City of Culver City, California
Agenda Item Report
Meeting Date: 06/28/2010 Item Number: C-12
CITY COUNCIL AGENDA ITEM: Adoption of a Resolution Adopting City Council
Policy 2010-002, Entitled Fraud Prevention.
Contact Person/Dept.: Jeff Muir/Finance Phone Number: (310) 253-5865
Fiscal Impact: Yes [] No [X] General Fund: Yes [] No []
Public Hearing: [] Action Item: [] Attachments: [X]
Commission Action Required: Yes [] No [] Date: _______________
Public Notification: (E-Mail) Meetings and Agendas – City Council (06/23/10)
Department Approval:
Jeff Muir (06/18/10)
City Attorney Approval:
Carol Schwab (by H. Baker) (06/22/10)
Chief Financial Officer Approval:
Jeff Muir (06/18/10)
City Manager Approval:
P. Lamont Ewell (06/23/10)
RECOMMENDATION:
Staff recommends the City Council adopt a Resolution adopting City Council Policy
2010-002, entitled Fraud Prevention.
BACKGROUND:
As part of the annual audit process, the City’s auditors (currently Mayer Hoffman
McCann P.C.) provide feedback on any areas where they believe the City’s internal
controls could be strengthened. In a letter to the City Council in November 2009,
one of the items identified by the auditors was the City’s current lack of a formal Anti-
Fraud/Ethics Policy. While making inquiries with management as required by
Statement on Auditing Standard No. 99 – Consideration of Fraud in a Financial
Statement Audit, it was noted that while the City has a number of policies that set
appropriate standards for employee conduct, the City does not have a single,
formalized, all-encompassing fraud policy. A formal fraud policy can be an effective
method of reinforcing an anti-fraud culture within the City. A comprehensive fraud
policy communicates to all employees the City’s position and policy on matters such
as the following:
• Risks that the City faces from fraud, abuse, and other forms of misconduct;
• An ethical code of conduct;
• Definitions of ethical misconduct, including fraud and abuse;
• Employee’s responsibility to report suspected ethical misconduct (including
an established reporting mechanism);
• Organizational responsibility to investigate; and
• Disciplinary actions for violations.
City of Culver City, California
Agenda Item Report
While there a number of existing policies relating to ethical conduct by employees
including, but not limited to, City Council Policy 4003 – Acceptance of Gifts or
Gratuities and City Council Policy 4006 - Code of Ethics, both of which were adopted
by the City Council in 1995, there is no existing formal Fraud Prevention Policy.
DISCUSSION:
Staff has drafted the attached policy for fraud prevention based on samples of those
adopted by other agencies. The overriding principals are:
• The City of Culver City is committed to protecting its assets against the risk of
loss or misuse. Accordingly, it is the policy of the City to identify and promptly
investigate any possibility of fraudulent or related dishonest activities against
the City and, when appropriate, to pursue remedies available under the law.
• This policy applies to any irregularity, or suspected irregularity, involving
employees, consultants, vendors, contractors, outside agencies, and/or any
other parties with a business relationship with the City.
• Any investigative activity required will be conducted in an objective and
impartial manner without regard to the suspected wrongdoer’s length of
service, position, title, or relationship to the City.
• All Council Members and employees are responsible for the detection,
reporting and prevention of fraud, misappropriations, and other irregularities.
The policy provides further specifics as to reporting suspected fraudulent activities,
investigations and potential disciplinary actions. Should the City Council approve,
this policy, the City’s Code of Ethics along with this policy, will be re-distributed to all
employees. Additionally, new hires will be provided the policy as part of their
orientation and will sign a statement acknowledging its receipt.
While the recommendation from the auditors to establish a formal anti-fraud policy
was not considered a material weakness in our internal controls, implementing such
a policy will provide more awareness among employees as to the City’s commitment
to an ethical, anti-fraud culture, and will provide a specific framework for the
reporting and investigation of allegations of fraudulent behavior.
FISCAL ANALYSIS:
There is no fiscal impact associated with the adoption of this City Council Policy.
City of Culver City, California
Agenda Item Report
ATTACHMENTS:
1. Proposed Resolution (with Proposed Policy attached)
MOTION:
That the City Council:
Adopt a Resolution adopting City Council Policy 2010-002, entitled Fraud
Prevention.
MEETING DATE: 06/28/2010
AGENDA ITEM: Adoption of a Resolution Approving a City Council
Policy for Fraud Prevention.
ATTACHMENTS
1. Resolution 1
2. City Council Policy for Fraud Prevention 2-6RESOLUTION NO. 2010-R
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CULVER CITY, CALIFORNIA, ADOPTING CITY COUNCIL
POLICY 2010-002 ENTITLED FRAUD PREVENTION.
WHEREAS, the City of Culver City is committed to a culture of strong ethics
and the prevention of fraud; and
WHEREAS, the City's auditors have made recommendations to improve
internal controls that include the establishment of a formal anti-fraud policy; and
WHEREAS, the proposed City Council Policy for Fraud Prevention will address
the recommendation from the 'auditors.
NOW, THEREFORE, the City Council of, tthe'City of Culver City DOES
• .
HEREBY RESOLVE as follows:
1. ` The City Council hereby adopts City COuncil Palidy 2010 =002, entitled
Fraud PreventiOn, at set forth in the attached Exhibit A; and,
2. The City Manager is hereby authorized to format. this City Council Policy
; „
in a format consistent with other City Council Policies and shall inClale the final version of
-
this City Council Policy with other adopted City Council Policies.
3. This Resolution shall take effect as of the date of its adoption.
,
APPROVED and ADOPTED this day 'of . , 2010.
"
CHRISTOPHER ARIVIENTk Mayor
City of Culver City, California
ATTEST: APPROVED AS :TO FORM:,
MARTIN R. COLE, City Clerk
CAROL A. SCHWAB, City .Attorney
Al 0-00222|101010101010101010 10
10|11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28City Council Policy 2010-02
Adopted by Resolution No. 2010-R on June 28, 2010
Subject Matter: Fraud Prevention
PURPOSE:
To establish policy and procedures for clarifying acts that are considered to be
fraudulent, describing the steps to be taken when fraud or other related
dishonest activities are suspected, and providing procedures to follow in
accounting for missing funds, restitution and recoveries.
STATEMENT OF POLICY
A. The City of Culver City ("City') is committed to protecting its assets
against the risk of loss or misuse. Accordingly it is the policy of the City
to identify and promptly investigate any possibility of fraudulent orfplated
dishonest activities against the City and, when:'apwopriate, to pursue legal
, .
remedies available under the law.
B. This policy applies to any irregularity, or suspected irregularity, involving
employees, consultants, vendors, contractors, Outside agencies, and/or
any other parties with a business relationship with the,City„
Any investigative activity required will -be condLipted„!n an objective and
impartial mannerf without regard to the suspected wrongdoer's length of
service, Position, title, or relationship to the City.
D. - All Council Members and employees are responsible for the detection,
reporting and prevention of fraud, misappropriations, and cppy
irregularities.
DEFINITIONS,
A. Fraud — the intentional false representation, or concealment of mateiial
fact for the purpose of personal gain for oneself qr.others;,orAnducing
another to aat similarly. Fraud and other similar ki,egularitiesiinClUde, but
. .
1. Claim for reimbursement of expenses that are not jokelated,or
authorized by City policy.
2. Forgery or unauthorized alteration of documents (checks,
promissory notes, time sheets, independent contractor
agreements, purchase orders, budgets, ,etci.
Exhibit to Resolution No. 2010-R
are not limited to:;:.
3. Misappropriation of City assets (funds, securities, supplies,
furniture, equipment, etc.).
4. Improprieties in handling or reporting of 'money transactions.
5. Authorizing or receiving payment for goOds not receive:0.0r services
not. performed. -
6. Computer-related activity involving unauthorized alteration,
destruction, forgery, or manipulation of data or misappropriation of
City-owned software.
Misrepresentation of information on documents.
8. Any apparent violation of Federal, State, or Weal taws related to
dishonest activities or fraud.
9. Seeking or accepting anything of material value from : those doing
business with the City including vendors., consultants, contractors,
lessees, applicants, and grantees. The City's EthicSPOlicy
determines materiality „
B. Employee — Refers to any individual or group of individuals who receive
compensation, either-full- or part-time, from the,City. The term also
includes any volunteer who provides services to the City through an
official arrangement with the City, as well as cOnSUltantS, vendors,
contractors, outside agencies and/or any other parties with a business
relationship with the City.
C. Management— Management refers to any administrator, manager„
director, -sUPervisor, or other individual who manages or supervise funds
or other resources, including human resources. ,
D. Investigator —Investigator refers to any person or persons assigned by the
City Manager Or the City Attorney to investigate any fraud or similar
activity,
E. External Auditor —External Auditor refers to independent audit
professionals who perform annual audits of the ' City's financial
statements. ,
INVESTIGATION ANb PROTECTION
It is the City's intent to fully investigate any suspected acts of fraud,
misappropriation, or other similar irregularity. An objective and impartial|1010|Exhibit "A" to Resolution No. 2010-Rinvestigation will be conducted. The Investigator, in conjunction with the City
Attorney, has the primary responsibility for the investigation of all activity as
defined in this -Olicy.
Employees will be granted whistle-blower protection When acting in accordance
with this policy. When informed of a suspected impropriety, neither the City nor
any person acting on behalf of the City shall:
Dismiss or threaten to dismiss the employee,
2. Discipline, suspend, or threaten to discipline or suspend the
employee,
Impose any penalty upon the employee, or
4. Intimidate or 'coerce the employee.
_
Violations of the whistle-blower protection will resat in disciPline uP to and
including termination.
. ,
The City Manager, following review of investigation reStifts, Will tae appropriate
action regarding eMploYee misconduct. Disciplinary action can include
termination, and referral of the case to an appropriate law enforcement agency
and City Attorney's Office for possible arrest and prosecution.
The City will pursue every reasonable effort, including court ordered restitution,
to obtain recovery of City losses from the offender, or - other'approPriate sources.
PROCEDURES s
A. Management Responsibilities
1. Management is responsible for being alert to, and reporting
frap(fUlent or related dishonest activities in their areas of
responsibility.
• „ -
2. Each manager should be familiar With the types : of improprieties
that Might occur in his or her area and be alert for, any indication
that improper activity, misappropriation, of dishonest aativity is or
was in existence in his or her area.
3. When an improper activity is detected or suspected, management
should determine whether an error or mistake has occurred or if
there may be dishonest or fraudulent activity.|1010|Exhibit "Ar-io . ResolutiOn No. 2010-R 4_ If management determines a suspected activity may involve fraud
or related dishonest activity, they should contact their next
immediate supervisor not involved in the alleged misconduct — and
together with that supervisor inform the City Manager (unless the
City Manager is alleged to have involvement in the alleged
misconduct). Council Members shall report such activity to the City
Manager. If the alleged misconduct is said to involve the City
Manager, report of such misconduct shall be made to the City
Attorney.
5.
Management should not attempt to conduct individual
investigations, interviews, or interrogations. However,
management is responsible for taking apprOpriate corrective
actions to ensure adequate cOntrols exist to prevent reoccurrence
of improper actions.
:.,...,. , .
6. Management should support the City's responsibilities and
cooperate fully with the Investigator, other involved ',departments,
and laW enforcement agencies in the detection, reporting, and
inVeStigation of criminal pets, including the prosecution of
., - „, , .
Offenders.
7. Management must give full and unrestriOted,acCess,to,all
necessary records and personnel. All City proPerty, inaltiding
desks and computers and their contents, shall be open to
inwection at any time. By receipt of a copy of this Policy,
Employees shall be on notice that they have no expectation of
privacy in these areas.
In dealing with suspected dishonest or fraudulent activities, great
care must be taken. Therefore, management should avoid the
following:
a: Incbrrect accusations.
b. Alerting suspected individuals that an investigation is Underway.
c. Treating employees unfairly.
ch. ' 'Making statements that could lead to claims of false
accusations or other offenses.
9. In handling dishonest or fraudulent activitieS, Management has the
responsibility to:|1010|Exhibit "A" to ResolutiOn No. 2010-Ra. Make no contact (unless requested) with the suspected
individual to determine facts or demand restitution. Under no
circumstances should there be any reference to "what you did",
"the crime", 'the fraud", "the misappropriation", etc.
b. Avoid discussing the case, facts, suspicions, or allegations with
anyone outside the City, unless specific -ally directed to do So by
the City Attorney.
c. Avoid discussing the case, facts, suspicions, or allegations with
anyone other than employees who have a need to know.
d. Direct all inquires from the suspected individual, or his or her
representative, to the Investigator_ All inquires from the media
should be directed to the City Manager or designee.
e. Take appropriate corrective and disCipli:riary` actiOrf,) UP to and
including termination, in conforrnance,Withlie.CitYVCiVil.
Service Rules, after consulting with Human Resources and the
City Attorney's Office.
B. Employee Responsibilities
All employees are responsible for the detection, reporting and prevention
of fraud, misappropriations, and other irregularities, and to fully cooperate
with any investigation relating thereto. . .„
C. Investigation,
1 . In al circumstances where there appears to be reasonable grounds
for sUspecting that a fraud has taken place, the inveStigator,
consultation with the City Attorney, will contact an appropriate law
enforcement agency. •
•
• .
2. If evidence is uncovered showing possible dishonest or fratidulent
activities, the investigator will proceed as follows:
a. Discuss the findings with the City Manager who will in turn
inform the City Attorney.
b.
The City Manager (or his/her designated representative) will:
.1) Determine if disciplinary actions should be taken.
. .2) Notify insurers and coordinate the filing of ,insurante
claims_|1010|Exhibit "A" to Resolution No. 2010-R c. Take immediate action, in consultation with the cily
Attorney, to prevent the theft, alteration, or destruction of
evidentiary records. Such action shall include, but is not
limited to:
1) • Removing the records and placing them in a secure
location, or limiting access to the records.
2) Preventing the individual suspected of committing the
fraud from having access to the records.
3. The Investigator will make recommendations to the City Manager
for assistance in the prevention of future similar occurrences.
•|1010|Exhibit "A" to Resolution No. 2010-R