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HomeMy WebLinkAbout2015-05-13 Audit Committee MinutesOP R i . Itis �{ ef9.1NC04P0� Town of Reading Meeting Minutes Board - Committee - Commission - Council: Audit Committee Date: 2015-05-13 Building: Reading Town Hall Address: 16 Lowell Street Time: 7:30 PM t�,ECE.iVE:D TOWN CLERK REr DING. M� SS. 1011 MAR 21 P 2-011 Location: Berger Room Purpose: FY15 Audit Results and FY16 Audit Planning Attendees: Members - Present: John Halsey, Jeanne Borawski, Phil B. Pacino, Paul McNeice, Mark Dockser and Stephen Herrick Members - Not Present: Chuck Robinson Others Present: Sharon Angstrom, Ed Boyd and Scott McIntire Minutes Respectfully Submitted By: Sharon Angstrom Topics of Discussion: Dockser called the meeting to order and asked the Committee if they had an opportunity to review the minutes from May 7, 2014. Pacino made a motion to accept the minutes as written which was seconded by Borawski. The Audit Committee voted 4-0-2 to accept the minutes as written. Dockser instructed McIntire to begin the review of the FY14 audit results. McIntire started by saying that in his opinion the audit went very well. He pointed out that no material journal entries were proposed and that the records are in good working order. He noted that the auditor's opinion is found on pages 1-3 of the financial statements. He stated the opinion is that the financial statements present fairly in all material respects, the financial position of governmental and business -type activities of the Town of Reading. McIntire then directs the Committee Members to turn to page 5 where the Manager Discussion and Analysis begins. He points out that this section gives a snapshot of the General Fund. It is a great resource as it summarizes the key elements of the General Fund. McIntire then points out on the top of page 11 the unassigned fund balance as of 6/30/14 was just over $11.4 million up $891k from last year but as a percent of expenditures it went from 12.4% to 13.2%. McIntire pointed out that this is a solid increase. He referenced a chart in the middle of page 11 that summarizes the balances of the stabilization accounts as of 6/30/14 as compared to 6/30/13 noting that the balances remain stable in these accounts. McIntire then pointed out that at the bottom of page 11 there is a chart that provides a 6 year trend analysis of general fund balance. For 2014 total fund balance was just over $15.8 million. The various components of the total fund balance are as follows rounded to the nearest thousand: Committed for Stabilization 365 Assigned for Encumbrances 2,034 Assigned for Subsequent Year Exp. 2,050 Page I 1 Unassigned 11,399 Total Fund Balance $15,848 McIntire then directs the Committee to turn to pages 15-17. He notes that the Statement of Net Position and The Statement of Activities provide a long term perspective. He points out on the Statement of Net Position the unrestricted is $1,847,841 which is up from $822,933 in the prior year. McIntire points out the most surprising thing on page 15 is that Reading's net position remains positive despite the OPEB liability being shown on the balance sheet. He directs the Committee to look at an OPEB chart on page 50. He points out that for the governmental funds $2,658,563 was paid in the form of payments of insurance premiums and that an additional OPEB contribution of $450,000 was made to the OPEB trust. Despite these contributions the OPEB liability still increased by $1,650,066. Dockser asked when the full OPEB liability would be shown on the balance sheet. McIntire state the change will likely take place in FY18. McIntire states that currently the pension liability does not appear on the balance sheet as the Annual Required Contribution is being funded. In FY15 the whole pension liability will appear on the balance sheet. Dockser points out that although this liability is not shown on the face of the financials, the liabilities are stated in the footnotes and the bond rating agencies know this information is there. Herrick clarifies that the change is forcing us to acknowledge this liability and that this change will not change the funding. McIntire confirms this statement. Dockser points out the pension will be fully funded as of 2028 which is a reasonable time frame. Halsey inquires how Reading compares to other communities in regards to pension funding. McIntire stated Reading is funding at a rate that is consistent with our peer communities. McIntire continued on page 18 stating that the unassigned fund balance is $11,398,537, up approximate $900,000 over prior year and 13% of the 2014 operating budget. McIntire also states that this is the first place the readers of the financial statements flip to. McIntire explains that unassigned fund balance is funds available for future use. He further explains that unassigned fund balance is not necessarily free cash; as DOR makes some adjustments. Stabilization funds are considered unassigned unless the purpose is specified. McIntire then directs the Committee to turn to pages 48-49 where the different types of fund balance is detailed out. He notes that the unassigned fund balance includes $1.5 million in stabilization funds. Assigned funds are encumbered funds or funds voted to fund next year's budget. Nothing in the General fund is classified as non -spendable. Restricted funds are federal and state grants and revolving funds. McIntire notes that there is a recommendation in the Management Letter regarding revolving funds. During the audit it was noted that many of the revolving funds carried balances in excess of 12 months expenses. The recommendation is to determine if the revenues and costs of these programs are properly aligned. Are we charging more than it cost to run the program? Are all the expenses related to these programs being charged to the revolving fund? Pacino inquired if this is an issue that FINCOM should look into and follow up on to Town Meeting? Angstrom explained that she and Ms. Sybert had investigated the source of this issue and determined the issue was determined to be not taking the total budgeted general fund support from these revolving funds. So essentially some of the expenses of the programs were charged to the general fund and not fully reimbursed by the revolving funds. Borawski asked how often we look at these revolving funds. Angstrom replied that they should be reviewed each year to determine the appropriate amount of support to the general fund to budget. Herrick inquired who sets the fees for these programs. Angstrom replied that most of the revolving funds with excessive balances are school revolving funds and that the school committee sets the fees for each of the related programs. The Finance Director, Ms. Sybert has agreed to make sure to take the budgeted support going forward to alleviate the issue going forward. Since Angstrom and Sybert had a plan in place to correct the revolving fund issue the Audit Committee agreed to wait until FY16 to audit these revolving funds to see if things are moving in the right direction. Page 1 2 McIntire then began reviewing the Management Letter with the Committee. He began by stating that there were no significant weaknesses. The comment from the prior year to update the existing fund balance policy has not been resolved as of yet. McIntire stated that updating fund balance policy will provide spending prioritization. For example you have a new library project and you may be receiving a grant, there may be debt and free cash. The fund balance policy would make it clear the order in which the money is spent, i.e. grant funds first then debt proceeds then free cash. McIntire explains that having a fund balance policy in place helps to perfect the classification of fund balance at year end. Herrick inquired how this is being done in the absence of an approved policy. McIntire stated the methodology currently is to use the most restricted funds first. Herrick then asked if having such a policy would tie our hands in some cases. Halsey clarified that establishing a fund balance policy doesn't handcuff us as it is an internal policy. McIntire confirmed that if the BOS decided to vary from the policy as long as the decision was well documented no comment would be made by the auditors. McIntire stated the prior year management letter comment to improve internal controls over change orders and adjustments has been resolved. He then points out on page 6 of the Management Letter is the revolving fund recommendation he mentioned earlier in the meeting to ensure proper allocation of expenditures. Pacino then moved to accept the Audit and Management Letter. McNiece seconded the motion. The Audit Committee voted unanimously (6-0) to accept the audit and management letter. The discussion was then shifted to areas of specific audit interest for the FY15 audit. Herrick inquired how the school field trip testing went this year. Boyd stated that discussions with Sybert and others seem to suggest the schools have adequate controls in this area. Dockser asked McIntire if he had any recommendations for departmental testing. McIntire stated that the GASB 67 audit guide will be out within the next month which would require census data testing. Dockser asked what specifically would need to be tested. McIntire stated that date of hire, age, and department would be tested for accuracy. McIntire then referred the members to a departmental testing listing that showed when each area had been tested. Halsey points out that it looks like it has been 5 years since ambulance has been tested. Dockser points out that Reading started using a 3 d party for ambulance billing. Halsey points out that school revolving funds and Athletics haven't been looked at in 4 years. Docker summarizes that Pension Census Testing, Ambulance and Athletics seem like good choices. McNiece inquires if the audit team has the capacity to take on all three. McIntire notes that the ambulance vendor NEMB has a SOC 1 Report. A SOC 1 stands for service organization controls. This report is done by a CPA firm and attests to the effectiveness of controls. McNiece says that given this report is provided he feels comfortable in not testing this area. McNiece mentions the Inspection Revolving fund is a good choice then points out that Athletics is higher risk as it is cash basis and inherently will not be the best system. After some discussion McNiece makes a motion to test inspectional services and Athletics. Pacino seconded the motion. The Audit Committee voted unanimously (6-0) to select these areas for departmental testing. Dockser noted he had the engagement letter for the FY15 audit. Pacino made a motion to accept the engagement letter, Herrick seconded the motion. The Audit Committee voted to accept the engagement letter (6-0). McNiece made a motion at 9:15 to adjourn seconded by Pacino. The Audit Committee voted to adjourn (6-0). Page 1 3