FY23 Audit Committee Organizational Meeting   5/31/2023

and the Baltimore County Audit Committee.

I just want to remind everybody that since we are having this meeting virtually that this is being recorded and we'll be

as part of our minutes and be part of our record of the meeting going forward.

We do have several folks online and so I'm gonna go through just the roll call and introducing all the committee members.

Then I wanna introduce some of our guests and then we'll go through the items we have on our agenda.

So I'm Jacob Sumner, I'm the interim CFO for the county.

We also have

on the call with us, Supervisor Ned Gallaway.

I don't see Supervisor Andrews on here at the moment, but maybe he'll be joining us shortly.

I do see Jeff Richardson, the county executive.

I also see Ellen Osborne, who is our school board representative.

Also representing schools on the committee today is Jackson Zimmerman.

He's the school fiscal officer.

School Finance Officer, so he'll be representing the schools today.

We do have a couple other members attending, so if you can see the screen, we have Shenandra Usher, our Assistant CFO for Operations.

She will do some introductions later on as part of our agenda.

Some of our other guests, we have a couple folks from Brown-Edwards & Company who are joining us today.

We also have Lindsay Huff, who is our Deputy Chief of the Office of Grants and Agreements, and she will be presenting one of our agenda items as well.

It looks like Supervisor Andrews is on now, so we're able to include him in attendance on the roster as well.

Since this is the first meeting of what we call an organizational meeting, the first item on our agenda is to elect or re-elect the chairperson of the committee, the CFO, interim CFO for me.

I'm serving as chair until we elect or decide to re-elect the CFO as the chair.

But I will look to anyone else on the committee to see if there's a nomination for anyone else.

besides the CFO to be the chair.

I move Jacob Sumner, the CFO, be chair.

All in favor?

Aye.

Any opposed?

Okay, thank you.

I'm glad and honored to be the chair of this committee.

So we have some exciting news today.

The next item on our agenda is introduction of new auditors.

So those that have been with the county for a while or have been frequent readers of our annual financial report, you'll see the audit opinion from the same auditors for many, many years.

And so this is best practice to take a look at our audit contract on a regular basis and if appropriate to change auditors.

And so we're here today.

I want to turn the floor over to Shenandra Usher, our Assistant CFO for Operations to introduce our new auditors.

Thank you, Jacob.

Good afternoon.

In January of this year, we

The Department of Finance and Budget had a goal to put out an RFP for new audit services.

So we had three companies submit bids for that solicitation.

And on March 24th, we announced an intent to award to Brown Edwards.

And we were excited that on March 29th, we had a fully executed contract with Brown Edwards.

They're a regional firm headquartered in Roanoke, Virginia, and they're one of the leading firms in Virginia serving governmental

and municipal entities.

Brown-Edwards has three offices with approximately 90 employees from partner to associates within an hour of the county.

They are committed to ensuring compliance with all federal, state, regulatory and industry accounting and auditing standards to include those issued by the Governmental Accounting Standards Board, the Government Accountability Office and the Auditor of Public Accounts of the Commonwealth of Virginia.

Brown-Edwards was listed

inside Public Accounting's Top 100 Public Accounting Firms by Net Revenue in 2022.

Next, I'll turn it over to Megan Argenbright, our managing partner, and Addison Roeschley, our in-charge associate, so they may share more about their background with Brown Edwards and also to review our fiscal year 23 audit plan.

Thank you.

So Megan, hi, everybody.

I'm the partner on the job and I'm very excited to be working with you guys.

We do a lot of government audits and we really enjoy it.

So we've got some plans for how this is going to work with the county.

and the schools.

And so generally the way our audit process works is that we start with the planning phase, right, which is what we're in now.

And so Addison has been diligently setting things up and prepping the team and scheduling and will be out on site at the county and schools in June, the third week of June.

Excuse me on the 20th.

And so during that visit, we're going to get an understanding of your controls, your internal controls, walk through some of those, make sure that what you're telling us is happening is happening.

And we will perform the procedures required by the Auditor of Public Accounts.

Those are standard across the board, we have to do those for all clients in Virginia.

And we'll also do BRS testing, single audit testing, and we'll do fraud inquiries.

We call them fraud inquiries because that's kind of the purpose is to give people a chance to talk to us.

So we'll talk to a few key people while we're there.

There are going to be people that we ask these questions to every single year, right?

Shenandra, Jacob, we are going to ask you the same questions every year.

But then we also rotate and ask people in different departments who are not getting the opportunity to speak with us.

And that includes we do send a letter to the city, the Board of Supervisors and the school board, and that would open up communication if anybody on the school board or Board of Supervisors wanted to speak to us directly about any concerns they had.

So part of that whole

June process is really to just we're getting started we're getting as much done as we can and it's more fun to do work in June than it is in October and November so that's we're just trying to move as much to to that time frame as we can and in July we'll do the school activity fund audit

And that should be done and issued by the end of August is always our goal, sometimes beginning of September, but to get those audits completed and finished and out the door.

And then we'll be on site for final field work in October.

And that's going to be when the nitty gritty happens, when we're really verifying the numbers as of June 30th.

And Addison's already started kind of getting stuff together since we are going to be preparing the report.

So getting as much of that set up now as we can.

But then after field work is when he'll really dive into getting that whole report together.

Not really anything specific.

I mean, I know Megan kind of outlined the process.

As with any governmental audit, it can feel like it takes more than just one or two months.

So especially with this being the first year that we're working on the job, we kind of know that there's going to be some quirks to get through along the way, but we're really excited.

Yeah, I love that it takes like two minutes to tell you how this whole process is gonna work.

But as everybody knows, right, it does take a lot of different people from all aspects.

And so it'll be fun, but a learning experience for all of us.

and we're also on the agenda talking about the new GASB statements because there's always new GASB statements and that's what we love.

One that we had had a meeting a couple of weeks ago with Shenandra and the rest of the team.

One of those standards we talked about was the new compensated absences standard.

And overall, we're not envisioning it having too much of an impact because you're already recording a liability and compensated absences being the time that employees have earned but have not been paid for yet, right?

So their vacation time, their sick leave time, anything that they're going to be paid out for or more likely than not.

be paid out for or take.

And so the standard really clarifies to make sure everybody's doing it the same way.

It also says things that you don't record a liability for if you had an unlimited PTO policy, which you don't.

But it clarifies you don't record a liability for that.

One of the questions that was asked was that may impact you, actually.

was that if you had a pool so like if people donated time to a pool and then they could take it right like it's not assigned to any one employee this is very common at school systems especially but if you have people who are donating time to a pool you do have to record a liability for that now and you would do it record that liability using a

estimated pay rate that would be representative of the population.

So it's going to be like an estimate of an estimate.

But the idea is in the standard that you're going to be paying it out.

So

If you're most likely going to be paying it out, we need to figure out what that value is.

That standard is not applicable for FY23, though.

So you do have a little bit more time on that.

But just knowing that there may be an additional liability out there that has not yet been recorded.

That's gonna be something to start having conversations about so it's on everybody's radar.

The standard that is applicable for FY23 is GASB 96, the SPEDA standard subscription-based information technology arrangements.

And this is very much piggybacking off of the lease standard that was applicable last year.

There's gonna be a lot.

And there's no way to sugarcoat that.

There are a lot of agreements out there that are going to qualify as SPEDAs.

But what we're finding is that just because something qualifies as a SPEDA, it does not mean that you automatically have to record a liability for that.

There are some outs, if you will.

One of which are agreements that are only for 12 months and it does seem that a lot of IT contracts are on an annual basis so that you do not have to record those under the GASB 96.

There's also

If you want to set a threshold, like we do for capital assets, a threshold where over the life of the agreement, say $10,000, you don't have to record those if you want to go there out of setting a threshold.

It is going to take a lot of legwork to figure out

What you have to record and what we can get by with not recording.

So I know Addison, if you want to share, Addison had already sent some templates and stuff.

Yeah, so I've sent four templates.

The first one is really not a template at all.

It's just a copy of the standard.

So it's always helpful to read through that.

So that's one of them.

The second one is actually from GFOA.

It's an Excel-based spreadsheet example of how a speedo would be recorded from the beginning through the end, the different phases that can be involved in it.

I'm a very visual person, so I find it very helpful to kind of see that.

And then in actuality, what we've seen a lot of our clients have decided to do is start moving towards using something like LeastCrunch or DebtBook to actually record their speed.

So this is just kind of showing the inputs that go into the calculation that for a lot of our clients, DebtBook or LeastCrunch is going to end up doing for them.

The third one is kind of a little decision tree on the six main criteria that could cause something to meet the definition of a SPEDA and then whether or not it needs recorded and a lot of our clients that we've passed that to have been taking that and then running with it they're adding to it or they're adding you know if something does meet or if it doesn't meet the criteria why that is and then you know maybe where they noted that in the contract

or what terms they're under for that.

And then the fourth one is really just kind of something to get your brain going and thinking about maybe things that you hadn't thought about.

So it's kind of geared towards our larger municipalities.

But what I've seen is when we pass that out to people, maybe somebody that works in

You know, AP or procurement or something is going to think of something by looking at something else on the list.

So it's kind of a catch all, but it certainly isn't all encompassing.

It's just something to start thinking about maybe other things you hadn't been aware of.

You know, for me, the one thing that sticks out that I never really thought about is like the lunch number system that schools would have, you know, where the kid goes up and they punch in their lunch number to buy their lunch.

I never would have thought about that had somebody not put that on the list and then shared it.

So those are kind of the four things that I've been passing out.

Speed is going to be a work in progress throughout the year.

And there's certainly going to be a lot of questions about it.

But kind of as Megan said, we don't think that it's going to cause a huge impact on the actual financial statements.

However, certainly it's going to be a lot more work on the back end of things, getting things prepared, reviewing the contracts, stuff like that.

Yes, start yesterday.

Yeah.

But we have been getting and so we've been getting a lot of questions from clients on, hey, I came across this contract, what do you think?

And so don't hesitate if you know, in this process, you come across anything and want to ask questions about it.

And we do enjoy

Yeah, if you like, I can actually, I'll share those four resources.

I'll just attach them in an email to everybody that's on the email thread for the invite I received here.

Any other questions on the audit engagement, where we're going?

I know we'll return later in the fall, some more of the November, December timeframe, or in November, early December to do the follow-up.

So this is just the first step of the audit and audit conversation.

We'll follow up later in the fall with the final product.

But any other questions for our new auditors or for the process?

I just want to say, again, I'm super excited to have Brown-Edwards as a partner.

You know, Brown-Edwards has a great reputation, a great experience, and local government audits and GASB review and GASB work.

I'm super encouraged about the dialogue and engagement thus far.

I'm really looking forward to the continual engagement.

We have a staff through different training opportunities for the committee's benefit.

I do want to recognize that Brown Edwards is a regular speaker at the VGFOA conferences.

So that's the Virginia Finance Officers Association conferences.

And so I think we have some great partners in our honor firm.

So I'm looking forward to this upcoming audit season.

So Megan, Addison, thank you.

We look forward to continue working together.

Moving through the next item on our agenda.

This is for Lindsey Huff.

She will be presenting an update on our agreed upon procedures or AUP process that we work through with our volunteer fire rescue companies.

And this is as a little bit of a tee up for the committee members.

We've had a conversation about the AUP process of the past two, if not more audit committee presentations.

And so this is just the next iteration, the next step.

and an update of where we are currently and then a foreshadow of where we're going.

Thanks, Jacob.

I appreciate it.

Good afternoon, everyone.

I'm going to share with you an update about the agreed upon procedures or you will also hear us call the AUP.

This is the update today will include the current reporting cycle for fiscal year 22.

And I'm going to touch on the preparation for the next reporting cycle for FY 23.

This is the second year of collecting the AUPs from the volunteer fire rescue companies.

And to give you a little bit more background, the county provides funding to the companies for fire and rescue services.

And the AUP helps the county to fulfill its fiduciary responsibilities to reduce risk and liability to the county and identify challenges to the operation of the fire rescue system.

and to ensure that each company is in compliance with requirements set forth by the county.

The AUPs are performed by an independent accountant on behalf of the company and their findings are then presented to the county.

Since the last Audit Committee meeting update in June of last year, the procedures were updated for fiscal year 22.

and then they were sent out in early December to the companies which is a little later than we anticipated and then due back at the end of February.

The areas included for review in the FY22 procedures were budget to actual comparison, membership and staffing, governance structure like bylaws, fixed assets, the use of county funds and the use of other funds.

To date, we've received six of the eight AUPs from the companies.

One company turned it in on time.

One company turned it in within 30 days of the due date.

Six companies encountered a challenge with their auditor with four of the reports coming in in the last few business days, leaving two remaining that we should be receiving in the next

week or so.

Of the six received, generally speaking, there were no notable discrepancies and only one exception requiring follow-up.

We'll be using the FY22 AUP to begin the reporting cycle for 23.

So we'll start with those and then refine them to better pinpoint the information we're collecting and hopefully achieve some efficiencies.

We'll also be adding a new section for the fuel reimbursement program introduced in FY23.

And we also intend to provide the AUP guidance earlier to the companies to align with their audit work.

They have the same fiscal year as the county and they are engaged with their auditors over the summer as well.

And we're hoping that aligning that timing will be an efficiency for them and their auditors and bring an additional benefit to the county

So that we receive all of their information for their budget request at one time.

So that is the current update.

And I'm just going to add a little bit on the on the change.

And so

The past two times that we've requested the AUP work to be completed, that work has been completed more in late fall, early winter to spring.

We still have two that are still outstanding.

What we're trying to do with this change in the timing is to align the work that the auditors for the volunteer fire companies are doing with their annual audit with the AUP work, because it's typically, it is the same auditors that they use to do the same work

and are essentially looking at similar data.

The data for fixed assets, for instance, would be the same information that they have for fixed assets on their annual financial report.

The idea is also to have that efficiency gain there, but also at the same time when

The volunteer fire companies submit their budget requests in the fall.

One of the requirements is that you submit your audit.

And we're also now gonna have them include their AUP.

So as we are evaluating volunteer fire companies budget requests, we have as much information as possible.

When we're looking at the request, we have a good indication of their financial status and their financial or their fiscal health through their annual financial report.

And also a little bit more of a deeper dive into their details, financial details with the AUP.

The AUP also gives us an opportunity to look at some of their operational compliance.

That's what the the rosters comparison that we look at in the AUP is part of that as well.

So we recognize it's going to feel like a back to back AUP adventure for these volunteer fire companies.

I think once we get over the

This back to back time cycle that will become a regular occurrence and there will be less stress on the wildfire companies and on the auditors as they try to align both their audit activity and their AUP work.

and that was some of the feedback and observations that we made that the springtime is really busy for the auditors, particularly because they have tax season and it's more timely for us if we can get the information earlier.

Well this is going to continually be, as this program evolves and as it continually grows, we'll have regular updates for the audit committee.

As we refine the process, obviously this is a good forum for us to bring any challenges or issues that we noted.

Let's note there's one exception.

It was more of a minor exception.

So that's something that we just need additional information on.

But this is a good forum to have that checks and balance of doing our due diligence and doing our fiscal stewardship with our voluntary fire company, especially with investments we make in their operations.

Right.

Well, I'm gonna open it up for any other comments or questions from the committee members at this time.

Lindsey, thank you for that update.

Greatly appreciate it.

Seeing no other comments or any other questions from the committee,

Just a reminder, we will be coming back and having our second meeting of the year later in the fall.

This will be in late November, early December.

We'll work on getting that on everyone's calendar and on everyone's schedule, and we'll notice the meeting accordingly.

That one will, for preparation purposes, will be in person.

This was our virtual meeting for the year, so that one will be an in-person meeting.

And I know the bulk of that time will be to review the results of the process that we started today with Brown Edwards and reviewing the results of our annual financial report.

So without further ado, I'll go ahead and adjourn the May 31, 2023 Audit Committee meeting.