[0:01] Yeah,

[0:02] >> I probably can. Uh, Cody, if you want,

[0:04] it'll it'll take me a minute. So, if you

[0:06] want to uh

[0:08] I don't know if there's a you can get

[0:11] started in any way while I fiddle with

[0:13] it or

[0:14] >> Andy, I've got it handy if you want me

[0:16] to share from my side.

[0:17] >> Okay. Yeah, that would be faster for

[0:19] sure.

[0:25] » Much faster than me finding it and

[0:27] downloading.

[0:28] >> Stand up here if that work. Sure.

[0:29] >> Yeah. Yeah. And if you'd also want to

[0:32] sit, if we gonna move the chair so it's

[0:34] in a better spot.

[0:35] >> I kind of like to stand up and present.

[0:36] Honestly, it's just more normal for

[0:39] >> Okay. All right.

[0:40] >> Um, so if we want to just begin a

[0:43] slideshow

[0:46] get this screen.

[0:48] There we go.

[1:06] See, how do I expand this?

[1:12] What are you guys seeing right now? Do

[1:13] you have presenter view?

[1:17] » Yes. Yes.

[1:19] >> Okay. See if I can get this

[1:25] I don't want to see that either.

[1:48] My little dude

[1:54] Sorry, I'm trying to figure out how to

[1:55] move it over to my screen.

[1:58] Let me do this.

[2:11] » That better?

[2:13] >> Yeah.

[2:13] >> Yep. Yeah. And then if we could go back,

[2:16] I think Oh, perfect.

[2:19] All right. Well, as I said, my name is

[2:20] Cody Savvy. I'm a partner with Isler

[2:23] CPA, and I'm here to present the June

[2:26] 30, 2023 audit.

[2:32] » And it's showing up blank on my side. Is

[2:34] it yours as well?

[2:35] >> Yes.

[2:36] >> Yeah.

[2:37] >> Word communic. Oh,

[2:41] » got it. It's different clicks.

[2:44] >> Perfect.

[2:45] >> Bullet point. Okay.

[2:47] >> All right. So, yep. Cody Savvy partner

[2:49] with I3 CPA here to present the audit.

[2:52] The first set of items I want to go over

[2:54] is some of our required communications

[2:55] with the board and the contents of those

[2:57] communications. The first item of which

[3:00] is management's responsibilities in an

[3:02] audit. Management really has two primary

[3:05] responsibilities in an audit. the

[3:08] preparation and fair presentation of the

[3:10] financial statements in accordance with

[3:12] US generally accepted accounting

[3:14] principles and for the design,

[3:17] implementation and maintenance of a

[3:19] system of internal control relevant to

[3:22] the preparation and fair presentation of

[3:24] the financial statements that are free

[3:26] from material misstatement whether due

[3:29] to fraud or error. So, two main

[3:32] responsibilities, but those are very

[3:34] significant large undertakings from

[3:36] management.

[3:37] >> Who's the board?

[3:38] >> What's that?

[3:39] >> Is this body the board you're talking

[3:41] about?

[3:41] >> Uh, it would be more city council. Um,

[3:45] but we are allowed under professional

[3:46] standards to communicate to subbodies,

[3:49] but typically all of our formal

[3:51] communications go to the city council.

[3:55] The next item is our responsibilities as

[3:58] auditors. First and foremost, we need to

[4:01] conduct our audit in accordance with

[4:03] professional standards. For the city's

[4:05] audit, we're applying generally accepted

[4:07] auditing standards. Under those

[4:09] standards, we're really attempting to

[4:11] obtain reasonable assurance that the

[4:14] financial statements are free of

[4:16] material misstatement. So, an important

[4:18] thing to note there, we're providing

[4:20] reasonable assurance, not absolute

[4:22] assurance. So every audit has the

[4:25] unavoidable risk that it could be

[4:27] perfectly designed, perfectly executed,

[4:29] and misstatements may still exist. It's

[4:32] one of those unavoidable inherent risks

[4:34] that's part of every audit.

[4:37] So by performing our audit under these

[4:39] standards, um again achieving the

[4:42] reasonable assurance and once we achieve

[4:44] that assurance, we should be at the

[4:46] point to issue our audit opinion. Once

[4:49] we issue the audit opinion, that

[4:51] essentially concludes our

[4:52] responsibilities as auditors. For 2023,

[4:56] we are looking at a disclaimer of

[4:59] opinion. What that really means is that

[5:02] there was a scope limitation in our

[5:04] audit where we were not able to obtain

[5:07] certain evidence to give an opinion.

[5:09] This is specifically related to

[5:11] subscription-based IT arrangements,

[5:14] which was a new Gazsby standard that

[5:17] went into effect for this fiscal year.

[5:20] Management has informed us that they

[5:22] will not be implementing that standard

[5:23] until fiscal year 25. So, the disclaimer

[5:27] just relates to subscription-based IT

[5:30] arrangements. There was nothing

[5:31] additional in our audit that would cause

[5:34] us to modify our opinion. And with that

[5:37] said, subscription-based IT

[5:39] arrangements, it was a new standard that

[5:41] Gazsby basically said if you have an IT

[5:45] arrangement that is handled more on a

[5:47] subscription basis, you need to look at

[5:49] that contract and potentially put

[5:51] something on the balance sheet. But it's

[5:54] an interesting standard because although

[5:56] you say, "Okay, we have this asset

[5:58] through this subscription, you also then

[6:01] put a liability on the balance sheet.

[6:04] It's not a 100% offset, but it's fairly

[6:07] close." So yes, you say we have this

[6:10] asset, but then you say down below, we

[6:12] also have to pay for this asset. So

[6:15] that's really the main piece that's not

[6:18] going to be reflected on the financial

[6:19] statements where on budgetary basis

[6:22] you're still making the payments for

[6:24] those subscriptions and so they're still

[6:26] reflected in the budgetary statements

[6:28] and hitting fund balance.

[6:32] The next item is significant findings.

[6:35] This primarily relates to the system of

[6:38] internal controls. There are three

[6:40] levels of control deficiencies. Control

[6:43] deficiency is the the low level. Um

[6:46] significant deficiency is essentially

[6:49] based on professional judgment. If in

[6:51] our mind we think those charged with

[6:53] governance need to be aware of this

[6:54] deficiency, then we would classify it as

[6:57] a significant deficiency and then the

[6:59] most severe classification is a material

[7:02] weakness. Um, this essentially means

[7:04] that the control deficiency is so

[7:06] severe, there's a potential risk there

[7:09] that it will result in material

[7:11] misstatements if it's not corrected. But

[7:14] with all of that said, I'm happy to

[7:16] report that there were no significant

[7:17] efficiencies nor material weaknesses as

[7:21] part of the city's audit.

[7:24] The next item, corrected and uncorrected

[7:26] misstatements. Again, if we come across

[7:29] these, these are items that were

[7:30] required to communicate with those

[7:32] charged with governance. Um, we had no

[7:34] corrected misstatements as part of our

[7:36] audit. And the only thing that would

[7:38] fall under the uncorrected misstatement

[7:40] classification would be the

[7:43] subscription-based IT arrangements and

[7:45] those not being reflected.

[7:49] The next couple of items we can click

[7:52] twice. Summer um difficulties

[7:55] encountered during the audit or if we

[7:57] have any disagreements with management.

[7:59] Again, those are things that we need to

[8:01] communicate to those charged with

[8:03] governance. Happy to report we had no

[8:05] difficulties nor did we have any

[8:06] disagreements with management.

[8:09] >> Uh could under difficulties was that I

[8:13] understand that some of the records had

[8:14] to be reconstructed

[8:16] >> there. I I don't know necessarily about

[8:19] reconstructed, but there were items that

[8:21] we had selected during our audit that

[8:23] management had some difficulty locating.

[8:26] Um, but at the end of the day, they were

[8:28] able to provide sufficient support for

[8:30] them. Um, so maybe it took a little bit

[8:33] more effort than we're used to, but I

[8:35] think, you know, looking at the turnover

[8:36] that has happened at the city, it seemed

[8:39] pretty normal to us. And again, all

[8:41] support for items that we selected was

[8:44] eventually provided.

[8:45] >> Thank you. You're welcome. Um, the next

[8:48] item, management representations.

[8:50] This is a fairly standard piece of every

[8:52] audit. Professional standards require

[8:54] that we obtain a list of representations

[8:57] from management that were made to us

[8:59] during the course of our audit. So

[9:01] again, very standard piece of any audit

[9:03] that's conducted.

[9:07] if management consulted with other

[9:09] auditors during the course of our audit.

[9:11] Again, that's another thing that we are

[9:12] required to communicate, but to our

[9:14] knowledge, there have been no such

[9:15] consultations.

[9:18] And finally, if we have any other

[9:20] findings or issues that we encounter in

[9:22] our audit, um then we're required to

[9:25] communicate those. This is really kind

[9:27] of more of a judgment one. anything that

[9:29] we think needs to make it over to those

[9:32] charged with governance or um government

[9:35] waste and abuse if that was identified

[9:37] or if we have Oregon minimum standards

[9:39] issues it would fall under this category

[9:42] but we had nothing um as part of this

[9:44] audit that would be classified in this

[9:45] other findings or issues category

[9:49] and moving to the next slide um I think

[9:53] some of you might be aware of what we

[9:55] call Oregon minimum standards the state

[9:58] of Oregon requires auditors to apply a

[10:01] specific set of procedures over these

[10:03] Oregon minimum standards. They don't act

[10:06] exactly say what or how much you should

[10:09] do. So, it's really up to us as the

[10:12] auditors to design those procedures. And

[10:15] we are one of two states that have this

[10:17] requirement. So, lucky us. Um New Jersey

[10:20] being the other one if you're curious.

[10:22] Um so, the first item we look at is

[10:25] deposits of public funds. Pretty

[10:28] straightforward requirement here. We're

[10:29] really looking to make sure that funds

[10:31] are held in state approved financial

[10:33] institutions. So, no no issue with that.

[10:38] Debt limitations. This primarily applies

[10:41] to general obligation bonds. The state

[10:44] has state requirements on how much debt

[10:46] you can legally take out based on what

[10:48] kind of government you are. And so, we

[10:51] run through those numbers and make sure

[10:53] you're at or below that threshold. Um at

[10:56] the end of 23 I believe there were about

[10:59] two million in outstanding bonds and

[11:02] based on our calculation uh we arrived

[11:04] at a debt limit of 49 million so well

[11:07] below that requirement.

[11:11] The next item, this tends to be one of

[11:13] the more significant areas we look at as

[11:16] part of Oregon minimum standards. We

[11:18] really start with the budget committee

[11:20] and work our way all the way through

[11:22] council adoption of the budget. We look

[11:24] at things such as the affidavit of

[11:26] publications for the various meetings.

[11:29] Uh the budget committee, we're looking

[11:30] to make sure a presiding officer was

[11:32] elected. Um for the actual preparation

[11:35] of the budget, we're looking to make

[11:37] sure a budget officer was appointed. Um

[11:42] and then obviously the budget document.

[11:44] So when we do this testing, we're really

[11:46] looking at that next year's budget. So

[11:48] as we finish up fiscal year 23, these

[11:51] procedures are really looking at the

[11:53] fiscal year 24 budget. And so we go

[11:55] through that document looking at

[11:57] resources equaling requirements, making

[12:00] sure that expenditures are appropriated

[12:02] at uh state approved categories, looking

[12:06] at transfers, looking at how debt

[12:08] service debt service was budgeted for.

[12:10] And so it's really a very comprehensive

[12:13] review of the budget document. Um, as

[12:16] you say, we had no findings as part of

[12:18] that procedure.

[12:20] The next item, insurance. We're by no

[12:23] means insurance experts and the state is

[12:25] very well aware of this. Um, so more or

[12:28] less with insurance, we're doing a

[12:30] reasonableness check. One, we're looking

[12:32] to make sure you have insurance compared

[12:35] to the prior year. Ask about any

[12:37] significant changes there or really ask

[12:39] about anything that stands out to us

[12:41] just to make sure we have somewhat of an

[12:43] understanding. But again, it's more or

[12:45] less a reasonleness check.

[12:49] And moving to the next item, highway

[12:52] revenue testing. This is more

[12:54] specifically the use of highway

[12:56] revenues. Um, and it's really those ODOT

[12:59] aortionments. And so when we do our

[13:02] expense testing, we had some additional

[13:04] procedures for uh this funding source,

[13:08] looking to make sure that those are

[13:09] spent on state allowed items. Primarily

[13:13] road projects, bike paths, and really

[13:16] anything that kind of goes along with

[13:17] that. So say you're putting in a a bus

[13:19] stop or something like that, that would

[13:21] be part of that. Um and we had no

[13:24] non-compliance noted as part of that

[13:26] testing.

[13:28] Investments of public funds. Um OS 294

[13:33] governs investments for local

[13:35] governments. Um and I'm sure you

[13:37] probably are aware that they have

[13:39] requirements on what you can and cannot.

[13:42] And typically they want lowrisk

[13:44] investments. Um, seeing that the city

[13:46] held most of their funds in the local

[13:48] government investment pool and a small

[13:50] amount in a money market, there were no

[13:52] concerns or issues with this area.

[13:58] And budgeted expenditures, this is the

[14:01] one piece that is more based on the

[14:03] current year. And so for current year

[14:05] numbers, we go through and compare the

[14:06] actuals to um the legal level

[14:10] appropriations and make sure that no

[14:12] actuals exceed those levels. And if they

[14:15] do, then that is something that we have

[14:17] to report on.

[14:20] And I don't think, yeah, I didn't think

[14:22] that this one was on there. Another big

[14:23] piece of Oregon minimum minimum

[14:25] standards is public contracting. So OS

[14:28] 297 governs public contracting. there is

[14:32] a ton of information to know in that

[14:34] area. Um, and so we put together a list

[14:38] of all contracts above the intermediate

[14:41] procurement threshold. We pull a sample

[14:43] of those contracts and then depending on

[14:45] the type of procure procurement, we're

[14:48] reviewing for compliance with the uh

[14:51] requirements of 297 but also the city's

[14:54] policies as well. Um, and so after doing

[14:57] that testing, we had no findings as part

[14:59] of that.

[15:02] And so on this next slide, this was just

[15:05] a kind of few items that I wanted to

[15:07] touch base on and just make sure that

[15:09] everyone's aware. Um the first of which

[15:12] is just kind of general delays in

[15:14] getting this audit issued. Um to really

[15:18] dig into this, I have to go back a

[15:20] little bit. So I became a partner in

[15:23] December of 2024.

[15:26] A few months into that, we noted some issues with uh the head of the

[15:31] audit department and the head of our

[15:33] quality control. Um we attempted to work

[15:36] through these issues um but ultimately

[15:40] mutually parted ways and so like I said

[15:43] this individual was the head of our

[15:44] audit department overse oversaw our

[15:47] quality control system and so it was a

[15:50] fairly catastrophic loss for us that

[15:52] really flipped our department upside

[15:54] down. Um while this was happening we had

[15:58] our triannual peer review going on. So

[16:01] every three years most CPA firms who

[16:04] provide assurance work will have another

[16:06] firm come in and essentially say do you

[16:09] have a system here where it allows you

[16:12] to conduct quality audits. So it's a

[16:14] pretty big engagement for us and it's a

[16:16] pretty big deal that we are successful

[16:18] in this engagement. So we had that going

[16:21] on. We were in the process of

[16:23] transitioning our audit software and

[16:26] methodology.

[16:27] Um, and we also had to implement a whole

[16:30] new system of quality management due to

[16:33] some new standards that came out. So due

[16:36] to the loss of this individual, all

[16:39] those projects in addition to running

[16:40] the department landed on my lap um

[16:44] around June July of this year. Um, we've

[16:48] done our best to really be transparent

[16:50] about what's going on and and open about

[16:52] it with management. Um, you know, I

[16:56] guess I can say, you know, we're taking

[16:57] one day at a time, doing the best we

[16:59] can, putting in as much time as we can

[17:01] to really catch up on these projects.

[17:03] And the one thing I didn't mention is,

[17:05] you know, this partner also had billable

[17:08] work that now we're responsible for. So

[17:11] in addition to these you know very large

[17:13] unique projects we have going on now we

[17:15] have a lot more client work that is

[17:18] expected of us. So um again taking one

[17:21] day at a time doing the best we can to

[17:23] catch up on this. Um I feel very

[17:26] confident you know we will get through

[17:28] this as a firm um and come out better on

[17:30] the other end of it. So um again tried

[17:33] to be very transparent with management

[17:34] about that but I felt it was appropriate

[17:36] that I inform all of you this as well.

[17:40] So, the next item that I wanted to go

[17:43] over is just kind of our thoughts on how

[17:46] to catch the city up on their audits.

[17:48] And this is something that I have ran by

[17:50] Mike as well. Um, so our our thought for

[17:53] the fiscal year 24 audit would be to

[17:56] begin that in April of this year. That

[17:59] would put us getting done probably uh

[18:02] middle mid to into summertime. And then

[18:05] we would put the fiscal year 25 audit on

[18:08] our fall 26 schedule.

[18:11] Then for the fiscal year 26, we would

[18:13] have the first half of 27 to get that

[18:15] finished. And then that fiscal year 27

[18:18] audit would be back on the fall 27

[18:21] calendar, essentially putting the city

[18:23] back on kind of their standard time

[18:25] frame for getting audits done.

[18:29] And finally,

[18:31] um,

[18:36] typically I would include a bit more on

[18:39] a financial, but seeing that we're

[18:42] looking at June 30, 2023, I didn't know

[18:45] how relevant that would be, but I wanted

[18:47] to include something. So, what we have

[18:49] on here is um, a depiction of the

[18:52] general fund over the last five years,

[18:54] the city's chief operating fund. Um we

[18:58] can see here, you know, there's not a

[18:59] huge fluctuation in these numbers. Um

[19:02] they're really staying pretty

[19:03] consistent. As revenues go up, so do

[19:06] expenditures.

[19:08] Um and so out of these years, it

[19:11] fluctuated between a negative $300,000

[19:15] decrease in fund balance and then a

[19:17] positive $400,000

[19:19] increase. And so at the end of 23, there

[19:23] was about a $216,000

[19:25] decrease which brought the ending fund

[19:28] balance to about 2.4 million. But an

[19:31] important thing that I noted when

[19:34] looking at this is historically the

[19:37] general fund is transferring out roughly

[19:39] a million dollars to supplement other

[19:42] city activities. Um and so in my mind

[19:45] that's really what's keeping these

[19:46] level. if he were to take those

[19:48] transfers out, you know, we're going to

[19:49] see that revenues far exceed the

[19:52] expenditures. And so, I thought that was

[19:54] an important thing to note as we look at

[19:56] this. And so, for 2023, there was about

[19:59] a $1.3 million transfer out. Um, so

[20:03] again, you know, we take that transfer

[20:05] out and that $216,000

[20:07] decrease now becomes a $1.1 million

[20:10] increase. But with all that said, seeing

[20:13] the ending fund balance be around $2.4 4

[20:15] million. That's a pretty healthy spot to

[20:18] be. So there's really no concerns from

[20:20] us in that area. So with that, I'd like

[20:23] to thank you for your time and open it

[20:25] up for any questions.

[20:28] Could

[20:30] you just explain that again about the

[20:34] I understand that they the funds are

[20:37] closed and that the general fund

[20:39] transfer would make these look

[20:41] differently if that was included under

[20:45] revenues.

[20:46] >> Yeah. So we can see, you know,

[20:48] historically over the five years, yeah,

[20:50] the numbers get bigger, but they're

[20:51] staying fairly level with one another.

[20:54] Um, so if we were to ignore those

[20:57] transfers in this, we're going to see

[21:00] the uh red bar significantly decrease

[21:03] there. So then we're going to see, you

[21:05] know, revenues are far exceeding those

[21:06] expenditures. Um, usually that's kind

[21:09] of, you know, the preferred what you

[21:11] want to see. It's it's a bit different,

[21:13] you know, when you're a government and

[21:15] the main purpose is more providing

[21:16] services. And so, you know, it's really

[21:19] not a concern to from us seeing that,

[21:21] you know, roughly million dollars go out

[21:23] to supplement the other activity of the

[21:25] city. Um, if we started to see that fund

[21:29] balance slowly start to decrease over

[21:31] time and not have years where it's, you

[21:34] know, jumping back up, then it would be

[21:36] a little bit more cost for for concern.

[21:39] But I think these are fairly normal

[21:41] fluctuations we see. And again, seeing

[21:43] the ending fund balance around 2.38

[21:45] million, it's really not a not a big

[21:47] concern for us.

[21:50] >> One of the things that we definitely

[21:51] wanted to do was keep this process

[21:53] moving. And so we're doing this

[21:56] presentation largely based on draft

[21:58] rather than final audit. So my question

[22:00] is at what point are we going to get the

[22:03] final, you know, paper copy audit?

[22:06] So, there's still a bit of a process to

[22:08] go through because we have to pro

[22:10] provide a draft of the financial

[22:12] statements and we need to allow you

[22:13] enough time to look at those. Um, my

[22:16] hope is by the end of this month. Um, my

[22:21] goal would be to get a draft out. I'm

[22:23] looking at probably early next week and

[22:25] then we would need time to put it

[22:27] through our internal control policy and

[22:29] we would need to allow you all time to

[22:31] review that.

[22:34] How do you uh classify or the difference

[22:37] between an expenditure from the general

[22:39] fund and a transfer out?

[22:42] >> So in the financial statements we have

[22:45] um

[22:47] few main sections there. We' start with

[22:49] revenues. We hit expenditures and then

[22:52] below here we have other financing

[22:54] sources and uses. So these are kind of

[22:56] the items that aren't really part of the

[22:58] operating activity. Um, these are kind

[23:00] of the almost the one-off type items.

[23:02] Like, you know, another example is you

[23:05] take out a loan, the loan proceeds would

[23:07] show up in other financing sources. And

[23:10] so, it's kind of just those other type

[23:12] of items that aren't really part of the

[23:15] general operating activity.

[23:17] >> And so, they're essentially subsidizing

[23:20] other non-general fund funds

[23:23] >> if they're going out. Yeah. Typically,

[23:25] yeah.

[23:27] Could

[23:28] >> Could that reflect

[23:30] the um funding that we received from the

[23:32] federal government that was around ARPA,

[23:34] you know, the programs that the federal

[23:37] government invested in communities to

[23:39] kind of get them going again after CO.

[23:41] Is that something that could have done

[23:43] the same thing?

[23:44] >> It could have potentially. I would have

[23:45] to take a look back at those years to

[23:48] see where the grant revenue was

[23:50] classified, but it very well could be up

[23:52] above with revenues as well.

[23:58] And I appreciate the transparency about

[24:00] the process, internal process that you

[24:02] guys are dealing with. Um, and sub

[24:06] sympathize with you.

[24:08] >> Um,

[24:10] were we under contract with you guys to

[24:13] remain in that? I just wondered from our

[24:14] perspective.

[24:16] >> Um, you know, what what happened there?

[24:19] Were we just we were we were just

[24:20] waiting on you guys essentially to to

[24:23] catch up?

[24:24] >> Yeah. Um so before

[24:32] current management was here, um we

[24:35] attempted to kind of do the audit at our standard time. Um I would have to

[24:40] look back, but we were informed probably

[24:43] four or five times that the city was

[24:45] ready to have their audit performed, but

[24:47] then the current management at that time

[24:49] became unresponsive. And so it kind of

[24:52] became a perfect storm. You know, there

[24:54] were things going on here at the city.

[24:56] Um I know there was some turnover in the

[24:59] finance department and then once the

[25:01] city was, you know, ready to have it

[25:03] done, then we're the ones that have, you

[25:05] know, the issues that I talked about

[25:07] going on. So really the timing was just,

[25:09] you know, very unfortunate for both of

[25:11] us. Um but to answer your question, we

[25:13] are under no contract.

[25:18] So the city could have sought audit

[25:20] services from another company.

[25:23] >> Okay.

[25:24] >> Correct.

[25:27] » And I think just a side note, the city's

[25:29] been working with GLO, I think, for very

[25:32] long time. I don't know what the number

[25:33] is, but I know you've been providing

[25:35] services to the city for an extended

[25:37] period of time, or your firm has.

[25:39] >> Yeah, I don't know the number of years.

[25:40] I've been with Isler I think about 11

[25:44] and a half years now and I believe we've

[25:46] been the auditors for all of those

[25:48] years.

[25:54] All right. Well, if there's no

[25:55] additional questions, I want to thank

[25:56] you all for your time and hope you all

[25:58] have a pleasant evening.

[26:01] >> Thank you.

[26:04] Anybody

[26:06] else have any final

[26:08] >> suggestions for where to go for dinner?

[26:13] » Is there going to be another

[26:14] presentation with like more detail or is

[26:16] this actual funds?

[26:18] >> Wasn't they mention of a draft?

[26:20] >> Yeah, this this is, you know, we wanted

[26:22] to keep this process moving. Uh and so,

[26:26] you know, we asked them to give you this

[26:28] presentation based on the draft

[26:29] materials. Once we receive the actual

[26:33] physical labor audit that you know maybe

[26:35] by the end of the month we will

[26:37] definitely circulate that to everyone

[26:40] and you know was going to be my

[26:41] suggestion at the time is we just may

[26:43] ask informally do you guys want to get

[26:44] back together again and talk about this

[26:46] is this you know is this information

[26:48] that you're able to just kind of digest

[26:50] on your own you want to have another

[26:51] meeting with Cody to talk about it but

[26:54] you know kind of wait until you have

[26:55] that paper copy in front of you uh to be

[26:58] able to do that

[26:59] >> and to answer your session. It really is

[27:01] the same presentation, but I'm very open

[27:03] to feedback. So, if there's other

[27:05] questions or stuff you want me to

[27:06] incorporate in that, I'm happy to adjust

[27:09] the presentation and tailor it to the

[27:11] specific request.

[27:12] >> Okay. Well, so, so there probably in the

[27:15] previous ones there was the traffic

[27:17] signal kind of

[27:20] reliance of, you know, at risk, good,

[27:23] moderate, um, good to go. I guess from

[27:26] the perspective of um say if we go out

[27:30] for grants or through the county or

[27:32] someone who's grading the finances and

[27:34] the health of of our organization.

[27:38] >> What are the various

[27:41] other grades to our audit? Is it just no

[27:44] findings is the best you can do is like

[27:47] how how would you qualify?

[27:49] >> Yeah, I mean really an unqualified

[27:51] opinion is the best you can achieve

[27:53] there. Um, I I can't speak for them, but

[27:56] I don't think they would, you know, view

[27:59] the disclaimer of opinion specifically

[28:01] related to the speedas as being

[28:03] something to prevent them from giving

[28:06] the city any money. But I mean, the best

[28:09] thing you can provide to whether it's

[28:11] creditors, granting agencies is your

[28:15] audit saying everything, you know, looks

[28:17] good, everything's clean, no significant

[28:20] deficiencies or material weaknesses. And

[28:22] so in in 2023, other than the Gatsby

[28:26] standards that had been adopted at the

[28:28] time on the software subscriptions,

[28:31] >> uh is a a no opinion audit.

[28:34] >> Yeah. Yeah. Everything's been clean. We

[28:36] had no significant deficiencies,

[28:37] material weaknesses, or nothing else

[28:39] that would prompt us to consider uh

[28:42] modifying our opinion.

[28:46] So the only other audit I've had any uh

[28:48] real experience with is another agency

[28:51] that I liaison is on with the city, the

[28:54] workforce council. And

[28:57] so the draft you're did you say the

[29:00] draft audit will look pretty much like

[29:02] this?

[29:04] >> Well, I mean it I guess it depends what

[29:07] you mean. Um

[29:09] >> because it was like a probably a 40page

[29:11] document, lots of numbers. This is not

[29:14] the draft at all. The draft will be I

[29:16] mean I want to say the city statements

[29:18] are 130 some pages. So it will be a very

[29:21] large extensive document

[29:24] >> but the important pieces is

[29:26] >> to the audit is what he touched on which

[29:28] is the findings and the categories.

[29:31] That's

[29:31] >> yeah that's going to all be the same.

[29:33] you're just going to have

[29:35] >> 100 plus additional pages that are going

[29:37] to give you

[29:38] >> all the detail probably their samples

[29:42] and all the various different things

[29:43] that made up this document. there

[29:45] really.

[29:45] >> Yeah. I mean, as a practical matter,

[29:47] once we get, you know, the 140 pages or

[29:50] whatever it is, we'll be working with

[29:52] summer um and our finance folks to

[29:54] review all of that. And then it'll be in

[29:58] the form of what you saw, you know, a

[30:00] final auto document. And like I said,

[30:02] I'll circulate that to this group and to

[30:04] the city council. And you know, at that

[30:06] time, people may say, "Okay, fine. This

[30:08] makes sense to me." Or they may say,

[30:10] "Hey, we want to sit down with Summer

[30:11] and Cody again and go through this." So,

[30:14] we'll have that opportunity. This isn't

[30:16] your only bite at the apple, I guess, is

[30:18] what I'm saying.

[30:18] >> And to Faze point, the items that I went

[30:21] over on uh that first slide, those

[30:22] required board communications, I've went

[30:25] through the completion section of the

[30:26] audit. So, that is stuff that I've

[30:28] worked through and I'm confident that

[30:29] there will be no changes to that.

[30:32] Really, we're down to just putting

[30:33] together the statements and uh reviewing

[30:36] those and making sure that we're issuing

[30:38] a quality product.

[30:44] Thank you.

[30:45] >> All right. Well, thank you all and have

[30:46] a wonderful evening.

[30:50] » Anything else I can be of help with?

[30:54] >> Well, I guess that is all preface is

[30:56] like you said, if that they're trusting

[30:59] that the financials are true and that

[31:02] nothing's been disguised or

[31:05] >> or you know, garbage in, garbage out

[31:07] kind of things.

[31:09] >> Yeah. based on

[31:12] what they can see, we look good. But if

[31:14] somebody was clever and able to

[31:20] » I could speak to that a little bit. So

[31:22] for what it's

[31:24] >> what it's worth, I've been working with

[31:27] municipalities doing audits for about 15

[31:30] almost 20 years now. And my role, my

[31:35] primary role for the city was getting

[31:37] the books and the accounting records

[31:40] ready for them to be able to audit.

[31:43] And you know, this is still like 2 to 3

[31:45] years ago. There was a lot of work. I'll

[31:48] be honest, there was a lot of work and

[31:50] recreation that need to be made and bank

[31:53] reconciliations that had to be completed

[31:55] in order to get the records ready for

[31:58] the audit.

[31:59] So, as far as again, assurance for fraud

[32:03] or things being hidden, I'm not a sur

[32:06] certified fraud examiner. Um, and that

[32:09] wasn't really my role was to try to find

[32:11] fraud. But as I was going through, I'm

[32:13] keeping my radar up all of the time for

[32:15] any kind of red flags that I may see.

[32:18] And truly, I didn't see anything that

[32:21] raised any flags or I would have brought

[32:23] them up with management.

[32:26] So, for what's that whatever that's

[32:27] worth, I haven't seen anything nefarious

[32:30] or that's worried me at all.

[32:37] » Well, I'm hoping there's nothing there,

[32:39] but you know,

[32:41] >> and you know, and and Summer's being

[32:44] modest, she put a ton of work into

[32:48] basically recreating a lot of these

[32:51] records. There was a lot of work that

[32:52] she did. There was a lot of work that

[32:54] city staff did uh to get to the point

[32:56] that we had the product we could then

[32:58] give to isore and say okay do the audit.

[33:02] >> Can you give an example of recreating

[33:04] the work?

[33:06] >> So I imagine that it's you've got one

[33:09] point that you can rely on. You've got

[33:12] something else over here but you have to

[33:13] recreate the records in between that to make them reconcile.

[33:18] >> That's a really great way to explain it.

[33:21] Yeah. Exactly. So we have independent

[33:24] like statements from vendors or from the

[33:27] bank of what our bank balances and

[33:28] activities should look like and that

[33:31] should if it doesn't necessarily tie to

[33:33] the accounting records we should be able

[33:35] to understand what the differences are

[33:37] and to be able to give those differences

[33:39] to the auditors and as prior management

[33:44] and staff had been going through what

[33:46] they were going through. Those are the

[33:48] kinds of things those higher level

[33:51] checks and balances that weren't able to

[33:53] be completed. Those are the things that fell behind. So my understanding is

[33:58] that bills were still paid, employees

[34:00] were still paid, deposits are still

[34:02] being, you know, deposited to the bank.

[34:04] It's just that accounting piece on top

[34:07] that had fallen behind. And so that's

[34:10] what I worked through to to catch up.

[34:12] And staff was a big help in that too.

[34:16] >> Thank you. Did that was did that answer

[34:18] your question?

[34:19] >> Quickbooks kind of

[34:20] >> entries, that kind of thing. You have

[34:23] statements, you guess.

[34:25] >> Yeah. So, for those of you that

[34:27] understand what journal entries are,

[34:29] there's so in the I can try to explain

[34:31] it. So, in the accounting system,

[34:32] there's your daily activity, your

[34:34] deposits and your checks that you cut

[34:35] and all of that good stuff. And then

[34:39] as we go through the reconciliation

[34:40] process or if there are oneoff type um

[34:45] transactions then we do instead of a

[34:48] normal type of transaction we do what's

[34:49] called a journal entry and that gets

[34:51] that activity into the system at kind of

[34:54] a different level.

[34:56] the work that I was doing, almost all of

[35:00] it, maybe all of it related or became

[35:02] down to posting journal entries. And

[35:05] there were like 250 300 journal entries

[35:10] that had to be posted just for this

[35:12] fiscal year in order to get the books in

[35:14] balance and ready for the audit. That's a lot. I would expect in a normal

[35:21] scenario where you're you're able to

[35:22] keep up more like 20 maybe 30

[35:26] >> this fiscal year being 23 that we're

[35:28] talking about.

[35:29] >> Yeah.

[35:30] >> And then that continued on presumably

[35:32] through when Eric came.

[35:35] >> Mhm. So I'm expecting to see that for 24

[35:38] as well. Now I've already been through a

[35:41] year. Staff's already been through a

[35:42] year. So we know what we're looking for

[35:43] and we know how to fix it. So it should

[35:45] be more efficient I would expect. But

[35:48] there's still a lot of clean up to do

[35:49] and catch up to do. Yeah.

[35:53] >> So at my job I we close it out month by

[35:58] month. We are in balance every month.

[36:00] The city doesn't do that.

[36:03] >> They should and they the city staff knew

[36:08] that they should but they fell too far

[36:09] behind and weren't able to get to it.

[36:12] >> Okay. Just monthtomonth balancing fiscal

[36:14] year is basically just reporting all the

[36:18] Yeah. And you know, they kind of build

[36:20] on each other, right? So,

[36:22] >> right,

[36:23] >> we're not able to do the bank

[36:24] reconciliations for these current months

[36:27] that we're in until we can catch up on

[36:28] these bank on these back ones. So, we're

[36:30] still doing other procedures to make

[36:32] sure all the activities in the books and

[36:33] catching everything big. Um, so that we

[36:36] don't have any big surprises.

[36:39] But those processes

[36:41] >> I'm sorry this audit is kind of a review

[36:43] of that reconstruction

[36:45] also not just the activity of the year.

[36:49] >> Yeah. And audits look more at balances

[36:52] as of the end of the year

[36:54] >> more than the detailed activity. Right.

[36:56] So balance sheet they're primarily

[36:58] focused on your balance sheet is are

[36:59] your receivables that you're saying you have $100,000 in receivables.

[37:04] Well do you really? And then they'll go

[37:06] through and audit that and make sure

[37:07] that that's a true number.

[37:09] >> Right. Okay.

[37:10] >> Yeah.

[37:13] >> This is the reason why we brought summer

[37:15] in as an independent CPA to help us be

[37:19] able to recreate this.

[37:21] >> So

[37:23] in our current year, are those uh

[37:25] weaknesses being

[37:28] strengthened to where we don't have that

[37:30] happening again? that that was, you

[37:32] know, that was the goal is is, you know,

[37:34] we had a turnover in our finance

[37:36] department. It was what I call a

[37:38] teachable moment for us to bring it to

[37:41] bring in Eric.

[37:42] >> Yeah. So, for us to bring in Eric as an

[37:45] interim finance director and then also

[37:47] to have Summer basically represent us

[37:50] and getting together the records, be

[37:51] able to give it to the audit. So, you

[37:54] know, to answer your question directly,

[37:56] you know, beginning with the with the

[37:58] last uh fiscal year with the current

[38:00] fiscal year, yes, I I I think we're at

[38:02] least for operationally we're there.

[38:05] >> Good. But you know one of the things

[38:07] that you know I've talked with some of

[38:08] the council members about is is that

[38:10] because we had these issues in 2023 2024

[38:15] it has impacted us as far as what our

[38:18] known starting balances are and you know

[38:20] cash reserves and that sort of thing for

[38:22] 2025 and 2026. Well, moving forward,

[38:25] knowing where you are and with your

[38:27] balance and cash flow and

[38:30] >> the goal is that when we get to July 1

[38:33] of 2026,

[38:35] that we can

[38:38] have the numbers be exactly where they

[38:40] should be. Uh, so we're budgeting for

[38:42] 2026. I use two years, 2026, 2027,

[38:46] because using the end of the year thing

[38:48] always confuses me. Um but so for 2026

[38:52] 2027 to be able to budget based on

[38:54] actual numbers and basically have rided

[38:57] the ship um by the beginning of this

[39:00] next fiscal year.

[39:02] >> Eric and I have been talking about that

[39:04] he's been putting a lot of thought and

[39:06] energy into getting as close as he

[39:09] possibly can to the beginning balances

[39:11] that are going to go into the next

[39:12] budget process. and I've been supporting

[39:14] in him in that and kind of researching

[39:17] some of the stuff from a couple years

[39:20] ago and then we've been looking at a

[39:22] high level at major activity that could

[39:24] potentially impact those balances. So, I

[39:27] guess what I'm trying to say is that I

[39:28] know Eric is is really focused on

[39:31] getting the best possible numbers he can

[39:33] for you going into this next budget.

[39:39] So I don't have the intimate detail that

[39:41] you may be bringing into the concept

[39:45] but when we talk about

[39:48] uh everything builds on itself

[39:53] in the interim period from what's now I

[39:56] guess 20 closing out 2023.

[39:59] >> Yeah.

[39:59] >> And you're recreating journal entries as

[40:01] of the time say era came along. Is there

[40:04] like a repository of journal entries

[40:07] that are waiting for reconciliation? So

[40:09] that work's being done at a as of a

[40:12] certain point and then you meet the

[40:15] point in time from Janu of 24 to that

[40:19] and then everything that's being done up

[40:22] until that point gets

[40:25] sorted out so to speak or it's or that's

[40:28] already in in play. I guess I don't know

[40:30] enough about a journal entry to know if

[40:32] there's a I presume there's a dollar

[40:35] amount tied to each journal entry. Um so

[40:38] how much how much turbulence is there in

[40:41] the meeting of that those two points?

[40:44] >> It's really a catch-up process. So

[40:49] some of those journal entries and a lot

[40:51] of those journal entries I guess I'll

[40:52] say are only done for accounting

[40:55] reasons.

[40:57] They're not necessarily like a real

[40:59] money. They're and what I would say is

[41:01] real money. Um they don't impact your

[41:04] cash balance or what you have in the

[41:05] bank, anything like that. They are

[41:07] solely to create that statement

[41:10] um to give to the bank or to give the

[41:12] granting agency.

[41:15] Those are the for the most part are the

[41:17] type of entries that we still need to

[41:19] do. So what's happening is in current

[41:23] day as Mariah and the team go along,

[41:26] they are doing the day-to-day work.

[41:29] They're doing journal entries for now

[41:30] and doing the reconciliations they can

[41:32] for now. And then I'm going through and

[41:35] trying to catch up to them.

[41:37] And so they're going to keep going and

[41:39] I'm going to keep trying to catch up and

[41:40] at some point we will catch up. I'm

[41:43] guessing that might be a year from now,

[41:45] but that's what we're working toward. In

[41:47] that point of catchup, does that then do

[41:49] you have to catch up to where they are

[41:51] present day? Because you're going to

[41:53] then

[41:54] modify their current what they're

[41:56] currently doing as journal entries. So

[41:58] they're doing them as a placeholder and

[42:00] then you're going to not catch up to

[42:01] where they started doing them, but catch

[42:03] up to to the same point in time.

[42:06] >> Yes.

[42:07] >> Gotcha.

[42:08] >> Yep. And then everything's together and

[42:10] we move forward

[42:13] and it's all one and the same. Yeah.

[42:18] We will get there.

[42:19] >> Just listen to it.

[42:24] » Yeah. I love puzzles. I used to do

[42:27] puzzles with my grandma growing up and

[42:29] that's kind of what this is is a big a

[42:33] big puzzle.

[42:35] >> Yeah.

[42:36] What are some of the things that uh

[42:39] you're not sure how they might impact

[42:43] uh the the reconciliation process?

[42:46] Things you're watching for over 24 I

[42:50] guess it primarily be 24 25. Yeah, I'm a

[42:55] little nervous about and have been

[42:57] talking with Eric about there were some

[42:59] significant transactions like debt

[43:02] borrowings

[43:03] and that kind of thing that happened

[43:05] over, you know, during fiscal 24 and 25.

[43:10] And a couple of those items that we've

[43:12] already looked at were not like journal

[43:15] entries were done, but they weren't done

[43:17] correctly.

[43:18] and

[43:21] correcting them is going to negatively

[43:23] impact your cash carry forward and your

[43:26] balances going forward in your general

[43:29] fund to some extent. Um,

[43:34] that's what and I think Eric may have

[43:35] brought up some of this with you and

[43:37] that's the stuff we're really diving in

[43:40] and checking for because that's the

[43:43] those are the things

[43:45] a lot of the journal entries I said are

[43:47] just for accounting. They're just for the report. They aren't necessarily

[43:52] impacting the operation of the city and

[43:54] the decisions that you're making now,

[43:56] which is much more important in my

[43:58] opinion. You got to get the audit done.

[44:00] We've got to get caught up on the

[44:01] reconciliations

[44:03] for important reasons,

[44:06] but you guys are living in the now and

[44:08] making decisions strategically for the

[44:11] city looking forward. And so that's

[44:13] where we're focusing and that's what I'm

[44:15] most nervous about is if we find

[44:17] something that substantially impacts the

[44:21] balances that you guys are making

[44:22] decisions from.

[44:25] That's what I would be nervous about.

[44:27] And so that's what we are prioritizing

[44:29] and looking at first.

[44:32] >> We wanted to get this first audit in

[44:34] front of the city council and the audit

[44:35] committee. Um, and you know, we've done

[44:38] that. But the next step, and this is

[44:41] going to be starting at the second

[44:43] council meeting in January, Eric's going

[44:45] to be doing a second quarterly budget

[44:48] update, but included in that is going to

[44:50] be a first look at the next year's uh,

[44:55] fiscal year budget. And, uh, FA and

[44:59] Mindy and I have been meeting with Eric

[45:01] regularly and we'll be getting you some

[45:03] information. And it flows directly to

[45:06] what, you know, Summer is talking about

[45:08] is, you know, inaccurate information and

[45:11] starting fund balances is snowballed a

[45:13] little bit. And so that's why we want to

[45:16] have, as Summer said, the most accurate

[45:19] starting fund balances we can give you

[45:21] July 1 of 2026 and go forward from

[45:25] there. Uh the practical impact of that

[45:28] is it will probably result in some sign

[45:31] significant cuts and that's what we'll

[45:33] be talking with the council about your

[45:35] second meeting in January. Now uh we've

[45:39] you know I'm going to talk with the

[45:40] council a little bit about this on

[45:42] Monday night as well is we've moved up

[45:44] all of our budget dates. Usually we

[45:46] don't start the budget committee process

[45:48] until like mid or late May. We're

[45:50] starting in April this year. We're

[45:52] adding additional meetings. We're adding

[45:54] additional time. We've added a

[45:56] significant almost month-long time

[45:58] between when we hope the budget

[45:59] committee completes its work and it

[46:01] comes to the city council. So, we've got

[46:03] plenty of time for additional process.

[46:05] Uh after the first budget committee

[46:07] meeting, we've added a town hall. So,

[46:10] you know, we can have first budget

[46:11] committee meeting, do all the

[46:12] introductions of the material and and uh

[46:15] members. Then we can have a town hall

[46:17] meeting and if something comes out of

[46:18] that town hall meeting, we've got a

[46:20] second budget committee meeting and a

[46:21] third budget committee meeting to be

[46:23] able to integrate it into it.

[46:28] So I know if I'm, you know, I I go to my

[46:31] bank account balance if I want to know

[46:34] the kind of the truth of the situation

[46:36] beyond the other financials. Um, and go

[46:39] and then kind of work backwards from

[46:41] there like that's what I actually have

[46:43] in there. doesn't matter what my budget

[46:45] or projections say. Um, is that how this

[46:49] was discovered? Like how I mean, how

[46:52] many bank accounts does the city have?

[46:54] How often do they get inspected

[46:58] um to see if they match what the

[47:00] projections are? Like I I wonder how

[47:02] this

[47:05] >> where was the focus that this gets

[47:07] discovered. Now,

[47:10] >> the piece that we discovered that's

[47:12] going to impact the the fund balance,

[47:15] >> um,

[47:19] so the city does not have very many

[47:23] actual bank accounts.

[47:26] I think there are just a couple

[47:27] actually. There's a money market and

[47:28] then there are a couple different well

[47:30] there's I'm sorry, there are one or two

[47:33] local government investment pool funds.

[47:37] This transaction,

[47:39] this one transaction that's going to

[47:41] have some impact

[47:44] was was the city went out for debt and

[47:47] they got a couple million dollars of

[47:50] cash coming into their account.

[47:54] And

[47:56] when that transaction was put into the

[47:58] accounting system, it was not put into

[48:00] the accounting system correctly

[48:03] and it was shown over here instead of

[48:05] over here. And it really should have

[48:06] been over here because if it's over here

[48:10] then it looks one way and and it doesn't

[48:13] impact your fund balance and if it's

[48:15] over here it looks a different way and

[48:18] does impact your fund balance. So looking at the bank statement and the

[48:27] activity wouldn't have necessarily

[48:28] caught this. It would be looking at the

[48:32] balances of the debt and how much of

[48:34] that debt, the $2 million or whatever

[48:37] that came in had actually been spent as

[48:39] of a given time and what that looks like

[48:42] in your accounting system. And it didn't

[48:45] look right. And so we went and looked at

[48:48] it and said, "Okay, this this wasn't

[48:50] right. What do we need to do to fix it?

[48:51] And what's the impact of that?"

[48:54] >> So how much of an impact are are you

[48:56] guys talking about?

[48:58] I don't think we're there yet, but I

[49:00] could

[49:00] >> I don't think so either.

[49:02] >> Uh but the point is that you our goal is

[49:06] to know that answer uh by the time we

[49:09] finalize the budget for this year. So

[49:11] going into next year,

[49:14] like I said, we've writed the the goal

[49:16] is to write the ship um by July 1. So

[49:20] that's kind of why you guys are okay

[49:22] with the draft because there's no

[49:23] finding here so we can move on to the

[49:25] next one because that's where we're

[49:27] going to really dig in.

[49:27] >> Yeah. And and like I said earlier, I

[49:30] just want to keep this process going

[49:32] forward. You know, I mean, we talked

[49:33] about, you know, been you've been on the

[49:35] audit committee now for two terms and

[49:37] haven't done an audit. Uh so, you know,

[49:41] conversation I had with Cody was is that

[49:43] he's like, "Well, we don't know the

[49:44] final version yet. We've got the draft.

[49:45] You haven't been able to review our

[49:47] statements. the city hasn't been able to

[49:48] review the statements on it. You're

[49:49] right. Let's get this process keep

[49:51] moving forward. You know, I wanted to

[49:53] get the council an outline that's

[49:55] included in the PowerPoint of this is

[49:56] how we're going to get over the next two

[49:59] years back to where we are for the

[50:00] timeline for the audits.

[50:03] >> And as that audit report is being

[50:06] drafted and finalized, Mariah and I are

[50:08] already moving forward. We're like, so

[50:11] we've already finished all the bank

[50:12] reconciliations for fiscal 24 and we're

[50:15] going through and doing some of the

[50:16] other reconciliations and work we need

[50:18] to do to prepare for the audit and have

[50:20] it ready so that when the auditors are

[50:22] ready to go, we can just hand it to them

[50:24] and be good to go. So

[50:27] >> So I'm So they're expecting there to be

[50:30] a shortage in cash flow.

[50:34] Is is that correct within what they

[50:38] perceive it to be?

[50:40] >> Not necessarily. Like Mike said, we're

[50:42] trying to we're still trying to work

[50:44] through

[50:45] >> the actual impact and what it's going to

[50:47] look like on the fund balance. I

[50:49] apologize. I don't have that information

[50:51] yet, but we are still working through

[50:52] it.

[50:53] >> I was just thinking that is is there a

[50:55] fund available in the budget to cover

[50:58] any kind of gaps or anything like that?

[51:04] I haven't been as involved on the budget

[51:06] side. So, I'm kind of looking backwards

[51:08] for the city and Eric is the one who's

[51:10] looking at now and then looking at the

[51:12] budget and then we we coordinate where

[51:14] we need to. But that's going to be a

[51:15] good question for Eric at that meeting

[51:17] later this month.

[51:18] >> Yeah, I say this is why we've invited

[51:20] all of you guys to be part of the uh

[51:23] committee. We're inviting the budget

[51:24] committee members as well. budget

[51:27] committee members uh you know budget

[51:30] committee members as well to be part of

[51:31] Eric's presentation and discussion and

[51:34] you know I'm also meeting starting in

[51:36] February with I call it the leadership

[51:38] team of the budget committee um you know

[51:40] they have their own officers and you

[51:42] know there's a couple folks who have

[51:43] been on the committee for an extended

[51:45] period of time I'm going to start

[51:47] meeting with them and talking through

[51:48] this with them because what I don't want

[51:51] to do is is have budget committee

[51:52] members that are starting off at ground

[51:54] zero I mean the goal is to get everybody

[51:56] to the same level of knowledge and

[51:58] information so that we can work

[51:59] together.

[52:02] >> So, was it just this last budget that

[52:04] was

[52:06] put together and passed with the

[52:08] mclassification of those funds or was it

[52:11] back in 201?

[52:12] >> I think it's I think it's going back a

[52:14] ways. Yeah. And it's not just this one

[52:17] item. And there have been there have

[52:20] been other things. And

[52:22] you know, part of this is going back and

[52:24] looking at prior records and the work

[52:26] that the prior finance director did and

[52:28] understanding how she came up with some

[52:31] of the numbers that she came up with.

[52:33] And there there are some notes there and

[52:35] we're still trying to kind of decipher

[52:36] that and figure out where where her

[52:41] um

[52:45] what was going what was going on in her

[52:47] mind, what information she knew that we

[52:50] don't know right now that went into

[52:52] those budgets.

[52:56] » So if it goes back

[52:57] >> So I think it does go back I think it

[52:59] goes back a few years. It's not like all

[53:00] of a sudden there's this huge hit. Um

[53:03] it's going to look like that because

[53:05] we're just now trueing those numbers up,

[53:08] but it's the underlying issue has been

[53:11] accumulating over several years.

[53:14] >> It's my understanding. Again, I'm not

[53:16] >> that

[53:17] a thing like this happening doesn't

[53:19] manifest itself as a finding in the

[53:21] audit process or would it

[53:24] >> it's been it would so a couple things.

[53:27] So

[53:30] they don't really the auditors don't

[53:32] really look at how a budget is developed

[53:34] as far as how how the city comes up with

[53:39] numbers as far as the budget's

[53:41] concerned. All they really care about is

[53:44] council authorized management to spend

[53:46] this many dollars in this in these

[53:49] specific buckets and did management stay

[53:53] within those buckets. That's all they

[53:55] really care about from a budget

[53:56] standpoint,

[53:59] if that makes sense.

[54:00] >> So, so the challenge that I think we're

[54:03] going to face is is that we'll find a

[54:05] fund that we thought had a higher carry

[54:07] forward or a starting balance than what

[54:10] we did. We created our budget. We stayed

[54:13] within our budget. We spent everything

[54:14] that was budgetally approved, but

[54:16] unfortunately for us, hypothetically,

[54:18] $50,000 less dollars were available in

[54:21] the carry forward, which we budgeted to

[54:23] spend.

[54:23] >> Mhm. And now we're just finding out a

[54:26] couple years later that we potentially

[54:29] over spent the available resources that

[54:32] were in that fund.

[54:34] >> So does that require a reopening of the

[54:36] books so to speak to go in to make those

[54:40] adjustments and then does that trigger

[54:42] the necessity of a re of a new audit?

[54:46] >> No. Because

[54:47] >> if the IRS finds an issue on my, you

[54:49] know, tax, I'm just taking that context.

[54:51] >> Yeah. then I need to amend prior year's

[54:54] taxes if I misreported.

[54:56] We're not dealing with a situation like

[54:57] that or it's just we overspent. It shows

[55:01] >> I think what happens is it it carries

[55:04] forward.

[55:05] So because we had the wrong carry

[55:07] forward specific year then the next year

[55:10] >> it's wrong. If we haven't been able to

[55:13] re reflect that correction in the

[55:15] change, we've carried that um problem

[55:18] forward another year, then it kind of

[55:20] compounds.

[55:21] And so, you know, as Summer said, we're

[55:23] probably looking at a multi-year period

[55:27] where we've compounded a problem that we

[55:29] should have caught hypothetically in

[55:32] 2024. That's kind of why I was talking

[55:35] about the bank accounts because I mean

[55:37] if everything had its own account you

[55:38] would eventually come to a zero if you

[55:40] didn't have enough you would overdraft

[55:42] or something but is this because it it's

[55:44] we have common accounts that I mean the

[55:47] pool it's all coming out of a big enough

[55:48] pool that it's we're not kept like

[55:51] noticing it or

[55:53] >> so there are different ways to sorry did

[55:56] you want to go ahead

[55:58] >> I it's fine I can ask it in a minute

[56:01] >> okay

[56:01] >> go ahead

[56:02] >> but let me take a shot at it and and you

[56:04] may have some some input or a different

[56:06] way to say this. Um, so there are

[56:09] different ways for businesses,

[56:11] companies, and municipalities to keep

[56:13] their accounting records. And when

[56:16] you're looking at your checkbook, you're

[56:19] saying, "Here was my cash balance, and I

[56:21] spent this much, and I got this

[56:23] paycheck, so that went in, and here's my

[56:24] ending balance."

[56:26] for the city. They're not only looking

[56:31] at the cash in and the cash out, but

[56:34] they're looking at how much do people

[56:37] owe us as of a certain point and how

[56:39] much do we owe others at a certain point

[56:43] and what kind of debt balances do we

[56:45] owe? That kind of information.

[56:48] And when we do the budget, we're using

[56:51] we're including they're called acrruels.

[56:54] So they're considering amounts that

[56:56] people owe us and amounts that we owe

[56:59] other people to come up with the

[57:01] balance.

[57:01] >> Rule based accounting, not cash.

[57:03] >> Correct. Correct. Yeah. Yeah. Sorry

[57:05] about that. Probably overexplained it,

[57:07] but yes. So that's part of the

[57:09] difference. So

[57:14] the activity that hits the bank

[57:15] statement, the actual cash in and cash

[57:18] out does get reconciled. And we've

[57:22] gotten through that for 24 and haven't

[57:24] found like anything we've found has been

[57:26] booked and corrected if needed. It's the other acrruel information and

[57:32] it was an acrruel item

[57:35] um that needed to be corrected that's

[57:37] going to impact the carry forward.

[57:41] >> Did that answer your question?

[57:44] Yeah, I'm just trying to reconcile it

[57:46] with the idea that this audit that we're

[57:48] being presented isn't focusing it isn't

[57:51] focusing on these aspects necessarily

[57:54] that we're talking about now. So, it's

[57:56] not that they wouldn't be bringing that

[57:58] to light necessarily. It just really

[58:00] affects how much it's it's the policy,

[58:03] right? If you have a budget, you pass a

[58:04] budget, you expect to have a certain

[58:06] amount in there and that what what does

[58:10] that fall under? Or is that just coun

[58:13] council's fiduciary responsibility to

[58:15] make sure management is presenting

[58:19] accurate budgets?

[58:21] >> Yeah,

[58:24] that's a big piece of it. Mike, do you

[58:26] have other thoughts on that?

[58:27] >> No, I was going to agree with what you

[58:28] just said.

[58:30] >> Yeah. So on in the budget

[58:35] meetings or this year the

[58:37] recommendation,

[58:38] correct me if I'm wrong, but you were

[58:40] there.

[58:42] The budget committee found a $ 1.5

[58:43] million shortfall and they wanted the

[58:46] budget cut by $500,000 for the upcoming

[58:49] consecutive three years to balance that

[58:52] out. Would that have anything to do with

[58:54] the line item discrepancy move forward?

[59:00] >> No. Anyways,

[59:01] >> I don't know what what the budget

[59:03] committee recommended and what the city

[59:05] council approved was we all know that

[59:08] the definition of a balanced budget is

[59:12] the amount of money you have at the end

[59:13] of the year. Yeah.

[59:14] >> Plus the revenue equals your

[59:16] expenditures. What the c what the

[59:18] council, you know, what the council said

[59:21] is is said we want to our goal is to

[59:26] have a budget based on the revenue we

[59:28] receive during a year is the revenue we

[59:31] spend that year. Now, we've got to have

[59:33] money at the beginning of the year

[59:34] because a huge part of our of our uh

[59:37] revenue is property taxes and we don't

[59:39] get those till December. So, we got to

[59:40] be able to pay our bills and meet

[59:42] payroll between July 1 and December. So,

[59:45] we got to have some money in the bank.

[59:47] But if we could reduce the amount of

[59:49] that that we rely on every year by 500

[59:52] thou by 500,000.

[59:54] >> Yeah. I didn't realize if it was just

[59:56] one particular line item, but it was a

[59:58] general overall total of

[59:59] >> Yeah, it was the total for the general

[1:00:01] fund and the idea was is to be able to

[1:00:03] take some of that savings and put it

[1:00:06] into a reserve fund.

[1:00:07] >> Yeah. No, it' be great. So, no, I was

[1:00:10] just remembering that.

[1:00:11] >> Yeah. We we agreed to try to shrink the

[1:00:13] gap by a third. I was going to say, but

[1:00:16] I didn't know if that was one my item,

[1:00:18] one area of the budget.

[1:00:21] >> Yeah, we could we could do do it by

[1:00:24] either increasing revenue or cuts or a

[1:00:26] combination. It's the general fund, not

[1:00:29] the utilities. Yeah. But yeah, I mean,

[1:00:31] you're absolutely right. I mean, that's the goal is is that look, we know

[1:00:35] we got to have money in the bank on July

[1:00:37] one, otherwise we're not going to meet

[1:00:38] payroll in September because we don't

[1:00:39] get the property taxes till December. Uh

[1:00:42] but if we can reduce our overall

[1:00:46] expenditures to what we know is going to

[1:00:48] be our revenue for that year, we can

[1:00:50] siphon off some of that cash carryover

[1:00:53] beginning fund balance and stick it in a

[1:00:54] reserve fund.

[1:00:58] >> So if we could go back to the miss we

[1:01:01] assign funds to the wrong place

[1:01:05] is the basis of this problem.

[1:01:08] the fund. There was some loan amount or

[1:01:13] that got put in the wrong category.

[1:01:16] >> That's that's kind of an example of some

[1:01:19] of the things that we're finding that

[1:01:21] are going to impact it and that's going

[1:01:23] to be a larger example, a larger impact,

[1:01:25] I believe. Again, we're still trying to

[1:01:28] get all the puzzle pieces put together.

[1:01:30] Um,

[1:01:34] but yes, it it is it is things like

[1:01:37] that. It's either errors that were made

[1:01:39] or information that wasn't known at the

[1:01:43] time the previous budgets were were

[1:01:46] built.

[1:01:47] >> And I think this is part of what Eric's

[1:01:49] going to be talking with you about it,

[1:01:50] but you know, not not Monday, but the

[1:01:52] second meeting in January.

[1:01:54] >> Yes.

[1:01:55] >> I think to kind of bring it back to the

[1:01:57] topic of this meeting is most of those

[1:01:59] errors are found in the 24 fiscal year.

[1:02:02] So, a lot of the questions we're asking

[1:02:05] might be a little

[1:02:07] >> uh too soon because we don't have all

[1:02:08] the details

[1:02:10] >> of it yet. All details.

[1:02:12] >> Well, is that

[1:02:13] >> is that accurate? Because you said a few

[1:02:16] years back, but I haven't heard how far

[1:02:18] back you're finding these things. And

[1:02:21] >> yeah, so

[1:02:22] >> maybe it's further back. So, as far as

[1:02:25] the audit is concerned, we're confident

[1:02:27] through the end of 23.

[1:02:30] And

[1:02:32] as far as the budget goes, which is kind

[1:02:34] of a different beast, I'm not sure. I

[1:02:37] haven't looked at that different angle.

[1:02:40] That's more Eric's world right now as

[1:02:42] far as advising the city.

[1:02:45] >> Um,

[1:02:48] » so as the audit, as the audit goes, if

[1:02:50] we I'm sorry, what was that? Was this an

[1:02:53] errant practice going back as presumably

[1:02:55] as you've only looked so far?

[1:02:58] >> Yeah.

[1:02:58] >> But it's been the same person for 20

[1:03:01] something years. Like is it conceivable

[1:03:05] that there you know similar errors have

[1:03:07] been that go clear back into history?

[1:03:12] >> Um yes saying that

[1:03:14] >> it's possible to not we're not seeing

[1:03:17] anything. It is possible but as soon as

[1:03:20] you have audited numbers those are like

[1:03:23] real actual numbers and then when you go

[1:03:25] to the next budget you use those real

[1:03:27] actual numbers to create your new

[1:03:29] projections for going forward. So if

[1:03:32] there had been errors in the process in

[1:03:34] the past they wouldn't be going too far

[1:03:38] back prior to an audit being completed.

[1:03:42] Okay.

[1:03:42] >> The last one that was completed was 22.

[1:03:45] Yep. Correct. This is 23.

[1:03:48] Correct. So,

[1:03:49] >> yep. So, the budget for the year we're

[1:03:52] in right now, the only actual

[1:03:55] real audited numbers that the city had

[1:03:59] to use were the 22 audit numbers. The

[1:04:01] rest was all projection and entries in

[1:04:05] the system and those reconciliations

[1:04:07] that had been done as the best

[1:04:09] information that city staff and

[1:04:11] management would have had at the time.

[1:04:14] And if there were errors in the

[1:04:16] information that they used, then there

[1:04:18] would be errors in the projections.

[1:04:21] >> Carried forward.

[1:04:25] » I'm sorry.

[1:04:27] >> Carried forward.

[1:04:30] >> It's carried forward.

[1:04:32] >> So I guess another question. This audit

[1:04:34] is essentially mandated by state, state

[1:04:38] law, right?

[1:04:39] >> Yeah.

[1:04:39] >> Yep. So, are there other audits that we

[1:04:43] could have in house to give us greater

[1:04:47] assurance on the things that aren't

[1:04:49] focused on here? um you know maybe

[1:04:54] I don't even know what I'm asking really

[1:04:56] but it sounds like if there's a narrow

[1:04:57] scope are there broader scope audits

[1:05:00] that could give us fuller assurance

[1:05:04] um of the things that we would want to

[1:05:08] have assurance of well

[1:05:10] >> so sorry go ahead say well the the audit

[1:05:14] that's being performed in front of you

[1:05:15] you're right this is based on state law

[1:05:17] these are the minimum standards that the

[1:05:19] state requires ires. If there's

[1:05:21] additional financial information that

[1:05:23] the council wants and additional

[1:05:25] research you'd like us to do, we'd

[1:05:27] certainly hire somebody like Summer to

[1:05:28] do it for us. So,

[1:05:32] there's different. So, you could do a

[1:05:33] forensic audit, right? If So, so Summer

[1:05:37] said she's been through these accounts.

[1:05:38] She doesn't feel like there's any type

[1:05:41] of fraudulent activity taking place,

[1:05:44] right?

[1:05:45] >> Yeah, I didn't see any.

[1:05:46] >> So, it probably doesn't warrant. Now, if

[1:05:47] she had a red flag that popped up and

[1:05:49] said, "Hey, Mike, I'm really concerned

[1:05:52] because something's not right." I would

[1:05:55] recommend that we bring a professional

[1:05:56] in here to do a forensic audit of this.

[1:05:59] >> Yeah.

[1:06:00] >> You know, it's kind of like what

[1:06:01] happened years ago when we had an

[1:06:03] individual that was working here in the

[1:06:05] finance department and ended up got

[1:06:08] caught for stealing funds.

[1:06:10] And it was really

[1:06:13] notion, you know, somebody determined

[1:06:15] something wasn't right and then they

[1:06:16] brought in a forensic auditor to really

[1:06:19] go through those records and found out,

[1:06:21] yeah, there was a trail and it was

[1:06:22] blatant. The individual had to do time

[1:06:24] in jail for it, you know. Um, so those

[1:06:28] would be the things that trigger. I

[1:06:29] think what's important to impress here

[1:06:32] is is that we got to get the we're

[1:06:34] getting the staff in place to be able to

[1:06:36] do the things that we do so that we can

[1:06:38] reconcile our bank accounts monthly

[1:06:40] which I mean they hadn't been done for

[1:06:42] several months

[1:06:44] and so it's because we didn't have staff

[1:06:47] to do it. You know, we're finally

[1:06:49] getting the staff in trained up to be

[1:06:51] able to do that. We lost some some

[1:06:53] individuals that were doing that. I

[1:06:56] mean, Jennifer used to do that when she

[1:06:57] was here. that was her job was to

[1:06:59] reconcile the bank accounts. When she

[1:07:02] left, it was to transfer to another

[1:07:04] person and that it just didn't quite get

[1:07:07] done the way it was supposed to be done.

[1:07:09] You know, we do the best that we can

[1:07:11] when we um like we have an expenditure

[1:07:16] and we put the expenditure to an

[1:07:19] account. Well, if we review that

[1:07:22] expenditure and say, "Oh, geez, that

[1:07:25] expenditure should have been in this

[1:07:27] account, not in that account, as we

[1:07:29] reviewed it closer, then we do a journal

[1:07:31] entry to adjust that expenditure into

[1:07:33] the right account instead of, you know,

[1:07:36] to do that." So there's just processes

[1:07:39] that, you know, once Summer and Eric and

[1:07:43] Mariah and the folks are get this under

[1:07:47] control, they'll be able you I'm pretty

[1:07:49] sure you're going to have you'll be able

[1:07:50] to get those asurances. It's kind of

[1:07:52] like the report we're going to have on

[1:07:53] Monday. We're going to have a we're

[1:07:55] getting a report on where we are

[1:07:56] financially for the first half of the

[1:07:58] year. You're going to see how much money

[1:08:00] came in. You're going to see what the

[1:08:01] expenditures are. you're going to see

[1:08:03] that, you know, quite frankly, I think

[1:08:05] everything is um that they've taken to

[1:08:09] showcase is, you know, the expenditures

[1:08:12] are less than the revenue that's been

[1:08:13] taken in. You know, we we brought in the

[1:08:17] projected revenue and we at the 50%

[1:08:20] halfway mark, we still in many of the

[1:08:22] budgets have 60% of our budget left that

[1:08:25] hasn't been spent. So, you know, if

[1:08:29] there's, you know, red flags that come

[1:08:31] up and say, "Okay, FA, why are you uh

[1:08:35] only at 40% of your budget when you're

[1:08:37] at the 50% mark and then I got to

[1:08:39] explain, well, geez, we had that pump go

[1:08:41] out or I had to do something." But

[1:08:42] that's not the case at this point. I

[1:08:45] think you're going to see that and

[1:08:46] Mike's going to be able to present,

[1:08:48] Eric's going to present that we are

[1:08:50] tracking the way our budget is. It's

[1:08:52] just we're trying to true up what is

[1:08:55] really in that account.

[1:08:58] >> I've been happy to see that council's

[1:09:00] doing their fiduciary duty and keeping

[1:09:03] the pressure on management to get these

[1:09:05] audits done.

[1:09:07] I mean, you guys are doing what you need

[1:09:08] to do. There are other organizations

[1:09:10] that aren't paying attention to whether

[1:09:14] the audits get completed or not. And

[1:09:17] this council has been very aware of that

[1:09:19] and keeping the pressure on and that's

[1:09:21] appropriate. That's you guys doing your

[1:09:22] job. So, that's positive.

[1:09:31] » Any other questions or comments? I don't

[1:09:32] want to cut it off if people have other

[1:09:35] uh things you want to talk about.

[1:09:37] >> Yeah.

[1:09:38] >> So, every month now the accounts

[1:09:40] receivable and accounts payable and the

[1:09:42] bank statements are all being reconciled

[1:09:45] and you know to see that they're

[1:09:48] basically in balance.

[1:09:51] That would be an Eric question.

[1:09:53] >> Yeah, I haven't I haven't stepped into

[1:09:56] his world as far I know he has made a

[1:09:58] lot of process improvements and he's

[1:09:59] been supervising and um keeping staff

[1:10:03] accountable and I believe

[1:10:05] >> I mean I would I would be pretty

[1:10:08] comfortable saying I'm quite sure

[1:10:10] they're being done at this point.

[1:10:15] We'll that'll definitely be part of the

[1:10:17] conversation that we'll have Eric have

[1:10:19] at the second council meeting in June.

[1:10:21] >> Yeah. But he's that's one of his

[1:10:23] strengths is looking at processes,

[1:10:25] making sure that those processes are

[1:10:27] strong and that there are internal

[1:10:28] controls in place and that they are as

[1:10:31] efficient as as they can be

[1:10:33] realistically within within the

[1:10:36] environment that you guys are in.

[1:10:38] The bank reconciliations, as you know,

[1:10:40] they kind of build on each other. So, at

[1:10:43] this point, we're looking at each

[1:10:45] month's activity and making sure that

[1:10:48] the major transactions are getting in

[1:10:50] the system. Those actual bank

[1:10:52] reconciliations are still being caught

[1:10:54] up.

[1:11:02] » No, but I guess can't imagine. Thank you

[1:11:06] for all you've done.

[1:11:08] You're welcome.

[1:11:10] You're very welcome. Happy to. This is

[1:11:12] what I love doing.

[1:11:15] >> And I get to visit Cottage Grove and

[1:11:17] hang out in your community.

[1:11:18] >> I'm so glad there's people like you in

[1:11:20] this world.

[1:11:22] >> Well, back at you.

[1:11:25] >> I just can't imagine in my job if we

[1:11:28] didn't close and balance every month and

[1:11:30] have to go back years and I just this

[1:11:32] would be overwhelming

[1:11:34] >> and we're just a small mill. We're not a

[1:11:37] city.

[1:11:38] >> Yeah. Yeah.

[1:11:41] But we're getting there.

[1:11:45] » All right. Well, thank you very much

[1:11:46] everybody. A conversation to continue.

[1:11:49] >> Like I said, I encourage you to

[1:11:51] participate and be part of the meeting

[1:11:52] on Monday night and the next council

[1:11:54] meeting where do presentation as soon as

[1:11:57] I have a paper audit um all 150 pages of

[1:12:02] it. We'll definitely circulate for who

[1:12:04] you guys feel take a look at.

[1:12:07] >> Good conversation. Thank you everyone.

[1:12:09] >> Thank you.

[1:12:10] >> Take care.

January 8, 2026 Audit Committee Meeting

Transcript