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HomeMy WebLinkAbout2015-03-25 Finance Committee Packet - Part 2Town of Reading Meeting Posting with Agenda , - i�E�ElYE13 i OWN CLERK 1_,"ONG, MASS. Board - Committee - Commission - Council: Finance Committee 1015 MAR 23 P 1! 114 Date: 2015 -03 -25 Time: 7:30 PM Building: Reading Town Hall Location: Conference Room Address: 16 Lowell Street Purpose: General Business Meeting Called By: Caitlin Saunders on behalf of Chairman Mark Dockser Notices and agendas are to be posted 48 hours in advance of the meetings excluding Saturdays, Sundays and Legal Holidays. Please keep in mind the Town Clerk's hours of operation and make necessary arrangements to be sure your posting is made in an adequate amount of time. A listing of topics that the chair reasonably anticipates will be discussed at the meeting must be on the agenda. All Meeting Postings must be submitted in typed format; handwritten notices will not be accepted. Topics of Discussion: 1) Vote Annual Town Meeting financial Articles, including the FY16 budget 2) Vote on April Special Town Meeting financial Articles 3) Approve Minutes a. March 11th 2015 This Agenda has been prepared in advance and represents a listing of topics that the chair reasonably anticipates will be discussed at the meeting. However the agenda does not necessarily include all matters which may be taken up at this meeting. Page 1 1 Powers & Sullivan, LLC Certified Public Accountants October 27, 2014 Town of Reading Town Hall 16 Lowell Street Reading, MA 01867 To the Reading Finance Committee: 100 Quannapowitt Parkway Suite 101 Wakefield, NIA 01880 T. 781 - 914 -1700 F. 781 - 914 -1701 www.power.sand- ullivan.com Thank you for the opportunity to provide a quote to conduct an agreed -upon procedures engagement relating to the procurement policies, procedures and activities of the Town of Reading, the Reading School Department and the Reading Municipal Light Department (RMLD). This letter is intended to confirm our understanding of the specific procedures that you would like us to perform. The engagement will be conducted in accordance with the attestation standards established by the American Institute of Certified Public Accountants. We understand that you are responsible for making all financial records and related information available to us and are responsible for the accuracy and completeness of that information. We agree that we will design our testing to verify compliance with Massachusetts General Laws (MGL) Chapters 30B, 149 and 7; the Office of Inspector General's publication "The Chapter 30B Manual: Procuring Supplies, Services and Real Property"; and any Town, School or RMLD internal procurement policies. Our primary focus will be related to the compliance procedures related to the disposal of surplus supplies, scrap, motor vehicles, machinery, equipment, tools, computer equipment, furniture and any other property with salvage value. We have not been requested to include the sale of real estate or buildings as part of this engagement. These procedures will be performed on the activity from July 1, 2012 through June 30, 2014. Our secondary focus will relate to reviewing the remaining internal procurement policies and make recommendations for improvements. We have not been requested to test any purchasing activity as part of this engagement. We expect to complete this engagement in phases and report back to the Finance Committee with a summary of findings at the end of each phase. Based on our initial findings, it will be the Finance Committee's choice whether it will be beneficial to continue to the next phase. As each phase is performed, we may suggest that it would be cost effective to add or remove procedures based on the results of our testing. The Finance Committee will be notified of any proposed changes and we will follow their decision. We will perform the following procedures deemed necessary and agreed to by you. Phase 1 In FY2014, the RMLD sold three vehicles that had been determined to be surplus property for a total of $350 to a sole bidder, an RMLD employee. It is our understanding that these transactions were subjected to an internal review that resulted in the employee returning the vehicles and required changes in certain policies. We have been requested to conduct an independent review of these transactions. Our procedures will include the following: Review the RMLD's written policies in place at the time of the sale related to the disposal of surplus property. • Review the Town's written policies in place at the time of the sale related to the disposal of surplus property. • Review the documentation that determined these vehicles were surplus. • Review the documentation that estimated the market value of each vehicle. • Interview RMLD management and employees that participated in these transactions. • Request permission from RMLD to discuss these transactions with their independent auditor. • Examine all documents related to these transactions. • Examine the process used by management to approve all elements of these transactions. • Review any independent review report on these transactions conducted by the RMLD, Town or Independent Auditor. • Read the RMLD board minutes that relate to these transactions. • Complete a report on our findings and recommendations. Our estimated maximum fee for completing these agreed -upon procedures is $5,000. Phase 2 The second phase of this engagement is to determine the scope of potential sales of surplus property for all Town Departments, the School Department and the RMLD for the two year period July 1, 2012 through June 30, 2014. Once the number, type and dollar value of the disposal transactions are identified, we will evaluate the risk associated with each department and transaction. We will report our findings to the Finance Committee along with our recommended procedures for Phase 3. Our procedures will include the following: • Develop a checklist/questionnaire to distribute to each department head to assist in documenting their disposal procedures; type of assets normally expected to be disposed; and to provide us with a listing of all surplus property sold, disposed or traded -in during the last two fiscal years. • Interview all department heads and their staff to discuss the completed checklist/questionnaire. • Provide each department, as needed, with any follow -up questions in writing based on the interview. • Review property insurance records for the last three years to determine if any equipment or vehicles were disposed of during the last two fiscal years. • Examine accounting ledgers for any miscellaneous revenue received for sale of surplus property. • Request records from the Chief Procurement Office and Procurement Office of all disposals of surplus property over the last two fiscal years. • Complete a report that summarizes the disposals we identified along with our risk assessment by department and type of disposal. We will select a representative sample of transactions we will be recommending to test for compliance in Phase 3. We will review our report with the Finance Committee to determine the scope of Phase 3 testing and actual agreed -upon procedures. Our estimated maximum fee for completing these agreed -upon procedures is $15,000. Phase 3 We will provide a listing to each department for any items selected for testing with a checklist of all documentation to be provided. The actual compliance tests will be tailored to each department and type of disposal. Until we complete Phase 2 we cannot definitively list the exact procedures but we expect these procedures to include the following: • Review the written procedures required for surplus property with an estimated value of less than $10,000. • Examine the supporting documentation for these types of disposals for compliance with the internal procedures. • If no internal written procedures exist, examine the process of how the surplus property was disposed against best practices. • Review the initial estimate of value is reasonable and is less than $10,000. • Trace all proceeds from the sale to a deposit recorded by the Treasurer and General Ledger. • Review the written procedures for surplus property with an estimated value of more than $10,000. For property with a resale or salvage value of $10,000 or more, Chapter 30B requires that either a sealed bid or public auction method be used. • We will examine the documentation to support these procedures and test, at a minimum, the following: • Required Notice of Sale • Required a Rule for Award • Advertisement of the Sale • Bid Opening Requirements • Public Auction Requirements • Online Auction Requirements • Recording the Sale or Sales Agreement Requirements • Non - collusion Form Executed • Trade -In Requirements • Complete a report to the Finance Committee on the results of our procedures. Based on the results, we will provide a recommendation to either stop testing or to expand the scope for additional testing based on our risk assessment. Our estimated maximum fee for completing these agreed -upon procedures is $15,000. The fee for our services is based on a blended rate of $150 per hour. This fee estimate is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the engagement. If significant additional time is necessary for any particular issue, we will discuss it with you and arrive at a new fee estimate before we incur the additional costs. We will schedule a time to complete this engagement at your earliest convenience. We appreciate the opportunity to be of service to you and believe this letter accurately summarizes the significant terms of the engagement. If you have any questions or comments, please feel free to contact me. If you agree with the terms of the engagement as described in this letter, please sign the enclosed copy and return it to us. Sincerely yours, iYXsi4 �- L &el Powers & Sullivan, LLC Accepted by: Town of Reading Agreed -Upon Procedures Engagement of the Reading Municipal Light Department Disposal of Surplus Property Powers & Sullivan, LLC Certified Public Accountants March 18, 2015 Town of Reading Reading Finance Committee Town Hall 16 Lowell Street Reading, MA 01867 To the Honorable Finance Committee: 100 Quannapowitt Parkway Suite 101 Wakefield, MA 01880 T. 781- 914 -1700 F. 781 - 914 -1701 www.powersandsullivan.com We have performed the procedures enumerated below, which were agreed to by the Reading Finance Committee, solely to assist the Committee with an evaluation relating to the sale of three surplus vehicles in Fiscal Year 2014 by the Reading Municipal Light Department (RMLD). We agree that we will design our testing to verify compliance with Massachusetts General Laws (MGL) Chapters 30B, 149 and 7; the Office of Inspector General's publication "The Chapter 30B Manual: Procuring Supplies, Services and Real Property"; and RMLD internal policies. The RMLD's management is responsible for the administration and system of internal controls surrounding these transactions. This agreed -upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of those parties specified in the report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. In FY2014, the RMLD sold three vehicles that had been determined to be surplus property for a total of $350 to a sole bidder, an RMLD employee. These transactions were subjected to several internal reviews that resulted in the employee returning the vehicles and required changes in certain policies. We have been requested to conduct an independent review of these transactions. The agreed- upon - procedures applied are listed below. • Review the RMLD's written policies in place at the time of the sale related to the disposal of surplus property. • Review the Town's written policies in place at the time of the sale related to the disposal of surplus property. • Review the new written policy for the Town and RMLD with respect to the disposal of surplus property. • Review the documentation that determined these vehicles were surplus. • Review the documentation that estimated the market value of each vehicle. • Interview RMLD management and employees that participated in these transactions. • Interview any third parties that may have knowledge of specific disposal transactions or other matters brought to the Town's attention. • Request permission from RMLD to discuss these transactions with their independent auditor. • Examine all documents related to these transactions. • Examine the process used by management to approve all elements of these transactions. • Review any independent review report on these transactions conducted by the RMLD, Town or Independent Auditor. • Read the RMLD board minutes that relate to these transactions. • Complete a report on our findings and recommendations on the following pages. We were not engaged to and did not conduct an audit, the objective of which would be the expression of an opinion on the sale of surplus property for the three vehicles. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of the Town of Reading and is not intended to be and should not be used by anyone other than this specified party. low 41��- i L4Z_ Powers & Sullivan, LLC Findings Our engagement with the Town of Reading's Finance Committee is to be conducted in three Phases. This report is only reporting on the agreed -upon procedures of one transaction while the following two phases will report on the disposal of surplus property for all departments of the Town. We reviewed an email from Dave Poison, RMLD Facilities Manager (who manages the Materials Manager and Purchasing Supervisor), dated February 25, 2014 to various RMLD employees that stated he was going to process three large bucket trucks vehicles as surplus vehicles in March 2014. Our review of the inventory records described them as follows: Vehicle #9 — 2003 International 40' Bucket Truck — Purchased 2/26/2003 - Original Cost $126,756 — Sold 4/9/2014 for $200 Vehicle #11 — 1999 Ford 55' Bucket Truck — Purchased 8/3/1999 - Original Cost $99,971 — Sold 4/9/2014 for $100 • Vehicle #44 — 2001 Sterling 55' Bucket Truck — Purchased 4/4/2001 - Original Cost $102,000 — Sold 4/9/2014 for $50 These vehicles were advertised for only one day on March 26, 2014 in the Daily Times Chronicle, which publishes in approximately 10 associated local community newspapers, and sold by sealed public bid on April 9, 2014 to an RMLD employee for a total of $350. After being informed by the RMLD legal counsel that MGL Chapter 268A, Section 20 prohibits the sale of these vehicles to an employee, the employee returned the vehicles and was refunded the $350. Chapter 30B Section 15 requires surplus property with an estimated net resale or salvage value greater than $10,000 be disposed of through competitive sealed bids, public auction or established markets while property with an estimated net value less than $10,000 is disposed of using the written procedures approved by the governmental policy. The RMLD was operating under Revision 3 of RMLD Policy #2 Surplus Material effective 7/21/2004. The stated purpose of this policy is to provide guidelines and policies in accordance with MGL Chapter 30B, Section 15 for the disposal of surplus, obsolete, salvage or beyond - repair property. When this policy was approved the estimated net value that required a sealed bid or auction was $5,000 until an amendment increased the value to $10,000 on July 1, 2013. Section II of this policy assigned specific responsibilities to both the General Manager and Materials Manager. The General Manager was only responsible for recommending any revision to the policy to remain in compliance with statutes and regulations. The Materials Manager was responsible for: 1. Organizing and coordinating all necessary actions to implement disposal of surplus property. 2. Maintaining accurate records of available surplus property, how it was disposed of and copies of all liability releases. 3. Providing a standard language "liability release" form for use by the RMLD in disposing of property via Policy Elements C, D and E. The policy places most of the responsibility on the Materials Manager however based on discussions with RMLD employees and review of the records Dave Poison, Facilities Manager, assumed these duties. The policy has specific elements that must be followed when disposing of a vehicle which are summarized as follows: 1. Vehicle value will be benchmarked by Kelly Blue Book. 2. Vehicles will be offered and made available to member Towns. 3. Towns will not be charged for the vehicles. 4. Any vehicle not taken by a Town will be disposed of by sealed bid. 5. The property will advertised to the general public of the four Towns. 6. The property will be made available for public viewing. 7. RMLD employees may submit a written sealed bid but shall receive no preference over the general public. 8. The property will be sold to the individual submitting the highest sealed bid. 9. If no bids are received the property will be considered scrap having no tangible resale or salvage value. Since the RMLD's policy stated it was following Chapter 30B and has a written policy, we reviewed the actual documentation to determine if the transactions were in compliance. The Facilities Manager indicated in the February 25"' email that the three trucks were surplus due to the arrival of the new vehicles. We requested any documentation that was available to support the decision to surplus these vehicles and were informed there was no formal evaluation done before the sales. We did review the documentation completed by various RMLD employees after the sales that indicated these vehicles were close to the end of their service life. Since these vehicles remained in service until the new vehicles were received, it appears that the purchase of the new vehicles was intended to replace the old ones. The lack of documentation on the capital replacement is not in compliance with the policy requirement to maintain accurate records of available surplus property. Once the trucks were determined to be surplus property, Chapter 30B Section 15 and the internal policy required the Facilities Manager estimate the net value. The Facilities Manager is no longer employed by the RMLD and therefore we were not able to discuss the disposal process with him. We did request from the current employees any documentation that supported an effort to value the trucks before the sale and were informed that they were not aware of any valuation. We reviewed documents completed after the sale that attempted to place a value on the three vehicles by the Facilities Manager. He stated in a July 1, 2014 email that each vehicle was closer to scrap value of $400 - $500. It appears as if the value placed on the vehicles was an attempt to justify the low value of the actual bids. We do not believe the additional documents we examined supported the scrap value valuation. The RMLD is currently in the process of disposing of these vehicles as of the date of this report. They have done their due diligence to obtain reasonable estimates of the net value and it appears that each truck is worth substantially more than the minimal amounts received. The value does not appear to approach the $30,000 to $40,000 estimated by correspondence received by the Town and RMLD from an anonymous source. When we reviewed the additional documents and reports prepared by Town and RMLD employees it was apparent to us that the Facilities Manager did not properly estimate the value. By not documenting the process used to value these trucks, the Facilities Manager was not in compliance with policy and law. If the value was properly estimated prior to the sealed bids, the Facilities Manager should have rejected the obviously low bids received from the RMLD employee. The next procedure in the RMLD policy was to offer each member Town the opportunity to acquire the vehicles at no cost. This step was properly completed and documented but none of the Towns expressed interest in the vehicles. The next step in the process was to solicit sealed bids. The RMLD was in compliance with Chapter 30B and internal policy to publish a notice of sale in a newspaper of general circulation in the Town's local jurisdiction two weeks before the bid opening. The notice included the statement that RMLD reserves the right to reject any and all bids in whole and in part. The vehicles were available for public viewing. All of these procedures demonstrated they were in technical compliance for a sale by sealed bid. This limited notice could not be expected to reach a broad base of individuals and companies that would increase the likelihood of receiving several bids for these unique vehicles. These are large 40' to 55' bucket trucks where the potential buyers are limited and are located in a large geographical area. It is common practice by other communities to advertise in trade magazines, on -line sites along with local newspapers and to expand the time between the initial notice and actual sale /action date. These practices reach a wide audience that will have sufficient time to examine the vehicles and prepare a bid. The purpose of Chapter 30B, Section 15 is to establish a process that increases the possibility an entity will receive maximum value when disposing of surplus property. By doing the bare minimum for this transaction, RMLD increased the possibility that only a limited number of potential bidders were aware a sale was occurring and minimized the possibility that they would receive several bids and good value. The form of the transaction may have met the requirements to be considered a competitive bid but the substance of the process along with the actual results points more toward this not being competitively bid. Recommendations We concluded that the old policies were not sufficient to provide adequate safeguards to ensure that the employees of the RMLD would process surplus property in accordance with Chapter 30B on a consistent manner. The actual procedures used by the employees to complete the transactions were not documented or approved in a manner that would result in the RMLD receiving adequate value. To address these deficiencies in both the policies and procedures, the RMLD commissioners and General Manager began the process of updating the policies and implement new procedures to correct these weaknesses. The new policy specifically prohibits the sale of surplus property to employees, commissioners and their immediate families. Although not specifically addressed in the policy document, we are aware that management has already required training in procurement and disposals to key employees and has indicated to us the intent to conduct these training sessions on an ongoing basis. Our main recommendation would have been to completely update the policy for disposal of surplus materials however the revision was completed in Revision 4 of RMLD Policy #2 Surplus Material effective 9/17/2014. If the procedures detailed in the new policy were followed for the three vehicles, then we believe the RMLD would have been in compliance with all applicable laws and regulations. The following recommendations have been adequately incorporated into the revised policy: • Require the General Manager approve the determination of surplus property along with the ultimate sale of the property. • Require each department to evaluate all property periodically to determine what is considered surplus. • Require documentation supporting the surplus determination be submitted to the General Manager for approval. • Expand the procedures required to estimate the net value. • Change the policy from donating surplus property to member Towns for free to allowing them the opportunity to purchase the property for the estimated fair market value. • Implement different procedures based on the estimated net value. • Rescind the policy that allows for employees to purchase the property. • Require documentation for all steps in the process and that all documentation is retained. The new policy document is broad in many respects and we recommend that the RMLD supplement this document with actual procedures handbook and checklists for specific transactions such as scrap metal. We are aware that RMLD has implemented ethics training, procurement training and has hired an experienced procurement professional that is charged with developing and assisting in the implementation of these new policies. They are currently in the process of selecting a company to conduct a complete fleet assessment who will evaluate all vehicle conditions, the number and type of vehicles needed, the means to reduce maintenance costs and to schedule retirements at the end of the useful life. Town of Reading Meeting Minutes Board - Committee - Commission - Council: Finance Committee Date: 2015 -03 -11 Building: Reading Town Hall Address: 16 Lowell Street Purpose: General Business Attendees: Members - Present: Time: 7:30 PM Location: Conference Room Chairman Mark Dockser, Members Peter Lydecker, Craig Merry, Paul McNeice, Marc Moll, Anne Landry, Vanessa Alvarado, and Karen Herrick Members - Not Present: Vice Chair Paula Perry Others Present: Superintendent of Schools John Doherty, Director of Finance of the Schools Martha Syburt, the School Committee, Barry Berman, Bill Brown, Nancy Docktor, and Administrative Assistant Caitlin Saunders Minutes Respectfully Submitted By: Topics of Discussion: Chairman Mark Dockser called the meeting to order at 7:30 PM. He explained tonight's meeting is to hear the school and facilities budgets. Dr. Doherty explained the School wanted to create a budget according to the goals of the district. The five goals being: 1) student learning, 2) professional practice, 3) student support, wellness, and safety, 4) resources and space, and 5) communication. He noted it is no secret Reading is at the bottom for per pupil spending. He also stated that our Chapter 70 aid is down since past years because our per capita income rose higher than the state average. That means we are not getting as much state aid as other towns that are spending more per pupil are getting. Dr. Doherty explained the Town already takes 53% of taxes and puts it towards the schools. Mr. McNeice asked how that compares to other towns. Ms. Syburt indicated she is not sure what percentage other towns take for the schools. She said the schools always return some amount of money and the drive of the budget is, as always, the salaries. She noted there was an increase in special education and they will be negotiating a new gas contract in June. Dr. Doherty explained some reductions in the budget are in substitute teacher and they are eliminating all non - mandatory bussing. The biggest decrease in the budget will be building the per pupil spending. He also wanted to point out that most of these solutions are a one year solution that they can't keep doing every year. He pointed out the majority of the costs are regular day needs and the list of unfunded budget requests is growing and they cannot replicate these reductions next year. Page 1 1 FINCOM Minutes 2015 -03 -I1 Page 2 Mr. Dockser noted Chief Cormier would like a second School Resource Officer (SRO) and asked if that was something the School Committee is interested in and willing to have conversation about. Chair of the School Committee Mr. Caruso said yes absolutely, the committee would love to start talking about that. Mr. McNeice asked if the list of unfunded requests is needs or more of a wish list. Dr. Doherty said they are doing other things to address the issues where cuts are being made and they are things they would love to do but can't because of the budget. Elaine Webb noted most of these things are only being done to meet the budget but they need to be done. Dr. Doherty explained this budget does not address long term improvements to the school district and if limitations exist in FY17 as they are in FY16, then they will be looking at staffing reductions. The School Department Facilities help maintain town buildings. Bill Brown wanted to know why the cemetery building is the only building not under the facilities department. Dr. Doherty and Ms. Syburt were both unable to answer that question and said that is a question for possibly the Town Manager. Ms. Syburt said she reached out to RMLD for an estimate on price increases to base the budget. She also noted their gas contract is up soon and they are hoping to lock in a low number but they are not sure right now what they are going to get. She said the budget saw a huge increase in gas usage at the DPW garage and she is trying to figure out why and what is driving that increase. Mr. McNeice asked when we increase sports fees do we see a decrease in participation. Mr. Caruso answered not yet, but they are keeping an eye on it because they do not want to push too much and have that happen. He also noted they try and make sure people know there is assistance for people who cannot afford the increased rate. Mr. Lydecker commented that they are on a 5 -6 year technology upgrade cycle and that is a long time in the technological world. He asked if there would be a significant increase money wise if they were to go to even say a 4 -5 year plan. Dr. Doherty said it would probably be about a $250,000 increase if he had to guess and noted they have talked about but it is just not doable with this budget. Mr. Moll asked if there were any opportunities to reach out to big companies to help provide new computers. Dr. Doherty said not to the point you would think, they invest more in programs they know will work. Ms. Herrick asked what the relationship between Reading COOP and the schools is because they have a branch inside the school. Dr. Doherty said they provide staffing help and we have students that work in the bank. He noted it was an arrangement that was set up years ago. Mr. Merry asked how we are doing with teacher turnover since we have lower paying salaries compared to other surrounding districts. Dr. Doherty explained it definitely does happen; teachers have left due to better pay in a different district however it is not a huge problem. School Committee leaves at 9:00 PM. Page 1 2 FINCOM Minutes 2015 -03 -11 Page 3 Mr. Dockser said next week the committee will be looking at the enterprise funds which should be fairly straight forward and quick. He told the committee that the 25th is the final vote so ask any questions before then. He then informed the committee that the subcommittee should be getting the phase one report back from Powers & Sullivan next week and they will report back to FINCOM as soon as they go over it. Mr. McNeice made a motion to accept the minutes from February 23 2015 second by Mr. Moll, and approved with a 7 -0 -1 with Ms. Herrick abstaining Ms. Landry made a motion to accept the minutes from October 29 2014 as amended, second by Ms. Herrick approved with an 8 -0 -0 vote. Mr. McNeice made a motion to adiourn at 10 PM, second by Ms Landry and approved with an 8 -0 -0 vote. Respectfully submitted, Secretary Page 1 3