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HomeMy WebLinkAbout2122-12 Treasurer Transition 2022 (Final 3-3-23)Treasurer Transition report #21/22-12 March 2023 Treasurer Transition 2022 To request this information in an alternate format, please call (541) 330-4674 or send email to internal.audit@deschutes.org Deschutes County, Oregon Audit committee: Daryl Parrish, Chair - Public member Jodi Burch – Public member Joe Healy – Public member Scott Reich - Public member Summer Sears – Public member Stan Turel - Public member Patti Adair, County Commissioner Charles Fadeley, Justice of the Peace Lee Randall, Facilities Director Take a survey by clicking HERE The Office of County Internal Audit David Givans, CPA, CIA – County Internal Auditor Aaron Kay – Performance Auditor internal.audit@deschutes.org Recommendations 7 Treasurer Transition report #21/22-12 March 2023 TABLE OF CONTENTS: HIGHLIGHTS 1. INTRODUCTION 1.1. Background on Audit …………..……………………………………………………..…….. 1 1.2. Background on Deschutes County Treasurer ………….………………….…. 1-5 2. FINDINGS and OBSERVATIONS 2.1. Elected County Treasurer ………………………………………………………………. 5-9 2.2. Selected Oregon Statutory Treasurer Obligations ….……..............….. 9-12 • Oregon Constitution • Oregon Statutes 2.3. Deschutes County Investment Policy (F-10) ………….…………..……..… 12-17 2.4. Other inquiries .……………………………………………………………..……………….. 17 3. MANAGEMENT RESPONSES County Treasurer ………………………………………………………………….………… 18-19 Prior Treasurer/CFO …………………………………………………………..………………… 19 County Administrator ……..………………………………………………………………. 20-21 County Chief Financial Officer …………………………..…………………………….. 21-23 Human Resources Director ……………………………………………………..…………… 23 APPENDICES A. Objectives, Scope, and Methodology ……………………………………….... 24-25 B. Selected Oregon Statutes with some relation to County Treasurer ………………………………………………………………………. 26-28 Treasurer Transition report #21/22-12 March 2023 HIGHLIGHTS Why this audit was performed: To review the elected Treasurer transition. What was recommended: Recommendations include: • collaborating and clarifying how duties will be addressed; • documenting duties and responsibilities of the Treasurer; • evaluating compensation of Treasurer; appointing investment officer(s); • documenting the internal control system over investing; • utilizing a simple trading document to capture investment policy adherence; and • performing annual review (of broker/dealers and investment advisers). Treasurer Transition 2022 The County Treasurer position transitioned due to the March 2022 departure of the County’s Treasurer/Chief Financial Officer. Internal audits are often performed when elected positions transition. What was found The County and elected Treasurer will need to continue to collaboratively work to assign, delegate, and clarify responsibilities to assure statutory Treasurer responsibilities are met. This should include looking to maintain efficiencies with how duties are being currently performed. When completed, there should be documentation of the Treasurer duties and responsibilities to better understand whether the position is being adequately compensated on its own. The review of selected areas within the County investment policy (F10) indicated a couple of areas to strengthen, including: • The Board of County Commissioners will need to appoint investment officer(s). • Written systems of internal control over investments should be developed. • Competitive bids or offers are to be obtained, however there is currently no documentation expectations established to assure this is addressed and retained. • It was not clear the prior Treasurer had continued the annual review of broker/dealers, and investment advisors. Factors to consider in this review would include: pending investigations by securities regulators, significant changes in net capital, pending customer arbitration cases, and regulatory enforcement actions. Deschutes County Internal Audit Treasurer Transition report #21/22-12 March 2023 Page 1 1. Introduction 1.1 BACKGROUND ON AUDIT Audit Authority: The Deschutes County Audit Committee authorized the review of the Treasurer’s transition in the amended Internal Audit Program Work Plan for 2022 2023. Internal audit has had a practice of reviewing operations for elected officials on transition in their office. Treasurer, Greg Munn submitted his notice of resignation on March 18, 2022, and his last day as Treasurer/Chief Financial Officer (CFO) was April 1, 2022. He had been the elected Treasurer since January 2021. 1.2 BACKGROUND ON DESCHUTES COUNTY TREASURER “The Treasury function is managed by the elected County Treasurer. The Treasury function involves the acceptance and deposit of County funds from customers, citizens, and other government agencies that support County operations. In addition, the Treasury function is responsible for the management of cash, all banking relationships and the investment of County funds. Investments are governed by Oregon Revised Statutes and the County’s investment policy.“ County website Elected Treasurer duties The areas that Oregon statute highlight for the Treasurer were written some time ago and do not address modern fiscal practices and/or language. The key statutory Treasurer areas seem to include: • receiving of monies; • disbursement of monies; • arranging and keeping accounting in distinct funds; • reporting and sharing information on monies and accounting; • crediting of interest earned to associated funds; • disbursing of State taxes in a timely manner; and • disbursing of property taxes collected in a timely manner. See Appendix B - for limited details on some of the applicable statutes. Treasurer Transition report #21/22-12 March 2023 Page 2 Elected county treasurers seem to have varying duties depending on the County and County management structure. Elected Treasurer transition Since 1997, Deschutes County has operated with one person handling the elected Treasurer and CFO duties of the County. The CFO received a small stipend for their work as Treasurer. With the resignation of the prior Treasurer, the position was required to be included in the November 2022 general election. On the departure of the prior Treasurer, the previous Treasurer, Wayne Lowry, stepped in as a senior advisor in order to provide a smoother transition until the CFO recruitment was completed. On March 30, 2022, Nick Lelack (County Administrator) was appointed by the Board of County Commissioners to fill the vacant Treasurer’s position until the election occurred. The County Administrator did not take any payment for this appointment. The County Administrator delegated the Treasurer duties to Wayne Lowry. On September 26, 2022, the CFO recruitment was completed. Robert Tintle was the successful applicant and came to the County from Lane County where he had similar responsibilities. Since Mr. Tintle had not been a Deschutes County resident for over a year (a requirement of the Treasurer’s role), he was unable to seek election to the Treasurer’s position. He was tasked with all of the Treasurer duties until the election was completed. The November 8, 2022 election concluded with Bill Kuhn, being elected as County Treasurer with 63% of the vote. Mr. Kuhn took the oath of office on January 3, 2023. Mr. Kuhn recently retired as Bend Market President for First Interstate Bank. He had a 36-year career in banking and has resided in Deschutes County for the last 31 years. Mr. Kuhn has worked with the County through his involvement Treasurer Transition report #21/22-12 March 2023 Page 3 Chart I Trend in pooled cash by fiscal year (2018-2022) and 12/2022. (Inflation adjusted CPI-U) with the Deschutes County Fair and Expo Board and EDCO. Mr. Kuhn is working with County management to assess the extent of duties to be performed as Treasurer. County Investments The following is some limited information on investments as this has been handled previously by the Treasurer/CFO and investing was considered one of the Treasurer’s roles. The county pools all cash resources from all County funds and funds held in trust. As of 12/31/2022, there were $327.1 million of cash resources managed and invested by the County. As indicated above, the County’s resources continue to grow over time. The County investment policy; State statute; and Investment Advisory Committee help control the nature and types of investments made. The County investment policy (F-10) follows state guidelines for ensuring preservation of capital, liquidity, and return. The County’s overall weighted effective yield on investments (at book value) was 2.13% as of December 2022. Each investment type may have many investments with some yielding above or below the average. Treasurer Transition report #21/22-12 March 2023 Page 4 Chart II Composition of investments with estimated yields to maturity (YTM) by investment category as of 12/31/2022 Chart III Composition of investment maturities as of 12/31/22 The Local Government Investment Pool (LGIP) is operated by the Oregon Treasury. It acts a bit like a money market fund where local governments have near immediate access to funds. This fund is part of the Oregon Short Term Fund (OSTF). Interest rates are periodically changed. The investment in LGIP is limited to $56.8 million as of 12/31/2022. The FIB monies match the LGIP rate by contract, but that rate is only paid on a portion of the amount held there. These two funds represent over 10.6% of the invested funds as of 12/31/2022 and are very liquid. Total investment earnings for the first six months of FY 2023 were $2.0 million. Treasurer Transition report #21/22-12 March 2023 Page 5 As indicated above, the investment portfolio is very liquid. The weighted average days to maturity is 503 days (1.38 years). Sixty-nine percent (69%) of investments will mature within two years. The investment policy allows investments to be made for up to five years. 2. Findings and Observations The audit included procedures to assess whether the Treasurer operations follow established laws and policies. Audit findings result from incidents of non-compliance with stated procedures and/or departures from prudent operation. The findings are, by nature, subjective. The audit disclosed certain policies, procedures and practices that could be improved. The audit was neither designed nor intended to be a detailed study of every relevant system, procedure or transaction. Accordingly, the opportunities for improvement presented in the report may not be all-inclusive of areas where improvement may be needed and does not replace efforts needed to design an effective system of internal control. A significant deficiency is defined as an internal control deficiency that could adversely affect the entity’s ability to initiate, record, process, and report financial data consistent with the assertions of management in the financial statements. The findings noted were not considered significant deficiencies. 2.1 ELECTED COUNTY TREASURER Separation of Treasurer duties may take time and collaboration. Since 1997, Deschutes County has operated with the CFO (or Finance Director) and Treasurer roles handled by one person. Over this time, the County has implemented modern business and accounting systems that have changed the underlying responsibilities. Treasurer Transition report #21/22-12 March 2023 Page 6 With the November 2022 election, the County now has an elected Treasurer (Bill Kuhn) who is independent from the County’s current CFO, Robert Tintle. The current CFO was hired for their knowledge and skills in handling the possibility of both roles. TREASURER DUTIES AND RESPONSIBILITIES County Treasurers have a number of duties and responsibilities written into Oregon Statute. The areas highlighted in Oregon statute (for the Treasurer) were written in a way that doesn’t acknowledge the impacts of modern accounting systems and automated processes (which include approvals at various levels in the organization and ready accessibility to most users). Nor do the statutes consider how to effectively marry duties of the Treasurer with other positions that have fiscal responsibilities. The key statutory areas are included in Appendix B. A review of other counties shows many different paths for an elected Treasurer. The role can be like the County’s prior one (combined with the CFO) or it can be a separate entire office performing a wide range of roles including treasury, investing, banking, tax collection, and disbursement of funds. Treasurers can relinquish or delegate some or all of their duties to appropriate staff. Some of these decisions on roles are made by the organization. Many of the statutory Treasurer duties are currently handled by County departments and finance staff through routine operation of the accounting systems and staff assignments. The CFO directs the operations of the County Finance Department and is responsible for assuring the County’s financial health. The CFO also oversees many of the Treasurer activities. Through collaboration and mutual agreement, the Treasurer and fiscal management can work to build a model for assigning, delegating, and clarifying how statutory responsibilities are met. These duties can keep in mind maintaining current efficiencies. It should be possible to identify how distinct statutory duties for the Treasurer are covered as well as addressing any additional responsibilities being taken on by the elected Treasurer. Treasurer Transition report #21/22-12 March 2023 Page 7 Some of these Treasurer statutory responsibilities, if not timely performed, could result in fiscal penalties to the Treasurer and/or result in loss of office. It is recommended the County and Treasurer continue to collaborate and clarify the Treasurer assignments, duties, and responsibilities taken to address the associated statutory responsibilities. COMPENSATION OF ELECTED TREASURER As noted above, the Treasurer’s duties can vary widely based on the collaborative discussions and how responsibilities are shared to best utilize the Treasurer position. For compensation of the Treasurer, the County (in association with the compensation committee for elected officials) landed on 10% of the highest step of the CFO position equaling $1,441 per month. The 10% came from an estimate of a prior CFO/Treasurer in association with determining their stipend for Treasurer duties. Treasurer duties enumerated (at that time) included: • investing, • managing cash flows, and • overseeing tax collection. The compensation committee for elected officials, a subcommittee of public members of the budget committee, evaluates and decides on compensation levels for elected officials based on compensation analyses performed by the Human Resources Department. The County does not have job descriptions for elected positions (such as the Treasurer position). The more recent CFO job description incorporated the duties of the Treasurer. The CFO serves as the appointed Tax Collector. The County utilizes various methods to document Treasurer Transition report #21/22-12 March 2023 Page 8 roles including County Code, job descriptions, and recruitments. In addition, salaries are largely determined on the position’s responsibilities and requisite knowledge, skills, and abilities. Having documented roles and responsibilities will help define, segregate, and coordinate duties and responsibilities between the current CFO and elected Treasurer. It might also provide greater clarity for the compensation for elected Treasurer duties. In the absence of mutually agreed upon duties, it will not be clear how to properly coordinate activities and assess compensation. These roles and responsibilities, as configured for Deschutes County, may be different than other counties. Decisions made to clarify and assign duties and responsibilities could influence how future elections for this position are received. It is recommended for the County to document the elected Treasurer’s duties and responsibilities. It is recommended for the County to evaluate whether the compensation for the elected Treasurer is commensurate with the duties and responsibilities assigned. INVESTMENT OFFICER APPOINTMENT The County Investment Policy F-10 allows the investment officer to be the Treasurer and/or CFO. In coordination with the assignment of duties above, there will need to be clarification if one or both could be the investment officer. It would be appropriate for the Board of County Commissioners to document the appointment of the investment officer(s) going forward. If the County desires to have both involved they should identify a primary and secondary officer. Treasurer Transition report #21/22-12 March 2023 Page 9 Documenting appointment(s) will aide communications with the associated institutions and brokers working with the County on our investment needs. In the absence of appointments, it may not be clear who has authority to be making those investment decisions. It is recommended the Board of County Commissioners document appointment of investment officer(s). 2.2 SELECTED OREGON STATUTORY TREASURER OBLIGATIONS OREGON CONSTITUTION – Oath of Office “Every person elected or appointed to any office under this Constitution, shall, before entering on the duties thereof, take an oath or affirmation to support the Constitution of the United States, and of this State, and also an oath of office.” (Constitution Article XV - Miscellaneous Section 3) Observations In transition, the County Administrator (Nick Lelack) was appointed as Treasurer by the Board of County Commissioners on March 30, 2022. The Oath of Office was performed on March 30, 2022 and effective April 2, 2022. The recently elected Treasurer, Bill Kuhn won the election in the November 8, 2022 election and took the oath of office on January 3, 2023. OREGON STATUTES, selected areas The following areas were identified for following up on. For a more detailed list of statutes with some applicability to the role of County Treasurer see Appendix B. Treasurer Transition report #21/22-12 March 2023 Page 10 A. Monthly financial statements “The county treasurer of each county shall, on or before the 10th day of each calendar month, file with the county court a statement in writing showing, as of the first of the then calendar month: (1) The amount of cash on hand in the custody of the county treasurer as county treasurer; (2) The banks in which such funds are deposited, with the amounts so deposited in each bank; (3) The security furnished the county by each bank to cover such deposits, and the interest rates paid on such deposits; and (4) A statement of the amount of outstanding warrant indebtedness of the county and the date up to which the county’s warrant indebtedness has been redeemed” ORS 208.090 Observation The Chief Financial Officer has been providing monthly statements to the Board of County Commissioners and County Administrator through email. The content appears to cover the above items. B. Delivery of property to successor “The County Treasurer shall, at the expiration of the term of the county treasurer, deliver to the successor of the county treasurer all public money, books and papers in the possession of the county treasurer.” ORS 208.150 Observation The departing elected Treasurer turned over all monies, books, and records to the County. These have been managed by the CFO and are being made available to the successor elected Treasurer. C. Recipient of resignation “(1) Resignation shall be made as follows: … (b) By all officers who hold their offices by election, to the officer authorized by law to order a special election to fill the resulting vacancy.” ORS 236.320 Observation Treasurer Transition report #21/22-12 March 2023 Page 11 The departing Treasurer/Chief Financial Officer made their resignation to the County Administrator and copied the County Clerk. D. Investment maturity dates “(a) The custodial officer may make investments having a maturity longer than 18 months when the governing body of the county, municipality, school district or other political subdivision to which the funds belong has adopted a written investment policy that, prior to adoption, was submitted to the Oregon Short Term Fund Board for review and comment to the governing body, that includes guidelines concerning maximum investment maturity dates and that provides by its terms for re- adoption not less than annually;…” ORS 294.135 Observation The County has extended investment maturities beyond the 18 months to five years. This was reviewed by the Oregon Short Term Fund Board and the Board of County Commissioners annually reviews and ratifies the County’s investment policy that provides for these investment maturities. E. Local and tribal governments authorized to place limited funds in pool - (LGIP Maximum) “… a local government official or tribal government official may place in the aggregate up to $30 million of the funds of the local government or tribal government in the investment pool… The $30 million limitation in this section does not apply either to funds of a governing body that are placed in the investment pool on a pass-through basis or to funds invested on behalf of another government unit. Local governments must remove pass-through funds that result in an account balance in the pool in excess of $30 million within 10 business days. County governments and tribal governments must remove such excess funds within 20 business days.” ORS 294.810 Observation The LGIP investment maximum of $30 million has been increased by inflation to $56.8 million as of 12/31/22. As of 12/31/22, the County’s LGIP balance was within these limits. Treasurer Transition report #21/22-12 March 2023 Page 12 The County has in the past sometimes exceeded the LGIP limit. The County will generally be able to reduce within the limits within 20 days. There do not appear to be any direct limits placed on County investments in the LGIP or advisories to reduce investments when they exceed the maximum. It is also not clear there is any penalty for exceeding the state limit. 2.3 DESCHUTES COUNTY INVESTMENT POLICY (F10) - selected areas The County investment policy conforms to the “Sample Investment Policy” template developed by the Oregon State Treasury. The investment policy (F10) of the County provides a significant amount of guidance for the handling of investments by the Treasurer and/or CFO as investment officers. Much of this policy is based on statute and on best practices. The investment policy conforms to the “Sample Investment Policy” template developed by the Oregon State Treasury. The following are observations around compliance with selected areas of the investment policy. A. Conflicts of Interest “Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. Disclosure shall be made to the governing body. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the County. Officers and employees shall, at all times, comply with the State of Oregon Government Standards and Practices code of ethics set forth in ORS Chapter 244.” County investment policy F-10 Currently, the County does not actively require completion of a conflict of interest disclosure form covering the above requirements. The Ethics Commission generally wants these disclosures (at a minimum) to occur when public officials are met with a conflict as these conflicts may carry personal liability. Treasurer Transition report #21/22-12 March 2023 Page 13 The prior Treasurer provided an annual Statement of Economic Interest (SEI) to the Oregon Ethics Commission and provides information for bonding. There was nothing significant disclosed in the 2022 disclosure. However, these disclosures do not appear to be sufficient to cover the disclosure requirement. The SEI is a disclosure to the state and not to the County governing body. ORS 244.130 requires notices of actual or potential conflicts of interest be made with the public body the public official serves (i.e. the Board of County Commissioners). Observation If a future conflict of interest disclosure is required under this policy, the disclosure should be made to the County. B. System of controls over investments The investment officer is responsible for establishing and maintaining an adequate internal control structure designed to reasonably assure that invested funds are invested within the parameters of this investment policy and protected from loss, theft, or misuse. Specifics for the internal controls shall be documented in writing. The established control structure shall be reviewed and updated periodically by the investment officer. The policy stipulates the following internal controls shall be addressed at a minimum: a. compliance with investment policy; b. control of collusion. c. separation of transaction authority from accounting and record keeping; d. custodial safekeeping; e. avoidance of physical delivery of securities whenever possible and address control requirements for physical delivery where necessary; {All securities held by custodial bank.} f. clear delegation of authority to subordinate staff members; g. confirmation of transactions for investments and wire transfers in written or digitally verifiable electronic form; h. dual authorizations of wire and automated clearing house (ACH) transfers; Treasurer Transition report #21/22-12 March 2023 Page 14 i. staff training; and j. review, maintenance, and monitoring of security procedures both manual and automated. The written internal control system over investments could be improved upon through further documentation and additional procedures. The prior Treasurer/CFO as investment officer has not been able to complete written procedures that were a recommendation from the prior Treasurer transition audit. Recommendation (Prior repeated): It is recommended the investment officer develop a written system of internal control over the investments covering the investment policy requirements. C. Third-party Safekeeper “Securities will be held by an independent third-party safekeeping institution selected by the County.” Under Delegation of Authority - “The Board of County Commissioners will retain ultimate fiduciary responsibility for invested funds.” County investment policy F-10 The Treasurer and/or CFO are delegated the authority to manage investments and operate the investment program within the scope of the policy. A new third-party custodian was selected and engaged by the prior Treasurer in April 2020. There is nothing that indicates the third-party safekeeper has not performed as expected. D. Competitive Transactions “The Investment Officer shall obtain and document competitive bid information on all investments purchased or sold in the secondary market. Competitive bids or offers should be obtained, when possible, from at least three separate brokers/financial institutions or through the use of a Treasurer Transition report #21/22-12 March 2023 Page 15 nationally recognized trading platform.” County investment policy F-10 The prior Treasurer retained purchase information supportive for purchases, however, it was not always clear how competitive bids were being handled. The limited documentation retained (exclusively in email format) included only minimal data on additional information at hand during the investments. Sometimes, the notes indicated information on selecting the most advantageous instrument for the yield, instrument type, and maturity. There typically wasn’t information on what other investments were contemplated and whether other investment offers or pricing from other brokers were obtained for the specific security. Investment inventory can vary from broker to broker, and the like security may not be available from the other brokers, but there is no documentation of the effort being made to assure the pricing is reasonable. This issue of competitive bidding was raised in the prior Treasurer transition audit. The Investment Advisory Committee provided some guidance on the matter and indicated that an effort should be made to obtain bids. In the absence of the process of obtaining competitive quotes, it is possible purchases and sales are occurring at less than favorable terms. Recommendation It is recommended for the investment officer (in coordination with the Investment Advisory Committee) develop and utilize a simple trading document to capture their adherence to policy on investment purchases. This form should include: a. the intended goals of the investment by investment type(diversification), maturity, security rating, yield to maturity (YTM), and include reasoning; b. investments being considered and any reasoning; c. efforts to find competitive offers/pricing on the security; and Treasurer Transition report #21/22-12 March 2023 Page 16 d. why the investment selected with a specific broker was chosen. {Note: This recommendation was developed through discussions with a couple of the members of the Investment Advisory committee} E. Guideline compliance There are a number of investment types with stated maximums. Those include limiting investment to a maximum of 25% for corporate investments and limiting LGIP limited to the $52.7 million maximum. Observation No investments maximums were noted as being exceeded as of 12/31/22. F. Compliance reporting The policy calls out the requirement for monthly reports to the Board of County Commissioners that should include a number of parameters. Observation The current monthly reporting (as of 12/31/22) being performed appears adequate. G. Broker/Dealers (and associated investment Advisers) The policy outlines a required annual review of authorized broker/dealers and investment advisers. The annual review determines their continued eligibility within the portfolio guidelines. Factors to consider would be: • Pending investigations by securities regulators. • Significant changes in net capital. • Pending customer arbitration cases. • Regulatory enforcement actions. Treasurer Transition report #21/22-12 March 2023 Page 17 The prior Treasurer does not appear to have performed this annual review. Recommendation It is recommended the investment officer assure the annual review (of broker/dealers and investment advisers) occurs and is documented. 2.4 OTHER INQUIRIES A. Computerized systems access Inquired as to suspension of the prior Treasurer’s authorizations and access to critical investment and County systems. Observation The prior Treasurer’s access has been discontinued. B. Banking contract The County’s primary bank is First Interstate Bank. The County recently requested proposals for banking services in January 2022. The contract entered into was for five years with one two-year extension. The new contract continued banking services with First Interstate Bank. C. Banking and investment access Inquired as to banking access. Observation Banking access for the prior Treasurer has been discontinued. Treasurer Transition report #21/22-12 March 2023 Page 18 3. Management responses Elected County Treasurer, Bill Kuhn Date: February 22, 2023 To: David Givans, County Internal Auditor From: Bill Kuhn, County Treasurer Re: Treasurer response to Audit Report #21/22-12 Thank you for the internal audit of the Treasurer Transition that is currently underway. I appreciate your effort in this timely Audit to assist in this transition and provide perspective in key control functions. Below are responses to the internal audit recommendations. 1) Recommendation: The County and Treasurer continue to collaborate and clarify the Treasurer assignments, duties and responsibilities taken to address the associated statutory responsibilities. Agree. The County administration, CFO and Treasurer will work toward mutual agreement in segregation of duties between the Treasurer and CFO, within the framework of the statutory requirements of the Treasurer position. 2) Recommendation: The County to document the elected Treasurer’s duties and responsibilities. Agree. This will be completed once agreement has been met as outlined in Finding #1 listed above. It is recognized the importance of this step in ensuring how future open elections for this position are received. 3) Recommendation: The County to evaluate whether the compensation for the elected Treasurer is commensurate with the duties and responsibilities assigned. Agree. This finding should be addressed through input received from Human Resources, the current elected Treasurer and the Elected Officials Compensation Committee. Treasurer Transition report #21/22-12 March 2023 Page 19 Elected County Treasurer, continued Prior Elected Treasurer/CFO, Greg Munn 4) Recommendation: The Board of County Commissioners document appointment of investment officer(s). Agree. The CFO and Treasurer will jointly develop a recommendation to present to the Board of County Commissioners, appointing a primary and secondary investment officer. Expected completion date by June 30, 2023. 5) Recommendation: The investment officer(s) develop a written system of internal control over the investments covering the investment policy requirements. Agree. The Treasurer and CFO will work to enhance the current system already in place supporting appropriate oversight over investment activity. Expected completion date by June 30, 2023. 6) Recommendation: The investment officer(s) in coordination with the Investment Advisory Committee to develop and utilize a simple trading document to capture their adherence to policy on investment purchases. Agree. The Treasurer will jointly work with the CFO, with input from the Investment Advisory Committee (IAC) to develop an appropriate document to validate adherence to policy on investment purchases. With bi- annual IAC meetings, expected completion date by December 31, 2023. 7) Recommendation: The investment officer (s) assure the annual review of broker/dealers and investment advisors occurs and is documented. Agree. The Treasurer and CFO will begin the process of an annual review of approved broker/dealers and investment advisors and ensure that this process is completed by June 30,2023. The prior elected Treasurer and CFO was given a similar opportunity to provide written comments for this report and did not respond. Treasurer Transition report #21/22-12 March 2023 Page 20 County Administrator, Nick Lelack Date: February 22, 2023 To: David Givans, County Internal Auditor From: Nick Lelack, County Administrator Re: Response to Audit Report #21/22-12 Thank you for your thorough review of the County’s Treasurer transition. We appreciate the time and energy you devoted to this important topic. We look forward to working closely with our Treasurer, Chief Financial Officer and Human Resources on implementation of these audit recommendations. Below are responses to the internal audit recommendations. 1) Recommendation: The County and Treasurer continue to collaborate and clarify the Treasurer assignments, duties, and responsibilities taken to address the associated statutory responsibilities. Agree. We will work collaboratively with the Treasurer, Finance and Human Resources to clarify the Treasurer’s responsibilities and duties. 2) Recommendation: The County to document the elected Treasurer’s duties and responsibilities. Agree. 3) Recommendation: The County to evaluate whether the compensation for the elected Treasurer is commensurate with the duties and responsibilities assigned. The Treasurer’s compensation will be determined by the Elected Official’s Compensation Committee. 4) Recommendation: The Board of County Commissioners document appointment of investment officer(s). Treasurer Transition report #21/22-12 March 2023 Page 21 County Administrator, continued County Chief Financial Officer, Robert Tintle Agree. The CFO will work with the County Treasurer to develop a recommendation for the Board of County Commissioners to appoint a primary and secondary investment officer. 5) Recommendation: The investment officer develop a written system of internal control over the investments covering the investment policy requirements. Agree. The CFO will work with the County Treasurer to document the currently utilized system of internal control over investments. 6) Recommendation: The investment officer (in coordination with the Investment Advisory Committee) develop and utilize a simple trading document to capture their adherence to policy on investment purchases. Agree. The CFO will work with the County Treasurer, as necessary, on developing a trading document. 7) Recommendation: The investment officer assure the annual review (of broker/dealers and investment advisers) occurs and is documented. Agree. The CFO will work with the County Treasurer, as needed, on the annual broker/de aler authorization process. Date: February 21, 2023 To: David Givans, County Internal Auditor From: Robert Tintle, Chief Financial Officer Re: CFO Response to Audit Report #21/22-12 Treasurer Transition report #21/22-12 March 2023 Page 22 County Chief Financial Officer, continued Thank you for the internal audit of the County Treasurer transition due to the March 2022 departure of the former County’s Treasurer/Chief Financial Officer, the September 2022 arrival of the new CFO, and the January 2023 swearing in of the new County Treasurer. I appreciate your effort in this area as we work together to address the results of the audit. Below are responses to the internal audit recommendations. 1) Recommendation: The County and Treasurer continue to collaborate and clarify the Treasurer assignments, duties, and responsibilities taken to address the associated statutory responsibilities. Agree. The CFO, County Administration, and the Treasurer, will collaborate and mutually agree on a model assigning, delegating, and clarifying how Treasurer statutory responsibilities are met. 2) Recommendation: The County to document the elected Treasurer’s duties and responsibilities. Agree. Once recommendation #1 related to clarifying the Treasurer’s assignments, duties and responsibilities is completed, these will be documented. 3) Recommendation: The County to evaluate whether the compensation for the elected Treasurer is commensurate with the duties and responsibilities assigned. The CFO defers this item to Human Resources. 4) Recommendation: The Board of County Commissioners document appointment of investment officer(s). Agree. The CFO will work with the County Treasurer to develop a recommendation for the Board of County Commissioners to appoint a primary and secondary investment officer. Anticipated completion date of June 2023. 5) Recommendation: The investment officer develop a written system of internal control over the investments covering the investment policy requirements. Agree. The CFO will work with the County Treasurer to document the currently utilized system of internal control over investments. Anticipated completion date of June 2023. Treasurer Transition report #21/22-12 March 2023 Page 23 County Chief Financial Officer, continued Human Resources Director, Kathleen Hinman 6) Recommendation: The investment officer (in coordination with the Investment Advisory Committee) develop and utilize a simple trading document to capture their adherence to policy on investment purchases. Agree. The CFO will work with the County Treasurer, as necessary, on developing a trading document. Given the Investment Advisory Committee meets twice per year, the anticipated completion date is December 2023. 7) Recommendation: The investment officer assure the annual review (of broker/dealers and investment advisers) occurs and is documented. Agree. The CFO will work with the County Treasurer, as needed, on the annual broker/dealer authorization process. The next review is scheduled to begin in April 2023 with an updated list of approved broker/dealers effective July 1, 2023. I have now reviewed both the Finance and Administration response to the audit and HR agrees with their response and HR will support these efforts. Treasurer Transition report #21/22-12 March 2023 Page 24 APPENDICES APPENDIX A - OBJECTIVES, SCOPE, AND METHODOLOGY 1.1 OBJECTIVES and SCOPE “Audit objectives” define the goals of the audit. Objectives included: 1. Investments and recent investment transactions were consistent with investment policy (F-10) of the Board of County Commissioners that “defines the parameters within which funds are to be invested by Deschutes County;” 2. Provide additional information on statutory duties and collaboration of work between the Treasurer and Finance (in general law counties) to aide in discussions on establishing duties with the elected independent Treasurer; and 3. Be aware of any issues with compliance with County policy, federal and state regulations and requirements, as may be applicable for these objectives. Scope and timing: The audit commenced in April 2022 and continued into February 2023. The focus was on investments as of March 31, 2022 and December 31, 2022. The scope doesn’t include all of the ORS stipulated requirements for County Treasurers (as this was recently addressed in the prior transition audit). 1.2 METHODOLOGY “Audit procedures are created to address Audit procedures included: • Interviewed staff on practices and procedures; • Reviewed Oregon statutes regarding County Treasurers; • Analyzed investment information; • Review investments against investment policy parameters; • Reviewed a selection of investments for documentation of purchase; • Reviewed investment committee activities; Treasurer Transition report #21/22-12 March 2023 Page 25 the audit objectives.” • Compared custodian bank investments to accounting; • Reviewed handling of interest income; • Reviewed investment policy; • Reviewed Treasurer roles for some other counties; • Reviewed the status of open recommendations from the prior transition audit; and • Inquired of discontinuation of access privileges. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. (2018 Revision of Government Auditing Standards, issued by the Comptroller General of the United States.) The County Internal Auditor was created by the Deschutes County Code as an independent office conducting performance audits to provide information and recommendations for improvement. Treasurer Transition report #21/22-12 March 2023 Page 26 APPENDIX B – Selected Oregon Statutes with some relation to County Treasurer Oregon Revised Statute Description (paraphrased) Statute applicability County Clerks 205.365 Clerk fees paid to the Treasurer to separate account for use by Clerk. Clerk 205.370 Clerk trial fees paid to the Treasurer to separate account for use by Clerk Clerk Sheriffs 206.120 On vacancy of Sheriff, duplicate receipts to Treasurer Sheriff County Treasurers 208.010 Treasurer shall receive all monies due and accruing to the County and disburse on orders. Treasurer 208.020 Treasurer shall pay all orders when presented. Treasurer 208.070 Arrange and keep books (amounts received and paid out) of the Treasurer by distinct funds. Treasurer 208.080 Treasurer books subject to inspection and examination. Treasurer 208.090 Treasurer shall by the 10th of the month share with the County Commissioners a statement as of the first of the month the following: amount of cash on hand in custody of the Treasurer; the amounts and the banks where such funds are deposited; security furnished to cover bank deposits and interest rates paid; and statement of outstanding warrant indebtedness (and dates). Treasurer 208.110 Treasurer shall: credit all monies received to proper funds; keep trust funds; pay out trust funds upon order; and receive any checks from any county officers. Treasurer 208.140 Treasurer shall annually settle with the County Commissioners. Treasurer 208.150 Treasurer at end of term shall transfer all books and monies. Treasurer 208.170 Treasurer can administer oaths necessary for duties of office. Treasurer Treasurer Transition report #21/22-12 March 2023 Page 27 Oregon Revised Statute Description (paraphrased) Statute applicability Local Financial Administration 294.004 Custodial officer is any officer with custody of funds. Public Finance 294.035 Custodial officer may invest funds after obtaining Board of County Commissioner written order. Provides details of possible investments and limits. Public Finance 294.053 Treasurer may invest surplus funds in master warrants of the County under ORS 287A.482 to 287A.488 Treasurer 294.080 Treasures shall credit interest to specific funds from which investment was made. Treasurer 294.187 County Treasurer shall pay over County Assessment and Taxation Fund (CATF) monies for ORS 311.508; 205.323(4)b(c); and 205.323 4(c) within 10 days of quarter. Failure to pay timely results in interest and penalties under ORS 311.375 (4)a/b. Treasurer Collection of Property Taxes 311.345 Damages and interest for failure to pay over monies from taxes assessed. Tax collector s pay a penalty if not timely paid to the Treasurer. Treasurer pays a penalty if not distributed properly under 311.395. Property tax collection 311.370 Tax collector shall deposit with the County Treasurer all money collected by the tax collector under subsection (1) of this section. The County Treasurer shall issue to the tax collector duplicate receipts for the money and shall hold it in a special account in the name of the tax collector. Property tax collection 311.375 County Treasurer shall pay over to the State Treasurer state taxes charged to the county. Failure to pay results in penalties and if after 30 days could result in loss of office. Treasurer Treasurer Transition report #21/22-12 March 2023 Page 28 Oregon Revised Statute Description (paraphrased) Statute applicability 311.385 Except as provided in ORS 311.370, 311.484 and 311.508, the County Treasurer shall deposit all property tax moneys to an account in the records of the County Treasurer designated as the unsegregated tax collections account. Treasurer 311.395 The County Treasurer shall credit the total amount of moneys set out in the statements prepared under subsections (1) and (2) of this section, to the several funds for which the moneys were respectively received in accordance with the schedule provided in ORS 311.390. The County Treasurer shall keep the moneys and warrants received from the tax collector in their respective funds. Treasurer shall distribute statement monies and associated interest earned on monies in a timely manner. Treasurer 311.465 The Treasurer, on tax court order, refund taxes within 3 days. Treasurer 311.484 Treasurer shall handle property tax bankruptcy account allowing appropriate reimbursements and allowing for distributions. Treasurer 311.508 Disposition of interest on late payments will be deposited and credited by the Treasurer to CATF. Treasurer 311.694 On property foreclosures, Treasurer shall pay DOR the unpaid taxes and notify tax collector amount paid for the property deeded to the County. Treasurer 311.807 The County Treasurer can maintain a refund reserve account. Excesses will be distributed. Treasurer Treasurer Transition report #21/22-12 March 2023 Page 29 {End of Report} Please take a survey on this report by clicking on the attached link: https://www.surveymonkey.com/r/2122-12 If you would like to receive future reports and information from Internal Audit or know someone else who might like to receiv e our updates, sign up at http://bit.ly/DCInternalAudit.