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Home My WebLink About2007-1119 Study Session Packet CITY OF ASHLAND CITY COUNCIL STUDY SESSION AGENDA Monday, November 19, 2007 at 5: 15 p.m. Council Chambers, 1175 East Main Street 1. Look Ahead Review 2. Review of regular meeting agenda for November 20,2007 3. Does the Council wish to adopt the Public Art Master Plan? 4. Should the Council accept the Comprehensive Annual Financial Report as recommended by the Ashland Audit Committee? 5. Does the Council have questions regarding the status update on the 2007 -08 Capital Improvements Plan (CIP) Projects and see a preview of the FY09 CIP program? In compliance with the Americans with Disabilities Act, if you need special assistance to participate in this meeting, please contact the City Administrator's office at (541) 488-6002 (TIY phone number 1-800-735-2900). 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OJ ~~ 1:> 8 0-' N~ ~u _z ~::> ~o ~~ "" 'iil ~~ ~ I I <Ii C) c:: I1J .c:: U .s .... u CIl '~ -g I/) 1) c:: I1J ... LL.. ~ Q I1J .!!! ,I/) S .e o c:: CIl I/) I1J it ~. i e a. "0 '" '" Ql ~ ~ ~~~O> 5 0 ~ '1> Cf) Ii:!: 2 ~ u. ~ ~ IE ~~~~~ ~~ -c:J::JoQ)cu- ~~j~a:~'~~ 'O'O.~~~~~~ 55~QQ)O~~ '~'~~~~ffije; G ali;.~ ~ 'f6 .51~ .!!1 .!!1 .a Ql ",1.2 E"l:' OClCJ)l:!a..Cl::<_ ......NMVLOC'O,.....OO CITY OF ASHLAND Council Communication Meeting Date: Department: Secondary Dept. : Approval: Public Art Master Plan November 20, 2007 Primary Staff Contact: Administration E-Mail: Secondary Contact: Estimated Time: Ann Seltzer ann@ashland.or.us 10 Minutes Question: Does the City Council ish to adopt the Public Art Master Plan? Staff Recommendation: Staff recommends adoption of the Public Art Master Plan. Background: In June of 2006, the Citizen's Budget Committee approved the expenditure of $1 0,000 for the purpose of developing a Public Art Master Plan. In September of 2006 the City Council discussed the Public Art Master Plan and voiced their support of moving the project forward. The Public Art Commission sought citizen input over a six month period. The Commission conducted the public involvement process using a variety of tools and extensive public outreach. Once the Commission completed the public involvement process in May of 2007 they began to draft the master plan and to develop goals based on citizen input. The Public Art Master Plan includes an overview of public art, the public process, solicitation tools, goals and implementation strategies and an extensive appendix. The Master Plan cost less than $10,000 and the Commission hopes to use the remaining funds to repair the vandalized piece of public art at the comer of Lithia Way and Pioneer Street. Related City Policies: N/A Council Options: Council may accept this master plan as presented, recommend modifications as discussed or defer adoption (takes no action) and give direction to the Public Art Commission. Potential Motions: This item is on the Consent Agenda and can be approved with other items. If removed from the Consent Agenda for separate discussion the following motions may be used. . I move adoption of the Public Art Master Plan. · I move for refinement of the Plan and ask the Public Arts Commission to consider the following additional items: Attachments: . Public Art Master Plan Page 1 of 1 cc- Public Art Master Plan 112007.doc ~A' CITY OF ASHLAND Council Communication Meeting Date: Department: Secondary Dept.: Approval: FY 2006-2007 Comprehensive Annual Financial Report November 20, 2007 Primary Staff Contact: Lee Tuneberg ~ Admin. Services E-Mail: tuneberl@ashland.or.us Secondary Contact: Estimated Time: Martha Benne 15 minutes Question: Should the City Council accept the Comprehensive Annual Financial Report as recommended by the Ashland Audit Committee? Staff Recommendation: The Audit Committee recommends acceptance of the Comprehensive Annual Financial Report for FY 2006-2007 and staff concurs. -- Background: The Audit Committee has met with staff and Pauly, Rogers and Company, P.C. to review and accept the annual audit for the fiscal year ended June 30, 2007. The committee's report can be found in the annual financial report on page xv and the auditor opinion on page 3. The Comprehensive Annual Financial Report (CAFR) is prepared annually as part of the state-required audit by an independent, certified and municipally licensed auditor. In Ashland, the auditor reports to the Audit Committee established by the Council. The committee receives the auditor opinion, management letter and annual financial reports (including the Parks Commission Component Unit Financial Report) prepared by staff. When satisfied with the reports and related information, the committee forwards the report to Council with a recommendation to accept. The auditor gave an unqualified opinion again this year and found three reportable conditions to include in a management letter for fiscal year 2006-2007. The three conditions that the auditors noted are included in the attachment titled "Management Report." The Administrative Services Department's responses to the Management Report comments are attached as well. The issues raised are being acted upon at this time and our goal is to clear the comments in this fiscal year. New requirements for financial reporting and government auditing are imposed each year. The City has complied with implementing Governmental Accounting Standards Board Statement 34 (GASBS), which required changes in the financial reporting model, in FY 2002-2003 and FY 2003-2004 with fixed assets fully included the second year. The City implemented GASBS 44 in FY 2004-2005 to include more financial and economic trending information in the Statistical Section of the report and Parks did in FY 2005-2006. Work on GASBS 45 relating to enhanced disclosure on future liabilities for post retirement benefits has been in process for months with compliance on schedule by next year. Page 1 of 3 CC CAFR 11-20-07 final.doc r~' CITY Of ASHLAND The City, Parks, and the auditor face new requirements that have evolved from changes in the private sector precipitated by ENRON scandals and subsequent legislation like Sarbanes Oxley. These new standards for auditing and reporting are being implemented in the municipal sector and probably are a challenge for all government agencies. The Management Report prepared by the auditor provides a good overview of these new and coming changes. Council will note in the Management Report and draft minutes of the Audit Committee meeting on 10/29/2007 that these issues have been discussed, and City staff is taking steps toward compliance. Most important during this coming year will be addressing internal controls and communication on the audit as identified in the Management Report. Council will discuss these issues in late January or February as staff brings forward recommendations on important policy changes and procedural documentation. This will take a concerted effort by the Council, Administration, City Recorder and Administrative Services departments and will probably impact all departments and divisions. Financial Overview The City is responsible for completeness and accuracy of the annual report. The auditor reports are included in the document and presented on their letterhead. These reports attest to the City's compliance with-Oregon-Budget Law and federal reporting requirements. ----- The annual report includes a section on pages 5 through 16 called Management's Discussion and Analysis (MD&A) that is intended to provide the reader with a basic understanding of the financial condition and change over the year audited. Please read the MD&A and Notes section to get a general understanding of the financial information provided. Unless otherwise indicated, financial references relate to the City and do not incorporate Parks & Recreation information. From an overview perspective, the City remains in a good financial position with the net assets increasing slightly ($887,418) to $105,372,602. Total City assets are down $1.2 million which includes: 1. $1.466 million less in cash & investments (a minus) 2. $90,000 more in restricted cash (a plus) 3. $100,000 more in receivables and other (a plus) 4. $381,000 less in deferred revenue (a minus) 5. $455,000 more in net fixed assets (a plus) City-wide current payables (liabilities) are down $82,000 and long-term liabilities (claims payable and debt) is down $2.1 million. The net result approximates the $887,418 increase. In general, the City used cash to pay for projects (that added to net fixed assets) and debt service (to reduce liabilities). The Parks and Recreation Commission net assets decreased approximately $470,000 primarily due to less cash on hand at the end of the year having paid for some operations with reserves as budgeted. The financial report indicates the City is doing well. Consistent with prior years, most funds are doing well when considering fund balances. As discussed throughout the recent budget process, balancing Page 20f3 CC CAFR 11-20-07 final.doc rA1 CITY OF ASHLAND ASHLAND, OREGON 2006-2007 MANAGEMENT REPORT rI)@ PAULY, ROGERS AND CO., P.C. CERTIFIED PUBLIC ACCOUNTANTS . 12700 SW 72ND AVENUE . TIGARD, OREGON 97223 . (503) 620-2632 · FAX (503) 684-7523 October 19,2007 City of Ashland City Council and Audit Committee In planning and performing our audit of the financial statements of City of Ashland as of and for the year ended June 30, 2007, in accordance with auditing standards generally accepted in the United States of America, we considered City of Ashland's internal control over financial reporting (internal controls) as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal controls. Accordingly, we do not express an opinion on the effectiveness of the City's internal controls. -----Dur consideration of internal controls was for the limited purpose described~)he precedillg paragraph~nd w~llld not necessarily identify all deficiencies in internal controls that might be significant deficiencies or material weaknesses. In addition, because of inherent limitations in internal controls, including the possibility of management override of controls, misstatements due to error or fraud may occur and not be detected by such controls. However, as discussed below, we identified certain deficiencies in internal controls that we consider to be significant deficiencies. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or a combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected by the entity's internal controls. The Auditing Standards Board issued SAS No. 112, Communicating Internal Control Related Matters Identified in an Audit, effective for audits of financial statements for periods ending on or after December 15, 2006. This statement requires auditors to evaluate identified control deficiencies and determine whether those deficiencies, individually or in combination, are significant deficiencies or material weaknesses, and if so communicate them in writing to those charged with governance. SAS No. 112 specifically identifies a few common control deficiencies which must be addressed in each audit to determine if a significant deficiency exists, and based on our evaluation we have identified significant deficiencies in the design or implementation of internal controls, which are noted below. We consider the following deficiencies to be significant deficiencies in internal control: 1. We noted that the City does not have a written internal control policies and procedures document. In applying SAS 112 we believe that the City should adopt formal policies/procedures for all accounting areas, especially as it pertains to internal controls and the identification of key controls. Our audit did not uncover significant deficiencies pertaining to these areas other than the items noted below, however the policies/procedures in place are not in writing. We recommend at a minimum that the following areas be addressed (this constitutes a partial list, other areas of internal control should be addressed): o Computer security and who should has access to passwords and how often passwords are changed. o Controls over expenditures to ensure that there are no fraudulent checks or checks written in error - Who tracks the check sequence, who reviews the canceled checks back from the bank, who has custody of checks, and who is authorized to approve disbursements? o Detailed explanation of the controls over cash accounts, including how many people it takes to open/close an account, controls over wire transfers, and review of bank reconciliations. o Controls over cash receipting - How do you ensure that receipts are always given, and that all receipts are recorded in the general ledger. How often are deposits taken to the bank. o What internal controls and monitoring is used for reviewing and ensuring that the financial statements are accurate and are in conformance with GAAP (the control procedure here would be sending staff to training on new pronouncements, etc.) o Any internal audit functions, antifraud programs, etc. o Monitoring of internal controls by management and the governing body to ensure that controls are functioning properly and are evaluated when systems, the environment, and employees change. o Other areas that could be discussed - capital asset accounting, employee dishonesty insurance, physical security of documents, payroll processing/time sheets, and any other applicable financial areas. o Because of a limited number of available personnel, it is not always possible to adequately segregate certain incompatible duties so that no one employee has access to both physical assets and the related accounting records or to all phases of a transaction. Consequently, the possibility exists that unintentional or intentional errors or irregularities could exist and not be promptly detected. We recommend that the City address their segregation of duties issue in their internal control policies and procedures. 2. We noted that the Information Technology (IT) department does not have written internal control procedures that documents their internal controls over their internally developed utility billing system. We also noted that there was no written internal control procedures that details the general controls over all computers and systems City-wide. We recommend that the City develop written internal control procedures for these areas. The following are our recommendations for the previous year. The comments are repeated from our report to management for the year ended June 30, 2006, for perspective. 1. We noted that not all major balance sheet accounts were reconciled on a periodic basis. We recommend that all major balance sheet accounts be reconciled on a monthly basis. 2. In order to get fixed asset information into a format that is needed for the financial report, the City must export their fixed asset register out of Eden and into Excel. The City then manipulates the data within Excel. Excel is not made for fixed asset accounting and is prone to errors. We recommend that the City work with Eden to enhance their' fixed asset accounting system, in order to make it easy to work with and in the needed formats for financial reporting. 3. We noted that the utility billing system cannot produce a report that breaks out the utility receivables by fund. This report would be a useful reconciliation tool for the City. We recommend that the City address this report writing issue. A material weakness is a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity's internal control. We did not identify any significant deficiencies that are considered to be material weaknesses: New Issues - Not Control Deficiencies In order to keep our clients aware of new accounting and auditing requirements we have detailed upcoming new Issues: SAS No. 114 - The Auditor's Communication with Those Charged with Governance Statement on Auditing Standards (SAS) No. 114 supersedes SAS No. 61, Communication with Audit Committees, as amended. This SAS establishes standards and provides guidance to an auditor on matters to be communicated with those charged with governance. In the wake of well-publicized audit failures and emerging best practices in corporate governance, expectations have increased for auditors to communicate openly and candidly with those charged with governance regarding significant findings and issues related to the audit. The SAS uses the term those charged with governance to refer to those with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity, including overseeing the entity's financial reporting process. It uses the term management to refer to those who are responsible for achieving the objectives of the enterprise and who have the authority to establish policies and make decisions by which those objectives are to be pursued. Management is responsible for the entity's financial statements. - - The SAS identifies specific matters to be communicated, many of which are generally consistent with the requirements in SAS No. 61. However, the SAS includes certain additional matters to be communicated and provides additional guidance on the communication process. In particular, the SAS: . Describes the principal purposes of communication with those charged with governance and stresses the importance of effective two-way communication. · Requires the auditor to determine the appropriate person(s) in the entity's governance structure with whom to communicate particular matters. That person may vary depending on the nature of the matter to be communicated. . Recognizes the diversity in governance structures among entities (including the existence of audit committees or other subgroups charged with governance) and encourages the use of professional judgment in deciding with whom to communicate particular matters. . Recognizes the unique considerations for communicating with those charged with governance when all of those charged with governance are involved in managing the entity, which may be the case with some small entities. . Adds requirements to communicate: · An overview of the planned scope and timing of the audit. . Representations the auditor is requesting from management. . Provides additional guidance on the communication process, including the forms and timing of communication. Significant findings from the audit should be in writing when, in the auditor's profession judgment; oral communication would not be adequate. Other communications may be oral or in writing, . Requires the auditor to evaluate the adequacy of the two-way communication between the auditor and those charged with governance. . Establishes a requirement to document required communications with those charged with governance. In order to be in compliance with these new auditing standards the auditors and the City Council needs to evaluate the audit oversight committee for any issues that may come up. The City has a unique situation in that the City Recorder is an elected official, a voting member of the audit committee as well as part of accounting process at the City. We recommend that the Council discuss this issue and re-affirm their position on whether or not the City Recorder be a voting member on the audit committee. We believe that as long as the City Council understands the unique nature of the City Recorder's position that whatever decision is made will be acceptable. SAS No.1 04-111 - The Risk Assessment Suite The Auditing Standards Board has issued eight additional new statements related to risk assessment, effective for audits of financial statements for periods beginning on or after December 15, 2006. This "SAS Suite's" primary objective is to enhance auditors' application of the risk assessment model in practice, and will require additional auditor and staff time in future years. This communication is intended solely for the information and use of management, the Council, and others within the organization, and is not intended to be and should not be used by anyone other than these specified parties. PAULY, ROGERS AND CO., P.c. CITY OF ASHLAND October 29, 2007 Audit Committee City of Ashland 20 East Main Street Ashland, OR 97520 Re: FY 2006-2007 City of Ashland Audit Management Letter This year's Management Letter is filled with information that is not just about a review but forward-thinking and appropriate bec;ause of what has occurred over the last decade in the private and government sector~. _ As i!l~Q1~jJast, the Finance staff takes these to heart and endeavors to address them m an expedItIous manner. Even wIth that perspectIve, It sometImes takes multiple years to clear an issue and I want to assure the Committee that available resources are allocated to clear current and recurring comments and observations, large and small. For FY 2006-2007 the biggest issue is, and will be for some time, complying with SAS No. 61, Communication with Audit Committees and SAS No.112, Communicating Internal Control Related Matters Identified in an Audit. These relatively new requirements will task the City and Parks, Audit Committee and respective staff to resolve, in part due to our various configurations. My recommendation is that staff work toward placing these issues before the elected bodies by January or February. This will allow staff to prepare a comprehensive approach to resolve these major initiatives in a proactive manner. This does not preclude simple adjustments that are "quick fixes" but such changes must fit into the written internal control policies and procedures document(s) adopted by those responsible for governance. FY 2006-2007 significant deficiencies in internal control: 1. We (the Auditors) noted that the City does not have a written internal control policies and procedures document. In applying SAS No. 112 we believe that the City should adopt formal policies/procedures for all accounting areas, especially as it pertains to internal controls and the identification of key controls. Our audit did not uncover significant deficiencies pertaining to these areas other than the items noted below, however the policies/procedures in place are not in writing. We recommend at a minimum that the following areas be addressed (this constitutes a partial list, other areas of internal control should be addressed): a. Computer security and who should has access to passwords and how often passwords are changed. b. Controls over expenditures to ensure that there are no fraudulent checks or checks written in error - Who tracks the check sequence, who reviews the canceled checks back from the bank, who has custody of checks, and who is authorized to approve disbursements? c. Detailed explanation of the controls over cash accounts, including how many people it takes to open/close an account, controls over wire transfers, and review of bank reconciliations. d. Controls over cash receipting - How do you ensure that receipts are always given, and that all receipts are recorded in the general ledger. How often are deposits taken to the bank. e. What internal controls and monitoring is used for reviewing and ensuring that the financial statements are accurate and are in conformance with GAAP (the control procedure here would be sending staff to training on new pronouncements, etc.) f. Any internal audit functions, antifraud programs, etc. g. Monitoring of internal controls by management and the governing body to ensure that controls are functioning properly and are evaluated when systems, the environment, and employees change. h. Other areas that could be discussed - capital asset accounting, employee dishonesty insurance, physical security of documents, payroll processingltimesheets, and any other applicable financial areas. i. Because of a limited number of available personnel, it is not always possible to ~d_e9uately segregat~ cer~~~ !n~I!1J>~t!!>~ duties so th~t~ n()~n~ ~~~oyee has access to both physical assets and the related accountmg records OftOarr~ phases of a transaction. Consequently, the possibility exists that unintentional or intentional errors or irregularities could exist and not be promptly detected. We recommend that the City address their segregation of duties issue in their internal control policies and procedures. Response: Staff agrees with the Auditor's assessment however the reader must note that there are things being done within many of the "bulleted" areas but they are insufficient in practice or documentation to clear this comment. I do not believe there is one document that addresses all of the issues to the detail level identified within SAS No.1 12. The key here is understanding and acceptance by those responsible for governance. This is an ideal time for the City to update, combine and augment the financial management policies included in the budget document and the cash and investment policies administered through the City Recorder/Treasurer's office for review and acceptance by City Council. This process should address each of the points included in the auditor comment, incorporating anything that is in existence or has already been accomplished so that the written requirement is met. This document must then be trained upon and used to ensure it remains current and can be validated routinely by Council. 2. We (the Auditors) noted that the Information Technology (IT) department does not have written internal control procedures that documents their internal controls over their internally developed utility billing system. We also noted that there was no written internal control procedures that details the general controls over all computers and systems City- wide. We recommend that the City develop written internal control procedures for these areas. Response: Staff agrees with the Auditor's assessment. Prior Technology Plans and software documentation require updating and revision and the Technology Department is working on them. Updates are in process and should be complete in FY 2007-2008. The points identified in this comment will be addressed as part of the new documentation. ii The following are Auditor recommendations for the previous year. The comments are repeated from their report to management for the year ended June 30, 2006, for perspective. Staff has provided updates as Responses for June 30, 2007 1. We (the Auditors) noted that not all major balance sheet accounts were reconciled on a periodic basis. We recommend that all major balance sheet accounts be reconciled on a monthly basis. Response: Materially completed in time for this audit. 2. In order to get fixed asset information into a format that is needed for the financial report, the City must export their fixed asset register out of Eden and into Excel. The City then manipulates the data within Excel. Excel is not made for fixed asset accounting and is prone to errors. We (the Auditors) recommend that the City work with Eden to enhance their fixed asset accounting system, in order to make it easy to work with and in the needed formats for financial reporting. Response: Not completed in time for this audit. Because of other tasks done to meet Point #1, this~roject has lagged. Excel was used again this year to provide audit work papers, however, the documentatIon was In better shape than pnor years despIte the use ot a spreadsheet. Staff has already begun the project to convert records back into the financial management system. This comment should be revisited as part of the FY 2007-2008 audit. 3. We (the Auditors) noted that the utility billing system cannot produce a report that breaks out the utility receivables by fund. This report would be a useful reconciliation tool for the City. We recommend that the City address this report writing issue. Response: Materially completed in time for this audit. Future requirements that the City should begin addressing as part of the above work during FY 2007-2008: SAS No. 114 - The Auditor's Communication with Those Charged with Governance Statement on Auditing Standards (SAS) No. 114 supersedes SAS No. 61, Communication with Audit Committees, as amended. This SAS establishes standards and provides guidance to an auditor on matters to be communicated with those charged with governance... In order to be in compliance with these new auditing standards the auditors and the City Council needs to evaluate the audit oversight committee for any issues that may come up. The City has a unique situation in that the City Recorder is an elected official, a voting member of the audit committee as well as part of accounting process at the City. We recommend that the Council discuss this issue and re-affirm their position on whether or not the City Recorder be a voting member on the audit committee. We believe that as long as the City Council understands the unique nature of the City Recorder's position that whatever decision is made will be acceptable. iii Response: Staff agrees that a review and validation by Council of the roles, responsibilities and expected communications between the mentioned groups or positions will be beneficial to all and provide compliance to this new requirement. SAS No.1 04-111 - The Risk Assessment Suite The Auditing Standards Board has issued eight additional new statements related to risk assessment, effective for audits of financial statements for periods beginning on or after December 15, 2006. This "SAS Suite's" primary objective is to enhance auditors' application of the risk assessment model in practice, and will require additional auditor and staff time in future years. Response: Staff looks forward to working with the auditor on these relatively new requirements. In summary, I hope these responses are helpful in understanding the work being done by the Administrative Services Department to meet or exceed City expectations and legal requirements. It should be understood that increased requirements such as those presented and discussed above will hav~ <lftIlancial impact (staffing, wor~l()~d and training) to ensure coll1pliance. Sincerely, Lee Tuneberg City of Ashland Administrative Services & Finance Director iv CITY OF ASHLAND 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 bV 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 AUDIT COMMITTEE MEETING OCTOBER 29, 2007 PAGE 2 OF 7 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 in!~rnal 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. AUDIT COMMITTEE MEETING OCTOBER 29, 2007 PAGE 3 OF 7 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. AUDIT COMMITTEE MEETING OCTOBER 29, 2007 PAGE 4 OF 7 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 RecorderlTreasurer'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 RecorderITreasurer 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. AUDIT COMMITTEE MEETING OCTOBER 29, 2007 PAGE 5 OF 7 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 complyinQ 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 staffs 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 AUDIT COMMITTEE MEETING OCTOBER 29, 2007 PAGE 6 OF 7 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 aD 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 AUDIT COMMITTEE MEETING OCTOBER 29, 2007 PAGE 7 OF 7 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 thouQh these vehicles maycQs!J1)Q[RirLihe begilJninQ and may not ultimately save __u_.. 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. Adiournment The meeting was adjourned at 4:25 p.m. Respectfully Submitted, Lee Tuneberg Administrative Services and Finance Director Administrative Services Department CITY OF ASHLAND Council Communication Study Session -- Update on the 2007-08 Capital Improvements Plan Meeting Date: Department: Secondary Dept.: Approval: November 19, 2007 Public W orks/Engi Finance Martha Berm t Primary Staff Contact: E-Mail : Secondary Contact: Estimated Time: Paula Brown, 552-2411 ~V' brownp@ashland.or.us Jim Olson, 552-2413 20 minutes Question: Does the City Council have questions regarding the status update of the 2007-08 Capital Improvements Plan (CIP) Projects or the initial preview of the FY09 CIP program? Staff Recommendation: This item is an update only. Staff requests comments and questions. Background: The City's approved 2007-08 budget has a comprehensive discussion of the $8,916,000 CIP budget items. Overall, there is good progress on all of the projects and the attached spreadsheets and power point presentation provides Council with a status of each project. This document will provide a summary of anticipated changes from the adopted CIP. 2007-08 CIP Approved Expected Comments Bud~et Expenditures Changes in LID status will reduce overall budget, CMAQ construction will span 2 years, extension Transportation $2,227,000 $1,817,000 ofRR Crossing Projects, Laurel Sidewalks construction out a year with grant application and railroad crossing issues, added TSP Update Storm Water $375,000 $375,000 No changes expected at this time Airport $240,000 $200,000 Complete - street crews did the paving and the City was reimbursed for the work Shifted projects due to incomplete work in FY07; Water $2,160,000 $2,265,000 increase in Plant Improvements and delay in reservoir work Shift in some line replacement projects with a Wastewater $1,780,000 $1,505,000 couple new emergent requirements (1-5 line, etc), reduced the consultant costs for the Permit and Temperature analysis for FY08 Electric $600,000 $600,000 No changes expected at this time AFN $499,000 $499,000 No changes expected at this time Computers & IT $175,000 $175,000 No changes expected at this time Administration $210,000 $210,000 No changes expected at this time Parks & Rec $650,000 $650,000 No changes expected at this time FY08 Totals $8,916,000 $8,546,000 Page 1 of2 CC SS CIP Update NovO? ~~, CITY OF ASHLAND In general, there is great progress with the 2007-08 CIP. As noted, there have been some changes in the Transportation program, but other than some delays in the LID program, the projects are generally proceeding on schedule. Council will hear the changes in the Water Treatment Plant Improvements and a justification for the higher costs for FY08. Primarily this was due to delays as the end ofFY07 that did not accommodate year end expenditures. The other divisions are on schedule to spend what was allocated and staff will update Council again in Marchi April. The attached spreadsheet shows a preliminary look at the FY09 projects. As the master plans are completed for the Storm Water, Transportation and Facilities program some ofthis might change. Related City Policies: Capital Improvements Plan and FY 2007-08 Budget Various Master Plans Council Options: As this is an update only, staffis not asking for a decision. Council's comments and concerns with regard to CIP are encouraged and appreciated. 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E:S -g -g ~~-g ~ ~ ~ ~ ] ] ] ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ E<<<~ 8 .s ..5 ..5 ~ 8ggg.>z 000'00 ~ooot')<:> V') 0 t--- I,() _ N MN Vi- ." fA M c.!l c . c ... "'~ -cf"l ="... 'i -c r- ~~ '" ~I N "" 000 000 000 o V) 0 or-o N "" "" "" o o o o V) "" c c c d'g ~;;.. ~'" .... .... o o o o '" .... 00000 00000 00000 o l() 0 l() 0 01-01-0 NEA EAN "" "" "" 0:> C qoc -c c ~;;.. on~ '" oc .... C 0:> C c... o ~ ~ g ~ f; ~ "'l.;;.. ;;t'" '" c .g ~ z u 1;i "0 Q. ::0 II '" "0 ii 00 o >- "- "3 "- Co ;;: o >- "- "- ~ o >- t '" "0 = Ol -0 E "0 " -E ,. .g " " Capital Improvement Program City of Ashland 2007 -08 Adopted Budget Program Update November 20, 2007 ... .... .... ... .. . CIP Development Responsibilities -- ... .... .... ... .. .'" I, . Master Plans; capacity, life, growth, etc . Maintenance Records . Service Level Expectations; . maintain appropriate serviceable levels . not too high, yet not broken . Revenues and Budgeting Implications; . when is borrowing appropriate and from what source . fees, service charges, SDCs . Balance; both budget availability and staffing . Timing; . appropriate timing for replacement based on capacity needs vs project cost . avoid crises response 1 CIP Program Structure rIM . Transportation; Streets, Sidewalks, LIDs . Storm Water (funded through the Street Fund) . Airport . Water; Supply, Treatment and Distribution . Wastewater; Treatment and Collection . Electric . Telecommunications (AFN) . City Facilities . Technology (computers, IT, hardware and software) . Parks and Recreation ... .... .... ... .. . 2008 Adopted Budget Total $8,916,000 rIM Computers & IT, $175,000, 2% Parks & Rec, $650,000,7% Airport, $240,000, 3% Transportation, $2,227,000, 25% ... .... .... ... .. .i~ Electric, $600,000, 7% Wastewater, $1,780,000,20% Storm Water, $375,000,4% Water, $2,160,000, AI:N $499000 601 ~, , , 10 24% 2 FY08 CIP Transportation ~ ... .... .... ... .. . Street Projects = $1,420,000 (anticipate$1,650,OOO): . A Street Rebuild Oak to 1st Street - failing system $290,000 Awarded: Pilot Rock Const (2007 Utility Proj); includes sewer & storm . C & Eureka Construction: current estimate is $669K; CMAQ grant $597K through ODOT - City funds $80K; const expected to start Apr08 . E. Main Railroad Crossing Pedestrian and Bicycle Safety Improvements Completed panels in RR; sidewalk next (property owner issues still) . Jefferson Street Extension (Brammo Motors and OECDD Funds) Design complete; Annexation Nov07 - $600K in FY08; $300K in FY09 . Park and Ride Developing MOU working with Jackson County . Hersey Street Pedestrian Safety Improvements Design awarded; ADA, tree wells, trees & sidewalk issues; $150K FY08 . Miscellaneous Concrete Safety Repairs; $150,000 Awarded: Copeland Construction $50.3K - will add some extra work . Beach; FY08 design, FY09 Const evaluate for 2008 CMAQ Project Council approved as CMAQ - scoping FY08 design elements w/ODOT FY08 CIP Transportation (cont.) ... ~. .... ..,' U'11 (I ..,1',f i' = =.. :.~ . "iii'" LIDs = $807,000 (require Council approval first): anticipate $167,Oe 0 . Schofield / Monte Vista L1D- $387,000: ON HOLD pending Iitigat on . Laurel Street Sidewalks - apply for grant; $360,000 . Upper Beach Council approved as FY09 CMAQ Project; design FY08 . Council overall LID policy review initiated in November 2007 Storm Water = $375,000: . Master Plan Update: Awarded Kennedy/Jenks $60K; completion Jun08 . Water Quality Improvements; $35,000; FY08 improvements include some work on Ashland Creek and sediment loadings in Reeder Reservoir . Replace SD Line in Alley E. Main St to Blaine; $75,000 (Awarded) . Replace SD Line in Iowa Street, Sherman to Gresham; $90,000 Will be completed with City crews . Beach / Mountain Creek Improvements; $100,000 City crews Airport = $240,000 - complete at $200K - under budget all grant approved . Entitlement Project new AWOS, Parking & Road Improvements grant funded (95%) & "soft match" using staff time -- COMPLETE 3 FY08 CIP Water = $2,160,000 :::. .... a~a~~~~~~~~(1~~)~~~,OOO ~ ::" . Transmission Line (Reeder to Plant) - 95% complete . Reeder Reservoir Study; sediment analysis - complete . TAP to Ashland; complete preliminary design - Council decision Nov07 . FERC Part 12 Safety Analysis - RFP in January 2008 . Right Water for the Right Use; consultant support - postponed Water Plant (22%) 55% }BidS Nov 6th. Award anticipated . Water Plant Process Improvements Triad Mechanical for $969,322 . Sludge Lagoon & Waste Line Improvements over estimate, but will adjust . Hosler Dam security and telemetry - award anticipated Dec 2007 Water Distribution (62%) 20% . Loop Road Distribution Reservoir or Improvements - only design this FY; need to look at Crowson II design or design/build for FY09/10 . Ditch Road Waterline replacement - may phase w/ water crews doing work . Lithia Fountain Historic Renovation in Plaza - awarded in phases; completion scheduled for Feb 2008; under $35,000 . Design Granite Street Waterline Replacement - design complete FY08 Wastewater = $1,780,000 anticipate $1,505,000 ..- ... .... .... ... .. .~ II Wastewater Plant (36%) . Focus on permit renewal requirements and temperature . Analysis of Thermal Improvements (and design) } RFP late Dec 07 . Permit Evaluation and Renewal award in Feb 08 . Coordinate with "Right Water for the Right Use" expect not to fully spend budget Wastewater Distribution (64%) amount . N. Main Pump Station Replacement; construction - COMPLETE Nov 07 Taylor Development $370,000 . Wastewater Line Replacements (construction): . A Street Oak to 1 st - const awarded; linked with the 2007 Utility Proj . Alley E Main to Blaine - const awarded; with the 2007 Utility Proj . Oak Street Lithia to B Street - status . Ashland Creek Main Line Replacement - City crews temporary construction complete; will do final design this year . Design Grandview Pump Station Replacement - may go to a design/build project; looking at this winter to start 4 ... FY08 CIP Electric = $600,O~ ~i:: . Primary CIP focus is under-grounding electric lines . will piggyback with other utility construction (same trench, etc.) . Line to water plant will complete by DecO?; to the dam by Jun08 . Oak Knoll- Complete . Greenmeadows - planned start late in FY and will complete in FY09 . Postponed start of Morton Street one year . Based upon the Electrical System Planning Study, the department will complete planned upgrades . Load shifting elements are based upon Pacific Power's request and funded over the next 5 years (-$345K) . Mt Ave Substation on schedule; steel purchased, foundation this FY; erect structure in FY09 . Line and facility replacements and upgrades completed as maintenance under the 10-year plan - in progress FY08 CIP AFN I TeChnOlOgy.... . AFN CIP is based on Business Plan and Master Plan presented to Council in Spring of 2007; $499,000 . Distribution and Cable Equipment Installation - in progress . 802.11 b Wireless Buildout - in progress will finish FY08 as scheduled . Routers and Underground Machine - purchased · Optical Time Domain Reflectometer (OTDR) I getting quotes · Network Refresh & WiMax Deployment DecO? / Jan08 . Fiber to the Premise (FTTP) & Underground Fiber ... .... .... ... ..~l e{$ '$.~ . Technology Plan - refunded as "technology debt"; $175,000 . Desktop, Laptop, Server & Printer Planned Replacements - on schedule . GIS Spatial Data Base & Major Computer Software Purchases - planned 3rd Quarter 5 FY08 CIP Facilities = $210,000 ~ ... .... .... ... .. . . Completing Facilities Assessment and F 'I"t" I t M t PI Awarded: ORW, aCI lies mprovemen as er an Nov 2007 for . Aging facilities, space needs, coordination of $49,500 uses, Fire and Police, etc. ~ Completion . Council Priority prior to any future project scheduled for development June 2008 } Includes routine maintenance . Routine: Annual Facilities items as well as ~ome Council Improvements and Major Repairs Chambers and ~Ity Hall I ComDev safety Improvements · Planned for review of Fire Station & } C It" "t" I I' omp e e 1m la ana YSIS Bond Measure Future (FY09/1 0) with Facilities Master Plan FY08 CIP Parks & Recreation = $650,000 fI/iJi" ... .... ....", ... .. .!\ . City funded Open Space Acquisition and Park Development . N. Main and Scenic Park Development . Vogel Park Development . Calle Guanajuato Improvements . Ice Rink Cover Replacement / Improvement . Oak Knoll Irrigation Replacement 6 Challenges for FY 2008 ~ ... .... .... ... .. . . Impacts to the CIP . Construction timing or unanticipated delays . Design concerns and approval process . Funding increases or shortfalls . including industry cost changes, not receiving grants, etc. . Schedule changes; weather, permits, etc. . Focus . Better predict the impacts and factors that delay project starts or completions . Continue to identify and stretch funding through grants, etc . Provide updates to Council - November 2007 and again in April 2008 7