HomeMy WebLinkAboutMinutes - 11/14/1995 - Finance and Personnel Committee FINANCE COMMITTEE MINUTES
�" November 14, 1995
Members Present : Chairman Lawson, Greg Bates, Bill Baird
Others Present : City Clerk Althoff, City Administrator
Peterson, Mayor Cuda, City Auditor John Eder, Senior Clerk Susan
Christenson
Alderman Lawson called the meeting to order at 7 : 25 P.M. He
introduced the new city auditor, John Eder of Eder, Riedel &
Company and stated the purpose of this evening' s meeting was to
review the April 30, 1995 audit report .
Mr. Eder explained that the audit was divided into six sections :
-letters and opinions
-financial statements
-notes to the financial statements
-combined financial statements
-supplemental financial statements and
-federal compliance section
I . Letters and Opinions
�. Mr. Eder stated this section was devoted to the auditor' s
opinion letters as to obtain assurance about whether the
financial statements are free of materail misstatments . He noted
the City of McHenry received a "clean" opinion. Letter #2
reviewing the Internal Control Structure both from an efficiency
standpoint as well as the system' s design indicates no material
weaknesses . Eder noted he had a few comments with reference to
the internal control, however these comments would be addressed
when reviewing the management letter. Letter #3 is an opinion
letter reviewing the financial statements in accordance with
Government Auditinct Standards . The City of McHenry received a
"clean" opinion.
II . Financial Statements
The Balance Sheet as of April 30, 1995 was reviewed. Eder
noted the City of McHenry appeared to be in good financial shape .
Eder drew council' s attention to page seven (7) of the audit
report stating an adjustment to the Fund Balances had been made .
As the Insurance Fund is supported by a special property tax
levy, it would be better classified as a Special Revenue Fund.
Alderman Bates arrived at 7 :35 P.M.
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Finance Committee Meeting Minutes
� November 14 , 1995
Page Two
The review of page eight (8) Fund Balances - Appropriations
and Actual led to a discussion on the pros and cons of an
Appropriations Ordinance vs. the straight Budget Process .
Page nine (9) Proprietary fund types and Similar Trust funds
noted a $26, 212 adjustment in the Internal Service Fund which
serves the Employee Insurance Fund initiated in the 1993-4 fiscal
year. The adjustment was necessry to set up the beginning cash
and investment balances that were not reflected in the April 30,
1994 audit report . Eder also explained that this year' s figures
cannot readily be compared to last years figures as council had
authorized the hiring of new auditors for 1995-1997 and this
year' s audit formate has changed.
Page ten (10) Cash Flow Statement of all Proprietary Fund
and Similar Trust Funds noted the City' s strong financals shape
and the current ability to maximize earnings to a high level .
III . Notes
Eder explained that the Note section is a summary of the
more significant accounting policies of the City. He recommended
�. all aldermen review this section if given the opportunity.
NOTE 3 - Cash and Investments noted the Police Pension Fund
is not insured, however the police are aware of this problem and
are attempting it' s correction.
NOTE 5 - Eder reported that the information for this
section, the Illinois Municipal Retirement Fund, is provided
directly by this entity.
NOTE 6 -Police Pension noted the difference between years
1992 and 1993 citing four or five officers reaching their 20
years of service and one young office placed on disability
therefore no longer contributing to the pool . Further discussion
focused on the advisability of implementing fair market values
for the audit report as per the department of insurance
requirements rather than the city' s current practice of utilizing
book values . Eder recommended the early implementation of the
fair market values to maintain consistency. Eder also
recommended council consider authorizing the acturial studies
every year in light of City Administrator Peterson' s resignation.
City Administrator Peterson also noted the importance of
maintaining a good relationship with the Polic Pension Board as
they can act very independently/ .
NOTE 7 - Changes in the long term debt noted the current
�-' status of all water/sewer reserve accounts .
Finance Committee Meeting Minutes
November 14 , 1995
�'" Page Three
NOTE 9 - Risk Management notes the city' s participation in
McHenry C��unty Municipal Risk Management Agency and current and
potential insurance risks .
NOTE 15 - Deficit Fund Balance/Retained Earnings notes a deficit
fund balance in both the Employee Insurance Fund and the Illinois
Municipal Retirement Fund. Eder stated the deficit in the
employee insurance fund did not concern them, as auditors, as
this fund was used to account for the financing of services
provided by one department to other departments of the city on a
cost-reimbursement basis . The deficit in the IMRF fund was a
concern, although not of a substitive nature as it was noted that
City Administrator Peterson has appropriated additional funds for
this fund in the 1995-96 fiscal year as opposed to the general
fund as done in the past three years .
V. Supplemental Financial Statements
Eder noted that following page 37 there was a page of
definitions for all the special revenue funds .
Pages 58/59 Balance Sheet for Waterworks and Sewerage Fund,
�... Eder noted excess monies should be transferred over to the
operating fund in a more direct fashion as well as more
frequently. The City of McHenry has typically only transferred
earned interest revenues once a year to the operating fund. Some
discussion followed regarding the possibility of bond purchase
for the "east of the river" sewer expansion. City Administrator
Peterson noted that council must determine whether to increase
the existing bond amount or seek new bonds. In response to
Alderman Baird' s inquiry Peterson noted that if the bond amount
were increased it would not be in direct proportion to the bond
amount .
Eder also noted the creation of new trust funds used to
account for assets held by the city in a trustee capacity, ie :
Police Pension Fund. Eder also noted the need for unaudited
supplemental financials as a requirement of our bond ordinance.
VI . Federal Financial Compliance
Eder noted that this section is required by the federal
government as the City of McHenry receives federal dollars . Eder
stated that the city received "clean" statements here as well .
MANAGEMENT LETTER REVIEW
Eder stated that in connection with the audit examination of the
�' financial statements, the city' s accounting procedures, financial
records aiid system of internal control . The management letter
therefore is a means to draw council' s attention to any
weaknesse:� and risks noted by this auditing firm.
Finance Committee Meeting Minutes
' November 14 , 1995
Page Four
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l . Discovery that some of the prior year audit adjustments were
not recorded onto the City books, causing the financial
statements to be incorrectly stated throughout this year. It is
imperative that all adjustments be booked in a timely manner as
staff and council use these financial statements as working
documents . This problem has been corrected and has been
designated as an area to be reviewed every year.
2 . Polic� requires the city to approve all disbursements made
from city funds, however it was noted that certain checks are
being disbursed without the council' s approval . Eder stated that
the majority of these disbursements are for normal, recurring
items, but recommended council take a look at this process and
consider the following:
-maintaining the status quo, but requiring a list of these
prepaid bills be submitted for council review.
-establish an imprest checking account with a balance of
�5, 000 .
Some discussion followed. It was the consensus of the committee
to require staff to provide a list of the prepaid bills for
council review. The committee noted that if there appears to be
problem with this process an imprest account can be established
as per the auditor' s recommendation.
3 . Vehicle licenses are issued out of numerical order to satisfy
�' requests made by city residents for specific numbers and this
practice creates a poor internal control environment . It was
noted that efforts have begun to curtail this practice and will
be phased out over time .
4 . Illinois Compiled Statutes require a percentage of corporate
personal property replacement taxes be allocated to IMRF and
Social Security Funds in order to replace tax revenues lost . It
was discovered the city has not been allocating any amounts to
the IMRF fund. City Administrator Peterson noted this year an
adjustment: will be made to correct this problem.
5 . Illinois Compiled Statutes require that interest earned on
cash accounts and investments be allocaated among those funds
which own the cash or investment . It was noted the city had two
funds (Vehicle License and Road and Bridge) which had cash
balances but did not receive any allocation of interest . City
Administrator Peterson noted this practice has been noted and
corrected.
6 . The city has no formal documented accounting policy and
procedures manual . The lack of written documentation makes the
training of new employees and consistency difficult . Staff
should coiisider requiring all financial/accounting personnel
create anc� update periodically a procedures manual .
`�.�
The meetiiig was adjourned at 9 : 25 P.M.
J
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David Law:�on