Audit Committee Meeting

MINUTES Audit Committee Meeting Monday, March 29, 2021 at 4:00 PM Carnegie Town Hall, 235 West 10th St., Sioux Falls, South Dakota 57104 1. Call To Order Present: Committee Member Dean Buckneberg, Committee Member Tony Goettsch (Via telecom), Committee Member Rose Grant (Via telecom)(Arr. 4:04 p.m.), Committee Member Alex Jensen, Committee Chair Rick Kiley, Committee Member Greg Neitzert, Committee Member Curt Soehl Absent: None Committee Chair Rick Kiley called the meeting to order at 4 p.m. 2. Approval of Minutes A. Monday, November 16, 2020 A motion was made by Committee Member Soehl and seconded by Committee Member Jensen to approve the minutes of Monday, November 16, 2020. Roll call vote to approve. 7 Yes: Buckneberg, Goettsch, Grant, Jensen, Kiley, Neitzert, Soehl; 0 No: (None). Motion Passed. 3. Audit Report Review A. External Audit Results: City of Sioux Falls 2020 Financial Statements, Eide Bailly Joy Fiege and Brian Stavenger provided the presentation (Stavenger by teleconference). Fiege opened the presentation by explaining the purpose of the audit and turned the presentation over to Stavenger to discuss the details of it. He began by providing an overview of the External Audit and introducing the service team that worked on it. Stavenger continued with the audit results. The audit was performed in accordance with generally accepted auditing standards, Government Auditing Standards, and Title 2 U.S. Code of Federal Regulations (CFR) and designed to obtain reasonable, not absolute, assurance about whether the financial statements are free of material misstatement. Planning for the audit began this past year when the service team met with the Audit Committee; interim testing was conducted in December; Year-end testing took place from January through March; and finished with reporting in March. For the Financial Statements, the audit resulted in an unmodified opinion with restatements and one finding due to the  restatements. The restatements removed the privately maintained infrastructure assets (Governmental Activities (Storm Drainage)—remove $2,163,233 of net infrastructure assets; Water Fund/Business-Type Activities—remove $17,897,078 of net infrastructure assets). The Federal Audit resulted in an unmodified opinion with no material weakness or significant deficiency internal control findings and no material weakness or significant deficiency compliance findings. The Management Letter included passed adjustments and suggestions for improvements over inventory controls. The adjustments were for the: 1) Sales and Use Tax Fund – $562,475 for revenue recognized in 2017 that should have been recorded as deferred revenue, as the cash has not been received yet; 2) Water Reclamation Fund – $158,463 understatement of depreciation expense recorded in 2020, as 11 more months of depreciation should have been recorded; 3) Water Reclamation Fund – $677,106 of privately maintained infrastructure assets recorded in 2018 and 2019; and, 4) Water Reclamation Fund – $513,791 for capital assets that should have been recorded in 2019. A motion was made by Committee Member Buckneberg and seconded by Committee Member Neitzert to accept the report and submit it to the City Council pursuant to Section 32.022(e) of the Code of Ordinances. Roll call vote to accept the report and submit it to the City Council. 7 Yes: Buckneberg, Goettsch, Grant, Jensen, Kiley, Neitzert, Soehl; 0 No: (None). Motion Passed. B. External Audit Results: Public Parking Enterprise Risk Assessment, Eide Bailly Derek Flanagan and Kristin Taffe, both from Eide Bailly, provided the presentation via videoconference. Eide Bailly developed a financial model portraying a five-year projection for the Sioux Falls Public Parking Enterprise (Parking Enterprise) under the cash basis of accounting. The model was driven by historical data and management’s representations and the deliverable for these consulting services is a memo identifying the findings from three scenarios, along with the management provided cash flows projection. The three scenarios are based on lower usage, higher usage, and breakeven. Financial model development was driven by revenue, expenditures, and available cash. Under scenario 1, Lower usage, the audit findings are: loss in each year, along with a declining balance in available cash; growth in operating expenditures and debt services outpace revenue growth; cash is sufficient to support operations over a five-year period; and, the total fund could run out of cash if the total expenditures outpace total revenues for an extended period. Under scenario 2, higher usage, the audit findings are: a loss in 2021 and profit from 2022 through 2025; profitability is varied, as expenditures grows at a faster rate than revenue; and, cash is sufficient to support operations over a five-year period, with growth in available cash balance in 2022. Under scenario 3, breakeven, revenues were set equal to total expenditures. The audit findings are: revenues for 2021 would need to exceed that calculated in 2021  under the assumptions of both Scenario 1 and Scenario 2 (Scenario 2 largely reflects the occupancy of 2019, when 96 percent occupancy in the leased parking spots was experienced, except for the Mall Ave. Ramp and the 1stAve. Ramp); implied ramp occupancy for 2021 through 2025 would be above the average for 2020, but below what was experienced in 2019 (the Mall Ave. Ramp is not included in the 2019 occupancy data); implied lot occupancy for 2021 through 2025 would be above the average for 2020 and in line with prior years. Under this scenario, the cash balance remains consistent. Taffe concluded with some considerations one should take into account regarding the audit. The modeling did not incorporate cost control measures that could increase profitability. Such cost control measures could include, but are not limited to the following: impact of variable expenditures; delaying certain projects; allocating employees to different roles with the City of Sioux Falls; and, additional increases to lease rates of ramps and lots. Kiley noted that the audit would be presented to the Council at an Informational Meeting on April 20, 2021. A motion was made by Committee Member Neitzert and seconded by Committee Member Grant to accept the report and submit it to the City Council pursuant to Section 32.022(e) of the Code of Ordinances. Roll call vote to accept the report and submit it to the City Council. 7 Yes: Buckneberg, Goettsch, Grant, Jensen, Kiley, Neitzert, Soehl; 0 No: (None). Motion Passed. 4. Committee Member Remarks There were none. 5. Public Comment There were none. 6. Adjournment Committee Chair Rick Kiley adjourned the meeting at 5:10 p.m. Thomas M. Greco, City Clerk