MINUTES OF SMITHFIELD TOWN COUNCIL WORK SESSION
Date: Tuesday, January 21, 2025
Place: Smithfield Town Hall
Time: 5:30 P.M.
Present:
Town Council President John J. Tassoni, Jr.
Town Council Vice President Angelica Bovis
Town Council Member Michael P. Iannotti
Town Council Member Rachel S. Toppi
Town Council Member Thomas Winfield
Interim Town Manager Robert Seltzer
Town Solicitor Anthony Gallone
Town Clerk Lyn M. Antonuccio
Finance Director Caitlyn Choiniere
CliftonLarsonAllen LLP Raquel Machado
CliftonLarsonAllen LLP David Hansen
Budget and Financial Review Chair Samantha Kerwin
Budget and Financial Review Board Member Kenneth Sousa
Budget and Financial Review Member Stephen Bailey
Budget and Financial Review Member Crescenzo Conti
Mr. Hansen reviews the 2024 audit results with the members which includes the following:
Scope of the Engagement
· Audit of the financial statements for the year ended June 30, 2024
· Single audit of major federal programs Financial Reporting framework
· U.S. generally accepted accounting principles (GAAP)
· U.S. generally accepted auditing standards (GAAS)
· Generally accepted government auditing standards (GAGAS) o
· Understand and test internal controls for the purposes of determining nature, timing, and extent of substantive audit procedures
· Required communications to governance
Risk Based Audit Approach
· Internal Control
· Revenue Recognition
· Liability Completeness
· Significant Estimates
· New Accounting Standards
Mr. Hansen explains the following: This is a first year engagement for CLA, therefore, it is more extensive. CLA gets the background of the Town and then go through their required planning procedures. They review the internal controls, revenue standards, liability completeness, significant estimate, accounting standards. For this year the Town did have to implement any new standards. There have been a few the past couple of years relating to leases which were GASB 87 and GASB 96. These were implemented in prior years to the Town.
BFRB Chair Kerwin questions if there are any new standards coming that the Town should be thinking about. Mr. Hansen states that there is GASB 101 is related to compensated absences and will be in effect in FY25, however, it should not have too big of a change for the Town. Mr. Hansen further states it will have to do coordinating sick/leave time and how it is presented on financial statements.
Reporting Results
Under Generally Accepted Auditing Standards (GAAS)
Unmodified opinions of the financial statement document.
· Governmental activities & Business-Type Activities
· Each major Government Fund (General Fund, School Unrestricted Fund, and American Rescue Plan Act)
· Each major Proprietary Fund (Sewer Authority, Water Supply Board, Smithfield Ice Rick, and School Lunch Program)
· Aggregate remaining fund information (Non-major Governmental Funds, Water Fund, Sewer Fund)
Mr. Hansen explains the following: Under GAAS standards they expressed an unmodified opinion, which is a clean opinion. The firm thinks that the Town’s financial statements are at in accordance with GASS and presented appropriately. The basis of their audit is to express their opinion on the financial statements, and they do not feel they are misstated in any manner.
Report on internal control over financial reporting
· No instances of noncompliance or other matters have been noted.
Financial Highlights:
· General Fund:
Total revenues exceeded total expenditures by $28,042,491 for the year. That surplus was driven most by better-than- expected tax collections and better-than-expected revenues licenses and fees, and interest income.
Overall, budgetary activity reported a deficit of approximately $76,000
Member Iannotti questions the revenues exceeding the expenditures by over $28M
Ms. Machado explains the following: Total revenues exceeded total expenditures and it is in the General Fund. The Town had $73.9M of total revenue in the General Fund and $45.9M expenditures in the General Fund. This leaves the Town with $28,042,000. The $76,000 overall budget activity reported is in the budget to actual.
Member Iannotti questions one being the General Fund and the other being operations. Ms. Machado reminds the members that the General Fund is the Town’s operating fund. Ms. Machado explains that the budget to actual is where will see the difference budgetary basis versus the gap basis. Ms. Machado further explains that categories may be different, but it is based on the budget that the council approves every year. Ms. Machado also explains that it is based on different categories and this is the easiest way to explain it.
BFRB Member Sousa states it is expenditure driven.
· Long-Term Debt: Governmental Activities:
Overall, long-term bond decreased $2,845,000 for the year. This was primarily due to debt payments executed during the year. There were no new debt issuances in the fiscal year.
The Net pension liability decreased $3.9M from prior year to $53,669,998 .The Net OPEB liability decreased $6.68M to $32,675,638 at year end.
Mr. Hansen explains the following: The decrease in bonds is due to paying down payments on the current debt the Town has, and there was no new debt issuances for FY2024. Other large liabilities that the Town has, and are not unique to the Town. The net pension liability decreased $3.9M from the prior year and the net OPEB liability decreased by $6.68M from the prior year.
Pension and OPEB Funding:
Pension
State Plan:
· Municipal Employees’ Retirement System (MERS) General Employees Funded 96.85%
· Municipal Employees’ Retirement System (MERS) School Noncertified Employees: Funded 95.83%
· Municipal Employees’ Retirement System (MERS) Police Employees: Funded 102.37%
· Municipal Employees’ Retirement System (MERS) Fire Employees: Funded 101.20%
· Employees’ Retirement System (ERS) Teachers: Funded 65.80%
· Teacher’s Survivors Benefit Plan (TSB): Funded 190.20%
Private Plan
· Police Pension Trust Fund: Funded 56.45%
· Fire Pension Trust Fund: Funded 65.86%
· OPEB
· OPEB Fund: Funded 19.86%
Mr. Hansen explains the following: All of the plans the Town participates in are listed, both the state and local levels.
Member Iannotti questions if MERS is a state fund. Mr. Hansen confirms that MERS is a state fund. Member Iannotti also questions the Town not having any control over the percentage. Ms. Machado explains that the state tells each municipality what they should be putting in.
Vice President Bovis questions the pension numbers that decreased and if those numbers change every year. Ms. Machado explains that those numbers definitely change every year and it is based on economic conditions, discount rates from the actuary or from state information.
NFRB Sousa questions the council receiving a report from the actuary. Finance Director Choiniere states that the actuary report was received. Ms. Machado explains that information is used for the private pension plan, and the state items come directly from the state.
Member Iannotti states that OPEB is 19.86% funded and questions the percentage for last year. Ms. Machado states that the percentage was 14.2% last year.
Budgetary Highlights:
General fund revenues and transfers were over budget by $160,605
Property Taxes under budget by ($408,266)
License, Fees and Permits over budget by $277,980
Interest Income over budget by $522,204
Other financing sources under budget by ($461,039)
General Fund expenditures and transfers were over budget by $236,897.
Public Safety over budget by ($1,553,848)
Public Works under budget by $271,633
Debt Service under budget by $1,730,113
Municipal Capital Improvements under budget by $336,253
BFRB Member Sousa questions the interest income being over budget by $522,000 because he saw another figure of $463,000. BFRB Member Sousa states that the way it is portrayed in the Comprehensive Financial Report is “aggressive investments to increase”, and we know that interest rates have changed. BFRB Member Sousa questions if the Town is in the same aggressive investments.
Finance Director Choiniere confirms the Town is in the same aggressive investments. BFRB Member Sousa questions if Finance Director Choiniere is comfortable with this. Finance Director Chioniere states that she is comfortable with this, and the Town has some good investments.
Member Iannotti states that public safety is over budget and questions if this is due to fire department overtime. Ms. Machado explains that it is a combination of police and fire departments. Solicitor Gallone requests a breakdown of those numbers. Ms. Machado states that this report is within their software, and she will send it out.
Finance Director Choiniere questions just figures between the police and fire departments. Ms. Machado states that the figures are $1.1M for the fire department and approximately $500,000 for the police department.
BFRB Member Sousa states that he would like to see that analysis to determine where the trend is. BFRB Member Sousa would like to get that overtime figure to $200,000. Interim Town Manager Seltzer explains that between injuries and not being able to hire people, it is not getting any better. BFRB Member Sousa states that he is aware that hiring is a problem, however, at some point in time, that “wick is going to run out”. Interim Town Manager Seltzer explains that just the overtime for people staying over for calls is approximately $50,000. Interim Town Manager Seltzer further explains that there are two (2) floaters per shift. BFRB Member Sousa questions how many people we currently have. Interim Town Manager Seltzer explains that when he started there was fifty-four (54) people, which includes dispatchers.
President Tassoni states that there is another factor to that, and that is the amount of calls. BFRB Chair Kerwin explains that the idea was to take the funds from the SAFER Grant to hire additional floaters to help bring the overtime cost down, and to pay those on the shift base pay not at overtime rates. Chair Kerwin further explains that this was as of June 30, 2024, and not all of those positions were filled until a few months ago, therefore, there is not even a year’s worth of data to determine if the floaters are helping.
Required Communications:
Internal Control Communications:
· We consider internal controls to help plan our audit procedures
· However, we express no opinion on the effectiveness of the internal controls
· Control Deficiency–exists when the design or operation of a control does not allow manage, mentor employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis
· Material Weakness–a deficiency creating a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis
· Material Weakness in Internal Control over Financial Reporting (RIDHEA)
Overall:
· Purpose is to communicate audit results to governance
· No changes in scope
· No new accounting policies were adopted in 2024
· Disclosures are neutral, consistent and clear
Estimates:
· Significant estimates include valuation of pension and OPEB liabilities
· Audit procedures applied
Difficulties:
· No significant difficulties encountered
· No disagreements with management
· No other findings to report
· No consultations
Other:
· Passed adjustments, deferred property tax liabilities and bond premium amortization
· Management representation letter signed at conclusion of engagement
· Supplementary information
Mr. Hansen explains the following: We consider internal controls when planning their audit procedures, however, they express no opinion on the effectiveness of the internal controls. If a control deficiency was found in their audit work or a material weakness, they would be required to express that to the council and management. There was not a control deficiency for the FY24 audit.
BFRB Member Sousa questions if this was tested. Mr. Hansen confirms it was tested.
Mr. Hansen continues to explain: The purpose of their overall communication is to tell the council the results of the audit. There were no changes in their scope and there were no new accounting policies were adopted in FY24. They must communicate the significant estimates that they deem, and those were the valuation of the pension and OPEB. For the local plans, they rely on the actuarial information, and the census is tested. They rely on evaluation of those estimates.
They are required to communicate any difficulties that were encountered, however, no difficulties were encountered with management, there were no disagreements, and there were no other findings. There were a couple of past adjustments. Immaterial errors were found, but did not require any journal entries for the Town.
A Management Representation Letter details what management is responsible for and what the firm is responsible for.
President Tassoni questions if on the horizon, with a new administration coming in, any major switches in doing the audit. Mr. Hansen does not foresee any major changes in the immediate future, however, he is not sure if it will happen in the next couple of years.
President Tassoni also questions if the Town of Smithfield is an “A”, “B”, “C” or “F”. Mr. Hansen states that it is his opinion, and he would give the Town an “A-“.
Member Iannotti questions how the Town can achieve an “A”.
BFRB Member Sousa questions what prevented Mr. Hansen from giving the Town an “A”.
Mr. Hansen states the following: There are a few recommendations. A large emphasis for the firm has been on IT security. During the audit process they look at certain factors relating to IT security, and they recommended that both the Town and School Department ensure that their financial system security is more robust as it relates to passwords.
Ms. Machado suggests creating a formal password policy and that passwords need to be changed in the computer every ninety (90) days (even in the finance software). President Tassoni requests samples. Interim Town Manager Seltzer states that the policy from the IT Director is pretty intense, and it includes many policies, employees must go through training, and information on passwords. Interim Town Manager Seltzer further states that he is in agreement with changing passwords every ninety (90) days.
Finance Director Choiniere explains that she contacted the Town’s financial software company, and they are going to walk her through the steps to make it so passwords need to be changed every ninety (90) days. Finance Director Choiniere further explains that when the software was set up, changing the password was not setup.
BFRB Member Sousa states that there are two (2) private corporations in RI that have been hacked, and it has not yet been in the press. BFRB Member Sousa suggests that an employee is locked out after too many incorrect attempts because this is not being done.
BFRB Member Sousa references Page 204 of the Comprehensive Financial Report which is entitled “Net Position by Component Last Ten Fiscal Years”. BFRB Member Sousa asks that there are monumental loses and asks for an explanation. BFRB Member Sousa states that it started ten (10) years ago with $18M and is now $31M.
Mr. Hansen explains the following: That is the current net position, and it is going forward in the fact it was $38M and is now $31M.
BFRB Member Sousa questions if net position is an analogous term. Ms. Machado explains the following: With the net position, you are looking at government-wide activities versus the General Fund of governmental activities. The General Fund is the day-to-today operating accounts and government-wide activities, after the implementation of GASB 34, it is looked at like the financial statements of private sector accounting. You will see in the government-wide all of the liabilities, which includes the pension and OPEB, all of the debts, everything owed to the bond agencies, and capital assets. That is different from what you see on your governmental funds, and you will not see debts and capital assets. The expense for the capital assets will be shown on your expenditures on the General Fund, however, you will not see what is held there in the assets, what is depreciated, and all of the debts. This is why you see a huge deficient. The majority is the pension and OPEB.
The net investment and capital assets is the assets minus the depreciation and the debt you have to purchase those assets.
BFRB Member Sousa states he is aware it is different for government, but it is clear that it is going in the wrong direction. BFRB Member Sousa further states it is also going in the wrong direction on the bottom; the Town had $2.2M positive in 2015 and now we have $10M which is negative. BFRB Member Sousa also states this has far-reaching implications in terms of pensions and other things. BFRB Member Sousa states that the trajectory is not going in the right direction.
Ms. Machado states the following: This is similar to other municipalities, and the fact that the pensions and OPEB are not fully funded, is why you will be seeing this until the pension and OPEB is fully funded. Solicitor Gallone states that the contribution will continue to rise.
BFRB Member Sousa would like to see that number to see how much is being driven by the deficient in the pension, especially OPEB, so that he can completely understand it. BFRB Chair Kerwin states that it is coming back, and it is a better direction, but not where you want it.
BFRB Member Sousa states that it is his understanding that the Town did put money into the OPEB and questions if the Town is funding the claims to that fund out of operating. Finance Director Choiniere confirms that the Town is funding the claims to that fund out of operating. BFRB Member Sousa wants assurance that the Town is not taking a dime out of OPEB. Finance Director Choiniere also confirms that no money is being taken out of OPEB.
Member Toppi questions the main reason for this number is the OPEB liability. Ms. Machado states it is OPEB and all of the pensions.
BFRB Member Bailey states that the OPEB is $32M, and if that is added back, you are right at zero.
Member Toppi questions what the secondary reason is for this. Ms. Machado states it is the bonds or debt. Mr. Hansen states the following: The numbers tell the story, but not the whole story. Mr. Hansen further states that GASB 68 (implemented in 2016) is related to pension liability and the valuation of it. GASB 74 and GASB 75 is related to OPEB valuation. These changed the standard of accounting that the Town must abide by. That changes what the liabilities look like and ultimately changes the net position.
BFRB Member Sousa expresses his concerns with RUBS, and how he has hated them through two (2) previous administrations. BFRB Member Sousa feels that they hurt the budget process immensely.
BFRB Member Sousa states that the Town had $2.7M in RUBS in two (2) fiscal years, and it is now projected at $732,000.
BFRB Member Sousa further states that is a large amount to carry over from year to year, and it is finely drawing down. BFRB Member Sousa also states he is glad we are getting rid of it because it falsely “screws up” the budget. BFRB Member Sousa feels any funds not expended should go back into the General Fund.
Finance Director Choiniere explains the following: We are trying to not use RUBS anymore. This is money that gets placed in a certain account and gets rolled over each year if it is not used for future years. This is something that this firm and the Town does not want to do anymore.
Vice President Bovis questions the alternative with the extra money. Finance Director Chioniere explains the money would go back into the General Fund at the end of the year or the Town could encumber money if there is a certain project, such as roads. Finance Director Chioniere further explains that if the Town had $2M in roads, and the Town gives a vendor a $2M contract, the money can be encumbered to that one (1) vendor rolling over into the next year.
President Tassoni questions if the money is rolled over depending if we have a little or a lot of snow or use a little salt/sand or a lot. Finance Director Chioniere states that the money should not roll over. Finance Director Chioniere further states the RUBS is not for every account, it is on a handful of accounts (professional development account or professional services). RUBS is not specific to bigger accounts. Interim Town Manager Seltzer states this not salaries or overtime.
Member Toppi questions who chose the accounts in the past. Interim Town Manager Seltzer states this goes back to prior Town Manager Dennis Finlay.
BFRB Member Sousa states the following: The surplus will go into the General Fund, and theoretically, give them the same amount of money as next year. BFRB Member Sousa reminds the members that accruals are not growths, and are contractual obligations during one (1) fiscal year and span into another. It got so bad with the budget worksheets they would do, it would be listed as +10,000 RUBS. It became so controversial that the previous administration would list is as +RUBS with no amount. The board was flying without any knowledge of how much will be in there when they turned over in the budget on July 1st
President Tassoni expresses his concerns about scrambling to have to find money if we were to have a bad winter because not enough money was left for them. Finance Director Choiniere states that the excess money is not in the spots you think they are in such as the major DPW accounts. Finance Director Choiniere further states that being able to encumber for certain things, and also the money going back into the General Fund to budget for the next year is a better policy.
Vice President Bovis questions if this affects the departmental allotment because we cannot go below what was allotted to them in the previous year. Finance Director Choiniere explains you can go below the amount, this is just for the School Department and libraries.
Interim Town Manager Seltzer uses the Clerk’s Office as a perfect example because when there is an election that budget must go up to cover everything, and this year there is no election which would bring the budget down again.
Vice President Bovis questions there not being RUBS for the School Department or the libraries. Finance Director Choiniere states there are no RUBS for the School Department or the libraries.
BFRB Member Sousa states that is what the General Fund is for, if money is needed, we would transfer the funds. President Tassoni wants to ensure the Town is not being “handcuffed”. Director Choiniere states this will not put the Town in a position.
BFRB Member Sousa questions how we get rid of RUBS. Director Choiniere states that we are drawing them down, and we have drawn down a great deal this year. Ms. Machado states that RUBS is currently approximately $700,000 and the Town drew down approximately $2M.
Interim Town Manager Seltzer questions the federal report is for all of the Town’s grants. Ms. Machado states that report is for all of the Town’s grants and has been filed with the clearinghouse.
Vice President Bovis questions the IT security as being the only thing that prevents the Town from being scored an “A”. Mr. Hansen explains the following: It is IT security and FEMA Grant reimbursements, and they have seen this in other municipalities as well. To account for that accrual and what you get back, the reimbursement process has been so long, it is hard to accurately portray what the number really should be at fiscal year-end. The firm thinks it is reasonable what the Town has, however, going forward the process should be a little cleaner.
Interim Town Manager Seltzer states that is usually when you have disaster declarations, and it could take years. Interim Town Manager Seltzer further states the Town is still working on COVID, and the Town has $600,000 in reimbursement coming. . Interim Town Manager Seltzer also states that with the SAFER Grant, RIEMA Grant, Assistance of Firefighter’s Grant and CDBG, the Town is reimbursed right away.
Mr. Hansen explains that the other recommendation has to do with the journal entry review process, and having a standard review process in place. Mr. Hansen further explains that identifying the individual that is preparing and a reviewer. BFRB Chair Kerwin questions if this could be system driven. Ms. Machado does not think it can be system driven. Finance Director Choiniere explains that the Town’s system only allows for an entry that does not need to be approved, therefore, she has implemented with her Controller, who will write out the journal entry, and she (the Finance Director) would approve it.
BFRB Member Sousa states the Town must move towards a system driven process. BFRB Member Sousa further states that he would like to see the actual audit report submitted to the Town in addition to the Comprehensive Financial Report. BFRB Chair Kerwin states that this, along with the audit opinion, control report etc. was in the email sent by the Interim Town Manager’s secretary.
Member Toppi questions when is the earliest the council can get a copy of the audit because there is not a great deal of time to review this information. Finance Director Choiniere states if the council would accept an electronic version, she could get it to the members quicker.
Member Toppi questions if this is because it gets published. Ms. Machado explains there is a processing area that prints and binds everything then mails it over to the Town. Interim Town Manager Seltzer states that it depends on when the meeting is scheduled.
Member Toppi states that four (4) days to review the material is unacceptable and it is the second year this has happened, and although it is no one’s fault, it is not enough time. Member Toppi questions why she is hearing about scheduling a meeting. BFRB Member Sousa explains that the council would receive the audit then schedule a meeting.
Finance Director Choiniere explains that this must be approved by the council as soon as possible so that she is able to submit it to other people. Interim Town Manager Seltzer questions if two (2) weeks is reasonable. The members are in agreement with this timeframe. Finance Director Choiniere states that the minute she receives it next year, she will email it to every council member.
Motion to adjourn is made by Member Iannotti, seconded by Vice President Iannotti, to adjourn the work session. Motion is approved by a unanimous 5/0 vote.
Meeting adjourns at 6:27p.m.
_____________________________
Town Clerk