11-0429_AUDITING FINANCE_Minutes_Adjourned Regular MeetingMINUTES
April 29, 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 3:02 p.m. in the
City Council Chamber.
ROLL CALL
COMMITTEE MEMBERS PRESENT: Sam Aflevato, Mayor, Derek Reeve,
Councilmember, Richard Hartl, Raymond Miller, Jim Reardon, Vice -Chair John Perry
and Chair John Harper.
COMMITTEE MEMBERS ABSENT: None
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:
Ian Smith, City resident, expressed disappointment in the $8.2 million deficit in
the Utilities Department„ and concerned with a City Council member voting
against the forensic audit at the April 19, 2011, City Council meeting.
CONSENT CALENDAR:
1. AUDITING FINANCE AD-HOC COMMITTEE MINUTES — SPECIAL MEETING OF
MARCH 25, 2011, APPROVED WITH REVISIONS.
Committee Comments:
• Felt that the representative from Teaman, Ramirez and Smith did provide a
presentation but the presentation was limited.
• Recollects that the representative from Teaman, Ramirez and Smith stated
during their presentation to the Committee that City staff had already notified
them of placing 3`d, therefore, his firm was unable to bring staff to the
Committee's meeting, but was available to answer questions.
Committee Action: Moved by Committee Member Reardon, seconded by
Vice -Chair Perry, and carried unanimously to approve the minutes with the addition
to item 1, above "Omar Sandoval..." "The representative of Teaman, Ramirez and
Smith appeared with a limited presentation and indicated to the Committee that his
firm had already been informed they were the 3`d choice out of three applicants, by
City staff, and that they were not selected."
4129/2011
2. AUDITING FINANCE AD-HOC COMMITTEE MINUTES — ADJOURNED REGULAR
MEETING OF APRIL 15, 2011, APPROVED.
Committee Action: Moved by Mayor Allevato, seconded by
Committee Member Hartl, and carried unanimously to approve the minutes as
submitted.
DISCUSSION ITEMS:
CLARIFICATION MADE REGARDING COMMITTEE'S MEMBERSHIP (310.70)
Omar Sandoval, City Attorney, provided clarification regarding the Committee's
membership and responded to questions.
2. DISCUSSION OF RECOMMENDATION OF INDEPENDENT FINANCIAL
AUDITOR AND COUNCIL DIRECTION PERTAINING TO
AUDITOR/CONSULTANT FOR SPECIAL AUDITING/FINANCIAL ANALYSIS
SERVICES (310.70)
Omar Sandoval, City Attorney, provided information on action taken at the City
Council meeting of April 19, 2011, and responded to questions.
Committee Comments:
• Felt it was important to have a list of consultants specialized in investigative
auditing; stated that the issue was well discussed at the City Council meeting of
April 19, 2011, and felt the Council understood the Committee's concern with
the "revolving door phenomenon."
• Continues to feel uncomfortable with the auditing firm selected at the Auditing
Finance Ad-hoc Committee meeting of March 15, 2011.
• Did not feel that any member of the Committee or public would be precluded
from the firms that will be selected to receive notification regarding the
request for proposals (RFP).
3. SCOPE OF WORK FOR SPECIAL AUDITING SERVICES — CONTINUED TO
FUTURE MEETING (310.70)
Public Comments:
• John Perry, Auditing Finance Ad -Hoc Committee Vice -Chair, submitted a letter
on April 28, 2011, with a proposed scope of work for special auditing services.
• Richard Hartl, Auditing Finance Ad -Hoc Committee, submitted a letter on April
28, 2011, with a proposed scope of work for special auditing services.
• John Harper, Auditing Finance Ad -Hoc Committee Chair, submitted a letter on
April 28, 2011, with a proposed scope of work for special auditing services.
• Jim Reardon, Auditing Finance Ad -Hoc Committee, submitted a letter during the
meeting with a proposed scope of work for special auditing services.
• Mayor Sam Allevato submitted a letter during the meeting with a proposed
scope of work for special auditing services.
2 4/29/2011
Committee Comments:
• Suggested forming a subcommittee to focus on the two areas of concern,
Water/Sewer and Community Redevelopment Agency (CRA); felt that although,
most of the discussion is related to the Utilities Department, many of the same
concerns can be applied to the CRA; preference in forwarding the Committee's
suggestions to a staff member who would compile.a list of questions within three
(3) categories; and expressed preference in having a pre-bid conference as part
of the RFP.
• Felt that the water enterprise is in financial trouble; need to rebuild sequence of
events to help understand the finances in the water department; felt that the
Ground Water Recovery Plant (GWRP) is costing the City more to produce than
what is receiving in revenues; felt that there's lack of timely information provided
to the Utilities Commission and to the public; felt that reports are needed to
assist in the management of the GWRP and need to apply corrective action
where necessary; suggested including in the scope of work a trail that reflects
the time receipts come in through the time water is pumped, and then add up
the bottom line; stated that failure of the water wells over the past few years has
been a setback; felt that the audit needs to answer all questions including if
under reasonable circumstances can the City produce water at a competitive
rate; preference to include the following language "following completion of the
audit, the auditor shall issue a written report communicating all discovered
abnormal financial activity past or present, its quantification, cause and
consequence to the extent there is any abnormal financial activity'; expressed
concern with allocation of employee salaries; and felt it would be important for
the staff member preparing the scope of work/RFP to be familiar with the
Utilities Department.
• Felt that not having a Utilities Director has exacerbated current problems,
suggested referring back to the rate study performed by Black and Veatch,
review the assumption rate they developed, and compare what is currently
being done versus the assumption rate. Believe the City is currently not selling
near the assumption rate; stated that the GWRP has been operating
sporadically and need to find corrective action to manage it effectively; felt there
is a need to know what has been done correctly and to find what has changed in
the profitability of the water/sewer enterprise; and suggested that Paul Scionti,
Senior Management Analyst (contract employee) prepare the scope of
work/RFP.
Expressed frustration with inconsistent funding information being provided to the
Utilities Commission; felt that the audit (Utilities) needs to start from the time it
was operated by the Capistrano Valley Water District (CVWD), as there might
have been reserves leftover from the CVWD; need to be selective with the staff
member who will prepare the RFP; and suggested that Paul Scionti, Senior
Management Analyst (contract employee) prepare the scope of work/RFP.
Felt that the auditor should examine if policies, procedures and reporting were
correctly followed by staff; expressed preference in knowing if staff has the
qualifications and competency to perform the work, felt that the current
technology used to process and compile information may need to be updated in
order to efficiently and accurately report information to City officials; need to look
into the administration of contracts within the Utilities Department; stated that as
3 4/2312011
a result of the City Council's decision to shutdown a well due to MtBE issues,
there was a great financial impact on the water enterprise; stated that the
State Controller has set guidelines for audit compliance of redevelopment
agencies; need to avoid redundancy from the statutory audit of the CRA and
what is performed in the special audit; preference to refer to the
State Controller's guidelines within the scope of work/RFP; and suggested
selecting Omar Sandoval, City Attorney to prepare the RFP.
Felt that there is commonality with many of the suggestions provided by the
Committee members; suggested engaging a City staff member to compile a list
of suggestions/questions to be included in the RFP; suggested having three (3)
categories of questions within the RFP. 1) General questions on reporting and
administrative matters, 2) questions about the CRA, and 3) questions about the
Utilities operations; felt that the scope of work may need to be reduced due to
the amount of materials gathered; stated that priorities need to be set for more
urgent areas; preference to have a staff member prepare a draft scope of work
for the committee to review; and suggested having a pre-bid conference.
Staff directed to compile a list of questions prior to proceeding forward;
suggested having three (3) categories of questions within the RFP: 1) general
questions on reporting and administrative matters, 2) questions about the CRA,
and 3) questions about the Utilities operations.
Omar Sandoval, City Attorney, stated that he will work with the City Manager to identify
a staff member to prepare the scope of work.
ADJOURNMENT:
There being no further business, Chair Harper adjourned the meeting at
3:53 p.m.
Respectfully subm
CITY CLERK
Approved: May 20, 2011
ATTEST:
JOHN HARPER, C RMAN
4 4/29/2011