HomeMy WebLinkAbout 12/17/2013 Special Council minutes f
SPECIAL COUNCIL MEETING
DECEMBER 17, 2013
The Special Council Meeting of the Council of the County of Kauai was called
to order by the Council Chair Jay Furfaro at the Council Chambers, 4396 Rice
Street, Room 201, Lihu'e, Kaua`i, on Tuesday, December 17, 2013 at 9:02 a.m., after
which the following members answered the call of the roll:
Honorable Tim Bynum
Honorable Mason K. Chock, Sr.
Honorable Gary L. Hooser
Honorable JoAnn A. Yukimura (present at 9:26 a.m.)
Honorable Jay Furfaro
Excused: Honorable Ross Kagawa
Honorable Mel Rapozo
Chair Furfaro: In the E-mail from Councilmember
Yukimura, she mentioned that she might be joining us within forty-five (45)
minutes to one (1) hour. On that note, may I ask for an approval of the agenda?
APPROVAL OF AGENDA.
Mr. Hooser moved for approval of the agenda as circulated, seconded by
Mr. Chock, and carried by a vote of 4:0:3 (Mr. Kagawa and Mr. Rapozo were
excused, Ms. Yukimura was not present).
Chair Furfaro: Thank you. Under Council Rule 13(e), is
there a member from the public who wishes to speak before we go into the
presentation?
PUBLIC COMMENT.
Pursuant to Council Rule 13(e), members of the public shall be allowed a total of
eighteen (18) minutes on a first come, first served basis to speak on any agenda
item. Each speaker shall be limited to three (3) minutes at the discretion of the
Chair to discuss the agenda item and shall not be allowed additional time to speak
during the meeting. This rule is designed to accommodate those who cannot be
present throughout the meeting to speak when the agenda items are heard. After
the conclusion of the eighteen (18) minutes, other members of the public shall be
allowed to speak pursuant to Council Rule 12(e).
Chair Furfaro: Seeing no one, let us move onto the item for
today.
COMMUNICATION:
C 2013-377 Communication (12/04/2013) from Council Chair Furfaro,
requesting the presence of the County Auditor, Director of Finance, and
representatives from N&K CPAs, Inc., for discussion relating to the Comprehensive
SPECIAL COUNCIL 1vir:ETING 2 DECEMBER 17, 2013
Annual Financial Report (CAFR) for the Fiscal Year Ended June 30, 2013:
Mr. Hooser moved to receive C 2013-377 for the record, seconded by Mr. Chock.
Chair Furfaro: I am going to suspend the rules and bring
the contracted auditors up if I can. Please note that we have Mr. Barreira,
Mr. Hunt, and Mr. Pasion in the audience. Come right up gentlemen.
There being no objections, the rules were suspended.
BLAKE ISOBE, N&K CPAs, Inc.: Good morning Chair and good
morning Council. I am Blake Isobe from N&K CPAs. I am the Principal on the
audit for the County. This is John Bautista. He was the Senior Manager and in
charge of field work here for the audit.
Chair Furfaro: I have a couple of housekeeping notes that I
shared with the group before we started. I would like to make sure that the Council
uses the final report, not the draft report. There may be some differences in page
numbers. If you have your final report that was distributed, I would like to make
sure we reference the final report versus the draft. Secondly, I would like to make
note that I had given opportunities to collect some questions, but in fact, I only sent
out a memorandum statement from the draft report. I hope you were able to get
copies. These were my comments as it relates to the draft report. I would also like
to point out that it is my plan to let the auditors do the presentation of the audit
findings. I would then like to follow the same format Council did six (6) years ago
when I was the Finance Committee Chair, and make notes of procedural pieces.
For the Administration, we will follow-up with future agenda items for the areas
that we need to have some discussion on. In particular, I say that because we are
going to need to have quite of bit of dialogue as we set-aside three hundred
eighty-five thousand dollars ($385,000) to computerize our payroll, which was
two (2) years, and we still have not done it. It still shows up as an audit issue. We
will probably have a future meeting on the project status of the payroll benefits and
liability exposure when it comes to all of those Departments, in particular, mostly
concerned with Police, Fire, Public Works, and Parks; the big Departments. For the
smaller Departments, we have some of our own input here at the Council level, but
procedurally, it is exactly the same. I think it is three hundred eighty-five thousand
dollars ($385,000) that we have set-aside. On that note, those were just some
housekeeping items for the group. Thank you.
Mr. Isobe: From our audit, we issued three (3) separate
reports. The first one is the "Comprehensive Annual Financial Report" (CAFR)
which is the CAFR. It is pretty much the financial statements and the big one, the
one hundred seventy page report, or so. We issued the "Single Audit Report." This
is required because the County has Federal funds and it is required to submit this
report to the Feds as it relates to any findings on their Federal awards. The last
report that we issued is this "Management Advisory Report." This report is an
optional report that is a by-product of the audit. It is just a way for the auditors to
communicate any other findings that we may have come across that could help the
County improve processes. We will cover some of our comments in this report.
We will start off with the CAFR. Turn to page number eight of the report.
The County has received their twentieth consecutive "Certificate of Achievement for
Excellence in Financial Reporting," which is issued by the Government Finance
Officers Association (GFOA). A couple of the main requirements for getting this
certificate is that they report in accordance with the Government Accounting
SPECIAL COUNCIL MEETING 3 DECEMBER 17, 2013
Standards Board (GASB). They also need to submit this CAFR by December 31st.
Hopefully, this will be the twenty-first CAFR that receives the certificate.
The next section is the Introduction Section and the Management's
Discussion and Analysis (MD&A). Those are the transmittal from the Director of
Finance, along with some commentary on the CAFR itself. The main thing that you
guys are probably concerned about that comes from us starts on page number
eleven. This is our Independent Auditors' Report. This report looks a little
different than it did in the prior years. Each paragraph is headed up to allow the
users to identify the different elements of our report. It spells out what
management's responsibilities are and what the auditors' responsibilities are. Most
importantly on page number twelve is our opinion on the financial statements.
That opinion's paragraph states that the financial statements are fairly presented,
in our opinion, in accordance with Generally Accepted Accounting Principles
(GAAP) and that it is an unqualified or clean opinion.
The next section of the CAFR is the Government-Wide Financial Statements.
It starts on page number twenty-five. This statement used to be called "The
Statement of Net Assets." The County implemented a new GASB this year,
"GASB 63," which was required to be implemented this year. One of the subtle
changes was that it changed the name of the statement. Something to point out
here is that our total assets sets are about eight hundred seventeen million dollars
($817,000,000), which is down about eleven million dollars ($11,000,000). One of
the large changes is that you added thirty-two million one hundred thousand
dollars ($32,100,000) of Capital Assets, net of depreciation of about nineteen million
seven hundred thousand dollars ($19,700,000), and depreciation. On the liability
side, the big change there is your Noncurrent Liabilities. You are looking at one
hundred ninety-six million dollars ($196,000,000) in long-term liabilities compared
to about one hundred eighty-four million dollars ($184,000,000) in the prior year.
For some of those larger changes, we can go over and feature slides. The other
sections; Fund Financial Statements, Notes to the Financial Statements, Other
Supplementary Information, and your statistical sections are all required sections
that are required in the CAFR in order for it to be in accordance with GASB.
Turning to page number twenty-six is your Statement of Activities. This
pretty much shows your revenue and expenses of the County. The largest revenue
of the County is your Real Property Taxes. There has been a slight increase of
about one million one hundred thousand dollars ($1,100,000) in your Real Property
Tax revenues. The main increase here is when you are looking at the assessed
values and rates, it remained pretty consistent for Fiscal Year 2013. I know you did
some changes for Fiscal Year 2014, but the changes here... if you recall in the past
two (2) years, you guys had a lot of appeals or assessments of appeal or in Board of
Review. There were a lot of them that was settled during Fiscal Year 2013. We
ended Fiscal Year 2012 with about four million two hundred thousand dollars
($4,200,000) in that Real Property Tax Trust, which are those amounts that are in
appeal and close Fiscal Year 2013 with about nine hundred thousand dollars
($900,000) left on appeal. Capital Grants and Contributions— there is an increase
there in the amount that is shown as revenues. The prior year was about fifteen
million eight hundred thousand dollars ($15,800,000). This year, you guys are
looking at about nineteen million six hundred thousand dollars ($19,600,000). The
revenues there are kind of driven by expending your Capital Grants. The big one
was the bike path. I think we can cover that later in the use of the Federal awards.
Chair Furfaro: You have that in your presentation?
SPECIAL COUNCIL I IkETING 4 DECEMBER 17, 2013
Mr. Isobe: Yes.
Chair Furfaro: Okay. Thank you.
Mr. Isobe: If you look at your Total General Revenues
and Transfers, it is about one hundred ten million dollars ($110,000,000). In the
prior year, it was about one hundred six million dollars ($106,000,000), so there is
an increase of about four million dollars ($4,000,000). That increase is primarily
due to a lower amount of transfers from governmental activities to your business
activities. This year it is only about six hundred thousand dollars ($600,000).
This slide gives you an idea of your historic five (5) year trend on your
revenues. If you notice here, Real Property Tax revenues actually crept up a little,
but it was much higher in 2009 and 2010. It is coming back. Your Transient
Accommodations Tax (TAT) is going to remain flat since it has been capped, so that
number is stagnant right now. Your total revenues all the way on the right and you
can see that slight increase in total revenues.
On the expense side, your General government expenses increased about four
million one hundred thousand dollars ($4,100,000). Its total is about thirty-six
million nine hundred thousand dollars ($36,900,000) this year. There are also large
increases in your Sanitation expense of about a three million five hundred thousand
dollar ($3,500,000) increase. The last one, your increase in Public Welfare, is about
two million two hundred thousand dollars ($2,200,000). The primary cause for your
increase in your General government expense is your claims and judgments which
increased about two million nine hundred thousand dollars ($2,900,000). That
liability increased about two million nine hundred thousand dollars ($2,900,000)
and that gets charged to the General government expense. I think I will cover that
on the next slide.
Chair Furfaro: Can I go back? I just want to get some
clarity. The thirteen million seven hundred thousand dollars ($13,700,000) is
inclusive of the nine million eight hundred thousand dollars ($9,800,000) that you
summarized here?
Mr. Isobe: Yes.
Chair Furfaro: Thank you.
Mr. Isobe: The other reason for a large increase in
expenses is about an eight million eight hundred thousand dollar ($8,800,000)
increase in your landfill closure and post-closure costs, which is recorded in your
Sanitation figure. For Public Welfare, there was about a two million two hundred
thousand dollar ($2,200,000) increase. That increase was due to some acquisition
for the Lihu`e Elderly House. It occurred in the Bond Fund, but that property is
going to be held in the Housing Revolving Fund, which is an Enterprise Fund, so it
is made as a contribution out to the business-type funds or your Enterprise Funds.
Chair Furfaro: Excuse me. For lack of a better term, the
eight million eight hundred thousand dollars ($8,800,000) that we show as closure
and post-closure costs for the landfill... to some degree, that is going into, for lack of
any other term, like an escrow account or holding account for the future? How do
you narrate the future in this post-closure cost piece?
SPECIAL COUNCIL MEETING 5 DECEMBER 17, 2013
Mr. Isobe: For the landfill closure and post-closure
costs, what happens is the estimated closure costs plus the post-closure costs needs
to be estimated. I believe Waste Management has that estimated cost to close it.
What caused part of the increase is just the cost to close the landfill, that estimated
increased four million dollars ($4,000,000) this year, along with the increased
capacity. As the landfill gets fuller and fuller, a larger percentage of that estimate
closure cost gets recorded as a liability. That is just a liability. It is not a reserve of
anything. It is just the amount that needs to be booked as a liability on the
County's books. Along with that, there was a five million dollar ($5,000,000) gas
collection system that needed to be added to the landfill. That is also included in
that liability. A portion of that ninety-five percent (95%) increase in the liability
has to be approved as part of the landfill liability.
Chair Furfaro: Our contractor would have that detail?
Mr. Isobe: Yes. Public Works will. Back up to the
claims and judgments, if you look at page number eighty-three— it starts on page
number eighty-three and goes on to page number eighty-four; this is a summary of
how your liability has been growing for your claims and judgments. If you look at
the beginning of 2012, you are at about seven million six hundred thousand dollars
($7,600,000) and you began 2013 with about nine million eight hundred thousand
dollars ($9,800,000). A large part of that increase last year was that disclosure that
is right below it, which is Puhi Metals. This current year, that estimate increased
again another eight hundred thousand dollars ($800,000)— that is part of the
reason for the increase of your claims and judgments, along with other new claims
that are sitting within that liability. Back to page number twenty-eight, this is a
historic look at your overall Fund Balance.
For Fiscal Year 2013, your General Fund ends with about thirty-three million
six hundred twenty thousand dollars ($33,620,000) in Fund Balance and your Other
Governmental Funds total about one hundred one million eight hundred twenty
thousand dollars ($101,820,000) in Fund Balance with a total of about one hundred
thirty-five million four hundred forty thousand dollars ($135,440,000). Looking at
the funds individually, if you look at the large variances, the Bond Fund decreased
about forty-eight million two hundred thousand dollars ($48,200,000) in Fund
Balance. Last year, it was about fifty-seven million five hundred thousand dollars
($57,500,000), so about an eight million dollar ($8,000,000) to nine million dollar
($9,000,000) decrease. A lot of that decrease is due to spending that Bond Fund. If
you guys have projects going on that are using up the funds that are sitting in
there, some of those major projects that occurred— if you want to see all the
projects in your Bond Fund, they are on page number one hundred nineteen to page
number one hundred twenty-one. The big ones there are the Lihu`e Eldery House,
which expended about two million three hundred thousand dollars ($2,300,000); the
Kapa'a Baseyard with about two million dollars ($2,000,000); and Koke`e Road,
which was another eight hundred fifty-six thousand dollars ($856,000). Those are
the larger ones. You guys have a lot of activity in the Bond Fund and a lot of
authorized projects. Page number one hundred twenty-one shows the balance of the
Bond Fund projects of about thirty-eight million six hundred thousand dollars
($38,600,000). I think as you complete these projects, work on these projects, and
spend money on these projects; the Bond Fund balance will continue to decrease.
That is just the nature of the funds and projects that are in there and the use of
that fund.
SPECIAL COUNCIL iViEETING 6 DECEMBER 17, 2013
Chair Furfaro: It is fair to say that the peak of the Bond
Fund was about sixty million dollars ($60,000,000), so if I took out the thirty-three
million dollars ($33,000,000), we have completed about twenty-seven million dollars
($27,000,000) of what we presented to the Bond Council for our borrowing. We have
completed about twenty-seven million dollars ($27,000,000) of what we said we
would. That is another way to look at it, right?
Mr. Isobe: Yes. There is about ten million five hundred
thousand dollars ($10,500,000) spent this year on these projects. The other major
change in your Fund Balance was in your General Fund. It is a decrease of about...
last year was about forty-four million seven hundred thousand dollars
($44,700,000). We are looking at about thirty-three million six hundred thousand
dollars ($33,600,000)... about eleven million one hundred thousand dollars
($11,100,000). If you look on page thirty (30), which is the Statement of Revenues
and Expenditures for that General Fund, I think Chair Furfaro had pointed out
that decrease. The change of Fund Balance was about eleven million dollars
($11,000,000), but a lot of that decrease was above thirteen million three hundred
thousand dollars ($13,300,000) in net transfers in and out. A bunch of that
transfers out, about nine million seven hundred thousand dollars ($9,700,000), went
to the Debt Service Fund to fund your Debt Service. The other changes are in
"Other Governmental Funds." The County prepares statements on those and those
are in the back and kind of roll out into Other Governmental Funds. It is back on
page ninety-four (94) if you want to see these different funds, but there was a
decrease of about one million eight hundred thousand dollars ($1,800,000) in your
Highway Capital Improvement Project (CIP), similar to your Bond Fund. As funds
get spent on projects in the Highway Fund, your Fund Balance will decrease there.
There is an increase in the Fund Balance of about one million six hundred thousand
dollars ($1,600,000) in your Highway Fund. That fund itself receives almost twelve
million nine hundred thousand dollars ($12,900,000), almost thirteen million
dollars ($13,000,000), in revenues primarily from your Fuel Tax, Public Franchise
Tax, and your Motor Vehicle Weight Tax. That fund gets some revenues and the
expenditures on that fund is only about eleven million three hundred thousand
dollars ($11,300,000). That net amount is increased in your Fund Balance and your
Highway Fund. Your Debt Service Fund that increased about two million three
hundred thousand dollars ($2,300,000) is just the excess amount that was
transferred to Service Debt. I believe in Fiscal Year 2014, some of those bonds that
you guys took out, primarily the Build America Bonds (BABs), is going to start
requiring Debt Service this year, principle payments. The County has just been
paying interest for the past couple of years. Those were the main highlights we had
on the CAFR itself. I want to move on to the Single Audit Report.
Chair Furfaro: Before you go to the Single Audit Report, let
me ask members if they have any questions regarding the CAFR.
Mr. Isobe: Sure.
Chair Furfaro: If not, we will just move on. Do you have a
CAFR question? Go for it.
Mr. Bynum: You mentioned the increase in the Highway
Fund. Maybe this is a question for Finance about... this is the year we started
tightening up the overages in the outlined funds, right? We are keeping less
variance in there. In the Highway Fund, we already have a lot of it committed or
assigned, right? This is a question for Finance later.
SPECIAL COUNCIL MEETING 7 DECEMBER 17, 2013
Mr. Isobe: Okay.
Mr. Bynum: It is not really a CAFR question. Thank you.
Chair Furfaro: Again, I want to remind members that this
year, if we are going to have discussion with Departments about their booking, CIP
schedules, and so forth, we will put it on as a separate agenda item too.
Mr. Bynum: Okay.
Chair Furfaro: Are there any CAFR questions for the
auditors? Go ahead, JoAnn.
Ms. Yukimura: Good morning. My apologies for being late.
Mr. Isobe: Good morning.
Ms. Yukimura: On your last slide, which was up when I
came in, Other Government Funds increased by two million one hundred
twenty-five thousand dollars ($2,125,000)...
Mr. Isobe: Yes. That is on page number twenty-eight.
Ms. Yukimura: Okay.
Mr. Isobe: That Other Governmental Funds column is a
combination of all your non-major funds. It is a lot of your smaller funds all
combined into that. The larger variances for those three (3) that you had pointed
out, which combined to about that two million one hundred fifty-eight thousand
dollar ($2,158,000) increase...
Ms. Yukimura: Okay. Other Governmental Funds includes
the Highways Fund?
Mr. Isobe: Yes.
Ms. Yukimura: Do you have a list of all the funds that are
included in Other Governmental Funds?
Mr. Isobe: Yes. Your combining balance sheet for your
non-major governmental funds start on page number ninety-four number and go to
page number ninety-five. These are your Special Revenue Funds, Debt Service
Fund, and Capital Project Funds. They all roll-up to your total.
Ms. Yukimura: Okay. You said decreases in Highway CIP,
increases in the Highway Fund... when you say increase in highway, that means we
increased the Highway Fund?
Mr. Isobe: Well, the net increase in your Fund Balance
was due to excess revenues over expenditures. You collected almost thirteen million
dollars ($13,000,000) in revenues, primarily from the Fuel Tax, Public Franchise
Tax, and Motor Vehicle Weight Tax, which are about the majority of your revenues
there. The expenditures were only about eleven million three hundred thousand
SPECIAL COUNCIL IViI ETING 8 DECEMBER 17, 2013
dollars ($11,300,000) or so, which you have excess revenues of about one million six
hundred eighty thousand dollars ($1,680,000), and that closes into your Fund
Balance, so that is primarily why you have an increase in Highways.
Chair Furfaro: At that point, you are aware that Public
Works is now lagging every two (2) years on the road resurfacing. Are you aware of
that?
Mr. Isobe: No.
Chair Furfaro: I am just adding to JoAnn's conversation.
Ms. Yukimura: No, that is very important information.
Chair Furfaro: The expenses are lagging with two (2) year
increments.
Ms. Yukimura: What is going through my mind is that there
was a really urgent need for a Transportation Planner in our Transportation
Agency because we have this huge goal of increasing bus ridership by one thousand
percent (1,000%) over the next twenty (20) years, but it is all part of a plan to
handle our highway problems like congestion, the high cost of oil to our citizens, and
so forth. With that excess, we could have taken fifty thousand dollars ($50,000) last
year and had this position on for one (1) year, doing the kind of work that we need
to do which includes leveraging Federal moneys, but we did not thinking that we
would not have that money to spend. On the other hand, as the Chair points out,
our Roads Division put off to this coming budget, their report based on their
MicroPAVER and their assessment of all the County roads... their report to us
about the long-term needs and preventive maintenance. We know there is a big bill
somewhere coming up and have not yet seen. I am just trying to understand. What
did you say was the overage in Highway?
Mr. Isobe: About one million six hundred thousand
dollars ($1,600,000).
Ms. Yukimura: Okay. I think we could have spent fifty
thousand dollars ($50,000) to increase our... and our failure to spend up to what we
allocated or budgeted— do we know what caused that?
Mr. Isobe: I would not have that answer for you.
Ms. Yukimura: Okay. Maybe we will ask Finance.
Chair Furfaro: I want to make sure we understand that the
audit report today is to understand the numbers. We are going to, as I stated... I
am sorry JoAnn, I should have made it clearer to you, but we are going to put these
special items back on other agenda items so that we can deal with the philosophy
tied to how the work is done versus the accountability of how we are spending the
money.
Ms. Yukimura: Thank you.
Chair Furfaro: Okay. Mr. Bynum, you have the floor.
SPECIAL COUNCIL MEETING 9 DECEMBER 17, 2013
Mr. Bynum: I want to follow-up on something. Earlier, I
was going to ask a question about the Highway Fund and I did not ask it because I
realized that it really was a policy question that you guys are not interested in. The
Chair gave the answer that we are committed to doing road repaving differently
and more robustly, and part of that plan is to not do it every year. It makes sense
from a policy perspective that those funds are up for one (1) year. I want us to stay,
as the Chair mentioned, on the CAFR issues because you do not really know the
policy issues behind this.
Chair Furfaro: I think I just stated that.
Mr. Bynum: Yes. Thank you.
Chair Furfaro: Save your policy questions for when we have
Department Heads come back, but we are still on the CAFR. Do you have
questions?
Mr. Bynum: No, I am done. Thank you.
Chair Furfaro: Anyone else on the CAFR? Thank you very
much.
Mr. Isobe: Okay. Moving on to the Single Audit Report.
The Single Audit Report, as I had said earlier, is required for the County primarily
because you guys have a lot of Federal moneys coming in for different programs.
Similar to the CAFR, on page number six, is our Independent Auditors' Report on
financial reporting, Internal Control Over Financial Reporting. I will kind of touch
on the fact that on page number seven, we do still have one significant deficiency in
internal controls over financial reporting. In a couple of slides, we will go over the
summary of the results and we can kind of compare how the County has made some
progress in the findings that we have reported in the prior years and what is sitting
here in the current year. On page number nine is another Independent Auditors'
Report and this is on compliance with the major programs and internal control over
those major programs. This is in compliance with the "A-133" or the "Single Audit
Act." On page number ten is our opinion on that on compliance. In our opinion, the
County complied in all material respects with the compliance requirements on these
Federal programs, so we do not have any findings to report here. It is an
unqualified or clean opinion on compliance.
Chair Furfaro: Overall, it is a very nice opinion.
Mr. Isobe: Thank you. On page number twelve, this is
the start of your Schedule of Expenditures of Federal Awards. These list out all of
your grants that you are getting from the Feds. I wanted to point out a couple of
changes here. If you turn to the total on page number twenty-four, the total of the
current year for Federal expenditures are about thirty million nine hundred
thousand dollars ($30,900,000). Sorry, I will let you guys get there.
Chair Furfaro: Yes, please let us get to page number
twenty-four.
Mr. Isobe: Yes.
Chair Furfaro: Go ahead.
SPECIAL COUNCIL MEETING 10 DECEMBER 17, 2013
Mr. Isobe: Okay. Total current year Federal
expenditures were about thirty million nine hundred thousand dollars ($30,900,000)
this year. That is up about four million three hundred thousand dollars
($4,300,000) from the prior year. Last year was about twenty million six hundred
sixty thousand dollars ($20,660,000). The large changes here were in 2012 when
you guys spent about six million three hundred thousand dollars ($6,300,000) of the
State Clean Water... these are the Revolving Loan Funds. In the current year,
there is only about two million seven hundred thousand dollars ($2,700,000) spent.
For the Housing and Urban Development (HUD) programs, there was a net
decrease of about four hundred thousand dollars ($400,000). The large increase is
in your Transportation grants where you spent about nine million six hundred
thousand dollars ($9,600,000) in the current year. Those large increases— the bike
path was about six million one hundred thousand dollars ($6,100,000) and Koke`e
Road Resurfacing, which is about three million five hundred thousand dollars
($3,500,000). A lot of other programs kind of stayed consistent. These are the
larger fluctuations and the programs.
On page number twenty-eight of our report, this is a Summary of the
Auditors' Results. This pretty much summarizes the overall audit that we
performed. As we went over on the CAFR, we issued an unqualified opinion of the
financial statements. That first line, "Internal control over financial reporting:
Material weakness(es) identified?" This year it is "no." We did not identify any
material weaknesses. In the prior year, we had three (3). "Significant
deficiency(ies) identified?" This year it is "yes." It is still that one recurring that we
had in the prior year. "Noncompliance material to financial statements noted?"
"No," there were none.
The next section is the Federal Awards, so these are your Federal programs
that we kind of were talking about. For the material weaknesses over your Federal
major programs is "no" this year; "none." Last year there were three (3).
"Significant deficiency(ies) identified?" There were none this year and none in the
prior year. We did issue an unqualified opinion on compliance. Other audit
findings required to be disclosed and in compliance with Office of Management and
Budget (OMB) Circular and A-133... this year it is none. In the prior year, we did
have three (3). There was big improvement on resolving a lot of these findings that
we did come up with. We identified the programs that we audited as major
programs. For the current year, there are six (6) major programs. In the prior year,
we did nine (9). That was just based on the assessments that need to be made to
determine which programs we need to do. The six (6) we did this year we have done
in the prior year. There were no new programs that we needed to look at, primarily
because a lot of the grants kind of stayed similar. The last thing on the bottom that
you guys might probably have questions on is "Auditee qualified as a low-risk
auditee?" This year it is "no." This is primarily due to the fact that we did have
material weaknesses in the prior year. That is one of the primary causes of not
quailifying as a low-risk auditee, but based on this year without having the
material weaknesses and having the unqualified opinion, you need two (2) years
straight of that in order to qualify. Next year, you still will not qualify as a low-risk
auditee for 2014. As long as there are no material weaknesses, 2015 could possibly
be a low-risk auditee.
Chair Furfaro: You guys kind of operate like auto insurance
where you have to go two (2) years without an accident. We have one (1) year under
our belt. Okay.
SPECIAL COUNCILIkTING 11 DECEMBER 17, 2013
Mr. Isobe: Yes.
Chair Furfaro: I was supposed to lighten things up.
Mr. Isobe: Okay. Turning to page number
twenty-nine— sorry, let me go over the differences. The material weaknesses is
pretty much when there are deficiencies in internal control that are not going to
prevent or detect either on the financial statement side of material misstatement or
on the compliance side, material noncompliance. When we do have those findings, a
lot of times we have to consider how severe it is and that is when we determine
whether it is a material weakness. If it is not as severe, it would just be a
significant deficiency. The Single Audit Act requires us to report other findings. If
there are other instances of noncompliance that is not determined to be a significant
deficiency or material weakness, we will just report it as "other reportable findings."
You guys had a couple of those, and it was minor, but it needed to be reported in the
prior year.
Moving on to the one finding in this report this year. It is a recurring finding
and it is on the compilation of the vacation and sick leave records. Again, when we
are looking at the sick leave records and we are trying to test to see if all of the
information is rolling up to the total number that needs to be reported for the CAFR
for the accrued vacation, we do still notice that there are errors, primarily because
it is a very manual process of completing the records, compiling the records, and
then transmitting the information up to Finance. I know that Finance is working
on... it is in their Corrective Action Plan. They are working on implementing a
system to computerize it more and make it a little more automotive. It is a slow
process to do it. It is not an instant fix as to getting all of the records organized and
getting everything in place. I am assuming at this point that it still is a manual
process so this might be a recurring finding again next year.
Chair Furfaro: Blake, I want to qualify what I said to you at
the beginning of this. We have three hundred ninety-five thousand dollars
($395,000) out there for this computerized system so that we can take the manual
errors out of this process. As I said in the beginning between Police, Fire, Public
Works, and Parks; to me, that is where the exposure is. We have these little
transfer slips, because I sign them here, that deal with the twenty-two (22)
employees that we have and how we are reconciling what could be their sick,
vacation, leave without pay, and even their compensatory time. Those slips are
balanced too. They actually manual enter what actually ends up being the
calculation of the total paycheck. I think our situation is more complicated than
that. I am going to ask for a separate presentation from Finance and Human
Resources (HR) because we have now created an HR Department, so we are going to
go through a period of a progressive scope about Finance no longer handling the
records, but the records are now going to be handled by the HR Department. I am
disappointed that we are not farther along. We spent a whole year creating a new
HR Department, but here is the biggest single expense in the County and we have
not scoped out how this would particularly affect the HR Department and be
relieved of Finance, while at the same time, we are shopping for this computer
software that would help us manage it. I think this has to be a separate item. I am
discouraged that this is the second time in a row that it is popping up. I know how
detailed it is because you are trying to reconcile back to a vacation bank, a sick
leave bank, compensatory time and civil-service, and calculated one and a half
times. Somebody has to be keeping track of these balances. Now, we are making an
SPECIAL COUNCIL 1V1EETING 12 DECEMBER 17, 2013
even bigger change by having some of this move over to HR. I want to affirm what
you just said. This will probably be an item next year again. We need to put it on
our agenda at the Council as a separate item to find out how we will progress on
this scope of responsibility. Thank you. I just wanted to make that statement so we
are all sensitive to it.
Mr. Isobe: Okay. Thank you. On page number
thirty-one, as I think I had gone over a little while ago about the summary of the
current year audit results— pages numbers thirty-one, thirty-two, and thirty-three
are the prior audit findings. Page number thirty-one is the financial statement
internal control findings that we had in the prior year. If you note, the first one is
still not accomplished. We have it as a repeat finding this year. The remaining
ones on the financial statement side had been accomplished, resolved, and taken
care of. On your single audit programs, there were six (6) findings in the prior year
and all of them have been taken care of and resolved. I know Chair had mentioned
that Councilmember Rapozo had called the prior audit report... terrible, but this
year's one looks much better. I have one more report. We are done with the Single
Audit Report.
Chair Furfaro: I want to ask if there are any questions on
the Single Audit Report. We thank N&K for the work. I also want to say that
because it seems we are constantly making improvements as you can see from this
piece. Are there any questions on the Single Audit Report?
Mr. Bynum: I like the subtle changes you made in the
presentation this year. Thank you. I want to be the first to say that despite some of
the cautions you said, I am pleased about the progress we made since last year and
concur with the Chair completely. We will follow-up on these big issues which are a
tough nut. I think the Chair outlined those issues really well. Last year after your
report, we followed up on the Single Audit and only a few minor findings that we
had not addressed here. It was confident that they would be resolved. The Council
followed up on every item with a few exceptions right at the end. What I saw was a
real commitment from the Administration. They really addressed these in the year
and also more comprehensively because some of these are bigger issues and have
policy, and maybe even some past abuse related to overtime that complicate that
endeavor. I just want to be the first to say that I am really pleased with this audit.
I did not agree with Councilmember Rapozo that last year was the worst ever. Like
most audits, it brought up some significant things. To see no findings in Federal
programs— I cannot remember that happening before and I just really want to
acknowledge the real concerted effort. I do not think I have a question other than
the fact that I think you did a really good job at outlining those. In your comments
now putting the outstanding issues, which are significant and serious, but in a
perspective, I think it is corrupt that they are difficult, was never reasonable, and
that those findings would continue. You are even warning us that they are likely to
be there next year. I know between Council Chair and the rest of the Council, we
will collaborate with the Administration and get a clear understanding of how to
move forward on that. I just think that this is a good report. Thank you.
Mr. Isobe: Thank you.
Chair Furfaro: Okay. Vice Chair, you have the floor.
Mr. Chock: Hi Blake. Thanks again for your work. It
was very thorough. The Chair mentioned the specific Departments that were in
SPECIAL COUNCIL MEETING 13 DECEMBER 17, 2013
question, but I wanted to confirm that with you. For instance, out of the sixty (60)
samples that you mentioned in the efficiency.
Mr. Isobe: Which Departments were those findings in?
Mr. Chock: Yes.
JOHN PAUL BAUTISTA, N&K CPAs, Inc.: Those Departments were
Elderly Affairs, Public Works, and Fire.
Mr. Chock: Okay. Thank you.
Chair Furfaro: Can I do a follow-up? Did you do any
samples of Police?
Mr. Bautista: Yes.
Chair Furfaro: Congratulations. Very good. Thank you.
JoAnn, you wanted the floor?
Ms. Yukimura: Yes. Thank you. First of all, I am also very
pleased. Congratulations on the Certificate of Excellence for the CAFR and for a
very good presentation. I really want to acknowledge our Finance Department, our
Budget Team, our Administration in general, and the Departments for their work to
correct their deficiencies. In the same moment, I am very distressed about the
vacation and sick leave records problem. This may have been the second time in a
row that it has been highlighted, but it has actually been about five (5) or six (6)
years that this Council has expressed concern. We even appropriated that three
hundred thousand dollars ($300,000) plus and it lay dormant, unused by the
Administration for several years where we had to re-appropriate it. It is a
longstanding problem and I think it has huge consequences if you think about
payroll over the years, how that factors into pension funds, if there are errors either
way penalizing the employee, and taking improper use of County moneys. It is a
serious problem. In that respect, I just was curious about last year's Departments
that show deficiencies. You may not have that here, but could you send i
Y y it to us?
Mr. Isobe: Sure.
Chair Furfaro: We will send that over as a question.
Ms. Yukimura: Yes. Thank you.
Chair Furfaro: I also want to point out that the
improvements are really wonderful, but our biggest single expense in the County is
our payroll. The fact of the matter is that we have had that money out there since
2009, and then further complicated by the split of Finance and HR and creating
more of a roll in HR. We have not gotten their yet, so that is going to be a rather
large discussion to find out how we are going to make a smoother transition there.
Did you make any recommendations in the short-term to Finance about how to best
reconcile the vacation and sick leave liability? Did you make any for this manual
period that we are in?
Mr. Isobe: The errors that we are noticing are more on
the use side. What we look at is if they are requesting off that there is a request off
SPECIAL COUNCIL MEETING 14 DECEMBER 17, 2013
and that it is posted. The roll up to the actual liability— it is supported. The
schedules are there to support it, but the details behind it are where we are finding
the errors. I do not believe it is on the Finance side; it is actually on the
independent Departments.
Chair Furfaro: It sounds like it is on the managers' side.
Mr. Isobe: Yes.
Chair Furfaro: Okay. Go right ahead, JoAnn.
Ms. Yukimura: What you just said right now is that the
documentation is missing. Is that correct?
Mr. Bautista: It is forms that are not being filled out or not
properly signed.
Ms. Yukimura: Not what?
Mr. Bautista: Properly signed.
Ms. Yukimura: Okay. That is clearly a management issue.
Chair Furfaro: Well, if you could share with me any of those
notes, I would appreciate it. I will send it over as kind of a post question on if you
made any recommendations.
Mr. Isobe: Okay. Thank you.
Chair Furfaro: Thank you. It looks like we are going to go
to the Management Advisory Report next.
Mr. Isobe: Yes.
Chair Furfaro: Okay.
Mr. Isobe: As I had mentioned earlier, the Management
Advisory Report is just an additional report of other items that we may have noticed
through our audit that could maybe just help the County strengthen controls or
operating efficiency. I think we had this in the past two (2) years that we have been
doing the audit. We have kind of been sharing it with the Council.
We will start off with the first one, "Improve Internal Controls Over pCard
Purchases." This is a repeat comment from the prior year. Again, we look at the
p Card transactions when we are doing our audit. It is a growing part of your
purchasing cycle now. We are still noticing instances where the procurement
process is not being followed correctly or just the documentation of the preapprovals
are not being done. We are also noticing verbal approvals, but for our audit
purposes or when anyone else is looking at that transaction, you would not know
that somebody actually got verbal approval before the purchase was made. My
understanding is that the pCard has not modified the purchasing process, but is
just helping to expedite the purchase itself. The County's procurement policies and
procedures are still in place; it is just that pCards have stepped in to make
payment.
II
SPECIAL COUNCIL MEETING 15 DECEMBER 17, 2013
In the back of the report is the County's Corrective Action Plan. You can take
a look. I believe for this comment... because it was made in the prior year, there
was some training and some guidance provided; therefore, our finding did not come
out and our reports did not come out to maybe the same time around December of
last year. Some of the transactions we did look at still were going to recur until the
training and different guidance went out to strengthen the controls over this p Card
process. That is the first finding and it is a repeat finding.
Moving on to 13-02, "Review Treasury Trust Accounts," I believe this finding
came up during our first year that we did the audit and it is back. We took a look at
p g Y
the different Treasury Trust accounts and we still note that the Public Work's
Fiscal Treasury Trust holds about forty (40) deposits totaling about one hundred
forty-four thousand dollars ($144,000) worth of deposits back from May 9, 1986
through September 4, 2007. I think there is about seventy-five thousand dollars
($75,000) of that is actually a performance bond from Abe's. I believe that there are
things that still need to be done to get that out and determine the proper
disposition, so we will leave it at that.
Mr. Bynum: This was a previous finding you said?
Mr. Isobe: Yes. We had brought this up maybe in our
first year... 2011 was our first year in the CAFR where we had brought this up.
They had cleaned up some of it last year, so they are making progress. We had
closed it off and when we looked at it again this year, it did not move so we decided
to bring it up again.
Chair Furfaro: We will make a note, but the reality is that
about half of the one hundred forty-four thousand dollars ($144,000) is in fact
performance bonds, right?
Mr. Isobe: One (1) performance bond.
Chair Furfaro: Yes, one (1) performance bond makes up half
of the piece. It would not hurt us to schedule some time with our Treasurer to
reference those other Treasury Trust Accounts and get a better idea. Thank you
very much.
Mr. Isobe: Moving on to 13-03, "Reconcile and Review
Residential Refuse Collections Assessments (RRCA)." It is a new finding. The
County began assessing the Residential Refuse Collections Assessments or the
"RRCA" in July 1, 2011. The County decided to utilize the Real Property Tax
Assessment system to assess these fees. In 2012, the uncollected balance that year
was pretty minimal. It was not substantial for us to take a look at; it was about ten
thousand dollars ($10,000). In the Fiscal Year 2013, the balance had grown to
about one hundred thirty-nine thousand dollars ($139,000) and we wanted a
supporting schedule to look at what is supporting this outstanding balance. When
we went around trying to get that information, we found out that the Solid Waste
Division is responsible for the RRCA, but because it is on the Real Property Tax
system, the Real Property Tax Division is more familiar with the different reports
and things that need to be run. It came down to the monitoring and looking at this
RRCA fees that was not being done or the reports were not being run from the Solid
Waste Division. The Real Property Tax Division is, I guess, more responsible for
just the Real Property Taxes, but because this was tagged on to their system...
SPECIAL COUNCIL MEETING 16 DECEMBER 17, 2013
anyway, it was coming out, but a separate report to identify that RRCA accounts
and amount was not being generated at year end. We met with Solid Waste and I
guess it is a pretty easy report to run. I believe this will be closed off in this coming
year. They are aware of what they should be looking at and what they should be
running.
Chair Furfaro: We will make a note so that they are first on
our January agenda to find out what is going on because this confusion bothers me.
This bill comes out as part of our tax bill. If you got a bill that is going to your
financial institution that is collecting insurance, taxes, and so forth; it is showing on
that bill. I sure hope that it is not the financial institutions that are not responding
to the County. The policing of it, you are saying, is Public Works.
Mr. Isobe: Solid Waste, yes.
Chair Furfaro: So I wonder if that is based on the fact that
they have not done all of the distribution on the receptacles or what neighborhoods
are responsible. It is a good discussion for us to have.
Mr. Isobe: Our finding is more the fact that there was
no report being generated to support that balance. When we were looking for,
"Okay, who owes what to make up this one hundred thirty-nine thousand dollars
($139,000) for (inaudible) who is still outstanding?" That was not being able to be
provided. The report that was being generated was a combination report, which
was being run to hold the Real Property Tax Assessment outstanding and the
RRCA blended in, but your Real Property Tax receivable sits on your General Fund.
The receivable for this RRCA and the revenues...
Chair Furfaro: Is in Solid Waste.
Mr. Isobe: Yes. That separation needed to be done.
Chair Furfaro: It seems to be a very simple procedure.
Mr. Isobe: Yes it is.
Chair Furfaro: Okay. We will have them here in January.
Mr. Bynum, and then JoAnn.
Mr. Bynum: I really appreciate this analysis because I
was here when we made the decision to put this in and a lot of these questions were
about, "How are you going to separate the funds? Are you not going to cause
confusion when you have a fee and a tax in the same bill? How are you going to
separate it? Are historic tax payments in arrears going to get tied in with trash fees
in arrears? What are the enforcement mechanisms for taxes versus a fee that is not
being paid?" Those were the questions I asked when we made this decision. I
supported it in the end because it is what the Administration asked for as opposed
to putting it in a water bill or something else. I just wanted to say those things on
the record because I know we will follow-up very specifically.
Chair Furfaro: Let us make it very clear. It was not us that
made the decision other than to go with their recommendation.
SPECIAL COUNCIL MEETING 17 DECEMBER 17, 2013
Mr. Bynum: Right. I did not oppose that, but many of us
asked these specific questions. I am a little disappointed that there was not more
forethought. That is why you are here and this is the service you are providing in
our community and I think it is a good catch. Thank you.
Chair Furfaro: JoAnn, you have the floor.
Ms. Yukimura: I do not know if this is in the kuleana of your
audit, but was there any discussion about how they manage the receivables in
terms of follow-up and penalties or consequences for nonpayment?
Mr. Isobe: We did not really look at that part. We did
talk to the Real Property Tax Division to try and get an idea of— they are still
taking in the collections for the RRCA. The account balances are all connected with
the Real Property Tax Assessment accounts. "How that application of the payments
is being made to the accounts and who is doing the follow-up?" We talked to them.
They are responsible for the Real Property Tax Assessments. That was our
understanding. The RRCA is not their responsibility; it is Solid Waste's
responsibility. Who is responsible for following up— I would assume it is the Solid
Waste Division. Whether that is being done is hard to say. When we are looking
for a report to support that balance and cannot get that report, maybe there is a
different mechanism to log on to the system and look at the different balances.
From what we came across, there was no report for us.
Ms. Yukimura: Okay. Thank you. Chair Furfaro, I really
support a follow-up that would cover both the...
Chair Furfaro: It will be in the first Council meeting in
January.
Ms. Yukimura: It would cover both the reporting of the
balances and the accounts, but also their receivables procedures, I guess.
Chair Furfaro: It starts with the fact that I think we all
assume that since it is going on one bill, the fact that they would have had the
detail worked out where a payment came in... so much went to this, for lack of any
other term, this subsidiary ledger that went to Solid Waste and the other portion
was applied to the General Fund on property tax. It does look like there is a system
there. Clearly, we will follow-up and what their solution is. We will do that maybe
in the later part of January.
Ms. Yukimura: Chair, besides that auditing... not auditing,
it is the...
Chair Furfaro: We will get all of the pieces you mentioned.
Ms. Yukimura: Okay, like the receivables policy and how to
do...
Chair Furfaro: Yes, but what I am saying is if you send it
out on a tax bill, the receivable is there because it is on the tax bill.
Ms. Yukimura: Right.
SPECIAL COUNCIL MEETING 18 DECEMBER 17, 2013
Chair Furfaro: They have to develop as a subsidiary ledger
that transferred this payment over here due to Solid Waste. I went to hotel school,
not accounting, but something to that effect is what we are looking for.
Ms. Yukimura: Okay. Thank you.
Chair Furfaro: I would concur with Mr. Bynum. I think we
all thought the particular operational detail was worked out in the presentation.
Ms. Yukimura: One of the things to look at is the Solid
Waste plan. I think it recommended the personnel necessary to do the
administrative functioning on the Solid Waste fee. I do not know to what extent
that was followed.
Chair Furfaro: We will cover that. Good point JoAnn.
Ms. Yukimura: Thank you.
Chair Furfaro: Okay.
Mr. Isobe: The last one that we have reporting is 13-04,
"Review Unearned Revenues and Grant Receivables" balances. The County
receives Federal and State grant moneys and they are all established as various
projects throughout the year. Depending on the funding sources, sometimes the
County may receive funds upfront or the County may expend funds upfront, and
then request Federal or State reimbursement for those grants that they may have
incurred. At year end, because all of these projects that have been funded by the
Feds or the State, either will have extra money either received or moneys due from
them. Unearned revenue for moneys collected in advance or a grant receivable has
been recorded to offset those either amounts and balance the amounts expended.
What we noticed is that there are a bunch of older ones, dating on the receivable
side back to 1998, and these projects that still have receivable balances. That is
probably where the County has paid for some expenditures on the project and either
needs to follow-up and look for reimbursement on those grants or some type of
clean-up needs to be done on that. On the opposite side where the County has
received moneys in advance, there are projects dating back to 1991... forty-nine (49)
of those account grant balances with unearned revenue... the County received
moneys in advance and needs to determine the proper disposition of these funds. I
do not think it is a really easy process. Because it is a lot of older grants and older
balances, proper support needs to be gathered in order to either determine that you
one, earn those unearned revenues, or two; "Did you guys actually receive those
receivables and what actually happened in the past?" I know it is probably a long,
tedious process to go through all of these, but we just wanted to let you guys know
that there are these older things. Whether or not some of these different
Departments and Agencies need to maybe put a little more priority to cleaning up a
lot of these older ones— I know that Finance has worked with some of them and
trying to work on cleaning them up, but to let you guys know, there are a bunch of
these older ones still out there.
Mr. Bynum: What was the last sentence you said?
Mr. Isobe: There are a bunch of these balances still out
there to take care of.
SPECIAL COUNCIL MEETING 19 DECEMBER 17, 2013
Chair Furfaro: Blake, do you have a list that identifies these
forty-nine (49) separate grants that are spread amongst nine (9) different
Departments?
Mr. Isobe: Yes.
Chair Furfaro: Could you provide that to me? I will write
for it.
Mr. Isobe: Okay.
Chair Furfaro: Mr. Chock.
Mr. Chock: Do you also have an amount for unearned
revenues and grant receivables?
Mr. Bautista: At year end, the deferred revenue was seven
hundred seventy-one thousand dollars ($771,000) and grant receivables were two
hundred eight thousand dollars ($208,000).
Ms. Yukimura: Goodness.
Mr. Chock: Thank you.
Chair Furfaro: JoAnn.
Ms. Yukimura: Seven hundred seventy-one thousand dollars
($771,000)—is that what you said?
Mr. Bautista: That is for deferred revenue.
Ms. Yukimura: Deferred revenue meaning where we have
not been reimbursed? That is what we owe?
Mr. Isobe: That is where you got moneys in advanced
and they are to spend it down.
Ms. Yukimura: Okay. Two hundred eight thousand dollars
($208,000) is where we have not yet been reimbursed, at least on the surface of
things?
Mr. Bautista: Yes.
Ms. Yukimura: That is a lot of money.
Chair Furfaro: It is a net variance of over five hundred
thousand dollars ($500,000).
Ms. Yukimura: And a huge liability, theoretically.
Mr. Isobe: Theoretically— it shows up. It is recorded in
your numbers. That is your unearned revenues... that is part of the unearned
revenues on the books right now. Whether or not those moneys have actually been
earned— that is the investigation that needs to be done; matching up whatever
SPECIAL COUNCIL MEETING 20 DECEMBER 17, 2013
those project expenditures were to what has been reported and what has truly been
earned. What is showing in the records is that it has not been. Therefore, that is
being shown as unearned revenue.
Ms. Yukimura: It is as recent as 2012, right? My question is
do we have a system of monitoring grants so that we are assured that they are
closed in a timely manner, either by getting the reimbursement or by paying
amount due?
Mr. Isobe: I believe Finance does work with the
different Departments and Agencies who have and were responsible for these
grants to timely submit their expenditure reports, look at some of these unearned
revenues and grant receivable balances, and submit anything that they need to try
and reconcile some of these. The 2012— I think we may be quoting here is... what
we also did was we looked to balances that did not move throughout Fiscal Year
2013. If it was a receivable ten thousand dollars ($10,000) at year end at 2012 and
it is still a receivable of the exact same amount and there are no additional
revenues or no expenditures on that grant, we are reporting it to just keep it on the
radar to take a look at and if there is something that needs to be done.
Ms. Yukimura: Yes. Just in terms of reporting to us,
including the monetary amounts would be helpful in the report itself.
Mr. Isobe: Okay.
Ms. Yukimura: It gives us the...
Chair Furfaro: We will put that in JoAnn.
Ms. Yukimura: Yes. It gives us an idea of the scope and risk
or whatever.
Mr. Isobe: Okay.
Chair Furfaro: I was not going to write over to ask for a
blank number. We want the details associated with this because the net exposure
is five hundred thousand dollars ($500,000), but because it might also simply be
money that we have earned and the Department has not closed out their
performance. It might actually be money that we have earned. We need to know
that too.
Mr. Isobe: Page number nine is our Status Report,
similar to our Single Audit Report. We do provide a status on the prior comments
that we have made in the past two (2) years. The two (2) recurring ones that I kind
of mentioned at the start that is still not accomplished, but there has been some
movement on the other comments that we have made. Page number twelve is the
County's response to these comments, personnel responsible, and what the County
is anticipating on doing to address these comments.
Chair Furfaro: Let me ask you that when you reviewed the
pCards, did you in fact identify all of the cards issued to whom and reconciled them
to a list of Departments?
Mr. Isobe: Look at all the pCards...
SPECIAL COUNCIL MEETING 21 DECEMBER 17, 2013
Chair Furfaro: For example, the pCards we use here at the
Council— I know exactly who has access to them. Is there reconciliation of that for
other Departments?
Mr. Isobe: I do not believe we looked at that.
Mr. Bautista: We can identify the names and the
Department.
Chair Furfaro: That is what I am looking for. I am sorry if I
used "reconciling the p Cards," but you can do that?
Mr. Bautista: Yes.
Chair Furfaro: Tim, and then JoAnn.
Mr. Bynum: I want to admit that prior to today I have not
read the Management Advisory Report. When I got through the Single Audit
Report, I was happy. As you mentioned, the single audits are generally more
serious issues, but it sounds like you are disappointed in the progress that was
made on some of these issues like the p Card and auditor trust accounts. It sounds
like you are disappointed that more progress has not been made. Is that fair
characterization? You can say "yes."
Mr. Isobe: On the pCard side, I believe that with the
growth in use, the internal controls over that process needs to be pretty strong. I
know you guys mentioned one of the larger expenses of the County is payroll, but
aside from that are your non-payroll transactions which if you are going to use the
p Cards for a large percentage of those transactions, a strong system that controls
over that process probably needs to be in place. I believe in 2012 when we first
made this comment, it had just rolled out. We were concerned just to make sure
you guys were aware of it. It is of concern, yes.
Mr. Bynum: I guess I did not get to this part and it is not
as good of news as I find both in the CAFR... I will talk about that later, but it
seems like Finance was really diving deep into a lot of these issues and made lots of
improvement. Maybe these got sidelined a little bit and you picked up some new
issues that were very interesting and I am sure we will follow-up on. Overall, I was
really pleased with your report this year. This is your third year right?
Mr. Isobe: This is our third, yes.
Mr. Bynum: Good job. Thank you.
Chair Furfaro: JoAnn, you have the floor.
Ms. Yukimura: On the pCard issue, were there any
Departments that showed more problems than others? I do not need you to say
which Departments there are, but in looking at the problem areas...
Mr. Isobe: We can send over the list of Departments
that had those findings. I think that is what you are going to request.
SPECIAL COUNCIL MEETING 22 DECEMBER 17, 2013
Chair Furfaro: You will see that in my question, which I
mentioned earlier.
Mr. Isobe: Okay.
Chair Furfaro: The amounts— from there, we can identify
who probably needs the most retraining, but I think the red flag here is the more
and more people we give the courtesy of having a pCard, the larger the exposure is
for abuse. Perhaps we have to tighten that up.
Ms. Yukimura: Thank you.
Chair Furfaro: Okay. You have the floor.
Mr. Bynum: On page number thirty-three is the
Departmental Variance Report and I know our Staff generates a report from this
that shows the percentage variance. Overall, this is an issue that we talked about
and the variances seem much, much tighter than they were in the previous budgets
because that was the goal. Do you agree?
Mr. Isobe: Yes. I know we looked at it. We had
discussed this in the prior couple of years about your budget. The hard thing is that
we do not really comment on...
Mr. Bynum: The budget. Yes, I get it.
Mr. Isobe: Yes. The variance is less.
Mr. Bynum: You do report these numbers, right?
Mr. Isobe: Yes.
Mr. Bynum: I will look at the report that our Staff
generates because for some Departments, you expect bigger variances they hold and
"money that you hope they do not use" kind of thing. Overall, I just wanted to
really note that this was a goal. Without doing a detailed analysis, it looks like we
really have moved forward on that goal and that is something to recognize. It is our
goal. I know you do not really care that much about budget stuff, but you do report
it and it is appreciated, so I wanted to recognize that. I think another goal we had
was to not keep Fund Balances, Highways, and other funds that were unnecessary.
(Inaudible) park funds there that should be in the General Fund. I believe this
audit shows progress on that as well. Do you agree with that?
Mr. Isobe: Yes.
Mr. Bynum: Okay. Thank you. I just wanted to say that
those are big takeaways that you did not discuss and I just wanted to acknowledge.
Mr. Isobe: Thank you.
Chair Furfaro: On the takeaway of this, I want to say that
what the CAFR is really revealing to us is that we are probably not able to continue
the financial spending and expansion in the County that we have over the last
couple of years. It is very clear that some of these reports will indicate that we
SPECIAL COUNCIL MEETING 23 DECEMBER 17, 2013
might even have to come to a point to pay bills timely to actually have a strategy on
the cash flow. Is that a fair assessment? We are going to have that discussion with
the Treasurer.
Mr. Isobe: I will defer that to your Treasurer.
Chair Furfaro: Okay. Blake, after another year of your
reporting, we constantly get more and more detail and we are very pleased with
your report here today. I will probably ask because I know if I start to set-up the
schedules, that I will turn over to the Vice Chair for pursuing some of these
questions. We may have some long-range questions to ask you as we prepare for
those pieces. I do understand that there are some fees associated with that so we
will probably keep it pretty limited.
Mr. Isobe: Okay.
Chair Furfaro: You are available to us if we probe some of
those further, right?
Mr. Isobe: Sure.
Chair Furfaro: Sure. How about you Sir? Are you available
if we want to probe further?
Mr. Bautista: Sure.
Chair Furfaro: Okay. Are there any more questions for the
auditors? It does not look like it. Do you have any closing comments for us?
Mr. Isobe: I want to thank Steve and his accounting
department for helping us to coordinate the audit... Ernie Pasion for helping us
coordinate the audit work... the time and effort put in to get the report out. By
early December is pretty tough, but they do put in a lot of time and effort to
coordinate a lot of the meetings and pulling a lot of the information that we need for
the audit. A lot of the other Departments and Agencies that are kind of touched by
the single audit— they also make time and space, and pull a lot of records for us.
We want to thank them, too, for their cooperation. Thank you.
Chair Furfaro: I will be copying your Office on my questions
that I sent over so that we can have better dialogue in the future with the
Departments. Thank you very much for those nice comments to the Accounting
Staff, Finance, and the Auditor's Department. It is much appreciated knowing that
you have that kind of kokua and cooperation. When you need information, it is
made available to you. We can stay timely because I do know that trying to
get
something out in mid-December is a pretty difficult, critical path. I thank you again
and my compliments to the County Staff that has helped you as well.
Mr. Bynum: When we call the meeting back to order, I
just want to make some closing comments.
Chair Furfaro: I am not going to call the meeting back to
order right now. I am going to see if there is anyone from the County that wants to
comment on anything. Steve? Ernie? Ernie Pasion?
SPECIAL COUNCIL MEETING 24 DECEMBER 17, 2013
STEVEN A. HUNT, Director of Finance: For the record, Steve Hunt,
Director of Finance. I just want to comment a little bit. I know it is coming back in
the form of a question later specifically to the Highways Fund that was kind of
brought up earlier, but I just want to make sure that we all understand that this is
Fiscal Year 2013. A lot of the constraints and leveraging of the Highways Fund
that was done for the Fiscal Year 2014 Budget has already been incorporated. Fund
balances that we are talking about... a lot of that has been essentially pledged from
the Highway Fund to Transportation. It was much more highly leveraged from the
Highway Fund and the two (2) year program that we are talking about for the
operational repaving from the Highway Fund did not begin until this current Fiscal
Year and was not involved in Fiscal Year 2013. Just as an understanding that as
we are transitioning to Fiscal Year 2014, that is when the real tight budget actual
came into place.
Chair Furfaro: I have to also remind you that there was also
a period prior to you that the Highway Department was almost two (2) years behind
in some of their (inaudible) process.
Mr. Hunt: Correct. I know that at some point, the Bond
Fund had been used as well, which is no longer the case. In speaking to the
integration of the time and attendance piece, I know that is going to be something
that will be resolved. It may take two (2) fiscal years to do that. There is a plan
that we have worked on. Sally Motta has had no less than ten (10) meetings or
more now, which has involved Information Technology (IT), the HR/Department of
Personnel Services (DPS), and Payroll from Accounting. They are, at this point... in
Fiscal Year 2015, you will see a budget that transitions three (3) members of Payroll
into the HR/DPS Department. Part of it is that before we can go on to an electronic
solution, we have to have a starting point, and that is the process that is taking the
longest which is reconciling current accruals of sick leave and vacation with
individual Departments to get the electronic starting point the same as where the
records are. The very last piece will be time and attendance, but prior to that is the
actual integration of HR/Personnel records to Payroll. Right now, they are not fully
integrated so that is the first step. The final piece will be once the data has been
scrubbed which all of the information is correct on the Personnel side and all the
coding has been done on the Payroll side, then the electronic time and attendance
piece will come in. I know there have been moneys that have been appropriated for
that in the Bond Fund. A small portion of it has actually been drawn down this
year, which includes the integration of the NEOGOV Hiring Solution into the
payroll system into some guard so that has taken place, but we are not prepared to
deal with the time and attendance piece until the data has been reconciled and
scrubbed to the point where it is good data to work with.
Chair Furfaro: Steve, you do concur with my earlier
comments that we are going through this period of scope and progression of how we
get there before we get to the time and attendance piece. Has Sally been able to see
some operational systems as time and attendance as part of our preview to this?
Mr. Hunt: We have had a demo from SunGard in terms
of what it can do. Again, our focus has initially been just getting the Payroll and
Personnel files corrected before we can really look at that.
Chair Furfaro: Understood. That was my earlier comment
that you agreed with.
SPECIAL COUNCIL MEETING 25 DECEMBER 17, 2013
Mr. Hunt: I do.
Chair Furfaro: Okay. JoAnn.
Ms. Yukimura: First of all Steve, congratulations on the
Certificate of Excellence... twenty (20) years now. To continue that is really a
positive and good thing. It is a testimony to the work of your Department and your
leadership... Ernie Barreira... the Departments. Thank you.
Mr. Hunt: I really need to acknowledge the Accounting
Staff that has done a phenomenal job and the grants management side to having
done such a clean report. To me, that is unheard of, so they have really done an
excellent job. That means that individually, the Departments' managers for the
grants have been doing a great job.
Ms. Yukimura: Thank you. I am glad that you specified
where the work has been done and where credit is due. Your report on time and
attendance is encouraging. The fact that you are talking about scrubbing the data
and getting a starting point means that you are actually on the ground and moving
towards an electronic system. That is very encouraging. Thank you to all the people
who are working on that. Sally and team— I know there are quite a few. On the
Highways Fund, I am not exactly clear what you said. Can you help me understand
it better?
Mr. Hunt: Sure. This is the audit from Fiscal Year
2013.
Ms. Yukimura: Yes.
Mr. Hunt: Many of the changes that we made as far as
use of the Highways Funds are reflected in the current budget, Fiscal Year 2014.
Ms. Yukimura: Okay.
Mr. Hunt: We were using a lot more of the General
Fund dollars to assist Transportation. This year in Fiscal Year 2014, we are using a
lot more Highways Fund dollars so those balances that, although they were
accumulating, are now being drawn back down. The fact that Fiscal Year 2014— I
believe there is about one million six hundred thousand dollars ($1,600,000) that
has been earmarked for road improvement projects with the anticipation that we
are not going to actually spend them until Fiscal Year 2015 when we have the
second year's balance added to that because of the purchasing power you get by
going out with larger contracts. That two (2) year cycle actually begins Fiscal Year
2014, but will be implemented in Fiscal Year 2015 as far as an actual pay down and
jobs done.
Ms. Yukimura: Right. Right now, the Highways Fund is
generating how much money?
Mr. Hunt: I believe in revenue, somewhere in the
neighborhood of twelve million dollars ($12,000,000) was reported this year.
Ms. Yukimura: Okay.
SPECIAL COUNCIL MEETING 26 DECEMBER 17, 2013
Mr. Hunt: There will be a little bit more because we
increased some fuel tax and depending on what happens with the weight tax, there
could be more moneys going into that.
Ms. Yukimura: Transportation, who is on a "shoestring
budget," is right now taking how much of the twelve million dollars ($12,000,000)?
Mr. Hunt: I do not know off the top of my head.
Ms. Yukimura: Okay.
Chair Furfaro: Excuse me. I also want to clarify something,
but you did follow what I am saying. Some of the lag in the Highways Fund is
because previously, they did not do paving every year.
Ms. Yukimura: Right. I was referring to the part that is not
for Roads, but the part that is for the bus.
Chair Furfaro: I was just referring to the balance because
not paving was not done by design, they just did not do it.
Ms. Yukimura: Yes. Correct. Hopefully there is going to be
a design proposed this year in terms of the inventory state of our County roads and
a proposed system for paving based on a preventive maintenance schedule. I am
looking forward to that and I was looking forward to it last year. We have been
patient but I really hope to see it in this year's budget. I am concerned about how
much money Roads will need of the Highways Fund and the burgeoning needs for
an expanding transit system. Thank you.
Chair Furfaro: Are there any more comments for the
Finance Director? Steve, I particularly want to thank you and your Staff. I know
you summarized it, but as more and more regulations appear from us, the Feds, the
State, and so forth; your team working for that compliance is very much
appreciated. Thank you very much for the work that your whole team did in getting
us to this point. We will be sending over those questions and we will be scheduling
and spreading it out in the first quarter to get some further detail. Thank you very
much.
Mr. Hunt: Thank you Chair.
Chair Furfaro: Anyone else in the County Staff wants to
comment? No. Okay. Although I asked for public comment earlier, is there anyone
in the public who wants to comment? Seeing no one...
Ms. Yukimura: There are two (2) people.
Chair Furfaro: You two (2)? You were both here when I
asked for comments in the beginning. Go right ahead Glenn.
GLENN MICKENS: For the record, Glenn Mickens. Thank you
Jay. I want to thank our auditors for the work they have done and particularly
want to thank our County Auditor, Ernie Pasion, for his six (6) outstanding audits,
which were reports that were clear and easily understandable by the public. I also
congratulate him for gaining a Certificate for Excellence in financial reporting for
SPECIAL COUNCIL MEETING 27 DECEMBER 17, 2013
his Department. The words "excel and excel" were used in their report. Since we
did no road paving for three (3) years... I believe it was for three (3) years... 2010,
2011, and 2012— and accumulated over eight million dollars ($8,000,000). I know
you guys approved these repaving budgets each year. In the past, anytime you
approved a budget, they went out and repaved the roads, whether it was two million
dollars ($2,000,000) or three million dollars ($3,000,000). Jay got some added
money one time and it was gone ahead and done, but we did not do it for three (3)
years. Anyway, there was something like... I think it was eight million eight
hundred thousand dollars ($8,800,000) allocated money. What happened to these
funds? Even since our County Engineer, Larry Dill, has thankfully agreed to pave
our roads according to American Association of State Highway and Transportation
Officials (AASHTO) or Hawai`i Asphalt Paving Industry (HAPI) standards. I do not
see the island wide work being done on our roads. We have roads on our island that
have not been paved for twenty (20) years or more. I have been one of the biggest
complainers in this situation. As a small example, our Kapa'a Transfer Station
road that is about one thousand (1,000) feet is a pit and is used daily by hundreds or
more of people. I have been trying for months to get it paved. The workers there
want it done badly, but with no success. There are still no evidence that many of
our roads are being paved for political reasons and not as Larry has pointed out,
should be done due to usage and condition of the roads. Those are the only two (2)
reasons the roads should be paved, which I agree with one hundred percent (100%).
There are still roads on this island, and you can ask Larry Teves and others, that
are being paved for political reasons and I think that is wrong. Many times I have
heard Chair Furfaro talk about our "rainy day fund." I believe he said it should be
about fifteen percent (15%), but how much is actually in that fund now? I did not
hear that in the audit report, Jay. I just wondered what kind of money is...
Chair Furfaro: To answer your question, we should have a
reserve of that amount. We do have a small reserve of about one million four
hundred thousand dollars ($1,400,000), I think. That is not the subject on the
agenda today, but you are saying it should be and what you are forgetting over
there is that we are trying to get there by putting a little bit aside each time. We
would hope to build a fifteen percent (15%), but...
Mr. Mickens: At this stage of the game, what percentage is
in there now?
Chair Furfaro: Maybe one million four hundred thousand
dollars ($1,400,000).
Mr. Mickens: Which is what percent of the total?
Chair Furfaro: Let us see... I think that is a real simple
math question since I went to public school. One million four hundred thousand
dollars ($1,400,000) divided by a one hundred million dollars ($100,000,000)...
Mr. Mickens: One percent (1%).
Chair Furfaro: You did the math.
Mr. Mickens: Okay. This situation is obviously going to
have to be seriously corrected, right? What is in our General Fund right now?
What is left in our General Fund?
SPECIAL COUNCIL METING 28 DECEMBER 17, 2013
Chair Furfaro: I will give you a copy of that sheet.
Mr. Mickens: Okay.
Chair Furfaro: To say there is one number that is going to
be carried over is a better way to say it. It is twelve million seven hundred
thousand dollars ($12,700,000) that will be a carried over and that carry over will
start next year's budget.
Mr. Mickens: Right.
Chair Furfaro: As you budget for everything, we will come to
another carry over in the CAFR for the next year. What I am saying is be cautious
because that carry over next year, based on our spending right now, may not be
significant. I will show you on the audit page where that number is.
Mr. Mickens: Okay. I appreciate it. I know JoAnn
brought up the roads and as JoAnn knows, I have been at this for eighteen (18)
years trying to get something. We need "x amount" of money and each year it gets
worse. As JoAnn is probably looking at the statistics there, anytime something is
left undone for a number of years and the more years go by, the greater the expense
is going to be to repair that road. You are going to have to completely redo the
whole road and everything. Until we can possibly catch up— Jay, I remember you
got more money one year. I think it was one million dollars ($1,000,000) or
something; two million dollars ($2,000,000) allocated more. When you go over and
find out the costs and each year the cost of AC (asphalt/concrete) goes higher and
higher, it is going to take a lot more money to even pay those things. We are kind of
in a "Catch-22" situation where we do not pave because we say we do not have the
funds, yet money was allocated for those things but was not used in things so I
think something needs to be done.
Chair Furfaro: I think what you just expressed was the
rationale by the County Engineer. If he does it in two (2) year increments, he can
have a bigger paving budget and he can put more blacktop down because he has a
better price.
Mr. Mickens: On the upside, the roads are deteriorating
more, so we have to do more work.
Chair Furfaro: I am not going to get into a debate over here.
I am answering what Larry said his strategy was.
Mr. Mickens: Right. In defense of Larry Dill, I think he...
Chair Furfaro: I do not need to defend Larry Dill.
Mr. Mickens: Okay.
Chair Furfaro: I am telling you what Larry is doing.
Mr. Mickens: I am complimenting him.
Chair Furfaro: Well then compliment him.
SPECIAL COUNCIL MEETING 29 DECEMBER 17, 2013
Mr. Mickens: I am trying to and you stopped me.
Chair Furfaro: No, but you said in difference of what I said.
I will give you the details of the numbers you want.
Mr. Mickens: Right.
Chair Furfaro: Larry is planning to pave in two (2) year
increments. We are carrying over one million six hundred thousand dollars
($1,600,000) in the Roads Division despite the debate of "we did not pave for three
(3) years." That is history. The accountants show the one million six hundred
thousand dollars ($1,600,000) being there. I will give you the detail of the
unassigned balance.
Mr. Mickens: My compliment to Larry is that now that he
is doing it according to AASHTO and HAPI standards, it is going to cost more
money. I understand why he needs more money now to go out and do (inaudible)
and stuff on that road as opposed to just paving over on top of it, which I highly
compliment him for.
Chair Furfaro: Thank you for your compliment and thank
you for pointing out that he actually may not do more roads because he is coming to
standards.
Mr. Mickens: Right. So we need more money, right?
Chair Furfaro: That is what you are saying.
Mr. Mickens: Okay. Thank you.
JOE ROSA: Good morning members of the Council. For
the record, Joe Rosa. Again, I hear things on this budget where money is being
spent where there is no demand by the public for certain projects. Some of them are
costing the County millions and millions that could be used in other places. Look at
your Highways Fund spending. Nobody asked for complete roadways or streets.
We do not need those designs that come from the mainland that is going to kill the
golden egg for the tourist industry. The tourists come to Kaua`i basically to see the
way the island is. Why the complete streets? Who is asking for it? The people are
asking for a better infrastructure on this island to get the traffic in and out, not for
fancy complete streets with sidewalks, bike paths, et cetera. Somebody's pocket is
getting filled. To make plans for the highways to pave— Isenberg Track was
supposed to be paved in 2004 and it finally got paved in 2013. Why? They say
planned paving, but it is not planned paving; it ends up being select paving as to
who lives where on what street and what town. That is where the selection comes
in. There are no at-random paving for the year. Is there a schedule for the year?
No. It comes to selection of who lives on the street and who lives in that area. That
is not planned. Planned paving is the way you schedule it. Also, if the County
cannot maintain the Koke`e Road— when I was with the Department of
Transportation (DOT), the County handed over (inaudible) Road and Ma`alo Road to
the State to maintain, upkeep, and update. If Koke`e Road is a problem, go see the
Feds for some Federal funding also. They use it for defense purposes. It is a big
project for the County. See the State and get funding. Remember, the Federal
government defense use Koke`e so we should get some subsidy from the Feds for the
maintenance of the road with the heavy equipment that they use to get up to
SPECIAL COUNCIL MEETING 30 DECEMBER 17, 2013
Makaha Ridge. Then you take that 15ike path— when Doug Haigh started it out
about ten (10) years ago...
Chair Furfaro: That was three (3) minutes, Joe. You have
another three (3) minutes.
Mr. Rosa: There was no rationale to that bike path.
Until today, it still is costing more and more. It costs more for funding for the bike
path than it does for Koke`e Road. That is a good example. That is why we always
hear about taxes; property tax and vehicle weight tax. We have enough taxes.
Things that are going on are supposed to be according to priority. I remember every
year from the days of the late Bryan Baptiste, the problem of Kaua`i is the
infrastructure and nothing is being done. Lihu`e Town is still choking. Even with
signal lights at Isenberg Track, you have a hard time coming out because there is
only one line of traffic that is going out of town in the morning and afternoons.
People talk about the tourist industry, but I must point the finger at JoAnn. She
has forgotten about the tourist industry because she always gives contracts to
Charlier Associates. Who is Charlier? They come from the mainland. They are not
local orientated people. I see all the beautification projects that Doug Haigh does
over here, but there is nothing significant. Not even the State flower is planted over
there. I wonder if these associates know what the State flower of Hawai`i is. All of
that parking that they closed `Eiwa Street for was to take away the parking that
they lost in the fancy configurations that they are doing in that parking lot area
there. They had bougainvillea and trees all through that parking lot. When the
County took it over, they knocked it down— got additional paving they said. Now
they are going back and taking away all of the paving with the so-called "fancy
walkways" and stuff. Lihu`e will never be a walking town. I lived in Lihu`e for
eighty-one (81) years. Lihu`e was a walking town up until the 60's. After that, no
way. We needed alternate routes and I keep emphasizing "alternate routes."
Kapule Highway was one of them and mauka was the other one, but it was not
completed. They had grid roads coming in from both ways so we would not have all
these bottlenecks that we have. That is to planning. I suggested some of these
improvements on Rice Street and glad they have done it, but I was given for
(inaudible) by Jay Furfaro and I thank him for it. Some people said, "Thanks to
you, Joe, we have a left turn now on `Umi and Rice Street." This kind of
engineering has to get down to the basic grassroots, as to what the people want on
Kaua`i, not just spending our money.
Chair Furfaro: Joe, that was your six (6) minutes.
Mr. Rosa: Okay. I will wrap it up.
Chair Furfaro: No, you need to wrap it up really, really
quick.
Mr. Rosa: Yes. Look into what the needs really are, not
what Doug Haigh and some other people like that is destroying the tourist industry
here in Lihu`e, which was a quiet and peaceful town.
Chair Furfaro: Okay. That is it Joe.
Mr. Rosa: Thank you.
SPECIAL COUNCIL MEETING 31 DECEMBER 17, 2013
Chair Furfaro: Joe, I want to make sure that you
understand that I let you go on with some items that are not on today's agenda.
Mr. Rosa: I understand that, Jay.
Chair Furfaro: Okay. Please note that we are going to have
some reposting of the Department Heads to talk about some of these things. The
proper time to address it was then. I would also appreciate going into the new year
that as you have comments that deal with things in the past, that is fine, but let us
not point fingers. Let us try the new year in a new way.
Mr. Rosa: Yes. That is fair enough.
Chair Furfaro: Thank you. Are there any questions for Joe?
This will be our last meeting of the holiday season, so if there is nobody else— I am
sorry. That is right; we have a Council Meeting tomorrow. Let us call the meeting
back to order and see if we have some comments of the auditors' presentation. I will
try and meet with you right after, Glenn, and give you some information. Go ahead.
There being no objections, the meeting was called back to order, and
proceeded as follows:
Mr. Bynum: I will try to be really quick. I have a couple
of handouts that are CAFR numbers in perspective. I just want to make some
comments about putting this year's CAFR in perspective and I am waiting for the
handout. I admitted yesterday to not reading the Management Advisory Report,
but other than that and some concerns that came out of that that I am sure we will
address; this was a very good year. The single audit follow-up that occurred during
the course of this very intense year for our Finance Department is pretty
impressive. I want to first point out that these are updated charts that I have
shown here many times. This is our Real Property Tax revenue since 2002. If this
could go up on the screen, it would be nice. Basically, we peaked in 2009/2010 and
our revenues are down fifteen million dollars ($15,000,000) from where we are at
the peak. This year, we had a net change in Fund Balance of over about one million
dollars ($1,000,000), so we are using the surplus we had to fund ongoing services
because our revenues still are not being expenditures. Efforts to try to stem that
loss on revenue were not successful. However, last year, we did increase property
taxes for a number of classes to put their contribution back to where it was in
2008/2009 when they started falling. Our budget that we are currently operating
under assumes that we will bleed another eleven million dollars ($11,000,000) from
our surplus. When you spend more money than you take in, you are in a deficit,
and we have been in a deficit for a number of years after being in big surpluses.
This little more complicated sheet here are CAFR numbers. Can the other sheet go
up? The takeaways here are— what I really want to focus on is this net change in
General Fund balance, column "H." If you are looking at since 1995, we rarely
made large changes up or down and a well-managed County finances... we will not
see large changes in our General Fund balance either up or down. As we entered
into 2005, all of a sudden, we started seeing large, large increases in the net fund
balance; eleven million dollars ($11,000,000), twelve million dollars ($12,000,000).
At one point, we saw our surplus balloon to over half of our annual expenditures
General Fund transfers out. You can see that we balloon way up to a very large
Fund Balance, and now look at the last three (3) years— a nine million dollars
($9,000,000) bleed from our Fund Balance... fourteen million dollars ($14,000,000),
eleven million dollars ($11,000,000)... and we have already planned for another
SPECIAL COUNCIL ktkETING 32 DECEMBER 17, 2013
eleven million dollars ($11,000,000) for next year. To balance this year's budget, we
had to plan to dip into that and increase revenues. Our County has not managed its
finances well over the last ten (10) years. We are all responsible. I am responsible.
The Mayor is responsible. Those ten (10) years are responsible... the Finance
Directors and the Councilmembers. The good news is that since Steve Hunt has
been Finance Director— the Mayor and the Council have been making structural
changes to get our financial house in order. We are moving in that direction. As
has been mentioned today, payroll is our number one expense. Everybody gets
raises over the next few years. All the Hawai`i Government Employees Association
(HGEA), Police, Fire— Police and Fire get substantial raises. It is good. It is time
to get back to that because our workers have gone years at status quo with loss
benefits, wages, and furloughs. We have got to get back to normal, but our revenue
challenges are daunting. We have to come— not with ten million dollars
($10,000,000) to spend on a project, but ten million dollars ($10,000,000) of
additional revenue just to meet our ongoing expenses, and we are still going to be in
a hole. We have to do revenue above and beyond that to keep our commitments
that we have made. I do not know what the Mayor will come up with this year, but
it is going to be a daunting task. We are trying to address some revenue issues now
to start that process even before the budget because we need revenues desperately
or we need to stop doing something we are doing. I have heard Councilmembers
say, "Hey, we need to find million dollars in cuts and stop spending our money on
things we do not need to do." I do not know what that thing is that we are doing
that we do not need to do that is substantial enough to make up the difference with
costs cuts. I am very interested to see those Councilmembers put forward not just
little pithily things or CIP cuts, but cuts of ongoing services and personnel because
that is the only way you make it up without us addressing...
Chair Furfaro: Mr. Bynum, that was five (5) minutes.
Mr. Bynum: I am almost done.
Chair Furfaro: You have another five (5) minutes.
Mr. Bynum: I hope to not go more than five (5) minutes,
but I am almost done. These numbers are very telling. This is not what we
planned. This is not a budget plan; this is what we actually did. What we actually
did was have this balloon up of our Fund Balance and balloon done, and we have to
get at a steady state. We have to bring in revenues equal to our commitments and
make serious decisions about it if we are not going to follow through. Are we going
to eliminate a Department? What Department would we eliminate? I just went to
Elderly Affairs. We could get a couple million there. Let us just stop serving
elderly people in our community... I do not think we are going to do that. The last
takeaway— people have to be accurate about their statements. I have heard
statements this year that we squandered our surplus on spending. That is not true.
We gave our surplus away to taxpayers in the form of reduced tax bills... tens of
millions and I will go into that when we get to budget. The spending truth is right
here. There is a column on this thing called "Total Expenditures, Encumbrances,
and Transfers Out." That is our General Fund cost of doing business, in essence.
When our current Mayor came in, he had huge challenges and he actually cut those
spending for two (2) years and has kept spending— I have never complained about
the Mayor's spending proposals before us because he bit the bullet and that is
reflected in the numbers. This loss of surplus is not a reflection of how to control
spending; it is a reflection of revenue loss. When the revenues started falling, we
did not make adjustments. I am done. Thank you.
SPECIAL COUNCIL MEETING 33 DECEMBER 17, 2013
Chair Furfaro: Any other members? JoAnn, go ahead.
Ms. Yukimura: I just want to say that on this CAFR that it
is a well-done report. I want to thank Blake and John for their work. Also, the
Finance Department, our Budget Chief, and all of the Departments and Staff;
especially Accounting and Grants that Steve mentioned. Not only is it a well-
presented report which does identify some of the still existing problems, but it
shows progress over the last two (2) years of audits, which takes a lot of work. It,
again, meets the standards that deserve a Certificate of Excellence in reporting. It
is very helpful to those of us who participate in creating the County's budget and
programs. Thank you to all who helped here.
Chair Furfaro: Anyone else before I speak? No. First of all,
Blake and John, thank you very much. It is a pleasure working with your firm. I
am very pleased that you painted such a very clear picture to us and showed where
the pukas in the road might be and so forth. You have two (2) more years on your
contract? One (1) more year on your contract— again, it is a pleasure having some
continuity there and you folks have done a very good job. Ernie Pasion, thank you
very much for arranging this today through your Office and getting the external
auditors interacting with the Accounting Division. Steve, Ernie, Sally, Ken, Annie,
and the whole gang; thank you very much. Nadine, thank you for being here.
I want to make sure we do a couple summary pieces here. We are coming up
on budget and one of the things that we cannot let people take away from this is
painting a scary picture about the financial picture of the County. It is not the
brightest budget opportunities we have had in the past, but there are also some
good things. Kaua`i County has paid one hundred percent (100%) of its liability
when it comes to the State. The State has an eight hundred forty-four million
dollar ($844,000,000) surplus in the paper on Monday. The fact of the matter is
that they also have three million four hundred thousand dollars ($3,400,000) in
debt, that they have not identified in the employee retirement system. Hopefully,
they will divvy up that pot and some of it will go there, but also, it is a way for us to
acknowledge why the Transient Accommodations Tax (TAT) is important for us, as
you can see that revenues are slipping here. I also want to make sure that we
understand— I am going to ask Ernie Pasion if he can consider putting this on his
audit plan for each year because it looks like we are at least two (2) years away
from a real solution on our payroll reconciliations and so forth. Maybe in the
meantime, our internal auditor can help us with some recommendations. Payroll is
our biggest single expense in the County of Kaua`i. Obviously, our bulk purchasing
is the next piece. Both of those will be on our—when I say bulk purchasing, I mean
a number of people with pCards. Perhaps we need to put some costs associated in
managing that. I am delighted that Parks and Recreation people are here. I just
wanted them to also get a picture, as we go forward, of some of the things that we
need to resolve for revenue as it relates to income for the County and our Wailua
Golf Course and parks' solutions. Let us make sure we understand that the
challenge we have is "payroll reporting," not to be confused with payroll costs.
Costs are managed through having the appropriate staffing guides and the
approved positions that we are budgeted for. It is the reporting, as JoAnn pointed
out, of these deviations and getting us to a point that it is going to take maybe a
two (2) year step here. Again, I just want to thank everybody.y. I also want to thank
our Staff for their work; Scott, Yvette, Codie, and Jade all here. Others here as
well; thank you and our association of getting this done. Watch in the first quarter
and see if we will have some communications and we will have some individual
SPECIAL COUNCIL MEETING 34 DECEMBER 17, 2013
discussions on some of the pieces that really came up today that we need to
continue to refine. On that note, thank you everyone.
The motion to receive C 2013-377 for the record was then put, and carried by
a vote of 5:0:2 (Mr. Kagawa and Mr. Rapozo were excused).
ADJOURNMENT:
There being no further business, the meeting was adjourned at 11:10 a.m.
'espectfu submitted,
*1k
J 1 D K. III AIN-TANIGAWA
De; •ty County Clerk
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