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HomeMy WebLinkAbout10-08-2002 Special Called Regular Meetingr ~ MINUTES OF THE SPECIAL CALLED REGULAR MEETING OF THE LA PORTE AUDIT COMMITTEE OCTOBER 8, 2002 These minutes were transcribed from the audio tape; the conversations are summarized to bring clarity to them in a written format. 1. Call to Order The meeting was called to order by Chairperson Chuck Engelken at 6:02 p.m. Members of Committee Present: Chairperson Chuck Engelken, Committee Members Howard Ebow and James Warren Member of Committee Absent: None Members of City Council Present: Councilmember Bruce Meismer and Mayor Norman Malone Members of City Executive Staff and City Employees Present: City Secretary Martha Gillett, Director of Finance Cynthia Alexander, Assistant Director of Finance Michael Dolby, Tax Manager Kathy Powell, Acting City Manager John Joerns, City Attorney Knox Askins Others Present: Jana McLaughlin, Adam Brown, Barrett Fontenot, Chris Beasley, Meghan Lair, Krystle Westergren, Robert Ring, Jessica Holliday, Rachel Henderson, Eric Nutt, Sarah Anderson, K. Lawrence, John Denby, Ty Shipp, Justin Osborne, Isai Ramos, Casey Coupland, Kelly Pertl, Brittany Baxter, Amy Brown, Spencer Heron, Jr., Jeff Gavlik, Damaris Contreras, Lacey Ferguson, Lina Russell, Jonathan Alfaro, David McCorquodale, Dave Turnquist, Kamino Murray and Jonathan Baker 2. Committee to consider approval or other action of the Minutes of the Special Called Regular Meeting of the City of La Porte Audit Committee held on October 1, 2002. Motion was made b~Committee Member James Warren to approve the minutes as presented. A second by Committee Member Howard Ebow.. The motion carried wianimously. Ayes: Warren, Ebow and Engeeken Nays: None Abstain: None 3. Committee to consider approval or other action of recommendations of tax resale property as presented by Director of Finance Cynthia Alexander. Chairperson Chuck Engelken requested they vote on each property individually. The Committee agreed. Councilmember James Warren questioned the procedure of selling these properties; does the City attempt to recoup the delinquent taxes on the property. If there is more than one bidder for the property, Tax Manager Kathy Powell explained the process. A. Committee to consider approval or other action of offer from Vivian Serrano and Jose Guiterrez for Lots 32-42 Block 25 Bayfront to La Porte. Audit Committee Minutes -October 8, 2002 -Page 2 Motion was made by Committee Member Warren to approve the offer from Vivian Serrano and Jose Guiterrez. A second by Committee Member Ebow. The motion carried unanimously. Ayes: Warren, Ebow and Engleken Nays: None Abstain: None B. Committee to consider approval or other action of offer from Ventaja Investment Group, LLC for Lots 8-10 Block 7 Bayside Terrace. Motion was made by Committee Member Ebow to approve the offer from Ventaia Investment Group. A second by Committee Member Warren. The motion carried unanimously. Ayes: Warren, Ebow and Engleken Nays: None Abstain: None C. Committee to consider approval or other action of offer from James Robertson on Lots 29-32 Block 973 of La Porte. Motion was made by Committee Member Ebow to approve the offer from James Robertson. A second by Committee Member Warren. The motion carried unanimously. Ayes: Warren, Ebow and Engleken Nays: None Abstain: None D. Committee to consider approval or other action of offer from James Robertson on Lots 7-8, Block 973 Bayfront to La Porte. Motion was made by Committee Member Warren to approve the offer from James Robertson. A second by Committee Member Ebow. The motion carried unanimously. Ayes: Warren, Ebow and Engleken Nays: None Abstain: None E. Committee to consider approval or other action of offer from Southeast Texas Housing Partners, Inc. for Lot 3 block 3 Monument Estates Sec 1. Motion was made by Committee Member Ebow to approve the offer from Southeast Texas Housing Partners, Inc. A second by Committee Member Warren. The motion carried unanimously. Ayes: Warren, Ebow and Engleken Nays: None Abstain: None • Audit Committee Minutes -October 8, 2002 -Page 3 F. Committee to consider approval or other action of offer from Southeast Texas Housing Partners, Inc. for Lot 2 Block 3 Monument Estates Sec 1. Motion was made by Committee Member Ebow to approve the offer from Southeast Texas Housing Partners, Inc. A second by Committee Member Warren. The motion carried unanimously. Ayes: Warren, Ebow and Engleken Nays: None Abstain: None G. Committee to consider approval or other action of offer from Southeast Housing Partners, Inc. for Lot 1 Block 3 Monument Estates Sec 1. Motion was made by Committee Member Ebow to approve the offer from Southeast Housing Partners, Inc. A second by Committee Member Warren. The motion carried unanimously. Ayes: Warren, Ebow and Engleken Nays: None Abstain: None H. Committee to consider approval or other action of offer from Southeast Texas Housing Partners, Inc. for Lot 32 Block 1 Monument Estates Sec 1. Motion was made by Committee Member Ebow to approve the offer from Southeast Housing Partners, Inc. A second by Committee Member Warren. The motion carried unanimously. Ayes: Warren, Ebow and Engleken Nays: None Abstain: None I. Committee to consider approval or other action of offer from Southeast Texas Housing Partners, Inc. for Lot 31 Block 1 Monument Estates Sec 1. Motion was made by Committee Member Ebow to approve the offer from Southeast Texas Housing Partners, Inc. A second by Committee Member Warren. The motion carried unanimously. Ayes: Warren, Ebow and Engleken Nays: None Abstain: None J. Committee to consider approval or other action of offer from Bayou Housing Partners, Inc. for Lot 10 Block 1 Monument Estates Sec 1. Motion was made by Committee Member Warren to approve the offer from Bayou Housing Partners, Inc. A second by Committee Member Ebow. The motion carried unanimously. Ayes: Warren, Ebow and Engleken Nays: None Abstain: None • Audit Committee Minutes -October 8, 2002 -Page 4 • K. Committee to consider approval or other action of offer from Bayou Housing Partners, Inc. for Lot 9 Block 1 Monument Estates Sec 1. Motion was made by Committee Member Ebow to approve the offer from Bayou Housing Partners, Inc. A second by Committee Member Warren. The motion carried unanimously. Ayes: Warren, Ebow and Engleken Nays: None Abstain: None L. Committee to consider approval or other action of offer from Bayou Housing Partners, Inc. for Lot 8 Block 1 Monument Estates Sec 1. Motion was made by Committee Member Warren to approve the offer from Bavou Housing Partners, Inc. A second by Committee Member Ebow. The motion carried unanimously. Ayes: Warren, Ebow and Engleken Nays: None Abstain: None M. Committee to consider approval or other action of offer from Bayou Housing Partners, Inc. for Lot 7 Block 1 Monument Estates Sec 1. Motion was made by Committee Member Warren to approve the offer from Bavou Housing Partners, Inc. A second by Committee Member Ebow. The motion carried unanimously. Ayes: Warren, Ebow and Engleken Nays: None Abstain: None 4. Committee to review and consider recommendations contained in Audit Report from Independent Auditor, Mark Tiller. Chairperson Chuck Engeeken questioned if the Committee would prefer reviewing one item at a time, or begin with a group discussion in order to determine a recommendation of a policy for Council's consideration. Committee Member James Warren preferred to review the report one item at a time to avoid overlooking an item. Acting City Manager John Joerns commented on the distribution of a memo, instructing certain departments, to begin thinking through the recommendations and actually formulating some ideas to put policies in to practice. The recommendations cover several areas of operation; travel, purchasing, procurement or credit cards, and credit cards for travel. An important item will be appropriately marrying the documentation associated with those different ventures. Director of Finance Cynthia Alexander began drafting an overview, attempting to put a document together to guide staff through this process. There are recommendations in the report referring to Council ordinances being passed on certain activities, such as the credit card issuance. The expectation is for the ordinances to be backed up by very specific and detailed policies. This will be a combination of an ordinance authority to establish certain arenas, but also some very strong • Audit Committee Minutes -October 8, 2002 -Page 5 administrative background policies and documentation associated with the ordinances to carry out the staffl s functions. There is probably going to be some good discussion about the corporate account with American Express, the way it was originally set up, there is probably a better way to arrange this. The corporate account went to one location, involving three or four cardholders, making responsibility and assembling documentation more difficult. Mrs. Alexander and I briefly discussed a different issuance of working with American Express regarding individual corporate cards, with individual responsibility, and with better documentation and policy control. Financial Director .Cynthia Alexander stated there are issues that we need to be concerned with. Before we can initiate anything, Mrs. Alexander has two drafts related to credit card usage. One draft regards use of the credit card as a credit card, i.e., travel and entertainment card. The other draft regards use of the credit card as a procurement card or purchasing card. Before we progress further, a decision needs to be clarified on usage of credit cards. Mrs. Alexander's recommendation is to have a credit card program and not a procurement card program. Usage of this card would be for travel and business meals, this will be encouraging for our employees and officials, with this type of expenditures being easier to control and monitor. Mrs. Alexander assembled a purpose clarifying the cards are not to be used to circumvent or replace existing policies, but to supplement those policies. She believes there is a direct and safe way to pay for hotel expenses, meals, airline tickets, rental cars and other travel related expenses; also, offsetting the need of the individual to have pre-paid travel funds. Our purpose of developing policy is to ensure proof of management and administration of the cards, and to protect the City against misuse of public funds. We also want to provide assurance that disbursements have been made only for authorized purposes and have been properly recorded. The City will use this document to establish policy, procedures and guidelines for the use of the cards. One of the problems we had with attempting to obtain American Express card receipts; we were not able to obtain anything from them. The cards were not set up as a corporate account. At this point, we may obtain cards through a depository; therefore, Mrs. Alexander suggests not using the American Express card program. Another type of card can be used (Visa, Mastercard, etc.) through a depository, with no fee. The total payment would be paid in full each month, therefore, not costing the City any interest. Committee Member James Warren questioned the credit card policy and responsibility for overseeing usage of the credit cards. Mrs. Alexander explained the new credit card policy will establish guidelines for everything; who is eligible to receive a card, what type of authorization, who can issue the card, who can approve issuance of the card, who is the program administrator, who will establish responsibility for the card, which individual has the "buck stopping" at them, within the organization. There will be definitions of what is the City of La Porte credit card, what is the bank card, and what is the program administrator. Most of our manuals, policies and procedures are very indepth, we attempt to write step-by-step instructions (at the eighth grade level) which are easy to understand. Everything is defined, everything will be authorized, forms that will have to be approved, and forwarded to the employee's personnel file. Everybody will understand they will receive a copy of the credit card policy and attend an orientation with the program administrator. This person will be responsible for ensuring that the person receiving the credit card understands • • Audit Committee Minutes -October 8, 2002 -Page 6 the usage of the card. They will attend the orientation, as well as reviewing the actual credit card policy procedure manual. The cardholder's signature verifying receipt of the orientation, and their signature verifying receipt of the credit card policy will be forwarded to their personnel file. Another signature will be required on the form for their personnel file, confirming understanding that the card is not for personal use. If back-up information for the card is not received on time, and a late fee charged, the cardholder will be responsible for that fee. If they do make a personal charge, and they do not have a receipt, they are responsible for the charge. The policy is written with very strict guidelines, attempting to cover all bases. However, if necessary and with the necessary approval, these could be relaxed. Committee Member James Warren questioned if the directive covers who issues the credit cards. Acting City Manager John Joems informed Mr. Warren that they used the recommendations as beginning points for developing a foundation. Mr. Warren asked if there are explicit directives for usage of the card. Mrs. Alexander stated that they need some clarification before they can go further with this policy. If it is to be used as a travel independent card, the policy will be written directed towards that. If it is to be used as a purchasing card, then we will need to incorporate all the purchasing policies and procedures into the credit card policy. What Finance needs to know is how you would like the card to be used, then they can go forward with the policy. However you determine the card's usage, everything will be included in the policy so there will be no questions of the usage. In addition, we will have a person on staff, the approval official, who will be responsible for answering questions regarding card usage. Mr. Joems commented, since the credit card program began in La Porte, there have been many advancements in the procurement card industry, and their use is more common. He feels the City needs to take advantage of this use for procurement. Many of the issues in La Porte, a smaller amount were for procurement and a larger amount were for travel and entertainment. A procurement card could be used with very strict conditions. There are many places that are issuing procurement cards to agencies. These are Mr. Joems' particular leanings at this time, without going deeper in to it. Mr. Warren commented on usage of procurement cards while he was in the military. If usage of procurement cards is permitted, and it does not fall within the normal purchasing procedures, you would still need to review the purchasing policy. If we have Purchasing, then by any means possible, this is what we need to use. In the event that we can't use Purchasing, there should be some type of avenue to show that this would not fall within the normal purchasing procedures. Purchasing should also be a part of this to, assure we do not circumvent the purchasing procedures, as an oversight. Basically if this cannot go through our normal purchasing procedures, purchasing should be certain that all is in order. Mrs. Alexander commented that the City has several methods in place to handle these purchases. She believes the City needs to go toward procurement card usage. At this point, we need to define the credit card policy, then deal with the procurement cards. Once we get procurement cards, this will phase out the credit cards. At this point, if we are going to use a City credit card, then we need to have the credit card policy, so there is absolutely no misunderstanding about it. It is going to be very difficult to muddle the two, because you will have all the purchasing policy procedures incorporated in this policy and there is concern that someone may not understand the way it is written, with the City ending up with a similar situation to what we just went through. This needs to be very clear. Audit Committee Minutes -October 8, 2002 -Page 7 Mr. Joerns commented on the purchasing procedures, where the departments purchase items and submit the appropriate paper work to Purchasing, these are all documented. From the Finance perspective, Mrs. Alexander feels there needs to be a Program Administrator, being the Director of Finance. This person would be ultimately accountable, for the program. We would get the cards through the depository and Finance would negotiate the depository, and work with the people on a daily basis. She feels this will not work as well if we use this as a purchase/procurement card; it will work very well as a travel and entertainment card. Finance writes the Travel Policy, checks those policies, reviews travel reports and maintains them. The way our City is set up, Purchasing is not under Finance, making it more difficult to be responsible for that area, when Finance does not have authority in that area. Chairperson Chuck Engelken questioned why the Purchasing Department is not under the Finance Department's umbrella. Most entities have the Purchasing Department under Finance. Mr. Joerns commented that some of it is organizational history. The prior Director of Administrative Services came through Purchasing, as faz as cazeer advancement. Mr. Engelken commented that from a fmancial accountability standpoint, it should fall under the Chief Financial Officer (CFO) in most organizations, with the CFO falling under the Chief Administrative Officer. Assistant Director of Finance Michael Dolby suggested putting it all in one azena, with one person responsible, providing Finance with better internal control. If Purchasing were a part of Finance, the Program Administrator could very easily be the Purchasing Manager. It is very hard to make it that person when they are not part of the department. The procurement card would have to fall under Purchasing, they will check purchasing items, not travel and entertainment. Councilmember Bruce Meismer questioned if there will be an oversight group of some sort, an administrative overseeing arm from Purchasing, as Mr. Warren suggested. Mr. Warren questioned if the credit card is used for personal reasons, will the holder be responsible for reimbursement to the City. He is concerned, if we allow this, we leave ourselves open. Mrs. Alexander explained it clearly states the cazd is not to be used for personal reasons, only for business. If the cardholder is charged for something personal, e.g., an item bought at a hotel gift shop, etc., the employee is responsible to reimburse the City for this item. Mr. Joerns commented on the draft ordinance, they reviewed previously, with provisions for reimbursing personal items which are included on a central bill. Mrs. Alexander reaffirmed the Credit Card Policy will be very clear with the cardholders. If Finance feels they do not clearly understand the policy, a card will not be issued to them. The policy clearly states that if the card is abused, it will be returned to Finance. The policy covers everything, where there will not be any oversights. Mrs. Alexander reviewed the strict procedures within the policy. She does not see how anybody would misunderstand the explicit details of the policy. The Audit Committee will receive a report of all credit card charges each quarter during the Audit Committee meetings. Assistant Finance Director Michael Dolby will be the Finance Department's approving official due to his CPA, his being an executive level employee and due to his auditing experience. At the time he submits the report, he will share with you any questionable items. The Committee will receive the report, along with a verbal report from Mr. Dolby, and he will be able to answer questions. Audit Committee Minutes -October 8, 2002 -Page 8 Mrs. Alexander assured Mr. Warren that upon resignation/termination of an employee with a credit card, their card will be returned to the City during their exit interview. The policy is being set-up so there is no room for error, with property control within the City. Committee Member Howard Ebow assumes that the Committee will speak with current cardholders to see if there is anything they may have missed. They are actually the ones with the cards, knowing the situations of times a purchase needs to be made or something of that nature. Mrs. Alexander feels there will be more of Mr. Joerns and Finance working together to clarify card usage, pending the Audit Committee's directive. She stressed that the policy will be reviewed with current credit card holders. When Mr. Joerns feels we have the fmal policy, the City will be very clear and very restrictive on use management, being connected with the other holders and looking at pass practices. We will also have to deal with the purchasing manual and practices related to that. We will start off with a more restrictive view, but clearly defined. If there is a need for emergency use of the card or an unforeseen condition, this will be defined. Councilmember Meismer asked that the Committee review the policy which does not allow somebody to create for themselves a loan, by the short term situation, where they use a credit card for some incidental purchase that was not a City expense. If the cardholder has the ability to purchase items as a non-tax environment, we need to confirm that their personal charges include their sales tax on that purchase, ensuring their purchase is "not" claimed tax exempt. The City has included this arena in the policy. For City purchases, the cardholder needs to use the tax exempt certificate. Finance attempted to include every subject they could think of, related to charge card usage, in the policy for the Committee's review. Committee Member Warren asked to review the recommendations on the Audit Report. Item 1 (the issuance of credit cards) -Mrs. Alexander explained the authority of issuing the American Express cards to designated employees would lie with the City Manager. The Audit Committee will determine which other City Officials will receive a credit card. Item 2 (governing credit card issuance and usage) -Mrs. Alexander feels there will be an issue with defining Item 2, a. (appropriate use of a credit card to purchase local meals for business purpose) -Finance will need some direction to include this in the policy, unless Mr. Joerns would give a directive. There was discussion on defining City business and more clarification on the cardholder's required explanation for their credit card charges. Mr. Warren questioned how much of the purchasing field is the credit card use. Mr. Joerns informed it is very little, possibly less than 1%. With the division of traveUentertainxnent and procurement, Mr. Joerns has the Purchasing Department reviewing usage of procurement cards and their availability. There is some usage of procurement cards within the City, less than 10 vendors. At the present time, these cards are used within the appropriate departments, i.e., Public Works, Parks and Recreation, etc. Item 3 (City manuals and policies) -the City, has manuals and policies which are being reviewed and revised to be consistent, with very clear, concise and strict guidelines which are to be followed. Item 4 (clear definition of expenditures not covered by auto allowance) -mileage will only be paid for when traveling outside of the City. Mr. Warren would like this to be clearly defined in the guidelines for all employees with a car allowance. Item 5 (clearly establish and document approved per diem rate) -Mrs. Alexander stated the per diem is clearly defined in the Travel Policy. The ordinance should be clarified if it is the same for City employees and Council. Nobody will be issued more than per diem rate. Adjustments are ~ i Audit Committee Minutes -October 8, 2002 -Page 9 being made by the Travel Committee on the rates, along with clear guidelines. There was discussion on this item regarding the difference in rates and the guidelines to be followed. Item 6 (credit card payment and documentation) -Mrs. Alexander explained the credit card original statements are received in Accounts Payable with a copy of the statement being forwarded to the cardholder. All the backup for the transactions will be attached to the check requisition for payment of the statement. Item 7 (processing form to establish purpose of expenditures) -The form will be put on the shared drive for use by the employees, with back-up documentation being attached to the form. This will be documented on the quarterly report, which will be submitted to the Audit Committee. A reminder from City Secretary Martha Gillett, is the Council and Mayor need to be careful of not violating the Open Meetings Act (if there is a quorum). Item 8 (designation for approval of credit card expenditures) -this has been clarified. Chairperson Engelken complimented Mrs. Alexander on her excellent progress with the draft policy with Mr. Joerns. He encouraged them to proceed on, and then presented the draft to the Committee for review. Another suggestion is to have Mr. Tiller review the draft with the Committee, as well as staff, and get some of his insight; also on the Credit Card Policy, the Purchasing Policy and the Travel Policy. The wording will be included in the policies that they are in the process of a transition period. When the draft report is completed, the Committee is considering having a Workshop to review the report. Mr. Joerns pointed out that if the Committee has Mr. Tiller review the draft report, most probably, there will be a fee for his services. Mr. Engelken suggested calling Mr. Tiller to find out if there will be a fee. He feels this would ensure the City of the quality of the policies. The next step is for Finance to complete the necessary forms for the report, then have them reviewed by Mr. Joerns. After Mr. Joerns' review, it will be returned to the Committee. Committee Member Howard Ebow personally feels the Audit Committee is the one to review the report and perhaps, give Mr. Tiller a summation of the final policy and see if he has any suggestions. Mr. Joerns commented there may be another avenue for review by Auditor Null Lairson. Mr. Joerns suggested the Committee and Council receive the draft policy for review prior to the workshop. Mr. Ebow stated City Manager Robert Herrera was able to respond to the auditor, but he was not given the opportunity to respond to Council. Mr. Ebow feels he needs to be given that opportunity, with a decision being made for closure for the City. City Attorney Knox Askins informed them that they have been instructed to put an Executive Session on the agenda for October 14, 2002 for personnel action with Mr. Herrera and his attorney being present at the Session. Mr. Askins explained the law regarding Executive Sessions. Mr. Askins commented on the purchasing/procurement policies, very elaborately on the records for years. There are many written policies throughout the City that just involved City operations, employees and procedures that did not have to come to Council, which were put in place by the City Manager. Mr. Askins stated having the audit review and the audit report produced was the proper action. 5. Committee Member Warren commented on the awkwardness this has caused everybody. He thanked Finance and was appreciative for the praise that Independent Auditor, Mark Tiller, gave . ~ ~ Audit Committee Minutes -October 8, 2002 -Page 10 to Finance. Finance has been put in a very bad situation from the public and the press. He also thanked them for putting together the budget and all they have. done during this time. Mr. Warren also thanked Mr. Joerns for stepping in as the Acting City Manager. He thanked everyone in their combined efforts and patience. Committee Member Ebow commented on the City's situation during this period, there has been a lot of hurt. He complimented everyone for their excellent work in maintaining the City and avoiding damage control. Councilmember Meismer cautioned Council to be careful of their over-characterization for the lack of policy causing these problems. He has looked at this and has seen a lot of good people in other areas who have no questions or concerns. He also sees the reason why there was not a policy in place. The credit cards were given to people at the very highest level of this organization, and some reasonable and responsible effort should have been made on a part of those people. Director of Finance Cynthia Alexander stated the credit cards are not the basis for what happened. We are using directives to implement internal controls and these are very positive things. Mr. Warren stated the City has, and had a good reputation. We talk about healing, there is going to be healing because there has been a lot of damage. We are not only looked at in La Porte, but we are looked at by all of Texas. Mr. Tiller put it well, in saying that we cannot have an excuse for poor business practices, for failure to provide control procedures. We may not like the position we have been put in, however, we have to do the right thing. He enjoyed the meeting. Committee Chairperson Engelken thanked the Committee and the staff, everything went much better than he envisioned it would. Acting City Manager Joerns commented there will be some hand-slapping. We will have to regain some of our high standards and reputation. Mr. Joerns informed his staff that this is for all the City employees. All of us share in this burden. Mr. Meismer commented that others are watching us and how we handle situations. Everyone he has seen that has been a part of that administration has done an excellent job. Chairperson Engelken commented there will be better organization and the City will be a better place. 6. Adjournment There being no further business to come before the Committee, the meeting was adjourned at 8:05 p.m. Respectfully submitted, G~,(~1Q/ ~~~~ Martha a. Gillett, TRMC City Secretary Audit Committee Minutes -October 8, 2002 -Page 11 Passed and approved on this the day of 2002 Chuck Engelken