Audit Advisory Committee - Regular Meeting

Hey. It's March 17, Saint Patrick's Day, and I'm gonna call the audit advisory committee to order. And Joe, would you do a roll call, please?

Member Fontana? Present. Member Castholm?

Present.

Member Ritchie?

Present.

Vice chair McFan?

We're going to ask her permission to be virtual. So she's gonna be virtual, and we'll get that approval when we start the agenda.

Member Scherzinger? Member Sommerfeld? Here. And chair Siegel?

Here.

Please stand for the if you if you're able to plant the for the pledge of allegiance. I pledge allegiance to the flag of The United States Of America and to the republic for which it stands, one nation under God, indivisible, with liberty and justice are all. Thank you. So I am not sure which order we would do this, but Elena McFan is going to be attending the meeting virtually. So we need to have a motion to allow her to do that.

I would entertain a motion to allow Elena to attend virtually. Second. It's been moved and second. All in favor signify by aye. All opposed, like sign. So Elena, you're you're on for the meeting virtually. I'm happy to have you.

Thank you. For allowing me. Can you all hear me okay? Just

a moment.

We we can. And we can see. Thank you. So we we need to approve the the the agenda for today. So has everyone had a chance to look over the agenda? And are there any additions or corrections that you would like to bring forward? If not, I would entertain a motion to approve today's agenda.

I move to approve.

Terry, move to approve. Do I have a second? Second. Second by Daniel. All in favor signify by saying aye. Aye. Aye. Any opposed? Like sign. So the agenda for March 17, 2026 is approved.

And as everyone had an opportunity to look at the minutes of our previous meeting, which was February 25. And if so, does anybody have any corrections or comments about the those minutes? And if not, I would entertain a motion to approve the minutes of the that meeting, January 25.

Motion to approve.

It's been a motion to approve and seconded. All in favor signify by saying aye.

Aye.

Aye. Opposed like sign. So the minutes of the 02/25/2026 are are approved. Moving on to old business. Of course, our old business is our ongoing audit and which which which is probably gonna be this committee's focus for the next month or so.

And and Carol is going to basically be a one white man show today and give us a complete update of the update of and progress of the audit. And if you would include anything you got to say about internal controls and also regulatory compliances, I would appreciate that, Carol. So if you would.

That's great. Okay. So where we stand with the audit. Right now, I think Elena mentioned last night at the council that for the next two weeks, CLA has pencils down to give the city some time to pull together some of the additional paperwork that's needed for the audit work papers and the audit review. And that's primarily focused on some of the GASB compliance related to technology subscriptions and leases, whether they are actually right to use assets or whether we can expense it. So it's an accounting review. We have to provide evidence of that review. It was mentioned during the council meeting that we are asking CLA to act in a consulting basis. I want to be very clear. We're not asking the auditors to act in a consulting basis.

They do provide guidance as we move through the audit on what they want for the work papers. But for the review of some of these GASBs, we'll be using a consultant through CLA to look at that and do the analysis on the contracts to determine whether or not we're doing the proper accounting treatment and how it should be reflected on our financials. So that's where we stand with it right now, and those are a couple of big things that are going on. They're at the process of reviewing what we've provided. They've come back with questions.

We've been responsive. We have just a few of the small open items related to that, just getting them some more work papers and some more supporting documentation. So for the next two weeks, it's pencils down for CLA, except for what we're giving them in response to their questions and what we're doing for the review of some of the accounting treatment for technology subscriptions and leased assets. So that's where we're at. We did apply for an extension through April 30 to file the ACFA with the GFOA. That extension was approved this morning, so CLA has it. I did speak with Chris this what's today? Last week or May maybe Monday. No. Last week, on Friday.

We had an afternoon call just for a status update on where we stood. And he's expressing not concern, but he wants to be very above board that given the reviews that we're going through right now, it's more likely than not that we will have to ask for another extension to deliver the ACFR in May. That's where we'd like to be at the latest, not going right to the deadline to June. So we're going to push through, get as much done as we can as these next two weeks, get CLA back up and running, and that's to help mitigate some of the costs too. There's no need to have them sitting around. They can deploy their assets someplace else while we're gathering stuff. They are being responsive. I've had a few questions out to them. They're getting right back to me. So that's where we are with the audit.

Does anybody have any questions about the audit status right now? Hi.

Hi, Kurt. Just a question about the consultant arm of CLA. Do we have a separate contract with them?

We're asking for a statement of work before we move forward with that, and we don't need them to start that for us to start collecting the information we need reviewed, which is pulling out the contracts.

Okay. Given that with last year, there was concern about the cost of the audit, and I've heard repeatedly that there will be additional costs this year. Is there any number that will can be brought to the council? Or, you know, is it under the 50,000? Or where are we with

I I think I don't let me put it to you this way. I don't think we're gonna adhere to a threshold on what goes to the council. I think it's gonna be fully transparent as to what the cost is, be it 5,000, be it 10,000, just to stay above board. There's no reason not to. What we're trying to do is a two step process. So I've asked CLA to give me, what do we need to get the ACFR done with to make sure that we're in compliance? And what's the second step? What do we need to keep this up and running from here and feeding? So I've asked for two two levels of pricing. One really directly related to getting the audit done and making sure our financials are complete and accurate with respect to some of the accounting guidelines.

And then number two, I don't want that undone. What are some like how do we stand this up for care and feeding? So it's going to be a two step process. So I've asked for pricing on both so that we're aware of we can make our choices as we move through it. And ultimately, it's not my choice, but I thought it was a good idea to ask for to separate it.

I think that's great given what we experienced last time there, transparency that you're looking for now. Good. Any

other questions on that?

I think so.

Well, if anything comes up to mind, I mean, should be a conversation. So internal controls. One of the things Chris

Actually, Carol Oh, sorry,

I apologize. Sorry. No, don't apologize.

Oh, wait. I'm sorry. Go Alana. I saw So your last

the question I have and that I wanted to reiterate perhaps was Chairman Brechnitz comment last night that as part of the process that we will indeed adhere to the expectation that a draft report will be provided not just to the advisory committee but also to the city council. So just reiterating that for everyone here that that is an important part of the expected process here. Do you have any sense as to whether that part is at risk or how we can ensure that that happens?

That's up to us. That's up to Chris and myself that and we are committed to getting the information to the council, which is, you know, part of the process. So there is a three step process to it. The first one is we do submit to the GFOA. But before that goes in June, or when we get it done, we want to make sure that the council sees it and understands what's in it, any issues identified upfront.

Official certification doesn't happen until after the auditor's report is issued, but there's no reason we can't give a preview of where we're at and what's being filed. But the certification is required later on in the process, which I think caught people by surprise because there wasn't transparency as to any weaknesses or control issues that were identified throughout the process. So we're committed to bringing everybody along through the process so there are no surprises. So Elena, we are committed to getting it to the council and to the committee before it's released.

Super. Thank you.

Carol, go ahead. You had other

Oh, internal controls?

Yeah, internal controls.

So he reinforced that right now there's very little segregation of duties in the department due to the staffing levels. And one of the things he said is some municipalities say, we're going run with that risk. I will say that while we don't have an adequate segregation of duties due to our staffing level, we do have you you have to do a risk profile on certain things. So anything where there's cash being involved, we're wiring money, or we're doing payroll, we're making sure that we have that second line of defense, and we are taking the time to review it. It is placing a burden on the team, but I think it's important to have that integrity to make sure we understand what's going out just as much as what's coming in.

So while we may not have the internal controls on initialing everything and dating everything, I want to assure you that we do have dual control when it comes to wiring funds, reviewing payroll before it's released. So it's there. Is it adequate? Do we have enough backup for that? Probably not.

And that's where I think the city or any municipality has to determine what their risk tolerance is as far as staffing and where they're willing to take the risk for maybe not staffing in certain roles. So I just wanted to stress that it will be acknowledged. There will be some control weaknesses in there. That's a common theme continued from last year. But I don't want anybody to feel concerned about payments and outflows.

Very good. I just have a question. As you go through these different risks and you identify that there's some gaps, some you decide to accept, What is the approval process on accepting the risk?

We haven't decided to accept anything yet. We'll be going through the audit, and then we'll have to sit down and determine look at the staffing model, and that's ultimately not up to me. Right? We can identify the risk. We can quantify them. We can, you know, mitigate to the you know, put the mitigate in place. But ultimately, it's gonna be up to what do we do in the budget, what's funded, and and what's appropriate given given where we are as a city with with what we wanna spend.

I think it's appropriate to accept some. Right? But I know the process. Is it city manager or is it city council?

Right. And I and I I would agree. I worked for an organization where the risk tolerance was zero on everything, and that's expensive, and it wasn't necessary. So I think identifying the risk tolerance, what we're willing to take, assume for risk. Not that it's going be realized, but I think that's an important part of this process.

And in regard to regulatory compliance?

So regulatory compliance with the audit, we're going to hit the deadlines, make sure that we've filed in compliance. But I do want to say it's not that we're standing still in the department. Even though we are short staffed, team is working incredibly hard. It may not seem like much, but we're going through the achievement process right now. It's due April 30 to make sure that we have anything that hasn't been cleared within five years. We are following up people that have these checks that haven't been cashed. I think there's a total of only 25 right now, but that's rolling. There'll be more next year, mostly utility customers. So we're reaching out if we have their context information to see if they got the check. If not, we'll avoid it, we'll reissue it.

We're doing everything to see if we can get it to them versus having to submit it to the state by April 30. So that's where we are with regulatory compliance right now and one of the major things going on.

Any other questions for Carol regarding the audit and that we need her to clarify at this point?

Carol, how are you doing with open positions? Are you seeing applicants coming in?

So we weren't having much luck when we were advertising for just control is a really important role. I'm doing both right now. It's amazing the volume of work that comes across, just reviewing every invoice before it gets approved, looking for anomalies, making sure things are booked appropriately, funds are being accounted for. So Casey and I have a strategy, and we posted the finance director role as well as the senior accountant role to get some qualified candidates in. And one of the things I said to Casey, what's important to me right now is that we get the ship righted and that we get some heavy hitters in here so that we can keep things moving and mitigate the risk, get the team trained, and get the resources we need to have a healthy finance We've got some great applicants, and I start interviewing one right after this meeting and another one tomorrow.

So we're looking to see who's the best fit for the director role, who's the best fit for the controller role, and we are seeing some traction on the senior accountant, not much. So hopefully, we can continue pushing for that. So that's where we're at right now.

At least you have some good applicants out there

that are It is. And we do need some heavy hitters to come in and put the controls in place, the review process in place, and to train, to bring that expertise in to help train the team.

Tom, your lights on? Did you mean to? No. Okay. Just moving on. Any other questions for Carol before we move on? First of all, I was remiss not recognizing that we have three counselors with us today. We always have these three counselors with us, and we're always happy to have you, counselor Gray, Xuan, and and Henry. So, thank you, the three of you, coming. And of course, last last night, Elena and I made a presentation to the city council.

And so you're gonna hear this maybe hear this twice. But we we just basically tried to give city council an update on where we stood with the with the audit and basically what Carol just explained to us today. And Elena did a very outstanding job. We have this chart that she put together, kind of was a road map to where we were and where we're going and where we're gonna be. And she did she did that.

And I think the main objective of last night's presentation was to assure the city council that the audit is progressing slowly, maybe slower than we wanted to, but it is progressing. And and but our main I guess you would call it objective is to be as transparent as we possibly can with the council. We want no surprises. We want the city council to understand exactly where we are at all times with the audit. And, we also assured them that, they will they will definitely have an opportunity before it's filed to totally review the audit.

We'll we'll be setting up some kind of a meeting, both for the this committee plus the city council to review the audit prior to it being filed. That was not done last year. I don't know if it was some years before that. But, for this year, we wanna make sure that the city council is totally aware of what's going on. And that's our commitment. We're no surprises here. So that presentation I thought went well. Any other staff communications? Any other staff? Not many staff here.

And any city council comments if you care to? Always happy to hear from you. And we appreciate, again, you being here. And there's no no one in the public here. Exactly. I'm really upset about that. Yeah. Yeah. Okay. So at our at our last meeting, the the committee voted on some future dates.

And we we're so we're we're kinda committed to future dates. So the next one would being on April 21 at 11AM, and that was approved by the by the committee. And then May 19 at ten a 10AM. So those two meetings are already set and scheduled. We did not schedule a meeting for June. But prior to June, we'll see, you know, what the progress of the the audit is. And we'll probably need to insert a meeting. It could be a meeting of the committee. It could be a meeting of a joint meeting between committee and the council. Later on.

And we got to get the audit completed. And once we do, we'll decide how we want to handle it in June because I think the filing deadline is the June. So at this point in time, we definitely have a meeting on April 21 at eleven and on May 19 at ten. And then further down the road, we're going to have an August 18 meeting. But we got to get the audit done first and that's communicated. So any other comments from committee members or any thoughts or ideas? I'm open for that. Elena, your light is still on. Do have any thoughts?

I I didn't have anything else to add, so it's possible that my hand did not get lowered. All good.

Okay. Well, we always like to see your hands. Thank you. And as far as proposed agenda topics, I think the major topic is this audit. And we, you know, we have to be the audit audit policeman here. So that's that's our major major topics going forward. And if anyone else have any other comments? Because did think this was going to be a short meeting, but it's probably shorter than I even anticipated. Terry, did you have some Quarterly

report, quarterly financial report, will we see anything in April?

You'll see it in May. You'll see the standard quarterly April quarterly Q2 report in May we have everything done. And that will just be the one pager. And we're trying to determine what we can put together for a package for the quarter. But I'll be blunt, I'm going to be focused on the audit.

Yes, exactly. And, Harold's got so much to do on the audit. The question. I didn't I mean, even

see it abridged.

Even down the road, you know, I I I'm a balance sheet guy, and I just love to see a balance sheet, but that's gonna take some time. And I wouldn't even bother pressing you on that at this point in time. You've got bigger fish to fry. So we'll talk about balance sheet as we go into the season.

And I think that would be a great future topic on just the financial package. What was presented to the council last quarter had a lot of information that was requested, but if you want to look at a financial package that flows through, you would start with your balance sheet and you look at the P and L and maybe some of the KPIs. And then do we focus we could definitely focus on the general fund, but what do we need to see for the enterprise funds too? Yes.

And the regarding regarding working with CLA, I think they have been extremely cooperative. And and I think Carol and CLA have developed an excellent working working relationship. And I think they're they're happy on on both sides. So so I'm I'm delighted about that. And as far as additional costs, they have no idea yet. But there will be some. And and we did and we

did My concern was that we don't blindside the council just because we know what happened in the history of all this. And CLA, I'm sure, was very embarrassed over that.

Yeah. We we we definitely are not going to blindside the council. I mean, as soon as we know something, we'll try and bring it forward in some way or fashion or bring it forward. Manager that kind of thing.

Dana, it was made clear to the council that the audit will not show material improvements over the prior year?

We did. And they'll be updated as we go along.

Chair Segal, may I address the fees? So there will be the separate fees for the GASB review. Our city manager has reached out to Chris at CLA to say, we need to be aware the range, we need to know what the overage is all along because we do have to bring it to the council. And that's why I'm saying we're not going to wait for it to hit threshold. So as Chris finds that it's quantifiable, we will bring it forward.

Yeah. Yeah. I I think CLA is doing a good job and I'm happy to have them as our as our audit firm. Any other topics or anything anybody wants to say? And if not, I I would entertain a motion to adjourn this meeting, and we'll meet again on April 21.

Motion to adjourn.

Been moved to adjourn, and it's been second to adjourn, and meeting is adjourned. Thank you all for attending.