Memorandum

City of Lawrence

TO:	Mayor and City Commissioners
FROM:	David L. Corliss, City Manager
CC:	Debbie Van Saun, Assistant City Manager
Date:	December 5, 2006
RE:	Internal Auditor Position – Draft Ordinance

Background

In the consideration and adoption of the 2007 City Budget, the City Commission budgeted the position of city auditor. This follows up Commission discussion of the position and a study session presentation by Mark Funkhouser, Kansas City, Missouri auditor.

In the transmittal letter for the recommended 2007 Budget, I provided the following recommendation:

The 2007 recommended budget includes funding for a City auditor position.  This position will bring an independent review that will improve program outcomes, better policy decisions, and enhance the efficiency of program delivery.  I view funding for this position as an investment which, if properly implemented, will pay for itself.  The decision as to whether the position reports to the City Manager or the City Commission can be determined this fall.  My initial recommendation based on my study to date is to have a position which reports to the City Manager and whose work plan and schedule of audits is approved by the City Commission after a recommendation from the auditor.  All of the audits will be received by the City Commission and shall be accessible to the public.  The final authority and scope of this position, including whether non-City staff should be retained to conduct or assist with the audits (e.g. a third party vendor providing a portion of the audit services) will be determined by the City Commission.

It is important to note that this position will not have responsibility for the preparation of the City’s annual financial audit (CAFR) – instead the focus of this auditor position is on the performance, effectiveness, efficiency, and fidelity to legal/financial requirements of City expenditures and City services.

Analysis and Options

Commission direction is needed to pursue opening this position for recruitment.  Municipal auditor positions can be structured differently, the most fundamental decision being whether the position is supervised by the City Manager (internal) or to the governing body (external).  The appropriate level of independence from management, accountability to the governing body, and need for professional assistance and general oversight are all variables in making the decision of whether to establish an internal or external auditor position.  The draft ordinance that I have prepared establishes the position as supervised and reporting to the City Manager with a workplan confirmed and monitored by the City Commission.  The ordinance can be amended to reflect a different structure as the Commission determines appropriate.

Other options include the use of outside third-party vendors to perform all or a portion of the audits.

The ordinance includes language from a model ordinance created by the Institute of Internal Auditors (found at http://www.theiia.org/index.cfm?doc_id=3975) and charter/code language from various other cities (including Olathe; Kansas City, Missouri; San Jose, California; Modesto, California; and Gresham, Oregon).  Reporting, access to City financial information, reporting standards, and openness of the final report are also established in the draft ordinance.

Recommendation:

After Commission review and discussion, staff recommends the adoption of the attached ordinance and the opening of the position for recruitment.