2013-02-21 Audit Committee Minutes

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CEIVED aFR ^WN CLERK MrS . P 12:30 Audit Committee Meeting February 21, 2013 The meeting convened at 7:07 p.m. in the Conference Room, 16 Lowell Street, Reading, Massachusetts. Present were Assistant Chairman Barry Berman and Audit Committee members Camille Anthony, Rob Spadafora, Chuck Robinson and Stephen Herrick. Also present were Town Accountant Sharon Angstrom and Eric Demas, from Melanson Heath. Barry Berman called the meeting to order, and asked Eric Demas to review the annual Audit. Demas pointed out that the audit work went smoothly. Overall, the auditors were very satisfied with the audit process. There were no significant Audit Adjustments, no material weaknesses or deficiencies in Internal Controls, no disagreements with accounting standards. Key accounts such as cash, tax receivables and utility receivables were all reconciled timely. Demas went over the Management Letter which included three recommendations. The first was to enhance cutoff procedures as three invoices that were encumbered in FYI were processed on a FYI warrant. Demas pointed out that this was not a material issue as the funds were reserved in FYI but did not flow properly through the income statement. He noted that an audit adjustment was proposed to correct the statements to reduce the reserve for encumbrance and increase the expense. Demas also explained that the issues stemmed from a misunderstanding on how prior year encumbrances are treated in Munis when two years are open. Sharon thought that processing the invoice with a prior year PO would update the expenses and encumbrance in FY 12 but this is only true if the invoices are processed in a FY12 warrant and these invoices were erroneously processed on a FYI warrant. Steve Herrick inquired if the town has a policy for accruing expenses over a certain dollar threshold. The Town Accountant explained that POs are typically used to reserve the funds and had these invoices been processed on a FYI 2 warrant the problem would have been avoided. Demas stated that based on his conversations with Sharon he feels comfortable that she understands the source of the issue. He went on to comment that Sharon was easy to work with and has a strong foundation in municipal accounting. Demas also stated he was impressed with how quickly Sharon reviewed the draft financials and with the quality of the questions she asked upon her review. Demas went on to review the second recommendation to update the town's fund balance policy to comply with GASB 54, which Sharon has agreed to work on. Demas wrapped up the review of the Management Letter with the last recommendation to prepare to implement GASB 68 in FYI 5. He stated that this statement will require the unfunded pension liability to be shown in the financials. Currently, the unfunded pension liability is shown in the footnotes to the financial statements. Berman asked if the unfunded pension liability would affect the town's bond rating. Demas stated that bond agencies are aware of these figures as they are already in the footnotes. Anthony questioned what percentage of the pension liability is currently funded for the town. Demas stated that Reading is 68% funded and this is the range that the majority of towns fall into, but he has seen some communities as low as 50 %. As Demas began to review the financials Robinson inquired what level of scrutiny is applied when a key role such as the Town Accountant is transitioned to a new person. Demas stated the risk for the