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HomeMy WebLinkAbout17.c. Committee minutes-FINANCE 12-15-20 Page 1 of 8 Item 17.c. CENTRALSAN jdf A- hom CENTRAL CONTRA COSTA SANITARY DISTRICT January 7, 2021 TO: HONORABLE BOARD OF DIRECTORS FROM: KATIE YOUNG, SECRETARYOF THE DISTRICT SUBJECT: DECEMBER 15, 2020 - FINANCE COMMITTEE - CHAIR PRESIDENT MCGILLAND MEMBER PILECKI Attached are minutes of the above Committee meeting. ATTACHMENTS: 1. Minutes of 12-15-20 meeting January 7, 2021 Regular Board Meeting Agenda Packet- Page 67 of 74 Page 2 of 8 ,or76— I CENTRAL SAN CENTRAL • ■ • COSTA . IMHOFF PLACE, MARTINEZ, CA 9AS53-A37 REGULAR MEETING OF THE BOARD OF DIRECTORS: CENTRAL CONTRA COSTA MICHAELMCGILL President SANITARY DISTRICT TAD JPILECKI FINANCE COMMITTEE President Pro Tem PAUL H CAUSEY JAMES A.NEJEDLY M I N U T E S DAVID R, WILLIAMS PHONE: (925)228-9500 Tuesday, December 15, 2020 FAx 3�2-oI92 www.cententralsan.org 2:00 p.m. Executive Conference Room 5019 Imhoff Place Martinez, California (All attendees participated via videoconference) Committee: Chair Mike McGill Member Tad Pilecki Guests: David Alvey, Audit Partner, Maze & Associates Staff. Roger S. Bailey, General Manager Katie Young, Secretary of the District Phil Leiber, Director of Finance and Administration (left after Item 8.) Jean-Marc Petit, Director of Engineering and Technical Services (left after Item 8.) Danea Gemmell, Planning and Development Services Division Manager (left after Item 4.a.) John Huie, Information Technology Manager (left after Item 4.b.) Stephanie King, Purchasing and Materials Manager Edgar Lopez, Capital Projects Division Manager Kevin Mizuno, Finance Manager Christopher Thomas, Finance Administrator Shari Deutsch, Risk Management Administrator Donna Anderson, Assistant to the Secretary of the District Amelia Berumen, Senior Administrative Technician (left after Item 4.a.) 1. Notice This meeting was held in accordance with the Brown Act as in effect under the State Emergency Services Act, the Governor's Emergency Declaration related to COVID- January 7, 2021 Regular Board Meeting Agenda Packet- Page 68 of 74 Page 3 of 8 Finance Committee Minutes December 15, 2020 Page 2 19, and the Governor's Executive Order N-29-20 issued on March 17, 2020 that allowed attendance by Board Members, District staff, and the public to participate and conduct the meeting by teleconference, videoconference, or both. The agenda included instructions for options in which the public could participate in the meeting. 2. Call Meeting to Order Chair McGill called the meeting to order at 2:00 p.m. 3. Public Comments - None. 4. Items for Committee Recommendation to the Board a. Review and recommend approval of expenditures incurred November 6, 2020 through December 3, 2020 Staff responded to questions posed in advance of the meeting by Member Pilecki and during the meeting by both Committee Members regarding the expenditures listing. The Committee expressed satisfaction with staff's responses. Several noteworthy topics arose during the discussion as follows: Requirement for Board Review of Expenditures Listing: Chair McGill recalled that District Counsel Kent Alm had advised in the past that Board review of the expenditures listing was required under the Government Code. Based on his experiences with other agencies, Mr. Mizuno said it is typical for a Board or City Council to review an entity's expenditures. While the level of review may vary, Mr. Mizuno said Central San's practices appear to be among the most thorough. Accounts Payable Controls Review: Chair McGill requested an update on internal controls related to the general accounts payable process, including significant modifications made due to having recently implemented the accounting modules of the new Oracle Enterprise Resource Planning (ERP) system. Member Pilecki concurred, adding that he was pleased with what he has seen thus far in terms of controls related to the new system. Status of Replacement of Internal Auditor. Mr. Leiber noted that the departure due to the relocation last March of temporary Senior Internal Auditor Erica Brooks-Peters coincided with the onset of the COVID-19 pandemic. Therefore, recruitment for her replacement was put on hold because of the difficulties of a new staff effectively conducting audit work and communicating with employees working off site. However, the recruitment process was recently reinitiated and candidates have been scheduled for interview next week. He said it is hoped that one or two audits can be January 7, 2021 Regular Board Meeting Agenda Packet- Page 69 of 74 Page 4 of 8 Finance Committee Minutes December 15, 2020 Page 3 completed this fiscal year, including an audit to provide assurance that systems and controls are working as intended after the transition to the new ERP system. Approval Authorities in New Oracle ERP System: Chair McGill said he would find it useful to learn about the levels of approval authority embedded in the ERP system and how that process works. Staff agreed to provide information on that process (the signature matrix) in the near future. Audit Controls in Oracle ERP System: Mr. Mizuno explained that Mr. David Alvey from Maze & Associates, the District's outside auditing firm, would be presenting a recap of the audited financials under Item 4.c. He pointed out that one of the audit requirements is to review the internal control environment and any changes that have occurred. Next year, as part of Maze's risk assessment procedures for the FY 2020-21 financials, the top risk will likely be Central San's transition to the new Oracle ERP system. So, as part of next year's audit, it is fully anticipated that Maze will be doing an extensive review of the design and implementation of internal controls with the new system. COMMITTEE ACTION: Recommended Board approval. The Committee also requested an update on general accounts payable internal controls and the approval process in the new Oracle ERP system. Upon completion of the above item, the Committee proceeded to Item 4.c. to accommodate Mr. Alvey. b. Receive October 2020 Budget-to-Actual Financial Overview Mr. Mizuno summarized the information included with the agenda materials. Member Pilecki said the monthly financials used to include a comparison graph showing budgeted-versus-actual expenditures for both Operations & Maintenance (O&M) and Capital. He found that information to be a valuable tool because it illustrates trends. Staff said it would incorporate the graphs in future reports. COMMITTEE ACTION: Recommended Board receipt and the inclusion of the above-referenced graph in future monthly reports. C. Review draft Position Paper to accept (1) the audited comparative Comprehensive Annual Financial Report (CAFR) for the fiscal years ended June 30, 2020 and 2019 performed by Maze & Associates, and (2) the independent auditors' memorandum on internal control and required communications for the fiscal year ended June 30, 2020 January 7, 2021 Regular Board Meeting Agenda Packet- Page 70 of 74 Page 5 of 8 Finance Committee Minutes December 15, 2020 Page 4 Mr. Mizuno stated that Central San's basic financial statements are turned into the CAFR by adding a 10-year statistical section at the end. He highlighted several features and figures from the CAFR, noting that the District won the Government Finance Officers Association's (GFOA) certificate of achievement for excellence in financial reporting for last year's report, for the 20th straight year, and staff intends to apply for the same award again for the current CAFR (FY 2019-20). The following topic arose during the discussion that followed Mr. Mizuno's comments: Differences in Accounting for Large Capital Expenses: In response to a question from Chair McGill, Mr. Mizuno confirmed that large capital expenditures are not capitalized and depreciated until the underlying project is complete. There are differences in how these expenses are accounted for in the regular interim financial statements versus the CAFR. Chair McGill asked how the expenses appear on the books before a project is completed. Mr. Mizuno said that generally accepted accounting principles (GAAP) do not allow capital expenditures to be expensed in the CAFR, as is done in both the budget and the interim financial statements. For purposes of the CAFR, all the District's funds, including the Section 115 Pension Prefunding Trust Fund, are consolidated, those expenses are then "unscrambled"and shown separately in the CAFR. Within the CAFR, Mr. Mizuno said a management discussion and analysis section explains why the numbers are different. Mr. Alvey added that the CAFR is accounted for using a full accrual basis and must reflect long-term accruals. In contrast, the budget process uses a modified cash or modified accrual process, which looks forward on a short- term accrual basis. Mr. Mizuno introduced Mr. Alvey, Audit Partner of Maze & Associates, who reviewed the audit results and the auditor's opinion. Mr. Alvey said that each year the auditors assess the internal control environment. This year, they did a full disbursement testing and reviewed procurement cards transactions for five employees in January and October to assure they were complying with the Purchasing Policy and that the transactions were properly authorized and approved. He reiterated Mr. Mizuno's earlier comments regarding changes resulting from the Oracle ERP system implementation, noting that his staff incorporated new processes instituted by Central San during the shelter-in-place orders that commenced in March 2020 by performing audit procedures of transactions incurred in that timeframe given the heightened internal control risk. Chair McGill sought to clarify that Maze &Associates performed some spot checks during the shelter-in-place orders and, if something had looked out of place, Maze would have investigated to make sure no systematic problems were occurring. Mr. Alvey said yes, and if anything had been found, it would January 7, 2021 Regular Board Meeting Agenda Packet- Page 71 of 74 Page 6 of 8 Finance Committee Minutes December 15, 2020 Page 5 have been brought to the Board's attention in the form of a material weakness or significant deficiency finding. Mr. Alvey said he was pleased to report that Central San's basic financial statements received an unmodified, clean opinion from Maze &Associates for Fiscal Year 2019-20, the highest level achievable, and he expressed his congratulations. He reported that they did not have any material weaknesses or significant deficiencies in internal control to report. He and his staff had no disagreements with management and staff did not attempt to impede the audit. Other than challenges associated with the shelter-in-place orders, where a number of employees began working remotely, he and his staff experienced no difficulties performing the audit. There were no unusual transactions and no new General Accounting Standards Board (GASB) disclosures were required for the fiscal year audited. He said the financial statements were in good order and the District is on track to receive the GFOA award again for this CAFR. Finally, he concluded that the audit results were a testament to an internal control environment that could withstand changes such as those that occurred this year with the pandemic. Chair McGill noted that an unmodified opinion on the District's financial statements helps assure bondholders that everything is in order. He asked who else might be interested in this information. Mr. Alvey said anyone with a vested interest in Central San's financial health, including bondholders for continuing disclosure purposes. Mr. Mizuno also added that the State Controller's Office, California Department of Finance, and ratepayers also are interested parties. Upon conclusion of Mr. Alvey's remarks, the following topics were discussed: GASB Pronouncements Potentially Affecting Central San in Future Years: Member Pilecki asked Mr. Alvey to comment on any forthcoming GASB pronouncements that may significantly impact Central San. Mr. Alvey said it appears at this time that none of the new GASBs will have a significant effect on the District. • GASB 87— Leases: Member Pilecki noted that the District leases land from CalTrans, but not for a large dollar amount. Mr. Alvey acknowledged that it would be subject to disclosure under GASB 87, which is expected to be effective in Fiscal Year 2021-22. • GASB 94— Public-Private Partnerships: Member Pilecki noted that from time to time, Central San has entertained the prospect of entering into a public-private partnership and may consider such arrangements again in the future. He asked how GASB 94 would impact such a decision. Mr. Alvey said this GASB was pronounced to January 7, 2021 Regular Board Meeting Agenda Packet- Page 72 of 74 Page 7 of 8 Finance Committee Minutes December 15, 2020 Page 6 be effective in Fiscal Year 2022-23, but new GASB 95 has pushed out the effective date of all the new GASBs by 12-18 months. All in all, Mr. Alvey said no GASB pronouncements are expected to have major impacts on Central San in the near future. Subfund Balances: Chair McGill asked where the Pension Prefunding Trust Fund and the Rate Stabilization Fund were located in the CAFR. • Pension Prefunding Trust: Mr. Mizuno explained that because the Trust is defined as a secondary trust, its assets are reported within the assets of the O&M fund on the first line of"Non-Current Assets"on the balance sheet. • Rate Stabilization Fund: Since there is no GASB guidance for the Rate Stabilization Fund, and there is no generally accepted accounting principle covering such an arrangement, Mr. Mizuno said it cannot be reported as a restricted fund and Central San, as an enterprise fund, may not make that determination. Therefore, the balance of that fund is reported internally in two subaccounts. One is in the O&M Fund and the other is in the Sewer Construction Fund, both of which roll up into the unrestricted section along with all other subfunds, including petty cash. In response to a question from Mr. Bailey as to how the subfunds are audited, Mr. Mizuno referred to the footnotes on page S-8 of the CAFR (Summary of Debt Service, Last Ten Fiscal Years) which reference the contributions to the Rate Stabilization Fund accounts. He said that neither the introductory nor statistical sections of the CAFR are audited like the basic financial statements, but that auditors must perform specific procedures to ensure their consistency with the audited sections of the CAFR. Mr. Mizuno clarified that pursuant to the bond indenture, when monies are deposited into the Rate Stabilization Fund, the District's debt service coverage decreases; if the account is drawn on, monies are added to increase debt service coverage. Corrections/Additions to CAFR: Member Pilecki provided staff with several corrections to both the draft Position Paper and the CAFR, which staff planned to describe in a list of changes provided to the Board before the December 17, 2020, Board meeting at which the Board will be asked to accept the audited CAFR and the auditors'memorandum on internal control and required communications for the fiscal year ended June 30, 2020. COMMITTEE ACTION: Recommended Board acceptance with the suggested corrections/changes provided by Member Pilecki. January 7, 2021 Regular Board Meeting Agenda Packet- Page 73 of 74 Page 8 of 8 Finance Committee Minutes December 15, 2020 Page 7 Upon completion of the above item, the Committee reverted to Item 4.b. and then to the remaining agenda items. 5. Other Items a. Review Risk Management Loss Control Report as of November 30, 2020 Ms. Deutsch briefly highlighted changes from the report presented at the last meeting. COMMITTEE ACTION: Received the report. 6. Announcements a. Chair McGill acknowledged and thanked former Board Members Jim Nejedly and Paul Causey for their contributions during 2020 as members of this Committee. If given the opportunity, he said he was sure they would have thanked staff for their support and effort. Mr. Bailey thanked Chair McGill and Member Pilecki for stepping in as Committee Members for this meeting. 7. Suggestions for Future Agenda Items a. Receive list of upcoming agenda items and provide suggestions for any other future agenda items 1) As indicated during Item 4.a., the Committee requested a review of general accounts payable internal control and approval processes at an upcoming meeting. COMMITTEE ACTION: Received the list and suggested one item for a future agenda. 8. Future Scheduled Meetings Meeting dates for 2021 to be determined 9. Adjournment— at 3:36 p.m. January 7, 2021 Regular Board Meeting Agenda Packet- Page 74 of 74