Audit Committee Meeting

MINUTES Audit Committee Meeting Wednesday, March 1, 2023 at 3:00 PM Carnegie Town Hall, 235 West 10th St., Sioux Falls, South Dakota 57104 1. Call To Order Present: Committee Member David Barranco, Committee Member Dean Buckneberg, Committee Member Tony Goettsch, Committee Chair Alex Jensen, Committee Member Rich Merkouris Absent: Committee Member Rose Grant, Committee Member Greg Neitzert Committee Chair Alex Jensen called the meeting to order at 3 p.m. 2. Approval of Minutes A. Thursday, December 15, 2022 A motion was made by Committee Member Buckneberg and seconded by Committee Member Goettsch to approve the minutes. Voice vote to approve. 5 Yes: Barranco, Buckneberg, Goettsch, Jensen, Merkouris; 0 No: (None). Motion Passed. 3. Reports and Updates A. 21-07 340B Pharmacy Agreement Follow-Up by Ryan Lauseng The objective of the original audit, 21-07 Lewis Drug 340B Pharmacy Agreement, was to determine if Lewis is compliant with the requirements of Agreement 11-4078 with respect to eligibility status, duplicate discounts, diversion, insurance coverage, and other requirements. The follow-up audit shows that all four recommendations have been implemented and two opportunities for improvement are being addressed. B. 22-06 Bidding Selection Process for A/E Services by Ryan Lauseng Lauseng opened the presentation by providing background information. The City of Sioux Falls Engineering Department, in cooperation with the department proposing an improvement project, work together to determine if the project requires the services of outside qualified professionals, referred to as Architectural/Engineering (A/E) services. A/E firms are selected utilizing a process called Qualifications-Based  Selection (QBS), which is a simple and competitive framework that selects A/E firms for projects based on expertise and experience rather than cost alone. QBS evaluates a firm’s experience, expertise, training, availability, and references. Projects that require these types of professional services fall into two major procurement categories: Projects requiring a Request for Proposals (RFP) and those that do not. Any project that involves federal funding or federal pass-through dollars must undergo a rigorous and detailed RFP process. where consultants must respond to the various selection methods to have their qualifications reviewed, scored and ranked by the established evaluation panel (Brooks Act (UC 40 Chapter 11). Non-RFP projects requiring A/E services still select firms utilizing QBS methods; however, the detailed federal requirements of the Brooks Act are used as guidelines, not requirements (no federal funding involved). This audit specifically reviewed only projects that did not require an RFP, which are governed by EO 104 and are not required to undergo the same type of formal detailed scoring process for each potential firm. Additionally, there are not specific requirements for what type of documentation must be maintained related to the selection committee’s decision in the current EO 104 language. The current process for selecting A/E services (Non-RFP projects) is: 1) convene the selection committee; 2) Select a firm based on the qualifications of the available options; 3) the specific decision-making process, criteria considered by the committee, and factors weighed are not formally documented for most non-RFP A/E firm selections; and 4) these conversations typically occur informally and are discussed in meetings and emails. The objective of the Audit was to evaluate the effectiveness of the processes, policies, and procedures pertaining to the selection of Architecture/Engineering service contracts. The scope of the audit included detailed testing of A/E service contracts from January 1, 2021 through December 31, 2021. Projects requiring an RFP were excluded from this scope. There were three primary findings. First, the Executive Order (EO 104) governing the City's process is out of date. Second, there is a lack of documentation for the selection process. Lastly, the maintenance of approved A/E firms list does not comply with the Executive Order. Based upon the findings, the audit provided one recommendation: update EO 104 to reflect the current qualifications-based selection practices. Updated verbiage should provide significantly more detail outlining the procedural steps (soliciting proposals, vendor qualifications, staffing evaluation panels, documenting evaluation panel outcomes, and negotiating contract price/specifications) and documentation required to enhance internal controls, accountability, and consistency. A motion was made by Committee Member Barranco and seconded by Committee Member Merkouris to submit Audit Report 22-06 to the City Council. Voice vote to submit. 5 Yes: Barranco, Buckneberg, Goettsch, Jensen, Merkouris; 0 No: (None). Motion Passed. C. Internal Audit Outsourcing  Committee Chair Alex Jensen opened the agenda item by explaining the need to re-evaluate the current approach to fulfilling the requirements of the Internal Audit function. Specifically, he showed that productivity in the office has significantly declined over the past decade and is due, in large part, to personnel turnover. Jensen explained that a possible remedy to this challenge is a restructuring of the Audit function to allow for externally-sourced audit firms to supplement the work being done by existing staff. Such a hybrid approach will aide greatly with meeting the Audit needs of the Council which include internal audits, fraud detection and control, and independent risk analysis. Dave Bixler, Council Budget Analyst, then provided a review of how other jurisdictions throughout the nation manage their internal audit function. Bixler noted that some contract out for audits, others rely solely on internally-assigned staff, and others take a somewhat hybrid approach. Jensen then opened the floor to committee discussion. The committee agreed that a re-evaluation of the internal audit function should be conducted. A motion was made by Committee Member Merkouris and seconded by Committee Member Barranco to authorize the Committee Chair to appoint a working group to develop recommendations for the Audit Committee's consideration by May 15, 2023. Voice vote to authorize. 5 Yes: Barranco, Buckneberg, Goettsch, Jensen, Merkouris; 0 No: (None). Motion Passed. Committee Chair Alex Jensen appointed Committee Members Buckneberg, Goettsch, and Merkouris to serve on the working group with Merkouris serving as chair. 4. Committee Member Remarks There were none. 5. Public Comment There was none. 6. Adjournment Committee Chair Alex Jensen adjourned the meeting at 3:54 p.m. Thomas M. Greco, City Clerk