Audit Committee

MINUTES Audit Committee of Roanoke City Council Location: Council Conference Room Noel C. Taylor Municipal Building, Room 451 South Date: December 21, 2015 Time: 1:00 p.m. to 1:38 p.m. Attendees: Audit Committee Member Present (Y/N) Ray Ferris Y Court Rosen Y Anita Price Y David Bowers (ex-officio) Y Sherman Stovall, Assistant City Manager for Operations Amelia Merchant, Director of Management and Budget Dan Callaghan, City Attorney Drew Harmon, Municipal Auditor Brian Townsend, Assistant City Manager for Community Development Evelyn Powers, Treasurer Chris Morrill, City Manager Barbara Dameron, Director of Finance Dawn Hope Mullins, Assistant Municipal Auditor Tasha Burkett, Information Systems Auditor Rob Churchman, Partner, Cherry Bekaert, LLP Donald Deeds, Senior Audit Associate , Cherry Bekaert, LLP Wayne Parker, Senior Auditor Ann Clark, Senior Auditor Cari Spichek, Senior Auditor 1. Call to Order: Mr. Ferris called the meeting to order at 1:00 p.m. 2. Presentation of Audit Results for the June 30, 2015, Comprehensive Annual Financial Report: Mr. Churchman introduced himself, as well as Mr. Deeds and thanked the committee for their time. He briefly reviewed Cherry Bekaert’s communication requirements related to the audit. The Cherry Bekaert team is finalizing their audit; correspondingly, Department of Finance staff is completing work on the Comprehensive Annual Financial Report [CAFR]. It is a very thick, complex document which December 21, 2015 Page 2 of 5 incorporates a large number of accounting and Government Finance Officers Association [GFOA] certificate program requirements. Mr. Churchman and Mr. Deeds presented Cherry Bekaert’s communication with the Audit Committee for the fiscal year ended June 30, 2015. Mr. Churchman explained that these are standard communications as required by Generally Accepted Auditing Standards. He summarized the audit engagement, discussed service deliverables and reviewed audit results to date. Related to the City CAFR, they expect to issue an unmodified opinion. However, the following internal control weaknesses were identified: ∂ The City’s approach related to the year-end cut-off of accounts payable was not adequate to ensure payments related to prior year activity were being reported timely. Additionally, retainage related to construction contracts was not being recorded as a liability on City’s financial statements. Due to sizable dollar amount involved, Department of Finance staff appropriately decided to adjust the beginning liability balance instead of making the adjustment in the current year. This issue was identified as a material weakness, meaning that if the processes are not fixed they could lead to a material error in the financial statements. ∂ Revenue in the Stormwater Fund was not properly recognized or reconciled to the subsidiary ledger. Part of the issue related to accounts receivable and the necessary adjustments were made to the financial statements. This was considered a material weakness. ∂ There was an error in the calculation of available taxes which resulted in an understatement of revenues. This issue also affected the amount due to School Board. The necessary adjustments were made to the financial statements. This issue was identified as a significant deficiency, meaning that the auditors needed to make the governing board aware of the issue. ∂ Community Development Block Grant [CDBG] failed a required metric, designed to determine the timely use of funds. This was also noted as an audit issue last year, and the City has taken steps towards addressing the concern. Staff will continue to work towards 100% compliance. This was considered a significant deficiency, related to compliance. ∂ An absence of Workforce Investment Act monitoring procedures related to sub-recipient eligibility was identified. Monitoring was also noted as an audit issue last year. The City has worked on addressing this concern and will continue to work towards full compliance. This was considered a significant deficiency, related to compliance. ∂ There was an issue confirming that highway maintenance expenditures reported to the Commonwealth were related to eligible streets. This resulted in a potential questioned cost of $90,000, meaning the Commonwealth may find that this amount was not eligible for reimbursement. December 21, 2015 Page 3 of 5 Mr. Churchman stated that Cherry Bekaert is not aware of any City policy changes except those required by Generally Accepted Accounting Principles [GAAP]. Specifically, for Fiscal Year 2015, the City was required to report its net pension liability on the face of the financial statements. Estimates involved with financial statement preparation appeared to be reasonable and consistent with prior years. There were some additional smaller-dollar adjustments made during the course of the audit related to other post-employment benefit assets, tax revenues, debt refunding, and cash flow statements. Mr. Churchman reported there were no disagreements with management and that no difficulties were encountered with management or staff. Mr. Churchman re-affirmed Cherry Bekaert’s independence from the City. Mr. Churchman discussed future accounting standards, including Governmental Accounting Standards Board [GASB] Statement 72, which relates to assessing the fair value of assets and primarily affects Pension Fund reporting. Mr. Ferris asked is this pertains only to assets. Mr. Churchman responded that it could potentially relate to liabilities. GASB Statements 74 and 75 will require the City to disclose its liability for other post-employment benefits [OPEB] on the face of its financial statements at the end of fiscal year 2018. GASB Statement 77 establishes requirements for reporting tax abatements. The Standards Board recognized felt the footnotes should provide readers with a better understanding of the relationships in which a locality is involved. The standard is effective for fiscal year 2017. When asked if the requirement was for a summary footnote Mr. Churchman responded that a template is not yet available. He anticipates the note will include the amount of revenue that was given up and the benefits the locality expects to realize in return. Mr. Callaghan asked if GASB Statement 77 defined the term “abatement.” Mr. Churchman responded that due to the varying state and local laws the Board had been careful not to narrowly define the term. Mr. Callaghan asked how the City’s performance agreements might be treated. Ms. Dameron commented that she had passed some the City’s performance agreements along to Mr. Churchman and Mr. Deeds for their review and feedback. Mr. Morrill noted that these expenditures are all shown in the City’s budget document. Mr. Ferris asked if the CAFR would be completed and filed by the end of the year. Ms. Dameron responded that the City is required to issue by the end of the year for the GFOA certificate program. She affirmed the CAFR will be available for the next council meeting. Mr. Ferris commended Mr. Churchman and his team on a great effort and thanked him for identifying areas for improvement. Mr. Ferris also extended his appreciation to the entire City team for each person’s efforts in completing the CAFR and the audit. The communications were received and filed without objection. 3. Audit of Purchasing Cards: Mr. Harmon noted that the program has been in place since 2001 and there were approximately 679 active City purchasing cards at the time of audit. Cards were used to purchase goods and December 21, 2015 Page 4 of 5 services, as well as for travel. Municipal Auditing performed a statistically based sample of p-card purchases, excluding travel, meals, and training. These areas were excluded because they are well controlled. Purchases reviewed were appropriate and employees were following City policies. The only area noted as needing improvement was coding purchases to appropriate expense codes. Municipal Auditing also selected at sample of durable goods purchases and physically located the items. All purchases were confirmed, with the exception of three [3] grease guns that could not be matched to the vendor’s invoice. This equipment was associated with street sweepers; the shop had more than three [3] on hand. Additionally, the vendor representative stated that he entered random serial numbers on the invoice leaving no way to determine if the grease guns observed were those included on the invoice. Mr. Ferris was surprised at the dollar amount spent with NAPA. Mr. Harmon explained that they run the parts area of the Fleet shop and have a store embedded at the Public Works Service Center. The City paid NAPA by check until 2012. Mr. Rosen asked if the City receives a rebate from the bank for purchases with the p-card. Mr. Harmon confirmed that the City does receive a rebate. The report was received and filed without objection. 4. Audit of Parks & Recreation – PLAY Afterschool Program: Mr. Harmon stated that the PLAY acronym stands for Positive Learning and Adventure for Youth. The City operates this program at three [3] locations – Preston Park, Grandin, and Eureka, with 120 children enrolled. The program is well-regarded by participating families and there is currently a waiting list. It operates on school days from 2:30 p.m. to 5:30 p.m. and costs $25 per week. Municipal Auditing used a risk assessment approach when designing the audit and worked closely with management to identify potential risks, rank the risks and evaluate associated controls. This approach resulted in five [5] audit objectives covering parent/guardian contact information, release procedures, student monitoring, facility safety, and employee certifications/training. Mr. Harmon reported that part-time employees were well prepared and appeared to do a great job. They had received appropriate handbooks and training. The Parks and Recreation accreditation was also of great benefit for the PLAY program. Mr. Harmon noted that a few suggestions for improvement were made and management’s action plans were included in the back of the report. Ms. Price commented that she was glad to see the action plans. Having parameters in place to make sure the children are always safe is of paramount importance. Things sometimes get taken for granted and it is always good to make sure staff is up to speed in training and understanding these risks. The report was received and filed without objection. December 21, 2015 Page 5 of 5 5. APA Review of Commonwealth Collections and Remittances for the Year Ended June 30, 2015: Mr. Harmon reported that no issues were identified during the 2015 review. Ms. Powers added that the Treasurer’s Office and Clerk of the Circuit Court have been working together to successfully streamline the collection of certain Sheriff’s fees. The report was received and filed without objection. 6. Other Business: None noted. 7. Adjournment: The meeting was adjourned at 1:38 p.m. Drew Harmon, CPA, CIA Municipal Auditor Audit Committee Secretary