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2019-04-16 Audit/Finance Committee MinutesAUDIT/FINANCE COMMITTEE April 16, 2019 MEETING MINUTES After determining that a quorum was present, the Audit/Finance Committee of the City of Denton, Texas, met for a regular meeting on April 16, at 10:30 a.m., in the City Hall Conference Room, at City Hall, 215 E. McKinney Street, Denton, Texas. PRESENT: Mayor Chris Watts, Council Member John Ryan, and Council Member Paul Meltzer. STAFF PRESENT: Todd Hileman, City Manager, Antonio Puente, Jr., Interim Assistant City Manager, David Gaines, Assistant Finance Director, Cody Wood, Assistant Controller, Police Assistant Chief, Bobby Smith, Gary Packan, Director of Parks and Recreation, Laura Behrens, Assistant Director of Parks and Recreation, Heather Gray, Parks Business Manager, Cassandra Ogden, Director of Procurement and Compliance, Jamie Lindsey, Compliance Officer, Umesh Dalal, City Auditor, Madison Rorschach, Auditor, Nancy Towle, Treasury Manager, Hailey Payne, Treasury Analyst, and Theresa Jaworski, Recording Secretary. OPEN MEETING: Council Member and Committee Chair, John Ryan, brought the meeting to order at 10;30 a,m, 1. ITEMS FOR CONSIDERATION A. Consider approval of Audit/Finance Committee Meeting Minutes of March 5, 2019. Council Member Paul Meltzer made a motion to approve the March 5, 2019, Audit/Finance Committee meeting minutes. Mayor Chris Watts seconded the motion. Motion passed unanimously. B. Management Report — Internal Audit Memo on Status of P-Card and Procurement Audits. Tony Puente, Interim Assistant City Manager, explained the Internal Audit Memo was intended to be an update for the Committee. Staff continues to work with the City Auditor and plans for a meeting at the end of April, with Mr, Dalal presenting the report on the City's P-Card Program and the report on the Procurement Audit. C. Receive a report, hold a discussion, and provide staff direction regarding an internal audit of the City's Utility Cuts Program. This item was pulled from the April 16, 2019, Audit/Finance Committee meeting agenda. � �' 1 1 1 1 1 1 1 1' 1 1 '�. 1 � 1 ! •� � • A � !' � Madison Rarschach, Staff Auditar, expressed appreciation far Chief Frank Dixon, Assistant Chief Babby Smith, and the Praperty Roam staff far their assistance with the audit and followed with the reason for the audit, The Property Raom halds all the evidence gathered by the Palice Officers, and safeguards the items. Specifically, we focused on high risk items including guns, drugs and maney, loaking at how the property room was organized and maintained the security and safety of the items. We also laoked at the storage and disposal af the high risk items, There were two majar findings. The first finding was the Praperty Room facility inadequacy. The doors and the walis do not meet the standards set by the International Assaciatian af Praperty and Evidence (IAPE). It can be easily broken inta, specifically in the evidence cage increasing the risk of theft. In addition, it is overcrowded, currently safeguarding aver 100,000 items in the inventary and the items are expected to double over the next ten years, There is no space for a gun or drugs cage to be built in accordance with standards. The exception is that maney is held in a separate enhanced security area. The new Palice facility will fix these issues but staff recommends same temparary suggestions to hold over until that facility is completed. Watts asked if the flaoding has been addressed. Was it coming in thraugh a roof or wall leak? Rarschach answered that flooding still occurs but the evidence was moved off the flaor ta avaid further damage. The integrity of the inventory cannot be assured, based on the current system and due to a segregatian of duties issue. Currently, a Praperty Roam technician records in the system the creation and storage of items during the trial, then a third party authorizes and verifies the disposal. Without segregated inventory tracking, this leaves a risk af internal theft. If an item is not entered into the system it could easily be taken, with no way of knowing it was missing especially, if it was not an evidence item. These two issues are compounded by internal security issues, Most significant is that the videa security footage is only stored for 60 days versus standards that recommend video security foatage be stored for three years. If an item is nated missing 60 days after being confiscated, there wauld be no way to easily track 0 that item, Meltzer asked if the monitoring was continuous or motion-activated, and would that be why starage is sa short, due to sheer volume, Rarschach answered the monitaring was continuous during the 60 days. Not all areas of the Property Room are monitored. Some areas have motion or sensor alarms. The 60 days is the City's standard practice. Despite the integrity issues, staff conducted an inventory, examining 270 items in the records management system. Approximately half of the items were currently stored in the facility. With the technicians' help, all but one of the items were accounted for. That one item was seized in 2003. The Police Department determined that it was a federal case and was mast likely sent to the federal caurt with no documentation. Generally, the organizational system appears to be effective. The ather half of the items were marked as disposed. Since 2014, the documentatian of high-risk disposals has been adequate, except for drug destructions. In general, dacumentation requirements for disposal are: authorized by someone who is not part af the Property Room; independently verified before destruction; and witnessed by a third party. In particular, there was no independent verification af drug items befare destructian. There was evidence that there was verification of items but this was by Property Room technicians, and not far all destructions. Recommendations were made to that effect. In addition, it was brought to aur attentian that 90 sexual assault kits that were collected prior to 2010, have not been tested, In 2011, the Texas state legislature enacted a law requiring law enforcement agencies to send all newly callected sexual assault kits to a crime lab for testing within 30 days. The law also required the law agencies to count the untested sexual assault kits in their storage facilities and have them analyzed by September 2014. This is no longer an issue as the City's laboratory partner will nat accept the untested kits, due ta a backlog issue. The Police Department is currently applying for a grant but additional funding may be required. Metzler asked about the cost of testing the kits. Smith answered the cost can differ but close to $1,000 plus per kit. . .•- #�� . . .�r-• . � . .• . � . �-. . .• . • _ � • . � working an a budget. We'll wait far next year's budget to see if we receive the grant funds otherwise, we will find the money ta get this caught up. Watts expressed appreciation far staff"s respanse during the audit and the steps taken to mitigate some of the findings as well as the caordination and collaboration between the audit staff and the Palice Department. It is very helpful. With no objection, there was a general consensus ta mave this item farward for the City Council's consideration but there was no vate an this item. i � '1 �� . � r• � i •� i � � � � � � , , � : i ��' � � � � � , u - - - Puente introduced the item and addressed the GO Bands first. This is part of the 2014 Bond Program and the fifth year of issuances with ane more year left afterward or $14 million remaining to be issued after this $19.37 millian. The number of projects have been discussed at length with the Band Cammittee that recommended moving forward ta the Audit/Finance Cammittee and to the Council on these prajects. Meltzer asked if this is fulfilling samething that was already enacted with the exception af the reallocations for Ruddell — Mingo. Puente confirmed that is correct. Todd Estes, City Engineer, stated there is an area-wide traffic study cambined with a more holisiic design of Mingo from Bell Avenue, all the way up to Old North Road with Ruddell being a part of that. It all has to do with mobility in the area in and around TWU, the residents that live there and haw we best service them. Watts asked if the current legislatian in Hause Bill 2(HB2), the COs ariginally included ta be maved over ta O&M but have since been removed for now. Would this plan still be in effect, or wauld your recommendation still be the same, natwithstanding what happens with HB2 where COs are included in O&M or stay in the debt service tax rate. Puente answered it was his understanding that the chairman on the House side was the one that propased ta include COs. It is aur understanding that he has now introduced an amendment to take it out. There will be some on-going negatiatians between the House and the Senate, What is interesting is that the bill passed yesterday by the Senate did not included that same language. It is anticipated that that bill will be pulled out. If this item is approved, we plan to do a Natice of Intent and take that to Council an April 23 for 0 their cansideratian. We will still have 30 days to see what happens and then can reevaluate. The only caveat is that Council has already authorized an amount on these that has been spent. We will evaluate as we go forward and our recommendation is that we go farward. Watts explained the current House Bill would not be in effect until the next budget year 2020 not this current budget year. . . . , .r . . - � . r • •-• • ' • . . � , • -• •. • �. � - � � ;� * ' •_. . �' . - . .• . -� - �� , # , - * • �. • - * 1 ' 1 _ _ , _ � . 1 � :� • ' •• . ..�- ,- - • � - . _ �•. � , � •• . • r* . We alsa propose to issue $9 million of COs. All of these were included in previous reimbursement ordinances. We have pushed forward with many af these prajects and are underway. Total amount for general government includes $1.6 millian to refresh Tech Services, We are evaluating that number. If you remember the recent discussion on the CAD system, we think there will be some savings from that and be able to repurpose to the refresh and lower that number. The plan is to go forward with the $1,6 million and continue ta look at that. We can always lower that when Council considers the bond ordinance or before we go ta sale. The Notice of Intent simply sets the maximum amount. We can always come down, if things change. - - , .• � , . � � - .• � -••- •*• � , � . �. � • • + . • . � � . � Puente explained that annually, staff does a reimbursement ordinance. This year we did two of those. We go to the Council and ask for authorizatian to move forward with many af these projects, That is to a large extent, committing you into the future to issue the bonds at least up ta the amount that has been expended up ta that point. In addition to the General Government and Technology Service COs, we are praposing ta issue $17.39 millian in COs for Wastewater and Electric projects. We will not recommend issuing any debt for Water or Solid Waste. Of that amount, $9.8 million is related to Wastewater projects, nane of these projects have been preauthorized. The same issue with the Electric projects, On the Electric, the $7,59 million is all related ta transmission. Same of the discussions we have had with you on the financials for the Electric system is that we are cash funding distributian projects then debt funding the transmission prajects. Metzler asked for canfirmation on the rational for using debt far transmissian is because it is attached to income stream. Puente stated, that is exactly right adding the overall proposed bond sale we are considering now for new debt that is, GO and CO debt, is $45.76 million with issuance cast included. � On Octaber 16, 2018 and February 26, 2019, the City Council adapted reimbursement ordinances (authorizing $28,370,000 in GO and CO funded projects for (seneral Gavernment and Technalogy Services. The City sells bonds in accordance with the useful life of the asset that is being acquired. Vehicles are typically sold with bonds that will be paid within 5 years. The $1.5 million will be 10 year debt for facility impravements, HVC, raofing an the general government side, $32.17 million will be 20 year debt; and the transmission will be 30 year debt. That's haw it is advertised and paid back over time. Staff is loaking at the possibility of refunding $2$.6 million of outstanding utility system debt from 2010. We call it the TMPA scrubber debt that is on our books and matures in 2025. VJe would not be extending the life, the refunding would take us out ta 2025, We're calculating about a$1.7 million savings associated over that life, That doesn't hinder a payoff an that debt in the future, if we choose, but the current plan is to take advantage of $1.7 million and potentially refund again. This is subject to market forces and where we are. We will continue to evaluate that until we conduct that bond sale. We can always pull that out, if we decide the savings should start there or if some of the financials change from the election system. A discussion fallawed on using the TMPA scrubber debt to allow some flexibility with cash management and how refinancing debt achieves a savings on interest change. Watts stated that the whole rate of return far transmission debt gets confusing. It will be helpful to take the electric portion af the $7.9 million and do a perfarma an that showing the debt, the rate and expenses to simplify the presentatian, The rate af return is different than fully realizing the cast of your asset. Hileman agreed, adding that this is already being provided on a couple of substation projects and it cuts the cosi by about half. That could be easily pravided. Puente advised that if the Committee concurs, staff plans to present twa Notice of Intent ordinances to the City Council on April 23. There will be a Notice af Intent far the General Gavernment Technology projects and a separate Notice of Intent for the Electric and Wastewater projects. If it is approved by Council, there is a 31 day wait before going back to Council to authorize the bond ordinances to be able to issue all this debt. The Notice of Intent is only required on the COs, not on the GOs or the refunding. The documentation pravided to Council will include the additional GOs that we plan ta issue. Council Member Paul Metzler made a mation to move the item forward to the City Council followed by a second fram Mayor Chris Watts. Mation passed unanimously. With no mare items to address, the meeting adjourned at 11:00 a,m. The April 16, 2019 Audit/Finance Committee Meeting Minutes were approved on April 30, 2019, { LL �� . � y ..� ........_ � ��` 't �� a John an, Audit/l�" a��xr�� '��i�tt�� C:`�h��ir Theres�a Jaworski, �� a��c`ii�� Secretary