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HomeMy WebLinkAbout11-28-16 Personnel and FinanceOFFICE OF THE CITY CLERK KAREEMAH FOWLER, CITY CLERK PERSONNEL & FINANCE Committee Members Present: Committee Members Absent: Other Council Present: Others Present: Agenda: NOVEMBER 28, 2016 3:00 P.M. Karen White, John Voorde, Will Smith (Citizen Member) Regina Williams- Preston, Gavin Ferlic Dr. David Varner, Tim Scott, Jo Broden Kareemah Fowler, Joseph Molnar, Michael Passavoir, Kathleen Cekanski - Farrand, Adriana Rodriguez Bill No. 69 -16: Establishing Internal Controls and a Materiality Threshold Committee Chair Karen White called the meeting to order with one (1) item on the agenda. Bill No. 69 -16: Establishing Internal Controls and a Materiality Threshold John Murphy, City Controller with offices on the 12`h Floor of the County -City Building, stated that in 2015 the State legislature passed a law requiring all local governments to develop an internal control policy. This must be completed before next year's audit, otherwise there will be an audit exception, which the City would prefer to avoid. The State has developed a template consisting of seventeen (17) points. The City has modified it, looking toward other cities as well as using its own ideas. The City is required to get that adopted by City Council prior to the end of the year. He stated that Indiana is ahead of the curve in terms of implementing internal controls. In addition to the policy, there is a task force charged with looking at all City financial policies. The team consists of Deputy City Controller Jen Hockenhull, Ken Glowacki of the Police Department, Danny Copenhauer of the Fire Department, and Amy O'Connor of the Department of Administration and Finance. They are putting together a more formalized policy for the first half of 2017. Meanwhile, Mr. Murphy and his team put together a Word document that has links to certain training videos in it, which will be distributed to a large number of those working in the County -City Building. Mr. Murphy stated, There is a zero (0) tolerance policy for theft. He recalled only two (2) instances of petty cash being stolen, but neither was internal. Any situation of the sort is to be reported to the State Board of Accounts immediately. There is 455 County -City Building • 227 W. Jefferson Boulevard • South Bend, Indiana 46601 Phone 574- 235 -9221 • Fax 574- 235 -9173 • TDD 574 - 235 -5567 • www.SouthBendiN.gov JENNIFER M. COFFMAN ALKEYNA M. ALDRIDGE JOSEPH MOLNAR CHIEF DEPUTY/ CHIEF OF STAFF DEPUTY/ DIRECTOR OF POLICY ORDINANCE VIOLATION CLERK another threshold of $10,000 for variances for things like a journal entry posted incorrectly that is off by $10,000. Those will be investigated internally for up to $10,000. Citizen Committeemember Will Smith asked whether or not the variance is in line with what many other places are doing. Mr. Murphy responded, It is. It's a little bit higher. Some chose $2,500 across the board. We talked to Todd Caldwell, third in line in the State Board of Accounts, and we talked it through. He liked the idea of the zero (0) tolerance for theft. Mr. Murphy explained that Mr. Caldwell was fine with South Bend setting the threshold at $10,000, given its size. Citizen Member Smith asked, So, he didn't think that that would lead to higher cost because of that? Not spending more time on those variances, investigating those? Mr. Murphy responded, We'll investigate them internally, if we get audited. Our capitalization threshold is also $10,000, so we don't capitalize anything less than that. Ken Glowacki, Director of Financial Services, South Bend Police Department, continued the presentation. He explained that the State of Indiana has set internal controls standards, such as thresholds. He stated, When we're talking about that threshold, it has a very specific meaning in the definition of material statements. That is, at that level, if we have a mistake or we have an error that we can't resolve in some timely fashion, we have to report that to the State Board of Accounts. He explained that reports would not be done for just any amount of money, but specifically at or above the threshold of $10,000. He stated, One final point on internal controls: it's a very subjective judgment. It's like life insurance: how much is enough? You can have so many internal controls and, running an organization, you can't do anything. So, that's typically a decision that's got to be made between the Controller and top management. At what point are there too many controls? That will be an ongoing discussion that John will have —and we will have —as fiscal officers. Citizen Member Smith asked what the difference was between what was done last year and what was done this year. Mr. Glowacki responded, The difference between last year and this year is that the State is setting certain requirements that must be met. In the past, part of what the State Board of Accounts did was evaluate our internal controls, decide what they needed to do to complete the audit, and then they would have a discussion with John. What is happening now, by State law, is that there are reports that have to be made. We find an error over our threshold, we must now, by law, report that to the State Board of Accounts. Councilmember Dr. David Varner asked Mr. Murphy, Would you have an objection if, in addition to this, there were a requirement that any reports to the Auditor's Office be made available to the Council, too? Mr. Murphy asked, For any reports to the State Board of Accounts? 2 Councilmember Dr. Varner responded, Any reports that fall under this requirement to the State Auditor. Mr. Murphy responded, No, I would not have any objection to that at all. Councilmember Dr. Varner responded, It would be included as part of the ordinance. If you want to propose the language, that would be fine. If there is a theft or appears to be a theft that you can't resolve, that still leaves open the decision, should this go to a prosecutor —which is not necessarily an auditor's responsibility. Mr. Murphy stated, That would be fine. We would be happy to do that. Committeemember White asked Mr. Murphy if he could work on that language for the meeting that evening, to which he replied that he could. Committeemember Karen White made a motion to send Bill No. 69 -16 to the Common Council with a favorable recommendation and Citizen Member Will Smith seconded, which carried with a voice vote of three (3) ayes. With no further items on the agenda, Committee Chair Karen White adjourned the meeting at 3:14 p.m. tfully Submitted. �eGt-� Karen White, Committee Chair