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2009-10-20 Audit/Finance Committee Minutes Audit/Finance Committee Minutes October 20, 2009 After determining that a quorum was present, the Audit/Finance Committee of the City of  Denton, Texas convened in a regular meeting, Tuesday, October 20, 2009 at 10:00 a.m. in the  City Council Work Session room at City Hall, 215 E. McKinney Street, Denton, Texas.   PRESENT: Council Member Joe Mulroy; Mayor Mark Burroughs;  Council Member Chris Watts, Chair STAFF PRESENT: George Campbell, City Manager; Jon Fortune, Assistant City Manager; Howard Martin, Assistant City Manager; Bryan Langley, Director of Finance; Steve Shepherd, City Auditor; Jim Coulter, Director of Water/Wastewater; Michelle McCallum, Budget and Municipal Court Manager OTHERS PRESENT: Jerry Gaither with Weaver and Tidwell; Greg Davis and Greg Vermulm with MarketSphere. The meeting was called to order at 10:00 a.m. 1.Consider approval of Audit/Finance Committee minutes of May 5, 2009 Mulroy motioned to approve the minutes, with a second by Burroughs. The minutes were  approved (3-0).   2.Management Report -   a.Audit/Finance Committee Action Item Matrix No questions or comments on the Matrix update. b. Memo regarding notification of tax refunds processed by the Denton County Tax Office   Langley This item is in response to a request from the Committee to clarify how the City  would be notified of tax refunds. The County has agreed to provide a quarterly report that details   when any refund greater than $10,000 is processed. Watts What is the difference between a refund and collections? Langley Refunds would be necessary if you had a lawsuit that came in and the value should have been lower or the Appraisal District revised what the appraisal should have been and there  would be a different calculation in taxes resulting in a refund. Most refunds are small and staff  has taken them to Council in the past with an occasional large refund.  Watts Is the City refunding or Denton County?   Langley Denton   Watts Does this finalize the project?   Langley confirmed and will mark the item completed.   c. June 30, 2009 Quarterly Financial Report   Langley Staff provides a financial report in bound form to Council and PUB on a quarterly  basis. Staff wanted to bring this report back to you and provide an opportunity for the Committee  to discuss the report and ensure that the format is still working and the content is satisfactory and  take any suggestions for changes in the report.   Burroughs The Executive Dashboard for General Fund looks like we are making a very  significant profit when revenues exceed expenditures virtually every month. At the end of the  year it tends to balance out. Is there always a catch-up or something or do you hold off on  certain expenditures?   Langley Expenditures are relatively constant. The difference would be in how revenue is  received. If you look in the month of January, you will see a big spike in revenue as all of our tax  receipts have come in to the General Fund. Over time, we spend those dollars. These are year-  to-date figures not monthly figures so we continue to spend basically the same amount per month  but the revenues come in the January timeframe and then expended.   Burroughs Any reserve balance information?   Langley The reserve balance information is also on the Executive Dashboard.   Watts So, 09, we will see the blue line overtake the red line at  the end, most likely.   Langley Yes. The annual projections for 2008-09 show total revenues at projected at $84.2  million and expenditures at $87.8 million so we expect to draw down that fund balance.   d. Memo regarding history of drainage debt   Langley In July of 2008, we brought forward information regarding drainage debt issuances.  This item is still marked as scheduled on the action item matrix so we wanted to bring this back  to see if there are any additional questions from the committee or if you need additional  information.   Mulroy - Have we have sold the series 2007 bonds?   Langley Yes.   Mulroy Where is the money probably fifty percent of  that scope. How are we managing that money and what are we doing with the interest?   Langley Are you talking about the project? What is the status of the project?   Mulroy Yes. Langley This is GO debt. I being paid by tax revenue, the $7 million that we issued. Mulroy t $7 million in cash. Where is it? Langley Mulroy How much has been spent to date? Langley have an exact number. Jim, do you know offhand? We could certainly get you that. Coulter the exact number g projects are still awaiting final completion from engineering before moving forward. Mulroy Coulter I would say that, yes. Mulroy On a $7 million endeavor. The purpose was to get something done rather quickly. Where is the interest accruing to on that $5 million? Langley It is also going into the Capital Projects fund. Mulroy Paid into this account to apply to any overage that we may have in these projects? Langley Yes. Campbell Or any additional projects. Langley That would be our goal, to cover additional projects. Mulroy I know what the citizens were promised. You gave us a brief update a couple months ago. We need a more thorough update and projection per project. Is there a funding impasse or did the project become larger than you anticipated that worked into a long term project? Watts I would concur with that as well. We passed this because of a major flooding incident and identified several projects that really needed attention. I would hate for that the same thing anywhere, we are still moving forward and it just takes time to get these big projects going. Mulroy The one time you would be criticized by saying the money is in the bank. We want the money in the process. Coulter We are working to get those things accomplished. We know exactly what you are are going down in got easement acquisitions. So, they are complicated on the large scale.  Burroughs I would presume that these projects are multi-year, anticipated projects and would take more years to complete. Do you sell all the bonds up front for these multi-year projects or do you try to phase it in? Coulter On these projects, they were broken up into a series of $1.5 million drainage projects. We have to have the money in the account before we start working on it and drawing from it. Burroughs Do have to have the money up front? Mulroy Need to make sure we are not penalizing ourselves in an arbitrage situation.  Sometimes selling it all ahead of time could cost us. Langley Another way to do it is through a reimbursement ordinance which we do from time to on the project, we can hold back on selling. We can do those in some cases. In this case, we did sell it all up front. Watts On the drainage program debt summary, the $280,057 series issued in a 2007 Certificate of Obligation, where is that being paid from right now? Langley This is very confusing. I apologize for the confusion. In 2007, Council directed us to  go forward and sell another $7 million in debt for the drainage projects and to raise the tax rate to do that. We cannot raise the tax rate existing GO and CO debt that we were paying out of drainage revenue. So, for one year we moved that over and paid that debt with the tax rate increase that we had and we took the And so the year after that we switched it back. Does that make sense? Watts It does. What is the debt the Financial Report under Drainage Operations Schedule of Expenditures.  Langley That would be the debt associated with the revenue bonds. Watts What numbers are included in the debt service? Does that include all the ones for the GOs as of September 30, 2007, and the revenue bonds? What are we paying out of that? Langley The $1,298,582 projection includes the GO and CO debt that was issued previously that has been paid out of drainage revenue and other revenue bond debt sold for drainage projects. Watts But not the new $7 million.  Langley Not the new $7 million. The old GO CO debt plus some revenue debt that was issued as well. Watts Obviously, the one cent tax increase was to address what was seen as an immediate problem for the flooding that caused property damage. For other capital drainage projects where do we get the money from? Without raising the drainage fee, what is the capacity of the drainage operations to support additional drainage projects? We have a major floodplain running through downtown have to answer that question now. Langley If w through drainage revenues. There will not be enough revenue there to complete all the capital projects that we need to complete. It will have to come from the tax side to make that up.   Coulter revenue from the drainage program to fund it. In the last  efforts to bring forth projects for the next CIP, we brought forth about a $25 million suite of  projects that we would like to see go forward as the voters approve that kind of thing. But  currently, the options are raise the drainage fee to provide additional revenue to fund it or run it through GO bonds. Mulroy In the Managers Message of 1998-99, the drainage was moved to Utilities, the language was very clear that the Utility fees would not in the long term probably be able to oters funding. In the next CIP, we need to bring that back in. That is the reality to keep up with the drainage program. Watts the difference is the property owners, they are able to take off their taxes, the property taxes they pay. That comes from ad valorem which is the general fund. As we keep transferring things investors can take that off but the homeowners, honestly, I just see it as a tax. If w  their property taxes off their income tax  understood why we created, quite honestly, a whole different department, not to re-visit that  issue, but I would support raising the drainage fees to cover capital improvement projects  because to me they seem from my perspective as more of an operational type of fee. Those huge  Martin When we looked at the drainage fee, there were two main components that we were trying to cover. One was from the O and M associated from the existing drainage channel but  the second part of that had to do with the regulatory requirements that we were anticipating associated with storm waters. A smaller component would provide some money for small  capital projects that would improve the efficiency of the existing channel. It was never really  intended to widen the existing channel and recover property.   Mulroy I agree with that and that would be the history of the main thrust. My sense of urgency  here today is because in subsequent bond programs of 1999, 2000, 2005, there was no money for drainage. So we have a 7- with the citizens and was certainly not the language when drainage was transferred to utilities. frustrated trying to get the money spent. But we have a history of seven years of no general government capital funding being considered by those two bond programs so we got seven years  behind in our master plan and we paid the price in the 2007 spring rain. I guess what I want to  leave on the table is in the future bond programs, we need to be more forceful from the utility   citizens committee rest on the assumption that the drainage fee is taking care of that because it is  clearly not and clearly never intended to.   Burroughs  can see that three or four bond committees ago, the great majority of all the CIP was for  drainage. The reason for that was, it followed not long on the heels of the drowning and  flooding. Then, subsequent bond years, certainly 2005, was during drought and there was no  drainage problem. We would love to have had drainage problems. You had lake levels that  were falling dangerously low and there was no rain. The citizens on the committee had no  stomach sue to try to get the long  view. It   Mulroy I just ask that you be more forceful from the utility standpoint.   Action Item:  Provide an update on the status of drainage projects associated with the 2007 C.O. debt  issuance.   e. Memo regarding sales tax collections   Langley We wanted to give the committee an update on our sales tax collections. I sent a  memo out to the Council a couple of weeks ago. We did get our August sales tax payment and  as not a good payment, about 16% lower than we received last year. Year-to-date receipts are  about $690,000 or 3.6% lower than last year. We do expect to get our September payment in   know exactly what we have. As you may recall, we did lower the sales tax estimate in the  budget process and it looks like we will struggle to meet that estimate now for 2008-09. We did  get a question from a Council member, not on this committee, about how this will affect the  nning to go  forward but wanted to talk with you about that.    Campbell We did get one question, since the Council approved the budget. At this point, all  supervisors have completed annual performance evaluations on all employees to determine who  is eligible and who is not. Those employees have been counseled about what the one time pay  would be. The plan is to distribute those checks on November 20. My recommendation would  be not to change that plan because of this shortfall. If there is any concern, we would sure need  to know as quickly as possible.   Mulroy -  reserve fund  information and project the next year and the year after. Are we going to be as dire or do you see  it coming back? I would like for you to prepare a rough draft of the Five Year Forecast. Also,  as we discussed in the budget process, I want you to come back with how to correct the revenue  versus expenditure trends over the next five years to maybe get out of that reserve money that    Campbell  think needs to be done on a five year term. I just think it would be difficult right now to try to  alter the budget with salary adjustments, as small as they already are. My response to that  Council member would probably be that we have talked and unless somebody asks, we will go  forward.  Mulroy We are well equipped to stay on track with what was promised to the employees. Langley in the February timeframe. -09 to see where we are with the fund balance.  through that analysis and we will bring it back to update you on the Five Year Forecast.   Action Item:  Update Five Year Forecast and present long term financial strategies to Council.  Burroughs The sales tax information that we get is pretty generic. Can we track that the Golden Triangle Mall is 22% below what it was a year ago? Are we able to track any particular revenue streams from the sales tax? Langley Yes, I can drill down to exact businesses. Burroughs closures have an adverse effect. had a lot of them yet but it would be something that would be handy to have for an informational standpoint as it might affect some policy decisions we might have to make. Langley office. that others to know what those are but we can use that fo  difficult to predict sales tax, since it is a leading economic indicator. We are seeing a little bit of   a lag here, which is interesting. In a lot of cities through other parts of the country, the sales tax  dropped  year.  Burroughs Langley steady. hopefully, this is a trough and it will pick up to where it was a couple of years ago. We have  really gotten down to the 2005-06 levels at this point.   Fortune -year anyway. It went from four to six  percent.  3.Receive a report, hold a discussion, and give staff direction regarding the annual external financial audit process. Langley Jerry Gaither from Weaver and Tidwell is with us today to discuss this item. We are beginning the external audit process and we wanted to give the committee an opportunity to   comments you may have.   Mulroy On the history of the contract itself, do we have one year extensions if they are  approved. How do we handle the contract for this year?   Langley I believe it was a three year agreement with two, one year extensions.   Mulroy On top of the three years?   Langley Yes. So it would be five years total.   Mulroy So, this is the second year of the third year base contract?   Langley Yes.   Mulroy Thank you.   Gaither is going to go smoothly  anning and did most of the walk throughs of controls  of significant transaction cycles. That process was required when the fraud risk standards took  place. Evelying on internal control for the significant transactions  cycle you have to at least observe that the controls are in place and operating as designed. We  have performed the walk throughs on the payable disbursement cycles, Utility revenue and  receipts, payroll, and Municipal Court transaest of  controls for cash disbursements, and payroll and the bidding of  completed our single audit testing selecting the major program. The major program was the  Community Development Block Grant.   To this date, we have no findings. ot the budget process walk through, tax receipts and  revenue, fixed assets walk through, e  Public Funds Investment Act testing is open and the purchase control testing is open and we plan   th, December 14complete our field work, and come back with our preliminary report in February.   have. John DeBurro is the Senior Manager on the engagements and field work and is also here  to answer any specific questions you may have.   4.Receive a report, hold a discussion, and give staff direction regarding the needs  assessment and gap analysis that has been prepared for the fixed asset system software  implementation.   Langley We have a short presentation on fixed assets. As you may recall, we hired the  MarketSphere consulting team to do a needs assessment and gap analysis for our fixed assets  system. We just wanted to come back to the Committee to let you know that we have completed  the project and discuss the key recommendations. We will be taking this item to PUB on  Monday for discussion as well. Wethen going to come back with a new implementation  Request for Proposal (RFP). Hopefully, we will release that in November and get this project  going and get the process started in Febru to Greg Davis and Greg  Vermulm for the presentation.   Greg Davis provided a presentation regarding the fixed asset system project.   Davis Good morning. MarketSphere is the old Arthur Anderson Business Consulting. Greg  and I have worked together for about 12 years and what we do is implement or integrate JD  Edwards. We help clients all over select and put in JD Edwards. To clarify, we do not sell the software, we are not a re-seller, just an Oracle certified advantage partner. We work with them on helping clients that have purchased JD Edwards and Oracle Solutions to actually put them in. We were charged with conducting a gap assessment for the City of Denton earlier this year. You go back into the April timeframe, April through June, is really when we took the requirements  across all departments listed, gathered the fixed assets and some job costs, specific requirements,  and really compared them to JD Edwards Enterprise Resource Planning (ERP) functionality. So  we  that the City of Denton was incurring. We did the requirement assessments gap analysis and  tried to take a current state, future state look and we produced several different deliverables but Edwards can satisfy the vast majority of those requirements. We also tried to help get a little more strategic with the City of Denton on the use of the ERP functionality in JD Edwards. We did a future state vision and a strategy road map. We presented that strategy road map at the beginning of this project so that you get a summary. We reviewed just fixed assets against the current climate and basically found that it was really kind of put in a little bit awkwardly, to say it politely in Edwards and became strictly, a backend accounting tool. There was also a problem with some  configuration settings which is what Greg and I do as we go into help customers put in JD Edwards. Mulroy On bullet point number two, should that deficiency have been something an external auditing firm should perhaps have caught when doing the depreciation schedule, either that year  or the following year?   Davis On the couple of JD Edwards configurations?   Mulroy Yes. Your bullet point number two. Second one down from the top. Davis I think it was actually more the implementer. Mulroy As far as being communicated to the policy making body, as we just heard from our external auditor, would that be an item that the external auditor should not have discovered in  doing the depreciation schedule either from that year 2003 or any subsequent year?   Langley Mr. Mulroy I just want to chime in and let you know that Deloitte and Touche were  the auditors at the time, and that they did tell us that depreciation was not calculated correctly. In  fact, Cody Wood, one of our Assistant Controllers, was actually with the audit firm of Deloitte and Touche at that time and was one of people to help define that issue for us. So they did assist in catching that. Mulroy Was that communicated to the policy making body?  Langley I do not know the answer to that question.   Mulroy But it is something that the external auditors should have, would have, and will catch  in the future?   Langley Well  going in and looking t look at that. He would  say the calculations are incorrect.   Gaither Yes, we review whether the depreciation is calculated correctly.   Mulroy   Vermulm We now kn    Mulroy My point is that we know we have essentially a cleanup operation here and we are  trying to get to the genesis of the past so that we can avoid it in the future.   Langley  Weaver and Tidwell on in  after we do the implementation. Before we go live, we want to make sure that all the data came  over correctly, tables are working properly, the calculations are working properly because we  part of the process to ensure we will not repeat  the same kind of mistakes.   Davis Although we were not contracted or charged with evaluating all the maintenance  functions of other systems, we do think JD Edwards Enterprise Resource Planning is an  integrated package so it can handle all sides of the business, financials, your capital asset  management and job cost. There are several integrated modules with JD Edwards:  manufacturing, distribution, sales, and inventory. All those things can be tracked in an integrated  system. There are a lot of asset management functions within JD Edwards that could handle a lot  of your City of Denton department requirements as it pertains to corrective and preventive  hose modules in JD Edwards are  dormant. Our point was to make sure you guys knew that there was some future opportunity  there with JD Edwards.   As far as the final recommendations go, these are the bigger, long term strategy type  recommendations. We wanted to implore the City of Denton to look to enhance their JD  Edwards footprint. I think that you would all acknowledge that it is perceived that these back end  accounting systems for the City of Denton really can be so much more. With the whole  enterprise resource planning (ERP) system integrated, it can run so many other functions that we  see every day at other clients that we implemented. Just off the cuff, in the JD Edwards  implementations Greg and I have done, this is the really the only place that we have seen where  JD Edwards, as an ERP, which can run everything, was only put in on the financial side and not  touched anywhere else. So it is very much an anomaly. We want to basically say that you can  take advantage of ERP software.   Burroughs How are you going to reach a consensus on strategic vision because it seems to me  that one of the difficulties in implementing the JD Edwards programs from the outset in 2003,  might have been perhaps the comfort level of some departments using what they already have or   of different reasons why we might not be fully utilizing a major program that has a lot of options   and something that we as policy makers would probably never know about. How would that  percolate up to us if there was just resistance with some departments wanting to implement a  new software program?   Langley ause JD Edwards was really the newest system in the City of  Denton. It came in the 2000-2001 timeframe. A lot of these other systems for all the different   Staff has trained on them and     needs that they have. Kevin Gunn has started a technology steering committee to get all these   different stakeholders together and start talking about systems. When we look to purchase a new    need to make sure we ask whether JD Edwards can perform this function. We are already paying  for it. We pay the maintenance and it is integrated with other packages that we have.  to take us some time to get out of it. It is probably not something we do in the next two, three or  plan that we develop as to how we are  going to address those goals. I think this is something that needs to be part of the strategic plan  on to be something  we decide at that level what direction we want to go. JD Edwards, as Greg has told us, is a very  capable system. It is an enterprise resource planning (ERP) package which is somewhat of a  foreign conc package before so we need to make sure we use   department and every single use. We will still need to have some best in breed systems out  there.   Burroughs operating systems. All the  a number of things to consider.     Langley   perform. pent money over the years to buy   them and train our personnel. But it will be difficult to unwind that process.    Burroughs Yes, short term cost versus long term efficiency.   Vermulm The main thing was to put a new discipline in place going forward. As other  packages expire or go out of business or things like that, you can then continue to go with the  JDE footprint as Bryan said maybe five to ten years until you ultimately get there, but you have   to start somewhere.     Burroughs ten year window that is the consensus on strategic vision that      Vermulm  ough to make sure all the  software purchases were part of the on-going strategy that the City wants to do.   Davis It was well known when we interviewed a lot of the people in the departments that JD   me because it can be a very valuable asset   for the City.     So, based on our assessment, we identified three options that you could have gone down. What   we are recommending in our report is the bottom option, to implement the JD Edwards fixed  assets. The key strengths and limitations are there but the long story short is that there are plenty  of advantages and the only limitation would be the implementation cost. As Bryan mentioned  you would need a consulting firm to help you get this implemented. To your point, you must  overcome the failed status from the prior projects.   What we propose is implementing the fixed assets, a phased implementation approach with a  pilot. We recommend implementing DME first and get them up and going. Then, phase in all  the other departments prior to the fiscal year end, 2010. Basically, start in January, get the pilot  going, then go to the other departments before we get to September. We outline the resource  need. We do think you could do it with minimal departmental resources because we will  actually have to map to the fixed assets spreadsheets that are being used not these discreet  operations systems that the departments using. Then we highlighted the cost estimates, based on  our professional opinions, the roles you are going to need and the approximate number of hours.   would cost millions of dollars.   We also tried to outline the internal resourcing needs that would be used. A high level time line,  a road map that shows several other things with fixed assets, technical pieces and some  functional pieces that need to be done but this highlights the road map that we recommend for  the City of Denton over the next few years as you manage your ERP.    the tier one or top tier ERPs. We think you should work to get consensus around taking more  advantage of its capabilities. There is some disparity as the various departments in the City of  Denton very much act as different companies and not a whole lot of standardization exists there.  There is a lot of money tied up in development and maintenance of the different department  systems that they are running. We think a logical first step in this is to implement fixed assets.  We could have recommended five or six paths to go down but the most logical to us was to  implement JD Edwards fixed assets across departments. Then really look at your next step:  capital assets management with JD Edwards, the maintenance of all the assets and what other  functionality and modules do we take advantage of.   Watts For clarification, not long ago we talked about this issue and that we were purchasing  something to help accomplish this sort of integration to try to phase in this JD Edwards program.  Am I totally off base on something?   Langley We came to the committee and talked about the issues that we had with fixed assets  and suggested a strategy of having a ne   lot of information that Greg has given to for the  implementation based on that information that is about 100 pages long, just the implementation  RFP. This is being used to actually get us to the implementation. I wanted to make sure I  brought it back to the committee and the PUB because, what y  ed you to    Mulroy hat conclusion several months  ago and Council consensus was to proceed, embark upon this program to get us there. I do agree  we need the gap analysis and needs assessment to get into the specificity of what each  re going to have to fold that into the JD Edwards   conclusion of this study is here we got three choices and we recommend JD Edwards. That was  our conclusion months ago when we authorized the undertaking of this assessment. We wanted  particulars from you of what we would have to incorporate in the performance contract from    this is a high level bullet point that you really have provided to Bryan in Finance all the details,   the where-with-all, each line item, that will have to be incorporated into an RFP to actually   of what these consultants see. Is that correct?   Davis You are correct. We actually worked to help write the RFP with detailed specifications.    Mulroy   5.Receive a report, hold a discussion, and  Investment Policy.  Langley We wanted to bring back a discussion regarding the Investment Policy. As you may  recall, we did have an Investment Committee that was specifically charged with reviewing the  Investment Policy and making recommendations to the Council. A few months back, we  dissolved the Investment Committee and rolled those oversight responsibilities into the  today. We have  looked at our Investment Policy and would like to make a couple of changes. The major change  is that w level accounting system to what we call a pooled cash  accounting system. Essentially, it uses JD Edwards to make interest allocations and investment  allocations amongst all the funds based on their balances. That is the major change in the policy.  and we can go through those line by line if    sheet but those are some of the key things. None of the core objectives of the Investment Policy   have changed. We are still doing all the same things that we have been doing. We provide that   information to you on a quarterly basis in the Quarterly Financial Report.   any questions you may have or provide more detail.   Mulroy Heretofore, the Council representatives have reviewed the investment activities  annually or quarterly?   Langley Quarterly.   Mulroy - We disband the Investment Committee and put some of the responsibilities into the   Audit-Finance Committeewill be to   annually review the policy and no longer provide a quarterly review of the activities. Council   will get the quarterly report so, what I would advocate is to go one way or the other. Either let   Council review the policy annually and get the quarterly reports or let the Audit/Finance   Committee review the policy and get the quarterly reports so that if we have any questions then  the Council gets the logic of what we are proposing.   Langley Let me add a little bit more to the discussion. We did keep an Investment Committee  in place. However, there are no longer Council members on that committee. That is an internal  committee that consists of me, Jon, George, Howard and a few others in the department that are   primarily involved with the investment activities. On a quarterly basis, that committee convenes   to talk about our strategy, we also have our investment advisor which is First Southwest Asset   Management, Scott McIntyre, he participates in that conversation. We talk about where we   should be on the curve and how we should ladder our securities. It is very detailed conversation   about what we are doing, on a day-to-day basis. If the Audit/Finance Committee would like to    Mulroy . Th no longer an  Investment Committee and you said these duties have been taken over by the Audit/Finance but  not in total. Just the annual overview of your policy is the only thing that the Audit/Finance  Committee is really going to do. So, I just want that clear to the Chairman and everyone else.   say well, we will take over their responsibility    not. I would suggest that on the Investment Committee, you invite the City  Attorney to participate on that.   Langley We certainly can. I do want to clarify that the Investment Committee is looking at  ussion that would be related to legal issues. But  we certainly can.   Mulroy   Langley $300 million, approximately.   Mulroy You just dealt the Council participation out.  helpful for you to have legal as part of that committee.   Watts To piggy-back on those comments. What was the purpose of the dissolution of the  Investment Committee. Was it more of just a committee formed to go over some things? What  exactly was the intent behind dissolving that and moving it to the Audit/Finance Committee?   Langley The Investment Committee was holding very short meetings, typically, thirty minutes  long. Mr. Burroughs was on that Committee with us. We felt like the Audit/Finance Committee  would be a good place to have a similar, oversight function.  Committee would like to. The purpose was to have an investment committee composed of some  staff that was highly involved with this particular function that would be discussing in detail,    Burroughs This was not done at Investment Committee meetings. Detail discussions were not  held in the Investment Committee meetings that I a  something new. I assume you were having detailed discussions somewhere.   Langley The Investment Committee was an additional meeting that we had to have.   Burroughs - This is just formalizing what you were already doing in a different venue. The  Investment Committee really just got frankly, the quarterly report. It was really a very broad   my personal view about rolling into this committee, your concern about these functions and  scope of what is taking place, the detailed discussion, was not part of the Investment Committee.  mittee  because it never was in the Investment Committee. If we want to have the discussion about   new.   Langley We spend about two to three hours on a quarterly basis, meeting and discussing  investment strategies. We get an economic overview from our investment advisors and  with the Audit/Finance Committee if you want to  meet on a quarterly basis.     Mulroy If in fact, the Investment Committee was not an in depth look at your investments. and   if   . If you are going to do    to Council or to the Committee.   Campbell Things like Item number six would have been something that would have gone to the  Investment Committee. But it was an awkward kind of situation in that the committee itself was  dominated by staff, simply by the number of people involved. The majority number of voters of  the Investment Committee as it existed, was greater than the number of  now getting this into the Audit/Finance Committee to get policy direction from elected officials  on those kind of things or recommendations to the Council from the Committee. Item six is an  example of something that would have gone to the Investment Committee but now comes to the  Audit/Finance Committee and then if that needs to go on to Council, it would.   Burroughs So each of the agenda items of the former Investment Committee are now coming  to this Committee?   Langley Correct. With the exception of, as Mr. Mulroy pointed out, the quarterly review where   we would sit down and present to you the quarter ending June 30 and we would talk about that   with the Committee. But if not want to go in that direction, we can change   that.     Fortune Primarily the information that we provide in the Quarterly Financial Report is exactly  what the Investment Committee would see and review.   Watts Is the information that would be reported directly to Council any different from the  information that this committee would discuss?    Langley No sir. To be clear, this report has been kind of an evolution. We started one way and   added things to it. At one time, we included limited information on investments in there. Maybe   that served a purpose by coming back to the Investment Committee. Now it is the full report that   is included or exactly what we would have taken to the Investment Committee. I would not   envision having any additional information being part of that.   Watts Would the Investment Committee review the policy once a year or is that able to be  addressed each quarter?  Langley-  changes. We did it multiple times during the past year. But if the Committee has some concern       Burroughs We did discuss when there was a recommended change in some type of strategy and   then it would go to Council, if advised. I would envision those types of discussions to take place   here in terms of a recommended shift in investments that this Committee would have that  discussion and that recommendation go to Council.   Watts Joe, are you just talking about the quarterly reports and the review of the Investment  Policy or are you also talking about Item Six that would normally have gone to the Investment  Committee coming to Audit/Finance? Were you thinking that maybe the whole Council should  getting it quarterly in front of the whole Council  anyway.   Mulroy   Committee was doing with Council participation was really not the same as your subset of staff.  Management and staff and your detailed discussions or meeting was not the same meeting.  If Council is getting the quarterly reports and the investment information and updates, then what  truly would be the responsibilities of the Audit/Finance Committee, other than what was  presented here? It was not presented that we would have policy considerations coinciding with  Audit/Finance meetings. If it came down to one duty, I would say just give it to Council but if     Watts It sounded like, on its face, before this conversation, there was only one duty of the  Investment Committee and that was to receive quarterly reports and review the policy. What   Committee, such as the next agenda item. Do you have the direction you need on that?   Langley Yes. To be clear, are there any verbiage changes you want in the policy based on this  conversation?   Mulroy I suggest that you take it under advisement to add the City Attorney to the Investment  Committee meetings.   6.Receive a report, hold a discussion, and give staff direction regarding the investment of  public funds in local government investment pools and money market mutual funds.  Langley The Public Funds Investment Act and our Investment Policy requires the Council to   using, TexPool, right now. We also use a Money Market Mutual Fund of government securities  th called Federated. When our Investment Committee met on September 29, we did an analysis of  various pools that are out there available for use. We have proposed to replace Federated with  TexSTAR. Federated is a portfolio that we have used for a long time. It has FDIC insurance  that insured the principal amount invested. That FDIC insurance has expired from the  government program started last year. funds out of Federated because the  yield between Texpool and Federated is about 20 basis points lower. The primary reason for that  is management fees. All the underlying securities and investments within Texpool and Federated  were very similar, in fact, Texpool is actually managed by Federated. So we recommended that  we get out of the Federated pool. We are looking at using another government pool called   government type pools that are in existence and we believe it is the right choice for a number of  reasons. They have a larger portfolio and net assets than some of the other government pools  that are out there. They have a lower expense ratio and are managed by JP Morgan Chase which  is a large financial institution and we think that gives us some stability. They have a higher level  of participation by cities and longer hours of operation. That means we have more access to our  cash for a longer period during the day than a lot of other pools that are out there. We try to keep  10% of the portfolio in an investment pool or money market mutual funds, these are meant to  cover day-to-day expenses or about $30 million. If we need this money for a debt service  payment or capital project payment, we can have these dollars the same day. That is our  recommendation. I do have the analysis that we prepared and would be happy to answer any   questions that you may have. We would like to bring this forward and the Investment Policy to   City Council on November 3.   Watts It looks like you withdrew out of Federated on September 18, partly because of the   expiration of the Money Market Guarantee Program. Is TexSTAR insured?   Langley No. The securities that are being purchased are very similar to what we have in  Texpool. These are federal agencies such as Fannie Mae, Freddie Mac, Federal Home Loan  Bank, Farm Credits, there are repurchase agreements that are part of the portfolio. Very low risk  type investments, but  investment that you make. But the primary purpose is for working capital needs that we have in  the City. Yield is pretty far down on our list. Safety and principal is the first priority that we  have.   Watts I guess from reading that, the reason you withdrew it was that it became uninsured.   Langley The only reason we kept it in Federated was because it was insured but it was yielding  less than what we would have gotten on a comparable investment. So we felt there was some  value to have that insurance so we kept about $5 million in that investment. Once that expired,  you have the same type of investment but one is earning 20 basis points more than the others, so  we went back to the higher yield we could have. We do feel like it is important to have at least  two of these pools in place and the reason for that is entity risk. Texpool is located in Houston.   If a hurricane came through, as an example, and shut down operations for three days, would we   have access to our funds? The last thing we want to do is go into the market and have to sell a   security that we own and potentially sell that at a loss. So we want two entities out there that we   can always draw funds from.    Watts   Langley . We looking at .25% right now.   Watts For TexSTAR?     Langley Yes. All these pools are yielding much less. This was as of July 31st and looking at a       Watts This may be because I was not on the Investment Committee and a matter of education.  s and  other similar items. I was just thinking on a bank account, you can almost get that same rate but    Langley Sure. We have $100,000 in FDIC insurance beyond that we have collateral.     Mulroy     Langley    Watts I think it expires at the end of this year.   7. Receive a report, hold a discussion, and give staff direction regarding planned   Langley We have been working on some improvements to the Budget document. Michelle  McCallum is our Budget Manager and she will provide you with a brief presentation on the  changes that we are recommending.  McCallum provided a presentation on proposed changes to the budget document.  McCallum As Bryan indicated, we are suggesting changes to our Budget document and the  impetus of those changes is to enhance the document to increase its readability, clarity and   Our current document structure has six sections. These include the   statistical information section. Within this structure, we lay out what our programs are: our  service delivery, enhancements, any program changes, our FTEs, and we also give a  comprehensive view over our financial information.  On an annual basis, we submit our document for consideration to the Government Finance  for the Distinguished Budget Presentation Award. And while the award is  not competitive, it must demonstrate that the document fulfills four essential goals that it is a  policy document, a financial plan, an operations guide, and a communications device. We have  a very strong tenure of receiving this award. W   document but we recognize that there are areas for improvement.  Our GFOA budget reviewers have indicated that there are four areas that we can improve our  document; the first being a link of our operating budget to a capital improvement program. We  xplaining that in the document and we plan to do that for 2009-10.  comments that we can improve on our inclusion of our long term financial  plans. We also want to tie our organizational goals to a strategic plan with performance  measures.   Finally, we received some comments that we have some redundancies in our document and as  comprehensively at it, we would have to agree. To improve on some of the   he  section provides more technical information about the Budget, it gives a glossary section, an   s transmittal letter to give overall quick hits of the Budget at the onset of the document  and introduce our readers to what our funds relationships are and it will give a central place for  the reader to become more familiar with our processes.   Fo not only include the Five Year Plan for the  General Fund but also the Utility Funds. We would also propose organizing some of our other  budget information pages that you are used to seeing in the Budget in Brief section under a  Financial Summary category. Some of the advantages would be that we eliminate the repetitive  It would allow  the reader to review comprehensive resources and expenditure summaries and provide an overall  picture financially of where we are going in the future, not only for the General Fund but the  Utility Fund as well. Within the individual fund section, I included some backup material for the  ot only for the General Fund but for  the Utility Fund is to condense those pages. In your backup, you would have noticed that the  Parks and Recreation Department was made up of five divisions. We had ten pages total for that  division. It was very hard, in our opinion, for the reader to decipher through all ten pages that  you would have a budget of $10.5 million for Parks with 121 FTEs. By condensing it into three  pages and showing the overall program goals and objectives, the reader is able to make that link  in an easier format. We propose collapsing those pages not only for the Parks and Recreation   Department but also for Police, Fire, Planning, Libraries, and as I mentioned earlier, for the   Utilities funds including Water, Wastewater, and Solid Waste.     To strengthen our link between our Operating Budget and the Capital Improvements Program,   we would pull out those expenditures and make them more clearly defined in the Capital  Improvement Program section of the document and we are contemplating adding that within the   of the document, we normally give an overview of Denton. We provide some statistical  information on some of our major revenue sources and we would propose to do that again.   In our opinion, the document changes will enhance the current presentation information. We  would like to add a strategic plan in the future to have a method for our Goals and Objectives at  the department level that would funnel up to a higher plan. Our overall goal is to further enrich  this document. We recognize that we have a solid document. There are just a few tweaks that  we feel would be beneficial to further enhance the clarity and usability of the Budget.  Watts Any questions?  Watts: Committee will now convene into a Closed Meeting to consider specific questions under  Closed Meeting Section of this Agenda.   Committee convened into a Closed Session at 11:30 a.m.   1. Consultation with Attorneys Under Texas Government Code Section 551.071:   Consultation with the City Attorneys, and receipt of legal advice, regarding the manner of   transfers of appropriations and auditing reporting procedures.     The Committee reconvened in an Open Session at 12:40 p.m.   8. Official Action on Closed Meeting Item(s) under Sections 551.071-551.086 of the Texas  Open Meetings Act.  9. Under Section 551.042 of the Texas Open Meetings Act, respond to inquiries from the  Audit/Finance Committee or the public with specific factual information or recitation of   policy, or accept a proposal to place the matter on the agenda for an upcoming meeting.   Committee meeting adjourned at 12:41 p.m.