Dec 04, 2018 Audit Committee Meeting

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>> c. Compton: Today is Tuesday, December 4th, 2018, at 2:21 p.M. The audit committee meeting of the board of trustees of the dallas county community college district and richland collegiate high school is now in session. This open meeting of the board of trustees is authorized in accordance with the texas government code, 551.001 through 551.146. Verification of notice of meeting and agenda are on file in the office of the chancellor. Per texas government code 551.1282, this meeting is being broadcast over the internet in the manner prescribed by texas government code, 551.128.

1. Certification of Notice Posted for the Meeting

I, joe d. May, secretary of the board of trustees

2A. Presentation of 1st Quarter Report from Internal Audit for Quarter Ended November 30, 2018 Presenter: Paul Styrvoky

of the dallas county community college district, do certify that a copy of this notice was posted on the 28th day of September 2018,1) in a place convenient to the public in the district office administration building, 2) to john f. Warren, county clerk of dallas county, texas, and 3) on the bulletin board at the george allen, sr. Courts building, all as required by the texas government code 551.054. >> c. Compton: Presentation of first quarter report of internal audit for quarter ending November 30th, 2018. How are you? >> good afternoon, im chancellor joe may. Here to present the first quarter report ending November 30th. My team should be here in a moment and they are prepared to answer detailed questions if you have any related to the audits. During the period we conducted two internal audits. The first audit was the upward bound trio program at richland college. And trio specifically identifies and provides services for individuals with disadvantaged backgrounds. We found some minor issues in our sample of the student payment which total $4,462.54, as detailed in the report. $608.47 of that, or 14% of the sample, had minor issues such as documentation and so forth. I've had very recent discussions with richland management and I have seen where they are ahead of schedule in terms of remediating and correcting that situation. Good afternoon, I would like our team members who did the work to introduce themselves before I go into the next report. This is the auditor who did trio. >> antoinette malone. >> they are internal auditors for three plus years. Alana did the dual credits review. She looked at primarily compliance with the requirements as stated in the contracts for terms and conditions as well as student eligibility. She selected 75 students across the district. The colleges were able to provide the information on a timely basis to our audit team, however there were some operational opportunities to improve the efficiency in terms of the information started in the college student information system and that was made as an overall recommendation. Again, this audit did not identify any significant weaknesses in the area. Two audits were done during the time period because of the bulk of the activity that our team did was related to the assistance of grand thornton where we reviewed and audit tested under their supervision and review major grants and programs. Those are listed here in the status report. Grant thornton will speak in detail if there were issues. One audit under way, the disaster recovery business continuation plan. And finally, in September of this year, management requested an operational review of veteran services. The majority of the major key stakeholders have been interviewed. All of the campuses have been visited at least once and that


includes touring and meeting with the staff in the veterans department as well as business office that support them and we are in the process of collecting any additional information as well as obtaining best practices from peer institutions before we finalize a report and I anticipate that to be sometime early next year. Did you have any questions for myself or our team? >> c. Compton: It says they were last audited in 2015. That's three years. Is there any particular reason that they were not audited more? >> and again, I would defer to grant thornton to answer that question because based on the criteria for major grants and programs they were the ones who select the programs included in their audit. We are just doing the work on their behalf. >> d. Flores: And then in terms of your findings on the upward bound grant and dual credit contract review, internal audit to satisfy the issues that have been identified being addressed and resolved? >> yes, trustee flores. We have regular cnversations and correspondence with the college teams. >> c. Compton: The management request, when I was looking at this, I didn't focus in on -- >> that's a request on me to look at.

2B. Presentation of Comprehensive Annual Financial Report for the District and Richland Collegiate High School and Single Audit Report of Federal and State Awards together with Reports of Independent Auditors, for the Fiscal Years Ended August 31, 2018 and 2017 Committee Action: Review and Recommend for Approval at the Regular Board Meeting on December 4, 2018 Presenter: Ben Kohnle, Grant Thornton

>> again, thank you for the opportunity to serve our students. Thank you. >> c. Compton: 2b. Presentation of comprehensive annual financial for district in richland collegiate high school and single audit report of federal and state awards together with reports of independent auditors for the fiscal years ending August 31, 2018 and 2017. >> I want to thank everyone involved in this process. I think the board knows we presented several months ago. So at this point we now have not only embarked on the audit we warned you we would do but we have completed it. I can't go further without passing on my sincere thanks and appreciation for everybody involved. Paul mentioned his team involved in performing as part of the plan this first quarter, external audit assistance which is really in support of our team. I know for those of you on a board or committee for years, you recognize probably only about 3-4 programs get tested every year because of the risk-based nature of the program for the federal audit for federal grant programs. This particular year because of the way the expenditures fail and programs audited, we actually had seven major programs this year. So more than twice what we normally have. So again, my sincere thanks and appreciation to paul, the rest of the internal audit team for great support of the team throughout this process. I would be remiss if I didn't thank juliet.


>> I would delegate to her ad her team to get these things done. That's part of what we are doing, bringing people on. That's all I have. You can go on. >> your work has been great over the years, john. I'm oly joking. Thank you, john and pat. That's part of the audit process. They are certainly the two who have spent most of their time with us. With that, we have the presentation there and we will ask juliet if she doesn't mind. Is someone else controlling it. And you have a hard copy. Again, my introduction, ben kohnle. We will be doing a joint presentation this afternoon with the intent of actually covering at a fairly high level, the results of the audit. Some of the pages we will talk about are the values of our firm and all that. It's important we share that information with you. But I'm not going to spend a lot of time talking about it. You saw a lot of these as part of the audit plan presentation. So I will go through this fairly expeditiously, with that said, please treat it very informally from our perspective. If you have questions, feel free to jump I and ask those questions. Obviously we will also have time at the end. Happy to answer questions as we go, or at the end. Page one, our values are clear. This is one I won't spend a lot of time on. C.L.E.A.R.R. Is how we serve our clients. All of those are important in the conduct of our service to the district. The next page is really our responsibility. Grant thornton, paul and his team, collectively along with the minority firm I will mention in more detail in a few minutes but these are really our responsibilities. What we are asked to perform, approved by the board, audit committee, what we are responsible for and we have conducted the procedures, that's page two. Page three, are again a reminder of kind of the shared responsibilities of management, which is on the right of this page and obviously the board and again, we covered these several months ago. I won't go through all in great detail. Your responsibilities are substantial you are oerseeing the whole process and management from the establishment and controls, preparation of financial, including the foot notes, answering the questions, providing us whatever information we need to conduct the audit is all part of that and formalize certain representation. Management representation. Audit time line and scope. Many people probably think we don't leave, but we do leave. We spend time in the summer, preliminary risk assessment process. And obviously it really concludes today with the presentation to this committee. And to this board. Pretty high level. In essence, we execute the engagement and then we report. What we are required to report are material weaknesses or deficiencies identified in connection with the audit or any made or corrected and we have a handful we will talk about in a few pages. But that's in essence the time line. Materiality. I want to talk about the opinion. We don't test every transaction or program. There are certain things we are required to do. Those we do, in essence, the one thing we do in terms of materiality, I really look at it in two ways. Financial statements they were


responsible for preparing. You have been provided a copy of those. We look at a number of different statements. Total assets and expenditures. There's a number of them, we look at and this is typical for community colleges and public universities. We believe total assets is the appropriate benchmark and we take a total percent, what is determined to be materiality. We have a portion. 70% is performance materiality and about 5% is what we call de minimis or trivial. We don't test everything. We tend to focus on the more significant things because the objective of the financial statement audit is to make sure the financial statements are not materially misstated so we have to establish materiality. That's what we have done. We conducted our audit in accordance with the materiality threshold we laid out several months ago. The grant program audit and state program audit, we use a different benchmark. Those are expenditure-driven grants, federal and state grants. So we believe expenditure is the appropriate benchmark for those. Similar concept becomes materiality. We have to evaluate materiality on a program-by-program basis, which we do. This is the page that summarizes what we mentioned. Several months ago we executed materiality in accordance with the benchmarks that we communicated several months ago. That's quantitative materiality. There are qualitative aspects considered as well. That's really the last bullet point. If there are other related relationships unusual transactions we look at that from a qualitative perspective as well. On page 6, use of work of others. I would say this year probably one of the more significant things we dealt with this year that was new from the prior year which we met and talked to the board on this committee on. I know john and others mentioned it the last several years part of our presentation, I think additional presentations. Budgetary perspective. This was the year of the implementation of the other post-employment benefit standard. You probably saw that in the draft late last week. We also had the accounting when you implemented similar standard for pensions. Gasb 68. Whether pensions or other post employment benefit there are actuarial reports to determine the appropriateness and the reasonableness of assumption that's are used in those calculations and so that's done and you could see that, that's really what the first bullet point says is gabriel ruther smith for the opeb. We have actuaries, our people believe and team get the assumptions utilized are reasonable. Some cases they see not unreasonable but basically means they are appropriate and that's certainly what we get with not only pension but other benefits. I mentioned thanks to paul and his audit team they did going to the seven major programs. Obviously, and paul mentioned this, they performed the testing in accordance with our work programs. We outline, we do the samples, we do the reperformance and everything, but they execute the testing, so we oversee and they execute and we also review their work. So that's really what that little bullet point is talking about, use of internal audit in connection with the external audit. Other personnel or third parties, I mentioned that we use minority firm in connection with this engagement. Owensen thurmon and I wanted to thank marion owens specifically for the work she did and her work similar to internal audit is under our direct supervision but they performed the testing, we determined the procedures and they perform reviews of the work. So thanks to marianne in connection with her efforts this year. Page 7, the areas of audit focus, this isn't obviously the detailed work program, you would hate me if I ever gave you the detailed work program. These are on a pretty high level basis. These are based on our determination, quantitatively and qualitatively, significant dollar amounts and volumes of transactions where most of the activity occurs in the district, those are the areas of our audit focus and based on the results here, all of our


balances, if the district were determined to not be materially misstated and therefore it will result in the result of the financial statement, the most important thing page 8 is the unmodified, what used to be referred to as unqualified or clean opinion on the financial statements. There's actually technically two opinions issued on the financial statements. One is the actual district, consolidated basis. The other is the foundation. Dallas communicate college which is included in your financial statements. We had no scope limitations placed on us by management. In other words we could perform whatever audit procedures we felt necessary in our professional opinion to be able to ultimately opine on the financial statements of the district. Whatever procedures we felt we needed to perform we were allowed access t the appropriate people, they provided the information we needed in the conduct of the audit. The only thing I would say we would do with this draft financial statement is a number of changes were kind of made late in the game before they went to you late last week. No audit adjustments. Juliet would cover that in a minute. So the one adjustment we did have was corrected by management anas reflected in th financial statements. So we had no past audit adjustment. >> d. Flores: Why is the word "misstatement" in there. What does that mean? >> we determine materiality and conduct testing. To the extent something is significant enough it became tested and I was an exception we would identify as an exception. If it required an adjustment to the financial statements, in this particular case, the one on the next pge was the summary misstatements, that mean it's was incorrect and fixed by management and it's included in financial statements correctly. >> d. Flores: Okay but here you have in the decrease of $2.7 million. What does that refer to? >> well, so basically this was corrected, pat may want to talk to the details. I would almost say a reclass because it's all on the balance sheet. >> pat: At the end of the year we go through account receivables, and we look for credits we owe students. We are transmitting financial aid at that time for pell. We would have these credits sitting in students' accounts. We move it from a.R. Which is an asset over into a liability because we actually oe the students those amounts. So what happened this time, usually we go and get the information. You know, excel has this wonderful feature called sub total, but if you sub totaled it to begin with, it comes back with another sub total because we have to book it by location. So what happened there, it was just strictly a calculation problem. We doubled the amount in the initial move. It just looked logical. We just moved it over there, but it did create this anomaly that we needed to look at because it was larger than what it usually is. That's the reason we moved this


out. Strictly an accounting thing. We wanted to make sure that we have one system that accounts for accounts receivable and it houses both the receivable and any credits that are due to a student. So we have to go back, this is a manual thing, we have to do it top side, go in and calculate it and move the money over to liability. To recognize that we own it. >> there's no negative impact to the students? >> no negative impact to the financial. >> I have to say it is what it is, we didn't have the correct number of what it is. It's just strictly having what we call a reclass. That's typical, if we had a negative cash balance because we had really good cash management, you don't want cash just laying around. We would reclass it to the liability, that negative cash balance and say these are not cash balances. It's purely an accounting type of entry but no, the students were not negatively impacted. It's strictly an end of year adjustment. I apologize for that. We messed up, we were delegating on. We have new staff that have come on and we delegated -- >> just some processes, as you heard from john, we are delegating down to get more people trained. This is just one of the misfortunes of that. >> I think the good news, that's really from the board/audit committee perspective, something based on finding, something pat and her team with look at through the closing process would be relatively easy to fix. It's not a complicated thing. Just something on the to-do list and it won't repeat. The >> >> d. Flores: I don't recall us having this summary on past audits, have we? >> it's been a while. >> john: Typically we find these things ourselves. To the point we believe this to be a good number and they take over and do their work, then we have to have it disclosed as a misstatement. Whether they find, it's really what have they found after we have said we believe this is good as we are working through. Yes? >> d. Flores: I don't like that word but -- >> well. >> the good news it's not misstated any more because it was fixed in the financials but you are correct, initially it was a misstatement. It happens, I'll be honest with you. Having one adjustment per audit isn't a bad thing. It typically happens in most engagements we perform. >> d. Zimmermann: >> I wouldn't say. It's above our materiality threshold so I thought it was appropriate to make it. But yu are right. >> I will argue once in a while. >> anyway. On the financial statement audit. With that, I will turn it over to juliet. Will talk about the single audit. How we do the major program determination, which were major programs required to be tested and obviously no findings on most of the programs but we had a finding I wanted to talk to you about today. Juliet? >> c. Compton: Was there any reason why these hadn't been audited since 2015? >> good question. You will cover that? >> as mentioned, we are going through our risk assessment. We are required to determine when the last time the program has been audited and federal regulations say they need to be audited at least every two years or if they are meeting a certain threshold. It's a combination of two things, the last time it was audited and the total amount of the expenditures. In tis instance these programs had been audited. I guess you are looking at the original pesentation, we listed all the last times the programs had been audited. And the other pieces, how much did they spend in expenditures. At some point since the last time audited either didn't meet


the threshold or audited within the last few years. Small business administration is what you are saying and adult education had not been audited since 2015. The only thing they had not met the risk assessment, either hadn't been audited the last two years or above the $750,000 threshold to require the type audited. >> you have to exceed the $750,000 to be considered. You have to exceed it in a given year. From the federal government's perspective, based on their distribution of federal funds they want most of the dollars audited, so those are typically the ones that get big dollars equals the focus for the external public accounting firm. The second thing juliet was mentioning. If audited with no significant findings therefore you would have to test it every year. That program has been cleaned to be considered. To the extent it's a large dollar amount and hasn't been audited a a major program in any of the last two fiscal years if you go back, then it's tested. That's where a lot will get triggered. To the extent you have material weaknesses or sufficient deficiency we will make a determination because it forced that risk-based process I was talking about, we will select as a major program. Normally, if you have material weakness in a program, that will by definition be a major improvement required to be tested in future years, basically until they remediate. >> c. Compton: It's been like you have been off to the races. Can you slow down a little bit? >> I would be happy to. actually, that was it. >> let me simplify. I would say the key thing is not every program has to be tested every year. There's a risk-based criteria you have to evaluate. It's based on size o program and risk. And those that meet that criteria are required to be tested. And then the last step of that 4-step process is coverage. So you have to test at least a certain percentage of the federal grants in a particular year. Usually with student financial aid because it's a large program that usually allows us to meet our coverage requirements. You do everything else first but if you got down to it, you did a risk-based percentage, only 10% of grants would get tested you would have to select until you exceeded that coverage requirement. Hopefully that helps. You don't have to test every program every year but once you test them you have to report findings, if you have material weakness. >> c. Compton: So these are done tis year because they hadn't been done? >> well student financial aid, that's true. >> not true for all. But the other is yes, that's true. I know it's confusing. But yes. Most of them fall under that category but not all of them do. >> john: We typically see in terms of financial ad t.W.C. Is almost on there every year. >> d. Flores: Financial aid I audited every year? >> because of coverage requirement rules. >> it's probably about 85% of total expenditures. So without testing financial aid we couldn't test enough to get percentage so it has to be audited every year because it's such a large percent. >> the reason it's the last step of the four-step process, if you said coverage only we could test that every year and not test any of the other programs and that's not what the feds have in mind. Which keeps everybody honest. There's a chance programs can get selected for testing when you least expect it. >> john: What we will hand out is the summary of finding and question costs. This will start on page 71 when we included in the book, there's a place holder at the back of the book from the audit statement, this is the actual finding and response to the finding that juliet is about to talk about now. >> as we mentioned this listing of programs is the portion of the listing on page 11 of the presentation is the final program that we audited. The reason it's listed kind of separately, we have the results of the audit on there and it wouldn't have all fit on the other page, there's no separation other than it wouldn't have all fit on one page so just to be clear. Page 11 refers to the last program we tested, the post 9/11 assistance program. >> c. Compton: Wait, you said it replaces page 71?


>> john: 171. It basically goes at the end. >> in the financial statement. >> 171. >> but in the presentation where I'm referring is on page 11 of the presentation. >> the biggest part, it may make sense, I think the key thing on there, normally when I sit on audit committees, what happened, why did it happen? Did we fix it yet. How can we keep it from happening again. This may be the most important. We do have quite a bit of detail on the next page here. But this page, if you actually flip back to the third page of the handout. Section 2 at the top. This actually goes through the criteria, the condition, the cause, the effect, blah, blah, blah and our recommendation. And I think one of the important things is the view of responsible officials and this is district coming back. Juliet, why don't you go through and summarize the finding, talk about the post 9/11. It's just the third page. They actually aren't numbered but they will get inserted in your doctrine eventually. I'm just saying it goes through more details but juliet will summarize it. And then management's response, I know pat would be happy to explain o that in detail if needed. In essence they agree with the finding and they will take action on it and resolve the issue. >> so jhn mentioned page 3 of this handout is summary of our findings and question costs related to the programs. As we noted for the post 9/11 veterans assistance program we had one finding related to cash management requirement and it rolls to material weakness and material non compliance for that particular requirement. The first section determines the criteria is just listing the criteria we were testing this particular climate for and conditions. So as we were doing our testing we know for each of the seven campuses part of the requirement is you must either return funds, disperse funds to a student's record or return to veterans recommendation within a 30-day period, what we found at least each of the seven campuses they had not done that. For fy '18-'19 year there was $102,000 that still needed to be dispersed either to students records or veterans administration and cumulatively from '17-'18 year back for other previous fiscal years combined total was $143,000 we noted either needed to be dispersed to the students record or returned back to the veterans department of administration. >> d. Flores: How many? >> it went back to at least 2009-10. >> d. Flores: It's $40,000 but what did we do wrong that nobody noticed it? If there are requirements when you have to disperse the money back to the d.A. I have been involved with this program in 2009 since instituted. We were going through changes in the district when we placed financial aid so I helped the groups take care of that, the colleges took this assignment and here I the difficulty with it. It's 98% manual. There are no systems like central financial aid or financial aid from pell. So I just want to say that up front. We have good staff who are working really hard but it is a big program. It's a tough program. If you are going to mess up on any financial aid program this is probably the one you will mess up on. I have some things I need to give to dr. May because he has


told us, I have not done it, dr. May, and I apologize for that because he there are things we could take to washington to talk to the department of veterans affairs about their systems that causes the difficulty. But here is the difficulty. The v.A. Portal you have to manually enter everything. It's not very friendly. It just takes the information. But it doesn't give you much back. I only know that because at oe time I asked. I didn't believe the workers. And I said the people who are actually working this and I told them that, you know, I don't believe it. They aren't giving you reports. So they said no. I think I did validate that. I think the deal is we are going to have to go back through and look at our training to support these staff who have to go through training. They hve to be specifically trained t even get access to the v.A. Portal. We have to go back and make sure we've got enough support with this staff. What's happened in the past is the staff who enter into this v.A. Once portal are also the staff being asked to meet wth students and to consult with students. So what we want to do is go back and look at this. We have a finding. But we want to go back and look how we had the support of the staff who ae minimal, the department of veterans affairs, from what I understand doesn't want you to have a whole lot of people. But here is hw it flows. Let me go back a step a little bit. On the v.A. One system you have to make an entry saying a student enrolled. And then money comes in and it comes in, bfore it came in a check and was processed by the campus but now it comes in by wire. We have money in my department in financial services, district financial services. We report out to the colleges that we receive that money and then the staff takes over there to again have to go back and reevaluate the current enrollment, then they go back and have to match it to the v.A. One system to make sure everything is aligned. Then they have to monitor the attendance, did the student begin attending and then they have to go back and look to see if they are continuing to attend. I'm just saying at the end of the day, one of the things I's probably not been appreciated by all of this like it should. >> I think it's a real good quick overview of the detail but there's two areas we have to work on. >> c. Compton: Excuse me, john. Can we hold that discussion? And back to the auditors? If that's okay with everybody else. Based on where we are now, this is the auditor report and what is your recommendation as to what we should do from this point and wat can we expect from this point moving forward. Right now we have to deal with where we are right now. >> d. Flores: I appreciate the level of complexity. You are saying waiting until internal audit. >> c. Compton: What I'm saying is the solution is one thing as to how we got here and how we need to address it and how we need to move forward but where we are now is dealing with the internal audit and how we have to report it and if we need to do something, you have to report this as part of your


audit. >> the recommendation here. The key thing the administrative requirements were not done and so our recommendation in essence what needed to be done, that determination or that process could hopefully result in improvements for ways to do this including training, ways to do this better in the future. The key resolution really is what needs to happen with the dollars. The second part of that is we do have to take care of the students coming in everyday so there's probably as we work on or talk about the solution as you were saying there's almost two parts to this, one is taking cre of the students who are there and how are we getting these balances checked constantly to make sure we are cleaning them up. We got to take cre of these as much as I can so that we don't see this happening in the spring semester as much a we can, I wanted to come back next year and not find in the spring, they will find for the fall. We already know that. >> was there something that happened in spring 2018 to cause this spike. If before only 3,000-4,000 and this year 100. Why would it be so high when before it was less? >> if I could say, it's current business. We work those balances down. >> it's cyclical but I have someone in my staff I have designated to work one-on-one to work with the colleges and she has been doing that for the past 4-5 years. But it's -- it could be better. >> c. Compton: Please continue with your presentation. >> just to mention I's the recommendation we provided to the district is on that last page and their response to our recommendation, additionally one thing I wanted to point out because this program has been determined to have material weakness and material non-compliance it will automatically be audited again for next year for fy '19 so based on determination by management remediated by 2019 we will definitely audit this program next year and see what progress they have made towards making the remediation. >> c. Compton: Remediated by may 2019? >> my 31, 2019. >> c. Compton: And one concern I have, did anybody else have any questions. Sonny isn't here but I had some concerns about this and this. I'm very hesitant to vote on something tat says draft. >> it always says draft util it's approved. >> c. Compton: We have always seen one document finalized, you all present it. We are just trying to get it done by the board meeting in December so we didn't have to have the second meeting. But number one, that big draft, it should have been faded out some more so I didn't have to try to read from the draft. And some parts of this, which made it distracting and hard to read, then I had all these blank pages that said reserved for grant thornton. And I'm just gtting it today, where I haven't had an opportunity to really sit and read all this stuff. You know, where I can absorb it and as one complete document and everything is in context as to where it goes in one report for us to submit. That gives me great concern even in the way that these two documents were presented and then one of them tday and this


one I got late Friday. >> this presentation doesn't go in there. >> c. Compton: I know, because, in thinking about what I've seen in previous years in one document and where all of this stuff went together throughout the report, in some ways this is our context in relationship two this. Because you had to tell us that page 171, this is what should have gone there and so forth. When I have seen it in one document. I found it a little hard to concentrate and focus and get a clear cut picture of what this document is supposed to present to me and to absorb what I'm looking at. >> here is what I would say, the other thing that isn't in there are opinions, we don't sign those until basically approved by the board. But we could put the draft opinion, there's a lot of page references to this document that are in there. We can get those. Now that we have this document we can put the page references and we could have tis, you could send them back out to the board, one that doesn't say draft on it, that just has everything in it. >> c. Compton: I don't want to be surprised about anything that, I thought I was going to say one thing and lo and behold it says something else. I don't want to be caught like that. I know, just in thinking about it and looking at it, there are some tings and I'm sure all of the board members have when they look at this anual audit they all have certain things they focus in on or look for that tells them what they wnt to know about the audit. I immediately flip to some things and take a look at it before I go back and read other parts but I have a way of doing it, as I said other board members have a way of doing it, but I have a concern I wanted to address with sonny to be mentioned a this meeting but that was one of them. Did anybody else have anything? >> d. Zimmermann: If I could just add, the whole idea of it saying "draft". Draft to me says this isn't real because the changes are coming. At the pint that we review, how much time should I spend on a draft? Because I would like to pour over that which is real. Draft tells me there's other stuff coming. This is not the real paper. Simple word "draft" is that it's not real yet. We start putting in. >> there's the texas public education act prohibits until it's been approved by the board. When it's denominated it's not available until such time the board has approved it and then a final report for public consumption. I think part of the reasons it's denominated as a draft, while it's in the process, it's not subject to the texas public information act and no one can publish it and receive it until such time it's been approved by the board. >> it's more of a technicality whether w release it or not and this is something to be added to it. >> has this been made in here?


>> d. Zimmermann: Are there things that need to be prettied up. There are bold that don't ned to be bold and some that need to be bolded. We need to insert where you said placement holders for g.P., that's where the opinion, we were talking about the two sets of opinions. There being another set of opinions in the single audit which is at the tail end of the draft, that's where we do that. There's one comment I received, this is our first year for the opeb and I have one comment I need to look at on the page and I can gve you that page that will probably change and that is on page 80, there's a technicality where we are talking about the amortization of the preferred inflows and outflows and that one because you aren't supposed to keep up, you aren't supposed to include the subsequent contributions to the plan that's going through there, that amount will change, most likely. On that foot note where it talks about the deferred outflows and inflows of resources. That amount, itself on the face of the financials but just on reflecting only the amortization on the amounts as they will come off. Those are really the only thing that may change that may have possible change on the pension foot note which is just a few pages, the very same section that's there. Other than that, there are no numbers that I know of that will change. >> tere won't be any changes to the financial statement. >> c. Compton: What you are asking us to include what will be the fnal copy of that report. It's on the board agenda. I think we have to, are you, you need to finish up. I've been watching the clock. There's another committee meeting that needs to be held. That's why I ask you to hold that thought. >> the only thing I would say, I think it's always been marked draft, the reason it's always been marked draft was to rob's point. That being said we could share the draft opinions with you. I don't sign the opinion, until the financial statements are approved but the purpose of this communication is to make it known you get a clean opinion unmodify on financial statements. It still has to be approved by the board. >> d. Flores: So your position this is all that we have, all that you have done, there's no findings that would put us into any financial jeopardy. We do have to clean up the v.A. Funding piece that has been reported but in essence you have no problem putting your name on this, you could be confident this accurately reflects your financial statement? >> that's correct. I think on the financial statement information, this finding, because we don't have a lot of findings every year. I think it's important we have the conversation we did today before it gets inserted in the document and finalized. There's nothing else we are doing from a testing perspective. We do obtain a representation letter from management which I'm sure they always sign and always have, I'm sure that will come. In essence that will finalize the process for me to sign the opinion, after the board approves it, we get to sign rep letters. But nothing significant.


>> d. Flores: There will be a statement on the front about why this is draft? >> right. And it will be marked draft. But to her point -- >> we will make it smaller and less obtrusive and so on. >> probably saying I really don't care for this, if it was to get out in public we know it was the draft first, but we could do draft otherwise. >> I have a separate letter of the management letters? >> opinions? >> yes. >> for information purposes only. So we could read it prior. >> john: What is on this, summary of auditor's results and financial statements, type of unmodified, state, unmodified, what is disclosed. This is a very important page of wat's coming from them and that's where irest my comfort level knowing the two of us haven't found anything in this. >> we can still give you the draft letters but they would be worded almost identical to last year except for the date. I know we are already passed time. But any questions? Basically we have gone through this I the past, we are providing the content but the good news no significant difficulties, great cooperation fr om management, minority firm, etc.. That's basically what's in there. The quality of the accounting practices, I'm mentioning the only change was the post employment, 75 this year and that's mentioned on page 15 and everything else is clean. >> john: Can I speak on gasb 65. We had about $7 million that hit our financials. This year e.R.S. Pension liability is over $200,000. When you look at the net position you will see these liabilities are recorded against our net position like we don't have the money, the unrestricted in that position like you used to have. I have personally, I will say this, I don't believe they actually have a claim against our assets. But these are the requirements that gasb has that we put these liabilities on our books of other people. >> john, you said $200,000. I think it's $200 million. >> thank you. >> he was talking in thousands. >> that's better. >> that's how I read. >> if that number had been in there that would have been a material misstatement. we would have reported on that. >> as opposed to 90% of other community colleges in the nation, we still show up positive net position. And that is not true with many of our brethren as they find out they are having to book this rather large. >> we have one extra item. During the summer, the t.R.S. Did pass they were going to drop their rate of return assumptions. From 8% down to 7.25%. If we were to measure it today, it would take our net position fund blance down to about $85,000 but that's all just -- it's not in reality of our position and ability to pay for bills. >> that's all. Anything else? >> that's on page 112. You could see where there's that announcement. >> note 27. That's in it on 7.25 versus the 8. Actually within that foot note there's that plus and minus 1% sensitivity analysis so we actually put a little above that where it affects the reader, there's a change in the discount rate. It will increase that liability. >> benefits also has that same type of sensitivity analysis saying if healthcare costs raised 1% or lowered 1% why that would be the effect on the liability. >> even though it wasn't exactly 1, it was 1.75, I could tell you last year, that's how to do the calculation. >> $1.3 million. The good news is all governments have to adopt these standards. So the measurement points are all different because of this consideration. But I tend to look at financial ratings, right? From the rating agencies.


Aaa across-the-board speaks to the comment that john just made. Not that you could ever take that for granted but you do have a good track record and I think you are doing a lot of wise things and they are reflective of the accounting requirements but realize opeb and pensions are long-term obligations. It doesn't need to be satisfied overnight. Other questions? Great, thanks again to everyone. Good to see everyone. >> c. Compton: On the other piece about the v.A. I guess now it's between us and v.A. And we have to get that resolved and you all have to come up with a plan to get that issue resolved. >> I've been asked to meet with the student services v.P. On December 13th. >> I thought you said secret service. >> c. Compton: Anyway. That's in terms of a plan and so forth. We have got to disclose it, that's a discussion we need to have in the near term. >> as paul mentioned, they are finishing up that audit. Hopefully by the first of the year and we would be in that position. >> c. Compton: Okay, because it says on here committee action. Now we've got a plan. I was concerned about these different documents and the draft and it was not complete and I hadn't seen it. >> I will let john speak to it. It presents some practical issues in terms of our reporting. >> c. Compton: I know you have a certain time this stuff has to be put in. I don't know since sonny isn't here, I haven't had an opportunity to have a discussion with him about it. >> d. Flores: I'm comfortable with the assurance we got from grant thornton, given we have five trustees, let's say hypothetically with two trustees would vote against and three trustees for accepting the audit, approving the audit, would that move forward? >> it would. It would be a majority vote. >> d. Flores: Of those present? >> of those present, correct. >> c. Compton: You are talking about if we do it at 4:00? >> at 4:00. >> c. Compton: But it has to be voted out of this committee. >> a recommendation has to come out of committee. But as discussed with chair williams, it just requires a consensus, I you are prepared to make a recommendation to the full board. Technically, the audit committee is the cmmittee that hears the presentation from the auditors and makes the recommendation to the full board for action. In this instance we have five board members present of the seven who have heard that but it's still, from a technical standpoint it's got to come out of committee and if the committee is prepared to make a recommendation, that's where I was pointing out, that may present some practical impediments for reporting for state purposes. I know that has to happen in January. >> c. Compton: W used to do this, we have to have another committee meeting for the report that's going to the state to be presented to the full board. And the full board, well the majority of the board. >> john: There's two options. We used to have a second December meeting. When I first came here. To basically, this was all we did was approve the audit. It gives us that final time. The board asked I we could move that up and start doing it at the regular meeting and that's what we started shooting for. That means we are putting things together, but the financials, the other thing allows is that we can actually our state legislature approved we can file our financial statements to the board if they approve it in January. Well, since this board doesn't have a January meeting, we felt December 3rd, or December 4th is the only option ever of getting this approved without a special secondary meeting. >> c. Compton: Seems like we used to do it right before


christmas or something? >> john: We did. And attendance was difficult. It's either December 31st or the 1st of January. >> the issue before the board if there's not a recommendation coming out of the audit committee for this meeting it will require a second meeting either in December or January. Before January, I guess. A second meeting. >> c. Compton: I'm not changing my mind. I don't know, ms. Zimmermann? >> d. Zimmermann: I'm not on the committee. >> d. Flores: I thought you were? >> c. Compton: I thought you were too. >> I used to be on it. >> d. Flores: It will defer to members on -- >> d. Zimmermann: I've not been listed on any of committees. >> it's a moot point because we've got a 1-1. >> it would require the third member to break the tie. >> we don't have a third member. >> the chancellor evaluation >> I would say don't adjourn the audit cmmittee meeting and recess, and restart the audit committee meeting before the regular meeting or when trustee williams gets here and see if you can take action tonight, otherwise you will have t have a special meeting in December to do this. >> d. Flores: We uderstand he will be here before the regular board meeting? >> maybe table it until after the education reports.

2C. Update on Search for New Director of Internal Audit Position Presenter: Rob Wendland

>> update on search for the replacement for rafael godines. When the board met in September we had representatives from grant thornton who did an assessment of internal audit and gave recommendations to internal audit in terms of how they might restructure and reorganize the deliverables coming out of that department. They also helped developing the protocol for the replacement for rafael who served almost 30 years in the district. Since that time developed a new job description for director of internal audit which will be chief of internal audit. New job description representative that the grant thornton people have, we also benchmarked that against the market so we had it in the proper position on the salary schedule. We have opened that search. It will conclude January 6th is the closing date. So I can't give you an idea yet about how many applicants we have total or anything like that, but we hve avery robust response to that search. We will be making, doing interviews, conducting all of the necessary steps to identify the most qualified candidate to fill that position and we will make a recommendation to the chancellor who will make a recommendation to the board. We anticipate that will likely be in the February meeting. One other quick matter, you have chancellor's travel report that doesn't require any action by the committee. And in the committee notes there was a reference to the charter. There was a recommendation in there that I as general counsel bring back recommendations if any were received by committee members or board members about


the committee charter bringing those back to this meeting and talking with trustee chair williams. He said let's hold off on those recommendations until the person who is identified as the chief of internal audit is in place and let them make the recommendations to the committee so that will be at your next quarterly meeting which will be April, if we have someone in place. I didn't get anything from any trustees either. So there was really nothing to bring other than what would be my thoughts and chair williams thought it would be better until the chief of internal audit is identified and let them get engaged in the process. >> c. Compton: And you did rewrite that job description? >> yes, ma'am. With assistance of internal and external resources to identify all those attributes for a person heading department of internal audit. It's more comprehensive than it was before. That's all I have. I would suggest chair compton, of the audit committee, that you recess this meeting instead of adjourning it. And if trustee williams does show up we could always reconvene as an audit committee and you can have the discussion as a committee whether or not you want to make a recommendation on the report. The action would be recess, let's have education and workforce and let the chips fall where they may. >> c. Compton: Anything on the audit committee notes? Okay, it's 3:37 p.M. And the

* This transcript was compiled from uncorrected Closed Captioning.