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HomeMy WebLinkAbout2010-02-10 MinutesMinutes of the February 10, 2010 Audit Committee Meeting The following audit committee members were present: Tony Uth, Jr. Judy Jacobs Bobby Ferrell, Alderman The following City staff were present: Paul Becker, Finance and Internal Services Director Marsha Hertweck, Accounting Director Vicki Deaton, Internal Auditor Kit Williams, City Attorney 1) Judy Jacobs asked if all of the FEMA reimbursements for the January 2009 ice storm had been received. The Internal Auditor reported that all the federal reimbursement has been received but none of the state reimbursement has been received. Paul Becker explained that the state will not pay their portion until all of the federal monies have been paid. Paul was told by the Arkansas Department of Emergency Management that because of the large dollar amount of the state reimbursement to the City, there will have to be an appropriation by the Governor's office. Paul hopes to receive the state reimbursement by the end of February. (The state reimbursement is expected to be approximately $660,000.) Paul Becker explained that the City paid all ice storm expenses from the Replacement and Disaster Recovery Fund. The grant monies are replacing the funds used from the Replacement and Disaster Recovery Fund during the ice storm clean up. 2) The minutes from the December 11, 2009 Audit Committee Meeting were approved by all audit committee members present. Draft minutes from this meeting and the December 11, 2009 final minutes will be forwarded to the City Council to keep them informed of committee proceedings. 3) The Internal Auditor reported on the Finance Department's preparation for the 2009 financial audit. BKD, LLP, the City of Fayetteville's external auditor, will be onsite for fieldwork beginning March 22, 2010. The Accounting division has been busy posting end of year entries to the general ledger and working on audit schedules. Tony Uth asked if any of the City's cost cutting measures have affected the system of internal controls. Paul explained that even though there has been a hiring freeze, the only vacancy in the Accounting division is a part-time lower level position. Paul reported that there is an unfilled position in the Budget division. He does not believe these openings have affected the internal control structure. The Internal Auditor mentioned that one improvement to the internal control system this year is the requirement for two signatures on the receipt of all tangible items. Judy Jacobs asked how often the external auditors are changed. Marsha told the committee that this is year two of a five year contract term with BKD. The City formed a selection committee and went out for proposals in 2007 for an independent auditor to perform the annual audit. Only a few firms submitted proposals. There are a limited number of firms in this area that perform governmental audits and have experience with cities similar in size to Fayetteville. BKD has performed the annual audit since 2002 and was selected for another five year term in 2007. 4) The Internal Auditor presented the 2010 Audit Plan. The administration and the Finance and Internal Services Director have reviewed and approved the plan. Bobby Ferrell asked how special requests originate. The Internal Auditor explained that they may come from the administration, the Finance and Internal Services Director, the audit committee, or other employees. The Internal Auditor may initiate special work based on information reported by City staff. Paul explained that the I" quarter 2010 special requests listed on the plan originated with him and the administration. The Internal Auditor told the committee about the ]s` quarter audit, Defining IT. This is an audit to inventory the City's hardware and software prior to a consultant's performance of an IT assessment. Bobby Ferrell asked if opportunities to better use technology throughout the City would be identified in the audit. These types of recommendations will be made by the consultant. Internal Audit may make recommendations related to the safeguarding of computer equipment. Tony Uth asked about data security in the City. The IT division is responsible for the security of the City's infrastructure and data. Paul said that the consultant hired for the IT assessment should evaluate our data security controls. Tony Uth asked if there were more follow up audits that need to be performed in 2010. The Business Expense Audit Follow Up is scheduled for 3rd quarter 2010. There is not a set procedure for scheduling the performance of follow up audits. Follow ups are scheduled based on the judgment of the Internal Auditor. Paul Becker asked if a Police Property Evidence Review, which is scheduled for the 4d' quarter of 2010, has ever been performed before. This kind of review has never been performed. The Internal Auditor added this review to the 2010 plan due to the risk in this area. The 2010 Audit Plan was approved by all audit committee members present. 5) Kit Williams has been the City Attorney since 2001 and served 6 years as a City alderman in the 1990's. The City Attorney is an elected position, so Kit works for the citizens of Fayetteville. He talked to the committee about the duties and responsibilities of the office. Provide Information to External Auditor Kit told the committee that each year he is asked to prepare a list of significant "Pending or Threatened Litigation and Regulatory Actions and Asserted Claims and Assessments" for the annual audit. There is currently one proposed EPA regulatory action that could have a large financial impact on the City — that all wastewater treatment plants flowing into the Illinois River reduce the phosphorus in their effluent to a very low level. Liti ag tion There is one case pending from 2002 that the plaintiff has appealed to the United States Supreme Count. The plaintiff sued the City and other defendants for the enforcement of the Fayetteville sign ordinance. There has been no communication on the status of this appeal. Kit believes there is little chance that the plaintiff could recover large monetary damages. Most of the cases against the City of Fayetteville are related to inmates suing City police officers for something the inmate claims the officer did, such as using excessive force. The City has insurance coverage for these lawsuits, so the cases are handled by attorneys appointed by the insurance company. There is a $50,000 deductible on the policy. There are several cases pending which Kit believes are meritless and will be dismissed prior to trial. No police officer cases have been lost since Kit became the City Attorney in 2001. There have also been cases related to rezonings and ordinances. We are currently being sued related to an airplane accident which occurred 3 years ago. The pilot was attempting to land at the City's Drake Field when the accident happened. The City is protected by the state sovereign immunity statute for any acts of negligence. City Council Support If an alderman has a resolution or ordinance they want to draft or an issue to research, the City Attorney's office assists them. Kit explained that the City's Code of Ordinances is constantly under revision. He reviews revisions for unintended consequences. City Staff Support The City Attorney spends the majority of his time working with City administration and staff. He reviews contracts, promotes certain contract language and terms, and discourages other contract provisions. He advises staff on issues such as annexation, and encourages negotiation rather than litigation. The City Attorney also advises and assists the Mayor and his staff with resolutions, ordinances, and research, but will not write a resolution or ordinance for a citizen. Kit tries to ensure that actions of the City are constitutional. Tony questioned Kit about his involvement with the local fire and police defined benefit pension plans. BKD has commented for several years on the unfunded pension obligations of these plans. Kit has reviewed the actuarial studies and communicated concerns with the plan to members of the pension boards. Both the fire and police pension boards are comprised of either 4 or 5 retired employees, the Mayor, and the City Clerk. Kit says that currently the City is not liable for these privately administered plans. If the plans are consolidated with the state plan - LOPFI, the City would be liable for the plans and would have to fund the plans. With no plan changes, the cost to the City would be between $600,000 and $700,000 annually for the next 15 years. The City Council must agree to consolidate the plans with LOPFI, but there have been several legislative attempts to require consolidation. A complicating problem is that the state statute does not specifically say that pension boards have the right to decrease benefits and the state Attorney General has opined that the pensions boards may not decrease benefits. Tony asked how many cities in Arkansas have unfunded pension obligations with their local plans. Paul said that about 60% of Arkansas's local plans are considered actuarially unsound. Judy asked about the City Attorney's staff. There is an Assistant City Attorney and there is a City Prosecutor, Assistant City Prosecutor, and staff. The City Prosecutor's staff has not increased since Kit became City Attorney, but the caseload has doubled. The committee thanked Kit for his presentation.