HomeMy WebLinkAbout2008-10-29 Audit Commission Minutes
Audit Committee
Draft Minutes
October 29, 2008 2:00pm
Council Chambers
1175 East Main Street
Call to Order
Lee Tuneberg, Administrative Services and Finance Director called the the Audit
Committee meeting to order at 2:25 p.m. on October 29, 2008 in Council Chambers,
1175 East Main Street Ashland, Oregon.
Everson/Navickas ms for Nutter to be chair. All Ayes
Roll Call
Committee members Christensen, Emerson, Nutter, Navickas were present. Member
Lemhouse was absent.
Staff Present: Martha Bennett, City Administrator
Lee Tuneberg, Administrative Services and Finance Director
Cindy Hanks, Finance Division Manager
Bryn Morrison, Account Representative
Melissa Huhtala, Administrative Secretary
Also Present was Kenny Allen, Partner, Pauly, Rogers, and Co. P.C.
Approval of Minutes
Audit Committee Minutes of October 29, 2007
Nutter requested that the committee members be given a copy of any reports and/or
letters on significant deficiencies issued by the accountants, together with the staff’s
responses to those significant deficiencies, in advance of the audit committee meeting.
Nutter indicated that he could do a better job if he was given the accountant’s report and
the staff’s response in advance of the committee meeting.
Navickas/Everson ms to approve the minutes as amended. All Ayes.
AUDIT COMMITTEE MEETING
OCTOBER 29, 2008 - PAGE 2 OF 8
Presentation by the Auditors
A. Audit
1. Component Unit Financial Report (CUFR)
2. Parks Management Letter
3. Comprehensive Annual Financial Report (CAFR)
4. City Management Letter
B. Report from Staff
Presentation By the Auditors:
Kenny Allen presented to the Committee the purpose of the audit. He spoke to a new
presentation required for audits and the responsibility under generally accepted
accounting standards is to express an opinion on how the financial statements are
prepared.
He explained the results of the audits had a non qualified opinion. He added that as
shown on page 70 in the Parks CUFR, there was one transaction found that did not
comply with the regulations to obtain a bid.He explained how there were significant
deficiencies noted in the Parks Management letter. These were due in part to new
standards required in the letter and there will be more to come in the future. He stated
that in accordance with the terms of the engagement letter, they will advise
management about the appropriateness of accounting policies and their application.
For both reports, the policies can be scene in Notes to the Financial Statements.
The Committee discussed Investments made by the City and that they are an integral
part of the financial statements prepared by management and are based on
management’s knowledge and experience about past and current events. There were
not any risky investments found and if there were, they would have to be disclosed.
Mr. Allen spoke to the new requirements of SAS 114, see attached.
Parks management letter:
Mr. Allen presented the management letter. The first comment was the City and the
Parks need to formalize their Intergovernmental Agreement for accounting services.
There is no formal agreement between the two organizations, and this could lead to a
miscommunication between the parties for who is responsible for specific financial
tasks. That was the only significant deficiency in the 2007-2008 audits.
Mr. Allen spoke to the deficiencies noted in the prior year audit. The first item was that
the Commission does not have a written internal control policies and procedures
document. In applying SAS 112 it is believed that the Commission should adopt formal
policies/procedures for all accounting areas, especially as it pertains to internal controls
AUDIT COMMITTEE MEETING
OCTOBER 29, 2008 - PAGE 3 OF 8
and the identification of key controls. The audit did not uncover significant deficiencies
pertaining to these areas other than the items noted.
Second the Commission’s Recware software is not integrated into the general ledger.
Segregation of duties requires the Commission to post all of their activity into the GL
themselves, and then have the City’s finance department reconcile the accounts. The
Auditors recommended that the Recware system be integrated into the Eden GL
system. Also noted was that manual adjustments to the Recware system were not
reviewed on a periodic basis. Segregation of duties requires that at least two employees
review these manual changes. The auditors recommend that periodically the manual
journal log be printed out and signed off and reviewed by two Parks employees.
Third, the Parks shredded their golf receipts for the year. The Parks only kept three
months of golf receipts at a time. The auditors recommend that the Parks keep receipts
for at least five years or more depending on the records retention policy of the City and
Parks and Oregon Law.
Forth, the Golf Course has two cash registers, one for tracking the Golf Pro’s revenues
and the other for the Commission’s revenues. The auditors recommend that there only
be one cash register so that money is not moving between registers. Also
recommended is to purchase computerized software that acts as a cash register as well
as tracking golfer information.
Last, the auditors found that the golf deposits did not have Park’s Management initials
showing that they reviewed the deposit. The auditors recommend that all deposits have
someone in Parks initials on it to show that the deposit has been looked over. Also if
there are questions on a deposit, any resolution of the question should be fully
documented somewhere on the deposit.
Mr. Tuneberg spoke to the staff responses to the auditor’s letter. In the opening of the
letter it stated that accounting functions were outsourced to the City based upon a
suggestion from the Budget Committee in 2002. Parks and City staff has worked on an
agreement of services exchanged for many years. In 2008-2009 the two will work to
clarify roles. The 2006-2007 audit first noted the SAS 112 requirement on internal
controls. Staff did work on it primarily in City Hall where the cash handling takes place.
Procedures were written and training was given on cash handling.
Mr. Tuneberg spoke to item number two, that the Recware software needs to be
integrated with Eden. This also will be looked into the in next fiscal year as staff is
available. Item three was addressed immediately and the golf receipts have not been
shredded since. Item four has been addressed, however the two cash registers have
not been replaced. Handling of cash has been changed and control of what is going into
which register. Management and Parks are looking at the operation currently.
AUDIT COMMITTEE MEETING
OCTOBER 29, 2008 - PAGE 4 OF 8
Committee Discussion
The Committee questioned the allegations made about cash handling and money at the
Golf Course published in the Daily Tidings. Don Robertson, Parks Director responded
to this question and commented that they did receive allegations and did investigate.
They also involved the Finance Department and Auditors. They have not identified that
there was anything inappropriate. Changes in procedures have been made in response
to the allegations and they will continue to look at how they manage it.
The Committee questioned what the allegations were. Mr. Robertson responded that
there was an instance that golf was exchanged for pizza, and also an overage in a
register that was not handled appropriately. They looked at all the cash handling with
city recorders office and finance to see how they are doing business. The Committee
questioned if there is a way to monitor cash receipts. Mr. Robertson responded that
they balance them daily and if a discrepancy is found, an explanation in writing is
expected. Barbara Christensen, City Recorder commented that the City is tightening up
on this topic and the receipts are crossed checked by three different departments now
and are pleased with the process now.
The Committee asked Mr. Allen to comment on the situation. He said they looked at the
procedures and most of the instances were money moving between the registers where
the problem stemmed from. The Committee questioned if this is something that the
auditors will catch in the future if it occurs again. Mr. Allen responded yes if it was big
dollar amount however, something like exchange for a pizza isn’t as significant. The
Committee questioned the substantial increase on the program revenues, in operating
grants and contributions on page 5. Mr. Tuneberg responded that was revenue to the
Parks itself such as payments from schools, and services that were provided outside
the Youth Activity Levy. The school district went away from using City services in 2006
then came back to result in a significant portion of fees showing the increase.
City Management report:
Mr. Allen discusses the City Management report. The first comment for FY 2007-2008
the auditors noted is that the Information Technology (IT) department does not have a
cohesive written internal control document that details out their internal controls over
their internally developed utility billing system. They also noted that there was no
cohesive written internal control document that details the general controls over all
computers and systems City-wide. They recommended the City develop written internal
control procedures for these areas. They also recommended that IT department have
an external review of the processes and controls from an outside entity.
Second they noted that the Community Development accounts receivable detail
contained many items which were either extremely old or items that have already been
paid. They recommended that the Community Development Department reconcile and
review their listing of accounts receivable and either write the receivable off because the
item had been paid or follow up with the customer to obtain payment.
AUDIT COMMITTEE MEETING
OCTOBER 29, 2008 - PAGE 5 OF 8
Response to the Management letter:
Mr. Tuneberg responded to the auditor’s comments. He first pointed out that
management letters are geared toward deficiencies and not what is done right. It is
shown that the City has done a lot better this year. This year the City only has two
comments instead of multiple comments. Although they did not clear all the comments
from the prior year, they have improved the operations and staff is doing the best work
in accounting in years. The first comment goes back to 2003 and the City has had this
issue with documentation and controls in IT and they need to get a formalized IT plan.
This is high on the City’s priority list. IT did provide some documentation to the auditors
but not enough. They Finance Department needed the documentation before the
review. They will continue to work with the IT department.
Item number two speaks to the interface of the sub ledger from the Community
Development Department. Mr. Tuneberg commented that the City has many sub
ledgers that either integrate or manually integrate into the general ledger. They will
work on clearing this comment this year.
The Committee asked for further clarification on the first comment. Mr. Tuneberg
responded that the City’s biggest receivable is the utility software that was built by city
staff and is operated by city staff. It has been viewed by the auditors that the City needs
good documentation on the software and compliance and the auditors cannot rely only
on what the City says happens and needs it in writing. He explained that the City needs
the documentation and will have an outside party go over it. The Committee asked for
clarification on if the people who write the documentation and write the software are in
control themselves of the whole revenue system. Martha Bennett, City Administrator
responded that because it’s not documented and because the sign off policy isn’t in
place, the IT staff could make changes. The Committee commented on how the
individual staff members are also completely unprotected as individuals and urged this
issue to be addressed as soon as possible.
The Committee commented that they feel that the finance department is grossly
understaffed. Mr. Tuneberg responded that the City has has people that wrote the code
and could make errors that could lose the City money is what the concern is but there is
not much they can do about it. Mrs. Bennett also responded that it is not just finance
that is understaffed; the City has reduced the funding of its internal employees. If the
City wants to get pass these exceptions, money needs to be put into overhead.
The Committee questioned Mr. Allen on if this comment was taken care of, how the
auditors would check the restrictions. Mr. Allen responded that the City should have a
manual log that shows all changes made in the source code and also make sure that it
is reviewed by the appropriate management. The Committee questioned the comment
regarding Community Development and if there are other departments that are in
charge of billing. Mr. Tuneberg responded they have their own system, it’s recorded
and goes into that system and integrates into the GL, and the ones that need to be
AUDIT COMMITTEE MEETING
OCTOBER 29, 2008 - PAGE 6 OF 8
cleaned up are out of that system. He added that staff is half way there as of this
meeting. The Committee asked if there were any receivables so stale that were beyond
the statue. Mr. Tuneberg responded that they are not sure at that time and the issues
are input errors not collection errors.
The Committee asked if the City has the ability to lien a property on these issues if
someone had not paid. Staff responded that it would depend on how much money it
would be. The goal is to be done cleaning this up by December and they should see a
better report next year.The Committee asked Mr. Allen how long they let aging items go.
Mr. Allen responded that they look at things like this and the reason they made a
comment this year is because it hadn’t been cleaned up from previous year. It is not a
significant dollar amount, but when things haven’t been cleared in the next year after the
original finding, they have to make a comment.
The Committee asked Mr. Allen what his concerns were for the City. He responded
developing documentation in IT, documenting internal control, and design processes to
segregate duties as much as possible. Mr. Tuneberg questioned Mr. Allen on the
newer SAS coming out on the risks and how it played a role in the audit. Mr. Allen
informed the Committee on the new auditing standard that was implemented in the year
called the risk assessment. The role it played in this years audit was auditors make
sure to apply risk procedures for the City of Ashland and test those risks. This new risk
assessment requires more documentation and conclusions. There will not be an
increase in the cost for this implementation.
Committee Reflection Questions:
Guy Nutter, Committee member read in the Ashland Daily tidings that, Bonneville paid
the City $652,870, $600,000, and $150,000 and was wondering if that money is
reflected in the financial statement. Mr. Tuneberg responded that part of it is, and would
like to clarify that they $636,000 the City received last spring, by Council’s direction was
put it in the debt service fund to offset future debt service primarily related to the AFN
debt. This year the City budgeted to receive $160,000 and there is not an amount of
$652,870. The City however will be receiving additional credits from BPA of about
$54,000 a month and this will happen in October 2008 through September 2009.
The Committee questioned how the one percent is shown. Mr. Tuneberg responded
that they City will see this credit in the financial reports for June 30 2009, and they might
see a smaller cost in wholesale power and it will show in the electric fund. The
Committee questioned the decrease of net assets on page 9 as compared to the
increase in active residential meters, but reduced utility sales. Mrs. Bennett responded
that was due to the weather and when the City experiences mild weather, not as much
water or electricity is used.
The Committee questioned the decrease in total grants and contributions by 63%. Mr.
Tuneberg responded by explaining that Grants come and go and sometimes the City
receives them, but they fluctuate dramatically, and the City received less this year. The
AUDIT COMMITTEE MEETING
OCTOBER 29, 2008 - PAGE 7 OF 8
Committee asked for clarification on page 11 and the statement under governmental
activities for those who directly benefitted from the offered programs. Mr. Tuneberg
responded that those amounts represent services paid directly for programs that are
shown on page 20.
The Committee asked Mr. Allen why the low staffing level is not shown as an audit
comment. Mr. Allen explained that part of the audit is not telling the City how to spend
its money. If there was a large segregation of duties issue, it would be noted in the
audit.
The Committee asked what the large increase was due to in the Highways and Streets
on page 10 and if it will continue. Mr. Tuneberg responded that fluctuations will continue
and explained how the City shows expenditures on capital intensive activities. The City
had less to capitalize in FY 2008r than in FY b2007 because there was less work that
we done in the street fund and have been held up on projects. The Committee
questioned the bond ratings on page 15. Mr. Tuneberg responded that the City uses
the 2003 ratings for the revenue bonds because that was the last time the City went out
and sold bonds competitively.
The Committee asked Mr. Allen to explain the Deposits and Investments on page 43,
section III A. and the deposits not recovered as required by law at the end of the year.
Mr. Allen responded that there is a difference between Oregon law and GAAP
(Generally Accepted Accounting Principles). GAAP is what was reported. The banks
require that they only have to insure 25% of a certain amount and GAAP covers 75%.
The City will always have a comment showing that they are under-collateralized for
GAAP purposes, but for Oregon law, they are fine.
The Committee questioned the increase in unpaid claims from FY 2007 on page 56. Mr.
Tuneberg explained that the City looks at the claims each year as to what is outstanding
and what can be reported as actual claims and what is incurred but not accrued. The
Committee questioned the post employment benefits on page 58 and the rate of return
used of 6% and what it will look like next year. Mr. Tuneberg explained that by next year
the City hopes that it will be lower. The amount the City pays on liabilities will fluctuate.
The Committee questioned potential liabilities and possible land contamination. Mr.
Allen responded that the auditors do not know if there is a liability of clean up until the
study is done. If the regulators tell the City they have to clean up then that is when the
auditors would look into the liability.
The Committee commented that there was a decrease in the police department with
physical arrests and traffic violations and yet we had an increase of 14% in the budget
for the public safety. Mr. Tuneberg responded that increase costs for operating the
emergency services and municipal court may not be directly related to how many tickets
the City writes on the street. In the prior year, the police department was not fully staffed
so that makes that percentage of personnel cost swing dramatically and the ability to
write as many tickets.
AUDIT COMMITTEE MEETING
OCTOBER 29, 2008 - PAGE 8 OF 8
The Committee questioned uncollected taxes on page 36 of the Parks report and the
possibility of placing a lien on a property. Mr. Tuneberg explained that these liens are
run through the county.
Christensen/Nutter ms to accept the audit as presented. All Ayes.
Public Input
There was no public input.
Committee Discussion
Mr. Tuneberg suggested that the letter that goes into the City’s financial report be
signed by the chair instead of all members.
Christensen/Navickas ms for the letter to be signed by the chair. All Ayes.
Review of Audit Contract
Fiscal Year 2008-09 is the third year of a three year contract. Next year the City will
have to decide whether to extend for another year or whether they go out to bid. Next
spring the Audit Committee will get together and talk about what they would like to see
happen in the upcoming audit.
Before closing Mr. Tuneberg thanked everyone that gave their support and time.
Adjournment
The meeting was adjourned at 4:40 p.m.
Respectfully Submitted,
Melissa Huhtala,
Administrative Secretary
Administrative Services Department