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HomeMy WebLinkAboutMinutes - Audit Investment Finance Committee 01/24/2017 r... .ter ............... MINUTES �iy �i► , REGULAR MEETING OF THE PALM DESERT rift imr AUDIT, INVESTMENT & FINANCE COMMITTEE lo#142 / Tuesday, January 24, 2017 I. CALL TO ORDER Madam Chairman Moore called the meeting to order at 10:03 a.m. II. ROLL CALL Present: Absent: Lauri Aylaian, City Manager (10:05 a.m.) Russell Campbell, Community Member Robert Hargreaves, City Attorney Jan Harnik, Mayor Brian Holcombe, Community Member Sabby Jonathan, Mayor Pro Tern pore Robert Leo, Community Member Stanley Sperling, Committee Member Janet Moore, Chair/Finance Director Also Present: Jose Luis Espinoza, Assistant Finance Director Anthony Hernandez, Senior Financial Analyst Niamh Ortega, Recording Secretary Nitin Patel, CPA, Partner, White Nelson Diehl Evans LLP Derek White, Desert Willow Golf Resort III. ORAL COMMUNICATIONS None. IV. APPROVAL OF MINUTES A. MINUTES OF THE MEETING OF NOVEMBER 22, 2016 MOTION was made by Member Campbell to approve as presented the Minutes of the regular meeting of the Palm Desert Audit, Investment and Finance Committee held on November 22, 2016. Motion was seconded by Member Sperling and carried by a 8-0 vote, with Campbell, Hargreaves, Harnik, Holcombe, Jonathan, Leo, Sperling and Moore voting AYE; Aylaian ABSENT. INVESTMENT & FINANCE COMMITTEE MINUTES January 24, 2017 V. NEW BUSINESS A. CITY OF PALM DESERT AUDITED FINANCIAL REPORTS FOR THE FISCAL YEAR ENDED JUNE 30, 2016 Madam Chairman Moore introduced Nitin Patel, CPA, a partner with White Nelson Diehl Evans LLP, the firm that conducted the City's audit for the year ended June 30, 2016. Mr. Patel provided an overview of the audit procedures and responsibilities of the auditors and City management. The financial statements audited include the governmental and business-type activities as well as the discretely presented component unit (Palm Desert Recreational Facilities Corporation (PDRFC)) and each major fund for the City of Palm Desert. It was pointed out that the financial statements are the responsibility of management, and the auditor's responsibility is to review and issue an opinion on the completed statements. An unmodified opinion was issued at the conclusion of the audit, indicating that there were no material weaknesses and no significant findings. A single audit was not conducted as the threshold of $750,000 in federal funds had not been met. Mr. Patel also highlighted that while internal controls are reviewed and tested during the audit, the auditor is not required under the scope of work to issue an opinion. However, based upon the samples tested and the review, the auditors indicated that there were no findings or material weaknesses evident. Mr. Patel reported that during the course of the audit, there were no significant difficulties or disagreements with management, and no other auditor was consulted to offer an opinion on any matter. He communicated that the appropriation limit was reviewed and a report on the limit was prepared. Mayor Pro Tern Jonathan asked for further clarification on the appropriations limit and Mr. Patel responded that it is a spending limit calculation for the City based on the proceeds of taxes. Currently the limit is more than twice the City's calculation. Even though the City will never meet the criteria, it is still a required procedure as dictated by the State. Member Holcombe asked who would be responsible for issuing an opinion on internal controls. Mr. Patel responded that there is a new standard that provides for the hiring of an internal control auditor. In order to issue an auditor's opinion, the scope of work would be significantly increased, and would essentially require a separate audit in order to appropriately review the transactions and controls in sufficient detail. He reminded the Committee that his firm did review and test the internal controls as part of this audit, but to issue an opinion would require a much more extensive review and testing. Mayor Pro Tem Jonathan furthered that in order to conduct an audit the internal controls are evaluated, so the public can feel comfortable with the audit and its outcome. Mayor Pro Tern Jonathan stated that it would be prudent for staff to look into the cost of performing an audit of internal controls, and suggested it may be a good idea, in the interest of transparency, to perform such an audit every five or ten 2 INVESTMENT & FINANCE COMMITTEE MINUTES January 24, 2017 years. Mayor Harnik agreed that it would not hurt to perform such an audit which could be postponed until a later date given that the Finance Department is still undergoing a transition. MOTION was made by Member Leo to recommend that the City Council receive and file the City of Palm Desert audited financial reports for the fiscal year ended June 30, 2016. Motion was seconded by Member Holcombe and carried by a 9-0 vote, with Aylaian, Campbell, Hargreaves, Harnik, Holcombe, Jonathan, Leo, Sperling and Moore voting AYE. B. PALM DESERT RECREATIONAL FACILITIES CORPORATION AUDITED FINANCIAL REPORTS FOR THE FISCAL YEAR ENDED JUNE 30, 2016 Mr. Patel provided a brief overview of the Palm Desert Recreational Facilities Corporation (PDRFC) financial statement. PDRFC represents the food and beverage portion of Desert Willow's operation. The same procedure was followed as mentioned for the City's audit, as it is an entity of the City. Mr. Patel indicated that an unmodified opinion was issued for PDRFC, with no material weaknesses or areas of non-compliance. He noted that there is a significant deficit as in prior years due to the way the PDRFC was formed. It is not viewed as an item of concern as the City is in a position to fund it if necessary. MOTION was made by Member Sperling to recommend that the City Council receive and file the Palm Desert Recreational Facilities Corporation audited financial reports for the fiscal year ended June 30, 2016. Motion was seconded by Member Campbell and carried by a 9-0 vote, with Aylaian, Campbell, Hargreaves, Harnik, Holcombe, Jonathan, Leo, Sperling and Moore voting AYE. C. INDEPENDENT ACCOUNTANTS' REPORT ON AGREED-UPON PROCEDURES PERFORMED ON THE MEASURE A TRANSPORTATION FUND FOR THE FISCAL YEAR ENDED JUNE 30, 2016 Mr. Espinoza reported that the Measure A report on agreed-upon procedures is outside the scope of the report, but it is required by Riverside County Transportation Commission. The audit differs from others in that the County selects the auditor and determines the dates the auditors will visit the City, and it covers items that RCTC wants, not the City. Mayor Pro Tern Jonathan questioned why there was a difference of 1% between the Measure A cash and investments of $19,131,717 and the fund balance of $19,246,741. Mr. Espinoza responded that there could be a combination of reasons for the difference. He further noted that on Page 23 of the City's financial statements, it lists a clearer picture of the fund, detailing the assets including cash, investments, funds received from other agencies, and liabilities including accounts payable and unearned revenues. He highlighted that the variance is reflected in the difference between receivables of $1.9 million and payables/unavailable revenues of $1.8 million. 3 INVESTMENT & FINANCE COMMITTEE MINUTES January 24, 2017 MOTION was made by Member Leo to recommend that the City Council receive and file the Independent Accountants' Report on agreed-upon procedures performed on the Measure A Transportation Fund for the fiscal year ended June 30, 2016. Motion was seconded by Member Campbell and carried by a 9-0 vote, with Aylaian, Campbell, Hargreaves, Harnik, Holcombe, Jonathan, Leo, Sperling and Moore voting AYE. D. CITY INVESTMENT SCHEDULE AND SUMMARY OF CASH REPORT FOR NOVEMBER AND DECEMBER 2016 Mr. Metz provided an overview of the reports. He stated that for the month ended December 31, 2016, the book value of the City portfolio was approximately $266 million. Interest earnings were approximately $197,000. Yield-to-maturity was approximately 0.90%. Mr. Metz noted that in order to achieve greater liquidity, some cities have been dividing their investments into two portfolios, one for Council projects or short- to medium-term investments, and a second for long-term investments. This enables them to earn at a higher interest rate while still maintaining sufficient liquidity for daily operations. Upon question from Mayor Pro Tern Jonathan, Mr. Metz stated if the City of Palm Desert adopted a similar strategy, the interest rate would possibly be 1.5°A) or higher on long-term investments. Madam Chairman Moore informed the Committee that Mr. Metz is in the process of compiling proposed changes to the City's current investment policy. In the past, there was a very condensed policy of allowable investments. Mr. Metz expanded on what he looks for when reviewing potential purchase, and stated that the credit rating is important but does not tell the whole story, so he reviews the company's performance history as well as other factors. Mayor Pro Tern Jonathan asked if the City has a broker or if all decisions are made internally. Mr. Metz answered that there are two brokers the City utilizes, one of which has been an advisor for over twenty years and has proven reliable. It was also mentioned that Mr. Metz will be working on a five-year Cash Flow Projection, and hopes to finalize it by the end of the fiscal year. Member Jonathan asked when the last projection was done, to which Mr. Metz responded that due to his position as Property Manager he had been unable to perform one since the dissolution of the Redevelopment Agency in 2010. Mayor Harnik asked if a five- year plan projection was sufficient, and if a ten-year projection was feasible. Mr. Metz responded that given the changes seen in most recent years, a five-year projection is practical. Mayor Pro Tern Jonathan suggested that a five-year projection and a ten-year forecast may be worth some consideration. MOTION was made by Member Leo to recommend that the City Council receive and file the City Investment Schedule and Summary of Cash Report for the months of November and December 2016. Motion was seconded by Member Holcombe and carried by a 9-0 vote, with Aylaian, Campbell, Hargreaves, Harnik, Holcombe, Leo, Sperling, Spiegel and Moore voting AYE. 4 INVESTMENT & FINANCE COMMITTEE MINUTES January 24, 2017 E. LOCAL AGENCY INVESTMENT POOL ACCOUNT STATEMENTS FOR NOVEMBER AND DECEMBER 2016 Mr. Metz provided an overview of the various reports. He highlighted that for the month ended December 31, 2016, there was $25 million in the Housing Authority LAIF account, $11 million in the City LAIF account, and $4 million in the CAMP account for the Successor Agency. He explained that when rates are declining, funds should be kept in LAIF, and when rates increase, funds should be moved to CAMP. MOTION was made by Member Campbell to receive and file the reports for Local Agency Investment Fund (LAIF), California Asset Management Program (CAMP), and Riverside County Investment Pool for November and December 2016. Motion was seconded by Member Leo and carried by a 9-0 vote, with Aylaian, Campbell, Hargreaves, Harnik, Holcombe, Leo, Sperling, Spiegel and Moore voting AYE. F. CITY FINANCIAL REPORT THROUGH DECEMBER 2016 Madam Chairman Moore provided an overview of the report and explained the recent changes to the layout of the report, which incorporates additional budgetary detail as requested at a previous meeting. Revenues are reflected on the second page in a bar chart. Expenditures are much more volatile, and do not lend themselves to being graphed in a similar fashion. She summarized that revenues and expenditures are right on track with last year. Refunding bonds for Redevelopment were priced last week. $250 million was issued, and was ten times oversubscribed due to a combination of an "A" rating from Standard & Poor's (S&P) and the Palm Desert name. It closes next Tuesday and rates are locked. There was a question as to why the City only received an "A" rating rather than an "A+" or "AA" rating. Madam Chairman Moore responded that S&P noted that per capita spending for Palm Desert residents is relatively low, as is average income. Palm Desert's average annual income is in the $50,000 range, even falling below the County average of $65,000. This information surprised both staff and the Committee; however, the formula used to calculate this information is based on census records for permanent Palm Desert residents, and does not account for the transient nature of the city, or spending habits of visitors and those with second homes in Palm Desert. Nonetheless, both prospective purchasers and the underwriter agreed that Palm Desert's financial stability and prudence provides an assurance for those considering a bond buy. In addition, since the bond issue was Palm Desert's largest ever at $250 million, it saw some bigger companies and players get involved. Typically some of the larger companies like Vanguard would not have been interested in the more typical, smaller bond issues in the past. Member Leo offered further explanation of the use of census data to compile information on spending patterns and income that may not tell the whole story of Palm Desert in particular. In this case, the last official census was 2010, and the situation may have changed significantly in six years. He furthered that it was not 5 INVESTMENT & FINANCE COMMITTEE MINUTES January 24, 2017 uncommon for the data to be used, as S&P indicated, to produce a rating that was not necessarily reflective of the current economic climate but was certainly reliable and respected information. It is expected that the bond issuance will provide the City approximately $50,000 annually as a taxing entity, and will save the other taxing entities such as the County and Desert Sands Unified School District approximately $1.5 million on an annual basis. MOTION was made by Member Campbell to receive and file the City financial report through December 2016 as presented. Motion was seconded by Member Leo and carried by a 9-0 vote, with Aylaian, Campbell, Hargreaves, Harnik, Holcombe, Leo, Sperling, Spiegel and Moore voting AYE. G. PARKVIEW PROFESSIONAL OFFICE BUILDINGS FINANCIAL REPORTS FOR NOVEMBER AND DECEMBER 2016 Mr. Hernandez provided an overview of the reports. Mayor Harnik mentioned there had been discussion that RAP may be purchasing a building and would be vacating their current suite at Parkview, and that other non-profits may follow suit. She furthered that at a previous meeting Mr. Rudy Acosta, Assistant City Manager, presented renderings of a proposed refresh project at the Parkview buildings, and she has a copy of the renderings in her office for members who have not yet seen them. Mayor Harnik suggested that it may be time to begin the refresh project in order to stay competitive with other non-profit leasing spaces. Mayor Pro Tern Jonathan asked how the building was marketed and Mr. Metz responded that when he was the property manager, he would hand out a one- page flyer to prospective tenants, which provided information on the office complex location and its amenities. Mr. Hernandez added that the buildings are currently 90% occupied, which is better than the general market. Mayor Pro Tern Jonathan also asked about the deferred maintenance that Mr. Metz performed as property manager, and asked specifically about the HVAC systems. Mayor Harnik and Mr. Hernandez responded that all air conditioning units at the Parkview buildings had been replaced over the last two years as part of the plan to update the buildings. MOTION was made by Member Holcombe to receive and file the Parkview Professional Office Buildings financial reports for November and December 2016 as presented. Motion was seconded by Member Leo and carried by a 9- 0 vote, with Aylaian, Campbell, Hargreaves, Harnik, Holcombe, Leo, Sperling, Spiegel and Moore voting AYE. H. PALM DESERT GOLF COURSE FACILITIES CORPORATION FINANCIAL REPORTS FOR NOVEMBER AND DECEMBER 2016 Mr. White reviewed the report. He noted that green fees increased 13% over last year. He reported that the first Footgolf championship took place at Desert Willow recently. There were 80 international players. A team of 16 from Japan traveled to Palm Desert to play in the Japan vs. USA match. Mr. White also informed the Committee media coverage was not extensive, although there was a large 6 INVESTMENT & FINANCE COMMITTEE MINUTES January 24, 2017 presence on social media. He stated that the Convention and Visitors' Bureau has committed to helping with media coverage for next year's event. Mr. White also reported that the Music and Dining under the Stars program kicked off in November, and was well attended. Additionally, the Thanksgiving brunch was extremely successful with 544 covers, the highest ever for Thanksgiving. In December, Desert Willow hosted the Annual Media Classic, with approximately 80 attendees. Unfortunately this is not a repeat event, as it is already scheduled to travel to Scottsdale. Mr. White distributed a rack card highlighting events scheduled through April 2017. MOTION was made by Member Leo to receive and file the Palm Desert Golf Course Facilities Corporation financial reports for November and December 2016 as presented. Motion was seconded by Member Campbell and carried by a 9-0 vote, with Aylaian, Campbell, Hargreaves, Harnik, Holcombe, Leo, Sperling, Spiegel and Moore voting AYE. VI. CONTINUED BUSINESS None. VII. OLD BUSINESS None. VIII. INFORMATIONAL ITEMS None. IX. ADJOURNMENT With Committee concurrence, Madam Chairman Moore adjourned the meeting at 11:10 a.m. Respectfully submitted, Niamh Ortega, Recor Secretary 7