COMMISSIONER JANKOWSKI: Okay. Well we might as well get started. It is 10:31 by my watch, so. We have our agendas right here.

>> SCOTT ADAIR: We do have our agenda and a rather full one, Mr. Chairman.

We have a number of items to go over today. With us, today is our audit team, our outside auditors from Bonadio.

Kristen Clark is here, the engagement partner, along with her staff that will assigned to the account to kind of go through the annual entrance conference that they do with the Audit Committee.

At the end of that, after you have asked the questions that you need to ask or want to ask, it would be more than appropriate to enter into an executive session with them, without management, to go over anything else you deem appropriate at that point in time.

After we finish up with the potential executive session we’ll come back into the room.

Then I’d like to have Chris Dobson walk us through -

You may remember that back in the fall of last year you approved a rather significant contract regarding a new financial software system implementation and procurement.

Chris has been heading up that team from the finance side of the house.

I wanted him to give you an overview as to where we’re at so that you guys are up to speed with where we’re at before we get into the process of the home stretch here, and potentially the go-live date as far as that system goes.

And then the last item we’ll go through the process that we go through on a monthly basis regarding our financials that we issue to the Board as well as the December financials.

We’ll kind of give a highlight of those as well, and then any questions that you have regarding any of those things.

We can go over those. And I think that will probably take us to the end of the full hour that we have.

>> COMMISSIONER JANKOWSKI: Okay. Very good.

>> SCOTT ADAIR: So with that I’ll turn it over to Kristen.

>> KRISTEN CLARK: Thank you. I think I know everybody. Everybody knows me.

This is Michelle Pigick, the manager on engagement and John Miller, I know you know -- too, who is our principle.

And like Scott said, this is like our planning Audit Committee meeting before we hit the audit season fast and furious.

But before we do that I really want to sincerely thank the Committee and thank you all for the opportunity to work with you again and continue.

We know you went into a process and we know it was - there’s no sure things and we don’t take that for granted and we really do appreciate it.

And we’re excited to be working with you again, and also I think that process helped us to kind of step back and take a new look at some things, kind of from a different approach.

So we had a great meeting.

I thought it was a great meeting, earlier this week with Chris and Mark. We really went through a lot of the details and got rid of some of the same-old, same-old stuff and said we’re collectively going to approach this differently and see where we can find some efficiencies on both sides, but also to look at things differently too that will enhance the audit quality as well.

I don’t mean to imply that there was any lack of quality, but just sometimes looking at things differently just highlights some different ideas and opportunities.

The first page of our presentation is our agenda. I won’t go through that because we’ve got a page for each piece of it.

John’s going to walk us through the first couple of items, then I’ll talk about a couple more things towards the end.

JOHN MILLER: The first part is our scope of services, what we’ve been engaged and what we’ve been contracted to do.

Obviously we’re going to do an audit of the financial statements of the Authority.

And included in that audit is the Authority, but also each of the component units, such as the regionals, Lift Line, DBS, -- are included in that as well, and also GTCS.

We do do an audit in accordance with OMB Circular A1-33. You may hear that also referred to as the single audit.

That’s an audit of your Federal funds, and it’s more of a compliance audit, whereas you recall we look at the compliance objective with the use of the Federal funds.

We also do an audit of the scheduled state transportation assistance expended, very similar to the A1-33.

It’s more of a compliance audit in nature.

We certify the national transit database report, that’s a statistical report prepared by Mark and his team.

And we come in and perform agreed upon procedures based upon what the NTD requested us to do, and we issue the report.

We also do agreed upon procedures related to the RGRTA Employee Incentive Compensation Program.

And also as part of all this work, we make observations and recommendations to the Internal Control.

It’s important to note that such as with the audit, we do have an opinion on the audit.

On internal controls we are not offering an opinion on them. We’re only providing our observations.

And then the last bullet, as part of all the work we’ve done and all the scope of our services, and also just observations related to overall performance as well, to this group and to management.

The client service team has remained relatively the same.

This probably goes back to the same service team I can think for three or four years.

Michael Wagner will be stepping in and he’ll be the engagement senior. So that’s the only new member of the team.

You can see all of our faces and all of our contact information. And we’ll go back to that.

That’s how to reach us. We’re always available via email and phone call.

The objective of an audit: so what’ we’re doing.

To piggyback off of what Kristen just said, part of the discussion on Monday is we’re taking this fresh look.

And Chris and his team are saying, “okay, we’re going to focus on you auditing it, us accounting for it.”

So the objective of an audit on the financial statements is to enable us to express an opinion.

It’s important to note it’s to provide reasonable, but not absolute assurance. We’re not looking at every transaction.

We’re not looking at every account.

And also it’s too accumulate sufficient, appropriate evidence. So we’ll be making requests of Mark and Chris.

Requests, for example, such as the bank reconciliations and the bank statements. That’s what our objective is when performing an audit.

So with our objectives, what’s our responsibilities? As I already mentioned, to form an opinion that the financial statements are presented in accordance with GAAP.

I’ve already discussed - we consider internal control, but we do not opine on it.

In regards to the A1-33 - the single audit - that’s on compliance.

So we do look at internal controls over compliance and we do provide an opinion on the compliance.

And as part of our responsibilities, the audit rules say that we communicate significant matters at the end of the audit.

If something is so significant that it can’t wait for the end of the audit, there will be, up the chain of command, and we feel completely comfortable contacting Mike with that.

And it’s also important that, as I already mentioned, we’re responsible for maintaining open lines of communication throughout the year.

Not just the audit process. Not showing up today and waiting back to late April through May to talk to management and talk with this group.

The audit responsibilities. So the first part is management’s responsibility - Scott, Chris and Mark.

They’re responsible for the accounting policies that you see in the financial statements, what we refer to in footnote 2.

That’s management’s responsibility. They’re responsible for establishing and maintaining the internal control.

They’re responsible for the financial statements, and they are responsible, as well as the procurement department, for compliance with the provisions and laws.

That’s what management’s responsible for.

What the Audit Committee is responsible for is the oversight and process of monitoring those internal controls, and their observations regarding management.

And setting the overall tone at the top and making sure management is following through with the sound accounting policies and internal control.

And one of the items we do as part of the audit is every year we like to select and have a conversation with one of the members of the Audit Committee members.

I believe Mike was the individual we talked with last year.

We like to ask them about their observations regarding -

We do ask them about internal control. Management as well as fraud and fraud risk factors, as well.

And as I already mentioned, if this isn’t the right form, or if we do go into executive session and -- , the contact information is provided there in the previous slide.

With that I’ll turn it back over to Kristen to talk about the appropriate focus.

>> KRISTEN CLARK: Specifically, with this audit, we look - in every audit we perform a risk-based audit.

So we look at where do we see the risks. Where do we see where problems may occur.

And that’s where we want to focus the bulk of our hours. We don’t just want to go through and hit every audit area to the same degree.

So we’ve identified certain items, and certainly I’d ask you all to consider if there should be other things added to this list that we have not identified at this point as significant focus areas.

Just kind of going on briefly the overall economic challenges associated with the State Transportation Assistance.

Obviously I don’t need to explain that to you all, because you live it.

But we do recognize that the State funding is by far an extremely significant portion of your

revenue, and if any significant revenue source is at risk then your operations become at risk because you have such reliance on something like that.

You can somewhat predict how it will go year to year. But you have to live and account and operate under this uncertainty associated with that kind of operating assistance.

So we do spend a significant amount of time auditing that area and make sure the accounting is correct and the amounts that are recorded are done properly.

The OPEB, the Other Post Employment Benefits, the retiree benefits, that’s also a significant area.

And one of the reasons it’s so significant is because it’s largely an estimate. It’s based on actuarial assumptions.

It’s based on actuarial recommendations.

You’re required to have an actuarial evaluation for that plan done every other year, and this is a year - sort of the off year.

So you’re not going to have that done this year. So it’s not going to be as significant on your end, getting the evaluation and engaging somebody to perform that and paying for it and all that goes along with that.

From an audit perspective it’s only to look at and make sure it’s reasonable and make sure it’s consistent.

You have a lot going on in the capital area. We spent a significant amount of time on Monday when we met kind of going through the accounting for that.

Where you stand. Are projects on budget? On schedule? And we’ll audit each one of those things we talked about.

The potential timeline for engaging in debt and the fact that that’s not going to happen in this fiscal year, but could happen in the future.

So we talked about some of the ramifications of that.

From an IT perspective that’s a huge portion of our audit. That’s everything that you do is automated these days, so auditing into those systems is a significant challenge.

As you know we have some very highly qualified IT professionals in our firm that are part of our audit team.

You met Carl at the proposal presentation and they’re a great combination of that audit mentality, but they also know the tech side of things that traditional auditors aren’t as well versed in.

So they can get in and from a risk perspective look at where are the risks, where should things be tightened up, how do the controls look?

And that helps us drive what our audit procedures are to. There’s too many transactions here to hit this in a traditional way.

So we rely significantly on those members of our team as well.

John mentioned, briefly, the concept of materiality. The fact that we don’t look at every transaction.

We don’t look at every dollar that comes in and out of the Authority and the affiliated entities.

So we calculate what we call our ‘planning materiality’ and that says based on what we know, based on what we think is going to happen this year, what are those amounts that -

If the financial statements were off by that amount, would the potential be there for the financial statements to be materially misstated?

So we look at things at different levels for each of the different entities.

We provide an opinion on each individual entity. So some of the smaller ones have very low materiality thresholds, and some of the larger ones, higher materiality thresholds.

We don’t get too hung up in the mechanics of that, because with materiality there’s a lot of subjectivity as well.

We need to keep going back and revisiting from a planning perspective, what we thought was material.

A lower amount may turn out to be material if it has other ramifications.

If it’s going to - for example, if we find an error that is below our calculated materiality threshold, but it’s going to throw one of the entities from an income to a loss.

What kind of ramifications could that have?

So we look at it all throughout the process. We’re constantly revisiting. Does this still make sense? Does this still make sense?

And changing it up if we need to. Along with materiality goes sampling.

Again, we don’t need to look at every single transaction. We pick a representative sample for a lot of the different areas, and test those and get comfort that if these are correct - if the ones we test are correct, then as a whole, that area should be correctly stated in accordance with materiality.

Again, judgement. A lot of subjectivity and professional judgements involved in establishing those amounts.

>> CHAIRMAN REDMOND: Question for you. Is it based on percentage or is it based on dollar amount?

>> KRISTEN CLARK: Yes and yes. It could be both.

For certain items we look at it as a percentage, maybe percent of total assets or percent of revenue.

But other things we’ll look at from a specific dollar amount, where you have fixed assets, for example.

We could be looking at - so an area where there’s not a ton of individual transactions, but the transactions are pretty large, we’d be looking at dollar amounts.

If you’re looking at fare revenue, it doesn’t make sense to look at large dollar amounts.

We’d be looking more at the number of transactions or trying to get a comfort on the percentage of the total.

>> CHAIRMAN REDMOND: Okay. What is the largest percentage in terms of - what’s the outer boundary? Are we talking 5%? Are we talking 10%?

>> KRISTEN CLARK: No, I’d say - I think it ends up being more like in the 5% range. I’d have to look. It’s really different, every entity.

It’s small enough - it’s interesting, because - and you guys might know the actual numbers.

The numbers are large when, like, for the Authority or RTS - Do you guys remember what was our --?

>> JOHN MILLER: The RTS starts at the - the tolerable statement for RTS is roughly, approximately $300,000.

>> KRISTEN CLARK: $300,000. So what that means is that if the financial statements of RTS

were misstated by less than $300,000 we don’t believe it would materially mistake those statements.

It would not throw a user of those financial statements. You all, the bank, the Federal government, it would not make those so misstated that decisions would be made differently -

that the understanding would be different.

Now $300,000 is certainly a huge number. So we don’t want things to be off by $300,000.

We don’t want things to be off by $1,000.

That’s where management’s responsibility comes in. You as management don’t have materiality, in my mind.

>> SCOTT ADAIR: I’ll beg to differ with that, but that’s for another day.

>> KRISTEN CLARK: Well, okay.

>> CHAIRMAN REDMOND: Now might not be the time.

>> KRISTEN CLARK: Your thresholds are not as high- or shouldn’t be as high as ours are.

Because it just wouldn’t be practical to try to audit at that lower level.

I will say on the single audit side, the materiality calculations are different. And I think that’s a 5%.

So on a specific grant that we would be looking at, we’d recalculate the materiality for the grant.

And that is a flat 5% calculation. That’s what the single audit says to do and that’s what we do.

>> SCOTT ADAIR: And correct me if I’m wrong, Kristen.

I believe that anything below their tolerable misstatement number, they would still have to communicate with you as the Audit Committee as to what we have chosen not to pursue.

So you would be aware of what that number was. So if it was $100,000 that we decided was not material- they decided it was not material, we decided it was not material -

You all would still be informed of the fact that there’s $100,000 not included in this financial statement or included in the financial statements.

>> KRISTEN CLARK: Yes. We had those kinds of adjustments that we’ve talked to the

Committee about in the past.

Give me an example?

>> JOHN MILLER: PTO policy.

>> KRISTEN CLARK: Oh, right right. Yeah. Every year there’s an accounting way to approve accumulated paid time off, and there’s the way that you do it internally, which is based on what you really expect you’re going to have to pay out in PTO payments.

The official accounting is much more conservative than what your actual experience is, so every year we encounter a difference between what the accounting rules would say you have to record for PTO, versus what you do record as an accrual for PTO.

And that’s one thing that we always have on our list of things that we talk to you about at the final Audit Committee meeting.

It’s not material. It doesn’t material in the financial statements. It works for you internally.

It’s just a difference between what GAP accounting would say and what you do internally.

So we look at though and if it ever does get to be a huge number over that tolerable misstatement that we have, then we might have a different discussion about it.

But it’s something that we’re aware of and we expect it going in and we talk about it a lot.

As far as our timetable, we’ve got it up here in some general terms, but we’ve actually narrowed it and nailed down some additional dates with management.

By in large we need to start the audit so that we get everything done by the end of June.

And we’ve got a plan to do that.

Over the years we’ve been very successful with a model that has us meeting weekly with staff.

And it really keeps everybody on track as far as what we need and when we need it.

One of the big differences that we’re looking at this year with management drafting the financial statements and the footnotes, we talked a lot about the timing necessary to do that.

And we’ve got a date where we’ll be expecting to receive the drafted financial statements, and really focus our audit, sort of looking at our statements on the front end.

In the past our financials have always been more of a backend process, and the MDNA has

come at the end.

We’re looking to reverse that and focus on the statements up front.

It will help us even more to perform a risk-based audit and do that more successfully./

>> COMMISSIONER JANKOWSKI: Is that new to this year, or …

>> KRISTEN CLARK: The ownership of the financial statements with management is from a mechanical perspective - I mean you’ve always taken responsibility for them - but we were always listed in the accumulation of all the spreadsheets and everything.

It’s new that that’s going to be “owned” by you all.

>> SCOTT ADAIR: Prepared in house. I think one of the things that we decided to do over the course of this past year was really take complete ownership of the financial statements, and drafting them and making sure that we’re comfortable with all the numbers as they appear in the statements at the end of the day, prior to turning them over to the auditors to perform the work that they need to do.

>> COMMISSIONER JANKOWSKI: The footnotes as well?

.>> SCOTT ADAIR: Correct.

>> COMMISSIONER JANKOWSKI: And, I can’t remember if we’ve talked about in the Audit Committee meeting here, but what’s the reasoning behind that switch? What’s the advantage there?

>> SCOTT ADAIR: Well the primary reason is we’re ultimately responsible for them, regardless.

And the nuance for us is the fact that not seeing what the final final numbers look like from a financial statement perspective, until the end of the audit doesn’t allow us to be proactive about addressing issues that may pop up that the auditors may discover during the audit.

So we’re hoping that if we do see something where we’ve booked a journal entry incorrectly, we have the ability to correct it because it will pop out because we can see it in the statements themselves,

versus not knowing those numbers until the very tail end of it.

Now what it will do from the auditor’s perspective is it will also assist them in being able to focus in on where the real risks lie in the financial statements by being able to see them on the front end.

Versus dealing with the minutiae first, to get to what we’re trying to get an opinion on.

We’re going to put the financial statements on the front end of this engagement now and moving forward.

And I think it will become even more, I’ll use the word “easy” from our perspective as we get into the development of our new financial software.

So this is a pretty big step for Chris and Mark, from this perspective.

And to dive into this endeavor. I know they’ll succeed in doing it, and I think it’s the right place for an organization that has the aptitude for financials that this organization does, to be in the position to -- financial statement development.

>> COMMISSIONER BATTAGLIA: Mike, it would be preferable practice, or maybe even a best practice.

You don’t see it a lot. If you were in the publicly traded, really large company environment it’s probably like standard operating procedure to do their own financials.

The auditors always have final say on the wording, the verbiage and the numbers because they’re putting their opinion on it.

But in the smaller environment, typically a lot of organizations don’t have the capabilities.

So I think that’s why auditing firms end up doing the statements.

Technically, from an independent standpoint, we prefer not to be the drafter of the statements.

Because as Scott said, they belong - the statements are the responsibility of the organization. Their responsibility is just to opine on them.

So it’s - I think it’s a good move. It’s going in the right direction. I think it’s a good attempt.

>> KRISTEN CLARK: Yes. I’d say our most complicated and our largest clients and our public company clients do this.

And you do have the capability to do it I’m not worried about that.

Though, it’s a transitional period. I just want to make sure everyone knows we’re not just washing our hands of it and hanging you out to dry.

For instance, there’s a disclosure checklist that- when we help a client with their notes, as part of our audit process we go through this checklist to make sure all the required GASB

disclosures are present.

We’ve given Chris that checklist as kind of a roadmap.

We also gave him last year’s checklist to see where things - if something doesn’t apply or if it wasn’t there last year, why wasn’t it there?

So we can work through that.

I think it’s going to become, like you say, Scott, easier over time.

The first year will be - it’s just a big difference so we’re all in this together.

>> SCOTT ADAIR: I’m speaking for personnel, but I know from the conversations that we’ve had, it has been an experience so far.

And the Bonadio folks have been extremely helpful in getting us over this first year of doing it.

And again, I just believe it’s a step in the right direction for the organization from a financial ownership standpoint of things.

We’ll have some growing pains, obviously. We have folks in other areas as well.

You’ll hear about that when Chris talks about the financial software.

But I think, to start it now is the right time to do it, during this period of time.

And it didn’t move forward, it’ll just become secondary as one of the operating factors that we’re able to produce on a timely basis.

>> COMMISSIONER JANKOWSKI: Okay.

>> KRISTEN CLARK: Lastly, John’s just going to hit quickly on a few GASB update items.

>> JOHN MILLER: Last year at the opening conference I talked a little bit in detail about GASB 67 and GASB 68.

Just a reminder that those are still coming down the pike.

67 relates to what would be the financial reporting for the actual pension plan itself.

Currently the Authority’s pension plans do not undergo separate financial reporting.

They’re under and included within the Authority’s statements.

So 68 is the one that specifies the accounting financial report, essentially for the sponsor or the Authority, and what’s required to be in their financial statements, disclosed and accounted for.

The key difference - the key item to focus on is the potential for liabilities where if you have the plan, it has what they call the funded status, so the plan has a total assets, and then what is the obligations to be paid out in the future?

And the difference between those is referred to what is the funded status.

So if that funded status is at a deficit, or what we would call a liability, currently that liability is not required to be recorded on the Authority’s balance sheet.

In the future that liability, if it does exist, is going to be required to go on to the Authority’s balance sheet.

So the takeaway is really for what Chris is already started to do -

And I believe that preliminary discussions with the actuary to determine, if there is going to be a liability, how’s it going to be determined under the new GASB.

And then kick it back to the decision saying this is how it could affect our financial statements going forward if the balance sheet is going to have a liability being reported.

>> KRISTEN CLARK: And one of the big reasons that that’s important as you contemplate going into possibly borrowing a significant amount of debt, is if your debt agreements require you to maintain certain ratios to net assets ration, those could be thrown off by additional liabilities.

So it’s important to keep that in mind as you work through those debt agreements and covenants, because that could potentially-

>> JOHN MILLER: Like I alluded to, it’s interesting because first it says this is how you determine the amount - that’s the actuary side, then the accounting side says, “this is what’s going to happen to it.”

But there’s also the management practice side, saying, as Kristen said, “well okay it’s the accounting functions to paper transaction and putting a liability on the books.”

Is it acceptable to us or is it not acceptable to us?

And lastly is the GASB preliminary views. GASB is always coming out with new pronouncements and preliminary views.

Coming down the pike is some economic condition reporting and financial projections, as well as fair value measurements.

So that’s still being discussed, and nothing too concrete yet.

As that moves from preliminary views to actual statements we’ll bring those to the attention of the Committee and management as well.

>> COMMISSIONER JANKOWSKI: What are they talking about actually working that into the financial statements, or just in the footnotes or something?

>> JOHN MILLER: The economic condition reporting and financial projections?

I think we can see the grin on Scott’s face as well. Yes, it’s saying required supplementary information.

For example, your MDNA is a RSI item. It’s not something that’s auditable. It’s in the financial statements.

In this situation of economic financial projections, 10 years out, what could happen to the Authority, and how does that become something management could assert to?

It’s something that we can, not pursue audit, but it’s going to be in the financial statements. They’re going to expect us to do something with it.

So I agree with you that it is very squishy. GASB does - it’s in preliminary views, so GASB would love to hear from everybody on what their take on it is.

>> SCOTT ADAIR: This is a project that the’ve been working on for the better part of 5-6 years now, to come up with something that they feel that they can correctly have communicated in a set of financial statements.

There’s always been a lot of pushback from a lot of other organizations regarding this.

And just GFOA is adamantly opposed to GASB sort of including this information in financial statements.

So it will be interesting as they go through the debate process as to how this actually winds out if it actually ends up winding out.

It certainly is something that’s been on the burner for quite some time now.

>> COMMISSIONER JANKOWSKI: Where are they thinking to include it? Just, like, something

in the letters or in footnotes?

>> SCOTT ADAIR: I assume it would subsequent to the footnotes from a layout perspective.

In a complete set of bound financial statements.

And as you can well imagine, there are a number of organizations from a state and local government perspective that, again, would be opposed to this because it is sort of projecting what's going to happen in the next ten years as to where we’re at.

A lot of people don’t want to do that, or it’s not prudent to do that in this point in time, to be projecting out as to what you want to do.

It could just be a real quagmire for people to have to get through. It will be interesting to see how the public debate goes on this one.

>> CHAIRMAN REDMOND: What would you base it on? How do you predict what’s going to happen?

We consider ourselves innovative because we have projections that go out three or five years.

And I’m not quite sure the value of that fifth year.

How are you going to double that.

>> SCOTT ADAIR: All’s all say is thank you for that statement. And as we move forward it may be something, you know, as John points out, there is a public comment period.

There may be some basis for us wanting to craft a letter, and send it in to GASB and say this is our thought on it.

Truly something that we’ll have to talk about as it becomes developed. Because there is no real answer to some of the questions that they want to have included in a set of financial statements.

And maybe I’m old school, but I think of a set of financial statements as being something that - this is all rear view mirror stuff, folks.

This is stuff that’s already happened when we issue it. And I don’t want to be speculating about where we’re going ten years in the future at this time, in a set of bound financial statements.

Different when we talk about the budget, because everybody here sitting around the table realizes that there’s speculation and projections that’s done in the budgeting side of things.

But, boy oh boy, when you start taking as financial statements and projecting out where we’re

going to be based on past experience and what you think is going to happen -

Personally I think it’s a slippery slope.

>> CHAIRMAN REDMOND: Ten years ago today this place was on the brink of extinction. Today we’re not.

Who was going to predict that 10 years ago.

>> COMMISSIONER JANKOWSKI: -- numbers, projections by their nature.

When we look at the five year projection, that’s clearly understood, those are not hard numbers, and they’re more and more speculative as you get out to year 2, 3, 4, 5.

So I don’t know where the value is in the financial statements, but they’re probably not going to care --

>> SCOTT ADAIR: Now you add to that the concept of what Kristen was saying.

The financial statements go in front of the rating agencies to come up with a bond rating as far as the interest rate that’s going to be impacted on us.

And if you don’t have a rosy picture from a projection standpoint, is that going to influence what the cost of debt is going to be for us?

So there’s a lot of moving parts here.

>> COMMISSIONER BATTAGLIA: So in there would we have to have a disclaimer on making forward looking statements?

>> KRISTEN CLARK: I would expect. I can’t imagine what - the opinion of the financial statements that we provide is already almost a full two pages long.

And if you really read all those - there’s a part about the MDMA where we say we read it but we didn’t audit it.

There’s a part about other supplemental information that we did audit some of it. And then there’s the single audit.

So there’s a whole set of rules for prospective financial statements.

And we do forecasting projections for clients for certain purposes. It’s not part of historical statements.

It’s a whole nother -

>> COMMISSIONER JANKOWSKI: It’s a very different set of questions.

>> KRISTEN CLARK: Exactly. And reporting and disclosure of assumptions -

I would expect that we - you’d have to disclose every assumption that you make: demographic, population type stuff.

>> COMMISSIONER JANKOWSKI: And everybody is still going to have a happy projections.

Nobody is going to be predicting -

>> CHAIRMAN REDMOND: All the children are above average.

>> KRISTEN CLARK: Right.

>> COMMISSIONER JANKOWSKI: Nobody is going to be putting negative projections out there.

Okay. We got anything else on that?

>> KRISTEN CLARK: That was it for us.

>> SCOTT ADAIR: Chairman, it’s really your call whether or not you guys would like to hold the executive session.

>> COMMISSIONER JANKOWSKI: You guys want to take 5 minutes?

Okay. Yup. Great.

(EXECUTIVE SESSION)

>> COMMISSIONER JANKOWSKI: Thanks, guys. Let’s do the financials first, because it’s almost 11:30 right now and I just want to make sure we have enough time to do that.

And then we can judge whether we have enough time to do the update on software.

>> SCOTT ADAIR: Mr. Chairman, I’ve been advised that we’ve effectively run out of time.

So we will do a quick financial statement review, then whatever else we can do.

>> COMMISSIONER JANKOWSKI: How hungry are you guys?

>> CEO CARPENTER: Sorry we took so long to come back in.

>> SCOTT ADAIR: Remember, we paid those guys by the hour.

So in front of you today we have the December 31st financial information projected through the end of this fiscal year, being March 31.

As many of you know, or are aware of the fact that our estimates or projections from November that we had previously shared with you to December have not changed.

The last time we went through our financial statements with you was at the November board meeting.

December board meeting we went over the October results.

So what I’m going to do is highlight some of the things that have changed since October, since we’re dealing with those two fiscal periods from a reporting standpoint.

At the end of October our financial projection for the year end was approximately a $238,000 deficit.

We’ve decreased that deficit at this time to a $261,000 deficit.

Not a real significant change from the previous month, but certainly some changes going on that we’re seeing that we wanted to have reflected in our financial statements.

As you’re well aware of, we go through a rather elaborate process each month of reviewing them internally with Chris and his staff.

A kind of doing a probability assessment of whether or not we think things should be included as to changing the projection of our financial results.

So from October to December what we have seen was a increase as far as our salary and wages go, of approximately $70,000.

This is dealing with two factors.

One being we’ve seen an increase in our mechanics overtime, which we sort of thought was going to happen when we brought on a number of -

We brought back into service some older busses because of the necessity of certain contracts, mainly being the city school district, to get kids moving in the direction of school.

We knew that bringing those older busses back on would increase our mechanic's cost as well

as our parts cost.

We’re seeing that now reflected in these financial results in front of you.

On the Other or the non-personnel side of expenses, a lot of these are flat.

However we did have approximately a $30,000 pick-up in the area of contracted services.

And effectively in July of this last year we replaced 10 new busses out in Wyoming, and that effectively lowered what we thought was going to be our cost of operating those busses, being for service and so forth on those new busses.

We saw a drop where we predicted about a $10,000 per bus cost down to the $5,000 per bus cost range.

So significant improvement from a financial perspective for the remainder of this year’s projected based on the new vehicles being on the road down in Wyoming.

We continue to monitor that with the other regionals, as well as RTS.

I know we’ve talked about just this year how we saw improved gas mileage when we put the new busses on for RTS, and we’ve reflected that in these financial statements as well.

We’ve noticed about for the overall year right now we’re about a $9,000 projected loss on our swap agreement.

Again, this is something because of the fluctuation in gas prices.

We’re seeing a little bit of a hit this year, but from a historical perspective we’ve saved over $750,000 on a swap.

So by far you would say that this is a very successful venture from our standpoint.

Revenue side of it - pretty much flat. We saw a slight increase in our insurance covers from October to December, so we’ve projected that in our estimate as well for the end of this fiscal year.

With that - that’s sort of a very high level summary, Mr. Chairman. If there’s anything else that you would like to ask or inquire about, I’d be more than willing to -

>> COMMISSIONER JANKOWSKI: So my favorite question is, do you expect we’re going to be in the black given that we have three months left in the fiscal year?

>> SCOTT ADAIR: We're watching a number of things right now, as far as I’ve mentioned, we

go through on a monthly basis to assess the probability of things.

There are some positive things out there that we think may rise to the occasion of being able to afford them from a financial statement perspective.

Not quite there yet, but certainly moving in that direction.

There are some negative things out there as well that we continue to watch, that are probably a little bit less on the probable side of things.

So all said and done I’m going to be my standard evasive answer on whether or not we get to the black or not, because I’m not comfortable saying that right now to you, but I do think that we will see some positive movement in this number before the end of the year.

>> COMMISSIONER VITAGLIANO: Well stated.

>> SCOTT ADAIR: Not in the Chairman’s perspective.

>> COMMISSIONER JANKOWSKI: Well obviously I’m not looking for a commitment, but are we taking steps that are going to close that gap?

>> SCOTT ADAIR: Always take steps to close that gap. And that’s what we do throughout the year.

And we will continue to.

As you can well imagine, there are some things that are outside of our control.

That’s one of the reasons why we hedge a little bit this time of year.

With road conditions that are out there that can have impact on our operating ability.

>> COMMISSIONER JANKOWSKI: I just think that it would be a major problem if we were - broke our streak of - we’re going on 10 years now without posting a loss.

We don’t need to make $2 million, but closing a $200,000 gap - I certainly hope that we can figure out a way to do that in the three months that we have left.

Really two now.

>> SCOTT ADAIR: We will continue to strive towards that.

>> COMMISSIONER BATTAGLIA: I’m a little confused by the question, though, Mike. Because aren’t you projecting the $261,000 deficit?

So if you’re projecting - I guess the question was - are you projecting that we’re going to be in the black, but you’re not.

So I guess I”m - How good are these projections if we really think we’re going to get into the black.

>> SCOTT ADAIR: That’s why I hesitate a little bit when I answered that question.

When we go through our monthly process of looking at the variables that we still have our there - being 9 months into the year at this point, there are a lot of things that we already know.

And there’s still a list of things that we have to go through and assess on a probability factor as to whether or not we should incorporate them into these financial projections, or not incorporate them into the financial projections.

At this point we keep sort of a running list of what they are. But we don’t feel comfortable enough putting them in at this time.

The last thing that I want to do is project to you that I’m going to wind up -

I know we talk about it million dollars in the black, and then I have to report back to you in March that we’re $200,000 in the hole.

The thing that I take away from this, and I understand the history of the organization a little bit better now, but we started out this year thinking that we were going to spend $450,000 of our unrestricted net assets.

Right now we’re projecting that that’s only going to be $260,000 of those.

So we’re moving in the right direction through the operational efficiencies that we’ve done through the year.

Certain reserves that we’ve put on accounts, certain things that have happened on the revenue side of things.

So we continue to try and progress in that direction.

But to say today that I would project a positive outcome - I can’t necessarily get there with any certainty, but certainly working in that direction.

>> CEO CARPENTER: And then from a CEO perspective, reviewing the list with the CFO and understanding the Commissioners’ perspective here, is -

I’ve talked with Scott and the team, and there are extraordinary measures that need to be taken for us to measurably end up in a black position in a profitable position.

At the same time, I’m reminded every day how much we self-insure for risk around here.

Until the calendar is over, there isn’t any way to project the elimination of that risk.

So I stand by the finance team’s assessment of what could happen. This is a fair projection.

My goal with the organization is, without undue stress on the organization, let's manage that risk and lets move this closer to zero and then into the black by the end of the year.

So Scott’s not told me I need to take those measures. He’s not recommending them

But neither am I in the position that I would say to the commissioners, we could control the risks in such a way that we would project that as well.

>> COMMISSIONER BATTAGLIA: And I’m okay with that. I want to make sure that we’re looking at - based on what we know today - our best projection in terms of accuracy.

Not that it’s the best looking. I understand there might be factors that could change it.

But if you don’t feel comfortable with them yet then I agree with the approach.

I just don’t want to be looking at that approach, knowing that it’s not going to be anything like that when we get to the end.

Then we might as well not waste our time talking about it, if that’s the case.

>> SCOTT ADAIR: We won’t put you in that position.

>> COMMISSIONER VITAGLIANO: You could, to change Mike’s statement a little bit, you could state to us that we will be better than our projected $261,000 deficit.

>> SCOTT ADAIR: I could state that, but I would be -

>> COMMISSIONER BATTAGLIA: What I think he’s saying is there’s things that if they happen -

>> COMMISSIONER VITAGLIANO: But they would be -- things to blow us out of this budget.

>> SCOTT ADAIR: Yes,that blow us out.

But I think what I’m trying to answer is the question that’s been framed to me as to whether or not we’ll finish in the black.

And I’m struggling with making that statement.

I don’t believe today sitting here that the number is going to be significantly worse than this number.

And maybe that’s being way too conservative from a statement standpoint.

But I just - I really hesitate to say without knowing what’s going to happen over the next two months, effectively, that we’ll finish in the black at this point in time.

But I know that there are certain things out there that we’re watching very closely.

>> COMMISSIONER JANKOWSKI: And that window is closing. It’s not like we’re one month into the fiscal year and the projection is - we’re down to the last two.

And I’m just trying to do is I’m relentless on this question, is just communicate how I think it’s so important how we maintain that we’re in the black to some degree, and-

And I know you guys are working on it, closing that gap. The only two things that I keep bringing up and making sure it’s on the table.

>> SCOTT ADAIR: Completely understood. I wish we operated with more shades of grey than black.

>> CHAIRMAN REDMOND: The overtime costs are up $70,000 but the parts we’re $18,000 in the good?

>>SCOTT ADAIR: You’re not seeing -

>> CHAIRMAN REDMOND: --

>> SCOTT ADAIR: - yes, it’s a combination of what you’re seeing.

But the driving force behind that change was mechanics’ overtime

>> COMMISSIONER JANKOWSKI: You got anything else on the financials?

Okay. I think we’re out of time.

>> SCOTT ADAIR: I think we are. So we will postpone the discussion on the financial software.

You have the slides in front of you. If you have any questions, Chris and his team is always available to answer them.

>> COMMISSIONER JANKOWSKI: There’s probably not going to be any big changes or decisions involved.

If we just put this presentation off to the next meeting it’s not going to be a problem?

>> CHRIS DOBSON: Yes.

>> COMMISSIONER BATTAGLIA: But Chris probably stayed up all night last night preparing it.

>> CHRIS DOBSON: I had it done well in advance of this meeting.

>> SCOTT ADAIR: That’s one thing you can always count on with Chris. It’s done well in advance.

Not necessarily the rest of us.

>> CHAIRMAN REDMOND: His wife can recite the presentation.

>> SCOTT ADAIR: Actually I think it’s his dog.

>> CHRIS DOBSON: He’s the only one that will listen.

>> COMMISSIONER BATTAGLIA: Speaking of maintenance, by the way, in the paper this morning they were showing all these pictures of the storm.

One of the pictures was one of our tow trucks towing one of our busses, and it was in the Buffalo paper.

I thought that was kind of interesting, yesterday.

>> CEO CARPENTER: Our tow truck?

>> COMMISSIONER BATTAGLIA: Yeah. Big, blue with the red stripe. Yeah.

>> COMMISSIONER JANKOWSKI: Okay, does anybody have anything else? If not, motion to adjourn?

All in favor? Aye. Thank you.