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HomeMy WebLinkAbout2011-09-09 MinutesMinutes of the September 9, 2011 Audit Committee Meeting The following audit committee members were present: Tony Uth, Jr. Judy Jacobs Adam Motherwell The following City staff members were present: Don Marr, Chief of Staff Paul Becker, Finance and Internal Services Director Marsha Hertweck, Accounting Director Vicki Deaton, Internal Auditor Karen Minkel, Internal Consulting Director Approval of Minutes: The minutes of the June 21, 2011 Audit Committee Meeting were approved by all audit committee members present. Draft minutes from this meeting and the June 21, 2011 final minutes will be forwarded to the City Council to keep them informed of committee proceedings. Internal Audit Update: • Time and Attendance Software — Everyone is live on the system except the Fire Department (total 114 employees). They are currently being trained on the software and are testing entry into the system. The team hopes to complete implementation next month. Solid Waste Hauler Vendor Audits - the report was issued on 5/17/11. The Utilities Director is documenting options for the Water and Sewer Committee, then the full Council to consider later this fall. General Employees Retirement Savings Plan & 457 Plan Reconciliation — the report was issued on 6/24/11. The only issue identified was a trustee software configuration problem related to updating the status of participants in the trustee records. The trustee is in the process of updating their software. FEMA declared disaster — The City of Fayetteville is eligible for public assistance related to FEMA 1975 -DR -Arkansas. The disaster was declared due to severe storms during the spring of this year. The City has completed and signed claims for reimbursement from FEMA and the State of Arkansas for a total project cost of $222,443. FEMA reimburses for eligible expenses at 75%, the State of Arkansas at 12.5%, with the remaining 12.5% being funded by the City. Damages are primarily to roadways, bridges, and trails. Most of these claims are for reimbursement of emergency work performed by the City. There are other types of work such as debris removal and permanent work. We have estimated that we have eligible claims of about $2M. It is unclear when FEMA will return to the City to complete more claims for reimbursement. There was a brief discussion about FEMA procedures for processing claims for reimbursement and the status of the federal appropriation for FEMA. • Audit management letter response — An internal control memo to the Mayor, Council, and Audit Committee was issued by BKD on 6/23/11. One comment that was made as a constructive suggestion for modifying and improving accounting controls and financial and administrative practices and procedures was that the City continue to consider its options to address the original fire and police defined benefit pension plan obligations if the City is reasonably held responsible. Management's response, dated 7/25/11, states that the City is not directly responsible for the operation of these pensions. The status of these funds has been communicated to the respective boards. Institute of Internal Auditors training in August — I attended a class titled Consulting: Activities, Skills, Attitudes. We talked about what distinguishes consulting from audit, how auditing skills are used in consulting, and how to complete and document a consulting project. Many of the activities of Internal Audit at the City are consulting activities. They have not been formally identified as that in the past. The training will be beneficial in making sure that consulting work is appropriate for the Internal Auditor, is understood by the "client", and documented for everyone interested. Adam expressed concern about keeping auditor independence and acting as a consultant. Clients need to understand the role of Internal Audit in both a consulting project and an internal audit. Also, clients need to be aware that anything discovered during a consulting engagement could lead to audit work. Internal Audit responsibilities may lead to consulting projects in many instances, such as the Water and Sewer Operations Hansen inventory implementation. Internal Audit is responsible for administering the annual physical inventory count of all Water and Sewer parts. A review of inventory asset internal controls is also performed during the annual count. The information is provided to the external auditor for use in their annual financial audit. Because of the responsibility to ensure safeguarding of assets and accurate recording of transactions, the Internal Auditor was assigned to participate in the implementation of software changes to Water and Sewer inventory procedures. This is a consulting project for Internal Audit. Don Marr assured the committee that the annual plan for the Internal Auditor would continue to focus on audits of controls, compliance, and operations. Karen Minkel is the City's Internal Consulting Director. Internal Audit assisted Internal Consulting with the Lean Government pilot project. Don believes there are benefits and efficiencies in having the Internal Auditor involved in various projects to ensure that the right controls are built into the processes and that compliance issues are not overlooked. Lean Government pilot project — A report was issued on 8/31/11 giving information about the scope, methodology, and outcomes of the project. The pilot project focused on the Billing and Collections division processes of new service accounts, service transfers, and service disconnects. The project is in the future state implementation phase. Consulting project— Water and Sewer Operations Hansen inventory implementation with barcoding capabilities. A report was issued on 9/8/11 explaining Internal Audit's role in this software implementation. The Water and Sewer Operations division purchased JMT inventory barcoding software to be used with the Hansen inventory module during 2007. In mid -2010, a plan was developed to migrate from the New World inventory module to the Hansen inventory module. Internal Audit's objective for the project is to advise and assist the Water and Sewer Operations division as they implement a new inventory record-keeping software module, with the primary goals of ensuring appropriate control of the physical assets and accuracy of asset transaction records. Presentations: Presentation by Karen Minkel, Internal Consulting Director — Using Lean to Change the Water Service Application Process Lean is one approach to process improvement. The term refers to a collection of methods and principles that identify and eliminate waste through a systematic approach. Some of the important principles include: Gradual and continuous improvement: rather than completely changing a process and replacing it with a new one, Lean takes a gradual improvement approach. • Implementation -oriented: implementation of at least some improvement ideas should occur in a relatively short timeframe, such as 30 to 90 days. • Customer -focused: the value a process produces should be viewed from the customer's perspective, which in most cases with government operations is the citizen. Team approach: employees that are most familiar with a process are involved in analyzing it, developing ideas for improvement, and implementing changes. The Billing and Collections division was chosen for the pilot Lean project for several reasons: 1) the workload has dramatically increased without a proportional increase in staff—customers have doubled in 10 years; 2) Rainy Laycox, Billing and Collections Manager, is supportive of using process improvement to increase efficiencies; and 3) Billing and Collections division cross -training is one of the best in the City and means everyone can participate. Karen reviewed the following volume measures to give the committee an idea of some of the work performed in the Billing and Collections division. VOLUME MEASURES 2010 Total Active Accounts 37,396 Total Service Orders 36,624 On/Off Orders Processed 35,052 Final Bills Processed 17,492 Deposits Collected 7,764 Total Call Center Calls 53,383 The team includes all the staff of the Billing and Collections division, Scott Huddleston and Cathy Kautzer from IT, Marsha Hertweck from Accounting and Don Osbum and Doug Sharp from Meter Operations. Karen Minkel serves as Lean Facilitator and Vicki Deaton serves as Team Leader. Chief of Staff Don Marr and Finance and Internal Services Director Paul Becker are the Lean Sponsors. The project scope includes what the Billing and Collections division refers to as turn ons and tum offs. New service is when a brand new customer wants water service to be turned on. Transfers occur when a customer moves to a different location within our service area. A transfer involves a turn on and a turn off. Service disconnects occur when water service is turned off. Work on the project began last spring. The team mapped existing turn on and turn off processes, used the map to identify waste and determine how the processes could be improved, and mapped the future processes incorporating ideas for improvement. The team also solicited feedback from comparable utilities. The improvement ideas were used to create an implementation plan. Some of the key tasks on the implementation plan are to: • Consolidate key customer documents • Generate work orders directly from New World • Allow automatic bank draft for final bills • Revise the bill print program to eliminate manual stamping and stickers • Store documents electronically We are currently in the improvement implementation phase. Final bills are now being automatically drafted when desired by the customer, customer documents have been consolidated into one key document (application), and printed final bills are electronically sorted for easier mailing preparation. The team is working on generating work orders from New World, testing the new customer application form, and reviewing the red flag rules to determine if changes to customer identification requirements are both possible and desired. Through process analysis, we estimated that it currently takes about 1 man-hour of labor to process each work order for service turn on and about 1 man-hour of labor to process each work order for service turn off. At the current level of transactions, this equates to 17.5 full time employees working on these processes alone for the entire year. It was also estimated that it costs the City approximately $20 per service order (more than $700,000 for 2010). The team expects the time required to generate each work order requests and the total time to process each work order request to decrease as process changes are implemented. The time savings will equate to process cost savings. The team identified performance measures that will be used to determine the success of the process changes. Presentation by Paul A. Becker, Finance and Internal Services Director — Special election on the question of levying a 1% sales and use tax within Fayetteville to replace the 1% sales and use tax expiring on 6/30/13. The 1% city-wide sales tax is scheduled to expire in July, 2013. The continuation of the sales tax must be authorized by the voters. A special election will be held on October 11, 2011, to vote on the issue. Paul spoke about issues and potential ramifications associated with the loss of the tax revenue if not continued due to lack of voter approval. The City collects about $15,400,000 annually from the 1% tax. That amount is split 60:40 between General Fund operations and general capital improvements. Currently, this represents $9.2 M for General Fund operations (which is 27.6% of General Fund revenue) and $6.2 M for general capital improvements (which is 100% of General Fund capital improvements). The revenue losses are large, and could not be made up from other sources. Eighty-two percent of the General Fund expense budget is for personnel services. If we cut each category in the budget in direct proportion to the revenue loss of 27.6%, the personnel services expense budget would be reduced by about $7.6 M. There are currently 455 positions in the General Fund. Between 125 and 150 positions would be lost. Since public safety is about 60% of General Fund personnel expenses, there could be about 90 positions lost in police and fire. General capital improvements such as street paving, trails, drainage work, library materials, equipment replacement, and technology purchases would be unfunded if the revenue is lost. The City is communicating the facts associated with the tax continuation to the citizens The meeting was adjourned.