~ notice of meeting ~ capital metropolitan … · ~ notice of meeting ~ capital metropolitan...

~ NOTICE OF MEETING ~

CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY

BOARD OF DIRECTORS FINANCE, AUDIT AND ADMINISTRATION COMMITTEE MEETING

2910 East Fifth Street Austin, TX 78702

~ AGENDA ~

Wednesday, November 6, 2019 10:00 AM Capital Metro Rosa Parks Boardroom

Board of Directors Printed 11/1/2019

I. Public Comment:

II. Action Items:

1. Approval of Minutes for the September 11, 2019 Finance, Audit and

Administration Committee meeting.

2. Approval of a resolution authorizing the President & CEO, or his designee,

to modify an Interlocal Agreement (ILA) with Travis County for employee

transit passes to increase the agreement's not-to-exceed amount from

$87,000 to $110,000, an increase of $23,000.

3. Approval of a resolution approving of the Fiscal Year 2019 performance

review of the Vice President of Internal Audit.

III. Presentations:

1. Annual Audit of CMTA Retirement Plans

2. Internal Audit Final FY2019 Audit Plan Status

3. Internal Audit Report - Herzog Contract Management Oversight

4. Internal Audit Report - Miscellaneous Revenue and SOX Like Controls

5. Internal Audit Report - External Penetration Systems Test

6. Internal Audit Report - SaaS Vendor Risk Management

IV. Executive Session of Chapter 551 of the Texas Government Code:

Section 551.074 for Personnel Matters - Performance Review for Vice

President, Internal Audit

Finance, Audit and Administration Committee Agenda November 6, 2019

Board of Directors Printed 11/1/2019

V. Items for Future Discussion:

VI. Adjournment

ADA Compliance

Reasonable modifications and equal access to communications are provided upon

request. Please call (512) 369-6040 or email [email protected] if you need

more information.

Committee Members: Terry Mitchell, Chair; Wade Cooper, Pio Renteria and Eric

Stratton.

The Board of Directors may go into closed session under the Texas Open Meetings Act.

In accordance with Texas Government Code, Section 551.071, consultation with

attorney for any legal issues, under Section 551.072 for real property issues; under

Section 551.074 for personnel matters, or under Section 551.076, for deliberation

regarding the deployment or implementation of security personnel or devices; arising

regarding any item listed on this agenda.

Capital Metropolitan Transportation Authority MEETING DATE: 11/06/2019

Board of Directors (ID # 4511)

Approval of Minutes for the September 11, 2019 Finance, Audit and Administration Committee meeting.

Page 1

Approval of Minutes for the September 11, 2019 Finance, Audit and Administration Committee meeting..

2.1

Packet Pg. 3


BOARD OF DIRECTORS

FINANCE, AUDIT AND ADMINISTRATION COMMITTEE

2910 East Fifth Street Austin, TX 78702

~ MINUTES ~

Wednesday, October 9, 2019 11:00 AM Capital Metro Rosa Parks Boardroom

Board of Directors Page 1 Printed 10/31/2019

Call to Order: 11:07 a.m.

I. Public Comment:

There was no public comment this month.

II. Action Items:

1. Approval of Minutes from the August 12, 2019 and September 11, 2019 Finance, Audit and Administration Committee Meetings.

Motion to approve by Board Member Cooper. Renteria second. Approved 4-0.

2. Approval by the Board of Directors of Capital Metro's Investment Policy.

CFO Reinet Marneweck and Nelson Bush from PFM Asset Management presented this item.

Reinet walked the committee through very minor changes in the Capital Metro Investment Policy. The only substantive change is that the Legislature just changed the requirement for maturation of commercial paper -- previously the limit was 270 days, but at the recent legislative session that was raised to 365 days. The new policy document reflects this change. Other changes to our policy were for typographic errors and formatting.

Motion to recommend the changes to the policy by Board Member Cooper. Renteria second. Approved 4-0.

Nelson Bush from PFM then gave a presentation on Capital Metro's investment strategy and portfolio. that included an overview of the overall U.S. and world economy. He then reviewed a summary of Capital Metro's five investment portfolios. Nelson emphasized that the key objectives of Capital Metro's investment strategy are diversity and preservation of capital.

3. Approval of a resolution approving the FY2020 Internal Audit Plan.

Vice President of Internal Audit Terry Follmer presented his department's plan for FY2020 audits.

Terry is proposing seventeen projects, with six projects listed as "contingent". This year Capital Metro is also scheduled for a quadrennial review, which is required by Texas state statute. Internal Audit will also go through its own Quality Assurance assessment.

2.1.a

Packet Pg. 4

Att

ach

men

t: 1

9091

1 F

AA

Co

mm

itte

e M

inu

tes

(45

11 :

Ap

pro

val o

f M

inu

tes

for

the

Sep

tem

ber

11,

201

9 F

inan

ce, A

ud

it a

nd

Ad

min

istr

atio

n

Finance, Audit and Administration Committee Agenda October 9, 2019

Board of Directors Page 2 Printed 10/31/2019

Chair Mitchell asked about potential upcoming risks for the agency. Terry responded that we have a high level of contracted service, as well as the future challenges of autonomous vehicles. The Project Connect initiative also has a level of risk for the organization.

Board Member Cooper asked for a quick clarification on Item 18 on Terry's 2020 plan -- Community Engagement and Professional Organizational Support.

Board Member Stratton asked Terry if he felt that he had both the staff and level of independence he needed to be successful in executing the plan. Terry said he felt very comfortable with both, and also mentioned the relatively new UT Intern program which was adding additional support.

Motion to approve the plan by Board Member Stratton. Cooper second. Approved 4-0.

III. Presentations:

1. Internal Audit FY2019 Audit Plan Status

This item was postponed due to time constraints.

2. Internal Audit Rail Audit Report

This item was also postponed due to time constraints.

IV. Items for Future Discussion:

V. Adjournment

Adjourn: 12:04 p.m.

ADA Compliance

Reasonable modifications and equal access to communications are provided upon request. Please call (512) 369-6040 or email [email protected] if you need more information.

Committee Members: Terry Mitchell, Chair; Wade Cooper, Pio Renteria and Eric Stratton

The Board of Directors may go into closed session under the Texas Open Meetings Act. In accordance with Texas Government Code, Section 551.071, consultation with attorney for any legal issues, under Section 551.072 for real property issues; under Section 551.074 for personnel matters, or under Section 551.076, for deliberation regarding the deployment or implementation of security personnel or devices; arising regarding any item listed on this agenda.

2.1.a

Packet Pg. 5

Att

ach

men

t: 1

9091

1 F

AA

Co

mm

itte

e M

inu

tes

(45

11 :

Ap

pro

val o

f M

inu

tes

for

the

Sep

tem

ber

11,

201

9 F

inan

ce, A

ud

it a

nd

Ad

min

istr

atio

n



Modification to Travis County ILA for Transit Passes

Page 1

Approval of a resolution authorizing the President & CEO, or his designee, to modify an Interlocal Agreement (ILA) with Travis County for employee transit passes to increase the agreement's not-to-exceed amount from $87,000 to $110,000, an increase of $23,000..

2.2

Packet Pg. 6


Board of Directors (ID # AI-2019-1132) Travis County ILA for Transit Passes Mod. 2

Page 1

SUBJECT: Approval of a resolution authorizing the President & CEO, or his designee, to modify an Interlocal Agreement (ILA) with Travis County for employee transit passes to increase the agreement's not-to-exceed amount from $87,000 to $110,000, an increase of $23,000. FISCAL IMPACT:

This action is revenue-generating.

STRATEGIC PLAN: Strategic Goal Alignment: 4. Valued Community Partner Strategic Objectives: 4.4 Organizational Partner Satisfaction EXPLANATION OF STRATEGIC ALIGNMENT: Modification of the ILA with Travis County will maintain a strong partnership that supports Capital Metro's mission and vision. The ILA modification has the potential to increase ridership on Capital Metro services and increase revenue. BUSINESS CASE: The ILA has helped establish a strong partnership with Travis County that supports Capital Metro's strategic objectives. The first of three, one-year options to extend the ILA was exercised by Capital Metro’s Board of Directors in August 2019. The ILA has been well utilized by Travis County employees, and, due to employee ridership growth of 11.75% over the last fiscal year, Travis County has requested the modification to increase the agreement's not-to-exceed amount from $87,000 to $110,000, an increase of $23,000. The proposed modification has the potential to further increase the usage of our services by Travis County employees. COMMITTEE RECOMMENDATION: This agenda item was presented and is recommended for approval by the Finance, Audit and Administration Committee on November 6, 2019. EXECUTIVE SUMMARY: As part of Capital Metro’s desire to build strong community partnerships that further Capital Metro’s mission and vision and as part of Capital Metro’s and Travis County's continued joint effort to promote sustainability through transportation alternatives, this agreement is a modification of an Interlocal Agreement (ILA) with Travis County for employee transit passes that will increase the agreement's not-to-exceed amount from $87,000 to $110,000, an increase of $23,000.

2.2.a

Packet Pg. 7

Att

ach

men

t: R

eso

luti

on

-AI-

2019

-113

2 (

4502

: M

od

ific

atio

n t

o T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses)

DBE/SBE PARTICIPATION: Does not apply. PROCUREMENT: Does not apply. RESPONSIBLE DEPARTMENT: Finance

2.2.a

Packet Pg. 8

Att

ach

men

t: R

eso

luti

on

-AI-

2019

-113

2 (

4502

: M

od

ific

atio

n t

o T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses)

RESOLUTION

OF THE


BOARD OF DIRECTORS

STATE OF TEXAS

COUNTY OF TRAVIS

RESOLUTION (ID # AI-2019-1132)

Travis County ILA for Transit Passes Mod. 2

WHEREAS, the Capital Metropolitan Transportation Authority Board of Directors and Capital Metro management endeavor to build strong community partnerships that further Capital Metro’s mission and vision; and WHEREAS, the Capital Metropolitan Transportation Authority Board of Directors and Capital Metro management recognize the need to build ridership and increase market share of alternate transit use; NOW, THEREFORE, BE IT RESOLVED by the Capital Metropolitan Transportation Authority Board of Directors that the President & CEO, or his designee, is authorized to modify an Interlocal Agreement (ILA) with Travis County for employee transit passes to increase the agreement's not-to-exceed amount from $87,000 to $110,000, an increase of $23,000. ________________________ Date: ____________________ Secretary of the Board Eric Stratton

2.2.a

Packet Pg. 9

Att

ach

men

t: R

eso

luti

on

-AI-

2019

-113

2 (

4502

: M

od

ific

atio

n t

o T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses)

V7.0 Page 1

LEGAL BUSINESS NAME: Capital Metropolitan Transportation Authority BY: SIGNATURE BY: PRINT NAME TITLE: ITS DULY AUTHORIZED AGENT

DATE:

TRAVIS COUNTY, TEXAS BY: BONNIE S. FLOYD, MBA, CPPO, CPPB, TRAVIS COUNTY PURCHASING AGENT

DATE:

TRAVIS COUNTY, TEXAS BY: SARAH ECKHARDT, TRAVIS COUNTY JUDGE

DATE:

MODIFICATION OF CONTRACT: 4400004074, Interlocal Agreement for Employee Transit Services ISSUED BY: Travis County Purchasing Office P.O. Box 1748 Austin, Texas 78767 Contact: Jean Liburd Tel. No: (512) 854-4850

ISSUED TO: Capital Metropolitan Transportation Authority Attn: Greg Buford 2910 E. 5th Street Austin, Texas 78702

MODIFICATION NO.: 2 EXECUTED DATE OF ORIGINAL CONTRACT: September 26, 2018

ORIGINAL CONTRACT TERM: October 1, 2018 to September 30, 2019 MODIFIED CONTRACT TERM END DATE: September 30, 2020

ORIGINAL CONTRACT AMOUNT: $87,000.00 NTE MOD. 2 AMOUNT: $23,000.00 CUMULATIVE CONTRACT AMOUNT: $197,000.00 NTE

Note to Vendor: Court Approval Required? ☒ Complete and execute (sign) your portion of the signature block section as tagged below. ☒ Yes ☐ DO NOT execute. Retain for your records. ☐ No DESCRIPTION OF CHANGES: Except as provided in this Modification 2, all terms, conditions and provisions of the document referenced above, as previously modified, remain unchanged and in full force and effect.

1. Pursuant to Article III Term and Termination, 1. Term, effective October 1, 2019, the above Interlocal Agreement is hereby modified as follows:

A. Article IV. Compensation and Payment, 1. Contract Amount, the Not To Exceed amount is

increased from $87,000.00 to $110,000.00, an increase of $23,000.00.

2.2.b

Packet Pg. 10

Att

ach

men

t: T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses,

Mo

d 2

(45

02 :

Mo

dif

icat

ion

to

Tra

vis

Co

un

ty IL

A f

or

Tra

nsi

t P

asse

s)

2.2.c

Packet Pg. 11

Att

ach

men

t: T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses

- S

ign

ed (

1) (

1) (

4502

: M

od

ific

atio

n t

o T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses)

2.2.c

Packet Pg. 12

Att

ach

men

t: T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses

- S

ign

ed (

1) (

1) (

4502

: M

od

ific

atio

n t

o T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses)

2.2.c

Packet Pg. 13

Att

ach

men

t: T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses

- S

ign

ed (

1) (

1) (

4502

: M

od

ific

atio

n t

o T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses)

2.2.c

Packet Pg. 14

Att

ach

men

t: T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses

- S

ign

ed (

1) (

1) (

4502

: M

od

ific

atio

n t

o T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses)

2.2.c

Packet Pg. 15

Att

ach

men

t: T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses

- S

ign

ed (

1) (

1) (

4502

: M

od

ific

atio

n t

o T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses)

2.2.c

Packet Pg. 16

Att

ach

men

t: T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses

- S

ign

ed (

1) (

1) (

4502

: M

od

ific

atio

n t

o T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses)

2.2.c

Packet Pg. 17

Att

ach

men

t: T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses

- S

ign

ed (

1) (

1) (

4502

: M

od

ific

atio

n t

o T

ravi

s C

ou

nty

ILA

fo

r T

ran

sit

Pas

ses)



Performance Review for VP of Internal Audit

Page 1

Approval of a resolution approving of the Fiscal Year 2019 performance review of the Vice President of Internal Audit. .

2.3

Packet Pg. 18


Board of Directors (ID # AI-2017-1139) Performance Review for VP of Internal Audit

Page 1

SUBJECT: Approval of a resolution approving of the Fiscal Year 2019 performance review of the Vice President of Internal Audit. The Committee's review of the Fiscal Year 2019 performance of Terry Follmer, Vice President of Internal Audit, approved a performance merit increase of __% effective December 22, 2019. FISCAL IMPACT:

Funding for this action is available in the FY2020 Operating Budget.

STRATEGIC PLAN: Strategic Goal Alignment: 2. Engaged Workforce Strategic Objectives: 2.3 Adherence to Professional Development Plan EXPLANATION OF STRATEGIC ALIGNMENT: As a leader in the organization, the performance review is used for improving the organizational development of the Internal Audit department and the Vice President. BUSINESS CASE: Completing performance reviews are needed to assess the employee's performance throughout the fiscal year, provide input for improvement and to use for establishing the annual merit review. COMMITTEE RECOMMENDATION: This agenda item will be presented to and voted on by the Finance, Audit and Administration Committee on November 6th. 2019. EXECUTIVE SUMMARY: By statute, Capital Metro’s Vice President of Internal Audit reports directly to the Board of Directors. The Board has delegated development of the performance plan and the performance review process for the Vice President of Internal Audit to the Finance, Audit, and Administration Committee. The Committee’s review of the performance of the Vice President of Internal Audit for Fiscal Year 2019 has resulted in a performance merit increases of ___% effective December 22, 2019.

2.3.a

Packet Pg. 19

Att

ach

men

t: R

eso

luti

on

-AI-

2019

-113

9 (

4501

: P

erfo

rman

ce R

evie

w f

or

VP

of

Inte

rnal

Au

dit

)

DBE/SBE PARTICIPATION: Does not apply. PROCUREMENT: Does not apply. RESPONSIBLE DEPARTMENT: Human Resources

2.3.a

Packet Pg. 20

Att

ach

men

t: R

eso

luti

on

-AI-

2019

-113

9 (

4501

: P

erfo

rman

ce R

evie

w f

or

VP

of

Inte

rnal

Au

dit

)

RESOLUTION

OF THE


BOARD OF DIRECTORS

STATE OF TEXAS

COUNTY OF TRAVIS RESOLUTION (ID # AI-2017-1139)

Performance Review for VP of Internal Audit

WHEREAS, the Vice President of Internal Audit reports to the Board of Directors; and WHEREAS, the annual review of the Vice President of Internal Audit’s performance has been delegated by the Board to the Finance, Audit, and Administration Committee. NOW, THEREFORE, BE IT RESOLVED that the Fiscal Year 2019 performance review of the Vice President of Internal Audit, has resulted in a performance merit increase of __% effective December 22, 2020. ________________________ Date: ____________________ Secretary of the Board Eric Stratton

2.3.a

Packet Pg. 21

Att

ach

men

t: R

eso

luti

on

-AI-

2019

-113

9 (

4501

: P

erfo

rman

ce R

evie

w f

or

VP

of

Inte

rnal

Au

dit

)



Annual Audit of CMTA Retirement Plans

Page 1

TITLE: Annual Audit of CMTA Retirement Plans

3.1

Packet Pg. 22

©2018 RSM US LLP. All Rights Reserved. ©2018 RSM US LLP. All Rights Reserved.

CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY DEFINED CONTRIBUTION AND DEFINED BENEFIT PLAN AUDITSReport to the Finance Audit and Administration Committee

Audit for the Year Ended December 31, 2018

3.1.a

Packet Pg. 23

Att

ach

men

t: C

apit

al M

etro

Ben

efit

Pla

n A

ud

its

3 (0

03)

(45

05 :

An

nu

al A

ud

it o

f C

MT

A R

etir

emen

t P

lan

s)

© 2019 RSM US LLP. All Rights Reserved.

2

September 25, 2019

To the Finance, Audit and Administration Committee of the Board of DirectorsCapital Metropolitan Transportation AuthorityAustin, Texas

Dear Members:

We are pleased to present this report related to our audits of the financial statements of Capital Metropolitan Transportation (the Authority) Retirement and Savings Plan and Retirement Plan for Administrative Employees (the Plans) as of and for the year ended December 31, 2018. This report summarizes certain matters required by professional standards to be communicated to you in your oversight responsibility for the Authority’s financial reporting process of the Plans.

This report is intended solely for the information and use of the Finance, Audit, and Administration Committee, Board of Directors and management of the Authority and is not intended to be, and should not be, used by anyone other than these specified parties. It will be our pleasure to respond to any questions you have about this report. We appreciate the opportunity to continue to be of service to the Authority.

3.1.a

Packet Pg. 24

Att

ach

men

t: C

apit

al M

etro

Ben

efit

Pla

n A

ud

its

3 (0

03)

(45

05 :

An

nu

al A

ud

it o

f C

MT

A R

etir

emen

t P

lan

s)


Agenda

3

Topic

Audit Overview Scope and Results

Financial Statement Audit 4

- Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees

- Capital Metropolitan Transportation Authority Retirement and Savings Plan

Required communications 5-8

Summary of significant accounting estimates 9

3.1.a

Packet Pg. 25

Att

ach

men

t: C

apit

al M

etro

Ben

efit

Pla

n A

ud

its

3 (0

03)

(45

05 :

An

nu

al A

ud

it o

f C

MT

A R

etir

emen

t P

lan

s)

©2017 RSM US LLP. All Rights Reserved.

Audit Overview

• Financial Statement Audit Scope

• Financial statements are prepared by management

• Audit scope includes the following

• Standard audit scope for a government audit

• Includes examining evidence supporting amounts and disclosures on a test basis

• Includes assessment of internal control structure for purposes of auditing the amounts and

disclosures in the financial statements, but not for providing an opinion on internal control

• Includes assessment of accounting principles, significant estimates made by management, and

disclosures to the financial statements

• Financial Statement Audit Results

• Opinion on the financial statements: Unmodified

• No significant deficiencies in internal control to be reported

4

3.1.a

Packet Pg. 26

Att

ach

men

t: C

apit

al M

etro

Ben

efit

Pla

n A

ud

its

3 (0

03)

(45

05 :

An

nu

al A

ud

it o

f C

MT

A R

etir

emen

t P

lan

s)


5

Matter to report No Yes Comments

Preferability of Accounting

Policies and Practices•

In our view, in such circumstances, the Authority’s Plans has selected the preferable accounting

practice and follows standards set fourth by the Government Accounting Standards Board.

Adoption of, or Change in,

Accounting Policies•

The Authority’s Plans did not adopt any significant new accounting policies, nor have there been

any changes in existing significant accounting policies during the current period.

Significant unusual

transactions• We noted no significant unusual transactions during the course of our testing.

Audit Adjustments • There were no audit adjustments made to the final trial balance presented to us for our audit.

Uncorrected misstatements •We are not aware of any uncorrected misstatements other than misstatements that are clearly

trivial.

Required communications

3.1.a

Packet Pg. 27

Att

ach

men

t: C

apit

al M

etro

Ben

efit

Pla

n A

ud

its

3 (0

03)

(45

05 :

An

nu

al A

ud

it o

f C

MT

A R

etir

emen

t P

lan

s)


6

Matter to report No Yes Comments

Disagreements With

Management•

We encountered no disagreements with management over the application of significant

accounting principles, the basis for management’s judgments on any significant matters, the

scope of the audit or significant disclosures to be included in the financial statements.

Consultations With Other

Accountants•

We are not aware of any consultations management had with other accountants about

accounting or auditing matters.

Significant Issues Discussed

With Management•

No significant issues arising from the audit were discussed or the subject of correspondence

with management.

Significant Difficulties

Encountered in Performing

the Audit

• We did not encounter any significant difficulties in dealing with management during the audit.

Internal Controls over

Financial Reporting• There were no identified significant deficiencies during the course of our testing.

Required communications

3.1.a

Packet Pg. 28

Att

ach

men

t: C

apit

al M

etro

Ben

efit

Pla

n A

ud

its

3 (0

03)

(45

05 :

An

nu

al A

ud

it o

f C

MT

A R

etir

emen

t P

lan

s)


Required Communication (continued)

• Management’s Judgments and Accounting Estimates• Except as noted below, the summary information about the process used by

management in formulating particularly sensitive accounting estimates and about our conclusions regarding the reasonableness of those estimates is in the attached Summary of Significant Accounting Estimates

• Actuarial Pension Valuation performed as of December 31, 2018 for the Retirement Plan for Administrative Employees

• Results noted based on the valuation assumptions and related impact on the Pension liability is as follows:

• The DB Plan’s Actuary issued a Pension valuation in accordance with applicable GASB Standards for the period ending December 31, 2018, dated September 17, 2019. The assumptions used in the pension valuation were reviewed by the Pension Plan Committee and the Plan Actuary for appropriateness.

7

3.1.a

Packet Pg. 29

Att

ach

men

t: C

apit

al M

etro

Ben

efit

Pla

n A

ud

its

3 (0

03)

(45

05 :

An

nu

al A

ud

it o

f C

MT

A R

etir

emen

t P

lan

s)


Required Communication (continued)

• Management’s Judgments and Accounting Estimates (continued)Mortality Tables Assumption

• In January, 2019, the Society of Actuaries published the PUB-2010 mortality tables constructed from the mortality experience of public-sector plans, and in the absence of other facts and circumstances, may be deemed to be best estimates of future mortality for public-sector plans.

• The Pension valuation used the RP-2014 mortality table. The RP-2014 table used private-sector data.

• The Pension Plan Committee and the Plan Actuary consider the use of the RP-2014 mortality tables appropriate. However, the differences in tables used would result in a higher pension liability of approximate $1,600,000.

Economic Assumptions

• As required by U.S. GAAP, the Defined Benefit Plan’s financial statements included a disclosure for its total pension liability of $49,200,000. The economic assumptions for the Plan included an assumed 1.0% annual increase in the social security taxable Wage Base. RSM actuaries performed a second review of the assumptions, and noted that the 1.0% annual increase is not consistent with the other economic assumptions used in the valuation, including salary increases and long-term rate of return. Increasing the social security taxable wage base to 3.0% would decrease the pension plan liability by approximately $300,000 or 0.006% of the total pension liability footnote disclosure of $49,200,000.

8

3.1.a

Packet Pg. 30

Att

ach

men

t: C

apit

al M

etro

Ben

efit

Pla

n A

ud

its

3 (0

03)

(45

05 :

An

nu

al A

ud

it o

f C

MT

A R

etir

emen

t P

lan

s)


Summary of significant accounting estimates

Accounting estimates are an integral part of the preparation of financial statements and are based upon management’s current judgment. The process used by management encompasses its knowledge and experience about past and current events, and certain assumptions about future events. Management may wish to monitor throughout the year the process used to determine and record these accounting estimates. The following describes the significant accounting estimates reflected in the Plan’s December 31, 2018, financial statements.

Estimate Accounting Policy Management’s Estimation ProcessBasis for Our Conclusions on Reasonableness of

Estimate

Fair Value of

Investments

Investments are recorded at estimated fair value, except for the group fixed annuity contract, which is reported at amortized cost.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Investments are based on quoted price per share of the fund, except for the group fixed annuity contract, which is reported at amortized cost.

We tested the fair value of investments at year-end by using a valuation specialist. Based on our audit procedures, we believe management’s valuation method and estimates are reasonable.

Pension Expense

and Net Pension

Asset/Liability

The Plan is a single employer defined benefit plan. The Plan discloses the net pension liability of the Plan sponsor, as discussed in the notes to the financial statements.

The net pension liability calculation is prepared by an independent actuary of the Plan. The Pension Plan Committee reviews the actuarial results and considers the appropriateness of the assumptions.

We obtained the actuary report and had an internal actuarial specialist review the significant assumptions and conclusions for reasonableness. We also analyzed management’s methodology and tested the underlying data. We concluded the estimates are reasonable.

3.1.a

Packet Pg. 31

Att

ach

men

t: C

apit

al M

etro

Ben

efit

Pla

n A

ud

its

3 (0

03)

(45

05 :

An

nu

al A

ud

it o

f C

MT

A R

etir

emen

t P

lan

s)

© 2019 RSM US LLP. All Rights Reserved. © 2019 RSM US LLP. All Rights Reserved.

10

3.1.a

Packet Pg. 32

Att

ach

men

t: C

apit

al M

etro

Ben

efit

Pla

n A

ud

its

3 (0

03)

(45

05 :

An

nu

al A

ud

it o

f C

MT

A R

etir

emen

t P

lan

s)


This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute audit, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. RSM US LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. Internal Revenue Service rules require us to inform you that this communication may be deemed a solicitation to provide tax services. This communication is being sent to individuals who have subscribed to receive it or who we believe would have an interest in the topics discussed.

RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International.

RSM, the RSM logo and the power of being understood are registered trademarks of RSM International Association.


RSM US LLP

AddressCityPhone

+1 800 274 3978rsmus.com

11

3.1.a

Packet Pg. 33

Att

ach

men

t: C

apit

al M

etro

Ben

efit

Pla

n A

ud

its

3 (0

03)

(45

05 :

An

nu

al A

ud

it o

f C

MT

A R

etir

emen

t P

lan

s)

Capital Metropolitan Transportation Authority Retirement and Savings Plan Financial Report December 31, 2018

3.1.b

Packet Pg. 34

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

Contents Independent auditor’s report 1-2 Management’s discussion and analysis 3-5 Financial statements

Statement of plan net position 6 Statement of changes in plan net position 7 Notes to financial statements 8-14

3.1.b

Packet Pg. 35

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

1

Independent Auditor’s Report To the Pension Plan Committee Capital Metropolitan Transportation Authority Retirement and Savings Plan Report on the Financial Statements We have audited the accompanying financial statements of Capital Metropolitan Transportation Authority Retirement and Savings Plan (the Plan), which comprise the statement of plan net position as of December 31, 2018, the related statement of changes in plan net position for the year then ended and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the net position of the Plan as of December 31, 2018, and the changes in plan net position for the year then ended in accordance with accounting principles generally accepted in the United States of America.

3.1.b

Packet Pg. 36

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

2

Emphasis of a Matter As discussed in Note 1, the financial statements present only the financial position of Capital Metropolitan Transportation Authority Retirement and Savings Plan and do not purport to, and do not, present the financial position of Capital Metropolitan Transportation Authority as of December 31, 2018, and the changes in financial position for the year then ended. Our opinion is not modified with respect to this matter. Other Matters—Required Supplementary Information Accounting principles generally accepted in the United States of America require the management’s discussion and analysis, as listed in the table of contents, to be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Austin, Texas September 25, 2019

3.1.b

Packet Pg. 37

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

Capital Metropolitan Transportation Authority Retirement and Savings Plan Management’s Discussion and Analysis

3

This section of the Capital Metropolitan Transportation Authority Retirement and Savings Plan’s (the Plan) financial report presents our discussion and analysis of the Plan’s financial performance during the 2018 Plan year. Readers should consider information presented here in conjunction with the financial statements that follow. Overview of the Financial Statements This discussion and analysis is intended as an introduction to the Plan’s financial statements, which comprise the following. Statement of plan net position: The statement of plan net position presents the Plan’s assets and liabilities and the resulting net position held in trust for participants. Statement of changes in plan net position: The statement of changes in plan net position presents the Plan’s fiscal year additions to, and deductions from, the Plan’s net position. Combined, the two statements report the Plan’s net position held in trust for Plan benefits. Net position is the difference between assets and liabilities and is one way to measure the Plan’s financial position. Increases and decreases in net position over time are one indicator of whether the Plan’s financial health is improving or deteriorating. Notes to financial statements: Notes to financial statements provide additional information essential for a full understanding of the data in the financial statements. Collectively, this information presents the net position held in trust for Plan benefits as of the end of each year and summarizes the changes in net position for the year. Financial Highlights Plan net position held in trust by the Plan decreased by approximately $447,000, or 2.2% in 2018, and increased by approximately $3,000,000, or 16.9%, in 2017. The decrease in 2018 was due to the decrease in the fair value of the investments net of interest and dividends of $1,100,000 offset by a current period increase of $677,000 in activity (total additions less total deductions). The increase in 2017 was mostly due to contributions of $1,600,000 as well as an increase in Plan investment income of approximately $2,900,000. Contributions increased by approximately $69,000 or 4.1% in 2018 and by approximately $143,000, or 9.3%, in 2017. Benefits paid to retired members, beneficiaries and terminating employees decreased by approximately $503,000, or 66.9% during 2018 after increasing by approximately $460,000, or 157.4%, during 2017. The decrease in 2018 primarily can be attributed to smaller normal and premature distributions.

3.1.b

Packet Pg. 38

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


4

Financial Analysis

Percentage2018 2017 Change

Assets:Investments at fair value 19,555,410 $ 20,063,189 $ (2.53%)Loans receivable from participants 566,594 506,028 12.0%

Plan net position held in trust for Plan benefits 20,122,004 $ 20,569,217 $ (2.17%)

Condensed Statements of Plan Net Position

Participant loan activity and balances have increased in 2018 and 2017. The net effect of loan activity

resulted in an increase in loan balances of $61,000 and $33,000 in 2018 and 2017, respectively.

Total investments were approximately $19,600,000 at the end of the 2018 Plan year, a decrease of approximately $508,000, or 2.5% for the year. Total investments were approximately $20,000,000 at the end of the 2017 Plan year, an increase of approximately $2,900,000, or 17.2% for the year.

The Plan’s net position decreased by approximately $447,000 in 2018. Adverse asset growth in the

stock market in December 2018 offset economic recovery in 2017.


Additions:Investment and interest income (loss) (1,124,438) $ 2,955,834 $ (138.04%)Contributions 1,743,805 1,674,962 4.1%

Total additions 619,367 4,630,796 (86.63%)

Deductions:Benefit payments (248,622) (751,943) (66.94%)General, administrative and other expenses (4,010) (3,354) (19.59%)Rollover (813,948) (901,847) (9.75%)

Total deductions (1,066,580) (1,657,144) (35.64%)

Net increase (decrease) (447,213) 2,973,652 (115.04%)Plan net position held in trust for Plan benefits

at beginning of year 20,569,217 17,595,565 16.9%Plan net position held in trust for Plan benefits

at end of year 20,122,004 $ 20,569,217 $ (2.17%)

Condensed Statements of Changes in Plan Net Position

3.1.b

Packet Pg. 39

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


5

Additions: Funds to pay benefits are accumulated through contributions and returns on invested funds. Contributions for 2018 and 2017 totaled approximately $1,743,000 and $1,674,000, respectively. The contributions increased by approximately $69,000 in 2018 and $143,000 in 2017. Interest, dividends and net depreciation in investments generated a total investment loss of approximately $1,100,000 in 2018, vs. investment gains of approximately $2,900,000 in 2017. Deductions: Expenses paid by the Plan include benefit payments and administrative expenses. Benefits paid to retirees and terminating employees in 2018 were approximately $248,000, a 67% decrease from the 2017 total. Rollover out of the Plan were approximately $814,000, a 10% decrease from the 2018 total. Although Plan participants retiring and terminating remained flat in 2018 and 2017, Plan distribution decreased as a result of smaller normal and premature distributions in 2018. Administrative expenses were $4,010 in 2018 and $3,354 in 2017. Current Environment The Plan has 424 eligible participants as of December 31, 2018, compared with 424 eligible participants in December 31, 2017. Future Outlook and Currently Known Facts The Plan has year-to-date contributions of $1,417,756 and total assets of $23,511,363 as of September 16, 2019. There are no other currently known facts, decisions or conditions known to management. Request for Information This financial report is designed to provide a general overview of the finances of the Capital Metropolitan Transportation Authority Retirement and Savings Plan for all parties with an interest. Questions concerning the information in this report or requests for additional financial information should be addressed to Retirement Benefits Administrator, Capital Metropolitan Transportation Authority, 2910 East 5th Street, Austin, Texas 78702.

3.1.b

Packet Pg. 40

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

6

Capital Metropolitan Transportation Authority Retirement and Savings Plan

Statement of Plan Net PositionDecember 31, 2018

Assets:Investments:

Domestic equity mutual funds 7,913,779 $ International equity mutual funds 3,411,509 Fixed income mutual funds 6,551,108 Lincoln Stable Value Fund 1,679,014

Total investments 19,555,410

Loans receivable from participants 566,594 Total assets 20,122,004

Total net position held in trust for Plan benefits 20,122,004 $

See notes to financial statements.

3.1.b

Packet Pg. 41

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

7

Capital Metropolitan Transportation Authority Retirement and Savings Plan

Statement of Changes in Plan Net PositionYear Ended December 31, 2018

Additions to Plan net position attributed to:Investment loss:

Net depreciation in fair value of investments (1,876,496) $ Interest and dividends 726,898

Total investment loss (1,149,598)

Interest income on loans receivable from participants 25,160

Contributions:Participants 1,600,128 Employer 45,942 Rollovers 97,735

Total contributions 1,743,805

Total additions 619,367

Deductions from Plan net position attributed to:Benefits paid to participants (248,622) Administrative expenses, net of trustee credits (4,010) Roll out of plan (813,948)

Total deductions (1,066,580)

Net decrease in Plan net position (447,213)

Plan net position held in trust for Plan benefits at beginning of year 20,569,217

Plan net position held in trust for Plan benefits at end of year 20,122,004 $


3.1.b

Packet Pg. 42

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

Capital Metropolitan Transportation Authority Retirement and Savings Plan Notes to Financial Statements

8

Note 1. Description of Plan

The following description of the Capital Metropolitan Transportation Authority Retirement and Savings Plan (the Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions. Reporting entity: The plan is sponsored by Capital Metropolitan Transportation Authority (the Authority). The Plan does not purport to and does not present the financial position or changes in financial position of the Authority as of any time or for any period. General: The Plan is a defined contribution plan covering all full-time administrative employees of the Authority who are not members of a collective bargaining unit, who are 21 years of age or older and have completed one month of service during the computation period. The employer discretionary contributions are allocated in a fixed amount, as determined by the employer, as of the time prescribed by law. At December 31, 2018, the Plan had 424 eligible participants, of which 341 are active and entitled to benefits. The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Authority’s Board of Directors (the Board) governs the Authority, under which benefit and contribution terms are established or amended. Management of the Plan is entrusted to the Authority’s Board and advised by the Capital Metropolitan Transportation Authority Retirement and Savings Plan Committee (the Committee), whose members are appointed by the Board of the Authority. The Committee has overall responsibility for the operation and administration of the Plan. The Committee determines the appropriateness of the Plan’s investment offerings and monitors investment performance, with the assistance of Cornerstone Advisors Asset Management. The assets of the Plan are held in a trust. Lincoln Financial Group Trustee serves as trustee on behalf of the Plan and carries out an investment policy established by the Committee, consistent with the purposes of the Plan and the requirements of applicable laws and regulations. Contributions: Each year participants may contribute up to the lesser of 100% of their annual compensation, as defined by the Plan, or the maximum permitted under the Internal Revenue Code (IRC), which is $18,500 for 2018. If participants are age 50 and above they can contribute an additional catch up contribution of $6,000 in 2018. Participants may also rollover to the Plan amounts representing distributions from other qualified defined benefit or defined contribution plans. Participants direct the investment of their contributions into various investment options offered by the Plan. The Plan includes an auto-enrollment provision, whereby all newly eligible employees are automatically enrolled in the Plan unless they affirmatively elect not to participate in the Plan. Automatically enrolled participants have their deferral rate set at 3% of eligible compensation and their contributions invested in a designated balanced fund until changed by the participant. The Authority, at its sole and absolute discretion, may elect to make a discretionary contribution to selected participants. For the year ended December 31, 2018, the Authority made approximately $46,000 in discretionary contributions. Participant accounts: Participants direct the investment of their contributions into various investment options offered by the Plan. Each participant’s account is credited with the participant’s contribution and allocations of the Authority’s contributions and Plan earnings. Allocations are based on participant earnings or account balances, as defined. Participants are entitled to the benefit that can be provided from the participant’s vested account.

3.1.b

Packet Pg. 43

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


9

Note 1. Description of Plan (Continued)

Vesting: Participants are vested immediately in their voluntary and employer discretionary contributions plus actual earnings thereon. Loans receivable from participants: Participants may borrow from their fund accounts. The minimum loan is $1,000. The maximum for a loan is equal to the lesser of $50,000 or 50% of the participant’s vested account balance. Loans are secured by the balance in the participant’s account and bear interest, as determined by the Plan administrator. Principal and interest are paid ratably through payroll deductions. The loan terms are up to five years or, if for the purchase of a primary residence, up to 10 years. Payment of benefits: On termination of service due to retirement, a participant may elect to receive either a lump-sum amount equal to the value of the participant’s vested interest in his or her account or payments over a period in monthly, quarterly, semiannual, or annual installments. The payment period is not to exceed the participant’s and/or the participant and designated beneficiary’s life expectancy. Death or disability payments shall be distributed (1) in equal installments over the life expectancy of the designated beneficiary commencing no later than one year after death or (2) if the designated beneficiary is a spouse, no later than the date on which the participant would have attained age 70.5. For termination of service for other reasons, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution. Participants are also allowed to withdraw benefits in the event of financial hardship. Hardship withdrawals are limited to the participant’s elective contributions and earnings thereon. Administrative expenses: The Plan sponsor or the Plan may pay administrative expenses, as provided by the Plan document. The participant pays the loan administration fees. Forfeitures: Prior to January 1, 2009, the Plan allowed for employer-matching provisions that required five years to vest 100%. According to the Plan document, the forfeitures will be used to reimburse the Authority for Plan expenses in the year following the year in which they were forfeited. In 2018, forfeitures were used to pay Plan expenses in the amount of approximately $75. On December 31, 2018, there were no unallocated forfeitures. Roll out of plan: Participants may elect to rollover, if eligible, account balance into an IRA or other eligible retirement plan. Participants can elect to have the distribution transferred directly into the IRA (including a Roth IRA) or other eligible plan. All or any portion of the distributions of the participant account balance are eligible for rollover except: (1) any distribution that is required under the Internal Revenue Code; and (2) any distribution that is one of a series of installment payments made over a specified period of 10 or more years.

Note 2. Summary of Significant Accounting Policies

Loans receivable from participants: Participants’ loans receivable are measured at their unpaid principal balance plus accrued, but unpaid interest. Interest income is recorded on the accrual basis. Related fees are recorded as administrative expenses and are expensed when they are incurred. If a participant ceases to make loan repayments and the Plan administrator deems the participant loan to be in default, the participant loan balance is reduced and a benefit payment is recorded under the terms of the Plan document. No allowance for credit losses has been recorded as of December 31, 2018.

3.1.b

Packet Pg. 44

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


10

Note 2. Summary of Significant Accounting Policies (Continued)

Basis of accounting: The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for local governmental units as prescribed by the Governmental Accounting Standards Board (GASB). The financial statements are prepared using the economic resources measurement focus and accrual basis of accounting. Investment valuation and income recognition: Investments are reported at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based upon quoted market prices, or when quoted market prices are not readily determinable, estimates using observable inputs, including quoted prices for similar securities, interest rates and a fixed income pricing model that uses available market rates. Shares of registered investment companies (mutual funds) are reported at fair value based on the quoted price per share of the fund. The Lincoln Stable Value Fund is a group fixed annuity contract and is valued at the guaranteed minimum rate of $1. The Lincoln Stable Value Fund is an investment in a nonparticipating contract with redemption terms that do not consider market rates and is valued at amortized cost. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net depreciation includes the Plan’s gains and losses on investments bought and sold, as well as held during the year. Payment of benefits and administrative expenses: Benefits are recognized as expense when due and payable in accordance with the terms of the Plan. The Plan administrator pays substantially all administrative expenses, which are excluded from the financial statements. Fees related to the administration of loans receivable from participants are charged directly to the participant’s account and are included in administrative expenses. Investment-related expenses are included in net depreciation in fair value of investments. Use of estimates: The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Risk and uncertainties: The Plan invests in various types of investments. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall volatility risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statement of plan net position.

3.1.b

Packet Pg. 45

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


11

Note 3. Investments

The Plan uses various methods to measure the fair value of investments on a recurring basis. GASB Statement No. 72, Fair Value Measurement and Application, establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are as follows. Level 1: Inputs are unadjusted quoted prices in active markets for identical assets and liabilities that the Plan has the ability to access. Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument in an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. Level 3: Inputs are unobservable for the asset or liability, to the extent relevant observable inputs are not available, representing the Plan’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. Hierarchy: The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to the Level 3 inputs. The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Except for the Lincoln Stable Value Fund, which is a group fixed annuity contract valued at amortized cost, the investments of the Plan are valued at fair value. Mutual funds: Shares of registered investment companies (mutual funds) are reported at fair value based on the quoted price per share of the fund.

3.1.b

Packet Pg. 46

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


12

Note 3. Investments (Continued)

Investments consist of the following:

Investment Type Level 1 Level 2 Level 3 Fair ValueDomestic equity mutual fund securities:

Vanguard 500 Index Admiral 2,537,683 $ -$ -$ 2,537,683 $ Diamond Hill Large Cap Y 1,664,072 - - 1,664,072 Fidelity Contrafund 1,359,415 - - 1,359,415 Harbor Capital Appreciation Instl. 298,930 - - 298,930 Emerald Growth Institutional 421,126 - - 421,126 Victory Sycamore Small Company Opp. I 432,984 - - 432,984 Cohen & Steers Realty Shares 370,432 - - 370,432 Conestoga Small Cap Investors 260,701 - - 260,701 AMG Managers Silvercrest Small Cap I 251,937 - - 251,937 Vanguard Small Cap Index Adm. 101,477 - - 101,477 Vanguard Mid Cap Index Adm. 99,150 - - 99,150 T. Rowe Price Growth Stock 87,750 - - 87,750 MFS Value R6 28,122 - - 28,122

Total domestic equity mutual fund securities 7,913,779 - - 7,913,779 International equity mutual fund securities:

Hartford Schroders International Multi Cap Value Class Sdr. 1,151,684 - - 1,151,684 Harding Loevner International Eq. Instl. 1,140,629 - - 1,140,629 American Funds Europacific Growth R6 1,119,196 - - 1,119,196

Total international equity mutual fund securities 3,411,509 - - 3,411,509 Fixed income mutual fund securities:

Vanguard Total Bond Market Index Adm. 2,109,099 - - 2,109,099 Baird Core Plus Bond Inst. 2,019,635 - - 2,019,635 BlackRock Strategic Income Opps. Instl. 900,735 - - 900,735 Easton Vance Global Macro Absolute Return Class 1 802,000 - - 802,000 Nuveen Preferred Securities I 423,085 - - 423,085 Parametric Commodity Strategy Fund (Institutional) 296,554 - - 296,554

Total fixed income mutual fund securities 6,551,108 - - 6,551,108

Total investments measured at fair value 17,876,396 Investment at amortized cost: Lincoln Stable Value 1,679,014

19,555,410 $

Fair Value Hierarchy—December 31, 2018

Concentration of credit risk: Concentration of credit risk is defined as the risk of loss attributed to the magnitude of the Plan’s investment in a single issuer. The Plan has no investment policy regarding concentration of credit risk and has all of the Plan’s investments in mutual funds. Investments in mutual funds and other pooled investments are not subject to this risk, as the Plan does not own the underlying assets. Custodial credit risk: Custodial credit risk for investments is the risk that the Plan will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party in the event of a failure of a counterparty to a transaction. The Plan has no investment policy regarding custodial credit risk. However, all the Plan’s investments are held in open ended mutual funds, which are not subject to custodial credit risk.

3.1.b

Packet Pg. 47

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


13


Credit risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligation. The Plan has no formal investment policy regarding credit quality rating guidelines. The associated risks will vary according to each participant’s investment elections. Equity mutual funds are not subjected to credit risk. The Plan’s other investments are held in bond mutual funds and in the Lincoln Stable Value Fund, which are not rated. Interest rate risk: Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Plan’s investment policy does not specifically address limits on maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Each participant is responsible for determining the maturity and commensurate returns of their portfolio. The following is a listing of the Plan’s fixed income investments and related maturity schedule (in years) as of December 31, 2018. The maturity schedule is based on the average maturity of the fund as noted by the fund manager.

Fair Value Less Than 1 Year 1-5 Years 6-10 Years

Vanguard Total Bond Market Index Adm. (VBTLX) 2,109,099 $ -$ -$ 2,109,099 $ Baird Core Plus Bond CL INST (BCOIX) 2,019,635 - - 2,019,635 Blackrock Strategic Income Opportunities

Portfolio (BSIIX) 296,554 - - 296,554 Eaton Vance Global Macro Absolute Return

Class 1 (EIGMX) 802,000 802,000 - - Nuveen Preferred Securities I (NPSRX) 900,735 900,735 - - Parametric Commodity Strategy Instl. 423,085 423,085 - -

6,551,108 $ 2,125,820 $ -$ 4,425,288 $

December 31, 2018

Foreign currency risk: Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit. The Plan’s investment policy does not specifically address foreign currency risk. The Plan’s diversified selection of mutual funds encourages the investment advisors to employ diversification, asset allocation and quality strategies to minimize risks. Each participant is responsible for determining the risks and commensurate returns of their portfolio. The Plan’s investment in international mutual funds does not require disclosure of the individual investment within the fund and such fund balances are denominated in U.S. dollars.

Note 4. Related-Party Transactions

Certain Plan investments are shares of mutual funds managed by the trustee, as defined by the Plan. The trustee pays the Plan through a revenue sharing agreement certain basis points based on annual average investment balance. At December 31, 2018, the Plan did not have income from revenue sharing.

Note 5. Plan Termination

Although it has not expressed any intent to do so, the Plan sponsor has the right under the Plan to discontinue its contributions at any time and to terminate the Plan. The event of complete discontinuance of contributions to the Plan by the employer does not constitute a formal termination of the Plan and does not preclude later contributions. However, the accounts of all participants will, as of the date of the discontinuance, become 100% vested and nonforfeitable.

3.1.b

Packet Pg. 48

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


14

Note 6. Tax Status

The Internal Revenue Service has determined and informed the Authority that the Plan and related trust are designed in accordance with applicable sections of the IRC. The Board and the Plan’s tax counsel believe the Plan is designed and currently is being operated in compliance with the applicable requirements of the IRC and, therefore, believe the Plan is qualified and the related trust is tax-exempt. Accounting principles generally accepted in the United States of America requires management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more-likely-than-not would not be sustained upon examination. The Plan is subjected to routine audits and taxing jurisdictions; however, there are currently no audits for any periods in progress. The Plan is not subject to the provisions of ERISA.

3.1.b

Packet Pg. 49

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.b

Packet Pg. 50

Att

ach

men

t: 2

018

CM

TA

401

k F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.c

Packet Pg. 51

Att

ach

men

t: 2

018

CM

TA

401

k T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

811 Barton Springs Rd Suite 550

Austin, TX 78704

T +1 512 476 0717 F +1 512 476 0462

www.rsmus.com

3.1.c

Packet Pg. 52

Att

ach

men

t: 2

018

CM

TA

401

k T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.c

Packet Pg. 53

Att

ach

men

t: 2

018

CM

TA

401

k T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

The Auditor’s Communication With Those Charged With Governance

3.1.c

Packet Pg. 54

Att

ach

men

t: 2

018

CM

TA

401

k T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.c

Packet Pg. 55

Att

ach

men

t: 2

018

CM

TA

401

k T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.c

Packet Pg. 56

Att

ach

men

t: 2

018

CM

TA

401

k T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.c

Packet Pg. 57

Att

ach

men

t: 2

018

CM

TA

401

k T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.c

Packet Pg. 58

Att

ach

men

t: 2

018

CM

TA

401

k T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.c

Packet Pg. 59

Att

ach

men

t: 2

018

CM

TA

401

k T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.c

Packet Pg. 60

Att

ach

men

t: 2

018

CM

TA

401

k T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.c

Packet Pg. 61

Att

ach

men

t: 2

018

CM

TA

401

k T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.c

Packet Pg. 62

Att

ach

men

t: 2

018

CM

TA

401

k T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees Financial Statements December 31, 2018

3.1.d

Packet Pg. 63

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

Contents Independent auditor’s report 1-2 Management’s discussion and analysis 3-5 Financial statements

Statement of fiduciary net position 6 Statement of changes in fiduciary net position 7 Notes to financial statements 8-16

Required supplementary information

Schedule of changes in net pension liability and related ratios 17 Schedule of contributions 18 Schedule of investment returns 19

3.1.d

Packet Pg. 64

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

1

Independent Auditor’s Report To the Pension Plan Committee of Capital Metropolitan Transportation Authority Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees Report on the Financial Statements We have audited the accompanying financial statement of Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees (the Plan), which comprise the statement of fiduciary net position as of December 31, 2018, the related statement of changes in fiduciary net position for the year then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the fiduciary net position of the Plan as of December 31, 2018, and the changes in fiduciary net position for the year then ended in accordance with accounting principles generally accepted in the United States of America.

3.1.d

Packet Pg. 65

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

2

Emphasis of a Matter As discussed in Note 1, the financial statements present only the financial position of the Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees and do not purport to, and do not, present the financial position of Capital Metropolitan Transportation Authority as of December 31, 2018, and the changes in financial position for the year then ended. Our opinion is not modified with respect to this matter. Other Matters—Required Supplementary Information Accounting principles generally accepted in the United States of America require the management’s discussion and analysis, schedule of changes in net pension liability and related ratios, schedule of contributions and schedule of investment returns, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Austin, Texas September 25, 2019

3.1.d

Packet Pg. 66

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees Management’s Discussion and Analysis

3

This section of the financial statements of Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees (the Plan) offers a narrative overview and analysis of the financial activities for the year ended December 31, 2018. The reader of this statement should take time to read and evaluate all sections of this report, including the notes and other supplementary information that is provided in addition to this management’s discussion and analysis (MD&A). Financial Highlights and Analysis Net position restricted for pension is available for payment of monthly retirement benefits and other qualified

distributions to the Plan’s participants. Net position restricted for pensions decreased by approximately $239,000 or 0.80% in 2018. All changes primarily correlate with excess contributions over benefits paid and loss from investments.

Employer contributions decreased by approximately $414,000 or 13% in 2018. Employer contribution was based on actuary recommendations.

The amount of benefits paid to participants increased by approximately $16,000 or 1.72% during 2018. This

is a primary result of an increase in the number of retirees. The Plan’s rate of return on investments for the year ended December 31, 2018, was (6.3%), a steep drop

from the return of 16.68% for 2017. Since the Plan uses a smoothing method, this return was not entirely reflected in the actuarial value of the Plan assets. The actuarial assumed rate of return is 6.75%.

Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the Plan’s financial statements. The financial statements are comprised of: (1) financial statements, (2) notes to the financial statements and (3) required supplementary information. The statement of fiduciary net position reports the Plan’s assets and liabilities, with the difference between the two reported as net position. This is a measure of financial position, which can indicate financial condition improvement or deterioration from year to year. The statement of changes in fiduciary net position presents information showing how the Plan’s net position changed during the fiscal year. It reflects contributions by the employer and investment income, along with deductions for benefits paid to participants and administrative expenses. The notes to the financial statements provide additional information necessary to fully understand the data provided in the financial statements. The required supplementary information includes the MD&A, schedule of changes in net pension liability and related ratios, schedule of contributions and schedule of investment returns and is supplementary information required by the Governmental Accounting Standards Board.

3.1.d

Packet Pg. 67

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


4


Assets:Cash held by trustee 26,951 $ 26,227 $ 2.76%Receivables 81,780 73,263 11.63%Investments 29,715,796 29,991,882 (0.92%)

Total assets 29,824,527 30,091,372 (0.89%)

Liabilities:Accrued expenses 53,561 81,177 (34.02%)

Net position restricted for pension 29,770,966 $ 30,010,195 $ (0.80%)

Additions:Employer contributions 2,692,422 $ 3,106,829 $ (13.34%)Net investment income (loss) (1,941,101) 4,081,937 (147.55%)

Total additions 751,321 7,188,766 (89.55%)

Deductions:Benefits paid to participants 932,072 916,317 1.72%Administrative expenses 58,478 74,119 (21.10%)

Total deductions 990,550 990,436 0.01%Net increase (decrease) in net position (239,229) $ 6,198,330 $ (103.86%)

Condensed Financial Information

Analysis of Changes in Condensed Financial Information Investments decreased by $276,000 or (0.92%) from 2017 to 2018. This was primarily due to a decrease in employer contributions and a decrease in net investment income. Net investment income decreased by $6,023,000 or (147.55%) from 2017 to 2018. This decrease was primarily due to a volatile year in both the equity and fixed income markets in 2018 where the Plan had a combined decrease in the fair value of investment in the amount of $3,249,626 offset by interest and dividend income of $1,377,505, less investment expenses of $68,980. The Plan earned a (6.32%) instead of the 6.75% expected rate of return. Employer contributions decreased by $414,400 or (13.34%) from 2017 to 2018. The Plan’s actuary prepares an annual valuation. As part of this valuation, the Plan actuary calculates the Annual Required Contribution and the Plan sponsor contributes in accordance with this calculation. Current Environment The Plan has 654 participants as of December 31, 2018, compared with 633 participants as of December 31, 2017.

3.1.d

Packet Pg. 68

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


5

Future Outlook and Currently Known Facts The Plan’s actuary has developed a recommended contribution for fiscal year 2019 of $3,046,676. There are no other currently known facts, decisions or conditions known to management. Request for Information This financial report is designed to provide the Plan’s patrons and other interested parties with a general overview of the finances to demonstrate the Plan’s accountability for the funds it receives. If you have questions about this report or need additional financial information, contact Capital Metropolitan Transportation Authority, Finance Department, 2910 East 5th Street, Austin, Texas 78702.

3.1.d

Packet Pg. 69

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

6

Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees

Statement of Fiduciary Net PositionDecember 31, 2018

Assets:Cash held by trustee 26,951 $

Receivables:Due from broker for investments sold 81,780

Investments:Domestic equity mutual funds 15,145,023 Fixed income mutual funds 7,878,462 International equity mutual funds 3,909,906 Real estate mutual funds 1,030,732 Group fixed annuity 1,751,673

Total investments 29,715,796

Total assets 29,824,527

Liabilities:Payables:

Due to broker for investments purchased 26,951 Plan fees payable 26,610

Total liabilities 53,561

Net position restricted for pension 29,770,966 $


3.1.d

Packet Pg. 70

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

7

Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees

Statement of Changes in Fiduciary Net PositionYear Ended December 31, 2018

Additions:Employer contributions 2,692,422 $

Investment income (loss):Net depreciation in fair value of investments (3,249,627) Interest and dividends 1,377,506 Less investment expense (68,980)

Total investment income (loss), net (1,941,101)

Total additions 751,321

Deductions:Benefits paid to participants 932,072 Administrative expenses 58,478

Total deductions 990,550

Net decrease (239,229)

Net position restricted for pension at beginning of year 30,010,195

Net position restricted for pension at end of year 29,770,966 $


3.1.d

Packet Pg. 71

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees Notes to Financial Statements

8

Note 1. Description of Plan

The following brief description of Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees (the Plan) is provided for general information purposes only. Participants should refer to the Plan document for a more complete description of the Plan’s provisions. Reporting entity: The Plan is sponsored by Capital Metropolitan Transportation Authority (the Authority). The Plan does not purport and does not present the financial position or changes in financial position of the Authority as of any time or for any period. General: Effective January 1, 2005, the Authority established a pension plan (Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees). The Plan is a noncontributory single-employer defined benefit plan. Subject to eligibility requirements, all full-time administrative employees are eligible for participation in the Plan, except for employees covered by a collective bargaining agreement and leased employees, as defined by the Plan. An employee is eligible to become a participant following the first day of the month coincident with or following his or her date of hire. The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Authority’s Board of Directors (the Board) governs the Authority, under which benefit and contribution terms are established or amended. Management of the Plan is vested in the Authority’s Board and advised by the Pension Plan Committee (the Committee), whose members are appointed by the Authority’s Board. The 2009 Texas Legislature changed the composition of the Authority’s Board to eight members with three-year staggered terms. Once the population of the City of Austin is less than 65% of the total service area population, Capital Area Metropolitan Planning Organization (CAMPO) is allowed to appoint two additional members. The eight members include: Three members appointed by CAMPO, of whom:

- One must be an elected official,

- One must have at least 10 years of experience as a financial or accounting professional,

- One must have at least 10 years of experience in an executive-level position, and

- Requires two of the three CAMPO representatives to be qualified voters residing in Austin.

Two members appointed by the City of Austin, of whom one must be an elected official.

One member appointed by Travis County and one member appointed by Williamson County. The

two county representatives are required to work in the service area, but within the county that appointed them or be qualified voters within the county that appointed them.

One member, who must be an elected official, appointed by all small city mayors (excludes the City of Austin)

The Committee has overall responsibility for the operation and administration of the Plan. The Committee determines the appropriateness of the Plan’s investment offerings and monitors investment performance. The assets of the Plan are held in a trust. Benefit Trust serves as trustee on behalf of the Plan and carries out an investment policy established by the Committee, consistent with the purposes of the Plan and the requirements of applicable laws and regulations.

3.1.d

Packet Pg. 72

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


9


The following table summarizes membership of the Plan at December 31, 2018: Inactive Plan members or beneficiaries currently receiving benefits 113Inactive Plan members entitled to, but not yet receiving benefits 249Active Plan members 292

654

Vesting: Participants become 20% vested upon completion of each year, until five years of service, when participants are 100% vested. Vesting service includes periods prior to the effective date of the Plan computed as if the Plan had been in effect. The Plan also allows for participants to recognize prior service (limited to five years) with a governmental entity or other entity related to the provision of public transportation services. For vesting purposes, service shall be credited based on elapsed time. Pension benefits: Plan participants are eligible for their Plan benefits after terminating employment with vested rights. The participants are eligible for normal retirement on the first day of the month following age 65. The Plan permits early retirement from ages 55 to 64, provided an employee has completed five years of vesting service. The amount of pension payable is computed in the same manner as for normal retirement, except that it is reduced by a reduction factor, which is graduated to reflect the number of years by which early retirement precedes age 65. Participants should refer to the Plan document for a more complete description of the Plan’s reduction factors. Normal retirement benefits are paid to unmarried participants in the form of a single life annuity and to married participants in the form of a joint and 50% survivor annuity. Married participants may elect other payment options with notarized spousal consent. Lump-sum benefits are only available if the actuarial value of the benefit is less than $5,000. Participants may elect to receive reduced benefits in the form of a joint annuity option. Retirement benefits are payable in equal monthly installments. The Plan does not have any automatic postemployment benefit change provisions. Participants are entitled to annual pension benefits at normal retirement (age 65) equal to: (i) 1.5% of average earnings, as defined, plus (ii) 0.5% of earnings in excess of covered compensation, as defined, multiplied by (iii) the number of years of credited service, as defined. Death benefits: If an active employee dies before reaching age 65, the surviving spouse or a designated beneficiary shall receive for his or her lifetime a deferred monthly benefit equal to the amount that the participant would have received based on service to the participant’s date of death had the participant elected a 50% joint and survivor annuity option and died the next day. A participant may elect not to be covered by the deferred joint and survivor annuity option or may no longer be married when pension payments are to begin. In such instances, a single life annuity will be received by the participant. Disability benefits: Disability benefits may be elected at age 55 up to normal retirement age, at which time disabled participants will receive the normal retirement benefit computed as though they had been employed to age 55 or up to normal retirement age with their annual compensation, as defined, remaining the same as at the time they became disabled.

3.1.d

Packet Pg. 73

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


10


Contributions: Per the Plan document, contribution requirements of active Plan members are established and may be amended by the Authority’s Board. Currently, Plan members are not required to contribute. The Authority is required to contribute an amount in its sole discretion from time to time, based on advice of its actuary and consistent with the funding policy for the Plan. The Plan has an actuarial valuation performed annually for funding and financial reporting purposes in accordance with Governmental Accounting Standards Board (GASB) Statement No. 67, Financial Reporting for Pension Plans, an Amendment of GASB Statement No. 25. The most recent actuarial valuation was performed as of December 31, 2018.

Note 2. Summary of Significant Accounting Policies

Basis of accounting: The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America for local governmental units as prescribed by GASB. The financial statements are prepared using the accrual basis of accounting. Employer contributions are recognized as revenues in the period in which employee services are performed. Benefits are recognized when due and payable in accordance with the terms of the Plan. Expenses are recognized when incurred. Cash and cash equivalents: Cash and cash equivalents include demand deposit accounts and money market accounts. Investment valuation and income recognition: Investments are reported at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based upon quoted market prices, or when quoted market prices are not readily determinable, estimated using observable inputs, including quoted prices for similar securities, interest rates and a fixed income pricing model that uses available market rates. Shares of registered investment companies (mutual funds) are reported at fair value based on the quoted price per share of the fund. The Lincoln Stable Value Fund is a group fixed annuity contract and is valued at the guaranteed minimum rate of $1. The Lincoln Stable Value Fund is an investment in a nonparticipating contract with redemption terms that do not consider market rates and is reflected at amortized cost. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net depreciation includes the Plan’s gains and losses on investments bought and sold, as well as held during the year. Use of estimates: The preparation of these financial statements in accordance with accounting principles generally accepted in the United States of America requires the Plan administrator to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying footnotes. Actual results could differ from those estimates. The Plan uses an actuary to determine the total pension liability. A change in the actuarial assumptions used could significantly change the amount of the total pension liability reported in the accompanying footnotes to the financial statements. Risk and uncertainties: The Plan may invest in various types of investment securities. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statement of fiduciary net position.

3.1.d

Packet Pg. 74

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


11

Note 2. Summary of Significant Accounting Policies (Continued)

Plan contributions are made and the total pension liability is reported based on certain assumptions pertaining to interest rates, inflation rates and employee demographics, all of which are subject to change. Due to uncertainties inherent in the estimations and assumptions processes, it is at least reasonably possible that changes in these estimates and assumptions in the near term could be material to the net pension liability. Payment of benefits: Benefit payments are recognized as expenses when due and payable in accordance with the terms of the Plan. Administrative expenses: All administrative expenses, unless paid by the Authority at its discretion, are paid by the Plan. Certain expenses incurred in connection with the general administration of the Plan that are paid by the Plan are recorded as deductions in the accompanying statement of changes in fiduciary net position. In addition, certain investment-related expenses are included in net depreciation in fair value of investments presented in the accompanying statement of changes in fiduciary net position. Related-party transactions: The Plan administrator pays the Plan through the revenue-sharing agreement. For the year ended December 31, 2018, income from revenue sharing was approximately $5,303. This was used to pay Plan expenses.

Note 3. Investments

The Plan uses various methods to measure the fair value of investment on a recurring basis. GASB Statement No. 72, Fair Value Measurement and Application, establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are as follows. Level 1: Inputs are unadjusted quoted prices in active markets for identical assets and liabilities that the Plan has the ability to access.

Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument in an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.

Level 3: Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, represent the Plan’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. Hierarchy: The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

3.1.d

Packet Pg. 75

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


12


The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Except for the Lincoln Stable Value Fund, a group fixed annuity contract valued at amortized cost, the investments of the Plan are valued at fair value based on quoted market prices. Investment as of December 31, 2018, are as follows:

Investment Type Level 1 Level 2 Level 3 Fair ValueFixed income mutual fund securities:

Baird Funds Core Plus Bond Instl. 3,760,565 $ -$ -$ 3,760,565 $ Blackrock Strategic Income Fund 2,272,292 - - 2,272,292 Vanguard Total Bond Index Admiral Class 1,845,605 - - 1,845,605

Total fixed income mutual fund securities 7,878,462 - - 7,878,462 Domestic equity mutual fund securities:

Nuveen Preferred Securities 1,064,065 - - 1,064,065 Alps Core Comm. Comp. Strat. I 956,739 - - 956,739 Western Asset Macro Opportunities I 1,023,942 - - 1,023,942 Ast. Small Cap 1,554,832 - - 1,554,832 Invesco Equally-Wtd. S&P 500 R6 1,273,919 - - 1,273,919 Conestoga Small Cap 1,568,116 - - 1,568,116 Dmnd Hll Large Cap Fund Y 2,472,735 - - 2,472,735 Harbor Capital Appreciation 2,693,972 - - 2,693,972 Vanguard Group Index 500 Admiral Class 2,536,703 - - 2,536,703

Total domestic equity mutual fund securities 15,145,023 - - 15,145,023 International equity mutual fund securities:

Am. Fds. Europacific Growth Fund Cl R 6 1,306,380 - - 1,306,380 Hartford Schroders Intl Multi-CP Val. Sdr. 1,323,179 1,323,179 Harding Loevner International Eq. Instl. 1,280,347 - - 1,280,347

Total international equity mutual fund securities 3,909,906 - - 3,909,906 Real estate mutual fund securities:

VOYA Global Real Estate DF CL 1 1,030,732 - - 1,030,732 Total investments at fair value 27,964,123

Investment at amortized cost:Lincoln Stable Value Account 1,751,673

29,715,796 $

Fair Value Hierarchy at December 31, 2018

Investment policy: The Committee determines the Plan’s valuation policies, utilizing information provided by its investment advisers. The general investment objective is consistent with the Plan’s primary purpose of long-term investing for retirement, with a focus on minimizing the risk of large losses and maximizing risk-adjusted returns. The investment policy states the equity holdings in any one company should not exceed 10% of the market value of the Plan’s equity portfolio for domestic and international equities. In addition, mutual funds should not have any one investment in excess of 10% of the total fund. Performance and risk statistics are provided quarterly and evaluated over three- and five-year rolling periods of time, allowing the Committee to evaluate long-term performance.

3.1.d

Packet Pg. 76

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


13


Asset allocation: The Plan’s asset allocation policy as of December 31, 2018, adopted by the Committee, is as follows. There were no significant modifications to the investment policy during 2018. Domestic equities 45%International equities 15%Domestic fixed income 25%Alternative 10%Cash equivalents 5%

100%

Rate of return: For the year ended December 31, 2018, the annual money-weighted rate of return for the Plan’s investments, net of pension plan investment expense, was negative 6.32%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Custodial credit risk: The Plan’s investment policy does not specifically address custodial credit risk. Custodial credit risk is the risk that in the event of bank or investment failure, the Plan’s deposits or investments may not be returned. However, all of the Plan’s investments and deposits are held in open-ended mutual funds and the Lincoln Stable Value Account, which are not subject to custodial credit risk. Interest rate risk: Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Plan does not have a formal policy regarding interest rate risk. The Plan monitors credit exposure using segmented time distribution. The following is a listing of the Plan’s fixed income investments and related maturity schedule (in years) as of December 31, 2018. The maturity schedule is based on the average maturity of the fund, as noted by the fund manager:

Less Than Fair Value 1 Year 1-5 Years 6-10 Years 11-15 Years

Baird Funds Core Plus Bond Instl. 3,760,565 $ -$ -$ 3,760,565 $ -$ Blackrock Strategic Income Fund 2,272,292 - - 2,272,292 - Vanguard Group Bond Index Admiral

Class 1,845,605 - - 1,845,605 - 7,878,462 $ -$ -$ 7,878,462 $ -$

Credit risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations to the Plan. The Plan’s investment policy does not specifically address the quality rating of the investments. The Committee is responsible for determining the risks and commensurate returns of its portfolio. The Plan’s investments are held in mutual funds and in the Lincoln Stable Value, which are not rated. Concentration risk: Concentration of credit risk is the risk of loss attributed to the magnitude of the Plan’s investments in a single issuer. The Plan’s investment policy does not specifically address concentration risk. Investments in mutual funds and other pooled investments are excluded from this requirement.

3.1.d

Packet Pg. 77

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


14


Foreign currency risk: Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit. The Plan’s investment policy does not specifically address foreign currency risk. The Plan’s diversified selection of mutual funds encourages the investment advisors to employ diversification, asset allocation and quality strategies to minimize risks. Each participant is responsible for determining the risks and commensurate returns of their portfolio. The Plan’s investment in international mutual funds does not require disclosure of the individual investment within the fund and such fund balances are denominated in U.S. dollars.

Note 4. Net Pension Liability

The net pension liability is measured as the total pension liability, less the amount of the Plan’s fiduciary net position as of December 31, 2018. In actuarial terms, this will be the accrued liability less the market value of assets. The components of the Plan’s net pension liability as of December 31, 2018, are as follows: Total pension liability 49,263,627 $ Plan fiduciary net position 29,770,966

Net pension liability 19,492,661 $

Plan fiduciary net position as a percentage of the total pension liability 60.43%

The schedule of net pension liability presents multi-year trend information, beginning with 2015, to illustrate changes in the plan fiduciary net position over time. In addition to the above, this information is presented in the required supplementary information. Actuarial assumptions: The total pension liability was determined by an actuarial valuation as of December 31, 2018, using the following actuarial assumptions, applied to all periods included in the measurement. The Plan had an experience study performed in 2017 related to the retirement age. Methods and assumptions used to determine contribution rates are as follows: Actuarial cost method Entry age normalInflation rate -Salary increases 3.50%Investment rate of return 6.75%Retirement age Age 60-61 is 5%, Age 62-64 is 10%, Age 65 is 50%,

Age 66-69 is 15% and Age 70 is 100%Mortality SOA RP-2014 Total Dataset Mortality adjusted backward to 2006

using MP-2014 and projected with Scale MP-2018.

Discount rate: The discount rate used to measure the total pension liability at December 31, 2018 was 5.54%. The projection of cash flows used to determine the discount rate assumed that employer contributions will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current Plan members until 2054. Therefore, the long-term expected rate of return of 6.75% was applied to all periods of projected benefits payment to determine the total pension liability until 2054. Subsequent to 2054, the 20-year municipal bond rate of 3.56% was utilized.

3.1.d

Packet Pg. 78

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


15

Note 4. Net Pension Liability (Continued)

The long-term expected rate of return on Plan investments was determined using best estimate ranges of expected future real rate of return for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected information. The long-term expected geometric real rates of return for 2018 are as follows:

Long-Term ExpectedGeometric

Asset Class Asset Allocation Rate of Return

Domestic equities: 51.0% U.S. broad equity 7.14% Large cap 7.02% Small/mid cap 7.26%Domestic fixed income 26.5% 3.73%International equities: 13.1% Global ex-U.S. equity 7.25% International equity 6.99% Emerging markets equity 7.23%Alternative: High yield 5.34% Real estate 3.5% 6.25% Volatility hedge 5.48%

Private equity 8.49%Inflation 2.26%

Cash equivalents 5.9% 2.52%100.0%

Sensitivity of the net pension liability to changes in the discount rate: The following presents the net pension liability of the Plan, calculated using the discount rate of 5.54%, as well as what the Plan’s net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (4.54%) or 1-percentage point higher (6.54%) than the current rate:

1.00% Decrease Current Single Rate 1.00% Increase to 4.54% Assumption of 5.54% to 6.54%

2018 27,175,973 $ 19,492,661 $ 13,176,540 $

3.1.d

Packet Pg. 79

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)


16

Note 5. Plan Termination

Although it has not expressed any intention to do so, the Authority has the right to discontinue its contributions at any time and to terminate the Plan subject to the provisions set forth in Articles X and XI of the Plan. In the event the Plan terminates, the net position of the Plan will be allocated in the following order: (a) To provide the portion of the retirement benefits which have accrued to the account of each retired

participant, beneficiary or contingent annuitant of a retired participant. (b) To provide that additional portion of the retirement benefits that have accrued to the account of

each participant and which are not provided above. (c) To return to the employer any balance that shall remain after all liabilities under the Plan with

respect to the participants have been fully satisfied, as provided above. (d) All nonvested benefits under the Plan.

In the event the assets are not sufficient to carry out any of the foregoing purposes in full, the allocations to the accounts of individuals thereunder shall be made in the proportion that the assets available bear to the assets required to carry out the purpose in full. In the event the assets are not sufficient to provide all the benefits under one of the paragraphs above, Plan assets shall be allocated among participants and beneficiaries under such paragraph in proportion that the assets available bear to assets required for full allocation.

Note 6. Tax Status

On July 21, 2006, the Internal Revenue Service (IRS) issued a determination letter stating that the Plan, as then designed, was in compliance with section 401(a) of the Internal Revenue Code of 1986, as amended (the Code) and was therefore exempt from federal income taxes under section 501(a). The Plan administrator received an updated determination letter utilizing the amended and restated plan effective January 1, 2010, which was accepted by the IRS on March 7, 2013, and expiring January 31, 2014. The Plan filed a determination letter, extending the expiration date of the current determination letter to January 31, 2016. This application was acknowledged by the IRS on March 28, 2016, and it was approved. The Plan administrator believes the Plan is designed and is currently being operated in compliance with the applicable requirements of the Code.

3.1.d

Packet Pg. 80

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

Required Supplementary Information

3.1.d

Packet Pg. 81

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

17

Capital Metropolitan Transportation Authority Retirement Plan for Administrative EmployeesRequired Supplementary Information

Years Ended December 31, 2018, 2017, 2016 and 2015

2018 2017 2016 2015Total pension liability:

Service cost 2,793,032 $ 2,964,773 $ 2,087,251 $ 2,225,673 $ Interest 2,445,407 2,235,084 1,863,897 1,573,679 Changes of benefit terms - - 2,054,914 - Differences between expected and actual experience 720,052 (288,769) (86,781) 1,984,816 Changes of assumptions (920,415) 3,035,050 209,630 (1,415,858) Benefit payments, included refunds of member contributions (932,072) (916,317) (892,937) (833,716)

Net change in total pension liability 4,106,004 7,029,821 5,235,974 3,534,594

Total pension liability at beginning of year 45,157,623 38,127,802 32,891,828 29,357,234

Total pension liability at end of year (a) 49,263,627 $ 45,157,623 $ 38,127,802 $ 32,891,828 $

Plan fiduciary net position:Contributions—employer 2,692,422 $ 3,106,829 $ 1,974,973 $ 1,882,377 $ Contributions—employee - - - - Net investment income (loss) (1,941,101) 4,081,936 1,795,013 (11,187) Benefit payments, including refunds of member contributions (932,072) (916,317) (892,937) (833,716) Administrative expense (58,478) (74,118) (58,222) (63,645) Other - - - -

Net change in plan fiduciary net position (239,229) 6,198,330 2,818,827 973,829

Plan fiduciary net position at beginning of year 30,010,195 23,811,865 20,993,038 20,019,209

Plan fiduciary net position at end of year (b) 29,770,966 $ 30,010,195 $ 23,811,865 $ 20,993,038 $

Net pension liability at end of year (a) - (b) 19,492,661 $ 15,147,428 $ 14,315,937 $ 11,898,790 $

Plan fiduciary net position as a percentage of the

total pension liability 60.43% 66.46% 62.45% 63.82%

Covered payroll 22,758,461 $ 23,551,457 $ 23,116,717 $ 18,663,437 $

Net pension liability as a percentage of covered payroll 85.65% 64.32% 61.93% 63.75%

Notes to Schedule

1. No significant factors to disclose.2. The mortality rates were updated to reflect the most recent table which is reflected above.3. Schedule will be built out to 10 years.

See independent auditor’s report.

Schedule of Changes in Net Pension Liability and Related Ratios

3.1.d

Packet Pg. 82

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

18


Schedule of ContributionsLast 10 Fiscal Years

2018 2017 2016 2015 2014 2013 2012 2011 2010 2009

Actuarially determined contributions 2,692,422 $ 3,106,831 $ 1,974,970 $ 1,894,044 $ 1,588,278 $ 1,393,056 $ 1,659,488 $ 1,453,308 $ 2,029,276 $ 1,836,212 $

Contributions in relation to the actuarially

determined contribution 2,692,422 3,106,829 1,974,973 1,882,377 1,600,159 1,393,490 1,704,070 1,448,542 2,545,542 1,380,002

Contribution deficiency (excess) -$ 2 $ (3) $ 11,667 $ (11,881) $ (434) $ (44,582) $ 4,766 $ (516,266) $ 456,210 $

Covered payroll 22,758,461 $ 23,551,457 $ 23,116,717 $ 18,663,437 $ 16,183,596 $ 15,021,918 $ 18,347,486 $ 16,565,032 $ 17,330,101 $ 18,995,763 $

Contributions as a percentage of covered

payroll 11.83% 13.19% 8.54% 10.09% 9.89% 9.28% 9.29% 8.74% 14.69% 7.26%

Notes to Schedule

Actuarially determined contribution rates are calculated as of December 31, 2018, for the year of contribution.

Methods and assumptions used to determine contribution rates:

Actuarial cost method Entry age normal

Amortization method Level percent of payroll

Remaining amortization period 20 years

Asset valuation method Deferred recognition with phase-in over 5 years

Inflation rate -

Salary increases 3.50%

Investment rate of return 6.75%

Retirement age Age 60-61 is 5%, Age 62-64 is 10%, Age 65 is 50%,

Age 66-69 is 15% and Age 70 is 100%

Mortality SOA RP-2014 Total Dataset Mortality adjusted backward to 2006

using MP-2014 and projected with Scale MP-2018.

3.1.d

Packet Pg. 83

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

19


Schedule of Investment ReturnsYears Ended December 31, 2018, 2017, 2016 and 2015

2018 2017 2016 2015Annual money-weighted rate of return, net of

investment expense (6.32%) 16.68% 8.36% (0.05%)

Notes to Schedule

1. No significant factors to disclose.2. No significant methods or assumptions to disclose.3. Schedule will be built out to 10 years.

3.1.d

Packet Pg. 84

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.d

Packet Pg. 85

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n F

S (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.e

Packet Pg. 86

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

811 Barton Springs Rd Suite 550

Austin, TX 78704

T +1 512 476 0717 F +1 512 476 0462

www.rsmus.com

3.1.e

Packet Pg. 87

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.e

Packet Pg. 88

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

The Auditor’s Communication With Those Charged With Governance

3.1.e

Packet Pg. 89

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.e

Packet Pg. 90

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.e

Packet Pg. 91

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.e

Packet Pg. 92

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.e

Packet Pg. 93

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.e

Packet Pg. 94

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.e

Packet Pg. 95

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.e

Packet Pg. 96

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.e

Packet Pg. 97

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)

3.1.e

Packet Pg. 98

Att

ach

men

t: 2

018

CM

TA

Ret

irem

ent

Pla

n T

CW

G (

4505

: A

nn

ual

Au

dit

of

CM

TA

Ret

irem

ent

Pla

ns)



Internal Audit Final FY2019 Audit Plan Status

Page 1

TITLE: Internal Audit Final FY2019 Audit Plan Status

3.2

Packet Pg. 99



Internal Audit Report - Herzog Contract Management Oversight

Page 1

TITLE: Internal Audit Report - Herzog Contract Management Oversight

3.3

Packet Pg. 100

Internal Audit Report #19-08 | September 30, 2019

COMMUTER RAIL OPERATIONS – CONTRACT

MANAGEMENT & OVERSIGHT OF HERZOG (19-08)

Terry Follmer, VP of Internal Audit

Distribution List: Capital Metro Board of Directors Randy Clarke, President and CEO Kerri Butcher, EVP, Chief Counsel & Chief of Staff Donna Simmons, EVP, Administration & EEO Officer Reinet Marneweck, EVP, Chief Financial Officer Dottie Watkins, Chief Customer Officer/Chief Operating Officer David Dech, VP, Rail Operations Ken Cartwright, VP, Capital Projects Jane Schroter, VP, Chief Information Officer Shanea Davis, VP, Real Estate, Property & Asset Management Chad Ballentine, VP, Demand Response and Innovative Mobility Brian Carter, VP, Marketing and Communications Gardner Tabon, VP, Safety, Risk Management, and Accessible Services Muhammad Abdullah, Senior Director/Chief of Procurement & Compliance Officer Lea Sandoz, Controller Anita Deibert, Procurement Manager Rafael Villarreal Jr., Director of Contract Oversight – Bus and Paratransit Services Muriel Friday, Director of Rail Operations

3.3.a

Packet Pg. 101

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)

Commuter Rail Operations – Contract Management & Oversight of Herzog (19-08)

Table of Contents

Executive Summary ……………………………………………………………………………………………………………..1

Results………………………………………………………………………………………………………………….………………4

1. Herzog Did Not Submit All CDRL’s and PDC’s Were Not Enforced……………...…….……..4

2. Improve Monitoring and Oversight of CDRL Documents…………………………..……….…….5

Appendix…………………………………………………………………………………………………………………………..…6

A. Exhibit I of Herzog Contract – Contract Data Requirements List (CDRL)……………………6

B. Exhibit H of Herzog Contract – Payment Adjustments………………………………………..…...8

C. COTR Letter to Herzog……………………………………………………………………………………………12

D. 6 CDRL Reports Not Submitted by Herzog as Required by Contract Terms……….……14

E. CDRL Reports With Required Submission Within Set Days of NTP………………………….15

3.3.a

Packet Pg. 102

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)


1

EXECUTIVE SUMMARY As part of our Fiscal Year 2019 Internal Audit Plan approved by the Capital Metro Board, we performed an audit to determine whether CMTA has sufficient controls in place to effectively monitor Herzog’s contract compliance. The audit results including the objective, scope, and conclusion are as follows.

Background In March 2010, Capital Metro began commuter rail service on the Red Line between Downtown Austin and the City of Leander, TX. Capital Metro has contracted out the responsibility for operating the commuter rail service, as well as the preventive maintenance activities, to Herzog Transportation Services, Inc. The current Commuter Rail Operations Contract No. 137666 commenced on October 1, 2015, has a term of seven years, and was awarded in the amount of $117,580,749. Under this fixed price contract, Herzog is responsible for providing maintenance and overhaul services for the company’s Diesel Multiple Unit (DMU) Fleet and locomotives, dispatching, operations, and signals.

Capital Metro has put in place a very specific and detailed contract covering Herzog’s required activities and compliance with the contract is critical to the success of the rail program. The contract includes Exhibit I, Contract Data Requirements List (CDRL), which requires Herzog to submit 59 reports on a daily, weekly, monthly, quarterly, and annual basis (see Appendix A for CDRL listing). The purpose of the reports is to provide Rail Department staff with data to help monitor and oversee Herzog’s contract performance as well as ensure that required regulatory reports are being created. Some of the reports are federally required and relate to safety. Herzog staff submit the required CDRL reports by uploading them to the extranet and Rail staff upload them to SharePoint for monitoring. Some of this information is also available to Rail staff through the Spear asset management system. The department may assess a Performance Deficiency Credit (PDC) or penalty of $1,000 per day for each failure to submit reports on time which may be deducted from Herzog’s monthly fixed price invoice (see Appendix B for Payment Adjustments). Capital Metro has put in place various roles to help ensure the oversight, check and balances related to the monitoring of Herzog’s work. The critical role within the CMP is the Project Managers (PM) who are responsible for contract deliverables by Herzog. To ensure the CDRL reports are correctly submitted, management expanded the current Contract Monitoring Plan (CMP) in March 2019 to include each report name, exhibit number, submission frequency, staff member responsible for verification, and date submitted. Assigned staff are responsible for ensuring CDRL report submissions are timely and accurate, along with completing the following special projects: Positive Train Control (PTC); TIGER V, Plaza Saltillo, and the Downtown Station projects. The Rail Operations Department resources have been stretched working on these and other highly complex projects. There is a Contracting Officer Technical Representative (COTR) as defined in the June 11, 2018 letter (see Appendix C) sent to Herzog, and this role has been assigned to the Director of Rail Operations. This position also provides oversight of all Capital Metro Rail Operations and Maintenance contracts, with a focus on contract management, schedules, estimates, costs controls, documentation control and quality assurance/quality control. The COTR evaluates contractor performance as directed by the Contracting Officer (CO) and acts as a final review official for issues concerning contractor’s performance. The Contracting Officer listed in the COTR is the Director of Procurement. The Director of Rail Operations (COTR) also has several positions (i.e., Program Managers covering Rail

3.3.a

Packet Pg. 103

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)


2

Transportation, Rail Fleet Services and Maintenance) who help her in the oversight and monitoring of the Herzog contract.

Audit Objective & Scope The primary objective of this audit is to determine whether the Contract Data Requirements List (CDRL) is being fulfilled by Herzog and is being adequately monitored by Rail Operations. Additionally, the oversight and monitoring of contractor performance by Capital Metro was evaluated to ensure that controls are in place and operating effectively to verify that the contractor is fulfilling key responsibilities and complying with contract terms. The audit scope was limited to Fiscal Year 2019 through the month of July 2019 and we performed compliance testing related to CDRL documents and any incentives/disincentives related to the CDRL documents. See Figure 1 below for a summary of the functional relationships among CMTA departments and Herzog related to the Commuter Rail Operations Contract.

Figure 1. Functional Relationships among CMTA Departments and Herzog

Source: Internal Audit analysis of CMTA information

3.3.a

Packet Pg. 104

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)


3

Opinion In our opinion, internal controls are in place to monitor Herzog’s contract compliance. We identified several opportunities to improve the monitoring of contract compliance as follows:

1. Ensure contractually required CDRL’s are properly reviewed and appropriate incentives/disincentives are taken from Herzog’s monthly fixed price invoice.

2. Ensure the content of each CDRL is clearly defined in future contract modifications as well as considering if the report is not necessary, then delete this requirement from the next contract modification.

3. Document the CDRL status in the CMP tracking spreadsheet to evidence that staff opened and reviewed CDRL reports. Staff should document red flags, incorrect reports, late submissions, and deadlines they give Herzog to submit late reports in this column so that management can monitor this contract requirement.

4. Review all CDRL’s that are listed as NTP (Notice to Proceed – see Appendix E) submitted once at the beginning of the contract and require periodic review and updates as required.

This audit was conducted in accordance with US Government Accountability Office’s Generally Accepted Government Auditing Standards (GAGAS) and the Institute of Internal Auditor’s International Standards for the Professional Practice of Internal Auditing. These standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective. We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The audit was conducted by the following staff members in the Capital Metro Internal Audit Department:

• Sarah Daigle, Internal Auditor II (Project Lead)

• Terry Follmer, VP of Internal Audit

Recommendations to strengthen controls and improve accountability were provided to management. Management agrees with the internal audit recommendations and has provided target completion dates which are included in the detailed audit report below. A follow-up audit is performed semi- annually (i.e. May and November) to ensure management action plans for all issued audit reports are completed timely.

We appreciate the cooperation and assistance provided to us throughout this audit.

3.3.a

Packet Pg. 105

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)


4

Issues & Risk Recommendation Management Action Plan

1. HERZOG DID NOT SUBMIT ALL CDRL’S AND PDC’S WERE NOT ENFORCED

Contract terms require Herzog to submit various CDRL reports at specified frequencies, otherwise, they may be assessed a $1,000 PDC or penalty per day for noncompliance. Additionally, the COTR certifies that department staff monitor and check for the CDRL reports and documents this certification on a Word document that is uploaded into AX Accounting System. We reviewed a sample of submissions for all 59 of the CDRL reports submitted in Fiscal Year 2019 and found 10% (6 out of 59) were not submitted and the department did not assess any monetary PDC penalties for them as required by the contract. We noted the contract was vague as to purpose and required content in each CDRL. The 6 missing CDRL reports were as follows (see Appendix D for additional details on these reports):

1. Audit Summary Report – Quarterly

2. Contingency Plan – Annually*

3. Fuel Usage Audit – Annually*

4. Incident Corrective Action Plan – Annually*

5. Inspection Reports on Safety and Integrity – Annually*

6. Long-Term Out-of-Service Release Plan – As Needed.

*Management informed us that they have been having discussions

with Herzog for the last several years regarding updating the

contract requirements as to which CDRL’s are required and what

the content should be.

The VP of Rail should develop the following internal control enhancements:

a) Ensure contractually required CDRL’s are properly reviewed and appropriate incentives/disincentives are taken from Herzog’s monthly fixed price invoice.

b) Ensure the content of each CDRL is clearly defined in future contract modifications and as part of the contract update evaluate the list of CDRL’s to determine the need and required frequency.

Management agrees with the recommendations. Target Completion Date: 4/30/2020

3.3.a

Packet Pg. 106

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog


5


2. IMPROVE MONITORING AND OVERSIGHT OF CDRL DOCUMENTS

The Rail Department has put controls in place to help monitor Herzog’s contract compliance with CDRL report requirements (e.g. CMP spreadsheet with responsible staff and date completed), however, we found that staff do not always follow them and adequately check the CDRL reports. For example, while the federally required Highway-Rail Grade Crossing Warning System Failure Report was submitted and is available through SPEAR, we found the report had another month’s cover page and several important fields within the report were unreadable which shows that it was not opened or reviewed by the responsible Rail Department staff. Additionally, we found the following areas of weaknesses:

• Staff do not document in the CMP the status of report submissions or red flags identified in the report and instead just document the date checked. Additional details would help management assess PDC penalties and monitor Herzog’s performance.

• Some of the CDRL reports listed in the contract were only required to be submitted once when the contract was first initiated in 2015 after a set number of days after the Notice to Proceed (NTP – see Appendix E). However, some of these documents are related to safety and may need to be submitted as needed or periodically to help management oversee rail operations. According to the Rail Department, they already request and review many of these reports periodically, it’s just not written into the contract.

The VP of Rail should develop the following internal control enhancements:

a) Document the CDRL status in the CMP tracking spreadsheet to evidence that staff opened and reviewed CDRL reports. Staff should document red flags (e.g. incorrect reports, late submissions, and deadline extensions they give Herzog to submit late reports, etc.) in this column so that management can monitor performance over time.

b) Review all CDRL’s that are listed as NTP submitted once at the beginning of the contract and require updates for any changes and periodic review and updates as required by regulations.

Management agrees with the recommendations. Target Completion Date: 4/30/2020

3.3.a

Packet Pg. 107

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog


6

Appendix A

Exhibit I - Contract Data Requirements List (CDRL)

Number Section # Report Name Frequency

1 22.3 Dispatcher Turnover 3 Times Daily

2 22.1 Transportation Staffing Report Daily

3 12.25.4 Maintenance Report Weekly

4 22.2 Track Outage Report Weekly

5 23.2 Maintenance Production Report Weekly

6 23.2 System-Wide Service Property Inspection Report Weekly

7 4.8 Job Site Safety Inspections Monthly

8 6.15.6 Monthly Staffing Report Monthly

9 10.22.1.1 Supervisory Track and Right of Way Inspection Report Monthly

10 10.22.2 Summary Track Inspection Report Monthly

11 11.19.4 Field Communications System Inspection Report Monthly

12 11.29.1 Signal and Train Control Tests and Inspection Reports Monthly

13 13.1 FRA Operations Testing Plan Report Monthly

14 13.1.3.14.7 Training Report Monthly

15 15.5.8 Customer Comment and Complaint Report Monthly

16 16.7a Long-Term Out-of-Service Status Report Monthly

17 16.9.5.4 DMU Service Vehicle MDBF Report Monthly

18 22.4.3 Accident/Incident Report Summary Monthly

19 22.4.4 Maintenance Report of Vehicle, Track, Bridges, Signals, and Communications

Monthly

20 22.4.8 Training Schedule Monthly

21 22.4.9 NTD Report Monthly

22 22.10 Signal Report Monthly

23 22.12 FRA Highway-Rail Grade Crossing Warning System Failure Report

Monthly

24 4.16.2.10 Safety Performance Report Quarterly

25 5.9.3 Security Issue and Incident Report Quarterly

26 6.4.1 Organization Chart Quarterly

27 17.13.4 Audit Summary Report Quarterly

28 22.5.2 Special Bridge Inspections Quarterly

29 22.5.3 MOW Service Plan Quarterly

3.3.a

Packet Pg. 108

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)


7

30 10.23.1 Ultrasonic Test Report 2 Times Annually

31 4.16.1.12 Contractor Safety Compliance Plan Annually

32 4.18.1 Emergency Preparedness Annually

33 5.6.1 Contractor System Security Compliance Plan Annually

34 7.4 Transportation Service Plan Annually

35 10.17.1 Maintenance of Way Plan Annually

36 10.27.1 Structure Inspection Report Annually

37 10.28.1 Bridge Maintenance and Repair Plan Annually

38 11.11.6 Signal System Failure Reduction Plan Annually

39 11.28 Signal System Failure Reduction Program Annually

40 12.26.1 Rail Vehicle Maintenance Plan Annually

41 13.1.1 Training Program Plan Annually

42 13.2.1 Employee Training Program Plan Annually

43 22.6.2 On-Time Performance Analysis Report Annually

44 22.6.3 Railroad Improvement Recommendation List Annually

45 22.6.4 Grade Crossing Improvement Plan Annually

46 22.6.5 Flood Prone Locations and Mitigation Measures Annually

47 22.6.6 NTP Annual Report Annually

48 22.7.7 Fuel Usage Audit Annually

49 22.8.1 Contractor Licenses Review Annually

50 22.8.6 Contingency Plan Annually

51 22.8.7 Drug and Alcohol Policy Annually

52 22.8.8 Drug and Alcohol Test Guidelines Annually

53 22.9.1 Independent Audit Financial Statement Annually

54 22.9.2 Incident Corrective Action Plan Annually

55 22.9.6 Inspection Reports on Safety and Integrity Annually

56 9.15.2 Delay Report As Needed

57 16.7 Long-Term Out-of-Service Release Plan As Needed

58 22.9.3 Final Incident/Accident Analysis Report As Needed

59 22.11 Operating Rules Violation Report As Needed

Source: Prepared by Internal Audit Staff using information from the Herzog contract.

3.3.a

Packet Pg. 109

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)


8

Appendix B

Exhibit H of Herzog Contract – Payment Adjustments

3.3.a

Packet Pg. 110

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)


9

3.3.a

Packet Pg. 111

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)


10

3.3.a

Packet Pg. 112

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)

11

3.3.a

Packet Pg. 113

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)

12

Appendix C COTR Letter to Herzog

3.3.a

Packet Pg. 114

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)

13

3.3.a

Packet Pg. 115

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)

14

Appendix D

6 CDRL Reports Not Submitted by Herzog as Required by Contract Terms

Number Section

# Report Name Frequency Contract Description

1 17.13.4 Audit

Summary Report

Quarterly An Audit Summary Report shall be prepared and submitted to CMTA on a quarterly basis. The specific schedule for submission of these reports shall be included in the Audit Plan.

2 22.7.7 Fuel Usage

Audit Annually

By the 20th of August, the Contractor shall submit a complete annual report to include the following: Annual Fuel Usage Audit.

3 22.8.6 Contingency

Plan Annually

By the 20th of March, the Contractor shall submit a complete annual report to include the following: Contingency Plan.

4 22.9.2 Incident

Corrective Action Plan

Annually

By the 15 of November, the Contractor shall deliver the following: Incident Corrective Action Plan summarizing engineering responses taken and their effectiveness shall be included. In the event that any corrective actions are left open a time line for completion is expected to be included.

5 22.9.6

Inspection Reports on Safety and Integrity

Annually

By the 15 of November, the Contractor shall deliver the following: The contractor shall provide annual inspection reports on safety and integrity, including recommendations for any necessary repairs (minor and major) as well as a summary of all maintenance activities that have been performed during the previous year.

6 16.7 Long-Term

Out-of-Service Release Plan

As Needed

The Contractor shall submit a Long-Term Out-of Service Release Plan to CMTA for review and approval within five (5) days of the Long-Term Out-of-Service designation. This plan shall provide details on the procedures and schedule for restoration of all Contractor’s Long Term Out-of-Service Status Report (CDRL 16.7) to CMTA every month.

3.3.a

Packet Pg. 116

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)

15

Appendix E

CDRL Reports With Required Submission Within Set Days of NTP

3.3.a

Packet Pg. 117

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)

16

3.3.a

Packet Pg. 118

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)

17

3.3.a

Packet Pg. 119

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)

18

3.3.a

Packet Pg. 120

Att

ach

men

t: 1

9-08

Co

ntr

act

Mg

mt

Ove

rsig

ht

of

Her

zog

9-3

0-20

19 (

4507

: In

tern

al A

ud

it R

epo

rt -

Her

zog

Co

ntr

act

Man

agem

ent

Ove

rsig

ht)



Internal Audit Report - Miscellaneous Revenue and SOX Like Controls

Page 1

TITLE: Internal Audit Report - Miscellaneous Revenue and SOX Like Controls

3.4

Packet Pg. 121

Sox Controls Audit- Miscellaneous Revenue (19-09)

Internal Audit Report #19-09 | October, 31, 2019

SOX CONTROLS AUDIT – MISCELLANEOUS

REVENUE (19-09)

Terry Follmer, VP of Internal Audit

Distribution List: Capital Metro Board of Directors Randy Clarke, President and CEO Kerri Butcher, EVP, Chief Counsel & Chief of Staff Donna Simmons, EVP, Administration & EEO Officer Reinet Marneweck, EVP, Chief Financial Officer Dottie Watkins, Chief Customer Officer & COO David Dech, VP, Rail Operations Ken Cartwright, VP, Capital Projects Jane Schroter, VP, Chief Information Officer Shanea Davis, VP, Real Estate, Property & Asset Management Chad Ballentine, VP, Demand Response and Innovative Mobility Brian Carter, VP, Marketing and Communications Gardner Tabon, VP, Safety, Risk Management, and Accessible Services Muhammad Abdullah, Senior Director, Chief Procurement & Compliance Officer Lea Sandoz, Controller

3.4.a

Packet Pg. 122

Att

ach

men

t: 1

9-09

SO

X C

on

tro

ls A

ud

it -

Mis

cella

neo

us

Rev

enu

e 10

-31-

19 (

4508

: In

tern

al A

ud

it R

epo

rt -

Mis

cella

neo

us

Rev

enu

e an

d S

OX

Lik

e


Table of Contents

Executive Summary …………………………………………………………………………………………………………..1

Results……………………………………………………………………………………………………………….………………4

1. Add Late Fees & Interest to Contract Terms and Invoices…………………………………………………..…………4

2. Establish a Credit Policy……………………………………………………………………………………………………….…...….5

3. Cross Check Monthly Billing Totals to Source Records…………………………………………..……………..………6

4. Implement a Contract Management System…………………………………………………………..……………..…….7

5. Update Advertising Policy for Discounts…………..………………………………………………………..…………..……8

6. Extra RWIC Charges should be billed in the CLS System……………………………………………….……………….9

Appendix……………………………………………………………………………………………………………….…………....10

A. Cap Metro Aging Report, August 2019 vs 2018…………………………………..……….………….10

3.4.a

Packet Pg. 123

Att

ach

men

t: 1

9-09

SO

X C

on

tro

ls A

ud

it -

Mis

cella

neo

us

Rev

enu

e 10

-31-

19 (

4508

: In

tern

al A

ud

it R

epo

rt -

Mis

cella

neo

us

Rev

enu

e an

d S

OX

Lik

e


1

EXECUTIVE SUMMARY As part of our Fiscal Year 2019 Internal Audit Plan approved by the Capital Metro Board, we performed an audit of the Miscellaneous Revenue process to determine the effectiveness of internal controls over financial reporting. The miscellaneous revenues tested include the following: Advertising; Bulk Ticket Sales; and Railroad Right-of-Way. The audit results including the objective, scope, and conclusion are as follows.

Background The Finance Department has been implementing SOX like controls over the last several years which helps ensure that key internal financial controls are documented and functioning as intended. They have documented their financial controls using narratives. During FY2019 the RSM accounting firm was hired to review SOX like controls narratives, perform procedural walkthroughs and interviews, and document any internal control weaknesses identified. The Finance Department actions in this area together with this RSM project have helped further strengthen the financial controls. As part of the Finance Department commitment to continuous improvement, they asked the Internal Audit Department to perform a review of financial controls related to miscellaneous revenue. Miscellaneous revenue is comprised of three main areas: Advertising, Bulk Ticket Sales and Railroad Right-of-Way (ROW) licenses. All miscellaneous revenues are governed by contracts that are created and controlled in other departments. All the activities related to creating and managing the contracts occur upstream in other departments outside of the Finance Department. Finance’s role in miscellaneous revenue is limited to creating the billing and following through on any collection and accounting related activities. The miscellaneous billings process is mainly manual using the Microsoft Dynamic AX ERP system. During FY2018, the Accounting Manager together with the A/R Specialist processed approximately 892 invoices for miscellaneous revenue totaling $3,375,000, which included 375 Right of Way Invoices, 327 Bulk Ticket Sales Invoices, and 190 Advertising Invoices. Below we provide an overview of the systems, processes and controls that are used to manage and monitor the contracts in the three miscellaneous revenue areas. The Marketing Department is responsible for creating and managing the advertising contracts and has developed a standard pricing table (Media Kit) to be used on contracts. The Media Kit provides pricing based on monthly rates with a minimum one-month term to a year and the installation cost is a one-time fee billed at time of install. The advertising contracts covers various advertising signage on the buses including full bus wraps, sides King (144”x30”) or Queen (96”x30”), backs (Full, Upper, Super Tail), tail light (50”X22”) and interior signs. The Metrorail cars wraps include Kong (321”x34”), King Kong (202”X107.75”), and full wrap. Standard boilerplate contracts terms have been developed and approved by the Legal Department. Capital Metro has a contract with Trans1graphix to install and remove wraps from the buses and railcars. The Marketing Department does not have an advertising system and must manually manage the contracts and fleet inventory. Contracts are saved on the Marketing Department’s Sharepoint drive and the details are tracked on an Excel spreadsheet. Marketing has a Program Manager and Business Development Specialist who generate all advertising revenue. As the advertising gets installed the Marketing Department sends an email to the A/R Specialist in the Finance Department instructing him on the Invoices that need to be created and sent. FY2018 advertising revenue totaled $914,747 from 190 invoices. In FY2020, The Marketing Department is looking at outsourcing the advertising sales contracting process on a revenue sharing based model.

3.4.a

Packet Pg. 124

Att

ach

men

t: 1

9-09

SO

X C

on

tro

ls A

ud

it -

Mis

cella

neo

us

Rev

enu

e 10

-31-

19 (

4508

: In

tern

al A

ud

it R

epo

rt -

Mis

cella

neo

us

Rev

enu

e an

d S

OX

Lik

e


2

The Finance Department manages the Transit Store which is responsible for all orders for pass media that are not processed through our Capital Metro’s online/e-commerce website or the Point of Sales (POS) system. The billing process is manual and an Order Delivery Receipt (ODR) form is used create revenue billings for the following: Bulk Ticket Sales, MetroWorks, Retail Outlet (e.g. HEB, Randalls, etc.), Discount, Returns, and Complimentary inter pass request. ODR orders for these tickets are received via email/order from the Transit Store staff. The ODR document is a triplicate copy pre-numbered form, used in numerical order, and includes the vendor name, vendor type, the price and type of passes, serial number of passes given and the payment amount. The Capital Metro Representative fills out the ODR, the customer signs the ODR when receiving the tickets, and the pink copy of the ODR is given to the customer, and the white and yellow copies are returned to the Customer Service Rep at the Transit Store. After the ODR’s order is fulfilled through ticket delivery, then the ODR forms is forwarded to A/R Specialist in the Finance Department for invoicing and billing, which was approximately 327 transactions totaling $1,587,341 for FY2018. The Real Estate Department is responsible for managing the Railroad Right-of-Way (ROW) which includes application fees, permit fees, License agreements for installations, and Roadway Worker-In-Charge (RWIC) fees. Other fees they also manage are Film, Video & Photography requests and Road Crossings. In 1986, Capital Metropolitan acquired from the City of Austin approximately 162 miles of railroad right of way, track, and track structures. The ROW revenues are all prepaid using credit/debit cards and during FY2019, the Real Estate Department implemented a new software called Contract Land Staffing (CLS) to help track and manage these contracts, assets and prepayments. CLSLink is used to track and manage all License agreements, Properties Owned or Leased, it also interfaces with Microsoft Dynamix AX for billings. Additionally, there is the Platinum portal on the Cap Metro website that is the online application system for right-of-way licenses, permits and RWIC applications. Platinum allows our customer the ability to request ROW services and to track progress of submissions. The Platinum system does not interface with CLS Link, and obligations must be manually added into CLS Link by the Real Estate Specialist. In order to reconcile RWIC charges from Herzog, once a month the Rail Operations Finance Manager compares the Herzog RWIC hours worked to the CLS system, and the A/R Specialist in the Finance Department is notified of any manual invoicing to cover the Herzog RWIC time that exceeds the prepaid time in the CLS portal which only bills in 8 or 10 hour increments. The FY2018 Right of Way revenues totaled $808,806 from 375 invoices.

Audit Objective & Scope The primary objective of this audit was to determine whether the design and operating effectiveness of internal controls is sufficient to ensure the completeness and accuracy of miscellaneous revenue. The scope included conducting walkthroughs and interviews, reviewing Authority policies, contracts, invoices, desk procedures, testing a selection of transactions processed from the original source to AX, and reviewing testing results with management.

Opinion Internal controls related to miscellaneous revenues are generally in place and properly functioning. During our review we identified internal controls that require improvement and made the following recommendations:

1. Add late fees and interest to contract terms and invoices.

2. Establish a credit policy.

3.4.a

Packet Pg. 125

Att

ach

men

t: 1

9-09

SO

X C

on

tro

ls A

ud

it -

Mis

cella

neo

us

Rev

enu

e 10

-31-

19 (

4508

: In

tern

al A

ud

it R

epo

rt -

Mis

cella

neo

us

Rev

enu

e an

d S

OX

Lik

e


3

3. Cross check monthly billing totals to source records.

4. Implement a contract management system.

5. Update Advertising policy for discounts.

6. Extra RWIC charges should be billed in CLS System.

More details regarding issue/risk and recommendation can be found in the detailed audit report below.

This audit was conducted in accordance with the U.S. Government Accountability Office’s Generally Accepted Government Auditing Standards (GAGAS) and the Institute of Internal Auditor’s International Professional Practices Framework (IPPF). These standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective. We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. The audit was conducted by the following staff members in the Capital Metro Internal Audit Department:

• Jeannette Lepe, Internal Auditor II (Project Lead)

• Terry Follmer, VP of Internal Audit Recommendations to strengthen controls and improve accountability were provided to management. Management agrees with the internal audit recommendations and has provided target completion dates which are included in the detailed audit report below. A follow-up audit is performed semi-annually (i.e. May and November) to ensure management action plans for all issued audit reports are completed timely. We appreciate the cooperation and assistance provided to us throughout this audit.

3.4.a

Packet Pg. 126

Att

ach

men

t: 1

9-09

SO

X C

on

tro

ls A

ud

it -

Mis

cella

neo

us

Rev

enu

e 10

-31-

19 (

4508

: In

tern

al A

ud

it R

epo

rt -

Mis

cella

neo

us

Rev

enu

e an

d S

OX

Lik

e

SOX Controls Audit – Miscellaneous Revenue (19-09)

4


1. ADD LATE FEES & INTEREST TO CONTRACT TERMS & INVOICES

We reviewed the contract terms as well as the Capital Metro invoice terms used for all miscellaneous revenues and we noted that there is no stipulation stating that Cap Metro can charge late fees and interest on delinquent accounts. In general, the accounts receivable has improved a lot in the last year and is in good shape (see Appendix A), however, per discussions with management Cap Metro has never charged late fees and interest on delinquent accounts. The ability to charge interest and late fees on delinquent accounts will create extra incentive for all accounts to be paid timely.

The CFO and Chief Counsel should consider modifying the standard terms and conditions listed in contracts and on invoices to include a statement that allows late fees and interest to be charged by Capital Metro on delinquent accounts.

Management agrees to add language to the standard contract template and all new contract to include a statement regarding late fees and interest to be charged on past due accounts. Text will also be added to the invoices, notifying debtors that late fees and interest will be charged on past due accounts. Target Completion Date: 12/23/2019

3.4.a

Packet Pg. 127

Att

ach

men

t: 1

9-09

SO

X C

on

tro

ls A

ud

it -

Mis

cella

neo

us

Rev

enu

e 10

-31-

19 (

4508

: In

tern

al A

ud

it R

epo

rt -


5


2. ESTABLISH A CREDIT POLICY

The Finance Department has established an Accounts Receivable Policy (FIN-109), that defines responsibilities for accounts receivable personnel, billing processes, collections and segregation of duties.

We reviewed all Finance policies and noted there is no credit policy and delegated approval levels covering the following areas:

• Performing credit checks and establishing credit limits.

• Require delinquent and past due reporting to specific management (e.g. President, VP of Marketing, VP Real Estate) outside of Finance.

• Delinquent account write-offs and settlements.

• How to handle and record prepayments (e.g. check or payment received before invoicing).

• Refunds and issuing credits.

In general, accounts receivable has improved a lot in the last year and we noted that although A/R Aging reporting (see Appendix A) to members of management is not required, it is being performed. However, establishing credit policies, approval levels and specific reporting requirements to outside departments ensures transparency and appropriate approvals.

The CFO and Controller should consider establishing a Credit Policy to include the items below and/or add these items to other policies:

a) Required credit checks for new and existing customers.

b) Establishing credit limits for all customers who do not prepay

c) Identify required and specific management reporting of delinquencies based upon materiality level with built in escalation.

d) Write-off and settlement approval levels with tiered escalation based upon materiality.

e) How to handle and record prepayments received.

f) Approval levels for issuing refunds and credits.

While these items are current practice, they are not specifically noted in the procedures. Management agrees with adding the items to the procedures and creating a written credit policy. Target Completion Date: 12/23/2019

3.4.a

Packet Pg. 128

Att

ach

men

t: 1

9-09

SO

X C

on

tro

ls A

ud

it -

Mis

cella

neo

us

Rev

enu

e 10

-31-

19 (

4508

: In

tern

al A

ud

it R

epo

rt -


6


3. CROSS CHECK MONTHLY BILLING TOTALS TO

SOURCE RECORDS We noted that the A/R Specialist consistently performs individual miscellaneous billings as instructed by other departments (e.g. Marketing, Real Estate, etc.), however monthly transaction totals are not reported back to source departments nor are they reconciled to source records. Our testing identified a few minor discrepancies and delays in billings that may have been detected sooner if enhanced two-way communication and reconciliations between the Finance Department and the originating departments (i.e. Marketing, Real Estate & Right of Way; and Rail Operations) was occurring.

The Controller and Accounting Manager should review the monthly revenue reporting and reconciliation process to source systems/records, and opportunities to improved communication as follows:

a) Right of Way & RWIC – The Finance Department should provide a monthly report of all Right of Way billings to the Real Estate and Rail Departments. Additionally, Real Estate department should provide CLS access to the Finance Department so that the system totals can be reconciled by both departments.

b) Marketing & Advertising – The Finance Department should provide a monthly report of all billings to the Marketing Department.

c) Bulk Ticket Sales - ODR invoices created by the A/R Specialist should be reconciled to the ODR Excel Spreadsheet maintained by the Revenue Accountant.

Management agrees to implement additional controls to ensure completeness and accuracy of invoices. Target Completion Date: The accounting manager will implement an effective process:

a) CLS Invoices by 12/31/2019

b) Advertising invoices by 11/30/2019

c) ODR Invoices by 11/30/2019

3.4.a

Packet Pg. 129

Att

ach

men

t: 1

9-09

SO

X C

on

tro

ls A

ud

it -

Mis

cella

neo

us

Rev

enu

e 10

-31-

19 (

4508

: In

tern

al A

ud

it R

epo

rt -


7


4. IMPLEMENT A CONTRACT MANAGEMENT SYSTEM

We noted that all miscellaneous revenues are based upon contracts that are stored in their source department’s (e.g.; Real Estate & Right of Way, Marketing; etc.) Sharepoint site where the transaction originated. Capital Metro does not have a central contract database and/or contract management system (CMS) to help in monitoring and managing the status of all vendor and customer contracts. Contract management systems allow users to track and manage contracts through the various lifecycle stages (e.g. developing and tracking drafts through expiration) and provides a single database used by all departments to track key dates and versions of the contract. In lieu of not having a CMS system at Cap Metro, we compared the Sharepoint sites where the contracts are saved for the various departments (e.g. Marketing, Real Estate, Legal, etc.) and noted that the Legal Departments Sharepoint site has the most robust functionality which provides summary view of the following important attributes: Sharepoint Link to contracts, Start Date, Current End Date, Term, Owner Name, Dept Name, Agreement Type, Status, Agreement Value, Expense, Income, and Payment Terms.

The EVP of Administration and Chief Counsel should evaluate either purchasing a contract management system to help in managing all customized vendor and customer contracts in a central repository, or alternatively leveraging and standardizing each departments Sharepoint site to incorporate some of the best practices and features used on the Legal Departments Sharepoint site.

Management agrees with the recommendation. Target Completion Date: 3/31/2020

3.4.a

Packet Pg. 130

Att

ach

men

t: 1

9-09

SO

X C

on

tro

ls A

ud

it -

Mis

cella

neo

us

Rev

enu

e 10

-31-

19 (

4508

: In

tern

al A

ud

it R

epo

rt -


8


5. UPDATE ADVERTISING POLICY FOR DISCOUNTS

The Marketing Department has established a Transit Advertising Policy (MKT-102). Under this policy, Cap Metro offers Non-Profit and Governmental Entity Discounts in order to generate revenue and foster good will to the Authority in the community Capital Metro discounts the cost of advertising space by fifty percent (50%) for all non-profit 501(c)(3) organizations. Our testing identified two contracts that did not qualify as non-profit but an advertising discount was provided as follows:

• CMTA-2018-30 dated 08/10/2018 with IMG College DBA had a discount on the King Rapid signage with approval from the Marketing Director.

• CMTA-2018-43 dated 09/25/2018 with Honor Technology received a 12-month promotion under a one-time charge per bus of $6,930 versus standard $46,200 full price. While there was a flyer brochure on CapMetro logo showing promotional pricing, management approval for this discount was not found.

The VP of Marketing should update the advertising policy to include discounts for-profit organizations, and identify the necessary executive approvals (e.g. CFO, President, Chief Counsel) from outside the Marketing Department for these advertising discount exceptions.


3.4.a

Packet Pg. 131

Att

ach

men

t: 1

9-09

SO

X C

on

tro

ls A

ud

it -

Mis

cella

neo

us

Rev

enu

e 10

-31-

19 (

4508

: In

tern

al A

ud

it R

epo

rt -


9


6. EXTRA RWIC HOURS SHOULD BE BILLED IN CLS SYSTEM

All RWIC charges are to be prepaid in the Platinum/CLS system in 8 and 10 hour increments, but because RWIC hours charged to Cap Metro by Herzog and Watco are usually in excess of the prepaid hours, an adjustment must be made at month end to bill the customers for these extra hours. In order to reconcile this, the Rail Operations Finance Manager must compare the CLS/Platinum prepaid hours to the actual labor charges received from Herzog and Watco for their RWIC labor charges. Currently the excess hours identified by the Rail Finance Manager is reported monthly to the A/R Specialist in Finance who does manual invoices in the AX system for the extra RWIC time. We noted that this process results in the Platinum/CLS system not capturing all RWIC hours worked as well as a lack of transparency to the Real Estate Department. Additionally, segregation of duties can be improved by including the Real Estate Department in the reconciliation process.

The VP of Real Estate, Property and Asset Management should work with Rail Operations to establish monthly reconciliation procedures to ensure all RWIC charges are billed in 8 and 10 hour increments and entered into the CLS System by Real Estate rather than the current manual billings performed by Finance in the AX System.


3.4.a

Packet Pg. 132

Att

ach

men

t: 1

9-09

SO

X C

on

tro

ls A

ud

it -

Mis

cella

neo

us

Rev

enu

e 10

-31-

19 (

4508

: In

tern

al A

ud

it R

epo

rt -


10

Appendix A: Cap Metro Aging Report

2,403,874

0

1,324,363

658,331

124,656

56,365

241,262

$1,998,838

$454,851

$1,264,854

$103,188

$94,546

$1,978

$78,850

0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000

Balance

Not due

Current

31-60 Days

61-90 Days

91-180 Days

Over 180 Days

AR Comparison 2018 to 2019

Aging August 2019 Aging August 2018

3.4.a

Packet Pg. 133

Att

ach

men

t: 1

9-09

SO

X C

on

tro

ls A

ud

it -

Mis

cella

neo

us

Rev

enu

e 10

-31-

19 (

4508

: In

tern

al A

ud

it R

epo

rt -

Mis

cella

neo

us

Rev

enu

e an

d S

OX

Lik

e



Internal Audit Report - External Penetration Systems Test

Page 1

Internal Audit Report - External Penetration Systems Test .

3.5

Packet Pg. 134

1

To: Jane Schroter, VP & CIO

CC: Randy Clarke, President/CEO

Kerri Butcher , EVP, Chief of Staff, General Counsel

Dottie Watkins, COO & Chief Customer Officer

Reinet Marneweck, EVP & CFO

Donna Simmons, EVP, Administration & EEO Officer

Capital Metro Board of Directors

From: Terry Follmer, VP of Internal Audit

Date: October 29, 2019

Subject: Audit Memorandum – IT Penetration Test & Vulnerability Assessment

As part of our Fiscal Year 2019 Internal Audit Plan approved by the Capital Metro Board,

we performed an external IT Penetration Test and Vulnerability Assessment to determine

external cybersecurity weaknesses and develop plans to remediate. The detailed results of

this review are considered Sensitive Security Information under Texas Public Information

Act and therefore is not available to the public. (Section 552.139: Confidentiality of

Government Information Related to Security or Infrastructure Issues for Computers)

Capital Metro contracted with Dell Secureworks to perform an External Penetration Test

and Vulnerability Assessment. The overall objective of this engagement was to identify

how CMTA’s systems, networks, and policies perform against a skilled attacker. The IT

Penetration and Vulnerability Assessment was performed by DELL Securewworks with

oversight and guidance from the following members of the IT and Internal Audit

Departments:


• Lori Hyde, Program Manager IV, Network Cyber Security

• Steven Salinas, Director of Network Services

Recommendations to strengthen external cybersecurity controls were provided to

management by Dell Secureworks. This review shows significant improvements in the

cybersecurity posture versus the last study performed in 2015. Management agrees with

the recommendations and is in the process of remediating all recommendations. Capital

3.5.a

Packet Pg. 135

Att

ach

men

t: 1

9-10

_Au

dit

_Mem

ora

nd

um

-IT

Pen

etra

tio

n &

Vu

lner

abili

ty A

sses

smen

t 10

-29-

2019

(45

10 :

Inte

rnal

Au

dit

Rep

ort

- E

xter

nal

2

Metro’s Board of Directors was briefed on the results of this review on October 28, 2019 in

a closed session. The recommendations from this review will be included in the semi-

annual follow-up audit (i.e. May and November) to ensure management action plans for

all issued audit reports are completed timely.


3.5.a

Packet Pg. 136

Att

ach

men

t: 1

9-10

_Au

dit

_Mem

ora

nd

um

-IT

Pen

etra

tio

n &

Vu

lner

abili

ty A

sses

smen

t 10

-29-

2019

(45

10 :

Inte

rnal

Au

dit

Rep

ort

- E

xter

nal



Internal Audit Report - SaaS Vendor Risk Management

Page 1

TITLE: Internal Audit Report - SaaS Vendor Risk Management

3.6

Packet Pg. 137

1

To: Jane Schroter, VP & CIO

CC: Randy Clarke, President/CEO

Kerri Butcher , EVP, Chief of Staff, General Counsel

Dottie Watkins, COO & Chief Customer Officer

Reinet Marneweck, EVP & CFO

Donna Simmons, EVP, Administration & EEO Officer

Capital Metro Board of Directors

From: Terry Follmer, VP of Internal Audit

Date: October 29, 2019

Subject: Audit Memorandum – IT Vendor Risk Management & Policy Review

During Fiscal Year 2019 an additional audit was added to the Audit Plan to review IT

Vendor Risk Management and perform a review of all IT Policies. The addition of this

audit was reviewed and approved by the FAA Committee. The detailed results of this

review are considered Sensitive Security Information under Texas Public Information Act

and therefore is not available to the public. (Section 552.139: Confidentiality of

Government Information Related to Security or Infrastructure Issues for Computers)

Capital Metro contracted with Dell Secureworks to perform a review of the following

areas:

1. Review draft contract with MV Transportation with a focus on IT security terms

and conditions in order to provide feedback and suggested changes.

2. SaaS Vendor Management Security Assessment Report for two vendors: Ultimate

Software Ultipro service; and Swiftly real-time fleet analysis.

3. Develop IT Security Questionnaire that can be used for future IT Vendor Risk

Management Assessments

4. Review all existing IT Policies and provide missing policies and recommended

language.

The overall objective of this engagement was to evaluate from cradle to grave, Capital

Metro’s approach to managing IT risk related to vendor management. This project was

performed by Dell Secureworks with oversight and guidance from the following

members of the IT and Internal Audit Departments:

3.6.a

Packet Pg. 138

Att

ach

men

t: 1

9-11

_Au

dit

_Mem

o-I

T V

end

or

Ris

k M

anag

emen

t 10

-29-

2019

(45

09 :

Inte

rnal

Au

dit

Rep

ort

- S

aaS

Ven

do

r R

isk

Man

agem

ent)

2


• Lori Hyde, Program Manager IV, Network Cyber Security

• Steven Salinas, Director of Network Services

Recommendations to strengthen IT vendor risk management program were provided to

management by Dell Secureworks. Additionally they provided new IT policies for

consideration. Management agrees with their recommendations and is in the process of

remediating. Capital Metro’s Board of Directors was briefed on the results of this review

on October 28, 2019 in a closed session. The recommendations from this review will be

included in the semi-annual follow-up audit (i.e. May and November) to ensure

management action plans for all issued audit reports are completed timely.


3.6.a

Packet Pg. 139

Att

ach

men

t: 1

9-11

_Au

dit

_Mem

o-I

T V

end

or

Ris

k M

anag

emen

t 10

-29-

2019

(45

09 :

Inte

rnal

Au

dit

Rep

ort

- S

aaS

Ven

do

r R

isk

Man

agem

ent)