6/14/13

Grand Jury Report: Assessing Fiscal Risk

The Grand Jury has issued a report (available here) suggesting ways to reduce fiscal risk in the County's governmental bodies.

Contra Costa County (“County”), its cities, school districts and  other special districts (collectively “County Organizations”) have an obligation to establish and maintain a proper system of  fiscal controls (“Internal Controls”), including financial and physical oversight, in order to safeguard the public assets.  Any financial loss or additional expenditure as a result of lack of oversight is never acceptable.

 Internal Controls include but are not limited to: adequate segregation of duties, physical control over assets and records, proper financial reporting and independent checks/oversight on performance.  These controls are important when it comes to grant administration. The County, cities and most school districts vie for state and federal grants which require separate reporting and performance according to grant terms. Proper controls are critical to ensuring that grant funds are expended as intended, program activities are carried out in accordance with the terms of the grant, and there is no required repayment to the grantor.

As part of the annual financial statement audit,  independent auditors evaluate Internal Controls to the extent that they believe necessary to issue their audit opinion. In doing so, they will report to the organization any problems or findings identified with Internal Controls (including more serious problems which they characterize as “Material Weaknesses” and “Significant Deficiencies”) and instances of non-compliance with grant programs.   The reaction of the governing body to any deficiencies in terms of Internal Control Material Weaknesses or Significant Deficiencies and grant non-compliance reported as part of the audit is significant.  If the deficiencies are taken seriously and corrected quickly and an environment exists of not allowing repetitive findings, then a robust control environment is promoted. Where reaction is lax and accountability weak, the potential exists for further abuse. This is particularly important in the case of the County, cities and special districts which lack other independent, direct oversight (unlike the relationship of the County Office of Education to the school districts).

A review of auditor reports on Internal Controls and grant compliance from the County, selected cities, school districts and other special districts suggests that the control environment is far from optimum among County Organizations. The majority of County Organizations reviewed had problems with Internal Controls and/or grant compliance identified by the independent auditors, including Material Weaknesses and Significant Deficiencies. In a number of instances, these findings were recurring over multiple years. Furthermore, there is a significant difference among officials interviewed regarding the importance of establishing and maintaining a rigorous Internal Control environment and responding to/fixing findings raised by the independent auditors.


The Grand Jury considers Internal Controls an important element in establishing and maintaining integrity in financial reporting and safeguarding assets on behalf of the citizens of the County.

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