No preview available
HomeMy WebLinkAboutFin GANN Limit`l ' OF j Z Agenda Item No: 4 4Meeting P Date: April 2009 SAN RAFAEL CITY COUNCIL AGENDA REPORT Department: FINANCE Prepared by: Cindy Mosser City Manager Approval: Finance Director SUBJECT: FY 2007-2008 ANNUAL FINANCIAL AUDIT REPORT; THE GANN APPROPRIATION LIMIT REPORT, THE SINGLE AUDIT REPORT AND THE MEMORANDUM ON INTERNAL CONTROL STRUCTURE. RECOMMENDATION: ACCEPT THE FY 2007-2008 ANNUAL FINANCIAL AUDIT REPORT; ACCEPT THE GANN APPROPRIATION LIMIT REPORT; ACCEPT THE SINGLE AUDIT REPORT; AND ACCEPT THE MEMORANDUM ON INTERNAL CONTROLSTRUCTURE. BACKGROUND: As is required by both local code and State law, the City of San Rafael must complete an annual audit of its financial activities. The auditing firm of Maze and Associates, Accountancy Corporation conducted the audit for fiscal year 2007-2008. Their work was completed in accordance with generally accepted auditing standards; Government Auditing Standards, issued by the Comptroller General of the United States; and the provisions of Office of Management and Budget Circular A-133, Audits of State and Local Government and Non -Profit Organizations. The Federal Government requires that any local agency receiving or expending $500,000 or more in combined federal grant funds, either directly or indirectly in a fiscal year, is subject to a separate audit on those programs and a separate Single Audit Report is issued. This threshold amount did occur in fiscal year 2007-2008; therefore, this separate audit report was required. The requirements of Section 1.5 of Article XIIIB of the California Constitution is met with an agreed upon procedure report applied to the Gann Appropriation Limit calculated for the year ending June 30, 2009 and June 30, 2008. A management letter/report is also prepared by the auditors to help identify areas that could help improve the City's organization and controls over financial activities. This letter/report is enclosed separately with this staff report. FOR CITY CLERK ONLY File No.: Council Meeting: Disposition: _ SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2 The City Council's approval and acceptance of fiscal year 2007-2008 audited financial report, and memorandum of internal control structure are needed to remain in compliance with local charter, State and Federal law. The actual results of the City's financial activities are presented in the Government -Wide Financial Statements with governmental activities and business -type activities presented separately. Net assets are a good indicator of the City's financial position. During this fiscal year, net assets of the City were $220.4 million, which is an increase of $1 million from the prior year. A financial summary of expenditures and revenues is shown in the Statement of Activities and Changes in Net Assets. Supplementary explanatory information is provided with a Management's Discussion and Analysis (MD&A) beginning on page 3. The MD&A provides key highlights and a summary view of performance of financial activities for the year ended June 30, 2008. The Agreed -Upon Procedures report for the Gann Appropriations Limit required three steps to be performed including testing the accuracy of the calculations and comparison of information presented. No exceptions were noted in all three steps for the years ended June 30, 2009 and June 30, 2008. As required under the Single Audit Act, a number of separate reports are contained within this document. Most of these reports comment on either compliance with Federal assistance regulations or recommendations regarding the City's accounting practices. With respect to compliance, the auditors have found no material instances of noncompliance with laws, regulations, contracts or grants applicable to our programs. There were no current findings or recommendations. In the area of accounting practices and internal controls, there are no areas of significant deficiencies noted for fiscal year 2007-2008. The Memorandum on Internal Control Structure addressed two recommendations which are informational in nature. From the prior fiscal year's management letter/report, all of the prior recommendations are in various stages of progress or have been implemented. Training and oversight for Finance staff is on going. The discount on debt was amortized as required under generally accepted accounting principles. A report on the internal controls from the parking citation contractor was requested to comply with requirements of Statement on Auditing Standards #70 — Service Organizations. A new professional standard requires our auditors to communicate to the City Council matters that come to their attention relating to the audit. This section is the last three pages of the Memorandum on Internal Control Structure. FISCAL IMPACT: No fiscal impact occurs by having the Council accepts these reports. The fiscal year 2007-2008 Annual Financial Audit Reports and related letters/reports are presented as the actual results of the City and Agency financial activities for the year. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 3 OPTIONS: The City Council can choose to either: 1) Accept the Fiscal Year 2007-2008 Annual Financial Audit, Agreed -Upon Procedures report for the Gann Appropriations Limits, the Single Audit Report and the Memorandum on Internal Control Structure as presented, or 2) Reject the reports. The Council is required under current law to accept the reports and file it with numerous County, State and Federal agencies. Rejecting these reports would leave the City out of compliance with applicable laws. ACTION REQUIRED: Staff recommends Council accept the reports and letters as presented. Attachments: Basic Financial Statements Appropriations Limit Increments Single Audit Report Memorandum on Internal Control W:\Management Services- WorkFile\Finance- WorkFile\Council Material\Staff Reports\2009\City\Audit report fy2007-08.doc ACCOUNTANCY CORPORATION 3478 Buskirk Ave. - Suite 215 Pleasant Hill, California 94523 (925) 930-0902 • FAX (925) 930-0135 maze@mazeassociates.com www.mazeassociates.com AGREED UPON PROCEDURES REPORT ON COMPLIANCE WITH THE PROPOSITION 111 2008-2009 APPROPRIATIONS LIMIT INCREMENT Honorable Mayor and Members of the City Council City of San Rafael, California We have applied the procedures below to the Appropriations Limitation Worksheet for the City of San Rafael for the year ended June 30, 2009. These procedures, which were suggested by the League of California Cities and presented in their Article XIIIB Appropriations Limitation Uniform Guidelines were performed solely to assist you in meeting the requirements of Section 1.5 of Article XIIIB of the California Constitution. The sufficiency of the procedures is solely the responsibility of the specified users of this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. This report is intended for the information of management and the City Council; however, this restriction is not intended to limit the distribution of this report, which is a matter of public record. The procedures you requested us to perform and our findings were as follows: A. We obtained the Appropriations Limitation Worksheet and detennined that the 2008-2009 Appropriation Lirnit of $ 61,964,197 and annual adjustment factors were adopted by resolution of the City Council. We also determined that the population and inflation options were selected by a recorded vote of the City Council. B. We recomputed the 2008-2009 Current Appropriations Limit by multiplying the 2007-2008 Appropriations Limit by the annual adjustment factors. C. For the Appropriations Limitation Worksheet, we agreed the Per Capita Income, County and City Population Factors to California State Department of Finance Worksheets. These agreed-upon procedures are substantially less in scope than an audit, the objective of which is the expression of an opinion on the Worksheet. Accordingly, we do not express such an opinion. Had we performed additional procedures or had we made an audit of the Appropriations Limitation Worksheet and the other completed worksheets described above, matters might have come to our attention, which would have been reported to you. w a� 4t 41 October 24, 2008 II A Professional Corporation Maze & ASSOCIATES ACCOUNTANCY CORPORATION 3478 Buskirk Ave. - Suite 215 Pleasant Hill, California 94523 (925) 930-0902 • FAX (925) 930-0135 maze@mazeassociates.com www.mazeassociates.com AGREED UPON PROCEDURES REPORT ON COMPLIANCE WITH THE PROPOSITION 111 2007-2008 APPROPRIATIONS LDRT INCREMENT Honorable Mayor and Members of the City Council City of San Rafael, California We have applied the procedures below to the Appropriation Limit Worksheet for the City of San Rafael for the year ended June 30, 2008. These procedures, which were suggested by the League of California Cities and presented in their Article XIHB Appropriations Limitation Uniform Guidelines, were performed solely to assist you in meeting the requirements of Section 1.5 of Article XIIIB of the California Constitution. The sufficiency of the procedures is solely the responsibility of the specified users of this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. This report is intended for the information of management and the City Council; however, this restriction is not intended to limit the distribution of this report, which is a matter of public record. The procedures you requested us to perform and our findings were as follows: A. We obtained the Appropriations Limitation Worksheet and determined that the 2007-2008 Appropriations Limit of $58,867,753 and annual adjustment factors were adopted by resolution of the City Council. We also determined that the population and inflation option was selected by a recorded vote of the City Council. B. We recomputed the 2007-2008 Appropriations Limits by multiplying the 2006-2007 Appropriations Limit by the annual adjustment factor. C. For the Appropriations Limitation Worksheet, we agreed the Per Capita Income, County and City Population Factors to California State Department of Finance Worksheets. These agreed-upon procedures are substantially less in scope than an audit, the objective of which is the expression of an opinion on the Appropriations Limitation Worksheet. Accordingly, we do not express such an opinion. Had we performed additional procedures or had we made an audit of the Appropriations Limitation Worksheet and the other completed worksheets described above, matters might have come to our attention that would have been reported to you. *&�e- 4AMb October 26, 2007 A Professional Corporation CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL AND REQumED COMMUNICATIONS FOR THE, YEAR ENDED .NNE 30, 2008 This Page Left Intentionally Blank CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL AND REQUIRED COMMUNICATIONS For the Year Ended June 30, 2008 Table of Contents Page Memorandumon Internal Control.................................................................................................... I Scheduleof Other Matters........................................................................................................2 Schedule of Prior Year Recommendations..............................................................................5 RequiredCommunications.................................................................................................................7 Financial Statement Audit Assurance.....................................................................................7 Other Information Included with the Audited Financial Statements....................................7 AccountingPolicies.................................................................................................................8 U 1 Transactions actions Controversial or Emerging Areas.....................................................8 nusua Estimates...................................................................................................................................9 Disagreements with Management...........................................................................................9 RetentionIssues........................................................................................................................9 Difficulties.................................................................................................................................9 AuditAdjustments...................................................................................................................9 UncorrectedMisstatements.....................................................................................................9 This Page Left Intentionally Blank Maze & ASSOCIATES ACCOUNTANCY CORPORATION 3478 Buskirk Ave. -Suite 215 Pleasant Hill, California 94523 MEMORANDUM ON INTERNAL CONTROL (925) 930-0902 - FAX (925) 930-0135 maze@mazeassociates.com www.mazeassociates.com October 22, 2008 To the City Council of the City of San Rafael San Rafael, California In planning and performing our audit of the financial statements of the City of San Rafael as of and for the year ended June 30, 2008, in accordance with auditing standards generally accepted in the United States of America, we considered the City's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the City's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City's financial statements that is more than inconsequential will not be prevented or detected by the City's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the City's internal control. Our consideration of internal control was for the limited purpose described in the first paragraph and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control that we consider to be material weaknesses, as defined above. Included in the Schedule of Other Matters are recommendations not meeting the above definitions that we believe to be of potential benefit to the City. The City's written responses included in this report have not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them. This communication is intended solely for the information and use of management, City Council, others within the organization, and agencies and pass-through entities requiring compliance with generally accepted government auditing standards, and is not intended to be and should not be used by anyone other than these specified parties. a r 4 A40d` A Professional Corporation CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL SCHEDULE OF OTHER MATTERS 2008-01 - Upcoming GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets (Effective for fiscal year 2009-2010) - Retroactive Application Required Governments have different types of intangible assets, such as easements, water rights, patents, trademarks, and computer software. Easements are referred to in the GASB 34 description of capital assets, which has raised questions about whether and when intangible assets should be considered capital assets for financial reporting purposes. The absence of specific authoritative guidance has resulted in inconsistencies in the recognition, initial measurement, and amortization of intangible assets among governments. The objective of this Statement is to establish accounting and financial reporting requirements for intangible assets to reduce inconsistencies and enhance comparability. A summary of the statement: ➢ Intangible assets should be classified, accounted for and reported as capital assets, unless excluded from the scope. Guidance in this statement is in addition to existing capital asset guidance. ➢ GASB 51 specifically addresses the native of intangible assets. o Lack of physical substance. An asset may be contained in or on an item with physical substance, for example, a compact disc in the case of computer software. An asset also may be closely associated with another item that has physical substance, for example, the underlying land in the case of a right-of-way easement. These modes of containment and associated items should not be considered when determining whether or not an asset lacks physical substance. o Nonfinancial nature. In the'context of this Statement, an asset with a nonfinancial nature is one that is not in a monetary form similar to cash and investment securities, and it represents neither a claim or right to assets in a monetary form similar to receivables, nor a prepayment for goods or services. o Initial useful life greater than one year. ➢ GASB 51 excludes: o Assets acquired or created primarily for the purpose of directly obtaining income or profit. o Assets resulting from capital lease transactions reported by lessees. o Goodwill created through the combination of a government and another entity. ➢ Recognition of an intangible asset occurs only if it is considered identifiable. That is when either of the following apply: o The asset is separable from the government. That is it can be sold, transferred, licensed, rented, or exchanged. o The asset arises from contractual or other legal rights, regardless of whether transferable or separable. CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL SCHEDULE OF OTHER MATTERS ➢ Specific conditions must present to recognize internally generated intangibles. Capitalization of costs begins after all of the following criteria are met: o Determination of specific objectives of the project and the nature of the service capacity expected upon the completion. o Demonstration of the feasibility that the completed project will provide its expected service capacity. o Demonstration of the current intention, ability, and effort to complete or continue development of the intangible asset. o Internally generated computer software is used as an example in applying the specific conditions approach. ➢ Amortization lives are addressed: o Limited by contractual or legal provisions. • Renewal periods for rights may be considered if there is evidence that the government will.seek and be able to achieve renewal and that any anticipated outlays to be incurred as part of achieving the renewal are nominal. Such evidence should consider the required consent of a third party and the satisfaction of any conditions required to achieve renewal. o An indefinite life (no amortization) is permitted so long as there are: • No limiting legal, contractual, regulatory, technological, or other factors, and No subsequent change in circumstances. A permanent right-of-way easement is an example. Retroactive Application. For GASB 34 Phase I & II governments, retroactive reporting is required for intangible assets acquired in fiscal years ending after June 30, 1980. Retroactive reporting is not required for intangible assets with indefinite useful lives or internally generated intangibles, as of the effective date of this Statement. Management Response: Management is currently reviewing this requirement. Management will ensure compliance if the City is affected by the requirements. 2008-02- Upcoming GASB Statement No 53 Accounting and Financial Reporting for Derivative Instruments (Effective for fiscal year 2009-2010) This Statement is intended to improve how state and local governments report information about derivative instruments in their financial statements. Specifically, GASB 53 requires governments to measure most derivative instruments at fair value in their financial statements that are prepared using the economic resources measurement focus and the accrual basis of accounting (proprietary and entity -wide financial statements). Governments enter into derivative instruments as investments; as hedges of identified financial risks associated with assets or liabilities, or expected transactions (that is, hedgeable items); or to lower the costs of borrowings. Governments often enter into derivative instruments with the intention of effectively fixing cash flows or synthetically fixing prices. Common types of derivative instruments used by governments include interest rate and commodity swaps, interest rate locks, options (caps, floors, and collars), swaptions, forward contracts, and futures contracts. In addition, this standard addresses hedge accounting requirements. CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL SCHEDULE OF OTHER MATTERS Management Response: Management is currently reviewing this requirement. Management will ensure compliance if required. 10 CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL SCHEDULE OF PRIOR YEAR RECOMMENDATIONS 2007-01: Parking Citation Revenue Processing Controls Current Status: Management requested an internal control report pursuant to the requirements of Statement of Auditing Standards #70 — Service Organizations (SAS 70) from the Contractor. Contractor stated that a report will be provided. Management will review it as soon as it is received. 2007-02: Staff Training Current Status: Staff training is on going. Since December 2008, the Finance Department has been fully staffed with competent, hard working individuals. 2007-03: 1999 Tax Allocation Bonds "s) — Capital Appreciation Bond Restatement Current Status: The discount on the debt was amortized properly for fiscal year 2007-08. Amortization of the debt will continue as scheduled. 2007-04: Check Fraud Prevention Current Status: The financial system has not been updated with the ability to provide the positive pay report required by WestAmerica Bank. Management will implement positive pay for WestAmerica accounts that the City has the first line of control of the checks as soon as an update is available. 2007-05: Information Systems Review Current Status: Management has addressed most issues. Fire detection equipment for the City will be part of an overall facility needs assessment, so it was not addressed. Departments are responsible for training their new employees. 2007-06: Personnel Action Report Approvals Current Status: Current practice requires two signatures for any Department Director initiated change. This change includes hiring employees, step increases, allocation changes, and employee terminations. Changes to an employee's address or phone number will not require two signatures. CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL SCHEDULE OF OTHER MATTERS 2007-07: GASB Statement No, 48 —Sales and Pledges ofReceivables and Future Revenues and Intro- Entitp Transfers ofAssets and Future Revenues (effective for Fiscal Year 2007-2008) Current Status: The City implemented GASB Statement No. 48 in current year. 2007-08: GASB Statement No. 49 — Accounting and Financial Reporting for pollution remediation obligations (Effective for Fiscal Year 2008-2009) Current Status: Management will ensure compliance if the City is affected with this requirement. EA Maze & ASSOCIATES REQUIRED COMMUNICATIONS October 22, 2008 ACCOUNTANCY CORPORATION 3478 Buskirk Ave. - Suite 215 Pleasant Hill, California 94523 (925) 930-0902 • FAX (925) 930-0135 maze@mazeassociates.com www.mazeassociates.com To the City Council of the City of San Rafael San Rafael, California We have audited the financial statements of the City of San Rafael as of and for the year ended June 30, 2008 and have issued our report thereon dated October 22, 2008. Professional standards require that we advise you of the following matters relating to our audit. Financial Statement Audit Assurance: Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit in accordance with generally accepted auditing standards does not provide absolute assurance about, or guarantee the accuracy of, the financial statements. Because of the concept of reasonable assurance and because we did not perform a detailed examination of all transactions, there is an inherent risk that material errors, fraud, or illegal acts may exist and not be detected by us. Other Information Included with the Audited Financial Statements: Pursuant to professional standards, our responsibility as auditors for other information in documents containing the City's audited financial statements does not extend beyond the financial information identified in the audit report, and we are not required to perform any procedures to corroborate such other information. Our responsibility also includes communicating to you any information that we believe is a material misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsistent with the information, or manner of its presentation, appearing in the financial statements. This other information and the extent of our procedures is explained in our audit report. A Professional Corporation 7 CITY OF SAN RAFAEL REQUIRED COMMUNICATIONS Accounting Policies: Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City is included in Note 1 to the financial statements. There have been no initial selections of accounting policies and no changes in significant accounting policies or their application during 2008. As described in notes to the financial statements, during the year, the City implemented the following new standards: GASB Statement No. 48 - Sales and Pledges of Receivables and Future Revenues and Intra - End Transfers of Assets and Future Revenues This Statement established financial reporting of several categories of transactions. There was no cumulative effect on prior year financial statements. However, Note 6 to the financial statements was modified to include disclosures of revenue pledged for repayment debt. GASB Statement No. 50 -Pension Disclosures — an amendment oiGASB Statements No. 25 and No. 27 This Statement amended disclosure requirements for defined benefit pension. The current disclosures of Note 9 to the financial statements comply with this Statement. Unusual Transactions, Controversial or Emerging Areas: No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. There have been no initial selections of accounting policies and no changes in significant accounting policies or their application during 2008. While there have been no changes in accounting policies or disclosures resulting from the credit crisis, we believe the unprecedented volatility of credit markets occurring after year end warrants mention. Credit Risk and the Financial Crisis: The City has credit risk in its investments (see Note 2F to the financial statements). Credit risks as of June 30, 2008 for these areas have been disclosed in accordance with generally accepted accounting principals. However, subsequent to year end, financial markets experienced significant reductions of available credit and certain financial institutions have had their credit ratings downgraded with one large institution entering bankruptcy. The federal government has taken steps to support financial markets in an effort to stave off further negative trends. These conditions have increased credit risks which warrant continuous monitoring and reassessment of the risk that credit counterparties and investees maybe downgraded or be unable to fulfill their obligations. Highest priority should be placed on maintaining a credit watch on its counterparties and formulate contingency plans as needed to ensure credit remains available for its operations. CITY OF SAN RAFAEL REQUIRED COMMUNICATIONS Estimates: Accounting estimates are an integral part of the financial statements prepared by management and are based on management's current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management's current judgments. The most sensitive accounting estimates affecting the financial statements are fair values of Investments. • Estimated Fair Value of Investments: As of June 30, 2008, the City, held approximately $48 million of cash and investments, as measured by fair value. Fair value is essentially market pricing in effect as of June 30, 2008. These fair values are not required to be adjusted for changes in general market conditions occurring subsequent to June 30, 2008. Disagreements with Management: For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter that could be significant to the City's financial statements or the auditor's report. No such disagreements arose during the course of the audit. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters. Retention Issues: We did not discuss any major issues with management regarding the application of accounting principles and auditing standards that resulted in a condition to our retention as the City's auditors. Difficulties: We encountered no serious difficulties in dealing with management relating to the performance of the audit. Audit Adjustments: For purposes of this communication, professional standards define an audit adjustment, whether or not recorded by the City, as a proposed correction of the financial statements that, in our judgment, may not have been detected except through the audit procedures performed. These adjustments may include those proposed by us but not recorded by the City that could potentially cause future financial statements to be materially misstated, even though we have concluded that the adjustments are not material to the current financial statements. We did not propose any audit adjustments that, in our judgment, could have a significant effect, either individually or in the aggregate, on the City's financial reporting process. Uncorrected Misstatements: Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. We have no such misstatements to report to the audit committee. **+st* This report is intended solely for the information and use of the City Council, its committees, and management and is not intended to be and should not be used by anyone other than these specified parties. m� A A)A0,0 This Page Left Intentionally Blank