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ENFIELD TOWN COUNCIL
MINUTES OF A SPECIAL MEETING
FEBRUARY 7, 2005
A Special Meeting of the Enfield Town Council was called to order by Chairman Tallarita in the Enfield Room, Enfield Town Hall, 820 Enfield Street, Enfield, Connecticut on Monday, February 7, 2005 at 6:39 p.m.
ROLL-CALL - Present were Councilmen Crowley, Dodd, Edgar, Egan, Fiore, Kaupin, Mangini, Reveruzzi, Tait, and Tallarita. Councilman Peruta was absent. Also present were Town Manager, Scott Shanley; Assistant Town Manager, Daniel Vindigni; Town Clerk, Suzanne Olechnicki; Town Attorney, Christopher Bromson; Director of Finance, Gregory Simmons.
FINANCIAL AUDIT PRESENTATION: GARY PARADIS/SCULLY & WOLF
Mr. Paradis stated the Comprehensive Annual Financial Report format has not changed this year. He referred to page 6 which contains the Independent Auditor's Report and this gives the opinion on the Town's financial statements. He stated they issued an unqualified opinion. He explained opinions are now done in opinion units, and those units are the governmental activities, major funds, and all the other information.
He stated the audit was conducted in accordance with generally accepted auditing standards and government auditing standards.
Mr. Paradis stated pages 8 through 15 contain Management's Discussion and Analysis, and this is the section of the report written by Town's management to provide an overview of the financial activities of the town for the year. He noted the basic financial statements begin on Page 16, and there is a statement of net assets and a statement of activities for governmental activities. He explained the new GASB-34 required two components to be reported on - governmental activities and business-type activities. He stated the town has no business-type activities, therefore, all the funds of the town get rolled up into one column, capital assets net of depreciation and long term liabilities are added in and they convert the town's fund financial statements from the modified accrual basis of accounting to full accrual.
Councilman Fiore clarified the fund is not the total cash on hand. Mr. Paradis responded that's correct and noted according to Exhibit #1, the town's cash on hand in all funds, exclusive of fiduciary funds, i.e., pension funds and agency funds, is $34 million dollars. He went on to explain the statement of net assets is presenting all of the town's assets and liabilities, and when those two are subtracted, everything that's left is the net assets. He noted at the component of net assets at the bottom of the page there is a further breakdown. He stated the first breakdown are those assets that are invested in capital assets, net of any kind of related debt outstanding, and that would be capital assets of $103 million dollars less long-term debt outstanding, therefore, almost $76 million dollars of the town's net assets are capital related, and approximately $61,000 is restricted for trust purposes and everything else is unrestricted.
Mr. Paradis stated Exhibit #2 breaks down all the governmental activities by expenditure function. He noted the expenses column of $110 million dollars includes depreciation on all the equipment, buildings, etc. by function. He noted the program revenues are identified by each government function and the last column on the right is the net cost of each function. He explained over time these numbers may mean something. He stated the bottom of the statement shows general revenues, property taxes and other grants not associated with a particular expenditure function. He pointed out there was an increase in net assets of $12,408,000 last year, and a significant portion of that is attributable to the capital grants of over $10 million dollars coming in and no expenses in this statement associated with it. He noted those expenses have been capitalized and are on the balance sheet.
He explained Exhibits 3 & 4 contain the fund perspective, and this is the fund basis that has been used for many years. He noted nothing has changed in the fund perspective as far as the basis of accounting is concerned. He explained what has changed are what funds get reported. He noted these exhibits are reporting by major funds and other funds. He stated Exhibit #3 provides a snapshot of assets and liabilities as of June 30th and Exhibit #4 is the statement of revenues, expenditures and changes in fund balance. He explained there are reconciling items at the bottom of both Exhibits #3 and #4, and those items are reconciling between the statements here and Exhibit #1 and #2. He noted it's showing on the face of the statements what the significant items are that convert from the modified accrual basis of accounting to full accrual and from the basis of accounting that they use in the funds to the statement of activities.
Mr. Shanley referred to Exhibit #4 and noted a key number is under the General Fund - "Net Change in Fund Balance" - there's a reduction of $700,000 in Fund Balance in the General Fund which means they drew down their reserves this year as they anticipated they would. He went on to note a frequently misunderstood number is the Fund Balance, June 30, 2004, which says $17,696,000. He explained that number includes all of the encumbrances for teachers' salaries through the summer, therefore, the actual fund balance is millions less than that if this was backed out. Mr. Paradis referred to Page 53 and the comparative general fund balance sheet which shows the undesignated fund balance of $8.8 million dollars, and he believes this is one of the more relative numbers instead of the $17,696,000.
Councilman Fiore acknowledged that's an increase over last year, however, by the same token if they went back to the Water Pollution Control Fund, it's much less in value this year than it was June 30, 2003. He pointed out looking at both of those figures together, there's not much change from 2004 to 2003, however, looking at this individually, there's a big change. He advised everyone to look at those figures together rather than separately.
Mr. Paradis stated in terms of the undesignated fund balance, they are at about 8.7% of the budget, which is within the range that most financial advisors and bond rating agencies would be looking for.
He stated the town had good tax collections last year, and the tax collector report can be found on Page 54. He noted current year collections were 97.7%. He added good collections show on the back tax list as well.
Mr. Paradis referred to Page 20 and the pension fund on Exhibits #5 and #6. He noted the pension fund has almost $59 million dollars and it showed a net increase of $6.2 million last year with employer contributions of $1.3 million dollars. He explained this is a combination of the two pension plans. He noted the detail of the two plans is shown on Page 43 and 44. He stated the net appreciation and fair value of investments were $4.6 million dollars last year. Mr. Shanley stated another key indicator is the percentage of funding of the pension fund, and Enfield should be proud that they're consistently in the high 90's and at one point over a little 100% funded before the stock market took a turn. He pointed out a lot of communities actually have to bond to fund their pension, however, Enfield has kept very up-to-date.
Mr. Paradis stated the next section of the report contains the footnotes and describes the significant accounting policies of the town. He noted Page 26 describes the restatement of the General Fund balance. He noted the opening fund balance was increased by $1.1 million dollars for some property tax revenue that wasn't accrued to reduce some accounts payables and to remove an accrued interest payable for $366,000 that should have been reported only in the statement of net assets, but was reported in both the fund statements and the statement of net assets last year. He added there was a re-categorization of a scholarship fund.
He stated Footnote #2 on Page 27 and 28 provides a little more detail to some of the reconciling items on the bottom of Exhibits #3 and #4.
Mr. Paradis stated there are quite a few disclosures on long-term debt beginning on Page 37, but he feels the most relevant is the pension footnote beginning on Page 39.
He noted Required Supplemental Information (RSI) can be found between Pages 46 and 52, and these are budgetary statements that show the original budget, final budget, actual budget and a variance. He pointed out on the revenue side of the budget, not including the appropriation of fund balance of $2 million dollars, the revenue side of the budget generated $2.5 million dollars worth of positive variances. He noted $1.5 million dollars of those were in the charges for services category, $690,000 in the property tax segment, $886,000 in the intergovernmental revenues, and the only one below budget was the interest on investments. He noted low continuing rates make that a very difficult area to generate a lot of money from.
Mr. Paradis referred to the expenditure side on Pages 50 and 51, and noted there was $1,026,000 less spent than was budgeted, and that's sprinkled amongst a number of areas, i.e., general government with public works and the non-department being significant contributors. He went on to note there's a budget statement for the Water Pollution Control Fund.
Mr. Paradis stated the rest of the report, up to the statistical section, gives a little more information on the general fund and the non-major governmental funds. He noted Exhibits B1 and B2 report all the other funds of the town and classifies them by special revenue fund or permanent funds. He stated the totals of B1 and B2 are what are in the other governmental funds column on Exhibits 3 and 4.
He stated information is provided on the fiduciary funds and capital assets used in governmental funds. He noted the last section of the report is a section put together by the finance department and contains a lot of statistical information generally on a ten-year basis.
Councilman Dodd questioned whether any of the recommendations effect the upcoming budget year regarding staff or equipment. Mr. Paradis suggested he review the recommendations and the finance director can interject his corrective action plan and whether there's an impact.
Councilman Dodd referred to depreciation of equipment and assets and questioned whether Enfield is in the norm and where they're going in the future. Mr. Paradis stated the numbers and methods used by Enfield are consistent with what's being used by other governments.
Councilman Fiore referred to Page 4 - the audit shows they have 75 retired employees receiving benefits and that's an increase of three. He added there's reference to a gap not currently requiring governments to report on their pensions. He acknowledged that will be coming in 2006 or 2007 and the Director of Finance is looking into this. Mr. Simmons stated they are in the process of collecting the data so they can determine what that liability is going to be and the impact. He added that will be in 2007.
Councilman Fiore referred to Page 11 and noted in 2003 the actual cost of education was $69 million dollars and in 2004 it was $72 million dollars. Mr. Paradis stated this has nothing to do with the town's budget, but rather this table is showing all of the education functions throughout the town.
Referring to Page 19, Councilman Fiore clarified the Water Pollution Control Fund has a balance of $80,000 as of June 30, 2004. Mr. Paradis responded that's the fund balance. Councilman Fiore pointed out the reason this figure is at $80,000 is because the town had to borrow money from its own fund to fund a project the State forced the town to do - the denitrification of the plant. He stated Enfield has not yet been reimbursed by the state for that project, nor has Enfield been reimbursed concerning the sewer fund for the prisons. Councilman Fiore referred to Page 21 and stated his understanding the investment expense for the pension fund last year was approximately $200,000. He questioned whether that's going to be a little less this year, or is that equated to the actual asset in the pension funds. Mr. Simmons stated that does equate to the assets in the fund, therefore, as they grow, it can't necessarily be said that's going to be less next year.
Referring to Page 46, Councilman Fiore stated he noticed that on revenues they didn't budget for the Department of Housing PILOT, but they did receive some monies. He noted in addition to that, they did not receive any monies for tax loss for boat registration. He added they never received any money from the communications center fund, and they didn't budget for environmental recycling programs, yet they did receive money. He requested clarification on this. Mr. Simmons stated on the intergovernmental revenues, they based their initial estimates on the figures from the Governor's office. He noted originally they were not going to fund the Housing PILOT program, therefore, they didn't have any line item budget for that. He added subsequent to the town passing its budget, the Legislature reinstated that program. As concerns boat registration, Mr. Simmons stated they are actually budgeting exactly what they receive. He explained the blank is the variance, therefore, they did receive the $10,471 as budgeted.
Councilman Fiore referred to the Housing PILOT and questioned if that's in lieu of the fact that the town doesn't charge a local property tax for the Housing Authority. Mr. Shanley responded that's correct.
Councilman Fiore requested clarification on the communications center. Mr. Simmons stated they are actually back a year on the communications center. He noted they did not bill for that during the year through the police department, therefore, they'll see a doubling up of that in this coming year.
Councilman Fiore clarified environmental recycling is another area where the town accumulated more waste and was able to get some dollars for that, while in past years the town was less in that area. Mr. Simmons stated his belief the big impact here goes back to September 11 and all the metal that came onto the market which caused the town not to get anything, however, that is starting to pick back up again.
Councilman Fiore referred to Page 51 and requested clarification on the insurance and bond charges. He noted extra dollars were budgeted for insurance and bond charges, and they always seem to come in at a little less in this area. Mr. Simmons explained they're looking at the cost to the town and not trying to come down to the actual per person, but rather taking the average total to be sure they have enough to cover everyone and cover any changes that happen to people throughout their tenure. Councilman Fiore questioned if this is health insurance and bond charges-a lump of both categories, and Mr. Simmons noted he will look into the details of this.
Referring to Page 60, Councilman Fiore stated his understanding that if things go on target, the recreation program fund will have a zero balance next year when they do the audit.
Councilman Fiore referred to Page 37 and stated he notices they still have a negative audit on liability for vacations, absences, and sick time. Mr. Paradis explained compensated absences are laid out in union agreements. He noted this figure has remained stable this year. He added he doesn't believe this figure is "out of whack" with the size of the budget and number of employees. Mr. Shanley stated his belief Councilman Fiore is questioning the funding of the liability. He noted the practical reality is that many municipalities don't do that. He stated it's very difficult to budget a half-million dollars a year to build up a fund to cover a town for a possible liability. Councilman Fiore stated his concern is about the worst case scenario and that liability being due in one year.
Councilman Fiore stated sometimes audits can be misleading. He referred to Enfield drawing down its reserves by $700,000, however, on Page 53 it shows the undesignated part of the general fund grew by $1.7 million dollars over last year. He requested Mr. Paradis explain how that happens. Mr. Paradis stated there are a number of different components in the fund balance - the reserve for encumbrances went down by $1.9 million dollars; the designated for the subsequent budget went down by $300,000. He noted that although there's an overall reduction in the fund balance, those designated components amount to $2.2 million dollars, therefore, those are working in an opposite direction as far as the undesignated is concerned.
Councilman Mangini referred to the process for implementing GASB 34 and 43 and stated her belief that with GASB 34 they didn't have much difficulty merging the school department with the town. She noted with GASB 43 will there be a problem merging these two. Mr. Simmons stated their plan is to compile the data for the Board of Education and their retirees and post employment and benefits and the town and its retirees. He noted GASB 43 actually does require them to have an actuarially determined calculation of that, therefore, they have to turn all this data over to their actuary so they can incorporate that information into the audit report. He added he does not think it's going to be a problem combining the two, but it will be two separate sets of data.
Mr. Paradis stated they issued a management letter and they have a couple items they think are more significant. He noted these are not material weaknesses. He stated the first one deals with encumbrance reporting. He explained some of the ways that the town was accounting for its encumbrances was not in accordance with GAP. He stated they noted some specific items on Page 2. He noted another item has to do with the fact that there was a significant amount of unliquidated encumbrances at the end of the year. He explained encumbrances are commitments, i.e., if the town enters into a contract or places an order for goods or services, they've committed the town and at that point an encumbrance should be recorded. He noted there were instances where amounts were being encumbered where there was not a formal commitment of funds. He stated the bottom line is that they're looking for procedures to be developed and implemented to make sure that encumbrances are processes based on legitimate orders for goods or services with specific vendors. He noted the year end procedure should include a classification of encumbrances vs accounts payable, and this is only significant because in the fund statements they're reporting on one basis of accounting and on exhibits one and two they're using a different basis of accounting.
Mr. Paradis stated there are quite a few performance bond fund accounts that the town is holding. He stated they noted some weaknesses in that overall system with some of the passbooks not being updated on a current basis. He noted there are some very good products being used that don't charge fees and they work off the invested balances that can keep track of all this information and takes away the headache of having to accrue interest on each account. He stated some improvements are needed in the record keeping and they should consider going to one of those products to help with the record keeping.
He stated they offer a few recommendations for improvements in the tax department regarding refunds and printing of reports. He explained some of the reports would break out cash vs checks on a daily basis which will help in reconciling and helps in the internal control process as well. He noted they should have a formalized process on refunds and getting the tax warrant and rate bill signed according to the statutes.
Mr. Paradis stated there are a couple recommendations within the Town Clerk's Department, i.e., getting them onto some kind of integrated cash register or computer system for daily balancing as well as some segregation of duties issues.
He stated they offered a number of recommendations to the Finance Department regarding general ledger maintenance; cash management and investment management (reduce the number of accounts); year-end accounts payable (review year-end procedures); Board of Education educational grants (use financial management system rather than using external spreadsheets).
Councilman Fiore requested Mr. Paradis read a recommendation. Mr. Paradis read as follows: "We recommend that all grant activity, including revenues and expenditures, be recorded within the financial management system".
Mr. Paradis referred to Board of Education student activity funds and noted their transaction tests showed some cash receipts and disbursements that had no documentation at Enfield High School. He pointed out student activity funds are always sensitive areas and very susceptible to problems, therefore, they always look at this area and if they do find problems, they try to get the Board of Education to improve in those areas.
Mr. Paradis stated the last four items are informational type issues, i.e., fixed asset reporting. He noted they are looking for documentation of procedures and implementing a single coordinated capital asset management system with the Town and Board of Education.
He noted the accounting standards recommendation deals with formalizing written procedures related to a lot of the implementation issues of GASB 34 and they deal with compensated absence reporting, long-term receivables, the development of the MDNA. He noted the last item deals with post employment benefits which is a heads up to let the town know there's something coming down the path. He stated there are some significant decisions that have to be made and they want people to approach this in a thoughtful and slow manner and not make any hasty jumps. He noted they will be providing some educational programs later, and they do have four years to implement this.
Councilman Dodd referred to cash and investment management and questioned if the town is spreading out business throughout all the banks in town. Mr. Simmons stated several years ago, they had twice as many accounts as they have now. He noted they have been consolidating them. He added they still have too many and are still working toward consolidation. He noted a lot of these are very small accounts. He stated this is not an attempt to spread the business to all the banks. He noted they go through a competitive process. Mr. Shanley stated the total value of the amount of money involved is relatively small.
Councilman Dodd questioned if they will need to update some equipment or make personnel changes to effect these recommendations. Mr. Simmons stated he does not believe they will need personnel changes, but it will have an impact on the budget when they get to the point of implementing GASB 43 or any possible future regulations that come down from GASB because they will have to pay for those services that they're requiring the town to do to get this information.
Mr. Shanley stated the ideal situation, in order to address the segregation of responsibilities, would be to add people. He noted from a management perspective, it would be much better to have different people doing different things, but the practical reality is that they don't have enough people to do it the way it should be done. He stated there are some things within segregation that they could look at with the current number of employees and at least make improvements.
Mr. Simmons referred to encumbrances and noted they were a little lax in the year-end encumbrances coming through, but certainly not in the payments on those encumbrances. He explained they would allow a department to encumber funds, but when the bill came through to pay it, if it didn't apply to that year, it was kicked back.
Mr. Simmons apologized to the Town Clerk and the Board of Education because due to being on vacation he did not tell them they should have their comments for this evening's meeting. Mr. Shanley stated he did meet with the Superintendent, and he agreed they would wait until Mr. Simmons returned.
Mr. Paradis concluded stating his belief things are in pretty good shape.
INTRODUCTION TO PAMELA BROWN - SOCIAL SERVICES DIRECTOR
Mr. Shanley introduced Pamela Brown to the Town Council. He noted Ms. Brown has a significant amount of management experience in social services and very strong listening skills. He added she has a lot of collaborative strengths and facilitative strengths. The Council introduced themselves and welcomed Ms. Brown.
Ms. Brown stated she is honored to be following in Dorothy Allen's footsteps. She noted she has been involved in human services for almost 30 years and has never seen a town that does so much for its citizens.
There was no Executive Session.
ADJOURNMENT
MOTION #7576 by Councilman Fiore, seconded by Councilman Mangini to adjourn.
Upon a SHOW-OF-HANDS vote being taken, the Chair declared MOTION #7576 adopted 10-0-0, and the meeting stood adjourned at 7:37 p.m.
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