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2019 CAFR: Review Process Needed (F3)

From: domainremoved <Lynne>
Date: Tue, 10 Dec 2019 10:32:24 -0800

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Good Morning Council,

The City's Comprehensive Annual Financial Report (CAFR) is one the City's most important financial documents. It is a "backwards-looking" financial report about the City's prior year actual financial spending and revenue streams, whereas the City's budget document is a forward-looking report about the planned spending and revenue.

Unfortunately, Council is being asked to review the CAFR without a prior review by the Finance & Audit Committee. The CAFR was not ready by the FAC's scheduled meeting to review the document. That meeting had the outside auditor present. He said that it was the only meeting budgeted for his presence. In other words, he would not be returning for another FAC meeting. (Next year, it's worth building into the CAFR outside audit budget additional meetings.) Only part of the CAFR was ready, so the report was not distributed to the entire FAC. The FAC meeting was also cancelled due to a lack of a quorum. Only 3 resident members were present by 15 minutes after the scheduled start time. Staff said, as per Council policy, the meeting needed to be cancelled then although at least one more resident member was on his way. This Council policy could be updated to allow more flexibility should those present not object to waiting for 30 (or so) minutes for latecomers to arrive. If the CAFR had been ready, more FAC members might also have made it a priority to attend. Due to not having even the partial CAFR ready, the questions to the outside auditor were high-level only.

Benefits of FAC review of the CAFR:

  * It would allow for more in-depth analysis and review before the document went to Council;
  * The public has a more informal meeting within which to ask in-depth questions about the numbers or Management Discussion & Analysis (MD&A) section;
  * the FAC could help lay readers find the most useful information items;
  * FAC members could ask questions of the outside auditor based on having a completed document;and
  * Council members not on the FAC could also attend to hear the discussion, giving them more opportunities to decipher the CAFR before their formal review at a subsequent Council meeting.

As I understand the matter, the CAFR is on Council's agenda tonight so the City can become eligible for a GFOA award given to cities who complete their CAFR within 6 months of their fiscal year ending. For the purposes of Menlo Park, to be eligible for the award, the City needs to submit its CAFR by December 31, 2019. However, it's possible to submit the completed CAFR by 12/31/19 and and then have Council formally review it later. So Council could discuss the CAFR at an early January meeting. What is possible needs verifying (or not) by the Finance Director. Council could also decide that the FAC review is more important than the City earning the GFOA award for completing the CAFR, and submitting it to the GFOA, by Dec 31, 2019.

 The Finance Director said that the CAFR could not be completed earlier due to certain year-end closing information not being ready earlier. However, with the fiscal year ending June 30th (each year), one has to ask what could be done so as to have all needed information ready sooner. Moving to a two-year budget cycle might give the Finance Department more time to prepare the CAFR earlier. I hope that Council will ask the Finance Department what could change on their process end, so that the CAFR gets an in-depth analysis and review by the FAC. This would help Council with their responsibility for fiscal monitoring.

The public and Council need more time to carefully read the lengthy CAFR report. 72 hours is not long enough, especially given the other staff reports that Council needs to review for each Council meeting. I'm on a trip and the CAFR was not ready to print out before I left town. I prefer to read a hard copy of a 240+ page financial report, especially one that has had similar information in multiple sections. The CAFR is not something I would read online.

The CAFR needs a more public friendly process. First, I'm not suggesting or implying that I do not trust the numbers in the current CAFR. My objection is to the process. I consider this year's process unacceptable for the purposes of clarity and transparency into the City's CAFR. I also consider the process un-supportive of the FAC's role and charter. Last year, the FAC didn't even have the CAFR as an agenda item before the CAFR went to Council. The process needs improving so that interested members of the public can have at least one opportunity to ask in-depth questions outside of a Council meeting. We also need to give them more than 72 hours to read and analyze lengthy financial reports. I suggest that Council ask the FAC Communications subcommittee to come back with recommendations for an improved CAFR process.

After I return from my trip I will read the 2019 CAFR and compare key sections of it to the 2018 CAFR. In particular, I will be studying the MD&A section (and the footnotes) and the Statement of Net Position. The Statistical Section, although typically not audited, is also important. That section also provides the details about the size of the Staff Organization. Apparently, it has grown by 9 employees according to the newsletter distributed by Menlo Future. I will ask my questions later. However, I will not have the benefit of asking them in a forum with FAC financial professionals present who may also have questions. The discussion may also spark ideas as to how to present and communicate the CAFR information more clearly.

I also point out that many of the City's financial documents present numbers in a very high-level way. This makes it even more imperative to have public forums where in-depth questions can be asked. A careful review of the CAFR, supported by insights from the FAC, would give Council more insight so you can proactively plan.

I will copy the Finance Director and the Chair and Vice Chair of the FAC. I am out of town, or I would also make a public comment tonight.

Lynne Bramlett
Received on Tue Dec 10 2019 - 10:24:13 PST

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