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Home My WebLink AboutCOM 0343.000 2016-2018 Valerie T.Poindexter -•V of Bonnie S.Nims,CGAP Chair&Presiding Officer O�`•s°'_=k H'`v Legislative Auditor Council District 1 : - +Lii„ ', Business Address 1266KamehamehaAvenue ''•y TF'OF HPC Suite A-8 Hilo,Hawai`i 96720 (rn rtf of C tiiimi`i OFFICE OF THE LEGISLATIVE AUDITOR 25 Aupuni Street Hilo, Hawai`i 96720 * (808)961-8386 * Fax(808)961-8905 website: http://hawaiicounty.gov e-mail:publiclao@co.hawaii.hi.us June 21, 2017 COUNTY CLERIC COUNTY OF HAWAII RECEIVED Time 1gy � Valerie T. Poindexter, Council Chair and Date )- -, . `'lza ' Members of the Hawai`i County Council Hawai`i County Council 25 Aupuni Street Hilo, Hawai`i 96720 Dear Madam Chair and Council Members, In accordance with Hawaii County Charter Section 3-18(d)(2), attached is the Office of Legislative Auditor's Fiscal Year 2017-2018 annual audit plan. This provision requires our Office transmit to the Hawai`i County Council and the mayor, for information only, an annual audit plan. The purpose of the audit plan is to identify particular agencies, departments, funds, programs, or other matters the Auditor has scheduled for audit in the fiscal year. Our annual audit plan facilitates an efficient allocation of limited audit resources on a risk-basis; provides a flexible mechanism for managing competing audit needs; eliminates the potential overlapping of audits with other audit organizations, and provides a sound foundation for obtaining sufficient budgetary funds required to execute our mission. Our Office is committed to maintaining a collaborative partnership with the County Council and the Mayor's Office. Furthermore, we would like to acknowledge the professionalism and cooperation extended to our Office by the County agencies and departments in the past and we look forward to the upcoming year of audit coverage and services to the County of Hawai`i. Sincerely, - I AIM 410 — L Bonnie S. Nims, CGAP Legislative Auditor cc: Harry Kim, Mayor Stewart Maeda, County Clerk Comm. P o._3 Lf 3 Ref. To: Fe- Ref. GRef. Date JUAN 2 2 2017 Hawai`i County is an Equal Opportunity Provider and Employer Fiscal Year 2017-2018 Table of Contents Our Audit Authority 1 What is a performance audit? 1 Audit Framework 1 Overview of Annual Audit Plan 2 2017-2018 Planned Audits 4 County of Hawai'i Office of the Legislative Auditor Bonnie Nims, CLAP, Legislative Auditor June 21, 2017 Dear Fellow Citizens, I am pleased to present the fiscal year 2017-2018 audit plan for the County of Hawaii Office of the Legislative Auditor. The purpose of the audit plan is to identify particular County agencies, departments, funds, programs, or other matters we have scheduled for audit in the fiscal year. Our annual audit plan includes two follow up audits and four performance audits. We also coordinate the financial statement and federal single audit of the County of Hawaii with a contracted CPA firm. This audit plan facilitates an efficient allocation of limited audit resources on a risk -basis; provides a flexible mechanism for managing competing audit needs; eliminates the potential overlapping of audits with other audit organizations, and provides a sound foundation for obtaining sufficient budgetary funds required to execute our mission. Respectfully, Bonnie S. Nims, CGAP Legislative Auditor County of Hawaii Our Audit Authority Hawai'i County Charter Section 3-18 establishes an independent audit function within the Legislative Branch through the Office of the Legislative Auditor (OLA). It is our mission to serve the Council and citizens of Hawai'i County by promoting accountability, fiscal integrity, and openness in local government. Through performance and/or financial audits of County agencies and programs, the Office of the Legislative Auditor examines the use of public funds, evaluates operations and activities, and provides findings and recommendations to elected officials and citizens in an objective manner. Our work is intended to assist County government in its management of public resources, delivery of public services, and stewardship of public trust. What is a performance audit? Performance audits typically examine the effectiveness, economy, or efficiency of a government program. They can include analyzing the services of an entire department or activity, identifying possible cost savings, identifying the outcomes achieved by a program, or comparing actual department practices against the practices called for in law or policy. Types of questions we may attempt to answer include: • Is this program accomplishing its goals and objectives? (Are there other ways to achieve this goal?) (Is this goal still relevant?) (How do other counties achieve this goal or fulfill this need?) • How well does the program do what it is intended to do? (How many are served?) (What does it cost per unit?) (How does the County of Hawaii compare to other counties in this regard?) • Is this program complying with all applicable laws and regulations? (Does the program meet all federal grant requirements?) (Is the program fulfilling any obligations mandated by state or county law?) Performance audits have a broader focus on the organization than more traditional financial audits. Financial audits are conducted to provide an opinion about whether an entity's financial statements are fairly presented and in conformity with generally accepted accounting principles. Financial audits do not focus on an entity's performance per se, but rather whether it has taken appropriate actions to control and safeguard its finances and accurately report on its financial conditions. Our objective is to improve public services. We do this by recommending specific actions that will address the issues we raise, and by providing valuable information to the public, program leadership, the Mayor, and the county council. The Hawaii Audit Framework Several key components are the cornerstone for our audit framework. These elements provide the Auditor with independence and result in a high impact potential to the County. Appointed Auditor— The County of Hawai'i has an appointed Auditor who is independent from elected officials and operational management. Comprehensive Access — The County Charter authorize the Auditor to have access to all officers, employees, records, and property maintained by the County and to all external entities, records, and personnel related to their business interactions with the County. Formal Audit Response — We give County departments the opportunity to formally respond to all audit findings and recommendations. Adherence to Government Audit Standards — We conduct all audits in accordance with Generally Accepted Government Auditing Standards (GAGAS) promulgated by the United States Comptroller General. County of Hawaii, Office of the Legislative Auditor P a g e 11 Overview of the Annual Audit Plan The Office of the Legislative Auditor utilizes professional standards and guidelines developed by the Institute of Internal Auditors for the Audit Plan Risk development of the annual audit plan. These guidelines recognize Assessment Criteria that an annual audit plan and work schedule benefit the organization by: Using a risk-based audit approach 0 Establishing which agencies, programs, contracts, or other to identify and prioritize potential areas will be prioritized for audits on an annual basis audit topics that pose the greatest potential risk and liability to the 0Permitting an efficient allocation of limited audit resources County, The Office of the 0 Providing a flexible basis for managing audit personnel Legislative Auditor considers the following risk factors: 0Projecting an estimated timetable for initiating and • Quality of Known Internal completing audits for the year • Size of Department or Operational Area Eliminating the potential for overlapping audits within the Division and with other audit organizations • Compliance and Regulations • Providing an identifiable basis for the role of the Office and • Public Sensitivity justification for obtaining budgetary funds • Complexity of Transactions • Management Accountability • Quality of Known Internal Preparing the Annual Audit Plan Control System • Age of Program or Operation Audits included in the annual audit plan are selected and prioritized • Audit History using a risk-based approach. Risk assessment is a process used to identify and prioritize audits based upon specific risk factors related • Public Health and Safety to the quality of internal controls and the estimated potential liability • Critical Infrastructure and level of risk exposure to the County of Hawai'i related to • Emerging Risk Areas various County departments, programs, activities, and contracts. The OLA utilizes several techniques to identify and prioritize audits • Inherent Risk Areas in the annual plan. These techniques include: • Departmental Requests • Analysis of operations and internal controls derived from previous internal audits formal audit follow-up County of Hawaii, Office of the Legislative Auditor • Assessment of operations and controls derived from previous external audits including information in the County's Comprehensive Annual Financial Reports (CAFRs) and Single Audit Reports • Input from elected officials, operational management, peer audit groups, and members of the public • Benchmarking against the audit priorities of other governmental entities • Consideration of current local events, financial conditions, and public policy issues Page 12 Examples of Audit Types The following are examples of the audit types considered in the OLA's annual audit plan. These include audits that examine: • Organizational units within a County agency such as a division or a department • Individual County programs and activities • Transaction cycles or processes that "horizontally" cross multiple County functions or departments, such as contract procurement and purchasing, grants, human resources, information technology, etc. • Individual financial statement accounts and transactional areas such as capital assets, leave liability, accounts payable, and payroll • Contracts and agreements the County has entered into with a third party When we evaluate potential audits from a variety of perspectives, we can ensure that there is widespread audit coverage in terms of both the types of audits performed, as defined in Generally Accepted Government Auditing Standards, and in terms of the County's vast array of departments, programs, activities, and contracts. Audit Plan Principles In order to provide guidance and a framework for the development of the annual audit plan, the Office of the Legislative Auditor recognizes the following and observes basic audit plan principles: • Audit resources are limited, thus prohibiting 100 percent audit coverage each year. • The audit plan is a flexible and dynamic tool that can be amended throughout the year to reflect changing County risks and priorities. • The audit plan gives consideration to work performed by other auditors. • The audit plan recognizes that there are inherent risks and limitations associated with any method or system of prioritizing audits. As a result, risk factors are periodically evaluated and modified, as necessary. County of Hawaii, Office of the Legislative Auditor P a g e 13 Fiscal Year 2017-2018 Planned Audits AuditDepartmentAudit In accordance with Hawaii County Charter Section 10-13, our Office will monitor the conduct of the external auditor, N&K CPA's Financial audit of Department of Inc. (Contract No. C.004162) who will complete the following: the County's Finance and Comprehensive other Single Audit of Federal Financial Assistance Programs for Annual Financial departments as Fiscal Year Ended June 30, 2017. Report (CAFR) for required 0Financial Audit of the Department of Water Supply for Fiscal Fiscal Year Ended Department of Year Ended June 30, 2017. June 30, 2017. Water Supply 0Report for Landfill Financial Assurance; and • Financial Assessment Electronic Submission of Section 8 — Housing Choice Vouchers. Department of Follow -Up on Finance and other We will follow up on recommendations made in the 2015 Purchasing Cards departments as Performance Audit on the Purchasing Card Program. required Follow -Up on Department of Parks We will follow up on recommendations made in the 2015 Variable Frequency &Recreation Performance Audit of Variable Frequency Drives at the Drives Department of Parks and Recreation. County -Wide We will evaluate internal controls; identify opportunities to better Overtime departments identified during audit control overtime expenditures. We may also assess whether it is planning less expensive to pay overtime or fill new positions. County -Wide We will evaluate compliance with relevant change order statutes, Contract departments policies, and procedures; controls against change order fraud and Management and identified during audit abuse; and the appropriateness of change orders. We will also Change Orders planning consider leading practices to control the pricing of labor, materials, equipment, and markups on change orders. Cash Handling & We will evaluate internal controls; identify opportunities to better Receipting Mass Transit control cash receipting. We will also determine if all cash was deposited timely and intact. County -Wide We will evaluate internal controls and best practices; identify Fleet Management departments opportunities to better fleet management which may include fuel identified during audit management, maintenance reporting, acquisition versus continued planning maintenance, and/or centralization of fleet management. County of Hawaii, Office of the Legislative Auditor P a g e 14