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11-0415_AUDITING FINANCE_Minutes_Adjourned Regular MeetingMINUTES April 15, 2011 AUDITING FINANCE AD-HOC COMMITTEE ADJOURNED REGULAR MEETING CALL TO ORDER: Chair John Harper called the Adjourned Regular Meeting of the Auditing Finance Ad -Hoc Committee of the City of San Juan Capistrano to order at 3:42 p.m. in the City Council Chamber. ROLL CALL COMMITTEE MEMBERS PRESENT: Sam Allevato, Mayor, Derek Reeve, Council Member, Richard Hartl, Raymond Miller, Jim Reardon, Vice -Chair John Perry and Chair John Harper. R01►►IIT,Iia0: a If, 1:9itil 3:l1.y:1:16`7: a �1ai•C.Tiia Agenda items are presented in the originally agendized format for the benefit of the minutes' reader, but were not necessarily heard in that order. ORAL COMMUNICATIONS: • Clint Worthington, City resident, expressed concern with conflict of interest regarding Chair Harper and his appointment to the committee. • Ian Smith, City resident, asked for response to questions raised in email submitted to the committee on April 15, 2411, regarding the participation of a City employee in the request for proposal (RFP) process; concerned with the number of RFP's sent out; and requested for the Committee to reconsider their recommendation to the City Council. Omar Sandoval, City Attorney, stated there was no conflict of interest with the participation of the employee in the RFP process. • Orrie Brown, City resident, expressed concern with Brown Act issues with the appointment of Chair Harper and Committee Member Hari[. Omar Sandoval, City Attorney, stated that the membership in the Committee would be agendize at the next meeting. CONSENT CALENDAR: 1. AUDITING FINANCE AD-HOC COMMITTEE MINUTES — SPECIAL MEETING OF MARCH 25, 2411, REJECTED. Public Comments: • Terry Shea, Rogers, Anderson, Malody & Scott, clarified that the "cooling off period" would apply to an employee that left the City to work for their company; explained that the lack of response from auditing firms is due to smaller firms being bought out, therefore, not submitting bib proposals; and stated that other cities have been receiving only 3 or 4 responses/proposals to their RFP's for auditing services. 1 4/15/2011 Committee Comments: • Felt there was ultimately only one firm to choose from the selection; brought up the required practice within publically traded companies of a one year "cooling off period" among Certified Public Accountants; stated that the current City employee has not met the one year minimum from his former employer Rogers, Anderson, Malody & Scott (RAMS); asked to withdraw prior motion recommending RAMS to the City Council and would not agree to approve the minutes as they are written; would not have voted to recommend the firm had it been known that the City employee had recently left the firm; and felt that the selection process was misleading and tainted. • Felt there are several areas within the minutes that do not accurately reflect what occurred; stated that the minutes do not reflect that one of the firms was told prior to the Committee's March 25th meeting that they would not be selected; felt that acting on the minutes finalizes the recommendation to the City Council and the need for the Committee to meet again regarding their prior recommendation; expressed concern with the City employee's Fair Political Practice Commission (FPPC) 700 Form not disclosing his prior employment; and felt that the Committee needs to have a full discussion on whether it's necessary to go through the recommendation process. Omar Sandoval, City Attorney, clarified that the City employee did not need to disclose his prior employment as the firm had no association with the City at the time of his employment with the City. • Stated that the Committee was presented with a viable presentations from all three (3) firms and that the minutes accurately reflect the action that occurred„ and if Committee members have objections, there might be a need to reconsider the recommendation; felt there was no need to rush the audit process, and expressed preference in not starting the process off negatively, and have the risk of a tainted recommendation going to the City Council; and indicated that information that did not occur at the last meeting cannot be added to the minutes, therefore, will oppose any motion to approve adding information to the minutes that did not occur or was not known at the time of the meeting. • Felt that the minutes reflect what occurred and what was said at the meeting; and stated that the decision of whether or not to send out a new RFP is up to the City Council. • Suggested adding information that occurred at the meeting that may not have been included in the minutes; suggested approving the minutes; clarified that minutes are a historical record of what happened at the meeting; and suggested to continue approval of the minutes to a later meeting, if there're legitimate items that are not included in the minutes. • Suggested to look at the RFP process and send out another RFP based on information the Committee has since received; and felt that perception means more than being complying within the law. Committee Action: Moved by Committee Member Reardon, seconded by Vice -Chair Perry, and carried unanimously to reject the minutes as factually incomplete and agendize to the next meeting; reconsideration of the motion to recommend Rogers, Anderson, Malody and Scott, LLP to the City Council for annual auditing services. 2 4/15/2011 DISCUSSION ITEMS: 1. CONSIDERATION OF SCOPE OF WORK FOR SPECIAL AUDITING SERVICES CONTINUED TO A FUTURE MEETING (310.70) Public Correspondence: • Terry Shea, Rogers, Anderson, Malody & Scott LLP (RAMS), submitted a letter on April 7, 2011, providing information about their company's ability to perform additional assurance services related to the Community Redevelopment Agency and Water/Sewer/Utility Enterprises. • Richard Hartl, Auditing Finance Ad -Hoc Committee, submitted a letter on April 11, 2011, with a proposed scope of work for special auditing services. • Ian Smith, City resident, submitted an email on April 14, 2011, regarding the actions that took place at the Committee's March 25th meeting; expressed concern with RAMS ability to perform special auditing services of the Community Redevelopment Agency and Utilities Enterprise; requested that a separate auditor be selected for the special auditing services; and felt that staff should be excluded from the audit selection/appointment process. Committee Comments: • Felt premature to discuss the scope of work for special auditing services item, as the recommendation of a separate independent auditor to perform the special auditing service item may change the discussion of the scope of work; expressed preference in having a forensic audit; requested to continue discussion of item, as the Committee is not aware of the scope the audit would need to cover; felt that a forensic audit would be more targeted and provide transparency; read and provided a handout with a "forensic audit" definition and fraud information; expressed the need to go beyond a statutory audit; and suggested that the special auditing firm work directly with the Committee. • Felt that the scope of service could lead to a forensic audit; suggested that services needed are more "analysis type" services that could be performed by a consultant; stated that might be able to find consultants specifically familiar with the operation of Community Redevelopment Agencies or Utility Departments; and felt it may be okay to have RAMS perform the statutory audit. • Felt a forensic audit is appropriate; concern with standard audit financial statements being too difficult to understand; felt individuals cannot agree on amounts stated within the City's financial statements; felt that the information available is inadequate; stated that decision makers need actionable material that is understandable in order to direct the City forward; felt that the best direction for the Committee is to bring to the next meeting questions in order to generate a discussion and define the scope of work. • Expressed frustration with year to year changes from the Utilities Department; felt that it's difficult to find and understand information coming from the Utilities Department; need to see what has happened since the takeover of the Capistrano Valley Water District; and felt that the Committee is looking for more analysis, and less arithmetic of the Redevelopment Agency and the Utilities Department. 3 4/15/2011 • Preference not to use the term "forensic audit", as it gives the image that there is indication of fraud, stated that the level of the investigative audit needs to be above a special audit; suggestion delaying discussion on the scope of work as there are no time restraints for a special audit; stated that there are different types of audits that may be performed other than a forensic audit; and expressed preference to see suggestion from fellow committee members for the scope of work. • Expressed concern with receiving inconsistent financial information from the City. Committee Action: Moved by Committee Member Reardon, seconded by Mayor Allevato and carried unanimously to continue consideration of scope of work for special auditing services. 2. DISCUSSION OF A RECOMMENDATION TO THE CITY COUNCIL THAT A SEPARATE INDEPENDENT AUDITOR PERFORM THE SPECIAL AUDITING SERVICES (310.70) Public Correspondence: • Kim Lefner, City resident, submitted an email on April 12, 2011, requesting a separate independent auditor to conduct the special auditing services and expressed the need for a forensic audit; and expressed concern with staffs control over the audit process. • Cathleen Brannon, City resident, submitted an email on April 14, 2011, expressing concern with staff involvement in the audit selection process; felt an independent auditor should be selected to address the water enterprise and redevelopment agency; and felt that a forensic audit is necessary. Committee Comments: • Felt that the committee does not have the authority or expertise to send out an RFP; preference for the committee to draft and oversee the RFP process; comfortable with a motion to have a forensic audit and/or other service, such as managerial and efficiency practices that an auditing firm may not perform; clarified that Joe Tait was brought in to review the operation of the Ground Water Recovery Plant and surrounding MtBE issues. • Felt that the Committee should send out the request for proposals (RFP); and had the impression that Joe Tait's original contract was to perform a management study of the Utilities Department. Committee Action: Moved by Vice -Chair Perry, seconded by Committee Member Miller and carried unanimously to recommend to the City Council that the Auditing Finance Ad -Hoc Committee be given the authority to 1) seek a separate auditor/consultant to do an analysis of Community Redevelopment Agency and Utilities Enterprise; 2) participate in the development of the request for proposals (RFP); and have the consultant report to the City. 4 4/15/2011 ADJOURNMENT: There being no further business, Chair Harper adjourned the meeting at 4:07 p.m. to Friday, April 29, 2011, at 3:00 p.m. in the City Council Chamber. Respectfully submitted, CHR`I�STY JAKL, DEPUTY CITY CLERK Approved: April 29, 2011 ATTEST: JOHN HARPER, AIRMAN 5 4/15/2011