Memorandum

City of Lawrence

City Auditor

TO:	Members of the City Commissioner
FROM:	Michael Eglinski, City Auditor
CC:	David L. Corliss, City Manager Cynthia Boecker, Assistant City Manager Diane Stoddard, Assistant City Manager Jonathan Douglas, Assistant to the City Manager
Date:	April 24, 2008
RE:	Potential performance audit projects

This memo includes some background information on the process I followed to identify potential audit projects; information on other projects I will work on during the year; and a preliminary proposed audit plan for 2008.

City Code requires the City Auditor to coordinate with the City Manager in creating an annual work program, to annually present the proposed work program of planned major audits and planned special projects to the City Commission. The City Commission may amend or alter the work program as it deems appropriate.

Audit selection process

Identifying potential audit topics involved reviewing documents, meeting with each of the department heads and City Commissioners, meeting with the City Manager, and reviewing audit work from other jurisdictions. Documents I reviewed include: the 2007 budget; June 2007 budget memos from departments; the City Code; the 2007 resident survey; the 2005 employee survey; the Matrix report on planning and development; the 2005 resource plan for the police department; and the 2006 comprehensive annual financial report. I also compared general fund department budgets over three years; calculated several financial ratios based on prior year financial reports; and reviewed 2007 City Commission agendas to determine the frequency of different agenda topics.

The general principles I followed to identify and prioritize audit projects were to look for topics:

• Of importance to residents and the organization;
• That could provide information to help develop annual audit plans for future years;
• That provide opportunities for the newly created audit function to interact with many departments; and
• That can have a defined scope, making the audit work most manageable.

I identified eight high priority audit projects. My preliminary proposal is that the 2008 work plan includes: pavement condition measures, police administrative bureau preliminary review, financial indicators analysis, ethics questions for employee survey, and controls over small purchases. I propose that the remaining three priority projects be reconsidered in the next year’s planning process.

2008 high priority audit projects

	Potential audit project	Details
A	Pavement condition measures	The city uses pavement condition measures to allocate resources and monitor the results of maintenance. The 2008 street maintenance program is funded at $4.8 million. Reliable measures help the city best maintain the streets. Residents identified the condition of city streets/infrastructure as the area the city should most emphasize. The audit work would involve reviewing controls over the reliability of the pavement measures. The work could also identify areas for further audit work related to the streets.
B	Police administrative bureau preliminary review	The police department provides a visible and important city service. The department is the largest general fund department in the city, with a budget of about $14 million and 176 authorized positions. The administrative bureau includes animal and parking control, information systems, evidence, records, internal affairs, training and special projects. Investigations and patrol are not part of the administrative bureau. A preliminary review audit would identify topics in the administrative bureau that could warrant further audit work.
C	Financial indicators analysis	A review of a small set of financial indicators based on the city’s comprehensive annual financial report would help describe the city’s financial condition and identify “warning trends.” The project would look at about a dozen indicators using five years of data from the annual financial reports. The audit could help the City Commission monitor the city’s overall financial condition and identify areas for further audit work.
D	Ethics questions for future employee survey	City management plans to survey city employees later this year. It may be possible to include questions about the city’s ethical climate without increasing the survey’s cost. Including ethics questions could set a baseline for comparison in future employee surveys. The project would look at the feasibility of including questions and identify potential questions. The result would be a memo to the City Commission and the City Manager for consideration.
E	Controls over small purchases	The city makes a large number of small (under $1000) purchases, many of these transactions use “purchasing cards.” In 2007, the city paid about $800,000 for transactions made with purchasing cards. With appropriate controls, purchasing cards provide for low cost, efficient, and flexible procurement. An audit would review the city’s controls over purchasing cards and compare the city’s controls to good practices.
F	Contract monitoring	Following good contract monitoring practices helps ensure the city gets what it wants at an appropriate price. Audit work would involve reviewing a number of contract files from different departments and comparing them with good practices, identifying any gaps. The audit could identify areas for further audit work.
G	Street light payments	The city pays about $500,000 a year for street lighting. The electric utility owns, operates and maintains the street lights. The payments are based on the number and type of lights. Residents surveyed in 2007 rated the adequacy of street lighting relatively low. Audit work would involve reviewing controls to ensure the city pays the correct amount. The work could also identify areas for further audit work related to the street light system.
H	Planning and development services	Residents identified the quality of planning and development as one of the top three areas the city should most emphasize in coming years. Nearly half of the residents who expressed an opinion were dissatisfied with how well the city is planning for growth. Matrix Consulting Group made 67 recommendations to improve the city’s development review process in a 2006 report. Audit work could involve following-up on findings and recommendations made by the Matrix report; reviewing a sample of development plans to evaluate the review process; or comparing the process in Lawrence with other jurisdictions.

Other 2008 projects

In addition to completing audit projects, I will work on several other projects during the year. These include:

• Writing an audit policies and procedures manual consistent with requirements of Government Auditing Standards. I have been working on a draft. I expect to share a draft with audit colleagues for feedback in May, and complete the manual in June.
• Developing a proposed annual audit plan for 2009. The work will be on-going.
• Attending approximately 40 hours of continuing education. Government Auditing Standards require completing 80 hours of continuing professional education in each two year period.
• Continuing my participation as a member of the Association of Local Government Auditors Peer Review Committee.
• Working with city staff to develop and maintain a web page for the City Auditor’s Office.

Other potential audit project topics

The City Commission expressed interest in other topics that I considered but have not included in the proposed topics for the 2008 annual audit work plan. The topics listed below were identified during the audit selection process but not judged to be of as high a priority as the eight topics described previously.

Citizen contact with city government

Utility cuts and street conditions

Overview of city human resources functions

Survey of outside agencies’ and component units’ financial management practices

Golf course finances

Take home vehicles

Contract change order controls

Workers compensation controls

Infrastructure ‘grade card’

Franchise fees

PC inventory controls

Business climate measures

Police complaint process

Right-of-way management

Condition of city buildings

Hours and flexibility of trash collection staff

Pandemic flu preparedness

Record retention

Budget process

Utility audit summaries and follow-up

Library system performance measures

Reliability of vehicle and equipment condition data

City cleanliness

Intergovernmental funding/service provision agreements

Use of consultants

Investment practices