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2009-1573-Minutes for Meeting December 02,2008 Recorded 12/29/2009DESCHUTES COUNTY OFFICIAL RECORDS } NANCY BLANKENSHIP, COUNTY CLERK ~J ~4~9.15)3 COMMISSIONERS' JOURNAL 12/29/2049 12:28:06 PM 1111JI II I IIIIIIIII IIII IIIII i Do not remove this page from original document. Deschutes County Clerk Certificate Page . C r- If this instrument is being re-recorded, please complete the following statement, in accordance with ORS 205.244: Re-recorded to correct [give reason] previously recorded in Book or as Fee Number and Page Deschutes County - Audit Committee MINUTES - 12-2-08 Re: Deschutes County Audit Committee Meeting Minutes - Tuesday, December 2, 2008 Committee Members Present: Commissioner Dennis R. Luke; Scot Langton, Assessor's Office; Tom Anderson, Community Development Department; James Kerfoot, Greg Quesnel, and Jim Keller, Public Sector. Others present were: Dave Kanner, County Administrator; Erik Kropp, Deputy County Administrator; David Givans, County Internal Auditor; and Marty Wynne, Finance Department. Present for a portion of the meeting: Commissioners Mike Daly and Tammy Baney; Jeanine Faria, Finance Department; Candace Fronk, Wes Price, and Al Columbo, Harrigan Price Fronk; Dan Despotopulos, Fair & Expo; and Ronda Conner and Debbie Legg, Personnel Department. Absent: Jade Mayer, Public Sector. James Kerfoot called the meeting to order at 12:10 p.m. Introductions - Introductions were made. Presentation of County's Comprehensive Annual Financial Report for fiscal Year Ended June 30, 2008 - Harrigan Price Fronk Candace Fronk said the audit went very smooth this year. She passed out some handouts to the Committee. (See Attached Letter from Auditors Marked as Exhibit A and the CAFR (Comprehensive Annual Financial Report Marked as Exhibit B.) They visited specifically with the Tax Department, Fair & Expo and Justice Court this year. Al Colombo said they did cash handling procedures and did not find any weaknesses. Ms. Fronk said it is very helpful to go through David's internal audit reports to see what he has already completed. They looked at accounts that are building reserves, PERS, and Health Benefits Trust. They recommended the County make sure no Federal dollars are going into building reserves and internal service funds. Minutes of Audit Committee Meeting Tuesday, December 2, 2008 Page 1 of 5 A self insurance item that needed a little work was how the different pieces were incurred but not reported and the workers' compensation claims that come in later. They went through the process with Erik Kropp. One issue they had before was deferred revenue in trying to match up expenses with revenue. Another adjustment was 9-1-1, for the budget they do not usually report prepaid expenses. It was not a large item for the County but it was for 9-1-1. Jeanine Faria said the report was a little more of a challenge mostly due to the passing of the law enforcement districts. They had to call GFOA for guidance on how to handle the funds. Ms. Fronk said you now have nine actual components, the government wide statements show what is actually paid out to vendors. Mr. Colombo said adding the districts did change the way the report looks. Ms. Fronk said other things they do for the County are not audit services. They provide an agreed upon procedures letter for Solid Waste that is provided to DEQ. They also perform audits of transient room taxed. They look at ten different operators a year, selected by the County to see how they collect taxes and accumulate the data for the reports and in submitting payment. Mr. Quesnel asked when special things occur outside the scope of the audit, would they come to the Committee. Ms. Fronk said the Committee might consider having a policy for items to come to them first on those special cases. Jim Keller asked regarding federal monies, what goes on in the other side to assure compliance for a grant. Is there a process where the department completes a compliance form? Ms. Faria said in the single audit, they do look at expenditures and they look at large grants every three years. Ms. Fronk said they do a draft of financial statements and there are no unusual accounting estimates this year. The Landfill closure liability is the nearest thing to accounting estimates. Liabilities from self insurance estimates include workers' compensation and health benefits. There were a few corrections they did make. They do not have anything that they consider a disagreement with management. There were no second opinions or unusual audit findings or issues. Commissioner Luke asked if there was anything for the Service Districts. Ms. Fronk said Black Butte had a grant from FEMA to buy ATV's which they ran through the bank account rather than reporting as revenue, just naivety on their part. Everything went well with Sunriver. 9-1-1 had the prepaid item discussed earlier. KELLER: Move Approval to Accept the Comprehensive Annual Report. QUESNEL: Second. VOTE: Unanimous Approval. Minutes of Audit Committee Meeting Tuesday, December 2, 2008 Page 2 of 5 DALY: Move Approval to Accept the Audit. BANEY: Second. VOTE: DALY: Yes. BANEY: Yes. LUKE: Chair votes yes. Management Response - Marty Wynne said the management letter is the County's response to Ms. Fronk's comments (See Attached Letter Marked as Exhibit C.) He said her comments are valid. Erik Kropp said he agrees with her recommendations. Mr. Wynne said on Health Benefits Trust, when building reserves they can also look at other municipalities paying the same for their plan. Audit Committee Presentation to Board - 07/08 Accomplishments Report - Mr. Givans worked with Jade Mayer and other members of Audit Committee to prepare the report. (See Attached Report Marked as Exhibit D) There are a lot of members who have been on the Committee for quite a while. The external auditors recommended more public members than County management on the Committee. Commissioner Baney asked if there are limitations on how long someone can serve. Mr. Givans said there were no limits in the Charter. Mr. Quesnel said the peer review results are very comforting with very objective eyes looking critically at the process and controls. James Kerfoot said David does an outstanding job in his opinion on reporting and findings. Approval of Minutes from the Meeting on July 10, 2008 and September 11, 2008 - LUKE: Move approval of the July 10, 2008 and September 11, 2008 minutes. KELLER: Second. VOTE: Unanimous Approval. Health Benefits Trust - Third Party Administrative Review and follow-up - Minutes of Audit Committee Meeting Tuesday, December 2, 2008 Page 3 of 5 Mr. Givans said the audit took quite a bit of time. The County changed TPA's (company hired to pay claims) and complaints from employees were reviewed. He introduced Ronda Connor, County Benefits Coordinator. Mr. Wynne said the reserves are increasing at a faster rate than the claims. The reserve policy never intended to say reserves could not be this much above claims. How high should the reserves be? The thought is that one year of claims before starting to adjust the budget. In the event of budget problems the County can lower the percentage rate charged to departments for the next year. Ronda Connor said David is nice to work with. Deschutes County is really committed to providing quality benefits to employees. The County has not reduced their benefits and the cost to employees is still $35 per month. In August of this year we have a second plan available to part time employees only. Previously they were paying a prorated share, now they can pay $35 with a higher deductible. Mr. Wynne said when the self insurance plan was started; the County had to borrow $400,000 from another fund. Self insurance had a not so certain future. At this same time City of Bend discontinued self insurance as well as Bend La Pine School District. The County brought in an outside party who gave us some recommendations. Our plan benefits have were reduced which saved us money. RV Park - Cash Handlin Over Revenues - Mr. Givans said it took some time and reconciliation with reports to realize there was a problem at the RV Park. The audit stands for itself. Dan Despotopulos said he has already started running with recommendations from David. He said this is the third audit they have been through. The audits are a tremendous help with helping the Fair & Expo move forward. It was determined that an individual who was with the RV Park was found taking money in a three month period. Thanks to the audit, they now have a cash handling policy in place. It was a surprise because after individual left, they were amazed to find how much cash was paid to the facility. Follow-up Work - Mr. Givans said follow-up on reports has been mostly reporting on recommendations not done. Some recommendations take years to complete. Follow-up reports bring the items back into focus so they do not get forgotten. The work and the recommendations will continue. Status of Other Current Internal Audit Work - Minutes of Audit Committee Meeting Tuesday, December 2, 2008 Page 4of5 Road Department - Road maintenance/Internet Usage - Mr. Givans said the project is now gaining some focus and he is working with management to determine what might be useful. It is hard to review internet usage because when you go to a web site, lots of other hits to other sites are made. . Mr. Wynne said web sites are used every day. How do you determine if legitimate County use? Mr. Givans said there is some software to help but it is very difficult to determine. It will give some level of detail and would be a huge endeavor if the software was not available. • Sep 08 - November 08 Internal Audit Status Report - (See Attached Report Marked as Exhibit E.) • External Auditor RFP Work - Mr. Givans stated there was a proposer meeting. The proposals are due on 12th. He has the committee and criteria set up. Mr. Wynne said the ultimate recommendation will go to Board. Mr. Givans said the selection committee will narrow it down and it will go to the Board in January. Other Business/Closing - Jim Keller said he will be submitting his resignation. He thinks more people should be exposed to the work the Committee does. The next meeting will be April 9, 2009. Being no further issues brought before the Committee, James Kerfoot adjourned the meeting at 3: OS p.m. Respectfully submitted, --7.:► / DATED this - Day of t , c e mYjec-2008. BOARD OF OUNTY COMMISSIONERS Connie Thomas OF DES~TES COUNTY, OREGON Administrative Assistant Attachments: Exhibit A: Letter from External Auditors Exhibit B: CAFR (Comprehensive Annual Financial Report) Exhibit C: Management Letter Exhibit D: Audit Committee 07/08 Accomplishment Report Exhibit E: September 08 and November 08 Internal Audit Status Report DENNIS R. L TAMMYRANEY, dommissioner MI1CHAEL M. DALY, Yinissioner ATTEST: Recording Secretary Minutes of Audit Committee Meeting Page 5 of 5 Tuesday, December 2, 2008 John P. Harrigan, CPA Wesley B. Price III, CPA Candace S. Fronk. CPA November 3, 2008 To the Audit Committee and County Commissioners Deschutes County, Oregon We have audited the financial statements of the governmental activities, business-type activities, each major fund and the aggregate remaining fund information of Deschutes County, Oregon, as of and for the year ended June 30, 2008, and have issued our report thereon dated November 3, 2008. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the 975 SW Colorado United States. Suite 200 Bend. OR 97702 Tel (541) 382-4791 Internal Control Over Financial Reporting Fax (541) 3 88-1124 www.bendcpa.com In planning and performing our audit, we considered the County's internal control over email@bendcpa.com financial reporting in. order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the County's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the County's internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles in the United Stated of America such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity's internal control. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over it n , , Audit Committee and County Commissioners Deschutes County, OR November 3, 2008 Page 2 financial reporting that we consider to be material weaknesses, as defined above. Other matters that came to our attention are described below. Claims Payable Liability In evaluating the underlying assumptions and reasonableness of the accrual for Claims Payable in the self-insurance fund, we tested the amounts payable for the various types of claims, such as general liability, workers compensation and unemployment. Although we determined the total claims payable of approximately $1.7 million reported in the financial statements to be reasonable, we found material variations in the various components. These estimates are normally based on the level of claims paid during the year, those paid subsequent to year-end for prior year events and either an actuarially determined amount for IBNR (incurred but not reported) liability or management's estimated IBNR. For the general and auto liability, an actuarial report included a 6/30/07 estimate of actual claims and IBNR of about $624,000 with projections for 6/30/08 of $684,000. Management, however, added this amount to the projected known claims liability of $263,000. This double-counted the "actual" portion of the liability. In reviewing workers' compensation claims, we found the liability was likely understated by a similar amount when allowing for an estimate of IBNR. We recommend staff develop a greater depth of understanding of the claims expenses and related liabilities and increase knowledge about the actuarial reports to avoid potentially material errors in the future. Allowable Costs for Federal Programs OMB Circular A-133 and A-87 provide guidance on how federal funds may be spent and define allowable and unallowable costs. Unallowable costs include charges to build reserves, fund future liabilities that are not actuarially determined or pay for internal service activities at more than the actual cost incurred. We noted that several of the County's internal service funds and special revenue funds are building substantial cash reserves. Federal grants and indirect charges to federal grants provide part of the revenue for these funds. These are detailed below. Indirect charges and internal service fund charges OMB Circular A-133 provides guidance for indirect charges to federal grants. Examples of such billed costs include computer services, finance, legal, building costs, etc. Billed rates are usually based on the estimated costs for providing the services. Costs may be charged as direct costs to federal awards or included in indirect cost pools. The Circular requires that rates be adjusted at least annually for the difference between revenue generated by each billed service and the actual allowable costs. OMB Circular A-87 provides guidance on internal service activity and working capital Audit Committee and County Commissioners Deschutes County, OR November 3, 2008 Page 3 reserves of internal service funds. The Circular allows for the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, but defines a reasonable level of working capital reserve to be 60 days of expenses for normal operating purposes. We recommend that actual costs and billed revenues for each of the internal service funds that provide goods or services to federal programs be reviewed at least annually and the rates for each activity be adjusted prospectively when necessary to ensure that only allowable costs are charged to federal programs. Similarly, where County internal service funds receive revenue from sources other than the direct charges for services, such as the investment management fee in the Finance fund, the County should track such funds so that it can show that working capital in excess of the federal guideline is not generated from federal funds. Contingencies and Reserves Contingency provisions are addressed in OMB Circular A-87. Contingency reserves or other similar provisions made for events or occurrences that cannot be determined with certainty as to time, intensity or assurance of their happening, are unallowable. Contingency reserves do not include self-insurance reserves or actuarially-determined reserves for pension plans, post-retirement health plans or similar benefit reserves. The County's PERS Reserve fund is not currently associated with such an actuarial liability. We found that most County funds that contribute to the PERS Reserve fund through payroll charges generally have a significant component of state or local funds. We recommend that all funds receiving federal assistance be reviewed periodically to ensure that sufficient non-federal funds are available to cover the payments into such reserves to avoid the potential for unallowable costs. Self-Insurance Reserves Certain reserves for self-insurance programs, such as workers compensation and unemployment compensation can be allowable costs subject to certain provisions. Self-insurance reserves related to employee-related coverages paid through federal funds are limited to the sum of (1) claims submitted and adjudicated, but not paid, (2) claims submitted but not adjudicated and (3) claims incurred but not submitted. Reserves for general liability or other non-employee coverage that exceed the items listed above must be based on sound actuarial assumptions and a justifiable cost allocation plan to be considered allowable costs. We recommend that the County regularly document such plans and review all self-insurance for compliance with these guidelines to ensure no federal funds are used to fund reserves in excess of the amounts described above. Audit Committee and County Commissioners Deschutes County, OR November 3, 2008 Page 4 This report is intended solely for the information and use of the board of directors, management, others within the County, federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. , zp"'q Harrigan Price Fronk & Co. LLP ab RIDATA\CLIENTS\DATA1\14720 DESCHUTES COUNTY\2008\14720 sas112.doc CAFR (COMPREHENSIVE ANNUAL FINANCIAL REPORT) SEE FINANCE DEPARTMENT FOR A COPY OF THE CAFR 9~kbd 3 h J®~~ES Deschutes County Finance Department Q Marty Wynne, Finance Director and Treasurer ejtAA \A- 4 1300 NW Wall St, Suite 200 • Bend, OR 97701-1960 (541) 388-6559 9 Fax (541) 749-2909 www. co. deschutes. or. us December 2, 2008 Audit Committee Deschutes County 1300 NW Wall Street, Suite 200 Bend OR 97701 In its November 3, 2008 letter to Deschutes County's Audit Committee and County Commissioners, Harrigan Price Fronk & Co. LLP identified two matters which came to its attention during the course of the audit - Claims Payable Liability and Allowable Costs for Federal Programs. Claims Payable Liability See attached response from Erik Kropp, Deputy County Administrator/Risk Manager. Allowable Costs for Federal Programs As part of its on-going efforts to assure compliance with rules, regulations and guidelines, including OMB Circular A-133 and A-87, the County will review the internal service funds, the PERS Reserve Fund, and the self-insurance reserves to determine that any revenues received by any of such funds in excess of actual costs or actuarially determined required reserves were provided by sources other than Federal monies. Marty Wynne Finance Director and Treasurer Date: November 21, 2008 To: Marty Wynne, Finance Director From: Erik Kropp, Deputy County Administrator/Risk Manager i' k Re: Risk Management Response to County FY 2008 Audit Conducted by Harrigan Price Fronk This letter serves as the Risk Management response to the County's annual audit conducted by Harrigan Price Fronk. Specifically, this letter responds to recommendations related to "Claims Payable Liability" and "Self-Insurance Reserves." Claims Payable Liability • Audit recommendation: "We recommend staff develop a greater depth of understanding of the claims expenses and related liabilities and increase knowledge about the actuarial reports to avoid potentially material errors in the future." • Risk Management response: Agree. A training session on actuarial evaluations and claims expenses was held for the Risk Manager (Erik Kropp). The Finance Director and County Internal Auditor were included in the training and will be available resources for determining future claims expenses and IBNR calculations. Self-Insurance Reserves • Audit recommendation: "We recommend that the County regularly document such plans and review all self-insurance for compliance with the guidelines to ensure no federal funds are used to fund reserves in excess of the amounts described above." • Risk Management response: Agree. Reserves for general liability or other non- employee coverage that will be based on an actuarial study and a justifiable allocation plan. c: Dave Kanner, County Administrator ~•t`J~'ES ^'J ~Za 0 Deschutes County Audit Committee 2007/2008 Accomplishments report Composition of Audit Committee: • Public members o Jade Mayer, Chair o James Kerfoot o Jim Keller o Greg Quesnel County management o Dennis Luke o Scot Langton o Tom Anderson (member since 9/03) (term expires June 2010) (member since 4/04) (term expires June 2010) (member since 4/04) (term expires June 2009) (member since 5/07) (term expires June 2009) (member since inception 11/02) (term expires June 2010) (member since 12/04) (term expires June 2009) (member since 4/05) (term expires June 2010) We will need to work on maintaining continuity of members as some long time members may not want to continue with committee. External Auditor • Currently in RFP process for fiscal years 2009/2010/2011. A subcommittee was formed to work on this. We met with external auditors to discuss planning of audits. Their work was coordinated with the workplan and recent work of internal auditor. (7/08) We met with external auditors to receive results of audits - FY 06/07 Comprehensive Annual Financial Report (CAFR), management recommendations, and required communications. (11/07) Internal Auditor • We reviewed and provided input on internal audit workplan for 08/09 (7/08) • We reviewed quality assurance review performed of internal audit in accordance with governmental auditing standards. (9/08). The internal audit program received its second full compliance review from the Association of Local Government Auditors. Deschutes County is notable in being a small audit organization receiving a peer review and maintaining compliance with governmental auditing standards. • We receive copies of all internal audit reports issued. • We review internal audit reports issued with departments and management. o 8 performance audits issued • We review follow-up reports indicating the status of recommendations. o 7 follow-up reports issued o A recommendations database was developed to monitor activity on all recommendations. • We survey those being audited about their internal audit experience. • We discuss staffing levels of internal audit program. Policy • We developed and recommended audit committee charter. (7/08) • We met four times this past year. (11/07, 4/08, 7/08, 9/08) r,Ati;4D/ Internal Audit Program ~ti 1"r~s n~ David Givans, CPA, CIA G l~ County Internal Auditor 2 Deschutes Services Center 1300 NW Wall Street, Suite 206 Bend, OR 97701 Phone: 541-330-4674 / davidg@co.deschutes.or.us INTERNAL AUDIT PROGRAM STATUS REPORT September through November 2008 Highlights for the period include: ■ RV Park cash handling audit - Report has been completed and issued. ■ Health benefits trust administration audit -Report has been completed and issued. Some follow- up presentations are being given. ■ Other projects and follow-up ■ Road audit- Initial planning work continues. Objectives have centered on pavement maintenance as observed through the pavement management system and cost accounting system. We are currently receiving data from these systems. ■ Administrative work - This includes various administrative meetings, archiving work for older workpapers, and training. ■ Coordinating external audit services request for proposals. Held a proposers' conference and am using the County's website to disseminate information. We had four attendees at the proposers' conference (2 audio, 1 video, and 1 in person). ■ Education - Attended and was a trainer at an audit conference. ■ Member, of committee looking at County banking proposals. ■ Peer review - Peer review team was here and gave a full compliance opinion. ■ Audit committee -primarily preparation for audit committee meeting September through November 2008 Time Road audit 11% Misc. follow-up & projects 12% Administrative time 15% Health benefits trust audit 16% Audit Services RFP 12% RV Park cash handling 20% DISCUSSION DRAFT Audit committee meeting and support 2% Training 5% Banking RFP Peer review 4% 3%