2014-12-2 Work Session Minutes


Council met for a work session on Tuesday, December 2, 2014 in Council Chambers. The work session began at 6:00 p.m.

In attendance were Council President Jack Mundie, Council Vice President Jean Mope, and Council Members Keith Bast, Jeff Cusat and David Sosar.

Bill Seymour of SB & Company gave a presentation regarding the 2013 Audit and Single Audit. He said they discovered no instances of fraud, but there were various material weaknesses in internal control over the City’s financial reporting. They received full cooperation from management. Seymour said his company uses a risk-based audit approach, which showed some significant risk indicators. They focused on the underlying process and functions. He stated the pension fund activity is not recorded in the general ledger, but the pension fund does get reconciled on a regular basis. This is a material weakness. There is a significant amount of co-mingling of the pension/OPEB activity with the pension funds and the general fund. He stated that upon review of the account for loans receivable, the monetization agreement for delinquent receivables requires upfront payment and guarantees collection. The balance due is not monitored or reconciled on a regular basis. He said that the inter-fund activity is not being reconciled and there may still be some outstanding balances. This is a significant deficiency. Mope asked if he recommends all transfers come before Council. Seymour responded yes for reasons of transparency, if it is related to the budget. He stated that the new GASB needs to analyzed and implemented. Some accounts are kept on a cash basis and rely on the auditors to propose the adjustments. There is no formal risk assessment process in place. He added that there is no internal audit done at this time. Seymour said that total assets are down by approximately $556,201. The new GASB will be put in place at the end of the year regarding the pension. He said this will address unfunded actuarially accrued liability. Seymour stated new standards will be coming out in about two years for OPEB. This information will be put on the face of the financial statements. He stated the City will break even for 2013 with regard to the pension. Seymour commented on the audit adjustment on page 21. He said there were no illegal acts detected that would cause a misstatement of the financial statements. They had no consultations with any other accountants regarding this audit. Mundie asked if Seymour is familiar with our current financial software. Seymour said yes but it is “dated” software. Although it is dates, it provides the information that is needed. One of the problems is there is no separate activity posted for the pension funds, and it has to be traced throughout the system. Pribula and some other employees in that department showed him where the necessary reports are. Sosar said it concerns him that the inter-fund activity is not reconciled. He said this encompasses 10 separate accounts and it could become confusing on how the money is being spent. Seymour said on page 37 of the audit, there is $1.1 million of payable and receivables, and some of them have had no activity on them for quite a while. Transfer should have been done. Mope stated that the Airport billing is done through the general fund, and the Airport owes us a lot of money. Seymour agreed. Sosar said the City should have a controller to perform internal audits of the City accounts. Seymour said adding a new position adds additional costs, but having an internal auditor is a good idea. Mope said that the sewer lines were turned over to the Sewer Authority, and there was a balance in the sewer transmission fund when this occurred. She added that this was a dedicated fund and the money should have been used for what it was intended. Sosar stated the current system does not allow an easy way to follow the money trail. Seymour said inter-fund transfers are common in municipalities, but they should only be temporary. If the money is still not there, then it may not be considered temporary. Sosar said that if transfers would come before Council in an open forum, there would be a record of it. He stated that there is a lack of central purchasing in the City, and this would benefit the City and help keep track of things. Mope said we should have a capital budget, so we can anticipate some of these expenses. Seymour said the City needs a strategic budget for more than one year out. He suggested a five-year strategic budget, but the City would need to find a way to fund those future costs. Sosar said Council used to receive a monthly financial statement from the Administration, but has not received this in quite a while. Mope said Council should be receiving these statements in accordance with the Third Class City Code. Sosar said a monthly financial statement would be beneficial and would keep Council informed. Seymour stated more transparency helps with the decision-making process, but there still needs to autonomy for management. He felt Council should be receiving the reports they want based on what the employees’ time and workload allow. Sosar asked if our software is able to make the requested reports. Seymour responded that the software is not the issue, but there is a labor issue due to minimal staffing. There needs to be redesign of the software but it is a labor intensive process. Sosar asked if reconciling can be done easily, and Seymour responded yes on accrual basis but not necessarily management basis. Seymour added that he did not run into any information being withheld. Cusat said he noticed some accounts are due money from other funds, and we cannot have unaccounted funds. Seymour agreed, but said if there is an agreement, it may be different. Cusat asked if the City could start out the year with no unencumbered funds. Seymour said financially at gross, yes, but it cannot be determined what the expectation is for the fund. The money should be paid back. Cusat asked if a transaction should be made to “zero it out,’ and Seymour responded yes. Cusat asked if Seymour recommends having cash on hand, and Seymour said yes, between six and nine months of expenses. Mundie asked if we should look into getting a more efficient accounting system. Seymour responded it is not about the system itself, but it is how it is implemented. It is not a software issue. It is how the transactions are being recorded. Mope and Mundie asked if there is a better structure for the budget, and if there is something that is easier to read. Seymour said the budgetary process should have first and primary control. Improvements could be made to allow for more easily retaining reports. It should be tailored to fit the City’s needs. Bast said that the issues are the implementation of the software program and how the information is being put into the system. He added that we need to fix these problems to get what we want out of it. Seymour said the most important things are correct, but the transfers and pension activity are the problems. Bast said changes to the software could also streamline the process of how things are entered. The bulk of adjustments were done in transfers and pensions. Mundie asked if there were any changes made to the 2012 audit. Seymour responded the balance was restated. He said restatements happen from time to time, and some loans and bad debt expenses had to be written off. He talked to Dennis Moore about the issue with a 30-year, zero interest loan. He said this is not an asset in today’s dollars. Mundie asked about the fund for the immigration lawsuit. Seymour said it cannot be estimated at this time, so he cannot disclose anything on that yet. But, it will be recorded when finalized. He said the City may have a large liability in the near future. Mundie said that mediation on this matter is expected. Nothing has been awarded yet and no judgment has been made yet. Mundie asked Seymour to forward Council the final draft of the 2013 audit as soon as possible.

Mundie adjourned the work session at 7:30 p.m.  

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