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HomeMy WebLinkAboutMinutes - Audit Investment Finance Committee 05/23/2017 '71-1"-E_t7-- f MINUTE REGULAR MEETING OF THE PALM DESERT AUDIT, INVESTMENT & FINANCE COMMITTEE z m§ '� Tuesday, May 23, 2017 I. CALL TO ORDER Vice-Chairman Campbell called the meeting to order at 10:00 a.m. Present Absent Lauri Aylaian, City Manager Jan Harnik, Mayor Russell Campbell, Vice-Chairman Robert Leo, Chairman Robert Hargreaves, City Attorney Brian Holcombe, Community Member Sabby Jonathan, Mayor Pro Tempore. Janet Moore, Director of Finance Stan Sperling, Community Member Also Present Luis Espinoza, Assistant Finance Director Anthony Hernandez, Senior Financial Analyst Richard Kikuchi, CPA, Lance, Soil & Lunghard, LLP Niamh Ortega, Recording Secretary Derek White, Desert Willow Golf Resort II. ORAL COMMUNICATIONS A. Vice-Chairman Campbell reminded the Committee that at the last meeting the Committee ,elected a Chair and Vice-Chair to serve the Committee. Chairman Leo is absent, so Vice-Chairman Campbell will lead the meeting. Member Aylaian read a letter she received from the Government Finance Officers Association, informing her that the City qualified for a Certificate of Achievement for the presentation of the Comprehensive Annual Financial Report for the fiscal year ended June 30, 2016..She thanked the Finance team, noting that this was the twentieth year in:a row that the City would receive this award. B. None 1 1 AUDIT, INVESTMENT & FINANCE COMMITTEE MINUTES, May 23, 2017 III : APPROVAL OF MINUTES A. MINUTES OF THE MEETING OF APRIL 25, 2017. MOTION was made by Member Hargreaves to approve the Minutes of the regular meeting of the Palm Desert Audit, Investment and.Finance Committee of April 25, 2017 as presented. Motion was seconded by 'Member Sperling and carried by•a vote of 7-0, with Ayiaian, Hargreaves, Holcombe, Jonathan, Moore, Sperling and Campbell voting AYE; Harnik and Leo ABSENT: IV. NEW BUSINESS V. A. FINANCIAL REPORT ON CITY INVESTMENT SCHEDULE AND SUMMARY OF CASH THROUGH APRIL 2017 Mr. Metz provided the report and stated that the book value for the month ended April 30, 2017 was $2.82 miIGon. MOTION was; made by Member Sperling to recommend that the City Council approve the City investment Report for the period ended April 30, 2017. Motion was seconded by Member Holcombe and.carried by a vote of 7-0, with Aylaian, Hargreaves, Holcombe, Jonathan, Moore, Sperling and Campbell voting AYE; Harnik and Leo ABSENT. B. FINANCIAL REPORT ON LOCAL AGENCY INVESTMENT POOL ACCOUNT STATEMENTS FOR APRIL 2017 Mr..Metz provided the report. He.indicated that.there'were.no significant changes this month, Utilizing the higher balance permitted in. CAMP,.he will be allocating monies to CAMP to take full advantage of rising rates. MOTION was made by MemberiSperling to receive and file the reports for Local Agency Investment Fund (LAIF), California Asset Management Program (CAMP) and Riverside County Investment Pool through April as presented. .Motion was seconded by ,Member Aylaian and carried by a vote of 7-0, with Aylalan, Fargreaves;=Holcombe, Jonathan, Moore, Sperling and Carnpbell voting AYE; I-farnik and Leo'ABSENT. C. FINANCIAL REPORT ON CITY THROUGH APRIL 2017 Member Moore reviewed .the summary provided in the packet. She. reported that TOT'information reflects totals collected through the month of March. The effects of the festivals such as Coachella and Stagecoach will be reflected in net month's'reporl. 2 AUDIT, INVESTMENT & FINANCE COMMITTEE MINUTES May 23, 2017 Member Moore distributed a graph entitled "Palm Desert Historical Sales Per Capita by Benchmark Year", depicting a ten year history of per capita sales tax. She highlighted that the economy has recovered substantially since the recession and the City has finally exceeded the amount of per capita sales tax it was collecting prior to the recession. Staff anticipates that sales tax will remain at this level for the next year, and that the graph is a good representation of historical sales tax activity. She informed the Committee that the sales tax advance received from the State is typically two months behind, with sales tax received through September for June,.It will catch up by the end of the fiscal year reporting. Continuing with her review, Member Moore noted that the. police budget shows a significant shortage to budget because the Sheriff's contract billing ie quite behind in payments. Staff is currently reviewing its process so that the appropriate members of Sheriff'and City staff are included in the review process to ensure accurate billing, Member Jonathan asked if specific events are audited for accuracy on the sheriff billing and referenced the Goldenvoice events in Indio. Member Aylaian answered that there. is a great deal of detail received along with the monthly billing and she will look to see how that is reviewed,- Member Campbell. stated that he volunteers at the Sheriff station and drives payroll records to Riverside. He is,required to stay until all reports are correct and all adjustments have been made, and stated that it goes through a number of checks to ensure accuracy. Member Holcombe asked if the revenue reflected an adjusted seasonal budget. Member Moore said the percentage of revenue reflected is determined based on when they are historically received, Member Holcombe further questioned why sales tax has increased over last year, and Member Moore replied that it i a timing issue. if the payment was received on May 1 it is reflected in the monthly report for May but if it was received on April 30,. it would be reflected in April's report, showing an increase on paper for the month. Member Aylaian pointed out that ;the TOT increase is an accurate depiction, and that it has increased due to higher' occupancy and an increased TOT rate this year. She agreed that sales tax is more of a timing issue. Member Moore added that while there is no definitive way to know precisely where sales tax revenue stands until after the fact, the City works with a reputable sales tax auditor to review the safes tax trends across the state. The auditor considers legislation and trends to provide the forecasts, and they have proven very reliable.. Staff meets with the auditor quarterly to review the sales tax reports, trends and any legislative effects. 3 AUDIT, INVESTMENT & FINANCE COMMITTEE MINUTES May 23, I17 'Member Aylaian.sugested that staff provide non confidential information received from the sales tax auditor so the Committee can see the information upon which staff relies. She reported that just one event last year, Desert Trip, made a'signiflcant difference in annual sales tax. Staff just received, confirmation that it would pot be a repeat event this year and will need to account for that, Member Jonathan suggested adding a footnote to the report that staff has cornpleted-an analysis and has concluded that the Information provided.in the.report is accurate. Member Moore responded that staff will expand the comments already provided to.indicate any changes or exceptions in.an effort to provide n ore detail to the Committee. Member Moore pointed out that Internet sales have an effect on local sales tax. She informed the Committee that the County is provided a portion of the overall internet sales tax' from the State. Patin Desert's share is then prorated.;based on its own, retail sales. When people buy more. online and less in stores, it.affects Palm Desed's actual sales tax. revenue, Member Moore stated that this report is a good example of why -cities prefer diversification in sales. If.a city relies strictly on retail and-retail sales are down, then sales tax as.a whole is down. in Palm Desert, sales tax earned'at food establishments is up so it offsets the dip iri retail sales, MOTION was made :by Member Jonathan to receive and file the City financial report through April 2017 as presented. Motion was seconded by Member Sperling and carried by a vote of 7.0, with Aylaian, Hargreaves, Holcombe,Jonathan, Moore, Sperling and Campbell voting AYE; Flarnik and Leo ABSENT. D, FINANCIAL REPORT: ON PARKVIE V PROFESSIONAL OFFICE BUILDINGS THROUGH APRIL 2017 'Mr. Hernandez provided a summary of the report as provided. He informed the Committee that staff would be taking.an item to Council at the next meeting to negotiate a lease, MOTION was made by'Membee Hargreaves'to receive and fle.the Parkview Office Building financial report through April 2017 as presented. Motion was seconded .by Member Sperling and carried by a vote of 7-0, with Aylalan, Hargreaves, Holcombe, Jonathan, Moore, Sperling and Campbell voting AYE; Harn1k and Leo.ABSENT. 4 AUDIT, INVESTMENT & FINANCE COMMITTEE MINUTES May 23, 2017 E. FINANCIAL REPORT ON PALM DESERT RECREATIONAL FACILITIES CORPORATION THROUGH APRIL 2017 Mr. White reported that April was another good month. It was not quite as stellar as March but revenue still reached $1.25 million, Payroll has increased mostly due to the increase in minimum wage, and there was an 11% growth in EBITDA over last year. Mr. White also reported growth in food and beverage due to a number of special events that took place in April. Member Jonathan informed the Committee that there is a separate committee that reviews Desert Willow operations In great detail and they are very pleased with the direction and the results. Mr. White said that the .Footgolf Ryder Cup is currently taking place at Desert Willow. it is an international competition of Footgolf, and has attracted quite a bit of attention. Member Campbell reported he and his wife have eaten at the restaurant recently, and they both agree that the food is excellent. MOTION was made by Member Sperling to receive and file the Palm Desert Recreational Facilities Corporation financial report through April 2017 as presented. Motion was seconded by Member Holcombe and carried by a vote of 7.0, with Aylaian, Hargreaves, Holcombe, Jonathan, Moore, Sperling and Campbell voting AYE; Harnik and Leo ABSENT. F. PRESENTATION BY AUDITING FIRM LANCE, SOLL. LUNGHARD, LLP Mr. Richard Kikuchi, CPA, introduced himself as a partner at Lance, Soli & Lunghard, LLP (LSL) and provided the Committee with some background information about the firm. The firmspecializes in government auditing, and in particular small to mid-size cities. Mr. Kikuchi recalled that LSL were the ity's auditors back in 2001 for seven or eight years. LSL audits about 65 cities throughout California. Today's meeting satisfies the SAS 114 requirement that auditors meet. directly with key personnel and committee members at the City. The auditors will Issue a SAS 114 letter that delineates the requirements and responsibilities of the auditors. They are engaged to perform the financial audit, which is a snapshot of a period of time, and will perform a substantial amount of test work to ensure that the auditors are comfortable stating that the information is materially correct. 5 AUDIT, INVESTMENT & FINANCE COMMITTEE MINUTES May 23, 2017 There. are a number of standards and practices that are required to be followed in a successful audit. The City is responsible for the financial reports and the,auditors are essentially another set of eyes to make sure everything is in line'and'that the controls are good, If there are any areas that need improvement, the auditors will report that and suggest changes. Mr. Kikuchi he expects LSI will spend approximately 800-1,000 hours on audit work for the first year_ There are a number of entities such. as Desert Willow, Housing and the Successor Agency, and the auditors need to make sure they feel comfortable that the systems in place are adequate..Auditors'will be onsite for the week of June 12 for the interim engagement, which is the planning phase of the audit. Much of the work will already have been performed prior to their arrival. All of the Council meeting minutes for the last year will already be reviewed .for any particular projects or purchases that may stand out. The auditors will then return in September for two weeks with that portion of the review centering. on the financial statements at June30, 2017. This will involve a lot of test work of account balances such as cash and investments to make sure it is recondled in a timely manner, and to make sure the transactions and balances are in accordance with the investment policy. It is expected that there will be a' detailed review and the auditors will manually pull receipts to make sure they are accurate. Mr, Kikuchi acknowledged that each year is different, so every year he will ask if there are any 'specific items the Committee of staff would like reviewed,-:Additionally, part of the audit requires auditors to consider fraud in the planning process (SAS 99). There are a couple of requirements such as 'interviewing at least six staff members with varying degrees of responsibility. The purpose of the interview is to get.an.idea of the climate at the City. An example of what may be asked is if there is a fraud hotline, since that is an inexpensive way .of discouraging fraud. Anti-fraud programs and workshops are a great idea. He.cautioned, however, if the. City has an instance of collusion, it is possible that even a strong system could be circumvented. Auditors educate their clients to set the right climate at the City. Mr.. Kikuchi stated that there are' various types of 'audits, such as the review of Sheriff billing discussed earlier (Item IV, ) LSL has been engaged to perform a financial audit, which is geared towards a firm coming in and giving a sense of comfort that the amounts are materially correct.,The goal is to receive an unmodified opinion from the auditors,, Mr. Kikuchi asked the Committee if there are areas within the City that they feel need to be closely reviewed, Members were not required to respond immediately and Mr. Kikuchi stated he is always available to be contacted directly, He summarized that in his experience, the City of Palm 6 AUDIT, INVESTMENT & FINANCE COMMITTEE MINUTES May 23, 017 Desert has always strived for accuracy, and'he is looking forward to once again:working with City. Member Jonathan asked when the final report could be expected. Mr, Kikuchi responded that his firm usually issues a draft report within 6 weeks of the final date of•the audit. Member Jonathan:asked if,the auditors met with the Committee outside of staff. Mr. Kikuchi responded that it could be arranged, and suggested that when the regular'meeting tales, place to review the audit results, staff could then be asked to leave the room and the auditors could:meet with the Committee directly.without staff present: Member Jonathan stated he would recommend that option, as it creates the opportunity for the auditors to report directly without the sensitivity of staff being present. Mr. Espinoza asked:if the Committee was interested in an internal control audit. Member Jonathan replied that since part of audit addresses internal controls, he is comfortable•with .that.and does not See'a heed for a full- scale internal control at this time, MOTION was made by Member Campbell to receive the presentation by Lance, Soli & Lunghard, LLP relative :to the audit process for the fiscal year ending June'30,:2017. Motion.was seconded by Member Hargreaves and carried by a vote of $-0, with Aylaian, Hargreaves, .Holcombe, Jonathan, Moore. and Campbell voting AYE;:Harnik; Leo arid Sperling ABSENT, C:; APPRQV L OF THE PALM DESERT "STATEMENT OF INVESTMENT ;POLICY.",AS AMENDED, FOR FISCAL YEAR 2017/ 018 Member Jonathan`suggested it would be useful,to have a provision that allows exceptions to the policy subject to the approval of :Council, :He mentioned that' he serves :on a board that is considering privatizing electricity for the residents, and the City may choose to move forward with that project,: It.would'be a'departure from previous actions, but it may be an opportunity"to do things a little outside the policy and the Council should have some flexibility if necessary. Member Moore replied that she had previously discussed Member Jonathan's .concern; with Member Hargreaves 'and the appropriate language will be added to allow' for exceptions at the City Council's discretion., Member Jonathan also asked about the .policy in terms of providing reports to City Council;..stating that the Committee will .not be :meeting :monthly after July and he would like the Counci' to Continue to receive the report oh aarnonthly basis. Member Moore responded that it would not be in conflict with the poiicy,for the Council to receive the financial report:•She 7 AUDIT; INVESTMENT & FINANCE COMMITTEE MINUTES' May 23, 2017 asked:if Council would like to.rebeive the'fullinvestment'report or just the City financial report. Member•Jonathan said the City f nanoial'report that is currently provided to•the• Committee.would:be.suffioient. Member Moore stated she will determine'how best to get it to Council on a monthly basis. Member Moore also informed the:Committee that the 'Investment report Will continue to:be prepared;as a monthly'report, and that the Committee would receive•these reports.in their agenda packets. The financlal.report. however, will likely be prepared•as a single'ioAate� report,. Member Moore informed the Committee that Member •Jonathan had a question about the. change to one of the .sections (Section 3) She reported•that the language will be'revised to reflect the report being'issued to Council within 30 days of scheduled meetings: .MOTION was made by Member Hargreaves .that the,City:Doun ll approve the Palm Desert "Statement of. Investrnent Polley", 'as; amended, for FY 17/18. Motion was seconded by_Member.Jonafhan and carried by •a vote of 5-0, ,with Hargreaves, Holcombe, Jonathan, Moore and Campbell voting AYE;: Aylaian, Harnik, Leo and Sperling ABSENT: ' I. •CONTINUED BUSINESS - None VII. 'OLD BUSINESS - None VIII. INFORMATIONAL ITEMS — None IX. ADJOURNMENT With Committee concurrence; Vice-Chairman Campbell'adjourned the meeting at 1;1:10 a.m. jc\_ .-- (7. •Niarnh Ortega, Recoli- Secretary 8