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HomeMy WebLinkAbout2019-05-23 RMLD Board of Commissioners Minutesor °. Town of Redding I. -r >.�: Meeting Minutes re, ��+IKoar°PP Board - Committee - Commission - Council: RMLD Board of Commissioners Date: 2019-05-23 Time: 06:00 PM TOWNEIVEU CLERK READING, MA. 2122 JUN 20 PM 2:06 Building: Reading Municipal Light Building Location: General Managers Conference Room Address: 230 Ash Street Session: Open Session Purpose: General Business Version: Final Attendees: Members - Present: Philip B. Pacino, Commissioner, Thomas O'Rourke, Commissioner; Members - Not Present: Others Present: RMLD Staff: Coleen O'Brien, General Manager; Wendy Markiewicz, Director of Business, Finance and Utility Technology; Tracy Schultz, Executive Assistant Melanson Heath & P.C.: Zackary Fentross, CPA Town of Reading: Mark Dockser, Audit Committee, Stephen Herrick, Audit Committee, Eric Burkhart, Finance Committee Minutes Respectfully Submitted By: Philip B. Pacino, Chair Topics of Discussion: Call Meeting to Order Mr. Pacino called the meeting to order. Review December 31, 2018 Audit Findings with Melanson, Heath & Company, PC and the Town of Reading's Audit Committee (Attachment) Mr. Fentross, from Melanson & Heath, introduced himself and explained his firm conducted a six-month audit for the period ending December 31, 2018. Mr. Fentross stated that the Financial Statements for light departments are typically presented on a comparative basis however, not this year because the Income Statement Revenues and Expenses are only reflective for a six-month period. In December 2020, the audit will be presented on a comparative basis when there are two full years to present. Mr. Dockser clarified this audit Is it for the second six months? Mr. Fentross replied that this is the first and only six-month audit. Mr. Fentross explained that the last audit was July 1, 2017 to June 30, 2018. This audit is from July 1, 2018 to December 31, 2018. Ms. O'Brien pointed out that from a kilowatt sales standpoint, the audit ending on June 30, 2018 will reflect different sales, due to more air conditioning, peak and cooling days, it will not be an even split. Mr. Fentross added that you will see swings due to the six-month timeframe and he will provide Illustrative examples. Mr. Burkhart asked are there particular issues that may be highlighted In the audit presentation whereas, not having a comparable Page I 1 is odd. Mr. Fentross stated that the differences will be pointed out throughout his presentation. Mr. Fentross stated that the RMLD had positive operating results and a well -funded Other Post -Employment Benefits (OPER) Trust Fund. The audit did not result in a Management Letter. The Department received a clean opinion, which is the best opinion that can be received from an Independent auditing firm. It is the same opinion that the Department has received in prior years. Mr. Fentross then discussed the Statement of Net Position. The asset and liability figures from December 31 to June 30, for the most part, comparable. The number with the biggest difference between June 30 and December 31 is Unrestricted Cash and Short -Terre investments $20,832,000 representing a $8.4 million Increase compared to lune 30. Mr. Fentross explained that (this in part due to operations), the Department had a change in Net Position/Net Income of $4.9 million coupled with the timing on the Account Payables representing a $4.4 million increase from June 30. The reason this happened was due to large purchase power Invoices that were not paid, due to timing. Receivables for net of allowances for Uncollectibles, had a balance of $8,705,000 representing a $1.6 million decrease from June 30. This Is primarily due to the Department's calculation for unbilled revenues. When RMLD bills go out for July or January that represents activity that occurred in the prior month. The Department has a methodology in place for the value of these bills and how they should be allocated to the prior fiscal year. In July generally speaking, there is higher revenue. July bills include a lot of air conditioning use, the revenues that the Department receives in July are typically higher than the revenues received in January. Mr. Fentross then addressed the cash balance. Mr. Fentross explained that they looked at the Unrestricted Cash position of the $20,832,000 then add in the Receivable balance $8,705,000 then subtract the Accounts Payable of $9,718,000 comparing that to average monthly expenditures. We like to see the average of three months operating cash on hand. RMLD has about 2.5 months, cash on hand which up from June 30, 2018 the ratio was at 2.3 months, the Department Is trending in the right direction towards the 3 months operating cash on hand. Mr. Fentross then discussed Net Pension Liability, stating that it has a balance of about $10,781,000. It Is the same number presented in the June 30, 2018 Financial Statements. This represents the Department's portion of the Reading Contributory Retirement System total unfunded pension liability. The Department's portion of that total unfunded liability is about 29%. The contributory retirement system is about 79% funded. The average in the Commonwealth is 70%, Reading is above average In Its funding. Mr. Fentross reminded the Commissioners that the Department has set aside some funds to help fund the liability. The Pension Trust has a balance of $5,878,000. However, considering the funds set aside, the Department's true liability is about $4.9 million, the net effect of $10,781,000 less the $5,878,000. According to accounting standards, that cannot reduce the liability that is presented, because it is not in the control of the contributory retirement system. Mr. Fentross suggested not giving the $5.9 million to the retirement system because it will not decrease the liability for the RMLD dollar for dollar. It will decrease the liability for everyone equally. He suggested to keep the funds at the RMLD. It was asked if this Is common practice for other light boards to set aside their funds? Mr. Fentross replied that it Is not, RMLD is the only one that he audits that has a Pension Trust. Mr. Dockser clarified if there was a desire to raise funds such as bonding, would the bonding authority look at it that RMLD has a liability of $10.8 million, a Pension Trust of $5.8 million so it is $5 million. Mr. Fentross said that may require some clarification from management Page 1 2 to walk the bonding company through that. Mr. Dockser commented that from a legal point of view the Pension Trust is for the pension, Mr. Fentross concurred. The liability did not change and there are two options that were discussed with management. The Department could present this liability as of December 31, 2017 and be within the accounting standards or present it as of December 31, 2018 - however, the audit and figures would not be available until the future. Mr. Fentross stated that management decided they did not want to wait therefore the numbers did not change from June 30 to December 31. With the retirement system, they are going to have to change their methodology for their valuation. They will be working on a prior valuation but are moving to a current valuation so there will be no Issue moving forward. They have been in contact with the Town of Reading, its actuary, auditors, and everyone is on the same page. Mr. Fentross then discussed the net Other Post Employment Benefits (OPEB) liability, which has a balance of $7,374,000, there was an increase of $216,000 from June 30, 2018. Mr. Fentross reported that the actuary issued a separate Governmental Accounting Standards Board Statement Numbers 74 and 75 specifically for the Department. Originally the actuaries comingled the Town of Reading and RMLD together and issued this as one report for June 30. 2018. The actuary issued a separate report for the December 31 year end. There was an Increase In the net liability due to poor investment results. The assumption was the earnings on those assets sitting in the OPEB Trust Fund were expected to be $200,000 whereas $40,000 was earned. The $160,000 less than the anticipated projection resulted in the increase in that liability. Mr. Fentross said that the Department does have a well -funded OPEB Trust Fund at 33%. Mr. O'Rourke clarified the $200,000 what was the percentage of earnings anticipated. Mr. Fentross responded, 7.5% rate of return. Mr. Fentross stated that one of the questions is why the 7.5% rate of return valuation utilized. Mr. Fentross noted that he went back over Governmental Accounting Standards Board Statement Number 74, paragraph 52 states that the discount rate should be based off current and future Investment earnings. Mr. Fentross stated that they spoke with the Town of Reading, Ms. Angstrom the plan is ultimately to put those funds in with PRIT. If the funds are with PRIT the 7.5% makes sense. Using the 7.5% discount rate is in conformance with Governmental Accounting Standards Board Statement Number 74, paragraph 52. Mr. Fentross said that 7.5% makes sense to him with the expectation that the Town will be moving those funds Into PRIT. Currently the funds are in a MMDT earning less than 1% with a CD the earnings would be 2.3%. Mr. Fentross then addressed the next question is there any benchmark data available for the asset mix. Mr. Fentross performed extensive research and could not find anything. It is a fantastic question and the person to handle that question more effectively would be a financial advisor. The final question is what was the percentage of management fees that are charged on investments. Mr. Fentross performed extensive research but could not come up with anything firm. He performed an analysis comparing It to other clients by looking at their statements, the fees are not specifically laid out how they are being calculated within the information provided to him. He would defer to an investment advisor on how those fees are being charged and calculated. It is a fantastic question, but the ultimate Board of Trustees for the OPEB Trust Fund and financial advisor would be better able to answer that question. Mr. Dockser asked Mr. Burkhart if they should bring this to Ms. Angstrom, so she can approach the advisor, he agreed. Mr. Fentross said that there Is a Massachusetts general law that relates to OPEB Trust Funds that changed with the Massachusetts Modernization Act. It Is his understanding that the RMLD Board reauthorized the OPEB Trust Fund under that Massachusetts General law in April 2018. Part of the new requirements under the Massachusetts law is to have a formal trust document. He has been told that document is currently with legal counsel. The additional piece Is that there needs to be a Board of Trustees for OPEB Trust Fund. From what he understands, the Town is looking Into individuals who could be on that Trust Board. Pape 13 Mr. Dockser asked for clarification relative to the Accounts Payable. Mr. Fentross replied that there was nothing done incorrectly by the Department, it was a timing issue. Mr. Fentross then moved on to the Statement of Revenues, Expenses and Changes in Net Position. The figures presented are only for a six-month period. However, as part of the audit, the auditors doubled the six-month figures and then compared them to 12 -month periods: Fiscal Year 18 and Fiscal Year 17 were comparable. Mr. Fentross then stated that the change in Net Position has a balance of $4,891,000. There was a question because this was for a six-month period, whether the Department of Public Utilities (DPU) 8% rate of return applied for a six-month period, or should it be for 4% rate of return. He spoke with Paul Osborne, DPU Director of Rates and from the DPU's perspective 8% Is fine. The $4.9 million was compared to the rate of return for the Department, it comes in below 8%. The Statement of Fiduciary Net Position is where the OPEB Trust Fund Is presented. It has a balance of $3,561,000. In 2018, the total OPEB liability was $10,705,000. However, the Department has put aside $3,561,000 towards funding that liability, which leaves a total unfunded liability of $7,144,000. It is about 33% funded, which is a strong position for the Department to be In. When comparing the OPEB liability to towns, they are generally well below 10% funded. Other light departments are anywhere between 20% to 40%, to be at 33% Is a strong position for the Department. Mr. Fentross concluded by stating that the Department had positive operating results, has a well -funded OPEB Trust Fund, and there was no Management Letter. Mr. Dockser asked about the OPEB, the schedule of contributions what is the formulation for what that contribution is going to be because it is not an actuarially determined number. Mr. Fentross said that the Department wants to fund what Is actuarially determined. There was a bit of confusion in 2017 as to what was to be funded. There was a contribution excess in 2018 to cover the deficiency in 2017. Ms. Marklewicz said that we had an old actuarial report that we were using, there was not anything new. When the report was updated, the fund was higher than what was paid. This past year, RMLD funded what it missed last year. Mr. Dockser said that the goal would be what is actuarially determined. Mr. Fentross explained that the actuary determined that contributions should match what was actually contributed in full. Mr. O'Rourke asked Mr. Fentross if there were any recommendations. Mr. Fentross responded that there is nothing to be presented in a Management Letter and there were a couple of verbal recommendations. Mr. Fentross noted that any verbal recommendations Ms. Markiewicz corrects Immediately and does a great job to ensure internal controls are up to par and are operating appropriately. Ms. Markiewicz added that she Is always trying to make improvements. Mr. Paano made a motion seconded by Mr. Dockser that the Audit Committee accept the Audit Report as presented. Motion carried unanimously. At this point in the meeting Mr. Herrick arrived apologized for being so late. Mr. Fentross recapped the findings presented earlier in this meeting to Mr. Herrick. Mr. Fentross added that he is not recommending to present comparative again because the figures in this report on the Net Income side are for six months therefore not comparable for a full year. Mr. Herrick asked that there will be no effort to make a representative year. Mr. Fentross said that it would not be a correct accounting approach to show the full year. The year that was audited is six months. Mr. Pacino suggested looking at the Statement of Net Positions that would be comparable. Mr. Fentross said that he will Investigate it, he is not sure if it is appropriate to present it on a comparative basis and the other schedule on a non - comparative basis. If allowable will bring it to management's attention. Mr. Herrick commented that would be helpful to see that you are trying to capture the trend. Mr. Page 14 Fentross noted that in addition to the Income Statement side of the equation, essentially It was doubled up. In our audit workpapers to make sure that figures where comparable work was performed to ensure what was to be expected for a full year, they looked at 2017 and 2018. Mr. Herrick asked if there was seasonal fluctuation. Mr. Fentross replied that was a little bit of this effecting unbllled revenues. It affects the receivables as opposed to the revenues side. Bilis go out in July for activities that take place in June. In July there Is an increase in revenue due to the customers using a lot of air conditioners. There was a higher calculation for that Unbilled Receivable. It is generally recorded on the June 30 Financial Statements. When the Department moved to December 31, now that calculation is being billed off of January bills, but those bills do not have the air conditioning component. Those revenues were a bit less. This represents a seasonal fluctuation. It was a $1.5 million swing between them. Mr. Fentross concluded that the Department is in a strong financial position. Positive operating results of approximately $4.9 million over the six-month period. The OPEB Trust Fund is well funded at approximately 33%, most towns in the Commonwealth of Massachusetts are below 30% comparative to other light departments that are at 25% to 40%, RMLD's is in the middle of this. There was no Management Letter. Ms. Markiewicz added that Mr. Fentross and his team do a great job. Mr. Fentross said that from his previous statements that Ms. Markiewicz and her team are always well prepared which makes the audit process smooth as possible and extended his thanks. The general ledger is in good working condition and Ms. Markiewicz is held in high regards for being prepared before her contemporaries. Ms. Markiewicz thanked the management staff as well. Motion to Adjourn Mr. Pacino made a motion seconded by Mr. O'Rourke to adjourn the meeting. Motion carried 2:0:0. As approved on lune 15, 2023 Page 1 5