Loading...
HomeMy WebLinkAbout06/02/2025 - Regular Minutes - City Council - Audit CommitteeMayor John Nichols Mayor Pro Tem Mark Smith City Manager Bryan C. Woods CITY OF COLLEGE STATION Home of Texas AdM University' Councilmembers William Wright David White Bob Yancy Melissa McIlhaney Scott Schafer Minutes CITY COUNCIL AUDIT COMMITTEE IN -PERSON WITH TELECONFERENCE PARTICIPATION Monday, June 2, 2025, at 3:00 pm Audit Committee Members Present: John Nichols, Mayor Melissa McIlhaney, Councilmember (Absent) Mark Smith, Mayor Pro Tem Michelle McMillin, Committee Member Nicolo Logalbo, Committee Member (Absent) City Staff: Ty Elliott, City Internal Auditor Matthew Ragaglia, Program Auditor Pey Zeigler, Internal Audit Intern Bryan Woods, City Manager (Absent) Jeff Capps, Deputy City Manager (Absent) Jeff Kersten, Assistant City Manager Jennifer Prochazka, Assistant City Manager (Absent) Adam Falco, City Attorney Mary Ellen Leonard, Finance Director 1. Call meeting to order and Announce a Ouorum is Present. With a quorum present, the Audit Committee of College Station was called to order by Mayor Nichols at 3:00 pm on June 2, 2025, in the 1938 Executive Conference Room of the City of College Station City Hall. 2. Hear Visitors There were no hear visitors. 3. Agenda Items 3.1 Presentation, discussion, and possible action of minutes for the City Council Audit Committee meeting held on March 24, 2025. MOTION: Upon a motion made by Mayor Pro Tem Mark Smith and a second by Committee Member Michelle McMillin the Audit Committee voted three (3) for and zero (0) opposed to approve the March 24, 2025, Audit Committee minutes. The motion carried unanimously. 3.2 Presentation, discussion, and possible action regarding the Peer Review of the City of College Station Auditor's Office covering the period of January 1, 2022, to December 31, 2024. Ty Elliott provided a formal overview of the Audit Office's recent external peer review. This process is an independent evaluation conducted by auditors from other government entities to determine whether the internal audit function operates in accordance with applicable professional standards. During the period from January 1, 2022, through December 31, 2024 the Audit Office practice Generally Accepted Government Auditing Standards (GAGAS). Ty Elliott noted that this was the most thorough peer review he has witnessed in his auditing career. Of the 12 audit engagements conducted during this period, 8 engagements (66%) were selected for detailed review. To illustrate the conclusions of the peer review team, Ty Elliott shared testimony from the peer review team lead, Susan Edwards, City Auditor for the City of Arlington, Texas, who stated: "The team's work was well -organized, easy to follow, and compliant with standards. We were also impressed with the Office's dedication to both their quality of work and GAGAS." The City Auditor's Office received a Pass rating —the highest possible outcome for a peer review — indicating full compliance with professional standards. Notably, the peer review report included no management comments, which Ty Elliott emphasized is rare. Management comments typically offer suggestions for improvement, even when standards are met; their absence further reflects the office's strong commitment to quality, organization, and adherence to best practices —particularly for an audit function of its size. This commitment to excellence is further evidenced by the Audit Office's recent reception of an Exemplary Knighton Award from the Association of Local Government Auditors, recognizing one of the best performance audit reports of 2024. 3.3 Presentation, discussion, and possible action regarding the applicable auditing standards used by the Internal Auditor's Office. Ty Elliott provided a detailed overview of the auditing standards applicable to internal audit functions, explaining that audit shops generally follow either GAGAS—commonly referred to as the Yellow Book and promulgated by the U.S. Government Accountability Office —or the Global Internal Auditing Standards, known as the Red Book, issued by the Institute of Internal Auditors. Historically, the Yellow Book has been more focused on the public sector, while the Red Book has been more commonly applied in private sector environments. Some audit functions may follow both, depending on their structure and size, but Ty Elliott and Michelle McMillin stated that this would be impractical for an audit shop of this size due to the resources needed to comply with both. Ty Elliott also outlined key differences between the Yellow Book and Red Book standards. While both provide foundational guidance to the internal audit profession, they differ in emphasis. The Yellow Book is primarily engagement -focused and places strict requirements on maintaining independence at the individual project level, generally advising against non -audit services. Ty noted that the Red Book has recently introduced a dedicated public sector section in its standards —an addition does not present in previous versions —which provides tailored guidance to help internal audit functions navigate the unique challenges and governance structures of public sector environments. To address a question from Mayor Pro Tem Mark Smith about what types of engagements could be performed under the Red Book that are not currently feasible under Yellow Book, Ty Elliott explained that the Red Book is more governance -focused and permits both assurance and advisory services, as long as structural independence is maintained —such as the audit function reporting directly to the Audit Committee. Assurance services involve objective evaluations that provide independent assessments of governance, risk management, or controls, while advisory services are informative in nature and intended to add value without assuming management responsibility. Ty noted that the City Auditor's Office already satisfies this structural requirement by reporting directly to the Audit Committee, rather than to a CFO or City Manager, as is the case in some other public sector audit functions. Ty explained that both the Yellow Book and Red Book standards were recently updated, and internal audit functions will be required to adopt the applicable framework based on which standards they follow by December 15, 2025, for those adhering to Yellow Book and by January 9, 2026, for those operating under Red Book. He noted that the Internal Auditor's Office currently adheres to Yellow Book standards and is evaluating whether to continue under this framework or transition to Red Book. He added that the office has conducted its due diligence to ensure that its approach continues to best support the needs of the City of College Station as the standards evolve to address new and emerging risks. As such, Ty Elliott stated that he recommends the Audit Committee direct the Internal Auditor's Office to adopt Red Book standards. He cited several reasons for this recommendation: the Red Book is more responsive to emerging risks such as cybersecurity, artificial intelligence, and IT controls; the Institute of Internal Auditors provides more extensive resources and tools to support audit quality and professional development; and the recent addition of public sector considerations within the Red Book offers relevant and practical guidance for governmental audit functions like the City Auditor's Office. Additionally, peer reviews under Red Book are required every five years instead of every three, which would reduce the administrative burden and allow audit staff to dedicate more time to conducting audit engagements. Mary Ellen Leonard informed the Committee that she reached out to the City's external auditors about any potential impact of the internal audit function changing standards. The External Auditors stated that they are required to follow GAGAS due to federal financial reporting requirements. However, she also noted that the external auditors confirmed the Internal Auditor's Office may adopt either Yellow Book or Red Book standards, and that doing so would not conflict with external audit requirements. Michelle McMillin reaffirmed this point, explaining that the external auditors' obligation to comply with GAGAS for federal fund audits does not limit the internal audit function's ability to adopt a different standard. She added that, since the external auditors already perform those engagements, and the Internal Auditor's Office avoids duplication by not auditing those same areas, a change in standards would not result in any conflict or overlap, which Ty Eliott concurred with. Toward the conclusion of the presentation, Ty Elliott informed the Committee that transitioning to 2024 Red Book standards would require several formal actions. These include revisions to the City's existing Audit Ordinance, the development of a formal Audit Charter aligned with Red Book requirements, and eventual approval by both the Audit Committee and the City Council. He added that, if a transition is pursued, the Internal Auditor's Office will also need time until the adoption deadline, January 9, 2025, to revise internal policies and procedures, audit documentation templates, and other foundational materials to ensure alignment with Red Book standards. MOTION: Upon a motion made by Mayor Pro Tem Mark Smith and a second by Committee Member Michelle McMillin the Audit Committee voted three (3) for and zero (0) opposed to transition the applicable auditing standards used by the City Internal Auditor's Office from the Generally Accepted Government Auditing Standards to the Global Internal Audit Standards by the implementation deadline of January 9, 2026. The motion carried unanimously. 3.4 Presentation. discussion. and possible action to provide an update on the Fiscal Year 2025 Audit Plan and consider potential amendments. Ty Elliott provided an update on the audit of the Roadway Maintenance Fund, noting that the Internal Auditor's Office is coordinating with Public Works, Planning and Development Services, and Fiscal Services. He explained that the audit is structured around three primary objectives: (1) assessing whether there is any legal risk in the design of the ordinance governing the fund, (2) reviewing expenditures to ensure that monies are being used solely for authorized roadway maintenance activities, and (3) evaluating internal controls over the fee assessment process to determine whether benefitted properties are being billed accurately. Fieldwork is tentatively scheduled to finish in July. Ty also noted that additional audits scheduled for the fiscal year include an audit of the Drainage Utility Fund, which will follow a similar structure to the Roadway Maintenance Fund audit, and an annual review of Roles and Permissions within the City's ERP system. MOTION: Upon a motion made by Mayor Pro Tem Mark Smith and a second by Committee Member Michelle McMillin the Audit Committee voted three (3) for and zero (0) opposed to amend the FY2025 Audit Plan to include the necessary activities required to transition the City Internal Auditor's Office from the Generally Accepted Government Auditing Standards to the Global Internal Audit Standards by the implementation deadline of January 9, 2026. The motion carried unanimously. 4. Discussion and possible action on future agenda items. There were no future agenda items discussed. 5. Adjourn. There being no further business, Mayor Nichols adjourned the meeting at 4:02 pm on Monday, June 2, 2025. c P. Nichols, Mayor ATTEST: Kimberly A."ickey, Records Mar ement Administrator