Agendas and Minutes

Municipal Audit Committee (View All)

Audit Committee Meeting

Agenda
Wednesday, October 20, 2004

Audit Committee
DRAFT MINUTES
October 20,2004 1:00pm
Siskiyou Room, Community Development/Engineering Services Building
51 Winburn Way

Call to Order
Chairman Marty Levine called the meeting to order at 1:04 p.m. on October 20, 2004 in the Siskiyou Room of the Community Development/Engineering Services Building, 51 Winburn Way Ashland, Oregon.

ROLL CALL: Audit Committee Members Christensen, DeBoer, and Nutter were present.

ABSENT: Audit Committee Member Case was absent.

STAFF PRESENT:
LEE TUNEBERG, FINANCE DIRECTOR
DON ROBERTSON, PARKS DIRECTOR
CINDY HANKS, PROJECT COORDINATOR
PATRICK CALDWELL, STAFF ACCOUNTANT
SCOTT WHITMAN, STAFF ACCOUNTANT
BRYN MORRISON, ADMINISTRATIVE SECRETARY

OTHERS PRESENT: ROY ROGERS AND KENNY ALLEN FROM PAULY, ROGERS, AND CO., P.C.

Approval of Minutes
Audit Committee Minutes of November 17, 2003:

Audit Committee Member Christensen/DeBoer m/s to accept minutes as presented. Christensen, DeBoer, Levine, Yes. Nutter abstained. Motion Passed.

Lee Tuneberg, Finance Director, spoke to the layout of the financial report. He mentioned the persons involved in report, the certificate from the Government Finance Officers Association the City had received for the 2003 CAFR, and the differences in the report from the prior year. He spoke to differences being in Generally Accepted Accounting Practices and Budget Basis reporting.

Presentation by the Auditors
Roy Rogers and Kenny Allen presented the financial report for Pauly, Rogers, Co., P.C. Allen spoke to the executive letter that they presented. He added that the City received a clean opinion. He pointed to page 40 of the Notes and that it showed an over expenditure in the Telecommunication Fund of $5,540. He added that they did not provide a management letter and that it was not necessary, they would rather correct any problems during the audit instead of presenting a letter at the end. They found that the books and records maintained by the City were in good condition.

Allen mentioned that there is a new auditing standard in place, SAS99, in response to fraud. They had to identify areas where there may be a possibility of fraud. They discussed the areas with staff and found no evidence of fraud or a possibility of fraud. Barbara Christensen, City Recorder/Treasurer asked for examples of the tests they used to determine risk factors for fraud. Allen responded that they identified a few areas, material items: One area was in the Utilities Division. They looked at journal entries and detailed work with accounts receivable. They looked at wire transfers, and they took a sampling of this to test. They looked at accounts payable also, and looked at transactions, billing, and journal entries and expanded the normal sample sizes in testing. Guy Nutter, Audit Committee Member asked if there was a notice or warning in place if fraud did occur rather than finding it after the fact. Allen responded that they try to give staff recommendations for new internal controls to make sure it doesn't happen. Nutter asked for a list of items that they recommended. Allen explained that every year they provide exit comments, and share those items with staff. Levine asked what methods are available to avoid someone committing fraud consistently over years. Allen responded that there are new internal controls that they suggested for postings between the general ledger and utility billing software. Rogers added that auditors could do analytical review over years, and use it only as a tool. They use sampling as well, however they are not required to do both, but feel it is more telling.

Allan DeBoer, Audit Committee Member asked about the City's previous workers compensation problem with fraud and if these auditors would have caught it. Allen explained that they could not tell if they would have been able to catch it or not and SAS99 encourages openness between staff to recognize possible problems. Tuneberg added that it was discovered by a grocery store that recognized the names of the people and that there had already been payments made which triggered an internal audit. Nutter asked if there is anything done for checks and balances. Tuneberg responded that the City changed third party administrators, and changed how bank accounts were reconciled and how reimbursements were distributed.

Nutter asked how the auditors made sure their suggestions were implemented. Allen responded that in the next year after the audit, they verify the process and follow up. Tuneberg added that the City has a proactive relationship with the auditors and they are in contact with them throughout the year. They come several times throughout the year, and observe the progress the City is making.

Nutter asked the auditors what would happen if they found that the City management was unavailable or unresponsive, and if they could contact the officials. Rogers responded that their responsibility is to the City Council and if they had any problems they would report those to them. They have not had any with staff. Nutter asked when they would report a problem. Rogers responded upon discovery.

Christensen asked about the Utility billing software problem that was from last years report and when the City would be doing the CUFR. Tuneberg responded that the City is not ready yet to produce the CUFR in house. In Utilities, they are making improvements with efficiency and accounting issues. The City will be doing a needs analysis on the Utility billing program and will look at other available software. Christensen asked about the ambulance service, and if they had made any progress with checks and balances. Tuneberg responded that the final ambulance report was sent to the committee and the committee did not request to meet on the issues. He added that they have made good progress on billings, collections, and right offs. He added that they have project costing in place. Christensen asked at the end of the budget year, if they see the City losing or making money. Tuneberg responded that right now they are losing money and in this community, it will never be a money maker.

Comprehensive Financial Report
Tuneberg spoke to the missing management letter and that staff would assess what areas would need to be worked on during the year. He spoke to accounting workloads and what could be done with the staff that the City has in place. He added that some of the new methods that they are trying to incorporate might not be accomplished for few years due to workload.

The Committee discussed their role in the process to act on behalf of Council, to make recommendations and that this is the forum for hearing the management letter and staff's responses. Christensen asked if budget committee looked at the end results of previous budgets. Tuneberg explained that they are presented with actual and previous years figures. Levine asked if the auditors review the budget. Rogers answered they do. The Committee discussed the 4 supplemental and 3 transfers in the budget. Tuneberg explained that if it is a 10% or higher adjustment, it must be presented at a public hearing. Christensen asked if that was the accumulated or one item requirement. Tuneberg responded that they have a tendency to do public hearing unless it is a very small amount.

Nutter asked about the assumptions made on p.10 and about not making the projections. Tuneberg responded that they are general fund budgetary highlights, depending on the item, they look at what is causing the change. The budgetary estimates are for 18 months and based upon part of year estimates, they are the best estimates possible. It depends on who contributes to revenues. They are refined each year and they seldom are equal to each year. Nutter asked about the seven budget adjustments, at why at the end of the year there still was a discrepancy. Tuneberg responded that it goes along with appropriations and that things change throughout the year: targets from elected officials, needs from management. The committee requested to see the revenue assumptions in the general fund from the previous year. Tuneberg will provide.

Nutter asked if with the unfilled positions in the budget, if it created the deficit. Levine added that there are a number of dynamics involved. Revenues may be down because the positions are not filled, for an example, if a police officer position is not filled, as many tickets are not written as expected. Tuneberg added that we are in a transitional period, and for new top management, it was thought of before that the fund balances were too high, now they set target fund balances lower to carry us through dry spells.

Nutter questioned Mt. Ashland Ski Area's assets on p.27. Tuneberg responded that they would update the contingent liability in the final report. He added that it would be similar to last years. Nutter asked how they arrived at $275,000. Tuneberg responded that the figure is in the lease. Nutter asked about the City carrying the asset on the books. Patrick Caldwell, Staff Accountant explained that what is shown is that we hold a certain number of liquid assets payable upon request. Deboer added that if Mt. Ashland were to default, their assets would revert to us. Levine asked if we show their new assets as revenue. Allen responded they do if it is a large enough amount. Discussion continued that if Mt. Ashland defaults, they must restore the mountain to an acceptable condition for the forest service and that extent of reclamation has not been determined or the time it would take. Nutter asked if the City depreciated the assets that they carry on their books. Caldwell responded that they do.

Nutter asked about AFN and what would happen if technology made AFN outdated, if it would be liability. Allen explained that it is not a contingent liability and on p.24, all liabilities are shown.

Deboer expressed concern about uninsured bank balances. The Committee discussed if the balances were collateralized. Rogers explained that the law has recently changed regarding this and that if the banks were to fail, they would only pay back 25% of the balance, but he believed that the whole banking system would have to fail to have a problem. Deboer added that he believed the City would have been better off to borrow from themselves for AFN. Rogers added that his opinion is that he would stay with US Bank.

Christensen/Nutter ms to approve the financial report and to forward it to Council. All Ayes.

The Audit Committee signed the annual letter that will be included in the report presented to Council. DeBoer asked if the report could be presented in more of an abbreviated form. Tuneberg responded that he could provide it that way if requested. Christensen asked about an RFP process for the auditors. Tuneberg responded that he would like to reconvene this committee for the RFP for the auditors.

Adjournment
The meeting was adjourned at 3:00pm.

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