Yeah,
>> I probably can. Uh, Cody, if you want,
it'll it'll take me a minute. So, if you
want to uh
I don't know if there's a you can get
started in any way while I fiddle with
it or
>> Andy, I've got it handy if you want me
to share from my side.
>> Okay. Yeah, that would be faster for
sure.
» Much faster than me finding it and
downloading.
>> Stand up here if that work. Sure.
>> Yeah. Yeah. And if you'd also want to
sit, if we gonna move the chair so it's
in a better spot.
>> I kind of like to stand up and present.
Honestly, it's just more normal for
>> Okay. All right.
>> Um, so if we want to just begin a
slideshow
get this screen.
There we go.
See, how do I expand this?
What are you guys seeing right now? Do
you have presenter view?
» Yes. Yes.
>> Okay. See if I can get this
I don't want to see that either.
My little dude
Sorry, I'm trying to figure out how to
move it over to my screen.
Let me do this.
» That better?
>> Yeah.
>> Yep. Yeah. And then if we could go back,
I think Oh, perfect.
All right. Well, as I said, my name is
Cody Savvy. I'm a partner with Isler
CPA, and I'm here to present the June
30, 2023 audit.
» And it's showing up blank on my side. Is
it yours as well?
>> Yes.
>> Yeah.
>> Word communic. Oh,
» got it. It's different clicks.
>> Perfect.
>> Bullet point. Okay.
>> All right. So, yep. Cody Savvy partner
with I3 CPA here to present the audit.
The first set of items I want to go over
is some of our required communications
with the board and the contents of those
communications. The first item of which
is management's responsibilities in an
audit. Management really has two primary
responsibilities in an audit. the
preparation and fair presentation of the
financial statements in accordance with
US generally accepted accounting
principles and for the design,
implementation and maintenance of a
system of internal control relevant to
the preparation and fair presentation of
the financial statements that are free
from material misstatement whether due
to fraud or error. So, two main
responsibilities, but those are very
significant large undertakings from
management.
>> Who's the board?
>> What's that?
>> Is this body the board you're talking
about?
>> Uh, it would be more city council. Um,
but we are allowed under professional
standards to communicate to subbodies,
but typically all of our formal
communications go to the city council.
The next item is our responsibilities as
auditors. First and foremost, we need to
conduct our audit in accordance with
professional standards. For the city's
audit, we're applying generally accepted
auditing standards. Under those
standards, we're really attempting to
obtain reasonable assurance that the
financial statements are free of
material misstatement. So, an important
thing to note there, we're providing
reasonable assurance, not absolute
assurance. So every audit has the
unavoidable risk that it could be
perfectly designed, perfectly executed,
and misstatements may still exist. It's
one of those unavoidable inherent risks
that's part of every audit.
So by performing our audit under these
standards, um again achieving the
reasonable assurance and once we achieve
that assurance, we should be at the
point to issue our audit opinion. Once
we issue the audit opinion, that
essentially concludes our
responsibilities as auditors. For 2023,
we are looking at a disclaimer of
opinion. What that really means is that
there was a scope limitation in our
audit where we were not able to obtain
certain evidence to give an opinion.
This is specifically related to
subscription-based IT arrangements,
which was a new Gazsby standard that
went into effect for this fiscal year.
Management has informed us that they
will not be implementing that standard
until fiscal year 25. So, the disclaimer
just relates to subscription-based IT
arrangements. There was nothing
additional in our audit that would cause
us to modify our opinion. And with that
said, subscription-based IT
arrangements, it was a new standard that
Gazsby basically said if you have an IT
arrangement that is handled more on a
subscription basis, you need to look at
that contract and potentially put
something on the balance sheet. But it's
an interesting standard because although
you say, "Okay, we have this asset
through this subscription, you also then
put a liability on the balance sheet.
It's not a 100% offset, but it's fairly
close." So yes, you say we have this
asset, but then you say down below, we
also have to pay for this asset. So
that's really the main piece that's not
going to be reflected on the financial
statements where on budgetary basis
you're still making the payments for
those subscriptions and so they're still
reflected in the budgetary statements
and hitting fund balance.
The next item is significant findings.
This primarily relates to the system of
internal controls. There are three
levels of control deficiencies. Control
deficiency is the the low level. Um
significant deficiency is essentially
based on professional judgment. If in
our mind we think those charged with
governance need to be aware of this
deficiency, then we would classify it as
a significant deficiency and then the
most severe classification is a material
weakness. Um, this essentially means
that the control deficiency is so
severe, there's a potential risk there
that it will result in material
misstatements if it's not corrected. But
with all of that said, I'm happy to
report that there were no significant
efficiencies nor material weaknesses as
part of the city's audit.
The next item, corrected and uncorrected
misstatements. Again, if we come across
these, these are items that were
required to communicate with those
charged with governance. Um, we had no
corrected misstatements as part of our
audit. And the only thing that would
fall under the uncorrected misstatement
classification would be the
subscription-based IT arrangements and
those not being reflected.
The next couple of items we can click
twice. Summer um difficulties
encountered during the audit or if we
have any disagreements with management.
Again, those are things that we need to
communicate to those charged with
governance. Happy to report we had no
difficulties nor did we have any
disagreements with management.
>> Uh could under difficulties was that I
understand that some of the records had
to be reconstructed
>> there. I I don't know necessarily about
reconstructed, but there were items that
we had selected during our audit that
management had some difficulty locating.
Um, but at the end of the day, they were
able to provide sufficient support for
them. Um, so maybe it took a little bit
more effort than we're used to, but I
think, you know, looking at the turnover
that has happened at the city, it seemed
pretty normal to us. And again, all
support for items that we selected was
eventually provided.
>> Thank you. You're welcome. Um, the next
item, management representations.
This is a fairly standard piece of every
audit. Professional standards require
that we obtain a list of representations
from management that were made to us
during the course of our audit. So
again, very standard piece of any audit
that's conducted.
if management consulted with other
auditors during the course of our audit.
Again, that's another thing that we are
required to communicate, but to our
knowledge, there have been no such
consultations.
And finally, if we have any other
findings or issues that we encounter in
our audit, um then we're required to
communicate those. This is really kind
of more of a judgment one. anything that
we think needs to make it over to those
charged with governance or um government
waste and abuse if that was identified
or if we have Oregon minimum standards
issues it would fall under this category
but we had nothing um as part of this
audit that would be classified in this
other findings or issues category
and moving to the next slide um I think
some of you might be aware of what we
call Oregon minimum standards the state
of Oregon requires auditors to apply a
specific set of procedures over these
Oregon minimum standards. They don't act
exactly say what or how much you should
do. So, it's really up to us as the
auditors to design those procedures. And
we are one of two states that have this
requirement. So, lucky us. Um New Jersey
being the other one if you're curious.
Um so, the first item we look at is
deposits of public funds. Pretty
straightforward requirement here. We're
really looking to make sure that funds
are held in state approved financial
institutions. So, no no issue with that.
Debt limitations. This primarily applies
to general obligation bonds. The state
has state requirements on how much debt
you can legally take out based on what
kind of government you are. And so, we
run through those numbers and make sure
you're at or below that threshold. Um at
the end of 23 I believe there were about
two million in outstanding bonds and
based on our calculation uh we arrived
at a debt limit of 49 million so well
below that requirement.
The next item, this tends to be one of
the more significant areas we look at as
part of Oregon minimum standards. We
really start with the budget committee
and work our way all the way through
council adoption of the budget. We look
at things such as the affidavit of
publications for the various meetings.
Uh the budget committee, we're looking
to make sure a presiding officer was
elected. Um for the actual preparation
of the budget, we're looking to make
sure a budget officer was appointed. Um
and then obviously the budget document.
So when we do this testing, we're really
looking at that next year's budget. So
as we finish up fiscal year 23, these
procedures are really looking at the
fiscal year 24 budget. And so we go
through that document looking at
resources equaling requirements, making
sure that expenditures are appropriated
at uh state approved categories, looking
at transfers, looking at how debt
service debt service was budgeted for.
And so it's really a very comprehensive
review of the budget document. Um, as
you say, we had no findings as part of
that procedure.
The next item, insurance. We're by no
means insurance experts and the state is
very well aware of this. Um, so more or
less with insurance, we're doing a
reasonableness check. One, we're looking
to make sure you have insurance compared
to the prior year. Ask about any
significant changes there or really ask
about anything that stands out to us
just to make sure we have somewhat of an
understanding. But again, it's more or
less a reasonleness check.
And moving to the next item, highway
revenue testing. This is more
specifically the use of highway
revenues. Um, and it's really those ODOT
aortionments. And so when we do our
expense testing, we had some additional
procedures for uh this funding source,
looking to make sure that those are
spent on state allowed items. Primarily
road projects, bike paths, and really
anything that kind of goes along with
that. So say you're putting in a a bus
stop or something like that, that would
be part of that. Um and we had no
non-compliance noted as part of that
testing.
Investments of public funds. Um OS 294
governs investments for local
governments. Um and I'm sure you
probably are aware that they have
requirements on what you can and cannot.
And typically they want lowrisk
investments. Um, seeing that the city
held most of their funds in the local
government investment pool and a small
amount in a money market, there were no
concerns or issues with this area.
And budgeted expenditures, this is the
one piece that is more based on the
current year. And so for current year
numbers, we go through and compare the
actuals to um the legal level
appropriations and make sure that no
actuals exceed those levels. And if they
do, then that is something that we have
to report on.
And I don't think, yeah, I didn't think
that this one was on there. Another big
piece of Oregon minimum minimum
standards is public contracting. So OS
297 governs public contracting. there is
a ton of information to know in that
area. Um, and so we put together a list
of all contracts above the intermediate
procurement threshold. We pull a sample
of those contracts and then depending on
the type of procure procurement, we're
reviewing for compliance with the uh
requirements of 297 but also the city's
policies as well. Um, and so after doing
that testing, we had no findings as part
of that.
And so on this next slide, this was just
a kind of few items that I wanted to
touch base on and just make sure that
everyone's aware. Um the first of which
is just kind of general delays in
getting this audit issued. Um to really
dig into this, I have to go back a
little bit. So I became a partner in
December of 2024.
A few months into that, we noted some issues with uh the head of the
audit department and the head of our
quality control. Um we attempted to work
through these issues um but ultimately
mutually parted ways and so like I said
this individual was the head of our
audit department overse oversaw our
quality control system and so it was a
fairly catastrophic loss for us that
really flipped our department upside
down. Um while this was happening we had
our triannual peer review going on. So
every three years most CPA firms who
provide assurance work will have another
firm come in and essentially say do you
have a system here where it allows you
to conduct quality audits. So it's a
pretty big engagement for us and it's a
pretty big deal that we are successful
in this engagement. So we had that going
on. We were in the process of
transitioning our audit software and
methodology.
Um, and we also had to implement a whole
new system of quality management due to
some new standards that came out. So due
to the loss of this individual, all
those projects in addition to running
the department landed on my lap um
around June July of this year. Um, we've
done our best to really be transparent
about what's going on and and open about
it with management. Um, you know, I
guess I can say, you know, we're taking
one day at a time, doing the best we
can, putting in as much time as we can
to really catch up on these projects.
And the one thing I didn't mention is,
you know, this partner also had billable
work that now we're responsible for. So
in addition to these you know very large
unique projects we have going on now we
have a lot more client work that is
expected of us. So um again taking one
day at a time doing the best we can to
catch up on this. Um I feel very
confident you know we will get through
this as a firm um and come out better on
the other end of it. So um again tried
to be very transparent with management
about that but I felt it was appropriate
that I inform all of you this as well.
So, the next item that I wanted to go
over is just kind of our thoughts on how
to catch the city up on their audits.
And this is something that I have ran by
Mike as well. Um, so our our thought for
the fiscal year 24 audit would be to
begin that in April of this year. That
would put us getting done probably uh
middle mid to into summertime. And then
we would put the fiscal year 25 audit on
our fall 26 schedule.
Then for the fiscal year 26, we would
have the first half of 27 to get that
finished. And then that fiscal year 27
audit would be back on the fall 27
calendar, essentially putting the city
back on kind of their standard time
frame for getting audits done.
And finally,
um,
typically I would include a bit more on
a financial, but seeing that we're
looking at June 30, 2023, I didn't know
how relevant that would be, but I wanted
to include something. So, what we have
on here is um, a depiction of the
general fund over the last five years,
the city's chief operating fund. Um we
can see here, you know, there's not a
huge fluctuation in these numbers. Um
they're really staying pretty
consistent. As revenues go up, so do
expenditures.
Um and so out of these years, it
fluctuated between a negative $300,000
decrease in fund balance and then a
positive $400,000
increase. And so at the end of 23, there
was about a $216,000
decrease which brought the ending fund
balance to about 2.4 million. But an
important thing that I noted when
looking at this is historically the
general fund is transferring out roughly
a million dollars to supplement other
city activities. Um and so in my mind
that's really what's keeping these
level. if he were to take those
transfers out, you know, we're going to
see that revenues far exceed the
expenditures. And so, I thought that was
an important thing to note as we look at
this. And so, for 2023, there was about
a $1.3 million transfer out. Um, so
again, you know, we take that transfer
out and that $216,000
decrease now becomes a $1.1 million
increase. But with all that said, seeing
the ending fund balance be around $2.4 4
million. That's a pretty healthy spot to
be. So there's really no concerns from
us in that area. So with that, I'd like
to thank you for your time and open it
up for any questions.
Could
you just explain that again about the
I understand that they the funds are
closed and that the general fund
transfer would make these look
differently if that was included under
revenues.
>> Yeah. So we can see, you know,
historically over the five years, yeah,
the numbers get bigger, but they're
staying fairly level with one another.
Um, so if we were to ignore those
transfers in this, we're going to see
the uh red bar significantly decrease
there. So then we're going to see, you
know, revenues are far exceeding those
expenditures. Um, usually that's kind
of, you know, the preferred what you
want to see. It's it's a bit different,
you know, when you're a government and
the main purpose is more providing
services. And so, you know, it's really
not a concern to from us seeing that,
you know, roughly million dollars go out
to supplement the other activity of the
city. Um, if we started to see that fund
balance slowly start to decrease over
time and not have years where it's, you
know, jumping back up, then it would be
a little bit more cost for for concern.
But I think these are fairly normal
fluctuations we see. And again, seeing
the ending fund balance around 2.38
million, it's really not a not a big
concern for us.
>> One of the things that we definitely
wanted to do was keep this process
moving. And so we're doing this
presentation largely based on draft
rather than final audit. So my question
is at what point are we going to get the
final, you know, paper copy audit?
So, there's still a bit of a process to
go through because we have to pro
provide a draft of the financial
statements and we need to allow you
enough time to look at those. Um, my
hope is by the end of this month. Um, my
goal would be to get a draft out. I'm
looking at probably early next week and
then we would need time to put it
through our internal control policy and
we would need to allow you all time to
review that.
How do you uh classify or the difference
between an expenditure from the general
fund and a transfer out?
>> So in the financial statements we have
um
few main sections there. We' start with
revenues. We hit expenditures and then
below here we have other financing
sources and uses. So these are kind of
the items that aren't really part of the
operating activity. Um, these are kind
of the almost the one-off type items.
Like, you know, another example is you
take out a loan, the loan proceeds would
show up in other financing sources. And
so, it's kind of just those other type
of items that aren't really part of the
general operating activity.
>> And so, they're essentially subsidizing
other non-general fund funds
>> if they're going out. Yeah. Typically,
yeah.
Could
>> Could that reflect
the um funding that we received from the
federal government that was around ARPA,
you know, the programs that the federal
government invested in communities to
kind of get them going again after CO.
Is that something that could have done
the same thing?
>> It could have potentially. I would have
to take a look back at those years to
see where the grant revenue was
classified, but it very well could be up
above with revenues as well.
And I appreciate the transparency about
the process, internal process that you
guys are dealing with. Um, and sub
sympathize with you.
>> Um,
were we under contract with you guys to
remain in that? I just wondered from our
perspective.
>> Um, you know, what what happened there?
Were we just we were we were just
waiting on you guys essentially to to
catch up?
>> Yeah. Um so before
current management was here, um we
attempted to kind of do the audit at our standard time. Um I would have to
look back, but we were informed probably
four or five times that the city was
ready to have their audit performed, but
then the current management at that time
became unresponsive. And so it kind of
became a perfect storm. You know, there
were things going on here at the city.
Um I know there was some turnover in the
finance department and then once the
city was, you know, ready to have it
done, then we're the ones that have, you
know, the issues that I talked about
going on. So really the timing was just,
you know, very unfortunate for both of
us. Um but to answer your question, we
are under no contract.
So the city could have sought audit
services from another company.
>> Okay.
>> Correct.
» And I think just a side note, the city's
been working with GLO, I think, for very
long time. I don't know what the number
is, but I know you've been providing
services to the city for an extended
period of time, or your firm has.
>> Yeah, I don't know the number of years.
I've been with Isler I think about 11
and a half years now and I believe we've
been the auditors for all of those
years.
All right. Well, if there's no
additional questions, I want to thank
you all for your time and hope you all
have a pleasant evening.
>> Thank you.
Anybody
else have any final
>> suggestions for where to go for dinner?
» Is there going to be another
presentation with like more detail or is
this actual funds?
>> Wasn't they mention of a draft?
>> Yeah, this this is, you know, we wanted
to keep this process moving. Uh and so,
you know, we asked them to give you this
presentation based on the draft
materials. Once we receive the actual
physical labor audit that you know maybe
by the end of the month we will
definitely circulate that to everyone
and you know was going to be my
suggestion at the time is we just may
ask informally do you guys want to get
back together again and talk about this
is this you know is this information
that you're able to just kind of digest
on your own you want to have another
meeting with Cody to talk about it but
you know kind of wait until you have
that paper copy in front of you uh to be
able to do that
>> and to answer your session. It really is
the same presentation, but I'm very open
to feedback. So, if there's other
questions or stuff you want me to
incorporate in that, I'm happy to adjust
the presentation and tailor it to the
specific request.
>> Okay. Well, so, so there probably in the
previous ones there was the traffic
signal kind of
reliance of, you know, at risk, good,
moderate, um, good to go. I guess from
the perspective of um say if we go out
for grants or through the county or
someone who's grading the finances and
the health of of our organization.
>> What are the various
other grades to our audit? Is it just no
findings is the best you can do is like
how how would you qualify?
>> Yeah, I mean really an unqualified
opinion is the best you can achieve
there. Um, I I can't speak for them, but
I don't think they would, you know, view
the disclaimer of opinion specifically
related to the speedas as being
something to prevent them from giving
the city any money. But I mean, the best
thing you can provide to whether it's
creditors, granting agencies is your
audit saying everything, you know, looks
good, everything's clean, no significant
deficiencies or material weaknesses. And
so in in 2023, other than the Gatsby
standards that had been adopted at the
time on the software subscriptions,
>> uh is a a no opinion audit.
>> Yeah. Yeah. Everything's been clean. We
had no significant deficiencies,
material weaknesses, or nothing else
that would prompt us to consider uh
modifying our opinion.
So the only other audit I've had any uh
real experience with is another agency
that I liaison is on with the city, the
workforce council. And
so the draft you're did you say the
draft audit will look pretty much like
this?
>> Well, I mean it I guess it depends what
you mean. Um
>> because it was like a probably a 40page
document, lots of numbers. This is not
the draft at all. The draft will be I
mean I want to say the city statements
are 130 some pages. So it will be a very
large extensive document
>> but the important pieces is
>> to the audit is what he touched on which
is the findings and the categories.
That's
>> yeah that's going to all be the same.
you're just going to have
>> 100 plus additional pages that are going
to give you
>> all the detail probably their samples
and all the various different things
that made up this document. there
really.
>> Yeah. I mean, as a practical matter,
once we get, you know, the 140 pages or
whatever it is, we'll be working with
summer um and our finance folks to
review all of that. And then it'll be in
the form of what you saw, you know, a
final auto document. And like I said,
I'll circulate that to this group and to
the city council. And you know, at that
time, people may say, "Okay, fine. This
makes sense to me." Or they may say,
"Hey, we want to sit down with Summer
and Cody again and go through this." So,
we'll have that opportunity. This isn't
your only bite at the apple, I guess, is
what I'm saying.
>> And to Faze point, the items that I went
over on uh that first slide, those
required board communications, I've went
through the completion section of the
audit. So, that is stuff that I've
worked through and I'm confident that
there will be no changes to that.
Really, we're down to just putting
together the statements and uh reviewing
those and making sure that we're issuing
a quality product.
Thank you.
>> All right. Well, thank you all and have
a wonderful evening.
» Anything else I can be of help with?
>> Well, I guess that is all preface is
like you said, if that they're trusting
that the financials are true and that
nothing's been disguised or
>> or you know, garbage in, garbage out
kind of things.
>> Yeah. based on
what they can see, we look good. But if
somebody was clever and able to
» I could speak to that a little bit. So
for what it's
>> what it's worth, I've been working with
municipalities doing audits for about 15
almost 20 years now. And my role, my
primary role for the city was getting
the books and the accounting records
ready for them to be able to audit.
And you know, this is still like 2 to 3
years ago. There was a lot of work. I'll
be honest, there was a lot of work and
recreation that need to be made and bank
reconciliations that had to be completed
in order to get the records ready for
the audit.
So, as far as again, assurance for fraud
or things being hidden, I'm not a sur
certified fraud examiner. Um, and that
wasn't really my role was to try to find
fraud. But as I was going through, I'm
keeping my radar up all of the time for
any kind of red flags that I may see.
And truly, I didn't see anything that
raised any flags or I would have brought
them up with management.
So, for what's that whatever that's
worth, I haven't seen anything nefarious
or that's worried me at all.
» Well, I'm hoping there's nothing there,
but you know,
>> and you know, and and Summer's being
modest, she put a ton of work into
basically recreating a lot of these
records. There was a lot of work that
she did. There was a lot of work that
city staff did uh to get to the point
that we had the product we could then
give to isore and say okay do the audit.
>> Can you give an example of recreating
the work?
>> So I imagine that it's you've got one
point that you can rely on. You've got
something else over here but you have to
recreate the records in between that to make them reconcile.
>> That's a really great way to explain it.
Yeah. Exactly. So we have independent
like statements from vendors or from the
bank of what our bank balances and
activities should look like and that
should if it doesn't necessarily tie to
the accounting records we should be able
to understand what the differences are
and to be able to give those differences
to the auditors and as prior management
and staff had been going through what
they were going through. Those are the
kinds of things those higher level
checks and balances that weren't able to
be completed. Those are the things that fell behind. So my understanding is
that bills were still paid, employees
were still paid, deposits are still
being, you know, deposited to the bank.
It's just that accounting piece on top
that had fallen behind. And so that's
what I worked through to to catch up.
And staff was a big help in that too.
>> Thank you. Did that was did that answer
your question?
>> Quickbooks kind of
>> entries, that kind of thing. You have
statements, you guess.
>> Yeah. So, for those of you that
understand what journal entries are,
there's so in the I can try to explain
it. So, in the accounting system,
there's your daily activity, your
deposits and your checks that you cut
and all of that good stuff. And then
as we go through the reconciliation
process or if there are oneoff type um
transactions then we do instead of a
normal type of transaction we do what's
called a journal entry and that gets
that activity into the system at kind of
a different level.
the work that I was doing, almost all of
it, maybe all of it related or became
down to posting journal entries. And
there were like 250 300 journal entries
that had to be posted just for this
fiscal year in order to get the books in
balance and ready for the audit. That's a lot. I would expect in a normal
scenario where you're you're able to
keep up more like 20 maybe 30
>> this fiscal year being 23 that we're
talking about.
>> Yeah.
>> And then that continued on presumably
through when Eric came.
>> Mhm. So I'm expecting to see that for 24
as well. Now I've already been through a
year. Staff's already been through a
year. So we know what we're looking for
and we know how to fix it. So it should
be more efficient I would expect. But
there's still a lot of clean up to do
and catch up to do. Yeah.
>> So at my job I we close it out month by
month. We are in balance every month.
The city doesn't do that.
>> They should and they the city staff knew
that they should but they fell too far
behind and weren't able to get to it.
>> Okay. Just monthtomonth balancing fiscal
year is basically just reporting all the
Yeah. And you know, they kind of build
on each other, right? So,
>> right,
>> we're not able to do the bank
reconciliations for these current months
that we're in until we can catch up on
these bank on these back ones. So, we're
still doing other procedures to make
sure all the activities in the books and
catching everything big. Um, so that we
don't have any big surprises.
But those processes
>> I'm sorry this audit is kind of a review
of that reconstruction
also not just the activity of the year.
>> Yeah. And audits look more at balances
as of the end of the year
>> more than the detailed activity. Right.
So balance sheet they're primarily
focused on your balance sheet is are
your receivables that you're saying you have $100,000 in receivables.
Well do you really? And then they'll go
through and audit that and make sure
that that's a true number.
>> Right. Okay.
>> Yeah.
>> This is the reason why we brought summer
in as an independent CPA to help us be
able to recreate this.
>> So
in our current year, are those uh
weaknesses being
strengthened to where we don't have that
happening again? that that was, you
know, that was the goal is is, you know,
we had a turnover in our finance
department. It was what I call a
teachable moment for us to bring it to
bring in Eric.
>> Yeah. So, for us to bring in Eric as an
interim finance director and then also
to have Summer basically represent us
and getting together the records, be
able to give it to the audit. So, you
know, to answer your question directly,
you know, beginning with the with the
last uh fiscal year with the current
fiscal year, yes, I I I think we're at
least for operationally we're there.
>> Good. But you know one of the things
that you know I've talked with some of
the council members about is is that
because we had these issues in 2023 2024
it has impacted us as far as what our
known starting balances are and you know
cash reserves and that sort of thing for
2025 and 2026. Well, moving forward,
knowing where you are and with your
balance and cash flow and
>> the goal is that when we get to July 1
of 2026,
that we can
have the numbers be exactly where they
should be. Uh, so we're budgeting for
2026. I use two years, 2026, 2027,
because using the end of the year thing
always confuses me. Um but so for 2026
2027 to be able to budget based on
actual numbers and basically have rided
the ship um by the beginning of this
next fiscal year.
>> Eric and I have been talking about that
he's been putting a lot of thought and
energy into getting as close as he
possibly can to the beginning balances
that are going to go into the next
budget process. and I've been supporting
in him in that and kind of researching
some of the stuff from a couple years
ago and then we've been looking at a
high level at major activity that could
potentially impact those balances. So, I
guess what I'm trying to say is that I
know Eric is is really focused on
getting the best possible numbers he can
for you going into this next budget.
So I don't have the intimate detail that
you may be bringing into the concept
but when we talk about
uh everything builds on itself
in the interim period from what's now I
guess 20 closing out 2023.
>> Yeah.
>> And you're recreating journal entries as
of the time say era came along. Is there
like a repository of journal entries
that are waiting for reconciliation? So
that work's being done at a as of a
certain point and then you meet the
point in time from Janu of 24 to that
and then everything that's being done up
until that point gets
sorted out so to speak or it's or that's
already in in play. I guess I don't know
enough about a journal entry to know if
there's a I presume there's a dollar
amount tied to each journal entry. Um so
how much how much turbulence is there in
the meeting of that those two points?
>> It's really a catch-up process. So
some of those journal entries and a lot
of those journal entries I guess I'll
say are only done for accounting
reasons.
They're not necessarily like a real
money. They're and what I would say is
real money. Um they don't impact your
cash balance or what you have in the
bank, anything like that. They are
solely to create that statement
um to give to the bank or to give the
granting agency.
Those are the for the most part are the
type of entries that we still need to
do. So what's happening is in current
day as Mariah and the team go along,
they are doing the day-to-day work.
They're doing journal entries for now
and doing the reconciliations they can
for now. And then I'm going through and
trying to catch up to them.
And so they're going to keep going and
I'm going to keep trying to catch up and
at some point we will catch up. I'm
guessing that might be a year from now,
but that's what we're working toward. In
that point of catchup, does that then do
you have to catch up to where they are
present day? Because you're going to
then
modify their current what they're
currently doing as journal entries. So
they're doing them as a placeholder and
then you're going to not catch up to
where they started doing them, but catch
up to to the same point in time.
>> Yes.
>> Gotcha.
>> Yep. And then everything's together and
we move forward
and it's all one and the same. Yeah.
We will get there.
>> Just listen to it.
» Yeah. I love puzzles. I used to do
puzzles with my grandma growing up and
that's kind of what this is is a big a
big puzzle.
>> Yeah.
What are some of the things that uh
you're not sure how they might impact
uh the the reconciliation process?
Things you're watching for over 24 I
guess it primarily be 24 25. Yeah, I'm a
little nervous about and have been
talking with Eric about there were some
significant transactions like debt
borrowings
and that kind of thing that happened
over, you know, during fiscal 24 and 25.
And a couple of those items that we've
already looked at were not like journal
entries were done, but they weren't done
correctly.
and
correcting them is going to negatively
impact your cash carry forward and your
balances going forward in your general
fund to some extent. Um,
that's what and I think Eric may have
brought up some of this with you and
that's the stuff we're really diving in
and checking for because that's the
those are the things
a lot of the journal entries I said are
just for accounting. They're just for the report. They aren't necessarily
impacting the operation of the city and
the decisions that you're making now,
which is much more important in my
opinion. You got to get the audit done.
We've got to get caught up on the
reconciliations
for important reasons,
but you guys are living in the now and
making decisions strategically for the
city looking forward. And so that's
where we're focusing and that's what I'm
most nervous about is if we find
something that substantially impacts the
balances that you guys are making
decisions from.
That's what I would be nervous about.
And so that's what we are prioritizing
and looking at first.
>> We wanted to get this first audit in
front of the city council and the audit
committee. Um, and you know, we've done
that. But the next step, and this is
going to be starting at the second
council meeting in January, Eric's going
to be doing a second quarterly budget
update, but included in that is going to
be a first look at the next year's uh,
fiscal year budget. And, uh, FA and
Mindy and I have been meeting with Eric
regularly and we'll be getting you some
information. And it flows directly to
what, you know, Summer is talking about
is, you know, inaccurate information and
starting fund balances is snowballed a
little bit. And so that's why we want to
have, as Summer said, the most accurate
starting fund balances we can give you
July 1 of 2026 and go forward from
there. Uh the practical impact of that
is it will probably result in some sign
significant cuts and that's what we'll
be talking with the council about your
second meeting in January. Now uh we've
you know I'm going to talk with the
council a little bit about this on
Monday night as well is we've moved up
all of our budget dates. Usually we
don't start the budget committee process
until like mid or late May. We're
starting in April this year. We're
adding additional meetings. We're adding
additional time. We've added a
significant almost month-long time
between when we hope the budget
committee completes its work and it
comes to the city council. So, we've got
plenty of time for additional process.
Uh after the first budget committee
meeting, we've added a town hall. So,
you know, we can have first budget
committee meeting, do all the
introductions of the material and and uh
members. Then we can have a town hall
meeting and if something comes out of
that town hall meeting, we've got a
second budget committee meeting and a
third budget committee meeting to be
able to integrate it into it.
So I know if I'm, you know, I I go to my
bank account balance if I want to know
the kind of the truth of the situation
beyond the other financials. Um, and go
and then kind of work backwards from
there like that's what I actually have
in there. doesn't matter what my budget
or projections say. Um, is that how this
was discovered? Like how I mean, how
many bank accounts does the city have?
How often do they get inspected
um to see if they match what the
projections are? Like I I wonder how
this
>> where was the focus that this gets
discovered. Now,
>> the piece that we discovered that's
going to impact the the fund balance,
>> um,
so the city does not have very many
actual bank accounts.
I think there are just a couple
actually. There's a money market and
then there are a couple different well
there's I'm sorry, there are one or two
local government investment pool funds.
This transaction,
this one transaction that's going to
have some impact
was was the city went out for debt and
they got a couple million dollars of
cash coming into their account.
And
when that transaction was put into the
accounting system, it was not put into
the accounting system correctly
and it was shown over here instead of
over here. And it really should have
been over here because if it's over here
then it looks one way and and it doesn't
impact your fund balance and if it's
over here it looks a different way and
does impact your fund balance. So looking at the bank statement and the
activity wouldn't have necessarily
caught this. It would be looking at the
balances of the debt and how much of
that debt, the $2 million or whatever
that came in had actually been spent as
of a given time and what that looks like
in your accounting system. And it didn't
look right. And so we went and looked at
it and said, "Okay, this this wasn't
right. What do we need to do to fix it?
And what's the impact of that?"
>> So how much of an impact are are you
guys talking about?
I don't think we're there yet, but I
could
>> I don't think so either.
>> Uh but the point is that you our goal is
to know that answer uh by the time we
finalize the budget for this year. So
going into next year,
like I said, we've writed the the goal
is to write the ship um by July 1. So
that's kind of why you guys are okay
with the draft because there's no
finding here so we can move on to the
next one because that's where we're
going to really dig in.
>> Yeah. And and like I said earlier, I
just want to keep this process going
forward. You know, I mean, we talked
about, you know, been you've been on the
audit committee now for two terms and
haven't done an audit. Uh so, you know,
conversation I had with Cody was is that
he's like, "Well, we don't know the
final version yet. We've got the draft.
You haven't been able to review our
statements. the city hasn't been able to
review the statements on it. You're
right. Let's get this process keep
moving forward. You know, I wanted to
get the council an outline that's
included in the PowerPoint of this is
how we're going to get over the next two
years back to where we are for the
timeline for the audits.
>> And as that audit report is being
drafted and finalized, Mariah and I are
already moving forward. We're like, so
we've already finished all the bank
reconciliations for fiscal 24 and we're
going through and doing some of the
other reconciliations and work we need
to do to prepare for the audit and have
it ready so that when the auditors are
ready to go, we can just hand it to them
and be good to go. So
>> So I'm So they're expecting there to be
a shortage in cash flow.
Is is that correct within what they
perceive it to be?
>> Not necessarily. Like Mike said, we're
trying to we're still trying to work
through
>> the actual impact and what it's going to
look like on the fund balance. I
apologize. I don't have that information
yet, but we are still working through
it.
>> I was just thinking that is is there a
fund available in the budget to cover
any kind of gaps or anything like that?
I haven't been as involved on the budget
side. So, I'm kind of looking backwards
for the city and Eric is the one who's
looking at now and then looking at the
budget and then we we coordinate where
we need to. But that's going to be a
good question for Eric at that meeting
later this month.
>> Yeah, I say this is why we've invited
all of you guys to be part of the uh
committee. We're inviting the budget
committee members as well. budget
committee members uh you know budget
committee members as well to be part of
Eric's presentation and discussion and
you know I'm also meeting starting in
February with I call it the leadership
team of the budget committee um you know
they have their own officers and you
know there's a couple folks who have
been on the committee for an extended
period of time I'm going to start
meeting with them and talking through
this with them because what I don't want
to do is is have budget committee
members that are starting off at ground
zero I mean the goal is to get everybody
to the same level of knowledge and
information so that we can work
together.
>> So, was it just this last budget that
was
put together and passed with the
mclassification of those funds or was it
back in 201?
>> I think it's I think it's going back a
ways. Yeah. And it's not just this one
item. And there have been there have
been other things. And
you know, part of this is going back and
looking at prior records and the work
that the prior finance director did and
understanding how she came up with some
of the numbers that she came up with.
And there there are some notes there and
we're still trying to kind of decipher
that and figure out where where her
um
what was going what was going on in her
mind, what information she knew that we
don't know right now that went into
those budgets.
» So if it goes back
>> So I think it does go back I think it
goes back a few years. It's not like all
of a sudden there's this huge hit. Um
it's going to look like that because
we're just now trueing those numbers up,
but it's the underlying issue has been
accumulating over several years.
>> It's my understanding. Again, I'm not
>> that
a thing like this happening doesn't
manifest itself as a finding in the
audit process or would it
>> it's been it would so a couple things.
So
they don't really the auditors don't
really look at how a budget is developed
as far as how how the city comes up with
numbers as far as the budget's
concerned. All they really care about is
council authorized management to spend
this many dollars in this in these
specific buckets and did management stay
within those buckets. That's all they
really care about from a budget
standpoint,
if that makes sense.
>> So, so the challenge that I think we're
going to face is is that we'll find a
fund that we thought had a higher carry
forward or a starting balance than what
we did. We created our budget. We stayed
within our budget. We spent everything
that was budgetally approved, but
unfortunately for us, hypothetically,
$50,000 less dollars were available in
the carry forward, which we budgeted to
spend.
>> Mhm. And now we're just finding out a
couple years later that we potentially
over spent the available resources that
were in that fund.
>> So does that require a reopening of the
books so to speak to go in to make those
adjustments and then does that trigger
the necessity of a re of a new audit?
>> No. Because
>> if the IRS finds an issue on my, you
know, tax, I'm just taking that context.
>> Yeah. then I need to amend prior year's
taxes if I misreported.
We're not dealing with a situation like
that or it's just we overspent. It shows
>> I think what happens is it it carries
forward.
So because we had the wrong carry
forward specific year then the next year
>> it's wrong. If we haven't been able to
re reflect that correction in the
change, we've carried that um problem
forward another year, then it kind of
compounds.
And so, you know, as Summer said, we're
probably looking at a multi-year period
where we've compounded a problem that we
should have caught hypothetically in
2024. That's kind of why I was talking
about the bank accounts because I mean
if everything had its own account you
would eventually come to a zero if you
didn't have enough you would overdraft
or something but is this because it it's
we have common accounts that I mean the
pool it's all coming out of a big enough
pool that it's we're not kept like
noticing it or
>> so there are different ways to sorry did
you want to go ahead
>> I it's fine I can ask it in a minute
>> okay
>> go ahead
>> but let me take a shot at it and and you
may have some some input or a different
way to say this. Um, so there are
different ways for businesses,
companies, and municipalities to keep
their accounting records. And when
you're looking at your checkbook, you're
saying, "Here was my cash balance, and I
spent this much, and I got this
paycheck, so that went in, and here's my
ending balance."
for the city. They're not only looking
at the cash in and the cash out, but
they're looking at how much do people
owe us as of a certain point and how
much do we owe others at a certain point
and what kind of debt balances do we
owe? That kind of information.
And when we do the budget, we're using
we're including they're called acrruels.
So they're considering amounts that
people owe us and amounts that we owe
other people to come up with the
balance.
>> Rule based accounting, not cash.
>> Correct. Correct. Yeah. Yeah. Sorry
about that. Probably overexplained it,
but yes. So that's part of the
difference. So
the activity that hits the bank
statement, the actual cash in and cash
out does get reconciled. And we've
gotten through that for 24 and haven't
found like anything we've found has been
booked and corrected if needed. It's the other acrruel information and
it was an acrruel item
um that needed to be corrected that's
going to impact the carry forward.
>> Did that answer your question?
Yeah, I'm just trying to reconcile it
with the idea that this audit that we're
being presented isn't focusing it isn't
focusing on these aspects necessarily
that we're talking about now. So, it's
not that they wouldn't be bringing that
to light necessarily. It just really
affects how much it's it's the policy,
right? If you have a budget, you pass a
budget, you expect to have a certain
amount in there and that what what does
that fall under? Or is that just coun
council's fiduciary responsibility to
make sure management is presenting
accurate budgets?
>> Yeah,
that's a big piece of it. Mike, do you
have other thoughts on that?
>> No, I was going to agree with what you
just said.
>> Yeah. So on in the budget
meetings or this year the
recommendation,
correct me if I'm wrong, but you were
there.
The budget committee found a $ 1.5
million shortfall and they wanted the
budget cut by $500,000 for the upcoming
consecutive three years to balance that
out. Would that have anything to do with
the line item discrepancy move forward?
>> No. Anyways,
>> I don't know what what the budget
committee recommended and what the city
council approved was we all know that
the definition of a balanced budget is
the amount of money you have at the end
of the year. Yeah.
>> Plus the revenue equals your
expenditures. What the c what the
council, you know, what the council said
is is said we want to our goal is to
have a budget based on the revenue we
receive during a year is the revenue we
spend that year. Now, we've got to have
money at the beginning of the year
because a huge part of our of our uh
revenue is property taxes and we don't
get those till December. So, we got to
be able to pay our bills and meet
payroll between July 1 and December. So,
we got to have some money in the bank.
But if we could reduce the amount of
that that we rely on every year by 500
thou by 500,000.
>> Yeah. I didn't realize if it was just
one particular line item, but it was a
general overall total of
>> Yeah, it was the total for the general
fund and the idea was is to be able to
take some of that savings and put it
into a reserve fund.
>> Yeah. No, it' be great. So, no, I was
just remembering that.
>> Yeah. We we agreed to try to shrink the
gap by a third. I was going to say, but
I didn't know if that was one my item,
one area of the budget.
>> Yeah, we could we could do do it by
either increasing revenue or cuts or a
combination. It's the general fund, not
the utilities. Yeah. But yeah, I mean,
you're absolutely right. I mean, that's the goal is is that look, we know
we got to have money in the bank on July
one, otherwise we're not going to meet
payroll in September because we don't
get the property taxes till December. Uh
but if we can reduce our overall
expenditures to what we know is going to
be our revenue for that year, we can
siphon off some of that cash carryover
beginning fund balance and stick it in a
reserve fund.
>> So if we could go back to the miss we
assign funds to the wrong place
is the basis of this problem.
the fund. There was some loan amount or
that got put in the wrong category.
>> That's that's kind of an example of some
of the things that we're finding that
are going to impact it and that's going
to be a larger example, a larger impact,
I believe. Again, we're still trying to
get all the puzzle pieces put together.
Um,
but yes, it it is it is things like
that. It's either errors that were made
or information that wasn't known at the
time the previous budgets were were
built.
>> And I think this is part of what Eric's
going to be talking with you about it,
but you know, not not Monday, but the
second meeting in January.
>> Yes.
>> I think to kind of bring it back to the
topic of this meeting is most of those
errors are found in the 24 fiscal year.
So, a lot of the questions we're asking
might be a little
>> uh too soon because we don't have all
the details
>> of it yet. All details.
>> Well, is that
>> is that accurate? Because you said a few
years back, but I haven't heard how far
back you're finding these things. And
>> yeah, so
>> maybe it's further back. So, as far as
the audit is concerned, we're confident
through the end of 23.
And
as far as the budget goes, which is kind
of a different beast, I'm not sure. I
haven't looked at that different angle.
That's more Eric's world right now as
far as advising the city.
>> Um,
» so as the audit, as the audit goes, if
we I'm sorry, what was that? Was this an
errant practice going back as presumably
as you've only looked so far?
>> Yeah.
>> But it's been the same person for 20
something years. Like is it conceivable
that there you know similar errors have
been that go clear back into history?
>> Um yes saying that
>> it's possible to not we're not seeing
anything. It is possible but as soon as
you have audited numbers those are like
real actual numbers and then when you go
to the next budget you use those real
actual numbers to create your new
projections for going forward. So if
there had been errors in the process in
the past they wouldn't be going too far
back prior to an audit being completed.
Okay.
>> The last one that was completed was 22.
Yep. Correct. This is 23.
Correct. So,
>> yep. So, the budget for the year we're
in right now, the only actual
real audited numbers that the city had
to use were the 22 audit numbers. The
rest was all projection and entries in
the system and those reconciliations
that had been done as the best
information that city staff and
management would have had at the time.
And if there were errors in the
information that they used, then there
would be errors in the projections.
>> Carried forward.
» I'm sorry.
>> Carried forward.
>> It's carried forward.
>> So I guess another question. This audit
is essentially mandated by state, state
law, right?
>> Yeah.
>> Yep. So, are there other audits that we
could have in house to give us greater
assurance on the things that aren't
focused on here? um you know maybe
I don't even know what I'm asking really
but it sounds like if there's a narrow
scope are there broader scope audits
that could give us fuller assurance
um of the things that we would want to
have assurance of well
>> so sorry go ahead say well the the audit
that's being performed in front of you
you're right this is based on state law
these are the minimum standards that the
state requires ires. If there's
additional financial information that
the council wants and additional
research you'd like us to do, we'd
certainly hire somebody like Summer to
do it for us. So,
there's different. So, you could do a
forensic audit, right? If So, so Summer
said she's been through these accounts.
She doesn't feel like there's any type
of fraudulent activity taking place,
right?
>> Yeah, I didn't see any.
>> So, it probably doesn't warrant. Now, if
she had a red flag that popped up and
said, "Hey, Mike, I'm really concerned
because something's not right." I would
recommend that we bring a professional
in here to do a forensic audit of this.
>> Yeah.
>> You know, it's kind of like what
happened years ago when we had an
individual that was working here in the
finance department and ended up got
caught for stealing funds.
And it was really
notion, you know, somebody determined
something wasn't right and then they
brought in a forensic auditor to really
go through those records and found out,
yeah, there was a trail and it was
blatant. The individual had to do time
in jail for it, you know. Um, so those
would be the things that trigger. I
think what's important to impress here
is is that we got to get the we're
getting the staff in place to be able to
do the things that we do so that we can
reconcile our bank accounts monthly
which I mean they hadn't been done for
several months
and so it's because we didn't have staff
to do it. You know, we're finally
getting the staff in trained up to be
able to do that. We lost some some
individuals that were doing that. I
mean, Jennifer used to do that when she
was here. that was her job was to
reconcile the bank accounts. When she
left, it was to transfer to another
person and that it just didn't quite get
done the way it was supposed to be done.
You know, we do the best that we can
when we um like we have an expenditure
and we put the expenditure to an
account. Well, if we review that
expenditure and say, "Oh, geez, that
expenditure should have been in this
account, not in that account, as we
reviewed it closer, then we do a journal
entry to adjust that expenditure into
the right account instead of, you know,
to do that." So there's just processes
that, you know, once Summer and Eric and
Mariah and the folks are get this under
control, they'll be able you I'm pretty
sure you're going to have you'll be able
to get those asurances. It's kind of
like the report we're going to have on
Monday. We're going to have a we're
getting a report on where we are
financially for the first half of the
year. You're going to see how much money
came in. You're going to see what the
expenditures are. you're going to see
that, you know, quite frankly, I think
everything is um that they've taken to
showcase is, you know, the expenditures
are less than the revenue that's been
taken in. You know, we we brought in the
projected revenue and we at the 50%
halfway mark, we still in many of the
budgets have 60% of our budget left that
hasn't been spent. So, you know, if
there's, you know, red flags that come
up and say, "Okay, FA, why are you uh
only at 40% of your budget when you're
at the 50% mark and then I got to
explain, well, geez, we had that pump go
out or I had to do something." But
that's not the case at this point. I
think you're going to see that and
Mike's going to be able to present,
Eric's going to present that we are
tracking the way our budget is. It's
just we're trying to true up what is
really in that account.
>> I've been happy to see that council's
doing their fiduciary duty and keeping
the pressure on management to get these
audits done.
I mean, you guys are doing what you need
to do. There are other organizations
that aren't paying attention to whether
the audits get completed or not. And
this council has been very aware of that
and keeping the pressure on and that's
appropriate. That's you guys doing your
job. So, that's positive.
» Any other questions or comments? I don't
want to cut it off if people have other
uh things you want to talk about.
>> Yeah.
>> So, every month now the accounts
receivable and accounts payable and the
bank statements are all being reconciled
and you know to see that they're
basically in balance.
That would be an Eric question.
>> Yeah, I haven't I haven't stepped into
his world as far I know he has made a
lot of process improvements and he's
been supervising and um keeping staff
accountable and I believe
>> I mean I would I would be pretty
comfortable saying I'm quite sure
they're being done at this point.
We'll that'll definitely be part of the
conversation that we'll have Eric have
at the second council meeting in June.
>> Yeah. But he's that's one of his
strengths is looking at processes,
making sure that those processes are
strong and that there are internal
controls in place and that they are as
efficient as as they can be
realistically within within the
environment that you guys are in.
The bank reconciliations, as you know,
they kind of build on each other. So, at
this point, we're looking at each
month's activity and making sure that
the major transactions are getting in
the system. Those actual bank
reconciliations are still being caught
up.
» No, but I guess can't imagine. Thank you
for all you've done.
You're welcome.
You're very welcome. Happy to. This is
what I love doing.
>> And I get to visit Cottage Grove and
hang out in your community.
>> I'm so glad there's people like you in
this world.
>> Well, back at you.
>> I just can't imagine in my job if we
didn't close and balance every month and
have to go back years and I just this
would be overwhelming
>> and we're just a small mill. We're not a
city.
>> Yeah. Yeah.
But we're getting there.
» All right. Well, thank you very much
everybody. A conversation to continue.
>> Like I said, I encourage you to
participate and be part of the meeting
on Monday night and the next council
meeting where do presentation as soon as
I have a paper audit um all 150 pages of
it. We'll definitely circulate for who
you guys feel take a look at.
>> Good conversation. Thank you everyone.
>> Thank you.
>> Take care.