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2023-09-05 Special Meeting Audit EntranceEDMONDS CITY COUNCIL SPECIAL MEETING AUDIT ENTRANCE CONFERENCE APPROVED MINUTES September 5, 2023 ELECTED OFFICIALS PRESENT STAFF PRESENT Vivian Olson, Councilmember Scott Passey, City Clerk Will Chen, Councilmember Susan Paine, Councilmember Jenna Nand, Councilmember ELECTED OFFICIALS ABSENT Mike Nelson, Mayor Neil Tibbott, Council President Diane Buckshnis, Councilmember Dave Teitzel, Councilmember 1. CALL TO ORDER/FLAG SALUTE The Edmonds City Council meeting was called to order at 12:31 p.m. by Councilmember Olson virtually and in the City Council Conference Room, 212 — 5th Avenue North, Edmonds 2. AUDIT ENTRANCE CONFERENCE 1. FISCAL YEAR 2022 AUDIT ENTRANCE CONFERENCE Kristina Baylor, Audit Manager, State Auditor's Office (SAO), introduced SAO staff, Maggie Wallis, Acting Audit Supervisor, and Irina Frolova, Audit Lead. Councilmembers introduced themselves. Ms. Baylor advised a packet of information was sent out in advance of today's presentation that contains greater detail regarding the information that will summarized during the presentation. The goal of the entrance conference is to talk about the audit early in the process and share what the SAO plans to conduct in the fiscal year 2022 audit. She invited councilmembers to ask questions or make suggestions. She reviewed: • Audits that Matter o Types of audits SAO conducts ■ Grayed boxes not applicable for Edmonds' 2022 audit Edmonds City Council Approved Minutes September 5, 2023 Page 1 Audits SAO conducted January 1, 2022 — December 31, 2022: 2,448 Ms. Frolova reviewed: • Accountability Audit - January 1, 2022 — December 31, 2022 o Using a risk -based audit approach for the City of Edmonds, we plan to evaluate the following areas: ■ Accounts payable — general disbursements, credit cards, and electronic funds transfers ■ Payroll — leave accrual and usage ■ Monitoring of fuel usage ■ Open public meetings — compliance with minutes, meetings and executive session requirements ■ Financial condition — reviewing for indications of financial distress • Financial Statement Audit - January 1, 2022 — December 31, 2022 o Opinion Issuance ■ Opinion will be issued in accordance with U.S. GAAP ■ Audit conducted in accordance with Government Auditing Standards o Internal Control and Compliance over Financial Reporting ■ Assess adequacy of accounting and financial statement preparation processes at preventing material misstatements ■ Identify whether there are instances of material noncompliance • Federal Grant Compliance Audit - January 1, 2022 — December 31, 2022 o Opinion Issuance ■ Opinion will be issued in accordance with Government Auditing Standards and the Uniform Guidance o Internal Control and Compliance over Major Programs ■ Assess adequacy of federal grant processes at preventing noncompliance ■ Identify whether there are instances of material noncompliance Major programs selected for audit ALN Program or Cluster Title Total Amount Expended 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery $1,371,952 Funds o These costs amount to about 69% of the total federal expenditures for 2022 Ms. Wallis reviewed: • Staying Connected Edmonds City Council Draft Minutes date Page 2 Pre -Audit Meeting Exit Engagement Conference Letter Staying Connected Mgmt. Rep. Risk Letter Assessments Weekly Status Meetings Levels of Reporting o Findings ■ Most significant level of audit recommendations ■ Included in their entirety in the audit report ■ City has opportunity to respond to describe plans to correct it. Response included in the audit report o Management letter ■ Less significant than a finding but important enough to bring to management in the governing body ■ Referenced in the audit report but not included in their entirety ■ Important to resolve so they do not become a finding in the future o Exit items ■ Best practice recommendations, housekeeping items ■ Common to receive during an audit Important reminders o Confidential information ■ SAO is committed to safeguarding sensitive information o Audit costs ■ Packet includes the estimated cost of the audit o Audit dispute process o Loss reporting requirements ■ Should the City become aware of any known or suspected losses of public funds, the City is required to notify the SAO ■ SAO will determine if an investigation is necessary Reporting Cybersecurity Issues o Reporting to the Attorney General's Office (AGO) ■ Reporting required for single security incidents affecting > 500 Washington residents ■ Find out more about reporting requirements and how to report at www.atjZ.wa.jzov/data- breach-notifications o Reporting to the State Auditor's Office ■ Reporting may be required for cyber-security events involving financial records or finances, regardless of number of affected parties. ■ To learn more, visit https://sao.wa. og v/has-your-government-experienced-a- cybersecurity-issue-here-is-when-and-how-to-report/ Edmonds City Council Draft Minutes date Page 3 Peer Review of Washington State Auditor's Office o Who audits the State Auditor? ■ To ensure our audits satisfy general audit standards, our office receives external peer every three years by the National State Auditors Association (NSAA) ■ Most recent peer review results are available online at www.sao.wa.Rov/about-sao/who- audits-the-auditor/ ■ Rating received: "Pass," the highest level of assurance that an external review team can provide Working together to improve government o Local Government support team ■ BARS & Annual Online Filing ■ Accounting and Reporting Training ■ Client portal, including helpdesk o Center for Government Innovation ■ Process improvement facilitations ■ Team building and leadership workshops ■ Financial Intelligence Tool (FIT) Center for Government Innovation Resources o Strengthening Internal controls ■ Payroll Guide ■ Segregation of duties ■ Buying and bidding o Minimizing cybersecurity risks Emerging Issues Affecting Local Governments: o Providing resources for elected officials & appointed boards to prevent fraud o Highlighted information includes: ■ Types of employee fraud ■ Preventing fraud ■ Detecting fraud ■ Responding to fraud ■ Publication: Trust, but verify: A guide for elected officials & appointed boards to prevent fraud o Audit Connection (May 2023) includes articles designed to keep you up to date (available via subscription on website). Topics include: ■ Lease accounting (GASB87) ■ ECF federal program documentation challenges ■ SAO's new fast, free and independent cyber checkups ■ Invitation to visit SAO's center for innovation's new webpages ■ How to evaluate risks when making electronic disbursements o GASB Updates (March 2023) includes a summary of current and upcoming accounting and financial reporting standards Councilmember Paine asked how ARPA funds will be treated this year, recalling a ruling came in at the last minute last year. Ms. Wallis responded the SAO is reviewing ALN 21.027, following up on a prior year's recommendation. The SAO will be auditing to any guidance that has been issued up to the audit period. Councilmember Paine asked if any new guidance had been issued mid -year cycle. Ms. Baylor assumed Councilmember Paine's question was related to financial reporting of unspent proceeds. Councilmember Paine agreed it was. Ms. Baylor answered for the financial statement, there has been no change in the guidance issued last year; unspent proceeds are still reported as such on the financials. During Edmonds City Council Draft Minutes date Page 4 their review, they will look to see if any remaining unspent funds are properly coded as discussed during the prior audit. Councilmember Chen inquired about ARPA funds and an issue during the 2020 audit with how CARES money was handled. He asked if the SAO will follow up on how the City responded to the issues that were identified related to CARES money. Ms. Baylor said the audit process includes follow up on any prior audit findings to ensure the status the City asserts, whether fully or partially resolved, is accurate. That will be done this year for the prior year audit findings in 2021. With regard to the prior issue regarding grants provided to businesses that struggled during the pandemic, she understands the City altered the method for spending those funds. She did not believe business grants were provided in 2022 other than subrecipients which have different requirements so direct grants to businesses is not applicable to the 2022 audit. The SOA is completing its review of how they money was spent, but did not anticipate that particular issue would come up again. Councilmember Chen said was not expecting the same audit in 2022; his question was whether there would be follow-up to ensure the issue identified in the prior year had been handled properly. Ms. Baylor answered beyond following up on the prior year issue, there are no plans go back to 2020 at this time. Follow-up on issues that arose in 2020 was done last year. Councilmember Chen observed the City received ARPA fund in 2022 and the accounting standard has not changed. He was hopeful the City will sail through without any trouble this year. Ms. Baylor responded that will be part of the audit process, how the City accounts for ARPA funds and the portion that remains unspent. There was an issue during last year's audit about the unspent amount and showing it as a major fund. That will be looked at during the 2022 audit. With regard to scope of the accountability audit, Councilmember Chen asked if there was an opportunity for council or City staff to provide suggestions or is that just part of the auditor's sampling process. Ms. Baylor answered they are always open to suggestions from the city council or staff. That audit is still in the planning stages so she welcomed any suggestions on potential audit areas that are of particular importance to councilmembers or citizens. Councilmember Paine referred to the slide regarding the accountability audit, observing those were the areas scheduled for review. Ms. Baylor responded these are the SAO's initial selections based on areas they have looked at in the past, areas of risk across the state, and preliminary areas that have come out of planning. With regard to the 2021 audit, Councilmember Chen asked if it would be fair to say at the conclusion of the 2021 audit, an audit issue was identified and the financial statement was restated because revenue was overstated as a result of the audit. Ms. Baylor asked if Councilmember Chen's question was in regard to the financial reporting of unspent ARPA funds. Councilmember Chen agreed, recalling the issue was unspent ARPA funds were recognized as revenue, but they should have been recorded as unearned revenue because the City had a liability to deliver funds to the end user. He asked if the financial statement was restated as a result of that audit to correct overstatement of the revenue. Ms. Baylor answered once the issue was identified, the SAO worked with the City and the financial statements were subsequently corrected; the audited financial statements included in the audit report reflect those corrections. Councilmember Olson asked about the timeline for the audit and approximately when the exit conference will be. Ms. Baylor answered there is an external deadline; the federal government issued a September 30 deadline for federal and financial statement audits, two of the three audits the SAO is conducting. At a minimum those two audits will need to be completed this month so the report can filed with the federal Edmonds City Council Draft Minutes date Page 5 government by the September 30 deadline. They may have to split report and extend the accountability audit beyond that deadline. The goal is to get all three done this month if feasible. Federal grant audits are required to be done in conjunction with the financial statement audit and the report will have the result for both so both would need to be done to meet the September 30 deadline. Ms. Baylor appreciated the council's participation today and looked forward to sharing the result of the audit with them. She reiterated they are always available for questions. 3. ADJOURN With no further business, the special council meeting was adjourned at 1:04 p.m. Nicholas Falk, Deputy City Clerk for SCOTT PASSEY, CITY CLERK Edmonds City Council Draft Minutes date Page 6