Audit and Finance Committee (AFC) meeting Transcript – 5/10/2024 Title: ATXN-1 (24hr) Channel: 1 - ATXN-1 Recorded On: 5/10/2024 6:00:00 AM Original Air Date: 5/10/2024 Transcript Generated by SnapStream ================================== Please note that the following transcript is for reference purposes and does not constitute the official record of actions taken during the meeting. For the official record of actions of the meeting, please refer to the Approved Minutes. [9:32:17 AM] Good morning. My name is Alison alter and I chair the audit and finance committee. Will convene this meeting at 9:32 A.M. On may 10th in the chambers. I'm joined on the dais by council members Fuentes and pool. And remotely by council member Kelly. I believe council member Ryan alter will be joining us shortly . We, we have no public communication this morning. I'm going to take things a little bit out of order to accommodate, our, auditors, schedule. So I'm just going to give you a sense of how I'm going to take up the order. It's a little bit scrambled this morning, so we're going to take up items three and four with the external auditors and the review of the pensions. Then we'll take up the minutes, and then I'm going to go to the items five and six, which are the auditors items. And then the joint sustainability committee, bylaw changes on future items, so we will start, with item number three, which is the [9:33:19 AM] number three, which is the fiscal year 2023 annual comprehensive financial report and single audit report by deloitte and touche. The city's external auditor, we will first hear from, Marianne. >> All right. Good morning, mayor pro tem and council members, I'm Maria, the city controller. I'm here with deloitte and touche, the external auditor to present the results of the fiscal year 2023 annual comprehensive of financial report, or acfr audit, along with the results of the fiscal year 2023. Single audit or grant audit. Thank you. The aqua report was issued on March 12th, 2024. It is available online at Austin, texas.gov or on the website [9:34:21 AM] texas.gov or on the website listed on this slide. The financial services department accounting and reporting division is responsible for the preparation of the city's acfr, and our team works closely with deloitte to obtain an independent audit of this report . The requirements for an annual audit are outlined on this slide, and the city is in compliance with all of these requirements. The single audit covers the city's compliance with federal and state grant requirements. The single audit report was issued on April 11th, 2024, which is well in advance of the required June 30th deadline and the report is also available online at. Austin, texas.gov and the web address listed on this slide. This slide lists the requirements for when an entity is required to have a single audit of its federal and state awards, both under federal and state regulations. We are required to have a single audit. If we expend more than $750,000 [9:35:22 AM] If we expend more than $750,000 annually in federal or state grants, the focus on the single audit is on grant compliance, and the audit must be completed within nine months of fiscal year end or June 30th. And before I hand it off to the presentation to deloitte, I'd like to thank those listed on this slide for their contributions to the early completion of these key financial reports, Tracy and Cameron from deloitte will take over the presentation and I'm available for any questions. Should you have them. >> Do you want to? Yeah. I don't want to touch anything. >> Thank. Good morning everyone. My name is Tracy Cooley and I'm a managing director at deloitte and responsible for the services that we provide to the city, it's nice to see everyone again. And I have two colleagues with me. Cameron decker is the senior manager on the engagement. And Madeline Morris is the audit manager on the engagement, next slide. And as Maria said, our [9:36:23 AM] slide. And as Maria said, our scope for this year's audits were the acfr, which is the financial statements as well as the compliance audits, both the federal and state single audits and the passenger facility charge audits as well. We also do an agreed upon procedures arrangement for the city for the requirements of the Texas Tech commission on environmental quality, all of that was completed. We are we're sitting here on the other side of the audit now where everything has been completed, next slide, so our audit was conducted in accordance with generally accepted auditing standards. And really the prime purpose of the audit of the financial statements is to express an opinion on the financial statements that are prepared by management. And really what we're looking for are those financial statements prepared in accordance with generally accepted accounting principles in all material respects, our, our audit of the acfr, we issued an unmodified or clean opinion on those financial statements, we had a few items, a few [9:37:26 AM] we had a few items, a few adjustments, you know, one control item related to the passenger facility charge audit, which we'll go through. But overall, the opinion on the acpa was a clean opinion, so I'll turn it over to Cameron and we can dive into a little bit more of the details about the audit and the year fiscal 23. In general, if you have questions, please stop us as we go along. >> Thanks, Tracy. It's a pleasure to be with everyone this morning. I'm going to cover a little bit about our financial statement audit first, and then I'll hand it over to Madeline to speak a bit more about our single audit. And then we'll provide an update at the end related to tc and the passenger facility charge audit. So the first thing we wanted to highlight as part of the financial statement audit was that management had a busy year. There were a number of new accounting standards that were required to be implemented as well as a change related to regulatory accounting that we wanted to call out. And obviously, when management has new accounting standards to [9:38:28 AM] new accounting standards to implement and changes are being made to policies that impacts our audit, and we were able to audit through each of these new standards and the change for regulatory accounting, as part of our audit this year. So just a couple of highlights there. There were three new accounting standards that were implemented this year. Gasb statements, number 91 related to conduit debt, which had no actual financial impact for the city. Gasb statement number 94 related to public, private and public public partnerships that had, various impacts on the governmental activities and business type activities related specifically to grossing up receivables and deferred inflows to be in compliance with that new accounting standard. Fairly minimal impact as far as overall operations of the city. And then gasb statement number 96 related to subscription based. It arrangements. This is a very similar statement to what we talked to you about last year around leasing arrangements. However, this one was related to it arrangements, but very [9:39:30 AM] it arrangements, but very similar accounting and actually had an increase in right of use assets and related liabilities of 59.3 million related to the governmental activities and 15.8 million related to the business type activities. So management was able to implement those standards. 94 and 96 as of the beginning of the fiscal year. And again, our procedures covered off on those changes made to be in compliance with those standards. The other new fy 23 change was related to regulatory accounting for Austin water, this actually was an election that management made and resulted in the elimination of regulatory assets, deferred inflows, and an overall increase in net position to. As part of that change, we also have highlighted here management significant accounting estimates that they make and that we obviously audit through our specific audit steps as it relates to those estimates, is covered in appendix B. We won't go through those with with you [9:40:32 AM] go through those with with you in detail this morning. But if you do have any specific questions on our audit approach related to those estimates, we would be more than happy to answer any questions you may have. As Tracy mentioned, over the course of our audit, we had a few uncorrected misstatements. Those were items that we identified as part of our audit, or that management identified in the closed process that they deemed were immaterial in nature . We agreed with that. And we have summarized what those misstatements are for you, as part of appendix C, which is management's representation letter. We also always try and, as part of our audit, make sure that we have any corrected misstatements that are material brought before you and I'm happy to report that there were no, material corrected misstatements as part of our audit, which is always great news. And my clicker has died. Okay. Perfect the next couple of slides walk [9:41:35 AM] the next couple of slides walk through some of our other required communications. This slide is talking a little bit about our specific procedures and how our audit takes into consideration required supplementary information as well as supplementary information. These are what I would call non-core parts of the financial statements, not consisting of the face of the financials and the notes, but some of that dna management discussion and analysis, as well as some of the pension schedules or what makes up the required supplementary information and then supplementary information being the, fund schedule, supplemental schedules, the cfa, etc, this goes through our various audit steps as it relates to those, so I won't cover that in much detail, a couple of things to point out here. Again, there's other information included in the annual report. We read that other information, as well as the supplementary information and RSI and didn't have any issues, as it relates to that information, however, our [9:42:37 AM] information, however, our opinion does not cover those specifically, attached as appendix C, as I've already mentioned, is management's representation letter that they make to us. I'll leave that for you to review. And obviously, if you have any questions, we can cover that, this is my favorite slide, this is a slide that has three columns to tell you that it was a very real pleasure to work with your management team here at the city that was Maria and her team, as well as Corey and, we always work with Corey to see what her audit results have been and how we can, incorporate those into our planning section. And obviously, with the city of this size, there's a number of city departments aviation, air, water , etc. That it takes a lot of coordination to make not only pulling the financial statements together, but to accomplish our audit. And management was very cooperative through that process. And so just wanted to echo Maria's statements and tell them, thank you. This slide talks a little bit about control [9:43:38 AM] talks a little bit about control related matters, as we've given you definitions of what a deficiency, a material weakness and a significant deficiency are, in appendix D, I'll let you read what those are. And we don't have but one item to discuss this year and that is related to pfcs, which we'll get into in just a moment. But we don't have any significant deficiency or material weaknesses related to the financial statement audit for this year, which is, again, really good news. This slide talks a little bit about the remediation to a prior year, significant deficiency that we had as part of our audit related to lease accounting. We perform procedures this year to ensure that that was properly remediated by management. And we found that to be the case. I'll turn it over to Madeleine at this point to talk a little bit more about our single audit. >> Thanks, Cameron. Good morning everyone. It's great to be here with you, so this slide [9:44:41 AM] with you, so this slide summarizes our single audit report or our compliance audit over both federal and state programs. These reports were issued on April 11th, and they were both unmodified or clean. Opinions in this case. We did not have any current year findings. This is the result of the prior year significant deficiency related to the immunization outreach program. This program, like other grants, requires reporting back to the grantor. In the prior year, we had a finding that's detailed on this slide related to a reporting finding. We performed remediation activities in the current year to support the conclusion that this has been remediated. Next, this slide details the amount of federal dollars expended by the city in the current year. And that was a little over 200 million this year. And the chart shows which major programs we selected for [9:45:41 AM] major programs we selected for testing during the current year. Audit. And it's important to emphasize here that our audit is focused on the expenditures for the programs, rather than the amount that's awarded. Specifically, in terms of the arpa program, there was a lot of money received up front. And but our audit is focused on specifically what was expended during the current fiscal year. And the next this slide details the amount of state, dollars expended, which was a little bit less than the federal programs. It was 7 million this year, and the chart is the amount of major programs that were selected in the current year for testing. With that, I will pass it back to Cameron. >> Awesome. I just wanted to speak to those other couple of reports that Tracy mentioned earlier, the first one being the tc agreed upon procedures. We perform that and issued that report on March the 25th and had no findings. We've also [9:46:42 AM] no findings. We've also completed our passenger facility charges report and issued that on April the 18th. We did have one finding as a result of that compliance audit. And that finding was noncompliance and a significant deficiency in internal controls related to quarterly reporting requirements. There is a requirement that the aviation department must communicate with the carriers as to how much is expended each quarter, and we were selected one of those reports. And, as you can see here, the expenditures included within that report submitted were understated by about 4.6 million, we worked with the airport to, work through that. They have they're responsible, official response here, that you can read through and this has actually been implemented, their corrective action has been implemented as of October. This report was corrected, in November, upon noticing that the expenditure amounts were, [9:47:44 AM] expenditure amounts were, incorrect for the original report. So, we will obviously ensure compliance next year from a remediation procedures like we just talked about with our prior year, significant deficiencies as well, with that, our next slide just details the appendices that we've made reference to here throughout our presentation. Often we'll leave those for your review, but we'd be happy to answer any questions you may have. >> Thank you, well, first of all, congratulations, to our financial staff on a clean, set of reports, you know, we have a lot of, different moving parts within our system. Given all of the enterprise funds, etc. And so I'm very pleased. To see that. So congratulations and thank you to the auditors, for providing this information, I do have two questions. One, I wanted to get a little bit of clarity, so we had two pots of, of, pandemic support from the [9:48:45 AM] of, pandemic support from the feds, is the one listed here the first part of that funding, or is that a combination across arpa and the cares act? >> Okay. Arpa okay. Yes. >> Okay. And that's just how much we expended in the last year. Okay >> That's correct. What we are responsible, as Madeleine said, for auditing is what you expend in the current year, not the total cash that was received up front. >> Okay. And when you are doing that, is that also looking that we, we did it in accordance with the rules and, and everything like that? Okay. Exactly. Yes, yeah. So I just want to you know, flag that, you know, we've had a really strong track record thus far for, with respect to our pandemic relief funds and how we've expended them there was not a clear path on how to do that. And so I just want to give kudos to our staff for really making sure that we are [9:49:45 AM] really making sure that we are lining up, with the rules and regulations burns from that, not only have we done that from a, you know, audit perspective, but we also, I think, have gotten our money out the door better than some other cities, you know, in, in spending it where we needed it. You know, we had always planned that there's some left at this point in time. So. So we do know that, and then the other question that I had had to do with the passenger facility charge report and that, noncompliance deficiency that you highlighted there, the, it was unclear to me whether management caught that before you found it or whether you found it. And then it was corrected. >> We actually selected that quarter as part of our testing procedures. And, notice that that actually was corrected when they did the quarterly report for q4. So they had corrected that report at that time. We have seen that and saw that during the course of our testing . However, because we selected [9:50:46 AM] . However, because we selected that one, we do have to report it. >> I'm not saying that you don't have to report it. I just I just wanted to acknowledge that that was something that they had already. Yeah that's correct. They had already corrected before you had identified it and identified it, which I think is significant as we are, we are evaluating, the reports that come back absolutely great. Thank you. Colleagues, do you have any questions, council member Ryan Walter has joined us as well. Council member Ryan Walter. Council member Kelly, do you have any questions? >> I do not. >> Okay, great. Well, thank you very much. And congratulations to our staff, next up, we will, take up item four, our, actuarial audit reports on the city's pension system. And Belinda weaver, will present it with the consultants. >> Good morning, chair and [9:51:57 AM] >> Good morning, chair and committee members, this is Belinda weaver and, I am the city treasurer. I'm here today to introduce our next presenters, Adrian lieberthal and Greg Drenner, with Athena actuarial consulting. And they are here to provide a briefing to the committee on a recently conducted actuarial audit, on the city's three pension systems , those pension systems. I know you're familiar with the Austin police retirement system, the Austin firefighters retirement fund, and the city of Austin's employees retirement system, for a little bit of background, the city did issue an rfp last year for services pertaining to the auditing of the actuarial valuations, reports and studies for the city's three pension systems by an independent actuary and Athena actuarial consulting was the contract award. Additionally, these audits were done in compliance [9:52:59 AM] audits were done in compliance with state law. Statutory provisions do require that this audit be performed every five years for those pension plans that have assets in excess of $100 million, all of the city's pension plans are well north of that minimum requirement. So all three pension plans were audited , the statute does also require that the final audit reports be presented to the governing body of the governmental entity, which is why we're here today. The final audit reports will next go to the full city council for acceptance at the may 30th, council meeting. And I did also want to make the committee aware that we do have representation here from all three of the pension systems. We have a new Kumar, the executive director for the Austin fire retirement fund, Tyler link, the deputy executive director for the [9:53:59 AM] executive director for the Austin police retirement system, and Chris Hansen, the executive director for the employees retirement system. I will now hand it over to Adrian and Greg for the presentation. >> All right. Thank you so much for having us here today. I'm Adrian lieberthal, the CEO and founder of Athena actuarial consulting, a women owned business enterprise that specializes in actuarial valuation and actuarial audits, we are here today to walk through our results from the actuarial audits of the three pension systems. So I'm going to go through, talk a little bit about our team, our qualifications to be performing this audit. I'm going to talk about the scope of what this actuarial audit entails and how it's different from, you know, the more traditional audits that are done in the city, and then I'm going to review the results with a summary of recommendations and other considerations. There are some very extensive reports that were issued on March 15th, 2024 that have the comprehensive outline [9:55:01 AM] have the comprehensive outline of all of our recommendations, and if you are want to refer to those for even more background on anything that I talk about today, you're welcome to I'm just going to focus on the highlights and the major findings that that stuck out of which there's not very many, which is good news, when I go into the results today and I'll leave some time at the end for questions as. So the Athena team , was comprised of four actuaries, all with associate, who are associates of the society of actuaries or fellows of the society of actuaries, between the four of us, we bring industry knowledge, familiarity with, not just public pensions, but specifically the audits that are performed under section 802, in Texas. And most importantly, the independent, unbiased perspective necessary to complete an actuarial audit of this type, it's we find that it's really important to have a [9:56:02 AM] it's really important to have a variety of backgrounds that are reviewing these reports, specifically because there's professional judgment involved in any actuarial valuation, and so the, the views of, of this report are of are those of the Athena team that are on the screen. So the scope and goals of an actuarial audit, again, it's different from the traditional audit that's performed for a municipal entity, and our team was hired to complete this actuarial audit in accordance with, Texas government code section 802 dot 102. And each audit includes a review of valuations, experience studies and reports over the period 2018 to 2022, as Belinda said, this is performed on required to be performed for systems with an excess of $100 million in assets and therefore was performed for all three of [9:57:03 AM] was performed for all three of the retirement systems. This audit. The goals really are to determine, whether the reports are prepared in compliance with the actuarial standards of practice for our industry, for our profession, and are in accordance with the Texas state pension review board guidelines, which are prepared to make sure that the valuations are performed in an actuarial sound way, we also make sure that the utilization of the methods aligns with industry leading practices and provide any recommendations for improvement. And lastly, it's the actuaries job to make sure that the information is presented in a transparent and informative manner for the stakeholders. And so we're providing recommendations around anything that wasn't clear to us as an independent actuary. Picking up the report for the first time. Specifically for this audit, as we reviewed the valuations and the experience studies, we were looking at the actuarial cost [9:58:05 AM] looking at the actuarial cost method, which is used to calculate the normal cost, the actuarial accrued liabilities, all of which impact the contributions and various other metrics that are important to the city, the appropriateness of the methods used for the actuarial value of assets. The appropriate the appropriateness of actuarial assumptions, both the demographic assumptions and economic assumptions, which I'll go into more, the completeness of the valuation report, like I said, in in accordance with those actuarial standards of practice, the esops and whether the valuation meets the statutory statutory requirements and those requirements of prb, the Texas pension review board, anything else that we as actuaries believe should be addressed is also included in the report, and everything is performed in accordance with the government financial officers association. The gfoa. When we prepare our actuarial audit [9:59:06 AM] prepare our actuarial audit report so this is an Athena, an Athena method. We like to focus on what we call the margin of error. And we really try and make sure that we're emphasizing whether something is more of just a recommendation, something that is more informative versus something that's likely to cause a material impact to results. As professionals, actuaries have differing opinions on different approaches, and we want to make sure that we're clear when something is of high impact versus low. Throughout this presentation, I'm really only going to be talking about anything that was medium or higher. And, in in our report, there's again an exhaustive list of anything that was just small changes that could impact, that could improve the way that the report was put together, but in general, we really try to focus your attention on the things that are likely to provide, likely to really materially impact results. So with that, I'm going to jump in and review [10:00:09 AM] I'm going to jump in and review the results and I'm going to start with, in general, we did not identify any significant deficiencies in the reporting or any significant issues with the basis for which the assumptions were studied or determined. There was only one finding of which we classified as high significance. And the good news is that the city's only already aware and working closely with with the fire system to put together a voluntary funding soundness plan. It's already being worked on. This was not a surprise, and the finding that we had was consistent with, the determination to put that plan in place. Anything else that will be going through today, other than that one finding of high significance again, is just our recommendations for continued improvement of the reports and the way that they're prepared, but I think it's important to remember that, very good news. Seems like a very, the reports were prepared in an informative and clear way, and [10:01:10 AM] informative and clear way, and we agreed with the methods and approaches that were used by the actuaries. So the three systems that we reviewed for, again, years 2018 through 2022, the we just wanted to level set some of the changes that we saw throughout those periods. And, I think it's important to note for fire during this period, there was also a change in actuary. And so from 2018 through 2022, some of the more the changes were as a result of differing approaches that were used by the new actuary, with which we agreed with the changes that they made, but it did. It was, kind of what drove specifically for fire, that amortization period going from 17.9 to 35.7, would have been is something that definitely sticks out here, given that the Texas pension review board does like to see [10:02:11 AM] review board does like to see that below 30, and so in this case, that's what triggered the voluntary funding soundness plan to be put into into place, I'm not going to go plan by plan. I assume you all are familiar with with these plans, but the biggest thing that stuck out to us over these periods is that you are seeing a maturing of these plans, even just over these four years with that active to inactive ratio going down, meaning that there's less actives in the plan as compared to the inactives, as a result of higher retirements than it had been expected. Less, less new hires coming into the plans, that's all of those reasons are outside the scope of this audit, but it does impact as you continue to monitor these plans. Just something to be aware of that there is a general shift in that direction. So I'm just going to go through each section of our report, and the, the [10:03:11 AM] of our report, and the, the major, the major again just medium or higher priority findings that came out of it, so first off, the review of economic key economic assumptions, which are used to estimate the projected future benefits. And in this case, again, these were all just recommendations for things that could either make the report a bit clearer for somebody picking it up for the first time, or the calculations a bit more aligned with actual standards of practice, the biggest ones here to focus on would be the salary increases. And this these were some recommendations that we had around aligning the payroll payroll growth assumption with the assumptions used for other purposes. That was something that came up in two of the plans. And with the reports that we have, the actuaries did have a chance to respond. And those responses have been appended and in many cases, the actuary had acknowledged that they could put more documentation around the assumption, but in most cases there wasn't actually a [10:04:12 AM] there wasn't actually a resulting change to the calculation. It was just around documenting their approach, which is a positive. The other key economic assumptions would be the expenses that are used that are assumed in the in the calculations, and the cost of living adjustment, specifically in the expenses we had recommended for all three of the systems, just comparing the historical expenses to similar systems. And for a few of them, reviewing the recent increases in expenses, it just started to deviate from the assumption. In the last few years, the cost of living adjustment, the cola, this was something that the change in actuary, they chose to handle differently. And we had just some recommendations around documenting, the approach and why they, why they chose to approach it a certain way, especially because it was it was different than how the prior [10:05:13 AM] different than how the prior actuary had programed that assumption. So again, we did not identify any significant issues with the economic assumptions. We just included some recommendations here and in our report for future experience studies, which is when you'll revisit these assumptions that are utilized in your evaluation reports. The other category of assumptions that are utilized in evaluation would be the demographic assumptions. And this has more to do with the characteristics of the population, and so specifically, the area where we had the most, the commentary and, again, the responses are appended from the plan actuary, would be around the mortality table. I think this is one that, it tends to be something in our industry that different actuaries approach different ways. And we just were focused on whether it complied with the actual standards of practice and industry best practices, in this case, we had recommended specifically for [10:06:16 AM] recommended specifically for the, the city employees pension system to consider a standard disability mortality table and, consider just taking a closer look at that during that next experience study, as there what we call gains or losses when we're seeing bigger deviations, in the actual experience from the assumption just would be something good to look at, the mortality scale has to do with how mortality will improve over time. And there are some industry standard scales, though in the last few years the industry has shifted how they how this is released, but we had recommended taking a look at that newest scale that the newest model that's released by the society of actuaries to determine if that would be appropriate in this case, the covid implications, every city, every region handled, has different experience when it came to the last few years and, we the retirement plan [10:07:17 AM] we the retirement plan experience committee, which is the society of actuaries committee that studies mortality , we, we'll continue to put out research in this area, but in in this case, we just recommended continuing to monitor that as we get further and further from the period of 2020, 2021. The other three key demographic assumptions are going to be retirement incidents, turnover, disability. This is one that the next experienced study should be an interesting one, as there was a lot of experience that deviated from what was typical in the last few years, and it's not clear whether certain trends will continue. So it will require discretion from the actuary to determine how to use that data. Working closely with, with the systems to understand the how the past behavior may or may not indicate future behavior . So in this case, we were focused on how the prior experience, the prior experience study was performed. And we just [10:08:18 AM] study was performed. And we just were pointing out that in the next one there, they'll likely be, a very different set of data to look at. So we recommend really closely looking at that assumption, and, and we did see that there were recent experience gains, meaning that the, the assumption may have in retirement for the city employees may be slightly more, more conservative than, than needed. So it was just another thing to look at at the next experience study. This is typical with these demographic assumptions. It's not something you're going to change in the next evaluation. You really want to take the time to review the data in your next study of, you know, 3 to 5 years of data. Typically in that experience, study, the, the last two key demographic assumptions, the drop participate in, just continuing to monitor the election assumption as a predictor of that actual drop experience, especially as you [10:09:18 AM] experience, especially as you see those the assets and that are affiliated with the drop continue to grow. This is just an area of potential opportunity to monitor more closely. And that's true of any city that has a drop feature. It's just something to watch as you, as the retirement, incidents may start to deviate. And, just something that we, we had pointed out, considering refining the benefit payment projections to account for, for the variances here, and then form of payment on the city employees was, something that we had focused on reviewing the actual election experience. And this was, again, one not likely to cause material change to the results, but an improvement nonetheless. All right. The review of the actuarial methods, and this was the one where we focused on the funding policy and, just focused on anything [10:10:20 AM] and, just focused on anything that, so the actuarial methods are, are supposed to, make sure that the, the plan benefits are sufficiently funded to be able to pay when they need to pay. And in this case, we just had some recommendations around, the funding positions and funding policy suggests burns. We will caveat this with the fact that in many cases, the funding policies are set in statute. There's not changes that can be made, at least not quickly, but we it is under the scope of this audit to evaluate whether they are setting the plan up for success in terms of being able to fund those benefits. And so these will be some findings that the, the systems can consider as they look at achieving that same goal. So before I move forward, I'll just highlight once more that the, the fire system is, is not projected to be fully funded [10:11:22 AM] not projected to be fully funded within 30 years, which is what triggered that voluntary soundness, funding plan, to be in place. And that likely should, so the next time you do an audit like this, I would expect that that would be, back under the 30 year mark. Census data, this is, these are very much low priority items. We made some suggestions on additional census data, statistics and information to include, but I'm not going to belabor this. There's definitely was nothing that even rose to medium concern around the census data, which is a big success for, for city systems compared to others that we've audited. So getting to the last couple sections here, this review of the state's requirements, just making sure that the plans are in accordance with the Texas government code. [10:12:24 AM] with the Texas government code. And here we see I, really the only finding was that around the fire's amortization period, and we found that all the plans do appear to be in compliance with the Texas government code title eight and the guidelines for actuarial soundness. So, again, a big success. And, found that the in addition that the systems are in compliance with their own funding requirements. That may differ by each plan. So the last section here requirement for us is to make sure again, that the stakeholders can understand this information. Given there's a lot of actuarial standards of practice, even over the last decade that have been focused on this, not just that the actuaries are calculating the numbers, but that those that need to understand them are able [10:13:24 AM] need to understand them are able to glean what they need to. And so in this case, we just had some suggestions for, the different plans to be able to provide gain loss breakdown. That's really how did your actual experience differ from, what was expected and we found that for fire and the city employees plans that those were sufficient and that there could be a more comprehensive breakdown for, for the for appears, we did also see that for sensitivity tests, this can be really helpful for a user to understand how sensitive these liabilities are. And the overall results are to different changes in the environment, and would be helpful to see that in the other two plans. In addition to its already being included for fire, there is a new actuarial standard of practice that hadn't yet applied to the reports that we reviewed, but going forward, the actuarial actuary will be required to calculate a low default risk obligation measure of the benefits and so that's [10:14:27 AM] of the benefits and so that's the that the actuary is required to perform the results using a discount rate. That's consistent with a low default risk. Fixed income securities, and that will be something that should be impacting future results that you see. And the actuaries are likely aware and already incorporating them, but it was something we, we had on our trip. So in summary, the only finding of high significance has to do with fires amortization period. And over 30 years. And, just ended by saying we did not identify any significant issues other than that, with respect to the assumptions, methods, data, state requirements or report communications. And so we've we've summarized that here, that there were some other findings that rose to the level of low or even medium impact. But, these are just recommendations for [10:15:27 AM] are just recommendations for continuing to for the actuaries to continue to review as they prepare their evaluations and experience studies. >> Thank you. Paul, so again, really appreciative of our staff who have worked together with this committee over the last several years to assure the soundness of our pension system. I think I speak for everyone on the dais and all of our staff that it is really, really important that we, make sure that we are planning for the pensions for the people who have served our community so well, many of whom in these cases also have risked their lives. In the process. And so we have a fiduciary responsibility and a moral responsibility to make sure, that our pension systems are sound, you know, as you noted, over the years, we have addressed, challenges to apis and coerce, and we have a current path moving forward. For fire, I wanted to ask our staff if they. Could just really briefly speak to the next steps [10:16:35 AM] briefly speak to the next steps on fire, if that's appropriate. At this point, because I'm sure the questions will come up. And I think we should just be transparent about where we are in that process. And the key, the key elements, to the extent that you can share right now. >> Chief financial officer we have had several very productive conversations with the fire retirement system to date. Our next meeting is on may 17th, and we will continue to have meetings leading up to the 89th legislature. The goal would be to have a bill filed January 1st of 2025. In that legislative session, that would implement similar reforms that were put in place for colors and the police retirement system, essentially a lower, benefit tier for new hires, increased funding, and some governance changes to the to the systems. >> Thank you. And is the city portion of that funding already captured in the forecast for this budget? >> The city's portion? Yes. We have funding in the forecast and anticipation of a successfully [10:17:36 AM] anticipation of a successfully getting a bill approved with the fire retirement system. Great. >> Thank you, and then I also wanted to acknowledge, the service of my colleagues on these various pension boards, council member pool has served on colors for many years. I believe that council member Kelly is still on the police retirement system, and, mayor Watson is serving on the fire system, and I imagine that we have several members of our financial staff who also serve, on those boards who are here. I don't happen to know which ones you're on, but I know know that you're on it. And we appreciate, your important work helping to restore that, colleagues, are there any other questions or comments? Okay. Thank you very much. >> Thank you guys. Really appreciate it. Thank you. >> Figure out where we're going next. >> Here. >> I think we are going to approve the minutes. So if I could have a motion to approve the minutes. Council member [10:18:38 AM] the minutes. Council member Fuentes moves approval. Council member Kelly seconds, if there are no objections, the minutes will be approved, we will now move to item. Five. Hold on a second. I think we'll now move to item five. Yes which is an update from the office of city auditor on the status of recommendations from previous audits. Good morning. >> Good morning, Jason hadavi, deputy city auditor. I'm going to present our semiannual presentation on the status of audit recommendations. As you'll recall, back in October of last year, we implemented a new recommendation tracking system. We are utilizing our new audit system called mission mark, which contains a recommendation tracking platform and a public dashboard. The screenshot is here. That's not a current screenshot. It's a few weeks old. When we implemented mission mark, we uploaded recommendations dating back [10:19:42 AM] recommendations dating back through 2019. We are also tracking the status of recommendations between 2014 and 2018. We're tracking those offline, so we'll still be reporting on those until they are all implemented. But those will not be seen in the public dashboard, when we implemented this process, we didn't really I didn't anticipate the amount of workload that was going to come with it. And so I'm really pleased with how much management has contributed to this, how much the auditors have been working on this. There's been a lot of work, a lot of elbow grease going into this, and we're really pleased with the progress we've seen so far. In particular, I'd like to call attention to the work that's been done by Austin water, by our ctm and iso departments, as well as our development services departments. They've collaborated, collaborated with us really well, worked really hard, implemented planning recommendations. I'll get into the stats in just a little bit, but this was a big undertaking. We've taken a lot of recommendations over several [10:20:42 AM] recommendations over several years and we've switched from looking at just specific recommendations, from specific audits to following up and monitoring the implementation of every single recommendation. And it's been it's been a big workload, but there's been a lot of progress. And I'm really happy about the impact that that the residents will be seeing from this work. So getting into some of the stats, here is a table that shows the progress between October of last year and , it says April, but actually this was updated, earlier this week. So early may, you can see that we've doubled the number of implementations, implemented recommendations in that in that several month period, the ready for review status. That's what's in the auditor's queue. That's what we have to look at that number is always moving up and down depending on what we're seeing with the recommendations that management is working on the number of in progress and not started recommendations have both decreased. So all of these are good signs. All of these are indications that we're moving in a positive direction, that we're [10:21:43 AM] a positive direction, that we're making improvements and recommendations are being implemented. Looking at those recommendations from 2014 through 2018. These are the pre-mission mark recommendations is what I call them. We're also moving in the right direction. We we've increased our implemented by 12 and our in progress has only gone up by one. That's that happens when something is in ready for review. The auditors are looking at it and most of those are moving into an implemented status. And then where we're looking for a little bit more documentation or a little bit more information on on a recommendation, we'll return it to in progress. But things are headed in in the right direction. And both the ready for review and in progress numbers for those pre-mission mark recommendations have gone down and I'm looking forward to those becoming zero in the not too distant future, and then only focusing on what can be seen on the public dashboard. So with that, I can answer any questions that you may have. >> Thank you. Council member [10:22:45 AM] >> Thank you. Council member Fuentes just a comment. >> Just thank you for the work that you all are doing. This information is really valuable and I appreciate all the audit reports and special reports that your office undertakes. So knowing that we are keeping the system accountable and ensuring that they get implemented or in progress is important. So thank you. >> Thank you, thank you, Mr. Hadavi, for, you know, implementing this and I want to acknowledge Sammy Carlos who's here, for her work. On this in the city manager's office, you know, it has been really important to have somebody in the city manager's office, not just the auditor's office. Prioritizing us getting these recommendations implemented and working with the auditor's office, I appreciate you, you know, flagging those departments that have been, really leaning in to the audits and some of those had, you know, audits that were relatively recent or or different entries and they have been, you know, I've been more [10:23:47 AM] been, you know, I've been more involved with Austin water and cyber, and ctm, but they've all been, you know, really, really working on that, there are some areas where we have had a lot of audit recommendations that you didn't touch on. So I wanted to get a sense, for Austin public health, hrt and APD, where they're at with respect to their audit recommendations. >> Sure. Hrd we've just very recently, I think, crossed the cross the line of having all of those recommendations implemented that that includes audits, both that can be seen on the public dashboard and those that are pre-mission. Mark, so that we've tracked, we've tracked offline for APD. There's some recommendations that have been implemented, both in the pre-mission mark and on the public dashboard, and they've moved several into the ready for review. So they've kind of pushed the work into into our queue. And now it's incumbent upon us to go and follow up on [10:24:48 AM] upon us to go and follow up on those. So we'll be looking at those hopefully moving those into an implemented status. And I'm sorry you said and a-p-h, so we have a recommendation across a few different departments, I'm sorry, a few different audits. Some of those have been implemented. I know there's at least 1 or 2 that are still outstanding from the, older adults. So, again, progress in the right direction. We haven't got all of them implemented quite yet, but I, I am really pleased and optimistic with what we've seen thus far. >> Great. >> Thank you very much. And colleagues, any other questions or comments. Great. Well, thank you very much. >> Thank you. >> Our next item. Is the audit of the criminal background investigation process. >> Good morning council members. [10:25:55 AM] >> Good morning council members. I am neha Sharma. It audit manager. This audit was performed by an external contractor I oversaw saw this project and will present the work of the consultant. What is cbi? Cbi is a process of obtaining and reviewing an individual's criminal history records from law enforcement agencies and other sources. This investigation is performed. Ed when an individual's criminal history records poses a risk to the city. The city's human resource department manages the city's cbi process by establishing procedures and overseeing their implementation. The city requires cbi for the positions that involve financial responsibilities, interaction with vulnerable population or combinations of both. For this audit, the consultant looked at if the city's cbi process operates effectively and efficiently. Recently had implemented a new electronic [10:27:01 AM] implemented a new electronic system for processing cbi's Aja staff across various city departments have noted improvements in the city process due to the change. Specifically with the new system, the cbi processing can be completed faster. However our hrd does not ensure departments correctly identify positions that require a cbi and does not ensure departments that fill those positions with individuals who pass a cbi. I will cover these issues in next slides. First, I will discuss the issues related to identification of cbi sensitive positions. The procedures outlined. Which positions require a cbi. However for the limitations in these procedures, increase the likelihood that city departments will not correctly identify these positions. For example, as [10:28:04 AM] these positions. For example, as shown in the slide, the procedures do not provide the definition of disabled or elderly. The procedure also do not mention other potentially vulnerable populations, such as those experiencing homelessness. The lack of clear guidance may lead to inconsistent cases across city departments in identifying cbi sensitive positions during this review, it was observed that two departments classified the same position with identical job responsibilities differently one identified as cbi sensitive, while others did not. For the review of positions addressed, stated that they have a process in place to regularly review Pritchard users. However, they do not review other types of cbi sensitive positions. It appears that the process for review of broken users is not working [10:29:05 AM] broken users is not working effectively in our testing of ten city employees with access to a credit card system, we identified, six did not have a cbi. While the cbi procedures require city departments to identify cbi sensitive positions as the responsibility to verify that departments have correctly identified such positions lies with hard. I will now talk about issues related to filling the identified cbi sensitive positions. There are several issues noted in this area. The process of reviewing criminal history and recording of cbi outcome is performed by one person. Their work is not reviewed by another person or supervisor. This increases the risk that the cbi could be inaccurately or improperly processed. A city policy requires cbi rejects for the cbi [10:30:06 AM] requires cbi rejects for the cbi sensitive positions for positions with access to vulnerable populations, a recheck is required every one year and for positions with financial responsibilities, recheck is required every two years. For a sample. Of 22 individuals in cbi sensitive positions, rejects were not done. According to hrd policy, for one individual. The archer systems, which is used to record cbi outcome, is not connected to hr system, which is used to process and fill job positions. This means departments can fill cbi sensitive positions without first conducting cbi, or can fill these positions with individuals who do not pass a cbi. Lastly, as a part of the cbi process, individuals are required to self-certify their residential history for last [10:31:08 AM] residential history for last seven years. Hra utilizes this seven year time frame when conducting a cbi. If an individual indicates that they have only lived in Texas during this period, hrt obtains and reviews their criminal history records from the Texas department of public safety and for individuals who lived outside Texas during the specified time frame, hrt obtains and reviews FBI records. Since the Texas dps only provides criminal records within Texas, the review would not identify any arrests or convictions from other states. The hrt management has indicated that the implementation of a new system for hr processing and like filling of the positions and everything, and the outsourcing of part of cbi process may mitigate some issues identified in this audit. There are three recommendations for [10:32:09 AM] are three recommendations for this audit. The first recommendation requires the hr director to provide further guidance to ensure correct and consistent identification of positions that require cbi's, and to implement a process to periodically review positions for the second recommendation, we suggested that manager establish a process to verify cbi outcomes, as the last recommendation requires the hr director to ensure that any planned changes address the issues identified in this audit. The management has agreed with our recommendations. This concludes my presentation. I am happy to answer any questions. >> Thank you colleagues, any questions? Thank you. Did hg want to respond at all? >> Rebecca Kennedy with human [10:33:16 AM] >> Rebecca Kennedy with human resources, we agree with the recommendations and are working with, procurement right now to procure a external vendor to work with us in conducting cbs and also with the implementation of workday. As Nina mentioned, we do have three desperate systems that are working to run our cbi right now when we have the updated human capital management system, this will put it in one system, which will make it much easier for us to audit. >> Thank you. While I have you here, when will the human capital management system be fully? >> We are in the middle of designing and I am very happy to say we see an end in sight. And we are looking at, late 2024, early 2025 for that to be implemented. Great. >> Thank you. I'm glad to see that moving forward. Thank you. Then we will now move to if there are no other questions from my colleagues, thank you. And we will move to item two, the joint sustainability committee bylaws as. >> Good morning. Stephanie hall, [10:34:19 AM] >> Good morning. Stephanie hall, assistant city clerk. I'm here to present you this morning with some proposed bylaw amendments from the joint sustainability committee that they just recently approved. Excuse me. What I'm referencing is in the backup, and we're just going to show the red line bylaws up there, the proposed amendments are to do basically to increase the membership to 19, to add a member a representing member from the Austin Travis county public health. So they would be editing article three membership, and then also article seven meetings, the justification that was provided to us by the commission is that the climate change is a public health issue affecting air quality, contributing to respiratory illness, causing extreme weather events that disrupt critical infrastructure, which makes it harder for six people to get care, and causing the most harm to low income and communities of color. The goals of the joint sustainability committee and Austin Travis county public health commission align in the areas areas of equitably, equitably improving outcomes for people who live here and the public health commission should have a voice in matters of implementing the [10:35:19 AM] in matters of implementing the Austin climate equity equity plan. Staff is only just slightly cautious about this. This committee is just getting a little bit large, so we're just concerned about the number of members as well as the amendments to these particular bylaws have been coming up a couple of times. They increased the membership in 2022 with initial five members. So we're just a little bit cautious about that. And any potential further amendments to this, just a note if the recommendations do move forward, we will also have to include an ordinance to amend section of the city code to 1206, just to align with the membership updates. And I believe the vice chair might be online if you had any additional questions. >> Thank you, would the vice chair like to just speak to this since there's some question from staff if they're online ? [10:36:34 AM] ? >> Maybe. Maybe they're not. I can't quite tell. Okay. It doesn't sound like they're on the line. Okay, colleagues, does anyone have any thoughts or want to weigh in on this? >> When we are another? I, I would be of the opinion that if this committee, which brings together a lot, believes that we need the health perspective, for , for thinking about sustainability, especially. Given all of the issues with asthma and other things that we've been talking about, I would be inclined to move forward with this. But I don't know if others have different feeling. >> I, I would agree with that. I think it makes a lot of sense. >> Okay. >> Do I have a motion council mayor pro tem pool makes a motion seconded by council member Ryan alter, all those in favor? Okay, so that's unanimous. Thank you, we appreciate the input. And I think that is just a warning as [10:37:35 AM] think that is just a warning as we move forward with if there's future bylaw changes, particularly to this committee, that that we need to just, be be careful, to make sure that it's workable, moving forward, I think our last item up is future items. Miss stokes. >> Thank you, we're in a unique situation for where the agenda for the next audit committee will post momentarily, because the next meeting is on may 22nd. So at that meeting, we have our integrity unit report, for my office, there's a briefing on parks maintenance and the cip budget. There's also a discussion related to the ace Austin convention enterprise board, those are the three certain items. Another item that we discussed at the last meeting. I just wanted to verify if you all want to have that here or at the public safety committee. So it was a presentation on the special [10:38:36 AM] presentation on the special request my office completed related to 911 call tank call taking for high demand events. So we talked about that. Maybe coming to the may audit committee, you all also discussed whether it could go to the June. I think it's the June 10th public safety. So we're fine either way. >> I think, councilmember Fuentes and I were the ones who requested that special report. And we both have campo at the same time as the public safety committee meeting. So I would ask that if we're going to present it, that we present it here. And I would like I would like staff to be able to speak to what they're going to do. Okay to address some of the issues. And I know that, I know that Bruce mills is aware of the report and, and I believe shared it. With 911. But if you could make sure that we have someone. Yes. From 911 to speak to, to how they address those issues would be that would be great, unless council member Fuentes. Thanks. Okay, okay, then we will keep that on for the may 22nd meeting. [10:39:37 AM] meeting. >> Audit and finance meeting. Great >> And so just so folks, remember we have the may 22nd meeting and then we will not have a June meeting, we will have the July meeting. And the July meeting may be a little heavy if we end up having a lot of things, on that particular agenda. But always appreciate the work that's being done, we do have one opening for sure on ace, and I will check with the vice chair, on next steps, for that as well. >> We've had some conversations with staff about recommendations, and staff is actively pursuing the replacement with, josna, stepping aside. Okay. Oh, and we do have the approval of one of the vacancies coming to us, at council or. No, no, no, it's coming to audit and finance for [10:40:37 AM] coming to audit and finance for approval. That's right, at our next meeting, and then we'll go to council. >> Right. But we just need to coordinate on the nomination so that. Yeah. Thank you, councilmember Fuentes. >> Yeah, I would just want to ensure that the board makeup of the ace board is balanced between city perspectives, community perspectives. So I do want to make sure that my thoughts on that are out there. >> I think one of the vacancies coming up later this year is, from the legal department. But the one that we're talking about now with joshna stepping aside, would not be a city appointment. >> Okay. Thank you. >> I mean, a city staffer as the appointee. >> Okay, any other thoughts on future items that people want to raise now? Great. Well. Thank you. And with that, we will end early at, 10:41 A.M. We'll adjourn this meeting. Thank you