AUDIT COMMITTEE MEETING MINUTES

Transcription

1 AUDIT COMMITTEE MEETING MINUTES DATE: June 5, 2013 LOCATION: CITY HALL FOURTH FLOOR CONFERENCE ROOM TIME: 3:05 PM I. CALL TO ORDER Audit Committee Chairman Tim Hurst called the meeting to order. II. ANNOUNCE MEMBERS IN ATTENDANCE (VERIFY QUORUM) Audit Committee Attendees: Tim Hurst, George Sprinkel, Joel Wallace and Sonja Stewart Absentees: Al Irby (Quorum verified). Other Attendees: Internal Audit: Lynn Stokes, Jim McNaughton and Robin Manley. City Finance: Debbie Frazier and Wanda Morrison Community Development: Jean Adcock Thurman & Campbell Group: Jeff Proctor Public: Michael Jenkins III. PRESENTATION OF ANNUAL REPORTS BY EXTERNAL AUDITORS Jeff Proctor of Thurman Campbell Group made the presentation A. CGW Jeff directed our attention to page 3 of the Independent Auditors Report where on the 4 th paragraph it states that because the financial statements conform to generally accepted accounting principles they (F/S) will receive what is called an unqualified opinion (which is the best that can be received). In addition, in the yellow book report on pg. 48 internal controls and compliance there were no issues regarding various Government laws, regulations, contracts, grant agreements and other matters. Tim remarked that there seemed to be a fairly significant revenue decrease for gas ($9M) Jeff commented that without looking at the work papers he believed that the warmer winter temperatures caused less gas to be used. Tim also asked if there had been any regard to having enough revenue considering any loss of FEMA funds. Jeff indicated that there probably was but that the FEMA money was 1

2 related to restoring the infrastructure following the 2010 flood and that that restoration was accomplished by the drawing down of bond money and shouldn t have any effect on operating revenue. Tim replied that he was concerned if there were enough current revenues available to meet the debt covenants or will the debt be covered by rate increases. Jeff commented that that is a good question. George asked about the receivables on pg. 22; if any testing had been conducted to determine bad debt aging (i.e. 50% at 30 days and 100% at 90 days or over) and if the bad debt policy provides for adequate reserves to be established to cover bad debts. Jeff replied that testing would have been done regarding bad debts so that what was coming in to the reserves should be sufficient to cover the actual bad debts. B. NGAC Jeff commented that the purpose of NGAC is essentially a separate entity that is authorized to negotiate and execute a gas contract to provide a gas supply to the City with an established price and flow for future periods. Jeff directed attention to pg. 2 paragraph 4 of the auditor s report where it states that because the financial statements conform to generally accepted accounting principles they (F/S) will receive what is called an unqualified opinion (which is the best that can be received). In addition, in the yellow book report on pg 17 for internal controls and compliance there were no issues regarding various Government laws, regulations, contracts, grant agreements and other matters. There were no questions asked. C. CDE Lightband Jeff directed attention to page 3 where it states that because the financial statements conform to generally accepted accounting principles they (F/S) will receive what is called an unqualified opinion (which is the best that can be received). In addition, in the yellow book report on pg. 51 for internal controls and compliance there were no issues regarding various Government laws, regulations, contracts, grant agreements and other matters. Also, the A-133 report on compliance had no issues. Jeff remarked that the report on internal control was 3-4 pages long several years ago which was for control and bond issues. When Tim asked what caused the improvements Jeff replied: Management. There were however, two internal control deficiencies noted for accounts receivable and segregation of duties. The accounts receivable issue has been on-going for several periods and it is thought to be related to timing of when payment entries are made over the internet right around midnight where sometimes they are posted in one period and at other times in another period. Accounting has determined that a software fix is available but that it is very expensive to implement and so management has determined that the cost/benefit is not acceptable at this time. Tim commented that it could be related to the merchant provider and Jeff agreed it was possible. Jeff said that credit/debit cards have been issues for him at other places in the past. Tim asked if credit card info is stored locally or is outsourced; Jeff does not think they are outsourced but didn t know for sure. Tim also asked if CDE is PCIDSS (payment card industry data security standard) compliant. Again, Jeff didn t know about that. The segregation of duties issue has been fixed. Tim asked if the broadband division will continue to operate according to the business plan and pay its debt back (to the electric division). Jeff replied that the old business plan had been outdated and subsequently replaced with a new plan (about last October or November). The new plan still continues to provide mixed services i.e. cable, internet and telephone with the most profitable (90%) service being the internet. Whether the division will ever be cash flow viable he does not know. Tim asked if the Broadband reimbursement 2

3 to electric is reasonable. Jeff commented that both the Power Board and TVA have looked at both the old and new business plan and accepted them. And, so far the loan agreement requirements have been met. George was concerned about the lease amount at 83% of cost for the office building on Madison St. as shown on pg. 25 in the F/S. He wanted to know if it was an old lease and was just not covering 100% which may have been related to escalated cost and why it shouldn t be more. Jeff replied that he is not certain but, believes that because the Broadband customer service call center handled both electric and broadband after hours that the lease was reduced based on an allocation of calls handled for the electric division D. City General Jeff directed attention to pg. 1 para. 3 of the auditor s report and remarked that an unqualified opinion had been issued. Tim inquired if the auditors had looked the workpapers of other auditing firms and Jeff replied no that they relied upon the other firm s audit reports. Jeff then discussed the internal control and compliance report on pg. 127 and noted there are no deficiencies. In addition, on pg. 129 is the opinion on the A-133 single audit report concerning Federal monies; there were no compliance issues. Jeff commented that on pg. 132 there were some issues noted on compliance that were considered material weaknesses that resulted as audit findings; essentially the City did not have a system in place for adequately tracking grant assets but this has since been fixed by Finance. Jeff then briefly discussed the Governance Letter. This is related to the qualitative aspects and things that need to be fixed as a result of the audit but that were not material. Examples include timesheets in Community Development and money paid by CDE to the City in lieu of taxes (PILOT) that was not passed on to the County. The essence of the CDE issue was that about ten or so years ago the City wanted some underground wiring installed and to pay for it agreed that CDE could pay reduced PILOT payments. Based upon the interpretation made of the TCA only a certain amount of the taxes were forwarded on to the County. The auditors came upon the issue when CDE showed a receivable on their books but no corresponding payable booked by the City. As a result of legal interpretation the City has engaged an attorney and has taken a conservative approach by booking the full amount. Tim commented that in essence no money was exchanged. In addition, Jeff said that the broadband division has not paid the City for this entity. Tim asked if there was a resolution date. Debby Frazier said no date has been set. Tim continued and asked about audit adjustments; were there any that weren t made that were material and Jeff replied no. Tim inquired that per SAS 99 anything else that should be looked at. Jeff suggested exploring a unit system to avoid using MS Excel spreadsheets and use the Government-Wide reporting module in Munis. Debbie Frazier remarked that it is a good idea except that the CGW and NGAC are not on the same system and also use different databases. CDE also uses a different system because electric rates are complex. Tim asked if management estimates appeared good and Jeff indicated yes. Jeff then talked about how their audits are conducted and that because of limited resources they can t look at everything; different things are looked at every year. Jeff mentioned that there are new GASB s issued that will impact the City s future reporting. Tim noted that they are no. s 63 (deferred inflows and outflows and net position), no. 64 (codification) and no. 65 (identifies assets that are related to no. 63). With the external auditor s report concluded Tim thanked Jeff for the reports and the presentation. (Jeff, Debbie, Wanda and Jean depart at 3:50 pm) 3

4 Note: Because the hard copies of the reports had been borrowed Lynn asked for them back so that they could be returned to Finance. She would provide electronic copies for anyone wanting them. IV. ADOPTION OF MINUTES: March 27, 2013 Tim asked the Committee members to briefly review the minutes and would entertain a motion to accept them. After the review, George made a motion to accept the minutes as is and Sonja seconded the motion. Tim asked for a voice vote. Motion passed. Minutes accepted. V. DEPARTMENT REPORT A. Current year budget report Lynn noted that accounts were tracking at about 90% except for the charge-outs which had been reduced at an earlier date. Lynn has also asked the IT department to acquire an IPAD that will cost about $ before the year end. The auditors will share the IPAD. A lot of the training is now electronic and is very cost effective. Next year s budget will be presented for approval tomorrow at the City Council meeting. Sonja asked if anything had been pulled from the new budget. Lynn replied that the IT audit that was planned at $40,000 will be reduced. Lynn will inquire of the new auditors (Crosslin & Assoc.) to see if they could expand their scope and perform work for the remaining $15,000 of IT audit budget. Lynn added that the new audit software had also been removed. She noted that there would have been a learning curve; the current audit program had just been improved by the addition of electronically linked files. The new software would have also provided for automating audit finding follow-up. Tim asked if Internal Audit ever follows up on the external audit findings. Lynn replied most external audit findings have already been addressed by the time the audit report is issued. In the case of the audit finding in the 2012 report, Community Development notified the external auditors of the condition and knew that it needed to be corrected. It was not a condition that the external auditors found on their own with Community Development unaware of the problem. On another subject Tim mentioned that he had had a recent meeting with Wayne Wilkinson who is the CDE Power Board Chair. The discussion focused around the newly contracted external audit contract price. Wayne had reviewed the individual audit proposals and believed that the CDE work could have been performed by another firm whose proposal was lower than Crosslin s. Tim replied that while the firm (ATA) was lower the final selection process was all or nothing. Wayne is of the belief that the City should pay CDE for the cost difference; Tim countered by noting that Crosslin s price was still lower than what was currently being paid to Thurman & Campbell Group; the savings being about $40,000. Lance Baker (Legal) and the Mayor will wait for CDE and/or TVA to respond. Documentation may be needed. Tim noted that CDE probably couldn t get the other firm of ATA to perform because the work would have been piecemeal. B. Update external financial audit i. Interim testing underway The newly contracted external auditors Crosslin & Assoc. were here on site last week and will continue to be here for this week doing preliminary work. They will return again for further work after the books have been closed out. C. Update on annual audit plan external financial audit i. Jim leaving Payroll audits Jim s last AC meeting is today. The Transit Payroll is complete. Lynn and Jim met with Jimmy Smith (Transit Director) recently to discuss the audit report. Several things were discussed. There was a segregation of duties issue and a one week lag would improve 4

5 efficiency in calculating payroll especially for overtime worked. There is concern however by Lynn and others about employee acceptance of the lag. Lynn recommended a 1 time payment for the week (like a stipend or bonus). It would affect the fund balance but not cash and would need City Council approval. Jim is currently conducting the CGW payroll audit and should be completed with it before he leaves. No specific departure date is set but Jim believes it to be at the end of June. ii. Robin P & R Special Events During the audit it was noted that additional test work may be needed in regard to purchasing practices. iii. Lynn Senior Management Expense Audit iv. So far, there are not any issues. v. New Recruitment Lynn replied that she will begin the process with HR but that it may take a few months to fill the position. Lynn mentioned cloud technologies and agreements and that the City had no policy in that area. Several issues were noted and she will meet soon with the IT director and discuss them. Jim noted that a follow up for the Sewer Audit should be conducted and should be based on rates. (Joel departs 4:15 pm) Lynn reported that in last year s budget there had been an audit scheduled to review the City s insurance. Since that time the previous risk manager had engaged an external consultant to review the City s current coverage and needs. The consultant s report is due in the near future. VI. VII. VIII. IX. COMMITTEE ACTION REQUIRED CITY COUNCIL ACTION REQUIRED NEW BUSINESS ADJOURNMENT OF PUBLIC MEETING Tim asked for a motion to adjourn; Sonja made a motion and George 2 nd the motion; a voice vote was taken and motion passed. The public meeting was adjourned at 4:20pm. X. PUBLIC COMMENTS (5 minutes each) XI. NEXT MEETING The next regularly scheduled meeting is Wednesday July 31st 2013 at 3:00pm; City Hall 4 th floor Conference Room. Lynn will confirm the date with Al Irby and Joel Wallace. 5