Loading...
HomeMy WebLinkAbout2012-06-19 MinutesMinutes of the June 19, 2012 Audit Committee Meeting The following audit committee members were present: Tony Uth, Jr. Judy Jacobs Alderwoman Adella Gray The following BKD, LLP staff members were present: Andy Richards, Partner Rebecca Riley, Supervisor Cynthia Burns The following City staff members were present: Paul A. Becker, Finance and Internal Services Director Don Marr, Chief of Staff Vicki Deaton, Internal Auditor Marsha Hertweck, Accounting Director Shelly Turberville, Accounting Manager — Investments and Cash Trish Leach, Accounting Manager — Payroll and Pension Approval of Minutes The minutes of the March 6, 2012 Audit Committee Meeting were approved by all audit committee members present. Draft minutes from this meeting and the March 6, 2012 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. Internal Audit Division Draft Charter Last quarter, the committee discussed the organizational structure of the Internal Audit division at the request of Alderman Bobby Ferrell. 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. The Internal Auditor met with Alderman Ferrell in May. Alderman Ferrell believes it would be beneficial to formalize Internal Audit's reporting structure. He asked that we develop an Internal Audit Charter. Currently, there is an Audit Committee charter but not an Internal Audit charter. Alderman Ferrell would like an Internal Audit charter brought forward as a resolution for the City Council's review and approval. An Institute of Internal Auditor's charter template was used to develop a City of Fayetteville Internal Audit Division Charter. The draft charter was recently distributed to various City staff and all members of the audit committee for their review. The following section of the charter addresses the organization of the division: The Internal Auditor shall report administratively to the Mayor for assistance in establishing direction, support, and administrative interface; and functionally through the Audit Committee of the City Council to the full City Council for strategic direction, reinforcement, and accountability. The Internal Auditor shall meet with the Audit Committee of the City Council at least quarterly. There was discussion of the differences between reporting administratively and reporting functionally. There was talk about how the day to day oversight of the Internal Audit division works. A question was asked concerning possible differences of opinion in regard to audit work and how the annual audit work plan is approved. The audit work plan is reviewed by the administration and approved by the Audit Committee, then presented to the full City Council. The charter would not bring any major change to how the Internal Audit division is currently reporting and operating, but it would formalize the structure for the future. Internal Audit Update The Internal Auditor presented the following information as an update to the committee. • On 5/23/12, a report on the Results of the Billing and Collections Lean Government Project was issued. The pilot Lean project was very successful. • 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. A report titled Water and Sewer Operations Work Order Lean Government Project was issued on 3/16/12. Some steps of the implementation plan are complete and some are in progress. The Internal Auditor has a status meeting scheduled tomorrow with Carrie Watkins, Water and Sewer Operations Office Manager. Consulting project— Water and Sewer Operations Hansen inventory implementation with barcoding capabilities is ongoing. Inventory transactions are now live and only being recorded in the Hansen inventory module. Transactions are being recorded manually at this time. We plan to do a partial (cycle) count at the end of July as a test of a physical inventory count. We are in the process of determining the steps necessary to implement the barcoding feature. FEMA declared disaster— The City of Fayetteville is eligible for public assistance related 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. I requested a project worksheet status update at the end of the 1" quarter 2012. I compiled the information received from all divisions and found that the work detailed on 19 project worksheets was complete, the work on 5 project worksheets was in progress, and the work on 29 project worksheets was not yet started. I will request a 2nd quarter update in July. The deadline for completion is late fall, but extensions can be requested if necessary. • SW hauler agreement revision — City staff were instructed by the Water Sewer Committee to revise and authorize new Agreements to Haul and Dispose of Solid Waste and Recycling in the City of Fayetteville for a term of 1 year, with the possibility of a 1 year renewal. This will give the haulers a contract with a definite time period to help them with their customer service and give the City additional time to determine the future of these agreements. A team of City staff has been working with the current haulers to agree on terms and reporting requirements. One change being considered is including the hauling of recyclables, with a fee of 5% of the gross revenues of providing that service. Another change is a penalty increase. Two new attachments have been added to the agreement. One attachment captures recycling information and fees and the other attachment recaps and summarizes hauling revenues and the related fees to the City. With the new agreement, the City will receive a list of payments received from the hauler's customers within the City. The City Attorney's office has asserted that the information is exempt from disclosure under the Arkansas Freedom of Information Act as the information meets the exemption for records that if disclosed would give advantage to competitors. Discussion of 2011 Comprehensive Annual Financial Report (CAFR) - Andy Richards and Rebecca Riley, BKD Rebecca thanked the Accounting staff for all their work putting the CAFR together. She then highlighted certain sections and parts of the report. The Introductory Section of the CAFR includes the Letter of Transmittal, which is signed by the Mayor and the Finance and Internal Services Director, followed by a certificate of achievement and the City's organizational chart. The Financial Section begins with the independent accountant's report, then the City's Management Discussion and Analysis (MD&A). The MD&A gives a narrative overview of the financial statements. Rebecca explained the parts of the basic financial statements, beginning with the government -wide financial statements and their differences from the fund financial statements. The government -wide financial statements include the City's two component units. There were questions about the value of the government -wide financial statements and how they can be explained to citizens. Andy said that the statements give a good long-term view of the City's finances. Rebecca pointed out that the fund balance classifications changed for the governmental funds this year with the implementation of Governmental Accounting Standards Board (GASB) Statement No. 54. The new classifications are nonspendable, restricted, committed, assigned, and unassigned. Andy explained that the unassigned fund balance corresponds to the prior year's unreserved fund balance category, and the reserved portion is now broken into four more specific classifications based upon the level of constraint on the money. The Chief of Staff asked about the City Council established minimum reserve of 60 days General Fund operating expenditures. These funds are shown as unassigned in the General Fund. Rebecca mentioned the budget statement for the General Fund and then the statements for the Proprietary Funds (Water and Sewer, Solid Waste, Town Center, and Airport). She explained that the proprietary statement numbers are the same as those presented in the government -wide financial statements for the business type activities. Rebecca told the committee that the last statements in the basic financial statement section are the Fiduciary Fund statements. Rebecca briefly reviewed items included in the Notes to the Financial Statements. After the Notes are the combining and individual fund statements and schedules. There were questions about what determines a major fund as opposed to a nonmajor fund. Rebecca and Andy explained that it is dependent on a calculation of net assets and revenues and expenditures. Marsha also stated that she has some discretion about designating major funds in order to achieve consistency from year to year. There was also a question about the Fiduciary Fund combining statements. Andy referred the committee back to the Required Supplementary Information Schedule of Funding Progress for more information on the actuarial status of the funds. Andy told the committee that there is a proposed new accounting standard that would require recording the unfunded liability on the Fiduciary Fund statements. This could be effective in a couple of years. Rebecca called attention to the Statistical Section of the CAFR, which shows trends over a 10 year period. She talked about audit work performed related to compliance with Arkansas state requirements and the Single Audit performed on grant funding. The Single Audit focused on two Police Department grants and the Energy Efficiency Grant. Rebecca explained the process for selecting grants for audit. Andy presented the management letter, which communicates audit scope, results, internal control over financial reporting, and other matters to the Mayor, members of the City Council, and the Audit Committee. Andy said that there were no reportable matters related to significant accounting policies and practices. He noted that there were some proposed audit adjustments that were recorded for the Advertising and Promotion Commission's (A&P) fixed assets. Due to these necessary adjustments, the auditors feel that improvements are needed in the A&P's fixed asset recordkeeping procedures. They reported an internal control deficiency in accounting for the Advertising and Promotion Commission component unit. A deficiency exists when the design or operation of a control does not allow management or employees, in the normal course ofperforming their assigned functions, to prevent or detect and correct misstatements of the Company's financial statements on a timely basis. The deficiency was less severe than a material weakness or a significant deficiency, but the auditors felt it was important enough to be communicated with management. Because the A&P does not have an audit separate from the City, this management letter included the communication. Paul explained that the A&P is a component unit, but its financial information must be presented in the City CAFR due to the financial relationship. There was some discussion about how the internal control deficiency might be addressed. City management will communicate with A&P management about this issue. Several other matters were included in the management letter. These items were offered as "constructive suggestions for the consideration of management as part of the ongoing process of modifying and improving financial and administrative practices and procedures." The first comment is a repeat from prior years related to the unfunded pension obligation for the City's original fire and police defined benefit plans. The second comment relates to changes required by Statement on Auditing Standards No. 122. This statement will impact the City's 2012 and future financial statement audits. It introduces a group audit and increases the audit work and communication necessary for component units. City management will need to consider how this change will affect the audit work associated with the A&P in conjunction with the reported A&P internal control deficiency. The committee thanked BKD for their work on the audit and for presenting the CAFR to them.