HomeMy WebLinkAboutItem 14 - Auditor's PresentationCity of San Luis Obispo
Presentation to The City Council
March 17, 2020
Presented by:Ahmed Badawi, CPA
Partner
Badawi & Associates
Audit of the
City of San Luis Obispo
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Agenda
Engagement Team
Deliverables and Scope of the Audit
Areas of Primary Emphasis
Auditors Report and Financial Statements
Required Communications
New Accounting Standards
Conclusion & Discussion/Questions
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Engagement Team
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Engagement Team
Engagement
Partner
Ahmed Badawi,
CPA
Quality Control
Reviewer
Staff
Samantha Michel
Manager
Mitesh Desai
CPA
Information Technology
Robert Wucher
CISA, CISM, CRISC
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Senior
Wenwei Zhao
CPA
Staff
Yifan Wu
Staff
Saleh Yassin
CPA
Deliverables and Scope of the Audit
Report of Independent Auditors on City of San Luis Obispo Basic
Financial Statements
Independent Auditors’ Report on Internal Control Over Financial
Reporting and on Compliance and Other Matters
Independent Auditor’s Report on Compliance with Requirements
Applicable to Each Major Program and Internal Control over
Compliance in Accordance with the Uniform Guidance
Report on Compliance with TDA
Report of Independent Auditors on the Whale Rock Commission Basic
Financial Statements
Agreed-Upon Procedures Report on Appropriation Limit Schedule
Communications With Those Charged With Governance
Letter used to summarize communication of various significant
matters to those charged with governance.
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Areas of Primary Audit Emphasis
Revenues &Receivables (Tax,Grants,Notes and Others):Improper revenue
recognitions
Governmental Funds:
Confirmed/validated property taxes,sales taxes,franchise taxes &
other significant revenues/receivables.
Proprietary Funds:
Performed analytical procedures and trends analysis.
Pension &OPEB:Complex accounting standards
Reviewed management’s journal entries for pension and OPEB.
Agreed amounts recorded to reports provided by CalPERS and CalPERS’
Auditors and performed testing of census information used by CalPERS.
Reviewed management’s allocation of pension and OPEB amounts to
enterprise fund.
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Areas of Primary Audit Emphasis
The risk of management override of controls is addressed by the following
procedures:
Assignment of audit staff based on consideration of audit risk.
Procedures to incorporate an element of unpredictability in the audit
from period to period.
Consideration of the selection and application of significant accounting
principles.
Examination of journal entries.
Review of accounting estimates for bias.
Evaluation of business rationale for unusual transactions.
Evaluation of the appropriateness of fraud -related inquiries performed
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Auditors Report
Unmodified opinion
Audit performed in accordance with Generally
Accepted Auditing Standards, and Government
Auditing Standards
Financial statements are fairly presented in all material
respects
Significant accounting policies have been consistently
applied
Estimates are reasonable
Disclosures are properly reflected in the financial
statements
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Government-Wide Financial Statements
Cash &
Investments
Restricted
Cash &
Investments
with fiscal
agents
Accounts,
Taxes,
Accrued
Interest
Receivable
Other Assets Capital
Assets
Deferred
outflows of
resources
2017 $108,034 $4,524 $14,580 $10,561 $372,467 $35,180
2018 $110,461 $1,978 $15,838 $11,081 $377,458 $37,195
2019 $127,974 $922 $15,614 $8,889 $377,652 $35,016
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
Assets and Deferred Outflows of Resources (in thousands)
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Government-Wide Financial Statements
Accounts
Payable
Other Current
Liabilities
Net Pension
Liability
OPEB
Liabilities
Long-Term
Debt
Deferred
Inflows of
Resources
2017 $5,457 $2,757 $136,127 $(495)$80,043 $8,737
2018 $5,955 $2,772 $151,273 $7,651 $72,907 $2,349
2019 $6,618 $5,426 $153,733 $7,356 $67,748 $4,796
$(20,000)
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
Liabilities and Deferred Inflows of Resources (in thousands)
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Government-Wide Financial Statements
Net Investment in
Capital Assets Restricted Unrestricted
2017 296,250 4,545 11,924
2018 308,167 1,981 956
2019 314,091 20,959 (14,661)
(50,000)
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
Net Position (in thousands)
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Government-Wide Financial Statements
$14,650,414
$6,364,558
$9,470,638
$8,674,138
$1,184,093
$618,977
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
Changes in Net Position
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Government-Wide Financial Statements
2017 2018 2019
Net Cost of Service $49,387,787 $58,948,940 $64,559,739
Tax Revenue $56,767,653 $58,770,572 $60,957,748
$-
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
Net Cost of Service to Tax Revenue
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General Fund
Expenditure Coverage
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2017 2018 2019
Unresticted Fund Balance 23,194,804$ 25,896,243$ 30,043,906$
Total Expenditures 58,912,698$ 75,141,911$ 72,462,957$
Unrestricted Fund Balance as
a % of Total Expenditures 39.37%34.46%41.46%
Number of months 5 4 5
GFOA recommendation 2 - 4
Measure of City's ability to operate with no revenues
using available net position.
City’s Annual Pension Contributions
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2017*2018*2019*
Safety $6,299,915 $5,910,345 $8,348,780
Miscellaneous $6,776,849 $6,698,266 $9,354,287
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
*Contributions made in 2017-2019 include additional contributions of $1,375,000, $1,400,000, and $1,625,000 to CalPERS respectiv ely.
Other Financial Information
Other Financial Information
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Fiduciary Net Position Total Pension Liability Net Pension Liability
as of 6/30/16 $111,332,827 $176,125,587 $64,792,760
as of 6/30/17 $121,531,215 $192,895,561 $71,364,346
as of 6/30/18 $127,852,776 $199,793,309 $71,940,534
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
City’s Pension Funded Status -Safety
Other Financial Information
Fiduciary Net Position Total Pension Liability Net Pension Liability
as of 6/30/16 $117,130,354 $189,675,644 $72,545,290
as of 6/30/17 $128,465,063 $209,751,766 $81,286,703
as of 6/30/18 $136,478,311 $218,270,720 $81,792,409
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
City’s Pension Funded Status -Miscellaneous
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Other Financial Information
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Miscellaneous Safety Total
6.15%$109,534,233 $99,483,321 $209,017,554
7.15%$81,792,409 $71,940,534 $153,732,943
8.15%$58,718,302 $49,374,150 $108,092,452
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
City’s Pension Plan Sensitivity to Discount Rate (2018
Measurement Date)
Other Financial Information
City’s Annual OPEB Contributions
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2017 2018 2019
Contributions $1,493,996 $1,221,000 $677,824
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
Other Financial Information
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Plan Fiduciary Net
Position Total OPEB Liability Net OPEB Liability
as of 6/30/16 $4,345,728 $12,651,572 $8,305,844
as of 6/30/17 $5,479,720 $13,130,633 $7,650,913
as of 6/30/18 $6,365,378 $13,721,056 $7,355,678
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
City’s OPEB Funded Status
Other Financial Information
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5.75%6.75%7.75%
Net OPEB Liability $9,214,711 $7,355,678 $5,825,382
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
City’s OPEB Plan Sensitivity to Discount Rate
(2018 Measurement Date)
Other Financial Information
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1% Decrease Current Trend 1% Increase
Net OPEB Liability $5,559,777 $7,355,678 $9,577,917
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
City’s OPEB Plan Sensitivity to Health Care Cost Trend Rate
(2018 Measurement Date)
Adjustments Needed to the CAFR
Account/Fund
General
Fund
SB1 Road
Repair Fund Water Transit
Whale Rock
Agency Fund
Other Agency
Funds
Cash (193,882) 71,950 373,058 (373,058) 121,932
Investment in joint venture (205,360.00)
Expense 205,360.00 373,058
Revenue (193,882) 71,950 373,058 121,932
Fund Balance/Net Position (193,882) 71,950 (205,360.00) 373,058 (373,058) 121,932
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Required Communications
Our Responsibility Under
U.S GAAS
•Opinion on whether financial
statements are fairly stated in
accordance with U.S GAAP
•Evaluate internal control over
financial reporting including tone
at the top
•Evaluate compliance with laws,
contract and grants
•Ensure financial statements are
clear and transparent
•Communicate with the governing
body
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Management Responsibility
•Management is responsible for the
financial statements
•Establish and maintain internal control
over financial reporting
•Making all financial records available to
us
•Adjust the financial statements to
correct material misstatements
•Establish internal control to prevent
and detect fraud
•Inform us of all known and suspected
fraud
•Comply with laws and regulations
•Take corrective action on audit findings
Required Communications
Independence
Timing of the Audit
•It is our responsibility to
maintain independence
•We will maintain our
independence by strict
adherence to the AICPA and the
Board of Accountancy rules and
regulations
•No other services performed
that could affect our
independence
•Audit was not performed in the
time frame communicated to the
City in our engagement letter
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Required Communications
Significant Accounting Policies
and Unusual Transactions
Management Judgment and
Accounting Estimates
The City adopted the following new
pronouncements during the year:
•GASB Statement No. 83, Certain
Asset Retirement Obligations
•GASB Statement No. 88, Certain
Disclosures Related to Debt,
including Direct Borrowings and
Direct Placements
Significant management estimates
impacting the financial statements
include the following:
•Useful lives of Capital Assets
•Pension Plans
•OPEB Plans
•Self-Insurance Liabilities
•Investment Valuations
•Allowance for uncollectable accounts
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Required Communications
Sensitive Disclosures
Difficulties Encountered in
Performing the Audit
The most sensitive disclosures affecting the
City’s financial statements are as follow:
•Summary of Significant Accounting Policies
•Cash and Investments
•Capital Assets
•Long Term Debt
•Net Position/Fund Balances
•Employee Retirement Plans
•Other Post Employment Benefits
•Commitments and Contingencies
•Subsequent Events
Some difficulties were encountered during our
audit.
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Required Communications
Significant Audit
Adjustments and
Unadjusted Differences
Considered by Management
to be Immaterial
Potential Effect on the
Financial Statements of Any
Significant Risks and
Exposures
There were adjustments and
reclassifying entries during the
course of the audit.
Management has posted all
proposed audit adjustments.
No significant risks or exposures
were identified. Legal matters
and potential liabilities are
disclosed in the financial
statements
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Required Communications
Disagreement with
Management
Deficiencies in Internal
Control
We are pleased to report that there
were no disagreements with
management
Material weaknesses:
•Year-end closing and reconciliations•Capital assets reconciliation•Journal entries posting and
numbering•Subsidiary ledgers reconciliation
Significant Deficiencies:
•Bank reconciliations
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Required Communications
Representations
Requested of
Management
Management
Consultation with Other
Accountants
We will obtain certain
representations from
management before issuing
our reports.
We are not aware of any
significant accounting or
auditing matters for which
management consulted with
other accountants
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Required Communications
Other Material Written
Communications
Material Uncertainties
Related to Events and
Conditions
Fraud and Illegal Acts
Other than the engagement
letter and management
representation letter, there
have been no other
significant communications
There were no material
uncertainties relating to
events and conditions
We have not become aware
of any instances of fraud or
illegal acts
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New Accounting Standards
•Statement 91 –Conduit Debt Obligations
2020
•Statement 84 –Fiduciary Activities
•Statement 90 –Majority Equity Interests—an amendment of GASB Statements No.
14 and No. 61
2021
2022
•Statement 87 –Leases
•Statement 89 –Accounting for Interest Cost Incurred before the End of a
Construction Period
Questions
Ahmed M. Badawi
abadawi@b-acpa.com
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Thank You
For Allowing Us to Provide Audit Services
to the City of San Luis Obispo
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