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2019-04-30 Audit/Finance Committee Minutes• �; , �; . I I � After determining that a quorum was present, the Audit/Finance Committee of the City of Denton, Texas, met far a regular meeting on April 30, at 11:00 a.m., in the City Hall Conference Room, at City Hall, 215 E. McKinney Street, Denton, Texas. PRESENT: Mayar Chris Watts, and Council Member John Ryan. ABSENT: Council Member Paul Meltzer. STAFF PRESENT: Todd Hileman, City Manager, Antonio Puente, Jr., Interim Assistant City Manager, David CJaines, Assistant Finance Director, Cody Woad, Assistant Controller, Cassandra Ogden, Directar 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 Jawarski, Recording Secretary. �' Council Member and Cammittee Chair, John Ryan, brought the meeting to order at 11:07 a.m. f I■ Y Y �1►Ti. � : � ► 1 : _ � ►1 A. AF19-023 - Consider approval of Audit/Finance Committee Meeting Minutes of April 16, 2019. Mayor Chris Watts made a motian to apprave the April 16, 2019, Audit/Finance Cammittee meeting minutes. Council Member and Committee Chair, John Ryan, seconded the motion. Motian passed unanimously. B. AF19-020 - Receive a presentation, hold a discussion and provide siaff direction regarding an internal audit af the City's Procurement Card Program. Umesh Dalal, City Auditor, explained the timeline on the Procurement Card Audit showing meeting times with the Internal Audit Department and the Pracurement Department, the data and the observations that were provided in November of 2018, and discussions on all the issues during November affering opportunities for analysis and discussions with Internal Audit to resolve any differences. Dalal stated his concern with Texas Local Gavernment Code, Section 252.022, defining general exemptians for procurement regulations, Procurement's misinterpretation of Subsection 3, and his decisian not to ga forward without an attarney's cansultation. An agreement was reached to omit purchases far repair and present the remaining items as exempt with all other items that were identiiied 1 as non-campliant in the audit report. There were about nine cantracts included that were entered after the audit was completed. Those contracts alsa represented non-compliance. Watts requested a respanse from staff. Todd Hileman, City Manager, expressed staff's concerns on the time allawed for conversation between Internal Audit and the department, data and observations that were presented, conclusions reached without clear direction on haw to comply, and the paor communication between Internal and the department. This is contrary to the team approach that would provide additional guidance and better communication to staff from the Internal Audit Office an what needs to be corrected and what is required to come into compliance. Watts advised that the communicatian team that the City Manager has created will correct same disconnect and will work with the Internal Audit Office is a part of that team. Dalal stated when doing an audit, we agreed to meet with the team facilitating efforts to get us the right data, and give direction to the right people to work with and Internal Audit will provide status of the audit to the team and the departtnent, from time-to-time, to infarm them af what is being observed. Todd Hileman, City Manager, added that there needs ta be a breakdown in the audit finding farmats to further define what the problem is and how to comply. To sit dawn with the team with another level of specificity to report to the Audit/Finance Cammittee and City Council, setting out the recommendations and our plan for compliance. With some help generally defining what our specific fix is, there can be a pracess in place to maintain the auditor's independence, Watts asked for recommendations from the City Auditar. Dalal responded that a recommendatian that the City have a monitoring process, that warks with p-card transactions and implemented by the Procurement staff far the City. Once the recommendation is made, management can come up with the plan. A discussion followed on including the City Attorney's Office and the need for their opinion, especially when dealing with interpretations of state pracurement regulations. Watts summarized that the Communications team is responsible for requesting clarity and the Internal Audit team is responsible for providing more detail. Going forward, there will be more collaboratian. Preserving the independence of the Internal Audit functian and to take the audit findings, ask for help in understanding how they were determined and the general principles on what is required ,and we will build the infrastructure under that to bring them into compliance. This new process comes out af some questions or concerns that will improve the process. Dalal agreed that the team the City Manager put together will help with communication and things will be better from here on. 0 Tony Puente, Chief Financial Officer, pointed out that the total number of transactians reviewed in this audit versus the actual number of transactions that were identified as patentially nan-compliant was really a small amount, and that's good news. There is na disagreement with the recommendation, it is a goad recammendation and has been part of the City's Procurement Manual for many years. There are some differing interpretations on when things may or may nat reach thase threshalds that we will continue to vet, but generally speaking, we agree with the finer points on some of the data. It is important to understand that it is fine to receive a data dump af transactians to review and determine that they are non-campliant. There is a need to know what the role between the City department and the Internal Audit department. Just stating the total transactians that they have been aggregated, and are nan-compliant is fine, but it is difiicult to understand haw they are determined non-compliant, without an individual sampling of transactions. There were 2,000 af the 8,000 transactions, in staff's opinion, that were clearly exempt from those requirements. That was work that the department had to do and what contributed to some af the timeframe. There is a need for an understanding between the Internal Auditar and departments, of the expectation when that information is received, as to who will be digging into the individual transactions. Our experience with external auditors we've worked with, has been that they do that sampling of the transactions ta be sure that the transactians actually are nan-compliant. A discussion an that expectation with the Internal Auditor will reduce the transactional wark. Watts agreed and added that this should be a team discussion, Dalal stated that the estimate quotes included in the p-card report and discussed at the last meeting raising some concerns, have been removed. C. AF19-021 — eceive a report, hold a discussion and provide staff direction regarding an internal audit of the City's Utility Cuts Program. A discussion followed on the City's utility cuts program and future audits. There is a need to address the questians, pravide clarity to reach a collaborative agreement in taking the audit report forward. With the Internal Auditor's clear understanding of the Committee's and Council's expectation far a timely delivery of the audits so all involved can on-board ta taking it forward and if there can be flexibility in the time ta provide the audits. Watts stated that he would like to hear the Internal Auditor's professianal apinian on an audit with any disagreement addressed as well. Hileman expressed the need for a change in the process to provide the avenue to an agreement an the formulas that are used and the canclusions drawn and that be submitted together for a balanced story. � Watts agreed adding that there can be an understanding. There may be a disagreement with the results but agree with how the data was gathered and the understanding of how the process works will enable an agreement. Ryan asked if the Committee should hold off on the City's Utility Cuts Program report until the process is complete, so that all understand what processes should be changed. Dalal stated at the end of an audit, with emphasis on communication and working with the new team that has been established, the issues can be addressed to facilitate resolution to the satisfaction of all parties involved. Ryan agreed that communication should remain within the City's department and Internal Audit to address any disagreement until a solution is reached. Dalal submitted that an audit benefits the City when the identified issue is addressed and that is the objective. Watts made a motion to postpone receiving the Utility Cuts Program report until the City Management and Internal Auditor have the meetings to address the questions and comments. Ryan seconded the motion. Motion carried unanimously. 2. CONCLUDING ITEMS. With no concluding items to address the meeting was adjourned at 11:56 a.m, The April 30, 2019 Audit/Finance Committee Meeting Minutes were approved on June 18, 2019. ���� � � _ � ���°�,�,� � ..,,........ A... � ,,� � Jo�����yan, �'�t:p.�i�t/Finance Committee Chair �� , __ "�� �, ....... �' ��,��"�� -. y � �� �'��'"'".� . � � : ��_ _._._... .. ... Theresa Jaworski, Recording Secretary 4