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Admin Committee Minutes 1996 10-22-96 Special Meeting MINUTES OF THE ADMINISTRATIVE COMMITTEE AUDIT REVIEW THE UNITED CITY OF THE VILLAGE OF YORKVILLE KENDALL COUNTY, ILLINOIS OCTOBER 22,1996 Present; Bob Johnson Jim Nanninga Richard Scheffrahn Jeff Spang Art Prochaska Beth Setty - P.T.W. Paul L. Stepasin - P.T.W. The Administrative Committee Audit review took place at 7:00 p.m. in the City Board room. Paul Stepasin of Pandolfi, Topolski & Weiss stated they come in once a year and look at a variety of things. This is their fourth year auditing the city. He said he saw improvements in the systems including improved learning of the software. He thought there are still complexity issues, though. He said if they are comfortable with the way the city's affairs are run, they should not be changed for the auditors. He thought the accounting is still complex with "putting a lot of things in different buckets and then the buckets need sorted out ". The end result is that the total columns do not change much, it is the allocations and numbers that change. THE STATEMENTS Mr. Stepasin reviewed pages 2 &3 and said that the cash supply is low. He thinks this is partly due to some of the complexity issues such as the transfer of money to pay bills. The accounting does not always catch up at the end of the month. He suggested a typical cash supply should be between 2 and 3 months in case no money would come in, the average bills could still be paid. Overall, the total cash position seemed low to the volume. The city is in a growth spurt. He said looking at the balance sheet that there are debt issues outstanding. He said to question what is the 5 year plan for debt, the long term capitol needs and the long term debt needs. He suggested to pay off the smaller loans. Mr. Nanninga said the backhoe was paid off last month. There is $688,000 in equity. Mr. Stepasin said it was a good equity position mostly coming from the receivables. He explained this is why there is not cash on hand. The equity has improved and income has been made this year. He suggested getting the inter funds netted and balanced out will help the picture of the individual funds, and show what is the true cash of that fund. He said to look at the inter funds as a plus or minus to cash. i Administrative Committee Audit 10/22/96 Mr. Stepasin stated the debt ratios were favorable compared to the size of the expenditures. The only negative issue would be the cash positions on the balance sheet. He suggested the cash reserve in the General Fund should be closer to $300,000. Mr. Stepasin reviewed pages 4 &5, showing the General Fund net income. He said a net income was made, but it was really a change of receivables which are up. This will help the future needs but not the current needs. The biggest receivables are real estate tax, state income tax and sales tax. The overall $156,848 is the net income across the funds. Pages 6 & 7 showed a favorable variance to the expenditures in the General Fund, Special Revenue Fund and Debt Service Fund. There was a negative variance in the Capitol Projects. Overall it did better than anticipated. The budgets and numbers were reasonable, and the city is doing a good job in budgeting, Mr. Stepasin said. Pages 8 & 9 showed the Water and Sewer Fund, (Enterprise Activity) which gets Split off. It lost $220,000 but there was still enough retained earnings (equity) at the bottom (1.3M) and this is not a bad position to be in compared to an asset structure. The assets are about 1.6M. Mr. Prochaska said they are 5 weeks behind on collecting water bills. Mr. Stepasin said the fund is suppose to break even or make profit and the fund should be building up cash to replace the assets. If the total revenues are looked at, the vast majority are cost services. He said the rate is probably not sufficient to recoup the components. The fund is in an "in between shape" right now. Mr. Spang said that income doesn't cover the cost of operation. He asked if there was a management tool to lower the cost instead of raising the rates. Mr. Stepasin reviewed pages 54 & 55, showing what makes up the fund. The external numbers show him that the rate structure may not be in alignment with the size of the utility. Mr. Johnson said the DECCA has done an analysis of our sewer rates. Mr. Prochaska said due to the city computer crashing, they are currently 5 weeks behind on collection of water bills. The books were closed May 1 and the crash took place in March. Some of those bills were to be collected in the next year. Mr. Prochaska said that as of January last year, we were almost even in expenses to revenue, but it was off after the crash by end of the year. Mr. Stepasin restated that the fund should be making income and transferring to the General Fund and recoup some of the costs. Mr. Scheffrahn said being one month behind in the billings should show a bonus increase this year. Mr. Stepasin noted the receivables went up and the position of the funds improved except the water fund which lost money. He said to be aware of this and look at the revenues and expenses. 2 Administrative Committee Audit 10/22/96 The details in the back of the report were discussed. On pages 61 & 62 there was a chart of the tax rate schedules. He discussed the assessed valuation going up without the rate going up. He said they are staying consistent with the rate and assessed valuation. This shows that the city is in as growth mode. He discussed the legal debt margin. MANAGEMENT LETTER Mr. Stepasin went over the Management Letter. He said they were able to tract transactions through the system. He felt the accounting system was working because they could trace the numbers. He also discussed the Fixed Assets. He noted the city is starting to loose the "detail" (every invoice matching statements) and is recommending that before the detail gets too far out of alignment to become more accurate. The Accounting Manual was recommended to become more systematic in the approach to accounting. He stated nothing is being done wrong, but suggested the books be closed at a given time and set a time table. He said to list out what closing the books means to the city. Item #3 was discussed. Some of the risk categories of the cash investments were looked at. He suggested to make sure the city was comfortable with the investment policies and to know why the uncollateralized funds are that way. He thought the city's portfolio was fairly safe. At the year end, his audit looks at the fund cash number and there were differences. Some of this came from the "sorting in the buckets ", who owed what and where. He said this may reflect the month end closing procedures and the need to affix the month end. He talked to Kim about coming back and spending a half day to go over numbers and get the ledger system in alignment with the audit. He wants to be sure to communicate the corrections and to physically put the journal entries in the books to make sure the end result is right. The item #4 inter funds and transfers were discussed. At year end, the balances are looked at. He said that the term "transfer" also implies cash. He suggested if money is going to be transfered between two funds, it should be a Board decision. Everything else should flow through the inter funds. This would be an Accounting Manual decision. Some things are not transfers but inter funds, and vice versa. He suggested defining procedures and recommended compiling a manual. Mr. Scheffrahn said one chapter, Accounts Payable, has already been completed. Overall, he said there was improvement in the records this year. He suggested time tables should be set and have more internal people be involved. Mr. Prochaska said there needs to be a "drop dead" deadline. Mr. Stepasin said that defining the procedures will change them. Methods need to be followed month to month. 3 Administrative Committee Audit 10/22/96 Mr. Spang noted that some things such as the Accounting Procedures Manual, Inter fund borrowing and not balancing have remained the same from last year. Mr. Scheffrahn agreed that the consolidation of funds will be addressed again this year. The city is trying to decrease the amount of inter fund borrowing and increase the amount of funds in the General Fund. Mr. Spang said that funds need to be reconciled. Mr. Stepasin suggested taking a net approach to the accounting system to simplify the month end closing. Mr. Johnson asked for Mr. Scheffrahn to take these recommendations and try to develop an action plan and be monitored by the Administration Committee. There was a brief discussion of possible TIF districts being set up in the community. The meeting ended at 8:00 p.m. Submitted by, Sheryl Washburn, Recording Secretary 4