Municipal Audit Committee - September 4, 2025

You're good, great. All right, thank you everybody. Welcome. Today is September 4th, 2025. It's 11:30.

We're on the record, I guess, well, after 11:30. We're on the record from 11:30 to 12:30. It's 11:34. This is the Municipal Audit Committee. Um, Mr. Ramirez on the phone today.

This is, uh, Mr. Constant, who's going to chair the meeting. So we'll start with introductions. Mr. Rolly. And Rolly, and I'll just say I do need to leave halfway through because I have another one today, so Hi, myself, Christopher Carson, on the phone.

Mr. Rivera, are you there?

Yes, present. Thanks. And Mr. Myers?

Yes, thank you. So, um, and then we have also Mr. Moulsey, uh, Bill Moulsey, Chief Administrative Officer. Philippe Rice, the CFO, would otherwise be here, but he's out sick today. And Mr. Drover?

Stephanie Ryan, controller. All right, Jose Joy? Hi, Chair, Mayor, media.

So, um, I've noted we're not sure exactly if the header is correct. We know that the website is not correct in terms of membership. And I'm standing in today for Mr. Veras, chair of the meeting. But Mr. Veras, since you're on the phone, I'm going to ask you to kick us off. Thank you, Mr.

Chair. Um, so our only item of business today is a review of FY 2023 ACFR, the Annual Comprehensive Financial Report. Um, as is normal for these meetings, we will have BDO, uh, Ms. Mariner and her team, um, walk us through— and there's a kind of detailed presentation that they have, um, and then if the administration wants to provide any responses or additional comment, uh, and then questions and answers from Assembly members. The only comment that I'll make prior to turning it over to Ms. Mariner is just a big kudos to everyone for getting us to this place. I know we have been in a little bit of a audit hellscape over the last couple of years, and I think we see a light at the end of the tunnel.

So big thanks to everyone for all of your work and looking forward to hearing part of presentation. Like, uh, Member Brawley, I can only stay for half of this committee, so I will tune in to the rest when the recording comes out. Thank you. I just have one question. Are we done with 2024 yet?

With that, I'll hand it over to—. Thank you, Mr. Constant. And, um, I just— a quick shout out to, um, Chair Rivera. I call him on the phone every now and then when needed.

He's been very involved in keeping track of the statuses of you over the last, um, I guess especially the last 6 months or so, getting us over the finish line. So I know that my calls can sometimes be a little hard to take and difficult conversations, but I think, as you mentioned, the team has made excellent strides towards getting you where you are now and having a plan for 2024. So to answer your question, 2024 is not ready to audit— ready to issue, but we are working on the audit already. I'll just note that that I was the first one to ask the question that'll be asked a thousand times. Is it done yet?

So, okay, go ahead. No, no problem. Yeah, and, and we'll be, um, hopefully providing our audit plan. We're working through our preliminary risk assessment for '24 right now. I know most people don't— you'll care about '23, but you care about how we're going to be getting through '24.

And I think, um, within the next couple weeks we'll have our audit plan ready for '24 to present to you as a committee so you can review not just the timeline but also the risks that we plan to address in that audit. Um, so I'm going to go through the— if you're online, can they see the screen online? No. So I'm on the audit wrap-up, which is the, um, first document in the attachments to the committee meeting, and I'm going to start in with page 7, which is the overview and status of the audit. So the audit is considered complete at this point of the financial statements, and we conduct the audit under two sets of standards, um, what we call Generally Accepted Auditing Standards, or GAAS, and then Government Auditing Standards, which also is called GAAS, which is really confusing for you all.

But there are two levels of audits that we kind of— audit standards that we follow. You do your accounting in accordance with GAAP accounting principles, Generally Accepted Accounting Principles, and then we audit whether or not your statements are in line with GAAP using GAAS. One thing I'll note here is that, you know, we did issue an unmodified opinion on the financial statements. That's the third bullet point. That's what you're bond rating agencies, the grant funders, the U.S. Senate Assembly would want to see.

Um, so clean or unmodified opinion on the statements, and that was released August 15th. We did also issue a separate report called the Government Auditing Standards Report, and I do plan to go through at a high level what's included in that. What that is, is it's disclosing and reporting to you items that we report as internal control items related to financial reporting. Now, we have not yet issued our audit according to the Uniform Guidance or the State Single Audit Guide and Compliance Supplement. So what we refer to as the single audit, the federal and state single audit, is still in process and is anticipated to be completed by the end of December.

So we're actively working on that. Stephanie is actively answering questions and getting information related to that audit right now. But the goal and the wish of management was to get the financial statements out as quickly as we could, so we focused our efforts there.

On the single audit side, you'll find out— oh, you don't have to be in for the results on that, but I'm just generally speaking, we're auditing, I think, 5 federal major programs, and right now we have 2 state major programs. So I think that's it on this slide. I mean, I think it was said by Chair Rivera, but I, I'll, I'll say it again. Also, um, your team never once tried to hide information from us. They never once tried to beat around the bush.

They were very transparent with the information that we got. It was freely available for our instruction, as you know here. And I just want to thank your team, especially Stephanie. She and I had some late nights in the tent. I'm gonna interrupt real quick.

Sure. Can we check on the live stream? I'm told that it went down and the audio is down as well. It's quiet? No, gone.

Both viewers and subscribers are telling me that The stream is down, but at least the audio is still on. Is the recorder on? That recorder is recording, yes. Okay, so at least we're good there. So why don't we go ahead and proceed while Matthew tries to tech support.

Okay, great. So I just— this was a bit of a Herculean effort, and I know there are plenty of people who worked extra hours to get it over the finish line. In some of the more complicated areas that needed more attention this year. So thanks, Stephanie. I want to go through just at a high level the areas of what we consider to be, you know, higher significant risk is how we word it.

So at the municipality, these primarily relate to manual journal entries. So when something gets coded originally to say this expense, if it then later gets moved over to a somewhere else with a manual journal entry, we pay more close attention to those types of things. It's called management override. That's usually where something, um, either an error is being corrected, so there's a question mark about why was it done incorrectly in the first place, or something is being moved for whatever reason, you know. And so we look at those entries more carefully.

We also look at grant revenue. In this, in your case, there were several different things going on, um, not just, you know, whether or not the grant revenue was accurate, but also was it complete. And then specifically related to FEMA, a lot of the money from earthquake and COVID came in in '23. And so the recording of that FEMA revenue was a pretty big number. It was some multi-million dollars.

Make sure it got put in the right place for the right amounts, and you could recognize it at the right time. There are also areas related to the financial statements that we had significant risks. First off, related to, you know, SAP and entries that are what we call topside entries. We've talked about this in past years, making sure that the financial statements reflect what's included in SAP. And then next, really, the financials have to do with equity and how your net position and fund balances reported.

Sure. Yeah, just to be super clear, um, the significant risks— are these what you're characterizing here? Is it things that are more likely to potentially have issues, and so they're just of special concern, or is it areas that specifically actually had risk? I'm trying to—. Is this like a general category, or is this— you're saying these areas had issues?

Um, so I'm saying these are areas that we paid more particular close attention to during the audit. As it so happens, most of them did have issues, so you'll see kind of some of the similar types of things. But, you know, I think— yeah, no problem. And I think the big thing here is I want to make sure the committee understands where we send more time. We still confirm cash, we still test investments, right?

They still test samples of revenues and payroll and those types of things. But these are areas where there were, um, higher— will be considered to be higher risk. And then the last just relates to the ASC 34 conversion and cash and accrual entries. Um, there's a few others here related to leases, use of fund classification. These are areas where we've had issues in the past where we had additional risk.

And then lastly, on the standalones in particular, there were additional risks around utility billings and other service-related charges. You know, are those charges being built out of the right amount? So, um, these are really just from our audit process perspective areas where we spent additional time. In terms of adjustments, we had a significant number of adjustments Um, primarily— and now I'm on slide 11 for those of you following along online. Um, slide 11 talks about our corrected misstatements.

These are available in the attachment that was sent out. I'm not going to go through that in detail, but essentially the adjustments related to restricted cash balances, HUD loans, grant revenues— or significant adjustments there— um, intergovernmental charges and contingent liabilities. There were also some management, what we call kind of topside entries, to adjust for the right balances based on fund type. And then capital expenditures and construction progress were also adjusted. In terms of corrective disclosures, we did assist with correcting the cash investments note, the capital assets footnote, and the pension note.

And then on the next page, you can see the uncorrected misstatements. These are errors that we identified which were not corrected. Um, the first 3 relates to— actually, all 4 of them relate to errors that were there last year. So I want to just point this out: when the '22 audit was finished, there were some known errors that had not been corrected, and so they weren't correct. Basically, the fix was run through '23, so none of the uncorrected misstatements should roll into '24.

I hope that makes sense. I have a quick question. Um, so you— when you started this conversation, you said something along the lines of auditors and other entities want to see uncorrected documents, and yet you have corrected and uncorrected here. So help me understand what the difference is. Sure.

So corrected misstatements are items that were corrected in the financial statements, so the financial statements accurately reflect the adjustment. Was actually posted to your system, posted in these big financial statements, and corrected in order to have an unmodified opinion. Uncorrected statements are errors that are small enough in nature that we can still have an unmodified opinion without those corrections being made. So there's— the numbers still haven't— aren't, you know, perfect, but they're not materially misstated. Thank you.

On that corrected side, really does relate to opening balances for grants. Um, some capital asset dilutions for Merrill Field and legal expenses. Those were all corrected in '23, meaning we should not have any carry-forward adjustments for '24. Um, so which is not the case the prior year. And then uncorrected disclosures— there were a couple of minor items in the disclosures that had not been corrected when the final report was sent to go out.

One related to a cash Footnote difference to the court and the state grant funds, and the second related to fiduciary imposition in the OPEB, which is your pension footnote, other post-employment benefits footnote.

Next step is internal control. This is where the exciting part of the communication is, so for those of you who need to leave at the moment, I'll try to make sure I cover the highlights here. We as your auditors are not responsible for your controls, and we cannot be one. They're not an internal control. Um, similar to internal audit, we look and see if the control processes here in the municipality are operating— are functioning.

But on the audit side, our real goal is to make sure that they're designed properly and implemented during the year. Um, we typically do not test operating effectiveness throughout the year, but we do look to make sure, for example, if you have a control that timesheets approved, we look to make sure there's approval of timesheets, um, in the system. And then we're going to communicate all three of these to you, but what's considered to be items that the audit committee or somebody should take note of or merits your attention are these top two: significant deficiency and material weakness. Significant deficiency implies it merits your attention. Material weakness implies it's causing material issues in the statements, or it could cause material issues.

Misstatements. I will point out that some of these items from the prior years have been remediated, and we'll quickly walk through that, but probably in— after we go through the current year results. So the first area is material weaknesses, and as I mentioned, material weaknesses are things that there's a reasonable possibility that the material misstatement wouldn't be prevented or detected. Your control system needs adjustments so there wouldn't be a potential for a material misstatement. So I'm on page 15, and we did disclose 5 items here related to material weaknesses.

And material weaknesses here, the first one is similar to last year, closure of books and records, and it's really a matter here of, you know, whether or not there are delays in the completion of reconciliations. Reconciliations need to be done quickly and need to be at least timely, so you wouldn't want bank reconciliations, for example, taking place very far after the end of each month. And there were delays in getting those reconciliations done on various areas, not just the— not just in bank reconciliations, but other reconciliations were done far after the end of the year, and in some cases after the end of the next year. So this is a timing one. Our recommendation here is really the same as last year, a good closing schedule be placed, put into place so that your team can— and adequate resources.

I think when we look at the cause, a lot of it were just not personnel resources in various departments that were lacking. The next one is level of precision review. This is a little bit all-encompassing. So there were review procedures in place, but to some degree they weren't catching errors. So there were errors in the trial balances, errors in the cash investment and capital asset disclosures, some errors with grant revenues and reconciliations for leases, accounts receivable, and intergovernmental charges.

So what this tells me is that there were certain items that were maybe being prepared and either maybe reviewed and posted, but the person doing that isn't either adequately trained or capable or supervised well enough to prevent there from being an error to get this caught. So our recommendation there is additional training, capacity, and people who have the experience at the right level to do that level of review. The next one here is journal entry review. This one is a new one. To some degree, that second one is a repeat from last year, just changed for the specific circumstances.

But this next one is a new one related to journal entries, and in the system, your SAP system is designed to be able to prevent somebody from posting a journal entry by themselves. So journal entry is just an accounting entry in the system that, you know, moves something from one place to another. And those journal entries, there are some journal entries that were posted this year that were not reviewed or approved in the system. And this is really, for some reason that was turned off in SAP, that ability. It's the system design.

SAP allows you to do that. My understanding is that's been corrected now, but there were certain entries that were posted without that review and insufficient supporting documentation. Now, we did look at all of those entries and determined, you know, at the end of the day, the ending numbers that resulted from those entries and other numbers did not result in a material misstatement, but we do think that this needs to be corrected or Maybe already has. Uh, next one is great reconciliation. So we had some material adjustments, about $50 million for the port, $2 million for disposal, and about $5 million for other funds.

I just want to make sure everybody understands this isn't lost money in the sense that didn't go anywhere, just was recorded in the wrong period or recorded improperly against the receivable or the advance. So the grant reconciliation process needs to be improved, and we already are— I don't— I've already seen the new policy for recording those grant reconciliations and reporting on grant revenue, but that needs to be followed, and grant revenues need to be really closely watched. Some of this has to do with just the way legacy-wise the municipality has been tracking the actual money coming in the door and leaving the door. And so, you know, every grant should have its own, you know, essentially documentation to support it. If somebody were to come in and audit it, it's all there.

It's just in so many different places and it looks different for every grant. So consistency here would be key. And then the last relates to capital assets, and there were some issues with the details that we have for capital asset schedules. And you can find more detail on any of these in the government auditing standards report. Which is attachment 3 of your packet.

So if you had a chance to read through that, um, you know, feel free to ask me additional questions, but there's a lot more context included in those findings for you to review. But that's high-level material. Yeah, thanks. Um, actually two questions. One, um, could you— or maybe, I don't think it's on the next page— could you talk a little bit more about the purchasing issues.

Maybe that's the next slide. And then question for Bill, actually. I'm just thinking, I know when you all came in last year, um, there was a lot of discussion about kind of— I mean, obviously staffing issues, all of that— but a need for training. And I know that came up a few times, kind of that there was a lot of new folks, right? And so that training hadn't been really happening.

And I know that's kind of my understanding is where at least part of these kind of errors have been. So I'm just wondering the status kind of a year later, um, where that's at and if there's been steps to correct some of those issues. First question. Okay, well, I'll take the second question. Okay, um, on the second question, you're right.

As we described in a previous work session, when we came in, we realized we had both a people problem and a process problem. The people problem was, I think we had something like 7 vacancies. The department had not fully recovered from being down to about 7 out of the 19 budgeted positions. The first step was to get everybody in chairs. The second step was to start putting them into a form that could really produce results.

And there, I think I also have to give a lot of credit to the heroic efforts of Stephanie and Philippe, who have been really making a lot of progress on that front. So now the department is fully staffed. And as we have been picking up all of these pieces and plowing through getting to the '23 grant, we've also been building better mousetraps as we go. And some of that, almost all that, is sort of in the weeds things, meaning that we forged better alliances with the IT department and looking at different ways of automating various functions so that the data can be used for the whole sales process, bed taxes, etc., etc. For specifics on that, I think I probably have to turn it over to controller.

But I think at least at the 50,000-foot level, yes, that's how we saw it. Yes, that is the thing that we are working on. So before we switch over to— I'll just offer that, put a final point on it. It was a leadership issue in the department that chased away all of the key staff and didn't know what they were doing. It just continues to show itself up, and thankfully there's only another half year of that to deal with.

Yeah, thank you. And the other item is procurement, so if we can go on to the next slide and cover that, um, and that's on slide 16. So the 3 items that we have significant deficiencies which merit your attention but are not considered to be material weaknesses— first one is purchasing. So there was, uh, several multiple internal audit reports around purchasing. And covered annual supply contracts to sole source purchasing to piece of P-cards.

It's kind of an all-encompassing issue, right, that's hitting multiple different aspects of the municipality. We saw that as well when we did our expense testing, and we look, you know, primarily is the expense reasonable, allowable, and those kinds of things, because we're testing what actually happened, not what is approved to happen or what is budgeted to happen. We don't test the budget, but You know, it's clear to us that there were some purchasing deficiencies, and I do believe you're already doing the follow-up on that as an audit committee because you're receiving those internal audit reports. There's no additional items to be identified, um, that hadn't already been brought to the attention of the audit committee from the internal audit side. Okay, thanks.

Yeah, I know that's, that's being followed up on or being addressed as well. Um, yeah, I just said that. Since I started in 2023, that was quite the theme. Contracts and purchasing issues. Thank you.

Okay, the other two items here, one is monitoring restricted cash, which was reported last year but did have some improvement here, um, this year. And then the last one related to use of fund classifications again was reported last year but improved this year. There weren't any material adjustments here, but there still are some questions as to the design of how you set up new funds or even how assembly appropriations are approved in terms of cost coding, because, you know, the people who are doing the financial report at the end of the day need to be able to review whether the successes are planned for the right location in accordance with accounting standards. There can be a lot of discretion, right, assuming it's in line with the standard, and then it's really not up to them. They report where you want it to be but the standards do require some specifics related to especially coding expenditures and revenue.

Um, so the other thing I'll note is last year you did have certain findings that were reported that were improved. Um, so first of all, the big one last year, if you remember, was GASB 87, which is your leases. We had material adjustments to leases last year and we didn't this year. There were some adjustments for leases, but it didn't merit its own finding this year. And your team really got on top of getting those leases reconciled and, and reported properly this year.

And then the other big one I had last year on internal communication, we had a major weakness related to internal communication because it was difficult to get information between departments. We didn't have that issue with the 2023 audit process, and I don't know who was It was back and who, but when we needed something, we were able to get it. There was not, um, different information coming from different departments. So, um, I just, from a process perspective, that made, um, a big difference as well. So those are improvements from last year, or things that were reported as findings in the prior year that are not this year.

And the only other one that did change somewhat was the monitoring of restricted cash. There were additional controls added for that. I think the one that we still had an issue with was very specific to I want to say, but was the port. So the Port of Alaska restricted cash was one area we had that needs additional control, but the other restricted cash we had issues with last year were resolved. So that's it on the findings and internal control reporting.

We do have other items that we consider to be control deficiencies. On page 17, I have these bulleted out for you. There are quite a few, and the the packet that you received, there is more detail on each one of these. So it's kind of up to you as an assembly how much action you want to take as it relates to the control deficiencies and the follow-up on the control deficiencies. But the big things here are, you know, these are what we would consider to be— um, a control deficiency is more like a management letter comment.

It's appropriate for management to address these and Some of them relate to IT on the right side, the others relate to other areas. Some of them were generated by review of our— of your internal audit reports. Some of these you have seen before. Others were areas where we found an issue but there wasn't really a risk that it would become significant or material. And I'm happy to discuss any of them in more detail if you'd like, but those are the summary level for this purpose because I am obligated to be cautious of time.

Otherwise, I think, you know, we always want to just make sure you understand that included in your financials are some estimates. You do have estimates around lots of different areas. Not all the numbers in your statements are hard and fast numbers. The big estimates really are your depreciation of your capital assets, your self-insured liabilities and IBNR, and then your landfill closure. But you also have a big one for the pension You can't pay off first early if you wanted to.

That liability estimate is done by the state of Alaska. And I will just note that this year, um, a couple of the open plans are actually in an asset position, not in a liability position. So you'll see both an asset and a liability on the financial statements when you review them. The other big item here to point out is there's a discount rate inherent in the leases. So every time you sign a lease lease.

You have to evaluate that lease at the time it's signed. The big leases you have in place are primarily at the port and airport. But when that lease is signed, you have to establish a discount rate. And with rates changing as much as they have over the last 3 years, that, that rate, we have seen that fluctuate. And it's essentially meant to be your effective borrowing rate at the time the lease is made.

So if you have a 50-year lease, you'd want to tag that to what you could go out and borrow for a 50-year loan, essentially, is how you're evaluating that. Most of your leases are shorter term than that. I think most are between 5 or 10, and then you have some 30-year leases as well. Otherwise, there are no big changes. You did adopt a new subscription-based IT arrangement, so thank your IT people.

They had a big lift this year, and we didn't have any adjustments related to the adoption of that standard. So last year when you adopted 87, we had a material weakness and a finding related to that. This year, GAAP option for GASB 96 went smoothly, and we didn't have any— we didn't even have any audit adjustments related to that. So your team learned from the process of '87 and adopted that new standard well. I don't believe it resulted in any really significant IT arrangements.

I think most of your IT contracts are either shorter-term subscription type things, or they didn't meet the criteria, but you did have some that you recorded. Otherwise, um, I think we've done our best to communicate throughout the audit process around, um, you know, the timing. I think the only main change that we had was the timing of the audit from our original plan, um, and just when we were able to get the information, your team was able to finish auditing it. But no other items to report in our other communications. Um, any other items that I may want to cover in the the audit wrap-up.

Questions related to that?

I don't have any, do you? Sorry. Yeah, I think I have plenty of questions for the administration, but they're not on the audit itself, they're on policy related to the future. So, uh, then, Paul, is there anything you want to add? One thing that I know has been of interest is that assembly is interested that we have an after that it is done.

And then of its contents and the jury behind that, whether there are consequences to having turned it in late to the Workers' Compensation Board of the State. We were not able to deliver this to them by the deadline to give them paperwork ahead of the hearing, but we got it to them ahead of the hearing, and we just received word last week, earlier this week, that they extended our self-insurance certificate without issue. So that story ended well. We have already pre-staged for the— previewed for the Workers' Compensation Board. We are unlikely to be able to get the 2024 ACPR by the end of this calendar year, but there is a statutory extension that gets us through the first 3 months of 2026.

So we're working towards that goal. Otherwise, I think that we are also very much interested as an administration not just in putting this whole system back in better repair getting it back on the right timeline, but then also making this a real learning exercise, meaning that once we're done, we have all the internal meetings where we pick up the findings and go through them one by one to figure out how to build better mouse traps. And that is still on our agenda even as we're working through 2024. Oh, and the last thing that I'll say is, um, this process, it's a little bit hard to measure exactly how long you start— how long it took from the start and finish because 'cause the start is a little bit ambiguous. But the way we have been scoring this is this '23 ACFR came in August.

The '22 ACFR came in, in July. So you might start from saying like, oh, it's taking longer. But actually the way we think the true way of telling that story is that we started in earnest in October and we got this one done in August. And that is way faster than the 550 days that the 2022 took. We think that we're gonna get faster still But also, in order to even get to this stage, you have to close out the months of the previous fiscal year.

And when we delivered the 2022 AFR in July, I think maybe none of the '23 periods were even closed. We're near— we're in the final periods of '24 closure now. So even as you see us delivering this in August this year, please know that behind the curtain and we are much further along at this time in this place in the county year than we were last year. I mean, I do think that we're on track for this to get back into good repair. So I heard you say possibly end of quarter 1 of 2026 for the 2024 audit.

That is our goal, and it is ambitious. We have to, we have to do a lot of things real well, and that means that we are celebrating this as a milestone, but we are not done yet. We are still printing. So I look forward to being the last one to ask you this in 2024, before I leave the building. So, um, that's a good target, and all of this reads well.

It's excellent news to be reported. Might send out an email to membership that the extension of self-insurance is approved, because that was, at least for those of us paying attention, kind of one of a number of serious causes of concern that sounds like it's been hit. So anything else? All right, thank you everybody. We'll stand adjourned.