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HomeMy WebLinkAbout2013-3-27Minutes for March 27, 2013, adopted May 21 ,wTUrrEr Town of Nantucket Audit Committee yOOgpa \ems Joint Meeting RECEIVED Board of Selectmen /County Commissioners Finance Committee 2014 JUN 7 A"1 11 25 wwwnantucket- ma.gov MINUTES - - ' -C*N CLERK Wednesday, March 27, 2013 4 Fairgrounds Road, Training Room - 8:30 a.m. Staff: Libby Gibson, Town Manager; Martin Anguelov, Budget Analyst; Heidi Holdgate, Assistant Manager Wannacomet Water Company (W WC); Terry Norton Town Minutes Taker Audit Committee: Patty Roggeveen, Matt Mulcahy (arrived 9:01 a.m.), Rick Atherton Absent Members: None Public: None Roageveen called to order at 8:43 a.m 11. Pf BLIC COMMENTS Tony Roselli, CPA, Managing Partner Roselli, Clark & Associates (RC &A): Atherton - Were talking about the separate audit for W WC and the Airport which were part of the bid process; the question: is a separate audit necessary and if so why. Roggeveen - Asked if RC &A works with other towns with an airport. Roselli - Southbridge has an airport. Explained that one of his managers had worked for both Powers & Sullivan and Sullivan & Rodgers and was on the Barnstable and Dukes County accounts. The two major components of an airport me the take -offs and landings (TOL) and fuel. In doing the pricing, we have come up with ways to get around TOLs, which Nantucket does about 150,000 a year. Kelly -There were issues of internal control and financial operations issues. Contend they were not in scope of Powers and Sullivan. Roselli - Disagree with that. The biggest reason for a single audit, which is the federal compliance audit, is the airport. DOT grants are off the chart, and the federal government requires testing of internal control systems that are in place that administer federal grant money. If the Nantucket airport were to continue to get these big grants, $5,000,000 in FY2013 and another one in FY2014, RC &A would have to test the internal controls. Atherton - If RC &A does a town -wide audit, still have to do test of separate units, including the federal grant whether or not they issue a separate report. Worth - If a separate report were issued, asked what assurances would RC &A end up with that the systems were adequately tested. Atherton - The auditor is responsible for setting up the testing program that covers every operating entity of the consolidated statement to include W WC and the Airport. Page 1 of 6 Minutes for March 27, 2013, adopted May 21 Roselli — Talked about the testing RC &A did for the City of Malden, Massachusetts, one of their larger clients. On the Nantucket website, there are separate reports issued for the Airport and the water company. From an accounting standpoint, do not see any need for producing separate reports unless the Aviation commission needs it. Roggeveen — Stated it is her belief that it is up to auditor to keep the Town abreast of any issues that might be occurring; that wasn't going on. For that reason, would like to put it in the hands of the person who is looking at the Town as a whole. Atherton — Stated it is his understanding that Mr. Peter Lamb is hired to do additional accountng work; he's more of a bookkeeper. Worth — Stated he felt he was being told that Mr. Lamb was a separate auditor. Kelly — Stated he would rather have Ms Larivee handling it all rather than a third party who isn't reporting to the auditor. Roselli — Asked for assurance that the airport and W WC are part of the Town; and such they should be audited with the Town as a whole. Roggeveen — Stated the belief that the correct model is to remove Mr. Lamb. Worth — Asked Mr. Roselli what he would do to assure the Audit and Finance Committees, the Town and the Selectmen that procedures are appropriate and thus create confidence that problems would be picked up problems before they become issues. Roselli — Explained the Town entities could rely on the fact that RC &A had a Pay Review done in the Fall and received the report in December, which was included in the proposal. The Pay Reviewer is assigned by Massachusetts Society of CPAs and does a management letter on the audit company; he can be called. Stated that he priced into the job two people at the airport and two people at W WC for a whole week. Gibson — As she understands it, W WC doesn't need to prepare information that would go into the audit; RC &A's proposal is that the company would do that. Roselli — We have to audit his information. The $11,000 is to do an audit for them. Holdgate — Mr. Lamb prepares work papers. The water commission likes an internal review, which has been phasing out over the past few years. He is a Certified Public Accountant, but no longer issues a financial statement. Roselli — His work would have to be audited. Roggeveen — Stated that she would ultimately like to see oversight in how well it is being done. Roselli —If the Town wants an overseer designated, the company would do a walk through to ensure what the town wants done is being accomplished. Atherton — To clarify the money side, if RC &A did not prepare a separate audit for each of these entities, the estimate would be different. The proposal identifies a cost for those audits. Roselli — About $6,000 total would come off the price if financials did not have to be done. Worth — Asked about partner time who would be responsible on this engagement. Roselli — There are different components: single audit, financial statements, airport, water, end -of -year report, land bank. There would be two full partners on the account on the ground for at least two weeks, primarily responsible for oversight. This is a complicated account with numerous components. RC &A does departmental reviews very well. Stated they do the same for Orleans and the Town of Nantucket is welcome to call them. Gibson — The scope of services said 4 to 6 department reviews. Might want reduce that to two or three meetings, one large and two small. Worth — Asked with other towns when doing department reviews, which departments present the highest risk Roselli — Transportation, Board of Health, building permits, and school lunch. Gibson — Have done fraud risk assessments for DPW, human resources and Airport. Roselli — Said that the company website, under industries, Fraud is addressed and there is a link to a presentation which gives examples of fraud RC &A has personally witnessed. Page 2 of 6 Minutes for March 27, 2013, adopted May 21 Atherton — Pointed out that Nantucket also runs a meal program at Our Island Home. Roselli — Touched upon also doing an eligibility audit for people on insurance rolls to clear off names of people who should no longer be covered. Kelly — Asked if and how RC &A looks at pay practices. Roselli — Stated they do a flow chart of the whole process; they sit down with Human Resources, payroll coordinators, accountant and treasurer to create a flow chart of exactly how the payroll works then flag where deficiencies are; that ends up in the management letter. Kelly — There are different ways to do payroll and best practices. Expressed a concern about ensuring timesheets are correct. Roselli — Stated that if that is a concern, the simple answer to that is biometric in- and-out timesheets Gibson — Stated that the Town has a pretty strong system in place, but it would benefit from a review. Worth — Asked how familiar Mr. Roselli is with Nantucket and is there enough in place that the learning curve will be relatively short. Rose1B — Stated that he has read the Powers & Sullivan reports and some of Mark Abrams' reports and has done a lot of reading. So have insight into what is happening. First thing he would do is a risk assessment. Atherton — Pointed out that RC &A has Falmouth which has been through some infamous activities and serious legal battles. Worth — Asked for a comment on GASB 65/66 pension and thoughts and how RC &A would approach that. Roselli — Stated one of his strength is OPEB. Presently looking at plan documents for towns that have adopted the legislation 32.11 §20. One deficiency is that the unfunded liability was in the footnotes; GASB 66, 67 & 68 addresses that and puts that information on the books. The problem is it is based upon a past - service approach. The actuaries the Town is getting now are based not only on past service but also by making assumptions on the future. This causes is the need to have two actuarial done for pensions: one to satisfy state reporting guidelines and one to satisfy GASB and change the way OPEB is done. This creates an extra cost. Worth — Asked at what point the Town would have to bring those onto its fact sheet. Roselli — Pensions would hit in FY2015 and OPEB in FY2016. Kelly — Mentioned two partners would be in charge, asked who they are. Roselli — Chad Clark and myself. Said he has thought about setting up a simulcast from his office for some meetings. Roggeveen — Thanked Mr. Roselli for coming. A recommendation will be made to the Board of Selectmen with a week. Post interview discussion: Roggeveen — Stated that she liked Mr. Roselli and his focus on internal controls and experience with management; seem more pro- active. Atherton — Believes that is true with smaller firms. Attendees review the proposal. Review of portion of interview Dr. Mulcahy missed. 2. Richard Bienvenue, CPA, Partner Malloy, Lynch, Bienvenue, (MLB) LLP: Bienvenue — Introduced himself and his firm; this is the second visit and very familiar with the Town and issues it faces. Atherton — Asked about separate reports /audits for the airport and the water company and if that is be included in the quoted price. Do not know at this time if the Town will be required to submit separate reports. Bienvenue — As those funds are part of the Town they need to be included and the work will be done anyway; as far as separate reporting, do not believe it will be problematic. We take the full general ledger of the Town and import it electronically into the account balance system then group and link all accounts to finance statement template. Once audit for town is done, it is possible to complete statements for any department. The reporting piece is not a lot of effort. Page 3 of 6 Minutes for March 27, 2013, adopted May 21 Roggeveen — Asked what other towns MLB works with. Bienvenue — Work with some Cape Cod towns which have various enterprise funds similar to Nantucket, but none have a nursing home. Plymouth was a past client with an airport. Stated he is the treasurer of Cape Cod Municipal Health Group and do auditing for self - insured groups around the state. Chatham, Harwich, Yarmouth, Marion, Sandwich, and Halifax are some of MLB's present clients Mulcahy — Asked for a breakdown of staff involvement and time they would spend doing the audit. Bienvenue — I would be significantly involved in the fast year to set up and review systems along with the audit manager will be on site and other staff as required. My participation decreases after the second year once templates and procedures are in place. There is a detailed work schedule in the back of the proposal. Said he anticipates an on -going work plan for set up between time of hire and June 30, 2013. Additional participation would include internal controls audit, which MLB does differently than other firms; do a very detailed and specific flow chart on flow of information and function of individual departments, which serves as a basis for fixing policies and procedures and modifying as needed. That is provided to the town administration to show exactly what steps should be adopted or modified. From that can document specific internal control procedures, review procedures and monitoring procedures. Worth — Asked for the name of a client as an example of how the preparation of work papers works well and one where there were challenges to solving problems. Bienvenue — Some clients need more work/assistance than others. The bottom line is not the documentation of the work paper; if the data is wrong or incomplete and MLB has to chase information, it impacts how MLB performs its work. It varies from Town to Town on how that is done. There me a lot of reasons why things don't balance, and sometimes it is simple and we can find and resolve these easily. The worst situation is information that is not in the ledger needed to complete the financial statement. Towns historically are not great at providing the information needed for full fund financial statements as now required under GASB 34. Have a very specific audit index, a Massachusetts Municipal Audit Index designed and used by MLB; we break up an audit into 20 different sections of the index and within each section are specific needs lists. It is easy to put an audit plan together because the 20 sections which need to be covered. I can assign a work plan based to those 20 sections. Worth — Asked if MLB will be the drive behind ensuring finance people get their work done. Bienvenue — There is some hand holding necessary in some cases, but that is not the preferred method. The preferred method is to provide the needs list to the financial director; MLB is willing to provide training and direction on what is needed to ensure things are being done correctly. Worth — Asked if MLB will provide due dates to the Town for certain deliverables so items are received on time. Bienvenue — Stated they can do that. What they do is provide links for finance to thew financial statements so that data can be transferred quickly. Other firms do that as well. Kelly — Asked if there was anything else that distinguishes MLB from other firms. Bienvenue — The internal control evaluation; town gets actual evaluation and flow charts. Cited an example of how that worked to alleviate a problem with another client. It is not a consultation service; it is part of the audit in that internal controls need to be evaluated. Even if we help set up a system, it is the client's system which we audit. MLB is responsible for providing an opinion; that includes if everything is in compliance and whether or not it is a deficiency. Mulcahy - Asked for comments on some Nantucket's material weaknesses from the last audit and what steps would MLB take to rectify them. Bienvenue — Cash has historically been the issue; first we would focus on that area early on to where the Town stands and look at the procedure to ensure it is sound. Finance needs to look at cash on a day- too -day basis; if it isn't, MLB would comment on it and help identify how to strengthen it. Have Page 4 of 6 Minutes for March 27, 2013, adopted May 21 had clients with airports in the past, but not at present: Dukes, Plymouth, Marshfield, Provincetown, Chatam. Gibson — Stated Mr. Bienvenue had mentioned key performance indicators and operational reviews. Bienvenue — That is not necessarily part of the on -going audit but derives from the internal control review. If there is a detailed flow chart of procedures, MLB helps document the steps to match work flow with the key internal controls. This enables the Town to hold people accountable and develop key performance indicators. Worth — Using the tax bill mailing as an example, is that in MUNIS or is that in MLB's system. Bienvenue — MLB would want to know what the Town's practice is, identify it then define what needs to be done to improve the collection procedures. Atherton — Asked if clients are transitioning away from MUNIS to another software. Bienvenue — MUNIS has a lot of capabilities. MLB is moving everything to The Cloud. Discussion about municipal finance systems switching to The Cloud and what is beneficial from the move. Kelly — Asked how MLB can deliver such a robust service at the proposed cost without shortchanging the client. Bienvenue — It comes down to integration and efficiency; a lot is value added not effort added. That is why I ant so involved in the first year. The 20 item index is on the web portal and can be easily entailed. Trying to change from the traditional model of charging based on time. The price is based upon a blended rate of $135,000 which is a competitive rate. This is my passion and Nantucket is in my back yard. Roggeveen — Thanked Mr. Bienvenue for coming. A recommendation will be made to the Board of Selectmen with a week. 3. Post interviews discussion: Roggeveen — They are both strong. Worth — If I were sitting in private sector, would hire MLB to set strong controls and RC &A for audit. The dilemma is setting up strong procedures to be audited. Gibson — Can't break it up that way, but could look at some kind of MLB involvement. Discussion about possibility of setting that up. Kelly — Mr. Bienvenue's presentation skills were not as good as Mr. Roselli; but Mr. Bienvenue has a more operational perspective and good system for identifying best practices and that is why a Finance Director might prefer working with him. Worth — Expressed the belief that it seemed Mr. Roselli has dealt with bigger systems and wouldn't be fooled or pushed around by employees. Atherton — Part of the issue is making sure they aren't too close with the finance director. Roggeveen — Mr. Bienvenue has good operational aspects in terms of using technology; but feel Mr. Roselli would be stronger if push comes to shove. Perhaps at this point it takes more to upgrade the system and that might take two people. The operational changes have to happen. Do not see Powers &Sullivan anywhere near w capable m these two. Mulcahy — Should limit the decision to the audit itself. Worth — Believe Mr. Bienvenue is very much into the process and system; but the example of sending out letters on the tax bill, we can audit that. Roggeveen — Asked for opinions on who would be better. I want to go with the guy that will make it happen; both these guys would do that. Kelly — Both would be a big improvement and can understand why Ms Larivee would relate better to Mr. Bienvenue. Gibson — Like them both. Put MLB a little bit higher. Atherton — MLB has mostly small clients compared to Nantucket. Had the feeling MLB is more local and why our folks would respond to that; but don't think that is a basis for decisions. Think RC &A Page 5 of 6 Minutes for March 27, 2013, adopted May 21 might come down in price if pushed. Believe the W WC and Airport will require separate reports /audits. Prefer Roselli, Clark & Associates. Roggeveen — Could foot note recommendation. Mr. Roselli has a bigger presence. Worth — RC &A has bigger clients. Atherton — An asset for MLB is the availability of Mr. Bienvenue. Roggeveen — Asked for vote on recommendation Atherton — Move to recommend Roselli, Clark & Associates. Motion seconded. Carried unanimously Tuesday, April 30, 2013, 9:00 a.m. 16 Broad Street, Town Conference Room Motion to Adjourn: 10:25 a.m. Submitted by: Terry L. Norton Page 6 of 6