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HomeMy WebLinkAbout01-31-2002 Audit Committee MinutesO/f / too~.,?/ /1 C 0""',,: .;If."'':Minutes AUDIT COMMITTEE MEETING City of Orange - Weimer Room !.Thursday, January 3], 2002, 4:00 p.m.c,:; ;:j: 5i ATTENDEES:AUDIT COMMITTEE Voting Members) Present David E. Sundstrom CPA, Chair David L. Rudat, City Manager Jeanne Arehart CPA, Internal Audit Mgr.Eric H. Woolery CPA Dwight Nakata CPA Non-Voting Members)Present Mark Murphy, Mayor Dan Slater, Council Member CITY STAFF Helen Bell, Finance Director Richard Jacobs, Assistant Finance Director EXTERNAL AUDITORS Ken AI-Imarn CPA, Partner, Conrad & Associates, LLP Steven Dobrenen, Conrad and Associates, LLP Dean Votava CPA, Sr. Mgr., Conrad & Associates, LLP Michael Gutierrez CPA, Sr. Auditor, Conrad & Associates, LLP OTHER ATTENDEES David Piper, Alternate Audit Committee member 1. Call to Order - Chairman David Sundstrom called meeting to order at 4:] 0 p.m.2. Approval of Minutes of August 30, 2001 - reviewed and approved as submitted.3. Update on Transient Occupancv Tax (TOT) Audit - Steven Dobrenen of Conrad and Associates. The three remaining TOT audits from the year 2000 have been completed. Two ofthem had nominal amounts, one was $3,000. There were eleven of these done for the year 2000. Audits of the nine remaining hotel/motels for the year 2001 will begin in February with anticipated completion by April. All operatives were very cooperative. Plans are to schedule one additional audit, the Big A Motel, in March or April.4. Presentation of Comprehensive Annual Financial Report for the Year ended June 30, 2001 -Ken AI-Imam, Engagement Partner for the City Audit, from Conrad and Associates provided copies of the Independent Auditors' Report on the Internal Control Structure. The report indicates there were no material weaknesses in the internal controls, no disagreements with management in conducting their audit and there were no impediments imposed when conducting the audit. There were no significant audit adjustments that were not already AUDIT COMMITTEE MEETING, January 31, 2002 identified by the financial staff. There were significant changes in the accounting policies and procedures associated with the implementation of GASB Statements #33 and #34. Mr. Al Imam familiarized the committee with information that is contained in the newly reformatted CAFR. This is the combined effort between the independent auditing firm for the City of Orange and the Finance Department. Cathy Knopf, of the Finance Department did a very good job in formatting the year 2000 CAFR to conform to GASB 34 and Mike Gutierrez did a very good job of making that data comparable to the data compiled by Comad. We have an excellent product of which the committee can be proud. GASB 34 doesn't change that much about our accounting system, just the look and feel of the financial statements. One of the most significant elements in the CAFR is the Management Discussion and Analysis, which starts on Page 3. This is like an executive summary, interpreting the numbers in the CAFR for the reader. Page 15 contains the first financial statement under GASB 34. The financial statements can be divided into two parts, the Government Wide Financial Statements and the Fund Financial Statements. GASB is trying to simplify the reporting to the public so that the total financial position of the city as a whole can be viewed on one page. The biggest number is the capital asset amount of $493 million and that represents, for the first time on the CAFR, the City's ownership of the street systems--the infrastructure. This number is large, not only because of the street systerns that are included in that number, but also the easements and rights-of-way associated with the streets.The infrastructure consultants were directed to exclude rights-of- way valuation for the oldest part of the city. The land rights were acquired so long ago that the estimated value at that time was insignificant. Even though the infrastructure is of limited value to the city, GASB did require that number be included and it was included out of respect for that standard.Pages 16 & 17 comprise the second schedule in the government wide financials, an income statement for the city as a whole. This is more complex. The focus here is on programs, a way to identify the extent to which each function of the city is self-supporting or requires general resources from the city. Typical of government, most functions are not designed to be self-supporting; there is going to be a draw from general resources to pay for most functions.The Fund Financial Statements start on Page 20. The major focus of these financial statements is on major funds of the City. There are five major funds and practically two-thirds of the assets of the governmental fund type are represented here. GASB felt you could learn more about a unit of local government by focusing on its largest, most significant funds than you could by looking at generic groupings by fund types.From this point on (Page 20) the governmental fund types use the traditional "Modified Accrual" basis of accounting. GASB's new model answers a AUDIT COMMITTEE MEETING, January 31, 2002 These schedules are geared more towards the budgetary perspective, i.e. what are the current resources available for budgeting? On page 23 there's a reconciliation of the equity of fund balances of the governmental funds on the traditional "Modified Accrual" basis of accounting and the equity in the government wide financial statements, the net assets of governmental activity. There are major differences between these two numbers. The equity number in the government financial statement includes capital assets on the balance sheet that impacts equity, however it is not included in the fund financials. Liabilities are reflected in the government wide balance sheet but not in the fund balance sheets. The reconciliation on these schedules is necessary because the two major cornponents of the CAFR are using two different basis of accounting. The fund financial statements are using the traditional "Modified Accrual" basis of accounting, the government wide financials are using the "Accrual" basis of accounting. The numbers change from one part of the CAFR to another. Page 30 includes the agency funds, or fiduciary funds. The agency funds do not appear as a part of the government wide financial statement. GASB felt that fiduciary activity should be excluded. Only programs the city council has control over should be included. Starting on Page 71, the section entitled "Required Supplementary Information" includes the GASB required budget actual schedule for the general fund, and a budget actual schedule for each major special revenue fund. Theoretically we could stop the CAFR at page 74 and fully comply with all of the reporting requirements of GASB 34, but the City of Orange produces a CAFR that goes beyond the minimum reporting requirements of generally accepted accounting requirements for local government and provides additional data beginning on page 75 to meet the requirements of the GFOA Financial Reporting Awards Program. For example, Page 21 focuses on the five major funds of the city with "Other Governmental Funds" combined, totaling $50 million in total assets. On Page 75 only the non-major funds are represented, with the five major funds excluded.Helen Bell and her staff were congratulated on the newly formatted CAFR. The GASB requirements were implemented a full year ahead of schedule. Comments:1. Helen Bell was asked if she was considering popular reporting and she indicated that she would like to include this component in future years, staff available.2. Council accepted the CAFR before it was presented to this committee. David Sundstrom suggested that the committee should review this document prior to going to the City Council and other committee members agreed. At the next Audit Committee meeting, staff will provide a proposed calendar for the presentation of the CAFR to the Audit Committee and the City Council. AUDIT COMMITTEE MEETING, January 31, 2002 3. The Committee was very pleased with the City's early implementation of GASB 34 and commended staff for this accomplishment. 5. Status of200]-02 Audit Plan - Jeanne Arehart The following is a status of outstanding items from the 2000-01 Audit Plan: A. Review Signature Authorization Forms - A policy and guidelines were established for financial transactions to ensure proper control, segregation of duty, and appropriateness of authorization B. Police False Alarm Billing - Reviewed policies and procedures to ensure compliance with City Ordinance and that adequate controls and proper segregation of duties are in place. Recommend automation, improved employee supervision, tracking of revenue fluctuations and follow-through on unpaid bills and permit procedures.C. Review Procedures for Selection of Health Insurance Broker - In processof reviewing broker' s procedure for recommending health insurance companies to ensure the City's best interests are the primary focus. Interviews were conducted with Personnel Department staff.D. Franchise Fee Audit - Contracted with DMG Maximus to perform a franchise compliance review of franchise fees paid by gas and electric companies. The audit concluded that all fees paid by the franchisee were correct. Recommendations were made to enhance franchise agreernent. Per Jeanne Arehart the City Attorney recommended no action be taken to amend the agreernent.The following is a status of outstanding items from the 200]-02 Audit Plan:A. Review of Third-Partv Administrator of Flexible Spending Account - This review was completed. Heller Associates is properly processing claims. Some minor problems in personnel have been resolved and an update of the plan is in process.B. An outside consultant through Orange County Cities Risk Management Authoritv OCCRMA) performed review of Third-Party Adrninistrator of Worker's Compensation Claims - The scope of services did not include a review of their internal controls related to the payment of City worker's compensation claims made through the City' s checking account on which the third party administrator is a signer.Therefore, this will be performed.C. Internal Controls over Position Control - Currently soliciting a proposal to have this review done by Comad. D. Cash Controls in Recreation Programs - Although no formal review has been completed, the Internal Audit Manager has worked with the Recreation Supervisor on a number of cash control issues. A formal review will take place in the next few months.E. Emplovee Evaluation Tracking Process - No work has begun on thisreview.F. Controls over Trust and Agency Funds - This review is in process.G. Segregation of Duties Between Personnel and Payroll Functions - Currently soliciting a proposal to have this review done by Comad.H. Use of City Vehicle - This review is in process.4 AUDIT COMMITTEE MEETING, January 31,2002 1. Use of City Telephones - This review is in process.J. Waste Management of Orange Contract Compliance - On an ongoing basis, Public Works staff monitors Waste Management's compliance with most aspects of the contract. More technical aspects of compliance are monitored through an external review by a consultant with expertise in the waste collection and disposal industry.K. Internal Control Over Cash Receipts - On going petty cash and cash-draw surprise audits to insure proper internal controls have been completed.Administration of Contract Audits A. Waste Management Contract Compliance - The review byHilton Famcoff & Hobson was completed. Waste Management is in compliance. Some minor problems have been identified and Waste Management has been cooperative in complying with recommendations to correct them.B. 2001 TOT Audits - These audits are discussed under Item No 3 of the Agenda.C. Inventorv Controls at Corp Yard. Garage and Water Yard - No work has begun on this review.6. Public Comment Mark Murphy provided discussion indicating that the City Council is looking at the makeup of all committees. They are considering modifying the make-up of the Audit Committee to exclude the ex-officio members and appoint two new public members to the committee.7. Adjournment - A motion was madeto adjourn the meeting, which was seconded. Motion carried, and David Sundstrom adjourned the meeting at 5: 15 p.m.Approved: Septernber 9,2002 sh 5