HomeMy WebLinkAbout2007-10-29 Audit Commission Minutes AUDIT COMMITTEE MEETING OCTOBER 29, 2007 PAGE 1 OF 7
Audit Committee Draft Minutes
October 29, 2007 2:00pm Council Chambers 1175 East Main Street Call to Order
Lee Tuneberg, Administrative Services and Finance Director called the Audit Committee meeting to order at 12:05 p.m. on October 29, 2007 in Council Chambers, 1175 East Main Street Ashland, Oregon.
Tuneberg asked if Levine would continue as Chair and Committee approved by consensus. Roll Call Committee members Christensen, Lemhouse, Levine, Morrison and Nutter were present.
STAFF PRESENT: MARTHA BENNETT, CITY ADMINISTRATOR DON ROBERTSON, PARKS & RECREATION DIRECTOR LEE TUNEBERG, ADMINISTRATIVE SERVICES/FINANCE DIRECTOR CINDY HANKS, FINANCE DIVISION MANAGER
Approval of Minutes Audit Committee Minutes of February 5, 2007
Christensen identified misspelling of her name on page, corrected. Nutter/Christensen ms to approve the minutes as corrected. All Ayes. Presentation by the Auditors
Component Unit Financial Report & Parks Management Letter Tuneberg asked if the Committee wished an overview on the Parks financial report by staff or would prefer the auditor begin with management letter and auditor opinions. Committee
indicated that no overview was needed. Kenny Allen, Partner, Pauly, Rogers, and Co. P.C. presented the Management Report for the Parks & Recreation commission annual audit and financial report. Allen provided an overview of the audit process and that the Parks earned an unqualified opinion again this year. He
identified that Parks did not have a management report in FY 2005-2006 and that new Auditing Standards Board statements have been issued causing small issues to be material enough to
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require a report where one might not have been required in the past. Statement of Auditing Standards No. 112, Communicating internal Control Related Matters in an Audit, is a new requirement this year and has “lowered the bar” for items to require an auditor comment. This
had occurred with the Parks audit.
Allen identified the #1 issue in the report is the requirements of SAS 112 and explained the impact key elements will have on future audits. Of primary concern is Parks or any agency having a written and adopted internal controls policies and procedures manual that is followed
by staff. There is no such document for the Parks & Recreation Commission. The auditor
recommends that one be developed and adopted including the points specified in the report as a minimum. Allen reviewed the points in the management report. The Committee and auditor discussed
that this is a significant issue for all agencies due to increased requirements coming from the
private sector causing changes in the government sector. Committee discussed that internal controls are not limited to cash handling and includes access to records and information in computer systems and safeguarding other assets. Compliance with this comment will required significant work in FY 2007-2008 but will transition to an annual process of updating or
maintaining what is established, adjusting for new processes, guidelines and requirements.
Allen addressed comments #2 through #5 that are specific to Parks & Recreation. #2 is a recommendation to have the software that tracks Parks activities interfaced with the general ledger system for better accounting control. #3 is a recommendation that Parks keeps in
storage daily cash receipts for 5 years to provide for auditable records. # 4 is a
recommendation that Parks consider using only one cash register at the golf course to provide better controls and remove the need to move money between two registers to recognize transactions between the Golf Pro and Parks activities. #5 is a recommendation to have Parks management review and initial all bank deposits as a control and to reduce potential for errors.
The committee asked clarifying questions about integrating the software for better control and information, past practices on cash receipts, how costly a register at the golf course will be and management review of deposits.
Allen then reviewed new standards that will be required in the coming year that auditors must
consider and report upon. SAS #114 supersedes #61 regarding Communications with Audit Committees such as used in Ashland. The Committee discussed at great length the points included under SAS #114 and whether they apply to the Parks & Recreation Commission audit. Allen explained the needed clarification of communication requirements between those
responsible for governance of the government entity and the auditor, whether or not a
committee is used. Allen pointed out that the report identifies as a key issue for the Board of Ashland Parks & Recreation to determine who is responsible for oversight of the financial audit and what, if
anything, is delegated to the Audit Committee used by the City. This issue must be discussed
and decided by the Board before next year’s audit begins.
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Allen also covered the coming eight new audit requirements (SAS 104 - 111) that will require them to assess and report on general ledger accounts that could substantially impact (risk) the
material accuracy of the financial reports.
Tuneberg presented written responses that addressed the points made by the Auditor’s management report. Staff agrees with the report and the responses clarified the issue regarding Parks staff shredding cash receipts to protect customer personal information
contained within them when a credit card is used. This change was done in March and will
continue. Also, Parks management has already made some changes including reviewing and initialing deposits. Tuneberg said that staff is looking forward to bringing the identified SAS and operational issues to the Commission for clarification of expectations and direction on audit communications. He said staff is already talking about changes in cash handling and
developing a single document of internal controls for adoption by AP&R Commissioners.
The Committee discussed the Parks audit report and responses as they relate to the authority granted the Audit Committee by City Council. It appears to be an appropriate time to go back to Council for direction on the points raised, including how the audit of the Ashland Parks &
Recreation and its annual financial report fits into the review of the audit and financial report of
the City by the Audit Committee. Nutter/Lemhouse m/s that management go to City Council and Parks Board to determine what authority and expectation is given to the Audit Committee on both audits and financial reports.
All ayes.
Comprehensive Annual Financial Report & City Management Letter
Tuneberg offered an overview of the City’s annual financial report by staff since it is a little
more complex than the Parks’ if the committee thought it would be helpful. The Committee indicated that no overview was needed. Kenny Allen presented the Management Report for the City of Ashland annual audit and
financial report. Allen said that the general process and new SAS issues addressed within the
Parks presentation are much the same for the City. The City earned an unqualified opinion again this year. He also spoke to the differences between the two reports and audit requirements such as the opinions in the back of the City’s financial report that meet the single audit requirements. Since the City has a tendency to receive material amounts of federal grant
monies for capital projects and Community Development housing programs, the auditor must
take additional steps to assure compliance. Under required comments and disclosures by the auditor the only thing unusual is they observed the City was under collateralized for a bank account during this year. Allen said this can happen by receiving too much money on a given day and has since been resolved.
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Allen said the City needs to develop a document of its internal controls procedures and policies, train on them and follow them as part of SAS 112 compliance. The supporting issues are the same as what was discussed under Parks’ need for SAS 112 compliance.
Allen reported the City had only two Management Report comments this year as compared to three in FY 2005-2006. This would indicate improvement since it was easier this year to get a comment due to SAS 112 and 61 requirements causing Comment #1. Allen explained that
most cities are having the same issues with SAS 112 because they are new and require
additional work by staff. Allen said Comment #2 relates to the need for written internal control procedures over the internally developed utility billing system in addition to written general controls for all computers
and systems city-wide.
Allen then reviewed the three comments from the prior year. Comment #1 (timely reconciliation of general ledger accounts) and Comment #3 (computer system cannot generate a receivables report across funds) have been resolved. Comment #2 is still outstanding. The
auditor recommends that fixed assets should be done through the City’s Eden software
package and not on an Excel spreadsheet. This would provide more accounting controls and be less prone to errors. Staff did not get this change during the year so the comment will be carried forward.
Tuneberg explained that the Accounting group did great work this year but had to make some
choices. Staff only had time to work on account reconciliations so converting fixed assets from Excel to Eden had to wait. That is being worked on to clear the issue for the next audit. Allen said Ashland will need to review and document Council‘s expectations for the Committee
and for the City Administrator including communications to and from the auditor as part of SAS
114. An important issue to be addressed is the City Recorder/Treasurer’s role on the Committee. This position is a voting member on the Committee and also handles cash like a staff position. The City Recorder also does all city investing and manages the city bank accounts. Council will need to address these issues before the beginning of next year’s audit.
Allen identified that someone may need to be responsible for the internal controls manual and to do internal auditing on it to ensure compliance. This would need to be identified as part of Council reviewing its expectations.
Christensen said that the City Recorder/Treasurer position already has some responsibilities
for doing internal auditing and that a review and clarification is welcome. Allen reviewed SAS 114, SAS 61 and the coming risk assessment suite of statements (SAS 104 -111) that the City will need to address.
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The Committee asked about the additional cost and Allen said the current contract would not be impacted by these changes but future audits will probably be more expensive.
Tuneberg said it will take staff time to do this work and bring it to Council in January or
February. A key point is that Ashland is fairly unique in having an audit committee and there are issues relating to having it. This is an ideal time to consider what Council expects from the Committee, the Auditor, City Administrator and the rest of us.
Tuneberg presented written responses that addressed the points made by the Auditor’s
management report. Staff agrees with the report. Tuneberg said that staff is looking forward to bringing the identified SAS and operational issues to the City Council for clarification of expectations and direction on audit communications. He said staff is already working on the identified issues and expects to clear them for next year. Ashland does have some hurdles
since we are big employer in a little town, yet our staff is little. This contributes to difficulties in
complying with strict controls since cross-training efforts may violate segregation of duties or access to records controls. The City also has several key people who have spouses in other departments which contribute to hurdles for meeting accounting controls. Tuneberg said that in all cases those people are doing great work but it does impact how work is done.
Tuneberg said much of staff’s comments on Comment #1 are the same for SAS 112 as we provided for the Parks’ report. The Finance Department expects to work with Council, Management and other departments to resolve this comment. We are not sure who should be made responsible for the internal manual and that will be part of the review of expectations.
Tuneberg said Comment #2 should be addressed during the year along with the other work on documentation per the first comment. Tuneberg said the good work by Cindy Hanks and the Accounting group all year held the
comments to a minimum and cleared two of the prior year’s three comments. They are
working on the remaining one. Nutter asked specific question regarding the financial report. He wanted to know a little about the bond rating and underlying rating information in the management Discussion Analysis
section and in the Notes. He also asked about the number of pave streets changing in the
statistical section. Staff said the rating is correct but is subject to change. The information on paved streets will be looked into but may be a change based upon better records or systems being available such as can be provided through GIS.
Christensen said she had to leave for another meeting but wanted to express her appreciation
for the auditor’s professionalism and work. She said she agrees with the timing of the coming discussions on controls and audit communications and gives her approval on the Audit Committee letter and the City’s financial report moving forward to Council.
Nutter asked about the calculated amount for the Mt Ashland restoration requirements
identified in the notes. Tuneberg said he will check the calculation to ensure it had been
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updated for the Consumer Price Index per the agreement. Nutter wanted to know if the Contingent Liability amount should be higher if there is a potential for additional cost. Staff explained that the amount is calculated based upon the existing agreement between the US
Forest Service, Mt Ashland Association (MAA) and the City, that the real amount would only be
determined when and if the ski operations ceased and the City’s share would be based upon what restoration work the US Forest Service required at that time and if MAA assets were insufficient to pay for the cost of the required work. Tuneberg said that it is better to use the methodology and amounts agreed to by all three parties in the contingent liability note rather
than to speculate what it might be.
Nutter asked about the Uherhausen court cases that challenge the legality of the school local levy option in Eugene and whether the City or Parks have a liability and should there be amount identified in the contingent liability note. Bennett explained that no local person has
challenged Ashland’s Youth activity Levy to date and it sunsets within the year. She also
pointed out that the APRC and School has an agreement that allows the Parks to retain sufficient monies to pay for related Parks costs to resolve the issues raised in the Uherhausen case.
Allen said that the case at this time does not meet the requirements for a contingent liability
note. Public Input Tom Gaffey asked about what he had heard regarding Parks operation and cash management. He wanted to know who was in charge of the Golf course and said he didn’t like how it’s not being run like a business. Levine pointed out the Parks is responsible for it and it
is a service not a business. Gaffey asked why there were no Parks Commissioners in
attendance and staff explained that this is a City committee and much of the earlier discussion was in regard to whether there was any delegation of authority to this committee by the Parks Commission. Tuneberg said the CUFR will be presented to the Commission and he could provide his input to them at one of their meetings.
Committee Discussion Question and Answer
Nutter asked for more information on the earlier bond rating question. He wanted to know if the rating on page 15 is an appropriate rating and a good indicator of the City’s financial condition? Tuneberg responded that the assigned rating on page 15 is higher because the City bought insurance to get the best interest rating we could. The investors often want to
know what the underlying rating (without insurance) to evaluate the financial condition of the agency selling the bonds. Tuneberg said the A2 underlying rating is good for our agency and size but cautioned that a rating is based upon conditions at the time of the sale and can
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change. He said we do not have a good means of checking that rating without going to the market with another offering.
Nutter asked about the significant swings in program costs presented between years in the
MDA and wondered if presenting more years would help show trends. Tuneberg explained that the large variations between years are caused by changes in the amount of capital costs recognized the year and it can cause confusion. Tuneberg suggested committee members looking at page 98 in the statistical section for multiple year presentations to consider changes
and trends.
Nutter asked about the use of energy efficient vehicles to minimize cost increases attributable to petroleum costs. Nutter questioned whether this is something in the Committee’s authority but was interested in the answer. Staff explained that fleet personnel are buying energy
efficient vehicles for use in programs that safety or operations will not be negatively affected.
Even though these vehicles may cost more in the beginning and may not ultimately save significant amounts of money it is worth investigating because it is a good thing to evaluate and there may be beneficial impacts on the environment.
Signing the Annual Letter Tuneberg asked if there were any outstanding issues that would prevent the committee from accepting the report and signing the annual letter conveying the comprehensive annual
financial report to Council.
Nutter/Lemhouse m/s that the Committee sign the letter accepting the City’s audit and financial report. All ayes (agreeing with the City Recorder’s opinion given before she left).
Committee members thanked staff for their hard work and a very readable financial report.
Members also thanked the Auditor for his work and reports that are meaningful Tuneberg submitted the Committee Letter to members for signature.
Adjournment The meeting was adjourned at 4:25 p.m.
Respectfully Submitted, Lee Tuneberg Administrative Services and Finance Director Administrative Services Department