with a good day, -- good pay, or do we want to see our city down like vallejo? you supervisors have to bear in mind, are you doing right when you give our monies to the big developers like lennar -- [chime] supervisor campos: thank you. thank you. thank you. next speaker, please. >> [unintelligible] i have worked and in the

department of public health for 20 years. i feel the issues that were brought up were basically more -- [unintelligible] i think it was basically a problem where it was being, and a certain sense, mishandled, rather than having specific budgetary problems. i think the department of public health needs of full financial audit based on the last audit that was done on general hospital in 2003. the department is such a big user of general fund money, i think it is only reasonable and prudent to have the full

financial audit, even though in my four years at city hall i have not been able to convince any supervisor to sign up for it. in a certain sense, if the department doesn't need it, it should not be a problem putting it in writing that it is efficiently run. i have a feeling it is not efficiently run. maybe it is prudent given the budgetary problems the city has that we should go ahead with a financial audit. we have a lot of bond money going through on the recent revelations at laguna hospital. i think in terms of overtime, i think the department would be reducing its overtime in the last two years according to the chart, but i think there's plenty of room for improvement, especially when everyone knows everyone dollar, especially at

general hospital and laguna honda, are valuable dollars and we will save money and provide a direct benefit to the poorest people in san francisco. thank you. supervisor campos: thank you. ed is there any other member of the public who would like to speak? seeing none, public comment is closed. colleagues, any questions? why don't we continue this item to the call of the chair, noting we will have discussion including a follow-up presentation by d and c -- by the mta. ms. ausberry -- >> i want to remind you that the march report is ready to go. i will ensure that you get individual copies of that, and we will be prepared to discuss any of the changes that you have

suggested and want to consider. president chiu: great. we have a motion by supervisor farrell to continue this item to the call of the chair. thank you to the staff of these departments who spoke to us today. madam clerk, call item no. two. >> item number two, a hearing to present the comprehensive annual financial report. supervisor campos: thank you. under the charter, the sentence is the board of supervisors has the responsibility of -- the san francisco board of supervisors has the responsibility to provide an audit of the city and county of san francisco and repair -- report on that audit to the board of supervisors. it is one of the most important functions that we play. we will now turn it over to the department to hear from them and to hear from our auditors.

>> thank you, supervisor. my name is carmen le franc. i am with the comptroller's office. we do an audit each year to ensure the amounts in our financial statements are fairly stated. these are an external auditors from macias gini & o'connell and kpmg. they are here to present the comprehensive financial reports, the single audit, and the single letter. kpmg is here to present the single audit for the mta and the airports. my colleagues will be presenting today. we also have department

representatives available to answer questions. supervisor campos: great. thank you very much. >> thank you. >> good morning, a german -- chairman campos. supervisor campos: if you could speak into the microphone. >> how is that? no? ok. awkward. i am one of five partners who served the city and county of san francisco at macias gini & o'connell. i would like to give you the results of our audit services this year. i would like to go to the presentation we have here, because i cannot put pages and do slides at the same time. anyway. i think you may have the copy of

the presentation? >> is on the computer. -- it is on the computer. >> and if we cannot get that working, and think you have a hard copy of the presentation? maybe flip through it as i could through it. i wanted to give you an overview -- supervisor campos: do you have any copies for the members of the public? or was that the point of the overhead? >> this was to kind of look at what we were going to be covering today. so -- >>supervisor campos: you can put the papers on the projector. >> ok. supervisor campos: there you go. >> but you do not get to see the pretty purple. [laughter]

ok. next slide, at any. i want to briefly go over our auditor responsibilities to the city and county of san francisco. i will collectively referred to it as the city. our reports to management, the gao committee, and our single reports as it relates to the federal award programs administered by the city. as carmen mentioned, the purpose of our audit is to provide an opinion on the fair presentation of the city of financial statements. our opinion due to a reasonable level of assurance those amounts are fairly presented according to generally accepted accounting principles. we perform our work in accordance with our own internal standards, and also in accordance with government auditing standards issued by the gao, federal government.

the standards build upon professional standards and they address certain levels of reporting and control in financial reporting and compliance and other matters. so, mgo serves as your principal auditor. we provide the overall opinion. if a significant contribution is made -- a significant contribution is made by kpmg. what do we do? we audit the city governmental funds, the treasure island development authority, the retirement system, general hospital, and the laguna honda hospital, and the san francisco finance corp. kpmg audit the airport, hetch

hetchy water and power, mta, the health services system, and there are other auditors to audit a small component of the city's financial statements. an overview -- week issued an unqualified opinion on the city financial statements -- we issued an unqualified opinion on the city financial statements. we did not identify any control decisions that we deem to be material weaknesses in internal control over financial recording, nor do we identify any reportable matters as a relates to compliances with laws and regulations that could have a material effect on the city's financial statements. we have before you also our report to the government audit and oversight committee, which includes are required communications and the current year recommendations we have for management and also a follow-up

on the status of prior year recommendations which made in the prior year. we also have to present to you our single audit reports. these are the audits of your federal award programs. i should mention that the single audit report that mgo issues covers most of the city's award programs, however there are separate reports issued by kpmg for the airport and mta, and we issue a separate report for the redevelopment agency. that report we had on the single audit as it relates to your federal awards program, we have an unqualified opinion on all but one aspect of one grant program, were we had a qualification of compliance with the cost principles, and that will go into that a little bit as we go over the findings. so, on the next slide, we talk about our required

communications to you as church with governance over the financial reporting for the city. first, you will see the qualitative practices. we comment on whether or not the city adopted new principles, which they did this past year. they adopted governmental accounting standards for state bill 53, which includes reporting derivatives in financial statements. the entities affected by that or the airport and the retirement system from a disclosure perspective. inherent in your financial statements are significant testaments -- estimates. would any estimate, there are functions based on -- with any estimate, their functions based on circumstances that would impact the estimate. i would like to call your

attention to more significant estimates. not as it relates to the treasury people -- most of that is based unquoted -- on quoted market statements, but financial statements for the fair value is not determined by the market. we also feel the hospitals, there contractual allowances, their estimates for bad debts, there third-party payer liabilities are significant testaments in those financial statements. self assurance was a significant estimates and pension and other retiree medical benefits are significant estimates. we evaluate the key factors and assumptions in developing those estimates, and we make a determination whether they are reasonable in relationship to

the information on the financial statements. also, we call your attention -- there are certain disclosures in the statements that are particularly sensitive. you certainly know the issues related to pension -- the funded status of pension plans. the cost of employee benefits. this particularly sensitive estimates and disclosures. as we look to the future, the accounting and reporting for those items is going to change our next several years. it is going to have heightened scrutiny by third parties. we did not encounter any significant difficulties in performing the audit. the timing of the audit was delayed somewhat by, primarily as we understand it, primarily due to constraints the city was having in the time that it was

preparing for the audit. we were about a month delay in performing our work. part of the audit, we also present, we may identify audit adjustments we present to management for consideration of recording or not reporting. none of the adjustments we proposed that were corrected by management were immaterial, either or individually aggregate. there were a few misstatements we identify that management decided not to record, and the summarized in the back of your presentation, in the management report. we had no significant disagreements with management on accounting or auditing and matters -- accounting or auditing matters. based on our understanding,

management may, during the course of providing our services, may consult with other third-party accountants or auditors on certain information. we're not aware that any such consultations occurred. during the course of our audit, we also discussed many items with the management about prospective accounting standards that may need to be implemented. and none of those discussions were contingent upon are being retained as the auditors. but also like to call your attention -- these may be included in debt offering documents. we are not associated with those documents, nor do we perform any procedures on those documents or read any of the information in this document. our responsibility is going to be looking at the other

information included in your comprehensive financial report in ensuring that other information is consistent for not materially inconsistent with the financial statements. so, as part of our audit, we have identified controlled efficiencies we are reporting to you. i want to put the control deficiencies in context. they are the lowest level of weakness in financial reporting. and so, as i mentioned before, we did not identify any material weaknesses in internal controls. these are the lower level deficiencies. i will walk you through them briefly. supervisor campos: if i may ask, what would be the definition of a controlled deficiency? >> the definition is that it is a weakness in the design or

operation of a controlled procedure that employees, during the normal course of the procedure, would not prevent, detect, or correct a misstatement on a timely basis. that is the lowest level of definition. so what is the highest concern? the material weakness. a similar conflict. however there could be a reasonable possibility on material misstatement could occur and not be presented, undetected, or corrected. supervisor campos: ok. thank you. >> we have an observation for the redevelopment agency. part of our audit, we always looked at where our finance stands, where they set aside a minimum amount. we note there was one bond issue that did not meet the requirements. however, all the other funds, if

you combine them with the trustee, they were sufficient to meet that requirement, and that was permitted by the bond agreement. there are enhancements of controls that could be afforded here to monitor that, to ensure there are no deficiencies in the requirements. as it relates to the general city, part of our testing of internal controls over cable policies and procedures, -- payroll policies and procedures, we looked at and determine whether there was compliance with those policies and procedures, and one of the things we looked at was time she reporting. whether they are submitted and approved. we identified one item of noncompliance, and upon further investigation, we noted there were three management-level employees who did not submit

time sheets. in addition, in the mayor's office of housing, we identified five instances were time sheets were submitted. however, there was no evidence of a supervisory approval. supervisor campos: did you get a sense of why that was the case? >> pardon? supervisor campos: ok. >> basically that is what they indicated. next item -- pest control of the san francisco film commission. they are such a small organization. sometimes you are not able to segregate duties appropriately. we found an instance where the individuals to collect the cash and make the deposit for the record has access to the cash and access to the record. anytime you have that situation, there are opportunities.

supervisor campos: this stood up for me in reading the report. he said in the review of cash collecting procedures identified a risk of misappropriation of assets. >> yes. this occurs because the person who collects the cash has the ability to correct the records. when you have that situation, other good -- there is our risk of it. i am not saying there -- i am not saying that this occurred. the records can be adjusted to hide the fact that the cash was taken. supervisor campos: do you have any sense why it was allowed that that was allowed to be the case, were one person had access to the cash and control of the records? >> i think we understood it had to do with the number of people there. you sometimes do not have that. as a result of that, we said, obviously the best case scenario is to have the person who has

the access to the cash collection not have anything to do with reporting that information in the accounting records. after that, we suggested additional reviews to be performed by the executive director to ensure the amounts that were collected made sense and relationship to the permits were issued, the amounts that ultimately get reported and reviewed by the executive director, as an alternative to that. supervisor campos: how much money are we talking about here? >> oh, gosh. i do not know. supervisor campos: thousands? >> i do not know how to answer that. supervisor campos: what we do this? i am going to ask each department to respond to the finding at the end. we will definitely have an opportunity to respond to that. thank you. >> ok, the next item is maintaining the signatories in

credit card accounts. this is a situation where the department has its own bank account for cash and other permitted purposes. we noticed instances where the signatory information was not current, so we encourage the departments to ensure all that information be maintained on a current basis. the last control deficiency we observed was memorializing the fact that the treasury tax collector has performed the reconciliation between the sunguard system and the custodial records. they informed us that they do do this, but they do not have the evidence of the actual reconciliation to prove that they in fact do it. it was more of the documentation issue there. those are the current observations.

we do have a follow-up study on page 9 in our report. the prior year recommendations. i think i briefly indicated, there was one finding that was implemented in the current imple current year. there were two findings implemented in the current year. the ports of san francisco have three findings that are carried forward. they are still in progress with the comprehensive disaster -- and they have made efforts to complement that. they do not have the resources to develop the plan. maybe the department can respond to that. we had identified assets -- and we had a comprehensive inventory. >> can i ask about this?

what does this mean, exactly? >> a lot of times, the records are maintained and there is a lot of detail. and these are no longer in use and may not be removed from the record. i do not think we found the situation with active settings listed, that were not recorded. it is more like cleaning up the detailed records once you dispose of the asset. if you properly appreciated this asset, this would have no impact on the financial statement. but if this does not exist anymore, he would have the impact on when you were writing best. >> going on about the lack of resources with the comprehensive disaster recovery plan --

>> the department can more properly respond to this. i think that in order to do this, it takes time from the staff, and maybe they do not have this. we do not audit these responses, we take these at face value. the last one had to do with -- internal controls over the supply, and the progress in implementing these recommendations. they believe that the final implementation will occur as the results -- and it will help them with appropriate controls over those assets. >> can i ask you about -- when was it that these findings were made? >> one of them was made last

year. among them was made in 2008. i think all of them were made with prior-your findings. >> my i ask you a question? is this typical in terms of the status, with 2008 -- the controls over the materials and the supplies. this is still in progress in 2011? i know that you do not audit the actual response. but how does this compare to what happened? >> when implementing these issues, you have to look at a cost benefit for this. management will prioritize this. and every government is different. we do have some governments that have repeating comments that go

on for more than three years. general city had three things implemented, related to working with capital assets and record keeping, and we thought that this could be enhanced. they are still working to make certain that there is the required grant money. they can keep track of them but they do not need the threshold for the financial statements. they are still working with the departments on this. the single audit finding that we have from the prior year was implemented, and then we had other observations and informational items into of the three findings were implemented, and one of them is still in the process.

they would be well-advised to take a look at the internal control over this process. certainly as a result of the decline in staffing and resources. and when you have fewer people doing these functions, you may run into a situation in the internal controls are no longer optimal. we will continue to look at this as staffing declines. the last portion of my comments relate to the single audit, and this is the federal reward program. we had an audit for 16 major programs and those covering 11 different apartments -- departments within the city. of those programs, there were 12 including the rec