REPORT TO COUNCIL
SUBJECT
Title
Options Related to the Position and Compensation of the City Council Appointed City Auditor
Report
BACKGROUND
On February 6, 2018, former City Clerk Rod Diridon, Jr. resigned leaving a vacancy in the elected City Clerk and appointed City Auditor positions. The City Charter Section 900 provides that the City Council appoint the City Auditor.
Charter Section 900 Officers Appointed by the City Council and the City Manager:
In addition to the City Manager, the City Council shall appoint and affix the compensation of the City Attorney and City Auditor who shall serve at the pleasure of the City Council and may be removed by motion of the City Council adopted by at least four affirmative votes.
The City Charter 909 City Auditor also grants to the Council the authority to appoint any other officer or employee as City Auditor.
Charter Section 909 City Auditor.
The City Council may, in its discretion, appoint any other officer or employee of the City as City Auditor and grant such person additional compensation for the performance of such duties.
The attached report (Attachment 1) provides a historical account of the appointment of the City Auditor. Previous City Councils appointed the Assistant City Clerk as the City Auditor. In 2006, after the retirement of the Assistant City Clerk, the Council appointed the City Clerk as the City Auditor, with duties assigned to clerical staff in the City Clerk department. This appointment was codified in the following Municipal Code section, which is consistent with Charter Section 900.
Charter Section 909 City Auditor.
The City Auditor shall audit and approve all bills, invoices, payrolls, demands or charges against the City government before payment and, with the advice of the City Attorney, advise the City Council as to the regularity, legality and correctness of such claims, demands or charges.
Santa Clara Municipal Code Section 2.20.050 assigned the duties of City Auditor to the City Clerk in more detail.
The City Clerk shall perform the functions of the auditor or controller. These duties and responsibilities include auditing and approving all bills, invoices, payrolls, demands or charges against the City government before payment and, with the advice of the City Attorney, make reports to the City Council as to the regularity, legality and correctness of such claims, demands or charges.
Annually, the City Auditor issued an annual report (see Attachment 2 for the FY 2016-17 report), which summarizes the work of the City Auditor and the number of documents reviewed and processed.
Although the duties of the appointed City Auditor were assigned/delegated to clerical staff in the City Clerk’s Office, the previous City Clerk received a monthly stipend for the City Auditor function starting in 2006. The stipend was adjusted annually consistent with Unit 9 wage increases. At the time the City Clerk resigned, that monthly stipend amount was $1,873 or annually approximately $22,500.
The information that follows provides a discussion of separating the City Council appointed City Auditor from the voter elected City Clerk position and assigning this function to the Assistant Finance Director, where the skill set and expertise of such a position is more aligned and accountable. The City Council should consider the governance relationship between commingling an elected position, with no required reporting relationship to the City Council, with a City Council appointed position that has direct accountability to the City Council.
The City Council has three appointed positions: City Manager, City Attorney and City Auditor. To assign the City Auditor functions to the responsibilities of an elected City Clerk is not appropriate, nor does it ensure that the professional qualifications required for the organization are sustained given the requirements for the elected City Clerk (e.g., resident and a qualified registered elector of the City, per Charter Section 600). Past practices confirm that the elected City Clerk did not have the professional background required for auditing, nor the staff that were delegated the auditing duties. The qualifications needed to be an auditor (usually an accounting certificate and auditing certification/training) need to be considered in an organization that has been absent basic performance auditing and risk management. This appointment is key to addressing systemic, institutional issues that continue to surface that require remedy.
DISCUSSION
As part of the January 18 and 19, 2018 Council Priority Setting Session, staff presented the need for a more robust auditing function which includes performance audit reviews. As the City Charter delineates audit tasks that are generally performed as conventional process integrity practices, City staff has identified the need for professional audit functions in various areas of public sector services that exceed the skill requirement for performing the Charter assigned duties.
Additionally, on March 19, 2018, the Santa Clara Stadium Authority (SCSA) Ad-Hoc Audit Committee reviewed options for the SCSA Auditor (Attachment 3). The Committee unanimously passed a motion to direct the Executive Director to bring forward for the Board’s consideration the appointment of a City employee to the position of Auditor of the Stadium Authority. At this meeting, the Stadium Authority Counsel clarified this to be a Stadium Authority Board Appointee of a city employee.
Therefore, as part of the development Fiscal Year 2018-19 Recommended Budget, staff is researching the establishment of an audit function in the Finance Department using existing staff resources and seeking additional funding for external training/certification for staff to perform duties in pre-audit methodologies and examine various complex documents with proper training. In addition to these resource needs, staff is also seeking additional funding to procure contractual resources to conduct fiscal and performance audits that exceed in-house capacity and/or of a complex nature.
The City Council should consider the action in two steps: (1) whether to continue to link the appointed City Auditor to the elected City Clerk and (2) where to assign the duties of the appointed City Auditor within the organization or as an independent newly created position. The City Council should at least make a determination on Step 1 in order to clarify for the public any potential changes to the elected City Clerk position. Upon the decision, action on compensation should follow.
Audit Functions
Much like the City Clerk position, professional skills have evolved since the drafting of the City Charter duties and, as such, the City Auditor skills and technical requirements have also changed. For example, as local government fiscal practices driven by the Government Accounting Standards Board (GASB), Government Finance Officers Association (GFOA) and Association of Government Accountants (AGA), fiscal audit work has expanded to the work of the annual internal control testing of the external auditor, e.g., requirements or best practices promulgated by the above agencies, and may focus on cash audits at locations across the City, cybersecurity practices with fiscal transactions, departments’ internal control procedures, performance of managed risk, and compliance with administrative fiscal policies. A performance auditor reviews whether the audited department is managing or utilizing its resources, including public funds, personnel, property, equipment and space in an economical, ethical, compliant, and/or efficient manner; reviews departments’ performance management system; and, identifies causes of inefficiencies or uneconomical practices, including inadequacies in management information systems, internal and administrative procedures, organizational structure, use of resources, allocation of personnel, purchasing policies and equipment. Given the absence of these conventional functions over time, it should be no surprise that management controls and procedures are loose and contain risk that can be managed. If the City Council would like for City staff to assemble a similar auditor panel study session, as what was done for the City Clerk panel, that can certainly be completed and action on this item delayed.
Based on the expanded auditing functions that staff is evaluating, Council could consider appointing the City Auditor functions to the Assistant Finance Director. The skill set and expertise needed to achieve and fulfill the more robust type of auditing functions the City requires is better suited for a position in the Finance Department which will be guided by policy that clearly establishes professional protocols and procedures to mandate independence and non-conflicted work. The Assistant Finance Director is the best suited position in the Finance Department to incorporate these duties given its executive level and ability to drive enterprise wide audits. The position is currently recruited for and the recruiting firm would focus on potential candidates who have auditing experience.
Staff will also ensure that there are checks and balances in place to ensure independence by using professional experts to develop a policy to eliminate conflicts. To effectuate this change, under Charter sections 900 and 909, a Code amendment would be required to transfer the codified appointment of the City Auditor duties from the City Clerk to the Assistant Finance Director or any other position that the City Council deems qualified. Currently, the Assistant Finance Director position is vacant; the position description requirements could be amended if the Council chooses this option, to capture these duties, and a nationwide recruitment could advertise these specific duties so that qualified candidates could self-select to apply. If the Council decides to select another City employee position, the City staff could work with the related bargaining group to change the position description to include this skill/duty, as well.
During the March 19 SCSA Ad-Hoc Audit Committee meeting, SCSA Committee members and staff discussed the appointment of the Stadium Authority Auditor, with the responsibility to coordinate the audit work with a consultant on behalf of the SCSA Board, to a city employee - Assistant Finance Director. Combining the City Auditor and Stadium Authority Auditor would allow the Stadium Authority and City to stretch its fiscal resources and centralize audit function, while still maintaining the independence and integrity of the audits. Ultimately the City Auditor and the audit program report directly to the SCSA Board, and the Stadium Authority Auditor would serve as the liaison to the Board. In unanimously voting to direct the Executive Director to bring forward, for the Board’s consideration, the appointment of a City employee to the position of Auditor of the Stadium Authority, the Stadium Authority Ad Hoc Audit Committee members expressed their support for this approach.
To ensure the independence of the City Auditor, the City Auditor will continue to provide an annual report to the City Council. In addition, as the City’s audit program is strengthened, the City could work toward the City Council reviewing and approving an annual workplan of service areas or processes requiring audit and directly assign reviews to this position, in the City Auditor capacity (e.g., payroll process improvements, contract management, etc.). This position would be required to obtain proper certification and it is not uncommon for cities to structure these duties as such. Cities such as Palo Alto and San Jose require audit certifications and also go through an annual workplan approval process through their Council Committee structure. City staff would very much like for the City Council to engage in the development of an annual audit workplan for the purpose of managing risk and heighten focus on vulnerable operations systems requiring reform, upon establishing this function.
Alternatively, the Council may wish to maintain the current structure whereby the City Clerk serves as the City Auditor pursuant to the City Code adopted by a previous Council and keep the position vacant until the voters elect a City Clerk in the November 2018 General Election. This approach would limit the type of auditing to more of a transactional auditing function whereby the function is focused on pure quality control of duties that are already being done in the Finance Department. If this approach is considered, Council may want to revisit the current stipend amount allotted to the position of the City Clerk and ensure that the duties are not delegated to clerical staff that lack the required training. In addition, if this configuration is maintained, staff still believes that it is necessary to begin to conduct audits within the organization and would respectfully request of the City Council additional appropriations to train staff to perform pre-audit work processes and seek consultant services for targeted audits as part of the Fiscal Year 2018/19 Recommended Budget.
FISCAL IMPACT
There is no fiscal impact related to this report. If the City Council maintains the auditor stipend, staff will continue to maintain it in the budget. If the City Council reduces the auditor stipend, staff recommends that funds left over be directed to fund future audit functions as discussed in this report. If the duties of the City Auditor are assigned to the Assistant Finance Director, staff recommends that the audit function become part of the designated employee’s routine job duties therefore, no additional stipend would be needed.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
ALTERNATIVES
1. Direct staff to return with an ordinance repealing Section 2.20.050, Performance of City Auditor’s functions, and move the City Auditor’s functions, along with expanded duties to conduct in-depth financial and performance audits and oversee the City’s performance management system, to the Assistant Finance Director in Chapter 2.105 of the City Code.
2. Direct staff to return to the City Council for the appointment of the City Clerk as City Auditor once the City Clerk position is filled.
3. Adjust or affirm the City Auditor stipend of $1,873/month.
4. Appoint any other officer or employee to serve as City Auditor per Charter Section 909.
5. Direct staff to assemble a City Auditor panel for a City Council Study Session on this local government role and profession and postpone action on this item.
6. Any other action as determined by the Council.
RECOMMENDATION
Recommendation
Staff makes no recommendation on this issue.
Staff
Prepared by: Walter C. Rossmann, Chief Operating Officer
Prepared by: Nadine Nader, Assistant City Manager
Prepared by: Angela Kraetsch, Finance Director
Approved by: Deanna J. Santana, City Manager
ATTACHMENTS
1. Historical Documents related to the Appointment of City Auditor
2. FY 2016-2017 City Auditor Annual Report
3. March 19, 2018 Santa Clara Stadium Authority Ad-Hoc Committee Report: Review of options for SCSA Auditor