1. CITY MANAGER’S OFFICE INTERNAL AUDIT FRAMEWORK January 25, 2016 Audit Committee Meeting Presented by: Ruthe Holden, Internal Audit Manager

2. CITY MANAGER’S OFFICE BACKGROUND Internal Audit Framework  Defines Internal Audit’s purpose, authority & responsibility  Establishes position within City’s organizational structure  Authorizes access to personnel and physical properties needed to complete audits  Defines the scope of Internal Audit activities  Requires approval by City Manager and Audit Committee Chairman 2

3. CITY MANAGER’S OFFICE Requirements for Framework California Government Code Section 1236 requires City’s that conduct audits to follow either:  Institute of Internal Auditors’ (IIA) International Professional Practices Framework (standards), or  Government Auditing Standards issued by Comptroller General of the United States City will adopt the IIA’s standards Input from Internal Controls & Audit Subcommittee from prior Citizen Task Force 3

4. CITY MANAGER’S OFFICE IIA Standards Requirements IIA Standards requires:  The City adopt and Audit Committee approve a written Framework for Internal Audit  Framework at a minimum include the Definition of Internal Audit, IIA Code of Ethics and IIA Standards  Independence of Internal Audit 4

5. CITY MANAGER’S OFFICE Elements of Internal Audit Framework Mission Scope of Services Commitment to Quality Authority and Accountability Independence Responsibilities 5

6. CITY MANAGER’S OFFICE Standards Required Communications IIA Standards required communication to Senior Management and Audit Committee  Independence  Internal Audit Framework  Definition of Internal Audit, Code of Ethics & Standards  Quality Self-Assessment  Annual Internal Quality Self-Assessment  External Quality Self-Assessment required every 5 years 6

7. CITY MANAGER’S OFFICE Standards Required Communications  Periodic Communication (Quarterly)  Significant audit issues  Status and results of Audit Plan  Status of progress on Open Audit Recommendations  Summary of status on Issues reported through Fraud Hotline 7

8. CITY MANAGER’S OFFICE Next Steps Complete Annual Audit Plan (February) Quarterly Communication (April)  Progress of Audit Plan  Summary of Fraud Hotline  Status of Open Audit Recommendations Year End Report to Audit Committee (July)  Progress of Audit Plan  Summary of Fraud Hotline  Status of Open Audit Recommendations 8