IVGID Audit Committee Meeting Highlights

September 5, 2020

September 2, 2020 IVGID Audit Committee Meeting

The long-range calendar was reviewed; it contains subjects for future Audit Committee review and discussion.  Trustee Schmitz requested a review of the method for budgeting facilities that are available to the general public, such as public parks.  She suggested the publicly available facilities should be funded by the General Fund, not the Recreation Fee.

Several Audit Committee members noted that they had not received copies of information provided to the outside auditors and requested that IVGID Staff provide them with copies of same.  Trustee Schmitz reminded all present that Audit Policy (15.1.0) item 2.4.1 provided that the Audit Committee Members would be provided with copies of all materials and documents being shared with the outside auditors, at the time that the materials are provided to the outside auditors.  Mr. Tulloch asked for a copy of all materials from the kick-off meeting which IVGID Staff had with the auditors.  Director of Finance Paul Navazzio agreed to provide the members of the Audit Committee with all information at the same time that it is sent to the outside auditors, and to provide them with copies of all information already provided to the outside auditors.  Trustee Schmitz explained that this is important so that the Audit Committee is kept apprised as the audit is going on.

There was discussion of the Management Discussion and Analyis (MDA) which is required to be included in the District’s Comprehensive Annual Financial Report (CAFR).  Mr. Navazzio stated that the MDA is a high-level summary explaining the District’s financial results. He advised that he will be using a new format for the MDA, not the format used by the prior Director of Finance, and will provide it to the Audit Committee for their review and comment as soon as it is available.

The Audit Committee discussed the proposal from Moss Adams to review, analyze and make recommendations related to Enterprise vs. Special Revenue fund accounting, central services cost allocations, punch card accounting for the Community Services and Beach Funds, and the capitalization of consulting fees and repairs for all of the District’s Governmental ad Proprietary Funds. Trustee Schmitz, tasked by the Committee to obtain bids, raised the issue that only one bid was received for this project, although she had been in conversation with two firms. She shared the materials for review that were prepared by both Mr. Dobler and by Mr. Navazzio with both firms and had extensive conversations with both firms about the project. Trustee Schmitz learned last week that the second firm declined due to lack of available resources as they were in the middle of the fiscal year 2020 audit season. Trustee Schmitz had explained to both firms that the District would like to resolve these long standing accounting an reporting issues and is requesting an independent and objective review with recommendations to be provided to the Board, Audit Committee and District Management.

Mr. Aaron stated that due to the community’s upset with the District’s repeated reliance upon sole source contracts, he would like to get a second bid. He did not feel comfortable approving going forward with the one bid. Discussion was had on the concern about whether to get a second bid proposal. The Committee majority concluded that time is of the essence on this review, because the results of this independent consulting advice is needed for Eide Bailly to complete the District’s fiscal year 2020 audit which is currently under way. Therefore, due to the time urgency, the amount of the bid not to exceed $28,000 and Moss Adams’ excellent qualifications, the contract would be accepted. Mr. Tulloch and Mr. Dobler felt that delay was not appropriate at this time due to the importance to the historical and current financial statements to be delivered to the State of Nevada. The Board had previously approved the Audit Committee Chair entering into a contract not to exceed $35,000 for this work. Both Messrs. Navazzio and Winquest stated that they have had a positive experience working with Moss Adams on the current construction consulting project and would be comfortable engaging Moss Adams on this project. Mr. Winquest appreciated Mr. Aaron bringing up his concern and believes that it should be explained to the community why a second bid was not obtained.

At the March 11th Board of Trustee’s meeting, Audit Committee Chair Dent was given authority to engage an outside professional without further Board action and he will do so.

Mr. Dobler had raised one additional item that was not included in the consulting contract. This issue yet to be addressed was how the Utility Fund has been representing the $2 million collected annually from utility rate payers to fund the future replacement of 6 miles of failing effluent pipeline.  As this is an issue that will need to be addressed in this year’s CAFR, Trustee Schmitz said that that this issue should be handled as part of Eide Bailly’s independent audit and is not in the scope of Moss Adams’ work.

Discussion ensued on citizen correspondence received from Diane Heirshberg on April 2nd, 2020 regarding Dillon’s Rule and Joy Gumz’ May 2nd, 2020 email enclosing an Attorney General Opinion on Dillion’s Rule.

District Counsel Mr. Nelson gave a brief presentation on his analysis of Dillon’s Rule which included his interpretation of a General Improvement District’s Expressed, Implied and Implicit Powers to briefly address the eight (8) points raised by Ms. Heirshberg. Mr. Nelson said he will be putting his legal advice into a written opinion that can be posted on the website for the Board and the community to review. As Nevada is a Dillion’s Rule state, Mr. Nelson said local governments exist and can act only as expressly permitted by State statutes as written in the Nevada Revised Statutes. IVGID must ask itself what is the authorizing State statute before it undertakes an activity. General Improvement District Law is found in NRS 318. The expressed powers a GID can provide are set forth in 318.116. IVGID is authorized to provide water, sewer, solid waste and recreation. NRS 318.180 authorizes administrative powers, including hiring and retaining employees. NRS 318.210 and 318.215 give incidental/implied powers that are not expressed powers that according to Mr. Nelson are “close enough” that they are authorized.

Mr. Nelson agrees that IVGID does not have the same expressed power to make charitable contributions that cities and counties have, and he cautioned at 1:20 on LiveStream that IVGID doesn’t have the same expressed ability to make charitable donations as the County under NRS 244. IVGID’s ability is necessarily limited because there is no expressed authority in the Nevada Revised Statutes for GIDs to make cash or non-cash charitable donations. He did not conclude that GIDs cannot make charitable donations.

Mr. Dobler raised his concern that through IVGID’s programs it is furnishing recreations “services” and does not see how this falls under any specific grant of power to IVGID from NRS 318.116. He reviewed Nevada Revised Statutes 318.116 (4) which provides for ”furnishing facilities for swimming pools”, NRS 318.116 (14) which provides for “furnishing recreational facilities as provided in NRS 318.143” , and NRS 318.143 which provides “the board may acquire, construct, reconstruct, improve, extend and better lands, works, systems and facilities for recreation.”  Mr. Dobler stated that he believes that IVGID has to make the facilities available, but does not see the authority to provide community programs at losses.  Nor does he see the authority to supply monetary or facility support for nonprofit groups.  He would like to understand why IVGID should believe it has implied powers to do so if it has no expressed powers. Mr. Dobler further asserted that the District cannot adopt policies that do not comply with the Statutes and that Mr. Nelson’s interpretation of “implied” and “incidental” powers relies upon conflating multiple clauses of NRS 318 to reach his conclusions. Mr. Dobler reasserted that though the District has the expressed power to provide recreational facilities it does not have the expressed power to provide unlimited services such as programs. Mr. Dobler also referenced the District’s Resolutions to collect the annual Recreation and Beach Facility fees to provide the availability for the use of our Recreational and Beach facilities. There is no mention of providing “services” or “programs” although the Rec Fee subsidizes approximately $500,000 of programs at the Rec Center alone and the Rec and Beach Fee subsidize other programs at all of our other recreational and beach venues.

Mr. Nelson stated at 1:30:02 of the LiveStream that he believes that providing recreational facilities includes providing recreational services.

Mr. Tulloch cited the Office of the Attorney General Opinion included in the packet which supported his difference of opinion with Mr. Nelson’s interpretiations of Dillion’s Rule and NRS 318.  He stated that he believes that it is the intention of the legislature that if a power is not authorized it defaults to not being a power. He does not see how IVGID could write a policy to expand its powers beyond those authorized by the statute. He said that no one is rasing opposition to the charitable or employee activities, but the Audit Committee wants IVGID to be in compliance with the law. Mr. Tulloch further stated that in addition to the eight (8) points raised, the District must address whether it is a public or private body as it relates to public money subsidizing our recreation venues while offering private sector perks.

Trustee Schmitz quoted NRS 318.210 which she thinks is a key as to whether something is an implied power; whether the activity “is appropriate to carry out the purposes and intent of this chapter.”

Mr. Nelson agreed with Mr. Dobler and Mr. Tulloch that the District cannot adopt policies that do not comply with the Statutes. He said that after his written opinion is reviewed the Board could consider getting an opinion from the office of the Attorney General for final resolution. He will provide his opinion in time for the September 30th Audit Committee meeting.

Mr. Aaron asked if Mr. Nelson had an all-inclusive list of areas of concern under Dillon’s Rule. Mr. Nelson said he was going to look at the eight (8) points raised in the Heirshberg email plus the issue Mr. Dobler raised concerning whether furnishing recreational facilities includes furnishing recreational programs.

Discussion was had concerning Mr. Katz’ August 7th, 2020 email communication asking if IVGID is improperly using the District’s ad valorem tax to support its water and Utility Fund.  Mr. Nelson stated that there are limitations on the use of ad valorem taxes, but this is not one, and this activity complies with Nevada law.  Mr. Navazzio stated that lots of GIDs handle this in a manner similar to IVGID’s practice.

Mr. Dobler reminded the group that his initial 14 points were increased to 21 points and he wanted to be sure that the additional points were not lost.  Trustee Dent said that a few additional items were being carried forward to the next Audit Committee meeting.

The next Audit Committee meeting will be held on September 30th at 3 p.m., and will include the whistle blower policy from General Manager Winquest.

Community member concerns  can be submitted by emailing the Audit Committee at AuditCommittee@ivgid.org

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