Audit Committee - RCPS

Minutes of the Roanoke City School Board Audit Committee November 5, 2019 Audit Committee Members: Bill Hopkins, Committee Chair - Present Laura Rottenborn, Committee Member - Present Others Present: Dr. Dan Lyons, Deputy Superintendent Kathleen Jackson, Chief Financial Officer Donna Caldwell, Director of Accounting John Aldridge, Partner - Brown Edwards & Company Drew Harmon, Municipal Auditor, City of Roanoke Cari Spichek, Senior Auditor, City of Roanoke Brian Pendleton, Senior Auditor, City of Roanoke 1. Call to Order Mr. Hopkins called the meeting to order at approximately 11:02 AM. 2. Presentation of Audit Results for the June 30, 2019 Comprehensive Annual Financial Report and School Activity Funds John Aldridge handed out the following reports:  Roanoke City Public Schools School Activity Funds “Comments on Internal Control and Other Suggestions for Your Consideration”  Roanoke City Public Schools School Activity Funds “Financial Report”  School Board of the City of Roanoke, Virginia (A Component Unit of the City of Roanoke, Virginia) “Comments on Internal Control and Other Suggestions for Your Consideration”  Required Communication with those Charged with Governance – for the Statement of Cash Receipts and Expenditures for RCPS School Activity Funds  Required Communication with those Charged with Governance – for the Financial Statements of the governmental activities, each major fund, and the remaining fund information of the School Board of the City of Roanoke, Virginia  School Board of the City of Roanoke, Virginia Component Unit of the City of Roanoke, Virginia Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2019 Mr. Hopkins asked Mr. Aldridge for his comments. Mr. Aldridge first spoke about the School Activity Funds, noting that auditors go out to each school and test receipts and to the Central Office to test disbursements. RCPS is the only school division he works with that runs activity fund disbursements through the Central Office; he commended management on this higher level of control. There were a limited number of exceptions related to pre-approval of expenditures and timely deposits. These types of exceptions are typical in most school divisions. Page 1 of 5 Audit Committee Minutes November 5, 2019 Mr. Aldridge stated that the opinion on the school activity fund statements was modified, as in past years, based on the nature of receipts. This issue is detailed in the management letter, along with other comments on internal controls. He also reviewed the “Required Communications with those Charged with Governance” document, stating there were no concerns noted. Ms. Jackson alerted members to a late change in the final management letter related to School Activity Funds. After additional research by Fiscal Services and Purchasing, the number of purchases cited as having been made prior to approval dropped from 11 totaling $45,619 to two (2) totaling $612. Mr. Aldridge then moved on to the CAFR, stating that his firm had issued an unmodified opinion (the best opinion available). He referred the committee to the Governmental Funds Balance Sheet on page 29, noting that the Food Service Fund Balance was $3.7 million and slightly in excess of the federal limit of three (3) months of operating expenses. RCPS has submitted a plan for using the excess funds, as required. Mr. Aldridge referred the committee to page 30 and noted that General Fund revenues increased ~ $7 million from the prior year, to $172 million. Expenditures increased ~ $10 million from last year to ~ $172 million. Combined with food services and grant funds, RCPS used around $3.5 million of its fund balance to cover expenses. The General Fund’s fund balance dropped from ~ $23 million at the end of FY18 to $19.5 million for FY19. Mr. Aldridge noted that expenses were up by $5 million in Instruction, $2 million in Administration, and $2 million in Operations, Maintenance and Plant. Transfers to from the General Fund to the Grant Fund were also up ~ $1 million. Mr. Hopkins asked Ms. Jackson what amount RCPS had budgeted to use from fund balance for FY19. Ms. Jackson responded that it was just under $6 million. Mr. Aldridge then directed the committee to page 116, identifying the Federal Programs reviewed this year were Special Education and the 21st Century Program. He stated that there were no findings at all in those programs. Next, Mr. Aldridge discussed the management letter, noting that there were two new comments this year. The first recommended RCPS review the procedures followed by purchasing cooperatives the division uses. The second related to new written procedures the federal government requires entities to have in place when spending federal dollars. Based on compensating controls RCPS had in place, the firm did not report this as a federal finding in the CAFR. RCPS will need to write specific and clear procedures that address each federal requirement. He recommended cross-referencing existing procedures to each federal requirement so RCPS can easily demonstrate compliance to federal regulators. Ms. Jackson pointed out that there is a difference between School Board Policy and RCPS internal procedures. School Board policies clearly state that we will follow federal, state and local regulations. Internal procedures will require more elaboration to demonstrate compliance with federal rules. She Page 2 of 5 Audit Committee Minutes November 5, 2019 plans to have Brown Edwards review revisions to ensure they are adequate. Mr. Aldridge noted that many localities will likely receive similar comments this year. Mr. Aldridge briefly discussed new accounting standards that will take effect in coming years, including one dealing with leases. Ms. Caldwell asked what impact Statement 84, Fiduciary Activities, would have on the school division. Mr. Aldridge responded that the impact is unclear at this time and that firms are waiting for the State to provide more guidance. This concluded Mr. Aldridge’s presentation on the audit. In wrapping up, he provided everyone a copy of an Association of Certified Fraud Examiner’s report focused on fraud specific to government. Mr. Hopkins asked if there were any further questions or comments. Hearing none, the reports were received and filed. 3. Audit Report – Special Education Follow-Up Mr. Harmon stated that the audit confirmed all the action plans were completed. He noted that the background information in the report was updated to reflect current expenditure trends. Mr. Hopkins asked if there were any questions or comments. Hearing none, the report was received and filed. 4. Audit Report – Transportation Follow-Up Mr. Hopkins asked if there were any comments, noting that RCPS has changed transportation providers. Mr. Harmon commented that background information in the report was updated to reflect the latest data and trends. While Auditing was unable to clear some items, Mr. Harmon recommended that no further follow up be performed. He recommended allowing two (2) years for the new provider to iron out the wrinkles before performing another audit. Mr. Hopkins asked if there were any other comments or questions. Hearing none, the report was received and filed. 5. Audit Report – Food Services Mr. Harmon stated that the overall audit results were good. Vendor invoices were materially correct and meal counts were reliable as a basis for calculating administrative and management fees. The audit was informative for the Food Services Director and Assistant Director and should help them improve oversight. Municipal Auditing was pleased with the support and cooperation received during the audit. Ms. Rottenborn asked if there was anything management needed to be particularly attentive to or needed to improve upon over the next year. Mr. Harmon responded that a better budget from the Page 3 of 5 Audit Committee Minutes November 5, 2019 vendor is necessary so that management can more fully know what to expect and what issues may need to be addressed. He mentioned the lack of valid survey data to evaluate food quality, but noted the oversight committee appeared to meet regularly and to have good discussions about menu items and participation. Mr. Harmon expressed concern about the potential for increased food waste with the expansion of the CEP program. Students taking a meal for one item and tossing the remaining items in the trash would be difficult to prevent. Ms. Rottenborn commented that at her son’s school, students who pack a lunch are not allowed to take a tray. There is also a share tray where students can place packaged items, such as carrots, that they aren’t going to eat. Mr. Harmon noted that management had talked about the success of share trays in diverting food from the trash during the audit exit meeting. Ms. Rottenborn commented to Ms. Jackson that budgeting for Food Services seems to be more unpredictable than other areas and wondered if it was due, at least in part, to menu choices and waste, or just timing. Ms. Jackson noted that timing differences effect operations across the division, but that the impact may be more apparent in the Food Services Fund given how much smaller it is than the general fund. Ms. Caldwell commented that federal reimbursements for food services are sometimes late. Mr. Hopkins asked Ms. Jackson to discuss the issue of waste with the Director of Food Services and to determine if it warrants some kind of initiative to help reduce waste. Mr. Hopkins commented that the most important management plan appeared to be performing the quarterly audits. Mr. Harmon agreed. As there were no other comments or questions, the report was received and filed. 6. Other Business Mr. Hopkins noted that he was in receipt of a proposal requested by RCPS from Brown Edwards in relation to performing an audit of information technology. The committee has reviewed the proposal and support going forward with the audit. The committee has been interested in having IT audited for some time. If there are no objections, Mr. Hopkins will provide a copy of the engagement letter to the School Board on Tuesday night for review and approval. Mr. Aldridge noted that a separate group within the firm will be performing the IT audit. Mr. Hopkins noted that the following internal audits are in progress:  Substitutes Follow-Up  Career and Technical Education  Data & Analysis (Student Testing)  Fixed Assets Follow-Up Mr. Harmon noted that the FY19 audit was the last allowed under the current contract with Brown Edwards and that an RFP will need to advertised. In 2015 a committee comprised of the Deputy Page 4 of 5 Audit Committee Minutes November 5, 2019 Superintendent, the CFO, the Director of Accounting, the Director of Food Services and Mr. Harmon reviewed the proposals and negotiated the contract. Mr. Harmon suggested that the Audit Committee meet February 20th to review the qualifications of the preferred firm and the proposed contract. The Committee’s recommendation should go the March 10 School Board meeting; a contract should be signed no later than April 1 as required by the State. Mr. Hopkins asked Ms. Jackson to follow-up on the RFP process. Ms. Jackson stated they had already talked with the Director of Purchasing about starting the process. Ms. Rottenborn asked about the basis for the five (5) year contract term. Mr. Harmon responded that the Government Finance Officers Association (GFOA) recommends a five (5) year term. Term limits and firm rotation policies are intended to help maintain auditor independence. Mr. Aldridge commented that contract lengths vary a great deal from client to client. Ms. Caldwell commented that having auditors that are familiar with your business and processes is very helpful. Ms. Rottenborn stated she was comfortable with the five (5) year term, but had just wanted to know its basis. Mr. Hopkins tentatively set the next audit committee meeting for February 20, 2020. 7. Adjournment Mr. Hopkins adjourned the meeting at 11:45 AM. Page 5 of 5