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HomeMy WebLinkAbout2011-10-24 Audit Commission Minutes MUNICIPAL AUDIT COMMITTEE MEETING MINUTES October 24, 2011 Administrative Services and Finance Director Tuneberg called the meeting to order at 2:20 p.m. in the Civic Center Council Chambers, 1175 East Main Street. Call to Order Municipal Audit Committee Members Guy Nutter, Dennis Slattery, and Roberta Stebbins were present. Committee Member Barbara Christensen was absent. Also present were City Administrator Martha Bennett, Administrative Services and Finance Director/Interim Assistant City Administrator Lee Tuneberg, Parks Director Don Robertson, Accounting Manager Cindy Hanks, and Administrative Assistant Rossann Grimm. Responding to Chair Nutter, Accounting Manager Hanks clarified that 89 residential building permits were included in the $15.6 million figure on the 2010 Comprehensive Annual Financial Report (CAFR), as shown on page 114 of the 2011 CAFR. She also replied that the majority of “Misc Receivables” shown on the 2010 CAFR was comprised of grants for forest interface in the Water Fund and cemetery invoices. Ms. Hanks noted that a Federal Aviation Administration grant in the amount of $1.4 million constituted the bulk of the “Misc Receivable” figure on page 44 of the 2011 CAFR. Approval of Minutes A MOTION WAS MADE by Committee Member Slattery, seconded by Committee Member Stebbins, to approve the minutes of October 25, 2010, as submitted. The Vote: Unanimous Ayes A MOTION WAS MADE by Committee Member Stebbins, seconded by Committee Member Slattery, to approve the minutes of September 19, 2011, as submitted. The Vote: Unanimous Ayes Representing Pauly, Rogers, and Co., P.C. (PR&C), a certified public accounting firm engaged by the City to perform auditing services, Kenny Allen presented the City of Ashland Comprehensive Annual Financial Report (CAFR), the Parks Comprehensive Annual Financial Report (CUFR), and Management Letters to the City of Ashland and the Parks and Recreation Commission. Presentation by the Auditors MUNICIPAL AUDIT COMMITTEE MEETING October 24, 2011 Page 2 of 5 g:\finance\administration\audit\municipal audit committee\minutes\2011\10-24 final.docx Mr. Allen summarized the audit process and stated that the purpose of the audit was to determine if fair presentation of the financial statements and compliance with generally accepted accounting principles and auditing standards, applicable Oregon municipal audit law and administrative rules, and federal, state and other agency rules and regulations related to financial assistance had been accomplished. Purpose of the Audit Mr. Allen called the Committee’s attention to page three of the City of Ashland Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2011, and affirmed PR&C’s unqualified opinion on the City’s and Park’s financial statements. He clarified that an “unqualified opinion” meant the reports had been given a “clean” opinion with no reservations. Results of the Audit Directing attention to page 147, which contains a non-inclusive list of areas tested for compliance, Mr. Allen reviewed the State of Oregon regulations and minimum standards for audits and stated that no exceptions or issues requiring comment were found. Lastly, Mr. Allen presented the Federal Single Audit act opinion relating to compliance of expenditure of federal monies on page 154, and relayed that the Federal Aviation Administration (FAA) grant in the amount of $1.4 million had been tested. He stated that PR&C found no issues requiring comment. Mr. Allen explained that standards regarding management letters had changed a few years ago and observed that the City of Ashland’s management letter, located on page 157, was incorporated into the CAFR pursuant to the Federal Single Audit act. Mr. Allen reviewed the three conditions encompassed in the City’s Management Letter. City Management Letter • Condition 1 – PR&C noted 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 (UB) system and that the UB system should be modified to be fully integrated into the Eden GL system and should have a report written that “red flags” unusual or missing charges to individual accounts. PR&C also recommended that the IT department have an external review of the processes and controls from an outside entity. Responding to Committee Member Stebbins, Mr. Allen stated that IT consulting firms typically provide review services. Administrative Services and Finance Director Tuneberg recalled that the City had put a set of rules, procedures, and forms for providing access to the system in place. He also said that the internally-generated UB software was being replaced with new software purchased in 2011, which should be fully implemented by March 2012. • Condition 2 – PR&C noted that the City’s capital asset (and intangible policy) does not specifically state how the City determines costs on their internally generated assets. Mr. Allen recommended that a written description of exactly what is capitalized into the cost of each fixed asset be developed, to show consistent valuation and accounting treatment, which is a basic tenet of accounting principles. MUNICIPAL AUDIT COMMITTEE MEETING October 24, 2011 Page 3 of 5 g:\finance\administration\audit\municipal audit committee\minutes\2011\10-24 final.docx Mr. Tuneberg expressed agreement and recalled that upgraded policies had been instituted when the City first started booking intangible assets. He detailed the process and effort of assigning value to intangible assets, such as software, and outlined the issues the City had considered. He stated that a change in policy would be completed in fiscal year ending June 30, 2012, which will clear this comment. • Condition 3 – PR&C noted that all staff at the Courts department can make manual changes to court charges within the system. Mr. Allen recommended limiting access to as few people as possible and requirement of a supervisory review of all manual changes within the system. He opined that this is an area of high-risk in the court system. Mr. Tuneberg acknowledged that this was a challenging area for small agencies with very few staff. He recognized the difficulty in scheduling adequate coverage of critical duties with a staff of 2.5 and the impracticality of limiting their functionality. Mr. Tuneberg recommended strengthening reviews and internal controls such as sign offs, reconciling, and auditing efforts to improve compliance with the essence of this comment. Mr. Allen identified one major new policy that the City implemented during the year, as depicted on page 24 of the CAFR. Referring to Governmental Accounting Standards Board (GASB) Statement No. 54 pertaining to categories of fund balances, Mr. Allen explained that the previous two categories of “reserved” and “unreserved” had been replaced with ”restricted,” “committed” (by the City Council), “assigned” (by management), “unassigned,” and “non- spendable.” He mentioned that page 61 provided some additional details of the fund balances. Significant Audit Findings Mr. Tuneberg reiterated that the GASB 54 changes were described in numerous sections of the CAFR, including the Management Discussion and Analysis section on pages 5-17, and acknowledged Ms. Hank’s adept presentation on pages 38 and 39. Mr. Allen reported that there were no Difficulties Encountered in Performing the Audit; that no deficiencies in Corrected and Uncorrected Misstatements were noted this year; and that there were no Disagreements with Management. Mr. Allen briefly described changes to the “Yellow Book” issued by the Government Accountability Office, three new auditing standards (SAS 118-120) issued by the American Institute of Certified Public Accountants, and GASB 61 requirements relating to inclusion of component units in the primary government’s financial report, which are scheduled to be implemented in fiscal year 2012-13. He stated that the City of Ashland would not be significantly impacted by these changes. Future Accounting and Auditing Issues Committee Member Stebbins had questions/concerns regarding information presented on the Statement of Net Assets (page 21), Contingent Liabilities (page 56), and Other Post Employment Benefits (pages 58-59.) Committee Discussion MUNICIPAL AUDIT COMMITTEE MEETING October 24, 2011 Page 4 of 5 g:\finance\administration\audit\municipal audit committee\minutes\2011\10-24 final.docx Accounting Manager Hanks explained that the Accounts payable and other current liabilities figure of $5.7 million shown on page 21 of the 2011 CAFR is correct and may seem inflated because the $1.4 million FAA grant, as well as possible other expenses such as the City’s PERS payment, were booked but not paid out as of June 30. Mr. Allen, Ms. Bennett, and Mr. Tuneberg addressed the CAFR’s contingent liability disclosure language relating to Ashland Community Hospital on page 56. Consensus was reached to revise/expand the text to indentify the hospital’s outstanding debt, the amount booked on city records, and the due date (2016) of the balloon payment on the loan. Mr. Allen responded that cities rarely establish an irrevocable trust to account for retiree benefit plans (pages 58-59), although it does happen. Committee Member Nutter congratulated Mr. Tuneberg for receiving the Government Finance Officers Association award for the 2010 CAFR. He asked for more information relative to the Electric Fund capital projects notation on page 14, the bond ratings on page 15, intergovernmental revenue changes on page 67, the Machinery and equipment line item on page 100, and the Changes in Governmental Fund Balances table on page 108. Mr. Tuneberg said that monies had been budgeted for electric infrastructure maintenance and line improvement projects, which are normally done subject to available staff time, and that some projects had not been completed due to inadequate staffing, as referenced on page 14. Mr. Tuneberg confirmed that no imminently catastrophic projects had been delayed or left undone. Mr. Tuneberg advised that the City’s bond ratings could be higher if the City showed a significantly improved financial condition (including large fund balances) or lower if the real market value of property within the city limits dropped significantly. He opined that no change in the current bond rating, as presented on page 15, was considered good. Mr. Allen concurred. Ms. Bennett, Ms. Hanks, and Mr. Tuneberg explained that intergovernmental revenues are comprised of grants for projects and gas tax for operations. The difference in the budgeted and actual figures on page 67 is attributable to budgeting in a grant that the City did not receive. Discussion ensued regarding the Machinery and equipment line item on page 100, concluding with Mr. Allen responding that he was “comfortable” with the City’s small tool/equipment inventory control procedures and that only items individually valued at over $5,000 are included in the Statement of Net Assets under this line item. Ms. Hanks said that the increase in the intergovernmental revenues line item from $2.1 million in 2010 to $3.6 million in 2011, on page 108, is the result of the aforementioned $1.4 million FAA grant. Mr. Allen stated a clean opinion overall on the Park’s financial statements, no exceptions requiring comment relative to Oregon Municipal Audit law, and compliance with GASB 54 requirements. Parks Comprehensive Annual Financial Report MUNICIPAL AUDIT COMMITTEE MEETING October 24, 2011 Page 5 of 5 g:\finance\administration\audit\municipal audit committee\minutes\2011\10-24 final.docx Parks Management Letter Mr. Allen presented the Management Letter to the Ashland Parks and Recreation Commission, which asserts two significant deficiencies noted during 2010-11. 1. The Parks is inconsistent in how they post revenues between general ledger account lines. For good consistency and ability to analyze account balances and activity, the Parks should be consistent in their General Ledger (GL) postings. 2. The Memorandum of Understanding (MOU) between the City and Parks is ambiguous; it doesn’t clearly lay out what exact services the Parks uses. This ambiguousness leads to confusion on who is responsible for what. Mr. Allen recommended that Parks condense their 30-35 GL accounts to match the 3-4 categories shown on the financial statement and/or fully define each GL code so that entries can be treated in a consistent manner from year to year. Mr. Allen also recommended that Parks significantly expand their MOU with the City to specifically address each area where they use the City’s services, or fully integrate into the City’s system, or perform all functions themselves. Mr. Tuneberg expressed agreement with both opinions and advised the Committee that on- going effort was being made to resolve these issues and that staff would take action to clear this comment by June 30, 2012. Committee Member Stebbins complimented Mr. Tuneberg on the high quality of the Letter of Transmittal in the Introductory section and expressed that she thought a fine job was done from beginning to end. She observed some ambiguous language on page iii, regarding potential use of leveraging future funds to front load projects. Committee Member Nutter asked questions about the method used to determine the value of the small tool and equipment theft that had occurred in fiscal year 2011, and what steps had been taken to improve processes. Parks Director Robertson responded that the market (purchase) price to replace the tools was used to value the loss and noted that a theft of cash had also occurred, which was covered by insurance protection. He outlined the extensive training and employee education sessions that had been completed with the intention of increasing awareness of acceptable/unacceptable practices unique to government employees and strengthening employee accountability. Mr. Robertson also relayed that a comprehensive physical inventory of small tools and equipment had been performed and detailed the new process for replacement of broken tools that now requires a physical inspection prior to purchase. Adjournment Mr. Nutter had to leave the meeting, and Mr. Tuneberg advised that acceptance of the audit reports would have to be agendized for the Municipal Audit Committee meeting on November 7, 2011, due to lack of a quorum. Seeing no public input, the meeting ended at 3:20 p.m. Respectfully submitted, Rossann Grimm, Administrative Assistant