Audit Committee

MINUTES Audit Committee of Roanoke City Council Location: Council Conference Room Noel C. Taylor Municipal Building, Room 451 South Date: June 6, 2018 Time: 4:04 p.m. to 4:55 p.m. Attendees: Audit Committee Member Present (Y/N) William Bestpitch (Chair) Y Anita Price (Vice-Chair) Y Michelle Dykstra (Member) Y Sherman Lea (Ex-Officio) N Drew Harmon, Municipal Auditor Bob Cowell, City Manager Dan Callaghan, City Attorney Brian Townsend, Assistant City Manager for Community Development Sherman Stovall, Assistant City Manager for Operations Amelia Merchant, Director of Finance Dawn Hope Mullins, Assistant Municipal Auditor Tasha Burkett, Information Systems Auditor Brian Pendleton, Senior Auditor Emma Coole, Senior Auditor Susan Lower, Real Estate Valuation Manager Margaret Lindsey, Accounting Supervisor 1. Call to Order: Mr. Bestpitch called the meeting to order at 4:04 p.m. and asked Mr. Harmon to introduce the newest member of the Auditing Department. Mr. Harmon introduced Brian Pendleton as the Department’s new Senior Auditor. Mr. Pendleton is a Virginia Tech graduate with a Master’s degree in Accounting. He is a certified public accountant and was most recently employed with Cherry Bekeart. Mr. Bestpitch welcomed Mr. Pendleton to the City. 2. Approval of the Minutes from the March 7, 2018 Meeting: June 6, 2018 Page 2 of 5 Mr. Bestpitch asked if there were any corrections to the minutes. Hearing none, the minutes were received and filed as written. 3. Purchasing Card Audit: Mr. Harmon explained that the audit began in early 2017 by a staff member who left last summer, creating a delay in completion. Staff worked with Fifth-Third bank to establish access to the City’s archived data, which was available retrospectively for three years from the time of the March 2017 request. During the scope of the audit, the City had over 600 active cards, as well as virtual cards used in the accounts payable process. Virtual cards are used in place of checks to pay invoices associated with purchase orders and contracts. The City spent approximately $10 million annually using its purchasing cards. The City’s auto parts supplier and jail food services provider accounted for over half of those total payments. No anomalies were identified during the course of the audit. User compliance was good, as in past audits. Mr. Harmon commented that there is an opportunity to do a lot more electronically with the Fifth-Third system, including electronic approvals and automatic review for out-of-the ordinary purchases. Ms. Price expressed her thanks to City staff for another clean audit. Mr. Bestpitch asked if a process for identifying transfers and terminations is in place to ensure purchasing cards are canceled timely. Ms. Merchant responded that departments are required to compete a checklist for transfers and terminations that includes canceling the employee’s purchasing card. Hearing no further questions, the report was received and filed. 4. Rehabilitation Tax Abatement Program Audit: Mr. Harmon began by noting that the per capita real estate value for the City compared to Salem and the County: - County = $93,538 - Salem = $86,779 - City = $72,796 The Real Estate Rehabilitation Tax Abatement Program has been assumed to be an effective tool for encouraging investment in improving real estate values. This audit was an attempt to quantify the impact of the City’s tax abatement program. Based on data from 2000 through 2017, real estate values for 776 properties increased by $245 million due to improvements linked to the abatement program. Approximately $25 million in taxes were abated June 6, 2018 Page 3 of 5 during this time. Additional taxes generated will exceed $40 million by the time the last abatement expires in 2032. This impact does not measure the effects of incremental growth after initial reassessments, or the influence on values of neighboring properties. The impact of the abatement program was also muted to a significant degree by the great recession that began in 2008. Participation in the tax abatement program was wide spread, with 90% of the City’s neighborhoods having at least one participating property. The Old Southwest neighborhood had approximately one in four homes participate in the program. Approximately half of the properties that participated in the abatement program increased in value by more than $100,000. More than half of the participating properties increased their assessed value by more than 100%. Mr. Harmon noted that Exhibit 11 of the report shows program participation by neighborhood and provides a good snapshot of the program. The abatement program will be evaluated for revisions and reauthorization in 2019. Mr. Harmon commented that properties should meet all code requirements to receive an abatement and that the Code Enforcement staff should verify compliance when rehabilitation work is completed. Mr. Harmon also noted that program application fees should be increased to more fully cover administrative costs. Mr. Bestpitch asked if there were any questions related to something other than the recommendations. There were none. Related to code enforcement inspections, Mr. Bestpitch asked if it is appropriate to have inspections at the beginning of the process as well as the end. Mr. Townsend confirmed that inspections should be performed at the beginning of projects so that owners have the list of deficiencies which must be addressed to qualify for abatement. Mr. Bestpitch asked if Council needs to take some action to require inspections. Mr. Townsend confirmed that a requirement for code compliance inspections would need to be part of the statute. Ms. Price asked who would verify that all required work was properly completed. Mr. Townsend explained that Code Enforcement staff would have to perform a pre and post rehabilitation inspection for codes compliance. This would be in addition to the Real Estate Assessment team performing their pre and post rehabilitation appraisals. Mr. Cowell commented that the program will be reviewed in more detail and additional changes will likely be identified. He suggests deferring piecemeal changes to the program now and adopting a comprehensive revision when the program is due to sunset in 2019. Mr. Bestpitch noted that the current program provides that an abatement can be taken away if the owner has delinquent real estate taxes. Ms. Lower responded that the code broadly applies this June 6, 2018 Page 4 of 5 requirement to any property the person owns, not only the rehabilitated property. This is difficult to monitor due to persons owning property under various management companies and LLCs. Real Estate Valuation currently creates a report each year that identifies properties receiving an abatement that have unpaid real estate taxes after the April deadline. Owners receive letters and phone calls to alert them to the potential loss of their abatement if taxes are not paid by June 30. Mr. Bestpitch suggested that the code be amended based on practical considerations of cost and ability to enforce compliance. Finally, Mr. Bestpitch commented that the abatement program provides intangible benefits to the community as a whole. Ms. Dykstra agreed and complimented Ms. Lower’s administration of the program. Hearing no further questions, the report was received and filed. 5. Revenue Project Update Mr. Harmon noted that the software contract was signed in early March and that the base system has been installed. The City’s subject matter experts have begun familiarizing themselves with the software and have begun preparations for configuration and data conversion. The vendor began working on business process reviews (BPRs) in April. These reviews are a key element in configuring the system to meet the City’s functional requirements. It is also an opportunity for the City to adapt its processes to promote efficiency, better customer service and more effective administration. BRPs are expected to be completed by the end of August. City staff have been working to clean up the City’s legacy data in preparation for moving the data into the new system. This is one of the most difficult and challenging aspects of the project. The City team started with business license data. The work has gone well to date and team members are optimistic. Ms. Dykstra commented that she is amazed by the length of the process and is grateful that it is finally being done. Mr. Bestpitch asked if there is anything that needs the Audit Committee’s attention. Mr. Harmon had no requests of the Committee at this time. Hearing no further questions, the update was received and filed. 6. Hotline Update Mr. Bestpitch asked if the reporter who had the procurement concern (#17-304) was notified of the outcome. Mr. Harmon responded that the reporter had visited the Auditing department and was briefed on the outcome. Mr. Bestpitch asked if improvements to the procurement process were under review. Mr. Harmon confirmed that the concerns were reviewed with Purchasing and that opportunities for improving were recognized. Purchasing will be subject to future audits. June 6, 2018 Page 5 of 5 Ms. Price asked if the ethics issue (17-307) had been addressed with the employees involved. Mr. Harmon responded that management was aware of the situation prior to the hotline report and had appropriately addressed it with the employees. Mr. Harmon commented on reports that were forwarded to the Police Department, noting that Auditing reviews the persons named in these reports to verify they are not City employees. Auditing posts follow up comments in the hotline system to let reporters know the information has been sent to the Police Department. The last item on the hotline report was a concern about drivers for the Solid Waste Division receiving pay for hours not worked (18-309). Auditing confirmed that drivers were allowed to leave before the end of a shift once all routes were completed. Based on discussions with City management and the City Attorney’s Office, as well as practical considerations, Auditing concluded the practice was reasonable. City management is expected to monitor route times and periodically re-evaluate staffing levels. Mr. Bestpitch commented on the importance of Solid Waste services and the value of the employees providing those services. Citizens count on those employees to provide this weekly service. Sensible practices for managing schedules and routes are worthwhile and appropriate. Hearing no further questions, the update was received and filed. 7. Other Business: None. 8. Adjournment: Mr. Bestpitch adjourned the meeting at 4:55 p.m.