Written by the reviewer from the ASR + docket; [verbatim-ASR] = quoted machine transcript; [paraphrase] = reviewer's wording, not a quote.
0:00 Because I'm a stickler for time, it's 7 a.m. or 7 p.m. a.m. would be different.
0:06 So I will go ahead and call the Finance Committee meeting to order for Monday, September 14th.
0:14 The first order of business is the review and approval of the July 6th, 2026 Finance
0:22 Without objection, they are approved.
0:27 And then the next docket item is a communication and review of the Annual Comprehensive Financial
0:33 Report to the City of Lakewood for the audit period January 1, 2025, through December
0:40 31, 2025, pursuant to the codified ordinances 160.03.
0:46 And for folks that follow the Finance Committee and our financial controls, we'll note
0:52 that earlier this year we amended the Lakewood codified ordinances to basically do away with
1:01 a citizen audit committee, and we assigned the audit committee tasks to the Finance
1:06 Committee of City Council.
1:09 So every year the City has an audit or either uses the auditor or state or has a private
1:15 audit firm audit our financial statements and our financial controls, and they produce
1:25 We've talked about it a little bit that before the audit is released we can technically
1:29 do an audit conference that's exempt from the Open Meetings Act, so council members
1:34 could ask and audit committee members could ask morning questions in a nonpublic meeting,
1:40 an executive session if they wish to, or we could simply wait until the audit is
1:44 finalized with the auditor of state's office and have a public meeting where we can
1:49 ask public questions to the auditors and to the finance director about the audit.
1:55 And we went with the second route here, so the audit is posted on the auditor of
2:00 We also got a copy of it on council.
2:04 So that's a lot of preamble to why we're here tonight.
2:10 Generally speaking the audit was clean, and we have Kyle Doherty and Devon Bernard from
2:19 Zubka and Associates, did I say that correct?
2:22 Did I say your names correctly?
2:26 And so we welcome them here this evening to answer our questions.
2:29 We also have Director Mahoney and Director Vargo present.
2:34 I guess, you know, as I understand it, the auditors don't have like a presentation to
2:40 give, but I think I would want to turn it over to them just to kind of hear high
2:43 level what their experience is with Lakewood, what the audit represents.
2:48 In speaking with them before the meeting, the city of Lakewood has used the firm's
2:53 Upkin Associates for a couple years for our audit.
2:57 Sometimes the state auditor does audits with their own staff, and sometimes they
3:00 provide municipalities and local governments the ability to hire independent auditors, I
3:09 think IPAs, independent public accountants, to do this work, which, you know, they
3:15 basically, I'll let them explain, but from what I understand, you know, come and have
3:21 full range of viewing financial controls, documents, double checking things that the
3:25 city has, double checking ledgers' accounts to make sure that everything matches up
3:29 with what we put out there to ensure that we have the right controls in place.
3:35 So at this point, I'll turn it over to maybe Director Mahoney or Kyle or Devin to kind of
3:41 go through the audit and where we're at.
3:54 Good evening, everyone.
3:56 Apologize for my microphone deficiency there.
4:00 I'm the audit partner at Upkin Associates.
4:02 With me is Devin Bernard.
4:04 He was the senior auditor in charge of the field work of the audit and performed
4:09 most of the day-to-day work while I was the one in charge of reviewing everything and
4:15 then the final approval of the auditor's report.
4:19 So tonight, what I was going to do is run through a high level of what our process
4:24 is and the different reports that we issue that are part of the annual comprehensive
4:32 I'd be happy to answer any questions as I'm going through things.
4:36 Feel free to interrupt me or certainly when I'm done, we'll be open to take any questions
4:41 about the reports or the audit process.
4:45 So in summary, there's a few different audit reports that we issue or reports that we
4:51 issue as part of the audit.
4:53 The first one is what's titled the independent auditor's report.
4:55 So that's the main one where we're looking at the financial statements.
4:59 So the main point there is that we had a clean or unmodified opinion on the financial
5:06 statements, which means that we believe that they are fairly presented in material
5:13 The second report that we issue is our report on internal control over financial
5:17 reporting and compliance.
5:20 Main point there is that we did not identify any significant deficiencies or material
5:24 weaknesses in internal control over financial reporting.
5:28 And we did not identify any material non-compliance.
5:32 And the third main report is the report on compliance for each major federal
5:39 So what that is, is since the city expended more than $1 million in federal
5:46 funds, we're required to have a compliance audit done.
5:49 And so we look at certain federal programs, review those for certain
5:54 We had an unmodified or clean opinion over compliance for those programs, and
5:59 we did not identify any significant deficiencies or material weaknesses in
6:03 internal control over compliance.
6:07 And the last couple of things I'll mention is, before I get into the more
6:11 detail, is we also would potentially issue a management letter.
6:16 That's where we would have any comments that aren't a significant
6:21 deficiency or material weakness in internal control.
6:23 I'll kind of describe what those mean a little bit later on.
6:26 But if there was any other matters that we wanted to bring it to attention
6:29 of management governance.
6:32 However, we didn't have any management letter comments for the 2025 audit.
6:36 And last thing, we have a letter that we issue to the governing body, what we
6:41 call our required communication letter.
6:43 It just kind of goes over certain other matters with the audits if there were
6:47 any other issues that we encountered or that sort of thing.
6:49 But we didn't have any issues in performing the audit.
6:57 So go through each of those a little bit more detail.
6:59 The independent audits report, again, that's where we're issuing our main
7:03 opinion over the financial statements, where we had the unmodified or clean
7:08 One thing I'll point out is that the way government financial statements are
7:12 prepared is that they're broken out into what we call opinion units.
7:17 Essentially, it breaks out each of the major funds of the city's
7:22 operations and then lumps together all the other funds into one, what we call
7:27 So we're actually kind of doing almost several audits of different sets of
7:31 financial statements simultaneously.
7:33 So there's like the general fund, other major special funds, and then all
7:38 the other opinion, all the other funds are lumped together as an
7:43 So again, we had a unmodified opinion in over all those different
7:48 We conduct the audit following generally accepted auditing standards, as well as
7:53 government auditing standards.
7:57 That mentions management's responsibilities over the financial
7:59 statements, ultimately management's responsible for the preparation of the
8:03 financial statements, and for maintaining relevant internal control
8:07 over financial reporting.
8:09 Excuse me, Mr. Dracki.
8:10 When you say management, do you mean like the city?
8:15 Our responsibility as auditors is to obtain what we call reasonable assurance
8:23 over the financial statements.
8:24 So we're not performing enough procedures to gain absolute assurance
8:28 that every single number and item in the financial statements is 100%
8:33 The nature of auditing is that we do a risk-based approach.
8:37 We look at areas that we feel might be more subject to having
8:42 We review internal control to determine what areas we want to have
8:46 more focus in, and we design our audit procedures based on those risks.
8:51 So we're looking at the major areas of the financial statements that
8:59 Again, we gain an understanding of internal control.
9:01 We evaluate accounting policies and estimates for reasonableness.
9:05 So we put all those things together, and we decide what our procedures
9:09 are going to be, and we perform the audit accordingly.
9:16 Last part of the independent auditors report I'll mention is there's
9:18 a few other sections of that report that describe other sections of
9:23 the annual comprehensive financial report.
9:27 These different areas have a little bit different level of audit
9:31 procedures performed on them, so I'm not going to go through that
9:33 in detail, but I just wanted to point that out.
9:37 There's a few other areas called required supplementary information,
9:41 supplementary information, and other information.
9:43 So our procedures are a little bit different on those areas as
9:45 opposed to the main body of the financial statements, but the audit
9:49 report describes what the extent of our procedures are for those
9:57 The next report is our report on internal control over financial
10:01 reporting and compliance.
10:03 So in performing the audit, our goal is to gain an understanding
10:07 of internal control, and if we deem it necessary to test internal
10:13 control, we'll do so to get that level of assurance that we need
10:16 over the financial statements, but our ultimate goal does not
10:20 include offering an opinion over internal control.
10:24 So if we did identify any significant deficiencies or material
10:29 weaknesses as we define them in internal control, those are
10:32 basically like if there's a problem with internal control that
10:36 there's a high likelihood that there could be an issue with the
10:39 financial statements.
10:41 If we identified anything like that, we would include that in
10:43 the report and identify it.
10:46 However, we did not identify any significant deficiencies or
10:49 material weaknesses in internal control.
10:51 So the report does...
10:55 I'm sorry to interrupt you.
10:55 Can you just say a little bit more about that?
10:57 What would you identify as an internal control issue?
11:02 You find out that Director Mahoney doesn't have a degree
11:08 So it'd be a little bit more like say the big one would be
11:11 separation of duties, as we call it.
11:14 That's where you would have different people within, say,
11:17 the finance department performing different aspects of
11:21 recording the transaction.
11:23 Maybe say like for payables, you have one person
11:28 processing an invoice, one person actually preparing the
11:32 check to go out, and one person doing a bank reconciliation.
11:36 So you have separation over these different aspects of
11:40 the process so that one person doesn't have too much
11:44 So checks and balances basically within...
11:48 So that's one of the main ones that we look for
11:50 in internal controls.
11:53 So there's a lot of different pieces and parts of that.
11:55 So again, our goal is to gain an overall understanding
11:59 of the major internal controls.
12:01 And then if there's ones that we deem need to be tested
12:06 to get that level of audit assurance that we need over
12:08 the financial statements, we'll also test internal controls
12:12 for those particular areas.
12:16 And kind of similarly for compliance, we do review
12:20 compliance for certain areas.
12:22 If not, compliance could potentially have a direct
12:25 and material effect on the financial statements.
12:28 So we're not doing an overall test of all compliance
12:31 that the city's responsible for, but just the ones that
12:35 we identified as significant to the financial statements.
12:39 The state also provides us with what they call their
12:42 Ohio compliance supplement, which the state auditor's
12:46 office has prepared and they have their audit teams
12:49 as well as firms like ours followed to test areas
12:53 that they feel are significant in terms of compliance.
12:55 So that's like budgetary information and controls.
13:00 There's new things that will have us look at related
13:03 to cyber insurance policies and whatnot.
13:07 A lot of different areas of compliance that we are
13:10 potentially looking at.
13:11 So similar as with internal control, we did not identify
13:15 any material instances of non-compliance that we need
13:18 to report, but we're not offering an overall opinion
13:21 on compliance in that regard.
13:24 And the last report that we have is our report
13:27 on compliance for each major federal program.
13:30 The internal control over compliance and the schedule
13:33 of expenditures of federal awards.
13:35 So what that all is is related to federal expenditures.
13:41 And since the city expanded more than $1 million
13:44 of federal funding in 2025, they're required to have
13:50 what's called a single audit.
13:52 That's an audit over compliance for those federal programs.
13:57 So we go through a specific process.
13:59 That's identified in the federal guidelines
14:01 to determine what programs we're going to review
14:05 And then there's a compliance supplement that we follow
14:08 that identifies the major compliance points
14:11 for those programs.
14:13 And we perform the audit based on that
14:15 compliance supplement.
14:17 So there were two major federal programs
14:19 that we had for 2025.
14:21 That was the community development block grants
14:24 and the home investment partnership program grant.
14:27 So those were the two major programs
14:29 that we reviewed specifically for compliance.
14:32 And we had a clean opinion over compliance
14:35 for those programs.
14:36 So we're saying that the city complied
14:39 with all the direct and material compliance requirements
14:42 that are identified in the federal compliance supplement.
14:47 The basis for our opinion,
14:49 management's responsibilities,
14:51 and our responsibility as auditors
14:53 for the audit of compliance is very similar
14:55 to what I talked about with the audit
14:58 and the financial statements themselves.
15:02 Won't go through all that detail again,
15:04 but it's a similar level of responsibility
15:09 for the auditors and for management,
15:11 management as ultimate responsibility
15:13 over complying with federal guidelines
15:16 for those programs.
15:19 For internal control,
15:21 it's a very similar language
15:24 as the internal control report
15:26 for financial reporting
15:28 for internal control over compliance.
15:30 We similarly will review
15:33 internal control related to compliance
15:36 for the purpose of providing the opinion on compliance,
15:38 but we're not doing an overall audit
15:40 of internal control.
15:41 So we don't have an opinion on internal control,
15:44 but we did not find any significant deficiencies
15:46 or material weaknesses
15:47 in internal control over compliance.
15:51 And the last part of that report
15:53 is the report on the schedule
15:54 of expenditures of federal awards.
15:56 So there's a table in the report
16:00 that basically identifies
16:02 all the federal grant programs
16:05 and the dollar amounts that were expended in 2025.
16:08 So we review that to make sure
16:11 it's fairly stated in all material respects
16:14 in comparison to the information
16:16 that we gained in performing
16:18 the financial statement audit.
16:20 So that one does get an opinion on it
16:22 that it is fairly stated
16:23 in all material respects
16:24 in relation to the financial statements as a whole.
16:29 Those three reports, again,
16:32 the main financial statement opinions,
16:34 the report on internal control and compliance,
16:37 and then the federal compliance report
16:41 are the three main things that go into
16:44 or the results of our audit procedures.
16:47 The last couple of things
16:48 that I'll mention again is
16:51 we would potentially for audits
16:52 have a separate management letter
16:54 if there were any other
16:57 controlled efficiencies or other issues,
17:00 misstatements or anything
17:01 that we wanted to identify
17:02 that didn't have to go
17:04 into the audit report itself,
17:05 but we wanted to bring into attention
17:07 of the governing body and management.
17:09 We would have those in a management letter,
17:11 but we didn't have any management letter comments
17:14 for the 2025 audit.
17:18 is our required communication letter,
17:21 and we submitted that to the city
17:23 along with the draft of the audit report
17:25 when we were wrapping up the audit.
17:28 That just goes over a few things
17:29 like qualitative aspects
17:30 of accounting practices that we review,
17:33 if we had any difficulties
17:35 in performing the audit,
17:36 if there were any significant misstatements
17:40 or if we had any disagreements
17:41 with management or any other difficulties.
17:44 But none of those sorts of issues
17:47 in performing the audit,
17:51 in that communication letter.
17:56 So that's pretty much
17:59 that's all the audit reports
18:00 that I wanted to go over with you.
18:03 And Devin and I would be happy
18:05 if you have any questions
18:06 about those reports
18:08 or the audit process
18:09 or what we do and how we do it.
18:11 We'd be happy to answer
18:13 any of your questions at this point.
18:15 Thank you, Mr. Doherty.
18:17 and I'll open it up to my colleagues.
18:20 I have some questions as well,
18:21 but like I would like to help
18:24 tease out the process a little bit.
18:25 I think you did a really good job
18:26 of describing it from a high level.
18:31 Now, I think that Mr. Bernard
18:36 like kind of going into people's offices
18:37 and asking for quotes
18:39 or, hey, can you give me this ledger?
18:41 Can you kind of explain that process
18:42 and when it starts and when it ends?
18:44 Because the four of you up there
18:47 have probably gone through
18:49 but us up here and the public,
18:51 we want to help them understand
18:52 what it looks like on the ground
18:54 and kind of how it feels.
18:55 Yeah, so I mean, the overall audit
18:58 takes place generally,
18:59 I'd say, over about six months.
19:01 We'll start the audit planning process
19:06 Once the city has kind of closed the books
19:09 for the prior fiscal year
19:11 that we'll be auditing,
19:12 has the cash basis reports that we use,
19:15 the record of all the revenues coming in,
19:19 all the expenditures going out.
19:21 We'll get those reports
19:22 and start planning our audit
19:24 around what balances we need to look at,
19:27 what the significant activity
19:32 Devin, you could probably answer
19:33 when specifically we came out
19:34 to start field work.
19:37 Yeah, first time in February
19:40 and then we swing back around.
19:42 Prior to the gap coming out,
19:44 Devin, can you check
19:45 and see if your microphone is on?
19:48 Can you hear me now?
19:50 Yes, our first trip out was in
19:53 towards the end of February
19:54 and then we usually make a second round
19:57 with our bigger cities
19:58 just because we have a lot of areas
19:59 that we tend to cover.
20:00 So that was around May,
20:03 early May, end of April.
20:04 And those tend to be about a week at a time
20:07 that we're on site.
20:08 So the audit team will come and look at
20:12 documentation on site
20:13 to review individual transactions.
20:16 We do what we call sampling
20:19 where we'll look at,
20:20 say you've got particular accounts
20:22 with a bunch of transactions in it.
20:24 We'll pull a sample of those
20:27 so that we will review those for accuracy.
20:30 Make sure that the invoices
20:33 are matching with the amount
20:33 that's getting reported
20:34 in the city's ledger.
20:35 Make sure that the check amount is correct.
20:38 Make sure that the proper people
20:41 are signing off on things.
20:44 So that's the detail work that we do
20:47 primarily in the beginning of the audit.
20:51 like our compliance testing.
20:53 We'll do a significant portion of that
20:55 in those first few times
20:57 that we visit the city.
21:00 And the audit's kind of broken up
21:01 into two phases overall.
21:03 So there's all this initial work
21:06 that we do reviewing accounts
21:09 and reviewing compliance
21:11 that we do in the beginning
21:12 while the city's in the process
21:13 of actually preparing
21:14 the financial statements
21:15 that we'll ultimately be
21:17 providing the opinion on.
21:21 The unaudited financial statements
21:23 are due to the auditor's
21:24 state's office at the end of May.
21:27 And then once we have
21:28 those financial statements
21:29 and they've been filed with the state,
21:32 see what other areas we need to test,
21:35 what other balances we need to look at
21:37 from the financials
21:38 that we haven't already looked at
21:40 from our initial field work
21:42 and do some additional testing
21:44 over financial statement balances as needed.
21:47 And we go through the entire report,
21:50 make sure things are tying out
21:52 to the supporting documentation,
21:53 make sure that the report
21:55 is consistent in and of itself.
21:58 Which the Lakewood does
22:01 an annual comprehensive financial report,
22:03 which is a bit more significant
22:05 than the basic financials
22:08 that are the main requirement.
22:11 So there's some additional stuff
22:13 we have to do with that.
22:14 It's a 200 plus page document
22:17 that we're reviewing
22:18 the city's preparing.
22:19 So that's kind of the last leg
22:22 of what we're doing
22:23 is reviewing that document.
22:25 And perhaps it's more
22:27 for Director Mahoney,
22:28 but I believe we are
22:32 or did acquire new software
22:34 to manage our financial reports
22:38 and accounting system internally.
22:40 or less helpful for the audit?
22:45 We're planning to go live
22:48 beginning of January.
22:51 the audit will still be the same
22:53 as it has been in the past
22:55 on our antiquated finance system.
22:57 And then starting with the 27 audit
23:02 they'll it'll be much nicer
23:07 They'll have a log in
23:08 that they can log in
23:11 a read only of everything.
23:15 Is that Tyler technologies
23:20 We will be the first city
23:23 that is live on their newest version
23:31 This is my third time.
23:32 So we've gotten a lot of incentives
23:37 We have dedicated people
23:39 which you don't get
23:40 when you have a regular implementation.
23:44 I assume that makes the audit easier.
23:46 You can pull up a lot
23:47 of the information electronically
23:51 and these guys don't know that yet,
23:53 but to have invoices attached
23:55 to POs and things like that.
23:57 So you won't have to pull paper.
23:59 It'll be all electronic.
24:04 have any questions or concerns?
24:06 Just at a high level.
24:11 In reading through your materials,
24:12 and I think I asked this question last year,
24:14 but I can't remember.
24:16 These generally accepted standards
24:19 of the United States of America
24:22 and the government auditing standards.
24:25 Are there other standards
24:27 I mean, it seems like
24:28 if you're working with auditing
24:32 that you would have to use
24:34 their auditing systems.
24:36 So for the financial statement audit,
24:40 so what we're referring to there,
24:42 those generally accepted auditing standards,
24:45 those are from the AICPA that we follow.
24:48 So that would be true
24:49 of any financial statement audit
24:52 would follow those standards.
24:53 Now, since the city, of course,
24:55 is a unit of government,
24:57 we also have to follow
24:58 government auditing standards.
25:00 So that's a federally prepared
25:04 that we follow in addition
25:05 to the basic auditing standards
25:13 for any government audit.
25:16 And then for the audit
25:18 of compliance for federal programs,
25:20 there is what they call
25:22 the uniform guidance.
25:24 It's titled to chapter 200,
25:27 I think, of the US Code of Regulations.
25:32 So that has a whole other set
25:33 of standards that we have to follow
25:35 in performing the audit
25:37 of compliance for federal programs.
25:39 So yeah, there's a lot of different standards
25:41 that we have to adhere to
25:42 in performing the audit
25:45 and all the different pieces of it.
25:47 Do you have choices or this is the one that?
25:50 So no, that's set in stone
25:53 that we have to follow
25:54 those particular standards.
25:55 And we do have leeway
25:58 for certain aspects
25:59 in performing the audit,
26:00 where we get to utilize our judgment
26:02 in determining what specific areas
26:06 we determine to be material.
26:09 But especially like that,
26:13 the standards that we follow
26:14 for the federal grant programs,
26:17 those are pretty specific
26:21 how we determine what programs
26:23 we'll be looking at
26:24 and what compliance areas
26:27 in regards to those programs.
26:30 I was always amazed
26:34 when looking at statistics
26:36 and things of this nature
26:37 that if you wanted the answer
26:39 you would just use a different standard.
26:41 And that's something to consider.
26:44 But thank you for that.
26:53 Thanks, Mr. Chairman.
26:55 Thank you to the finance department
26:57 and the law director and the auditors.
27:02 I was trying to do some research.
27:05 We are audited annually, I believe.
27:12 we're greater than $5 million in budget
27:13 or is it because we have federal grants
27:16 or we receive federal funds
27:18 or some other reason?
27:22 annual financial statements
27:25 There are certain governments
27:28 that have a biannual audit
27:30 where the audit would be formed
27:31 but it's still over
27:35 two separate sets of financial statements.
27:37 So it's just a timing thing basically
27:42 when the audit's occurring.
27:43 So the annual audit is required
27:46 as a unit of government in Ohio.
27:49 The Ohio revised code requires
27:52 that the audit be completed.
27:55 I was just curious if the cutoff's
27:57 having 5,001 residents
28:02 Yeah, so the state does have,
28:06 I mean, I'd say pretty much any
28:09 city is required to have
28:10 the regular audit completed.
28:12 Certain smaller units of government
28:15 may qualify for what the state
28:17 calls a basic audit
28:19 where they do a lot less procedures,
28:22 I can cite the exact number
28:24 off the top of my head,
28:25 but it's a very low amount
28:28 of revenues and expenditures
28:30 to qualify for that.
28:31 So most units of government
28:34 I'm in the weeds there.
28:36 That's mostly my curiosity.
28:38 More substantively,
28:40 the two federal programs
28:44 that you chose selected to review,
28:46 do you select the same ones every year
28:48 or do you rotate them
28:51 I have an educated guess.
28:53 Sounds like both were HUD dollar.
28:55 Yeah, there's a specific process
28:58 that we follow for determining
28:59 what the major programs are.
29:01 So for any government,
29:03 there's a potential for rotation
29:06 of different programs
29:08 or for potentially even doing
29:09 the same program year after year.
29:11 Just depends on what
29:12 the federal dollar amounts are
29:14 and when the last time
29:16 a particular program was audited.
29:18 So the threshold can change
29:21 depending on how much
29:22 total federal dollars government receives.
29:25 But typically it's a $1 million
29:29 threshold for what we consider
29:30 to be a type A program.
29:33 Type A programs need to be audited
29:35 at least once every three years.
29:37 So but is there discretion
29:39 and who's deciding?
29:40 Is that you or is it the city
29:42 or is it the state auditor?
29:44 So that be it's up to
29:46 like if we have any potential opportunity
29:51 to choose which programs
29:52 that's up to the auditor's discretion
29:55 for determining that.
29:57 Typically there's and we have
29:59 if you have regular type A programs
30:02 that are exceeding that threshold
30:03 those do need to be audited
30:05 at least once every three years.
30:06 And then we also do need to test
30:08 a minimum dollar amount
30:10 of total federal expenditures.
30:12 So depending on certain criteria
30:15 that's either 20% of federal expenditures
30:18 or 40% of federal expenditures.
30:20 So we take all these different factors
30:22 into consideration.
30:24 There's often times where we
30:26 have to test a particular program.
30:28 Maybe it's a new type A program
30:31 to the city that exceeds a million dollars.
30:34 So we have to test that under the standards.
30:38 If it's a program that's been audited previously
30:40 there's more discretion there potentially.
30:43 So is the idea that over a period
30:45 of three years or five years
30:47 or 10 years in which time frame
30:49 I'm curious you the auditors
30:51 or the independent auditors would
30:54 make the full circuit of federal dollars
30:58 or programs or both in regular use
31:02 by a city government.
31:03 So if you had the same programs
31:05 year after year and similar dollar amounts
31:09 you'd have at least that three year rotation
31:11 for all those programs
31:13 that exceeded that threshold.
31:15 The smaller programs
31:21 for any programs that are below that threshold
31:23 we potentially have to look at some of those
31:26 to meet that minimum dollar amount
31:28 that we need to test.
31:29 We have situations where there's no type A programs
31:33 So we have discretion in choosing
31:34 what programs we need to test.
31:36 Usually that's, you know,
31:37 we'll look at the significant dollar amount ones
31:40 and making that determination.
31:41 And presumably the federal government
31:43 sees the audits or they check the audits
31:45 before they as part of their due diligence
31:47 in transmitting an award of funds.
31:51 So the as part of the audit completion
31:55 there's a what's called
31:57 the Federal Audit Clearinghouse FAC
32:00 where the audit report is submitted.
32:02 That indicates part of that is
32:05 there's a separate report that's filed
32:07 that basically summarizes all the dollar amounts
32:11 of the programs, what the type A programs were,
32:14 which programs were audited.
32:15 So that gets submitted to the federal government
32:18 So, and then the theory.
32:21 And it's not as if they give us
32:23 a positive bill of health.
32:25 But if we ever were mismanaging
32:29 then they might say,
32:32 hey, wait a minute prior to awarding funds
32:34 to this local government.
32:35 But that's not the world we're in.
32:36 I'm just trying to understand.
32:38 They would look at the results of the audit
32:42 and if they saw that there were significant issues
32:44 with internal control,
32:45 significant issues with compliance,
32:46 they would certainly,
32:49 that would be a possibility for, you know,
32:53 federal grant not being awarded in the future.
32:56 If there's just a couple quick more questions.
32:59 So that set of matters that you evaluate
33:02 and then report on to the city and to really,
33:04 actually, you're not reporting to us,
33:06 you're reporting to the state, correct, ultimately?
33:09 The audit report is addressed to city council,
33:12 but yeah, we're providing that report
33:15 to the state auditors.
33:17 Ultimately, that's the keeper of the public.
33:19 So you, in that report,
33:22 you're evaluating certain questions.
33:25 Are those the same or different
33:26 than what a Moody's might do,
33:28 which would evaluate,
33:29 hey, are you spending too much
33:31 and is that going to affect your credit rating?
33:35 Yeah, that's definitely a good question
33:37 because what we're looking at
33:38 is essentially a point in time in the past
33:41 to say here's what the city's reporting as,
33:45 you know, their balance sheet,
33:46 here's the accounts,
33:47 here's the revenues and expenditures that occurred,
33:50 and we're reviewing that in terms of
33:52 is that information accurately reported
33:55 where something like Moody's,
33:56 they're looking at it in terms of
33:59 for fiscal health or financial health
34:02 for applying a credit rating to the city.
34:04 So we're not looking at it
34:06 in terms of, you know,
34:07 necessarily is the city in good financial health
34:11 that's certainly part of our consideration
34:13 and planning and performing the audit,
34:15 but our report is not saying,
34:18 you know, that the financial health
34:21 of the auditee is necessarily good or bad.
34:24 It's just that this set of financial statements
34:28 You're checking on whether
34:29 we've accurately called balls and strikes,
34:31 recorded the game, consistent strike zone.
34:34 Somebody else will give the scouting report
34:36 that says this team has a tendency to do this or that.
34:39 Yeah, that's a fair comparison.
34:41 So the final point or a question I want to make is,
34:44 congratulations to the city's finance department's
34:47 long record of very strong outcomes
34:50 in the auditing profession
34:54 and fulfilling our responsibilities to the state
34:58 and really ultimately to the taxpayers.
35:00 So maybe in some ways,
35:04 it's kind of a good, boring assignment
35:06 to draw with Lakewood, I hope,
35:10 you're giving us a physician's checkup
35:12 and we've been a healthy patient.
35:15 Do you, short of a management letter,
35:18 which is a term of art,
35:20 a material essentially either a traffic ticket
35:24 or an arrest, one of the two.
35:25 Short of that, do you have
35:28 or might you make from time to time
35:30 recommendations to our city government
35:36 that are not for material problems,
35:38 but they could be refinements.
35:39 You know, you may want to consider this,
35:41 appear, has this practice in some other part of the state
35:47 that may bear upon your operations.
35:49 Sure, there's certainly instances
35:51 and certainly while the audit teams perform in the audit,
35:55 certainly discussions are being made
35:58 with the finance department
36:00 if we're seeing anything
36:02 that we would suggest as a, you know,
36:04 best practice and whatnot.
36:07 Now, really the, anyone,
36:09 any of those that are
36:13 more than just trivial,
36:15 I'd say like we would have those
36:16 in the management letter as recommendations.
36:19 The management letter is,
36:22 would cover if like if we had any,
36:25 I'd say not significant enough
36:28 to get in the audit report again,
36:29 but if we did have some sort of internal control issue
36:32 that we're like, hey, you really,
36:33 we really think you should address this
36:35 or budgetary compliance issue that was not severe,
36:40 but we wanted to bring to your attention,
36:43 we would have those sorts of things
36:44 in the management letter.
36:48 would potentially have other matters
36:51 that we more informally discuss
36:53 in performing the audit
36:54 or at the conclusion of the audit,
36:56 like, hey, here's some things
36:57 you might want to consider doing.
36:58 They're not significant enough
37:00 for us to put in writing,
37:01 but, you know, considerations.
37:03 Okay, so that's part of the value
37:04 of conducting the audit
37:06 is that professional to professional
37:08 review and discussion.
37:10 And so has, in your experience,
37:12 Lakewood been a good counterpart
37:14 in those types of conversations,
37:16 if any have come up?
37:19 that's true of any of our clients,
37:21 I'd say that, you know,
37:22 there's usually some smaller recommendations
37:25 that we're potentially making
37:26 during the course of the audit.
37:29 I can't think of any,
37:32 that I don't have any right in front of me,
37:34 that, you know, any recommendations
37:35 that we specifically made
37:36 to the city of Lakewood
37:38 in performing the audit.
37:40 Devon, I don't know if you could think
37:41 of any from performing field work or anything,
37:43 but I can't say there was anything significant
37:48 that was in my room.
37:50 Nothing major to note.
37:53 Obviously, we had our,
37:54 I would say we had our ears
37:56 pinned up a little bit,
37:57 just going from John taking over for Keith
38:01 as far as things in the audit,
38:03 but it seemed like that transition
38:05 was rather smooth for us,
38:09 and then smooth for us in return.
38:11 So, yeah, any comments
38:13 that we would have had or recommendations
38:16 were rather seamless
38:18 as far as day-to-day conversation
38:20 of us talking to them.
38:22 Yeah, I don't have any of note
38:24 to bring to attention at the moment.
38:26 Okay, well, thank you.
38:28 Reaching deep into the bag of tricks
38:30 to try to come up with something
38:34 It's a great report,
38:35 so we appreciate it.
38:40 Councilperson Bixenstein.
38:42 Thank you, Chair Baker,
38:44 and thank you, Kyle and Devon,
38:45 for the presentation this evening.
38:48 This question might be more appropriate
38:49 for Director Mahoney,
38:51 but, you know, we live in an era
38:54 where there can be a distrust
38:57 in government at all levels,
38:59 and sometimes I'll hear some variation
39:02 of you can't possibly expect me
39:04 to believe the city's being careful
39:07 with our money or, you know,
39:08 something along those lines.
39:11 what I'm hearing this evening
39:12 is there really is significant
39:14 processes in place,
39:15 there's significant oversight,
39:18 and there's significant transparency.
39:21 And so I realize most community members
39:23 aren't gonna, in all likelihood,
39:25 are not gonna watch this presentation,
39:28 and in all likelihood won't look
39:31 at this annual comprehensive
39:34 but I just wonder if you have any advice
39:36 on how we can help convey,
39:39 you know, not that having a reasonable level
39:42 of skepticism is inappropriate,
39:45 but how we can up convey to community members
39:49 that there really is a lot of oversight
39:51 and transparency in place.
39:57 Yeah, I don't know how to explain
39:59 that to a non-accountant, I guess.
40:02 And often I think I probably see
40:04 the same posts on Facebook and things,
40:06 and I'm so tempted to answer,
40:13 Yeah, I don't know a good way to,
40:16 other than to point them
40:18 to all the audit reports are available online,
40:24 and so they can see,
40:26 going back many years,
40:28 the audit and the results of that.
40:36 the only comment I could say
40:37 and it's just kind of funny,
40:40 but my husband always says,
40:42 if I was as careful with our own money
40:44 as the city's money,
40:46 we might be retired by now.
40:48 But so, yeah, I mean,
40:53 we do take a lot of pride
40:55 in making sure we do things correctly,
40:59 and that was one of the reasons
41:01 why I looked into a new finance system
41:04 is because, you know,
41:08 this system is 25, 30 years old,
41:11 and hopefully it will be easier
41:15 for a citizen to be able to look at things,
41:18 although we're pretty good
41:19 about posting monthly the reports,
41:22 and if anyone ever has any questions,
41:24 if you ever come across a constituent,
41:27 I'm always happy to talk to them,
41:28 so just point them my way.
41:30 I'll tell them the truth.
41:32 I'm not a very good liar, so.
41:35 Thank you, and sorry for putting you on the spot.
41:42 Councilperson Hammond-Steiner.
41:45 Thank you, Chair Baker,
41:46 and I just want, so,
41:48 both of my questions that I had
41:50 were both asked by Councilman Bullock
41:52 and Councilman Bixenstein,
41:54 and so along that line,
41:56 you know, to piggyback off
41:59 what he was talking about,
42:00 how do you communicate this
42:02 to the public, what a clean audit means,
42:04 and it does go back to
42:06 most the general public
42:07 is not going to understand finances
42:10 and what this all means,
42:12 but having worked in higher education
42:17 and going through the audit process
42:18 and the other side being asked
42:20 about, you know, providing documentation,
42:24 I think part of that
42:25 is our job as council people
42:26 to relay that and communicate that,
42:28 and so partly why I'm here,
42:30 even though I'm not on the finance committee,
42:32 is so that I can better understand
42:37 in the process that we go through,
42:39 so I can communicate,
42:41 here's what a clean audit means,
42:42 and, you know, in that,
42:45 it's really, really hard
42:47 to have a clean audit.
42:49 and I don't know if you
42:52 would agree with that,
42:53 I don't know, because I-
42:55 Yes, I get to work with the two entities
42:56 that always get the award every year,
42:58 so the Metro Parks and the City of Lakewood.
43:01 4%, 4% of the state.
43:03 Yes, and it's really hard
43:05 because you're being asked
43:08 very specific questions
43:10 and getting, you know,
43:12 what is this backup,
43:12 what is this documentation,
43:15 and the minute that you're not
43:18 doing something consistently,
43:20 that's raising those red flags,
43:22 and so now that audit,
43:23 they're starting to pull back those strings,
43:24 and they're saying,
43:26 and that is where they're finding
43:28 where the issues are
43:29 in an organization,
43:31 so a clean audit is great
43:33 because it's saying,
43:33 yes, you're doing things
43:36 but at the same time,
43:37 if we did have some material weaknesses,
43:39 that didn't mean that we're,
43:41 you know, a horrible, awful organization.
43:44 Again, it probably depends
43:45 on what those material weaknesses are
43:46 and what it is and what happens, right?
43:49 Because then you also have to
43:51 come up with a corrective measure.
43:52 How are you going to correct this action?
43:55 And really, organizations
43:56 don't want to have material weaknesses
43:58 because then when you go,
43:59 you then become a risk
44:01 to other organizations,
44:03 so now other organizations
44:05 don't even want to work with you
44:07 and participate and provide,
44:09 you know, federal grants to you,
44:11 pass through funds for you
44:14 because now you're all of a sudden a risk
44:17 and no organization wants that,
44:19 but yes, getting a clean audit
44:24 because of all the documentations,
44:25 because of all the questions that are asked,
44:27 because of the detailed information
44:29 and the backup that is needed for this,
44:32 and a lot of times, you know,
44:33 we are just humans working in these systems
44:37 and humans make mistakes,
44:39 and so mistakes can happen,
44:41 and mistakes aren't bad
44:44 as long as you aren't continually to make them,
44:46 and as long as you can justify and understand,
44:48 well, why did you make that mistake
44:50 and let's make sure
44:51 we're not going to make that same mistake again.
44:53 So I think it's on us as council people
44:55 to sort of be able to translate
44:57 what a clean audit means,
44:59 and so I took some notes.
45:00 It just means that there were no deficiencies
45:04 in our internal systems and mechanisms,
45:06 and we were able to provide all,
45:09 answer all of the auditors' questions
45:11 and provide that documentation and backup,
45:14 and so when, you know, residents say,
45:16 Lakewood City Council is running amok with our money,
45:21 I'm pretty sure the auditors
45:22 would have found something, right?
45:25 Like if we were doing really nefarious bad things,
45:28 they would have found something
45:30 and started peeling away that onion and those strings,
45:33 and then all of those would have come out.
45:35 So I say all that to say I think it's our job
45:38 and not so much your job, Director Mahoney.
45:41 It's maybe part of your job to help educate us
45:44 and answer our questions,
45:45 and it's our job to be educated
45:47 and inform and work with our residents.
45:53 Thank you, everyone,
45:54 and I, so I have a couple questions
45:57 and they're more so, you know,
45:59 I think I understand the internal controls
46:03 I love digging into those issues.
46:06 Director Vargo's holding his head right now
46:07 because we went through the Board of Control issue
46:10 and like figuring out the,
46:11 when you get a quote and a bid and all those things,
46:14 and it sounds like those new controls
46:16 are working just fine because if they weren't,
46:17 they'd be highlighted in the management letter.
46:19 So we freed up staff to have a little bit more
46:22 because control is good,
46:23 but once you control things too much,
46:25 you stifle the ability for staff
46:27 to accomplish their goals or this,
46:30 what we intend to have the city spend money
46:32 on the behalf of our residents for,
46:35 get the new tire for the truck that needs it to go
46:37 and pall the roads or whatever.
46:38 And so what I'm interested in
46:41 is kind of how we sit our peers.
46:45 And so this, this relates a little bit
46:47 to like our unencumbered fund balance
46:50 and then our debt load.
46:53 How do we look in comparison
46:55 to our peer communities?
46:56 And that's probably something that like
46:58 went into a materiality review for you.
47:00 You're like, is it, is it materially wrong?
47:03 Or is it a significant issue?
47:07 But when I look at our debt, right?
47:08 We're, I think we're 165 million bonds,
47:12 notes and loans at the end of the year.
47:17 And it was 126, like five years ago.
47:20 And so what does that look like?
47:21 Is that an issue for an auditor
47:23 or is that something that is just noted
47:25 and as long as we record it properly, it's fine?
47:29 I'd say like for that issue specifically,
47:31 it's more of, you know,
47:33 we're reviewing those balances for accuracy.
47:35 It's the, one thing I'll point out
47:38 that came to mind as everyone else was talking is,
47:42 as I mentioned earlier,
47:43 our goal is to make sure that
47:45 that set of financial statements
47:46 is accurately presented.
47:48 Now the state auditor's office,
47:50 they do also when they get
47:54 all the financial information
47:55 that's input into their system from the city,
48:00 they review certain what they call
48:02 like financial health indicators.
48:05 And that's not part of what we look at.
48:07 So I can't speak to specifically what those are,
48:09 but they do look at things such as
48:12 like debt load and what the bottom line,
48:16 net position of the city is
48:18 and certain other more analytical
48:24 analysis of certain numbers
48:26 from the financial statements.
48:27 And they'll, if there were too many of those things
48:32 that looked like they were going in a bad direction,
48:34 they would potentially look at putting the government
48:37 in what they call fiscal caution or fiscal watch.
48:41 So those are things that can be looked at
48:44 on the state auditor's website
48:46 to see like what those health indicators are
48:49 from what they look at for any city.
48:54 So again, it's not something
48:56 that we're specifically looking at
48:57 in terms of financial health necessarily.
48:59 Now there could be certainly something
49:01 where we see balances that look unusual
49:05 or particularly risky.
49:08 We will focus on those
49:09 when we're performing our audit procedures.
49:11 But it's certainly if there's a potential
49:17 for looks like things are going in a bad direction
49:20 or something that might pose a risk factor
49:22 for the audit in terms of,
49:23 okay, maybe there's an additional risk
49:25 of somebody trying to inflate revenue
49:29 to make things look better than they really are,
49:31 that sort of thing that would change our audit approach.
49:35 But I guess a long-winded answer,
49:38 but we're more focused on making sure
49:41 that those financial statements are accurately presented.
49:44 But there could be certain other risk factors
49:45 that come into play.
49:47 Yeah, so when we're looking at our enterprise funds
49:51 and our bonding for water and sewer,
49:54 it's not you're looking for red lines
49:57 that may trip the state auditor
49:59 for fiscal emergency in certain areas,
50:00 but generally speaking,
50:04 love bond council when they come, love our banker,
50:06 but bond council and bankers love
50:08 for us to take out additional debt.
50:11 And so we're up here to figure out
50:14 whether it's the right move for the city, right?
50:17 And sometimes it's challenging to see
50:20 and kind of understand those forecasts
50:22 and what they look like.
50:23 And just because you can borrow something
50:25 doesn't mean you should.
50:27 And how does that, you know,
50:29 and we're experiencing it
50:31 and the audit shows it
50:32 because our financial statements show it, right?
50:34 Significant increases in property tax collections,
50:36 significant increases in income tax collections.
50:39 Those are all good things.
50:44 Are they sustainable?
50:46 But it sounds like you aren't going
50:47 to be giving us much indication on those things.
50:50 You're more so saying that like,
50:51 we collected what we said we collected
50:54 And so therefore we can use this
50:56 to analyze the forecast
50:57 of whether or not we should take out more debt
51:00 or how we should plan our financial affairs.
51:03 Because yeah, the audit is definitely
51:04 a backwards looking procedure.
51:07 Whereas, you know, budgeting and looking ahead
51:09 and determining what the direction of the city is
51:12 that's outside of our purview
51:14 of what we're doing
51:15 is in the financial statement audit.
51:18 Now, what I will say is there,
51:20 so cities do things a lot of ways
51:22 and I'm sure a lot of your clients
51:24 have different controls in place that,
51:27 you know, like I said,
51:28 you can control something all the way over here
51:29 where it's very difficult to accomplish a task
51:32 or you can have minimum controls
51:34 and you can accomplish a task faster
51:36 but perhaps there's more risk of malfeasance
51:38 or, you know, something going wrong.
51:41 So are there best practices
51:42 that you see some pure cities doing
51:44 that we could implement at Lakewood?
51:45 Like not, it's something that we're not deficient on
51:48 but something that you see would help us
51:52 have better controls and be more of a steward
51:55 of the tax dollars here in Lakewood.
51:58 And that's something that's like
52:01 if we did have any more significant issues
52:04 that we identified,
52:05 it would have come up in a management letter.
52:07 I mean, certainly it's something we can keep in mind
52:09 for future conversations with the city
52:12 if there's more things that we're seeing
52:14 that we could recommend for how to,
52:18 you know, whether it's internal control
52:19 or other operational aspects.
52:22 But right now, at the top of my head,
52:25 I don't have anything that I could offer specifically
52:29 but it is something that we consider certainly
52:32 as, you know, we see a lot of different governments
52:35 and different ways of doing things.
52:37 Now, you know, the general controls
52:39 are pretty consistent across the board
52:40 as far as what we see.
52:42 But, you know, certainly, yes,
52:44 people do things different ways
52:45 and there are different levels of, you know,
52:49 how much control you wanna have,
52:51 how much risk you wanna bear
52:55 and is it too much control or is it not enough?
52:59 You know, there's that middle ground
53:00 that you're looking for for efficiency
53:02 as well as accuracy and doing things correctly.
53:07 Yeah, it's certainly any,
53:09 if the city has any questions about,
53:12 like, hey, we're thinking about doing things
53:14 a certain way, what do you think?
53:15 You know, that's certainly something
53:17 that we'd be open to having a conversation about.
53:21 And as we're performing the audit again,
53:22 you know, anything that we do see,
53:25 we'll certainly bring that up,
53:26 whether it's, you know, in terms of
53:29 informal recommendation
53:30 or in the conclusion of the audit,
53:33 you know, in the actual report
53:34 or the management letter.
53:37 Great, because I'm not just happy
53:39 with us being in the top 4%.
53:40 I want us to be in the top 1%
53:41 of that 4%, Director Mahoney.
53:43 So I'm always looking for ways for us.
53:46 And I think as we talk to our residents, right,
53:51 policy and where we spend money comes from here.
53:54 Finance Department executes it.
53:57 If the mayor says let's spend the money
53:58 and then the auditors check to see
53:59 that we spend it appropriately
54:01 and with appropriate controls.
54:03 So if they're mad about
54:04 what we're spending money on,
54:05 they should yell at us
54:06 and they should give us input
54:07 and we should consider
54:09 what they want us to spend money on
54:10 instead of what we spend money on.
54:11 So those are all policy decisions
54:13 and those fall squarely
54:15 within the elected leaders in the city.
54:17 But it is good to know that
54:19 we have a third party independent auditor
54:21 that tells us that our finance department
54:24 is doing a good job of controlling
54:26 the funds that we have
54:27 and we can be confident
54:28 that they are spent in the way
54:29 in which we direct them to be spent,
54:31 which is how government should work.
54:33 So any other thoughts?
54:35 Councilperson Strievig.
54:36 I did one real specific question,
54:40 In your MD&A report on page 16,
54:44 you want to find that the fourth paragraph
54:48 from the bottom of the page
54:50 starts with the Lakewood Hospital Fund.
54:53 It goes on to talk about an item
54:56 and a note to see note 2H,
54:58 which I couldn't find further information.
55:01 Could you just talk about that
55:03 for a minute about what that item was
55:06 and that amount and the decrease
55:09 and what that whole paragraph really means?
55:52 I wasn't quite sure where to find note 2H.
55:58 There was a lot of detailed financial sheets
56:03 after that and I didn't see anything
56:04 at the very end of the report.
56:07 Well, the main thing
56:10 from the Lakewood Hospital Fund
56:13 was that grant, not grant, the loan.
56:21 Is that where we pay for the loan out of?
56:25 No, I'm not sure what 2H is.
56:26 It says the decrease is due
56:28 to the special item expense
56:30 for the loss on sale of asset held for...
56:35 Oh, that's the downtown development.
56:36 Yeah, I wasn't sure what all that meant.
56:39 So that just means that was the sale
56:44 of the downtown development site
56:48 and then also the loan
56:52 for the parking garage that was out of that fund.
56:58 Yeah, I believe in fiscal year 2025
57:01 the Lakewood Hospital Fund decreased
57:04 by $855,000 or by that amount of money,
57:07 $8 million because of the development closing
57:10 and I believe we issued a loan
57:12 as well as transferred the property.
57:14 That's correct, yes.
57:18 And the loan is forgivable with certain...
57:21 Only $1 million is forgivable.
57:23 I actually just did the amortization schedule
57:27 and it's a 10-year, 30-year amortization
57:31 but payable in 10 years
57:33 and so although $1 million is forgivable,
57:35 we still will earn $1.5 million
57:39 in interest on that loan.
57:45 I mean, there is $6 million, $5 million?
57:49 $5 million or $6 million loan
57:53 at a 3.5% interest rate.
57:57 So we still will be earning money on that loan
58:00 even though a million will be forgivable at the end.
58:07 Councilperson Block.
58:08 Follow-on, that's a follow-on to that
58:10 that sets up a question I was going to ask
58:12 about your favorite in mind, cash versus accrual basis.
58:18 So I think what I heard you say in 25,
58:21 because the deal closed, the loan executed,
58:25 the property transfer was made,
58:27 are we saying we're recognizing those,
58:30 I suppose, their expenditures
58:31 or at least their write-downs,
58:34 whatever the proper term is,
58:36 on the city's books at that moment in time
58:40 and even though the loan will extend
58:42 for 10 fiscal years into the future, right?
58:45 Well, the cash is outlaid as of now,
58:49 but yes, part of it was accrued
58:54 as of the end of February.
58:57 So the whole, the cash was not fully expended
59:00 until about a month or so ago.
59:07 But the sale of the asset happened in 25.
59:11 And the, but regardless of the, okay,
59:16 so given the accounting basis
59:19 and what Councilwoman Striebeck just said,
59:22 the audited 25 books
59:25 recognized the amounts you just discussed, right?
59:29 Because the obligation occurred in 25?
59:32 That's, well, through February,
59:35 so not all of the loan was recorded.
59:38 Okay, so the portion that fell in the time frame
59:43 The asset itself, this is a,
59:45 I don't have the reference in front of me.
59:47 So if the city sold a piece of equipment
59:51 or a piece of real estate
59:53 in a given time, in a given fiscal year,
59:57 is that whatever the valuation is
1:00:00 of that property when it's transferred,
1:00:04 in this case it was transferred for a dollar,
1:00:07 I think, right, as a kind of co-investment of,
1:00:11 in that, that was part of our economic development
1:00:14 investment in that development.
1:00:18 But we then recognize on our books
1:00:21 whatever the full list price was
1:00:26 and then we say we captured back the sale price, right?
1:00:33 Do I have that conceptually correct?
1:00:36 Let's say we sold a truck, ignoring the property.
1:00:42 We would record a gain or loss on the sale of the asset.
1:00:47 the point is though that the starting basis
1:00:50 for the vehicle that was sold
1:00:57 But the city knows what that number is,
1:01:01 or we have a reasonable estimate,
1:01:03 and then we compare that to the actual sale price.
1:01:08 I guess I'm trying to play the part of...
1:01:13 Well, I'm about to get to that.
1:01:14 So then what I'm reading here is
1:01:18 the state requires us to budget in cash.
1:01:28 We do a gap conversion at the end of the year,
1:01:32 and the audit, well, the CAFR, sorry, AFCR is in gap.
1:01:41 Okay, and so I got onto that
1:01:43 because Mr. Doherty made reference
1:01:45 A reference to receiving cash basis statements.
1:01:49 So why does the state do it that way
1:01:51 or require us to do it that way?
1:01:53 Meaning budget, I get the accrual,
1:01:57 but why budget in cash instead of accrual?
1:02:01 And then have to do the conversion.
1:02:03 Is that less work or is that more work?
1:02:06 Do some cities go accrual the whole year?
1:02:09 Yeah, I could chime in there.
1:02:11 I don't believe there's at least not any cities
1:02:14 that I'm aware of that operate day-to-day
1:02:19 Just the way that's governmental counting
1:02:24 it's that day-to-day operation is done on a cash basis.
1:02:31 And then you go through this process
1:02:35 of identifying accrual entries
1:02:39 or generally accepted accounting principles,
1:02:43 accounting basis for your financials.
1:02:46 Certainly, I think it's mostly driven
1:02:50 by the budgetary requirements, I'd say,
1:02:52 that you're operating on the cash basis.
1:02:53 It's dollars coming in, dollars going out
1:02:58 And then the higher revised code
1:03:03 requires those accrual basis financial statements
1:03:08 Okay, I mean, I'm not trying to become an accountant here,
1:03:15 does that system that the state has in place
1:03:17 make some sense that we would do it that way
1:03:23 We budget in the present in cash,
1:03:25 but then when we do audit looking back in time,
1:03:28 we have to reconcile everything, essentially,
1:03:32 I've been doing it for 35 years.
1:03:36 I'd say for governments that that cash basis of operation
1:03:41 is kind of really the really regular focus
1:03:47 as opposed to trying to figure out
1:03:48 accruals and operating on that manner.
1:03:51 The financial statements themselves are,
1:03:53 I mean, it's a very complicated document
1:03:59 over a hundred different governmental accounting standards
1:04:02 that have to be followed in preparing those.
1:04:06 And there's even within that,
1:04:07 there's two different bases of accounting,
1:04:10 technically within the financial report itself.
1:04:18 not only for like the budgeting purpose,
1:04:19 but just being able to look at your revenues
1:04:23 and expenditures on a cash basis
1:04:25 is a lot more understandable for, you know,
1:04:29 budgeting purposes for people to review
1:04:31 and understand what the ins and outs are of the city.
1:04:35 The accrual basis financial statements as they are
1:04:38 is just a very complex process
1:04:42 that you go through to prepare those.
1:04:43 And it's certainly not something
1:04:46 that can be picked up and reviewed and understood
1:04:49 without a good accounting background.
1:04:55 So yeah, I'd say, you know,
1:04:56 that day-to-day cash basis of operation
1:04:58 makes sense from the school.
1:05:02 Okay, well, I appreciate the explanation.
1:05:05 I guess what I'm driving at, Mr. Chair,
1:05:07 is the question that you're trying
1:05:12 and how we know what's affordable
1:05:15 is informed and inflected by cash versus accrual.
1:05:21 And we only get accrual for last year
1:05:25 and we're in the current year
1:05:26 and planning for the next year in cash.
1:05:29 And there are kind of day-to-day decisions
1:05:31 all the time that are made administratively
1:05:33 about can we afford to fill an FTE or not, for example.
1:05:39 And, you know, can we afford the benefits package
1:05:44 So I think these are valid questions
1:05:46 and at least we're all rolling up our sleeves
1:05:53 that's why we're going to try to have,
1:05:55 if it's through August or September,
1:05:57 the city's financial position
1:05:59 before we get into the budget
1:06:03 because whether we hit our mark
1:06:06 the city has done well in managing money,
1:06:09 then you have a bigger unencumbered balance
1:06:10 at the end of the year that affects your debt,
1:06:12 you know, what you want to do.
1:06:19 so I'm trying to use your data as a data point
1:06:24 and how we should then go out
1:06:26 and figure out what we buy with cash
1:06:28 and what we bond out, right?
1:06:31 And it's always been an issue,
1:06:34 at least on my time on council,
1:06:35 where we have a lot of capital needs.
1:06:39 Sometimes money is cheaper than it is now
1:06:43 and so that's maybe a good time to borrow
1:06:45 and sometimes money's expensive
1:06:46 and money seems to be expensive now
1:06:49 So all of this informs kind of how we think
1:06:52 about this, but we appreciate your work
1:06:56 and so thank you for coming this evening.
1:06:58 There are not any more questions
1:07:00 and then Director Mahoney, please,
1:07:02 you know, for your team and for you,
1:07:05 you know, give them plaudits
1:07:07 because this really does help us do our job,
1:07:10 helps us explain to folks that,
1:07:12 you know, if they're mad about
1:07:13 what we're spending money on,
1:07:14 they should yell at us, not you guys,
1:07:16 because we make the policy decisions
1:07:18 about where we're spending money.
1:07:19 So if there's no further...
1:07:25 Councilwoman Striebeck, it's on page 47,
1:07:27 talks about the assets and the loss of the sale,
1:07:30 on the sale of the Lakewood Hospital site.
1:07:33 Thank you, I appreciate that.
1:07:35 And just one other thing is,
1:07:37 it's not just the finance department
1:07:38 that enables a city to have a clean audit.
1:07:43 It starts with every department
1:07:46 making sure their purchase orders are put in
1:07:47 before they go to purchase anything.
1:07:50 That was always a big thing in my past,
1:07:51 that we could never get a fully...
1:07:56 because somebody would have an invoice
1:08:01 And especially since Keith's retirement,
1:08:06 the finance department really has stepped up,
1:08:09 Jessica and John especially.
1:08:12 And yeah, they've taken over
1:08:15 pretty seamlessly from where Keith
1:08:29 to receive and file the audit report.
1:08:31 I think would be the appropriate motion.
1:08:42 With no further information
1:08:44 come forward this committee,