Audit Advisory Committee - Regular Meeting

We have three members of the committee who are online and I would like a motion to allow those three people which would be Scherzinger, McFann, and Fontana, if three of them could participate online. Do I have a motion for that? So moved. Second?

I'll move that, but I'd also like to make a comment. Since we have four present members, I think based upon the last council meeting, it's important for us to have it on the record that Chris Chris's position was vacated based upon the ordinance. And even though the councilors chose to disregard that, the ordinance still stands. And there's nothing that I see in the ordinance that gives the councilors or the city manager allowance to arbitrarily decide that a member who doesn't meet the criteria of the ordinance continue. So just for the record.

We'll address that. I'd appreciate it. All who are able, please stand for the Pledge of Allegiance. I'll 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 for all.

Just for the record, I'm sorry to interrupt, Chair. I don't think you completed the motion to allow us to participate virtually.

OK, thanks for bringing it. We have a second. All in favor signify by saying aye. Any opposed, like sign. So you three are approved. And thank you for joining that meeting. And just before I start the meeting, I'd like to comment that the city council meeting on Monday night there was discussion actually two issues one that this committee was constantly changing meeting dates and not meeting when possibly when they should and of course I would like to address that because Our main objective in the past several meetings was the completion of the audit. And at our last meeting, we made a motion to have our next advisory meeting, which would have been on May the 19th. But since there was no way the audit could have been completed or even discussed at that time, the committee voted unanimously to change the meeting date to June 10th. thinking that that would be a safe date. We would have the audit completed. We would be able to have the presentation to the committee and then, of course, address it to the city council. As we approached that date, it became apparent that we would not have the audit completed in time to actually have that meeting and have Chris Kessler come and make the presentation. So we were like painted into a corner. And It actually forced us to have the meeting today instead of when we would have had it on June the 10th. As chair, I was disappointed that it took us so long to get the audit completed. We made a commitment to the city council that we would complete it and bring it to them prior to us filing it on June the 30th. That was our intent. We wanted to do that. Unfortunately, the Audit was not able to get completed in time, but we did file it in time on June the 30th. I just wanted to explain that because there was discussion regarding our committee changing dates of the meetings, and that is hopefully an explanation. The second issue was removal of a committee member. You know, I don't feel that it's the responsibility of our committee or certainly as chair to monitor when a member of the committee is absent or present. Our main objective is to have a quorum for all of our meetings, and we have always had a quorum for our meetings. I went back and looked at the rules, and basically it says if you – miss 30% in a 12-month period. So I don't know when that 12-month period starts or stops, but there's a lot of question about that. So it certainly is not mine or our committee's job to judge that. I think that's a responsibility of city council. We have no problem whatsoever with our committee person who is subject of that that issue so that's that's where where I stand you know and hopefully that explains explains that being yes it is it and the committee dates

The finance department and CLA, in my view, set expectations that were missed continually, where we set dates expecting audit to be complete, drafts to be done in March, missed those, set new dates month by month by month by month. And finally, we hear, well, the real date is June 30th and even if we miss that we can push it on a little bit farther than that so You know it's not the committee's responsibility to produce the audit or the financials for audit and The expectations that were laid out were missed Considerably based on those expectations that were put forward it would have been better if if The finance department and the auditor would have said, it's going to be done June 30. But we were led to believe March, then April, then May, then OK, let's move it to July.

So I just wanted to. Daniel, thank you. Thank you. You're absolutely right. And thank you for those comments. I appreciate that.

I would just like to add something to that. I totally agree with what you're saying. It was a moving target. And we kept changing dates. And it was very frustrating. And I think as a committee, we prided ourselves on being responsible towards the issues in this audit, especially because of the audit that we had last year. I particularly feel that we missed a lot of opportunity. Basically, I feel that we are as blind now about what's been going on in the audit as we were when we walked in the door. Because we've really not seen anything until now as far as the attendance goes and the moving target on meetings Yes, we've had to make a lot of changes But one of the things that we did do is spend a lot of time in this committee Agreeing on dates to try and make sure that we were all available. So I don't necessarily think the excuse of Well, the movement of the dates precluded people from being able to be available. We had opportunity to set dates. We even had opportunity probably for this date if we so choose. So that's my opinion. Thank you.

Chair Siegel, I wanted to – this is Elena. May I offer something as well?

Certainly, Elena. Thank you.

Thank you. And thank you for letting several of us participate here virtually. I would also point out, for the benefit of those who are participating from the public, you all will recall, and certainly the committee does, that we structured the calendar for this committee very deliberately with the input from the finance department and the external auditor. No part of the milestones or the project plan was a surprise. So thank you, Dan, for pointing that out. That also opens for us a question when we get to the next meeting discussion. But more broadly, I think it opens for us a question as to whether we should ever expect that an audit will be done and submitted at the end of March. Or if we should reset expectations because we have a city, we have a city council, and we have a committee here who were all led to believe, including all the way through the April meeting minutes, that we would have no problem reviewing the report before it was submitted.

Thank you, Elena. Thank you for your comments. Bruce, do you have a comment? I sure do.

Thank you so much. I will start by pointing out to Member Sommerfeld that if you stand by your position that I shouldn't be here today, by the way, I'm the culprit, that we no longer have a quorum and this is dismissed. So I just want to Mentioned that little thing. I recently found out I missed three meetings That's on me. I communicated months ago that I had missed two to chair Siegel One of our dates I cannot recall whether we moved it to that date or not Whether it was subject to that but I was in a deposition and judges don't move things on my whim so we spoke and it was you know I was under the impression things were things were fine there I strongly believe rules matter and those of us who serve the city should hold ourselves to the same standards so accordingly I owe this committee an apology I am fine with that and I'm fine with whatever repercussions the council chooses that's I take a hundred percent responsibility I will point out that I I believe I've got perfect attendance on the Beach and Coastal Committee. We don't move meetings. But that's, again, that goes back to an excuse and I'm trying to avoid that. Out of respect for the city manager and Councilman Palumbo who appointed me here, I believe it was really important for me to be here today so that you had a quorum so that we could get this done. After today's meeting, I'll work with them regarding the appropriate next steps, whatever that is. Since I've got the floor, I'm going to move on from my personal – well, less personal. I want to recognize Chair Siegel and Vice Chair McFann for the outstanding job they've done over the last year. You came in at a trying time. I think the tasks and the charge of this committee morphed over that time. The tasks became more corporate audit committee like and with that you adapted perfectly. It will never be perfect because we aren't a corporate audit committee. We don't have staff reporting to us. We have to go through city council to effectuate things. And really, as a result of that, our role is basically to ask thoughtful questions, provide independent oversight, and help the council understand. And I think you did a great job bringing us to that point. So thank you.

Thank you.

I also want to take one more moment to thank Carol. I know you're going to be moving on soon. And in a like position, you were here with us for eight months during a, I think, don't hold me to the number, but came in in similar turmoil, helped us, worked with us to turn things around. You had turnover on staff because of a lot of that. And I can't give enough gratitude for everything you did to help do this, and I have no doubt that the new people we are about to be introduced to will come in and build on that. So the one meaningful improvement I would suggest is start to get into a regular reporting cadence throughout the financial year and, of course, implement the auditor's recommendations. But I'm not going to go deep there. We're going to have plenty of time to discuss that. And I think I'll leave it at that. I had more words, but I'm going to leave it at that.

MR. Thank you, Chris. Appreciate that. And that leads us into – I agree, Marcia, thank you for – I mean, Marcia, you're our new chief financial officer, and it's on the agenda that you introduce yourself. Carol, thank you for all the work you have done on this audit. We appreciate that very much. And, Marcia, if you would take a minute just to introduce yourself to the committee and people in the audience.

Sure. I'm Marcia Saul. I'm very happy to be here. I am a CPA, most recently working for the city of Jacksonville as the comptroller. The comptroller in the city of Jacksonville is responsible for the entire accounting work, works closely with the other divisions. finance for that city obviously as we all know Jacksonville is huge compared to Marco Island there's pros and cons to that I'm very happy to be here to a smaller environment I have decades of experience with audits for small organizations and large they are challenging and I totally agree with the comments on Carol I'm very grateful she was here and she's stuck around so far and has agreed to stay a little longer to help get Chase and I Acclimated to what's going on. I am somebody who would rather under promise and over deliver So it would definitely be my preference to say and I'm not saying this yet But it would be my preference to say that we will definitely get the audit done on time and we got it done on time This year if we can get it done sooner, that's great, too But I would definitely not favor setting an expectation for getting it done super early and missing that deadline We don't want to do that Marco Island is small enough, and I'm really happy that we were able to get the audit out on time. I don't see why we couldn't get it out on time next year with even less angst and hopefully no findings at all, correcting the ones from the prior. So I'm very happy to be here, appreciate the opportunity, and if you have any particular questions for me, I'd be happy to answer them.

Thank you, Marsha. Appreciate it, and we're happy to have you on board. And Chase, would you introduce yourself? Chase Calloway is going to be joining us in the finance department. You would, Chase? Yes.

As you said, I'm Chase Calloway. I don't quite have near the impressive background as Marsha, but hopefully working my way towards that. I'm coming from Mississippi. I work for the state of Mississippi for – almost nine years, coming from the accounting department, but mainly focused in budget and budgetary duties. I've been a part and led teams encompassing our budgeting for large budgets, around $2 billion for the state of Mississippi, for the Mississippi Department of Human Services. I'm happy to be a part of this team. I share in Marcia's enthusiastic goals that I think hope that can be an asset to to her team and her staff and the city of Marco Island. It's been a dream to get here. My wife and I dreamed about moving to Florida. And I've been admiring this great city for for a while from afar. And so it's cool to be here and to be a part of this city staff.

So thank you very much. Thank you, Jason and Marsha. And so so good to have the two of you on the finance team, and we look forward to working with you. Moving forward, we need to approve the agenda that you have in front of you, and I would entertain a motion to approve the agenda.

I move. I second.

It's been moved and seconded that we approve the agenda of the Audit Advisory Committee meeting on Thursday, July 9th, 2026. All in favor, signify by saying aye. Aye. All opposed, like sign. Aye.

Aye.

OK. Thank you. The agenda is approved. Next on the agenda is the election of chair and vice chair. Part of our, I guess, our rules are we elect a new chair and vice chair every year. And we were advised that this is the time when we do that. So I would open.

I'd like to move to elect Elena.

Point of order on first in line here.

Chris is first in line. Chris, would you make your?

Absolutely. It happens to be the exact same person.

Anonymous, OK.

So you take the credit.

So Elena McFann has been.

I'd also like to nominate Chris. Okay, all right. I think Chris's short stint on the advisory, or on the audit committee, but in his short time he's shown that his expertise is the CEO being on audit committees for a public company as well as CEO of several companies prior to his Weber stint puts him uniquely qualified to lead this committee. So I think he clearly has the expertise and experience to lead us. Thank you.

So we have two nominees. And we will go in order of the way they were nominated. Elena McFann was the first person to be nominated. And you do a roll call vote on Elena McFann. And if she gets a majority, then she would automatically be the new chair. MS.

Member Fontana?

I support Elena as the new chair.

Member Castone?

I will go with my nomination.

Member Ritchie?

Yes.

Vice Chair McFann?

Yes, and I'm humbled. Thanks.

Member Scherzinger?

I support the vote for Elena, so yes.

Member Summerfeld?

Yes.

And Chair Siegel?

Yes. And Elena's been an absolute great partner for me as vice chair. I admire her every time I work with her and talk with her. She's an outstanding individual. And we're very fortunate to have her on this committee. And we're very fortunate for her to be our new chair. So congratulations, Elena.

Congratulations, Elena.

Thank you all. I guess I get to tell my husband when we get off the phone. Wish me luck. But in all seriousness, thank you.

I'm humbled.

And then Chair Siegel, could you do us a favor? Could we clarify that you will cover in person the meeting on the workshop on the 13th as the outgoing chair? Since I am not going to be able to be there.

I would be happy to do it and or whoever is the vice chair could accompany me at that meeting. So no problem. We can do that. I would like to now open the floor for nominations of vice chair.

I'd like to nominate Dan.

Dan Castone.

And I would like to nominate Chris.

Okay. All right. Thank you. Okay. So... Dan Kastholm and Chris Ricci. I got two people nominated. We'll go in order of their nomination.

Could you please clarify which Chris? We do have two Chrises. Did you say Chris Ricci or Chris Scherzinger?

Chris Scherzinger. Yeah, Chris Scherzinger. So the first person, who was the first in the nomination?

Dan. Dan.

OK. The first person, Daniel Castholme. Would you take a roll call on Daniel Castholme?

Member Fontana?

I'd support Chris. So do I just say no?

Yes.

OK. No.

Member Castholme?

I got to vote for myself, so yeah. You do.

Member Ritchie?

Yes.

Vice Chair McFann, or Chair McFann?

Come back to her.

I would support Chris Scherzinger for that role.

Member Scherzinger?

I do respect Dan a ton, and I appreciate his kind comments about the – I'm going to say no just to – like he did support myself, I guess.

Member Summerfeld?

Yes.

Member Siegel?

Yes. So do we have four votes for – I think we have four votes for Daniel.

Yes.

That's right.

Daniel, congratulations, your vice chair. Happy to have you as vice chair. And you and Elena will make a great team. So in the absence of Elena, Daniel, you'll have to take over the meeting as vice chair.

OK. You'll have to come over here. I'll just switch seats with you. Gene, this is very big shoes to fill, because I think you have done a phenomenal job. Thank you. over the last year and... All right. What is next on the agenda?

Minutes. Approving the minutes of the last meeting.

Yes, thank you. All right. Did everyone have an opportunity to review the minutes?

Excuse me.

Or have comments.

I have comments. When I read the minutes, I felt they were very skimpy to the discussions that we had, especially since we've had so many delays. And so I have some comments related to things that I think that were said that are relevant to be included in the minutes. I know we have the video but these these minutes are considered our official Okay So if I could just go through them quickly and then I can give them to Jill To make revisions as long as the committee agrees that they should be included All right

Can I ask one question procedurally? I was under the impression, this is Chris Scherzinger talking by the way, I was under the impression that the minutes were not intended to cover discussion topics, but only decisions made or actions taken. Can we get a clarification from Joan or from someone on that?

Jill? There's just supposed to be a summary, that's why you have the video.

So.

Oh, because we have a video of the actual discussion.

The actual meeting. Yes. So the video is considered to be a permanent part of the record? Yes. Okay. That has not been represented in the past that way. So thank you for that clarification. You're welcome. Based upon that, I have nothing to add.

Okay. Elena, I think, have you pressed your button?

I have. I have reviewed the minutes. Given the clarifications that Jill offered, I have no edits to the draft.

Okay. Can I have a motion to approve?

I move to approve.

Seconded. Okay. All in favor, say aye. Aye. Okay. Fantastic. So the minutes are done. Now we're moving on. So we get an audit update from Chris. And I think we have, as attachments, we had the governance letter as well as the presentation from Chris. I think the governance letter sort of highlighted a lot of the journal entries and things like that. So I'm going to pass this along to you, Chris. And if you can walk us through, I don't know how you want to do it, if you want to do the presentation or walk through the letter. Let's do the presentation.

It covers what's in that letter as well.

Sounds great.

Okay. All right. Can everybody see the presentation? Is it teed up on your screens?

Not yet.

All right. Good afternoon. I'm here to go through the results of the audit. So I have the presentation, but I'd prefer this to be conversational as things come up, ask questions. This isn't intended to be a 20-minute slide deck and then me lecturing you all. Please ask questions as we go through on what we have here. So I'm going to talk through originally what the results of the audit are. what the scope of the services that we provided and what we have done along the way. And then we'll get into a little bit of the details of some of the results here. So the services that we've performed, it's the audit of your financial statements. So the annual comprehensive financial report for the year ended September 30th, 2025. And then, of course, the audit of state compliance, which is your single audit with state grants, state projects of what you have expended in the current year. And then we also issue an examination report over the compliance with Florida statutes as they relate to your handling of investments and public funds. So those are the audit reports that are in your ACFR and your document here. Those reports themselves are listed here in these five bubbles, but it includes our independent auditor's report, so the audit opinion, the report on internal control over financial reporting and compliance, as well as independent auditor's report on each major state project and internal control over compliance, so that's your single audit report. The independent auditor's report on compliance, that's your examination opinion over the public funds, the investment handling, and then a management letter as required by the auditor general. So those are the audit deliverables that go into your financial statements. Those are what CLA issues as a result of the audit procedures on the numbers that we have audited for the year ended September 30th, 2025. We also issue, as you mentioned in your attachments, the governance communication letter, which is our communication to city council summarizing the audit. There's certain things under the standards that we have to communicate in that letter to governance. I'm going to cover those on a slide here in a little bit as well so we can talk through those because that's important for you all as the committee to understand and have some dialogue on that. But those are the deliverables that are on the CLA letterhead and what we do over the course of the audit. So the process itself, just as a little bit of an overview here for the committee, we start with a risk-based approach. And there's a handful of things that we do at the start of the audit, but we're really looking at where the risks lie, not only for a municipality of your size, but based off the history and your particular data, transactions, information. So the key things that we've looked at within the financial statement audit, we always start with internal controls. That is a key part of what we do year in and year out. We are looking at your internal controls. We are making sure that they're designed appropriately over the key areas of the financial transactions. We look at any internal control findings from prior years, see if they need to be repeated or if they've been remediated. Revenue recognition is another one, and for government, What revenue recognition typically means is you all have to receive any sort of receivables within 60 days to have it recorded as revenue within your general fund. So that is always a very significant high-level risk within governmental entities that we have to look at and audit in our procedures. Significant estimates, that's as it sounds, estimates that could be subject to change, fluctuation, management bias, and arriving at those estimates, we have to rate those at a little bit of a higher level risk. Debt and covenants, making sure that the city's in compliance, recording all your debt liabilities within your financial statements. Cut off of accruals and expenditures. This is a very large one within municipal government. You all have a lot of invoices from a lot of parties coming in at various times in the year, but particularly at year end, making sure those get accrued back to the correct fiscal year. in which they relate. So goods and services, if those goods were received before September 30th, there should be an accounts payable. If the services were received before September 30th, they should be accrued regardless of when that invoice is in fact received. So making sure that's all correct is typically a higher level risk. Information technology, looking at your control environment, access controls, cybersecurity controls, policies, things along those lines. Grant compliance, again, for all of the grant revenue and expenditures that you all receive, making sure that you're compliant with the material in significant areas. And then, of course, new accounting pronouncements being a significant change year to year. And we'll talk about a significant one that you all had to implement this year that impacted the financials here in a little bit. So the results of the audit, when we look at our audit opinions, our financial statements, your financial statement audit opinion is unmodified. So that is a clean opinion. That means everything in your financial statements is accurately represented within material levels based off the procedures that we performed. Your state single audit again is an unmodified opinion on compliance meaning that you all met all the material requirements For compliance with the grants that were selected for testing. So I'll talk about that in a later slide But again, so these are these are the highest cleanest levels of opinion that you can receive on your documents that are in here So that is very very good news now From a finding standpoint, you had two material weaknesses that we have talked about throughout related to audit adjustments. And we'll get into the details on these here in a little bit. But what material weaknesses mean, and as we talked about this last year, so there are two levels of categorization within your financial statement findings, and you have significant deficiency, which means it's significant as it sounds, it's an internal control deficiency, but it maybe doesn't rise to a level that the financial statements would be materially misstated as a result of that deficiency. Material weakness means that it either was in fact material, meaning quantifiably or qualitatively, those either control deficiencies, audit adjustments, errors within your numbers were material or could have been material if that control deficiency was not remediated. So that is what material weaknesses mean. And if there's financial statement findings that don't get to that level of severity, they can be management letter comments, they can be verbal comments, they can be discussions with management. But under the government auditing standards, material weaknesses and significant deficiencies are what have to be reported. On the single audit, there were no material weaknesses and no significant deficiencies. So no findings on the grant compliance side. So we'll talk about the two material weaknesses here in just a second. But I do want to talk through, this is a high level overview of your governance communications letter that summarizes the audit. So the couple things that I like to highlight that are significant here. So the scope of the audit, it proceeded as planned. We didn't have to change scope. There was no surprise areas, transactions, things along those lines that required a scope change. Your accounting policies are in accordance with GAAP, Generally Accepted Accounting Principles, so there's nothing in your financial statements that is outside of the norm or accepted industry practices. And you did implement a new accounting policy this year, it was GASB, Governmental Accounting Standards Board, number 101, on how you all have to account for compensated absences. This was a heavy lift for the city. Essentially what this standard requires is you all were previously accounting for promised leave already under the old standards, right? Vacation time and sick time. You all had to record a liability in your financial statements for that, your obligations that you've promised. Under the prior rules, you didn't necessarily have to record a liability for sick time. It was pretty much just vacation or anything else that was going to definitely be paid out in cash upon termination, retirement, et cetera. The new standard put into place and said, you need to come up with the holistic liability for all of that leave time. And then it also codified parental leave, military leave, if there's any sort of unlimited PTO or leave pools, things along those lines. They basically just said, hey, the old standard was issued back in the 80s. We didn't have all these different leave types that organizations have now. We need to build a bigger tent, capture all of these things. And then the city also had to determine what we call a more likely than not estimate of how much of that liability is actually going to be used. And so that's where the heavy lift came in. You can see how many hours you have times everybody's rate. and say there's our liability. The city had to go through historical data and be able to make an estimate to say, based off of our history, we think 50% of these balances will be used over these employees' remaining employment here at the city. And so that became the number that goes into the financial statements. If that had been a significant change, that would have been reflected as a prior period adjustment for a change in accounting principle. The GASB does require it to be a retroactive application. But because it wasn't material, the adjustment was just run through the current year, through your current year activities, and the financial statements were silent to that because it was not material in how you all had to adjust that. So you won't see as much of an impact of it as other municipalities because of the magnitude of it. but it was a heavy lift by the city in implementing and getting that correct. Difficulties, we had no difficulties encountered in performing the audit. Everybody was helpful along the way. Yes, the timeline was later than we all agreed to at this point. We received the trial balance completed. We never really received a completed trial balance. Everything was moving as we went. So when we talk about that, the audit moves, continues to move. We're making adjustments, journal entries, As we go, we made the last journal entries in mid-June, I believe, at this point. So we were still auditing up until the last possible minute. But as Marcia had indicated, and I think Jean, former chair Siegel, had said, you all did issue by your regulatory deadline, which is the requirement under Florida statutes. So we'll talk about a little bit of the reasons and how you all can go forward from that on a later slide here. But when we talk about our difficulties, that is that the audit did not start when we agreed to at the start of the year. We had these conversations at the previous audit committees of, you know, if we're going to issue by March 31st, you need to have the books ready on January 1st. Then the April meeting, we said, if we're going to issue by May, we need to have everything by May 1st. If we're going to issue by June 30th, then we need to have everything by May 30th. So those conversations continue along, and when those things are continually in motion, that audit date fluctuates, and it's not fun for anybody at this point.

So how much is it the city, and how much is it the auditor? Because they provide you with information and How long does it take for you to turn around? You're not immediate.

We are not immediate, correct. You are not. No, no. And we moved pretty quickly. And let me back up and we talk about how that works. When we have an audit that's scheduled, so when we sit here in October and say we're going to issue, we all agree, city and auditor agrees by March 31st, that is our issuance date. And we say we're going to have a complete set of books on January 1st in order to meet that date. That means we're going to go on January 1st, We're going to start the audit. We're going to go through all those things. There's lots of questions along the way, lots of pieces. But things should be done before the audit starts at that point, because that's what we're auditing. We then build our schedules and say, OK, well, we're going to have staff aligned for however many hours in these weeks to get that done. And then if we're supposed to be done by February 28, like we all agreed to, we then schedule those staff out elsewhere. We don't sit around with nothing to do with our personnel. Well, when things shift, it also requires us to shift schedules with other engagements, other audits, other commitments that are out there. So when these things shift, really what happens is that we're shoehorning in your engagement, because now suddenly it's shifted from January to February, and February to March, and March to April. So when things come in, you're correct. We are unable to just immediately, they hit the inbox and say, OK, well, now we're going to jump on this. Typically, we try to do it in a day or two, try to figure out how to move things, get things back on further questions. But typically, we're having to pause and say, hey, we can't get to this for a week, especially when we don't know when it's coming. And so that's why the communication of those dates becomes so critical so that we're able to plan and make sure that we react accordingly and that we have an actual schedule of when things will be done, when the audit will go, instead of a constant drip of information and a constant fluctuation of how things are going in that case.

So you get a drip of information generally?

Correct, correct. Because when we have open items, right, so when we talked, I think it was the April meeting, we talked about a handful of things that were still open at that point. And we talked about how we need to receive all those in order to complete the audit. You know, when you think about, you know, one, preparing your financial statements, but two, completing the audit procedures, we need all of those things. It's not like I can do 99% of it and then I'm just plugging in holes here and there. I mean, these are material items that we're typically then booking journal entries once we receive the information from the city to then say, okay, well, now we have these sections of the audit work papers that have to be done. This has to be completed. So if we get information It's not just, okay, well, now we can say now we're done. Let's wrap this up and get it out the door. Then there's audit procedures. Then there's conclusion procedures. Then there's my review. Then there's concurring partner review. And then we go and issue the financial statement. So there's a whole process that goes into this when that information is still going. And there's a whole chunk at the back end that can't even get done until the numbers stop moving.

So, Chris, at the last meeting, one of the areas that you spoke about was you were still waiting for subscriptions and leases. Was there a problem on the city side with getting that to you? Because then you said you needed 30 days, and we're talking April at that time.

Correct.

So what were some of the barriers around getting that information when I would expect you have gotten that in March or maybe before?

So with that particular section that was an area that was on our original request list at the start of the audit to say we need this information for the subscription and lease liabilities and that was one area that we talked with the city early on and the conversation, I mean, it was very clear to us at that point of that information was not readily available at the city. That had to be prepared and created, and it wasn't just a we need to prepare a spread, you know, the city, the city did not need to just prepare a spreadsheet and say here's our number. Those were accounting standards that had been implemented in years past that required some effort to go through your contracts and determine what you had and what you did not have. That was one of our comments last year, that there was no process, there were no procedures, there was no real control over that. We did some test work on contracts to make sure that we didn't see anything material that popped out, but generally we knew that was a gap and we communicated that was a gap. agreed that was a gap and realized that the work was needed to go through contracts and figure out what was a liability at that point so it There wasn't a an issue at that April meeting necessarily. It's just that is something that should have been done Ten months prior two years prior along the way From an operational standpoint

As I was reading your findings, we're in our next fiscal year. And we knew that this fiscal year that you're reporting on now was not going to look very pretty because we didn't have a plan to implement until the fiscal year was almost finished. My concern now is what are we going to look like in our third year?

Yep.

Are we going to see the same kinds of problems?

MS. Well, and I have a – MS. Member Sommerfeld, you – Member Sommerfeld stole the question from me as well, so thank you for pointing that out.

MS. Well, I've been doing that today.

MS. You're good.

MR. And I do have a slide where we're going to talk about how to – this exact question, but let's talk about it now. You all have some work to do, like, tomorrow. to get the year-end closed schedule figured out, to figure out how you are going to get things done in a timely manner and really what that looks like at the end of the day. And we've already had conversations with Marcia, Chase, and Carol on the acknowledgment of what that is and eyes wide open to go into that. But from an audit perspective, that is what I would say needs to happen if you all are ever going to get back on track of a timeline that you're aiming for.

Just a question. I thought that when the last audit was presented that there were two things that we were looking at. We were looking at this audit and also consulting or another arm of CLA to assist in getting some of these things put together. So I guess my question is did that other arm help put these things together? Or we, as I look at our plan, I don't think Marcia and Chase should be our plan because we're now almost at the end of this fiscal year.

Yep. So part of that last year when we talked about us helping and doing the consulting, that was done by our audit team along the way as well. When we were asked for questions and helping on transactions, and particularly when we did that even before Carol arrived, we did that with the current team that was in place. We spent a lot of time helping talk through how to correct these things, how to build policies and procedures, how to remediate a lot of those comments, and particularly what that audit timeline needed to look like.

Do you feel that our policies and procedures are in place now?

There is improvement since last year. There was work done to make that happen. But there are still significant improvements that really could be made. And that's when it comes down to the findings. The findings are audit adjustments. It's base level. There were items that we noted during the audit procedures where we said this is wrong. We need to make an audit adjustment. That's what both of those are. They're categorized into grants and audit adjustments because those are the findings from last year and they have to follow from a repeat standpoint. You can't consolidate it into one under the standards. But it's the same root cause. And what I will tell you is you can have all the policies and procedures in place, but if you're still making mistakes as you go or not –

Not following your policies?

Not following policies or even not capturing everything you need to do as a year-end closed process, you're going to miss things, and that will create further audit adjustments along the way. And the key is when you talk about audit timing and you talk about how to prevent findings, people will make mistakes. Human error will happen. We all accept that that will always be a possibility. But when you start talking about year-end close and preparing the books and records for audit to truly be done with the books and records and audit ready, you have to make sure that you're giving yourself ample time to do so. Deadlines and being early and responsive to submitting your reports is very important, but if it's going to be wrong, when you finish what you are doing, that is, it minimizes the timeliness of it because things are wrong and then you end up with findings at the end of the day. So it is better, I like Marcia's wording there, it is better to under promise and over deliver in that sense of targeting June 30th is the date, that is the Florida statute date, build backwards how we can get to that point And then if you're able to accelerate along the way, then that is just bonus points for everybody.

I'd like to piggyback on that, but my question is more for staff. Putting the process elements aside, were these issues primarily due to staffing constraints, lack of expertise, inadequate procedures, or some combination? And if so, have we fixed them?

I'll give you my two cents. I think it was a combination of an unrealistic, when I came in, the closing schedule, they followed the closing schedule they'd had in prior years. And that was with a different audit team and maybe more interaction with the finance director so they didn't adjust to get everything closed by January 1st so that's one of the things we're going to sit down and go through and put that schedule through the other one is a lack of capacity there just wasn't enough staff to address and close the books so it's a combination of both one an unrealistic or not aligned closing schedule when I came in it was already there some of these dates were agreed before I got here So it's that, so we can remediate that by making sure people understand that October and November is our year end. We've got to close and get a solid trial balance by January so that they can do the review and if things are found they can be fixed. So it's not a moving target as they go through. flexible throughout this audit and Chris very responsive as far as when I submitted something I'm getting back to me in less than a day I mean we're talking night so but it's it's staffing too it's definitely staffing so Carol as far as staffing goes was there any

potential of bringing in a contractual group to do some of these tasks?

There is, but I would say I'm going to step back for a minute. The reason we have Masha and Chase here is that I came in. I have finance experience. I don't have governmental finance experience, and I don't have the institutional knowledge, let's say, of Marco, and there was very little of that left with the team. So to bring in temporary help wouldn't necessarily we weren't able to guide them right so that was a difficulty so we were we were going learning as we were going and so that's when I definitely went to Casey and said you need to get a different mix of leadership in here that have the experience because we need to come up the curve faster so the two material weaknesses

Let's talk about one and then two.

Absolutely. We'll bounce around. They are, and I'll repeat again, they are essentially the same finding. It is the same circumstances. But under the government audit standards, when we have findings last year, we have to look at were they resolved or not. And when you had a grant accounting and reporting It's the nature of the finding and then you had audit adjustments that were essentially anything not related to grants. Those are the two buckets that we have to look at them at. When we look at this and we say okay we had audit adjustments, some of them relate to grants. There is the repeat of finding 001 from prior year but then we had other audit adjustments that are not grant related. That is comment 002 as a repeat.

Is that the list of all these corrected

Yes. Now there are some in there that are truly management adjustments as well that were provided after the trial balance was provided to us as well. Capital assets, fixed assets, those are closed much later than the rest of the trial balance. Those came in late so those were journal entries as well that went in there.

Okay. So like for example, you have depreciation and it just goes to accumulated depreciation T&D. So is that just, is it just using the wrong categorization?

That particular journal entry was what the city provided to us. So that particular one on accumulated depreciation, that is not a material weakness audit adjustment. This list represents all the adjustments that we had to post to your books after we received the trial balance for audit. Some of them management prepared and provided that are not considered findings, like capital assets. We knew going in that was not in the ledger, that was going to come later. But when you look at this list, let's see.

Where are there, I mean, it looks like a lot of them look like just recategorization of line items. Am I expressing that correctly? Yeah.

I would say they, I mean, every journal entry is conceptually a reclassification of line items as we book it. But no.

They don't look significantly incorrect in terms of their description. Depreciation to depreciation vehicles. you know, it's under a big catch-all, depreciation, and then there must be a subcategory that says depreciation vehicles that you've reclassed it to.

Correct.

I mean, there's a lot of that in here.

Correct. And so there's a couple things. There is the initial onset of when you all book capital assets. So the way your ledgers are recorded, Your full accrual items, capital assets, debt, things along those lines, they're not in your funds. So you have to record the whole thing into your ledger at year-end. And so that's part of what takes you so long on your year-end close, because you're capturing all that information at year-end.

And what are we capturing right there at year-end?

What is capitalized.

Oh, it's capitalized. Yes.

And this is something that we've talked about as a recommendation over the last two years to change this as part of your processes. You all are recording capital asset expenditures that would normally be capitalized through your expenditures from a budgetary basis, which is normal for governments. You all are expensing those because you don't capitalize on your general fund. but you are not going back and capitalizing assets that need to go into the balance sheet until year end. So essentially what you're doing is you're recording everything on a budgetary modified cruel basis, and then at year end going through the entire 12-month history and saying which of these need to be capitalized. Correct. And so that's what a lot of those entries represent. Further of those entries.

Carol's shaking her head there.

He's exactly right and it's invoice by invoice to see if it meets the capitalization policy and we did change our Capitalization policy the threshold so it required a little bit more Review this year to make sure that items that didn't qualify weren't put up on the balance sheet. So it's um It's it's something that needs to be improved.

It's it's a so for interject with a with a follow-up question because I'm following Dan's line of thinking this is Chris So, Chris, when you talk about the material weakness, is it the volume of transactions? Is it the timing of the adjustments of the transactions? Or is it one particular type of transaction, let's say this capital assets transaction, that you would view as a material weakness or a potential materiality impact on the city's balance sheet because of the process irregularity or deficiency in waiting until year end to put all that together? Like where, what specifically in that dialogue that you guys just ran through, what specifically ties to your deeming it a material weakness versus a significant deficiency?

So it was the first two categories that you asked there in your question of the size of individual journal entries that could be material for that individual dollar amount of that journal entry, as well as the quantity of journal entries. We have to look at it as both ways. If you had a million $10 entries, it would be material because of the quantity of them. Or if you had a $10 million adjustment, that would be material for one item. So we have to look at it both ways. That capital asset adjustment that we're talking about here, that's in here, again, that's not tied directly to the material weakness here. That is your process for getting capital assets on the books. Your process is we are going to start the audit, And we are going to have capital assets open. And we are not going to audit capital assets until you all provide us that information and we get the numbers in. It's not ideal, but that's OK. It happens. We have plenty of clients that do things in that manner where we know that's coming later. The challenge was when we got that information, then we also found adjustments to that where we had to record further adjustments. So when you see a lot of capital asset journal entries in here, it's because we had the initial input from management But then we had further adjustments and adjustments and adjustments based off our audit work that we find. So when I refer to these two findings as audit adjustments related to grants and everything else, it truly means these are things that we found in our audit procedures that needed to be corrected. And it could be things as simple of this was recorded last year. Where is it this year? And it's, oh, we didn't get that in. To, hey, we're looking at how you recorded this and we think it's wrong based off all of these things that we see. And then management agrees and makes a journal entry to adjust it.

So based on that, would you say these two weaknesses are fully remediated, partially remediated, or still work in progress at this point?

These are going to be a work in progress because a lot of this is just throughout the year, right? So these are things that it's just how you are recording transactions throughout the year as well as at year end and saying our books are ready for release. audit. So you won't know if this is fully remediated until you get through next year and figure out if there's any further audit adjustments that were noted in the audit. What I'll say also as context here is we look at the amount of journal entries in this list. The ideal scenario is zero in here. That is where you are striving. Now, I don't think anybody here would say this is surprising based off of the conversations we had in October and January and everything along the way to say you all were having some challenges with turnover, getting caught up, getting the timeline, getting the amount of capacity needed to get things ready for the audit. this isn't surprising and it's not for a lack of effort I want to I want to really really say that heavily this is not for a lack of anybody on the city side for blowing this off blowing us off not responding not putting the effort in you know this is my professional opinion just from observing it's a capacity constraint where you all just didn't have the amount of people

handle the situation that you were in from October through January 1st but isn't this just posting incorrect posting or not even posting at all things that were not considered and even captured or transacted for so but isn't that more of a question of training or or just

Process.

Yeah, process, training. It could be accounting knowledge, right? Do you know of an asset?

I'm sorry to interrupt. Go ahead, Chris. I was just going to say, it could also be accounting knowledge, right? I don't think we had any CPAs on the team. Could there be, to the point about recording something as a debit to assets when it should have been a credit to liabilities or those kind of left pocket, right pocket things that you noted earlier, Dan, there's a lot of those in there and that could be accounting treatment knowledge or experience with city government or those kinds of things.

I would say probably. Yeah, agreed. And a lot of these, right, it wasn't that items were not transacted for, right? When you think of government and accounting, it's cash in and cash out. You receive fees, you receive grants, whatever it is, the cash goes in and you're getting it into an account. Same thing on the expenditures. The cash goes out or you establish an accounts payable, salaries go out, and you have an expenditure. So that is at its very base level, the ins and the outs. Your ins and your outs were recorded correctly. It wasn't that suddenly was cash that was not accounted for, expenditures that were not accounted for. But when you're looking at a fiscal year, you have to get them in the right year. So that's the other side of that too. And so when I talked earlier about some of our risk assessment and our approach, when we talk about accruals and we talk about revenue recognition, we're going into the next year to look for things that are incorrectly posted in the next year to pull them back into the fiscal year. That's part of our audit procedures to say, do we have a complete 2025? We're going to go look at big-ticket items that are in 26 and say did our controls and everything in place to have that correct. That's where a lot of these items are in we found them in 26 and doing these audit procedures and said these need to be back into 2025 because that's the rules of accrual accounting.

Okay. And then for Carol, some of these journal entries have have we started to implement procedures that would allow them to, at least in this current fiscal year that we are, are we going to see a reduction of these next year, or are we still doing more of the same?

let's put the capital aside yes for some of these journal entries yes and that is because we will be aligning the closing schedule so it won't happen as it happened in prior years under the other auditor so we have an inventory of the adjustments we know what they are they just these a lot of these on here would be what I would consider standard entries they may not be the same dollars but that activity needs to be recorded earlier and as Chris was saying a few of the items that happen in 2026 that needed to come over one was an invoice that needed to be split we didn't catch it and we even had a few things flow through in 25 that were for a prior year so there were things that should have happened in 24 that Through our process and through some of the reconciliations that we've been building as we go through this process, we realized that this should have been picked up and recorded. They weren't material to restate 24, but it needed to be addressed in 25. So my answer is this list should be smaller with the exception of the capital entries until we can figure out a process in which we can start that review sooner.

And I just I need to understand the technology a little better because the technology drives right now is driving how that process works Okay Any more questions on these journal entries I Have a question of corrected versus uncorrected. Yes. Could you please walk us through what the uncorrected is? items were and why weren't they corrected?

Yes. So in the audit process, we're going through the audit procedures, a lot of times if you're early in the audit and we're finding these things, you're correcting them as you go. Management is correcting them as we go. We say, hey, we found this. Do you want to book it? And we say, yeah, everything is still in process. Let's book it. We update our work papers and we move forward. When we get towards a certain phase in the audit where, let's say, we're 75% of the way done, 80% of the way done, and we find something, then it's a conversation to say, okay, we're so far along, particularly where we are in the timeline, do you want to make this adjustment? Or if it's immaterial from an audit perspective, do you want to pass on it? and either correct it next year or in some of these maybe it was wrong last year and we just kind of correct it through the current year because it's not material. That's what those uncorrected misstatements are. They are adjustments that we note that are not material but we've noted them and they're above a threshold that we establish to say these are items that have been found that do not rise to a level of impacting the audit opinion because they're not material, but we have to communicate them. And management has passed upon recording these because of this. So that's what that is. Those I would consider also in aggregate with the comments. If those were the only things that exist, maybe those wouldn't be a material weakness because they're not material. But when you look at all the other journal entries in these things too, I would consider them kind of in the same ballpark of these are audit adjustments that were noted in totality. So on the slide here, it's a couple things. There's prior year grant revenue items that were flowing through in the current year. So when we look at it, technically current year is wrong because these should have been 24. capital asset activity that were in the current year. So again, these were things that were corrected and it's a choice of do we do a prior period adjustment or do we put them in the current year because they're not material. You don't want to do a prior period adjustment if it's not a material transaction. So those are in the current year so we have to note them as past adjustments. And then accruals, we found accruals that were paid in 26 that should have gone back to 25 and then grant transactions that were in 26 that were related to 25 that were not brought back in the period. So that's the summary of what those are. So throughout the process, those get identified. And not all of those were necessarily found by us either. These are items that Carol brought to our attention as she is going through cleaning up records as well. So that is the other side of this, is if it relates to a prior year and it gets identified by the city, but it's over that threshold, it still gets communicated as an uncorrected because you're putting it in the current year when it's a prior year transaction.

Okay. So it's uncorrected because you don't want to restate the prior year.

Correct. And at the end of the year everything is flushed through essentially. So your ending fund balance in that position is still accurate. It's just the categorization of which year things go.

Okay. This is Chris. I have just one observation to make because I think it's a really important clarification that Chris just made. in a meeting where there's a lot of rocks being thrown at you guys um i think it's important that the city council members and maybe anyone from the public who's who's delving into this and watching um i wouldn't want someone to take away from the conversation today that there's there's a unadjusted miscalculations that could be a surprise piece of bad news in our current or future economics for the city, I think it's important to note that even if it's not a corrected misstatement, it's been corrected and the books are tight and you didn't make any changes to the financial statements. And so underlying all of the problems that we're talking about in a very long list of journal entries that I agree and am hopeful that we will just keep reducing and reducing year over year, there is actually a certain level of soundness here that should make both the city council and the public feel pretty good about the underlying economics. In my opinion, just one person's opinion.

And just to maybe add a piece of clarity to that, that is correct, and that is what our audit opinions say. And that's the nature of these being a material weakness, is it is saying if these were not corrected over the course of the audit, your financial statements would be materially misstated. So that's why those corrections are made. So the fact that they're adjusted, yes, it results in a finding because adjustments were made. But it's also saying your financial statements are correct because these adjustments were run through.

So you have unqualified opinion. Correct.

Correct.

Okay.

Okay.

Any more questions?

I think I'll make a comment. So, yeah, some of this discussion makes it sound like the sky is falling in, but basically we had a very good audit from the point of view of getting our numbers put together in the correct places. We did have two material weaknesses. We identified how we're going to correct them, basically, with hiring Marcia and Chase and adding to our staff. We identified early in the year that we were shorthanded in our staff. And I think even in the budgeting process, I think this committee made a statement that our finance department needs more help, and we basically didn't get it, and we lost our controller. So under the circumstances, I do think we had a good, well-stated audit. What I focus in on more than anything else is that, looking on page seven of your report, is the city concluded fiscal year 2025 with a stable overall financial position, reflecting the continued strength of its long-term fiscal foundation. Our city is in very good shape financially. That's what I think our public should focus on, that we are on solid ground financially and yes we had some material weaknesses and the way we were accounting for things but I think we can get those corrected yes they have a very we have a very strong credit rating absolutely so overall I think we did very under the circumstances under the we did very well so speaking of credit rating I know in the past there was discussion about material weakness

and the potential impact it can have on credit rating. So we had material weakness last fiscal year. We have material weakness this fiscal year. We're not real confident yet that 2026 is going to be phenomenally better. So what do we think that might do to our credit rating, if anything?

Well, in my opinion.

That's what I'm looking for.

I don't think it will have an impact at all. I think you have an unqualified opinion. You have a very – we have a great demographic. We have low debt relative to our economic environment in this area. So it's – I don't think that it's going to be an issue. And I think I did have a conversation with Casey – And I think she reached out to the bond individuals as well as our credit rating agency. And I think she had some insight. And I think she's provided that to city council as well from bond council as well as from the rating agency. She got it directly from them.

And I'll mirror that. These nature of comments are not going to be something that your bond rating agencies are going to have a concern with. Now, if your corrective action plan were to say something along the lines of we don't care about fixing these and we're never going to fix them and we have no concern of financial reporting, yes, they may look at that and say that's a red flag. But as you all continue to work through these things, these kinds of audit adjustments and errors along the way are common. They happen often in municipalities.

In corporates as well. Correct. You'll get material weaknesses and it's almost a standard where you're going to get some sort of material weakness. And you just have to understand the nature of them and how significant and are they going to is the cash coming in and cash going out, is it accurate? And that's what the agencies are going to really focus on.

The material weaknesses that could cause red flags would be if there was some sort of fraud activity or the material weaknesses was that there were no controls over disbursements, revenues, things along those lines. These are audit. debit and credit financial statement preparing comments, it should not have an impact. We have numerous clients that have comments exactly like this year after year after year after year, and they do not have an impact on their bond ratings.

Thank you.

All right.

May I point out something here, because I was relieved, to be honest, when I read the report that it was not as significant, and I'm not using the technical term, little s, I'm using little s, significant as the surprise last year. That being said, I think we have a significant process improvement or at least a communication improvement opportunity here that I, Marcia, it would be helpful if you could take on as part of your new responsibilities of if we're going to push something out, God forbid, if we make a commitment to a date and then we say, well, you'll just see it afterwards. What that does is it creates Well, it's frustration in the committee, but I think also for the public who is trusting us, it creates a potential sense of, okay, so what's going on here after a couple of years of suspicion on the topic. And that was certainly my reaction on June 1st was, what is going on here? Like I said, I was relieved. I wouldn't, I think the communication process on this is incredibly important to get ahead of it and to put it in context for city council, for the committee, and the citizens. So that there isn't this like 30 day quiet time where people do not have visibility and then they start filling in blanks themselves. That's the part we need to avoid. And because that also provides the opportunity for folks to say, we take this, we, the city, we take this seriously. This is what we're doing about it. This is, here's a sneak peek and let's put this into context. So that's my That's my position on the matter. It makes me wonder, though, because I'm looking at three additional GASB changes that are coming into effect on September 30th. Are we prepared? And maybe this is a question for Marcia. Are we prepared for that? What are we doing to get ahead of that?

Great. Thank you. I totally agree that communication is key. Because if you don't know what's going on, you're likely to make assumptions, right? And the assumptions aren't usually going to be positive if you don't know what's going on. Unless and until you know me and you know it's all going to be positive for sure. But anyway, I wanted to point out one of the first things that we are doing, we already have a meeting scheduled with Chris and his team, I believe it's in early August, to go over What happened? What are all the details? Let's go over this. And I want to have a meeting internally with just the finance staff first. That's what I'm used to. At the end of the audit, we want to have a post-audit meeting, a pre-audit meeting to go, okay, what happened? How do we make sure it doesn't happen? What changes have we made? What do we need to make going forward? So that's very key. I do also notice that there are a couple of new GASB pronouncements that we have to do. In some ways, they're not that difficult. That's kind of easy to say. But they're more on the narrative side and the audit, the MD&A, and how we talk about things. So, yeah, that's something that I'm aware of from my prior job, and I know Chris will help us and his team will help us make sure. As a CPA, I do CPE all the time, and there's tons of resources out there. Chris's team probably offers them as well as other firms that say, okay, here's how you do this. Here's our recommendations. So, yeah, I mean, that does add work. As Chris noted on the one that we just had to do, compensated absences, that was a higher lift. for lots and lots of cities. Jacksonville found it a very high lift, even though we had been working on it for a while and were already reporting a lot of things. So it can sometimes be tricky when you look at them and you go, well, that didn't seem so bad. And then you get into it and you're like, oh, my goodness, that's tricky. And for the compensated absences, in my experience with the auditors, even the auditors were going, whoa, there's stuff in here we weren't aware of. So we will rely on Chris's team as well as other resources to make sure we know how to do those correctly. But, yeah, and another key thing, and Carol mentioned it too, and I think Chris may have, you know, I would like to say, okay, the The drop dead is getting it done by June 30th. Given that we did it by June 30th, we shouldn't have a problem. But let's work back and see what the schedule is. And then let's build in time so that we have more time than we need, because I don't care how good we are, something is going to come up. I mean, you should know this from your personal life. You plan, God laughs, things change, right? so you don't just make it really tight but you add an extra time so that you have no problem getting to it even if there's some issues but I would be real interested in knowing and helping you all determine what your meeting schedule should be what makes sense for when you need to hear things and when we will have things ready to tell you based on the schedule that we're adhering to

Marcia, thanks so much for that response. That was very helpful. When I am back next week, I'll walk you through the purpose and objectives. As we originally contemplated, it's a little bit of a collaborative process of, okay, what's the process? How do we memorialize it so that we then set the calendar? So thank you for that. Very helpful.

Okay. Thank you. Yes, please, Gene.

I just wanted to thank Chris and his team at CLA. I think your team did a great job and I appreciate it.

Were you able to help the team put any of that together?

Not from a compliance standpoint. Where we helped was a lot of the accounting side of it, the debits and the credits and the reporting in the financial statement standpoint, not necessarily in the programmatic side of things.

Great. Thank you.

Thank you. Thank you, Chris.

Do we want to go through the new GASBs or we can pass?

I think we're going to pass on that.

That is fine. I don't blame you.

Okay. That's new business for the next meeting.

That is fine. That is fine. All right. Well, I appreciate it. You know, again, it's a pleasure to work with the city, pleasure to present to you today, and, you know, if there's ever any questions or anything along the way, you know where to find me and my team.

Well, thank you.

Thank you.

And thank you to Carol and the team at the city.

Thank you, Carol. Thanks.

All right. Moving along. the agenda we have some new business which is there is a meeting on July 13th at 1 o'clock with the City Council I am unfortunately out of town and will not be able to attend They're uncancellable.

So that's the workshop where the city council gets to probe on the audit results. But, you know, outgoing Chair Siegel, can you cover it?

I will be there for it. And Chris will go through the same presentation you made today. You may want to go into more detail with the city council because I'm sure there will be more detailed questions later. So that's on the 13th at 1 o'clock. Okay. And I'll be there. And, of course, if any of our committee members could attend and back me up, I would appreciate it.

Okay.

All right. Thank you.

Appreciate it. Martin and Joan and Jill know that I'm going to make heroic efforts to participate for probably at least the first hour. So bear with me while we press test the new hotspot Wi-Fi and its data capabilities. So I'm optimistic it will work.

Sure will and thank you for the efforts of everybody to be here given the sliding dates. Okay, staff communications, anything from the staff additionally to add?

No, nothing from me unless Masha has something.

No, I think I've said everything I needed to say at this point. I'm real confident that we'll make progress in the coming year. I just said to Chris I love it when I agree with everything the auditor says. It doesn't always happen, but I do. I do again want to comment on Carol. Totally grateful, as you all are, that she was here this year and that she's not running out on me yet. She's giving us a chance to learn from what she did and get us up to speed on that. A lot of the concerns that you brought up are my concerns also, and I'm confident that we can make significant progress going forward.

Okay. Thank you. Sharon and Carol, are you going to be at that meeting on the 13th? Can you be there? Because that would be important for questions that we can't answer.

Yes.

All right. Any city council communication? Anyone?

Anyone?

any of our counselors.

Hi, Randy Champagne. I have a question directed at both Chris and Marcia. We've heard Chris's excellent presentation. In your mind, Chris, is this staff appropriately staffed to conduct business in the financial arena for audits going forward as it should be? Number one, enough people. Are the people, even if the numbers are correct, are they appropriately educated and experienced?

I would say the folks that you have brought in are going to make a significant difference and I think have the ability to get you on track. As far as headcount, I think you are a little short compared to similar municipal operations, but it depends on what you make of the folks that you have here to be able to deliver upon that. But your new leadership here in the accounting department is going to make a big difference.

Now, Marsha, accepting the fact that once again we have heard as a city that were understaffed, how many people would you recommend that we approve in the new budget for your department?

That's a difficult question we are all the directors in the city are under instructions to try to reduce our budget reducing a budget does not mean adding staff I think in a lot of ways our staff has been wonderful but I do not think they've necessarily been given all the tools they need to do the most efficient and effective job they would have I think, frankly, I could give you a better answer to that question, be more confident in my answer in a few months after I've had a chance to be here longer and seen what the staff is doing and seeing if we can get more efficient and make more of what we're doing. That said, I would never refuse additional staff members if available, if they fit the budget.

A personal opinion, just my own. I think we would be short-sighted not to take, once again, the advice – of adding staff. I don't care how much we're shortchanged on funds. This is far too important. And I will be one of the city councilors pushing for you to identify how many people you need, once and for all. Even if we overstaff in the short term, let's get it done and stop this stuff of constantly questioning, from a community point of view, questioning just How good are we? Do we really know what we're doing in a very important area? It was comforting to hear that we have no threats to the financial condition of the city. And one more question for Chris. And it came up last year and unfortunately jarred many people in the community. The former chair indicated that every time there's a material weakness, someone gets fired, normally the city manager or the CEO. Is that correct?

No, that is not common.

Thank you. There are people, unfortunately, I can tell you as of just this week, who still believe that's the case. It is not. I was a CEO. People in the business community received material weaknesses. CEOs did not necessarily get fired. So it doesn't occur here, and these are not of the severity that would even entertain us thinking of that. so please for those of you in the community listening or will watch the video down the road just be aware are we addressing the situation properly yes does it require a termination of the city manager no okay so end the comments thank you thank you uh rainy um and i guess uh to marshall i think you're you're

decision-making process and i think it's it's rainy's question is a quantity where is it quality uh... into we have the talent in and can we upgrade talent if we need to which which could be in and in my uh... prior world we'd have uh... we'd have staff and we have some dead weight or deadwood or and you'd want to cut it out and uh... But to replace it with a salary to get the person to get an upgraded person, maybe you don't need another headcount, but you have to recategorize the salary range so you can attract higher quality people. Why have two unqualified people versus one very qualified?

I totally agree. From taking my nursing hat and putting it on, I don't care how many people you give me, if they don't know what they're doing, they're just collecting a salary. So I really appreciate your comment about the idea that maybe some of the employees, some of the staff that you have don't have the tools that they need. I think that's critical to being able to do the job, is knowing you have the right people in the right seats doing the right things.

Yeah, the one difficulty is we're focused on head count, and it would be like, well, eliminate a head count, but it would give me more salary so I can improve those positions because I'm not paying enough to get quality people. So there's a trade-off. It's almost a matrix. Give me my bucket of money that I can spend, and I decide how to spend it. And instead of having five people, I'm going to have four, but I'm going to use that extra head, the salary from that extra head, and improve the quality of the people I can attract. So it's something to think about when you do your budgeting process. Okay. Any other Steven? Thank you very much.

Steven Gray, Council. A couple questions. I'm not sure we can necessarily answer them today, but I wanted to throw them up because we've got this lovely workshop coming. First, the GFOA award, the documentation was included in this package. And that's the government financial account. I've got to put my glasses on. Sorry. I'll move quickly. We received a certificate of achievement for excellence in financial reporting. I'm not looking for a reconciliation on this. This has been a wonderful conversation. We're doing a responsible job of understanding the work in front of us and how to get there. We've received this award for years. I'd love at some point for somebody to map the conversation we had against the receipt of this award, and maybe it's just an entirely different set of statistics. But I have a little bit of trouble processing how we receive award in light of the conversation we're having. No answer required. Oh, if you want to jump on it now, please.

I'm happy to. So when we talk about all these audit adjustments and where the GFOA certificate criteria lie, if you weren't correcting all those things along the way, you wouldn't get the certificate. The certificate would say, your financial statements are wrong. We're not going to give you the certificate. But to get to the level of excellent financial reporting that you do, all those corrections that come up through the audit process have to be noted and found and corrected.

So as long as we work through it the way we have, then you're qualified to receive that? Correct. Thank you. I love your perspective on, I've heard and I don't know, so I'm asking the accountant. A number of municipalities, I believe, have a separate line item for impact fees. I do know that we have one potentially material impact fee that is deferred revenue item at this point. So it was a transaction approved, and the impact fee was going to be paid at the back end. one should we be recognizing impact fees as a separate line item I think this is something that could help our diligence and awareness and execution and harvesting of revenues for the benefit of the city and if you have a deferred revenue impact fee should that be recognized on our balance sheet so the first the first question of a separate line item for impact fees

you all are following the requirements of accounting to put them in the line item that they're in with other charges and fees, you have an ability to break them out and it would not be a departure for GAAP or an issue of those lines. So that is really a management choice of how you all want to present that.

Is it usual and customary for municipalities to break that out?

I think, and I'm talking in generalities, I believe most of my governmental clients do not break that out separately on the face of the financials. It's usually lumped into the broader category.

Thank you. Did any of them break it out? yes okay I know I know some do yes I'd love an explanation going forward looking at our grant fund accounting we collected a couple of receivables Yahoo if I look at that balance sheet the receivables up ballpark these are not exact about four and a half million and still outstanding receivables and at least a million more in that liabilities which is due back to our general fund How do we not write that off if we do not have receivables to offset that liability? Is that a million dollars in liabilities that we will never recognize and just sits on the balance sheet?

Eventually, that million dollars of advance from the general fund could have to be liquidated from the general fund to make that whole. Typically, at the time that your grant activity finishes, so you have that receivable and the deferred amount for the four million or so that you're waiting upon, at the time that that liquidates, And at the time that you're able to really, I'd say, be recouped for everything that's out there and that activity ends, we, from an accounting perspective, would look at that and say, okay, is that advance ever going to be paid back? Is there a plan to pay that back? And typically then the general fund would have to make that, either write it off or somehow make that whole.

Right. The general fund already advanced it to the grant fund, so we're already out the door. I'm just trying to understand, is there a practical reality to recovering that million, which is not covered by the receivables outstanding, or if that's a false hope?

in and this is a this is an unusual nuance of the fema reporting in how you all can actually record a revenue in the normal grant environment you all could record a receivable as soon as you spend a dollar in the fema world you have to wait until you have certain paperwork in place with fema and they have approved your project so in that fund you all have expenditures that you have incurred

That you still are going through the application process to get that approval to trigger a receivable So that's why there's that Delta between I think what you're saying I'm not trying to manipulate this is until we deem that there's no hope or prayer for Recovering that we have to carry it on our books.

Correct?

Yes Okay. And it's not really the underlying probabilities. It's just executing the accounting. I think, and this is a recollection, so I'm looking for clarity on this one, that we had in last year's audit conversation identified a prior period adjustment for one of the individual state audit programs. I thought we had to go back and correct one of the prior audits. Did we do that? Am I correct in that assumption? Did we do that?

That was communicated with the granting agency when you all had that and were able to communicate that, and they indicated not to go back and do that. That was done before Carol arrived. So that was the – which state agency was that?

I don't remember, but basically we cleared it up. It is cleared. I thought it was a dangling participle, and I didn't know what the status of that was.

It is cleared. You all communicated with the state on that one.

Okay. I'll save my other questions for next Monday. I really appreciate the work. chemistry and I'm gonna go further and saying that what Carol did with what she was thrown into and us arriving at what we are today Carol we can't thank you enough for your effort I know it was relaxing and enjoyable and very low stress but besides the fact it was an incredibly pleasant work environment you did a phenomenal job thank you very much thank you

just want to mention CLA really stepped up and they were there every time I called we did rely on some you know we were short staffed I I feel we are a little short staffed and and I always talk about capacity versus capability which is what you know you're talking about but we did have a person internally at the city who stepped up, Lynn Musgrave. She was the former senior accountant on the team. She's now the billing supervisor. So she stepped up to help coach me and show me where we needed to do and what we needed to do at a time when she was going through a new billing portal and putting in the new water meter program. So we did have somebody that could help. I frustrated her because you know, it was easier for her to do it But I needed her to show me so that we could do it and start putting laying the foundation for the finance team So we did have a little bit of internal help and I can't thank her enough for her support of the team She didn't have to do that, but she did and and I do appreciate that but I really feel like If I hadn't had Robin grace on Chris's team, we might have had a different outcome Okay, thank you

Any other, any public comment? Okay.

We have Mr. John Martini.

Oh, okay.

Good afternoon, committee. John Martini, Marco Hyland. I'm going to start off with you. by stating that unfortunately I'm here. I have not come to praise Caesar, but to bury him. I solemnly swear for a firm that I will support the Constitution and will obey the laws of the United States and of the state of Florida, that I will in all respects observe the provisions of the charter and the ordinances of the city of Marco Island. And I will faithfully discharge the duties of the office of city council. this past Monday I took the opportunity to send a letter to attorney Gabriel regarding the handbook that goes to each and every one of you committee of board members and what it was questioning is why a certain member was sitting here this afternoon based upon the city code should not be sitting here this afternoon. Because that city code says if a committee member is absent from 30% of the meetings held within any 12-month period, that seat shall be automatically vacated. The gentleman involved missed 30% of the meetings in a 12-month period. The meetings were held on July 17, 2025, September 4, 2025, October 29, 2025, December 4, 2025, February 25, 2026, March 17, 2026, April 21, 2026. Mr. Ritchie missed the October, February, and the April meetings. On that basis, he should have been immediately vacated. A copy went to city manager Lucius. I sent a copy to each member of the city council the other day. Nothing has been done. As simply as a citizen standing here before you, it makes me wonder, what is the motivation? The gentleman is also running for city council. And it makes me wonder what is really going on. And it involves more than just the code regarding this particular situation. It involves codes throughout the city because it seems this city has a way of looking at codes and when they don't really do what they should be doing or you don't want them to, they somehow just get ignored or put aside. We're supposed to obey the laws that we have. If you don't like the code that is on the books, amend it. But if it's there, you have to obey and enforce it. Ignorance of the law is no excuse. Now, I don't know how this will ultimately be handled, but I think the council, none of them are here today, should be looking at what's going on going forward. You're too ready to offer variances. You're too ready to make exceptions. Go by the codes that are in the city of Marco Island and in our charter. And with that, I thank you for this opportunity.

Thank you. No other... that was it I didn't see that list oh okay Jean I think you had a list that I anyway anyway thank you next meeting which is going to be I guess it's workshop with the City Council on the 13th is other than Elena who is going to try to call in I will not be there is there anyone else that cannot attend

This is Tom. I had said earlier that I could not make it as well because I am not there.

Okay. And Chris, will you be here?

I am planning to be by Zoom again. I'm still going to be in Europe, but I'll be available by Zoom.

Okay, great. Thank you. And you will be taking the lead. All right. Do we have any I don't think we have any proposed agenda topics for next meeting.

No, I think just to- Dan?

Yes, Elena.

Sorry to jump in. I believe right now we have the next committee meeting scheduled for August 19th, And I have a late-breaking conflict. If that's the correct date, then I have a late-breaking conflict that I am unable to wiggle my way out of. So I hate to disappoint the rest of our committee members. But am I right about the date?

I have the 18th listing.

Is it the 18th? Okay, I take it back.

I have it as the 19th. Well, I could be wrong.

Yeah, I have it on my calendar as the 19th. Let's see if I can attend the 19th. That's a Wednesday. I can.

That's my challenge is I cannot attend on the 19th.

So would you like us to push this to September? Is there any reason for us to meet in August?

I don't think there's any reason. Well, we have conflict. So in the purpose and objectives, so sorry to be the purpose and objectives police, we had... typically tried to have a meeting in August to cover off on the audit planning for the next year, third quarter financial review, and get an update on the corrective action plan. So that is what we would typically target. The question is, will we be positioned to do that, or can we just adjust the dates knowing that one of the long poles in the tent is the availability of the room. The next long pole in the tent is the availability of our committee members.

I would make a motion that we push it into September. I second that. Seconded. All in favor of pushing it to September? Aye. OK. And then the question is, we will have to come up with a room availability Martin will send an email about availability okay that would be great thank you for dates thank you and I think the agenda items Elena you stated those as well as then we could talk about the new gap items requirements okay sounds good all right I think that's about it do I get a motion to adjourn thanks everyone thanks bye bye thank you