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HomeMy WebLinkAboutFinance MINUTES 06-21-22 Page 2 of 8 r CENTRAL SAN CONTRACENTRAL •STA SANITARY DISTRICT 5019 IMHOFF REGULAR MEETING OF THE BOARD OF DIRECTORS: DAVID R. WILLIAMS CENTRAL CONTRA COSTA President SANITARY DISTRICT BARBARA D.HOCKETT President Pro Tena FINANCE COMMITTEE MARIAHNLAURITZEN MICHAEL R.MCGILL TAD J PILECKI MINUTES PHONE: (925)228-9500 Tuesday, June 21, 2022 FAX.- (925)372-0192 2:00 p.m. www.eentralsan.org (All attendees participated via videoconference) Committee: Chair Mike McGill Member Tad Pilecki (Alternate for Member D. Williams) Staff. Roger S. Bailey, General Manager (joined during Item 4.a.) Katie Young, Secretary of the District Philip Leiber, Director of Finance and Administration Steve McDonald, Director of Operations (joined during Item 4.a.) Jean-Marc Petit, Director of Engineering and Technical Services Edgar Lopez, Capital Projects Division Manager (joined during Item 4.a.) Kevin Mizuno, Finance Manager Benjamin Johnson, Internal Auditor Dan Frost, Senior Engineer Christopher Thomas, Accounting Supervisor Olivia Ruiz, Accounting Supervisor Shari Deutsch, Risk Management Administrator (joined during Item 4.a.) Amelia Berumen, Assistant to the Secretary of the District 1. Notice This meeting was conducted virtually in accordance with the provisions stipulated in Assembly Bill 361 and adopted on June 16, 2022, by the Central San Board of Directors. The agenda included instructions for options in which the public could participate. 2. Call Meeting to Order Chair McGill called the meeting to order at 2:00 p.m. July 7, 2022 Regular Board Meeting Agenda Packet- Page 124 of 137 Page 3 of 8 Finance Committee Minutes June 21, 2022 Page 2 3. Public Comments None. 4. Items for Committee Recommendation to the Board a. Review and recommend approval of expenditures incurred May 12, 2022 through June 9, 2022 The Committee was satisfied with staff responses to questions posed on various check register and procurement card expenditures. Items of particular note or requiring staff attention are summarized below. Check No. 305948, Marcus G. Faust, $10,000 (p. 4 of 57) It was confirmed for Member Pilecki that this was a monthly rate payment for lobbyist representation to find recycled water projects funding resources. Chair McGill inquired whether another Committee reviewed and approved this contract. Mr. Bailey explained this contract falls under his Delegation of Authority and was executed to understand potential funding arrangements for recycled water projects. Mr. Bailey announced that Mr. Faust will tour the treatment plant this August and will be introduced to the Board at the August 18 meeting. Chair McGill inquired if the contract had an end date or if it was an open-ended arrangement. Mr. Leiber offered to confirm whether a timeframe was established. Chair McGill requested a staff update at a future meeting to facilitate the Committee doing its due diligence. P-Card Reconciliation Chair McGill reflected on a prior Committee inquiry of the staff handling of reconciliations of p-card statements (i.e., unsubmitted reports or personal charges) and how it cycles back to make sure it is completed. Mr. Mizuno advised that staff is in the process of preparing an agenda item update for the July Finance Committee meeting to address that concern. He stated staff researched back to July 2021 up to April 2022 and found that the items of reconciliation were small in comparison to those expended. Those items were identified and a process is in place. More information will be presented next month. COMMITTEE ACTION: Recommended Board approval. July 7, 2022 Regular Board Meeting Agenda Packet- Page 125 of 137 Page 4 of 8 Finance Committee Minutes June 21, 2022 Page 3 b. Receive Financial Overview through the month of May 2022 As discussed in other recent Committee meetings, the projection for current fiscal year O&M and capital spending is that both will be underspent. However, any current gap is expected to tighten towards the year-end close. Chair McGill inquired whether the District runs a 12-month financial period or uses a 13-month period to reconcile expenditures. Mr. Mizuno replied that the District uses the 13-month model, however, the twelfth month is kept open until near the end of July; expending to June and paying July charges simultaneously. Any capital expenditures are appropriately captured. As it pertained to the capital budget, it was asked when capitalization for depreciation begins. Mr. Mizuno stated it occurs when the project is determined to be significantly complete (e.g. 95% completion), by notice from the project manager. Prior to that, he explained the cost is carried as an a non-depreciable capital asset until notified it is completed. A discussion ensued. Member Pilecki recollected that the capitalization was triggered by project acceptance, rather than 95% completion, and asked staff to clarify in which manner it is handled. He inquired at what point does staff start to look at carryover and also look at sufficient staff to accomplish the goals, noting this year appears to have $30 million carrying over to next year. Mr. Bailey noted the observation and offered that some money is realistic for carryover of unfinished projects, but that the carryforward and budget for that year may need to move to subsequent years for optimization. These considerations are made in the financial planning process. Mr. Mizuno advised there would be a reduction in appropriations next fiscal year and foresees a timing dip to catchup on some projects. He also responded that the project's notice of completion and designation by capital that the project is "substantially complete"go hand in hand when determining when an asset's depreciation may commence. Member Pilecki stated it comes back to rate setting, which will come up next year and that staff will need to have assessed these matters thoroughly prior to that occasion. COMMITTEE ACTION: Recommended Board receipt. July 7, 2022 Regular Board Meeting Agenda Packet- Page 126 of 137 Page 5 of 8 Finance Committee Minutes June 21, 2022 Page 4 C. Receive Accounts Payable Internal Audit Report Mr. Johnson presented an internal audit report of the Accounts Payable function. He noted the payment approval process is a robust system that was setup in Oracle and appears to work well. Mr. Johnson noted that Member Williams had expressed concern in the past of the potential for payments to be made to fictitious vendors. To address those concerns, Mr. Johnson plans to audit the p-card process next fiscal year. Member Pilecki thought this was a good audit report that raised a few questions: 1. Administrative Procedures (APs): Is there a schedule to review APs similar to that of Board Policies? Mr. Johnson replied he has seen a lack of formalized policies/procedures and recommended a regular update. There was some discussion on the various APs, and it was noted the review of the APs depends on the responsible division and any revisions that may need to be updated; there is no regularly scheduled formal review process of the APs. Mr. Bailey stated this would be looked at internally to determine whether a process needs to be formalized and could be reported back as applicable. 2. Paperless Payments and County Treasury Services Contingency Plan: What happens if the District or County gets hacked and loses the ability to make payments, is there a contingency plan? Member Pilecki stated he did not expect an answer today, but for staff to consider the challenges that could be faced. He offered a suggestion of having an emergency fund outside of the County as a backup plan. Mr. Leiber noted that the District is precluded from maintaining separate bank accounts outside of the County's control while the County serves as treasurer. This led to a lengthy discussion and introduction to staff's various internal meetings to consider the value to continue with the use of the County's treasury services. Mr. Leiber provided the Committee with an overview of some of the issues involved in potentially stepping away from having the County provide treasury management services and moving towards a more independent arrangement. Since 1946, the County has served as the District's treasury provider. They take a stance that a voluntary participant is either all-in or out. Therefore, having a separate emergency fund is not permissible. He noted that with respect to internal controls, the additional value added by the County is limited and opined it adds a layer of opaqueness. As an example, the July 7, 2022 Regular Board Meeting Agenda Packet- Page 127 of 137 Page 6 of 8 Finance Committee Minutes June 21, 2022 Page 5 County reviews the check register, but is not really in a position to find fictious payments. Additionally, the District is unable to do bank reconciliations through Oracle with the County arrangement in place. However, on the investment side, Mr. Leiber noted there is value as they do continual internal screening and ongoing monitoring of investment issuers that is a benefit. Mr. Leiber stated that as an alternative to the current arrangement, staff could replicate the County's treasury services and has reached out to other agencies for their experiences in this regard. A few have moved away from their County for treasury services. He noted the County is in the midst of its own enterprise resource planning system implementation; the future system could provide improved flexibility with electronic payments and other services. Staff will have a discussion with the County prior to any planned or proposed changes. Member Pilecki inquired whether there would be an impact with the County collecting ad valorem or service charges. Mr. Leiber responded no, and that under any circumstances, the County's services for billing the District's fees and portion of the ad valorem taxes is valued and an efficient arrangement. Mr. Bailey stated he requested staff conduct a formal and thorough assessment of the issue, including alternatives if any changes are to be formally considered. Ms. Deutsch offered that the County is self-insured for hacking on their assets/data/accounts. Additionally, the District purchases cyber insurance. Chair McGill stated this former discussion was a good conversation and there are many things to look at, including an entity to potentially assist in the future. He noted that he does not want to lose sight of this topic and asked for the item to be added to a future agenda for further discussion/tracking. Mr. Leiber stated it could be added to the schedule for regular updates when applicable. COMMITTEE ACTION: Recommended Board receipt of the audit report. Provided input to staff for future agenda items. July 7, 2022 Regular Board Meeting Agenda Packet- Page 128 of 137 Page 7 of 8 Finance Committee Minutes June 21, 2022 Page 6 5. Other Items a. Review Risk Management Loss Control Report as of June 6, 2022 Ms. Deutsch noted there had not been much activity since the last report. The Committee had no questions. COMMITTEE ACTION: Received the report. 6. Announcements Mr. Leiber provided the Committee with an update of recent developments on the selection of excess liability coverage beginning July 1. It had been discussed with the Committee and Board in various meeting whether it may be time to change from the current approach of having excess liability coverage from the commercial market and moved towards a pooled authority coverage approach for the new fiscal year, the decision had been delegated to the General Manager based on best cost availability. Staff received an earlier than expected commercial quote, which was a nominal 10% increase from the current year as compared to the 30% anticipated in the budget for next year; therefore, staff is proceeding with procuring coverage from the commercial insurers. The pooled authority runs on a different calendar cycle and could not provide a definitive quote and instead provided an estimate. Although the coverage is not an apples-to-apples comparison in terms of coverage limits and terms, the pooled authority estimate was $750,000 compared to the commercial quote of$680,000. Staff concluded remaining on the commercial path for another year was prudent while continuing to keep the option of joining the pooled authority as an alternative in the future. 7. Suggestions for Future Agenda Items a. Receive list of upcoming agenda items and provide suggestions for any other future agenda items As noted in Item 4.c., staff will provide the Committee with an update, as applicable, of formalizing Administrative Procedure reviews, and will provide the Committee with an update of a formal assessment, and potential regular updates, on the consideration to transition away from the County for treasury services. COMMITTEE ACTION: Received the list and provided input to staff. July 7, 2022 Regular Board Meeting Agenda Packet- Page 129 of 137 Page 8 of 8 Finance Committee Minutes June 21, 2022 Page 7 8. Future Scheduled Meetings Tuesday, July 26, 2022 at 2:00 p.m. Tuesday, August 23, 2022 at 2:00 p.m. Tuesday, September 27, 2022 at 2:00 p.m. 9. Adjournment— at 3:27 p.m. July 7, 2022 Regular Board Meeting Agenda Packet- Page 130 of 137