I. Call to Order
II. Roll Call
III. Approval of Minutes
December 13, 2010
IV. Presentation of the FY10 Financial Reports
Enclosed with the packet are the City and Borough of Juneau’s FY10 general governmental financial reports. These reports are produced as part of the annual audit process. These reports were prepared by staff and our auditors, Elgee Rehfeld Mertz, LLC.
• Letter to the Assembly (which includes comments on internal controls and operations)
• Comprehensive Annual Financial Reports (CAFR)
• State Financial Assistance Report
• Expenditures of Federal Awards Report
The Letter to the Assembly was prepared by our Auditors. The Comprehensive Annual Finance Report was prepared by the Finance Department staff. The State Financial Assistance and the Expenditures of Federal Awards Report were prepared as a joint effort. Staff prepared the single audit financial data and the Auditors prepared the opinions and findings information.
These reports contain detailed financial information on the CBJ’s operations. The following is a brief overview of each report-
The Letter to the Assembly is information provided by the auditor directly to the governing body. The Letter discloses the responsibilities of the auditor, what assurances the audit provides, any disagreements with management, any auditor adjustments, any poor judgment used in financial management and an analysis on operational items coming to the attention of the Auditors during the audit. The Letter also identifies issues that are opportunities for strengthening internal controls and/or operating efficiencies. There were no current year comments, but there were follow-ups comments from the prior year.
• Follow-ups on Prior Year Comments
? Significant Deficiency 2009-01: Schools Capital Projects Interest Allocation.
We recommended that the City and Borough improve its processes and controls over allocating interest earnings to capital projects and monitoring interest allocated to the projects. Auditors’ current status comment – Corrective action has been taken. Issued resolved.
? Develop and Maintain Documentation of Key Financial Reporting Processes and Controls.
In prior year we recommended that the City and Borough develop new procedures and controls in response to the implementation of the new accounting system and to review, and possibly streamline, existing procedures and controls. Auditors’ current status comment – No action was taken on this subsequent to the last audit. We continue to recommend that CBJ develops and maintains documentation on the key financial reporting processes and controls. We under stand that management will evaluate this subsequent to the implementation of the management systems. Staff comment – Staff are spending significant efforts in evaluating ways to improve our operational efficiencies as we plan for the implement of each PRISM system module. Developing the procedural manuals prior to the implementation of the new system modules was determined to be inefficient and distracted from the implemental processes. The system testing documentation (test scripts) will be used as key parts of our future documentation. In addition, the Lawson system comes with online training information and manuals. Once the systems are up and online, we will move forward with completing the system documentation.
? Close School District Projects and Use District-wide Major Maintenance Capital Improvement Fund.
In prior year we recommended that the School District and Engineering Department work to close old school district CIP projects, timely close project that are near completion (such as Thunder Mountain High School) and evaluate the remaining City and Borough-wide major maintenance funds and report their intended use of interest earnings and unspent bond proceeds to the Assembly. Auditors’ current status comment – CBJ management is closely monitoring this matter. Comment resolved.
? Grant Monitoring and Compliance Training.
In prior year we recommended that employees involved in grant management attend training directly related to their responsibility for administering grants. Auditors’ Current Year Comment – No action was taken on this subsequent to the last audit. We recommend that training continue as a tool for cross-training the new accountant. Staff comments – We recognize this is a CBJ issue and continue to work on each grant manager’s understanding of their compliance responsibility. Within Finance there has been hands on cross training and some shifting of reporting responsibilities.
• The Comprehensive Annual Financial Report (CAFR) reports the results of our operations and financial balances. The Auditors’ issued a “clean opinion” regarding the CBJ’s general-purpose financial statements.
• The State Financial Assistance Report, commonly referred to as the state single audit, reports the CBJ’s compliance with the terms and conditions of grants received from the State. This report includes a listing of all State supported projects, the status of the grant funds and comments on compliance. There were no current year comments or questioned costs noted in the report.
• The Expenditure of Federal Awards Report, commonly referred to as the federal single audit, reports the CBJ’s compliance with the terms and conditions of the grants received from the federal government. This report includes a listing of all federally supported projects, the status of the grant funds and comments on compliance. There were no current year comments or questioned costs noted in the report.
Mr. Max Mertz, from Elgee Rehfeld Mertz CPAs, will be present to provide an overview of the annual audit process and answer questions.
Elgee Rehfeld Mertz CPAs also prepared a separate set of financial reports for the School District. These reports have been submitted to the School Board.
V. Sales Tax $7,500 cap on Tangible Goods
On September 22, 2010, a proposal was presented to the Finance Committee to consider the elimination of jewelry from the $7,500 single item sales tax exemption. This proposal was later presented to the Assembly for adoption, ordinance 2010-32. The ordinance was rejected by the Assembly with comment that some modification might be appropriate after further review. It was requested that staff review the application of the single item cap and report back to the Finance Committee. Enclosed in the packet is a memo from Joan Roomsburg, Sales Tax Administrator, with a brief history of the sales tax cap. Staff will present information on the historical trends on the sales tax exemptions claimed by merchant type.
VI. Discussion of Sales Tax Property Tax Penalty and Interest Structure
A request was made by the Assembly to review the City and Borough’s delinquent interest and penalty rates assessed on property and sales taxes. This request was made in response to testimony given by a taxpayer who had been penalized for a late sales tax filing. The City and Borough derives it authority to levy penalty and interest charges from the State. The CBJ currently has the following penalty structure.
For Property Taxes –
69.10.080 Delinquency; rates of penalty and interest.
When the general tax provided in this chapter is not paid on or before the due date of September 30, the tax shall become delinquent and penalty and interest shall accrue as follows:
(1) On October 1, a penalty of five percent of the tax due shall be added to all delinquent tax.
(2) On March 1, an additional penalty of ten percent of the tax due, for a total penalty of 15 percent of the tax due, shall be added to all delinquent tax.
(3) Interest at the rate of 15 percent a year shall accrue upon all unpaid taxes, not including penalty, from the due date until paid in full as provided by state law.
For Sales Taxes -
69.05.070 Periodic returns, penalties and interest for delinquency.
(b) …A late filing penalty of $25.00 shall be added to all late returns. The postmark shall determine the date of filing mailed returns. In addition, a late payment penalty of five percent per month or any fraction thereof, until a total late payment penalty of 25 percent has accrued shall be added to all returns until such tax, penalty and interest thereon have been paid. … In addition to these penalties, interest on the delinquent tax from the due date until paid shall accrue and be collected in the same manner the delinquent tax is collected. The annual interest rate on delinquent tax shall be five percent per year above the Wall Street Journal Prime Rate, or similar published rate, on January 2nd each year, rounded to the nearest full percentage point, as determined by the Finance Director; provided, however, that if such calculated rate would fall below ten percent per year, the interest rate shall be ten percent per year, and if the calculated rate would exceed 15 percent per year, the interest rate shall be 15 percent per year.
Staff will present an overview of the CBJ penalty and interest structures, these structures comply with the State Statutes and how they are enforced. Staff will also discuss flexibility within the law and the potential change suggestions received.
VII. General Governmental Revenue and Budget Update
Staff will provide a brief update of the outlook for CBJ’s major operating revenues for FY11 and FY12. The update will include property assessments, sales taxes and investment income.
VIII. Planning for Future State Revenue Reductions
During the Assembly Comments and Question section of the February 7, 2011 assembly meeting, a question was raised about planning for future economic uncertainties. The specific question was: Is the Assembly interested in doing some type of analysis on how the declining oil revenues in the state will impact the CBJ and southeast region? There was a consensus of concern on the part of the Assembly regarding future economic uncertainties and the need to plan, but there were also concerns regarding the potential negative impacts a report might produce. A recommendation was made, and the Finance Chair concurred, to bring this discussion brought forward to the Finance Committee.
IX. Manager’s List of Proposed Marine Passenger Fee FY12 Uses
Enclosed in the packet are the City Manager’s recommendations for the FY12 use of the Marine Passenger Fee revenues, a legal opinion from the Law Department on passenger fee use and requests for and comments on marine passenger fee use. The City Manager will speak to his recommendations at the meeting.
X. Executive Session