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HomeMy WebLinkAboutAuditor's Office, FY 2014-15 DEPARTMENT BUDGET REVIEWS 4/14/2014 DEPARTMENTAL BUDGET REVIEWS 2014-15 OFFICE OF THE COUNTY AUDITOR April 14, 2014 Office of the County Auditor (ss) Page 1 There being no objections, the Committee was called back to order at 1:47 p.m., and proceeded as follows: Office of the County Auditor Honorable Tim Bynum Honorable Mason K. Chock, Sr. Honorable Ross Kagawa Honorable Mel Rapozo Honorable JoAnn A. Yukimura (present at 1:48 p.m.) Excused: Honorable Gary L. Hooser Honorable Jay Furfaro, Council Chair Mr. Rapozo: Ernie, you can begin. There being no objections, the rules were suspended. ERNESTO G. PASION, County Auditor: Good afternoon, for the record, Ernesto G. Pasion, County Auditor. For the record, I would like to read my budget presentation and you have copies of it. Starting with the mission. It is our vision that through carefully selected audits of critical areas, we can promote honest, efficient, effective, and accountable government for the County of Kaua`i. Number two, goals and objectives for Fiscal Year 2013-2014. Goal 1: To serve as a catalyst for positive change throughout County operations. Goal 2: To encourage efficiency and effectiveness of County programs. Goal 3: To inspire public trust by safeguarding the County's financial integrity by having annual financial audits done by outside auditors and conducting in-house performance audits. Departmental objectives were as follows: 1. Produce Countywide Fiscal Year 2012-2013 Comprehensive Annual Financial Report. This meets goal number three and this was achieved and the CAFR was submitted on December 6, 2013. Obstacles or challenges, loss of auditor/liaison to outside auditors. Oversight and liaison activities had to be performed by the County Auditor and the Audit Analyst. Number two, complete two performance audits, goals one and two. Yes, dollar funding of one Auditor and retirement of another Auditor resulted to the outsourcing of audits. B. Will objectives be accomplished by June 30, 2014. Yes, the CAFR was submitted on time and two performance audits were completed. The Audit of County Vehicles was issued and the draft of the Furlough Audit was issued, with the final report soon to be issued and made available to the public with the County Administration's response to the findings and recommendations. We anticipate to receive the auditee's response on Friday, April 11, 2014. C. Obstacles and challenges. We had intended to hire a replacement for the Audit Manager who unexpectedly retired at the beginning of August 2013. However, even if the position would have been filled, the operation of the Office would not be up to standards according to the audit manual. A third auditor, who is uninvolved in an audit, is required to do an independent report review. An independent report review according to government auditing standards is an essential part of the audit process. The third auditor position was eliminated (dollar-funded) by the Mayor. Although the County Council has the ultimate authority on the County budget, and instead of supporting the legitimate and Chartered Office under the Legislative Branch, this body supported the Mayor and yet further cut the budget of the Office. With the loss of two-thirds of the audit capacity, the Office resorted to outsourcing the Furlough Audit. Number two, the financial audit known as CAFR for this fiscal year ending June 20, 3014 is covered by the last year of a four-year contract with the outside CPA firm of N&K CPAs. $225,000 is included in this budget. To do an RFP for a new four-year contact, budgeted April 14, 2014 Office of the County Auditor (ss) Page 2 money is required for the certification of funds, a pre-requisite by State procurement code. D. Strategies to address obstacles or challenges. We are requesting restoration (three- quarters funding) of the two auditor positions. Initially, I submitted full funding of the two positions. Number one. Staffing, the Mayor, the Chief Administrative Officers of the Executive Branch of County Government, requested to review a Legislative Branch's Office of the County Auditor budget for Fiscal Year 2014-2015. A meeting with him and his budget team took place in February. Cognizant of a budget crunch, I cut the salaries of the two auditor positions by $13,026 plus related benefits of $5,291 for a total of $18,317 or 9.5%. The audit manager's salary was reduced to $95,000 from $013,250 and the staff internal auditor's salary was decreased to $85,000 from $89,776. I explained at the meeting about the Mayor's actions on the Auditor's Office's budget this fiscal year and how it affected the audit process and indicated the ramifications of his action. We were told in a similar meeting the year before that the Administration would inform me if he was going to cut the Auditor's Office. It did not happen. In the spirit kokua and understanding the budget crunch problem, I initiated a call to the Director of Finance, that I volunteer to cut one-quarter of the already reduced salaries and benefits of the two auditor positions because realistically, I would not be able to fill the positions immediately in the first quarter. Lo and behold the Administration decided to cut another quarter of salaries and benefits, which makes the effective staffing back to a net of one for this year and even less because of the cuts I already made on the salaries and benefits of the two positions. What I find ironic about this is that the Mayor's action to deprive the Chartered operations of the Auditor's Office by further cuts to its budget and use these cuts instead to fund raises of his staff and others in the Administration. I respectfully request the County Council to restore the budgets for salaries and benefits for the two auditor positions for three-quarters of the fiscal year. The amounts I am requesting restored are $45,000 in the salary budget and $18,280 in the benefits budget. $3,443 in Social Security Contributions, $7,505 in Retirement Benefits, and $7,332 in Other Post Employment Benefits. This schedule will show you what has happened. The first column will show the pre-budget, meaning to say that the starting salary of the two positions that I was going to restore and their corresponding benefits. Like I said, I initiated a cut of 8% on the Audit Manager of$8,250. The Internal Staff Auditor by 5.32% or $4,776 or the $13,026 that I just mentioned a while ago. With an effective cut of 6.75%. Respectively, the benefits of 6.75% also $6,262. Before I submitted the budget, I cut those salaries and benefits. So I submitted a full-year budget for the two positions at the reduced salaries and benefits. Like I said, I called the Director of Finance and said that I would like to cooperate because of the budget crunch and I am going to cut the first quarter of the salaries and benefits. The total cuts that I made was $58,000 in salaries and $28,000 in benefits make-up almost $86,000 or 30% decrease. The desired budget would have been $135,000 for the two in salaries and $65,000 in benefits totaling about $200,000. Then when I received the...I got a notification from the Director of Budget that they decided to cut another quarter. They made the starting salaries of the two auditors of $90,475 for the Audit Manager and $42,500 for the Staff Auditor and the corresponding benefits of $43,265. In total, if you take all the cuts from the beginning, we are talking about 53.37% for both salaries and benefits totaling $152,554. Remember, the budget this year compared to last year, there was a 32% cut already. Two consecutive years now, we are cutting the budget of the Auditor's Office. Number two. Financial Audit. I included an additional $225,000 to cover for the first year of a new four year contract commencing with the financial audit of Fiscal Year ending June 30, 2015 as required in an RFP process. However, cognizant of a budget crunch, I volunteered and suggested to cut the budget for the financial audit of $225,000 This action would not violate the provisions of the County Charter, which provides for either an annual or biennial financial audit. However, the Administration took out the April 14, 2014 Office of the County Auditor (ss) Page 3 $225,000 but did not agree to a biennial financial audit with a commitment to work with the Auditor's Office to work on an RFP with stipulations that funding will be made available in the next fiscal year's 2015-2016 budget. The Administration took a position that this could be done in spite of the routing State procurement requirements to have the funds certified going into a new contract. We will go to number three. Successes and Achievements for Fiscal Year 2013-2014. The 2013 peer review of the County of Kaua`i's Auditor's Office found our office to be in full compliance with government auditing standards issued by the Comptroller General of the United States. The Kaua`i County Auditor's Office was awarded the highest rating possible for quality and professionalism. Auditors from Richmond County, Virginia, and Phoenix, Arizona performed the peer review of the Kaua`i County Auditor's Office. The Association of Local Government Auditors coordinated the audit and selected the independent peer review team. The auditors reviewed our internal quality control system and performed procedures to determine whether our quality control system provided reasonable assurance of compliance with Government Auditing Standards for the period of January 1, 2011 through December 31, 2012. The Kaua`i County Charter requires that our audits be conducted in accordance with Government Auditing Standards. The peer reviewers identified the following areas in which our office excels: Implementation of significant changes to the audit process over the past year to comply with Government Auditing Standards. As a new audit organization, a completion of a peer review within three years of beginning work under Government Auditing Standards. Commitment by everyone on the audit staff to professional growth, with two receiving professional audit certifications since joining the Office, and a third pursuing certification. For the second time in three years, the financial audit for the fiscal year was completed according to the original schedule. Credit also due to the County Finance and Accounting Department, N&K CPAs, and KMH, LLP the Auditor for the Department of Water for their efforts to assist DOW in issuing their financial statements as scheduled. Number four, upcoming plans and initiatives for the Fiscal Year 2014-2015. Plans: Our goals will remain the same. Our work plan objectives will track our goals. Our objectives reflect an increase in the number of staff auditors from one to two or two and a half. Should this situation change, we will revise our objectives. Objective one. Complete Annual Financial Audit for Fiscal Year 2013-2014. Objective two, issue audits that result in a 75% acceptance rate by auditees for recommendations. This objective is used by many audit shops, and is intended to ensure that audit recommendations are relevant, practical and of value to the auditees. We plan to do performance audits on the following areas in Fiscal Year 2014-2015: Management of Large Contracts and Change Orders of the Department of Water. To review the DOWs management of large construction contracts over $5 million or other selected threshold. To evaluate how these contracts are managed, where processes and oversight must be strengthened for effective contract management and to meet the Department's business needs, and whether adequate administrative and quality controls were followed so contractors did not perform at levels below contract specifications or in noncompliance with contract requirements. The audit will also examine whether the Department is properly negotiating the price of contract change orders and adhering to procedures, whether additional procedures must be implemented to ensure that estimates are prepared for all applicable change orders, whether a change order is written for all changes that have a time and/or cost impact, whether standards for cost breakdowns are in place when change order estimates are prepared, and whether contractors and subcontractors are required to adhere to uniform standards for cost breakdowns when submitting proposed changes. April 14, 2014 Office of the County Auditor (ss) Page 4 Number two. Human Resources Management, hiring practices. With the current budget pressures and with personnel related costs accounting for 60-65% of total County operating expenses, the audit will review all aspects of personnel practices related to hiring, transfers, and promotions; evaluate controls in place intended to ensure the fair, uniform, and transparent selection of the best employee for the position; assess the efficiency, effectiveness, and compliance with rules, regulations, and agreements of the solicitation, evaluation, and appointment processes; identify opportunities for business process improvement and determine best practices in these areas; and evaluate the overall system providing such services. Number three. Human Resource Management — Payroll and Compensation Practices. This audit, because 60-65% of the County's budget is related to personnel expenses, is also a logical starting point for assessing the County's business processes. This audit will determine whether the County's control practices, policies, and environment related to payroll activities adequately and appropriately operate to assure that personnel, timekeeping, and payroll systems are in compliance with established rules and regulations; ascertain whether the policies, procedures, rules, regulations, and protocols are uniformly and consistently applied throughout the County and ensure that pay and benefits are accurate, appropriate, earned, and paid to its employees; assess whether the County's administrative and departmental activities assure that amounts spent for employee compensation are prudent and in the best interest of the County, its employees, and residents to ensure the fair and appropriate use of County funds; and evaluate whether the County has established appropriate and sufficient rules, regulations, policies, procedures, and practices to safeguard County assets, provide appropriate checks and balances, and ensure the transparency and accountability of government. Upcoming Initiatives: The Office of the County Auditor will continue to offer to make presentations to the public through organizations such as the Kaua`i Chamber of Commerce, Kaua`i Filipino Chamber of Commerce and other community groups to explain the role and responsibilities of the County Auditor and the audit process. The presentations will be similar to the one made to the Lihu`e Business Association, for which OCA received positive response from members and attendees. Also to continue to offer the County Department Heads, managers and supervisors, presentations regarding the audit process to help County employees better understand the role of the Office of the County Auditor and the ways in which audits are typically conducted. Challenges. Staff vacancy. Filling the positions of performance auditors. One Audit Manager and two Internal Staff Auditor. Page 6. County Fraud Hotline Program. To do a feasibility study of establishing a County Fraud Hotline Program. The study would research on how other audit jurisdictions are administering such a program and at what costs and results derived from their programs. The objective of the Fraud Hotline is to provide a means for a County employee or citizen to confidentially report any activity or conduct related to or involving County personnel, resources, or operations for which he or she suspects instances of fraud, waste, and abuse. The Office of the County Auditor's Fiscal Year 2014-2015 budget of $1,037,311 is $2,313 or 0.2% higher than the Fiscal Year 2013-2014 budget of$1,034,998. Salaries which represent 32% of the total budget, show a decrease of $9,322 or 3%. Benefits, which represent 15% of the total budget, show a decrease of $27,443 or 15% which was due to a combination of two factors, reduced salaries and adjusted benefit rates. Utilities which represent 1% of the total budget showing no change reflecting the continued benefit from April 14, 2014 Office of the County Auditor (ss) Page 5 economies of scale from the consolidation of two offices previously occupied by the Office and energy conservation practiced by the Office. Equipment & Building Leases, which represent 5% of the total budget, show a decrease of $1,496 or 3%. Operations, which represent 48% of the total budget, show an increase of$40,574 or 9% which was mainly due to an increase in Other Consultant Fees of $40,000 or 26%. Budget for Continuing Professional Education, which involves the auditors to earn 80 continuing professional education (CPE) hours within two years to be able to do audits, a requirement by Government Auditing Standards, decreased $1,192 or 4%. Organizational Memberships, Dues, and Subscriptions decreased $2,314 or 38%. The Operations budget includes $225,000 for the annual Comprehensive Annual Financial Audit also known as the CAFR and $195,000 for the procurement of forensic auditors and consultants to assist the Office in conducting performance audits. The budget also includes $15,500 for the Office's secured network. During the Association of Government Accountants seminar held in Honolulu, the auditors of the jurisdictions in Hawai`i discussed the importance of having a system to securitize sensitive audit files by having a stand-alone server, firewall, and telephone system. The other jurisdictions have such a system with the exception of the Office of the Kaua`i Auditor. The setting up of the system has been discussed with IT management. No definite solution has been determined or how much it will cost but efforts will be under way to utilize the in-house system and the budget for this purpose will be used to accomplish it. Using a Cloud System has been mentioned. The next page shows graphs showing how salaries and benefits and utilities and equipment and operations are represented in the total budget. Do you want me to cover this one or just go to the next? Mr. Rapozo: You can go to the next. Mr. Pasion: Page 8. Vacant Positions. One Audit Manager Exempt. Salary of$95,000. Vacant since 08/01/2013. One Staff Internal Auditor, Exempt. Salary of $85,000. Vacant since 01/07/2013. We plan to request restoration of three- quarter funding for these positions. Contractual positions, none. Critical positions with impending retirements or departures. County Auditor (term ends on September 15, 2015). Education and training plan for this position. Staff member working on Certified Internal Auditor credential. Number nine. Statistics. Three year actual expenditures, you have it in your book. Transfers from various accounts and reasons for the transfers. On January 17, 2014, a request for appropriation and allotment adjustment form was submitted and was approved by Vice Chair Chock, Sr. The funds were needed to do performance audits. It shows transfer of salaries and benefits of$147,000 to Other Consultant Services. That represents my presentation for this budget review. Mr. Rapozo: Thank you Mr. Pasion. Mr. Pasion: You are welcome. Mr. Rapozo: One clarification question on the spreadsheet that you just passed out. Mr. Pasion: Yes? April 14, 2014 Office of the County Auditor (ss) Page 6 Mr. Rapozo: If you look at the top line, the 1st quarter Auditor's total cut percentage, that next column shows nine quarters, should that be a 3? Mr. Pasion: Yes, nine months, three-quarters, yes. Mr. Rapozo: So that is what you desire? I see the salaries on the bottom benefits portion is that the total? Social security contributions $10,328, is that total? Mr. Pasion: The total for the two positions. Mr. Rapozo: Just for the two? Mr. Pasion: Yes. Mr. Rapozo: Then the Health Fund, Retirement and OPEB, all of those have been adjusted for the two-quarter period? Because this budget represents six-month funding of the two positions, right? Mr. Pasion: That is correct. Mr. Rapozo: Are the benefit line items have they been adjusted to the six months as well? Mr. Pasion: The budget that was included in the Mayor's submittal of March 15 or March 14 reflects the two quarters, the Mayor's budget. That is what you are seeing. What I am requesting because of the additional quarter of budget cut that the Mayor took from my budget, despite the fact I volunteered to cut one-quarter of my full-year budget. So to get...what I am requesting is that the three-quarters numbers should be reflected in the Auditor's budget. Restoring the one-quarter cut the Mayor took from the budget. Mr. Rapozo: Do you feel confident that you could fill the Audit Manager and Auditor II positions by July? Mr. Pasion: I volunteered to cut the 1st quarter because I mentioned it would be unethical for me to like now look for the two positions without the moneys. Mr. Rapozo: Right. So assuming the budget passes though, can you hire those two positions? Mr. Pasion: I will do my best to bring in the two positions beginning of the 2nd quarter. Mr. Rapozo: Okay. Thank you. Any questions. Mr. Kagawa? Mr. Kagawa: Yes. So I was just wondering, Ernie, so where is...where are we in the process of hiring the Audit Manager and Internal Staff Auditor? Mr. Pasion: We are not there, because I find it unethical for me to start hiring if I do not have the approval of the Council to have a budget to hire. April 14, 2014 Office of the County Auditor (ss) Page 7 Mr. Kagawa: Have you worked on the language? Mr. Pasion: Yes. Mr. Kagawa: As far as what kind of qualifications we are looking for? Mr. Pasion: Yes. We have the position descriptions established already. Mr. Kagawa: Are we looking for CPAs for any of those? Mr. Pasion: Well, it will depend on what is available in their submittals. If you look at the...I brought with me a copy of what was... Mr. Kagawa: The old position? Can you send that later? Mr. Pasion: The City Auditor's Office was looking for three people and they are looking for people that are experienced in performance audits. You know, there is a difference between financial audits and performance audits as you know. You told me you worked for a CPA firm before you joined the County. Mr. Kagawa: Yes. Well let me tell you this, Ernie, it would not hurt to have a CPA who has experience in government audits to work in that position. It is not a bad thing to have certified public accounting experience. Mr. Pasion: Agree. The reason I say that by Charter we are required by the Charter to bring in CPAs to do our financial audit. To do a performance audit is a different animal. But if I can find a CPA that is good in performance audits because what I will do in the selection process is I will be asking for what they have done in performance audits also? Mr. Kagawa: Ernie, I think we went over this the last time and you brought up to me, when Marion Higa, we asked her what kind of people worked in your Office and she does performance audits for the State? Mr. Pasion: Right. Mr. Kagawa: She mentioned almost all of her staff had CPAs. Mr. Pasion: To the contrary, I have to differ with you. Maybe five. Mr. Kagawa: Five out of? Mr. Pasion: Maybe 26. Mr. Kagawa: Well, we have to check that number. If you can, to me, it would not hurt to have one CPA in there is all I am saying. The other thing, Ernie, if we give you the additional three months, which I do not want to just give it if we April 14, 2014 Office of the County Auditor (ss) Page 8 are not getting something in return. But if we do that, what additional audits could be performed by having that additional three months of two people in there? Mr. Pasion: Well, first of all, when you bring somebody, you have got to know what is involved first. You have to do orientation. You come from a different municipality, you have to acclimate. Mr. Kagawa: Hard to tell. Mr. Pasion: I have been looking at what performance audits that they have done in the past, when we do not do the first time we hired somebody from the mainland. Mr. Kagawa: Another question, is there any consideration to look into the County Attorney's Office regarding the performance of outside counsel that we have recently incurred? An audit to review maybe all of the billings that we have been getting and to match it up with the work that is being performed? Because I really feel like we are not...the County Attorney's Office is not managing and reviewing those billings. I think we are just taking it for word and I would like to see an audit that actually goes in and matches the hours being billed to work that they say is being performed. Do you think that is maybe on the horizon? Mr. Pasion: We would be more than willing do it provided we have the manpower. Auditors, we are not Attorneys, yes? And to get legal expertise to go through the contracts and hiring Special Counsels and how the contracts are administered? Are we paying them before the services are performed? I do not know. So it will depend on the kind of funding that you guys will provide and that is one of the reasons why we are approached by the public sometimes we tell them go to a Councilmember, because they represent you. You voted for them. If you come to me, and I do not have the funds, I cannot do anything. So there is a provision in the Charter, which is by resolution you pass a resolution...maybe with another Councilmember and have it passed and it comes to me and we look at it and say, okay, we need funding for this thing. We will be glad to do it because we recognize the difficulties that you are going through with what is going on with all the cases that have been coming before you. Mr. Kagawa: Well, one more question. Regarding some of these Public Works contracts that go out. The ones that concern me most are the ones that are sole-bidders. Have we ever audited those cases such as...I heard that road resurfacing contracts a lot of time only one person bids. So do we have any plan to look at whether the County is getting a fair price? Or are we letting the companies in some cases overcharge us for our work because we do not have enough competition biding? Do we look at any road resurfacing? Mr. Pasion: I do not know that it is legal to come up with a capital budget for CIP projects and instead of coming up with the numbers for each project...let us say that you come up with $10 million or whatever, $20 million and that amount is four different projects, but you do not...this is how they do it in the private sector. That is why I am saying they do not tell the people upfront this is how much we are going pay for this project. You have money in there, and you say, okay, you guys submit your bids and we will evaluate your qualifications and past performances and the amount you are going to bid. April 14, 2014 Office of the County Auditor (ss) Page 9 Mr. Kagawa: Well, I guess I just want to make sure what is happening, one time somebody announced to me the figure and I forget the total amount of the work that was done by the State in front of KCC and the amount, when I heard it, I was flabbergasted, Mr. Hooser's word, by the amount of that contract and I just thought to myself, that cannot cost that much. Anyway, I just wanted to see if we would be looking maybe at the same thing, maybe at the Auditor looking at some of our County contracts because I think wherever we can cut government waste, we need to look at it. I thank you for your work. Mr. Pasion: Well, Councilmember Kagawa, I want to invite you to come to my Office and I can show you what kind of list we have. We can only submit because of limited resources and the budget crunch of the County, what is going on with the County, I can only submit...so please visit with us. Mr. Kagawa: I will take you up on that offer, Mr. Pasion. Thank you. Mr. Rapozo: Mr. Bynum then Mr. Chock. Mr. Bynum: Just about the positions. One of the audit positions was dollar-funded? Mr. Pasion: Yes. Mr. Bynum: That was the one that has been vacant since? Mr. Pasion: January 7, 2013. Mr. Bynum: But the other position has been vacant since August 2013. That was a retirement? Mr. Pasion: Yes. Mr. Bynum: Why have you not filled that position that is in the current budget, right? Mr. Pasion: Even if I fill that position, I operate on a three- leg stool. So even if I hire one, I would not be able to operate anyway, because this is how it works, Councilmember. I work with the lead auditor. I work with an auditor and we work together and make sure that everything is in order. When we are done, following government auditing standards an uninvolved auditor has do an independent report review, IRR according to government standards to review what we did and make sure it is in order because it goes for auditee response. Mr. Bynum: You are saying the ethical constraints of your Office require all three positions? Mr. Pasion: We have to comply with the law. The government audit standards are law. April 14, 2014 Office of the County Auditor (ss) Page 10 Mr. Bynum: I will ask for an opinion on the government audit standards and was this ever definitively decided by the County Attorney? Was there an opinion? Mr. Pasion: I do not know. We are following the Yellow Book. If you think about Maui, Maui can do that. Maui in their Charter... Mr. Bynum: I still do not understand that why when you had a retirement, presumably you knew about that, why did you not move to fill that position? Mr. Pasion: Even if I had to fill that position, I would still be unable to do an audit. Mr. Bynum: That was your circumstance since January 2013? Mr. Pasion: Yes. Mr. Bynum: Were you anticipating that that position would be short funded in the next budget? I do not understand, you had that position and circumstance with one of the positions dollar-funded. That person retired, I would think you would have been looking for a replacement effective when that person retired and you would get the paperwork going? Mr. Pasion: Well, my operation was distracted by voluminous requests for information from the Council Chair at the time. Mr. Bynum: Well, I do not want to go into that. Mr. Pasion: Well, I am giving you the reason why. Mr. Bynum: I am just trying to understand why you had that position and it is funded right now in the budget until July 1st, right? What precludes you? Mr. Pasion: It was not funded. It was dollar-funded. Mr. Bynum: I am talking about the position that was vacant effective August 2013. You could move to fill that right now. There is no constraint? Mr. Pasion: I used that money already for an audit. I just mentioned in my presentation that I transferred...if you look at the last page of my presentation, Councilmember that I used with the approval of the Council, I used $147,000 to hire outside CPA consultants to do an audit. So I do not have the funds anymore. Mr. Bynum: Thank you for that answer. Mr. Pasion: Even if I had to hire somebody, I would still be short to do an operation that is required of me of the Office by the government standards. Mr. Bynum: If nobody has done this, I am going to request an opinion from the County Attorney, if that is an accurate statement because I have heard that from you and I do not presume to know, but I have also heard that is not accurate. If you have that kind of question in our system, we ask that of the County Attorney. If staff is April 14, 2014 Office of the County Auditor (ss) Page 11 listening, we can figure it out. That Ernie, that position you would have moved to fill it immediately and would be fully funded in the next budget and we would not be discussing here at budget the other position. So I am surprised to see both positions half-year funded. That was a surprise to me. Thank you for answering the questions. Mr. Rapozo: Thank you, Mr. Chock. Mr. Chock: I thank you, Chair. First, Mr. Pasion, I just wanted to thank you for being patient with me as I have had the opportunity to oversee your Office since the Chair is recused from participating. My first question was regards to the follow-up question that Councilmember Kagawa had regarding a certified accountant. Now I did see in your presentation that you do or you folks are moving towards training a staff member to be certified, is that correct? Mr. Pasion: Yes, going through certification. Mr. Chock: So how much does that cost us to certify that person? Mr. Pasion: There is a fee to get the materials and go for the test and maybe...I do not want to guess right now, but I can come back and provide you that information. Mr. Chock: Okay. Thank you. So did that training or certification start the previous year? I guess I am trying to figure out how long it is going to take and how much is going to cost us to get somebody on board to move us where I guess you are going towards internal performance audits? Can you give us an inclination when that is going to happen and how much it is going to cost us? Mr. Pasion: I will forward you that information. Mr. Chock: The other question I had was regarding the specific audits that you have done. So I am just looking, can you tell us how many audits were completed in Fiscal Year 2014? Mr. Pasion: Two. Mr. Chock: Two audits? Mr. Pasion: One financial audit with the County, and then two performance audits. The County Vehicle and the other one is the Furlough Audit. The draft was issued and you guys got copies. You got the response from the Administration last Friday and in about a week or two, we will get it out. Mr. Chock: So we have got approximately three...two to three audits that are completed a year. Is that the average that we can expect from the Office to complete each year? Mr. Pasion: It depends on the resources that we have. April 14, 2014 Office of the County Auditor (ss) Page 12 Mr. Chock: So comparative to other Counties is that about typical? I know the total budget is $1 million. Is that what we can expect for three audits a year? Mr. Pasion: That $1 million you are talking about, Vice Chair, includes? Mr. Chock: Everything? Mr. Pasion: I do not know, but as for the other jurisdictions in Hawai`i we do good networking and understanding a call was made to the Big Island and asked how many audits that that they did last year and they were told? Mr. Chock: What was that? Mr. Pasion: Zero. Mr. Chock: They did zero last year? Good then. How much did they pay for zero? So that is interesting. So out of the three, how many of those were external? Done by contractor? Or someone outside of your Office? Mr. Pasion: We had the first one we did was energy savings audit and for example, this building here was in that audit and despite the fact we had the furlough, it was done in-house, by Lani Nakazawa. According to the findings, it was an increase of wattage use, as well as dollars used because of the increasing or fluctuating energy costs of KIUC. Because nobody was accountable for the use of the energy including this building. Just like having a rental and you tell the tenant... Mr. Chock: I can tell you that it is probably because of Councilmember Yukimura and former Councilmember Nakamura who stayed here to the wee hours of the morning...sorry for interrupting, go ahead. Mr. Pasion: I was trying to refer your landlord and you say to the tenant, you rent this house and all utilities included, do you think that tenant will be...will have the diligence to conserve? Because it is in his rent anyway and even ask his friends to wash their cars or just leave the lights on...so that kind. So that was one audit. Mr. Chock: How many did you hire out to do? Mr. Pasion: When we did the Kilauea Gym, we did the Kaiakea Fire Station and it was in-house but we had to use consultants because we are not engineers. Mr. Chock: One internal and two external? Mr. Pasion: Yes, I think that I responded to your memo of last Friday. Mr. Chock: Thank you. Mr. Pasion: I did not have much time. April 14, 2014 Office of the County Auditor (ss) Page 13 Mr. Chock: I understand. This leads me to I think our kuleana is to try and help you move towards getting some of these audits completed, which would be helpful if we could receive some sort of understanding what are the proposed audits? Not that we want to make a determination of what audits you intend to do, but also a cost associated with those, so we can look at the budget objectively and make a decision, if we can support those or not? Unfortunately we do not get those ahead of time and I know it is difficult for us to do that. That is my only concern as people need to look at the budget. Mr. Pasion: Vice Chair, if you could make a comment on what you just said? When we did the Vehicle Audit, we had...we issued it at I believe $75,000 and they found there was other stuff to be addressed. What I am trying to say here a financial audit they come in August and are done by December and follow an auditing template. If I need something...on a performance audit you do not know until you go out there and say we have to do more. I can tell you an amount, but that amount is maybe not enough. That is why on that audit we had to come back. We had to amend the contract twice. Mr. Chock: I hear you, sounds like Special Counsel. I hear you. Thank you. Now there are six...I am looking at this one here, June 27, there are six audits proposed back on this day. Of those I am not sure how many were completed or not, but the ones that were not completed are you still in the process of completing them? Are they off the list? Mr. Pasion: They could be on the back-burner. Mr. Chock: So just potential? Mr. Pasion: Yes, you do not know what comes up based on the conditions that arise. You do not know of. So you might have the list, but it might be on the back burner for now and more important audits could be addressed. That is why I invite you to come to my Office and we can show you. Mr. Chock: You mentioned you are going to share more detailed criteria of how you select these audits and I do not want to take any more time on the operations part of it, but two more questions. There has been a lot of discussion at this Council about trying to save some income on your location, which it looks in your budget is $47,000 a year for the building lease. My only question, how do you feel about, if there was a possibility of you moving to something that was available? Mr. Pasion: Big Save is available. I submitted the space requirements to the Council Chair and I said I need 2,000 square feet. Mr. Chock: Okay. How much can you say? Mr. Pasion: 2,000 square feet. Mr. Chock: 2,000 square feet. Okay. Lastly, you talked about the cuts in your spreadsheet that you handed out and how much you were willing to give and then what you are asking for. I know there was a request and a question from us about obviously there are cuts across the board, you know, in our County? So I had a question for Ernie and Steve about what these cuts were. We do not have to answer those now, but at the end of the questions we will ask that. That is all, Chair. Thank you. April 14, 2014 Office of the County Auditor (ss) Page 14 Mr. Rapozo: Councilmember Yukimura. Ms. Yukimura: Hi Ernie. Mr. Pasion: Hi. Ms. Yukimura: First of all on page 1 of your presentation, you say that an obstacle or challenge to getting the CAFR done was the loss of an auditor. Mr. Pasion: Yes. Ms. Yukimura: Or liaison to outside auditors. Do you need an auditor to get the CAFR done? Do you need an auditor? Mr. Pasion: Yes. Ms. Yukimura: Do you need an auditor in your Office? Mr. Pasion: Well, what we do, we administer the contract. Ms. Yukimura: Right. Mr. Pasion: We facilitate...they come to us and if they have any problems with... Ms. Yukimura: You know, financial audits are pretty perfunctory in a sense and prior to having a County Auditor, did the County Council do audits without an auditor...financial audits? So how many hours of oversight do you say that is needed for this CAFR? Mr. Pasion: Not that many. Ms. Yukimura: Not many? Mr. Pasion: Not that many. Ms. Yukimura: Do you need a CPA for this? Mr. Pasion: Not necessarily. Ms. Yukimura: Okay. Because that is what I thought, too. Because I know that we did it before we had a County Auditor. Mr. Rapozo: I think the Finance Department was really the...it was not the Council. Ms. Yukimura: They do a lot of interface with our contractual auditor, because they have to access all of our financial records and things. Mr. Rapozo: But I think it is important for the public to know that before the Auditor it was not the County Council who did the audit, but the Finance April 14, 2014 Office of the County Auditor (ss) Page 15 Department who was in the driver's seat and not the County Council or County Clerk. We funded it, but a lot of the work was done by the Finance Department and Council Services as well, but not the County Council. Ms. Yukimura: Right. On your proposed audits, are you planning doing this in-house or with outside consultants? You have three you are proposing here, management of large contracts, and change orders in the Department of Water. Human Resources management hiring practices and Human Resources Management payroll and compensation. Are you planning to go outside contract or in- house? Mr. Pasion: Depending on the people that we will hire in the 2nd quarter. As a matter of fact if you look at the Department of Water, that is highly technical. So we would need outside help. Ms. Yukimura: Okay. So you do not know at this point whether you will you do it outside or inside? You cannot tell just by the nature whether it is better to be inside or outside? Mr. Pasion: For example we did the Kaiakea Fire Station and Roads Maintenance and we did the Kilauea Gym and it was...we hired Manthos as a technical consultant. Ms. Yukimura: I remember. Mr. Pasion: We can do the same thing depending on the human resources that we have. Ms. Yukimura: I am thinking in proposing it you must have some idea about what needs to be done and what you are targeting? So you would have some idea about how you would go about it. Mr. Pasion: Like I said, we definitely would need outside help because we are not also experts in the human resources. Ms. Yukimura: Okay. So I guess I am wondering why you are focusing on Human Resources both hiring and payroll, because it is in such flux and they are shifting over, so you are going to be trying to analyze a moving target. They are actually...they are doing a new format. So even if you say, the old format was wrong or the old practices were wrong, they are already changing it, both in the hiring process and payroll and compensation. They are into this change. So what are you going to be analyzing? Because whatever you are analyzing is changing into something that you do not know what it is going to be yet? Mr. Pasion: Well, that is a good point. That is the reason why we need to bring experts in this area, because we do not know what is...with the furlough. We came up with the furlough. If they had consultants to have guided them to start with, maybe we would not have been in that. Ms. Yukimura: That may be true, but the thing that they have gathered experts. They are working in-house with the people now in Human Resources. They are crafting a whole new system. So to me, I am not sure how fertile grounds it would April 14, 2014 Office of the County Auditor (ss) Page 16 be to analyze an obsolete system or a system that is not yet in place? I guess I would like to know of the six proposed audits that you proposed in June of last year, why you are moving to these contracts rather than the ones that you proposed? Mr. Pasion: It is because I just said that 60-65% of our total costs are personnel-related. Ms. Yukimura: Yes. Mr. Pasion: We are in a budget crunch and so it requires the attention to be audited. Ms. Yukimura: Well, you know what you should audit is the Collective Bargaining System and not the payroll and compensation. That is already set. It is more an accuracy issue. Mr. Pasion: You could do that, and hire experts to do that. Ms. Yukimura: I am thinking that you want to be...you want to do things where you are the most useful, right? I do not see how you can be useful in a changing system? Because the old is no longer there and the new is not yet in place. So to me, it does not quite make sense as the best use of what are very expensive resources. Salaries for CPAs and stuff. Especially when there are places like Solid Waste that have been generating many problems, and you could go there instead. So coming back to the structure of your Office, you are saying that... one of your goals is two positions an Audit Manager and Internal Staff Auditor. Right? Mr. Pasion: Yes. Ms. Yukimura: Have you thought that maybe you could have two of these functions in one person? You could have a good manager who has a CPA? Mr. Pasion: Like I said, Councilmember Yukimura, we follow the government auditing standards and it requires us to have three to operate. Ms. Yukimura: I have not been able to find in the audit manual...maybe you can show me where it requires three. Because what my understanding is that it requires some internal quality assurance program, but it can be achieved by a checklist, which I think was proposed to you over a year-ago. Or some other processes. Does not necessarily mean three people is my understanding or maybe you can show where it says "three people?" Mr. Pasion: It is covered in the independent review. Ms. Yukimura: Can you show me? Mr. Rapozo: Let us send it over. Mr. Bynum and Mr. Kagawa both addressed that issue and let us move on to new questions. Ms. Yukimura: My question are there no other ways that you can satisfy the internal...what did you call it? April 14, 2014 Office of the County Auditor (ss) Page 17 Mr. Pasion: Independent review. Ms. Yukimura: Independent review. Mr. Pasion: An uninvolved auditor has to be reviewing what the auditor and myself are working on. Ms. Yukimura: I know that is one way to do an internal review, but my understanding is that you do not need three people. For example, we have a really tight budget, that could you actually could it with two people and some internal procedures. Mr. Pasion: Maui, if you look at Maui's Charter, they did not include the government auditing standards and they can operate with two. They are in the process of hiring a third one, because even though they did not have it like that, they would like to follow the government auditing standards. Ms. Yukimura: You just said that Maui incorporated the standards in their Charter? Mr. Pasion: No, they are not incorporated in their Charter. The government auditing standards are not incorporated in their Charter. The auditor can hire Special Counsel too. Ms. Yukimura: So we do not have the auditing standards in our Charter either. Mr. Pasion: Yes we do. Ms. Yukimura: We have reference to it. Mr. Pasion: We do. Ms. Yukimura: Okay. Mr. Pasion: We have to conform to it. Ms. Yukimura: Right. I think we applauded you when you adopted the auditing manual. Mr. Pasion: It is passed by peer-review. Ms. Yukimura: If you could just refer us to the chapter that requires three people, that would be good, the provisions. I think that is all. Mr. Rapozo: Councilmember Kagawa. Mr. Kagawa: Thank you, Ernie. If I look at the Consultant Services line it stayed the same at $225,000. Mr. Pasion: That is for the CPA. Mr. Kagawa: CPA. April 14, 2014 Office of the County Auditor (ss) Page 18 Mr. Pasion: That last year, four years. Mr. Kagawa: And the other account underneath is "Consultant Services?" Mr. Pasion: Yes. Mr. Kagawa: In this current fiscal $155,000 and for next year the Mayor approved $40,000 additional. Mr. Pasion: That was the same amount cut by Council in addition to his dollar-funding of one position last year. So we are restoring the $40,000. The reason that we have that...like I said, when you start a performance audit, you do not know...even though you have a contract, for example, you do not know how much it will cost you when they go in and look at what is going on and say, my gosh we have other findings that need to be investigated. Then you are exposed to more expenses. I am using it like contingencies. Mr. Kagawa: Are you comfortable with $195,000? Mr. Pasion: A while ago you talked about auditing the County Attorney...that would not be enough. Mr. Rapozo: The Chair had asked if the Council wants to do a resolution to initiate it or have the Auditor's Office, it would have to be accompanied by a money bill. So I think what Mr. Kagawa is asking, is just not new audits, but what you have? Mr. Kagawa: That is correct. I mean, I know the perception is that the Mayor is cutting and cutting your budget and not letting you do your job, but in this account I see he gave you $40,000 more so that tells me that he supports you getting your audits done in that area. He could have cut it back to what it was last year. But he left that in. Like I said, Ernie, if we can get and it does not have to be right now. But I think you mentioned for the additional three months, if we could fund that back in, I want to know how long are these two individuals going to need for training? Then what more as in how much more percent of those audits can be benefited by getting those workers on three months ahead? I think if we get that kind of justification, it would be easier to support instead of just saying well that it is three months' more of training. It is too broad. Mr. Pasion: It depends on the quality of people applying for those positions. Mr. Kagawa: True. Mr. Pasion: Maybe they do not need that much training. Like I said, we failed to do...it took us six months to hire somebody and we tried our best. So next time we are going to...not to find out that the orientation of the person was more of the financial auditor than performance auditor and this time we are going for performance audit background. April 14, 2014 Office of the County Auditor (ss) Page 19 Mr. Kagawa: I understand, Ernie. I really feel strongly that it is up to Personnel and your job description to hire two people that can really boost the efficiency and work. Because in the end, what you are talking about for the Auditor Manager is $100,000 a year job and there are a lot of people who have good qualifications that could really help you at that salary. As far as the Internal Staff Auditor, that position is in excess of $80,000 a year. I think you can find a really good CPA who may be interested. Because being in a CPA role I was there. It is not a 40-hour a week job like the State and county. So I think you can find it. You know, I want to help you, but just give us that justification and for me, I will have an easier time supporting it if you can say how much more the County gets for bringing them in three months earlier. Thank you. Mr. Rapozo: Ernie, I have a question on the $225,000 for the County financial audit. What was it you said? If you could say that one more time? Mr. Pasion: I remember the first time we took over this Office and we had to submit a money bill because when you are in the last year of a contract to get a new auditor on board, you have to do a certification of funds. Mr. Rapozo: Right. Mr. Pasion: Funds have to be available to do a contract. At the time we were not aware of that. Mr. Rapozo: Right. Mr. Pasion: So we had to submit a money bill. So now cognizant of that, what happened in the past, we wanted...we added $225,000 in addition, to the $225,000 for last fiscal year's financial audit. Because of the budget crunch the Administration was looking for moneys to cut and they...I volunteered to take it out, because I said well the Charter does not require us to do annuals. They can also be biennual but because of the fact that we do single audit, we get grants from the government and we also issue bonds. We float bonds and the bondholders that would like to make sure that our books are audited. They said that they have to have annual audits. But they said they will help us get that contract with the proviso that the money will be available in the next Fiscal Year of 2016. Mr. Rapozo: So $225,000 goes to pay this last audit? Mr. Pasion: Right. Mr. Rapozo: We need another $225,000? Mr. Pasion: Right. Mr. Rapozo: To be certified before you can go out? Mr. Pasion: That was my...what I planned to do. Mr. Rapozo: Okay. Mr. Pasion: But the Administration they needed the $225,000 for something else. April 14, 2014 Office of the County Auditor (ss) Page 20 Mr. Rapozo: So the $225,000 that we are showing in the budget right now is for? Mr. Pasion: For the fourth year of a four-year contract? Mr. Rapozo: Next year's audit? Mr. Pasion: Fiscal Year ending June 30, 2014. Mr. Rapozo: So that is the final year of that contract? Mr. Pasion: Yes. Mr. Rapozo: That is what this $225,000 is for? Mr. Pasion: Yes. Mr. Rapozo: When you go out to bid for next year, another four-year contract? Mr. Pasion: Could be four or five-years. Mr. Rapozo: We need to have that money certified before you go out? Mr. Pasion: That is the process we followed the last time and we were told that they can help us do that process and with the proviso that we tell the prospective bidders that the money would be available the following year. Mr. Rapozo: Okay. Got it. Any more questions of Mr. Pasion? JoAnn. Ms. Yukimura: So do you know that figure on page 159 of your budget? You have $195,000 for "other professionals." Mr. Pasion: Yes. Ms. Yukimura: So you could use that for any contract hire that you want that would help you with any of the audits you are going to do, right? Mr. Pasion: That is correct. Ms. Yukimura: You are saying that is not enough? Mr. Pasion: No I am not saying that is not enough. I said it is not enough if, Councilmember Kagawa says we would like do an audit of the County Attorney's Special Counsel. Ms. Yukimura: We were just talking about...we understand as Councilmember Rapozo pointed out, that if we add any additional audit responsibilities on you through a resolution process, we have to give you the money to do it. April 14, 2014 Office of the County Auditor (ss) Page 21 Mr. Pasion: That is correct. Ms. Yukimura: So that is not in this picture right now. So right now given what you plan for this coming year, this $195,000 is sufficient? Mr. Pasion: Yes. Ms. Yukimura: Okay. Thank you. Mr. Pasion: You are welcome. Mr. Rapozo: Thank you. Any more questions? If not, thank you very much, Ernie. I just have a couple of comments. You know, I hear a lot about the Auditor's Office only did this many audits. The reality is that this Council prior to the Auditor's Office had $400,000 a year for performance audits and since I have been here, we never did any. We did the Kilauea Gym. I think that is what the Council did. To say that the Auditor's Office only did two, only did three, what did this Council do with $400,000 and not just this Council, but the one before and the one before. I just want the public to understand that two or three audits, yes the price tag is high, but it is what it is. That is what is costs these days. For example, Public Works, let us use the Fire Station or a Building project. You cannot tell me there are no County workers and liaisons asking for what you need, because they all have them. Highly paid people act as liaisons between the Auditor and the County. If you are going to do a Special Counsel audit and I will tell you I will get with Mr. Kagawa after this meeting and we will introduce that resolution. You cannot expect a CPA to do that audit. I am an investigator by trade and many years' of experience, but I could not do that. A CPA could not do that because to dissect the bill of an attorney in a law firm, you need an attorney and you need to know what the different billings actually mean. So I think we have to give you credit for what you are trying to do and we have not given you the resources. We have not given you the resources and unexpected retirements, that kind of stuff puts a damper. The other thing is that the whole purpose of setting up the Legislative Audit Division or Department was so that it would be independent. It has to be independent. I mean, I have a ton of audits I would like to see you do, but you are the Auditor. You give us the Audit Plan, and that is where it is going to go. I think we have to give you that. We have got to give you that authority to do so. It is not cheap. It is not cheap. But I think what...there is some difference of opinion as far as the audit or good audit or bad audit and I think they are good audits because I think they are complete. The people that you have hired and the people in your Office, I think have done a great job in the audits. But I just wanted to make sure that the public understands that it is not just anybody can go do an audit, an investigator just hires someone to do an audit. It is not that simple. You have to have expertise in the area that you are auditing, which requires you to have that special fund. I just want to make sure that we as a Council give you the tools that you need and then be judged based on what you request. In other words, you prove it to us that you can do the job, but we have to give you the tools. We have got to give you the tools. It is hard to go into the Super Bowl with eight players and the other team has eleven. You cannot do that. I just wanted to make those comments. So you understand that we appreciate. Any more questions? If not, who is next? Mr. Chock: Chair, can we call up Ernie because I think it might be beneficial. Mr. Rapozo: The other Ernie? April 14, 2014 Office of the County Auditor (ss) Page 22 Mr. Chock: Yes, Ernie Barreira. ERNEST W. BARREIRA, Budget and Purchasing Director: Good afternoon Committee Chair Rapozo and Vice Chair Chock and Councilmembers, Ernie Barreira, Director of Procurement and Purchasing. I think for many months including today, early this morning and even in the earlier testimony just a little while ago, there has been rather inaccurate testimony submitted to deliberately mislead perhaps about assertions that it, the Office of the Auditor has somehow been treated unfairly or inconsistently as compared to other County Departments and Agencies especially in terms of the execution of the Fiscal Year 2014 budget. As part of that Fiscal Year 2014 budget execution, the Administration undertook two major budget reduction initiatives that cut across Departmental and Divisional lines, the end result was a reduction of the budget submitted to the Council. I will be submitting this in writing for the Council to review. To highlight a few of those to accentuate the fact... Mr. Rapozo: Sorry about that. Mr. Barreira: I would like to highlight without going through the expansive list of a few of the cuts that we had undertaken as part of that major and comprehensive budget reduction exercise. We cut $1.7 million in Public Works General Funds as a budget reduction exercise. Another $997,000 in the Department of Finance. The Police were asked to cut $1.8 million...excuse me, $1.6 million as part of that reduction exercise. Office of the Prosecuting Attorney, $256,000. Office of the County Attorney, $652,000. Solid Waste and Special Funds, $2.4 million and even the Transportation Agency, $2.5 million. The bottom line as I had repeated earlier is that a total budget reduction of $9.6 million. That came over to the Council. The end result of that after the Council exercised its Charter authority to exercise and execute the budget was a full reduction of $8.1 million after all adjustments were made. The Staff Internal Auditor position was dollar-funded as part of our budget 2014 reduction exercise. That is correct. Just as was the Deputy Prosecuting Attorney that was dollar-funded last year and as you are well aware ladies and gentlemen of the Council, continues to be dollar-funded in the proposed budget that we have submitted. These reductions were somewhat minimal as compared to the large reductions that occurred in totality. We have heard repeatedly throughout the course of testimony that has occurred over the past several months and today that the Auditor's budget cut in Fiscal Year 2014 amounted to 32%. That is incorrect. The actual total reduction including all Administrative and Council reductions totaled $178,000 from a $1.2 million budget. That includes a 14.7% reduction, nowhere near the 32% figure that has been recklessly conveyed. The Office of the County Auditor and there has been discussion I think Councilmember Chock who had asked about the liquidity. I think Councilmember Yukimura as well. We believe that there was adequate liquidity in the 2014 budget for the operation to fully fund and hire Staff Internal Auditor by simply reallocating funds within the existing appropriation and conducting the appropriate budget adjustments that are done as normal course when a position is dollar-funded. We also...further evidence of this also is that based on the Comprehensive Annual Financial Report which is overseen by our Auditor himself, the Auditor lapsed in Fiscal Year 2013, $611,000, to be specific, $611,595 and, in fact between Fiscal Year 2010 and Fiscal Year 2014, the Council should be aware based on our review of the Comprehensive Annual Financial Report the Auditor lapsed a total of $1.6 million based on funds requested and appropriated as compared to funds expended. That basically means there was a high lapse ratio and there was a range of about 35-55% of funds that were budgeted for, but not expended. As has been pointed out earlier and I think perhaps Vice Chair Chock may want April 14, 2014 Office of the County Auditor (ss) Page 23 me to address that, the August 1st, 2013 the Audit Manager position was, in fact, vacated. It is a high-paid and high-ranking position and I find it somewhat disingenuous to allocate that responsibility to the Administration from the time period of now, now in the 4th quarter of the Fiscal Year there has been no effort to fill that position and based on liquidity in the budget we feel strongly both could have been filled. Let me just point out quickly that as the Council is well aware, the Office of Auditor as defined by the Charter falls under the purview of the Legislative Branch of government and the Administration does not have authority for appropriations or lack of appropriations. Our responsibility is to submit a proposed balanced budget and the Council has the authority do with it as it sees fit based on its own set of circumstances, priorities, and requirements. We did that last year, submitting a balanced budget and the Council had the right to reinstate the position dollar-funded the Audit position, but the Council made a prudent decision in collaboration and consideration to keep that position dollar-funded. We believe that that was appropriate based on fiscal responsibility and the numerous challenges that we faced to balance that very challenging budget. Those are the few comments that I would want to make today. Mr. Chair, I appreciate the opportunity. Mr. Rapozo: Thank you. Question? Mr. Bynum: Thank you very much. You said given the lapses that with that the Auditor could have filled both positions? Did I hear that correctly? Mr. Barreira: Yes, sir. Mr. Bynum: As other Departments have done. So his position was dollar-funded, but the position was not removed and if there were sufficient funds he had the authority to hire both positions if he chose? Mr. Barreira: That is correct, sir so long as resources could be found within the existing appropriation. Mr. Bynum: The only question I asked of the Auditor was about those positions and you made similar comments and I want to note that I never discussed that issued or that he had not moved to fill it, because I think your analysis is correct. How this came down. You know, the Council supported keeping that position dollar-funded last year. But we also supported keeping the other position active, right? Thank you. Mr. Rapozo: The Auditor transferred the funds out though from the salary fund to the special...? STEVEN A. HUNT, Director of Finance: I believe in Fiscal Year 2014 the Auditor mentioned he transferred out the remaining balance of salary and fringe tied to the funded position to go to pay for some of the Special Outside Counsel to do audits. Mr. Rapozo: That is within his prerogative? Mr. Hunt: Yes. Mr. Rapozo: You transfer moneys out of his salaries to take care of other things? April 14, 2014 Office of the County Auditor (ss) Page 24 Mr. Hunt: It was a choice to fill the position with the funds or move the funds out to get the job done. Mr. Rapozo: Mr. Kagawa. Mr. Kagawa: What is wrong with an Auditor who wants three additional months earlier, $66,000, I think he is in a position that he wants his Office to do well. What is wrong with that? Mr. Hunt: Again, I want to make things really clear. There has been reference to the "Mayor cutting the budget." This is the budget. The Budget Team is the one who looks at the numbers and we look at budget to actual and our goal from this body has been budget to actuals. So we made those cuts based on actuals and thinking there was sufficient funding to do his job. When we see additional funds going into the outside counsel, at Auditor's he could move that into salaries to cover those positions to fund those three additional months. Again, we believe there is sufficient funding within the budget, based on past lapse and I want to run through the last four years so everyone is aware this is coming from the CAFR, which is the Auditor's under his jurisdiction since is he doing the Comprehensive Annual Financial Report. In Fiscal Year 2013 they lapsed $611,595 that is almost 60% over what they spent. The last CAFR prior to that in Fiscal Year 2012, the Office of the Auditor spent $1,018,795 lapsed $537,460. That is almost 53% over what they actually spent in lapse. In Fiscal Year 2011, they spent $858,770 and lapsed $304,963 which is about a 35.5% lapse and then in Fiscal Year 2010, which I believe is the first year, they had a budget of$488,653 and they lapsed $190,580. Over four fiscal years $1,644,598 almost $411,000 a year lapsed. So again, I believe there is sufficient funding and granted those budget amounts used to be much higher, so there was lapse...we have contracted that getting closer, this year's request in Fiscal Year 2015 was for $1,213,695, and again, based on the most recent spending at $1,025,827 we feel there was still some room to come down. The combination of having the six-month funding for both positions plus a little have for outside counsel gives the flexibility to use the funds for either outside or to put that into the positions to fully fund or to nine-month fund. Mr. Kagawa: So basically in your summary you are saying that you believe that the Auditor has sufficient funds if he chooses to go ahead and hire for nine months? Mr. Hunt: If he so chooses to reduce his special counsel or his outside consulting services. Mr. Kagawa: Okay, there you go, Ernie. I think it would be fair of the Council if you do use that money to replenish that at a later point. But based on your past issue of spending they feel justified in making cuts that they made all over. I think they are basically giving you the green light to go ahead with that three-months additional. So I guess that is where we are. I know you wanted it clearer in your budget, but this may be an option for you. Thank you. Thank you, Chair. Mr. Rapozo: Thank you, gentlemen. It would be interesting to see how that fares with the other Departments...not now. We can get how that fares with the other Departments within the County. But I have to tell you, I would much rather have you lapse money than to overspend. That is just my opinion, doing half a million dollar money bills at the end because we spent too much. I agree that you have got to tighten them up. But again, Steve, with that salary adjustment line $100,000 and spend April 14, 2014 Office of the County Auditor (ss) Page 25 $600,000 so far, in your Department, that was not caught in the budget and I think there is a lot of that around. I think we have to look Countywide and see where is the lapse? Because now you start wondering, where else is there fat in the County that we can cutoff? That is our function. That is our job at the Council level to find that stuff. Okay. With that we will take a caption break right now and come back with Elderly. There being no objections, the Committee recessed at 3:18 p.m.