Audit Committee Meeting

MINUTES Audit Committee Meeting Monday, December 2, 2019 at 4:00 PM Carnegie Town Hall, 235 West 10th St., Sioux Falls, South Dakota 57104 1. Call To Order Present: Committee Member Janet Brekke, Committee Member Dean Buckneberg, Committee Member Tony Goettsch, Committee Member Rose Grant, Committee Member Rick Kiley, Committee Chair Greg Neitzert Absent: Committee Member Curt Soehl Committee Chair Greg Neitzert called the meeting to order at 4 p.m. 2. Approval of Minutes A. September 30, 2019 A motion was made by Committee Member Buckneberg and seconded by Committee Member Brekke to approve the minutes. Voice vote to approve. 5 Yes: Brekke, Buckneberg, Goettsch, Grant, Kiley; 0 No: (None). Motion Passed. 3. Reports and Updates A. 2020 Audit Plan Shana Nelson, the Internal Audit Manager, began her presentation by reviewing the steps used to determine the 2020 Proposed Audit Plan Process. The planning process included: reviewing past audits and the audit universe; preparing an audit budget; questionnaire; meetings and review; and reviewing the proposed plan with the Audit Committee. The final step is adoption of the Proposed Audit Plan by the City Council. Nelson spoke about concerns over auditing the 2020 Budget, which includes the parking ramp and parking fund, she said. Conversations began back in August with the Director of Finance and external auditors to identify if there should be an audit and when it should occur. Nelson said the City Attorney advised that now is not the time for an audit of the parking ramp. She also met with the Director of Finance to discuss the timing for external construction audits. Nelson presented the Proposed 2020 Audit plan. She began by mentioning the four carryover audits from 2019, which are: Payroll-Employee Deductions; ASM Global management contract; Ovations Food Service contract; and Damage Recovery  Billing Process. She then spoke about proposed audits, which include: Assurance Audits: Travel expenditures, Midco Aquatic Center, Bid Tax, 340 B Pharmacy Contract; Consulting Audits: Security Access of City Buildings and Fraud Task Force; Analysis/Follow-up Audits: Purchasing Card Program and Landfill Licensing; and External Audits: Eide Bailly. Councilor Theresa Stehly provided public input and requested the following audits: the parking ramp; the parking enterprise fund/system; contract process; travel by the Mayor's Administration and departments; and department head salaries, along with a comparison to other cities. Discussion followed regarding: audit of capital expenditures; external audits; parking ramp and parking fund concerns; scope of audits; timing of audits; executive sessions and the City Attorney; department head salaries and travel by the administration; modifications to the audit plan; adding items to the external audit list; review audit plan with the City Attorney; and placing items in the audit universe. A motion was made by Committee Member Buckneberg and seconded by Committee Member Brekke to approve the 2020 Audit plan with the addition of the parking enterprise system and capital expenditures. Voice vote to approve. 3 Yes: Brekke, Buckneberg, Grant; 2 No: Goettsch, Kiley. Motion Passed. B. Update on External Audit of City’s 2019 Financial Statements by Eide Bailly, LLP Keith Severson, an Eide Bailly Communication partner, introduced service team members, announced his retirement and stated that Joy Feige will be replacing him. He also explained the audit format, which included: Audit Objectives, Audit Approach, Recent or New Professional Standards, and Risk Assessment. Brian Stavenger, an Eide Bailly Engagement Partner, attended the meeting via phone conference and began his presentation by explaining the Audit Objectives. He stated that the audits were: performed in accordance with generally accepted auditing standards; they obtain reasonable, not absolute, assurance about whether the financial statements are free of material misstatement; and the audit procedures will: include examining, on a test basis, evidence supporting amounts of disclosures; discussions with management; and assess quality of accounting principles and significant estimates for: Incurred But Not Reported Insurance Claims, Other Post-Employment Benefits, Sanitary Landfill Closure and Post- Closure Costs; and Pension Assets/Liabilities. Discussion followed regarding non- significant estimates. He spoke about the Audit Approach process with Planning in November/December; Interim Testing in December/January; Year-End Testing in January/February/March; and Reporting in March. These steps will cover a range of activities from: entity changes and environment, fraud inquiries, confirm timing/expectations, review and test estimate assumptions, review work and financial statements; to issue the audit by the last week of March; and meet with the  Audit Committee on March 30, 2020. Discussion followed regarding testing of major grants. Stavenger spoke about two new standards set by the Governmental Accounting Standards Board becoming effective on December 31, 2019, and one on December 31, 2020. He said that inherent risk and fraud risk are what drives the amount of time they spend on an audit. Discussion followed regarding enterprise funds and what is looked at during an audit. 4. Audit Report Review A. Landfill Licensing Audit Presentation Abby Vandelanotte, Internal Auditor, presented the Landfill Licensing Audit report. She began by providing background on the landfill and mentioned that it is a part of the enterprise fund and no tax dollars are used to fund the solid waste system. Included in the report is information regarding: Licensed Hauler Statistics, Commercial Hauler License Fees, Additional License Fees, and the Hauler Licensing Process. Vandelanotte spoke about the scope of work, which included: a review of current licensed haulers; the current licensing process that is followed, documented policies and procedures as they are currently in place, and City of Sioux Falls Ordinances under Chapter 57: Garbage and Recycling and Chapter 110: Licenses. The detailed testing covered the haulers that were licensed in the most recent licensing for a 2019 commercial hauler license, she said. The objectives for the audit included: Evaluate the efficiency of the City of Sioux Falls Landfill Licensing process and determine if the process follows leading practices; Determine if adequate controls are in place over the hauler licensing process; and Determine if adequate controls are in place over hauler compliance after the issuance of the license during hauler operation. Vandelanotte spoke about the six findings: 1) The hauler application is outdated and is not available electronically for haulers to access; 2) The licensing process is manual and takes approximately three months to complete; 3) Based on review of hauler files, several required items were missing; 4) Compliance with the license sticker requirement and weekly hauling requirement is not consistently being enforced or monitored by Landfill staff; 5) Inspections of contents delivered to the landfill are being performed, however, the inspection does not include the vehicle or equipment, as stated in City Ordinance; and 6) Insurance paperwork is missing for four haulers based on review of haulers files. She then went over their recommendations, which included: 1) Update the license and permit application for Garbage, Construction and Demolition Haulers to only include necessary information; 2) Utilize the City of Sioux Falls website to enhance the customer experience and provide added convenience and efficiency for both haulers seeking a license and for City of Sioux Falls staff involved in the licensing process; and 3) Implement electronic document routing software and electronic filing to add security and improve the efficiency of the landfill licensing process. The final recommendation is to establish written internal policies and procedures to: 1) Define the hauler licensing process requirements and responsibilities; 2) Ensure landfill staff are consistently monitoring and enforcing the requirements set forth in City Ordinance that licensed haulers are to follow to obtain a license and operate under that license; and, 3) to establish a process to verify the safety of licensed hauling units to protect citizens, employees, and other haulers.  Vandelanotte read the management responses provided by Don Kuper, Landfill Superintendent. It was stated that the Sanitary Landfill Management team is taking action to enhance the license and permit application process; is taking action to provide a more efficient and effective licensing process; is taking action to produce necessary internal policies and procedures; will require any hauler with hauling unit(s) required to have an annual DOT truck inspection to submit the most recent copy of the passing inspection results with a license application; and, will create an SOP starting in the first quarter of 2020 to help guide staff through a visual truck and load inspection process, the SOP will be completed by the second quarter of 2020, there will be random load and equipment inspections started in the third quarter of 2020, and the Landfill will be ready to start visual truck inspections in accordance with the SOP by January 2021 as a condition of licensure. Discussion followed regarding: the thoroughness of the audit; speaking with a hauler; how the Sioux Falls landfill compares to those in other cities; the frequency of visual truck inspections; number of vehicles that need or don't need a DOT inspection, based on tonnage; current load inspections; non-compliance sanctions; non-licensed haulers; what to do with haulers who stop servicing customers; what to do with haulers who aren't paying their bill; customer care; inspection stickers; account reviews; hauler tonnage review; proof of DOT inspections; and bonding. 5. Open Discussion Neitzert said that they will begin the hiring process for another auditor in the first quarter of 2020. 6. Public Comment There was none. 7. Adjournment Committee Chair Greg Neitzert adjourned the meeting at 5:42 p.m. Denise D. Tucker, Assistant City Clerk