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HomeMy WebLinkAbout2022-07-28 Audit Committee MinutesN OFHFgO Town of Reading Meeting Minutes xcoxva�xe Board - Committee - Commission - Council: Audit Committee Date: 2022-07-28 Time: 7:00 PM Building: Reading Town Hall Location: Address: 16 Lowell Street Purpose: FY22 Audit Results and FY23 Audit Planning Attendees: Members - Present: l F. Ir; L(r 2024 MAR 12 AM 10: 11 Phil B. Pacino, Tom Wise, Ed Ross, Mark Zarrow, Chris Haley and Stephen Herrick Members - Not Present: Shawn Brandt Others Present: Sharon Angstrom , Ed Boyd, Melanson Audit Principal and Zach Nowlan, Audit Lead Minutes Respectfully Submitted By: Sharon Angstrom Topics of Discussion: Mr. Ross called the meeting to order and suggested we take the agenda out of order to start with the results of the FY21 audit. Mr. Boyd introduced himself as a Principal at Melanson and introduced Mr. Nowlan as the Audit Lead on the engagement. He stated the audit went very well. There was no management letter and there were no significant deficiencies or material weaknesses, and no Management Letter was issued. Mr. Nowlan instructed the Committee to turn to page 2 of the financials which is the opinion page, this is where we make the statement that the statements are in alignment with Generally Accepted Accounting Principles. Mr. Nowlan also noted that GASB 84 was implemented in fiscal year 2021, which required the Town to record revenue and expenses for what was formally known as Agency funds, prior to GASB 84 all the activity went through the balance sheet. Mr. Nowlan stated that Ms. Angstrom implemented this change well and there were no Issues. He also noted that the Management Discussion and Analysis is found on page 5 of the financials, which talks about some of the key changes from year to year. A key to look at is the General Fund Unassigned Fund Balance change. Bond rating agencies focus on this figure. On page 10, you will note that the Unassigned Fund Balance went up by over $3 million, which is a very good sign. The number that Is also good to focus on is what the Unassigned Fund Balance is as percentage of General Fund Expenditures. Reading's Unassigned Fund Balance represents 21.25% of General Fund Expenditures, which is looked at very favorably and contributes to the Town's AAA bond rating. On page 99, you will note that the Town collected revenues $1,628,385 more that projected and on the expense side, the Town spent $3,054,058 less than budgeted, resulting in free cash regeneration of $4,682,443, which is contributed to the Town's conservative budget style and it this is looked at very favorably. Page I 1 On page 111, you will notice that revenues increased $3,116,384 over the previous year an increase of 2.9%. Expenses increased $3,431,543, an increase of 3.3%. These increases are positively correlated with one another. Mr. Herrick stated it appears that on page 111 employee benefits increased the most over the prior year with an increase of $1,010,067 does that include impacts for retirement and OPEB. Mr. Nowlan responded that it primarily has to do with the increase in the pension assessment and the increase in OPEB funding in FY21. Mr. Nowlan noted that the OPEB Trust Fund increased by $2.2 million of which $1.3 million was attributable to investment income. Currently the OPEB represents 12.87% of the OPEB liability. The Town's commitment to regularly fund OPEB is viewed very favorably. Mr. Wise noted that OPEB liability has significantly changed over the last five years. Ms. Angstrom stated that FY21 is the first year that we see the impact of a change that was made by the Town Manager and PEC to get our members who were over age 65 out of or BCBS and onto Medicare and into our supplemental Med Ex plan which is more cost effective for the Town and the members. This resulted in a younger demographic group in our BOBS in our plan which yielded lower premium increases and significantly lowering our overall OPEB liability. Mr. Nowlan mentioned that the Retirement System pushed out its fully funding date to 2031 from 2029. Ms. Angstrom explained that on the latest valuation, PERAC forced all the retirement systems to lower their discount rate to 7.0%. This added $10 million to the liability. The pension assessment was already going up 6.5% per year and since the Town was so close to fully funding, the Retirement Board was forced to push the fully funding date out from 2029 to 2031 to make the yearly assessment more affordable. Mr. Zarrow asked what happens when the pension is fully funded. Ms. Angstrom responded that the Town will always have to fund some amount after the pension is fully funded. She explained that most members contribute 9% plus 2% over $30k. As a result, most people will fully fund their own pensions. Their contributions plus the earnings made on those contributions in most cases will be enough to cover the member's entire retirement. The exceptions would be disabilities and group 4 employees such as firefighters, police officers and line workers who retire younger and are in retirement longer and thus may not fully fund their own retirement. The Town's intent is to redirect some of the savings on the pension assessment when we reach fully funded to OPEB to begin to fully fund the annual required contribution to fully fund within a specified period. Ms. Angstrom noted that OPEB funding is not mandated but the Town has been doing its best to fund OPEB each year as it is a large known existing liability. Ms. Angstrom also noted that our OPEB Trust is now invested in PRIT, which is where our pension funds are invested. Prior the OPEB funds had been invested by our Treasurer who is bound by the prudent Investment rules, limiting what he could invest in. Now the funds are invested in PRIT allowing them to be invested in various categories of investments. I expect to see higher returns than what we have seen in the past, which will help lower the OPEB liability faster. Mr. Nowlan asked the Committee to turn to page 15 as you will find in the Statement of Net Position. At the bottom of the page, you will note that the Governmental Unrestricted Net Position has a deficit of $52,922,798. This is attributed to the pension and OPEB liabilities which are currently approximately $85 million. Most if not all communities have a negative unrestricted net position currently due to unfunded pension and OPER liabilities. Reading is in line with its peers, and in many cases ahead most of them in managing and funding these liabilities. Mr. Nowlan states on page 68 you can see the performance of the retirement investments. Under investment income you will not the increase in fair value of investments was Page 1 2 $18,411,492 less management fees of $772,369 giving the retirement system net investment income of $17,639,123. On page 45-47, Mr. Nowlan, you will find the disclosures for long-term debt. Bond rating agencies look at this disclosure to make sure a community isn't over-extended. The Town has a very manageable debt level. You will note that all of the Town's Governmental debt is paid off by 2030, which Is looked at very favorably. The debt for the Enterprise funds is also favorable as 90% of the debt is paid off within 10 years and 95% is paid off within 15 years. Ms. Angstrom mentions that most of the Governmental debt will be paid off by 2025. The Killiam project has been approved for MSBA funding and the timing of that debt works out well as all excluded debt will be paid off prior to the start of this project. Mr. Zarrow noted that in December 2021 we issued $10 million of debt, what was the difference between the interest rate received and the coupon rate we will pay. Ms. Angstrom responded that the issuance was done at .87% interest rate. The Town received a large premium to pay the coupon rate of 5%. The difference in the actual rate and the coupon rate is paid for by the premium we received upfront. This is done to repackage the bonds for resale as a bond at .87% would be less attractive to investors. Mr. Wise asked if the premiums are put aside. Ms. Angstrom stated that we used to reserve the premium and amortize It over the life of the debt. Now we borrow less by the amount of the premiums received and use the premium to make the capital project whole. Mr. Herrick asked if we had any special areas of focus for this audit. Mr. Boyd responded that the area of focus for this audit was the building department processes and to look at the allocation of indirect costs from DPW to the School's End of Year Report. Mr. Boyd explained that they reviewed the methodology used to come up with the Indirect Cost allocations. The Town and School have a written agreement that details how costs will be allocated. We also reviewed the schedules to ensure that it is done as described. What they found is much of the data is done using actual data and the allocation was done according to the agreement. Mr. Herrick asked if we would do something similar to charge time spent on RMLD payroll and expenses back to RMLD. Ms. Angstrom explains that we bill RMLD for indirect costs related to Town salaries and expenses related to what the Town does to support RMLD. Mr. Herrick asked if they should make suggestions for departmental analysis for the FY22 audit. Mr. Nowlan suggested looking at receipts and how they are handled at Police and Fire as it hasn't been looked at in a while. A discussion ensued about departmental testing and many suggestions were made. The Committee decided to have Athletics and Police as the areas chosen for departmental testing for FY23. Mr. Pacino made a motion to accept the FY21 audit seconded by Mr. Wise. A roll call vote was done resulting in a vote of (6-0-0). Phil B. Pacino - yes Stephen Herrick - yes Mark Zarrow- yes Tom Wise- yes Chris Haley - yes Ed Ross- yes Ms. Angstrom mentions that the first set of minutes are for the Town Audit Committee meeting on June 16, 2021. The rest are old Audit Committee minutes from RMLD. There Page 1 3 were problems noted with the RMLD minutes as some were not noted as Audit Committee minutes. The Committee asked that RMLD update the minutes and come back to them. Mr. Wise mentions that the November 29, 2018, and May 23, 2019, are marked as RMLD and not Audit Committee if we choose to accept them, they should be Audit Committee meetings if the Audit Committee is to accept them. Mr. Pacino raised concerns about the accuracy of some of the minutes. The Committee agrees minutes will need to revised In order to be accepted. Mr. Pacino made a motion to accept the Minute lune 16, 2021, seconded by Mr. Herrick roll call vote (4-0-2). Phil B. Pacino - yes Stephen Herrick - yes Mark Zarrow- abstains (not present at meeting). Tom Wise- abstains (not present at meeting). Chris Haley - yes Ed Ross- yes Mr. Wise made a motion to table the RMLD Minutes from November 9, 2017, November 29, 2018, May 23, 2019, and July 16, 2020, seconded by Mr. Zarrow a roll call vote was taken (6-0-0). Phil B. Pacino - yes Stephen Herrick - yes Mark Zarrow- yes Tom Wise- yes Chris Haley - yes Ed Ross- yes At 9:15 pm, Mr. Pacino made a motion to adjourn seconded by Mr. Zarrow roll call vote (6- 0-0). Phil B. Pacino - yes Stephen Herrick - yes Mark Zarrow- yes Tom Wise- yes Chris Haley - yes Ed Ross- yes Page 14