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Agenda 03/26/2013 Item #10E3/26/2013 10. E. EXECUTIVE SUMMARY Recommendation that the Board of County Commissioners direct staff to solicit proposals to develop and implement targeted improvements to the County's federal and state grants compliance and administration systems. The solicitation should be directed to public accounting firms with known expertise in grants compliance accounting and auditing, including but not limited to the Big 4 firms. Responses by bidders shall give consideration to the recommendations for improvements to the existing grant processes and systems as will be provided by the County's auditors, Ernst & Young. The request for proposals (RFP) shall be developed and released within 60 days of receipt of the Ernst & Young assessment report. OBJECTIVE: That the Board of County Commissioners direct staff to solicit proposals to develop and implement targeted improvements to the County's federal and state grants compliance and administration systems. The solicitation should be directed to public accounting firms with known expertise in grants compliance accounting and auditing, including but not limited to the Big 4 firms. Responses by bidders shall give consideration to the recommendations for improvements to the existing grant processes and systems as will be provided by the County's auditors, Ernst & Young. The request for proposals (RFP) shall be developed and released within 60 days of receipt of the Ernst & Young assessment report. CONSIDERATIONS: During E &Y's presentation of the CAFR to the Board of County Commissioners, there was discussion of weaknesses in the grants compliance arena. E&Y acknowledged the benefits of the recommendation to purchase a federal and state grants compliance and administration systems template, pointing out that the benefits would outweigh the cost. This template would prescribe best practice financial and accounting systems, business processes and external technical training and assistance resources needed to achieve desired outcomes and accountability. As such, it behooves the Board to evaluate purchase of such a system. There are a number of well developed programs available that once implemented will allow the county to focus on optimizing its grants program for the benefit of the community. FISCAL IMPACT: To be determined by staff. LEGAL CONSIDERATIONS: This item has been reviewed by the County Attorney, raises no legal issues at this time, and requires majority vote for Board direction. -JAK RECOMMENDATION: That the Board of County Commissioners direct staff to solicit proposals to develop and implement targeted improvements to the County's federal and state grants compliance and administration systems. The solicitation should be directed to public accounting firms with known expertise in grants compliance accounting and auditing, including but not limited to the Big 4 firms. Responses by bidders shall give consideration to the recommendations for improvements to the existing grant processes and systems as will be provided by the County's auditors, Ernst & Young. The request for proposals (RFP) shall be developed and released within 60 days of receipt of the Ernst & Young assessment report. Packet Page -82 3/26/201310.E. PREPARED BY: Commissioner Georgia Hiller, Chair - District 2 Attachment - Minutes of CAFR Presentation where E&Y endorses the purchase of a grants compliance system. Sample - Deloitte Grants System - Brochure Packet Page -83- /'NN, COLLIER COUNTY Board of County Commissioners Item Number: 10.10.E. 3/26/2013 10. E. Item Summary: Recommendation that the Board of County Commissioners direct staff to solicit proposals to develop and implement targeted improvements to the County's federal and state grants compliance and administration systems. The solicitation should be directed to public accounting firms with known expertise in grants compliance accounting and auditing, including but not limited to the Big 4 firms. Responses by bidders shall give consideration to the recommendations for improvements to the existing grant processes and systems as will be provided by the County's auditors, Ernst & Young. The request for proposals (RFP) shall be developed and released within 60 days of receipt of the Ernst & Young assessment report. (Commissioner Hiller) Meeting Date: 3/26/2013 Prepared By Name: BrockMaryJo Title: Executive Secretary to County Manager, CMO 3/20/2013 8:45:30 AM Submitted by Title: Executive Secretary to County Manager, CMO Name: BrockMaryJo 3/20/2013 8:45:32 AM Approved By Name: IsacksonMark Title: Director -Corp Financial and Mgmt Svs,CMO Date: 3/20/2013 2:33:56 PM Packet Page -84- 3/26/2013 10. E. March 12, 2013 EXCERPT TRANSCRIPT OF THE MEETING OF THE BOARD OF COUNTY COMIlVIISSIONERS Naples, Florida, March 12, 2013 Item #13A - CAFR LET IT BE REMEMBERED, that the Board of County Commissioners, in and for the County of Collier, and also acting as the Board of Zoning Appeals and as the governing board(s) of such special districts as have been created according to law and having conducted business herein, met on this date at 9:00 a.m., in REGULAR SESSION in Building "F" of the Government Complex, East Naples, Florida, with the following members present: CHAIRWOMAN: Georgia Hiller Tom Henning Fred Coyle Donna Fiala Tim Nance ALSO PRESENT: Jeffrey Klatzkow, County Attorney Leo E. Ochs, Jr., County Manager Mike Sheffield, Deputy County Manager Troy Miller, IT Department Excerpt Item # 13A — Page 1 Packet Page -85- 3/26/2013 10.E. March 12, 2013 .� Item #I 3A PRESENTATION OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2012 AND AUTHORIZATION TO FILE THE RELATED STATE OF FLORIDA ANNUAL LOCAL GOVERNMENT FINANCIAL REPORT WITH THE DEPARTMENT OF FINANCIAL SERVICES. - DIRECT THE COUNTY MANAGER TO WORK WITH THE CLERK'S FINANCE DEPARTMENT TO WORK ON SCOPE FOR AN RFP REGARDING THE RECOMMENDATIONS GIVEN BY ERNST & YOUNG FOR THE GRANTS PROGRAM; MOTION TO ACCEPT THE COMPREHENSIVE ANNUAL FINANCIAL REPORT AND FILE THE STATE OF FLORIDA ANNUAL LOCAL GOVERNMENT FINANCIAL REPORT WITH THE DEPARTMENT OF FINANCIAL SERVICES — APPROVED MR. OCHS: That is Item 13.A. It's a presentation of the Comprehensive Annual Financial Report for the fiscal year ended September 30, 2012, and authorization to file the related State of Florida Annual Local Government Financial Report with the Department of Financial Services. Ms. Kinzel, your Director of Finance with the Clerk of Circuit Court, will begin the presentation. CHAIRWOMAN HILLER: Mrs. Kinzel, before you begin, I just want to make sure that if anyone in the public would like to view this document, that they have the ability to do so. And if you can direct the public where they can view it, I believe it's on your website on -line and can also be physically viewed -- is it at every one of the public libraries, including your office? MS. KINZEL: It is not yet. Following this meeting it will Excerpt Item #I 3A — Page 2 Packet Page -86- 3/26/2013 10.E. March 12, 2013 be on collierclerk.com in its entirety and we also will make them available at the libraries. CHAIRWOMAN HILLER: Thank you very much. MS. KINZEL: Good morning, Commissioners. We're here today to present, as the County Manager indicated, the Comprehensive Annual Financial Report, commonly referred to as the CAFR. This report is a summary of the financial activity of Collier County for fiscal year 2012. I want to take a moment, because this report wouldn't be possible without the dedication and hard work of a few people, not only in our office but in several county departments and the other constitutional offices. So I'd like to recognize a few, starting with Derrick Johnson and Kelly Jones. They lead the team that actually prepares the document, which we think is an advertisement for our beautiful beaches this year. And they lead a few accountants that we have here. Stand up. They don't get recognition, they usually are in their cubicles working away at numbers, so I made them come forward today, because they do a lot of hard work all year long. . CHAIRWOMAN HILLER: Maybe your two directors could stand as well. MS. KINZEL: Stand up. CHAIRWOMAN HILLER: And let's give them all a round of applause. (Applause.) CHAIRWOMAN HILLER: It's a hopelessly tireless job with very little gratitude, appreciation, et cetera. Having been a part of the process many, many times, I'm very empathetic. MS. KINZEL: And they're very dedicated employees, and they work year round. Also, we would like to thank the other constitutional offices: Excerpt Item #13A — Page 3 Packet Page -87- 3/26/2013 10. E. March 12, 2013 The Sheriff, the Tax Collector, Property Appraiser and the Supervisor of Elections and the Clerk of Courts whose accountant is here, who also did not stand. But Raymond, stand up. He does all of the financial reporting for the Clerk's Office. CHAIRWOMAN HILLER: Raymond, you deserve applause too. We can't leave you out. (Applause.) MS. KINZEL: All of the constitutional officer financial reports are also included in your CAFR, so anyone interested in those can find them there. And last but not least, we would also like to thank the County Manager and all of the county staff for their assistance, particularly the Office of Management and Budget, and I see Sherry, Therese, they work with us very closely to coordinate all the efforts from the county staff responses to make sure that this stays on track and keeps moving forward. So we really appreciate the cooperation. It is truly an effort, not only with utilities, administration, growth management; every area of Collier County government has to cooperate and provide us the financial information that is included in the CAFR. So we work with staff all year long. This is the end result. I think it's good news, and we wanted to bring it forward today. We'd also like to thank Ernst and Young, our external auditors, and particularly the team that they've brought on -site. We've been very fortunate to have a very experienced staff return. That makes our job a lot easier when we don't have to train new auditors to our systems and accountability. And they've been very pleasant to work with as far as an audit team can be pleasant to work with. CHAIRWOMAN HILLER: Come on, Crystal, audits are always pleasant. ,-. MS. KINZEL: Audits are always pleasant, right. Really, Excerpt Item #I 3A — Page 4 Packet Page -88- 3/26/2013 10.E. March 12, 2013 I've never had a problem with audits, but most people complain about them. I don't understand. CHAIRWOMAN HILLER: We're talking about the auditors. MS. KINZEL: Right. But after the meeting today, as you asked at the beginning, the CAFR will be available on the Clerk's website, if you go to collierclerk.com and click on the Clerk to the Board line and Finance, you will see the -- all of the CAFRS for many years are out on our website and they're available to the public. And with that, I would like to present -- we have again with us Mr. John DeSanto, who is the Executive Director and the managing partner on the Collier audit from E &Y and he's going to go over the audit report for you and some of the highlights. But thank you again, Commissioners. We had a very successful year. MR. DeSANTO: Thank you, Madam Chair and members of the Board. Again, for the record, my name is John DeSanto. I am an Executive Director with Ernst and Young, your external audit firm, and I was the partner in charge of your audit. I do appreciate the opportunity to come before you today to present the 2012 audit results. First a quick overview of the audit. We did issue unqualified or clean audit opinions on the financial statements of the county, as well as each constitution officer. In our Report on Compliance with Laws and Regulations, Contracts and Grant Agreements pursuant to government auditing standards, we disclosed no material weakness or significant deficiencies in internal controls over financial reporting, and no material instances of noncompliance or other matters. In our management letter on internal control, we did have one comment in both the current and prior year and it related to Excerpt Item #13A — Page 5 Packet Page -89- 3/26/2013 10. E. March 12, 2013 immaterial instances of grant compliance. They were primarily related to sign -offs and approvals of time sheets in various departments as well as in sub - recipients agreements, not necessarily having all of the correct information or all of the required information that should be included in those comments. Also the management letter does include some required disclosures that are required by the State of Florida Auditor General. As far as the overview of the audit results, as far as the auditors' responsibilities under generally accepted auditing standards, those responsibilities are to provide reasonable assurance that the financial statements are free of a material misstatement. With respect to our responsibilities regarding internal controls over financial reporting, our responsibility is to obtain an understanding to allow us to plan and perform the audit, not to issue a separate opinion on that internal control system and structure. And as I mentioned previously, we did issue unqualified or clean opinions on both the county audit and each constitutional officer. With respect to the accounting policies used by management in preparing the CAFR and the financial statements, those are disclosed in footnote one to your financial statements. With respect to fraud and illegal acts, we did not identify any matters that would be material to the county's financial statements. With respect to audit differences or audit adjustments, we did identify three audit differences that were recorded in your financial statements. The first one relates to depreciation expense for a project. I think it was the 800 megahertz project. �-. That was placed in service in the prior year, but it was not Excerpt Item #13A — Page 6 Packet Page -90- 3/26/2013 10. E. March 12, 2013 capitalized in the books and records and not started to be depreciated until the current year. And that amounted to about $1.8 million. We also noted a depreciation expense calculation error of about 600,000, and we also identified the potential of about $11 million in FENIA funds that may be required to be returned to the agency. We did have one unrecorded audit difference that is not reflected in your CAFR. This relates to the prior year effect of depreciation for the first entry that was recorded, management record, the full 1.8 million in the current year. 1.3 million of that related to the prior year. So this is the effect of that 1.3 million that should have been recorded in the prior year. We have also included an exhibit that actually lists out in detail those adjustments. As I mentioned previously with respect to material weaknesses and internal controls, we did not identify any. We had no disagreements with management, no serious difficulties in performing our audit. We do continue to receive excellent cooperation in performing our audit from not only county management, clerks finance management but also each constitutional officer. There are no consultations that management had with other accountants that we are aware of. And with respect to independence, Ernst and Young is independent of the county. This next slide is a similar slide that I've provided in previous years, and it's just really a snapshot comparing our audit results to previous years. And it starts with 2010 audit to the left all the way to 2012 audit to the right. I think the one word that I would use would be progress. I think the county is making progress, especially in the area of single audit findings. .� Excerpt Item #13A — Page 7 Packet Page -91- 3/26/2013 10.E. March 12, 2013 While we continue to audit a significant number of programs, the types of audit opinions that we use are improving. They're not as severe as they've been in the past. And also with respect to the internal controls over compliance, we know that the severity of those findings- have been -- have become less in the current year that we audited, the fiscal '12 year. And as far as management letter comments go, they continue to be right around one or two comments and they generally seem to be in the area of instances of grant compliance that are not material enough to include in our grant compliance reports, which government auditing standards requires us to disclose in the management letter. CHAIRWOMAN HILLER: May I interrupt just -- you know, materiality is something that has very different meanings to different people. MR. DeSANTO: Correct. CHAIRWOMAN HILLER: Could you define materiality for purposes of this discussion so people understand that you have a very high threshold for what is deemed material? MR. DeSANTO: Yeah, materiality at the financial statement level is essentially the amount by the financial statements could be misstated and not affect either a decision to be made by someone who's going to use the financial statements or affect somebody's interpretation of the audit results. And again, as you mentioned, Commissioner, that level is pretty high. It's in the -- it's between one and $2 million. Thank you. The next couple of slides are just high - level, three -year comparisons. One measure I know that the community typically looks at the strength -- the financial stability and strength of a particular government is the amount by which their general fund ,-e fund balance covers their annual expenditures. Excerpt Item #13A — Page 8 Packet Page -92- 3/26/2013 10.E. March 12, 2013 And as you see, the county has been pretty much in the mid 20 -- mid to high 20 range, which is above the norm. Average and good financial stability would be in the 15 percent range. So as you see, Collier County has been significantly above that for the past three years. And we did show at the bottom how that compares to a couple of other counties. These counties were chosen mainly because they're the only other counties in Collier County's geographic area, that being the west coast of Florida, who's completed their 2012 CAFRs this early. And as you see, that's how Collier County compares to those two other counties. And the last slide here is a three -year comparison of primarily outstanding debt and debt per capita. And you do see that the debt per capita is decreasing steadily year over year. During the 2012 year the county did refund certain debt to take advantage of lower interest rates and lower the interest payments on those debts in the future. And similarly you do see the comparisons of Collier's debt per capita to those two other counties that we compared the general fund information. And as I mentioned, this attachment A, it's probably very hard to read on the screen, but this is the actual audit adjustments that I had previously gone over. And with that, I would just like to conclude my high -level summary of the audit results and ask if you have any questions related to the audit or the audit results. CHAIRWOMAN HILLER: Commissioners? Commissioner Fiala? COMIlVIISSIONER FIALA: Yeah, this is really good news. I'm glad to hear for the last three years that we just continue to improve, to improve, to improve. Especially because we're just now climbing out of that recession. We were still in it and still we were improving. And so I give you high marks and I give us Excerpt Item #I 3A — Page 9 Packet Page -93- 3/26/2013 10. E. March 12, 2013 high marks. Thank you. MR. DeSANTO: Yeah, I think so. And something just for your information: As you've known, the findings that we've had in the past primarily are in the grant compliance audit procedures that we have to do. And as those results get better and better, there'll be less and less programs that will be required to be audited. And that of course to you all means less cost in the audit to you as well. So there is a financial implication, if you will, of these findings. CHAIRWOMAN HILLER: Anv other comments by the Board? (No response.) CHAIRWOMAN HILLER: I'd like to make a comment. First of all, I'd really like to thank you for conducting a very professional and thorough audit. I would like to address what you have defined as the progress that we've experienced over these last two years. You're absolutely right, the severity of the problems is diminishing. I think that is in large part due to two things: We now have a Clerk who is actually engaging in internal auditing and testing the internal control systems to ensure that the controls are working. And in part to staff which has changed in the course of these last two years. We have new leadership in just about every division. So the time frame you're looking at, 2010 to 2012, is actually when I was elected. And I have seen a material change both in performance and attitude of staff over that period of time. Radically different from the day that I started and what you're using as your benchmark date. But to that end I do want to address the grant program, and that is an area that we really do need to make significant improvements on. And it is something I have spoken to Mr. Excerpt Item # 13A —Page 10 Packet Page -94- 3/26/2013 10.E. March 12, 2013 Ochs about. And one thing that I wanted to address, and I of course need to make sure that this doesn't -- that this wouldn't impair your independence, and maybe this is something that we need to put out to bid, but there are programs out there that the big four have developed with respect to federal and state grant administration. And I think it really would be beneficial, because I know that the -- that Mr. Ochs and the Board are ambitious to see that area be a non - issue, that it work effectively and efficiently for the benefit of the county as well as other nonprofits that we partner with. And I don't know if your recommendation would be for us to maybe consider putting this out to bid, because this is something I was actually thinking of bringing forward in an executive summary, or if this is something that we would wrap into your engagement letter as one of the things that we would want you to do for us for next year, and that is develop the system so that the problems are eliminated. And for us to try to reinvent the wheel when you as professionals have already developed it makes no sense. And it would be -- I think it would result in significant cost savings and significantly more revenues coming into the county if we did that. MR. DeSANTO: Yeah, I agree with those comments. I think in the long run you're correct, it would end up saving the county money, money across all fronts, as well as perhaps the ability to even receive more grant funding. CHAIRWOMAN HILLER: Exactly. MR. DeSANTO: What you're describing, there are limitations to what Ernst and Young, since we're your external auditors, can do. CHAIRWOMAN HILLER: Exactly. MR. DeSANTO: We pretty much can say here's what best Excerpt Item #13A —Page 11 Packet Page -95- 3/26/2013 10.E. March 12, 2013 practice and what standards are, here's what your practice is and then here's what you need to do to get there. But we would have to stop there. We cannot deal with any part of the implementation of that, where another firm would be able to also help with the implementation side. CHAIRWOMAN HILLER: So would you recommend as direction that maybe we incorporate what you're describing as you can do as part of next year's engagement and secondarily put out a request for the other firms, be it Deloit or, you know -- MR. DeSANTO: Sure. CHAIRWOMAN HILLER: -- any other firm that has -- MR. DeSANTO: To help with the implementation side -- CHAIRWOMAN HILLER: To help with the implementation. MR. DeSANTO: -- of it. Yeah, I'd have to stop -- CHAIRWOMAN HILLER: Right, and I understand that, and that's why I bring up the conflict issue. I really think it could help tremendously. I know there are several firms. I've looked at some of the -- MR. DeSANTO: Yes, ma'am. CHAIRWOMAN HILLER: -- implementation. County Manager, your thoughts on that? We've talked about it and -- MR. OCHS: Yeah, we have talked about it generally. I'd like to spend some time with both the finance department for the Clerk and the external auditor to try to develop a little bit of a scope -- CHAIRWOMAN HILLER: I think that would be great. MR. OCHS: -- to bring that back and see if that -- CHAIRWOMAN HILLER: I think that's -- MR. OCHS: -- is something that the Board's interested in. CHAIRWOMAN HILLER: I think that's exactly what you Excerpt Item #I 3A — Page 12 Packet Page -96- 3/26/2013 10.E. March 12, 2013 should do, I mean, obviously. And the scope has to be, you know, within the limits of the conflicts issue. And then what I would like to do is secondarily bring back an executive summary that proposes that we put out an RFP to the other firms to help with the implementation of whatever you all agree as the scope on this issue. MR. OCHS: I'd be happy to do that, Commissioner. CHAIRWOMAN HILLER: That's great. I think it's going to really move their grants division in the right direction. Thank you. MR. DeSANTO: Agree. Thank you. Any other questions? COMMISSIONER FIALA: Yes, just -- MR. DeSANTO: Yes, Commissioner. COMIlVIISSIONER FIALA: -- one more. I might have misunderstood this. But this is for the entire year of 2010, the entire year of 2011 and the entire year of 2012, right? MR. DeSANTO: The financial report or the comprehensive annual financial report you have in front of you is only for 2012. The summary I went over I just -- COMMISSIONER FIALA: The summary. MR. DeSANTO: -- wanted to compare that to the prior two audits just to give you some frame of reference or some context so you can actually see that there's been -- COMMISSIONER FIALA: So you can see we already started improving from 2012 on -- I mean 2010 -- MR. DeSANTO: 2010 on. COMIlVIISSIONER FIALA: --on. MR. DeSANTO: Yes, ma'am. COMMIISSIONER FIALA: I just wanted to go on record as Excerpt Item #I 3A — Page 13 Packet Page -97- 3/26/2013 10.E. March 12, 2013 pointing it out. You know, I hope our people realize we're working hard for them and we're trying to do everything we can to make it a better world and yet not rob them of anything that is important to our community. So this is a wonderful thing. And you know what, you were so nice when you came into my office too. That was very nice. Took the time to answer all my questions. I appreciate that. Thank you. MR. DeSANTO: Thank you, ma'am, it was my pleasure. CHAIRWOMAN HILLER: I'd like to add one comment. And this is not necessarily with respect to your performance but rather what you're reporting. From 2010 to the present we have seen a steady decline in expenditures, which is exactly -- MR. DeSANTO: Correct. CHAIRWOMAN HILLER: -- what the objective of this Board is, so -- and by a lot. . MR. DeSANTO: Yes, ma'am. CHAIRWOMAN HILLER: By millions. And we have steadily been reducing our debt and restructuring our debt. In fact, one of the other agenda items we have today is on that point MR. DeSANTO: Correct. CHAIRWOMAN HILLER: -- where we're reducing our debt service and taking advantage of the lower interest rates, and as a consequence, the other steady decline over this last two -year period is the reduction in outstanding debt per capita, which is very significant. And the community needs to know that the Board has heard and has taken the direction that the community has always wanted with that regard. MR. DeSANTO: Yes, ma'am. And I think the results spell �., that out and support that. Excerpt Item #I 3A — Page 14 Packet Page -98- 3/26/2013 10. E. March 12, 2013 CHAIRWOMAN HILLER: Very positive. MR. DeSANTO: Yes. CHAIRWOMAN HILLER: Thank you. MR. DeSANTO: All right, thank you. Appreciate your time this morning. COMIlVIISSIONER HENNING: Madam Chair, I make a motion that we accept the CAFR -- CHAIRWOMAN HILLER: Thank you. COMMISSIONER HENNING: -- Comprehensive -- CHAIRWOMAN HILLER: May I have the second? COMMISSIONER HENNING: -- Annual Financial Report and file the report with the State of Florida Annual Local Government Financial reporting, Department of Finance and Service (sic). CHAIRWOMAN HILLER: Thank you. COMMIISSIONER FIALA: Second. CHAIRWOMAN HILLER: Thank you very much. And we have a motion and a second. There being no further discussion, all in favor? COMMISSIONER FIALA: Aye. COMMISSIONER HENNING: Aye. CHAIRWOMAN HILLER: Aye. COMIlVIISSIONER COYLE: Aye. COMMISSIONER NANCE: Aye. CHAIRWOMAN HILLER: Motion carries unanimously. And we've by agreement given the County Manager direction to move forward to work with the amendment of the scope of services to be provided by Ernst and Young, and I'll bring forward an executive summary when they pull that all together for an RFP on assistance with the grant program. Excerpt Item #13A — Page 15 Packet Page -99- /1-1*, 3/26/2013 10.E. March 12, 2013 CERTIFICATE OF REPORTER State of Florida ) County of Collier ) I, CHERIE' NOTTINGHAM, Notary Public, in and for the State of Florida at Large, certify that I was authorized to and did stenographically report the foregoing proceedings. I further certify that I am not a relative, employee, attorney or counsel of any of the parties, nor am I financially interested in the action. Dated this 20th day of March, 2013. CHERIE' NOTTINGHAM Gregory Court Reporting 2650 Airport Road South Naples, Florida 34112 My Commission No. EE 008093 Expires: July 12, 2014 Excerpt Item #13A — Page 16 Packet Page -100-