Committee on Administration, Finance and Law and Public Services Special Meeting - July 22, 2024

The special meeting was called to order at 6:07 PM in the Common Council Chambers. The primary agenda items were the presentation of the audited financial statements for fiscal year ending June 30, 2023, updates on finance department staffing, progress on financial close processes, internal controls, and the timetable for procuring audit services for 2025-2026. Council members received detailed information and discussed the city's financial condition, audit findings, and plans for improvement.

Discussion Items

1. Presentation of Audited Financial Statements (FY 2023)

The external auditor from CLA (Leslie and Grace Maswita) presented the audit results. The city received unmodified (clean) opinions on both the financial statements and the federal/state single audits. Key financial highlights as of June 30, 2023:

• Net position (full accrual): $46 million, an increase of $168,000 from FY2022.
• General fund balance: $25 million, including $7 million of assigned fund balance ($3.6 million for FY2024 budget balance, $3.5 million for Board of Education).
• Unassigned fund balance: $17.9 million, approximately 7% of budgeted expenditures.
• General fund balance increased by $751,000 during FY2023.
• Property tax collections: 96.34%.
• Revenues exceeded budget by $573,000; expenditures were $178,000 under budget.
• Pension funding: police 53.95%, fire 63%, MERS 68% (state-run), elected official plan pay-as-you-go.
• ARPA fund: $30 million remaining to obligate by December 31, 2024, and liquidate by December 31, 2026. (Later clarified that only $550,000 remained uncommitted as of the meeting, with funds being allocated to the Mount Pleasant project.)
• Total indebtedness: General obligation bonds approximately $315 million; overall debt limit $948 million; net debt applicable to limit $518 million.

The auditor reported two material weaknesses: (1) timeliness of bank reconciliations, and (2) financial close procedures. There was also a compliance finding for late filing of the financial statements (due December 31, 2023, but issued much later). As a result, the city no longer qualifies as a low-risk auditee for federal single audit, requiring 40% testing instead of 20%. Management letter recommendations included periodic reconciliation of OPEB liabilities, capital asset review segregation of duties, and analysis of general liability reserves.

Finance Director Jonathan Perigini explained that the FY2022 audit took 18 months due to 75% staff turnover, while FY2023 was completed in 6 months. Staffing is now fully in place (as of May 2023), and the bank reconciliation process has been broken up and assigned to multiple staff with checklists. The goal is to have the FY2024 audit issued by December 31, 2024, to regain compliance.

2. Status of Finance Department Staffing and Capacity

A discussion item. Director Perigini stated the department is now fully staffed after losing high-level staff in 2022. Cross-training and a new checklist system for bank reconciliations have been implemented. Council members debated the distinction between valid reasons and excuses for delays; some stressed the need for timely audits and accountability. The auditor noted significant improvement from FY2022 to FY2023.

3. Response/Progress on Establishing Formal Financial Close Process (Findings 2022) and 4. Plan of Action to Strengthen Internal Controls (Findings 2023)

These items were discussed together as the findings were identical. Perigini outlined:

• Bank reconciliations: now done monthly with responsible parties and cross-training. The material weakness is partially completed and expected to be removed for FY2024.
• Grants and capital projects: staffing changes caused delays; now a dedicated grant staff member is in place, and newly hired budget/capital projects fiscal officer started January 2024. Focus for FY2024 is to complete retainage, deferred revenue, and accounts receivable early to aid audit testing.
• Non-compliance with uniform guidance: the FY2023 state single audit was completed a few days after the final extension deadline (July 3, 2024). The goal is to issue FY2024 audit by March 31, 2025, to remove the compliance finding.
• A meeting with the mayor and audit team was scheduled for the next day to coordinate the FY2024 timeline.

5. Request for Qualifications and Timetable to Conduct Independent Audit 2025-2026

The city must notify OPM by June 1, 2025, of the auditor for FY2025. Perigini proposed issuing an RFP by February 1, 2025, to allow time for review by the audit subcommittee and council. The audit committee will vet proposals and recommend to the full council. Council members requested clarity on the committee's role in interviewing firms; Alderman McNamara noted the ordinance defines the committee's authority. The timeline was accepted as a discussion item.

Key Outcomes

• Motion to accept and refer the FY2023 audit report to the full council with a neutral recommendation passed by voice vote (all in favor, none opposed).
• No formal votes were taken on items 2, 3, 4, or 5; these were discussion items only. Council heard updates and expressed expectations for continued improvement.
• Next steps: Finance director to meet with auditor and mayor to finalize the FY2024 audit timeline; audit committee to develop the RFP for audit services to be issued by February 1, 2025.