Chairperson: Supervisor Lynne De Bruin Clerk: Lauri Henning, 278-4227 Research Analyst: Rob Henken, 278-4826 COMMITTEE ON FINANCE AND AUDIT Thursday, January 17, 2002 - 9:00 A.M. Milwaukee County Courthouse - Room 201-B M I N U T E S CASSETTE #21 -- Side A, #5-END; Side B, #1-END CASSETTE #22 -- Side A, #1-END; Side B, #1-#273 CASSETTE #23 -- Side A, #1-END; Side B, #1-#555 PRESENT: Supervisors Ryan, Nyklewicz (Excused for Item 20), Krug, Schmitt, Davis & De Bruin (Chair) EXCUSED: Supervisor Holloway SCHEDULED ITEMS: ** PUBLIC HEARING ** 1. 01-727 To consider issuance of General Obligation Bonds: (a) (a) in a principal amount not to exceed $727,080 for the purpose of financing a security fire/life safety system at the Milwaukee Public Museum; (b) in a principal amount not to exceed $385,400 for the purpose of financing improvements at the Milwaukee County War Memorial Center; (c) in a principal amount not to exceed $91,260 for the purpose of financing a visitors’ center at the Boerner Botanical Gardens; and (d) in a principal amount not to exceed $101,260 for the purpose of financing renovation of the Milwaukee County Historical Society building. 21-A-17 No one appeared. * * * * * 2. 02-56 Resolution/Ordinance by Supervisors Ordinans, Diliberti, Borkowski, and others, modifying procedures for consideration of collective bargaining agreements by adopting an ordinance amending sections 79.02(1) and 80.04 of the General Ordinances of Milwaukee County. (Also to Personnel Committee) 21-A-57 APPEARANCES: Supervisor Karen Ordinans, County Board Chairman Earl R. Hawkins, Jr., Director, Department of Administration Questions and comments ensued. Finance and Audit Committee January 17, 2002 1 of 14 SCHEDULED ITEMS (CONTINUED): Supervisor Krug was added as a co-sponsor of the resolution. The following amendments were submitted: BY SUPERVISORS RYAN AND DE BRUIN ADD the following “BE IT FURTHER RESOLVED” clause: BE IT FURTHER RESOLVED, that the procedures established herein for consideration of fiscal impacts associated with proposed collective bargaining agreements – namely the review of proposed agreements by the Director of Administration, Director of Audits and County Board staff prior to consideration by County Board committees and review and recommendation to the County Board by the Committee on Finance and Audit -- also shall be followed in regard to the consideration of proposed wage and benefit adjustments for non- represented employees. BY SUPERVISOR KRUG ADD the following “BE IT FURTHER RESOLVED” clause: BE IT FURTHER RESOLVED, that the procedures established herein for consideration of fiscal impacts associated with proposed collective bargaining agreements – namely the review of proposed agreements by the Director of Administration, Director of Audits and County Board staff prior to consideration by County Board committees and review and recommendation to the County Board by the Committee on Finance and Audit – also shall be followed in regard to the consideration of any proposed collateral agreement, side letter or other modification to an existing collective bargaining agreement that is deemed by the Director of Labor Relations – in consultation with the Director of Administration – to have a fiscal impact exceeding $20,000. ACTION BY: (Ryan) approve the subject resolution. ACTION BY: (Krug) approve the two amendments as set forth above. 6-0 AYES: Ryan, Nyklewicz, Krug, Schmitt, Davis & De Bruin (Chair)-6 NOES: 0 EXCUSED: Holloway Finance and Audit Committee January 17, 2002 2 of 14 SCHEDULED ITEMS (CONTINUED): Vote on approval of the resolution as amended: 6-0 AYES: Ryan, Nyklewicz, Krug, Schmitt, Davis & De Bruin (Chair)-6 NOES: 0 EXCUSED: Holloway 3. 01-685 From Director of Audits, relative to management controls over Deferred Retirement Option Program (DROP) checks. 21-A-231 APPEARANCES: Jerome J. Heer, Director of Audits Douglas Jenkins, Deputy Director of Audits Mr. Heer explained that his department began a review last September after it was alerted to a check for a significant dollar amount by the bank reconciliation unit. That unit brought to his attention a drop check for more than $400,000 that had been issued to a recent retiree. At that time, he felt it was important to take a look at the process because fundamental accounting controls should be in place. Mr. Heer proceeded to review the findings as set forth in the subject report, which included the following: ERS management and the Pension Board have a fiduciary responsibility for safeguarding the pension fund assets. We believe the following actions need to be taken immediately to strengthen management controls over the individually generated checks: 1. Prepare a policies and procedures manual to include, but not limited to, those procedures used for issuing individually generated checks. 2. Strengthen security over blank checks. Keep them locked at all times, with management responsible for issuing blank checks to ERS staff responsible for preparing payments. 3. Prepare and maintain a log of all blank checks received and issued. On a monthly basis, staff not involved with the check preparation process should account for all blank checks by reconciling them with checks issued and checks outstanding. 4. Do not return checks signed by the Treasurer to the staff person who prepared them. Establish a protocol with the Treasurer’s Office to mail the checks directly to the payee. 5. Require the person approving the check register forms to provide the Department of Audit’s Bank Reconciliation Unit with copies of these forms for the purpose of reconciling the pension fund’s bank account. Finance and Audit Committee January 17, 2002 3 of 14 SCHEDULED ITEMS (CONTINUED): 6. Institute budgetary controls to prevent overspending pension fund administrative expense accounts without first notifying and obtaining approval from the Pension Board. 7. Require staff involved with the check-generating process to take mandatory vacations (five consecutive working days minimum). The County’s Advantage financial package already provides the necessary controls for individual disbursements that would negate the need for implementing Recommendations 2-7. We recognize that concern exists over the need for the ERS to maintain its independence from County involvement with its mandate to represent the interests of County pensioners. However, we believe that use of the Advantage computer system would not breech that independence status. The fact is, ERS already uses the County’s GENESYS computer system for annually making approximately 78,000 disbursements for over $85 million in pension benefits. Using Advantage would simply be an extension of a practice that already exists for the sole purpose of better safeguarding pension fund assets. Therefore, we recommend that, as an alternative to implementing Recommendations 2-7: 8. Explore the potential for improving controls over individually prepared checks by having them issued via the County’s Advantage financial accounting system. The use of Advantage would enhance segregation of duties, eliminate the need for handling blank checks, limit possible loss by establishing budgetary controls, and avoid duplicate accounting system costs. Mr. Heer advised that initially there was some resistance on the last recommendation; however, in December, the Pension Board voted affirmatively to implement all of the recommendations. He recommended that the Committee treat this as it would normally treat an audit by receiving and placing on file the review with a follow-up in six months on the progress of implementing the above recommendations. In response to a query by Chairman De Bruin regarding the timeline for Recommendation 8, Mr. Heer replied it should be targeted for the 2003 budget. In the meantime, the Pension Board has committed to implementing Recommendations 1-7, which will greatly enhance the controls until the system can be transitioned to the County system. Chairman De Bruin said she would feel comfortable with that approach if the Department of Audit followed the matter very closely in the next few months. Mr. Heer replied that he would be happy to check and report on a monthly basis and would work with the Pension Board and the Department of Administration to implement Recommendation 8. If any problems arise, he will advise the Committee. Finance and Audit Committee January 17, 2002 4 of 14 SCHEDULED ITEMS (CONTINUED): A lengthy discussion ensued. ACTION BY: (Ryan) receive and place on file with the understanding that monthly status reports will be provided by the Director of Audits, including statistical information relating to retirements which is prepared on a monthly basis by the Employee Retirement System (ERS) office for the Pension Board. 6- 0 AYES: Ryan, Nyklewicz, Krug, Schmitt, Davis & De Bruin (Chair)-6 NOES: 0 EXCUSED: Holloway 4. 01-625 Resolution by Supervisors White, Coggs-Jones, Mayo and Johnson, to provide the sum of $17,250 to the African American Coalition for Empowerment for services rendered during the redistricting process. (RESPONSE FROM CORPORATION COUNSEL) (LAID OVER 10/25/01) 21-A-598 ACTION BY: (Davis) approve. 1-5 (FAILED)* AYES: Davis-1 NOES: Ryan, Nyklewicz, Krug, Schmitt & De Bruin (Chair)-6 EXCUSED: Holloway *This item will be reported to the County Board with a recommendation to REJECT. 5. 02-75 Resolution by Supervisor Quindel, authorizing and directing the Director of the Department of Parks, Recreation and Culture to complete a cost-benefit analysis for future capital improvement projects. (Also to Parks,