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[A. CALL TO ORDER]

[00:00:03]

CALL TO ORDER A SPECIAL MEETING OF THE AUDIT COMMITTEE.

COULD I HAVE A ROLL CALL, PLEASE? MEMBER CASTLE.

HERE. MEMBER MANZANO. HERE. MEMBER OBAGI. HERE.

MEMBER SOLOMON. HERE. CHAIRMAN LIGHT. HERE. OKAY.

[D. APPROVE ORDER OF AGENDA]

THANK YOU. COULD I. DOES ANYBODY WANT TO CHANGE THE ORDER OF THE AGENDA? NO. NO, OKAY. COULD I GET A MOTION TO APPROVE THE ORDER OF THE AGENDA? MOTION TO APPROVE. SECOND. OKAY. ALL FOR? AYE.

[E. BLUE FOLDER ITEMS - ADDITIONAL BACK UP MATERIALS]

OKAY. DO WE HAVE ANY BLUE FOLDER ITEMS FOR THIS MEETING? YES. THERE IS ONE BLUE FOLDER ITEM FOR THIS MEETING.

FOR ITEM I.1. IT IS THE DISCUSSION AND POSSIBLE ACTION REGARDING THE ANNUAL FINANCIAL REPORTS FOR THE FISCAL YEAR ENDED JUNE 30TH, 2024. AND WE HAVE A GOVERNANCE LETTER. OKAY. THANK YOU.

CAN I GET A MOTION TO RECEIVE AND FILE THE BLUE FOLDER ITEMS? I'LL FIRST. I'LL SECOND. OKAY. WE GOT A MOTION.

DO WE HAVE A SECOND? SECOND. OKAY, WE HAVE A MOTION A SECOND.

ALL FOR? AYE. OKAY. MOTION PASSES UNANIMOUSLY.

[F. CONSENT CALENDAR]

CONSENT CALENDAR. THE ONLY THING ON THE CONSENT CALENDAR IS THE APPROVAL OF THE AFFIDAVIT OF POSTING.

DOES ANYBODY WANT TO PULL THAT? NO. CAN I GET A MOTION TO APPROVE THE CONSENT CALENDAR? MOTION TO APPROVE. SECOND. OKAY, WE HAVE A MOTION AND A SECOND.

IS ANYONE ONLINE? WE CURRENTLY HAVE NO ATTENDEES ON ZOOM, AND THERE ARE NO ECOMMENTS.

OKAY, SO WE'LL TAKE THE VOTE ON THE CONSENT CALENDAR.

ALL FOR. HI. ANYONE OPPOSED? OKAY. MOTION PASSES UNANIMOUSLY.

WE HAVE NO EXCLUDED. CONSENT CALENDAR ITEMS. WE'LL GO.

IT'S NOT ON THE AGENDA, BUT WE'LL GO TO NON-AGENDA ITEMS. PUBLIC INPUT ON NON AGENDA ITEMS. IS THERE ANYONE FROM THE PUBLIC ONLINE? WE HAVE NO ATTENDEES ON ZOOM AND THERE ARE NO ECOMMENTS.

OKAY. LET'S SEE. JUMPING DOWN TO ITEM I, I.1.

[I. ITEMS FOR DISCUSSION PRIOR TO ACTION]

DISCUSSION AND POSSIBLE ACTION REGARDING THE ANNUAL FINANCIAL REPORTS FOR THE FISCAL PERIOD ENDING JUNE 30TH, 2024. STEPHANIE, YOU HAVE THE FLOOR. ALL RIGHT.

GOOD AFTERNOON, MEMBERS OF THE AUDIT COMMISSION.

I'M VERY EXCITED TO BE HERE TODAY TO PRESENT THIS REPORT TO YOU.

I WISH IT WAS SEVERAL MONTHS AGO THAT WE'RE PRESENTING THIS REPORT, BUT I'M REALLY EXCITED TO BE BRINGING THIS TO A CONCLUSION AND PRESENTING IT FOR YOUR REVIEW. AS YOU'RE AWARE, EVERY YEAR WE PRESENT THE AUDIT TO THIS DESIGNATED AUDIT COMMITTEE FOR A CLOSE LOOK AND FOR YOUR SPECIFIC OVERSIGHT. YOU ARE THE SECOND BODY TO TAKE A LOOK AT THIS.

WE DID PRESENT, WE DID HAVE OUR AUDITORS HERE TO PRESENT TO THE BUDGET AND FINANCE COMMISSION LAST WEEK.

ON THURSDAY THEY HEARD A FULL PRESENTATION AND RECEIVED SUBSTANTIALLY THE SAME REPORT THAT YOU DID THE ACFR.

THEY HAD SOME QUESTIONS THEY REVIEWED AND THEY HAD NO ADDITIONAL COMMENT TO PASS ON TO THE CITY COUNCIL.

I'LL ALSO JUST NOTE QUICKLY, OUR AUDITOR IS HERE TO ATTEND IN PERSON.

HE RAN INTO A LITTLE TRAFFIC. SO THAT MAY BE HERE.

THAT MAY BE HIM HERE NOW. THAT'S FINE. OH. THAT'S WAYNE.

SO I'LL JUST CONTINUE TO GIVE A BRIEF INTRODUCTION. I THINK HE SHOULD BE HERE SHORTLY.

THE OTHER NOTE THAT I WANTED TO SHARE WITH THE COMMISSION UP FRONT THAT I SHARED WITH THE BUDGET AND FINANCE COMMISSION AS WELL.

AS I MENTIONED, IT'S BEEN A BIT OF A CHALLENGING YEAR FOR US FOR AUDIT PURPOSES.

WE HAVE A NEW AUDITOR FOR THE FIRST TIME IN SEVEN YEARS.

WE HAD LSL NORMALLY WE HAVE THEM FOR FIVE YEARS, AND WE HAD REQUESTED EXTENSIONS TO DEAL WITH KIND OF COVID AND TRANSITION.

AND SECONDLY, WE'VE JUST HAD SOME TURNOVER IN OUR DEPARTMENT, AS YOU'RE AWARE.

TOGETHER THESE HAVE CREATED SOME CHALLENGES FOR US.

I THINK WHAT YOU'LL SEE REFLECTED IN OUR AUDIT ARE MORE FINDINGS THAN WE'RE USED TO SEEING.

THAT'S CHALLENGING FOR US. BUT I ALSO TAKE THAT AS AN OPPORTUNITY AND AS A STRONG POSITIVE THAT WE ARE PAYING THE TYPE OF ATTENTION TO OUR BOOKS THAT WE, THAT WE NEED TO PAY.

I THINK ONE OF THE RISKS AND HAVING THE SAME AUDITOR FOR A LONG PERIOD OF TIME AND WHY WE ARE SUPPOSED TO CHANGE THEM EVERY FIVE YEARS IS, YOU KNOW, YOUR AUDITOR TENDS TO GET COMFORTABLE WITH WHAT THE CITY DOES.

AND ONE OF THE PURPOSES I THINK THIS MEMBERS OF THIS COMMISSION HAD AND CITY STAFF HAD, AND BRINGING SOMEONE NEW ON BOARD WAS TO

[00:05:07]

HAVE SOMEONE TAKE A FRESH LOOK. AND IN SELECTING CLA, WHICH IS ONE OF THE PREMIER AUDIT FIRMS IN THE COUNTRY WE PURPOSELY BROUGHT THAT KIND OF SCRUTINY. WE'RE VERY EXCITED ABOUT IT. I THINK THIS IS AN OPPORTUNITY TO CORRECT SOME PAST PRACTICES THAT COULD, WE COULD IMPROVE. AND WE'RE EXCITED TO DO THAT IN COLLABORATION WITH OUR AUDITORS.

JUST STEPHANIE WHILE WE'RE WAITING FOR HIM. HE'S JUST COMING IN. SO GO AHEAD. ONE QUESTION THAT I DID HAVE, BECAUSE THESE ARE THE FISCAL YEAR ENDED 24 NUMBERS.

WHEN WILL WE SEE 25? SO ON A NORMAL SCHEDULE YOU WOULD SEE THOSE IN MID DECEMBER.

I HAVE TO SAY THERE IS LITTLE TO NO CHANCE OF THAT TIMELINE.

HOWEVER WE HAVE GOOD REASON TO BELIEVE THAT YOU'LL SEE THEM SUBSTANTIALLY IN ADVANCE OF WHERE YOU'RE SEEING THEM NOW.

THERE ARE TWO REASONS FOR THAT. ONE IS, YOU KNOW, OUR AUDITORS HAVE NOW BEEN WITH US THROUGH A FULL AUDIT.

THEY WILL TELL YOU THAT IS BY FAR THE HARDEST YEAR.

IT'S A BIG INTRODUCTION FOR EVERYBODY. WE ALSO HAVE A NEW ASSISTANT FINANCE DIRECTOR WITH A VERY STRONG ACCOUNTING BACKGROUND, STARTING ACTUALLY ON MONDAY. I'M VERY, VERY EXCITED ABOUT, AND I THINK, YOU KNOW, OUR TEAM AS WELL HAS NOW BEEN HERE FOR ANOTHER YEAR.

SO THE SHORT ANSWER IS NOT BY DECEMBER, I DON'T THINK, BUT EARLIER THAN THAN THIS YEAR.

ONE OTHER THING TO NOTE WHILE WE'RE WAITING, I THINK HE'S HERE.

HE'S JUST USING THE RESTROOM. IT LOOKS LIKE WE WERE ABLE TO SHARE THE RESULTS OF THE AUDIT WITH MOODY'S, OUR REPRESENTATIVE FROM MOODY'S, AND WE'RE PLEASED TO REPORT THAT UPON THEIR REVIEW, THEY HAVE RECONFIRMED OUR AA1 RATING CREDIT RATING, SO DESPITE THE DELAY IT HAS NOT APPEARED TO AFFECT OUR CREDIT RATING AS IT PERTAINS TO THE MARKET.

SO THAT THAT WAS ONE BIT OF GOOD NEWS. DESPITE THE FACT THAT WE'RE HERE IN SEPTEMBER.

OKAY. THANK YOU. HOW YOU DOING? WE READY TO GO? OKAY. I APOLOGIZE. TRAFFIC WAS A LITTLE WORSE THAN EXPECTED.

YOU CAN RAISE THAT PODIUM TO JUST. YEAH. IS THAT.

THERE'S A BUTTON ON THE RIGHT HERE TO YOUR RIGHT HERE.

JUST HOLD IT DOWN. OH, HOLD IT DOWN. IT'LL COME UP.

JUST GIVE IT A LITTLE TIME. WRONG WAY. ALL RIGHT.

WE'LL GET THERE. I DIDN'T REALIZE THIS LAST WEEK WHEN I WAS WITH THE BUDGET AND FINANCE COMMISSION.

YEAH. YEAH. AND I HAD TO HUNCH OVER. IT'S OKAY.

YOU DIDN'T HAVE AS HIGH AS IT'S GOING TO GO. SO YOU DIDN'T HAVE THE CITY MANAGER THERE TO TELL YOU ABOUT THAT? NO, NO, I DID NOT. BUT THAT'S.

I'M USED TO DOING THIS ANYWAY, SO. ANYWAY. GOOD AFTERNOON.

MY NAME IS BOB - ROBERT CALLANAN AND I GO BY BOB.

I'M WITH CLA CLIFTONLARSONALLEN LLP. I HAVE BEEN DOING AUDITS OF STATE AND LOCAL GOVERNMENTS FOR OVER 30 YEARS, AND THIS WAS OUR FIRST YEAR IN DEALING WITH THE CITY AUDIT FOR 2024.

SO I'M HERE TO PRESENT THE RESULTS AS SOON AS I CATCH MY BREATH FROM RUNNING FROM THE PARKING LOT.

AND JUST WANTED TO GO OVER THIS WITH YOU, LIKE.

LIKE I SAID, WITH THE FIRST YEAR AUDIT, WE TYPICALLY WILL THERE'S A BIG LEARNING CURVE INVOLVED ON BOTH SIDES.

NOT ONLY STAFF, BUT ON YOUR CITY STAFF, AS WELL AS US GETTING TO KNOW YOUR CITY, YOUR OPERATIONS.

AND SO PART OF THAT IS EXPECTED IN THIS PROCESS.

WHAT WASN'T EXPECTED WAS A LOT OF TURNOVER ON THE CITY FINANCE STAFF.

THAT OCCURRED PRETTY MUCH DAY ONE WHEN WE STARTED OUR INTERNAL OUR INTERIM PROCEDURES.

AND SO DURING THE PROCESS, YOU KNOW, WE WE WERE ASKING LOTS OF QUESTIONS AND YOU HAVE A LOT OF NEW STAFF THAT ARE TRYING TO DO THEIR DILIGENCE, GET US THE RIGHT ANSWERS THAT WE NEED SO THAT I CAN GIVE YOU THE OPINION THAT I WILL BE SHARING WITH YOU HERE MOMENTARILY.

SO WE COULD GO TO THE NEXT SLIDE. I JUST WANTED TO GO OVER THE AUDIT SCOPE A LITTLE BIT AND SEE WHAT YOU HAVE.

IF YOU HAVE ANY QUESTIONS RELATED TO THAT, THE AUDIT PROCESS ITSELF, I'LL GIVE YOU THE AUDIT OPINIONS WE HAVE AND THE RESULTS OF OUR AUDIT.

AND THEN I HAVE GOVERNANCE COMMUNICATIONS. THOSE ARE THE REQUIRED COMMUNICATIONS THAT I'M SUPPOSED TO HAVE WITH YOU UNDER GOVERNMENT, UNDER GENERALLY ACCEPTED AUDITING STANDARDS. AND LASTLY, I'LL JUST PERUSE THROUGH THE UPCOMING GASB STANDARDS, JUST TO GIVE YOU A FLAVOR OF WHAT'S COMING DOWN THE PIPE.

WHEN I SAY GASB, GOVERNMENTAL ACCOUNTING STANDARDS BOARD ISSUES ACCOUNTING GUIDANCE.

AND SO THOSE HAVE TO BE IMPLEMENTED IN VARIOUS YEARS THAT ARE COMING UP IN THE NEXT FEW YEARS, STARTING WITH JUNE 30TH 25. AUDIT SCOPE. WE'RE HERE TO REPORT ON THE FINANCIAL STATEMENTS OF THE CITY THAT ARE CONTAINED WITHIN THE CITY'S ANNUAL COMPREHENSIVE FINANCIAL REPORT, OR ACFR. I JUST WANTED TO POINT OUT THAT WE'RE AUDITING THE FINANCIAL STATEMENTS.

I'M NOT AUDITING INTERNAL CONTROLS. I'M NOT AUDITING COMPLIANCE.

I'M NOT AUDITING FOR FRAUD OR ANYTHING OF THAT NATURE. IT'S JUST TO SAY, ARE THOSE FINANCIAL STATEMENTS IN YOUR ANNUAL DOCUMENT FAIRLY PRESENTED IN ALL MATERIAL

[00:10:06]

RESPECTS, IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, AND THAT WE FOLLOWED GOVERNMENT AUDITING STANDARDS AND GENERALLY ACCEPTED AUDITING STANDARDS. SO THAT'S, JUST WANT TO MAKE SURE YOU'RE COMFORTABLE WITH THAT.

NOW DURING THAT PROCESS I SAID THERE'S A LEARNING CURVE INVOLVED. SO I WANT TO UNDERSTAND THE OPERATIONS, HOW THINGS GET RECORDED IN THE CITY'S FINANCIAL STATEMENTS, WHAT SUPPORTING DOCUMENTS COME WITH THAT, THAT SUPPORT THE NUMBERS THAT ARE ON THE FINANCIAL STATEMENTS.

SO I DO THROUGH THAT PROCESS DO LOOK INTERNAL CONTROLS.

AND IF WE COME ACROSS AN INTERNAL CONTROL ISSUE THAT WE THINK IS OF CONCERN, I'M REQUIRED TO REPORT THAT TO YOU.

THOSE ARE CONSIDERED MATERIAL WEAKNESSES AND SIGNIFICANT DEFICIENCIES.

AND THEN WE HAVE OTHER MATTERS. LIKE IF YOU KNOW, I'VE BEEN DOING THIS FOR 30 YEARS, AND I SEE OPERATIONALLY THERE MIGHT BE A BETTER WAY TO DO SOMETHING. I WILL SUGGEST THAT TO THE FINANCE STAFF, BUT NOT NECESSARILY REPORT THAT TO YOU.

IF IT'S JUST A HEY, LOOK INTO THIS, SEE IF THIS WILL WORK FOR YOU IF IT WORKS BETTER OR NOT.

SO THAT'S JUST THE COURSE OF THE AUDIT, BUT I AM REQUIRED ON THE SAID MATERIAL WEAKNESSES AND SIGNIFICANT DEFICIENCIES, WHICH I WILL GET TO IN A MOMENT. WE HAVE THE REQUIRED GOVERNANCE COMMUNICATION LETTER, WHICH I ALREADY DESCRIBED.

WE HAVE A REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE, AGAIN, TALKING ABOUT THOSE MATERIAL WEAKNESSES AND SIGNIFICANT DEFICIENCIES.

IF WE FOUND THEM DURING THE COURSE OF OUR AUDIT.

AND THEN LASTLY, WE DO A SINGLE AUDIT. A SINGLE AUDIT IS A AUDIT OF ALL THE CITY PROGRAMS THAT INVOLVE FEDERAL GRANT FUNDS.

AND SO WE PUT THOSE TOGETHER, AND THAT'S STILL NOT FINALIZED.

BUT WE'RE HOPING WITHIN THE NEXT THREE WEEKS TO HAVE THAT WRAPPED UP AND FINISHED WANTED TO CONCENTRATE ON GETTING.

FIRST OF ALL, I HAVE TO GET THE FINANCIAL STATEMENTS DONE AND AUDITED FIRST.

THEN I CAN DO THE SINGLE AUDIT. AND THE SINGLE AUDIT IS MORE FOCUSED ON COMPLIANCE.

NOT SO MUCH NUMBERS NECESSARILY, ALTHOUGH WE DO USE THE NUMBERS TO DETERMINE WHICH FEDERAL PROGRAMS WE'RE GOING TO AUDIT BECAUSE WE DON'T HAVE TO AUDIT, TEST ALL SINGLE AUDIT, FEDERAL PROGRAMS THAT THE CITY HAS IN ANY GIVEN YEAR.

WE LOOK AT THE WE DETERMINE MAJOR ONES, AND THEN WE'LL GO INTO THOSE TO CHECK FOR COMPLIANCE.

NEXT SLIDE. AUDIT PROCESS. WE DO A RISK BASED APPROACH.

WE DO NOT AUDIT 100% OF THE TRANSACTIONS. WHAT TYPICALLY, YOU KNOW, THE TRANSACTIONS THAT ARE IN YOUR GENERAL LEDGER THAT'S EASY TO FIND ERRORS AND THINGS. WHAT'S NOT EASY TO FIND IS WHAT'S NOT IN THE FINANCIAL STATEMENTS.

SO WE HAVE PROCEDURES TO TRY TO MAKE SURE THAT THINGS ARE COVERED.

AND SOME OF THOSE PROCEDURES, SIMPLE ONES, ARE LIKE REVIEWING MINUTES OF THE COUNCIL MEETINGS AND LOOKING FOR MAJOR TRANSACTIONS, LOOKING FOR NEW AGREEMENTS. WE ASK FOR NEW AGREEMENTS.

WE ASK FOR, YOU KNOW, LOOK FOR RELATED PARTY RELATIONSHIPS AND THINGS OF THAT NATURE AND, AND DO SOME MINOR THINGS TO TRY TO SEE WHAT'S NOT ON THE BOOKS THAT SHOULD BE ON THE BOOKS. THAT'S THE KEY RISK WITH THAT, WE HAVE, WE STARTED THE AUDIT OUT WITH THE TOP TWO OVERRIDE OF INTERNAL CONTROLS IS ALWAYS A CONCERN. YOU KNOW, YOU HAVE A CONTROL STRUCTURE.

IT'S IN PLACE. BUT IS SOMEBODY USURPING THAT CONTROL PROCESS.

AND SO WE DESIGN OUR PROCEDURES TO TRY TO HELP TEST.

AGAIN. WE'RE NOT TESTING 100%, BUT WE'RE LOOKING OUT FOR THAT AS WE'RE TESTING THE TRANSACTIONS THAT WE DO LOOK AT.

AND REVENUE RECOGNITION IS ANOTHER KEY AREA THAT WE LOOK AT.

IT'S, YOU KNOW, WHEN YOU THINK OF REVENUE RECOGNITION ON A FOR PROFIT ENTITY, YOU KNOW, THEY'RE CONCERNED ABOUT EARNINGS, PRICE, PRICE TO EARNINGS RATIOS AND THINGS OF THAT.

THEY WANT TO MAKE IT LOOK YOU KNOW, HAVE A NICE SMOOTH FLOW.

WELL THAT'S NOT GOVERNMENT NECESSARILY YOUR STEWARDS OF FUNDS.

AND YOU HAVE SERVICES TO BE PROVIDED TO THE CONSTITUENTS.

AND SO THAT'S NOT NECESSARILY AS OF CONCERN. BUT THERE ARE SOME IMPORTANT CONCERNS REALLY AROUND GRANT ACCOUNTING.

AND AGAIN, I DON'T WANT TO GET INTO A GASB ACCOUNTING 101 OR 201 OR WHATEVER IT IS.

BUT YOU, THERE ARE MODIFIED ACCRUAL. AND MODIFIED ACCRUAL BASICALLY SAYS THAT ON A GRANT.

LET'S SAY YOU SPENT $100,000 IN JUNE ON A GRANT, AND YOU KNOW, THOSE ARE ELIGIBLE GRANT COSTS AND YOU'RE GOING TO GET REIMBURSED FROM THE STATE AGENCY OR THE FEDERAL AGENCY AT A LATER DATE.

IF THAT MONEY REIMBURSEMENT COMES IN WITHIN 60 DAYS AFTER YEAR END, YOU CAN RECORD IT AS REVENUE.

IF IT DOESN'T, THEN YOU RECORD IT AS A LIABILITY ON YOUR FINANCIAL STATEMENTS AS UNAVAILABLE REVENUE.

SO IT'LL GET, IT'LL HIT THE FUND FINANCIAL STATEMENTS AT A LATER DATE NEXT YEAR WHEN THAT IS.

SO THAT'S JUST A LITTLE NUANCE. BUT THAT'S THE REVENUE RECOGNITION WE'RE REALLY LOOKING AT, IS MAKING SURE THAT. HAVE YOU CAPTURED ALL THE REVENUE RECOGNITION THAT'S REQUIRED MAINLY FOR FROM A GRANT STANDPOINT.

DURING THE COURSE OF THE AUDIT, WE DID ADD A COUPLE MORE ADDITIONAL RISKS TO THE PROCESS BECAUSE THIS RISK BASED APPROACH IS AN EVOLVING ONE.

AND WE GOT INTO SIGNIFICANT ESTIMATES AND ACCOUNTING FOR CAPITAL ASSETS.

AND I'LL GET INTO THE ACCOUNTING FOR CAPITAL ASSETS, SIGNIFICANT ESTIMATES, ESPECIALLY IN A FIRST YEAR.

I JUST WANT TO MAKE SURE THAT YOU KNOW, THE FINANCIAL STATEMENTS DO CONTAIN SIGNIFICANT ESTIMATES.

[00:15:03]

THEY HAVE A LOT OF ESTIMATES, BUT THE ONES THAT ARE MOST SIGNIFICANT TO US IS THE OTHER POST-EMPLOYMENT BENEFIT PLAN LIABILITY AND THE RELATED DEFERRED INFLOWS AND OUTFLOWS RELATED TO THAT. BECAUSE OF, YOU KNOW, THERE'S AN ACTUARIAL VALUATION DONE.

AND THEN THERE'S SOME ASSUMPTIONS THAT ARE MADE.

AND WE WANT TO MAKE SURE THOSE ARE ALL CONSISTENT WITH THE GUIDANCE THAT IS THERE IN THE GASB STANDARDS.

AND THEN THE OTHER SIGNIFICANT ESTIMATE IS CLAIMS LIABILITY.

I MEAN, YOU'RE ESTIMATING WHAT YOU THINK YOUR POTENTIAL CLAIMS ARE FOR FUTURE CURRENT EVENTS THAT HAVEN'T BEEN IDENTIFIED YET AND FUTURE ONES.

SO THAT'S A SIGNIFICANT ESTIMATE. SO THERE'S OTHER ESTIMATES IN THERE LIKE ACCUMULATED DEPRECIATION ON DEPRECIATING CAPITAL ASSETS.

THE CASH YOUR INVESTMENT VALUE AT YEAR END IS AN ESTIMATE BECAUSE OBVIOUSLY YOU HAVEN'T SOLD THE INVESTMENTS AT THAT TIME, SO YOU DON'T KNOW WHAT YOU'RE GOING TO EXACTLY GET. SO THOSE ARE OTHER ESTIMATES, BUT THEY'RE NOT AS SIGNIFICANT BECAUSE THEY'RE THEY'RE MORE REFINED AND MORE IDENTIFIABLE SUPPORT FOR THEM. NEXT SLIDE PLEASE. SO THE MAIN ISSUE I WANT TO POINT OUT IS WHAT IS OUR AUDIT OPINION ON THE FINANCIAL STATEMENTS.

IT IS AN UNMODIFIED OPINION AND IT'S OPINIONS.

IT'S MULTIPLE OPINIONS. AND BASICALLY THAT'S THE HIGHEST FORM OF OPINION THAT I CAN PROVIDE UNDER THE AUDITING STANDARDS.

SAYING THAT YOUR FINANCIAL STATEMENTS ARE FAIRLY STATED, THE WAY THEY ARE PRESENTED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND GENERALLY GOVERNMENT AUDITING STANDARDS. SO THAT'S A GOOD THING.

AND THAT MEANS THE MISSTATEMENTS AND THE THINGS THAT I WILL TALK ABOUT SHORTLY HAVE ALL BEEN CORRECTED AND ARE REFLECTED IN THOSE FINANCIAL STATEMENTS.

GETTING INTO THE MATERIAL WEAKNESSES IDENTIFIED WE CAN GET INTO THOSE THOSE THREE AS YOU SEE FIT.

BUT WE HAD AN ISSUE WITH THE GRANT ACCOUNTING, WHICH IS QUITE COMMON.

WHEN I GET INTO A NEW SITUATION, WE FIND OUT THAT THERE'S A LOT OF OLD GRANT RECEIVABLES STILL SITTING ON THERE, OR THE UNAVAILABLE REVENUE OR UNEARNED REVENUE WASN'T PROPERLY RECOGNIZED.

AND SO WE WE DID A CLEANUP OF THAT. WE HAD CONSTRUCTION IN PROGRESS ACCOUNTING JUST DETERMINING WHAT'S ULTIMATELY GOING TO BE CAPITALIZABLE IN A PROJECT THAT'S IN CIP. AND WHEN, WHEN IS THAT PROJECT DONE AND SHOULD BE RECLASSIFIED TO AN ASSET CATEGORY, THEREFORE BEING DEPRECIATED ON A GOING FORWARD BASIS? AND THE THIRD POINT HAD TO DO WITH ACCOUNTING FOR THIRD PARTY ACTIVITY.

SO THERE WAS, THERE'S TWO ITEMS THERE. ONE I'M GOING TO CALL MARINE AVENUE.

IT'S THE HOTEL AGREEMENT THAT INVOLVES SOME TOT TAX REVENUE THAT'S BEING PUT INTO A TRUST ACCOUNT FOR, BASICALLY FOR THE OPERATOR OF THE HOTELS IN CASE THEY CAN'T MEET DEBT SERVICE REQUIREMENTS OR OPERATING THINGS, THEY'RE ALLOWED TO DRAW OUT OF THAT ACCOUNT. AND SO WE FOUND THAT THAT ACCOUNT, THERE WAS SOME ACCOUNTS ON THE GENERAL LEDGER THAT WERE THERE, BUT THEY WEREN'T ACCURATE. AND I DON'T THINK THE FINANCIAL STATEMENTS THEMSELVES WERE PROPERLY REPORTING THE TRUE ACTIVITY RELATED TO THAT.

BUT REALLY ALL THAT ACTIVITY FOR THE CURRENT YEAR WAS REALLY GROSSING UP SOME NUMBERS.

A NET NUMBER WAS BEING RECORDED AS REVENUE, WHEN REALLY IT REPRESENTED SOME REVENUE AND SOME EXPENDITURES.

AND I CAN GET INTO THAT A LITTLE MORE. THE OTHER LEASE WAS, OR I'M SORRY, THE OTHER THIRD-PARTY ACTIVITY HAD TO DO WITH A MANAGEMENT COMPANY THAT'S HANDLING LEASES FOR YOU IN THE HARBOR UPLANDS AND HARBOR TIDELANDS.

AGAIN, A NET NUMBER WAS BEING RECORDED IN THE BOOKS AND NOT EVERYTHING WAS BEING RECORDED IN BOOKS, JUST. THIS DISTRIBUTION WAS COMING MONTHLY AND BEING RECORDED AS REVENUE.

SO AGAIN GROSSING UP THE REVENUE AND EXPENDITURES ACCORDINGLY TO TRULY REFLECT THE GROSS ACTIVITY OF THE ENTITY, BUT ALSO ADDING SOME BALANCE SHEET ACCOUNTS THAT WEREN'T ON THERE ORIGINALLY.

WE HAD TWO SIGNIFICANT DEFICIENCIES. SO AGAIN, MATERIAL WEAKNESSES IS MY MOST CONCERN.

SIGNIFICANT DEFICIENCIES ARE MY SECOND LEVEL.

AND THEN I HAVE OTHER MATTERS. SIGNIFICANT DEFICIENCIES SOUNDS WORSE THAN MATERIAL WEAKNESSES, BUT THAT'S THE WAY IT IS. MATERIAL WEAKNESS IS FIRST SIGNIFICANT DEFICIENCY SECOND AND THEN OTHER MATTERS THIRD. SO WITH THAT AGAIN THIS IS A COMMON ONE I GET IN MOST OF MY CITIES IS DEPOSITS PAYABLE.

WE HAVE THESE LIABILITIES SITTING IN ACCOUNTS IN VARIOUS MAINLY THE GENERAL FUND.

BUT THEY GOT A LOT OF OLD NUMBERS ON THERE AND IT'S HARD TO SEE, YOU KNOW.

IS IT STILL A LIABILITY? WAS IT PAID? HAD IT BEEN PAID PREVIOUSLY? TRYING TO GET SOME MORE CLARITY. A LOT OF TIMES WHEN WE ASK FOR THE DETAIL BEHIND DEPOSITS PAYABLE, I GET A GENERAL LEDGER RUN OF WHAT HAPPENED DURING THE YEAR. WELL, OKAY.

THAT'S GREAT. BUT WHO WHO DO YOU OWE THIS MONEY TO? I WANT TO, YOU KNOW, I WANT A SCHEDULE OF A, B, C AND HOW MUCH YOU OWE.

AND SO THERE ARE SOME RECORDS HERE, THERE, THERE.

BUT THERE'S SOME MORE DILIGENCE THAT NEEDS TO BE MADE.

WE WERE COMFORTABLE WITH THE BALANCES WE AUDITED.

[00:20:01]

WE TESTED A FEW, MADE SENSE, BUT I THINK THERE STILL NEEDS TO BE A MORE SCRUBBING OF THAT TO GET TO THE TRUE PICTURE OF WHERE THAT MAY BE.

THE OTHER ONE HAS TO DO WITH THE FINANCIAL STATEMENT CLOSING PROCESS. OBVIOUSLY, I'M BEFORE YOU HERE IN SEPTEMBER FOR JUNE 30TH, 2024. SO IT'S GETTING A GAME PLAN IN PLACE TO GET THE AUDIT DONE AND GET FINANCIAL STATEMENTS FINISHED AND FINALIZED WITHIN A REASONABLE PERIOD OF TIME WHERE THERE MAY BE OF MORE USE AND BENEFIT TO THE COUNCIL AND TO MANAGEMENT FOR FURTHER OPERATING NEEDS.

SO THOSE ARE THE. CAN I JUMP IN ON THAT ONE? I'M SORRY.

ON THAT LAST ONE CAN I? YES. ON THAT LAST ONE, IS THAT EXACERBATED BY THE CHANGEOVER IN STAFF OR.

VERY MUCH SO, YES. OKAY. YES. SO YOU DIDN'T ANTICIPATE THAT BEING.

I DO NOT. I'M HERE BEFORE YOU, AND I'M ACTUALLY LOOKING FORWARD TO WORKING WITH THE STAFF THAT YOU HAVE NOW TO GO ON TO THE JUNE 30TH 25 AUDIT AND GET THE BALL ROLLING. WE'VE, I THINK WE'VE IDENTIFIED SOME OF THE BIGGER STICKY ISSUES THAT THAT WERE CREATING, SOME OF THE DELAY. AND THEN OBVIOUSLY IT'S JUST THAT LEARNING CURVE THAT WAS NECESSARY ON YOUR DEPARTMENT'S GETTING YOU KNOW, I'M ASKING A LOT OF QUESTIONS WHEN I GET INTO THE CAPITAL ASSETS IN THIS.

AND SO GETTING USED TO THAT, I THINK THOSE AREAS ARE CLEANED UP ENOUGH.

AND I THINK THERE'S A GAME PLAN ON HOW TO APPROACH THAT FOR THE CLOSE OF THE JUNE 30TH 25.

SO I'M ANTICIPATING I'LL BE HERE A LOT SOONER THAN 14 MONTHS.

ARE YOU GOING TO GET INTO THESE IN A LITTLE MORE DETAIL IN THE BRIEFING, OR IS THIS THE ONLY TIME WE SEE THESE? THIS. I CAN CERTAINLY DO WHAT YOU WHAT YOUR PLEASURE IS ON THIS.

WHY DON'T I GO THROUGH THE REST OF THIS, AND IF YOU WANT ME TO GET INTO A LITTLE MORE OF THESE, I'D BE HAPPY TO DO SO.

OKAY, THAT'D BE GREAT. SO GOVERNANCE COMMUNICATIONS, AGAIN, JUST MAKING SURE I COVER ALL MY BASES ON THE OVERALL, THE WANTED TO MAKE. THERE WAS A GASB PRONOUNCEMENT STATE, GASB 100 THAT TALKED ABOUT HOW YOU DISCLOSE AND REPORT VARIOUS THINGS THAT IMPACT RESTATEMENTS OF FUND BALANCE, ERROR CORRECTIONS.

AND SO WE DID HAVE SOME ERROR CORRECTIONS. SO THE FINANCIAL STATEMENT PRESENTATION IS, HAS BEEN MODIFIED TO COMPLY WITH GASB STATEMENT 100. AND ESSENTIALLY WHAT THAT IS, IF YOU LOOK AT THE INCOME STATEMENT, THE REVENUE AND EXPENDITURE STATEMENT, OR THE REVENUE AND EXPENSE STATEMENT, AT THE BOTTOM, YOU'LL SEE THE BEGINNING FUND BALANCE OR BEGINNING NET POSITION.

THEN WE HAVE A CORRECTION, THEN WE SHOW IT AS RESTATED, AND THEN YOU GET YOUR TRUE ENDING.

AND IN THE PAST, YOU DIDN'T HAVE TO REPORT IT ON THE FACE OF THE FINANCIAL STATEMENTS, YOU COULD HAVE A NOTE DISCLOSURE, BUT IN THIS DRAFT YOU HAVE NOT ONLY THE NOTE DISCLOSURE, BUT YOU ALSO HAVE, ON THE FACE OF THE FINANCIAL STATEMENTS, WHAT IMPACT WE HAD ON RESTATEMENTS THAT MAY HAPPEN.

WE ALSO, ON THE AUDIT SIDE, HAD STANDARDS CHANGE THAT REQUIRED US TO DO A LITTLE MORE WORK THAN WE WERE USED TO DOING IN THE PAST.

AND THAT HAD TO DO. STATEMENT OF AUDITING STANDARDS 143 TO 145 PRIMARILY RELATED TO IN FOLLOWING UP AND GETTING AN UNDERSTANDING OF GENERAL IT CONTROLS AT THE ORGANIZATIONS TO SEE IF THERE'S ANY WEAKNESSES IN THE IT AREA.

AND YOU KNOW, BRINGING THOSE TO THE ATTENTION THAT THAT NEED BE, SO PLEASED TO REPORT WE DIDN'T HAVE ANY COMMENTS RELATED TO THE IT GENERAL CONTROL PROCESS FOR, TO, OTHERWISE I WOULD HAVE HAD A COMMENT ON IT.

THERE WERE NO UNUSUAL TRANSACTION IDENTIFIED.

THERE WAS, THE MARINE AVENUE ONE'S WAS AN INTERESTING INVOLVED ONE, BUT IT'S NOT UNUSUAL.

THOSE TYPES OF AGREEMENTS TO HAVE WITH DEVELOPERS AND HOTEL OPERATIONS.

AND WE'RE GOING TO BE RECEIVING A MANAGEMENT REPRESENTATION LETTER. AND WHAT THE IMPORTANCE OF THAT REPRESENTATION LETTER IS IT'S A LIST OF ALMOST 40, 45 BULLET POINTS THAT MANAGEMENT WILL SIGN AND SAYING, ESSENTIALLY SAYING THEY GAVE US UNFETTERED ACCESS TO ANYTHING WE WANTED TO GET OUR AUDIT DONE, AND SO THAT WE COULD PROVIDE THE OPINIONS THAT WE DO ON THE FINANCIAL STATEMENTS.

DIFFICULTIES IN THE AUDIT. AGAIN, THE DELAYS DUE TO THE CITY STAFF TURNOVER CONTRIBUTED TO THE DELAY.

WE HAD NO DISAGREEMENTS WITH MANAGEMENT. AS A MATTER OF FACT, MANAGEMENT HAD ALREADY IDENTIFIED A COUPLE AREAS WHERE THEY WERE CONCERNED ABOUT AND THEY BROUGHT THOSE TO OUR ATTENTION. AND THEY ARE LISTED AS MATERIAL WEAKNESSES BECAUSE I HAVE TO SHOW THEM AS MATERIAL WEAKNESSES.

BUT IT WAS A JOINT EFFORT IN ON THEM PROVIDING US INFORMATION, US ASKING ADDITIONAL QUESTIONS TO REFINE WHAT THOSE ADJUSTMENTS NEEDED TO BE.

AND THERE'S NO CONSULTATIONS WITH OTHER ACCOUNTANTS.

AND THAT'S IMPORTANT IF THEY'RE OPINION SHOPPING, IF THEY DON'T LIKE WHAT I HAVE TO SAY, THEY MIGHT WANT TO GO CHECK SOMEBODY ELSE.

BUT NONE OF THAT, TO MY KNOWLEDGE, OCCURRED. AGAIN, I ALREADY TALKED ABOUT THE MOST SENSITIVE ESTIMATES PREVIOUSLY.

AND THEN OTHER WE HAD UNCORRECTED MISSTATEMENTS.

THERE WERE NONE IDENTIFIED BECAUSE I THINK MANAGEMENT FELT AND THE FINANCE DEPARTMENT FELT THAT. WELL, IF WE'VE ALREADY GOT THESE ADJUSTMENTS, LET'S LET'S GET THIS ALL CLEANED UP TO THE RIGHT THING.

SO USUALLY AN AUDIT, I'M ALLOWED TO DO IMMATERIAL ADJUSTMENTS AND WAIVE THEM AND NOT NOT FACTOR THEM IN.

[00:25:04]

BUT THERE, WE DECIDED THERE WAS NONE TO DO LIKE THAT.

CORRECTED MISSTATEMENTS WE HAD WE HAD A LOT BUT THE MATERIAL ONES ARE THE FOUR THAT I HAVE KIND OF BRIEFLY TOUCHED UPON.

AND I CAN GET INTO MORE DETAIL ON THOSE. AND THOSE ARE ALSO THE ONES FOR THE MATERIAL WEAKNESSES IN INTERNAL CONTROL THAT ABOUT GRANT ACCOUNTING, WHICH I TALKED ABOUT A LITTLE BIT. CONSTRUCTION AND PROGRESS ACCOUNTING.

AND THE THIRD PARTY ACCOUNTING WHICH AGAIN I CAN GET INTO SOME FURTHER CLARIFICATIONS ON THAT.

AND THEN I'VE ALREADY TALKED ABOUT THE SIGNIFICANT DEFICIENCIES AS WELL. NEXT SLIDE.

NEW ACCOUNTING CHANGES. I'LL JUST BRIEFLY ON THIS IS I CAN GO TO THE NEXT SLIDE.

THIS IS THE ACCOUNTING CHANGE IN ERROR CORRECTION THAT I MENTIONED ALREADY. GOVERNANCE COMMITTEE.

SO HERE'S THE MATERIAL MISSTATEMENTS THAT WE HAD.

AND IF YOU WANT ME TO GET INTO MORE DETAIL AT THIS TIME GO AHEAD AND STOP ME AND I WILL GLADLY GET INTO IT A LITTLE MORE.

APPROXIMATELY 3.4 MILLION IN GRANTS RECEIVABLE AND RELATED UNAVAILABLE REVENUES AND UNEARNED REVENUES WERE WRITTEN OFF OR ADJUSTED DUE TO OLD AGE OF RECEIVABLES OR CORRECTIONS OF ACCOUNTING FOR THE PROJECT ACTIVITIES.

SO I'LL START WITH NUMBER 1. THERE YOU GO. THAT ONE.

$3.4 MILLION THAT WERE AN ASSET FOR US THAT WE WROTE OFF.

HOW OLD WERE THEY? DOES THIS IMPACT HOW WE ARE DOING OUR GRANT ACCOUNTING GOING FORWARD IN TERMS OF HOW WE'RE DOING OUR BUDGET THIS YEAR AND WHAT WE EXPECT IN TERMS OF REVENUE, ETC.. SURE. YES. WE'RE WRITING OFF AN ASSET, BUT WE'RE ALSO WRITING OFF A LIABILITY TO SOME EXTENT.

SO IF I WHEN I REMEMBER I TOLD YOU THE MODIFIED ACCOUNTING, IF YOU DIDN'T RECEIVE SOME MONEY WITHIN 60 DAYS, YOU WOULD PUT A UNAVAILABLE REVENUE AS A LIABILITY.

SO THEY PRETTY MUCH OFFSET EACH OTHER. OKAY. SO WHEN I'M WRITING 3.5 GRANT RECEIVABLES, THAT'S WHY I PUT THE RELATED UNAVAILABLE REVENUE.

SOME OF THAT WAS OFFSET WITH UNAVAILABLE REVENUES.

OKAY. AND SO REALLY THE RESTATEMENT FOR THAT INNER, IT'S A SPECIAL REVENUE FUND ON THE FINANCIAL STATEMENTS, OTHER INTERGOVERNMENTAL GRANTS. I THINK IT ENDED UP HITTING THE BEGINNING FUND BALANCE $56,000.

OKAY, SO. SO FROM A, YOU KNOW, A CASH FLOW PERSPECTIVE, IF YOU WILL, THERE WAS ONLY A $56,000 IMPACT.

BUT WE'VE GOT SOME BIG NUMBERS. YOU KNOW, YOUR RECEIVABLE WAS OVERSTATED BY THAT MUCH AND YOUR LIABILITIES WERE KIND OF OVERSTATED BY THAT MUCH.

OKAY. SO WAS THAT A BAD INTERNAL PROCESS OR A BAD PRACTICE OR WHAT? I DON'T KNOW WHAT THE EXACT REASONS WHY IT HAPPENED.

I JUST KNOW THAT WHEN WE, WE GOT A LIST OF THE GRANTS RECEIVABLE, IT DID TIE TO THE BALANCE THAT WAS ON THE GENERAL LEDGER, WHICH IS GOOD, EXCEPT WHEN I STARTED LOOKING AT THESE GRANTS AND BALANCES THAT WERE THERE, YOU KNOW, THERE WAS SOME VERY OLD GRANTS ON THERE LIKE I WANT TO SAY 2009.

I SAW ONE ON THERE. AND SO I SAID, WHY IS THAT STILL ON THERE? SO, YOU KNOW, I DON'T KNOW WHAT THE PROCESS IS.

I MEAN, OKAY, FINE. YOU HAVE THAT THERE. YOU HAVE THAT UNAVAILABLE REVENUE. SO.

OKAY. WELL, IT'S ON THERE, BUT IT DOESN'T IMPACT FUND BALANCE SO IT CAN STAY THERE.

A LOT OF TIMES WITH MODIFIED ACCRUAL ACCOUNTING IS YOU GET THE, YOU GET THAT REIMBURSEMENT AND YOU BOOK IT AS A REVENUE BECAUSE YOU GOT THE MONEY IN IT GOES INTO REVENUE. WELL, IT'S GOT TO GET ADJUSTED ON THE FINANCIAL STATEMENTS TO GET RID OF THAT UNAVAILABLE REVENUE LIABILITY.

AND SO THAT'S WHAT TYPICALLY WILL NOT HAPPEN, SOMETIMES IT GETS OVERLOOKED.

AND SO IT DOESN'T COME OFF THE PROPER WAY. BUT WHEN IT COMES OFF IT'S COMING OFF YOU KNOW ON BOTH SIDES.

NET ZERO EFFECTIVELY. IF YOU'RE GETTING THE FULL REIMBURSEMENT.

RIGHT. STEPHANIE DO YOU HAVE A RESPONSE TO THIS ONE? WHY? HOW'D IT OCCUR? SURE. YEAH. I MEAN, I THINK FOR THIS ONE, IT'S REALLY A REFLECTION OF THE LOSS OF KIND OF FORMAL PRACTICES AS STAFF HAS TURNED OVER THROUGHOUT THE YEARS.

I THINK IT'S ALSO TRUE WHAT BOB IS SAYING. YOU KNOW, YOU KIND OF ACCOUNT FOR THESE.

YOU THEY'RE OUT THERE, THEY'RE KIND OF OFFSETTING.

AND WHEN YOU'RE DOING YOUR YEAR OVER YEAR RECONCILIATION FOR BOTH OUR PRIOR AUDITORS AND FOR CITY STAFF, THEY'RE JUST ITEMS THAT WE WEREN'T CATCHING. BUT AGAIN, I THINK, YOU KNOW, A LOT OF IT DATES BACK TO, YOU KNOW, PRIOR PRACTICES THAT WE MAY NOT HAVE, THE DEPARTMENT MAY HAVE NOT SUCCESSFULLY DOCUMENTED EVERYTHING NECESSARY TO RECONCILE OUR GRANTS. AT THE END OF THAT, YOU KNOW, WE'VE BEEN WE'VE WORKED VERY, VERY, WE WORKED VERY, VERY HARD WITH BOB AND HIS TEAM ON THIS. WE'VE CLEANED UP.

WE'VE REALLY DONE A GOOD CLEANUP ON OUR GRANTS.

WE HAVE KIND OF A CITYWIDE PROCESS ONGOING AT THE MOMENT, LED FROM THE CITY MANAGER'S OFFICE THAT'S REVIEWING ALL ASPECTS OF GRANT, BUT THAT WILL INCLUDE KIND OF THE OUR PROCESSES FOR RECEIVING AND RECONCILING OUR GRANT FUNDS AT THE END OF THE YEAR.

SO I CAN'T TELL YOU EXACTLY AT WHAT POINT, YOU KNOW, THE SPECIFIC $3.4 MILLION KIND OF FELL OFF THE RECONCILIATION.

BUT I THINK WORKING WITH BOB AND HIS TEAM, WE'RE WE'RE PRETTY CONFIDENT WE CAN CREATE PROCESSES TO AVOID THIS MOVING FORWARD.

[00:30:04]

SO THIS WILL BE A DOCUMENTED PROCESS? 100%, YES.

OKAY. BUT WE DON'T HAVE THAT TO LOOK AT TODAY? NO, NOT TODAY. I'M HAPPY TO SHARE THAT WITH THE COMMISSION AS WE CONTINUE TO DEVELOP OUR PROCESSES.

IT'S A COMMITTEE. OH, SORRY, I KEEP DOING IT TOO, I JUST WANTED TO.

I HAVE TO LOOK AT THE RESOLUTION EVERY SINGLE TIME.

YES. BUT IF YOU'RE INTERESTED, WE ARE HAPPY TO SHARE THOSE WITH YOU AS WE DEVELOP THEM.

OKAY, THANKS. I HAVE A COMMENT. LET'S SEE. IT'S A LITTLE BIT HARD FOR ME ONLY BECAUSE WHEN I, IN 2001, I WAS THE ACCOUNTING MANAGER, AND THESE ITEMS WERE THE ONES I CLEANED UP, SO TO SEE IT BACK ON.

IT'S REALLY FRUSTRATING. BUT, I MEAN, I UNDERSTAND WITH THE DEPARTMENT GOING THROUGH A LOT OF TURNOVER AND DIFFERENT DIRECTORS I'M REALLY GLAD THAT THIS IS BEING TAKEN CARE OF, BUT I DEFINITELY WANT TO SEE SOMETHING GOING FORWARD THAT SOME KIND OF POLICY OR SOMETHING THAT THIS DOESN'T HAPPEN, BECAUSE THESE ARE THE EXACT SAME ACCOUNTS. SO, SO YOU HAVE TO GO THROUGH THAT.

SO ANYWAY. THAT'S IT. OKAY. THANKS. ANYONE ELSE? GO AHEAD. WHEN YOU'RE RECOGNIZING OR RECONCILING WHAT'S THERE, THERE ARE SOME OF THEM THAT ARE WRITTEN DOWN, OR ARE THEY BASED ON AGE, WRITTEN OFF AND RECONCILED THAT WAY? I AGAIN, IT'S FINDING OUT WHAT HAPPENED AND WHY IT'S STILL THERE AND WHAT NOT.

DETERMINE WHAT GETS WRITTEN OFF AND NOT. I MEAN, WHEN I SAID THOSE OLD GRANTS, IT WAS CLEAR TO SEE THAT THE EXPENDITURES HAD ALREADY INCURRED AND YOU MAY HAVE GOTTEN THE REVENUE ALREADY, OR PART OF IT IS, IS SOME GRANTS INVOLVE SOME CITY GENERAL FUND, POTENTIALLY TO SUPPLEMENT THE PROGRAM, THE TOTAL EXPENDITURES.

SO YOU GET A GRANT IN 75% OR YOU GET A GRANT PROJECT IN 75% IS FEDERAL DOLLARS, 20% IS STATE, AND 5% IS CITY. AND I'M NOT SHOWING EXACT THING.

I'M JUST GIVING YOU AN EXAMPLE. SOMETIMES MONEY NEEDS TO GET IN THERE TO OFFSET THOSE EXPENDITURES.

AND SO IT'S IMPACTING THE DECISION. SO THAT WAS PART OF IT TOO.

BUT THE MAIN FOCUS, LIKE I SAID, IT GOT THE NET EFFECT TO FUND BALANCE WAS 56,000.

SO THE NUMBER IS IT'S THE LIABILITY AND THE UNAVAILABLE REVENUE OR UNEARNED REVENUE IF YOU GOT MONEY IN ADVANCE.

THOSE ARE THE ONES THAT NEEDED TO BE CLEANED UP TO BE MORE REFLECTIVE OF WHAT THE TRUE NATURE OF THOSE GRANTS ARE.

AND AS THE MAYOR NOTED, DIRECTOR MEYER, RIGHT NOW WE'RE WORKING THROUGH A PROCESS TO ADDRESS THIS ISSUE.

ABSOLUTELY. AND WE I MEAN, INTERNALLY, WE HAD FLAGGED THIS, YOU KNOW EARLY ON, AS SOMETHING THAT WE JUST WANT TO PAY MORE ATTENTION TO. SO, YES, WE ARE VERY FOCUSED ON THIS, BOTH IN OUR ONGOING OPERATIONS.

AND AS WE'RE WRAPPING UP, 24-25. THIS IS SPECIFICALLY ADDRESSED TO GRANTS.

DO WE FIND OTHER RECEIVABLES WERE IDENTIFIED AS BEING AGED OUT OR HAVING LONGER? FROM MY AUDIT STANDPOINT, NO. OKAY. THANK YOU.

OKAY, THANKS. OKAY. THE NEXT ONE AGAIN, LET'S, YOU KNOW, THE NUMBER IS A BIG NUMBER.

I GET THAT 32.3 OF CONSTRUCTION AND PROGRESS WAS RESTATED, RECLASSIFIED OR WRITTEN OFF AS EITHER PROJECTS HAD HAD BEEN COMPLETED OR RELATED PROJECT COSTS DID NOT MEET THE CITY'S CAPITALIZATION POLICY, WHICH INCLUDES THE USE OF THE MODIFIED APPROACH FOR STREET INFRASTRUCTURE.

AND THEN THERE'S THE, THE THE IMPACT ON THE FUNDS.

SO FIRST OFF, I WILL SAY ABOUT 18 MILLION OF THAT CONSTRUCTION IN PROGRESS WAS OLD CAPITAL PROJECTS, PROJECTS THAT HAD BEEN COMPLETED THAT WERE STILL SITTING IN CONSTRUCTION AND PROGRESS THAT SHOULD HAVE BEEN RECLASSIFIED TO ANOTHER ASSET CLASS.

SO AGAIN, FROM A NET POSITION STANDPOINT, THERE'S NO IMPACT BECAUSE YOU'RE JUST MOVING IT FROM CIP TO ANOTHER ASSET CLASS BUILDINGS AND IMPROVEMENTS.

BUT THE IMPORTANT THING OF DOING THAT IS THAT ONCE IT'S IN BUILDING AND IMPROVEMENTS, NOW YOU CAN START.

WHAT'S THE USEFUL LIFE OF THOSE? START TAKING DEPRECIATION AND HAVING DEPRECIATION EXPENSE HITTING.

AND SO THAT WAS THE BIGGEST ADJUSTMENT THAT WE HAD THERE.

THE OTHER ONE, THE USE OF THE MODIFIED APPROACH.

SO GASB, AGAIN I'M GOING TO GET INTO GASB 101 - 202, WHATEVER YOU WANT TO CALL IT.

WHEN GASB 34, THE NEW WAY THE FINANCIAL STATEMENTS ARE PRESENTED, NOT NEW WAY.

IT'S BEEN HERE FOR ALMOST 20 YEARS. THEY ALLOWED YOU FOR INFRASTRUCTURE IF YOU HAD CERTAIN PARTS OF YOUR INFRASTRUCTURE, BECAUSE INFRASTRUCTURE USED TO NOT BE ON THE CAPITAL ASSETS OF MOST CITIES, THEY SAID, OKAY, WE'LL LET YOU PUT IT ON THERE. AND IF YOU WANT, WE'LL ALLOW YOU THE MODIFIED APPROACH IF YOU WANT TO HANDLE IT FOR SOME SUBSECTION OF YOUR

[00:35:01]

INFRASTRUCTURE. WELL, THE CITY AT SOME POINT SAID, HEY, WE WANT OUR STREET INFRASTRUCTURE TO GO UNDER THE MODIFIED APPROACH.

AND, WHAT DOES THAT MEAN? IT ALLOWS YOU TO IDENTIFY YOUR STREETS, GO THROUGH AN EVALUATION PROCESS, COME UP WITH A DOLLAR AMOUNT OF YOUR STREETS, AND THEN UNDER THE MODIFIED APPROACH SAYS, OKAY, OUR STREETS ARE WORTH, LET'S JUST SAY $30 MILLION.

AND WE'RE USING THE MODIFIED APPROACH. SO ALL WE NEED TO DO IS MAKE SURE WE'RE SPENDING ENOUGH IN PRESERVATION COSTS TO MAINTAIN THE STREETS AT A CERTAIN QUALITY LEVEL.

AND IF WE DO THAT, THEN WE DON'T HAVE TO DEPRECIATE THOSE ASSETS ON THE FINANCIAL STATEMENTS.

AGAIN, GASB 202, BECAUSE THE OLD WAY WOULD BE IDENTIFY ALL YOUR STREETS, PUT THEM ON AS CAPITAL ASSETS, DEPRECIATE THEM AND MOVE ON WITH THAT. SO WITH THAT CAVEAT, IF YOU HAVE STREETS THAT ARE UNDER THIS PRESERVATION COST METHOD, YOU JUST EXPENSE ALL THE ROAD MAINTENANCE IN THE YEAR THAT IT HAPPENS AND YOU DON'T ADD ANY MORE TO CAPITAL ASSETS, YOU JUST KEEP THAT THAT STREET STAYS ON AT $30 MILLION.

THE ONLY REASON IT WOULD INCREASE THE STREETS AS IF YOU HAD A PROJECT THAT ADDED A LANE OR ENHANCE THE ROAD STRUCTURE, A BRAND NEW ROAD, THOSE WOULD GET ADDED, BUT AGAIN, THOSE WOULD GET ADDED BUT NOT DEPRECIATED BECAUSE YOU HAVE THE MODIFIED APPROACH SAYING, HEY, WE'RE GOING TO KEEP THESE, MAINTAIN THESE AT A CERTAIN QUALITY LEVEL.

SO WHAT WE FOUND IN CIP, THERE WAS ABOUT $9 MILLION OF STREET PROJECTS THAT WERE IN CIP THAT, YOU KNOW, UNDER THE NORMAL CIP PROCESS I JUST SHARED WITH YOU IS THAT ONCE IT'S DONE, YOU CLOSE IT.

YOU YOU RECLASSIFY IT TO AN ASSET CLASS, YOU START DEPRECIATING IT.

WELL, NO, NO, NO, THESE ARE STREETS. YOU ALREADY MADE THE DECISION UNDER THE MODIFIED APPROACH NOT TO DO THAT.

AND SO THAT WAS THE ADJUSTMENT. THAT'S THE BIGGEST ADJUSTMENT OUT OF THAT ASPECT.

THE ONE THAT HAD THE HARBOR TIDELANDS FUND HAD TO DO WITH THE DREDGING.

THERE WAS DREDGING OF THE HARBOR. THE AGAIN, I'M GETTING INTO ACCOUNTING, SO I APOLOGIZE, IF THE WHOLE THING ABOUT WHETHER TO CAPITALIZE SOMETHING OR NOT DEPENDS ON IS THAT COST ENHANCING THE ASSET OR THE USEFUL LIFE. WELL, IN THIS CASE WITH A HARBOR, YOU'RE DOING THE DREDGING MAINLY TO MAINTAIN A CERTAIN LEVEL OF SERVICE OF, OF THE BOATING AND THE ACTIVITY COMING IN. AND SO EVERY NOW AND THEN YOU'VE GOT TO GO IN AND REDUCE THE SILT AND THE BUILD UP, SO THAT YOUR REGULAR OPERATIONS CAN HAPPEN. AND SO THAT'S JUST A PRESERVATION COST OF THE ASSET.

IT'S NOT EXTENDING THE USEFUL LIFE. ALTHOUGH SOMEBODY WOULD ARGUE WELL YES IT DOES BECAUSE IF IT KEEPS BUILDING UP WE CAN'T USE IT.

BUT UNDER ACCOUNTING STANDARDS YOU'RE SUPPOSED TO EXPENSE THAT.

AND SO WE CAME IN THERE WAS ABOUT 450,000 AT THE BEGINNING OF THE YEAR THAT WAS IN CIP.

THAT SHOULDN'T HAVE BEEN THERE. AND THEN YOU HAD ABOUT 3.4, IF I REMEMBER CORRECTLY, OR 3.6 DURING THE YEAR THAT WAS IN CIP THAT HAD TO BE PUSHED BACK DOWN INTO THE REVENUE AND EXPENSE FOR THE TIDELANDS.

AND THEN LASTLY THERE, THE HARBOR UPLANDS JUST HAD A MATTER.

THERE WAS A, I THINK A CAPITAL PROJECT THAT WAS GOING ON.

THAT WAS A JOINT PROJECT BETWEEN GOVERNMENTAL ACTIVITIES AND THAT ENTERPRISE FUND, AND THAT ASSET GOT BOOKED UNDER THE GOVERNMENTAL ACTIVITIES, AND IT SHOULD HAVE BEEN ON THE BOOKS OF THE ENTERPRISE FUND.

SO IT GOT MOVED TO WHERE IT SHOULD BE FOR THE COST OF THAT PROJECT.

AND THAT WAS ABOUT 595,000, I BELIEVE. SO THAT'S IN A NUTSHELL, WHAT THE CONSTRUCTION AND PROGRESS ADJUSTMENTS WERE.

AND JUST TO FOLLOW UP ON THE ON THE TIDELANDS FUND.

SO GOING FORWARD, THINGS LIKE THE DREDGING SHOULD COME UP AS A BUDGET ITEM, AS AN ANNUAL EXPENSE OR ONGOING EXPENSE SINCE IT'S NOT A CIP.

CORRECT? UNLESS UNLESS YOU HAVE, YOU KNOW, VISIONS OF, OH, WE GOT TO GO DEEPER BECAUSE WE WANT BIGGER SHIPS COMING IN.

WELL, THEN THAT COULD BE CAPITALIZED BECAUSE YOU'RE ENHANCING THE USE OF THE HARBOR, RIGHT.

OKAY. BUT I THINK, AND MAYBE I MISUNDERSTOOD THE QUESTION, BUT I THINK, BOB, WHAT YOU'VE SAID IS THAT THERE'S NO PROBLEM HAVING THE PROJECT IN THE CIP. THE PROJECT IS COMPLETELY FINE BEING IN THE CIP.

THE CITY JUST NEEDS TO RECOGNIZE THOSE EXPENSES CORRECTLY.

NO. IS THAT WHAT I THINK? NO. IT SHOULDN'T GO INTO CIP.

IF AGAIN, IF THE PROJECT IS PURELY JUST GETTING IT BACK TO ITS NORMAL LEVEL, IT SHOULD JUST BE EXPENSING.

IT SHOULD BE JUST EXPENSING IN THE YEAR, NOT IN CIP.

AS AN OPERATING EXPENSE. IT SHOULD BE AN OPERATING EXPENSE OF THE YEAR THAT THE COST IS INCURRED, RIGHT. INSTEAD OF A CAPITAL PROJECT. CORRECT. WELL, OUR HOPE WITH HARBOR DREDGING IN THE FUTURE IS THAT WE WOULD BE DOING MUCH SMALLER INCREMENTS, MUCH MORE FREQUENTLY. AND I THINK IT WOULD MORE NATURALLY FIT INTO THE MAINTENANCE STANDARD.

THIS WAS A 15 YEAR BUILD UP AND A VERY SUBSTANTIVE EXPENSE.

ENDS, AND IT REQUIRED SOME SIGNIFICANT ACCRUAL ON OUR PART BEFORE WE'RE ABLE TO EXECUTE THE PROJECT.

[00:40:05]

SO HOPEFULLY WE'LL SPEND MORE FREQUENTLY AND LESS SOME.

OKAY. SO WOULD IT BE BEST TO CHANGE THE MODIFIED APPROACH AND JUST MAKE IT A REGULAR STRAIGHT LINE? IF THAT'S WHAT. I'M JUST CURIOUS, LIKE THERE'S A.

TO DO, YEAH. I WOULD SAY IN MY. IT'S PROBABLY 90% DO, 10% OF THE ENTITIES THAT I'VE HAD THIS CITY'S WITH, I THINK 10% DO THE MODIFIED APPROACH.

90 DO NOT 90%. THERE IS A METHOD FOR CONVERTING.

I DON'T REMEMBER EXACTLY HOW THAT GOES BECAUSE I'VE NEVER HAD TO DO IT BEFORE. BUT I KNOW THERE'S GUIDANCE ON, IF THAT'S SOMETHING THAT IS MANAGEMENT DECIDES THAT THEY WANT TO DO AND THE COUNCIL DIRECTS THEM TO DO IT, THAT'S CERTAINLY POSSIBLE. I WOULD SUGGEST WE WAIT AND DO THAT UNTIL AFTER WE GET BACK ON SCHEDULE.

YEAH. NO, IT'S NOT THAT. WE'RE JUST MAKING PROGRESS HERE.

AND TO MAKE IT A LOT EASIER GOING FORWARD, BECAUSE IT IS EASIER TO DEAL WITH WITH DEPRECIATION WHEN IT'S JUST NOT HAVING THE MODIFIED APPROACH, IT'S JUST EASIER. I REMEMBER WHEN I WAS DOING IT, I MEAN, I LOVE DEPRECIATION, I'M ONE OF THOSE PEOPLE THAT LOVE IT.

AND SO I WAS REALLY INTO IT. SO I CAN SEE WHERE SOMETIMES IT'S NOT AN EASY THING TO DEAL WITH.

IT CERTAINLY ADDS COMPLICATION. YEAH. IT DOES. IT IS BECAUSE YOU'RE IN DIFFERENT AND YOU HAVE ASSETS ALL OVER THE PLACE.

SO AND THEN YOU GOT TO REALLY ARE THOSE CIP PROJECTS.

YOU HAVE TO REALLY SCOUR THROUGH IT TO FIGURE OUT, IS THIS AN ASSET OR IS THIS AN EXPENSE THAT YOU CAN WRITE OFF WELL.

AND OUT OF FAIRNESS. AND I DON'T WANT TO, YOU KNOW, DO TOO MUCH ACCOLADES HERE FOR BOB JUST YET.

BUT THE REALITY IS, THIS IS SOMETHING THAT, AS YOU HEARD WITH THE FIRST TWO ITEMS HERE, THESE HAVE BEEN ON THE BOOKS FOR A VERY LONG TIME.

AND THESE ARE RECONCILIATIONS THAT OUR PRIOR AUDITOR AND OUR AUDITOR BEFORE THAT DID NOT CATCH SO TO BOB AND HIS TEAM'S CREDIT.

THESE WERE BROUGHT TO OUR ATTENTION AND FIXED.

THIS SPANS OVER MULTIPLE FINANCE DIRECTORS. AND, YOU KNOW, THESE ARE APPROACHES AND PRACTICES THAT ARE, YOU KNOW, BEYOND A DECADE IN THE MAKING. SO I THINK THAT'S WHAT WE'RE EXCITED ABOUT.

THESE FIXES SHOULD HELP US BE MORE EFFICIENT IN THE FUTURE.

SO WHAT IS THE FIX? SHOULD WE GO BACK TO. NO, WE JUST NEED.

WE HAVE UNDERSTANDING. WE HAVE STAFF TEAM THAT THAT THAT APPRECIATES WHAT I THINK THIS MEANS.

WE HAVE AN AUDITOR WHO HAS FLAGGED THIS ISSUE. SO AGAIN THE FIRST YEAR OF AN AUDIT IS ALWAYS THE MOST GRUELING FOR BOTH SIDES.

I DON'T CARE ABOUT THAT. I CARE ABOUT FIXING THE PROBLEM.

YEAH. SO THERE'S THERE ISN'T. IT'S A MATTER OF HOW WE BOOK THESE ENTRIES.

SO NOW THAT THIS IS RECOGNIZED BY BOTH STAFF AND OUR AUDITOR, WE'LL BE ABLE TO MAKE THAT A REPEATED ACCOUNTING PRACTICE.

THAT'S THE KEY IS IMPLEMENTING THIS PRACTICE ON A GO FORWARD BASIS AS OPPOSED TO A RETROACTIVE CLEANUP TO NOW BASIS.

I THINK THESE LARGE PERIODIC THINGS DON'T HAPPEN EVERY YEAR, AREN'T JUST A REGULAR MAINTENANCE ITEM THAT BUILD UP AND ARE EXPENSIVE.

YOU KNOW, THERE'S VALUE TO TRACKING IT IN SOMETHING IF WE DON'T CALL IT A CIP SOMETHING.

SO WE KNOW THAT'S HANGING OUT THERE OVER OUR HEADS.

YEAH. AND THIS, AND I HAVE TO SAY, THIS MAY NOT BE THE ONLY EXAMPLE OF THAT.

AS AN EXAMPLE, IF WE WERE TO BUILD UP OUR BUDGET FOR, SAY, PAINTING THE PIER OR, YOU KNOW, PAINTING RAILINGS, THAT THERE MIGHT BE OTHER CIP, THERE MIGHT BE OTHER MAINTENANCE ITEMS THAT WE'VE TREATED AS A CIP FUNCTION THAT GOING FORWARD, WE WANT TO TREAT AS A MAINTENANCE FUNCTION. AND I THINK THAT'S GOING TO TAKE SOME EFFORT ON NOT JUST STEPHANIE'S PART, BUT ON OUR CAPITAL PROJECT. MY CONCERN IS HOW DO WE TRACK THAT SO WE DON'T LOSE THAT SIGHT OF THAT FROM A BUDGET PERSPECTIVE, THAT WE'VE GOT TO BE PRESERVING FUNDS FOR THESE THINGS, THESE BIG THINGS THAT YOU'RE SEEING.

I THINK, I WOULD SAY YOU'LL SEE IT THROUGH RATHER THAN A RECOMMENDED CIP, YOU'LL SEE IT THROUGH A RECOMMENDED DECISION PACKAGE THAT WOULD HIT THE UPLANDS AND TIDELANDS FUNDS. BUT IF SOMETHING'S TEN YEARS FROM NOW, WE WOULD HAVE TO RESERVE FOR IT.

SO WE'D HAVE TO ESTABLISH A RESERVE FUND AND SAY IF IT'S $1 MILLION PROJECT.

I KNOW, BUT WE DON'T DO THAT. WELL, OR WE CREATE A RESERVE SET ASIDE AS PART OF THE UPLANDS AND TIDELANDS FUND, KNOWING THAT THAT MAINTENANCE ISSUE IS GOING TO BE A PROBLEM, OR WE CONTINUE TO SET MONEY ASIDE IN THE CIP, WHEN WE ACTUALLY GET DOWN TO SPENDING IT, WE MOVE IT TO A MAINTENANCE EXPENSE.

I MEAN, THERE ARE A FEW WAYS WE COULD DO IT, BUT THE GOAL IS MORE PROACTIVE.

PAINT THE GOLDEN GATE BRIDGE TYPE CAPITAL MAINTENANCE OR MAINTENANCE APPROACH RATHER THAN THIS, WE WAIT 15 YEARS AND WE SPEND 5 MILLION. SOME OF IT DOESN'T LEND ITSELF TO THAT.

WE'RE NOT GOING TO REPAINT THE SAILS EVERY YEAR.

WE'RE NOT GOING TO REPLACE THE RAILINGS EVERY YEAR.

WE'RE NOT GOING TO DREDGE EVERY YEAR BECAUSE OF THE ACTIVATION COSTS ARE SUBSTANTIVE.

YEAH. AND IN THOSE INSTANCES WE'LL JUST DO A DECISION PACKAGE FOR SALE REPAINTING, AND WE'LL TREAT IT AS A MAINTENANCE FUNCTION.

WE'LL HAVE TO DRAW IT FROM THE FUND. IT'S JUST HOW WE'LL HAVE TO MAKE SURE WE ARE ACCRUING AND HOPE TO HAVE ACCESS TO FUND BALANCE.

[00:45:11]

YOU KNOW, EXPENDITURE HANGING OVER OUR HEADS AND IT ONLY COMES UP IN THE YEAR'S BUDGET WHERE WE'RE GOING TO EXPEND IT.

IT'S TOO LATE TO HAVE SAVED UP MONEY FOR THAT.

WELL, BUT THAT'S MY POINT. OUR HOPE IS WE DON'T WE RELIEVE THE MAINTENANCE PRESSURE THROUGH MORE FREQUENT AND PERIODIC EFFORT.

I MEAN, THERE'S, THAT'S WHY WE WERE HOPING TO.

YOU NEED TO ACCOUNT FOR WHAT THAT AMOUNT IS. YEAH, EXACTLY.

AND THAT'S WHY WE WERE HOPING TO GET AN ANNUALIZED PERMIT WITH COASTAL COMMISSION SO WE COULD DREDGE MORE FREQUENTLY.

BUT EVEN THEN, WE'RE NOT GOING TO DO IT EVERY YEAR. AND SO I DON'T WANT TO BELABOR IT HERE, BUT WE NEED A WAY OF PREDICTING THESE BIG EVENTS THAT, YOU KNOW, WE DON'T DO WELL ON, YOU KNOW REBUILDING BUILDINGS THAT ARE ROTTING AWAY.

YOU KNOW, THE UPPER PIER PLAZA. THOSE ARE SINKING FUNDS.

BUT IT'S, THAT'S NOT PRESERVING IT, THAT'S JUST MAKING IT LOOK GOOD.

THOSE WOULD BE SEPARATE RESERVE FUNDS. AND WE WOULD NEED TO MAKE SURE WE ALLOCATE MONEY TO THOSE ACCOUNTS ON A CONSISTENT ANNUALIZED BASIS.

WE DON'T ALWAYS HAVE THE LUXURY OF DOING THAT. WE DON'T DO THAT AT ALL THAT I'M AWARE OF BECAUSE WE HAVE NOT HAD THE LUXURY.

GO AHEAD. A QUICK COMMENT ABOUT THAT, PLEASE.

THANK YOU. THE BREAKWALL WOULD BE AN EXAMPLE, THEN, OF A REGULAR MAINTENANCE OPERATION TO BE WITHIN CORE BUDGET OR CAPITALIZED? WELL, REMEMBER, BREAKWALL IS A FEDERAL PIECE OF INFRASTRUCTURE.

THAT'S THEIR EXPENDITURE. OKAY. WELL, WHAT ABOUT INTERNAL BREAK WALLS WITH SEA LEVEL RISE.

AND WE KNOW THEY'RE CRUMBLING TODAY. WE HAVEN'T SET ASIDE ANY MONEY.

NO, NOR DO WE HAVE FUNDING WE CAN SET ASIDE FOR THAT TYPE OF AN ACTIVITY.

I MEAN, THAT'S WHY WE'RE RELYING ON GRANTS.

THAT WOULD BE A MASSIVE THAT'S A MASSIVE EXPENDITURE.

YEAH, RIGHT. I MEAN, WE HAVE PROBABLY $200 MILLION OF MASSIVE INFRASTRUCTURE EXPENDITURE LOOMING IN THE HARBOR.

THAT'S I THINK WE NEED TO CHARACTERIZE THAT. SO WE KNOW THAT'S NOT AN AUDIT THING.

THAT'S A BUDGET TOOL. WELL, I WAS HOPING CIP WOULD DO THAT, BUT IT SOUNDS LIKE CIP IS NOT THE FIX FOR THAT BECAUSE WE'RE USING THIS MODIFIED APPROACH. THAT'S FOR STREETS. YEAH.

THIS, I WOULDN'T GET TOO HUNG UP ON THIS AFFECTING OUR ABILITY TO RESERVE FOR SIGNIFICANT MAINTENANCE EFFORT.

THAT'S A THAT'S SOMETHING. IF WE CAN'T PUT IN THE CIP TO TRACK, THEN.

WE CAN STILL USE THE CIP. YEAH, YOU CAN STILL USE IT BECAUSE CONSTRUCTION IN PROGRESS.

THERE ARE DIFFERENT BUCKETS IN CIP. SO IT'S JUST WHAT THE ACCOUNTANT HAS TO DO IS GO THROUGH THOSE BUCKETS TO SEE WHAT IS CONSIDERED TO BE AN ASSET, AND WHAT. HIS ANSWER TO STEPHANIE WAS, NO, IT CAN'T BE IN THE CIP.

WELL, SOME PROJECTS CAN AND SOME CAN'T. AND I THINK.

IF IT'S INCREASING CAPACITY OR CAPABILITY, YES, IS THE ANSWER I HEARD.

BUT IF IT'S NOT, IF IT'S JUST MAINTAINING WHAT'S THERE, THEN NO.

IT SHOULD NOT BE CAPITALIZED FOR FINANCIAL REPORTING PURPOSES, THEN.

BUT WE COULD PUT IT IN A CIP? YOU CAN. YEAH. I HAVE CLIENTS THAT HAVE CIP CAPITAL.

CIP NON CAPITAL. OKAY. NOW AT THE END OF THE DAY I DON'T WANT TO SEE IN AN ENTERPRISE FUND CIP NON CAPITAL BECAUSE THAT'S NOT AN APPROPRIATE THING FOR THE GOVERNMENTAL FUNDS. YES YOU COULD HAVE THAT. BUT IT'S THE TRACKING IS STILL THERE.

BECAUSE AGAIN THAT'S THE BUDGET FUNCTION. AND YOUR FIVE YEAR CAPITAL PLAN.

IT SAYS CAPITAL PLAN. BUT THAT'S NOT CAPITAL IN TERMS OF WHAT SHOULD BE CAPITALIZED IN A FINANCIAL STATEMENT.

SO YOU CAN HAVE A YOU KNOW, LIKE YOU SAID, A FIVE YEAR CAPITAL PLAN OF WHAT YOU WANT TO SPEND ON PROJECTS AND THINGS.

I'M NOT SAYING DON'T DO THAT. THAT'S NOT WHAT I'M SAYING. OKAY.

THANK YOU. READY TO MOVE ON TO THE THIRD ONE HERE.

1.5 MILLION IN ASSETS RELATED TO THE MARINE AVENUE HOTEL.

AGREEMENTS WERE WRITTEN DOWN AND RELATED REVENUES AND EXPENDITURES.

AGAIN, I MENTIONED WERE NET. I HAD TO GROSS UP THE REVENUE AND EXPENSE.

SO AGAIN, THE GROSS UP IS NOT IMPACTING THE TRUE EFFECT ON FUND BALANCE FOR THE YEAR.

WHAT WAS IMPACTING IS THE TWO ACCOUNTS. AND AGAIN MANAGEMENT BROUGHT THIS ATTENTION AND SAID THERE'S TWO ACCOUNTS THAT EQUAL $3 MILLION, WHICH IS THE REQUIREMENT UNDER THE AGREEMENT TO FUND A TRUST THAT'S BEING MAINTAINED BY THE LENDER OF THE OPERATOR BORROWED MONEYS FOR THE HOTELS, AND SO THAT'S $3 MILLION THERE.

BUT WHEN I GOT ASKED FOR A COPY OF THE BANK STATEMENT THAT FROM THAT TRUST ACCOUNT, IT ONLY HAD $450,000 OF IT AT THE BEGINNING OF THE YEAR. AND AT THE END OF THE YEAR, IT WAS $1.2 MILLION.

AND SO OBVIOUSLY THE 3 MILLION WASN'T JIVING.

AND AGAIN, READING THE AGREEMENT, THE DEVELOPER IS DEVELOPERS ALLOWED TO DRAW OUT OF THERE. IF THEY'RE NOT MEETING THEIR DEBT SERVICE OR OPERATING NEEDS, THEY'RE ALLOWED TO DRAW OUT OF THERE. AND THE CITY HAS AN OBLIGATION TO THE EXTENT THAT, AGAIN, I'M READING THIS FROM THE AGREEMENT, THE TOT REVENUE THAT'S GENERATED FROM THOSE HOTELS IS AVAILABLE TO FUND THAT TRUST FUND UP TO $3 MILLION AND NO MORE.

[00:50:05]

SO IT'S SET UP THAT WAY. AND SO THAT ACCOUNTING, THAT CASH BALANCE, YOU KNOW, IF EVERYTHING WERE TO, IF THAT AGREEMENT WAS TO END JUNE 30TH, 2024, THEN THE MONEY THAT'S IN THAT ACCOUNT IS, FROM MY UNDERSTANDING, AND READING THE DOCUMENTS AND THINGS WOULD BE COMING BACK TO THE CITY AND SO NEEDS TO BE REPORTED, NOT AS CASH, BECAUSE IT'S NOT UNDER YOUR CONTROL, BUT AS LIKE A RECEIVABLE, A DEPOSIT RECEIVABLE.

AND SO THAT'S WHERE THE ADJUSTMENT, WE ENDED UP MAKING THE ADJUSTMENTS FROM THAT $3 MILLION.

WE ADJUSTED IT DOWN TO THE $1.2 MILLION. NOW THAT COVERS THAT ASPECT OF IT.

ARE THE TWO ACCOUNTS, ONE BEING THE GROUND LEASE AND THE OTHER BEING THE TRANSACTION TAX? OR ARE THERE TWO ACCOUNTS THEN? GROUND LEASE DOESN'T CONTRIBUTE TO THE AFR. IT'S FOR THAT, REMEMBER WE HAD TWO SEPARATE HOTEL PROJECTS.

I THINK WE HAD THE FIRST TWO HOTELS WERE UNDER ONE ACCOUNT, AND I THINK THE THIRD HOTEL COMPLETED THE TRANSACTION.

THE SITE SPECIFIC TAX PLEDGE FOR 3 MILLION WAS AGGREGATE OVER THE COURSE OF ALL THREE PROPERTY, BUT I THINK IT WAS SET UP IN TWO ACCOUNTS INITIALLY, GIVEN THE PHASING OF THE PROJECT.

BUT REMEMBER, THIS IS 23-24 DATA. THIS MATH PRECEDES THE SUBSEQUENT AUDIT THAT WE DID IN WORKING WITH THE HOTEL TO MAKE SURE THAT WE'RE ON TRACK AND THAT THE EXPENSES WERE APPROPRIATE AGAINST THE AFR, WHICH WE HAVE SINCE DONE.

AND I THINK WE'RE HAPPY TO REPORT THAT THAT AFR IS NOW CURRENTLY FULLY FUNDED.

SO WE WILL BEGIN TO SEE TOT AGAIN ACCRUE BACK TO THE GENERAL FUND.

THAT'S NOT NECESSARILY GERMANE TO THE 23-24 FINALIZATION RESULTS.

WE WEREN'T ANYWHERE CLOSE TO 3 MILLION AT THE CONCLUSION OF THAT FISCAL YEAR, BUT IT HAS TRENDED UPWARD SINCE, AND I THINK WE'RE FINALLY, HOPEFULLY GOING TO RECEIVE TOT AGAIN FROM THE SITE.

THANK YOU. AND THEN THE THE LAST ONE JUST HAD TO DO WITH OPERATING REVENUES AND EXPENSES RELATED TO THE RENTAL ACTIVITIES I MENTIONED. THE CONCORD MANAGEMENT COMPANY AGAIN, CAME IN AS A NET NUMBER BASED ON THE CASH THAT WAS DISTRIBUTED TO THE CITY ON A MONTHLY BASIS. AND SO THAT I WANT TO SAY IT WAS ABOUT $1.7 MILLION WAS SHOWING AS REVENUE.

BUT REALLY, WHEN I ASKED FOR A BACKUP OF THE ACTIVITY FOR THE YEAR, THE RENTAL INCOME WAS 4,600,000 AND EXPENDITURES OF 3 MILLION.

AND SO THAT 1,700,000 WAS ESSENTIALLY THE NET OF THE ACTIVITY FOR THE YEAR.

SO AGAIN, YOU'RE SUPPOSED TO REPORT UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES GROSS.

AND SO WE UPPED BOTH SIDES. NO IMPACT ON THE NET POSITION THERE.

BUT AGAIN, THERE WAS SOME CASH ACCOUNTS THAT THE MANAGEMENT COMPANY IS USING THAT IF YOU WERE TO TERMINATE THEIR SERVICES, WHATEVER'S IN THAT ACCOUNT. MY UNDERSTANDING IS FUNDS THAT WOULD BE COMING BACK TO THE CITY.

SO I WANT TO MAKE SURE THERE'S A DEPOSIT RECEIVABLE AGAIN ON THE FINANCIAL STATEMENTS OR IN YOUR ACCOUNT IN THE GENERAL FUND TO ACCOUNT FOR THAT.

AND SO THERE WAS THAT THERE WAS SOME LEASE COMMISSIONS AND AGAIN ACCOUNTING FOR LEASE COMMISSIONS.

YOU AMORTIZE THAT OVER THE LIFE OF THE LEASE.

AND SO THERE'S A COUPLE ASSETS THAT WERE ADDED.

AND THEN THERE'S TENANT LEASE DEPOSITS. WHEN SOMEBODY COMES IN THEY HAVE TO, YOU KNOW, PAY ONE MONTH'S RENT FIRST AND LAST RENT, HOWEVER, THE AGREEMENT RECORDED THERE WASN'T A DEPOSIT LIABILITY ON THE ON THE ACCOUNT.

SO BASICALLY IT WAS, HEY, GET THE INFORMATION FROM YOUR YOUR THIRD PARTY MANAGEMENT AND GET IT RECORDED IN THE FINANCIAL STATEMENTS APPROPRIATELY.

AND SO THAT WAS THE, THE ADJUSTMENT WAS TO THE REVENUE EXPENSE, BUT THERE WERE SOME BALANCE SHEET IMPACT TO THIS AS WELL.

SO IT SOUNDS LIKE THE CASH, LIKE YOU SAID, THE CASH WAS JUST COMING IN AND WE DIDN'T KNOW TECHNICALLY IF IT WERE TENANT DEPOSITS OR OTHER DEPOSITS.

IT WAS JUST CASH COMING IN AND IT WAS JUST BEING ACCOUNTED FOR AS REVENUE.

YEAH. AND THAT DISTRIBUTION, THAT WAS THROUGH A CALCULATION THAT THEY DID.

AND THEY WOULD SUBMIT, YOU KNOW, X AMOUNT OF DOLLARS.

I'M SURE THEY WERE ALLOWED TO KEEP BACK SOME FOR RESERVES FOR MAINTENANCE OR SOME OTHER THINGS.

BUT THAT WAS THE THING WAS JUST GETTING THE ACCOUNTING INTO A GROSS IMPACT, GROSS THING.

SO THERE WAS A SLIGHT ADJUSTMENT ON, ON THE RESTATEMENT OF BEGINNING NET FUND BALANCE FOR THE GENERAL FUND BECAUSE WE'RE DEALING WITH PUTTING ON SOME CASH, SOME PREPAID COST FOR THE COMMISSIONS AND THEN OFFSET BY A LIABILITY FOR DEPOSIT LIABILITY FOR THE TENANT DEPOSITS THAT WERE IN PLACE. THIS IS ANOTHER NET CHANGE? YEAH, THERE IS SOME NET CHANGE. THE NET CHANGE FOR THAT.

I THINK I HAVE IT, OH, HERE WE GO. YEAH. OH, I'M SORRY, NOT THE GENERAL FUND.

[00:55:02]

IT'S THE TIDELANDS. YOU SHOULD HAVE CORRECTED ME. NO, IT'S PROBABLY.

ACTIVITIES IN THE TIDELANDS. AND UPLANDS PROBABLY.

THE UPLANDS AND TIDELANDS. AND SO FOR THE TIDELANDS, WE HAD A BEGINNING RESTATEMENT OF $550,000 FOR TIDELANDS AND 440,000 FOR THE UPLANDS TO ACCOUNT FOR THOSE BALANCE SHEET EFFECT.

AND ESSENTIALLY, THAT'S THAT CASH THAT THEY'RE MAINTAINING, RIGHT, WAS THE MAIN.

SO THAT'S MONEY WE HAVE OR. WELL IT'S NOT AN ACCOUNT THAT'S UNDER THE CITY'S CONTROL.

SO IT'S NOT LIKE YOU COULD DEMAND I WANT THAT MONEY BECAUSE YOU HAVE AN AGREEMENT IN PLACE.

AND THE AGREEMENT SAYS THAT WE NEED MONEY TO MANAGE WHAT YOU'VE ASKED US TO MANAGE.

AND SO IT'S JUST YOU DON'T WANT TO LOSE TRACK OF A POTENTIAL ASSET.

I MEAN, IT'S AN ASSET TO YOU GUYS, BECAUSE IF YOU WERE TO END THAT SERVICE WITH THEM, ONCE THEY UNWIND EVERYTHING, THAT CASH BALANCE SHOULD BE COMING BACK TO THE CITY.

IF THE CITY CHOSE TO HANDLE THE MANAGEMENT ITSELF AGAIN, OR IF YOU WANTED TO GO TO ANOTHER THIRD PARTY, IT'S. IT'S RESTATED AS A RECEIVABLE. THAT'S THE DIFFERENCE.

IT DOESN'T IT'S NOT AFFECTING OUR FUND BALANCE POSITION.

THAT WAS MY POINT. SO IT'S A NET ZERO CHANGE.

IT'S NOT EFFECTIVE. SO FROM A CITY PERSPECTIVE, WE DON'T HAVE MORE BUDGET TO SPEND. NO. NO, NO.

NO, WE DO NOT. THAT'S CORRECT. UNFORTUNATELY.

YEAH. THIS WAS AN AREA THAT. WHAT I WAS GOING TO SAY THIS IS, YOU KNOW, THIS ARRANGEMENT WITH CONCORD HAS BEEN AROUND FOR A LITTLE WHILE.

THEY, YOU KNOW, WE'VE HAD INCREASED RENTAL ACTIVITY OVER THE YEARS.

A LOT OF LEASING ACTIVITY. AND THIS IS AN AREA THAT WE WANT TO CONTINUE TO FOCUS ON.

SO THIS THIS WAS A GOOD START FOR US. WE APPRECIATED THIS.

OKAY. HOW MANY MORE SLIDES DO YOU HAVE? I CAN STOP WHENEVER YOU'D LIKE.

THERE, I'M, GASB STANDARDS UPCOMING. I CAN STOP NOW.

NO, NO, NO, I'M JUST, YOU KNOW, I'M JUST DOING MEETING MANAGEMENT. WE GOT A 4:30 MEETING THAT WE'VE GOT TO KICK OFF, SO WE HAVE TO CLOSE UP ABOUT 4:15. I WOULD IMAGINE.

I CAN GO THROUGH THESE SLIDES IN LIKE MAYBE A MINUTE OR TWO MINUTES ON THE UPCOMING GASB STANDARDS, IF YOU CHOOSE. IF YOU DON'T, THAT'S FINE. WE WANT TO HEAR EVERYTHING.

THIS IS QUICK. NO, THIS. THE REST OF IT'S GOING TO BE FAIRLY QUICK. IT'LL BE VERY MAINLY FOR JUNE 30TH, 2025. THERE IS A NEW GASB STANDARD, STANDARD 101, RELATED TO COMPENSATED ABSENCES THAT WE'RE GOING TO HAVE TO IMPLEMENT.

AND IT'S REALLY TRYING TO MAKE FINANCIAL STATEMENTS MORE ACCURATE ACROSS THE GOVERNMENTAL ENTITIES THEMSELVES BECAUSE EVERYBODY HANDLES COMPENSATED ABSENCES DIFFERENTLY. AND SO THEY'RE TRYING TO SHORE IT UP A LITTLE BIT.

AND MAINLY SICK LEAVE IS THE BIGGEST ISSUE BECAUSE, YOU KNOW A LOT OF MY CLIENTS WOULD JUST SAY, OKAY, HERE'S THE ACCRUED HOURS FOR EVERYBODY ON SICK LEAVE.

I'M MULTIPLYING IT BY THEIR CURRENT PAY RATE, AND THAT'S MY LIABILITY.

WELL, ARE THEY, YOU HAVE TO PAY IF SOMEBODY WERE TO TERMINATE, DO YOU HAVE TO PAY THAT WHOLE AMOUNT? WELL, NO, WE ONLY HAVE TO PAY 50. WELL, THEN YOU SHOULD ONLY ACCRUE 50%.

OR WHEN YOU PAY IT OUT, DO YOU HAVE TO PAY SOCIAL SECURITY AND MEDICARE TAX WHEN YOU PAY IT OUT? WELL, YES WE DO. SO WE BETTER ADD THE SOCIAL SECURITY AND MEDICARE TO WHATEVER THAT LIABILITY COST IS.

SO THOSE ARE THE KIND OF THE COMPONENTS FOR THERE. NEXT SLIDE IS JUST CERTAIN RISK DISCLOSURES.

SO IF A CATASTROPHIC EVENT FROM A REVENUE STANDPOINT OR LIABILITY STANDPOINT HAPPENS, ALL THIS IS DOING IS ASKING YOU TO DISCLOSE MORE INFORMATION ABOUT THE EVENT IN THE FINANCIAL STATEMENTS IF IT OCCURS.

NEXT SLIDE. FINANCIAL REPORTING MODEL I TOLD YOU THE GASB 34 HAS BEEN AROUND FOR OVER 20 YEARS.

WELL, THEY GOT AROUND TO LOOKING AT IT AND SEEING WHAT PEOPLE LIKED AND WHAT DIDN'T LIKE. THEY'VE COME UP WITH SOME REQUIRED CHANGES TO THE REPORTING MODEL THAT WILL HAPPEN EFFECTIVE JUNE 30TH, 2026. SO IT WON'T BE IT WILL BE JUNE 30TH, 2027 BEFORE YOU SEE THE CHANGES.

AND LASTLY AGAIN, SAME THING 2027, WHEN YOU IMPLEMENT THE CHANGES FOR GASB 34, YOU HAVE SOME ADDITIONAL DISCLOSURES THAT ARE GOING TO BE REQUIRED FOR CAPITAL ASSETS, BECAUSE NOW WE HAVE THESE NEW COMPONENTS OVER THE LAST YEAR ABOUT ADDING LEASES, ABOUT ADDING SUBSIDIES AND PPP ARRANGEMENTS AND INTANGIBLE ASSETS, THAT THEY JUST WANT TO CLARIFY EVERYTHING. AND THAT'S IT.

MORE GASB ON LEASES. I KNOW THAT'S. THANK YOU.

ANYTHING FROM ANYBODY UP HERE? I HAVE ONE MORE QUESTION.

GO AHEAD ELEANOR. I WAS JUST WONDERING REGARDING.

I NOTICED THE MD&A WASN'T ON THERE. WHEN DO YOU THINK THAT WILL BE READY? I THINK RIGHT NOW WE ARE FINALIZING. WE WERE WE WERE WORKING ON THE CONCORD, FINALIZING THE CONCORD ADJUSTMENTS.

ONCE STEPHANIE AND HER STAFF LOOKS AND SAYS, YES, THAT LOOKS GOOD.

I CAN HAVE THE DRAFT. OH, YOU'RE DOING IT. YEAH, I'M DOING THE, I'M HELPING WITH THE FINANCIAL STATEMENTS.

OKAY. BUT THEY HAVE TO OKAY IT. AND SHE'S ON TOP OF IT.

SHE'S ALREADY GIVEN ME A DRAFT MD&A, BUT I KNOW SOME NUMBERS HAVE TWEAKED A LITTLE BIT ACROSS THE PROCESS.

[01:00:01]

SO I WANT TO HAVE THE OPPORTUNITY FOR HER TO RELOOK AT THAT WITH THE TEAM AND HAVE THAT IN PLACE.

SO WE'RE GOING TO TRY TO GO AS FAST AS WE CAN BECAUSE IT'S ALREADY BEEN 14 MONTHS.

WELL, YOU HAVE SEEN IT WITH THE BOOK. SO THIS TIME.

YEAH. AND I MEAN, I KNOW WE'RE WAY. THAT WAS MY, IT WASN'T HER.

SHE WANTED SOMETHING IN THERE. AND I WAS JUST SAYING I REALLY FEEL UNCOMFORTABLE BECAUSE OF YOU.

I DIDN'T WANT ONE OF YOU TO SAY, WELL, THIS NUMBER HERE SAYS THAT, AND MY DRAFT SAYS THIS BECAUSE I MADE THAT ONE LAST TWEAK.

SO THAT WAS THE REASON. OKAY. EUGENE. THAT WAS IT.

THANK YOU CHAIR LIGHT FOR THE CLAIMS EXPENSE, THE ESTIMATES, THE INCURRED, BUT NOT REPORTED.

DO WE GET THAT FROM OUR TPA, OR IS THERE SOME INTERNAL FUNCTION WE DERIVE THAT FROM? WE HAVE AN ACTUARY WHO PROVIDES US OUR REPORTS FOR WORKER'S COMP AND LIABILITY.

AND THEN OUR THIRD PARTY ADMINISTRATOR ADMINISTERS THE CLAIMS, BUT WE DO.

WE'LL HAVE AN ANNUAL REPORT FROM OUR ACTUARY.

OKAY. THANK YOU. OKAY. THANK YOU. THANK YOU. SO WHAT DO YOU REQUIRE OUT OF THIS COMMITTEE? THIS IS MY FIRST ONE SINCE IT GOT DELAYED. DO DO WE APPROVE THIS OR DO WE MAKE RECOMMENDATIONS TO THE COUNCIL OR WHAT? THIS IS THE COMMITTEE TO TO REVIEW, RECEIVE THE SUBSTANTIVE INFORMATION ASSOCIATED WITH THE AUDIT TO MAKE SURE WE'RE COMFORTABLE BEFORE WE APPROVE THE ACFR TONIGHT AS PART OF THE OF THE CONSENT CALENDAR. SO IF YOU HAD DISCOMFORT OR HAD MORE QUESTIONS FOR THE AUDITOR OR WANTED ADDITIONAL THINGS ADDRESSED THAT WOULD BE DIRECTED TONIGHT. AND THEN WE WOULD WE WOULD LIKELY DELAY THE ACFR FOR FINAL APPROVAL.

YOU KNOW, IT'S AN UNMODIFIED OPINION, AS WAS STATED, ALTHOUGH THAT DOESN'T SOUND VERY POSITIVE.

THAT IS THE HIGHEST STANDARD YOU CAN GET FOR FOR AN OPINION FOR AN AUDIT.

SO THAT'S GOOD NEWS. AS I SAID EARLIER MOODY'S REAFFIRMED OUR CREDIT RATING AS AA1.

THAT'S ALSO GOOD NEWS. SO DESPITE THE DELAY AND THE THOROUGHNESS OF THIS REVIEW, WE'RE PLEASED WITH THIS OUTCOME.

SO WE DON'T HAVE ANY MAJOR CONCERNS AT THIS POINT.

I THINK ALL THE CORRECTIVE ACTIONS HAVE BEEN TAKEN THAT WERE NECESSARY FROM A PROCESS AND PROCEDURE STANDPOINT.

AND WE WILL CONTINUE THOSE PRACTICES GOING FORWARD IN THE CURRENT FISCAL YEAR.

AND AS WE ADDRESS THE 24-25. ALL THE FIXES ARE ALREADY DEFINED? THE FIXES ARE. AND PROCESSES ARE WRITTEN? I WOULD, I WILL NOT SAY THAT ALL OUR PROCESSES ARE WRITTEN.

HOWEVER, WE HAVE A GREAT OPPORTUNITY AS WE CLOSE OUT 25 AND AS WE PREPARE THAT AUDIT TO DOCUMENT AND DEMONSTRATE THESE ITEMS, AND WE ARE VERY COMMITTED TO NOT HAVING REPEAT FINDINGS AND TO NOT GOING THROUGH THIS PROCESS AGAIN.

SO AS I MENTIONED, WE'RE HAPPY TO SHARE THE PROGRESS ON THOSE PROCESSES AND PROCEDURES WITH YOU.

BUT ALL OF THESE AREAS, AS BOB MENTIONED, WE ARE COMPLETELY IN AGREEMENT.

WE ARE WORKING TO ADDRESS THEM. AND WE'RE PRETTY CONFIDENT YOU'RE NOT GOING TO SEE THESE MOVING FORWARD.

OKAY. AND IF WE HAVE SOME ISSUES LINGERING, NOT NECESSARILY WITH WHAT WOULD COME OUT IN THE ACFR, BUT WHAT WE, YOU KNOW, WHAT WAS FOUND HERE. WELL, WE SHOULD, WE CAN TALK MORE ABOUT IT AT ANY TIME.

THE. BUT DO WE RECONVENE THIS COMMITTEE OR DO WE PASS IT OFF TO THE COUNCIL? NO, NO. YOU WOULD RECONVENE THIS COMMITTEE IF YOU'D LIKE, IF YOU WANTED TO TAKE SOMETHING UP. HOWEVER, IF THE ISSUE IS ASSOCIATED WITH, SAY, RESERVE CAPITAL RESERVES FOR FUTURE MAINTENANCE ITEMS IN THE WATERFRONT, THAT'S PROBABLY SOMETHING WE SHOULD ADDRESS THROUGH BUDGET ACTION, NOT THROUGH FINANCIAL REPORTING ACTION. THAT'S MORE OF HOW WE SEQUESTER FUNDS.

BUDGETING IT'S HOW DO WE ACCOUNT FOR IT? THIS IS MORE ABOUT HOW WE'RE BOOKING THE EXPENDITURE.

I UNDERSTAND. SO WHAT YOU'RE GETTING AT I THINK IS, ARE WE RESERVING FUNDS FOR THESE EXPENSES? HOW DO WE EVEN KNOW? YOU KNOW, WHAT. THAT'S MORE OF A, THAT'S AN ASSET MANAGEMENT TOOL.

THAT'S SOMETHING THAT ANDY WE'RE WORKING ON AS KIND OF A SEPARATE ITEM TO TRACK INFRASTRUCTURE, TRACK LIFE EXPECTANCY, IDENTIFY POTENTIAL FUNDING TO HELP ACCOMMODATE AND MAKE THOSE CHANGES AND REPAIRS AS NEEDED.

SO THAT'S A BROADER CIP TOOL. I MEAN, AGAIN, I DON'T WANT TO CONFUSE CIP WITH ACCOUNTING HERE, BUT THAT'S A BROADER TOOL. BUT COULD YOU, BOB, COULD YOU COME.

AND MAYBE CHAD HAS SOME. WELL, I THINK, YOU KNOW, IN TERMS OF EXPENSING IT VERSUS CAPITALIZING IT LIKE A CIP.

IT WOULD SORT OF BE LIKE A BUILDING. SO IF YOU HAVE A BUILDING, SOME OF THE OPERATING EXPENSES, ANNUAL OPERATING EXPENSES GET ACCOUNTED AS THAT ANNUAL OPERATING EXPENSES.

BUT SOME THINGS ARE CAPITALIZED IF YOU'RE MAKING AN IMPROVEMENT OR IT'S A LONG LIVED ASSET THAT YOU'RE PUTTING ON THE PROPERTY.

SO I THINK WITH ALL OF THESE VARIOUS PROJECTS, WE'LL HAVE TO SEE, YOU KNOW, GO THROUGH AN ACCOUNTING CHECKLIST TO SEE IF IS SOMETHING WE WOULD CAPITALIZE AS A CIP OR SOMETHING THAT WE WOULD JUST DO AS AN ANNUAL EXPENSE.

SO IT'S NOT THAT EVERY BIG, YOU KNOW, REBUILDING THE SEAWALL IS GOING TO BE, YOU KNOW, A $200 MILLION HIT IN ONE PARTICULAR YEAR, SOMETHING LIKE THAT, I THINK WOULD GET CAPITALIZED, CORRECT?

[01:05:02]

YES. IS THAT YEAH. THE ACCOUNTING AGAIN, THE IDENTIFYING THE NEED FOR FUTURE CAPITAL RELATED ITEMS. YOU KNOW, THE CITY HAS A CAPITALIZATION POLICY.

AND AS AN AUDITOR I'M LOOKING OKAY, WHAT'S YOUR CAPITALIZATION POLICY, AND ARE YOU FOLLOWING IT, AND ARE THERE CONTROLS IN PLACE TO MAKE SURE THINGS GET RECORDED CORRECTLY ON THE ANNUAL FINANCIAL STATEMENTS, WHICH ARE HISTORICAL IN NATURE, NOT NECESSARILY FORWARD THINKING ABOUT FUTURE CAPITAL NEEDS. THAT'S THE DIFFERENCE, BECAUSE I THINK WHAT YOU'RE THINKING OF IS OUR FUTURE CAPITAL NEEDS.

AND ARE WE IDENTIFYING THOSE AND ARE WE PRESERVING AGAINST THOSE OR IDENTIFYING STRATEGY TO FUND THOSE? EXACTLY. I MEAN, AND THAT'S A BIGGER. YOU KNOW, IF WE SEE $1 MILLION POSITIVE IN THE IN THE TIDELANDS AND UPLANDS NEXT YEAR, WE'RE GOING TO WANT TO SPEND IT WHEN, YOU KNOW, WE GOT THESE BIG PAYMENTS LOOMING AND BIG PROJECTS LOOMING.

AND HOW MUCH DO WE SET ASIDE? WE DON'T EVEN HAVE A.

AND EVEN MORE BROADLY, ONE OF THE ITEMS ON TONIGHT'S AGENDA IS SEA LEVEL RISE ASSESSMENT.

AND THAT GRANT, THAT $500,000 GRANT WE RECEIVE FROM COASTAL, THAT'S GOING TO IDENTIFY FURTHER INFRASTRUCTURE NEEDS TO BARRIER AGAINST FUTURE SEA LEVEL RISE. SO THERE IS ANY, I MEAN, WE HAVE A LITANY OF EXPENSES THAT ARE LOOMING IN THE WATERFRONT OVER THE NEXT SEVERAL DECADES. AND THAT'S OUTSIDE THE PURVIEW OF THIS COMMITTEE, SO.

YES, I THINK IT BECOMES A BIT OF A BUDGET POLICY CONVERSATION.

BECAUSE I DON'T KNOW THAT WE ACCURATELY KNOW, YOU KNOW, WE SPEND WHATEVER'S IN THE BUDGET.

AND THIS YEAR WE OVERSPENT BY 3.5 MILLION TO EAT INTO RESERVES, RIGHT.

BUT WE HAVE NO CLUE THAT, YOU KNOW, THERE'S NO DISCUSSION ABOUT, OH, WE GOT TO DO 600,000 NEXT YEAR FOR PILINGS AND, AND YOU KNOW, $100 MILLION FOR THE FIRST PART OF A BREAK WALL, INTERNAL BREAK WALL FIX.

BUT I THINK, LIKE WE DO WITH OTHER ITEMS. SO FOR EXAMPLE, WE HAVE, YOU KNOW, RESERVE FUNDS FOR LIKE POLICE AND FIRE VEHICLES AND THINGS LIKE THAT.

WE NEED TO DO THAT. I AGREE WITH THE HARBOR AND TIDELANDS.

SO IT'S BUDGETING. IT'S A BUDGET. HOW MUCH WE SHOULD BE SETTING ASIDE.

AND THAT'S RIGHT IN THE IN THE BOGEYS HUGE. I MEAN, THE BOGEY IS SO HUGE.

WE HAVE SORT OF SAID TO OURSELVES, I'M NOT I'M NOT SURE WE CAN FUND IT WITH LOCAL DOLLARS ALONE THAT'S THE CHALLENGE.

WE SHOULD GO IN SEEING THAT MUCH. AND THEN FIGURING OUT, DO WE REALLY WANT TO SPEND THIS POSITIVE MONEY OR DO WE WANT TO PUT IT AWAY? NO. NO QUESTION. PARTICULARLY AS IT PERTAINS TO.

WELL WE'RE GETTING BEYOND THIS COMMITTEE, SO I APPRECIATE THAT.

I, YOU KNOW, I'M COMFORTABLE WITH THE RESULTS.

SO I'M COMFORTABLE RECOMMENDING TO THE COUNCIL THAT, YOU KNOW, WE APPROVED THE ACFR WHEN IT CAME.

I GUESS THAT'S COMPLETE NOW, RIGHT? SO OKAY, SO I'D LIKE TO MAKE A MOTION.

I HAVE ONE MORE REMARK PERTAINING TO YOUR. OKAY.

WHICH IS THERE'S THERE'S REGULARLY A DISCUSSION ABOUT WHAT IS MAINTENANCE AND OPERATIONS VERSUS WHAT IS CAPITAL IMPROVEMENT PROJECT.

AND IT'S A DISCUSSION THAT GOES ON ALL THE TIME WHEN LOOKING AT ANY OF THESE PROJECTS.

I'M GOING TO ASK BECAUSE I DON'T KNOW THERE IS SOME SORT OF GASB OR OTHER STANDARDIZED DEFINITION OF WHAT IS TO BE CONSIDERED A CAPITAL IMPROVEMENT PROJECT VERSUS A MAINTENANCE OR MAINTENANCE ISSUE. IT IS A, YOU KNOW, THERE ARE SOME GUIDELINES AND GUIDANCE, BUT IT IS A FACTS AND CIRCUMSTANCES DISCUSSION ON THE PROJECTS.

SO I THINK. AND BASED ON THE CITY'S CAPITALIZATION POLICY THRESHOLDS.

SO IT'S A COMBINATION OF THOSE THINGS. SO YEAH THERE'S DEFINITELY SOME GUIDANCE ON THERE.

AND MAINLY IT'S, YOU KNOW, IS THE LIFE OF THIS PROJECT MORE THAN ONE YEAR.

AND THE OTHER AND THE OTHER ONE IS THE, THE USEFUL LIFE, YOU KNOW, THE USEFUL LIFE AND THE DOLLAR AMOUNT THAT THOSE ARE THE TWO THINGS.

AND IF IT'S FALLING FROM AN AUDIT PERSPECTIVE, I'M LOOKING AT YOUR CITY'S CAPITALIZATION POLICY AND SAYING YOU MADE THE DECISION TO CAPITALIZE THIS BECAUSE HERE'S OUR CAPITALIZATION POLICY.

HERE'S THE DISCUSSION WE HAD ON ON THE PROJECT, WHETHER IT QUALIFIED OR WHY IT DID OR DIDN'T QUALIFY.

THAT'S WHAT I'M LOOKING AT AS AN AUDIT POINT. SO IT IS A FACTS AND CIRCUMSTANCE BASED TOPIC AND AGAIN I APOLOGIZE.

ACCOUNTING AND CALLING CIP CAN HAVE. CIP CAN BE USED FOR MANY DIFFERENT THINGS.

AND SO I APOLOGIZE FOR THE CONFUSION THERE. BUT FROM THE FINANCIAL STATEMENT I'M MORE CONCERNED ABOUT, I DO NOT WANT TO SEE SOMETHING PUT INTO A CIP ACCOUNT ON THE FINANCIAL STATEMENTS THAT WE KNOW IS NOT GOING TO MEET THE CAPITALIZATION THRESHOLD WHEN IT GETS DONE, YOU KNOW, SO. WE NEED TO GET AWAY FROM THAT TERMINOLOGY AND MAKE IT VERY CLEAR, WHAT'S IN ACCOUNTING SIDE IS THE CIP AND WHATEVER WE WANT TO CALL THE OTHER, THE REST OF IT.

NON CAPITAL CIP AND CAPITAL CIP. THAT'S JUST HOW I'VE SEEN IT ON A COUPLE THINGS ABOUT THE EASIEST WAY TO DO IT.

[01:10:02]

ANYTHING ELSE. NO THANK YOU. ANYONE ELSE? OKAY.

SO PERSONALLY, I WOULD LIKE TO SEE THOSE PROCESS FIXES COME BACK SO THAT WE CAN SEE THEM, YOU KNOW, FOR THE FOR THE MATERIAL WEAKNESSES. AND WHAT WAS THE OTHER ONE CALLED? THE. YEAH, DEFICIENCIES, DEFICIENCIES, WHATEVER THEY WERE.

YEAH, I, WILL WE HAVE AN APP FOR EACH SIGNIFICANT.

WE'RE GOING TO HAVE AN APP ON THE GRANT SIDE I'M CERTAIN OF THAT.

WELL WE'LL DEFINITELY BE UPDATING THE GRANTS APP.

I THINK WHAT MY TEAM IS FOCUSING ON IS REALLY JUST BUILDING OUR POLICIES AND PROCEDURES THAT OUR INTERNAL STAFF WILL BE FOLLOWING EACH TIME, AND THOSE WILL BE CONSISTENT WITH OUR UPDATES TO THE KIND OF THE BROADER APP.

SO WE'RE HAPPY TO SHARE THOSE WITH YOU AS WE CREATE THEM.

THEY MAY BE SOMEWHAT, YOU KNOW, DETAILED IN NATURE, BUT YES, VERY HAPPY TO SHARE ONGOING PROGRESS.

COULD WE DO THAT AS A, LIKE A REFERRAL TO STAFF AND THEN JUST HAVE THAT REPORT COME BACK TO THE COUNCIL AS OPPOSED TO COMING BACK TO THE AUDIT COMMITTEE? I'D LIKE TO HAVE WELL, I THINK YOU I THINK YOU COULD WE COULD RECONVENE.

I MEAN, IF ALL GOES WELL, WE'LL BE RECONVENING THIS AUDIT COMMITTEE INSIDE.

THIS MIGHT BE SHE MIGHT KICK ME FOR THIS, BUT INSIDE OF, YOU KNOW, IN THE NEXT 6 TO 8 MONTHS IDEALLY IF.

THAT'S MY GOAL. AS LONG AS BOB, YOU KNOW, HELPS US OUT.

I THINK THAT'S I THINK THAT'S OUR PLAN. SO IF YOU'D LIKE, WE COULD HAVE A SPECIFIC FOLLOW UP DISCUSSION ABOUT THAT.

YEAH. ABOUT THAT AS PART OF THAT MEETING. AND I THINK THIS IS THE RIGHT FORM FOR IT.

THIS IS WHY YOU FORM AN AUDIT COMMITTEE. I THINK ON THIS COMMITTEE I CAN ACTUALLY MAKE A MOTION.

YEAH. BECAUSE I'M NOT ACTING AS MAYOR, I'M THE CHAIR OF THE COMMITTEE. SO I'D LIKE TO MAKE A MOTION THAT WE RECOMMEND THE COUNCIL APPROVE THE ACFR TONIGHT AND THAT WE COME, THAT WE COME BACK WHEN WE COME BACK FOR THE NEXT YEAR'S.

THE 24-25 AUDIT. 24-25 AUDIT THAT WE GET TO SEE THE FIXES TO ALL OF THESE ANOMALIES THAT WERE PRESENTED TODAY.

I'LL SECOND. OR AT LEAST HAVE A DISCUSSION ON, ON THE ON THE STATUS OF THOSE PRACTICES.

YEAH. OKAY. SO WE HAVE A MOTION AND A SECOND ANY DISCUSSION ON THE MOTION.

OKAY. ANYONE FROM THE PUBLIC? THERE ARE NO ATTENDEES ON ZOOM.

WE HAVE. WE HAVE ONE IN THE. AND ONE IN THE AUDIENCE.

OKAY. OKAY. GOOD AFTERNOON, MAYOR AND COUNCIL.

WAYNE CRAIG, RESIDENT OF DISTRICT ONE. I CAME DOWN TONIGHT BECAUSE I ORIGINALLY SAW THE REPORT THAT WAS ABOUT 3.4 MILLION OF GRANTS THAT WE DIDN'T KNOW WHERE THEY WENT.

THAT WAS A LITTLE ALARMING. SO I'M GLAD TO HEAR SOME EXPLANATION AS TO HOW THAT HAPPENED.

IT WAS JUST A MISCATEGORIZING A DIFFERENT ACCOUNTING BUCKETS, SO TO SPEAK.

BUT I WANTED TO BRING UP SOMETHING THAT IS RELATED TO AUDITS AND BUDGETS AND GRANTS.

THE, I RECEIVED A COPY OF A ANALYSIS OF THE COST EXPENDITURES FOR THE HOMELESS PROGRAM WE HAVE IN THE CITY.

I DON'T KNOW IF YOU'VE GOTTEN A COPY OF THIS REPORT, BUT APPARENTLY WAS PRESENTED TO THE BUDGET AND FINANCE COMMISSION LAST WEEK OR LAST YEAR, LAST MONTH. AND ONE OF THE CONCERNS I HAD, IF YOU LOOK AT THE TOTAL ALLOCATION FOR THIS WHOLE PROJECT IS SOMETHING LIKE 1.938 MILLION AND I DON'T KNOW THE EXACT TIME PERIOD THAT THIS MONEY WAS SPENT. BUT IN MONEY THAT CAME FROM THE GENERAL FUND THAT I ASSUMED WERE SUPPOSED TO COME FROM GRANTS IS COMING CLOSE TO $581,000.

SO NEARLY $600,000 OF OUR HOMELESS PROGRAM IS BEING PAID FOR OUT OF THE GENERAL FUND.

IS THAT PART OF THIS $3.4 MILLION IN GRANTS THAT WE HAVEN'T RECEIVED YET? I DON'T KNOW. JUST SOMETHING TO BRING UP TO THE COUNCIL WHEN YOU DO TALK ABOUT THIS, BECAUSE IF THIS IS THE CASE, WE NEED TO BE BETTER AUDITING THIS. AND PERHAPS IT MAY BE TIME TO LOOK AT WHETHER WE SHOULD HAVE OUR HOMELESS PROGRAM AS A STANDALONE ENTITY WITHIN THE CITY.

THAT WAY, IT COULD BE AUDITED. YOU HAVE A DIRECT MANAGER THAT SUPERVISES IT. WE CAN TRACK EVERYTHING GOING ON BECAUSE IT SEEMS VERY ALARMING WHEN I SAID NEARLY $600,000 WE'RE PAYING FOR OUT OF THE GENERAL FUND. ARE WE GOING TO GET THAT MONEY BACK? I DON'T KNOW.

ANYWAY. THANK YOU. IS THAT A CHECK OR IS THAT ACTUALLY.

IT'S ACTUALLY A REPORT THAT WAS HANDED TO THE BUDGET AND FINANCE COMMISSION LAST MONTH. I BELIEVE IT WAS THE POLICE.

I DON'T KNOW IF. THEY SENT IT TO ALL OF US. OF THE.

THAT REPORT WAS PRESENTED BY THE FINANCE DIRECTOR.

OKAY. CORRECT. YEAH, EXACTLY. I GOT A COPY OF IT FROM I THINK THEY REFERRED IT TO THE COUNCIL, SO I GOT A, I'M SURE WE ALL GOT COPIES OF THIS.

I'M NOT YOU. MAYBE, BUT THE COUNCIL. THE COUNCIL MEMBERS AREN'T HERE.

OKAY? YEAH. AGAIN, THIS IS SOMETHING, I THINK SOMETHING TO LOOK AT.

OBVIOUSLY, IT'S A CONCERN. WE WE I KNOW WE LIKE TO TOUT OUR PROGRAM AS BEING A MODEL, BUT IF WE DON'T KNOW WHERE OUR MONEY'S COMING FROM, MAYBE IT'S NOT THE BEST MODEL. YEAH. THANK YOU.

THANK YOU. ALL RIGHT. THANK YOU. OKAY. WITH THAT, I WILL CALL THE VOTE.

ALL FOR? AYE. ANYONE OPPOSED? OKAY. LET'S SEE.

ANY ITEMS FROM STAFF? NOPE. OKAY. I'LL TAKE A MOTION TO ADJOURN.

MOTION TO ADJOURN. THANK YOU. BOB. SECOND. OKAY.

[01:15:02]

ALL FOR? AYE. ALL RIGHT. WE ARE ADJOURNED. THANK YOU.

BOB.

* This transcript was compiled from uncorrected Closed Captioning.