[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.