City Council Subcommittee: Audit Subcommittee Goodyear City Hall 190 N. Litchfield Rd., Room 117 Goodyear, AZ 85338 |
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CALL TO ORDER
The meeting was called to order at 4:02 p.m.
The meeting was called to order at 4:02 p.m.
- Present:
- Mayor Joe Pizzillo; Councilmember Sheri Lauritano; Councilmember Brannon Hampton
- Staff Present:
- Deputy City Manager Dan Cotterman; Finance Director Doug Sandstrom; Finance Manager Jared Askelson; Finance Manager, Financial Services Celina Morris; Assistant to the City Council John Raeder; Chief Information Officer Justin Fair
| PUBLIC COMMENTS |
Before you begin to speak, identify yourself by clearly stating for the record, your name and address. This is the time for citizens who would like to address the Board on any non-agenda item within the jurisdiction of the Board. The Board will listen to comments, and may take any one of the following:
- Respond to criticism.
- Request that staff investigate and report on the matter.
- Request that the matter be scheduled on a future agenda.
| NEW BUSINESS |
1.
Discussion of Fiscal Year 2021 Independent Audit
Jared Askelson, Deputy Finance Director, began the meeting with a recap of the agenda:
1. Discuss the FY21 independent audit
2. Report on the items that the subcommittee wanted reviewed
3. Highlights of the annual comprehensive financial report (ACFR)
Deputy Finance Director Askelson also noted for the subcommittee that ACFR is the new acronym for our annual financial report. It is a change implemented by the Government Finance Officers Association (GFOA).
Deputy Finance Director Askelson provided a brief presentation explaining that there are three main components of the ACFR:
1. Independent Auditor’s Report - A draft of the ACFR has been provided. An unmodified or “clean” opinion is expected to be issued in the final report.
2. Report on Internal Control – Management expects that there are no significant deficiencies or material weaknesses to be reported.
3. Report on State Legal Compliance – Management expects that the report will indicate that the City has complied in all material respects with state law, with respect to the financials.
Deputy Finance Director Askelson explained that there were a number of other reports issued this year:
1. Single Audit Report on Federal Expenditures. The report is only required if the City spends more than $750K of federal Funds. With the receipt of the Federal Cares Act funds, a report will be completed for FY21. Management expects that there will be no exceptions to be reported.
2. Triennial Audit of the Court’s Minimum Accounting Standards (MAS) of the Court. The auditors will discuss further.
With no questions at this time, the Deputy Finance Director Askelson discussed the following highlights:
Net Position – This is an indication of the net worth of the City. In FY21, a milestone was achieved for the City, as our net position exceeded $1B. While the net position does not have an impact on financial reporting or bond ratings, it speaks to size of the City.
Member Brannon asked “If we sold everything, would that be the number?” Deputy Finance Director Askelson explained, in theory yes. However, in reality it wouldn’t work that way. It is a theoretical accounting construct to allow users of the financial statement to gauge the health of the City or compare cities.
Governmental Fund Balance totaled $253M. Note that although still an increase over the prior year, the increase is slowing down as the City is spending down bond proceeds and one-time money to build infrastructure. It continues to grow due to growth in construction revenues and increased population. Deputy Finance Director Askelson explained the different components of fund balance: unspendable, restricted, committed, assigned, and unassigned.
Member Sheri Lauritano asked if the full $29M shown was all general fund unassigned. Deputy Finance Director Askelson confirmed that the $29M is general fund unassigned.
Member Sheri Lauritano asked if the growth was due to general growth or the Cares Act? Deputy Finance Director Askelson explained that in this case it was growth, with sales tax collections being the main driver.
Member Joe Pizzillo asked how the $29M of general fund unassigned fund balance relates to what is available in the upcoming budget year. Deputy Finance Director Askelson explained that it represents the “jumping off point” in the upcoming budget year. In addition to that, there is also an adjustment based on the difference between the City’s ongoing operating revenue and operating expenses that will be calculated for FY22.
Given that discussion, Member Joe Pizzillo asked if the $29M could be considered a conservative estimate. Deputy Finance Director Askelson explained that given the activity over the last 6 months, that it could be considered a conservative number. Finance Director Sandstrom further explained that when we come to council with unallocated fund balance or unanticipated fund balance requests, that those come out of this portion. Member Joe Pizzillo asked if there have been significant requests in the past. Finance Director Sandstrom explained that there has been one significant request of $10M in the past. However, there are also other savings that may be realized and the City’s sales tax collections have been faster and higher than anticipated. Those adjustments will add to the one-time available funds.
Member Joe Pizzillo asked when we would have a general idea of what “is kind of, the pot of money” that would be available for next year’s budget? Finance Director Sandstrom explained that management will be coming to Council at the beginning of February. Our early numbers currently show, going into the budget, about $13M of ongoing and $40M of one time in the general fund, prior to any kind of changes, whatsoever. Member Joe Pizzillo asked if the $13M would have to cover any payroll, personnel, salary increases, etc. Finance Director Sandstrom confirmed, that it would. Member Joe Pizzillo commented that he had spoke to Human Resources Director Lockett, and that insurance costs appear to running reasonable.
Deputy Finance Director Askelson summarized and concluded the ACFR discussion, reiterating that management expects an unmodified opinion, with no significant deficiencies and no material weaknesses.
Jared Askelson, Deputy Finance Director, began the meeting with a recap of the agenda:
1. Discuss the FY21 independent audit
2. Report on the items that the subcommittee wanted reviewed
3. Highlights of the annual comprehensive financial report (ACFR)
Deputy Finance Director Askelson also noted for the subcommittee that ACFR is the new acronym for our annual financial report. It is a change implemented by the Government Finance Officers Association (GFOA).
Deputy Finance Director Askelson provided a brief presentation explaining that there are three main components of the ACFR:
1. Independent Auditor’s Report - A draft of the ACFR has been provided. An unmodified or “clean” opinion is expected to be issued in the final report.
2. Report on Internal Control – Management expects that there are no significant deficiencies or material weaknesses to be reported.
3. Report on State Legal Compliance – Management expects that the report will indicate that the City has complied in all material respects with state law, with respect to the financials.
Deputy Finance Director Askelson explained that there were a number of other reports issued this year:
1. Single Audit Report on Federal Expenditures. The report is only required if the City spends more than $750K of federal Funds. With the receipt of the Federal Cares Act funds, a report will be completed for FY21. Management expects that there will be no exceptions to be reported.
2. Triennial Audit of the Court’s Minimum Accounting Standards (MAS) of the Court. The auditors will discuss further.
With no questions at this time, the Deputy Finance Director Askelson discussed the following highlights:
Net Position – This is an indication of the net worth of the City. In FY21, a milestone was achieved for the City, as our net position exceeded $1B. While the net position does not have an impact on financial reporting or bond ratings, it speaks to size of the City.
Member Brannon asked “If we sold everything, would that be the number?” Deputy Finance Director Askelson explained, in theory yes. However, in reality it wouldn’t work that way. It is a theoretical accounting construct to allow users of the financial statement to gauge the health of the City or compare cities.
Governmental Fund Balance totaled $253M. Note that although still an increase over the prior year, the increase is slowing down as the City is spending down bond proceeds and one-time money to build infrastructure. It continues to grow due to growth in construction revenues and increased population. Deputy Finance Director Askelson explained the different components of fund balance: unspendable, restricted, committed, assigned, and unassigned.
Member Sheri Lauritano asked if the full $29M shown was all general fund unassigned. Deputy Finance Director Askelson confirmed that the $29M is general fund unassigned.
Member Sheri Lauritano asked if the growth was due to general growth or the Cares Act? Deputy Finance Director Askelson explained that in this case it was growth, with sales tax collections being the main driver.
Member Joe Pizzillo asked how the $29M of general fund unassigned fund balance relates to what is available in the upcoming budget year. Deputy Finance Director Askelson explained that it represents the “jumping off point” in the upcoming budget year. In addition to that, there is also an adjustment based on the difference between the City’s ongoing operating revenue and operating expenses that will be calculated for FY22.
Given that discussion, Member Joe Pizzillo asked if the $29M could be considered a conservative estimate. Deputy Finance Director Askelson explained that given the activity over the last 6 months, that it could be considered a conservative number. Finance Director Sandstrom further explained that when we come to council with unallocated fund balance or unanticipated fund balance requests, that those come out of this portion. Member Joe Pizzillo asked if there have been significant requests in the past. Finance Director Sandstrom explained that there has been one significant request of $10M in the past. However, there are also other savings that may be realized and the City’s sales tax collections have been faster and higher than anticipated. Those adjustments will add to the one-time available funds.
Member Joe Pizzillo asked when we would have a general idea of what “is kind of, the pot of money” that would be available for next year’s budget? Finance Director Sandstrom explained that management will be coming to Council at the beginning of February. Our early numbers currently show, going into the budget, about $13M of ongoing and $40M of one time in the general fund, prior to any kind of changes, whatsoever. Member Joe Pizzillo asked if the $13M would have to cover any payroll, personnel, salary increases, etc. Finance Director Sandstrom confirmed, that it would. Member Joe Pizzillo commented that he had spoke to Human Resources Director Lockett, and that insurance costs appear to running reasonable.
Deputy Finance Director Askelson summarized and concluded the ACFR discussion, reiterating that management expects an unmodified opinion, with no significant deficiencies and no material weaknesses.
2.
Reporting on Audit Issues and Input from Audit Committee provided at June 28, 2021 meeting.
A. Purchase cards
B. Payroll
C. Cash handling
D. Inventory counts
E. Contracts
Deputy Finance Director Askelson, in absence of the auditors, provided a summary of the items that the Audit Subcommittee discussed at the June 28, 2021 meeting. Deputy Finance Director Askelson said that management would be bringing the final draft of the ACFR to the Council in January. Additionally, there will be a presentation, as required by state statute, to Council from the external auditors. Deputy Finance Director Askelson noted that this is a change from prior years, where the auditors were present and management made the full presentation. The new statute requires the auditors to make a separate presentation regarding the results of the audit.
Following is the summary:
A. Purchase cards – Management reported that each year the auditors review transactions and make a sampling of transactions. There were no findings. Back up is being attached, as appropriate. Transactions have the appropriate approvals. When the statement comes in, there is a reconciliation process. All of the supporting documentation and approvals are in the system, which makes it easier for the auditors to review. Internally, we have a templated audit, where we take 25% of the statements and review 17 specific items, including approvals, back up documentation, compliance with other guidelines such as travel, food, etc. As a growing city, we do see more purchase card transactions/activity.
Member Joe Pizzillo Joe asked if we have gotten any more sophisticated on the purchase cards, as far as disallowing certain purchases. Deputy Finance Director Askelson explained that the issue that we have is that the controls are established by vendor versus the item.
Member Sheri Lauritano asked if we would have to lock out a vendor? Deputy Finance Director Askelson confirmed.
Member Brannon Hampton asked if we have an approved vendor list. Deputy Finance Director Askelson explained that we do, however, it is for larger purposes.
Member Joe Pizzillo said it appears that we couldn’t lock out specific items. Deputy Finance Director Askelson confirmed.
Member Sheri Lauritano asked if you could lock out certain wine and spirit stores or general stores. Deputy Finance Director Askelson confirmed.
Member Joe Pizzillo commented that he would have expected the technology to be sophisticated enough to able to lock out specific items. But, they aren’t there yet. Deputy Finance Director Askelson confirmed.
Additional discussion was made regarding how a health savings or flexible savings account works and the controls surrounding those purchases. Management explained that we do not have the same controls available. However, the City does have PCard Administrators, and management is currently determining whether there is additional functionality that we can leverage with the PCard Administrators or the system. But, at this time, the control is still at the vendor level.
B. Payroll – Management explained that, as discussed previously, the focus was on overtime, particularly at Public Safety. The auditors sampled the City’s payroll records and had no issues with how payroll is calculating overtime. Each year the auditors have done similar tests. It was noted that there was an upcoming Council discussion on overtime.
Member Joe Pizzillo asked if the auditor looked specifically at authorizations for overtime. Deputy Finance Director Askelson explained that there are typically two authorizations. One when the timecard is reviewed and approved. We are required to pay the amount reported on that timecard. The other is at the department level. For example, the police department has a separate process to authorize overtime in certain situations. The departmental authorization was not included in the scope of the audit. Therefore, we have not looked at the additional back up documentation that is generated from the department’s internal approval process. The auditors looked at the City’s official timekeeping system, approvals on timecards, and whether the system was paying accordingly.
Member Joe Pizzillo asked if the police department has additional steps involved to make sure that (for example) before a Sergeant gets X, or a Lieutenant get Y, that Z happened, etc.? Deputy Finance Director Askelson confirmed, and reiterated that it isn’t typically part of the scope of the financial statement audit.
C. Cash handling – Management explained that the auditors had no issues with cash handling. In the following year, FY22, the auditors will be taking a closer look since the Parks and Recreation department implemented a new system, Fusion, for scheduling and payments. Fusion was implemented in May 2021, so fairly close to year end.
Member Sheri Lauritano asked if we have started to see a lower percentage of cash use, with the new system. Deputy Finance Director Askelson explained that when we refer to cash handling, we include all payment types. Generally, we do receive less cash than we have in the past. For example, Development Services does not accept cash due to the risk of taking a large cash payment.
D. Inventory counts – Management explained that this was new for the City. The auditor came out in July, and accompanied by one our accountants, performed a physical inventory test. A recommendation from the auditors, not a finding, was that we add location to inventory listing. The current list only includes the item, quantity and dollar value. We do have knowledgeable people on staff that know where each item is located. However, it would be easier and more efficient to be able to sort by location. The auditor also recommended looking at possible inventory software solutions. Our current financial system has an inventory module. But, we are not certain that it would meet the needs of the different departments.
Member Joe Pizzillo commented that adding the location makes sense, especially if the person who has all of the answers goes somewhere else to work. He reiterated that it should be a priority.
E. Contracts – Management explained that based on our previous conversation, most of the focus was outside of the audit scope. We were looking at almost a forensic audit of capital contacts to include scope vs. what was delivered, the value of the contracts vs. whether we got our monies worth, or do we need to revise the contract. Those items are outside of our annual financial statement audit. The auditors conducted expenditure testing to determine if there was an appropriate purchase order and contract information.
Member Brannon Hampton asked if that would be a different type of auditor. Deputy Finance Director Askelson confirmed.
Member Brannon Hampton commented by providing examples of other entities who realized substantial savings from rebidding as part of their lean processes, and that there may be merit to looking at our contracts on a more frequent basis as opposed to “setting and forgetting”. Deputy Finance Director Askelson confirmed and agreed that being more proactive rather than waiting until there is a rush to extend or get a contract in place makes sense.
F. Information Technology controls – Deputy Finance Director Askelson introduced Chief Information Officer Justin Fair. Management had talked to the auditors about backups, network accessibility, accessibility to the servers, and an overall framework. Chief Information Officer Fair explained that last year there was a recommendation concerning data redundancy. Last year we had supplemental budget request, and we are tracking on that project to make sure backups are duplicated. Chief Information Officer Fair spoke to the auditors regarding our approach to Cyber Security Framework and the CIS controls Framework and received positive feedback. Management also reviewed the following items with the auditors: role-based access control, access to servers and network, back up strategy, as well as, the IT roadmap. Management also visited disaster recovery planning, and how we can restore, how long before we can restore, etc. Management also received positive feedback on these items, with no major concerns, particularly given the progress that has been achieved.
Court – Deputy Finance Director Askelson explained that the MAS audit was still underway. There were a few items that came up that required additional discussion, with some confusion about void payments and secondary approval. But, we are in process of resolving the outstanding issues and completing the engagement.
Deputy Finance Director Askelson, in absence of the auditors, provided a summary of the items that the Audit Subcommittee discussed at the June 28, 2021 meeting. Deputy Finance Director Askelson said that management would be bringing the final draft of the ACFR to the Council in January. Additionally, there will be a presentation, as required by state statute, to Council from the external auditors. Deputy Finance Director Askelson noted that this is a change from prior years, where the auditors were present and management made the full presentation. The new statute requires the auditors to make a separate presentation regarding the results of the audit.
Following is the summary:
A. Purchase cards – Management reported that each year the auditors review transactions and make a sampling of transactions. There were no findings. Back up is being attached, as appropriate. Transactions have the appropriate approvals. When the statement comes in, there is a reconciliation process. All of the supporting documentation and approvals are in the system, which makes it easier for the auditors to review. Internally, we have a templated audit, where we take 25% of the statements and review 17 specific items, including approvals, back up documentation, compliance with other guidelines such as travel, food, etc. As a growing city, we do see more purchase card transactions/activity.
Member Joe Pizzillo Joe asked if we have gotten any more sophisticated on the purchase cards, as far as disallowing certain purchases. Deputy Finance Director Askelson explained that the issue that we have is that the controls are established by vendor versus the item.
Member Sheri Lauritano asked if we would have to lock out a vendor? Deputy Finance Director Askelson confirmed.
Member Brannon Hampton asked if we have an approved vendor list. Deputy Finance Director Askelson explained that we do, however, it is for larger purposes.
Member Joe Pizzillo said it appears that we couldn’t lock out specific items. Deputy Finance Director Askelson confirmed.
Member Sheri Lauritano asked if you could lock out certain wine and spirit stores or general stores. Deputy Finance Director Askelson confirmed.
Member Joe Pizzillo commented that he would have expected the technology to be sophisticated enough to able to lock out specific items. But, they aren’t there yet. Deputy Finance Director Askelson confirmed.
Additional discussion was made regarding how a health savings or flexible savings account works and the controls surrounding those purchases. Management explained that we do not have the same controls available. However, the City does have PCard Administrators, and management is currently determining whether there is additional functionality that we can leverage with the PCard Administrators or the system. But, at this time, the control is still at the vendor level.
B. Payroll – Management explained that, as discussed previously, the focus was on overtime, particularly at Public Safety. The auditors sampled the City’s payroll records and had no issues with how payroll is calculating overtime. Each year the auditors have done similar tests. It was noted that there was an upcoming Council discussion on overtime.
Member Joe Pizzillo asked if the auditor looked specifically at authorizations for overtime. Deputy Finance Director Askelson explained that there are typically two authorizations. One when the timecard is reviewed and approved. We are required to pay the amount reported on that timecard. The other is at the department level. For example, the police department has a separate process to authorize overtime in certain situations. The departmental authorization was not included in the scope of the audit. Therefore, we have not looked at the additional back up documentation that is generated from the department’s internal approval process. The auditors looked at the City’s official timekeeping system, approvals on timecards, and whether the system was paying accordingly.
Member Joe Pizzillo asked if the police department has additional steps involved to make sure that (for example) before a Sergeant gets X, or a Lieutenant get Y, that Z happened, etc.? Deputy Finance Director Askelson confirmed, and reiterated that it isn’t typically part of the scope of the financial statement audit.
C. Cash handling – Management explained that the auditors had no issues with cash handling. In the following year, FY22, the auditors will be taking a closer look since the Parks and Recreation department implemented a new system, Fusion, for scheduling and payments. Fusion was implemented in May 2021, so fairly close to year end.
Member Sheri Lauritano asked if we have started to see a lower percentage of cash use, with the new system. Deputy Finance Director Askelson explained that when we refer to cash handling, we include all payment types. Generally, we do receive less cash than we have in the past. For example, Development Services does not accept cash due to the risk of taking a large cash payment.
D. Inventory counts – Management explained that this was new for the City. The auditor came out in July, and accompanied by one our accountants, performed a physical inventory test. A recommendation from the auditors, not a finding, was that we add location to inventory listing. The current list only includes the item, quantity and dollar value. We do have knowledgeable people on staff that know where each item is located. However, it would be easier and more efficient to be able to sort by location. The auditor also recommended looking at possible inventory software solutions. Our current financial system has an inventory module. But, we are not certain that it would meet the needs of the different departments.
Member Joe Pizzillo commented that adding the location makes sense, especially if the person who has all of the answers goes somewhere else to work. He reiterated that it should be a priority.
E. Contracts – Management explained that based on our previous conversation, most of the focus was outside of the audit scope. We were looking at almost a forensic audit of capital contacts to include scope vs. what was delivered, the value of the contracts vs. whether we got our monies worth, or do we need to revise the contract. Those items are outside of our annual financial statement audit. The auditors conducted expenditure testing to determine if there was an appropriate purchase order and contract information.
Member Brannon Hampton asked if that would be a different type of auditor. Deputy Finance Director Askelson confirmed.
Member Brannon Hampton commented by providing examples of other entities who realized substantial savings from rebidding as part of their lean processes, and that there may be merit to looking at our contracts on a more frequent basis as opposed to “setting and forgetting”. Deputy Finance Director Askelson confirmed and agreed that being more proactive rather than waiting until there is a rush to extend or get a contract in place makes sense.
F. Information Technology controls – Deputy Finance Director Askelson introduced Chief Information Officer Justin Fair. Management had talked to the auditors about backups, network accessibility, accessibility to the servers, and an overall framework. Chief Information Officer Fair explained that last year there was a recommendation concerning data redundancy. Last year we had supplemental budget request, and we are tracking on that project to make sure backups are duplicated. Chief Information Officer Fair spoke to the auditors regarding our approach to Cyber Security Framework and the CIS controls Framework and received positive feedback. Management also reviewed the following items with the auditors: role-based access control, access to servers and network, back up strategy, as well as, the IT roadmap. Management also visited disaster recovery planning, and how we can restore, how long before we can restore, etc. Management also received positive feedback on these items, with no major concerns, particularly given the progress that has been achieved.
Court – Deputy Finance Director Askelson explained that the MAS audit was still underway. There were a few items that came up that required additional discussion, with some confusion about void payments and secondary approval. But, we are in process of resolving the outstanding issues and completing the engagement.
F. Information Technology controls
G. Court
3.
Discussion of Fiscal Year 2021 Annual Comprehensive Financial Report
Deputy Finance Director Askelson apologized that the auditors weren’t able to make it. Barring any other emergency, the auditors will be at the January City Council meeting to present the final report.
Member Joe Pizzillo asked that if there are any items that were not discussed today that we reconvene to discuss prior to the final report. Deputy Finance Director Askelson agreed, and indicated that we would request a follow up meeting, if necessary.
Deputy Finance Director Askelson apologized that the auditors weren’t able to make it. Barring any other emergency, the auditors will be at the January City Council meeting to present the final report.
Member Joe Pizzillo asked that if there are any items that were not discussed today that we reconvene to discuss prior to the final report. Deputy Finance Director Askelson agreed, and indicated that we would request a follow up meeting, if necessary.
| INFORMATION ITEMS |
Comments, Commendations, Report on Current Events and Presentations by Board, Commission or Committee Members, staff or members of the public. The members may not propose, discuss, deliberate or take any legal action on the information presented pursuant to A.R.S. § 38-431.02.
| NEXT MEETING |
Review the date, time and location of the next meeting, if applicable.
| ADJOURNMENT |
There being no further business to discuss, Chairman Pizzillo adjourned the meeting at 4:35 p.m.
Respectfully Submitted by:
Respectfully Submitted by:
_________________________ Amie Gressett, Management Assistant |
__________________________ Doug Sandstrom, Finance Director |
Date:___________________ |