November 18, 2010

 

REPORT OF THE FINANCE-AUDITING COMMITTEE/
COMMITTEE OF THE WHOLE

 

Honorable Board of Directors
Golden Gate Bridge, Highway
  and Transportation District

Honorable Members:

A meeting of the Finance-Auditing Committee/Committee of the Whole was held in the Board Room, Administration Building, Toll Plaza, San Francisco, CA, on Thursday, November 18, 2010, at 10:15 a.m., Chair Stroeh presiding.

Committee Members Present (7): Chair Stroeh; Vice Chair Pahre; Directors Cochran, Eddie, Grosboll and Sobel; President Boro (Ex Officio)
Committee Members Absent (2): Directors Elsbernd and Moylan
Other Directors Present (4): Directors McGlashan, Newhouse Segal and Snyder; First Vice President Reilly

Committee of the Whole Members Present (11): Directors Cochran, Grosboll, McGlashan, Newhouse Segal, Pahre, Snyder, Sobel and Stroeh; Second Vice President Eddie; First Vice President Reilly; President Boro (Ex Officio)
Committee of the Whole Members Absent (8): Directors Brown, Campos, Chu, Dufty, Elsbernd, Kerns, Moylan and Sanders

Staff Present: General Manager Denis Mulligan; Acting District Engineer Ewa Bauer; Auditor-Controller Joseph Wire; District Secretary Janet Tarantino; Attorney David Miller; Deputy General Manager/Bridge Division Kary Witt; Deputy General Manager/Bus Transit Division Teri Mantony; Deputy General Manager/Ferry Transit Division Jim Swindler; Deputy General Manager/Administration and Development Z. Wayne Johnson; Planning Director Ron Downing; Public Affairs Director Mary Currie; Executive Assistant to the General Manager Amorette Ko; Assistant Clerk of the Board Lona Franklin

Visitors Present: Nancy Jones, PFM Asset Management, LLC; Ahmad Gharaibeh, Vavrinek, Trine, Day & Co., LLP

     
1.

Ratify Actions by the Auditor-Controller

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Denis Mulligan outlined commitments, disbursements and investments made on behalf of the Golden Gate Bridge, Highway and Transportation District (District). The report also included a copy of the District’s Investment Report from PFM Asset Management, LLC (PFM). A copy of the staff report, with attachments, is available in the Office of the District Secretary and on the District’s web site.

At the meeting, Nancy Jones reported that, in the under-five-year category for investments, little change can be expected in the near future. She stated that economists predict that interest rates will remain at approximately .25% until 2012. She reported that a correlation can be made between GDP and unemployment. Historically, an additional 1% drop in the unemployment rate requires an additional increase in Gross Domestic Product (GDP) of more than 2%. The GDP is currently growing at approximately 2% per year. Therefore, the GDP would have to grow at a rate of more than 4% for a year in order to effect a 1% drop in the unemployment rate. She also stated that an ongoing problem with determining the unemployment rate is that job seekers drop out of unemployment statistics when they cease searching for work or stop receiving unemployment insurance benefits.

Ms. Jones reported that PFM purchased a four-year Treasury Note on behalf of the District. The day the purchase was made, the rate was at 74 basis points, approximately 40 basis points higher than the rate the previous day. She stated that PFM continues to exercise caution in purchasing securities for the District.

Discussion ensued, including the following comments and inquiries:

  • Director McGlashan inquired as to expectations regarding the Federal Reserve (Fed), and whether the federal funds rate may drop below zero. In response, Ms. Jones stated that the Fed is expected to announce a new round of asset purchases aimed at boosting economic growth, a strategy known as “quantitative easing.” With short-term interest rates already near-zero, the Fed is expected to focus its new purchases in longer maturities in an effort to bring down longer-term rates and gradually return inflation to less subdued levels.
  • President Boro commented that some level of inflation is necessary to get the economic engine going. He noted that many companies are buying back their own stock, because they can borrow less expensively than paying interest to stockholders.
  • Director Grosboll inquired regarding an investment in Credit Agri North America Commercial Paper, which was purchased in August 2010. In response, Ms. Jones stated that this bank is located in France. She stated that, at the time of the purchase, the London Interbank offered rate (LIBOR rate) had gone up and prompted PFM to purchase commercial paper for the District for liquidity. The percent yield ranged from .28% on August 16, 2010 to .52% on August 20, 2010.

Staff recommended and the Committee concurred by motion made and seconded by Directors EDDIE/KERNS to forward the following recommendation to the Board of Directors for its consideration:

RECOMMENDATION

The Finance-Auditing Committee recommends that the Board of Directors authorize the following actions by the Auditor-Controller:

     
  a. The Board of Directors has no commitments and/or expenditures to ratify for the period October 1, 2010, through October 31, 2010:
  b. Ratify investments made by the Auditor-Controller during the period October 12, 2010, through November 8, 2010, as follows:
     
Security
Purchase Date
Maturity Date
Original Cost
Percent Yield
Barclays Bank PLC NY Certificate of Deposit
10/14/10
10/12/11
5,000,000.00
0.77
Toyota Motor Credit Commercial Paper
10/14/10
02/11/11
2,186,592.10
0.33
Societe Generale NA Commercial Paper
11/03/10
02/01/11
1,249,062.50
0.30
Societe Generale NA Commercial Paper
11/03/10
02/01/11
3,247,562.50
0.30
BNP Paribas FIN INC Commercial Paper
11/03/10
02/01/11
4,067,151.00
0.28
ING Funding LLC Commercial Paper
11/04/10
02/16/11
4,186,610.76
0.28
Toyota Motor Credit Commercial Paper
11/04/10
05/03/11
3,993,000.00
0.35
     
  c.
Authorize the Auditor-Controller to re-invest, within the established policy of the Board, investments maturing between November 9, 2010, and December 6, 2010, as well as the investment of all other funds not required to cover expenditures that may become available; and,
  d.

Accept the Investment Reports for October 2010, as prepared by PFM.

Action by the Board at its meeting of December 17, 2010 – Resolution
CONSENT CALENDAR

     
  AYES (11): Directors Cochran, Eddie, Grosboll, McGlashan, Newhouse Segal, Pahre, Reilly, Snyder, Sobel and Stroeh; President Boro (Ex Officio)
NOES (0): None
     
2.

Authorize the General Manager to Request Approval of a Cooperative Work Agreement for Extension of the Encumbrance Period for Federal Financing of the Golden Gate Bridge Seismic Retrofit Phase IIIA, North Anchorage Housing/North Pylon Construction Project

In a memorandum to Committee, Auditor-Controller Joseph Wire, Acting District Engineer Ewa Bauer and General Manager Denis Mulligan reported on staff’s recommendation to authorize the General Manager to request approval of a Cooperative Work Agreement through the California State Department of Finance for extension of the encumbrance period for federal financing of the Golden Gate Bridge Seismic Retrofit Phase IIIA, North Anchorage Housing/North Pylon Construction Project (Project).

The staff report stated that, under California State procedures, federal funds appropriated by the state budget are available for liquidation for seven years and, if a local agency is unable to seek reimbursement during that time, a one-year time extension may be requested through a Cooperative Work Agreement (CWA). In 2007, Federal funds were allocated for the construction phase of the Project in the total amount of $112,447,958.00. Of this amount, $48,090,852.00 has been designated by the California Department of Transportation to expire on June 30, 2011. The staff report concluded by stating that there will be no financial impact to the District if the CWA is approved. The lack of such approval would result in a loss of the unspent portion of the federal funding scheduled for expiration on June 30, 2011. A copy of the staff report is available from the Office of the District Secretary and on the District’s web site.

At the meeting, Mr. Mulligan briefly summarized the staff report, noting that a one-year extension of time is requested for the encumbrance period for federal funds. Execution of a CWA would provide the District with approval of that time extension.

Staff recommended and the Committee concurred by motion made and seconded by Directors EDDIE/COCHRAN to forward the following recommendation to the Board of Directors for its consideration:

RECOMMENDATION

The Finance-Auditing Committee recommends that the Board of Directors authorize the General Manager to request approval of a Cooperative Work Agreement through the California State Department of Finance for extension of the encumbrance period for Federal financing of the Golden Gate Bridge Seismic Retrofit Phase IIIA, North Anchorage Housing/North Pylon Construction Project.

Action by the Board at its meeting of November 19, 2010 - Resolution
NON-CONSENT CALENDAR

AYES (11): Directors Cochran, Eddie, Grosboll, McGlashan, Newhouse Segal, Pahre, Reilly, Snyder, Sobel and Stroeh; President Boro (Ex Officio)
NOES (0): None

     
3.

Authorize Execution of a Pass-Through Agreement between the Golden Gate Bridge, Highway and Transportation District and Marin County Transit District for Federal Transit Assistance Relative to the State of Good Repair Discretionary Fund Program

In a memorandum to Committee, Director of Capital and Grant Programs Gayle Prior, Auditor-Controller Joseph Wire and General Manager Denis Mulligan reported on staff’s recommendation to authorize the General Manager, or his designee, to enter into and execute the Federal Transit Administration’s State of Good Repair Pass-Through Agreement between the District and Marin County Transit District (MCTD), for the management of the State of Good Repair Discretionary Fund Program.

The staff report stated that, on May 4, 2010, the Federal Transit Administration (FTA) announced a $775 million State of Good Repair Discretionary Fund Program (grant) for transit capital projects, with eligible projects being replacement, rehabilitation, and purchase of buses and related equipment and construction/rehabilitation of bus-related facilities. In June 2010, the District submitted two applications for the FTA’s grant, as follows: 1) $16,844,020.00 for District bus replacements; and, 2) $1,600,000.00 for Marin Bus Stop Improvements on behalf of MCTD. In October 2010, the FTA announced the grant awards, with only the MCTD’s application being approved. Because MCTD is not a designated FTA grantee, the District would be responsible for all FTA-related actions associated with this funding, including preparation of the FTA-TEAM application for funding, submission of quarterly reports for the life of the grant, and oversight and monitoring of the grant for FTA compliance. Therefore, staff recommends the preparation of a Pass-Through Agreement between the District and MCTD for the management of the grant. A copy of the staff report is available from the Office of the District Secretary and on the District’s web site.

At the meeting, Mr. Mulligan briefly summarized the staff report, noting that the District and MCTD would work closely together, and that a Pass-Through Agreement will facilitate the required coordination between the parties associated with receipt and expenditure of the FTA funds.

Staff recommended and the Committee concurred by motion made and seconded by Directors EDDIE/COCHRAN to forward the following recommendation to the Board of Directors for its consideration:

RECOMMENDATION

The Finance-Auditing Committee recommends that the Board of Directors authorize the General Manager, or his designee, to enter into and execute the Federal Transit Administration’s State of Good Repair Pass-Through Agreement between the Golden Gate Bridge, Highway and Transportation District and Marin County Transit District, for the management of the State of Good Repair Discretionary Fund Program grant.

Action by the Board at its meeting of November 19, 2010 - Resolution
NON-CONSENT CALENDAR

AYES (11): Directors Cochran, Eddie, Grosboll, McGlashan, Newhouse Segal, Pahre, Reilly, Snyder, Sobel and Stroeh; President Boro (Ex Officio)
NOES (0): None

     
4. Receive the Independent Auditor’s Reports for the Year Ending June 30, 2010, as Submitted by Vavrinek, Trine, Day & Co., LLP, , including the following:
  a. The Comprehensive Annual Financial Report, including the Single Audit Report;
  b. The Financial Statements of the Supplemental Retirement Plan and Trust;
  c. The Agreed-Upon Procedures Pertaining to the Proceeds of the Public Transportation Modernization, Improvement and Service Enhancement Account Grant; and,
  d. The Independent Auditor’s Communication Letter
     
 

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Denis Mulligan reported on the annual audit of the District for the year ending June 30, 2010, as prepared by Vavrinek, Trine, Day & Co., LLP (VTD), and reported on staff’s recommendation that the Board receive the Independent Auditors’ Reports for the year ending June 30, 2010.

The Committee reviewed the staff report, which included the following reports provided by the Auditor-Controller regarding the District’s Financial Statements:

  • Independent Auditor’s Report;
  • Management’s Discussion and Analysis;
  • Financial Statements;
  • Required and Other Supplementary Information;
  • Statistics; and,
  • Single Audit Report.

In addition, the Committee reviewed the following reports that had been provided by the Auditor-Controller regarding the Financial Statements of the Supplemental Retirement Plan and Trust:

  • Independent Auditor’s Report;
  • Management’s Discussion and Analysis;
  • Financial Statements; and,
  • Required Supplementary Information

A copy of the staff report, including attached Independent Auditor’s reports, is available in the Office of the District Secretary and on the District’s web site.

At the meeting, Mr. Wire introduced Ahmad Gharaibeh, representing the independent auditor, VTD. Mr. Wire noted that this is the third audit of the District undertaken by VTD. He commended District staff, Jennifer Croaro, Accounting Specialist; Lehnee Hernandez, Accounting Analyst/Capital and Grants; Bette Joe, Director of Accounting; Ginette Lacues, Accounting Specialist; Albert Lee, Accountant; Janet Murphy, Accounting Specialist; Vicky Ng, Accountant; Stefany Toll, Accounting Supervisor; Jeff Dion, Administrative Assistant; and, Mary Currie, Public Affairs Director, for the able assistance they provided to VTD.

Mr. Gharaibeh then addressed the Committee, providing an overview of the Independent Auditor’s Reports on both the District’s Financial Statements, as well as the Financial Statements of the Supplemental Retirement Plan and Trust. Mr. Gharaibeh summarized the scope of auditing services provided by VTD, and highlighted the results of the audit. He stated that no problems were discovered, and that there were no significant findings during the course of both audits. He also stated that the auditors had not found any material weaknesses in the Financial Statements, and that VTD provided a “clean opinion.” There was no non-compliance found in connection with the Transportation Development Act, or with federal regulations when receiving federal grants. In addition, he stated that a clean opinion was issued for the retirement fund. He stated that corrective action has already been taken to address a single deficiency found during the audit process related to medical benefit issues. He complimented staff, stating that auditor recommendations are quick to be implemented and that the audit had gone smoothly.

Discussion ensued, including the following comments and inquiries:

  • Director Grosboll made the following inquiries:
    • He inquired as to the nature of the deficiency. In response, Mr. Mulligan stated that, when the internal audit of the medical benefits program was done, it was found that the District had overpaid on some medical benefits. He added that steps have already been taken to be certain it does not happen again. He noted that a Closed Session discussion regarding this matter had been held at the Board Meeting of October 22, 2010.
    • He inquired as to whether sufficient controls are in place to guard against embezzlement of funds. In response, Mr. Gharaibeh stated that internal controls are in place to prevent misstatements and prevent fraud. He added that the District has adopted additional procedures and that he believes these measures are adequate.
  • President Boro made the following comments and inquiries:
    • He inquired as to whether the District had hired an internal auditor with respect to controls such as those alluded to by Mr. Gharaibeh. In response, Mr. Wire stated that internal auditors hired for this purpose plan to hold a meeting on Monday, November 22, 2010, where processes and internal controls will be discussed. He stated that procurement will be reviewed first.
    • He commented that employees should be aware that internal as well as external auditors, will be following up on processes and procedures, and will review areas other than procurement.

Staff recommended and the Committee concurred by motion made and seconded by Directors COCHRAN/EDDIE to forward the following recommendation to the Board of Directors for its consideration:

RECOMMENDATION

The Finance-Auditing Committee recommends that the Board of Directors receive the Independent Auditors’ Reports for the year ending June 30, 2010, as submitted by Vavrinek, Trine, Day & Co., LLP, for the following:

  a. The Comprehensive Annual Financial Report including the Single Audit Report;
  b. The Financial Statements of the Supplemental Retirement Plan and Trust;
  c. The Compliance Report for agreed-upon procedures pertaining to the proceeds of the Public Transportation Modernization, Improvement and Service Enhancement grant program; and,
  d.

The Independent Auditors’ Communication Letter regarding matters related to the audit.

Action by the Board at its meeting of November 19, 2010 - Resolution
NON-CONSENT CALENDAR

     
  AYES (11): Directors Cochran, Eddie, Grosboll, McGlashan, Newhouse Segal, Pahre, Reilly, Snyder, Sobel and Stroeh; President Boro (Ex Officio)
NOES (0): None
     
5.

Monthly Review of Golden Gate Bridge Traffic/Tolls and Bus and Ferry Transit Patronage/Fares (for Four Months Ending October 2010)

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Denis Mulligan provided a schedule comparing categories of Bridge traffic, as well as a monthly review of Bridge traffic, tolls, transit patronage and fares, for four months ending October 31, 2010. Copies of the reports are available in the Office of the District Secretary and on the District’s web site.

     
6. Monthly Review of Financial Statements (for Four Months Ending October 2010)
     
  a.

Statement of Revenue and Expenses

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Denis Mulligan provided financial statements entitled, Statement of Operating Revenues and Expenses. Copies of the reports are available in the Office of the District Secretary and on the District’s web site.

     
  b.

Statement of Capital Programs and Expenditures

In a memorandum to Committee, Director of Capital and Grant Programs Gayle Prior, Auditor-Controller Joseph Wire and General Manager Denis Mulligan provided financial statements entitled, Statement of Capital Programs and Expenditures. Copies of the reports are available in the Office of the District Secretary and on the District’s web site.

     
7.

Public Comment

There was no public comment.

     
8.

Adjournment

All business having been concluded, the meeting was adjourned at 11:15 a.m.

     
     

 

Respectfully submitted,

s/ J. Dietrich Stroeh, Chair
Finance-Auditing Committee