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HomeMy WebLinkAboutItem 10 - Acceptance of the Comprehensive Annual Financial Report (CAFR) FY 2019-20Item 10 �t�x ofi Council- d. Report ti ttjs o Department Name: Finance Cost Center: 2001 For Agenda of: January 19, 2021 Placement: Business Item Estimated Time: 20 minutes FROM: Brigitte Elke, Finance Director Prepared By: Debbie Malicoat, Accounting Manager/Controller SUBJECT: ACCEPTANCE OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR 2019-20 RECOMMENDATION Review and accept the 2019-20 Comprehensive Annual Financial Report and Audit. (Attachment A) DISCUSSION The accompanying Comprehensive Annual Financial Report (CAFR) has been prepared as required by the City's Charter and applicable State laws regarding financial reporting for municipalities. The CAFR provides a final and audited representation of the City's financial condition across all funds for the fiscal year that ended June 30, 2020. The CAFR was published on the City's website on December 31, 2020 to be available for public review. In accordance with the City Charter', the City's financial statements have been audited by independent certified public accountants from Badawi & Associates. The objective of the financial audit is to provide users of the financial reports with reasonable assurance from an independent source that the financial reports are reliable and represent a fair assessment of the City's financial condition. The auditor issued the financial statements with an unmodified opinion which means that they are presented fairly and in conformity with generally accepted accounting principles (see pages 1-3 of the CAFR- Independent Auditors' report). In the past, staff presented the Single Audit Report and Transportation Development Act annual audit at the same time as the CAFR. However, due to timing issues, these two reports will be presented at a future date that corresponds with applicable deadlines. 1 Section 810. Independent Audits. The Council shall employ, at the beginning of each fiscal year, an independent certified public accountant who, at such time or times as may be specified by the Council, at least annually, shall examine the books, records, inventories, and reports of all officials, employees, departments, and agencies who receive, handle, or disburse public funds. As soon as practicable after the end of the fiscal year, a final audit and report shall be submitted by such accountant to the Council, one copy thereof to be distributed to each member, one each to the City Clerk, the City Treasurer, the City Manager, and City Attorney respectively, and three (3) additional copies to be placed on file in the office of the City Clerk where they shall be available for inspection by the general public for the period required by the laws of the State of California. Restricted and special assessment district funds shall be segregated in the audit report. Packet Page 145 Item 10 New Government Accounting Standard Board (GASB) Statements In 2020, GASB issued Statement No 95 - Postponement of the Effective Dates of Certain Authoritative Guidance - in consideration of the effect of the worldwide pandemic on government operations. Hence, no new accounting standards became applicable for the audited fiscal year. Financial Results Highlighted in the CAFR Within the CAFR, the Transmittal Memorandum and Management's Discussion and Analysis (MD&A) summarize the City's fiscal performance and provide an analysis of the influencing factors. They also provide information on the City's fiscal policies, practices, and financial results. Key variances from projected ending balances for 2019-20 are highlighted in the Transmittal Memorandum. Both documents allow the reader to gain insight into the City's audited financials and provide context to the financial statements that follow. Financial results for fiscal year 2019-20 were mixed, largely due to the global pandemic, the shelter -at-home directives, and the City's response to it. All major funds experienced impacts and in particular, the Transit Fund and Parking Fund revenues were significantly reduced as demand diminished with the shelter -at-home directives. Additionally, the City offered free parking both on -street and at the garages, as well as free ridership on City buses to assist with the impacts of COVID-19. Revenues and expenditures in the General Fund came in below original budget estimates by $4 million. However, by reacting quickly and activating the Fiscal Health Contingency Plan, General Fund expenditures remained $7.5 million under budget. The result was an ending fund balance of $33.7 million. As the chart below outlines, most of the ending balance is assigned for future spending or adopted reserve levels, and not available for spending in conformance with GASB 54. BUDCET - ACTUAL CONTARLS ON General Fund 2019 20 2019 20 Positive (Negative) Final Budget Actual Variance Revenues $ 78,801,803 $ 74,777,801 $ (4,024,002) Expenditures 77,541,039 70,068,613 7,472,426 Other sources (uses) 1,517,246 (2,761,051) (4,278,297) Beginning fund balance 31,703,159 31,703,159 - Ending fund balance $ 34,481,169 $ 33,651,296 $ (829,873) Ending fund balance Non seen dable - - Restricted - - - Committed - - - Assigned - 26,528,689 26,528,689 Unassigned - 7,122,607 7,122,607 Total ending fund balance $ 34,481,169 $ 33,651,296 $ (829,873) Packet Page 146 Item 10 General Fund - Fund Balance June 30, 2020 Nonspendable - signed to: Contingency Fund - 20% policy level $ 10,251,000 Establishment of Section 115 Trust 1,400,000 Revenue Stabilization 1,000,000 Development Services 899,277 Risk Management 1,498,078 General Government 10,384,119 Public Safety 1,096,215 nassigned 7,122,607 Total fund balance $ 33,651,296 The unassigned fund balance of $7.1 million represents the amount available for additional spending. This includes $5.9 million in unassigned fund balance from 2018-19 that the City Council left intact due to the uncertainties with the onset of the pandemic. The City Council subsequently delegated authority to the City Manager to utilize up to $5.9 million for COVID-19 related expenses as the pandemic and the associated needs continued to evolve. Enterprise Funds The City maintains four Enterprise Funds for its Water and Sewer utility, and the Parking and Transit enterprises. Enterprise Funds are business -type activities within government accounting and are reported on separately. The primary sources of revenue for the Water, Sewer, and Parking Funds are fees for sales and services. Transit is largely funded through federal and state allocation to supplement farebox revenue. Most revenue streams in these funds exceeded budget assumptions except for all parking fees collected within the Parking Fund, Transit bus fares, and sales to Cal Poly in the Water and Sewer Funds. All of these are impacts of the COVID-19 pandemic. Apart from the Parking and Transit Fund, the Enterprise Funds ended the fiscal year 2019-20 positively with an increase in net position at year end. The Parking Fund experienced a decrease in net position by $102,594 and the Transit Fund by $373,542 (CAFR page 35). Though the Transit Fund was heavily impacted by the pandemic, it did receive funding through the CARES Act that will make up the losses. Packet Page 147 Item 10 CAFR Organization In accordance with generally accepted accounting principles for state and local governments, the City's CAFR is organized into three major sections: Introduction, Financial Reports, and Statistical Tables. The following is a brief summary of the contents of each of these sections. Introduction. The Transmittal Memorandum and other information of general interest are presented in this section, including directory of officials, advisory bodies, and organization chart. Financial Reports. This section includes the City's primary financial statements in five major parts: 1. Auditors' opinion regarding the financial statements. 2. Management's discussion and analysis providing a narrative overview of City-wide finances. 3. The basic financial statements presenting the government -wide results combining the activities of the major funds (General, Capital Outlay and all Enterprise Funds) into governmental and business -type categories; the fund financial statements; and the notes to the financial statements. 4. Required supplementary information presenting the General Fund actual results with both the original and final adjusted budgets. 5. Other supplemental schedules and financial statements providing financial information for each of the City's non -major governmental and agency funds. This includes a financial schedule presenting Half Percent Sales Tax Measure revenues and uses in 2019-20 as required by the City's Municipal Code. Statistical Tables. This section provides demographic and financial tables showing current and historical trend information for the City and is organized into six major parts: 1. Statistical overview. General information about the San Luis Obispo community. 2. General financial trends. Ten-year summary information on net assets, governmental revenues and expenditures and fund balances. 3. Revenue capacity. Ten-year summary information on property and sales tax trends. 4. Debt capacity. Ten-year summary information on debt service requirements. 5. Economic and demographic trends. Ten-year summaries of taxable sales, building permits and valuations, housing, population and other demographic trends. 6. Operating information. Ten-year trend information on operating indicators by function. Recognition for Excellence in Financial Reporting Beginning in fiscal year 1983-84, all of the City's CAFRs have been awarded the certificate of achievement for excellence in financial reporting from the Government Finance Officers Association of the United States and Canada (GFOA). This is a prestigious national award recognizing the City's use of the highest standards in preparing its annual financial report. The City has submitted the award application for the 2018-19 CAFR, but due to COVID-19 the award program is delayed. Staff will again apply to the program for the 2019-20 CAFR. Packet Page 148 Item 10 Popular Annual Financial Report (PAFR) In accordance with the Government Finance Officers' Association (GFOA) Best Practices, the City also publishes a popular version of the CAFR to make the information readily accessible and easily understandable to the general public and other interested parties without a background in public finance. The PAFR is available on the City's website under: hM2s://www. slocity.org_/govemment/denartment-directory/fmance-and-it/online-documents/-folder- 1990 Policy Context The City's Charter under Section 810 requires the employment of an independent certified public account to examine the City's financials. Public Engagement The City's annual audit and issuance of the Comprehensive Annual Financial Report fulfills a legal requirement and does not have a public engagement component outside the required presentation before Council during a public session. ENVIRONMENTAL REVIEW The California Environmental Quality Act does not apply to the recommended action in this report, because the action does not constitute a "Project" under CEQA Guidelines Sec. 15378. FISCAL IMPACT Budgeted: Yes Funding Identified: Yes Fiscal Analysis: Budget Year: 2020-21 Funding Sources Total Budget Available Current Funding Request Remaining Balance Annual Ongoing Cost General Fund $75,000 $61,310 $13,690 State Federal Fees Other: Total $75,000 $61,310 $13,690 The City budgets the cost for the auditing firm annually. The cost is appropriated with the annual budget approval. The current fiscal year contains a budget of $75,000 for the previous fiscal year audit. Actual costs are anticipated to be $61,310. Packet Page 149 Item 10 ALTERNATIVES The City Council could decide to revise or not accept the Comprehensive Annual Financial Report for fiscal year 2019-20. This is not recommended as the report has been prepared in conformance with a variety of accounting and other reporting requirements and represent the professional evaluation and analysis by the City's independent auditors as required by the City Charter. The auditors have rendered an unqualified opinion which means that the reports are presented fairly and in conformity with generally accepted accounting principles. Attachments: a - COUNCIL READING FILE - Comprehensive Annual Financial Report 2020 Packet Page 150 Jl 9MA omnrE r S Gt � Y O� � �� CITY OF S.fIIZ DELIS OBISPO r4as o4 •• rl 1 Recommendation Review and accept the Comprehensive Annual Financial Report for Fiscal Year 2019-20. Annual , • Annual audits are required by the City's Charter and State laws • City's current auditing firm — Badawi & Associates • Purpose is to fairly present the financial condition of the City in accordance with Generally Accepted Accounting Principles • Single Audit Report and Transportation Development Act Fund Report will be issued separately Audit Highlights • Unqualified, Clean Audit • No substantial material findings • Increase in Fund Balance in General Fund, Water Fund and Sewer Fund. Significant impacts in Parking and Transit Funds due to COVID-19. FY 2019-20 Financial Statements Governmental Funds — Revenues $88.1 million Wd{hv*-Yp #hyhgxh# vrxuEhv#7xfk#dv#7d&v/# sixshuv AkdgvhgvvN dgg*o *vh--#¢d{1 t#vhiy1Ehv#7xfk#0v# sp hgv#Jhyhz /}Vduz## # v bfq#.Lrj udp v#@ # *vvhv\T hq-1 Uhyhgxh*xp #j Ldq-## dgg#4M1hvvp hq-1 Investment Income $2,005,968 Miscellaneous = $947,627 Subventions & Grants $7,955,352 Charges for Services Business Tax $2,995,263 Franchise Tax $1,888,414 Utility User Tax $5,439,144 Transient Occupancy Tax $6,325,841 Property Tax Half -Percent Sales Tax $7,554,375 Sales & Use Tax . Y 2019-20 Financial Statements Governmental Funds — Expenditures $80.6 million SxedE#ld-bA OhIroh/WxwcLd*rf I:i,* ' 63/549/<<8 Vhuy]Ehv Sic ; /749/9; : .� WLdgvsrudwlrq ' 6/.43/<76 Fds}d*xwdI �. ' 43/9 : 8/78 : r�7 � J hghLd(C ryhulp hqw ' 47/$36/743 � G heWhu1r]Eh ' 5/8<; /<69 .. ffl Mr ■ ■ Total Expenditures: $80.6 million FY 2019-20 Financial Statements CAFR page xiv 2019-21 UFL Payments General Fund - Fund Balance June 30, 2020 Nonspendable - Assigned to: Contingency Fund - 20% policy level $ 10,251,000 Establishment of Section 115 Trust 1,400,000 Revenue Stabilization 1,000,000 Development Services 899,277 Risk Management 1,498,078 General Government 10,384,119 Public Safety 1,096,215 Unassigned 7,122 Total fund balance $ 33,651 $4.2 M $4.21VI $31VI Paid —April In Fund In Fund 2019 Balance Balance $31VI $21VI $21VI $21VI Part of new Part of new Part of new Part of new Fin. Plan Fin. Plan forecast forecast FY 2019-20 Financial Statements Proprietary (Enterprise) Funds Vhty]EhWkdujhV# 54/:46/363 Ip sdfv#Ihhv 6/:56/793 R vkhXhyhgxh 563 i5 ; Q rgCR shulvAI j Uhyhqxh# 5</798 Vhuy]EhWkdujhv# 49/; <9/<<3 Ip sdfvghhv 5/364/7:9 R vkhXhyhgxh 44 6 /<4 ; Q rq(R shuivIj Uhyhqxh# : ; 5/496 Revenues $54.8 million Vhuy]EhWkdujhV# 5/9::/76; 27ahv# 4#ruhl#cL v 935/73< R vkhWhyhgxh 47 /3 <7 Q rgQ2 shuivtjj Uhyhqxh# 879/44 ; Vhuy]EhWkdujhv# 963/39: R vkht#Jhyhgxh 6/$33 Q rq(R shuivklj Uhyhqxh# 6/465/574 FY 2019-20 Financial Statements Proprietary (Enterprise) Funds — Expenditures $46.2 million Vvdiit i ' Vxssdzv# W dl:PL ' F rgwdfWhi-y]Ehv ' J hghuid€T ryl Ghsdzflivkq ' Vvdii74J Vxssdiv#$ #p dlT ' F rgvulfWhiy]Ehv ' J hghtd(* ryl GhsLhflivb-q 7/96; /<7; 4/585/3 ; 6 45/335/5; : 4/8<5A87 5/973/54< 7/; 9</<96 4/.85/39; 4/6<3/444 4/:44/857 5/; <</38 ; Vvdir"ti ' Vxsschv# 4P d7T ' F rgKdfWVhi-y]Ehv ' J hghtd(W ryl GhsthfUw1rq ' Vvdiaij Vxsscbv#$ 4 ) dYT ' F rgwdfvXhur]Ehv ' J hghijd(V ryl G hsdzf ]3vlrq 4/798/.:7 6 ; : /: 7< 9;</ ;; 86:/5:: 967/698 6 8 : A 4 ; 5;5/<4: 5/563/5:3 5:9/;39 8<5/36< Transit Fund ' 3% Equipment Buildings 6% Parking Fund IW. 12% Water Fund r Constr. 40% 5% Infrastructure Land 63% 16% Sewer Fund 45% I CITY OF SRIZ DELIS OBISPO 2 0 1 9- 2 0 Audit Notes Section • Accompany the basic financial statements - Provides further analysis • Two new notes added for 2019-20 Note 4 — Loan Receivables This note reports on the City's outstanding loans for: Affordable Housing BEGIN Homeownership Note 19 — Covid-19 Down Payment Assistance Given the last quarter of the 2019-20 Fiscal Year, the worldwide pandemic and resulting health emergency declaration and economic recession, the 2019-20 Financial Statements need to be understood in this context. Statistical Section • The Statistical section provides additional financial and statistical data, including data about financial trends that may better inform the reader about the government's activities. • It is also a good resource for long-term trends, reporting on most data over a 10-year period. Popular Annual Financial Report https://www.slocity.org/Home/ShowDocument?id=2901 1 Addressing Auditor's Findings • Year-end closing and reconciliation • JE posting and numbering • Bank Reconciliation • Capital Asset —Additions and Deletions • Segregation of Duty in AP • Payroll System Configuration • Late Performance Reviews FY 2019=20 Financial Statements Questions? Recommendation Review and accept the Comprehensive Annual Financial Report for Fiscal Year 2019-20.