Audit Committee Meeting
June 16, 2017
MINUTES
FORTY-NINER SHOPS, INC.
AUDIT COMMITTEE MEETING
June 16, 2017
MEMBERS PRESENT:
Dr. Lee Blecher Mr. Alvaro Castillo
Mr. Joshua Cason
STAFF MEMBERS PRESENT:
Mr. Donald Penrod, Secretary of the Board, CEO/General Manager
Mr. Robert de Wit, Controller and CFO
Mr. Tom Collier, Accounting Manager
Ms. Karen Kennedy, Executive Assistant
GUESTS:
Mr. Mark Gray, Guzman & Gray, Certified Public Accountants
Mr. Michael Rossi, Guzman & Gray, Certified Public Accountants
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1. CALL TO ORDER:
The meeting was called to order at 8:35 a.m. by Dr. Lee Blecher.
2. APPROVAL OF THE AGENDA:
Motion to add the election of the Chair to the Agenda.
M/S Mr. Castillo / Mr. Cason
By acclamation, the Motion to add the election of the Chair to the Agenda was approved.
Motion to elect Dr. Blecher as Chair of the Audit Committee.
M/S Mr. Castillo / Mr. Cason
By acclamation, Dr. Blecher was elected Chair of the Audit Committee.
Motion to approve the Agenda for June 16, 2017
M/S Mr. Castillo / Mr. Cason
By acclamation, the Agenda for June 16, 2017 was approved.
3. APPROVAL OF THE MINUTES:
Motion to approve the minutes from September 14, 2016
M/S Mr. Castillo / Mr. Cason
By acclamation, the Minutes were approved.
4. NEW BUSINESS
Entrance Conference 2016-2017 Fiscal Year End Audit
Mr. de Wit informed the Committee that the Chancellor’s Office (CO) has a formal qualification process for the Auditors. Every year we have to submit an Auditor Qualifications form, approved by Mary, to the CO. In turn, the CO approves the Auditors that support the CSU auxiliaries. In addition, we have an engagement letter, which is our internal document that contracts Guzman & Gray to perform our audit.
Mr. Gray said that they have a peer review every three years by independent CPA firms qualified to review the nature of work that they do, including their government auditing standards. For the Forty-Niner Shops’ audit, Michael Rossi will be the Audit Manager and primarily the one who is involved with the fieldwork. The deadline for the final audit report for the Forty-Niner Shops to be given to the campus is September 18, 2017. As such, Guzman & Gray will need to have the audit report completed by September 15, 2017. Once this is completed, Guzman & Gray will be preparing the tax return.
He went on to say that the Audit Committee plays an important role to make sure the auditors have open and direct communication with someone other than management. The Committee represents the Board and the officers of the corporation. If anything comes up, please contact Guzman & Gray and let them know if you have a concern. Mr. Gray handed out business cards to the Committee members so they would have Guzman & Gray’s contact information. Should the auditors have a concern that they cannot work through with management, they might contact the Audit Committee as well.
Mr. Gray then asked if there were any major operational changes for the year. The Amazon lockers are new this year. The Shops is working with Amazon with regard to updating the commission reports, which they provide us quarterly. Textbook rentals have been ongoing, and we took over the campus printing operations. We have an MOU with the campus to perform that service for them. In addition, we fulfilled our funding goal on the VEBA trust.
The PERS actuarials came in a little earlier this year. Mr. de Wit recalculated the impact on our Operating Statement to be $800K. The unfunded liability has increased because of discount rate changes. PERS assumes an unfunded liability interest rate of around 7%. Mr. de Wit has put together the information on this, and will send it to both Mr. Gray and Mr. Rossi to review and audit.
Mr. Gray then asked if the group was aware of any illegal acts or evidence of fraud that the auditors should know about. The group did not have anything to report.
Mr. Castillo asked to what extent the auditors review the cash handling system. Mr. Gray said that they review all of it, and rotate each year on areas they pay closer attention to. Mr. de Wit mentioned that the inventory is about to take place, and the auditors are very involved in the process. Mr. Gray said that they look at the procedures that are necessary to make sure the financials are materially correct. The Shops has written controls that they give Guzman & Gray each year, and the auditors go over those controls with the Shops, and may do some walk-throughs and test some of those procedures to make sure they are actually taking place. Mr. de Wit said that the CO does the Operational Audit every three years; not only of our internal operations, but how we match up to what the CSU requirements are. When that audit is completed, we provide Guzman & Gray with their findings so that (1) they are aware of any deficiencies and (2) so that they do not spend their resources double-checking what someone has already found.
After discussion with regard to an operational audit, Mr. de Wit suggested that we have more than just two Audit Committee meetings per year. In addition, we should probably have the Audit Committee be a part to the Operational Audit that the campus performs every three years. Mr. Castillo requested that the auditors put a little more emphasis on the cash handling system and the operational controls when performing their audit and Mr. Gray agreed. Mr. de Wit said that we have added several layers of security this past year in these areas as well.
Mr. Penrod said that he would now sign the Engagement Letter, if the Audit Committee is okay with it, and the Committee said they were. The Committee needs to meet at the end of the Audit so that Guzman & Gray can disclose the results. The tax return will be done by Guzman & Gray, and reviewed by the F & I Committee and approved by the Board. Mr. Penrod suggested that if the Audit Committee is interested in the tax return, they might want to join that meeting, which is usually held in late October or early November. The Audit Exit meeting was discussed, and it was decided to have that meeting on Friday, September 15 at 7:30 a.m. in the Forty-Niner Shops conference room.
5. ADJOURNMENT:
Motion to adjourn the meeting.
M/S Dr. Blecher / Mr. Castillo
By acclamation, the meeting was adjourned at 9:40 a.m.
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