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HomeMy WebLinkAboutDraft Minutes 111606 Audit Committee Draft Minutes November 16, 2006 1:30pm Council Chambers 1175 East Main Street Call to Order Lee Tuneberg, Administrative Services and Finance Director called the Audit Committee meeting to order at 1:34 p.m. on November 16, 2006 in Council Chambers, 1175 East Main Street Ashland, Oregon. Morrison/Christensen ms Levine as chair. All Ayes Roll Call Committee members Christensen, Levine, Morrison and Nutter 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 Approval of Minutes Audit Committee Minutes of November 29, 2005 Nutter informed the Committee that he did not receive the information requested the previous year. It was regarding a comparison of fees and charges in the Water Fund. Lee Tuneberg responded that he would provide it to him. Christensen/Nutter ms to approve the minutes with Mr. Nutter receiving the information. All Ayes. Presentation by the Auditors Kenny Allen, partner Pauly, Rogers, and Co. P.C. presented the executive summary to the Committee. He spoke to the purpose of the audit and that the results were an unqualified, clean opinion with no reservations. He explained that since the City received Federal financial assistance, a single audit was required, and they found no issues requiring a comment. The Auditors found that the books and records were maintained in a professional manner by the City and through the SAS 99 auditing standard, they are required to look into issues that deal with fraud. They found no instance of fraud. Mr. Allen presented the Management letter and spoke to two current year findings. The first was that not all major balance sheet accounts were reconciled on a periodic basis. Mr. Allen responded that retainage payable and accounts payable with manual transactions were examples. The second was that fixed asset data was exported out of Eden into Excel. He said that Excel is not made for fixed asset accounting and prone to errors. The Auditors recommend that the City work with Eden to enhance the fixed asset accounting system in order to create reports. The Committee questioned if fixed assets were treated differently in Eden and why staff put it into Excel. Mr. Tuneberg responded that Eden stores the data and most of the staff works well in Excel. Staff puts the information that is generated into lead sheets and they are looking into adjusting Eden to create the reports. The Committee asked if that would entail buying an additional module. Mr. Tuneberg responded that they would not have to, that Eden can design a report that the City can use and that would be done this year. The Committee asked if Eden worked well with the City and if they are flexible to change the program. Mr. Tuneberg responded that the City does work well with Eden and the City would have to pay them to change the program. The Committee discussed the errors that occured and Mr. Tuneberg responded that depreciation is one example were staff needs guidance and there were some input errors and calculation errors but they were corrected and the database is usable now. The Committee asked how staff could reconcile more often. Mr. Tuneberg responded that fixed assets would have to work all year long, but depreciation may be calculated on yearly basis instead of monthly. Mr. Tuneberg spoke to the three auditor comments from the previous year. The Utility Billing comment for a reconciliation break out by fund has not been implemented yet but the City is in the process of implementing new software and it would not be a problem next year. The Committee questioned how the City was tracking the wireless internet connections and if it was part of the billing system. Ms. Hanks explained the new process were anyone can connect to the internet via wireless and it comes into the headend as a lump sum, and then there is a batch process into Utility Billing. From Utility Billing, they post the batch and then put the revenue into AFN. Mr.Tuneberg added that no one can get the service without running a credit card and it runs through a merchant account. He added that when the City is finished with the conversion, they will evaluate internal controls. Mr. Allen spoke to staff being months behind in performing bank reconciliations and that the Auditors recommend monthly reconciliation on the 20th day of the next month. Mr. Tuneberg added that there would be improvements this year and the cause of this was fluctuations with staffing levels. He added that they are now current on bank reconciliations. The Committee questioned if there was a software program that could perform the reconciliation. Ms. Christensen explained that the bank statements come to the City partially reconciled and that there is not a software that could do this. She agreed that it has to do with staffing levels. Mr. Levine added that a staff member would still need to review the statements after they are sent from the bank. Mr. Allen spoke to the previous comment on receipts missing from Visa statements. He spoke to the City’s policy to pay Visa charges before the receipts are gathered from the employees who have made the charges. The Committee questioned if the City filed a tax return and if there is a possibility of being audited by the IRS. Mr. Allen responded that the City does not file a tax return and that a few agencies in the Portland area have been audited recently. Mr. Tuneberg added that this comment was not repeated in the current audit but the Finance Department is constantly working with departments to receive receipts. The Committee and staff discussed that the process is meant to keep costs low and the City does not want to pay finance charges when it can be avoided. Ms. Christensen added that the bank is not willing to change the due dates for the charges to leave time to gather receipts. The Committee asked if Finance monitors who is consistently late in returning receipts. Mr. Tuneberg responded that they do and they have had to counsel employees and last year took away a credit card from a supervisor. The Committee asked how the Accounting staff knew when the receipts were received for the charges and Mr. Tuneberg responded that they are date stamped. Mr. Tuneberg spoke to the SAS 99 fraud standard and that the Auditors did not find any areas of fraud. Mr. Allen explained the process if the Auditors were to find fraud. If they detect possible fraud, they would take their suspicion to the supervisor about the employee possibly committing the fraud. If there is not a resolution sufficient to the Auditors, then they would take it to the next level and the City Council if need be. The Committee discussed that with the new standard, there are specific questions the Auditors ask and how they interview staff. The Committee discussed if it was the Auditors duty to bring any suspected instances of fraud to the Audit Committee. Mr. Allen responded that the Auditors would take it to the City Council level if needed. He added that the Auditors perform a mid year audit and look for any warnings that may lead to instances of fraud. Mr. Nutter asked in the future, if the Committee could receive the Management Letter from the Auditors before the meeting. Mr. Tuneberg responded that they would provide them one, even if it was the draft, for their review prior to the meeting. It was decided that staff would include it in the packet that is sent in the next year or email it prior to the meeting. Mr. Tuneberg spoke to the two Auditor comments for the current year. Staff would reconcile all accounts periodically, some would be done quarterly, and the cash oriented would be done on a monthly basis. He explained that the comment is partly due to workload, staffing levels, and the lack of longevity in the accounting staff. The Committee discussed that there is a shortage of accounting professionals available in the workforce now and that the City would be training the existing staff to perform those functions. Mr. Tuneberg explained how the City is transitioning to a new Utility Billing software and at some point would like to find an outside agency to audit the system. He explained that fixed assets were not prepared as well as should have been at the beginning of the audit and that he spent a lot of time on them and they are at a better point than they were. Staff will go back into Eden to reestablish processes and controls for fixed assets. Committee Discussion The Committee questioned if the bank that the City uses is audited for recording when the payments are received. Mr. Levine responded that banks are audited and many have been found guilty of using a later date for processing payments. Ms. Christensen added that staff would now be walking the payments to US Bank and waiting for the payment to be posted. The Committee questioned the decrease in charges for services, in changes of net assets on page 9. Mr. Tuneberg responded that charges for services are water, sewer, cable, electric, permit review, plan review, ambulance service, and charges between departments. Parks charging Public Works to maintain the median on the Boulevard is one example. He explained that the reduction wasn’t a change in rates, it is driven by usage. If the City has a milder summer, it would sell less power. Another example is that if a housing development is not approved, Community Development would not receive the charges as anticipated. Mr. Tuneberg added that it was not a result of charges from AFN to the City. The Committee questioned the reclassification of capital assets on page 11. Mr. Tuneberg pointed to page 20-21 and that it was moved from a business type to governmental type activity. He explained that the $1.4 million is the reconstruction of the Calle. The Committee discussed that it does not affect the bottom line. The Committee questioned if the City had any concerns about the accrued vacation and sick leave on page 23. Mr. Tuneberg responded that he has no concerns and that figure is appropriate for the number of employees the City has. He explained that the City has reasonable caps. It was discussed that the Auditor had reviewed this and was satisfied. The Committee questioned where the City was at with accrual for PERS. Mr. Tuneberg responded that the City has some unfunded liability. Mr. Allen spoke to the City being pooled and that it would not be a liability on the balance sheet. It is not required to be disclosed, and the City is current on it’s obligation. Mr. Tuneberg added that when the City went into the pool, it was about $4 million, now it is not presented, but they are current on contribution. The Committee discussed the Interfund Loans and Transfers on page 49. Mr. Tuneberg explained that if a fund is not planning on paying back the money, then it is called a transfer. If they are planning on repaying, then it is called and Interfund loan and there is 3 years to pay it back. He added that he had authority to transfer $960,000 and only utilized $500,000 from the Electric Fund to the Telecommunications Fund. The Committee questioned the low actual in the Local Improvement District in the Street Fund on page 66 and if it was a receivable. Mr. Tuneberg explained the $45, 270 is an expenditure and the amount the City spent on LID’s. The Committee asked where the aged receivables are shown. Mr. Tuneberg responded that agings are in Utility Billing and would be part of the evaluation of the software. It is not presented in the report and is more of a managerial tool. Mr. Levine added that it is not appropriate in a financial statement. The Committee discussed the procedure for write offs in Utility Billing and segregation of duties. The bad debt is sent to a collection agency as indicated by the Municipal Code. The Committed questioned what the contingency expenditures were on page 79. Mr. Tuneberg explained that $140,000 was identified as contingency when the budget was set. He explained that rather than creating an appropriation that would require Council action, he chose to create contingency to be able to be used for a loan or transfer. In order to use contingency, he must go to Council and move it to an expenditure. Mr. Nutter asked if it was for telecommunications. Mr. Tuneberg responded it was and during that time, Council was considering which way to go with AFN. The Committee commended staff on the report. Mr. Tuneberg thanked staff and spoke to the City’s participation in the Government Finance Officers Association. Audit Bid Process – FY 2006-2007 Mr. Tuneberg spoke to the bid process for the next audit year. Ms. Christensen asked if there were new rules for the RFP process. Mr. Tuneberg responded that he would bring the RFP to them and would do a formal bid process. The Committee discussed what their role would be in the process. Mr. Tuneberg will include a summary list of the last five years and will include their role. The Committee discussed the transition between when the contract ends and when the new one would start. The current contract is through the audit and Mr. Tuneberg added that Pauly, Rogers, if needed, would help the City through the transition. It would take place during January to February 2007. Christensen/ Nutter ms to accept the audit as presented. All Ayes. Adjournment The meeting was adjourned at 3:05 p.m. Respectfully Submitted, Bryn Morrison Account Representative Administrative Services Department AUDIT COMMITTEE MEETING NOVEMBER 16, 2006 PAGE 6 OF 6