Municipal Elected Officials Financial and Compliance Matters Rod Fortin Director of Local Gov t Assistance Department of Legislative Audit 300 S. Sycamore Avenue, Suite 102 Sioux Falls, SD 57110 1323 ph. (605) 367 5810 rod.fortin@state.sd.us http://legislativeaudit.sd.gov/home.htm 1 The governing board of a municipality is ultimately responsible to ensure that a system of internal control is established and functioning at their municipality 2 Some governing boards feel that the role of the auditor is to see if the money is all there. In actuality, the auditor is to ensure that a system of internal control (self assessment, checks and balances) has been put in place and is working effectively. So what can the board do to strengthen internal controls? Analyze the monthly financial reports Review the monthly budget reports Get closer to the voucher approval process Push for a timely annual report Scan bank statements and cancelled checks Engage an audit, as needed 3 4 Muni18-ElectedOfficials-finance-compliance.ppt 1
Follow up on auditor s comments Adopt policies when needed In smaller entities, the governing board may even become involved in spot checking the bank reconciliation, utility billings, credit cards and payroll. Hire competent personnel. Provide personnel with proper training and tools to efficiently carry out duties. It is critical to set the proper tone-at-the-top: Conflict of interest Personal use of municipal equipment Compliance with municipal ordinances Attending training sessions such as this one 5 6 Annual Financial Report (prior to 7/1/18) SDCL 9-22-21 requires that an annual report be: a) Presented to the governing board at the first regular meeting in March. b) Filed with the Department of Legislative Audit immediately thereafter c) Published within 30 days or upon completion of an annual audit. Annual Financial Report (after 7/1/18) SDCL 9-22-21 requires that an annual report be: a) Presented to the governing board no later than the first regular meeting in May. b) Published in the official newspaper, or any other newspaper as the governing body may direct within 30 days after the report is made to the governing body or upon completion of an annual audit. c) Filed with the Department of Legislative Audit by the last day of May each year. 7 8 Muni18-ElectedOfficials-finance-compliance.ppt 2
Audit Requirements--State Audit Requirements--State Municipalities that have $600,000 or more in annual revenue are required to have that year audited (total revenues of all funds). 9 $100,000 to $600,000 = Internal Control Review < $100,000 = no audit requirements Audits may be triggered in the following manner: Request of the governing board Special reasons exist Petition by 20% of the resident taxpayers Annual Audits vs. Biennial Audits (one covering two years) 10 Audit Requirements--Federal 11 Uniform Guidance for Federal Awards: New Single Audit Rules. Audit Requirements effective for fiscal years beginning on or after 12/26/14 (CY2015) If a municipality spends more than $750,000 of federal financial assistance, then a Single Audit is required. All federal grants must be added together for comparing to the $750,000 and may include federal loan programs Audit Report SB 100 of 2018 Session amends SDCL 4-11- 12 and requires that counties, cities and school districts make their audit reports available on their website. (effective 7/1/18) 12 Muni18-ElectedOfficials-finance-compliance.ppt 3
Internal Control Question Is cash reconciled on monthly basis and reported to the Governing Board by Fund and in Total? Did the governing board publish a complete list of officers and employees' salaries with the proceedings of the first meeting of the year, or within 30 days thereafter or in the minutes of the first meeting following the completion of salary negotiations or within thirty days thereafter? (6-1-10) 13 14 Did the city not enter into any contracts for labor, services, materials, supplies or equipment with any officer who was elected or appointed except as allowed by SDCL 6-1- 2? (6-1-1) If the city gave funds to nonprofit organizations to promote the municipality, did these organizations provide a certified audit or a financial statement of their records to the municipality at the close of each fiscal period? (9-12-11) 15 16 Muni18-ElectedOfficials-finance-compliance.ppt 4
Did the city designate at a meeting of its governing body an official newspaper or newspapers for the ensuing year? (9-12-6) Did the city designate the depository or depositories in which the funds belonging to the city shall be deposited (such depositories shall be a bank within the State of South Dakota, unless otherwise specifically provided by law)? (9-22-6) 17 Did the governing board establish a bond for the finance officer equal to an amount estimated to be the maximum monetary total on hand at any one time but not necessarily to exceed $250,000 for first class and $150,000 for second and third class municipalities? (9-14-6.1) 18 Did officials refrain from spending in excess of the amount appropriated for any purpose or any department for each year except as otherwise specially provided for in statute? (9-21-9, 9-21-9.1, 9-21-9.2, 9-21-10, 9-21-15) If the governing body transferred surplus money of one fund to another, or appropriated such surplus to pay any outstanding indebtedness of the city, was this action taken by a two-thirds vote of the governing body? (9-21-26.1) 19 20 Muni18-ElectedOfficials-finance-compliance.ppt 5
Bid Laws Current bill laws: SDCL 5-18A General SDCL 5-18B Public Improvements SDCL 5-18C Local Laws SDCL 5-18D State Agency 21 Bid Laws If the purchasing agency intends to enter into a contract for any public improvement that involves the expenditure of fifty thousand dollars or more, or a contract for the purchase of supplies or services, other than professional services, that involves the expenditure of twenty-five thousand dollars or more, the purchasing agency shall advertise for bids or proposals. (SDCL 5-18A-14) 22 BID - LIMITS $25,000 for supplies (except equipment) or services Effective July 1, 2016, SB 118 of 2016 Session increased the threshold for equipment to $50,000 for all public subdivisions. The threshold for supplies and services other than equipment remains at $25,000 $50,000 for any public improvement Bid Definitions Professional Services Services arising out of a vocation, calling, occupation, or employment involving specialized knowledge, labor or skill, and the labor or skill involved is predominantly mental or intellectual 23 24 Muni18-ElectedOfficials-finance-compliance.ppt 6
Bid Definitions Public Improvement the process of building, altering, repairing, improving or demolishing any public infrastructure facility, including any structure, building, or other improvements of any kind to real property Supplies any property, including equipment, materials, and printing; Bid Definitions Competitive Sealed Bid Standard notices Opened publicly witnesses Bid specs shall set forth the evaluation criteria Bids may be modified by fax, price not disclosed If you have a tie bid then you may Award bid by lottery Or rebid 25 26 Bid Definitions (3 slides) A contract may be entered into by competitive sealed proposals if the purchasing agency determines in writing that the use of competitive sealed bids is either not practicable or not advantageous. Bid Definitions Competitive Sealed Proposal continued. Solicited through an RFP, state relative importance of price and other factors, Standard notices are required Register of bidders shall be maintained, open to public after contract award Each proposal shall be opened so as to avoid disclosure of contents to competing offerors during the process of negotiation 27 28 Muni18-ElectedOfficials-finance-compliance.ppt 7
Bid Definition Competitive Sealed Proposal continued.. A discussion may be conducted with the offeror to assure a full understanding Revisions may be permitted after submission and prior to an award There can be no disclosure of info derived from any proposal submitted by a competing offeror Award to most advantageous Bid Applications Multiple purchases Aggregate for FY Installment payments focus on contract Trade-in ---value of what you are acquiring Piecemeal value of the whole project 29 30 Bid - Emergency When there is a threat to public health, welfare or safety or for other urgent or compelling reason Bid notices are not required Consider rentals Declaration in minutes Procurement must be made with such competition as practicable Bid Exemptions ANY purchase of supplies or services, other than professional services, by purchasing agencies from ANY active contract that has been awarded by ANY government entity by competitive sealed bids or competitive sealed proposals or from ANY contract that was competitively solicited and awarded within the previous twelve months; 5-18A-22 (3) 31 32 Muni18-ElectedOfficials-finance-compliance.ppt 8
Bid Exemptions When buying off of another entity s bid, make sure it is not a trade-in bid, and you are encouraged to secure (from the original entity) the following items: Minutes approving contract Specs Affidavit of publication All the bid proposals submitted Bid Exemptions Federal surplus property Purchases from another government (6-5-1) From the state price list Local vendor matching the state price list Real estate and auction services Legal, audit, architectural, insurance 33 34 Bid Exemptions Bid Advertisement Computer software Communication technologies, computers, peripheral equipment and related connectivity May buy off of GSA contracts Two notices First notice at least 10 days prior to opening Second notice may be in any legal newspaper 35 36 Muni18-ElectedOfficials-finance-compliance.ppt 9
Bid - Bonding Bid bond 5% cashiers or certified check or 10% bid bond ---provided by each bidder Performance bond in the amount of the contract----provided by the winning bidder Bonding is only required for construction contracts Bid - Bonding SB6 of the 2016 Session-An Act to revise certain performance security requirements for public improvement contracts Repeals 5-21-1.2 which conflicted with another statute. Adds a new section to chapter 5-21 allowing a public corporation to waive the requirement for a performance security bond for emergency procurements authorized by 5-18A-9. 37 38 Bid Opening No bids if no bids are received, may negotiate a contract for the most advantageous price, if the specs of the original bid are met even for public improvements Bid Opening Bids may not be faxed must be sealed Bids received late should not be considered 39 40 Muni18-ElectedOfficials-finance-compliance.ppt 10
Bid Opening Bid FUEL (SDCL 5-18C-6) HB1102 of the 2016 Session-- Amends 5-18A-5 to allow up to 45 days between the bid opening and the award of the contract for supplies bids and the invitation to bidders for supplies must include the number of days the government will use. For services and public improvement bids, the requirement remains unchanged and the contract must be awarded within 30 days of the bid opening. Not required to publish two notices Shall contact and attempt to obtain 3 quotes Record of the names of suppliers, quotes received, and the procurement procedures used in purchasing shall be documented, noted in the minutes, and retained on file by the governing body. May include a procedure for adjusting prices to meet changing market conditions not within the control of the vendor 41 42 Surplus Property Auction Declare surplus Two notices, first notice 10 days prior auction An appraisal is not required Hold the auction Governing board members may buy at an auction 43 Surplus Property Sealed bid process Declare surplus Appraisal by three property tax payers $500 or less - Public or private sale without notice Over $500 Two notices May award to highest bidder No bids--may reappraise or with 12 mos. sell at sale private sale not < 90% appraised value. 44 Muni18-ElectedOfficials-finance-compliance.ppt 11
Surplus Property Scrap and recyclable materials (scrap metal, used bridge plank, used culverts) SDCL 34A-6-63.1 Establish policies for sale/disposal Exempt from normal surplus property laws Surplus Property Proceeds of a sale shall be credited, at the discretion of the governing board, to the General Fund or the fund in which inventoried (enterprise) Real estate may also be sold through a realtor Governing board has the right to accept or reject any sale 45 46 Surplus Property SDCL 6-13-7. Persons prohibited from purchasing surplus property--exception No governing board member, any officer of a county, municipality, township, or school district, who has been elected or appointed, or real property owner acting as an appraiser may purchase the surplus property except at public auction. Budget The Budget is one of the most IMPORTANT documents governing financial transactions of any government as it represents the Master Financial Plan of the municipality. It is the governing board s responsibility to adopt a budget for all funds. 47 48 Muni18-ElectedOfficials-finance-compliance.ppt 12
Budget Budget vs. Cash If you have a million dollar budget and no cash, you cannot make a purchase. If you have a million dollars cash and no budget, you still cannot make a purchase. Budget Timeline July and August Gather data from departments. Rough out an ordinance. No later than first meeting in Sept or within 10 days thereafter First reading of ordinance At least five days after first reading Second reading and adoption of ordinance. Publish. Prior to October First- Certify levies in dollars to the county. 49 50 Muni18-ElectedOfficials-finance-compliance.ppt 13