Public Funds, Public Scrutiny: Local Government & Fraud Risk

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1 League of California Cities 2016 City Attorneys Spring Conference Public Funds, Public Scrutiny: Local Government & Fraud Risk May 5, 2016 Audit Tax Advisory Risk Performance 2016 Crowe Horwath LLP

2 How Does Occupational Fraud Impact the City Attorney? Increased risk of litigation Potentially involving City officials, employees, vendors, citizens and law enforcement Reputational risk Loss of constituency confidence and public trust Increased media and watchdog attention and regulatory scrutiny Political turmoil If a City official is alleged to be involved, potential increase in political instability and decrease in effective governance If a City employee is alleged to be involved, potential increase in finger-pointing and the blame game Increase in public record requests Increase in requests triggers multiple risks and likely places a strain on City resources Financial loss to the City Audit Tax Advisory Risk Performance 2016 Crowe Horwath LLP 2

3 For Your Consideration: Three Areas of Risk Recognizing that occupational fraud can manifest in a nearly limitless variety of forms, we highlight the following risks for your consideration based on our recent professional experience and observations: Proper review and approval of City expenditures and disbursements Correlation between City vendors and political / charitable donors Transparency of public records Audit Tax Advisory Risk Performance 2016 Crowe Horwath LLP 3

4 Review and Approval of City Expenditures and Disbursements Are disbursements of City funds reviewed and approved by a central governing body (e.g., City Council, Finance Committee)? Are all forms of disbursements included in that process (e.g., checks, wire transfers, credit card purchases)? What processes or controls are in place to ensure that all fund disbursements are captured for review and approval (e.g., check listing, cash reconciliation)? How are emergency checks handled (i.e., checks issued on an emergency basis in advance of formal approval, such as for unanticipated sewer repairs)? Audit Tax Advisory Risk Performance 2016 Crowe Horwath LLP 4

5 Correlation Between Vendors and Political / Charitable Donors Which vendors have received the highest percentage of City funds over the past few years? Have any of those vendors made significant contributions to the campaign fund of a City official? Have any of those vendors made significant contributions to a charitable or other non-profit organization at the behest of a City official or high-ranking City employee (e.g., City Manager)? Have any of those vendors been directly awarded City work of significant value (i.e., received through a no bid contract)? Have any of those vendors received significant distributions through the City s Tax Increment Financing (TIF) program? Audit Tax Advisory Risk Performance 2016 Crowe Horwath LLP 5

6 Transparency of Public Records Are all public record requests made of the City completed fully and in a timely manner? Are all City meeting minutes (inclusive of sub-committee meetings) made available to the public in a timely manner? Are non-public accounts (e.g., Gmail) used by City officials and personnel for official City business? Is the City current with its filing of audited financial statements, Tax Increment Filing (TIF) reports and other regulatory and lender filings? Does the City preemptively make available to the public frequently-requested records (e.g., budgets, audited financial statements, vendor agreements)? Audit Tax Advisory Risk Performance 2016 Crowe Horwath LLP 6

7 Other Areas of Risk for Your Consideration Whistleblower / tip hotline Does the City have one in place? How and to whom is it publicized? Is anonymity guaranteed? Are all tips objectively assessed and concluded upon? Internal audit function Who is monitoring the accuracy and integrity of the City s financial reporting process? Formal written policies and procedures Policies to be followed by officials and personnel (e.g., use of City credit cards) Procedures for all critical financial and operational processes (e.g., cash reconciliation), as well as related control processes (e.g., wire transfer approval) Safeguarding Tax Increment Financing (TIF) and municipal bond proceeds Term limits for elected officials Audit Tax Advisory Risk Performance 2016 Crowe Horwath LLP 7

8 For more information, contact: Jon Theobald, CPA, CFE Direct Nicholas Briscoe, MS, CVA, CEA, CFE Direct In accordance with applicable professional standards, some firm services may not be available to attest clients. This material is for informational purposes only and should not be construed as financial or legal advice. Please seek guidance specific to your organization from qualified advisers in your jurisdiction Crowe Horwath LLP, an independent member of Crowe Horwath International crowehorwath.com/disclosure Audit Tax Advisory Risk Performance 2016 Crowe Horwath LLP 8