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Home My WebLink About2017-11-09 RMLD Audit Committee Minutesr �. Town of Reading Meeting Minutes Board - Committee - Commission - Council: RMLD Audit Committee Date: 2017-11-09 1YIR7<.Y#I�llu RECEIVED TOWN CLERK READING, MA. 2123 JUN 20 PM 2:06 Building: Reading Municipal Light Building Location: General Managers Conference Room Address: 230 Ash Street Session: Open Session Purpose: Review 2017 Audit Findings Version: Final Attendees: Members - Present; Philip B. Pacino, Chair, Audit Committee Chair; Dave Hennessy, Vice Chair, Secretary Pro Tem; Tom O'Rourke, Commissioner, Audit Committee Member; John Stempeck, Commissioner; Members-- Not Present: Dave Talbot, Commissioner Other Present: RMLD Staff: Coleen O'Brien, General Manager; Hamid Jaffan, Director of Engineering and Operations; William Seldon, Assistant Director of Integrated Resources; Wendy Markiewicz, Director of Business/Finance. Town Audit Committee Members: Peter Lydecker, Finance Committee; Stephen Herrick, Selectmen; Jeanne Borawski, School Committee; Philip B. Pacino, RMLD Guests: Frank Biron, Melanson Heath & PC, Zackary Fentross, Melanson Heath & PC Minutes Respectfully Submitted By: Philip B. Pacino, Audit Committee Chair Topics of Discussion: Call Meeting to Order Chair Pacino called the meeting to order. Ms. Markiewicz Introduced Zack Fentress, the Audit Manager in charge of the audit this year and Frank Biron, partner in charge of the audit. Everyone at the table introduced themselves. June 30, 2017 Audit Findings with Melanson, Heath & Company, PC and the Town of Reading's Audit Committee (Attachment) Mr. Biron explained that this year's financials were delayed because the actuaries now need to wait until after the Town's books are closed to complete their work. This is due to Governmental Accounting Standards Board (GASB) Statement 74, which applies to the accounting of other post -employment benefits (OPER). Mr. Biron stated that the independent auditor's report Issued the RMLD a clean opinion. This is the best opinion that you can receive in an independent audit. Page 1 1 Mr. Biron explained that the statement of net position, referred to as a balance sheet in the commercial world, has some changes from last year due to a new accounting standard. RMLD has its own pension trust fund; it's about $5.5 million that is set aside in a restricted cash account. In the past, as participants in the Town's contributory retirement system, RMLD would get a proportionate share of the overall liability of the Town's pension system. But then that $5.5 million would be subtracted from RMLD's liability to arrive at a lesser amount. GASB addressed the question, how do you handle situations when there is a separate pension reserve? Their response was that you do not use that to reduce liability, nor do you report it in a separate fiduciary fund. The net pension now includes the $5.5 million. Mr. Stempeck asked If this was done for transparency reasons? Mr. Biron explained It had more to do with how funds are transferred and paid out. Mr. Biron then stated that next year GASB 75 will require the liability from other post -employment benefits (OPEB) be reported on RMLD's financial statements. Mr. Biron explained the overall OPEB liability for the Department is $10 million, but the Department has $3 million set aside in a trust fund. In this situation, you get to subtract that trust fund, so the liability will show next year as $7 million. June 30, 2017 Audit Findings with Melanson, Heath & Company, PC and the Town of Reading's Audit Committee (Attachment) Chair Pacino stated we've known about this for a long time. Mr. Stempeck asked if that will change the discount interest rate? Mr. Biron answered that sinceRMLD has $3 million of the $10 million funded, the likelihood is that the discount rate that the actuaries use is based on the investment rate of return. When the actuaries did the evaluation for OPEB, they used a discount rate of 7.5 percent. That's something RMLD is going to want to address: RMLD doesn't want money sitting, earning less than one percent, while actuaries assume it's going to be earning seven and a half percent. Ms. Borawskl asked how the $3 million set aside to address the liability stacks up to similar municipal utilities. Mr. Fentross answered that, as of June 30th, 28.5 percent was funded. Compared to other towns, RMLD Is In a signiflcantly better position and is on par with other municipal light departments. Vice Chair Hennessy asked if it should be 100 percent funded. Mr. Biron replied that 100 percent would be the goal, but this is such a new issue that most municipalities, cities, and towns don't have money. Because of the new accounting standards this is out in the open now and raising discussions. Mr. Stempeck stated that every corporation is having the same issue. Vice Chair Hennessy clarified that no one is 100 percent funded? Mr. Stempeck said that It's rare, and it fluctuates with the interest rate. Mr. Biron added that its similar to pension liability; it is actuarily determined based on a discount rate and based on what the actual returns are. Mr. Stempeck asked how RMLD can get its investment dollars higher? Mr. Blron answered that RMLD could pool funds at the statewide level and Mr. Fentross added that some of the municipal light departments in the Commonwealth use MMWEC to invest. Mr. Biron stated that the Department is in a very strong financial position and in a better position than it was a year ago. The cash balance is $15.5 million, which is two months' worth of cash requirements. Receivables are $8.7 million. Seventy percent of that is an accrual of unbilled services provided through June 300. The rest is for billed and almost all of that is current. The Department does a very good job of managing receivables. Restricted cash totals $26.4 million and restricted investments total $2.6 million. Capital assets were $70.9 million last year and $74.8 million this year. This represents capital asset additions of about $8 million and a $4 million depreciation expense. The Department consistently invests in its Page 1 2 capital needs without bonding and uses its own reserves to fund capital additions; the Department has no debt. The Town's contributory retirement system is about 73 percent funded. This is better than most retirement systems in Massachusetts, which are in the 55-60 percent funded range. Vice Chair Hennessy asked why is it not a problem it isn't 100 percent? Mr. Blron answered because all contributory retirement systems in Massachusetts are on a funding schedule. It was on pay as you go, but then changed to an actuary schedule, but towns were given time to get there. Ms. Markiewicz stated she believes until 2028. Mr. Biron then moved on to the statement of revenues and change In position, otherwise known as the income statement. It is comparable to the prior year. Operating expenses were $14.3 million, which was an increase over the prior year of $12.9 million, because of the $1.2 million pension adjustment. The change in net position was $4.4 million. For a business, that would be the net Income for the year. Mr. Biron explained that the Massachusetts Department of Public Utilities (DPU) places limitations on the amount of net income. Maximum return on capital is 8 percent of fixed assets. Ms. Markiewicz stated that she had done the necessary calculations and 7.3 percent. June 30, 2017 Audit Findings with Melanson, Heath Q Company, PC and the Town of Reading's Audit Committee (Attachment) Mr. Biron asked Mr. Fentross to comment on the condition of the accounting records -Mr. Fentross stated that RMLD was well-prepared for audit. Seventy percent of clients get management letters and RMLD did not receive any. That's a great indication that things are taken seriously and that controls are in place. Ms. Markiewicz thanked Mr. Fentross for his diligence on obtaining the OPEB report. Mr. Herrick asked the auditors if they recommend getting more aggressive. Mr. Biron replied yes, if the actuaries are using 7.5 percent, you should try to achieve 7.5 percent. Ms. Borawski stated that two months' worth of cash feels low. Mr. Biron explained that its consistently there and doesn't fluctuate. The Department also has a lot of reserve cash if needed. Chair Pacino made a motion, seconded by Mr. Lydecker, that the Reading Audit Committee accept the Audit Report as presented, and recommend that the Board of Commissioners accept It also. Motion Approved: 4:0:0. Mr. O'Rourke made a motion, seconded by Chair Pacino, to accept the RMLD Audit Committee accept the Audit Report as presented, and recommend that the Board of Commissioners accept it also. Motion Approved: 2:0:0. Motion to Adjoum Chair Pacino made a motion to adjourn. Motion Approved: 4:0:0. Motion Approved: 2:0:0. As approved on June 15, 2023 Page 13