San Diego Audit Committee Meeting October 31, 2018: Fleet Operations, CAFR, Fraud Hotline, and Water Billing

The Audit Committee of the City of San Diego met on October 31, 2018, to discuss and act on several items including a performance audit of fleet operations vehicle acquisition, the award recommendation for the comprehensive annual financial report (CAFR) audit contract, a CAFR milestone update, the quarterly fraud hotline activity report, and a progress report on water billing operations improvements. The meeting was chaired by Councilmember Zaf, with all members present.

Monthly Activity Report (Item 4)

• Interim City Auditor Kyle Elsner presented the monthly activity report, noting that four audit products had been issued since the last meeting: the fleet operations vehicle acquisition report, a mishandled payroll check report, a jury duty service fraud report, and the quarterly fraud hotline report for Q1 FY19.
• Four reports are in the writing stage (IT audit of Acela, community planning groups, transportation stormwater curb painting) and are expected in November; the Department of Finance external financial reporting audit is planned for early December.
• Two audits are in fieldwork (IT security of City Hub, park and recreation joint use agreements), and four are in planning (public utilities call center, AMI implementation, transportation stormwater tree trimming, neighborhood services homelessness). Nine audits on the FY19 plan have not yet started.

Performance Audit of Fleet Operations Vehicle Acquisition Process (Item 1)

• Principal Auditor Chris Kime presented the audit, which assessed whether fleet operations meets the city's needs. The audit reviewed a judgmental sample of 64 vehicles from fiscal years 2016 and 2017 (out of approximately 400 vehicles) across three acquisition phases.
• Finding 1: Fleet operations may be able to get vehicles in service more quickly. The average time from vehicle delivery to in-service (phase 3) was 84 days in FY16 and 57 days in FY17. Data reliability issues were noted, and key acquisition dates were not systematically tracked.
• Finding 2: The Fleet Focus software is underutilized. Only 9 of 16 purchased modules have been implemented, and the city lacks staff with specialized skills to fully leverage the system.
• Recommendations included setting performance goals, developing policies to track acquisition times, establishing roles and responsibilities via an administrative regulation, collecting more specific data, and working with the personnel department to fill a system administrator position.
• Councilmember Sherman expressed concern about the lack of data entry and the time taken to fill the system administrator position. Fleet Operations Director Ali O'Corey noted that a position had been requested but rejected by personnel; Personnel Director Doug Edwards explained that a business systems analyst classification was not appropriate and that an unclassified position would be pursued. The committee discussed the need to streamline hiring processes.
• A motion to accept the audit and forward it to the City Council passed unanimously.

Award Recommendation for CAFR Audit Services (Item 2)

• Interim City Auditor Kyle Elsner and Danielle Knighton presented the evaluation committee's recommendation for a five-year contract (FY19–FY23) to provide annual audit services for the CAFR, single audit, and other audit services.
• The RFP was released on July 12, 2018, and closed on September 7, 2018. 153 firms were notified; six proposals were received. MGO (the incumbent) received the highest score of 84.9 evaluation points. No SLBE/ELBE points or oral presentations were applicable.
• MGO demonstrated a clear understanding of the audit services, proposed to rotate the engagement partner (as required by California state law), and reduced fees by nearly 3% from the previous contract, totaling over $2.5 million for the five years.
• Committee members commended MGO's past performance and the competitive process. A motion to accept the recommendation and forward it to the City Council passed unanimously.

2018 CAFR Milestone Update (Item 3)

• Scott Clark, Assistant Director of the Department of Finance, reported on the status of the FY18 CAFR. The first draft had been submitted to the outside auditor, and a second draft was expected by the end of the week. The audit opinion is anticipated in early December, with the committee review scheduled for January 2019.
• The committee accepted the report unanimously.

Quarterly Fraud Hotline Activity Report (Item 5)

• Fraud Investigator Andy Horita reported that during Q1 FY19 (July–September 2018), the hotline received 59 complaints. Of these, 10 were assigned to the Office of the City Auditor, 32 to departments, and 17 were outside the purview of the hotline.
• At the start of the quarter, 32 cases were open; 42 new cases were added, and 26 were closed, leaving 48 open cases.
• Two city auditor investigations were substantiated: one regarding jury duty fraud (four recommendations made) and one regarding improper handling of a paper paycheck (two recommendations made). Three department investigations were substantiated, and three city auditor investigations led to corrective actions.
• The committee accepted the report as informational.

Progress Report on Water Billing Operations Improvement (Item 6)

• Deputy Chief Operating Officer Johnny Perkins and Public Utilities Interim Director Matt Vespey presented the October 2018 activity progress report on implementing the 10 recommendations (25 deliverables) from the city auditor's performance audit of water billing operations.
• As of September 30, 2018, 10 deliverables had been completed, affecting seven recommendations. All planned activities for August and September were accomplished per the management response timeline. The department is on track to implement all 10 recommendations by June 2019.
• Specific actions included: implementing new standard operating procedures (SOPs) for meter reading controls (e.g., resetting supervisor codes monthly, requiring personal IDs and passwords), creating a re-bill report (1,161 customer rebills in September out of 149,000 customers), strengthening supervisory review of meter reader accuracy, and formalizing customer communication for bill-impacting activities.
• Additionally, the department engaged West Monroe LLP, which issued eight recommendations focused on meter-to-cash operations. Several overlap with the city auditor's recommendations. The department is tracking implementation of both sets of recommendations.
• Committee members commended the department's progress, noted the collaborative effort with labor unions, and highlighted the focus on improving customer service.
• The report was informational; no motion was required.

Key Outcomes

• Performance Audit of Fleet Operations: Motion to accept and forward to City Council passed unanimously.
• CAFR Audit Services Award: Motion to accept the recommendation and forward to City Council passed unanimously.
• 2018 CAFR Milestone Update: Motion to accept the report passed unanimously.
• Quarterly Fraud Hotline Activity Report: Accepted as informational.
• Water Billing Operations Progress Report: Received as informational.