HomeMy WebLinkAbout2021-05-19 RMLD Audit Committee Minutes"R'E'G'E I V E'0
Town of Reading TOWN CLERK
Meeting Minutes READING, MA.
2123 JUN 20 PH 2 05
Board - Committee - commission - Council:
RMLD Audit Committee
Date: 2021-05-19 Time: 5:30 PM
Building: Location:
Address: Session: Open Session
Purpose: Review 2020 RMLD Audit Findings Version: Final
Attendees: Members - Present:
Mr. Edward Ross, Chair, Finance Committee, Town of Reading; Mr. Shawn
Brandt, School Committee, Town of Reading; Ms. Carla Nazzaro, School
Committee, Town of Reading; Mr. Philip B. Pacino, Commissioner, RMLD; Mr.
John Stempeck, Commissioner, RMLD.
Members - Not Present:
Mr. Eric Burkhart, Finance Committee, Town of Reading; Mr. Mark Dockser,
Select Board, Town of Reading; Mr. Stephen Herrick, Select Board, Town of
Reading.
Others Present:
Presenting: Mr. Zack Fentross, Melanson; Mr. Andrew Gordon, Melanson.
RMLD Staff: Ms. Coleen O'Brien, General Manager, RMLD; Ms. Wendy
Markiewicz, Director of Business and Finance, RMLD; Mr. Greg Phipps,
Director of Integrated Resources, RMLD; Ms. Janet Walsh, Director of
Human Resources, RMLD; Ms. Kathleen Rybak, Operational Assistant to
Engineering & Operations, RMLD; Ms. Erica Morse, Executive Assistant,
RMLD.
Others: Mr. Christopher Haley, Select Board, Town of Reading; Ms. Sharon
Angstrom, Finance Director / Town Accountant, Town of Reading; Mr. Mark
Zarrow, Finance Committee, Town of Reading.
Minutes Respectfully Submitted By: Mr. Phil Pacino, Secretary Pro Team
Topics of Discussion:
Due to the pandemic and the March 12, 2020, Governor's Executive Order Suspending the
Certain Provisions of the Open Meeting Law, all participants attended remotely.
1. Call MeetinG to Order
Chair Ross called the Town of Reading Annual Audit Committee Meeting to order at
5:30PM.
Sub Committee Chair Pacino called the RMID Board of Commissioners Sub
Committee to order at 5:35PM.
2. OGenina Remarks
Mr. Ross opened the meeting by restating the purpose and agenda: to review the
RMLD 2020 Audit findings from Melanson.
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3. Introductions
Mr. Pacino initiated attendee introductions. Ms. Markiewicz welcomed the group and
introduced the presenters from Melanson: Mr. Zack Fentross, Audit Manager, and
Andrew Gordon, Audit Supervisor.
4. Calendar Year 2020 Audit Findings Melanson• Town of Readina's Audit Committee
Materials: Annual Financial Statements- December 31, 2020 (Draft dated May 12,
2021)
Presentation, PDF Document of Financial Report
Audit Findings Presentation: Mr. Fentross reported that the financial statements
would be presented in a comparative basis. Mr. Fentross noted that this was a result
of the department moving to a December 31 year end from a June 30 year end and
the implementation of GASB 74 and 75, which do not allow comparative statements.
The takeaway of the 2020 Audit Findings was that the department had positive
operating results; a well -funded OPEB Trust Fund; and there was no management
letter. Mr. Fentross reported that RMLD received a clean opinion; the best opinion
you can receive from an Independent Audit, and there are no exceptions. This
opinion is consistent with prior years (Independent Auditor Report Pages 1-2).
Mr. Fentross noted that (Management's Discussion and Analysis, Pages 3-7)
summarizes the results of operations and a few major financial areas; this section
touches on the same topics found in (Enterprise Fund -Statement of Net Position,
Page 8).
Mr. Fentross noted that the (Statement of Net Position, Page 8) is essentially a
balance sheet, and highlighted the assets, liabilities, and fund balance. These items
were consistent from CY19 to CY20. A few items had a decent swing from CY19 to
CY20: capital assets; net pension liability; net OPEB liability; electrical sales and
purchase power; and intergovernmental grants.
Mr. Fentross reported that the net of accumulated depreciation Increased from CY19
($2.4m). This Increase was a result of additions to capital assets ($7.3m), which was
softened by depredation expense ($4.7m). Some major capital Item additions in
CY20 were pole and fixture distributions; overhead conductors; underground
conductors and devices; and line transformers. (Enterprise Fund -Statement of Net
Position, Page 8)
Mr. Fentross noted that net pension liability represents the department's portion of
total unfunded liability for the Reading Contributory Retirement System as of
December 31, 2019 and is being presented one year in arrears (allowable per GASB
standards). There was a decrease in total net pension liability in CY20 ($2.5m to
$2.6m). The primary reason for the decrease is due to the Retirement System's
investment results for CY20 coming in greater than anticipated in CY19 ($10. im);
RMLD's benefit was about $2.9m. RMLD's proportionate share of total unfunded
liability is about 28%.
The Reading Retirement System is funded higher (78%) than the average seen in
the Commonwealth (66%). RMLD has money set aside ($6.6m) to help fund the net
pension liability and make contributions to the retirement system In the future.
These funds (Per GASB) cannot reduce the net pension liability. This is a strong
financial position for RMLD to be in. (Enterprise Fund -Statement of Net Position,
Page 8)
Mr. Fentross reported that the Net OPEB liability remains relatively unchanged from
CY19. This liability is actuarially determined to understand the future liability and
payments that RMLD will have to make for Health Insurance. RMLD has begun to
fund this liability ($7.166m; 38.62% of the Total OPEB Liability). RMLD Is in a
favorable position compared to Towns In the Commonwealth (average 0-10%
funded) and on the higher end compared to light departments (average 20%-40%
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funded). This data will be viewed favorably by users of the financial statements.
(Enterprise Fund -Statement of Net Position, Page 8), (Required Supplementary
Information- OPEB Page 44)
Mr. Fentross stated that the Net OPEB Liability is based on an actuarial valuation
reported June 30, 2018. GASB 74 and GASB 75 relate to this liability; GASB 75
states that the actuarial valuation must be within 30 months and one day from the
date of the financial statements, where GASB 74 states the actuarial valuation must
be within 24 months from the date of the financial statements. The presentation of
this liability is in accordance with the GASB 75 standards but Is not with GASB 74.
Mr. Fentross consulted Segal and determined that this fact would not have a material
Impact on the company's financial statements. From this determination, Melanson
concluded that It was not necessary to qualify their opinion or wait to receive an
updated valuation in accordance with those standards. After bringing this point over
to Ms. Kathy Riley, Senior VP and Actuary at Segal, Melanson formed the opinion
that it was a simple oversight.
Mr. Fentross recommended that a discussion take place between the town, RMLD,
the actuary, and Melanson to ensure that this situation does not reoccur and to find
a decision best for all parties Involved. One option worth discussion is to have a
separate valuation for RMLD. He recounted a conversation with Ed Boyd, Principal for
the Town of Reading's Audit, and stated that Mr. Boyd supported this option, which
he felt would allow for ease of financial reporting on the Town's financial statements
and provide clarification. Contrarily, Mr. Fentross recounted a conversation with Ms.
Riley who was unsure if that would be in the best Interest given certain factors. Mr.
Fentross did not want to speak for Ms. Riley further In this meeting.
Mr. Fentross reported a decrease in electric sales, net of discounts, ($2.6m) in
conjunction with a decrease of purchase power ($3.7m). In CY20 there was a
decrease in cost of power; the cost savings that RMLD saw as a result passed
through to the customer. These factors off set each other as they resulted in both
the decrease in revenue and expense. (Statement of Revenues, Expenses, and
Changes in Net Position, Page 9)
Mr. Fentross reported that the CY20 intergovernmental grant was primarily made up
of a State Grant for a battery project ($445k) and the remaining balance ($7K) was
CARES federal money. The department only received a small fraction of the funds
that were out there to ensure proper social distancing within the building and did not
receive any additional grants besides a small balance for COVID funding. (Statement
of Revenues, Expenses, and Changes in Net Position, Page 9)
Mr. Fentross reported that RMLD had positive cash flows from their operating
activities: RMLD used their operating activities on the acquisition and construction of
capital assets ($2.3m). (Statement of Cash Flows, Page 10)
Mr. Brandt asked about RMLD's Pension liabilities, to which Mr. Fentross clarified are
actuarially determined pension liabilities derived from the Retirement System (Not
the Town). Mr. Brandt asked a follow up question: In the same way that the
numbers here are not strictly in compliance with GASB 74, is that also true of the
Retirement System? Mr. Fentross responded that the net pension liability shown
here is governed by GASB 67 and 68 and Is in line with no issues.
Mr. Brandt asked a follow up question: Is it safe to assume that part of the
suggestion to separate out and do an actuary valuation of RMLD is rooted In the fact
that the applicable GASB rules are not consistent with one another? Mr. Fentross
responded that the recommendation is to ensure that this does not happen again;
there may be a year where the actuary would say that it does have a material impact
and Is not in line and then we (Melanson) would have to qualify our opinion. The
Intent is to keep the department away from having to qualify their opinion over a
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small Item such as a 20 -month difference in an actuary valuation and date of the
financial statements. Ms. Markiewicz stated that RMLD has had separate valuations
In the past (5-6 years ago) until it was decided to combine the valuation with the
town.
Mr. Ross asked about the consistency of the financial statements; Has there ever
been a time where the statements were inconsistent? Mr. Fentross responded that
the statements have been consistent year after year with RMLD. The only swings
that you will see year to year are the following: decrease in the cost of purchase
power passed along to the customer as well as with net pensions and OPEB liabilities
which can change dramatically depending on the market, which Is outside the control
of RMLD. (Enterprise Fund -Statement of Net Position, Page 8)
Mr. Ross asked about the Intergovernmental grants: Is the portion of the Battery
Project Grant (CY20) Included in the CY19 balance? Mr. Fentross responded that the
CY19 balance was primarily refunds from FEMA and MEMA for costs associated with
natural disasters that the department was being reimbursed for. Typically, that line
Item does not carry over year to year, usually varies, and is not consistent with the
same grant. Town financials will be consistent, but Light Departments vary with type
of grants or dollar amount received. Ms. Markiewicz agreed that the most consistent
items are FEMA and MEMA. Ms. Markiewicz noted that going forward it can be
expected that RMLD will get another grant for the battery storage: Mr. Ross asked In
addition to? Ms. Marklewicz responded yes as everything has a timeline.
Mr. Pacino made a motion that the Town of Reading Audit Committee recommend to
the RMLD Board of Commissioners they accept the audit as performed and as
presented by Melanson, seconded by Mr. Brant.
Motion Carried (4:0) (4 in favor, 0 opposed).
Mr. Pacino made a motion that the Audit Subcommittee of the RMLD Board of
Commissioners recommend that the RMLD Board of Commissioners accept the Audit,
seconded by Mr. Stempeck.
Motion Carried (2:0) (2 in favor, 0 opposed)
5. Motion to Adiourn.
At 6:OOPM Mr. Pacino made a motion to adjourn the RMLD Audit Subcommittee,
seconded by Mr. Stempeck.
Motion Carried (2:0) (2 in favor, 0 opposed)
At 6:02PM Mr. Pacino made a motion to adjourn the Regular Town of Reading Audit
Committee Meeting, Mr. Ross, Chair, agreed, seconded by Mr. Brandt.
Motion Carried (4:0) (4 in favor, 0 opposed)
The RMLD Audit Committee Meeting adjourned at 6:02 PM
As approved on June 15, 2023
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