2012-08-07 Audit/Finance Committee MinutesAfter determining that a quorum was present, the Audit/Finance Committee af the City of Denton,
Texas convened in a regular meeting on August 7, 2012, at 1:00 p.m., City Hall Conference Room,
at City Hall, 215 E. McKinney Street, Denton, Texas.
PRESENT: Council Member and Committee Chair, Chris Watts and Council Member
Kevin Roden
STAFF P SENT: Jon Fortune, Assistant City Manager; Haward Martin, Assistant City
Manager; Bryan Langley, Chief Financial Ofiicer; Antonio Puente,
Assistant Director of Finance; Harvey Jarvis, Contraller; Michelle
McCallum, Budget and Municipal Court Manager; Caroline Finley,
Treasury Administrator; Cody Wood, Assistant Controller; Kevin Mullen,
Assistant Controller; Carla Rornine-Haggmarlc, Director of Human
Resources; Scatt Payne, Risk Manager; Kari Zilca, Benefits Administrator;
Ethan Cox, Customer Service Manager; Toby May, Municipal Court
Manager; Roland Janes, Teen Court Administrator; Kevin Gunn, Director
of Technology Services; Michael Copeland, Utility Attorney; Scott
_ __ __ Fletcher,_ Police Capiain; Velton Carter, Police Captain; and_ Christine
Taylor, Recording Secretary.
OTHERS PRESENT: Jerry Gaither with Weaver, LLP,
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1. Consider approval of Audit/Finance Committee Minutes of February 14, 2012
Council Member Roden motioned and Council Member Watts seconded to apprave the February 14,
2012, meeting minutes. Motion carried unanimously.
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Bryan Langley, Chief Financial Officer, reported that the City of Dentan allaws new employees to
choose whether they wish to receive a paper check or utilize direct deposit for payroll purposes.
Currently 77.2% of employees receive direct deposit and 22.8% receive a paper payroll check. To
improve the efiiciency af the payroll process, staff is currently investigating the possibility of
implementing a self-service payroll system. Under such an approach, employees will be given
access to a secure website to retrieve pay stub information electronically. In addition, staff is also
planning to use this system as a way to disseminate W-2 information, process sick and vacation leave
requests, and process other administrative transactions such as address changes.
To achieve the full savings of such an approach, the paper checic and direct depasit printed notices
need to be discontinued at same point in the future so that we can achieve a paperless payroll
environment. As a first step in this process, staff is proposing that the issuance of paper payroll
checks be discontinued for new employees on October l, 2012. Existing employees will still be
allawed to receive a paper payroll checic if they are currently receiving this methad of payment.
Wells Fargo, our depository bank, has agreed ta establish basic bank accounts with direct deposit and
check writing capabilities at no cost to new employees who do not currently have a bank and meet
the bank's requirements. If a new employee does not have a bank acconnt, or cannat obtain a banlc
account from Wells Farga, the City will provide them with a direct deposit to a 66Pay Card," which is
adrninistered by Wells Fargo.
Council Member Watts and Council Member Roden suggested that educational materials be
prepared for employees to describe the payroll aptions available and the benefits of each method.
3. eceive a report, hold a discussion, and give staff direction regardrng the FY 2011-12
external financral audit to be condncted by Weaver, LLP.
Langley reported that each year, the City hires an independent accounting firm to conduct an audit of
the City's basic iinancial statements. The purpose of the audit is to express an apinion as to whether
the City's financial statements present fairly, in all material respects, the financial position of the
City.
Weaver, LLP will conduct an Audit of the City's Comprehensive Annual Financial Report (CAFR}
in accordance with generally accepted auditing standards. They will also perform a Single Audit,
which is an audit of the City's State and Federal grant awards. Weaver will also prepare a letter to
inanagement detailing any weaknesses or ideas for improvement identified during the audit. In
additian they will review, analyze, and make an evaluation af the City's financial accounting
systems and iniernal controls.
A discussion followed with Mr. Gaither on the role and relatianship of the auditor during the audit.
The Committee directed Mr. Gaither to proceed with the planned audit.
4. Receive a report, hold a discussion, and give staff direction regarding an interlocal
agreement with the City of Highland Village for the operation of the City's Teen Court
progra .
Michelle McCallum, Budget and Municipal Court Manager, explained that the City of Denton has
operated a teen court program through a contract with Juvenile Diversionary Services, with Roland
Jones administering the program. This has been in place since 2005. The purpose of the teen court
program is to pravide an outlet for youth who are charged with misdemeanar offenses to correct
their behavior. In March 2012, Mr. Jones was hired as a full-time employee of the City of Denton,
serving as the Teen Court and Cammunity Services Coordinator. This change in employment status
affects an interlocal agreement in place with the City of Highland Village since their contract was
with Juvenile Diversionary Services, not the City of Denton.
The City of Highland Village currently sends eligible defendants into the City of Denton's teen court
program at $40 per case. The current fee charged by the Ciiy of Denton needs to be competitive with
surrounding cities if we hope to retain the City of Highland Village. As a result, staff recommends a
fee of $71 per case referred by the City of Highland Village. This fee increase would provide a 35%
cost recovery of the Teen Court program.
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The Committee discussed revisiting the $71.00 fee if Highland Village does not agree ta the new
terms. Committee unanimously recammended approval to the Council.
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Scott Payne, Manager of Risk Management, explained that the Health Insurance Fund expenses are
related ta providing health benefits to the City's employees, retirees, and dependents. In FY 2011-
12, the budgeted amount for health benefit costs will not be sufficient to cover the anticipated
expenses.
Health beneiit costs are higher than projected this fiscal year due to a variety of reasans. The City af
Denton has a self-funded health plan which is administered by United Healthcare (UHC). LTHC
increased their per employee per month (PEPM) administratian fee by faur percent (4%). Secondly,
the City opened the Employee Health Center (clinic) in December of 2011, and as of July 20, 2012, a
total of 3,277 patient appointments have been provided at the clinic. Many employees are
discovering health conditions (high blood pressure, high cholesterol, heart disease, diabetes, cancer,
thyroid issues, etc.) that had been previously undiagnosed. While this translates inta more health
plan mernbers seeking medical and pharrnaceutical treatment, this short term increase in cost will be
inuch less than if these conditions continued to go undiagnosed and untreated and resulted in a
catastraphic medical event and/or led to chronic health problems.
A discussion followed on tracking and monitaring the savings by the early detections from the clinic.
The Committee unanimously recommended approval ta the Cauncil.
6. Receive a report, hald a discussion, and give staff direction regarding a budget amendment
for the 2011-12 Traffic Safety Fund.
Scott Fletcher, Police Captain, explained that the Traffic Safety Fund's revenue consists af all the red
light camera violations that are paid each month. Expenditures from the Trafiic Safety Fund are
established by the City contract with the Red Light Camera vendor (Redflex} and Chapter 707 of the
Texas Transpartatian Code. Under the City's contract, a flat monthly fee is paid ta the vendor for
each individual camera. Under Chapter 707, the City pays for the actual costs of the operation of the
system (contract and employee expenses). After subtracting these casts, the remaining revenue after
expenses must be split between the City af Denton and the State of Texas. The remaining 50%
retained by the City is deposited inta the Traffic Safety Fund.
In 2011, the City installed and activated three additional cameras. The vendor also retrofitted the
detection equipment on the existing cameras. The result was an increased ability to capture
vialations, and thus an increase in paid violatians. By early 2012, the red light camera program had
repaid the cost neutrality balance. FY 2011-12 projections now indicate a signiiicant increase in
revenue over the initial budget, and a related increase in expenditures ta pay the camera contract and
the 50% portian to the State af Texas.
A discussion followed regarding what tracking is currently in place for monitoring the intersections
and the accident rate where cameras are in place or possible future lacations.
The Committee unanimously recammended approval to the Council.
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Tony Puente, Assistant Finance Director, reparted that the City af Denton has had a farmal
Investment Policy to guide decision making in managing and investing public funds since 1996. The
City Council and the Audit/Finance Committee are requested ta review and approve the Investment
Policy at least annually, as required by the PFIA. This year the revisions include: updating the
portfolio benchmark from a rolling 6 month U.S. Treasury bill (T-bill) rate to a rolling 12 month T-
bill iigure io more accurately measure portfolio perforrnance, adding the utility bond reserve fund to
the aggregation of funds, and changimg the investment recard retentian guidelines to meet the new
and more rigarous post bond issuance compliance requirements set by federal tax rules.
First Sauthwest Asset Managementy Id1C.y the City's investment advisor, and the staff-composed
Investment Committee have reviewed and approved the revised Investment Policy.
Puente also reported that the I7ebt Service Management Policy ("Debt Policy"} was originally
developed in 1995 and adapted by the City Council on March 5, 1996. On April 20, 2010, the City
Council adopted revisions to the palicy, including the requirement that the policy be reviewed at least
annually ta ensure compliance with statutory and Securities and Exchange Comrnission (SEC)
requirements. The praposed revisions include: Section II, D& E— Language has been included to
provide additional examples of bond investar reports and financial advisor services, Section IV, B—
Clarifying language regarding event notices to the Municipal Security Rulemalcing Board (MS ),
which are additions to SEC Rule 15c2-12, Sectian XVII, B— Addition of requirements regarding the
investment--and-expendiiure- of proceeds of tax-exempt abligatiorLs, Section XVIII - Addition of
restrictions on private business use of tax-exempt financed facilities, Section XIX — Addition of new
section expanding records retention requirements, and Section XX — Addition of new section
regarding training requirements for Chief Financial Officer. Additionally, other minor changes are
recommended to clarify language, reduce redundancy, and improve sentence structure.
Following the report, Council Member Roden thanked staff for the way reports are prepared, and
aslced if a document could be produced as a communication tool related to understanding debt that
could be accessible on the website far citizens. Council Member Watts also asked for information
concerning the calculation of debt coverage ratios and whether these should be applied to Certificates
of Obligation. The Comrnittee recommended that staff provide this information at a future meeting.
8. eceive a report, hold a discussion, and give staff direction regarding future imple entation
of an employee self-service payroll and benefits system.
Kevin Gunn, Director of Technalogy Services, reported that the JD Edwards Enterprise Resource
Planning (JDE) software is used by the City of Denton ta perform essential general ledger, Accounts
Payable (A/P), Accounts Receivable (A/R), Fixed Asset Accounting, Budgeting, Human Resources,
Payroll, Purchasing, and Warehouse functionality for all departments. Employee pay and benefits
represent a substantial component of the City's financial transactions. Much of the work to ensure
employee pay and benefits are accurately recorded and reported is labor intensive. Staff has a number
of enhancements to implement, which would imprave pracesses and internal controls. Manual
processes are vulnerable to error and intentional or unintentional manipulation.
Staff is beginning the pracess of gathering requirements for an Employee Self Service system. A
Request for Proposal (RFP} will be developed and advertised for the procurement of the Employee
Self Service system, but staff wanted to discuss with the Committee first, befare proceeding.
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Committee unanimously recommended moving forward with an RFP.
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Ethan Cox, Customer Service Manager, reported that on November 16, 2010, the City Council
unanimously approved the implementation af Ordinance No. 2010-292, which details the credit and
collection practices utilized by Denton Municipal Utilities. Despite the success of this program, staff
has identified debts incurred by some segments of the City's customer base that are not being
effectively addressed by Ordinance Na. 2010-292
While all utility customers are required to adhere to the provisions outlined in Ordinance Na. 2010-
292, staff is finding it challenging to collect an large unpaid debts incurred by customers that are
receiving services at an address other than their primary residence. These account types include
commercial and residential properties that do not qualify as homestead real property.
According to Texas state law, a municipality may by ordinance impose a lien against a property in
order to collect on the praperty's delinquent utility bills. Liens may be imposed under the condition
that the property is non-homestead, for utility service that is not cannected ta a tenant's name,
provided the debt was incurred after the effective date of the City's ordinance. Imposing a lien in
these cases will allow- the City- to collect on- all charges -far utility_ _serVice, penalty, interest, and
collection costs before the title is cleared by a title company for the transfer of real property to a
potential buyer of the property.
Following the repart, a discussion was held on how much of the uncollected debt is related to the
drainage portion of the bill. The Committee requested details on this debt at a future meeting.
Following cansultation with the Public Utilities Board (PUB}, the Committee requested that this item
be presented to the City Council for discussion during a Work Sessian.
Committee did not meet in Closed Sessian.
10. Under Section 551.042 of the Texas Open eetings 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
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Under Section 551.0415 of the Texas Open Meetfngs Act, provide reports about items of
community interest regarding which no action will be taken, to include: expressions of thanks
congratulatfons or condolence; information regarding holiday schedules; honorary or salutary
recognftion of a public officfal, public employee, or other citizen; a rerninder about an
upcoming event organized or sponsored by the governing body; information regarding a
socfal, ceremonial, or community event organized or sponsored by an entity other than the
governing body that was attended or is scheduled to be attended by a member of the governing
body or an official or employee of the municipality; or an announcement involving an
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i i e t t re t t t e lic e lt s fety o eo le i t e ici lity t t s rise
fter t e sti t e e .
i no further business to a ess, the eetin adjou ed at 2:55 p. .
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CHRISTINE TA�LOR ��� L�
RECORDING :���'rz1;�t �Iz�
CITY OF DENTON, TEXAS
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