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HomeMy WebLinkAbout06-29-2010 Audit Committee MinutesMinutes AUDIT COMMITTEE MEETING City of Orange -Weimer Room Tuesday, June 29, 2010 3:00 p.m. ATTENDEES: AUDIT COMMITTEE (Voting Members) Present David E. Sundstrom CPA, Chair Dwight Nakata, CPA Jerro Otsuki, CPA Not Present Nancy Loughrey David Piper John W. Sibley, City Manager Katrin Bandhauer, Internal Audit Manager EX-OFFICIO MEMBERS Carolyn Cavecche, Mayor Not Present Denis Bilodeau, Councilmember CITY STAFF Richard Jacobs, Finance Director Stephen Spain, Accounting Manager Leonie Crouch, Business License Supervisor O'~ 180.0 •a~. 17 EXTERNAL AUDITORS Ken Al-Imam, CPA, Partner -Mayer Hoffinan McCann P.C.1. Call to Order: Chairman David Sundstrom called the meeting to order at 3:07 p.m.2. Introduction of New Attendees: Finance Director Rich Jacobs introduced new Audit Committee Member Jerro Otsuki, and new Accounting Manager, Stephen Spain.3. Approval of Minutes of December 16, 2009: Minutes approved as read.4. Status of 2009-10 Financial Audit: Ken Al-Imam. The preliminary interim audit is complete. Ken stated that during that phase of the audit, controls are identified and tested to ensure they're in place and working effectively and a certain amount of transaction testing is done to make sure the controls are working properly. Compliance testing for Federal grants, State mandated testing for compliance with redevelopment law, and portfolio testing are done. The applicability of new GASB pronouncements that came into effect FY 2009-10 was considered. GASB Statement Number 51 went into effect this year and the City of Orange has already been in compliance with its rules and requirements.Finance management was advised of the implications of GASB Statement 54 which takes effect next year. GASB 54 will impact the fund financial statements for the governmental funds. There will be rules about how special revenue funds are presented which will be determined by the legal language that was used by the City Council when they In the planning phase of next year's audit, the auditors will work with the Finance Department to make sure the appropriate determinations are made for each special revenue fund of the city. When the year-end audit is underway in the fall, the audit plan will focus on the most likely misstatements for the City, given risks experienced by other cities of similar size and activities. If the Audit Committee has any concerns or information that would be relevant to the audit plan, now is the time to bring them to our attention.Some of the more significant financial statement risks are cash and investments.Revenues that were earned in 09-10 but collected after year-end have to be accrued. The other major risk is that there could be checks that are paid after June 30 that really should be accrued in 09-10 because that's when the goods or services were received from the vendor.5. Write-off of Receivables: Rich Jacobs. There is a summary of the general revenue receivable write-offs which are broken downinto those that are over $2,000 and those that are under $2,000. Included are business licensing, accounts receivable, permits,inspections, and damage to City property. For accounts that were over $2,000, there are eightaccountsfor the total of $84,230.24. For accounts under $2,000, they were batched together in 3different groupings which total $44,218. 90. These receivables have all been sent at least two or three invoices by the City so approximately 60-90 days have gone by.They've also been sent to Southwest Collections. After they've been with the collection agency 30 days, we write these items off. If the collection agency collects after that 30 day period, they keep their 26% fee, and the City collects the balance.Under utilitybilling, for accounts that were over $2,000, we have one accountfor $3,467.For accounts under $2,000, we have 68 pages of account listings that were in the $100-200 range for a total of $90,208. These are typically the final invoice for properties where the property was either foreclosed upon or sold, and the last water bill has been left unpaid. The collection agency collects about 20- 30% of these receivables so there's a possibility that we will still recover some revenue.6. Current Audit Plan: Katrin Bandhauer. Two audits were completed in the last six months. Orange Regional Competitive Aquatics (ORCA) was audited to ensure everything was in line to renew their 5-year contract. They provide swimming lessons for nine months of the year and competitive recreational swim teams during the summer.With families staying close to home and looking for economical recreation due to the recession, swim team enrollment has up about 35% in the past couple of summers.Overall, everything is in order, but the follow-up on the City side regarding pre-approval of instructors' certificates and ORCA's insurance is not documented consistently. It was recommended that the contract be renewed but for Community Services to keep track that they have all the pre-requisites checked before the season begins rather than filling them in at the end of the season.The telecommunication services audit required a lot of detailed work to complete. The previous telephone audits took approximately 80 hours. This audit required more than double that amount of time, as the more you looked at it, the more follow-up was required. We've retained Larry Lichty, our telecommunications auditor, twice over the past ten years and both times he's made many great recommendations. This time, Larry provided us a detailed listing of every single telephone circuit and phone number in the entire city.Since that had never been evaluated before, we looked at every single line. We were able to save 27% on our annual telephone costs primarily because, with the consolidation of programs and staff, we had 61 lines that we were able to disconnect. While we've updated and upgraded our data service, we had left outdated data lines intact. We are spending quite a extensions and we are working to get some of these phone lines cancelled. Due to the remote location and the way the phones and data are configured at the branch libraries, it costs $10,000 to keep each of them connected. Since there are ten phone lines for a library with two to three staff, that's open only three days a week, we will consolidate that service. Quite a bit of time was also invested in the take-home vehicles and fuel usage and those reports will be forthcoming. John Sibley and I have also discussed cell phone usage.Yearly, $85,000 is spent on cell phones for staff. With price breaks from the phone company and with cancelling lines, over the last few years, we have cut our phone bill almost in half.7. GFOA Recommended Practice for Audit Committees: David Sundstrom. The GFOA Best Practices for Audit Committees is a worthwhile exercise to determine if the City' s underlying documents that chartered the Audit Committee and Internal Audit function specifically define those practices. Within the Recommended Practices, ninety percent concern external auditors and financial reporting, and ten percent would apply to the internal audit function. The City is not required to comply but, since the Best Practices exists, we should incorporate that knowledge for internal quality assurance. The questionnaire has been completed, documenting how the City is in compliance in all major areas.Within the next three years, we should update the original resolution or charter to contain all the responsibilities of the Audit Committee and specifically address any discrepancies.Specifically, the resolution does not include a Council member as a voting member of this group. GFOA would recommend having two council members as voting members.Because the City has only apart-time internal audit position, it is nearly impossible to comply with professional standards for internal auditors. Despite this fact, we should consider incorporating Institute of Internal Auditors and GAO standards in theinternal auditor's workpapers. This would provide a foundation for compliance for possible future peer reviews and bring a higher degree of assurance to the internal audit work.8. Public comment: David Sundstrom.There was no public comment.9. Adjournment: The meeting was adjourned at 4:05 p.