The following letter from Former IVGID Director of Finance Paul Navazio was recently delivered to the IVGID Trustees.
August 31, 2023
I am providing this communication to the Board of Trustees in the hopes of providing helpful context and perspective regarding the current financial condition of the District and several issues/challenges that the District faces as it looks to prioritize the re-building of staff capacity within the Finance Department.
As the District’s former Director of Finance, it is not my place to comment on (either support or rebut) the litany of complaints, concerns and criticisms which have only escalated over the past few months. However, the public discourse may benefit from the sharing of a perspective that the District is not currently able to provide.
1) The District is in an exceptionally strong financial position.
2) The District has had a long (uninterrupted) history of “unqualified” annual audits, performed by a variety of independent auditors. Moreover, the District’s Annual Comprehensive Financial Statements have routinely been reviewed, critiqued and — ultimately — awarded the Government Fiscal Officers’ Association (GFOA) Award for Excellence in Financial Reporting.
3) The District has routinely and regularly met all of its required reporting and disclosure requirements, as established by the Department of Taxation and the investment community.
Short-term Challenges and Project Backlog
In the short-term, the District undoubtedly faces significant challenges as it works to complete its year-end close and support the independent annual financial statement audit. This effort is made even more difficult in an environment where the Finance Department has suffered significant attrition of experienced and knowledgeable staff, and at a time when the District is working through ongoing challenges in implementing its new enterprise financial system
The task list recently presented to the Board includes several specific items. In fact, this is but a partial list of tasks, initiatives, and projects that have long been identified and documented by the Board and management (as well as some interesting new ones). In evaluating where best to prioritize limited resources, it may be helpful to consider work already completed by prior staff (and consultants).
Financial close / Year-end audit —
• This appears to be appropriately identified as the top-priority over the next several weeks and months. While there is a long list of tasks supporting this effort, the reconciliation of beginning fund balances within the Tyler/Munis financial system and related bank reconciliations is chief among them.
• Another project where, until recently, significant progress had been made, is the reconciliation of invoices processed through the District’s prior financial system (Itmoprise) from July — December, with the “imported” data to Tyler/Munis. This required reconciliation is critical to ensuring that all payments issued by the District in the prior fiscal year are correctly recorded (without omissions or duplications) in the Tyler/Munis System.
• Despite current assertions to the contrary, as part of the validation of historical data imported into Tyler/Munis, prior Finance staff had completed a reconciliation of FY21/22 year-end account balances between Innoprise and Tyler/Munis. With the exception of beginning cash balances (that were imported and subsequently re-posted causing overstatement), the account balances within Tyler/Munis were reconciled to the FY2021/22 audited financial statements.
Tyler /Munis Implementation
• The Tyler/Munis Implementation Project continues to be a work-in-process, however the District would be best served to focus on a fine-tuning of the workflow and processes that have been put in place and prioritize implementation of the next phase rather than back-track to “square one.”
• The Payroll, General Ledger, Accounts Payable, Accounts Receivable, and Capital Assets modules have been largely implemented, with the Contract Management, Capital Projects, and Budget module in early stages of implementation (as of May/June 2023).
• Without question, there is more work to be done to, where appropriate, refine certain aspects of module set-up and workflows with an eye towards improved efficiency. At the same time, certain set-up and workflows (specifically related to Purchasing and Accounts Payable) were designed, from the outset, to strengthen internal controls and utilize the financial system to ensure compliance with Board policies and delegated spending authority. It is not surprising that there are some who would like to streamline and simplify the purchasing process workflow; however, care should be taken to ensuring appropriate internal controls is not sacrificed in the name of “improved efficiency”.
• Full implementation of the Contract Management Module and Capital Projects module should be prioritized as these are important components of the Tyler/Munis financial system in the context of the District’s efforts to improve internal controls, contract administration and capital projects management and reporting. In light of the short-term challenges, it is less helpful to focus time and resources in areas that could be considered proverbial “red herrings,” and are seemingly being highlighted in an effort to sow distrust, raise suspicion of impropriety, or — worse — feed a specific, politically-motivated narrative.
• Lack of Internal Controls — despite continued assertions that the District lacks internal controls, over the past year:
o Staff has updated and tightened delegated spending authority across all venues/departments as well as updated Procurement Card authorizations and approvals.
o Management Partners (now Baker Tilly, LLP) was commissioned to perform a full review and update of Financial and Accounting Procedures as well as develop a set of District Purchasing Policies to align with best practices and requirements under the NRS (See Policy 20.1.0 and 21.1.0, approved by BOT 7/27/22).
o The Audit Committee commissioned two separate supplemental engagements for the District’s Independent Auditor to review compliance with Purchasing policies, procedures, and best practices as well as compliance with the District’s Capitalization Policy. Both reports found no significant concerns and reflect favorably on the District’s controls in these areas (See AC agenda item D.2 – meeting of 12/7/22, and Item D.2 — meeting of 2/2/23). It does not appear as though these two (since finalized) reports from the District’s Independent Auditor were ever forwarded to the Board of Trustees.
• “$43 Million Error” — This claim appears to stem from the issue of how a specific budget appropriation ($57 million included in the FY23/24 Approved Budget related to the Effluent Pipeline Project) should be reported in the required budget submittal to the State of Nevada Department of Taxation (Form 4404LGF).
o When originally presented to the Board for submittal to the State, Form 4404LGF reflected an outlay in the Utility Fund related to the appropriation supporting the planned contract award of for completion of the Effluent Pipeline Project in the FY23/24 budget.
o Upon review of the forms with the Board Treasurer, staff reached out to the Department of Taxation to clarify how this appropriation — supporting a multi-year capital project — should be reflected in the Utility Fund’s cash flow statement included as part of Form 4404LGF.
o At issue is the “requirement” that the capital outlay line item tie-out to the $63.7 million in appropriations reflected in the approved FY23/24 Utility Fund capital budget, while recognizing that the $57 million related to the Effluent Pipeline Project was expected to be expended over multiple years and does not, in fact, represent a cash outlay in the 23/24 fiscal year.
o Department of Taxation staff responded that the cash flow statement could be completed to reflect either the full amount (supported by corresponding funding source, i.e. State Revolving Loan Proceeds), or could be completed to only show the planned cash outlay for FY2023/24_ It was further stated that, should the District choose the latter approach, then a footnote should be included at the time of the filing of the Five-Year Capital Improvement Plan with the State of Nevada explaining this variance.
o Following this advice, and in consultation with the Board Treasurer, staff made the modification to the cash flow statement (Form 4404 LGF), and included the requested footnote in the presentation of the draft Five-Year Capital Plan (Form NVTG-LGF-11), presented to the Board of Trustees at their meeting of June 28, 2023 (Item G.3., page 171), and again for Board consideration at their meeting of July 26, 2023 (Item H.3, page 258).
o While Replacement Pages were provided for agenda Item H.3 (meeting of 7/26/23) that reflect a $43 million reduction in the FY23/24 Utility Fund CIP (pg. 258), it is worth noting that the same agenda item (page 263) continues to reflect the $63.7 million in Utility Fund appropriations within the approved Capital Budget.
o In short, this is not a $43 million “error” but rather a change in how the approved capital budget is reflected in the context of filing state form ArlITG-I,GF-I 1.
• State Revolving Fund (SRF) Loan – Some have suggested that the District’s SRF Loan supporting the Pipeline Project are somehow at risk as a result of the current challenges facing the District’s Finance Department. I do not believe this claim is supported by facts. The loan agreement executed in April 2023 is clear that the loan is secured by a net-revenue pledge of the District’s Utility Fund, and covenant the requires the Board to maintain utility rates sufficient to cover operations an debt. As the District has been pre-approved for an SRF Loan in excess of the amount initially secured, I do not believe that a delay in completing the independent audit of the fiscal year ended June 30, 2023 would inordinately preclude (or delay) the District’s ability to access additional SRF funding. While it is not uncommon for public agencies to experience delays in completing their annual financial audits, clarification on this point is best sought through the NDEP SRF program administrators.
Some of the issues being raised reflect a proliferation of arguments over issues that pre-date my arrival, and have, at their core, the goal of changing the business model for the District. This has been made exceedingly apparent under the current Board as evidenced by action that have led to increasing rates to users of District venues while at the same time reducing the Facility Fee(s) paid by all property owners in the District. This policy direction has often been supported by arguments of “proper” accounting when, arguably, accounting principles in fact are being used as a means to support a particular point of view. As I have shared with all of you, if and when there is a consensus on the appropriate business model for the District, the accounting will take care of itself. The choice of accounting methods and presentation, however, should not be the “driver” of what are ultimately policy decisions.
To be clear, the Board has full discretion in charting the course for the District and in setting the fmancial goals for each of the venues as well as the District as a whole. That said, the manner in which some fundamental policy decisions have been made belies principles of sound governance and decision-making. This includes selective presentation of financial data and the blurring of boundaries of appropriate roles, responsibility and authority between the governing board and management in the framing of issues and recommendations presented for Board consideration.
Staffing and Workload Challenges
Challenges have been ongoing and mounting since my arrival in 2020. Within the Finance Department this began with the departure of the long-time Controller (fall 2020) and Senior Accountant (2022), and the short tenure of the successor Controller (early 2021 through early 2023). The impact of this attrition is further exacerbated by the difficulty in the recruitment of qualified candidates in the existing labor market, within the industry and the region.
The Board of Trustees (past and present) share some of the responsibility for the exodus of professional staff through enabling an at-times toxic work environment where the voices of a few malcontents dominates the public discourse, is given disproportionate weight in governance decisions, and is being used to justify the curtailment of management authority, encroachment of Trustees’ role into day-to-day operations, and ongoing pursuit of unfounded and irresponsible claims of fraud and mis-management, all in the name of “good governance.”
I look forward to the day when the IVGID governing board, staff and community resolve to work in partnership around policy objectives, strategic goals, and priorities in an environment of trust, collaboration, and shared accountability. The community deserves no less.
cc: M. e Bandelin, Acting General Manager
Susan Herron, Administrative Service Director
Josh Nelson, General Counsel
Bobby McGee, Interim Director of Finance
Note from Invest in Incline Advocacy Network:
If you support the effort to Recall Trustees Schmitz and Dent, and you haven’t already done so; you still have the opportunity to sign the Recall Petitions at the Recall table at Raleys.