado
Mayor
APPROVED AS TO FORM ATTEST
Thomas P. Duarte Lisa Sherrick
City Attorney Assistant City Clerk
I, LISA SBERRICK, Assistant City Clerk of the City of West Covina, California, do
hereby certify that the foregoing Resolution No. 2021-33 was duly adopted by the City Council of
the City of West Covina, California, at a regular meeting thereof held on the 4th day of May, 2021,
by the following vote of the City Council:
AYES:
NOES:
ABSENT:
ABSTAIN:
Lisa Sherrick
Assistant City Clerk