Audit Comm. Mtg - Feb. 05, 2008

[Guest sullinss]

Proceedings of the Audit Committee

School District No. 2, Yellowstone County

High School District No. 2, Yellowstone County

Billings, Montana

 

February 05, 2008

 

Call to Order

 

Chair Jane McCracken called the Audit Committee to order at 11:03 a.m. on Tuesday, February 05, 2008 in the second floor conference room of the First Interstate Bank Building, 401 N 31st Street. A room change was necessary and the receptionist referred attendees. Committee members in attendance were Jane McCracken, Marcy Mutch, Joel Guthals, Tim Trafford, and Jack Eagle. Committee member Peter Gesuale was absent. Also attending were Chief Financial Officer Thomas Harper, and Auditors Edie Hanson and John Jacobsen of EideBailly LLP.

 

Draft Comprehensive Annual Financial Report for Year Ended 2007 – Review and Recommendation to Board

 

John Jacobsen reported the audit went smooth. The adoption date was extended due to some new accounting pronouncements and the fact that the District is implementing the CAFR. They did not find any problems in the audit. The findings are not “compliance findings.” They will note “best practice” issues which will be considered management comments and suggestions for future activity.

 

Jane reviewed discussion from the last meeting that the actuarial opinion would probably be overstated for the unfunded liability related to TRS Option 1 and compensated absence. The statements reflect the District’s estimates of these liabilities. EideBailly is telling us we need to make changes to Draft #2 to represent most, but not all, of what the actuarial report included rather than relying on the District liability numbers. The Committee needs to determine how we can feel comfortable with this audit report and the recommendation that this report be accepted by the Board at their February 11th meeting without necessarily being able to go through the rest of the audit report today.

 

Thomas explained the actuary estimated the District’s entire future of liability to determine the liability outstanding relating to Teachers’ Retirements System Option 1 and service credit. The District determined liability using current vested employee numbers as of a particular date. The actuary looked at the future number of qualifying employees including salary increases.

 

John stated liability involves elements of sick and vacation, service credit, and TRS Option 1. The actuary assumed a certain pay rate for the people involved. They used salaries effective July 1, 2007 (after a new pay rate became effective). On June 30, 2007 the actual pay rate is slightly less. They believe the actuary used inappropriate amounts for salary rate, and it is overstated by about 6%. The service credit and Option 1 fall into the GASB 45 statement. You are supposed to make an estimate of these benefits for people, whether or not they’re fully vested, if you expect them to be then you should recognize this obligation. The actuary calculates a reasonable estimate of how many people qualify for it and opt for it. If we reduce the actuary estimates by 6% we’re still adding a total of $5.4M to the stated $13.2M liability. This equates to an $18M prior period adjustment.

 

John said when you are earning a future benefit based on past or current service, it implies what you’re doing today is making you closer to this benefit in the future. GASB 45 mandates the need to recognize an obligation exists and is accruing as these people continue to work. We need to estimate this liability and give the users of the financial statements an idea of the deals the District entered into and what kind of obligation is mounting. Future incremental changes will occur each year relating to changes in pay rate or additional employees added. Thomas said our liability will increase between $35M and $40M.

 

Jane asked if an adjustment is going to post, we need assurance that the statements are correct. In order to comply with our February 15th deadline for review and approval by the Board on February 11, 2008, we need to determine how we want to proceed. In the past our Committee has recommended changes and allowed the District to make them and effectively approved the report conditionally, assuming the changes would be made.

Thomas advised the last possible date for submission of the report is March 31, 2008. Our delay in reporting and the increased liability this year is due primarily to the transitioning process to fully comply with the GASB 45 standard. John stated any time you have a new complicated accounting pronouncement coupled with doing a calculation, any estimates in the financial statements is subject to revision based on better information. Thomas has made a reasonable calculation of additional liability from information he pursued through professional input. In prior years the “pay-as-you-go” method of has been an accepted method of accounting for liability, until the implementation of GASB 45. There could be further guidance issues in the near future as more school districts implement this practice. GASB 45 will create huge liabilities in many government entities. The effect the statement of liability has on bond rating is unknown.

 

Thomas explained the vacation and service credit is paid from general funds; and, TRS Option 1 is paid from permissive levies.

 

Joel moved that the process that we follow would be to review the statements and provide changes to the District to be reviewed by the auditor including changes for the prior period adjustment for present value future benefits and there will not be another meeting to review those changes; we will assume and expect that those changes will be made. Marcy Mutch seconded the motion. The motion carried unanimously.

 

The rest of the statements were reviewed and suggested changes noted.

 

John summarized some information to be presented in the Management Letter comments:

1. There is no policy related to Lincoln Center parking and parking validation.

2. Formalize the process for IDEA funds to obtain approval in advance of expenditures. An assumption about approval was made for purchasing gas and cookies since money was budgeted.

3. A leave request for out-of-state travel (under a grant) was verbally approved, but not approved by the Superintendent per Board policy.

4. Catering charges were coded to the Smaller Learning Communities grant and should have been charged to At Risk funds. The secretary did the ordering and is not an approved person to order – it should have been the Principal.

 

Joel Guthals moved to recommend the School Board approve, file and publish the Billings Public Schools Comprehensive Annual Financial Report For Year Ended June 30, 2007, with changes to DRAFT #2 as directed by this Committee. Marcy Mutch seconded the motion.

 

Chair Jane McCracken will review the final draft. The motion carried unanimously.

 

Adjournment

 

There being no further business the meeting was adjourned at 1:30 p.m.

 

 

 

 

Jane McCracken, Chair

 

 

 

 

Sherrill Sullins, Recorder