HomeMy WebLinkAboutMinutes_Miscellaneous_05/04/1998_Finance & Administration Committee F Tf
VILLAGE OF TEQUESTA
r Post Office Box 3273 • 357 Tequesta Drier
o` Tequesta, Florida 33469 -0273 • (561) 575 -6200
e� Fax: (561) 575 -6203
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VILLAGE OF TEQUESTA
FINANCE AND ADMINISTRATION COMMITTEE
MEETING MINUTES
MAY 4, 1998
I. CALL TO ORDER AND ROLL CALL
The Tequesta Finance and Administration Committee held a
regularly scheduled meeting at the Village Hall, 357
Tequesta Drive, Tequesta, Florida, on Monday, May 4, 1998.
The meeting was called to order at 5:00 A.M. by Chairman
Carl C. Hansen. A roll call was taken by Betty Laur, the
Recording Secretary. In attendance were the following
Committee members: Chairman Vice Mayor Carl C. Hansen, Co-
Chair Joseph Capretta, and Co -Chair Ron T. Mackail. Also
in attendance were village Manager Thomas G. Bradford,
Village Clerk Joann Manganiello, and Department Heads.
II. APPROVAL OF AGENDA
Under Any Other Matters a report on the status of finding a
new Finance Director and accountants was requested from the
village Manager.
Co -Chair Mackail made a motion to approve the agenda as
amended. Co -Chair Capretta seconded the motion. The vote
on the motion was:
Carl C. Hansen - for
Joseph N. Capretta - for
Ron T. Mackail - for
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FINANCE AND ADMINISTRATION COMMITTEE
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The motion was therefore passed and adopted and the agenda
was approved as amended.
III. COMMMICATIONS FROM CITIZENS (NON-AGENDA ITEMS)
There were no communications from citizens.
IV. REVIEW OF COMPREHENSIVE ANNUAL FINANCIAL REPORT (cafr) FOR
THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
a) Overview of CAFR by Daniela Russell, C.P.A., Nowlen, Holt
& Miner
i) Financial Position by Fund
ii) Management Comments and Response
b) Reconmendation to village Council for Acceptance of CAFR
Mr. Ed Holt of Nowlen, Holt & Miner explained his intent was
to provide an overview of the financial report, which was
provided in a comprehensive format required by the GFOA in
order to be considered for an award of excellence in
financial reporting, which had been awarded to the village
every year for the past 16 or 17 years. Mr. Holt explained
that the objective of an audit was to have an individual
auditing firm render an opinion on the financial statements
as to whether they were fairly presented, and in addition,
because this was a government audit the auditors were
required to report on internal control and on compliance.
Mr. Holt expressed his firm's opinion that the financial
reports were fairly presented in conformity with general
accounting principles. Mr. Holt explained that focus in a
government entity was on the fund balance, which was assets
minus liabilities, and the general rule was to end the year
with the fund balance being 10* of the normal expenditures
in the general fund. Mr. Holt stated that the fund balance
FINANCE AND ADMINISTRATION COMMITTEE
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May 4, 1998
Page 3
as of September 30, 1997 was sufficient. The cushion was
always desirable for emergencies and to provide funds from
the end of a fiscal year until tax revenues were received
the next January. Mr. Holt reported approximately $1.9
million in enterprise funds, which he stated were in
extremely good order. Mr. Holt commented that adding $4
million in contributions to capital to the $5.8 million
retained earnings in the enterprise fund for a total of
almost $10 million, and subtracting fixed assets of $7.5
million, gave approximately $2.5 million in funds not tied
up in non - expendable assets, which provided a level of
comfort. Mr. Holt described the general fund as having
$207,000 in excess of revenues over expenditures, and that
the focus should be not to have an excess of more than what
was deemed to be an appropriate amount. Mr. Holt explained
it would not be fair to build up to 4 or 5 times the fund
balance unless a specific purpose for the funds had been
identified; and in some counties there were laws that
property taxes could not be raised over a certain amount
unless an adequate amount of fund balance was first
determined. Mr. Holt gave an example that if the Village
had $5 million in their fund balance with no reason for it
they would then consider reducing taxes, which would reduce
income to significantly less than expenditures, but that
would not necessarily be wrong. Co -Chair Mackail commented
he had been on the village Council 12 years and the increase
in fund balance had been very good and the Village had been
able to maintain a very constant minimal tax increase, and
he felt the Village was financially strong. Co -Chair Mackail
suggested increasing taxes for a year to increase the fund
balance so the Village would not have to worry about taxes
for several years. Co -Chair Capretta commented the village
had been living like white trash, living within their means
but not investing in the community for many years, and he
had advocated increasing the assessed value of the town in
order to invest in the community, which had now happened.
Now the Village had debt they did not previously have, and
needed to make sure they had the money to pay those debts.
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Mr. Holt commented there was nothing wrong with getting
ahead of the game but there needed to be a focus on the
adequacy of fund balance for planned needs and a focus on
what the amount should be for a cushion for emergencies.
Mr. Holt explained the Village Council would need to make
the decision on the amount. Co -Chair Capretta discussed
recent consideration of selling the water department because
he liked the idea of receiving income from Treasury Bonds.
Village Manager Bradford commented the fund balance had been
rising for the last couple of years and he considered times
good now, but the time would come when the Village would
need to cut back, and he wanted to get the fund balance to
25 %. CPA Daniela Russell commented that the general goal
was expenses should not exceed revenues. Co -Chair Capretta
expressed concern whether the right amount of money was
being collected from water customers. Mr. Holt continued
the overview, stating that the enterprise fund net income
totaled approximately $375,000. Mr. Holt stated that notes
to the financial statements were approximately the same as
in prior years.
In addition to financial reporting, compliance and internal
control were reported. Mr. Holt explained that some of the
items had been reported in the past. Mr. Holt discussed
segregation of duties, and explained that anytime there was
a small accounting staff it was difficult to separate
procedures; however, to the extent that they could be
separated it would make internal control stronger,
especially in areas of most exposure. Mr. Holt recommended
either segregating procedures or having procedures
independent of the people performing the duties where tests
of the procedures were done. Management had responded to
all of the comments and was not at variance with any of the
auditor's comments. In this case, Management had stated
that to the extent we have people on board and where it is
practical, that is, cost beneficial, to make those changes,
we will. Mr. Holt stated the auditors would work with
Management to the extent that they could.
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Regarding the second item, automated collection procedures,
a review was currently underway, and it had been decided it
would be done but it was a matter of getting the right
software. Mr. Holt stated that under current year comments,
the first was finance department staffing, and that during
the past 1 -1/2 years there had been significant turnover as
a result of which the Finance Department fell behind in its
accounting work. Long -term employees had been lost which
made the situation worse, since if it had been someone newer
to the job it would have been easier to replace them. Mr.
Holt commented that in the enterprise fund for the Community
Development Department the village was not charging
utilities expense or rent for building space occupied and in
order to operate as an enterprise fund those charges needed
to be made. Chair Hansen inquired if this would be paid by
the General Fund. Mr. Holt responded that it would, and
that this would be an easy area to correct.
Another problem found was that in a couple of instances
there was overpayment of expenses, which Mr. Holt believed
to result from turnover and new employees not understanding
the job. Payment had been made from an invoice that was not
an original, plus employees did not completely understand
the procedures, and because of lack of staff many errors had
resulted. Another problem was that voided checks were not
tracked. These problems could be easily corrected by
following procedures. Problems had been found in use of the
travel policy, which was now under review. Some travel
turned in had been out of Palm Beach and Martin counties.
Mr. Holt expressed his opinion that this could be corrected
with a travel policy.
Mr. Holt explained that the auditors had considered all of
these problems as not being material internal control
weaknesses that were reportable under the law. Mr. Holt
stated the auditors believed an annual inventory of tangible
personal property should be taken and that was not done
because it was not a high enough priority on the list of
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items to be done. Chair Hansen questioned whether there
were areas where a procedure should be in place where there
had never been a procedure, to which Daniela Russell
responded that the only one was a travel policy. Co -Chair
Capretta commented that it was understandable that more
important items had higher priority so that some things did
not get done; however, he was not sure the important things
were getting done since they were so far behind. Ms.
Russell commented there was definitely a catch -up period to
get to the point where the books could be audited.
Co -Chair Capretta commented there were very few differences
in this years management letter and that of last year; and
expressed concern over whether the village was getting all
the property taxes they had coming and all revenue from
other sources, such as gas taxes. Finance Director
Kascavelis expressed his opinion that all revenue from those
sources was being received. Co -Chair Capretta inquired
whether there was any doubt whether all water department
revenue was being received, to which Finance Director
Kascavelis responded he was sure it had been up to 9/30/97,
but after that date there was a discrepancy in receivables
which was now being researched.
Mr. Holt explained that the books for 9/30/97 were not
closed until mid - December and because staff was working on
closing the books they got behind in other accounting work.
Ms. Russell contributed that she believed problems had
escalated since that date. Mr. Kascavelis reported problems
had started in the water Department when a long -time
employee, Iva, left between December 1996 and January 1997,
and other people had been moved around to try to get the
work accomplished. Co -Chair Capretta stated a staff of four
was not many and it was easy to get in trouble when someone
left, and to fall behind. Co -Chair Capretta commented the
reason he was worried about the water company was if all the
revenue was not collected the village would be in trouble
when they had to make a payment of half a million, and water
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revenue had been going down, when with the drought it should
be going up.
Co -Chair Capretta commented from the report it seemed
everything was great but there were serious problems: the
Finance Department did not have a staff that was trained,
they were behind in their work so that they only did the
important things, but now they were behind in the important
things, which created a big problem. Mr. Holt stated he
believed it was important to focus on the fact that the
severity of being behind was occurring in the current period
and not in the period that was reported; although there were
several more items of compliance and internal control
weakness mentioned than in previous years. Mr. Holt stated
all the problems needed to be corrected, however, he would
not consider any one of the problems severe enough to be
considered a material problem. In this new period there
were fewer Finance staff, and decisions must be made on how
to focus so that the Village would not have a much worse
audit report next time.
Mr. Holt stated another problem was reconciliation of the
payroll cash account had not been done, and needed to be
done on a permanent basis. Personnel and payroll I -9 forms
were not completed or could not be located. 941 forms were
not reconciled. Accounts payable detail was not done and
significant time had been spent to determine what the
accounts payable were as of the end of the period. The
auditors recommended closeout procedures be in place for the
upcoming period. Purchase orders were used to encumber
funds after the period, which could have been a
misunderstanding as to when a purchase order should be used.
Under compliance with Florida Statutes, the village did not
submit the form it should have submitted to the Department
of Revenue; and the village failed to provide addresses to
the utility companies, which had now been done. Mr. Holt
stated none of these problems made the auditors believe the
village was in a state of financial emergency.
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Mr. Holt announced discussion of where the village was now
and where the auditors thought the Village should be. Mr.
Holt stated that a once a year audit was adequate. Mr. Holt
stated there was a lack of adequate people in the Finance
Department, and the auditors had been requested to interview
potential new hires. Out of those interviewed so far they
believed at least two would be potential good hires. Mr.
Holt explained they had just tried to determine if they
could do what they said they could do and did not do further
research. Mr. Holt advised the new hires should be brought
on board as soon as possible, that the village had two
positions to fill and if two people could not be found then
they should readvertise immediately to get that other
person. Mr. Holt explained that his company's staff had
been working in the Finance Department. Mr. Holt explained
the wanted the new hires to have as much experience as
possible and wanted to assist in their training. The
auditors also wanted to update procedures that were
currently in place, such as the one for processing
disbursements. Mr. Holt stated training was critical,
because when the employee was on their own the auditors
wanted to be sure they knew what to do. Mr. Holt also
stated the Village was advertising for a Finance Director,
who was needed as soon as possible. The current objective
was to get the records current as quickly as possible, and
the auditors would put together a guideline for this as
quickly as they could, but believed it would be unreasonable
to expect everything would be current before mid -July. Mr.
Holt wanted to have documented procedures in place by the
end of the period. With the new bond issue, before the end
of the period certain required deposits must be made,
required funds must be established, and a compliance check
list must be prepared. Mr. Holt stated they did not want to
have non - compliance on the bond issue as of 9/30/98. Chair
Hansen inquired whether it was advisable to bring in extra
personnel on an interim basis in order to catch up. Mr.
Holt responded they would like to get new hires on board as
soon as possible and depending on their level of expertise
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to then see whether they thought extra help was needed for
awhile or even another permanent person. Ms. Russell
commented that all postings were done through March for the
period October 1997 through April 1998, but reconciliation
was not done, and a determination could not be made
regarding ongoing requirements until everything was caught
up.
Co -Chair Capretta discussed what had happened, and came to
the conclusion that everything went well until September,
and the only thing that had happened was that key personnel
had left, and the solution was to re -staff and follow
procedures that had been in place for some time. Mr. Holt
responded he did not think the problem started in September,
but believed work was behind then, and stated turnover had
started 18 to 24 months ago, which would affect any
accounting staff. Co -Chair Capretta stated he believed the
Finance Department was in trouble in the previous report.
Ms. Russell explained there were two people on staff then,
and Mr. Holt commented if the auditors had known things were
happening they would have brought it to the Village
Council's attention. Mr. Kascavelis commented the problem
began in July of 1996. Co -Chair Capretta commented that
personnel were lost, action should have been taken long ago,
morale had deteriorated, some employees left that should not
have left, and a meeting like this should have been held a
year ago. Village Manager Bradford explained this was the
first time there had been an Audit Committee meeting, which
had not been authorized until November 1997. Co -Chair
Capretta said it was the fault of Mr. Kascavelis and Village
Manager Bradford that they did not bring this to the
attention of the Village Council; that Mr. Kascavelis should
have brought it to the Village Manager's attention, and if
Mr. Bradford knew of this situation it was his fault. Co-
Chair Capretta stated he interviewed some of the employees
who left and wanted to see if they blamed the whole problem
on Mr. Kascavelis and they didn't; therefore, the problem
was it was the fault of both Mr. Kascavelis and Mr.
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Bradford, that they both let the department become
understaffed to the point it hurt Mr. Kascavelis physically
and it should have been reported to the Village Council.
Mr. Kascavelis stated heads of departments did not report to
the village Council. Co -Chair Capretta stated he understood
that. Co -Chair Capretta expressed concern for the Water
Department, and whether the proper amount of money was being
collected and whether the enterprise fund was right with the
books. Co -Chair stated he hoped the only problem was lack
of staff, but he believed that to prevent this from
happening again the Village must have some procedure, and
felt the audit committee must meet at least quarterly to see
how things were. Chair Hansen questioned how the Village
could not collect the proper amount of money. Mr.
Kascavelis stated there were unexplained errors on the
billing reports and in credit adjustments but he believed
they were not significant; he believed water customers were
being billed, and that the amount in the general ledger was
just off, not over $80,000 one way or the other. Chair
Hansen questioned whether the auditors could detect the
problem, to which Ms. Russell responded that at the moment
the problem was that when reconciliations were not done
there was no way to be sure the water company service
department was doing what they needed to do, and if the
records did not agree then you could not be sure. Co -Chair
Capretta asked if the water department was staffed, to which
Village Manager Bradford responded they had two people, one
had been there six months and the other nine months, plus a
former employee was back working under contract. Ms.
Russell explained that because a long -term employee was with
the water Department until August of 1997 it was believed
the FY 1997 figures were correct, however, after that there
were untrained personnel and discrepancies in the figures.
Co -Chair Mackail expressed his opinion there were other
problems besides lack of manpower, and commented that the
Finance Department had had to take over the extra duties of
the pension fund and the fire department. Co -Chair Mackail
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commented that the number of required personnel could not be
gauged at this point, and there had been no process by which
the Finance Director could communicate, which was not Mr.
Kascavelis' fault, and the village must make sure employees
had adequate supervision and proper hardware and software
that were needed to do the job. Co -Chair Capretta stated
the Village Council was not asked for hardware and software.
Mr. Kascavelis explained that the current accounting system
was on a mini computer and he and the Village Manager had
planned to put a new system into the upcoming year's budget,
but before a system could be converted to a new system
employees must be on board that knew the old system, so now
the Finance Department was at a point they could not even
attempt changing to another system. Village Manager
Bradford commented staff was aware a new system was needed
but a recommendation had not put together.
Co -Chair Capretta discussed the fact that nothing had been
spent in a long time to help conditions because the Village
had slowly been going broke, and it must be run more like a
business. Co -Chair Mackail commented there had been a
feasibility study on needs, the needs had been determined,
but when it came to spending the money for new facilities
the Village Council had backed off, and the Village was
fortunate to have an auditing firm who could step in and who
understood the operation. Chair Hansen questioned that the
auditors did not mention new software and hardware in their
recommendations. Mr. Holt responded that the most important
thing was to get adequate staffing, so that financial
information would be current, and only then should
consideration be given to getting new software and hardware;
and this was the wrong time to consider that matter. Co-
Chair Capretta commented the users must know the kind of
system they wanted before considering the type of system to
buy. Mr. Holt speculated that would be in 12 to 18 months.
Mr. Holt verified that for the 1999 budget the focus should
be on employees, and equipment considered in the next year's
budget. Mr. Holt explained that the auditors would make a
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recommendation as to the number of personnel needed when
they were able to do so, but the decision would be up to the
Village.
Co -Chair Capretta stated it must be determined whether the
Village had any serious problems, to which Mr. Kascavelis
responded there were no serious problems. Chair Hansen
requested that Mr. Holt provide realistic deadlines for
items recommended by the auditors. Mr. Holt requested
another meeting with the Committee in 60 -90 days to provide
a status report; and commented that a new Finance Director
could not be brought on board overnight and would need time
to learn the system. Co -Chair Capretta suggested another
meeting when the auditors had something to report to the
Committee.
Co -Chair Capretta discussed the responsibilities of the
auditors to report items to the Audit Committee and to the
Village Council, and commented that there was a lot behind
the innocuous remarks in the auditor's report, and he knew
it was hard to put all of the dirty linen in writing. Mr.
Holt responded the auditors were employed by the Village
Council and if there was an item the auditors felt was
serious they would not hesitate to report that to Mr.
Kascavelis and village Manager Bradford and if they were not
responsive, to the Village Council or the village Attorney,
depending on the nature of the item. Co -Chair stated he was
not sure he believed that, because they had not reported
anything in the past six months to a year. Mr. Holt
responded the management letter was the auditors' method of
communicating with the Village Council. Co -Chair Capretta
stated that this year's management letter was not much
different from last year's management letter, and they both
made it look like everything was fine, and if the auditing
firm was to continue to do Tequesta's audits, the Audit
Committee would expect more of them. Ms. Russell stated
that accounts payable not being reconciled was serious. Co-
Chair Capretta asked to see where that was in the report,
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and commented there were more serious problems than the
auditors let on to the Village Council. Mr. Kascavelis
stated that when people left and the work would get behind
for about three months, then would get caught up; to which
Co -Chair Capretta responded Mr. Kascavelis had known that,
and should have reported it to the Village Manager, who
should have told the Village Council, and if the Village
Council could not depend on staff or the Village Manager
then the Village was in trouble. Mr. Holt stated the
9/30/96 report, which Co -Chair Capretta was using to compare
to the 9/30/97 report, did not have these problems, which
was the reason there were more comments in the 9/30/97
report. Co -Chair Capretta commented there was not much in
the 9/30/97 report, only a few comments. Mr. Holt reviewed
comments in the 9/30/97 report which were not in the 9/30/96
report because the problems did not exist then, such as
overpayment of expenses, not tracking voided checks, no
inventory of property and equipment, no reconciliation of
cash account, and accounts payable detail not done, which
were serious. Mr. Holt expressed his opinion that focus
should now be directed to the problem of inadequate
staffing, overpayment of bills, accounts payable and not
having items current, and the message being sent was that
these items were significantly different than the year
before.
Chair Hansen suggested submittal of this report to the full
Village Council with the notation that this Committee
planned to meet with the auditors again in three months or
so, and that the auditors would formulate a plan to have
certain things implemented in certain numbers of days.
Chair Hansen requested input from the other Committee
members. Village Manager Bradford reported he had spoken
with Ms. Russell during the prior week regarding making sure
a mechanism was put in place to assure the work did not fall
behind again in the future, while being fair to the new
Financial Director and allowing that person enough time to
become acclimated. Ms. Russell had suggested that beginning
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January 1, 1999, interim financial reports be prepared, and
if the reports were not produced then Management would know
something was wrong and they were not keeping up.
Chair Hansen requested a summary of what had been discussed
at this meeting to be in the form of a motion for submittal
to the full village Council. Co -Chair Capretta summarized
the events of this meeting. village Manager Bradford
reported the village was also seeking a person to be hired
for the position of Personnel Specialist, for which hiring
had been delayed when considering sale of the Water
Department, and this position would take over all personnel
related functions from the Finance Department. Co -Chair
Capretta recommended exit interviews be conducted with all
departing employees in the future since they were willing to
provide information that could point to problems. Co -Chair
Capretta commented the newspapers wanted to give Mr.
Kascavelis an accounting award, but meanwhile it was unknown
what was wrong. Mr. Kascavelis responded he could not stop
what people said and he had tried to be a decent employee
for 18 years; that when Co -Chair Capretta had asked him a
question he had always answered, but he had not had the
liberty to give Co -Chair Capretta unsolicited information.
Co -Chair Capretta made a motion to submit to the full
village Council the report heard at this meeting which
indicated the village did not know where it stood
financially, that there is inadequate staff, that two
accountants and a Finance Director are needed, that the
audit company will work in -house to help catch up and
perform reconciliations to evaluate how bad things are and
will report back to this Committee in 60 -90 days or when
they find out something, that the audit company will assist
in training new personnel and will report back in 90 days or
before. Co -Chair Mackail seconded the motion. The vote on
the motion was:
Carl C. Hansen - for
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Joseph N. Capretta - for
Ron T. Mackail - for
The motion was therefore passed and adopted.
V. ANY OTHER MATTERS
Village Manager Bradford reported on the status of efforts
to hire two accountants and a new Finance Director.
Applications for accountants had gone to the auditors to
prepare a short list based on review of the resumes. The
short list would go next to Village Manager Bradford, who
would check their criminal backgrounds, drivers licenses,
etc., interview them, and hopefully come up with two new
hires. Village Manager Bradford reported the position of
Finance Director had been advertised in Palm Beach Post,
Jupiter Courier, Stuart News, International City Managers
Association Newsletter, and would be advertised Statewide in
the Quality Cities Magazine. The closing period was May 15,
and it was hoped a Finance Director could be brought in
during late June. Village Manager Bradford explained that
if a local person without a current job could be found it
might be sooner. Another firm had been contracted with to
prepare a short list for the position of Personnel
Specialist, and was expected to be available this week ,
accompanied by with recommendations regarding three
potential employees. village Manager Bradford reported the
Village had contracted with Nowlen, Holt & Miner to have Ms.
Russell and an accountant work in the Finance Department,
and since the contract exceeded $5,000 it would be on the
Village Council meeting agenda May 14 for consideration of
retroactive approval.
Chair Hansen requested that the auditors not be shy about
talking to the Audit Committee. Mr. Holt responded the
auditors wanted to come back in 90 days or at another
appropriate time to keep the Committee posted. Mr. Holt
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stated he did not believe this problem would have a quick
fix, but expected it to take six to nine months. Co -Chair
Mackail stated the audit company must remain independent,
that the Committee was aware of the goals and objectives,
and requested the auditors come up with a sequence of events
that was available to the Committee for the Committee to
review at any time. Mr. Holt stated the next meeting might
need to be in 120 days or after new personnel were on board,
so that the auditors would have something of substance to
discuss with the Committee. Co -Chair Capretta requested the
auditors keep in mind there were two issues: management and,
more importantly, to determine no money was stolen and the
Village was collecting sufficient money to pay their debt.
Village Manager Bradford stated that his impression was that
as soon as anything was known about the Water Department
whether good or bad, the Committee would like to hear about
it. Co -Chair Capretta responded yes, and that the Audit
Committee should be more active than usual for the next year
or so. Ms. Russell requested clarification regarding the
timetable desired by the Committee, and after discussion,
concluded that a timetable should be set up showing goals
and stating when those goals were accomplished.
VI. ADJOURNM M
Co -Chair Mackail made a motion to adjourn the meeting. Co-
Chair Capretta seconded the motion. The vote on the motion
was:
Carl C. Hansen - for
Joseph N. Capretta - for
The motion was therefore passed and adopted and the meeting
was adjourned at 6:37 p.m.
FINANCE AND ADMINISTRATION COMMITTEE
MEETING MINUTES
May 4, 1998
Page 17
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Respectfully submitted,
Betty Laur
Recording Secretary
ATTEST:
Joann Manganiel
Village Clerk
DATE APPROVED: