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HomeMy WebLinkAbout2012-03-06 MinutesMinutes of the March 6, 2012 Audit Committee Meeting The following audit committee members were present: Tony Uth, Jr. Judy Jacobs Adam Motherwell Alderwoman Adella Gray The following City staff members were present: Don Marr, Chief of Staff Vicki Deaton, Internal Auditor Marsha Hertweck, Accounting Director David Jurgens, Utilities Director Allison Atha, Utilities Project Coordinator Approval of Minutes The minutes of the December 6, 2011 Audit Committee Meeting were approved by all audit committee members. Draft minutes from this meeting and the December 6, 2011 final minutes will be forwarded to the City Council to keep them informed of committee proceedings. Approved minutes are posted on the City's website on the audit committee page. IIA Subscription Available Tone at the Top — a complimentary subscription of this IIA publication is available to the audit committee members if they are interested. Discussion and Approval of 2012 Draft Audit Plan At last Tuesday's City Council agenda session, the Internal Auditor presented the 2012 Draft Audit Plan. The Council was encouraged to review the plan and provide feedback. The Internal Auditor will schedule one on one meetings with all the Council members in the next few months to seek feedback about audit work and to assess risks the Council may have identified. After some brief discussion about ongoing special requests and the timing of cash counts, the 2012 Audit Plan was approved by all committee members. Internal Audit Division Organizational Structure The Internal Auditor brought forward a discussion item from Alderman Ferrell. He would like to discuss the reporting relationship of the Internal Audit division within the City's organizational structure. He would like to seek input about possibly changing the reporting structure of the division from dual reporting to the Mayor and the Audit Committee, to reporting to the Audit Committee and the City Council. There was discussion about the independence of the internal audit function and the history of the organizational structure of the Internal Audit division. The division has reported to the Mayor and the Audit Committee since it was created. The relationship with the Audit Committee provides independence to the Internal Audit division. One of the committee members pointed out that the Internal Audit division's organizational structure has never been reported as a management comment by the external auditors. The committee members talked about current City Council involvement, how to get them more involved, and to provide them as much information about internal audit projects as they would like. There was discussion about the City Council member representation on the Audit Committee, how the Council member is appointed to the committee, and the Council member's role as liaison between the City Council and the Audit Committee. There was also talk about the need to have day to day oversight of the Internal Audit division, and how this would work if the reporting structure of the division was changed. There was discussion about Internal Audit's authority coming from the Mayor to ensure that audit recommendations are implemented, and how Internal Audit needs to stay in touch with what is going on in the organization in order to add value. There was general consensus among the committee members that the current organizational structure of the Internal Audit division is satisfactory. Internal Audit Update • 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 2011. The City has claims with a total project cost of $743,000. Expected reimbursement is $653,000, of which approximately $400,000 has been received to date. I have assisted in the coordination of project record keeping and project budgeting. Report on Annual Petty Cash Review—the report was issued on 1/13/12. No issues were identified during this audit, but there was follow up on two prior year audit issues. • Lean Government pilot project in Billing and Collections - we are wrapping up the Lean project that focuses on the Billing and Collections division processes of new service accounts, service transfers, and service disconnects. Outstanding items include a couple of administration decisions that need to be made and a new Work Order report that is having an error when it runs. The report was written by IT and they are working on correcting the error. • Water and Sewer Operations Work Order Lean Government Project - the Water and Sewer Operations division work order process, which includes inventory transaction processing, was chosen as a Lean project for 2012. This project was chosen for various reasons — 2 reasons being weaknesses were discovered in the work order process that attributed to a larger than expected inventory shortage posted from the 2011 annual physical inventory count and a new inventory software module with barcoding capabilities is currently being tested for implementation in the near future. The team 1) mapped the existing process that the Water and Sewer Operations division uses when initiating, processing, and completing work orders for service, 2) identified control strengths and weaknesses of the process, 3) looked for waste in the process and identified steps that could be omitted or changed to improve the process, 4) mapped the future state of the process that incorporated the team's suggestions for strengthening controls and improving the process, 5) developed an implementation plan that outlines how the process will change over a 30 to 180 -day period. I am currently working on a draft memo about the project. I expect to distribute it in the next few weeks. • Consulting project — Water and Sewer Operations Hansen inventory implementation with barcoding capabilities is ongoing. Inventory transactions are being entered into both the current software, New World, and into the proposed software, Hansen, on a test basis. We have been testing for several months and have worked out various differences between the softwares. If all remaining issues can be resolved, we will go live in the Hansen inventory module at the beginning of next month. • Preparation for financial audit — all 2011 physical inventory counts were completed and the bond covenant compliance review has been completed. Internal Audit is working with A&P Commission's bookkeeper and the A&P Commission to get all auditor required documentation and 12/31/11 financial statements. All items were due on 3/1/12. The bookkeeper asked for an extension until 3/5/12, but nothing has been received yet. The Chief of Staff told the committee that the administration would suggest to the A&P Commission that they have a separate audit performed in the future due to the size and complexity of the commission. Presentation by David Jurgens, Utilities Department Director David explained that he is the director of both the Water and Sewer and Solid Waste and Recycling departments. David used the 12/31/11 preliminary financial statements to draw attention to the revenues of both water and sewer and solid waste. For both, revenues met or exceeded the 2011 budget. There was some discussion about why revenues were up — for water and sewer, a summer drought, and for solid waste — an increase in the demand for drop boxes for building renovation. David told the committee that both the Water and Sewer and Solid Waste and Recycling departments have been working on long range plans. Recently, the Solid Waste and Recycling Resource Management Plan 2012 went out for public review. It is available on the City's website. The plan presents short, medium and long term goals and objectives addressing waste stream reduction and other areas of concern for Solid Waste and Recycling. It will go to the City Council for their approval this spring. David talked about several Solid Waste and Recycling initiatives that have been implemented in the last couple of years, such as large apartment recycling and the expansion of small business recycling. He told the committee that one of the guiding principles of the Solid Waste and Recycling Resource Management Plan 2012 is to increase the City's diversion rate (diversion of items from landfill disposal). The plan notes that education and community outreach are key to recycling, reuse, and conserving. The City of Fayetteville residential recycling program diversion rate has been at 56% for the past few years. David talked about how the Solid Waste and Recycling Resource Management Plan 2012 is important to the future of the City's solid waste franchise agreements, which were audited last year. It is critical that the City look closely at the items that are collected by private haulers, because it is difficult to obtain end market information for recycling commodities from private haulers. End market information is necessary for providing accountability and transparency in recycling and in calculating the diversion rate. It has been more than 10 years since the last solid waste rate study was performed, so the plan recommends a rate study be performed in the near future. The City currently utilizes a progressive Pay -As -You -Throw program that encourages customers to produce less waste by providing a choice in cart size. The smaller the bin the less the customer pays. The Solid Waste and Recycling Resource Management Plan 2012 advocates even greater incentive for citizens to recycle by revising the rate structure to increase the differences in bin costs. The committee thanked David Jurgens for his attendance and presentation.