TO: John P. Copanas, City Clerk
FROM: Minchin G. Lewis
DATE: March, 1999
RE: Annual Activities of the Department of Audit - An Overview
Today the Department of Audit plays a key role in evaluating risk, confirming information, analyzing operations, reviewing compliance, recommending controls, and assuring safeguards.
As prescribed by the City Charter, the Department of Audit is responsible for auditing the activity of each unit of City government. The audits are conducted in accordance with generally accepted government auditing standards. The Department now takes an in-depth look at issues of performance, economy and efficiency in various City departments and programs. Thus, Department of Audit staff has performed its functions as an internal audit entity.
Over the past few years the focus of the Department of Audit changed significantly, in response to Department staffing changes and City needs.
In late 1996, staffing was reduced within the Department to meet the budgetary aims of the Common Council, leaving a total of four positions, including the City Auditor. The Department adjusted to the personnel decrease by enhancing computer technology and related staff capabilities within the office, and by revising the Secretary's job description to include auditing tasks.
Other changes resulted from the City's hiring of an external audit firm in 1997. The external auditors performed the audit of the general purpose financial statements and Single Audit for fiscal years 1995 through 1998. These audits had previously been performed by the Department of Audit.
The following is a year-by-year accounting of the activities of the Department of Audit from Fiscal Year 1995 through 1998.
FISCAL YEAR 1995
FISCAL YEAR 1995 (July 1, 1994 - June 30, 1995)
At the beginning of Fiscal Year 1995, Russell J. Maxwell was City Auditor. Mr. Maxwell had been appointed by the Common Council to fill the vacancy created when the former City Auditor, Roy A. Bernardi, became Mayor in January, 1994. The Department of Audit completed the audit of the general purpose financial statements for the year ended December 31, 1993. The Department also issued the Single Audit report covering federal and state grants. Audit reports were issued on activities of several departments for 1993.
The reports issued by Mr. Maxwell were the last covering a calendar year period. The City adopted a fiscal year ending on June 30. The change took effect January 1, 1994, with the adoption of a six-month budget. Financial statements were also prepared for the period ended June 30, 1994.
In November, 1994, Minchin G. Lewis was elected by the voters of the City to replace Mr. Maxwell for the remaining year in the unexpired term of City Auditor. Mr. Lewis began his term in January, 1995.
During this second six months of Fiscal Year 1995, from January to June, 1995, the Department of Audit conducted the audit of the City's general purpose financial statements for the six-month period ended June 30, 1994. The Department focused on implementing an audit program in keeping with generally accepted government auditing standards.
Difficulties were encountered due to several factors. The records maintained by the Department of Finance were incomplete and inaccurate in many cases. Access to information was limited and the Department of Finance did not take responsibility for the accuracy of the financial statements. As a result, the Department of Audit issued a critical report in October, 1995.
Departmental and performance audits for the six-month period ended June 30, 1994 were also initiated during this second half of Fiscal Year 1995.
MAJOR PROJECTS completed during Fiscal Year 1995
Cash Receipts Operations
The Audit Report of Cash Receipt Operations and Property Tax Collection Systems was issued on April 26, 1995, to the Common Council and the Mayor. It documented deficiencies in the way the City's cash was being accounted for. It recommended improvements to the procedures used by the Department of Finance, including the use of an automated General
Ledger system. The recommendations were implemented.
General Purpose Financial Statements Audit & Single Audit
-for the six-month period ended June 30, 1994
The primary responsibility of the City Auditor was to certify that the general purpose financial statements of the City were in conformity with generally accepted accounting principles. In 1984, the federal government began requiring financial statements from cities, audited by independent auditors. The Audit Department in Syracuse met that requirement, even though in most other cities, external public accounting firms were hired.
This project included four reports. In the first, the City Auditor stated that a cash discrepancy of $1.2 million was found in the accounts of the City. In the second, the Single Audit, the Auditor reported that state and federal grant funds were administered in accordance with requirements.
In the third report, the Auditor recommended a series of changes to increase the effectiveness of the City's financial management. The fourth report documented the difficulties the Audit Department encountered in performing the audit.
The Report on the Audited General Purpose Financial Statement, Single Audit Report and accompanying Management Letter were completed in October, 1995, and filed with the Office of the City Clerk, Office of the Mayor, Common Council, and Department of Finance. Additionally, the Single Audit Report was filed with federal and state agencies, as required.
Report on Errors and Omissions in the Official Statements
On September 11, 1995, the Department of Audit reported to the Common Council that the City had submitted erroneous information to prospective investors. The report recommended action by the Corporation Counsel to determine what action should be taken to correct the errors. No action was taken by the City Administration. This matter eventually led to an investigation by the Securities and Exchange Commission, which concluded that the City had misrepresented its financial condition. The City agreed to improve its submission of financial information for future borrowings.
Department of Public Works Bureau of Transportation - Performance
-for the six-month period ended June 30, 1994
This report, completed in June, 1995, reviewed the Bureau's budget activity indicators. Recommendations included using more descriptive activity indicator names, and changing some operational procedures. An overall procedural change suggested was to increase the utilization of the AS/400 data processing system. The report has been reviewed internally and serves as the baseline analysis of the performance of the Bureau. It will be used in any future performance reviews.
FISCAL YEAR 1996
FISCAL YEAR 1996 (July 1, 1995 - June 30, 1996)
In Fiscal Year 1996, work began on the financial statement audit for the City's annual period ended June 30, 1995. At a planning session in November, 1995 staffs from the Departments of Audit and Finance outlined the information that would be reviewed. The Department of Finance had not furnished the required reports to the Department of Audit by May, 1996. The deficiencies were listed in a technical report dated May 29, 1996. In March of 1996, the Common Council announced a moratorium on any spending bills until it received a deficit report from the Administration. Shortly thereafter, the Mayor made a decision to secure the services of an external public accounting firm. With the concurrence of the Department of Audit and the Common Council, the firm of Testone, Marshall, & Discenza, LLP was retained to audit the financial statements of the City for two years--Fiscal 1995, which ended on June 30, 1995, and Fiscal 1996, which had just ended.
The external auditors began their work in July, 1996. In September their engagement was expanded to compensate them for performing the work which had not been completed by the Department of Finance. The report on both fiscal years was issued in January, 1997.
MAJOR PROJECTS completed during Fiscal Year 1996
Departmental & Program Performance
-for the six-month period ended June 30, 1994:
Each audit report was filed with the Office of the City Clerk, Office of the Mayor, Common Council, and respective department on the date referenced below.
- Department of Assessment (filed January, 1996)
- Department of Aviation (filed October, 1995)
- Board of Elections - General(filed October, 1995)
- Office of the City Clerk (filed September, 1995)
- Common Council (filed October, 1995)
- Department of Community Development (filed September, 1995)
- Office of Commty Services (filed January, 1996)
- Executive Department (filed January, 1996)
- Department of Engineering (filed October, 1995)
- Department of Finance (filed January, 1996)
- Department of Fire (filed September, 1995)
- Department of Law (filed January, 1996)
- License Commission (filed January, 1996)
- Department of Parks and Recreation (filed January, 1996)
- Department of Parks and Recreation - Ice Skating Programs
- Performance (filed July, 1995) - Department of Police (filed January, 1996)
- Department of Public Works(filed January, 1996)
- Department of Purchase (filed January, 1996)
- Water Fund (filed October, 1995)
OTHER PROJECTS completed during Fiscal Year 1996
- Response to Mayor Bernardi's Letter to Councilor Uplinger
-for Councilor Uplinger (August, 1995) - Citizen Review Board Expenses
-for Councilor Guy (September, 1995) - 415 Budget Lines
-for Councilor O'Connell (January, 1996) - Special Audit Requests (for information)
-for Councilor O'Connell (January, 1996) - Miscellaneous Celebrations
-for Councilor O'Connell (February, 1996) - Proposed Water Authority
-for Common Council Public Works Committee (April, 1996) - S. U. Co-generation Plant
-for Councilor McCarty (May, 1996) - Grass Cutting Expense Analysis
-for Councilor O'Connell (May, 1996) - Airport De-Icing Plan Analysis
-for Councilor Magnarelli (May, 1996) - Syracuse/Liverpool Police Departments Merger Analysis
-for Councilor Bottrill (June, 1996)
FISCAL YEAR 1997
FISCAL YEAR 1997 (July 1, 1996 - June 30, 1997)
During Fiscal Year 1997 the role of the Department of Audit was re-defined. In prior years, the work of the Department was organized around the financial statement audit. The responsibility for that audit was transferred to an external auditor. This made it possible for the Department of Audit to focus on internal auditing issues.
The Department of Audit determined that the City's practices regarding cash management should be examined. Two areas were of particular concern. First, the City commingled its funds with the cash of the City School District, along with the cash on deposit for many other segregated funds. Secondly, the City did not report its cash balances accurately and on a timely basis.
These controversial topics emerged in several reports by the Department of Audit during the year. The audited financial statements, released in January, 1997, showed that the City had overdrawn several bank accounts by a total of $21 million. The financial condition of the City was called into question by the Department of Audit. The year ended with the issuance of the Report on the Use of Restricted Funds in June, 1997, which found that the City was failing to comply with legal restrictions on the use of its funds.
The Department revised its operating procedures to meet the budgetary objectives established by the Common Council. Funding for the position of Program Auditor was eliminated in the budget process. This reduction represented a 33% reduction in the professional staff of the Department. To absorb this change and minimize the impact on audit activities, the Department assigned some of the functions of the Program Auditor to the Secretary position, creating, in effect, an administrative analyst position.
MAJOR PROJECTS completed during Fiscal Year 1997
The Internal Control Project
In September, 1996, the Auditor's access to the financial records of the City was restricted by the Mayor's Office. This led to a major interruption in the work of the Department. A series of meetings and negotiating sessions led to the removal of the restriction in December, 1996.
In January, 1997, the Mayor's Office and the Department of Audit jointly announced a plan to strengthen the financial management of the City. The plan was referred to as "The Internal Control Project." Its goal was to assure the issuance of monthly financial statements to meet a policy objective established by the Common Council.
Although the implementation has taken place over an extended period, the recommendations have resulted in monthly financial statements. The statements are reviewed by the Department of Audit prior to their issuance.
Report on the Use of Restricted Funds
The Report on the Use of Restricted Funds, issued in June, 1997, responded to questions raised by Common Councilors regarding the use of money to pay the operating expenses of the City. Much of the money received by a municipal government may be used only for the specific purpose for which it was paid. The purpose of this limitation is to assure that funds will not be misappropriated by governmental officials. The report concluded that $17 million designated for specific purposes was used to meet general governmental obligations, in violation of the City Charter, New York State Law, and the covenants related to the City's bonds.
This report recommended revisions to the City's Investment Policy and remedial action for any violations which may have occurred. The report also addressed the question of short-term borrowing which may be required to re-establish the City's cash position.
The City Administration contested the report, asserting that it was complying with all requirements. To resolve the differences of opinion, the Common Council requested assistance from the City's external auditors. The firm of Testone, Marshall & Discenza, LLP was engaged to review the issues. Their report, which supported the position of the City Auditor, was issued in December, 1997.
Departmental & Program Performance Audits for the Fiscal Year ended
June 30, 1995:
These reports were filed with the Office of the City Clerk, Office of the Mayor, Common Council, Department of Finance and respective departments.
- Department of Assessment (filed April, 1997)
- Board of Elections (filed March, 1997)
- Department of Fire (filed February, 1997)
- Department of Law (filed March, 1997)
- Department of Parks, Recreation & Youth Services - Operational (filed March, 1997)
- Department of Police (filed January, 1997)
- Department of Public Works (filed June, 1997)
OTHER PROJECTS completed during Fiscal Year 1997
- Tax Delinquency Notices - FY 95
-for Councilor Hartnett (July, 1996) - City Budget Allocations for Syracuse City School District
-for Assemblywoman Christensen (July, 1996) - Wadsworth Park Budget Line Information
-for Councilor Hartnett (August, 1996) - Status of Cash Capital & Contract Payments
-for Councilor O'Connell (November, 1996) - City's Compliance - Real Property Tax Law
-for Councilor Hartnett (December, 1996) - Review of SCSD Audited Financial Statements for year ended June 30, 1996
-for Councilor McCarty (January, 1997) - General Fund Budget Variances
-for Councilor Hartnett (February, 1997) - Proposed Automation-Cash Receipts/Tax Collection Systems
-for Common Council (March, 1997) - Financial Statement Analysis: Annual Comparison
-for Common Council Finance Committee (April, 1997) - Employee Deferred Compensation Plan
-for Councilor McCarty (April, 1997) - Tax Increase Impact
-for Councilor Magnarelli (April, 1997) - Recommendations for Proposed Budget
-for Common Council Finance Committee (May, 1997) - Recommendations on Contract with Business Records Corporation
-for Common Council (June, 1997)
FISCAL YEAR 1998
FISCAL YEAR 1998 (July 1, 1997 - June 30, 1998)
Fiscal Year 1998 saw several important developments in the City's financial management. The report of the Securities and Exchange Commission was issued in September, 1997 (see Fiscal Year 1995 - Report on Errors and Omissions in the Official Statements). The financial condition of the City was debated during the Mayoral election campaigns.
The report of the City's external auditors regarding the use of restricted funds was released in December, 1997. The credit rating of the City was down-graded in a series of moves by the investment community, indicating the weakened position of City finances.
Several major projects were completed during Fiscal Year 1998.
MAJOR PROJECTS completed during Fiscal Year 1998
Review of Restricted Funds/Capital Projects
Issues enumerated in the Fiscal Year 1997 Report on the Use of Restricted Funds, spawned further research and reporting in the new fiscal year. The initial report found that the City was not adhering to the limitations on the use of funds. The findings were supported by the opinion of the City's external auditors. The Department of Audit re-affirmed its recommendations in a memo to the Common Council, Office of the Mayor, Department of Finance, Testone, Marshall & Discenza in December, 1997, after the release of the external auditors' attestation report.
In response, the City Administration modified some of the procedures that were questioned in the reports. The City appealed two issues to the New York State Office of the State Comptroller for a ruling. In an opinion issued in May, 1998, the Office of the State Comptroller supported the opinion of the City Auditor and the opinion of the external auditors.
The City subsequently changed the way in which it was accounting for funds held by the City on behalf of the City School District.
Interim Report on Payroll, Timekeeping and Personnel Records Management
This report provided background for Compensated Absence project begun this year. The information was disseminated in March, 1998 to the Office of the Mayor, Department of
Finance, the Common Council, Department of Personnel, and the external auditors.
The project reviewed practices, policies and systems related to payroll, timekeeping and personnel records maintenance, all of which affect the accounting for compensated absences.
Recommendations included: (1) developing a comprehensive payroll system which integrates the timekeeping systems used within the City; (2) establishing/updating policies and procedures for timekeeping and related processes where they are lacking; (3) developing a City employee handbook; (4) establishing a central archive system for personnel records; (5) establishing a payroll and personnel management committee to review recommendations and to develop and implement improvement strategies.
The Department's work continued in this, and in the subsequent fiscal year, on investigating, and eventually calculating the City's liability for compensated absences.
Budget Recommendations for Fiscal Year 1999
The Department of Audit participated in the review of the Mayor's budget in several ways.. In a memo dated March 31, 1998 to Councilor Magnarelli, the Department outlined a Program Performance Budget Review process. The Program Performance review would focus on the services provided by the City, rather than on the individual items of expense. Working with the Budget Department and the Council's legislative assistant, the Department of Audit assisted in the implementation of the program performance budget review process.
Review of Financial Statements for Fiscal Year 1997
The Department of Audit reviewed the audited general purpose financial statements of the City and the audit report from the City's external auditors. The City Auditor reported to the Common Council in June, 1998 showing changes in seven areas that affect the financial condition of the City. The report found that Net Cash had increased by $12 million, unpaid property taxes had increased by $2 million, and long-term debt had been reduced by $5 million.
Departmental & Program Performance Audits:
These reports were filed with the Office of the City Clerk, Office of the Mayor, Common Council, Department of Finance and respective departments.
- Office of the City Clerk - Operational
- for the Fiscal Year ended June 30, 1995 (filed September, 1997) - Executive Department - for the Fiscal Year ended June 30, 1995
(filed July, 1997) - Department of Finance - for the Fiscal Year ended June 30, 1995
(filed August, 1997) - Department of Public Works Division of Design & Construction - Performance
- for the Fiscal Year ended June 30, 1996 (filed September, 1997) - Examination of Selected Accounts - Analytical
- for the Fiscal Year ended June 30, 1995 (filed December, 1997) - Common Council
- Executive Department
- Department of Audit
- License Commission
- Office of the City Clerk
- Department of Purchase
- Office of Community Services
- Department of Community Development
- Office of Development
- Department of Public Works
- Department of Parks and Recreation
- Citizens' Review Board
- Examination of Expenditures for the City of Syracuse - Analytical
- for the Fiscal Year ended June 30, 1996 (filed February, 1998) - Common Council
- Executive Department
- Department of Finance
- Department of Audit
- Office of the City Clerk
- Department of Purchase
- Department of Assessment
- Department of Law
- Office of Community Service
- Board of Elections
- Department of Community Development
- Office of Development
- Department of Public Works
- Department of Fire
- Department of Police
- Department of Parks, Recreation & Youth Services
- Citizens' Review Board
Other Projects completed during Fiscal Year 1998
- Changes in Payroll 1995-1997/ Surplus 1996/Advance-County Sales Tax
-for Councilor Uplinger (September, 1997) - SEC project
-for Department of Audit, Common Council (October, 1997) - Internal Controls Project/Computer Access
-for Mayor Bernardi, Common Council (February, 1998) - Forfeiture & Seizures
-for Councilor Uplinger (May, 1998) - Avenue of the Arts - Research and Recommendations
-for Common Council (June, 1998)