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City and County Committee
Part 2
II. FINANCIAL PRACTICES OF SAN JUAN BAUTISTA
BACKGROUND
Review of the financial practices of the City of San Juan Bautista was conducted as recommended by both the 1998-1999 and 1999-2000 San Benito County Grand Juries. Authority for investigation of San Benito County and the Cities of San Juan Bautista and Hollister is given by s/s 914.1 of the Penal Code which says, in part, that the Grand Jury should “ascertain by a careful and diligent investigation whether such provisions have been complied with, and to note the result of such investigation in its
report.”
The 1999-2000 San Benito County Grand Jury, in its report to the San Benito County Board of Supervisors, advised that due to time constraints its periodic review of the City of San Juan Bautista could not be completed and recommended that such review be completed by the 2000-2001 Grand Jury.
METHOD OF REVIEW
Review of the Independent Auditor’s Report, dated September 5, 2000
Review of City Manager's Memorandum to City Council, Re: Draft Budget, dated
September 19, 2000
Independent Auditor’s letter to City Council and the City Manager, dated
November 16, 2000
Review of City of San Juan Bautista accounts-payable check register for Fiscal Year
99/00
Interview of the City Manager, San Juan Bautista
Interviews of complainants and a city resident.
OBSERVATIONS, FINDINGS AND CONCLUSIONS
The 2000-2001 Grand Jury reviewed the independent auditor’s report and had no significant questions relative to the auditor’s findings. The audit report stated that the general purpose financial statements of the City of San Juan Bautista for the year ended June 30, 2000 “present fairly, in all material respects, the financial position of City of San Juan Bautista as of June 30, 2000, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. "
According to the auditor’s report, there was one omission to the financial statements that should be corrected. The report states that “prior to 1988, the City recorded acquisitions of fixed assets as expenses when purchased rather than capitalizing and depreciating the assets over their estimated useful lives”. Therefore, the financial statements reviewed during the audit did not contain the amounts of fixed assets acquired prior to 1988, or their depreciation expense
The independent auditor's letter to San Juan Bautista stated that their initial review of the City accounting records revealed that bank statements had not been reconciled for several months prior to the audit. The reconciliation difficulties were attributed primarily to issues with the “Fund Balance 32” software and the procedures used in recording accounts payable. Review of the accounts receivable aging report and the accounts receivable balance in the general ledger showed that the detail by customer totals did not agree with the balances reflected in the general ledger. The auditor reviewed three different accounts payable reports; aging by fund, aging by vendor and the balance sheet through November 15, 2000. All three reports from “Fund Balance 32” software had a different balance. Many requested reports were either not available or not provided to the auditors. For instance, a summary of cash receipts was not available, which could contribute to the difficulty experienced in performing the bank reconciliation task.
The independent auditor also stated that the City was unable to provide requested federal grant documentation and that an organized grant record system is needed. Such a system will be critical should the City’s annual grant award expenditures exceed $300,000. That would trigger a federally mandated single audit.
The auditor found that duties are not properly distributed among employees. For instance, the staff member who opens the City’s mail also records the cash receipts and accounts receivable in the general ledger, and prepares the bank deposit.
The auditor also determined that there is no formal policy in place for the city council to approve certain management authorized transactions. Furthermore, the existence of specific purchase order requirements, contract or bid requirements and fixed asset purchase requirements could not be verified. The auditor was unable to verify the approval of several fixed asset purchases by reviewing the minutes of City Council board meetings.
The auditor noted that the City does not provide for consistent backup and storage of electronic files and related documentation.
The current City Manager advised the Grand Jury that many of the auditor's recommendations are being implemented and that specific duties have been assigned to city staff members to improve financial accountability. The City Manager also stated that staff familiarity with the “Fund Balance 32” software has improved and the software is now being put to better use. The Grand Jury was not provided with any written procedures or guidelines to validate the progress related by the City Manager.
After considering all the material available for review and input from interviews, the 2000-2001 Grand Jury finds that there are insufficient procedures, guidelines, controls and record keeping to establish accountability while providing an adequate audit trail of City receipts and expenditures. It should be noted that the Grand Jury believes that the City Manager and the City Staff have made significant improvements since the issuance of the September 5, 2000 audit report. However, in the absence of written procedures and guidelines, such improvements must be viewed as temporary. The Grand Jury further finds there is no evidence of any misconduct or intentional misuse of funds by any City staff member.
RECOMMENDATIONS
The Grand Jury recommends that:
| 1. |
The San Juan Bautista City Council establish formal policies and procedures governing transactions and/or expenditures requiring City Council approval. Such policies and procedures should clearly delineate those authorization levels delegated to the City Manager, as well as the reporting requirements imposed. |
| 2. |
The San Juan Bautista City Manager review and update detailed job descriptions and ensure a list of duties and responsibilities is in place for each city staff position. |
| 3. |
The City of San Juan Bautista develop and implement a plan of action to ensure that federal grant recordkeeping meets or exceeds government requirements. It is also recommended that one member of the City staff be designated to coordinate grant recordkeeping functions and to advise the City Manager of potential shortfalls. |
| 4. |
The City of San Juan Bautista establish procedures for the backup and storage of electronic files, perhaps at an offsite location. |
| 5. |
The 2001-2002 San Benito County Grand Jury review the audit of the financial statements and procedures of San Juan Bautista after the year ending June 30, 2002. |
AFFECTED AGENCIES
San Juan Bautista City Council
San Juan Bautista City Manager
RESPONSE REQUIRED
California Penal Code s/s 933 requires that a response to this final report's recommendations be delivered to the presiding judge within 90 days of the
receipt of the report.
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