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Home My WebLink AboutPR 18922: SPECIAL ELECTION City of - 40, nrt rthrrr Texas INTEROFFICE MEMORANDUM Office of the City Manager Date: March 25, 2015 To: Mayor and Council From: Brian McDougal, City Manager RE: Forensic Audit—P.O. 18922 & 6447 Nature of the request: Several months ago, a group of citizens began a petition drive calling for a City wide election. The ballot language to be voted on by registered voters would be to approve the City going forward with a forensic audit of the City finances. This is the result of the lack of trust our citizens, businesses granting agencies, etc. have of the City finances,hiring procedures and processes. On the Council's agenda are two items P.O. #6447 and P.O. #18922. The City Council needs to decide whether to call for an election of the people or to instruct the City Manager to develop a request for qualifications and a scope of work for conducting a forensic audit of its finances, processes and procedures. Staff Analysis, Considerations: The City of Port Arthur over the period of the past several years has received several grants; Community Development Block Grant (CDBG), American Recovery and Reimbursement Act Grant (ARRA), Neighborhood Stabilization Program (NSP) Grant, Transit, Housing and Urban Development Grant (HUD), Department of Justice (DOJ), Federal Emergency Management Agency (FEMA) Grant, and General Land Office (GLO) Grants, as well as others. With the acceptance of these comes a very large responsibility. The City of Port Arthur is held accountable to the federal and state granting agencies as well as the citizens and businesses of Port Arthur. We need to be completely P.O BOX 1089 •PORT ARTHUR,TEXAS 77641-1089 •409/983-8101 •FAX 409/982-6743 transparent regarding our finances to our past, present and future grant funding sources, citizens and businesses. In the past year or so, three individual employees have been prosecuted by the Jefferson County District Attorney's office. Most recently we relieved a staff member of her duties because of irregularities in a cash drawer in court records discovered by a staff member. This has occurred under my watch as your City Manager. Since that time we changed our policy in court records where we no longer accept cash. The taxpayers of Port Arthur need to have the confidence in the City's Finances and should not tolerate this behavior In addition, our annual City audits have been late. Late audits have lead Port Arthur residents, businesses, our financial advisors, our bond counsel, and our granting agencies feeling uncomfortable with our financial accounting. Also due to a late annual audit, we have to file interim financials to the Securities and Exchange Commission (SEC) each time they are late and subsequently file amended financials to them after the audit is complete. As a result we need to update our processes and procedures in the Finance Department. Finally, we discovered that flawed background checks and hiring processes have created the theft situations in the past and potentially in the future. We need to update our processes and procedures in the Human Resources Department. A forensic audit can be just as important to strengthen a City's already good business practices. Cities are required to self-audit on an annual basis to make sure that workflows and processes are running smoothly. By presenting regular audits of sound financial practices, a City improves its standing for citizens, and its grantees, and the report generated by the audit gives management a better sense for the internal finances of the City. Recommendation: Staff recommends council immediately instruct the City Manager to begin the process of the Forensic Audit and not go to an election in November. Allow the City manager 60 days to develop a scope of work and advertise for a Request for Qualifications (RFQ) of firms that are capable of performing a forensic audit based on the established scope of work. We will be determining whether the accounting firm has the necessary skills and experience to accept the work. Forensic audits are highly specialized, and the work requires detailed knowledge of fraud investigation techniques and the legal framework. We will be sure that their investigators must have P.O BOX 1089 •PORT ARTHUR,TEXAS 77641-1089 •409/983-8101 •FAX 409/982-6743 received training in interview and interrogation techniques, and in how to maintain the safe custody of evidence gathered. The process of conducting a forensic audit is, in many ways, similar to the process of conducting a normal financial audit, but with some additional considerations. The main stages are described in brief below. Planning for the audit, the team must carefully consider what they have been asked to achieve and plan their work accordingly. The objectives of the investigation will include (not all inclusive): • identifying the type of fraud that has been operating; • how long it has been operating for; • how the fraud was concealed for the duration; • identifying the staff involved in fraudulent behavior and theft; • quantifying the financial loss suffered; • gathering evidence to be used in court proceedings; • providing advice to prevent the re-occurrence of the fraud; • Recommendations of staffing changes, processes and procedures. It is extremely important that we work diligently to earn back the trust of the aforementioned groups. As a governmental entity when we are not responsible with public tax dollars it costs us more money to borrow, and potentially lose grant funding opportunities. Budget Considerations: Unknown at this time: Budget amendments to perform this task are likely during the FYE 2015 Budget; however, the largest impacts will be over the next three years. Staff will be sure to work to negotiate the best price for the work and keep Council abreast of the work being done. Due to continued issues with multiple departments that are interdependent of each other, it is unknown the full scope of this initiative. It is the ultimate goal to investigate every department in the city for both forensic accounting practices and internal operating processes. CDBG, Housing, Transit, NSP, Finance and Human Resources will be the first departments to be contacted and audited. It is anticipated that this process will be a three year process to get to each City department. Should fraud and/or theft be detected, each case will be turned over to the District Attorney's office for investigation. P.O BOX 1089 • PORT ARTHUR,TEXAS 77641-1089 •409/983-8101 • FAX 409/982-6743 P.R. NO. 18922 3/24/15 vrt III RESOLUTION NO. A RESOLUTION AUTHORIZING THE SUBMISSION OF AN INITIATED ORDINANCE TO A VOTE OF THE QUALIFIED VOTERS OF THE CITY AT A SPECIAL ELECTION TO BE HELD ON NOVEMBER 3, 2015, PURSUANT TO ARTICLE IV OF THE CHARTER OF THE CITY OF PORT ARTHUR AND AUTHORIZING THE CITY SECRETARY TO PREPARE AN ORDINANCE CALLING FOR THE CONDUCT OF SAID SPECIAL ELECTION PURSUANT TO THE STATUTORY DEADLINES SET FORTH IN CHAPTER 41 OF THE TEXAS ELECTION CODE. WHEREAS, at the March 17, 2015 City Council Meeting, the City Secretary certified that an original petition and petition supplement submitted pursuant to Article IV, Section 1, of the City of Port Arthur Charter was sufficient pursuant to Article III IV, Section 4 of said Charter; and WHEREAS, pursuant to Article IV, Section 5 of the City of Port Arthur Charter, when the Council receives an authorized initiative petition certified by the City Secretary to be sufficient, the Council shall either: (a) pass the initiated ordinance without amendment within thirty (30) days after the date of the certification to the Council; or (b) submit said initiated ordinance without amendments to a vote of the qualified voters of the City at a regular or special election to be held within ninety (90) days after the date of the certification to the Council; or at such election submit to a 410 vote of the qualified voters of the City said initiated s.pr18922 ordinance without amendment, and an alternative ordinance on the same subject proposed by the Council . NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PORT ARTHUR, TEXAS: Section 1. That the facts and opinions in the preamble are true and correct . Section 2 . That on March 31, 2015, the City Council considered Proposed Ordinance Number 6447 . Pursuant to Article IV, Section 1 of the Charter of the City of Port Arthur, if the Council fails to pass the initiated ordinance without amendment within thirty (30) days after the date of the certification to the Council, the Council must submit said initiated ordinance • without amendments to a vote of the qualified voters of the City at a regular or special election to be held within ninety (90) days after the date of the certification to the Council; or at such election submit to a vote of the qualified voters of the City said initiated ordinance without amendment, and an alternative ordinance on the same subject proposed by the Council . Section 3 . That pursuant to 41 . 001 of the Texas Election Code, the first Tuesday after the first Monday in November is the next uniform date that a special election can be held in Texas . s.pr18922 • Section 4 . That the City Council of the City of Port Arthur hereby authorizes the City Secretary to prepare an Ordinance ordering a Special Election on November 3 , 2015, based upon the statutory deadlines set forth in the Election Code . Section 5 . That the City Council must Order said Special election no later than Monday, August 24 , 2015, which is the last day to Order an Election on a Measure for the November 3 , 2015 uniform election date . Section 6. That the content of said election ordinance must include the following language without amendment : III BALLOT LANGUAGE: SHALL THE CITY COUNCIL OF THE CITY OF PORT ARTHUR BE AUTHORIZED TO ORDER A FORENSIC AUDIT OF THE FINANCIAL RECORDS OF THE FOLLOWING DEPARTMENTS : FINANCE, PARKS AND RECREATION, PUBLIC WORKS, AND HUMAN RESOURCES FOR THE PERIOD OF OCTOBER 1, 2009 TO THE PRESENT DATE THROUGH THE USE OF AN INDEPENDENT FIRM THAT HAS NOT PREVIOUSLY BEEN CONTRACTED BY THE CITY? Section 7 . That City Council has the option to add to the content of the ballot an alternative ordinance for consideration by the voters on the same subject as follows : READ, ADOPTED, AND APPROVED, this day of , 2015 AD, at a Regular Meeting of the City Council of the City of Port Arthur, Texas by the following vote : AYES : 111 s.pr18922 Mayor: • Councilmembers: NOES : Mayor ATTEST: City Secretary • APPROVED AS TO FORM: _ A i// /�I- ity At ill APPROVED FOR ADMINISTRATION: City Manager 411