Anchorage Assembly: Worksession of the Audit Committee Re 2024 ACFR Report

All right, everybody. Good afternoon. Welcome to the Assembly Audit Committee work session on the 2024 ACFR, Annual Consolidated Financial Report. We are noticed from 2:30 until 3:30 today. It is 2:35, and we will begin with introductions around the table.

Donald Handlin. Erin Baldwin-Day. Bill Fawzy.

Lance Wilbur. Stephanie Ryan. Joy Mariner from BDO.

Kelly Mays from BDO.

All right, um, Member Gerker is excused today, and I believe Member Brawley will be joining us in a few minutes whenever she is available. Uh, all right, so, um, let's dive back in. Uh, Ms. Mariner, do you want to pick us up where we left off, maybe give us a brief review of what we covered so far, and then we'll just streamline ourselves right in. Sure, no problem. And if you remember our last meeting, we did cover the 2023 single audit results as well as the 2024 financial statement results.

I believe we did get through all of the summary of the items. We talked about significant risks, we talked about misstatements and uncorrected misstatements, and on internal control, we did do an overview at a high level of each of the internal control recommendations that came out of the audit. If you recall, there were 7 main items, several that were considered material weaknesses, and then 2 that were considered significant deficiencies. And I think we were able to get through all of those at a very high level, but there was some interest in going through from the committee as it relates to these items. And then on the single audit, we did some similar, Similarly, this is the '23 single audit.

We went through what the grants were that we audited as major programs, and then, um, talked through at a very high level what the material weaknesses and significant deficiencies and non-compliance areas were that were identified. Um, so I think the, the goal would be, um, I wanna be available for questions and, um, I think the rest of the audit results speak for themselves. I want to make sure that if there's clarifying things that you want to get from me to explain what, you know, our recommendation is or what our rationale is on any of these areas, we want to be available to answer those questions in more depth. So I'll leave it to the committee as to where you want to go next. And the only thing I'll mention is that we also have included in this what we consider to be control deficiencies.

So these are things that are more at the level of management advice suggestions instead of being deficiencies that require your attention as a committee. These would be areas that we're informing management of but don't necessarily require committee action or attention. And so we did have those over IT. A lot of those have improved over the years and then some areas as it relates to the internal controls of our financial reporting. Some of these items in the financial reporting were already reported by internal audit, so they were generated from an internal audit report, not necessarily from something that we did, uh, work on ourselves.

We're required to evaluate internal audit reports to determine if we think those rise to a level of significant or material. So some of these other things are things we noticed, for example, with, say, review and approval of payroll. But a lot of these come from the internal audit side of things. So you've already had those reports presented to you. So with that, I'll kind of turn it back over to you, Madam Chair, to talk about where you want to start with questions.

And I'm happy to do my best to field them or punt them where appropriate. Thank you. I do have questions, but I wanted to defer. Member Handeland, is there anything that you wanted to ask about specifically? No questions for me.

Okay. So I think I'm actually really interested in working through the material weaknesses one by one and understanding a little bit better, you know, what sort of— what does this mean in a real-world sense? And then What, what can we do, or what are we already doing? I think it's another, another way of asking that, because I think some of these are not necessarily new, or it's not new information. So I would just like to understand sort of where we are in the process of identification of things that are challenging in, in an audit environment, and then what's being done and what are our goals as far as things looking substantially different for 2025.

That's sort of the substance of kind of what I'm hoping for. And so if we could work through the material weaknesses, I think that would be great. I think I'm interested in the material weaknesses and then also the significant deficiencies. So those— how many items is that? Those 7 items together are the things I would really love to focus on.

No problem. And maybe we can start just with 1 and 2 sort of as a combined, because they are different issues, but they sort of feed on each other to some degree. So the timely reporting of financial information is really about making sure that financial reports are useful. And then the GASB specifically says that in order for something to be useful, it has to be issued soon enough after the reported events to affect decisions. So because there were delays in the issuance of the ACFR and the financial information, there were— from our side of things, there's a deficiency in terms of the timing of the receipt of the financial information by the assembly in order to make decisions.

So you're already, for example, working on the next year's budget before you have the last year's actuals. And that's one of the factors that GASB talks about in terms of the decision-making that you as assembly would need to have. Now, when you look at the cause related to this, it's really at the time that this was done, and even to some degree now as your team's training and learning everything, there were significant gaps in personnel resources at the municipality. And so that's what we kind of have listed as the main cause of that. And the reason I kind of linked these two together is when you look at the second one, there were significant adjustments related to the financials that we identified, and that were in various different areas, some of which really I would consider to be largely presentation related.

So it's not as if the number on the financial record was wrong, but the way it was reported on the financial statements was wrong. And so that to us would indicate that there's a lack of precision of review. Things are not checked by someone with either enough training or enough experience or not checked with enough sufficiency to make sure that by the time it ends up in the actual financial information, it was reported properly. So if you have level of precision of review and it's done timely, correctly and timely, both of these go away. And that really has to do with the staff capacity, staff training, and, you know, making sure the systems are in place so that people are doing the right things at the right times to ensure accurate, timely financial reporting.

Yeah, so I think I'm curious, you know, how are we— maybe this is where we shift to, you know, how do we feel about staff capacity now going into, or now that we've sort of moved into 2025 Act for Territory?

And, you know, I Understanding that obviously there's a learning curve, right, that we're sort of in the midst of. How do we feel about our staff capacity? How do we feel about the training that's going on? And do we feel like we're on target for closing 2025 books? Or maybe a better question is, what is the target now for closing out 2025?

Thank you, Madam Chair. I'll start with that one, and Ms. Ryan or Mr. Fawzy can jump in. Right now, the Controller Division has 20 budgeted positions. They are all filled.

We do have one individual who will be leaving the municipality to take care of some family matters, but in general, they are completely were filled, and we have people backed up to be in acting capacity and also doing some cross-training thanks to, you know, some leadership here by Ms. Ryan and Ms. Reardon inside the team. So we're trying to make sure that we get a lot of— we have folks that are not just in one particular area. So we're also engaging the staff not only in the day-to-day details that they have but getting some perspective on why they're doing it, so we're giving them a little bit more support there, and then, and I think the folks here at BDO have also been helpful as well, making sure that, you know, the types of information that we're looking for or that we're creating is the type of information that they're looking for, so as far as the schedule, we are, I will say, going to be more timely, but we are still going to be behind. And I think, uh, it's just a matter of just doing that catching up. We are endeavoring to get the '25 done in the first quarter of next year.

We have closed— I think we have closed all of the months in '25, and now we are just working to get our information to BDO so that they can begin their work. That's where we are. Uh, that I think is Super encouraging to hear. I think that was the target that Mr. Fawzy mentioned the last time we talked about this, was that we were hoping for, like, March 31 would be great, and that would be definitely an accelerated timeline over what we've been working on. So that's good to know.

I think sort of connected with that is the finding about the level of precision review, or the level of precision of review, excuse me.

I'm wondering where things went sideways. I think we had cash and investments misstated by somewhere in the neighborhood of $25 million.

We know that there were like 10 rounds of revision of the grants schedule. What are some of the steps that we're taking specifically to address those things? What— yeah, what, what's, what's, what's going— what, what happened and what are we doing differently now?

I'll go ahead and start that one through the chair. So as far as what happened and why it happened, I won't be able to get too deep into that because I'm reading the same report you are. So, um, Miss Ryan, Miss Mariner can probably share into that. But what we are doing going forward is, um, we really sort of divided, if not in a particular way on the leadership side of the reports that are being done. The controller, Ms. Ryan, is going to be the lead on the 25 ACFR, and Ms. Reardon, the assistant controller, is managing the grants team.

Ms. Reardon has a lot of experience, was a former grant manager in there, so she's taking the lead on the single audit. And we are— have— we have— we have had weekly meetings with BDO on the ACFR. And we are set up weekly meetings on the single audit to make sure that we are staying on task, and we are having internal day meetings to stay on task. So we're, um, and they're very short just to make sure they're— that we, um, and everybody is involved in that conversation. They might not have a role at that meeting, but if we are doing something and the next person, they will know that their task is coming up, so there's no delay in that.

That is our— we're We're building a program or work program to do our best to meet that timeline.

Anything to add from Ms. Ryan? Feel free, please jump in. Sure, it's, it's been a process, so there definitely has been a learning curve, but we are at that stage that we're spreading the wealth so that more than just one or two of us knows what it takes to get the stuff done. So there's a little bit of a learning curve with that because we're not the ones doing it all, but it's also not. Overburdening ourselves and our, our own.

And that's the last thing I want from my team as well. So we're kind of doing it in a collaborative manner, a lot of discussions and work sessions, but also like we got to also get it done. There's still an immediate need to do things. So there's still some accelerated process and tasks that we're doing, but I have a full leadership team and I am so grateful that it's not just all on me. The last 2 years has been Pretty crazy, but we're all figuring it out, and we did not receive any kind of guidebook or policies, and that's something we're working on as well, and the processes.

Thank you for anticipating a follow-up question. I wanted to note for the record that Member Brawley joined us in the room at 2:46-ish, and I think you have a question. Go ahead. Yeah, thank you, and sorry for jumping in late to this. I think I know there was a confluence of factors the last few years that really created the situation we were in.

So I know one of them was, as I understand it, rule changes, the GASB. This is, again, I'm going to be over my skis on this stuff, but I think that trying to implement that while you're trying to deal with these other internal issues is a challenge. But I was curious too, I know thinking back a couple years ago when Mr. Fawzy started and others, I think one of the conversations was the stuff that happens before the audit, which is like making sure transactions are coded properly, and I know that was— the cleanup of those things was a non-zero part of this whole effort. And so I'm wondering too if there's just a general update on— and I know we've got bodies in the seats, leadership trained, but just kind of how has that training been going? And then is that across all— I imagine it's across other departments too, and making sure that all of those folks are coding things properly.

So just curious about just the general update on that effort.

Um, so when we started, when we finished the '24, all of those things that you just, uh, recognized and that were recognized in here, we basically have made a list of those things that we really needed to clean up when we start '25 and Get '25. Um, I think pretty much all of the 10 or 12 things that were on that list, um, have been addressed. The other thing that we got that we also rely on is that not all of the the processes incurred side, the controller. It's our ability to work with the other departments, and they too have turnover. So we rely on each other.

And, and right now there is, I will say, there's some turnover in the finance management and other departments because people are progressing up or taking other opportunities within the, within the municipality, which then sort of, we have to slow down a little bit and help them get on board so that their processes are known, but as Ms. Ryan mentioned, the documentation on the things that we want to get done, creating that documentation and then sharing it with the departments so that it's done right off the bat. We're not able to do them all at once, so we have to pick the ones that— and I think they would be, you know, in the grants area and in capital assets, which are improvements in doing well. So if that answers your question. Yeah, it's good to hear. And I'll just note, I know we've had turnover on our side as well, so obviously we have a budget analyst again after Alol, and I think I've worked with 3 of them since I started here too.

And I know, so I know that that's part on the Assembly branch side, that's important to have somebody who knows those details and help us. And then I'll just note, I know there's a number of things that on our branch side we're working to improve. And some of it is those kind of like, how do we document things and those little details. So it's a group effort for sure. So I'm glad to hear that it's moving along.

Thanks.

So I, I mean, I'd like to understand just on a concrete level, and perhaps this is connected to what you just said, Mr. Wilbur, how, how we arrive at a point where our cash and investments are misstated by $25 million. How does that, how does that happen? And And then what's the— what is— what's the fix, essentially, for that challenge? I will, I will lean on, um, Ms. Marinere for a minute because, uh, I think what's happening, as she mentioned, it was in the— it wasn't that it was— it was misstated, but it— how was it— it was misrepresented. Um, it wasn't not accounted for, it was just not represented appropriately.

Well, and I'll let Kelly, um, give you— Kelly's the director on the audit, and she can give you a little more detail on the specifics. There were quite a lot of adjustments to the disclosures as well, but this one was actually an adjustment that needed to be booked, which is why it's in this area, not in another. So if you want to provide a little more context. So We typically receive the cash investment details and the actual footnote that you see that's in your financial statements, and it's about 25 pages. It's quite large, and we do all of the underlying test work while we're receiving the trial balances from the Controller Division, and then we actually tie the trial balances for the recorded amounts in total for the municipality to the cash investments.

And it's broken down by multiple funds. You have the MOA Trust Fund, Central Treasury, police and fire pension funds. In total, those balances did not agree by $25 million and required an audit adjustment. Do you remember what the other side of that adjustment was? Equity.

Okay. So I think that's right. So there are quite a few things that, and I don't think it's another, finding here, but the, the equity thing has been sort of a common problem over the past few years. And if you look back at '23's financial reporting control findings, that equity piece has sort of been haunting you. And this has somewhat to do with the way that your team has to record adjustments back, right?

So maybe Stephanie can give you more context for that, but SAP, the way the closing of the books and records works with SAP is that if there are adjustments that relate to prior periods or needed to get in from the prior year audit, your team's having to run them through Equity. So what Stephanie did this year for '25 as a remediation for that is she's actually pulling the SAP trial balances and creating an adjustment that's not in SAP and then and then giving us the trial balance in Excel that agrees to what she wants it to be on the financial statements, to really what it should be if SAP were to allow you to close it properly. What was happening instead is it was running through cash and there was no actual identification of that error, even though— and it just had to do with kind of the fund allocations and the posting of the prior year adjustments. So now for '25, I said, well, I, I can't fix SAP for you, but if you can get the SAP export, give me the journal entry you could post if you could— you would post if you could— then I can use the trial balance that you've calculated, not the trial balance that's in SAP. So you still have an issue going forward until somebody figures out how to fix this on an IT side of things.

Not really like the IT security people, this is like an SAP usage issue. Until that gets fixed, you're having to keep the actual trial balances that support your ACFR somewhat manually outside of the system. So Stephanie, if you want to speak to that, you can, but I think last year and this year your team was able to take all of that and figure it out on their own. So far, I mean, we haven't gotten the final ACFR trial balance, but they've that worked for port, solid waste, and civic. You had to do that for all three.

I don't think you had to do that on EWU.

But Stephanie and her team were able to take SAP, provide us with the adjustments, and give us an auditable trial balance for '25 where equity rolled. And that wasn't the case. We went through and figured out the issue. In '24, we had to go back and find the issue and fix it. On the municipality's behalf.

Stephanie, you want to add anything to that?

I'm glad that I've been here 2 years and we figured this workaround that's not quite as messy. So, kind of going back to the mitigating some of these issues is that we're Fixing it before we give it to BDO, even if it's in an Excel workbook. Not my favorite, but we're working through some things. We're trying to, you know, brainstorm with other departments because it's not just us that can determine general ledger accounts. It affects budget.

It affects the muni as a whole. You can't just move money around, you know, or what looks like money, even when it's not actual money being moved. So it—. Yeah, it makes it a little complicated, but I'm glad we found a workaround, and we have a plan that we're working through to make this a little smoother so we're not doing as much back and forth. Back and forth with BDO as we have in the past 2 years.

And again, I have more staff to allow me and a couple of my other lead team members to focus on doing this and also documenting it in case we're gone in a year or 2 and somebody else can possibly— and there's no plans for that, by the way, but you know, things happen. I'm in this for the long haul. So I've been the last 2 years of proven that. But just leaving a record, you know, like a roadmap in case somebody else has to pick it up and it can make some sense even though it's not the most ideal. In an ideal world, you never touch Equity.

The system automatically closes the current year activity into Equity on your behalf, and the Equity always just rolls. This is not something we do on most of our clients. This is very, very rare to have to do equity adjustments, and I, um, I think there's an opportunity there for some looking at the way SAP is designed to make sure that you can at least be preventing this sometime in the future, you know, actually correcting it so your team can rely on what's coming out of SAP. Yeah, I mean, I Ms. Ryan, I want to say, first of all, thank you for creating a workaround that is, you know, at least preliminarily, right, is functioning well. I don't think it's great to just do that in perpetuity.

So, I mean, that doesn't sound sustainable for anybody, really. And it sounds like, you know, in fact, what you're doing is really duplicating work that ought to— I mean, we're paying millions of dollars for software that, you know, is not helping us to deliver the work product that we need to be able to do an audit in a coherent way. That seems like something we should fix. So I'm curious to know what is the fix, who owns the fix, and how can we be supportive in that fix being handled so that we're not asking our controller to do a whole lot of manual work on the side in order for us to be able to get audits done. We are working with the SAP ERP team now that we did the S/4HANA conversion, whether or not you guys are aware of that.

That was a big push this year to get current with SAP support. So we're working through those, but we're working with that team and with the OMB team, the budget team, to— we have meetings with us. We all have busy, heavy workloads and deliverables, so we're working around that to come up and collaborate together to figure out what we need to do. So we do have a meeting set in the next couple weeks with OMB, and we have weekly meetings with the ERP team to try and get reports and to get other things from SAP working for us the way we need it to. So I'm really excited because we're at that stage now that we're going to start making those improvements and those changes in the system rather than doing so much out of the system.

We're in 2026, almost in 2027 at this point, and we need to do less manual work because there's so much work to do. So, and that just leaves room for error and mistakes.

So, what is—. I mean, what's the—. What is the timeline for— I mean, I guess I'm curious, is that a technical fix inside of SAP, or is that a procedural fix on the municipality side, or is it both?

It's both. Cool. So what's the procedural change on our side of things that needs to happen?

Am I asking you to go down a huge rabbit hole right now? Great, I love that for us. Yeah, we need to start having these collaborative meetings, and we're just now starting that because we're, what, a month or so out from the SAP S/4HANA. We had to give them a little time to work through those bumps, and we're now in that stage. So I'm really, really hopeful that for 2025, this workaround is just for 2025, and by the time we're ready for 2026, we'll have something in motion.

The ERP team says Sometimes, and depending on if they have to reach out to developers, if we have to go that far, I don't think we do, but that it could take maybe 6 months to go through the whole process and testing and making sure things are working the way we need them to rather than just flipping the switch. And maybe this is an overly simplistic question, and I apologize if it is, but why would we need, why would we need the assistance of developer if SAP is supposed to do— why would we need to change SAP in order to do what I think SAP should already be able to do? I'll start with this one. I think it's an excellent question, one that I have myself, because in previous times, you know, since SAP has gone live in 2017, the— I'm, I'm interested to know, as well as the, as well as the committee, why we actually need to use this tool when we did it before without it. So I want to learn a little bit more about that.

I think, as, um, as, uh, Stephanie has mentioned, you know, there, there's— and there may have been changes to the rules. So again, she mentioned we're going to be working with some— with this, this change doesn't only affect what we do in operations in the controller. It can affect other departments, and so we want to make sure that we do this collaboratively so that we're not making a change that might be great for us and maybe not so great for others. So I want to make sure that we do this smartly. Thank you.

I, I appreciate that, um, and this— I think this actually is sort of like walking us into the third material weakness which is the SAP journal entry.

So, has— so 2023 SAP journal review controls change, and then we have this control gap through all of 2024.

And so this was flagged explicitly as a fraud risk, you know, lack of supporting documentation and adequate review and approval of journal entries, including segregation of duties, were identified during testing. And, um, and I think that SAP segregation of duties is also flagged as control deficiency CD1. And so I'm wondering, have we— like, has that SAP journal review control been restored? And do we actually have better controls now around segregation of duties? Is that happening sort of simultaneously?

Is this happening on a different timeline? Like what's going on? Yes, that has been corrected in 2024. That's when we were half-staffed and we didn't have a lot of leadership. That's when I started.

That ability for someone to post and then just push it through workflow on their own without another secondary reviewer. That got taken away once I found out about it, and it was still on. I think it was kind of forgotten that it was on, not that there were a lot of people that could do it, but that is something else I will be working with the ERP team to get better SAP permissions and better segregation of duties and to shut off the ability of access to certain— like the controller division should only post to certain periods and things like that. They said it is possible. Both.

I'm going to work with them to make sure we can do that moving forward.

And is this— so is this something that's happening— so it sounds like the segregation of duties piece is in process, but that journal review control is in place now. Okay. And do we have any idea of when that— the segregation of duties piece is going to be tidied up? We do have the segregation of duties set up already. However, I want to strengthen them and, and make it a little bit more department or position relevant beyond what it is right now.

Right now we have like approvers, we have the person that uploads it, an approver, it goes through the controller division sometimes 5 times. It's sometimes, sometimes excessive. So we're working on that in the workflow. Workflow, the way it goes through the workflow. So we do have the segregation of duties now.

We have very clear steps for even our own division staff to do. Department is definitely much heavier because everything must go through the Controller Division before it posts. So I'm very pleased with that process that we do have in place. We just have more staff in the transitioning of new staff and— or lack thereof. So And if I may, one thing that— so yes, this was— we did verify that it was toggled back on in '24.

We don't have any exceptions to that so far. '25, We have checked that so far, no issues. I think journal entries and a good policy for documentation and review is important. It's not just a system issue of having someone mark it reviewed in the system. They actually have to know what they're looking at and have the backup support for it.

And I would say that the amount of review or the amount of documentation is different depending on the type of journal entry. If something is an entry that got posted and I know it has to be reversed after the month end, it can automatically reverse, and that reversal might not have any support or maybe even no approval because— if you set it up that way, because as long as the initial entry has the support and was done correctly and you set it up to be reversing then the reversal might not need anything, right? I think the issue really from '24 is that there wasn't a really good clear policy about what needed reviewed, what needed the support. And in an ideal world, every journal entry that gets posted has support for why it got posted. You shouldn't just post an entry.

You should know why it got posted, and the support should be sufficient so that a reviewer looking at it could say, yes, this seems accurate. Numbers look right, we can move forward with posting the entry. But I think there is a lot of confusion about where that support would be kept. Is it going to be kept in SAP? Is it kept on the G drive?

Is it kept in someone's drawer? Is it not kept? And so in '24, there was a lot of inconsistency about how it was documented. And then there was also consistency about what level of review was required for each type of entry. And so I expect there still to be some issues in '25 as Stephanie and her team were working to refine that policy and determine where they wanted things to go and how they wanted things to go.

But where we see it on the audit side is we'll see an entry getting posted and then a reverse that says we have to correct this entry, and then another entry getting posted, it's still not quite right, and then a reversal of that one, and then another entry, and then maybe as, you know, Stephanie says, maybe 5 times later that the entry is right. They have it right. But you've got 4 or 5 entries in an attempt to get it right. Where ideally, you're posting the one entry and it's right. And so that's where it comes back to that sort of level of precision of review that you need to have someone who knows what's going on well enough so that that first entry is done correctly.

Instead, what was happening is an entry would get posted. And then a detective control, which would be someone double-checking the numbers at the end, would check it and say, well, that entry didn't fix my problem. The entry was done wrong. So it would get reversed. So there might have been other controls that were finding the problems, but the entry itself wasn't being done initially in the right way.

So I think this will take a— probably though, we'll still see some of those ins and outs and ins and outs and ins and outs in '25. As you develop and refine your policy for documentation approval and, and frankly, those reconciliations. As Lance said, for example, in capital assets, there's a lot of review going on, a lot of grants that are changing the way that you're documenting and reviewing those things. I think you'll see some of that in and out until those systems are working as designed, because that will prevent them from ever having a problem in the first place.

Yeah. So I think that I'd love to turn back to Mr. Wilburn, Ms. Ryan. So do we have more— are we developing more clear guidance now about like where is support stored? Okay, I'm getting nods. Great.

And that question about level of review for entry, different entry types and things like that. Are we— is that the direction that we're moving? Do we have that mostly intact? I mean, if you had to think, if you had to say, hey, we're We're 75% there. Like, where, where do you feel like we are in the realm of getting some of those things shored up so that our, our documentation and review policy is like dialed in?

It's often that enforcement. So we have rolled out reminders, and because of the turnover in all the departments, it's up to them too, right? We require cover sheets. We require require backup that we can read that's legible, that makes sense. And we've empowered our staff in the Controller Division to send it back to— or get— not even send it back, but to contact the department, say, hey, what's this post?

Can you post, you know, upload something else? And often they'll discuss it and they'll clear it up, and then we have them upload. Because you can upload as many documents as you want. Those documents do live in SAP now. For '23 and '24, I think there was a transition period where where it was kept on our drive.

So it was really hard to locate our PCard transactions. They're not yet in SAP, but they are in payment.net. So that's great. And we have staff now trained that can go in and get it for BDO. They do not have access when they do their review, but we can get it for them quickly.

We're feeling more empowered and in our ability to go back to the department and say, hey, this doesn't quite look right. And you know what? Sometimes we're wrong, you know, and then they'll sell it to us, you know.

We're working on there. I would say we're 60 to 75% there. We still have some work to do. There's still some work to do in the capital asset world of things, because that was one of the bigger findings for '24, just being able to track down the backup. And it's not tracking down the 20 invoices that went into this one project.

There's got to be a better way. So it's just working on putting our heads together with PM&E, for example. And, you know, they went through a recent transition with their team too. So it's just working together to see if it works, because I don't want to make decisions for for everybody when it doesn't really work. Even if it works accounting-wise, I can still implement that, but say what's the real-world, real-life fix that will help the departments.

And I want them to understand too. It's not just somebody dictating and saying, hey, you got to do this way because I said so, even though it does come down to that. But I try to help them understand and work with them on that.

That is, that's all encouraging.

60% Sounds like a great place to be.

Mr. Wilbur, you just inhaled like you were going to say something. Do you have something to add?

No, totally fine. Questions from members? Okay. Well, I'll keep trucking then.

Let's see, we touched briefly already on the capital assets.

See, I know we've, I know we've touched on this too, but I think it bears maybe a little bit more digging in, and that's material weakness number 4, which is the grant accounting. And I know there's a lot of challenges with this particular— in this particular area, but I think it would be good to just kind of get a general download. I think there are other members who are probably going to watch this back, and it would be helpful for them to understand in a bit more detail why there was so much back and forth on grants for the 2024 Act for— and if we could sort of give them a briefing on that, I think that'd be helpful.

It ties back into the lack of staff at the time. We had one grants team member of a team of 4, I believe, that had been around, and then we had a new grant supervisor, nobody to train him, and everybody did a great job for what they were given. Not a lot of documented or updated documents, processes. We can find a lot, but Some of it dated back to like PeopleSoft, for example, or, you know, different things like that. But our grant team is solid now.

We have a better documentation process for getting those out. We're doing everything in DocuSign now. With that, it's just a matter of communication and recreating the wheel a little bit with the help of BDO's historical stuff. To help us rebuild those reconciliations. And we're still in that process of working through those.

We're getting there. We're getting there. And having my assistant controller now overseeing grants is really helpful to me because it gives me more bandwidth to help with other things and to kind of do more of my responsibility and maybe making those changes and working with the SAP ERP team and the budget team and make it— making things happen. To help the municipality as a whole and help the departments, because we want to support them in this effort too. Ms. Marin, if you want to comment on sort of your— you get the 30,000-foot view of all of this, so if you want to fill in some gaps, that'd be great.

Yeah, and I wish it was a 30,000-foot view. I ended up getting into the 10-foot view a little bit on some of this at 24. I will say that there's kind of two things going on. One is each individual grant is its own project, and you have to think of it that way. Each project is either open or closed, and until it's completely closed, you have to have the documentation of the actual contract, which is a grant agreement in this case, um, the expenses that support, um, the revenue being recognized, the actual cash receipts that were received, all the things that go into that one grant and there was a lot of disjointed documentation of where that was kept.

And I think that's something that your team's worked really hard on, bringing this all into one central place. So all of the things associated with one individual grant are kept in one place so people can find them. Stephanie and, and Trina and her team, their team did a lot of digging to just find the I need these 6 cash receipts, and they would be 6 different places. I need these grant awards, and they were very difficult to track some of them down. So the grant documentation for each individual grant, I think there's been, you know, I've seen great strides being made in shoring up the documentation, where it's kept, and each individual grant tracking.

The other piece of this is at a higher level of what ends up reported in your, on your financial statements. And I'll lump the federal schedule and the state schedule in with that because ultimately the two match and one is derived from the other. And so you reconciling, I don't know how many grants were there, 310 grants, and you add them all up to equal what's in here. There, that is just a really big spreadsheet with some pretty significant moving parts, and you're reconciling receivables, revenue, expenses, all the things, right? So deferred revenue, deferred inflows, there's a lot of components to it.

And so I think that's the piece that, at a very highest level, when you take all the individual grants, add up all 310 of them, where do they end up here, and what's the reconciliation of the details to the financial statements. That's a piece that will still require Stephanie's involvement, where you've got grant management and the reconciliation or the detail of each grant, but that still has to translate over to what's on the financial information, financial statement, the federal schedule, the state schedule. And, um, and that's a piece that I think, uh, does kind of involve more than just the grants team because it has to end up in the financial statements. The other fun thing is certain grants and certain funds are accounted for a little bit differently, FEMA being one really big one, and you had several FEMA things that were really complicated, and FEMA doesn't exactly reimburse you timely. I think some of that COVID money is still coming in, right, 7 years later, so 6 years later, so there's, um, it was just a lot of nuances to some of those things that made the high-level reconciliation, even if you could get the individual ones working, which is what I spent a lot of time doing, even if you got that in, where does it translate to the numbers on the financials?

And so I think that piece, we haven't seen those schedules for '25, but that's a piece that will still require some level of reconciliation review at a high— higher 30,000-foot level.

Just out of curiosity, how many different departments are managing grants?

Well, it's a bit of a loaded question because you've got managing the operations and the, you know, use of the money is maybe different than managing the actual grant accounting piece. In theory, majority of the grants are managed from an accounting perspective here in the Controller Division, but the actual operation of the grant is done by Lots of— I mean, it depends on if you consider what level of department you consider. It's within departments here at the municipality, but pretty much every department has a grant of some kind. I mean, even IT has a grant.

So I think I was asking really to just illustrate the complexity of what we're doing here. So we're expecting— if I'm understanding correctly, we're expecting the Controller Division to do the grant accounting, but the actual grant administration is happening all throughout the municipality. And that means that there are expenditures that are happening, there are subgrants that are being written, and then administered separately. Like, there's this very complicated system at work, and we're trying to keep track of all of it and also be able to have the ability to report back in a timely fashion, as you just said, what exactly is happening in the dollars and cents world when it comes to these grants. And I—.

That's an extraordinarily complicated set of processes that we're talking about. And so I guess in one sense, it's not shocking that this is a challenging thing for us to be able to do. I might add, and I think through the chair, you're exactly right. Every grant is— every project— every grant is a project, and every project is different. There's federal grants, there's state grants, and then there's funding that are basically calls.

They're like a grant. They could be something from, um, it could be a large donation. So they, so, but we treat them similarly. But also, um, the reporting, the, the reporting that we are, that's due to the grantors, what did you spend your money on this quarter, that activity, the illustration of activity comes from the departments that are actually managing them grants. It could be police, fire, health, traffic, could be anybody.

Um, the accounting, actually the expenditures that are being done, those are reported to the controller. The controller then is required to create these financial reports to the feds and the state depending on the schedule of the grant. Could be quarterly, could be monthly, could be biannually. So you are exactly right, the comp— they're not that simple. And then the documentation of what needs to be kept based on the grantor's requirements and based on what the department has been either maybe traditionally been granting.

So getting simplicity and commonality in all of those things is exactly— your illustration of it, your characterization of the complexity of it is spot on.

It also gets maybe a little more complex when you have matching requirements or multiple funding streams for a single project. Because it's not as easy for Controller Division to pull out, you know, what you have in expenditures in SAP might not at all equal what ends up on a grant-funded portion. So there's a little bit of bifurcation that has to be done and analyzed by the team. So I think that's one thing to just remember is the grants team where you had the turnover, that team acts, yes, as grant accounting, but in just some degree grant compliance. And accountability, and that compliance officer position that you don't have is sort of falling on the shoulders of the grants team to make sure the deadlines are met and the requirements are met and compiling all of that.

And so I think that piece maybe was not as clear when all of that turnover occurred. And so the systems were being done, a lot of people were doing their very their level best to comply with all these grants. A lot of people in all the different departments were doing a very good job actually complying, but the documentation wasn't retained as consistently in that timeframe. So there were a lot of grants where, I mean, now this has a lot of things that we found, but that were issues, but we actually found a ton of things that we, you know, from, it took Stephanie a little bit of doing, but she could email this person and say, hey, by any chance do you have this report? And we would get it.

So I do think there is largely compliance being accomplished, but the documentation very inconsistent.

Did I just hear you say that we don't actually have a grants compliance person?

No, each department that has the grant awarded to them, their tasked with the compliance of the grant. So when Joy and her team do the single audit, that's what they're testing. So they talk to the departments about that, but there is no centralized compliance with the muni at this time. Is there a reason why not?

Let the record show Mr. Herfalzi just said poverty.

Okay, so that's really a choice that we've made with respect in a resource-constrained environment. We have chosen to allocate human resources elsewhere, what I'm hearing. Yeah, and maybe if I can say, that's not— not every entity or size has a grants compliance team or officer or something like that. I think one thing that you could consider as a committee is Really an understanding of compliance training and what's being provided to the departments in terms of procurement, federal procurement requirements, Davis-Bacon, Little Davis-Bacon. The big ones we find are those plus reporting.

Just making sure that everybody who is— has a piece of compliance has a consistent message and understanding of what your own internal policies are for documentation, how they should document their compliance. And then as, especially as changes occur, but you know, we find that a lot with decentralized compliance roles that people don't maybe understand the nuances of some of the federal laws, where if there's a grant compliance officer person, they have a centralized point of contact who reviews things before they get approved and can help with that, but the training can cover a lot of that. Yeah, I think that's something we've, that's come up in this committee before, is just the challenges of having this sort of decentralized model. Obviously, it gives a lot of flexibility to departments and allows them to really have sort of that in-house, if you will, understanding of what are we using the grant for and why, and all of those sorts of procedural questions, but that it does become challenging on the compliance side of things, because not everyone who's administering a grant is necessarily a professional or trained in, in doing that work, and federal grants administration is a pain and, and often very complicated. So, um, is— do we, do we have—.

We—. Do we have those training modules built? Do we have grants compliance training for folks in departments who are managing grants? I will say that in many departments they do have compliance training, particularly when they receive a grantor, and I know from a previous role that the Federal Transit Administration, they do not only provide the compliance training, they actually do a separate triennial audit of just the FTA funds where they do a similar activity that BDO does. They look at a variety of things, and the Federal Highway Administration does a similar thing.

I'm not sure that HUD does, but other federal, federal agencies do offer a lot of training on particularly related to their grants. So, and I believe the state does as well.

Member Brawley. Thank you. I'll just note on the theme today of talking about AML, I know AML and Alaska Municipal League, you know, their main focus, they provide a lot of shared services and their target audience, I guess, is smaller local governments. But I just want to note that they do have compliance staff because they are actually managing a number of federal grants, some of which I think are, but I think they also have some training resources, and they definitely have worked through kind of how do we manage grants for multiple communities. So I just want to note that they're a resource, and so even if we're not tapping into their kind of canned trainings that they already have, I know the staff over there are always helpful, or, you know, they want to be helpful, and we're a member.

And so if it's helpful even to think about kind of what a good training would look like, what they're doing, I know they're using certain software programs, and so on. So just wanted to put in that plug. Thanks.

I am seeing nobody else looking at me.

We are getting close to time. I think we have tracked through all of the material weaknesses, which is what I was hoping that we would get through today. We may need to save our significant deficiencies for a separate conversation, which I think these are, in my mind, important, but less so than the material weaknesses. Ms. Mariner, is there anything that you would like to say to wrap us up today? No, I think maybe just the last material weakness on capital assets, and I will just mention, you know, I think the same thing as just the documentation is maybe in different places, and having that higher-level just double-check of all of our view of the pieces of that is going to be important as you move forward.

And I think very similarly in capital assets, different departments are responsible for different pieces of it. And there used to be a central point of contact at the Controller Division who sort of bribed and coaxed the information out of— I shouldn't use that word here probably on record, but they got the information they needed from all the departments to make it all come together. And that continues to be, I think, a challenge in just making sure that all the pieces work. Together. I do think there's a lot of detective controls in place on the back end to check these things, but I think there's just a lot.

You have to remember the municipality is running a municipality, but you're also essentially a construction company, and I think people don't necessarily recognize that all the time. There is a heck of a lot of construction going on, capital activity happening, and even just the disposals and the inventory piece has to be done to some degree, and departmental level. So I think that just really comes down to that information and communication piece. That is, when we look at internal controls, that's one of the 5 elements of internal control is information and communication. And we don't have a separate finding on information and communication, but you can see that theme running through all of them.

It's just how are you gathering the information? How are you checking it all? And what's the communication that has to happen between these centralized departmental information through to what ends up on the financial statements.

So, so we, we used to have a central point of contact for capital assets tracking.

There was someone at the Controller Division who I think took it upon themselves without a specific policy or job description to really babysit all those schedules and double-check everything. Was getting done.

And I do think that's happening a lot more now, but in '24, that was not something that was really delegated or assigned to a specific individual when Stephanie came on. And so when that person left, it just fell off the radar because it really wasn't in a job description, and particularly it was more of just something that was getting done that probably wasn't cross-trained at the time. That's fascinating, um, and also seems really efficient to have a single person that's sort of tasked with managing that tracking. Um, yeah, and I wonder if that's something that could be re-implemented or reinstated. I mean, both for capital assets and potentially also just maybe in less— in a similarly informal way for the grants compliance, if there was one person in the controller division that was sort of the known point person for questions and things of that nature.

I could see that being really useful. So we do not make recommendations in work sessions, but to be continued on that point. Anything else from the committee?

Okay. No one's making eye contact with me, so Thank you, Joy and Kelly, for being here with us today to help walk us through this. Huge gratitude to you, Ms. Ryan, for all of the work that you are doing in the Controller Division to get these things shored up and put us on better footing. We really, really appreciate all your work and are excited to support whatever changes need to be made, or, you know, whoever needs to be kicked in SAP. To, um, to move these things forward.

So thank you for your work, and thank you to Mr. Wilbur. Great. With that, we are adjourned.