Audit Committee

MINUTES Audit Committee of Roanoke City Council Location: Council Conference Room Noel C. Taylor Municipal Building, Room 451 South Date: December 16, 2019 Time: 1:00 p.m. to 1:40 p.m. Attendees: Audit Committee Member Present (Y/N) Anita Price (Chair) Y Michelle Davis (Member) Y Sherman Lea (Ex-Officio) N Joseph Cobb, Vice-Mayor Drew Harmon, Municipal Auditor Dan Callaghan, City Attorney Bob Cowell, City Manager Sherman Stovall, Assistant City Manager for Operations Brian Townsend, Assistant City Manager for Community Development Amelia Merchant, Director of Finance Dawn Hope Mullins, Assistant Municipal Auditor Tasha Burkett, Information Systems Auditor Cari Spichek, Senior Auditor Emma Coole, Senior Auditor Brian Pendleton, Senior Auditor Steve Martin, Director of Human Services/Social Services Vanessa Bohr, Director of Technology Mary Talley, Accounting Supervisor Brian Mann, Enterprise Administrator John Aldridge, Partner, Brown, Edwards & Co Jamie Brooks, Park Roanoke General Manager 1. Call to Order: Ms. Price called the meeting to order at 1:00 p.m. and welcomed everyone. December 16, 2019 Page 2 of 5 2. Approval of the Minutes from the September 4, 2019 Meeting: Ms. Price asked if there were any questions or corrections to the minutes. Hearing none, the minutes were received and filed as written. 3. Presentation of Audit Results for the June 30, 2019 Comprehensive Annual Financial Reports: Ms. Price recognized Mr. Aldridge for comments. He began by explaining that his firm serves as the City’s external auditors and their goal is to opine on the annual financial report. He referred committee members to the Fiscal Year 2019 Comprehensive Annual Financial Report [CAFR] for further discussion, as follows:  Page 19 – Independent Auditor’s Report – This report serves as the external auditor’s stamp of approval. The City received an unmodified, or clean, opinion.  Page 23 – Management’s Discussion and Analysis – Staff prepares this analysis and it includes a lot of valuable information. The auditors make sure it is correct.  Page 37 – Statement of Net Position – This statement is prepared on a full accrual accounting basis. Mr. Aldridge reviewed the various reporting categories. He also noted that the School Board and Greater Roanoke Transit Authority [GRTC] have their own stand-alone audit reports and external audits [including federal grant testing], which were also conducted by Brown Edwards.  Page 40 – Balance Sheet, Governmental Funds – Mr. Aldridge reviewed general fund assets, liabilities and fund balance. He explained the differences amongst the various categories of fund balance and noted that the unassigned category is the piece the City would want to grow. Brown Edwards staff compared the unassigned balance to expenditures and noted that, if everything stopped, the City has approximately 1.7 months of spending reserve. By comparison, the City of Lynchburg has approximately 1.96 months and the City of Charlottesville has 2.5 months. Best practice is to have five [5] months in reserve; however, Mr. Aldridge reported that very few localities have met that goal. Brown Edwards will continue to monitor this ratio annually. Ms. Price asked if there were any questions. Hearing none, she thanked Mr. Aldridge for illuminating this item.  Page 45 – Statement of Revenues, Expenses and Changes in Net Position – Mr. Aldridge discussed that these funds should have user charges in place to cover costs; unlike general fund which receives general revenues, i.e. taxes. He reviewed fund operating incomes and losses and noted that transfers covered a large Civic Facilities operating loss. He noted that what is not captured in the statement is revenues received from hotel and sales tax generated by customers attending events. He added that very few localities have civic centers that generate a profit. December 16, 2019 Page 3 of 5  Page 159 – Budgetary Comparison Schedule, General Fund – This schedule reflects the actual results of the general fund compared to budget. Mr. Aldridge explained the different budget categories and reviewed the final budget to actual results. He noted that nothing jumped out at him and the fund ended the year pretty close to budget.  Page 195 – Statistical Section – This section includes a lot of trend and demographic information. Mr. Aldridge stated that it gives a real sense of what has happened in the last 10 years.  Page 202 – Changes in Fund Balances of Governmental Funds – Mr. Aldridge remarked that this exhibit includes a lot of helpful information, including a ten-year trend on fund balances. He noted that the City’s annual education expenditures have increased by $20 million since Fiscal Year 2009. While federal requirements have had changes over this time, federal funding has not significantly increased.  Page 219 – Schedule of Expenditures of Federal Award – This schedule reflects federal funds that flowed through the City is Fiscal Year 2019. Mr. Aldridge explained that Brown Edwards was required to test 40% of expenditures over a variety of programs. He repeated that School Board and GRTC federal expenditures are not included here.  Page 231 – Schedule of Findings and Questioned Costs – Mr. Aldridge reviewed the specific grant programs that were included in the audit program. The only finding was related to benefits recertification in the Medical Assistance Program. Related to compliance with Commonwealth of Virginia laws and regulations, the City had no findings.  Page 235 – Department of Finance Staff – Mr. Aldridge recognized Department of Finance staff for their hard work in preparing the CAFR and noted a special thanks to Dorothy Hoskins, Acting Accounting Supervisor, for her time and dedication. The CAFR was due to the APA by November 30th and everything was filed on time. Mr. Aldridge asked if there were any questions. Ms. Davis inquired as to whether there was anything of which they should take note. Mr. Aldridge replied there was nothing that concerned him. He reported that Brown Edwards also conducted the Pension Plan audit; those financial statements got an unmodified, or clean, opinion. Mr. Aldridge directed committee members’ attention to Brown Edwards’ Comments on Internal Controls document. He reviewed the issues identified on page three and noted none were considered material weaknesses or significant deficiencies. They were things found by Brown Edwards on which the City should do a better job. Information technology issues were identified on page five and Mr. Aldridge commented Brown Edwards has a Certified Information Systems Auditor on staff who would be glad to discuss the items further, if needed. The firm will follow-up on issues and report on their status next year. The final page included information about reporting requirements on the horizon. Related to required communications, Mr. Aldridge reported that there were no difficulties and no disagreements with management during the audit. There was only one audit adjustment identified by December 16, 2019 Page 4 of 5 Brown Edwards which had to be posted, which was done. Five additional adjustments were noted, but none were material to the financial statements. He also explained the representations required to be made by City management before an opinion can be issued. Mr. Aldridge asked if there were any questions. Ms. Price thanked Mr. Aldridge for walking them through the CAFR, pointing out noteworthy items and acknowledging those who worked so diligently. Ms. Davis added that she appreciates everything being filed on time. Both Mr. Aldridge and Ms. Price again thanked staff. Hearing no further questions or discussion, the reports were received and filed. 4. Family Services Investigation: Mr. Harmon advised that staff looked at the Fostering Futures Program, which provides assistance to youth between the ages of 18 and 21 transitioning out of foster care. Benefits include maintenance payments to assist with living expenses, as well as an annual clothing allowance. Based on a concern received by Auditing, program-related clothing disbursements were reviewed. Standards require purchases to be reasonable. One (1) of 25 purchases tested would not have met the standard in terms of appropriateness. Additionally, pre-approval for purchases was not obtained for seven of eight disbursements for which it was required. Management has an action plan to address noted issues. Ms. Davis asked if the department is under new management. Mr. Harmon responded that Steve Martin, Director of Human Services/Social Services, has been in place for a year or two. Mr. Martin confirmed that he has been serving in the position since 2017. Hearing no further questions or discussion, the report was received and filed. 5. Parking Key Deposits Investigation: Monthly parkers are required to pay a $10 deposit on key cards, which is refundable upon termination if timely notice is provided, the key card is returned and the account is paid in full. Based on Auditing’s review, about 35% of customers qualified for a refund. Of those, none received refunds within 30 days, as specified. Approximately 57% did not receive refunds. Management has a clear action plan, which includes moving away from the deposit program, as the cost of tracking information exceeds the value received. Ms. Price commented that there are a lot of hoops to jump through. Mr. Harmon noted a one-time activation fee will take the place of the key deposit. Ms. Davis asked if that means key cards would not have to be returned. Mr. Harmon confirmed this would be the case. Hearing no further questions or discussion, the report was received and filed. December 16, 2019 Page 5 of 5 6. APA Review of Commonwealth Collection and Remittances for the Year Ended June 30, 2019: Annually, the Auditor of Public Accounts [APA] audits Commonwealth funds processed by localities. The City had no findings for Fiscal Year 2019. There were no questions or discussion; the report was received and filed. 7. Revenue Analysis: Mr. Harmon participates with management on an internal revenue team. As a part of this, Auditing staff reviewed sales tax over time and assembled an analysis of total taxable sales dollars based on publicly available information. Last year, the City received over $22 million in sales tax revenue. Of note historically, it took until Fiscal Year 2018 for the City to reach pre-recession sales tax revenue levels. Mr. Harmon noted that some localities are growing faster with online sales, but recent sales tax trends looked good, even on a comparative basis. Real estate is the City’s largest tax and Mr. Harmon presented various analyses based on publicly available information through Zillow. He remarked that only residential information is included. It appears Roanoke is now a seller’s market, which is a good sign for increasing values. The results also reflect that the City is affordable. Hearing no further questions or discussion, the report was received and filed. 8. Other Business: The Audit Committee will meet on the following dates during Calendar Year 2020; March 4th, June 3rd, September 2nd, and December 9th. Ms. Price acknowledged and accepted Mr. Bestpitch’s resignation from the committee. She extended her appreciation for his services and noted there will be a new member in January. Ms. Price recognized Vice-Mayor Cobb and thanked him for attending. Ms. Price expressed her gratitude to everyone for their dedication and diligence and wished attendees an enjoyable and safe holiday season. 9. Adjournment Ms. Price adjourned the meeting at 1:40 p.m.