To assist the City Council in fulfilling its oversight responsibilities for the financial reporting process, system of internal controls, and audit processes and resources, as well as the City's process for monitoring compliance with laws and regulations and the code of conduct.
The U.S. Government Accountability Office (GAO) recommends all public sector entities consider establishing an audit committee. An effective audit committee can increase the integrity and efficiency of the audit process, as well as the system of internal controls and financial reporting. The Government Finance Officers Association (GFOA) and the Institute of Internal Auditors (IIA) encourage the effective use of an audit committee in the public sector and consider this committee an integral element of public accountability and governance.
1) 
ESTABLISHMENT OF AUDIT COMMITTEE
Per City of Stockton Council Policy Chapter 3.06, the Audit Committee, as a Council committee, shall be established by the Mayor with City Council concurrence. Council Committees shall be comprised of a Chairperson, Vice-Chairperson, one regular member, and an alternate member appointed by the Mayor with concurrence of the Council. A roster of appointments shall be updated and revised as new appointments occur and are confirmed by City Council resolution.
2) 
DURATION OF APPOINTMENTS
Council Committee assignments shall be for two-year terms. Multiple terms are permissible as long as confirmed by Committee resolution.
3) 
AUTHORITY
The role of the Audit Committee is to maintain oversight and strengthen the independence of the auditing function, both internal and external, resulting in increased integrity and efficiency of the audit process for the City and the City's system of internal controls and financial reporting. The Audit Committee has authority to conduct or authorize investigations into any matters within its scope of responsibility. It is empowered to:
A) 
Appoint, compensate, and oversee the work of any registered public accounting firm employed by the City;
B) 
Resolve any disagreements between City management and the auditor regarding financial reporting;
C) 
Pre-approve all auditing services;
D) 
Retain independent counsel, accountants, or others to advise the Committee or assist in the conduct of an investigation;
E) 
Seek any information it requires from employees, all of whom are directed to cooperate with the Committee's requests, or external parties;
F) 
Meet with City officers, external auditors, or outside counsel, as necessary.
4) 
MEETINGS
The Audit Committee will meet at least four times a year, with authority to convene additional meetings, as circumstances require. All Committee members are expected to attend each meeting, in person or via teleor video-conference. The Committee will invite members of City management, auditors, or others to attend meetings and provide pertinent information, as necessary. As necessary, the Committee will meet with the external or internal auditors in executive session for the same reason(s) that the full Council holds closed sessions.
Meeting agendas will be prepared and provided in advance to members, along with appropriate briefing materials. Meetings shall proceed according to City Council Committee procedures articulated in Policy Chapter 3.06. All Committee meetings shall be video recorded. Such recordings shall be maintained on file for two years. Committee reports, including meeting minutes, will be prepared according to procedures outlined in Policy Chapter 3.06.
Financial Statements
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Review significant accounting and reporting issues, including complex or unusual transactions and highly judgmental areas, and recent professional and regulatory pronouncements, and understand their impact on the financial statements.
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Review with City management and the external auditors the results of the audit, including any difficulties encountered.
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Review the annual financial statements, and consider whether they are complete, consistent with information known to Committee members, and reflect appropriate accounting principles.
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Review other sections of the annual report and related regulatory filings before release, and consider the accuracy and completeness of the information.
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Review with City management and the external auditors all matters required to be communicated to the Committee under Generally Accepted Auditing Standards (GAAS).
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Understand how City management develops interim financial information and the nature and extent of internal and external auditor involvement.
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Review interim financial reports with City management and the external auditors before reports are filed with regulators, and consider whether they are complete and consistent with the information known to Committee members.
Internal Control
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Consider the effectiveness of the City's internal control system, including information technology security and control.
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Understand the scope of internal and external auditors' review of internal control over financial reporting, and obtain reports on significant findings and recommendations, together with City management's responses. GAAS and Government Auditing Standards (GAS) require an independent auditor to evaluate the City's internal controls in connection with determining the extent of their audit procedures.
Internal Audit
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Periodically review with City management and the Internal Auditor the charter, activities, and structure of the internal audit function.
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Have final authority to review and approve a risk-based annual audit plan and all major changes to the plan, and regularly review progress implementing the plan.
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Ensure there are no unjustified restrictions or limitations, and review and concur in the appointment, replacement, or dismissal of the Internal Auditor.
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Review the effectiveness of the internal audit function, including compliance with The Institute of Internal Auditors' (IIA) International Professional Practices Framework (IPPF) for Internal Auditing consisting of the Definition of Internal Auditing, Code of Ethics and the Standards.
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Direct the internal auditor to conduct internal control audits to address processes and controls and performance audits to address economy, efficiency, and effectiveness, and ensure work is performed under the proper standards, which include the IIA's IPPF and the GAO's Generally Accepted Government Audit Standards (GAGAS).
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On a regular basis, meet with the Internal Auditor to discuss matters that the Committee or Internal Auditor believes should be discussed privately.
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Direct management to prepare implementation plans to respond to audit findings and recommendations and receive reports from management on implementation progress.
External Audit
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Review the external auditors' proposed audit scope and approach, including coordination of audit effort with internal audit.
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Review the performance of the external auditors, and exercise final approval on the appointment, replacement, or dismissal of the auditors.
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Review and confirm the independence of the external auditors by obtaining statements from the auditors on relationships between the auditors and the City, including non-audit services, and discussing the relationships with the auditors.
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On a regular basis, meet with the external auditors to discuss matters that the Committee or auditors believe should be discussed privately.
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Direct management to prepare implementation plans to respond to audit findings and receive reports from management on implementation progress.
Compliance
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Review the effectiveness of the system for monitoring compliance with laws and regulations and the results of City management's investigation and follow-up (including disciplinary action) of any instances of noncompliance.
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Review the findings of any examinations by regulatory agencies and any auditor observations.
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Review the process for communicating the code of conduct to City personnel and monitoring compliance therewith.
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Obtain regular updates from City management, City Attorney, Internal Auditor, and external auditors regarding compliance matters.
Reporting Responsibilities
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Regularly review City responses to audit findings as tracked in the Audit Findings Response Tracking Report, which will be updated on an ongoing basis by the Internal Auditor with input from City management.
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Regularly report to the City Council about Committee activities, issues, related recommendations, and how it has discharged its duties and met its responsibilities.
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Provide an open channel of communication between the Internal Auditor, the external auditors, and the City Council.
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Review any other reports the City issues that relate to Committee responsibilities.
Other Responsibilities
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Perform other activities related to this charter as requested by the City Council.
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Establish procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls, or auditing matters.
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Institute and oversee special investigations as needed.
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Review and assess the adequacy of the Committee charter annually, requesting Council approval for proposed changes, and ensure appropriate disclosure as may be required by law or regulation.
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Confirm annually that all responsibilities outlined in this charter have been carried out.
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Evaluate the Committee's and individual members' performance on a regular basis.