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How to Stay in the Auditor’s Good Graces

How to Stay in the Auditor’s Good Graces

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How to Stay in the Auditor’s Good Graces

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  1. How to Stay in the Auditor’s Good Graces UASD 29th Annual Convention Layton, Utah November 2, 2017 Presented by David B. Hartvigsen, Esq. & Nathan S. Bracken, Esq. Common Sense and Best Practices

  2. A copy of this presentation will be available at www.SHutah.law underthe “Resources” tab DISCLAIMER • These materials and their presentation are for informational and educational purposes only. • They should not be construed as legal advice and are not intended to create an attorney-client relationship. • The information contained herein is subject to change as statutes, common law, and administrative rules change. • Further, the information provided herein is an overview of general topics, and should not be treated as an exhaustive or complete treatment of the issues described herein. • Given the general nature of these materials, no one should act on its contents without seeking independent legal advice.

  3. Best Practices Engaged Leadership with a Vision • Weak management, poor oversight, and a lack of direction leads towaste, abuse of public funds, fraud … and poor results • The Board, Management, and Staff must have a clear and common understanding of the District’s mission • The same is true of the policies and procedures that will get them there • These must be carefully crafted, duly adopted, written statements • They must be accessible, well understood, and updated regularly

  4. Best Practices - Mission Statements What are you trying to do?

  5. Best Practices - Mission Statements What’s your target? The barn or the manure spreader?

  6. Best Practices - Mission Statements What’s your target?If it’s the broad side of the barn, that a big target!

  7. Best Practices - Mission Statements What’s your target? Identify specifically what you’re trying to accomplish

  8. Best Practices - Mission Statements To zero-in on the target, you need feedback & results Then you need to make adjustments (Accountability)

  9. Best Practices - Mission Statements The result – a successful effort!

  10. Mission Statement • The District has adopted the following statements and principles as worthy ideals and goals. Although they may not always be achieved, they are what we always strive to achieve. They are not minimum standards of conduct. Those standards are set forth in Chapter X. • Vision – The continuous delivery of safe, excellent, cost-effective water supply and wastewater services in compliance with all state and federal regulatory requirements to every home and business within the District’s boundaries. • Mission – The District is committed to serving the needs of the District’s residents, businesses, and visitors by providing high-quality drinking water and wastewater disposal services while planning for future economic growth. This will be accomplished through progressive planning, implementing water conservation measures, safe-guarding public health and the environment, and providing for continuous process improvements, advanced technologies, and cost efficiencies. This requires that we establish, maintain, update, and protect our water system from contaminants, either natural or as the result of human activity; maintain and enhance long-term water resources through water conservation programs using advanced technology available to the District for pristine water quality and wastewater disposal services. It also requires that we accomplish this 24 hours a day, 365 days a year. We are honored to serve our community and pursue this mission.

  11. Mission Statement Principles and Values – Serving our community while protecting our environment • Guiding values are service, leadership, integrity, flexibility, efficiency, and stewardship • Serve the community efficiently and effectively in a manner which exceeds their expectations of hard work, empathy, and thoughtful consideration • Value our customers, employees, vendors, consultants, and contractors; solicit and be open to their opinions, their concerns, and their suggestions • Create and foster a positive work environment where new ideas from employees are encouraged, listened to, and acknowledged • Foster open, clear and timely communication among our workforce, stakeholders, and customers by listening attentively, asking questions and interacting appropriately • Protect the public interest, and through our actions, integrity, and accountability, maintain a strong foundation of trust with our community • Conduct ourselves in a safe and professional manner, and take an active interest in the well-being of our community • Treat each individual with dignity and respect • Anticipate and be ready to adapt to future trends and needs • Maximize environmental, social and economic benefits, considering the short and long-term benefits and impacts of our decisions • Be accountable for our actions and results, successes, and failures • Align our service and performance with the goals identified by the Trustees and Management

  12. Best Practices Written Policies • Every District should have the following Board-approved written policies: • A personnel policy • A purchasing policy • A records retention policy • Required policies if you do these things • An electronic meetings policy • An impact fees policy • Customized additional policies

  13. Best Practices Written Policies • SAMPLE TABLE OF CONTENTS • Chapter 1 - GENERAL PROVISIONS • 1.1 ADMINISTRATIVE POLICY MANUAL NAME • 1.2 CREATION AND GUIDING PRINCIPLES • 1.3 DEFINITIONS • 1.4 RULES OF CONSTRUCTION OF RULES AND REGULATIONS • 1.5 CONFLICTS AND INVALIDITY CLAUSE

  14. Best Practices Written Policies • Chapter 2 - BOARD OF TRUSTEES • 2.1 BOARD OF TRUSTEES • 2.2 DISTRICT GOVERNMENT • 2.3 FUNCTIONS OF THE BOARD OF TRUSTEES • 2.4 LIMITATIONS OF ACTIONS AND AUTHORITY OF THE BOARD • 2.5 OATH OF OFFICE • 2.6 CHAIRPERSON OF THE BOARD OF TRUSTEES • 2.7 COMPENSATION

  15. Best Practices Written Policies • Chapter 3 - DISTRICT ADMINISTRATION • 3.1 STRUCTURE OF DISTRICT ADMINISTRATION • 3.2 FIDELITY BONDS • 3.3 APPOINTMENT OF THE GENERAL MANAGER • 3.4 ADMINISTRATIVE POWERS & DUTIES OF GENERAL MANAGER • 3.7 WORKING TIME & COMPENSATION OF GENERAL MANAGER • 3.9 REMOVAL OF GENERAL MANAGER • 3.10 APPOINTMENT & DUTIES OF ATTORNEY • 3.11 APPOINTMENT & DUTIES OF CHIEF ENGINEER • 3.12APPOINTMENT & DUTIES OF CONTROLLER • 3.13 APPOINTMENT & DUTIES OF CONSULTANTS • 3.14 REMOVAL OF OTHER OFFICERS

  16. Best Practices Written Policies • Chapter 4 - DISTRICT MEETINGS • 4.1 TYPES OF MEETINGS • 4.2 PLACE OF MEETINGS • 4.3 PUBLIC NOTICE OF MEETINGS • 4.4 NOTICE TO TRUSTEES • 4.5 CONDUCT OF MEETINGS • 4.6QUORUM • 4.7 PRESUMPTION OF ASSENT • 4.8 NO PROXY • 4.9 OPEN AND CLOSED MEETINGS; ACTIONS TAKEN • 4.10 MINUTES AND RECORDINGS OF MEETINGS TO BE KEPT • 4.11 ELECTRONIC MEETINGS [Required if you want Trustees to be able to call in]

  17. Best Practices Written Policies • Chapter 5 - DISTRICT FINANCE • 5.1 BUDGET OFFICER • 5.2 PREPARATION OF BUDGET • 5.3 REPORTS • 5.4 INDEPENDENT AUDITOR • 5.5 CHECKS • Chapter 6 - AUDIT COMPLIANCE • 6.1 CASH MANAGEMENT • 6.2 PROPERTY TAX LIMITATIONS • 6.3 OTHER GENERAL COMPLIANCE • 6.4 PUBLIC DEBT • 6.5 LOCAL DISTRICT

  18. Best Practices Written Policies • Chapter 7 – PURCHASING [Required Policy] • 7.1 SCOPE • 7.2 CHIEF PROCUREMENT OFFICER • 7.3 PURCHASING AND CONTRACTING PROCEDURES [Adopts UASD Policy] • Chapter 8 – RECORDS MANAGEMENT [Required Policy] • 8.1GENERAL PUROPSE AND POLICY • 8.2COORDINATION WITH STATE LAW • 8.3DEFINITIONS AND CLASSIFICATIONS • 8.4MAINTENANCE AND RETENTION • 8.5PROCEDURES AND FEES FOR RECORDS REQUEST • 8.6 APPEALS PROCESS

  19. Best Practices Written Policies • Chapter 9 - PERSONNEL POLICIES AND PROCEDURES [Required Policy] • 9.1 INTRODUCTION AND PURPOSE • 9.2EMPLOYMENT • 9.3 COMPENSATION & WORK SCHEDULES • 9.4 ATTENDANCE AND LEAVES • 9.5BENEFITS • 9.6 TRAINING, DEVELOPMENT & CERTIFICATIONS • 9.7STANDARDS • 9.8 PERFORMANCE REVIEW SYSTEM • 9.9TERMINATION • 9.10 DISCIPLINE AND GRIEVANCE • 9.11 DRUGS AND ALCOHOL • 9.12 MISCELLANEOUS POLICIES

  20. Best Practices Written Policies • Chapter 10 - GENERAL RATE AND CONNECTION RULES AND REGULATIONS • 10.1GENERAL CONNECTION REQUIREMENTS • 10.2 WATER RATES FOR WATER CUSTOMERS WITHIN THE DISTRICT • 10.3 SEWER RATES FOR SEWER CUSTOMERS WITHIN THE DISTRICT • 10.4 RATES OUTSIDE THE DISTRICT • 10.5 REQUIREMENT FOR BOTH WATER AND SEWER SERVICES • 10.6 POLICIES CONCERNING SEPTIC SYSTEMS • 10.7POLICY ON RENTED PREMISES • 10.8DEVEOPMENTS AND LINE EXTENSIONS • 10.9APPLICATIONS • 10.10 DISCONTINUANCE OF SERVICE • 10.11 UNAUTHORIZED USE OF WATER AND PENALTIES • 10.12 SUPERVISOR TO HAVE FREE ACCESS • 10.13BILLING & DELINQUENT ACCOUNTS • 10.14 PROHIBITED ACTS

  21. Best Practices Written Policies • Chapter 11 - IMPACT FEES POLICY [Required if you impose Impact Fees] • 11.1PURPOSE • 11.2DEFINITIONS • 11.3 IMPACT FEES • 11.4 IMPACT FEE FACILITIES PLAN • 11.5 FEE EXCEPTIONS AND ADJUSTMENTS • 11.6 EXTRA-TERRITORIAL SERVICE • 11.7 APPEAL PROCEDURE • 11.8 WATER DEDICATION REGULATION • 11.9 SECONDARY WATER SYSTEM “DRY LINE” REGULATION

  22. Common Problems • Weak transparency and accountability • Weak oversight and board control • Lack of adequate planning, policies, and procedures • Minimum policies – personnel, purchasing, and records • Lack of adequate accounting and financial controls • Lack of in-depth and regular cost analysis to aide management in decision making • Lack of adequate training and understanding of applicable laws • Questionable expenditures by board and/or management Office of the Legislative Auditor General, A Review of Best Practices for Internal Control of Limited Purpose Entities, 12(June 2017)

  23. Don’t Skimp on Training • State law requires special training for newly elected or appointed board members • Annual training in the Open and Public Meetings Act is required for board members • Don’t just do the minimum – attend as many conferences and certifications that you can • Training costs can be managed and are relative • It’s always cheaper to prevent rather than fix a problem • Ensure that budgets allow for adequate amounts of training

  24. Don’t Bite Off More Than You Can Chew • At least annually, ask: • Do the board and staff (individually and collectively) have the training and capacity to fulfill their responsibilities as currently designated? • Is the district’s staffing level appropriate? • Are the job descriptions accurate? • What training is needed? • Are your polices up to date? • Have circumstances changed?

  25. You Can’t Go It Alone • Boards often don’t have the time or capacity to do everything. • Auditors generally expect some amount of staff or contractor support, subject to Board oversight: • “The board takes ultimate responsibility for governance of the entity by (1) appointing an executive staff….” • The board “has a responsibility to lead and hold staff accountable for results.” • “Board and staff regularly receive…required training….” • “The board and executive director need to set a proper tone of accountability and ethical behavior.” • “An effective governing board focuses its efforts on five responsibilities: (1) hiring an executive director….” Office of the Legislative Auditor General, A Review of Best Practices for Internal Control of Limited Purpose Entities, 23 – 40, (June 2017)

  26. Understand the Difference Between Employees and Contractors • Employee - one who is hired and paid a salary, a wage, or at a fixed rate, to perform the employer's work as directed by the employer and who is subject to a comparatively high degree of control in performing those duties. • Independent contractor - one who is engaged to do some particular project or piece of work, usually for a set total sum, who may do the job in his own way, subject to only minimal restrictions or controls and is responsible only for its satisfactory completion. Harry L. Young & Sons, Inc. v. Ashton, 538 P.2d 316, 318 (Utah 1975)

  27. IRS Test • Behavioral Control. Does the business have a right to direct and control what work is accomplished and how the work is done? (Id.) For example, training a worker on how to assemble a widget indicates behavioral control. • Financial Control. Does the business have a right to “direct or control the financial and business aspects of the worker’s job? For example, reimbursing a worker for job related expenses indicates financial control. • Relationship of the Parties. What is the nature of the relationship between the business and worker? For example, providing benefits to a worker indicates an employer/employee relationship.

  28. Utah Presumption – Unemployment • Utah Employment Security Act - rebuttable presumption that an individual is an employee if that individual is performing services for wages or under any contract of hire, whether written or oral. Utah Code Ann. § 35A-4-204(3). • How to Rebut: • the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the contract of hire of services; and • (b) the individual has been and will continue to be free from control or direction over the means of performance of those services, both under the individual’s contract of hire and in fact.”

  29. Independently Established • Separate Place of Business. The worker has a place of business separate from that of the employer. • Tools and Equipment. The worker has a substantial investment in the tools, equipment, or facilities customarily required to perform the services. However, “tools of the trade” used by certain trades or crafts do not necessarily demonstrate independence. • Other Clients. The worker regularly performs services of the same nature for other customers or clients and is not required to work exclusively for one employer. • Profit or Loss. The worker can realize a profit or risks a loss from expenses and debts incurred through an independently established business activity. • Advertising. The worker advertises services in telephone directories, newspapers, magazines, the Internet, or by other methods clearly demonstrating an effort to generate business. • Licenses. The worker has obtained any required and customary business, trade, or professional licenses. • Business Records and Tax Forms. The worker maintains records or documents that validate expenses, business asset valuation or income earned so he or she may file self-employment and other business tax forms with the Internal Revenue Service and other agencies.

  30. Control and Direction • Instructions. A worker is required to comply with other persons' instructions about how the service is to be performed is ordinarily an employee. • Training. Training a worker by requiring or expecting an experienced person to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the employer for whom the service is performed expects the service to be performed in a particular method or manner. • Pace or Sequence. A requirement that the service must be provided at a pace or ordered sequence of duties imposed by the employer indicates control or direction. The coordinating and scheduling of the services of more than one worker does not indicate control and direction. • Work on Employer's Premises. A requirement that the service be performed on the employer's premises indicates that the employer for whom the service is performed has retained a right to supervise and oversee the manner in which the service is performed, especially if the service could be performed elsewhere. • Personal Service. A requirement that the service must be performed personally and may not be assigned to others indicates the right to control or direct the manner in which the work is performed. • Continuous Relationship. A continuous service relationship between the worker and the employer indicates that an employer-employee relationship exists. A continuous relationship may exist where work is performed regularly or at frequently recurring although irregular intervals. A continuous relationship does not exist where the worker is contracted to complete specifically identified projects, even if the relationship extends over a significant period of time. • Set Hours of Work. The establishment of set hours or a specific number of hours of work by the employer indicates control. • Method of Payment. Payment by the hour, week, or month points to an employer-employee relationship, provided that this method of payment is not just a convenient way of paying progress billings as part of a fixed price agreed upon as the cost of a job. Control may also exist when the employer determines the method of payment.

  31. Employee vs. Contractor Considerations • Employees generally require benefits • Employers withhold taxes for employees but not contractors • Firing an employee is more difficult than terminating a contractor agreement • You can specify results with a contractor, but can’t control the performance of the work • You can control how, when, and where an employee performs a job. • Employers have greater liability for employees

  32. Independent Contractor Best Practices • If you are engaging or classifying a worker as an independent contractor, carefully consider the nature of the work that will be performed and what instruction or oversite the business will have over the worker. • Realize that just applying the term “independent contractor” is insufficient as the nature of the relationship is subject to various tests. • Consult with legal counsel regarding classification of a worker and any implications that classification may have on your business operations.

  33. Adopt a Personnel Policy for Employees • Districts with full-time or part-time employees should generally have a personnel policy – proper oversight begins here • Adopt a personnel policy before hiring employees • Personnel policies should cover, at a minimum: • A competitive hiring process that avoids bias and conflicts of interest • Compensation, training, and promotion • Oversight, termination, and discipline • Vacation, leave, holidays • Expenses • Grievance process • Work hours, approval of leave, overtime pay • Harassment and discrimination • Drugs • General disclaimers

  34. Ensure that Your Procurement Policy Addresses Contractors • Utilizes a competitive selection process to safeguard against bias and conflicts of interest • Addresses socialization between Board members and contractors • Governs the termination of contractor agreements • Includes required elements for agreements with contractors • Sets forth a process to govern bids and requests for proposals, including public notice requirements • Sets forth additional expectations • Addresses discrimination and harassment by contractors • Interactions with Board and constituents

  35. Avoid Conflicts of Interest • Hiring board members and family members is a sure-fire way to get the Auditor’s attention • Ensure that policies address nepotism and ethics by: • Where possible, avoiding contracts or employment arrangements in which Board members or staff have a direct or indirect interest • Setting forth how conflicts of interests will be disclosed • Ensuring that board members and staff do not improperly use their positions for personal gain • If you do hire a board or family member, have a good reason, be prepared to show why, and make sure the board member with the conflict plays no role in the decision

  36. Hypothetical #1 – The Board’s Member’s Spouse • A district is in need of a contractor to perform a specific project. It follows all of the necessary procedures and publishes public notice of the project, requesting proposals from qualified contractors. • Two equally qualified entities submit bids and proposals, one of whom is the spouse of a board member. • The spouse’s bid is 15% less than the other bid.

  37. Hypothetical #2 – The Busy Contractor • The district has a contract with an independent contractor agreement with an individual • The contractor is responsible for paying his taxes and covering all of his expenses for equipment, licenses, and tools, but the district pays for the contractor’s training • The contractor is to be on call 24/7 and is expected to perform services for the district that exceed 40 hours per week. As a result, the contractor has no other clients • Most of the contractor’s required duties are subject to board review, approval, and direction • The contractor does not have a separate place of business

  38. Hypothetical #3 – Doubly-Employed • A district classifies a maintenance worker as a part-time employee • The district withholds taxes for the worker and pays associated worker’s compensation premiums • The worker provides the same service for multiple other entities in the area • The board exercises oversight over the results of the worker’s assignments, but not over the means of performance • The worker pays for the tools and equipment used • The worker operates out of a separate place of business

  39. Questions? David B. Hartvigsen Nathan S. Brackendavid@SHutah.lawnbracken@SHutah.law 257 East 200 South, Suite 500Salt Lake City, Utah 84111801-413-1600 A copy of this presentation will be available at www.SHutah.law