HomeMy WebLinkAboutItem 6a. Acceptance of the Transportation Development Act and Federal Single Audits for FY 2021-21 Item 6a
Department: Finance
Cost Center: 2005
For Agenda of: 3/15/2022
Placement: Business
Estimated Time: 30 Minutes
FROM: Brigitte Elke, Finance Director
Prepared By: Debbie Malicoat, Accounting Manager/Controller
SUBJECT: ACCEPTANCE OF THE TRANSPORTATION DEVELOPMENT ACT AND
FEDERAL SINGLE AUDITS FOR FISCAL YEAR 2020-21
RECOMMENDATION
Review and accept the Transportation Development Act (TDA) and Federal Single Audits
for Fiscal Year 2020-21.
DISCUSSION
On January 18, 2022, the City Council reviewed and accepted the City’s audited financial
statements for the fiscal year that ended June 30, 2021. As discussed in that report, the
City’s independent auditors were finalizing the Single Audit Report and TDA annual audit for
review at a later meeting. Both audits are now complete and ready for Council review.
TDA Report and Financial Statements
This document provides information on the revenues received by the City pursuant to the
TDA. (Attachment A) The City receives funding from the TDA for two specific purposes:
1. The development and construction of local streets and roads, including pedestrian
and bicycle facilities. Since these funds are legally restricted, the City has a special
revenue fund created to account for this portion of TDA revenues. The City received
$36,409 in TDA funding during the 2020-21 fiscal year. These revenues were
unspent at the end of the fiscal year and will be utilized in FY 2021-22 for a
transportation project that was delayed due to COVID-19. As such, the City Council
took action with the mid-year budget adjustments on February 15, 2022, that
allocated the carryover funding to the construction phase of the current Pedestrian
Crossing Improvements project.
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Item 6a
2. The Transit Fund is an enterprise fund to account for the revenues received pursuant
to the TDA, the Federal Transit Authority (FTA), and revenues from transit
operations. These revenues are allocated under specific statues and are legally
restricted to pay for transit operations, the development of public transportation
systems, and transportation planning. The Transit Fund received $351,998 in TDA
operating grants during the fiscal year. These funds were also unspent at fiscal year-
end due to CARES Act funding received for Transit and will be available for future
use.
In addition, this report demonstrates the City’s compliance with applicable TDA regulations
pertaining to acceptable fare revenue ratios. For the fiscal year ended in 2021, the City was
required to maintain a fare revenue ratio of 20%, the actual ratio was 90% due to a change
in calculation allowing the inclusion of federal grant funds as local funds for the purpose of
computing fare revenue ratios. This mandate is discussed further in Note 7 of the report.
Single Audit Reports
The Single Audit (Attachment B) fulfills several criteria required by federal regulations. First,
it provides a report on the City’s internal control when it comes to financial reporting. Second,
it provides a schedule of expenditures that were funded by federal grants and the City’s
compliance with applicable Federal regulations. Third, it provides a schedule of findings and
questioned costs, if any. The findings are areas of improvement for the City when it comes
to the internal controls that are designed to manage the risk with which the City’s assets are
safeguarded, and its finances are accurately reported which then translates into the proper
administration of federal funding.
As previously presented to the City Council, there are four findings and no questioned costs.
The City’s responses to the auditor’s findings are incorporated into the document. City staff
remain committed to continuous improvements over internal controls and system
performance and incorporating the concerns raised by the auditors. To reiterate, these are
areas of improvement and none of them put the City’s revenues in jeopardy or appropriate
accounting of expenditures in question. Staff can also report that the remaining imbalance
in bank reconciliation was caused by a timing issue related to recording revenue of $39,697,
leaving approximately $2,500 unreconciled on June 30, 2021.
Policy Context
The City’s Charter under Section 810 requires the employment of an independent
certified public account to examine the City’s financial statements.
Public Engagement
The City’s annual audit and issuance of the financial reports fulfills a legal requirement
and does not have a public engagement component outside the required presentation
before Council during a public session.
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Item 6a
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 Budget Year: 2021-22
Funding Identified: Yes
Fiscal Analysis:
Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund $75,000 $62,405 $12,595 $75,000
State
Federal
Fees
Other:
Total $75,000 $62,405 $12,595 $75,000
The City budgets the cost for the auditing firm annually. The cost is appropriated with the
annual budget adoption and encompasses the Annual Comprehensive Financial Report
(ACFR), TDA, Single Audit, and the Whale Rock Reservoir audit. The current fiscal year
contains a budget of $75,000 for the previous fiscal year audit. The City had received a
five-year fee schedule with the audit contract and for this fiscal year, the cost is $62,405.
ALTERNATIVES
The City Council could decide to revise or not accept the presented reports for
fiscal year 2020-21. This is not recommended as the reports have been prepared in
conformance with a variety of accounting, federal, and state reporting requirements and
represent the professional evaluation and analysis by the City’s independent auditors.
ATTACHMENT
A - Single Audit Reports for the year ended June 30, 2021
B - Transportation Development Act Funds Financial Statements Years Ended June 30,
2021 and 2020
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Page 792 of 984
City of San Luis Obispo
Financial Statements
Years Ended
June 30, 2021 and 2020
Page 793 of 984
Page 794 of 984
City of San Luis Obispo,
California
Transportation Development Act Funds
Financial Statements
Years Ended June 30, 2021 and 2020
Page 795 of 984
City of San Luis Obispo, California
Transportation Development Act
Funds Report and Financial
Statements
Year Ended June 30, 2021 and 2020
Table of Contents
Page
Independent Auditors’ Report 1
Balance Sheets June 30, 2021 and 2020 5
Statements of Revenues, Expenditures and Changes in Fund Balance
Years Ended June 30, 2021 and 2020 6
Statements of Fund Net Position June 30, 2021 and 2020 7
Statements of Revenues, Expenses and Changes in Fund Net Position
Years Ended June 30, 2021 and 2020 8
Statements of Cash Flows Years Ended June 30, 2021 and 2020 9
Notes to Financial Statements 11
TDA Fund Supplementary Information
Schedule of Revenues and Expenditures Budget and Actual
Years Ended June 30, 2021 and 2020 21
Report on Internal Control over Financial Reporting and on Compliance and Other
Matters Based on an Audit of Financial Statements Performed in accordance with
Government Auditing Standards 23
Independent Auditor’s Report on Transportation Development Act Compliance 25
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INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Report on the Financial Statements
We have audited the accompanying financial statements of the Transportation Development Act (TDA)
Fund and the Transit Fund of the City of San Luis Obispo, California (City), as of and for the years ended
June 30, 2021 and 2020, and the related notes to the financial statements as listed in the table of contents.
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.
Auditors’ Responsibility
Our responsibility is to express opinions 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 and the
standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. 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 opinions.
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To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 2
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of the Transportation Development Act (TDA) Fund and the Transit Fund of the City as of June 30,
2021 and 2020, the changes in financial position and cash flows where applicable for the years then ended in
accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 1, the financial statements present only the Transportation Development Act (TDA)
Fund and the Transit Fund and do not purport to, and do not, present fairly the financial positions of the
City as of June 30, 2021 and 2020, the changes in its financial position or where applicable, its cash flows for
the years then ended in accordance with accounting principles generally accepted in the United States of
America. Our opinion is not modified with respect to this matter.
Other Matters
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
comprise the Transportation Development Act (TDA) Fund and the Transit Fund’s financial statements.
The supplementary information is presented for purposes of additional analysis and is not a required part
of the financial statements.
The supplementary schedules on page 21 are the responsibility of management and were derived from and
relate directly to the underlying accounting and other records used to prepare the financial statements.
Such information has been subjected to the auditing procedures applied in the audit of the financial
statements and certain additional procedures, including comparing and reconciling such information
directly to the underlying accounting and other records used to prepare the financial statements or to the
financial statements themselves, and other additional procedures in accordance with auditing standards
generally accepted in the United States of America. In our opinion, the supplementary schedules are fairly
stated in all material respects in relation to the financial statements as a whole.
2 Page 798 of 984
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 3
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated January 26, 2022 on
our consideration of the City’s internal control over financial reporting and on our tests of its compliance
with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The
purpose of that report is to describe the scope of our testing of internal control over financial reporting and
compliance and the results of that testing, and not to provide an opinion on internal control over financial
reporting or on compliance. That report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering City’s internal control over financial reporting and
compliance.
Badawi & Associates, CPAs
Berkeley, California
January 26, 2022
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4 Page 800 of 984
2021 2020
Assets
Cash and investments 4,421$ -$
Total assets 4,421$ -$
Liabilities and Fund Balance
Liabilities
Unearned revenue 4,421$ -$
Total liabilities 4,421 -
Total liabilities and fund balance 4,421$ -$
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund
Balance Sheets
June 30, 2021 and 2020
The accompanying notes are an integral part of these financial statements.5 Page 801 of 984
2021 2020
Revenues - intergovernmental allocations 36,409$ 48,608$
Other financing uses - operating transfers to City of San Luis Obispo (36,409)(48,608)
Excess of revenues over other financing uses --
Fund balance - beginning of year --
Fund balance - end of year -$ -$
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund
Statements of Revenues, Expenditures and Changes in Fund Balance
June 30, 2021 and 2020
The accompanying notes are an integral part of these financial statements.6 Page 802 of 984
2021 2020
Assets
Current assets:
Cash and investment 3,610,074$ 2,317,893$
Accounts receivable 3,234 26,115
Interest receivable 8,401 8,492
Due from other governments 2,805,689 2,307,585
Total current assets 6,427,398 4,660,085
Capital assets:
Infrastructure 221,743 221,744
Buildings and improvements 5,101,506 5,101,506
Transit operating equipment 9,021,099 9,021,099
Construction in progress 2,182 1
Total capital assets 14,346,530 14,344,350
Less accumulated depreciation (9,552,679)(9,016,878)
Total capital assets, net of accumulated depreciation 4,793,851 5,327,472
Total assets 11,221,249 9,987,557
Deferred Outflows of Resources
Pension related 101,832 90,898
Other post‐employment benefits related 9,274 14,698
Total deferred outflows of resources 111,106 105,596
Liabilities
Current liabilities:
Accounts payable 450,885 384,440
Accrued salaries and compensated absences 25,184 28,380
Unearned revenues 3,235,731 1,546,765
Total current liabilities 3,711,800 1,959,585
Noncurrent liabilities:
Compensated absences, net of current portion 3,452 6,650
Net pension liability 753,586 710,153
Net other post‐employment benefits liability 39,427 47,123
Total noncurrent liabilities 796,465 763,926
Total liabilities 4,508,265 2,723,511
Deferred Inflows of Resources
Pension related 688 11,159
Other post‐employment benefits related 15,642 17,104
Total deferred inflows of resources 16,330 28,263
Net Position
Net investment in capital assets 4,793,851 5,327,472
Restricted 2,013,909 2,013,907
Total net position 6,807,760 7,341,379
City of San Luis Obispo, California
Transit Fund
Statements of Fund Net Position
June 30, 2021 and 2020
The accompanying notes are an integral part of these financial statements.7 Page 803 of 984
2021 2020
Operating revenues:
Passenger fares 178,184$ 196,892$
Special transit fares 150,000 433,175
Other revenue 3,168 3,500
Total operating revenues 331,352 633,567
Operating expenses:
Purchased transportation 2,414,328 2,358,879
Other transportation services 168,252 259,334
Fuel and lubricants 204,966 251,412
Other materials and supplies 43,979 43,562
Salaries and wages 212,935 199,732
Fringe benefits 121,548 154,977
General and administrative 321,727 276,806
Depreciation 535,801 662,873
Total operating expenses 4,023,536 4,207,575
Operating loss (3,692,184)(3,574,008)
Nonoperating revenues:
Transportation Development Act operating grants 351,998 779,666
Federal Transit Administration operating grants 2,805,689 2,307,585
Interest 878 58,438
Other nonoperating revenues (expenses)-(13,048)
Total nonoperating revenues 3,158,565 3,132,641
Change in net position (533,619)(441,367)
Net position - beginning of year 7,341,379 8,420,245
Prior year restatement -(637,499)
Net position - beginning of year, as restated 7,341,379 7,782,746
Net position - end of year 6,807,760$ 7,341,379$
City of San Luis Obispo, California
Transit Fund
Statements of Revenues, Expenses and Changes in Net Position
Years Ended June 30, 2021 and 2020
The accompanying notes are an integral part of these financial statements.8 Page 804 of 984
2021 2020
Cash flows from operating activities:
Cash received from customers 354,233$ 773,552$
Cash payments to suppliers for goods and services (2,765,080)(2,764,787)
Cash payments to General Fund for interfund services (321,727)(276,806)
Cash payments to employees for services (322,583)(300,633)
Net cash used in operating activities (3,055,157)(2,568,674)
Cash flows from noncapital financing activities:
Operating grants received 4,348,549 3,811,301
Net cash provided by noncapital financing activities 4,348,549 3,811,301
Cash flows from capital and related financing activities:
Acquisition and construction of capital assets (2,180)(231,546)
Net cash used in capital and related financing activities (2,180)(231,546)
Cash flows from investing activities:
Interest on investments 969 56,337
Net cash provided by (used in) investing activities 969 56,337
Net increase (decrease) in cash and cash equivalents and investments 1,292,181 1,067,418
Cash and cash equivalents and investments - beginning of year 2,317,893 1,250,475
Cash and cash equivalents and investments - end of year 3,610,074$ 2,317,893$
City of San Luis Obispo, California
Transit Fund
Statements of Cash Flows
Years Ended June 30, 2021 and 2020
The accompanying notes are an integral part of these financial statements.9 Page 805 of 984
2021 2020
Reconciliation of operating loss to net cash used in operating activities:
Operating loss (3,692,184)$ (3,506,183)$
Adjustments to reconcile operating loss to net cash used in operating activities:
Depreciation 535,801 592,039
Changes in operating assets, deferred outflows, liabilities,
and deferred inflows:
Accounts receivable 22,881 139,985
Accounts payable 66,445 148,400
Accrued salaries and compensated absences (6,394) 4,795
Pension related deferred outflows and inflows and net pension liability 22,028 60,954
OPEB related deferred outflows and inflows and net OPEB liability (3,734) (8,664)
Net cash used in operating activities (3,055,157)$ (2,568,674)$
Reconciliation of cash and cash equivalents and investments to the statement
of fund net position:
Cash and investment 3,610,074$ 2,317,893$
Total cash and cash equivalents and investments 3,610,074$ 2,317,893$
Non cash transactions
Gain (loss) on sale of capital assets -$ (13,048)$
Statements of Cash Flows, Continued
Years Ended June 30, 2020 and 2019
City of San Luis Obispo, California
Transit Fund
The accompanying notes are an integral part of these financial statements.10 Page 806 of 984
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2021 and 2020
NOTE 1 -The Reporting Entity
The City of San Luis Obispo (the City) operates a fixed route public transportation system within the City limits and to the
California Polytechnic State University (Cal Poly). Vehicle operations and vehicle maintenance are provided under contract by a
private transportation company. Nonvehicle-related support and administrative services are provided by City staff.
The Transportation Development Act (TDA) Fund (the Fund) of the City of San Luis Obispo, California (the City) is a special
revenue fund created by resolution of the City Council to account for the revenues received pursuant to the TDA. Such revenues
allocated under specific state statutes are legally restricted to financial expenditures made of the development and construction of
local streets and roads, including pedestrian and bicycle facilities.
The Transit Fund is an enterprise fund of the City created by resolution of the City Council to account for the revenues received
pursuant to the Transportation Development Act (TDA), Federal Transit Authority (FTA) and the revenues received from the
transit operations described above. Such revenues are allocated under specific statutes and are legally restricted to finance
expenditures made for transit operations, the development of public transportation systems and transportation planning. When both
restricted and unrestricted resources are available for the same purpose, it is the City’s policy to use restricted funds first.
NOTE 2 -Summary of Significant Accounting Policies
Measurement Focus, Basis of Accounting and Basis of Presentation
The Transportation Development Act (TDA) Fund’s financial statements are reported using the current financial resources
measurement focus and the modified accrual basis of accounting. Revenues are recognized when measurable and available.
Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay the
liabilities of the current period. For this purpose, the City considers interest and grant revenues earned but not received as
susceptible to accrual under this method. Expenditures are generally recognized at the time liabilities are incurred.
The Transit Fund’s financial statements are reported using the economic resources measurement focus and the accrual basis of
accounting. Revenues are recognized when earned and expenses are recognized when incurred regardless of the timing of related
cash flows. The Fund distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses
generally result from providing services in connection with the Fund’s principal ongoing operations. The principal operating
revenues of the Fund are charges to customers for transit services. Operating expenses for the Fund include cost of services,
administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as
nonoperating revenues and expenses, including non-exchange transactions such as TDA and FTA grants.
Non-exchange transactions, in which the Transit Fund receives value without directly giving equal value in return, include grants.
Revenue from grants is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility
requirements include timing requirements, which specify the fiscal year when the resources are to be used or the fiscal year when
use is first permitted; matching requirements, in which the Transit Fund must provide local resources to be used for a specific
purpose; and expenditures requirements, in which the resources are provided to the Transit Fund on a reimbursement basis.
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City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2021 and 2020
Page 2
NOTE 2 -Summary of Significant Accounting Policies, Continued
Measurement Focus, Basis of Accounting and Basis of Presentation, Continued
Annual Financial Statements
The financial statements of the Transportation Development Act (TDA) Fund and the Transit Fund are intended to reflect the
financial position; results of operations and cash flows where applicable in conformity with generally accepted accounting
principles and are not intended to present the financial position, results of operations, or cash flows of the City of San Luis Obispo,
California.
Special Revenue Fund – Transportation Development Act Fund
This fund is used to account for the City’s share of Transportation Development Act (TDA) Article 3 funds that are legally
restricted for the improvement and maintenance of street systems including pedestrian and bicycle facilities. Under the City's
Financial Plan policies, all TDA Article 3 revenues are allocated for alternative transportation purposes. The purpose of this fund
is to account for these revenues.
Enterprise Fund - Transit
This fund is used to account for the operation and maintenance of the City’s transit system. TDA Article 4 and FTA allocations
for transit operations are accounted for in this fund.
Cash, Cash Equivalents, and Investments
Cash and cash equivalents consist of cash on hand, cash balances in checking and money market accounts and short- term
investments, with an original maturity of three months or less. Investments which are in the City’s internal investment pool are
also treated as cash equivalents for the purposes of the statement of cash flows.
Amounts Due from Other Governments
Generally, amounts due from other governments are recorded as revenues when earned. However, when the use of funds is the
prime factor for determining eligibility for grants, revenue is accrued when the related expenses have been made on an approved
grant.
Capital Assets
Capital assets are recorded at cost and depreciated using the straight-line method over their estimated useful lives, ranging from 5
to 20 years. Capital assets are defined by the City as assets with an initial, individual cost of more than $25,000. Detailed capital
assets can be found in Note 5.
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City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2021 and 2020
Page 3
NOTE 2 -Summary of Significant Accounting Policies, Continued
Net Pension Liability, Deferred Outflows and Deferred Inflows
The City recognizes a net pension liability, which represents the City’s excess of the total pension liability over the fiduciary net
position of the pension reflected in the actuarial reports provided by the California Public Employees’ Retirement System
(CalPERS) plans (Plans). The City has allocated a proportionate share of the net pension liability, deferred outflows, deferred
inflows and pension expense to the Transit Fund. The net pension liability is measured as of the City’s prior fiscal year-end.
Changes in the net pension liability are recorded, in the period incurred, as pension expense or as deferred inflows of resources or
deferred outflows of resources depending on the nature of the change. The changes in the net pension liability that are recorded as
deferred inflows of resources or deferred outflows of resources (that arise from changes in actuarial assumptions or other inputs
and differences between expected or actual experience) are amortized over the weighted average remaining service life of all
participants in the respective pension plan and are recorded as a component of pension expense beginning with the period in which
they are incurred.
For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension
expense, information about the fiduciary net position of the City’s CalPERS Plans and additions to/deductions from the Plans’
fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit
payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit
terms. Investments are reported at fair value. Projected earnings on pension investments are recognized as a component of pension
expense.
Other Post-Employment Benefits (OPEB) Liability, Deferred Outflows and Deferred Inflows
For purposes of measuring net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB,
and OPEB expense, information about the fiduciary net position of the City’s plan (OPEB Plan), and additions to or deductions
from the OPEB Plan’s fiduciary net position, have been determined on the same basis as they are reported by the California
Employer’s Retiree Benefit Trust Program (CERBT). For this purpose, benefit payments (including refunds of employee
contributions) are recognized when currently due and payable in accordance with benefit terms. Investments are reported at fair
value.
Generally accepted accounting principles require that the reported OPEB results must pertain to liability and asset information
within certain defined timeframes. For this report, the following timeframes are used:
Valuation Date June 30, 2019
Measurement Dates June 30, 2020 and 2019
Measurement Periods July 1, 2019 to June 30, 2020,
and July 1, 2018 to June 30, 2019
13 Page 809 of 984
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2021 and 2020
Page 4
NOTE 2 -Summary of Significant Accounting Policies, Continued
Fund Balance
The TDA Fund’s financial statements report fund balance in classifications that comprise a hierarchy based primarily on the extent
to which the City is bound to honor constraints on the specific purpose for which amounts in the funds can be spent. The Fund
does not have a fund balance in the current fiscal year, therefore classification is not necessary. However, GASB Statement No.
54, Fund Balance Reporting and Governmental Fund Type Definitions, identifies five components of fund balance –
nonspendable, restricted, committed, assigned and unassigned.
Nonspendable - This component includes amounts that cannot be spent because they are either (a) not in spendable form or (b)
legally or contractually required to be maintained intact.
Restricted - This component consists of amounts that have constraints placed on them either externally by third-parties (creditors,
grantors, contributors, or laws or regulations of other governments) or by law through constitutional provisions or enabling
legislation. Enabling legislation authorizes the City to assess, levy, charge or otherwise mandate payment of resources (from
external resource providers) and includes legally enforceable requirements (compelled by external parties) that those resources be
used only for the specific purposes stipulated in the legislation.
Committed - This component consists of amounts that can only be used for specific purposes pursuant to constraints imposed by
minute order authorized by the City Council. Also included in this component are encumbrances which represent legal and binding
obligations for the acquisition of future goods and services. Those committed amounts established by minute order cannot be used
for any other purpose unless the City Council adopts a new minute order so directing. With respect to encumbered amounts, the
City may take steps to cancel the order for goods or services and thereby terminate the obligation.
Assigned - This component consists of amounts that are constrained by the City’s intent to be used for specific purposes, but are
neither restricted nor committed. The City Manager or Director of Finance are authorized to assign amounts to a specific purpose.
Constraints imposed on the use of assigned amounts can be removed with no formal Council actions.
Unassigned - This classification represents amounts that have not been restricted, committed or assigned to specific purposes.
Fund Balance Spending Policy
The City follows a practice in which restricted, committed, assigned, and unassigned fund balances are spent when more than one
amount is available for a specific purpose. When both restricted and unrestricted resources are available for use, it is the City’s
policy to use restricted resources first, then unrestricted resources (committed, assigned and unassigned) as they are needed. When
unrestricted resources (committed, assigned and unassigned) are available for use, it is the City’s policy to use committed
resources first, then assigned, and then unassigned as they are needed.
14 Page 810 of 984
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2021 and 2020
Page 5
NOTE 2 -Summary of Significant Accounting Policies, Continued
Budgets and Budgetary Accounting
The City has received national recognition for its use of a two-year Financial Plan and budgetary process that emphasizes long-
range planning and effective program management. Significant features of the City’s two-year Financial Plan include the
integration of Council goal-setting into the budgetary process and the extensive use of formal policies and measureable objectives.
The Financial Plan includes operating budgets for two years and a capital improvement plan (CIP) for five years.
Under this multi-year approach, appropriations continue to be made annually; however, the Financial Plan is the foundation for
preparing the budget for the second year. Additionally, unexpended operating appropriations from the first year may be carried
over for specific purposes into the second year with the approval of the City Manager.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
NOTE 3 -Cash and Cash Equivalents and Investments
Transportation Act Development (TDA) Fund and Transit Fund are pooled with the City’s cash and investments in order to
generate optimum interest income. The City pools its available cash for investment purposes. Cash and cash equivalents are
combined with investments and displayed as Cash and Investments.
At June 30, 2020 and 2019, cash and investments consisted of the following:
Investment Fair Value Measurements
The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting
principles. Investment securities classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets
for those securities. Investment securities classified in Level 2 of the fair value hierarchy are valued using matrix pricing or market
corroborated pricing. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices.
Custodial Credit Risk – Deposits
Custodial credit risk is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. Cash balances held
in banks are insured up to $250,000 by the Federal Depository Insurance Corporation. For custodial credit risk associated with
deposits, the City follows California Government Code, which requires California financial institutions to secure the City’s
deposits by pledging government securities as collateral. The market value of the pledged securities must equal 110% of the City’s
deposits. California law also allows financial institutions to secure the City’s deposits by pledging first trust deed mortgage notes
equal to 150% of the City’s deposits. All deposits held by financial institutions are fully insured or collateralized with securities,
held by the pledging financial institutions’ trust departments in the City’s name.
15 Page 811 of 984
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2021 and 2020
Page 6
NOTE 3 -Cash and Cash Equivalents and Investments, Continued
Custodial Credit Risk – Deposits, Continued
The City follows the practice of pooling cash and investments for all funds under its direct daily control. Funds held by outside
fiscal agents under provisions of bond indentures are maintained separately.
Interest earned on pooled cash and investments is allocated quarterly to the various funds based on the respective fund’s average
quarterly cash balance. Interest earned from cash and investments with fiscal agents is credited directly to such funds.
Interest Rate Risk
This is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. In accordance
with its policies in the Investment Management Plan, the City mitigates interest rate risk by:
x Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby
avoiding the need to sell securities on the open market before maturity.
x Investing operating funds primarily in shorter-term securities.
The City’s investment policy also includes portfolio maturity targets. A minimum of 20% of the portfolio will be invested in
securities maturing in one year or less. Up to 80% of the portfolio can be invested in securities with a maturity over one year, with
no more than 10% of the portfolio invested in securities with a maturity over five years.
Credit Risk
This is the risk of loss due to the failure of the security issuer or backer. The City’s policies to mitigate credit risk include:
x Limiting investments to the safest types of securities. The California Government Code limits the investment vehicles
available to local agencies. The credit risk of these securities is measured by the assignment of a rating by a nationally
recognized statistical rating organization.
x Pre-qualifying the financial institutions, broker/dealers, intermediaries and advisors with which the City will do business.
Concentration of Credit Risk
The City’s policies contained in the Investment Management Plan provide guidelines (by type of investment that limits either the
dollar amount, the percent of the portfolio or the maturity term) for diversifying the investment portfolio so that potential losses on
individual securities will be minimized.
The City’s Investment Management Plan outlines the following criteria related to portfolio diversification:
x No more than 5% of the City’s portfolio (exclusive of government agency issues or LAIF) shall be placed with any
financial institution.
x No more than 25% of the City’s portfolio shall be invested in collateralized certificates of deposit issued by financial
institutions.
16 Page 812 of 984
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2021 and 2020
Page 7
NOTE 3 -Cash and Cash Equivalents and Investments, Continued
Concentration of Credit Risk, Continued
x Certificates of deposit (negotiable and collateralized) placed by the City shall not constitute more than 15% of the total
assets of the institution; and negotiable certificates of deposit will only be placed with institutions with total assets in
excess of $200 million and that maintain a ratio of equity to total assets of at least 5%.
Additional Cash and Investment Disclosures
See the City of San Luis Obispo June 30, 2021 and 2020 Annual Comprehensive Financial Reports for additional cash and
investment disclosures.
NOTE 4 -Due from Other Governments
At June 30, 2021 and 2020, the amounts due from other governments were as follows:
NOTE 5 -Capital Assets
Capital Assets activity for the fiscal year ended June 30, 2021, was as follows:
17 Page 813 of 984
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2021 and 2020
Page 8
NOTE 5 -Capital Assets, Continued
Capital Assets activity for the fiscal year ended June 30, 2020, was as follows:
NOTE 6 -Intergovernmental Allocations
The City has been allocated the following funds from the State Transit Assistance Fund (STAF), Local Transportation Fund (LTF)
and State of Good Repair (SGR) for the years ended June 30, 2021 and 2020. The amounts have been and will be used for both
operating expenses and capital assets.
For the years ended June 30, 2021 and 2020, the City also directly allocated $501,789, and $603,019, respectively, of LTF Article
4.0, Section 99260 funds to San Luis Obispo Regional Transit Authority (SLORTA). These funds are not shown in the
accompanying financial statements.
In addition to TDA allocations, the City was also received a Low-Carbon Transit Operations Program (LCTOP) allocation of
$256,731 to be spent toward the purchase of two electric transit vehicles. As of June 30, 2021, the City had not yet purchased the
vehicles. The LCTOP amount is part of the unearned revenue balance at June 30, 2021.
Article Section 2021 2020
LTF 3.0 99233.3 40,830$ 48,608$
LTF 4.0 99260 1,286,416 1,702,662
STAF 6.5 99313 189,658 379,185
STAF 6.5 99314 29,816 51,819
SGR 6.5 99314 8,481 8,007
SGR 6.5 99313 269,862 184,759
1,825,063$ 2,375,040$
Applicable
Allocating TDA Statute Amount
18 Page 814 of 984
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2021 and 2020
Page 9
NOTE 7 -Fare Revenue Ratios
For the years ended June 30, 2021 and 2020 the City had fare revenue ratios of 90%, and 18%, respectively, computed as follows:
Due to the global pandemic, the California legislature passed AB 90 and AB 149. AB 90 prohibits the imposition of a penalty on
an operator that does not maintain the required ratio of fare revenues to operating cost during the 2019–20, 2020–21, and 2021-22
fiscal years. AB 149 extends the penalty exemption through the fiscal year 2022-23 as well as authorizes transit operators to
include federal grant funds as local funds for the purpose of computing fare revenue ratios.
TDA regulations require a minimum ratio of 20% for a municipality the size of the City. The City is in compliance with the
applicable TDA regulations for the year ended June 30, 2021, but not in compliance for the year ended June 30, 2020 due to the
fare revenue ratio of 18% for the fiscal year ended June 30, 2020.
NOTE 8 -Pensions
The City contributes to the California Public Employees’ Retirement System (CalPERS) for its employees and participates in an
agent-multiple employer plan (Miscellaneous Plan) for its miscellaneous employees. The City has allocated a portion of the
Miscellaneous Plan that relates to the Transit Fund. The portion of the net pension liability allocated to the Transit Fund for the
years ended June 30, 2021 and 2020 were $753,586 and $710,153, respectively. The portion of the deferred outflows of resources
allocated to the Transit Fund for the years ended June 30, 2021 and 2020 were $101,832 and $90,898, respectively. The portion of
the deferred inflows of resources allocated to the Transit Fund for the years ended June 30, 2021 and 2020 were $688 and $11,159,
respectively. The portion of the pension expense allocated to the Transit Fund for the years ended June 30, 2021 and 2020 were
$22,028 and $60,954, respectively, and is shown as a part of total fringe benefits in the related fiscal year.
Additional Pension Disclosures
See the City of San Luis Obispo June 30, 2021 and 2020 Annual Comprehensive Financial Reports for additional pension
disclosures as well as required supplementary information.
NOTE 9 -Other Post-Employment Benefits (OPEB)
The City’s primary other post-employment benefits (OPEB) cost obligation is for retiree health benefits under its election to
participate in the CalPERS Health Benefit Program, an agent multiple-employer defined benefit OPEB plan, under the “unequal
contribution option.” The City has allocated a portion of the plan that relates to the Transit Fund. The portion of the net OPEB
liability allocated to the Transit Fund for the years ended June 30, 2021 and 2020 were $39,427 and $47,123, respectively. The
portion of the deferred outflows of resources allocated to the Transit Fund for the years ended June 30, 2021 and 2020 were $9,274
and $14,698, respectively. The portion of the deferred inflows of resources allocated to the Transit Fund for the years ended June
30, 2021 and 2020 were $15,542 and $17,104, respectively. The portion of the OPEB expense allocated to the Transit Fund for the
years ended June 30, 2021 and 2020 were $(565) and $(5,165), respectively, and is shown as a part of total fringe benefits in the
related fiscal year.
19 Page 815 of 984
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2021 and 2020
Page 10
NOTE 9 -Other Post-Employment Benefits (OPEB), Continued
Additional OPEB Disclosures
See the City of San Luis Obispo June 30, 2021 and 2020 Annual Comprehensive Financial Reports for additional OPEB
disclosures as well as required supplementary information.
NOTE 10 -Operating Transfers
The City expends all amounts for alternate transportation projects in its General Fund or Capital Outlay Fund. LTF monies
received by the City are initially deposited in the Transportation Development Act (TDA) Fund and subsequently transferred to the
General Fund, where such funds are expended or transferred to the Capital Outlay Fund to be expended on designated
transportation projects.
NOTE 11 -Commitments and Contingencies
Regional Transit Authority Pension Expense
The City is presently a member agency of the San Luis Obispo Regional Transit Authority (see ACFR Note 10), a duly established
Joint Powers Authority (JPA) comprised of all local cities and the County of San Luis Obispo. The City’s contractual contribution
to that entity is approximately 18% of the total expense. The City was advised that the Regional Transit Authority was working
with CalPERS to determine whether it is required to enroll certain previously unenrolled transit employees in the CalPERS
pension system and whether the entity may be liable for obligations related to the failure to enroll those employees and make
contributions on their behalf. On December 10, 2019 the County Board of Supervisors approved a contract for participation of the
JPA in the San Luis Obispo County Pension Trust and the Employees Retirement Plan. The current amount of potential CalPERS
unfunded liability for the JPA may reach as high as $4 million. It is not anticipated that the City’s annual payment to the JPA will
increase to satisfy this unfunded liability.
NOTE 12 -Subsequent Events
Events subsequent to June 30, 2021 have been evaluated through January xx, 2022, which is the date the financial statements were
available to be issued. Management did not identify subsequent events that required disclosure.
NOTE 13 -Prior Period Adjustment
A prior period adjustment of $(637,499) was made for June 30, 2019 in the Transit Fund to account for missing depreciation for a
bus resulting in a restated beginning net position of $7,782,746 from the original $8,420,245.
NOTE 14 -COVID-19 Pandemic
During December 2019, the Novel Corona Virus Disease (COVID-19) was discovered and subsequently declared a world-wide
pandemic by the World Health Organization on March 11, 2020. On March 4, 2020, California State Governor Gavin Newsom
proclaimed a State of Emergency as a result of the threat of the COVID-19 in the State of California, leading to the San Luis
Obispo County Health Officer issuing a shelter-at-home order on March 18, 2020 and the City Council declaring a health
emergency on March 17, 2020. This halted all business within San Luis Obispo County outside of essential activities and largely
stifled economic activity in the last quarter of the 2019-20 fiscal year, impacting ridership of the transit system. In addition, The
Coronavirus Aid, Relief, and Economic Security (CARES) Act provided $25 billion to transit agencies to help to prevent, prepare
for and respond to the COVID-19 pandemic. Of this, $2.8 million and nearly $1.4 million was received by the Transit Fund during
the fiscal years ending June 30, 2021 and 2020 respectively.
20 Page 816 of 984
2021 Original Final Actal
Revenues - intergovernmental allocations 45,900$ 45,900$ 36,409$ (9,491)$
Other financing uses - operating transfers
to City of San Luis Obispo (45,900) (45,900) (36,409) 9,491
Excess of revenues over other financing uses -$ -$ -$ -$
2020 Original Final Actal
Revenues - intergovernmental allocations 45,000$ 45,000$ (48,608)$ (93,608)$
Other financing uses - operating transfers
to City of San Luis Obispo (45,000) (45,000) 48,608 93,608
Excess of revenues over other financing uses -$ -$ -$ -$
Budget Variance with
Final Budget
Positive
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund
Supplementary Information
Schedules of Revenues and Expenditures - Budget and Actual
June 30, 2021 and 2020
Variance with
Final Budget
Positive
(Negative)
Budget
21 Page 817 of 984
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22 Page 818 of 984
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND
OTHER MATTERS BASED ON AN
AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS
INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
We have audited, in accordance with the auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards issued
by the Comptroller General of the United States, the financial statements of the Transportation
Development Act (TDA) Fund and the Transit Fund (TDA Program) of the City of San Luis Obispo,
California (City), as of and for the year ended June 30, 2021, and the related notes to the financial statements,
and have issued our report thereon dated December 23, 2021.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control
over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in
the circumstances for the purpose of expressing our opinions 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 deficiency in internal control 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 and correct,
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control, such that there is a reasonable possibility that a material misstatement of the entity’s
financial statements will not be prevented, or detected and corrected on a timely basis. A significant
deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a
material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses
may exist that have not been identified.
23 Page 819 of 984
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 2
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the TDA Program’s financial statements are free
from material misstatement, we performed tests of its compliance with certain provisions of laws,
regulations, contracts, and grant agreements, noncompliance with which could have a direct and material
effect on the financial statements. However, providing an opinion on compliance with those provisions was
not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests
disclosed no instances of noncompliance or other matters that are required to be reported under Government
Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance
and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal
control or on compliance. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this
communication is not suitable for any other purpose.
Badawi & Associates
Certified Public Accountants
Berkeley, California
January 26, 2022
24 Page 820 of 984
INDEPENDENT AUDITOR’S REPORT ON TRANSPORTATION
DEVELOPMENT ACT FUNDS COMPLIANCE
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Report on Compliance
We have audited the City of San Luis Obispo’s (City) compliance with the types of compliance
requirements described in Section 6666 and 6667 of the Rules and Regulations of the California Administrative
Code in the Transportation Development Act Statutes and Administrative Code for 1987 (the Act) and the
allocation instructions and resolutions of the San Luis Obispo Council of Governments applicable to the
City’s Transportation Development Act Article 3, 4 and 6.5 Program (TDA Program) for the years ended
June 30, 2021 and 2020.
Management’s Responsibility
Compliance with the requirements referred to above is the responsibility of the City’s management.
Auditors’ Responsibility
Our responsibility is to express an opinion on the City’s compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the
United States; the standards applicable to financial audits contained in Government Audit Standards issued
by the Comptroller General of the United States; Section 6666 and 6667 of the Rules and Regulations of the
California Administrative Code in the Transportation Development Act Statutes and Administrative Code for 1987
(the Act) and the allocation instructions and resolutions of the San Luis Obispo Council of Governments.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
noncompliance with the compliance requirements referred to above that could have a material effect on the
TDA Program occurred. An audit also includes examining, on a test basis, evidence about the City’s
compliance with those requirements and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does
not provide a legal determination of the City’s compliance with those requirements.
25 Page 821 of 984
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 2
Opinion on Compliance Requirements in PUC Section 99268.3
In our opinion, the City complied, in all material respects, with the types of compliance requirements
referred to above that could have a direct and material effect on TDA Program for the years ended June 30,
2021 and 2020.
Internal Control Over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over
compliance with the compliance requirements referred to above. In planning and performing our audit, we
considered the City’s internal control over compliance to determine the auditing procedures for the
purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on the
effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the
effectiveness of the City’s internal control over compliance.
A deficiency in internal control over compliance 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 and correct, noncompliance on a timely basis. A material weakness in internal control over
compliance is a deficiency, or combination of deficiencies in internal control over compliance, such that
there is a reasonable possibility that material noncompliance with a compliance requirement will not be
prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over
compliance is a deficiency, or a combination of deficiencies, in internal control that is less severe than a
material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control that might be
deficiencies, significant deficiencies, or material weaknesses in internal control over compliance. We did not
identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as
defined above. However, material weaknesses may exist that have not been identified.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing
of internal control over compliance and the results of that testing based on Section 6666 and 6667 of the
Rules and Regulations of the California Administrative Code in the Transportation Development Act Statutes and
Administrative Code for 1987 (the Act), and the allocation instructions and resolutions of the San Luis Obispo
Council of Governments, this report is not suitable for any other purpose.
Badawi & Associates
Certified Public Accountants
Berkeley, California
January 26, 2022
26 Page 822 of 984
San Luis Obispo, California
Single Audit Reports
For the year ended June 30, 2021
Page 823 of 984
City of San Luis Obispo
Single Audit Reports
For the year ended June 30, 2021
Table of Contents
Page
Report on Internal Control over Financial Reporting and on
Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance with Government Auditing Standards .................................................................... 1
Report on Compliance for Each Major Federal Program and on
Internal Control over Compliance in Accordance with the Uniform Guidance
And on the Schedule of Expenditures of Federal Awards ................................................................................ 3
Schedule of Expenditures of Federal Awards ..................................................................................................... 7
Notes to the Schedule of Expenditures of Federal Awards .............................................................................. 8
Schedule of Findings and Questioned Costs ....................................................................................................... 9
Page 824 of 984
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND
OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS
INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
We have audited, in accordance with the auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards issued
by the Comptroller General of the United States, the financial statements of the governmental activities, the
business-type activities, each major fund, and the aggregate remaining fund information of the City of San
Luis Obispo, California (City), as of and for the year ended June 30, 2021, and the related notes to the
financial statements, which collectively comprise the City’s basic financial statements and have issued our
report thereon dated February 24 , 2022.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control
over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in
the circumstances for the purpose of expressing our opinions 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.
Our consideration of internal control over financial reporting was for the limited purpose described in the
preceding paragraph and was not designed to identify all deficiencies in internal control that might be
material weaknesses or significant deficiencies and therefore, material weaknesses or significant
deficiencies may exist that have not been identified. However, as described in the accompanying schedule
of findings and responses, we did identify certain deficiencies in internal control that we consider to be
material weaknesses and significant deficiencies.
A deficiency in internal control 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 and correct,
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control such that there is a reasonable possibility that a material misstatement of the entity’s
financial statements will not be prevented, or detected and corrected on a timely basis. We consider the
deficiencies described in the accompanying schedule of findings and questioned costs as items 2021-001,
2021-002 and 2021-003 to be material weaknesses.
Page 825 of 984
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 2
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe
than a material weakness, yet important enough to merit attention by those charged with governance. We
consider the deficiencies described in the accompany schedule of findings and questioned costs as item
2021-004 to be significant deficiency.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s financial statements are free from
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on the
financial statements. However, providing an opinion on compliance with those provisions was not an
objective of our audit, and accordingly, we do not express such an opinion. The results of our tests
disclosed no instances of noncompliance or other matters that are required to be reported under
Government Auditing Standards.
City of San Luis Obispo’s Response to Findings
City’s response to the findings identified in our audit is described in the accompanying schedule of findings
and questioned costs. City’s response was not subjected to the auditing procedures applied in the audit of
the financial statements and, accordingly, we express no opinion on it.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance
and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal
control or on compliance. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this
communication is not suitable for any other purpose.
Badawi & Associates
Certified Public Accountants
Berkeley, California
February 24, 2022
2 Page 826 of 984
REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON
INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH THE UNIFORM
GUIDANCE AND ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Report on Compliance for Each Major Federal Program
We have audited the City of San Luis Obispo, California’s (City) compliance with the types of compliance
requirements described in the OMB Compliance Supplement that could have a direct and material effect on
each of the City’s major federal programs for the year ended June 30, 2021. The City’s major federal
programs are identified in the summary of auditor’s results section of the accompanying schedule of
findings and questioned costs.
Management’s Responsibility
Management is responsible for compliance with federal statutes, regulations, and the terms and conditions
of its federal awards applicable to its federal programs.
Auditor’s Responsibility
Our responsibility is to express an opinion on compliance for each of the City’s major federal programs
based on our audit of the types of compliance requirements referred to above. We conducted our audit of
compliance in accordance with auditing standards generally accepted in the United States of America; the
standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States; and the audit requirements of Title 2 U.S. code of Federal
Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal
Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform
the audit to obtain reasonable assurance about whether noncompliance with the types of compliance
requirements referred to above that could have a direct and material effect on a major federal program
occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those
requirements and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal
program. However, our audit does not provide a legal determination of the City’s compliance.
Page 827 of 984
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 2
Opinion on Each Major Federal Program
In our opinion, the City, complied, in all material respects, with the types of compliance requirements
referred to above that could have a direct and material effect on each of its major federal programs for the
year ended June 30, 2021.
Report on Internal Control over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over
compliance with the types of compliance requirements referred to above. In planning and performing our
audit of compliance, we considered the City’s internal control over compliance with the types of
requirements that could have a direct and material effect on each major federal program to determine the
auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on
compliance for each major federal program and to test and report on internal control over compliance in
accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the
effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the
effectiveness of the City’s internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a
federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or
combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility
that material noncompliance with a type of compliance requirement of a federal program will not be
prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over
compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type
of compliance requirement of a federal program that is less severe than a material weakness in internal
control over compliance, yet important enough to merit attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control over
compliance that might be material weaknesses or significant deficiencies. We did not identify any
deficiencies in internal control over compliance that we consider to be material weaknesses. However,
material weaknesses may exist that have not been identified.
4 Page 828 of 984
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 3
Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance
We have audited the financial statements of the governmental activities, the business-type activities, each
major fund, and the aggregate remaining fund information of the City, as of and for the year ended June 30,
2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial
statements. We issued our report thereon dated December 23, 2021, which contained unmodified opinions
on those financial statements. Our audit was conducted for the purpose of forming opinions on the
financial statements that collectively comprise the basic financial statements. The accompanying schedule of
expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform
Guidance and is not a required part of the basic financial statements. Such information is the responsibility
of management and was derived from and relates directly to the underlying accounting and other records
used to prepare the basic financial statements. The information has been subjected to the auditing
procedures applied in the audit of the financial statements and certain additional procedures, including
comparing and reconciling such information directly to the underlying accounting and other records used
to prepare the basic financial statements or to the basic financial statements themselves, and other
additional procedures in accordance with auditing standards generally accepted in the United States of
America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material
respects in relation to the basic financial statements as a whole.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing
of internal control over compliance and the results of that testing based on the requirements of the Uniform
Guidance. Accordingly, this report is not suitable for any other purpose.
Badawi & Associates
Certified Public Accountants
Berkeley, California
February 24, 2022, except for the schedule of expenditures
of federal awards, which is as of December 23, 2021
5 Page 829 of 984
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6 Page 830 of 984
City of San Luis Obispo
Schedule of Expenditures of Federal Awards
For the year ended June 30, 2021
Federal State
Catalog Pass-throughProgram Subrecipient
Grantor Agency and Grant Title Number Number Expenditures Payments
U.S. Department of Transportation
Highway Planning and Construction Cluster
Passed Through the State of California Department of Transportation
Highway Planning and Construction 20.205 BRLS-5016(050)3,048,859$ -$
Highway Planning and Construction 20.205 HSIPL-5016(053)5,838 -
Highway Planning and Construction 20.205 ATPL-5016(057)1,424,305 -
Subtotal Highway Planning and Construction Cluster 4,479,002 -
Federal Transit Cluster
Direct Program:
Federal Transit Formula Grants 20.507 2,805,681 -
Subtotal Federal Transit Cluster 2,805,681 -
Total U.S. Department of Transportation 7,284,683 -
U.S. Department of Justice
Direct Programs
Bulletproof Vest Partnership Program 16.607 4,146
Edward Bryne Memorial Justice Assistance Grant Program 16.738 15,644 -
Total U.S. Department of Justice 19,790 -
U.S. Department of Housing and Urban Development
CDBG-Entitlement Grants Cluster
Passed Through County of San Luis Obispo
Community Development Block Grants/Entitlement Grants 14.218 B-20-UC-06-0508 36,493 -
Subtotal CDBG-Entitlement Grants Cluster 36,493 -
Total U.S. Department of Housing and Urban Development 36,493 -
U.S. Department of the Treasury
Passed through California Department of Finance
COVID-19--Coronavirus Relief Fund 21.019 566,980 -
Total U.S. Department of the Treasury 566,980 -
Total Expenditures of Federal Awards 7,907,946$ -$
See accompanying Notes to Schedule of Expenditures of Federal Awards.
7 Page 831 of 984
City of San Luis Obispo
Notes to the Schedule of Expenditures of Federal Awards
For the year ended June 30, 2021
A. Reporting Entity
The City is a California charter city. It was incorporated on February 19, 1856 and chartered on May 1,
1876. It is organized in accordance with the Council-Mayor-City Manager form of government. With a
population of approximately 46,802, the City provides a broad range of municipal services, including
police and fire protection, parks and recreation, water and sewer utilities, street maintenance, public
transportation, parking, planning, and building and safety.
B. Basis of Accounting
Funds received under the various grant programs have been recorded within the special revenue funds
of the City. The City utilizes the modified accrual method of accounting for the special revenue funds.
Modified accrual accounting recognizes revenues when they become available and measurable and,
with a few exceptions, recognizes expenditures when liabilities are incurred. The accompanying
Schedule of Expenditures of Federal Awards (Schedule) has been prepared on the modified accrual
basis of accounting.
C.Relationship of Schedule of Expenditures of Federal Awards to Financial Statements
The accompanying Schedule presents the activity of all federal financial assistance programs of the City.
Federal financial assistance received directly from federal agencies as well as federal financial assistance
passed through the State of California is included in the Schedule.
The Schedule was prepared only from the accounts of various grant programs and, therefore, does not
present the financial position or results of operations of the City.
D. Pass-Through Entities’ Identifying Number
When federal awards were received from a pass-through entity, the Schedule shows, if available, the
identifying number assigned by the pass-through entity. When no identifying number is shown, the
City determined that no identifying number is assigned for the program or the City was unable to
obtain an identifying number from the pass-through entity.
E. Indirect Costs
The City did not elect to use the 10% de minimis indirect cost rate.
8 Page 832 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section I - Summary of Auditor’s Results
Financial Statements
Types of auditor’s report issued: Unmodified
Internal control over financial reporting:
x Material weakness(es) identified? Yes
x Significant deficiency(ies) identified? Yes
Any noncompliance material to the financial statements noted? No
Federal Awards
Internal control over major programs:
x Material weakness(es) identified? No
x Significant deficiency(ies) identified? None noted
Type of auditor’s report issued on compliance for major programs Unmodified
Any audit findings disclosed that are required to be reported in
Accordance with section 200.516(a) No
Identification of major programs:
Dollar threshold used to distinguish between type A and type B program $750,000
Auditee qualified as low-risk auditee under
section 200.520? No
9 Page 833 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section II – Current Year Findings
A.Financial Statement Audit Finding
2021-001 Year-End Close and Balance Sheet Account Reconciliations (Material Weakness)
Criteria: The City is responsible for fair presentation of the financial statements in conformity with
accounting principles generally accepted in the United States of America. In addition, an effective internal
control system over financial closing and reporting provides reasonable assurance for the safeguarding of
assets, the reliability of financial information, and compliance with laws and regulations.
Condition: During the performance of the audit, we noted that the City had to record a large number of
adjusting entries after the closing process was complete to record transactions not previously recorded or to
correct transactions or balances previously recorded in error. Those adjusting entries should have been
part of the closing process and the timing of recording those adjusting entries have caused some delays and
added complexity in the audit.
Cause: The City’s closing process was not comprehensive enough to identify timely all the journal entries
and adjustments needed to ensure the accuracy of the various account balances. Additionally, multiple
employees were granted access to post journal entries after the City closed the book without enough
monitoring from the management.
Effect: The City’s accounting records needed significant adjustments after the closing of the books and
during the audit which caused delays in the audit and added more complexity in dealing with the large
volume of adjustments.
Recommendation: We recommend that the City update its closing process to ensure all transactions and
adjustments are accounted for timely before the audit starts. Additionally, we recommend that the City
restrict the employees access to post adjustments after the close of the book.
The City should furthermore develop formal written policies over significant accounts that include the
timely reconciling of accounts to activity reported in related subsidiary ledgers. Also, the City should
restrict journal entries posting after the closing process.
Management’s response:
This is the third year-end close utilizing the new Oracle Cloud financial system. The City has been working
with Oracle Consulting to make improvements to the system to assist with many of the control functions.
This resulted in significantly fewer post-closing adjustments than the prior fiscal years and significantly
fewer delays in finalizing the audit. Management continues to refine processes and procedures and
address deficiencies in the ERP system, including improving the year-end close process. A year-end close
checklist has been development and will continue to be utilized and refined. In addition, City staff are
performing monthly closing procedures, which will improve the timeliness of year-end closing. Integrated
into the month-end procedures will be the review and reconciliation of the City’s balance sheet accounts.
This will help to identify issues prior to closing the books and the start of the audit.
10 Page 834 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section II – Current Year Findings, continued
A.Financial Statement Audit Finding, continued
2021-002 Journal Entries Posting and Numbering (Material Weakness)
Criteria: Journal entries should be independently prepared, reviewed, and posted to the general ledger
with unique identification number. In addition, journal entries should be adequately documented to
support its accuracy and purpose.
Condition: During the performance of the audit, we noted the following regarding the City’s journal entry
process:
x For 9 out of 60 testing samples, the City was unable to provide us with documentation or
documentation was insufficient for journal entries selected for review.
x For 8 out of 60 testing samples, the journal entries were not appropriately approved.
x For 3 out of 60 testing samples, the journal entries were not properly recorded or calculated though
they were still approved.
x The City uses various numbering schemes (a date and time format, a subsidiary ledger-month
format, other) that makes it difficult to determine the number of journal entries recorded and the
sequence of entries.
x Journal entries can be prepared and posted without system restriction, and no controls in place to
ensure the journal entries are approved before posted.
Cause: The City didn’t consistently and effectively execute the review procedures across the fiscal year and
no formal written policy regarding the journal entries posting and numbering.
Effect: Journal entries recorded in the City’s accounting system may be inaccurate, unapproved or
unsupported.
Recommendation:We recommend that the City implement formal written procedures and policies over
journal entries to ensure only accurately prepared and supported journal entries are recorded to the general
ledger.
Management’s Response:
Staff acknowledges that, of the 60 testing samples selected, 8 were indeed not properly approved and were
insufficiently documented. This was the result of a system clean-up for project related expenditures that
were not correctly reported. Unfortunately, the usual control flow was not adhered to for this process. This
issue should not occur going forward. One journal entry was properly approved, however insufficiently
documented and three had variances from the documentation.
11 Page 835 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section II – Current Year Findings, continued
A.Financial Statement Audit Finding, continued
2021-002 Journal Entries Posting and Numbering (Material Weakness), continued
Management’s Response, continued:
Management has developed written policies over journal entries to ensure that all journal entries have
adequate and complete documentation when they are posted to the general ledger. In addition,
management has worked with Oracle Consulting to automate the journal entry approval flow in the system
and apply a numbering system. This project was finalized on December 14, 2021 and is now fully
functional. These issues should therefore no longer occur going forward. However, staff would like to
point out that even under manual conditions, the majority of journal entries followed the process
implemented which was to have a separate person prepare the journal entry and then have another person
post the journal entry. This process can be audited by running a report to show the “prepared by” and
“posted by” fields for each journal entry transaction. Before the improvements to the system, journal entries
were recorded with a system generated unique identification number; however, it was not a sequential
number, which made it challenging to identify the sequence of entries.
12 Page 836 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section II – Current Year Findings, continued
A.Financial Statement Audit Finding, continued
2021-003 Bank Reconciliation (Material Weakness)
Criteria: An effective internal control system over cash and investments includes frequent and timely
reconciling of account balances to information provided by the bank and custodians.
Condition: During the performance of the audit, we noted that the City was behind in performing the
monthly bank reconciliation, and the June 2021 bank reconciliation process were not appropriately
performed until the start of the engagement in October 2021. Also, the final June 2021 bank reconciliation
was not balanced and had an unreconciled variance of around $40,000, which was still under investigation
by the City.
Cause: The City was not able to perform the bank reconciliations timely as there was not sufficient
procedures in place to ensure completion of the process.
Effect: Errors and fraud can go undetected without frequent and timely bank reconciliation.
Recommendation:We recommend the City develop formal written policies over cash and investments that
include the timely reconciling of accounts and include cash and investment accounts reported in each fund.
Management’s Response:
Management agrees that timely bank reconciliations are an important part of the effective internal controls
over cash and investments. The Oracle financial system has functionality that assists with the reconciliation
of the City’s books and the bank statement, however that functionality was not configured during the
implementation, making bank reconciliation a complicated and time-consuming manual process.
Management had been working with Oracle Consulting and staff to configure and implement this
functionality which finally went live in June 2021. Staff can also report that the remaining imbalance was
caused by a timing issue related to recording revenue of $39,697, leaving approximately $2,500
unreconciled at June 30, 2021. Additionally, management has implemented additional oversight and review
of the monthly reconciliation to make sure it is working properly and timely in coordination with month-
end closing.
13 Page 837 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section II – Current Year Findings, continued
A.Financial Statement Audit Finding, continued
2021-004 Payroll Module Implementation (Significant Deficiency)
Criteria: An effectively implemented payroll system should process the payroll accurately, and an effective
internal control system over payroll requires timely and accurate payroll processing.
Condition: During the performance of the audit, we noted that –
• The Oracle payroll module has overtime configuration implemented incorrectly, and the City has to
manually track the payroll in a spreadsheet and correct the error as it occurs since the
implementation.
• The configuration of payroll journal entries posting was implemented incorrectly which caused the
variance between the bank record and the City’s general ledger.
Cause: The Oracle payroll module has not been implemented correctly.
Effect: Errors and fraud can go undetected in payroll processing with a large volume of manual corrections
needed.
Recommendation: We recommend the City to work with the third-party vendor to correct the
implementation of payroll module.
Management’s Response:
Management is in full agreement with this finding and is currently working with Oracle Consulting to
correct payroll configurations, as recommended. During the fiscal year the payroll team performed an
internal audit of the payroll processing to identify and address issues with the system configuration. As
stated, the payroll team is currently manually tracking the overtime results of each payroll and manually
correcting any calculation errors that result. Additionally, the payroll team has corrected the costing errors
that produced incorrect journal entries which also hugely complicated the aforementioned bank
reconciliation efforts.
14 Page 838 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section II – Current Year Findings, continued
B.Federal Award Program Audit Finding
No findings or questioned costs were noted in the current year.
15 Page 839 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section III – Prior Year Findings
A. Financial Statement Audit Finding
2020-001 Year-End Close and Balance Sheet Account Reconciliations (Material Weakness)
Criteria: The City is responsible for fair presentation of the financial statements in conformity with
accounting principles generally accepted in the United States of America. In addition, an effective internal
control system over financial closing and reporting provides reasonable assurance for the safeguarding of
assets, the reliability of financial information, and compliance with laws and regulations.
Condition: During the performance of the audit, we noted that the City had to record a large number of
adjusting entries after the closing process was complete to record transactions not previously recorded or to
correct transactions or balances previously recorded in error. Those adjusting entries should have been
part of the closing process and the timing of recording those adjusting entries have caused some delays and
added complexity in the audit.
Cause: The City’s closing process was not comprehensive enough to identify timely all the journal entries
and adjustments needed to ensure the accuracy of the various account balances. Additionally, the City
implemented a new financial software, however formally written accounting policies and procedures
related to the system were not developed.
Effect: The City’s accounting records needed significant adjustments after the closing of the books and the
start of the audit which caused delays in the audit and added more complexity in dealing with the large
volume of adjustments.
Recommendation: We recommend that the City update its closing process to ensure all transactions and
adjustments are accounted for timely before the audit starts.
The City should furthermore develop formal written policies over significant accounts that include the
timely reconciling of accounts to activity reported in related subsidiary ledgers. Also, the City should
develop a checklist for year-end closing procedures.
Status: See current year finding 2021-001
16 Page 840 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section III – Prior Year Findings, continued
A. Financial Statement Audit Finding, continued
2020-002 Journal Entries Posting and Numbering (Material Weakness)
Criteria: Journal entries should be independently prepared, reviewed, and posted to the general ledger
with unique identification number. In addition, journal entries should be adequately documented to
support its accuracy and purpose.
Condition: During the performance of the audit, we noted the following regarding the City’s journal entry
process:
x The City was unable to provide us with documentation or documentation was insufficient for
journal entries selected for review.
x The City uses various numbering schemes (a date and time format, a subsidiary ledger-month
format, other) that makes it difficult to determine the number of journal entries recorded and the
sequence of entries.
x The City does not maintain a log of manual journal entries to document the accountability of all
journal entries, the preparer, the approver, and the purpose of why the entry was recorded.
x Journal entries can be prepared and posted without system restriction, and no controls in place to
ensure the journal entries are approved before posted.
The City implemented review procedures towards the end of the fiscal year, so significant number of
journal entries we tested before the implementation have the conditions above.
Cause: The City didn’t fully implement the review procedures across the fiscal year.
Effect: Journal entries recorded in the City’s accounting system may be inaccurate, unapproved or
unsupported.
Recommendation:We recommend that the City implement formal written procedures and policies over
journal entries to ensure only accurately prepared and supported journal entries are recorded to the general
ledger.
Status:See current year findings 2021-002
17 Page 841 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section III – Prior Year Findings, continued
A. Financial Statement Audit Finding, continued
2020-003 Bank Reconciliation (Material Weakness)
Criteria: An effective internal control system over cash and investments includes frequent and timely
reconciling of account balances to information provided by the bank and custodians.
Condition: During the performance of the audit, we noted that bank reconciliations were not performed
until the start of the engagement. Also, the June 2020 bank reconciliation was not balanced and had an
unreconciled variance of around $600,000, which was still under investigation by the City.
Cause: The City was not able to perform the bank reconciliations timely as there was not sufficient policy
and procedures in place to ensure completion of the process.
Effect: Errors and fraud can go undetected without frequent and timely bank reconciliation.
Recommendation:We recommend the City develop formal written policies over cash and investments that
include the timely reconciling of accounts and include cash and investment accounts reported in each fund.
Status:See current year finding 2021-003
18 Page 842 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section III – Prior Year Findings, continued
A. Financial Statement Audit Finding, continued
2020-004 Capital Assets Reconciliation (Significant Deficiency)
Criteria: A good internal control reporting system over capital assets requires the maintenance of detail
records of all capital assets to be able to support amounts reported on the financial statements and to ensure
safeguarding of assets.
Condition: The City has established basic procedures to ensure that capital asset additions are properly
capitalized, capital asset disposals are properly recorded, and current year depreciation expense for capital
assets are recorded at the fund-financial statement level for proprietary funds and at the government-wide
financial statement level for governmental funds.
However, during the audit, we noted a $4.5 million construction-in-progress addition was not captured in
the general ledger. Additionally, we noted infrastructure assets were added to the capital assets module to
replace existing infrastructure without corresponding fully-depreciated infrastructure assets removed.
Finally, the City had also not performed a physical inventory of assets to determine whether all capital
assets reported were still in the City’s possession at the end of the fiscal year.
Cause: The City doesn’t have sufficient procedures in place to ensure the completeness and accuracy of
capital assets.
Effect: The capital assets balance can be misstated on the financial statements.
Recommendation: We recommend that the City implement procedures to ensure all capital assets additions
are captured properly and replaced capital assets are removed timely. We also recommend that the City
perform a physical inventory of all capital assets to ensure the completeness and accuracy of the subsidiary
ledgers and general ledger.
Status:Implemented.
19 Page 843 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section III – Prior Year Findings, continued
A. Financial Statement Audit Finding, continued
2020-005 Segregation of Duties in Cash Disbursement (Significant Deficiency)
Criteria: An effective internal control system over cash disbursement requires the segregation of
incompatible duties. An effective internal control system over cash disbursement provides reasonable
assurance for the safeguarding of assets.
Condition: During the performance of the audit, we noted Accounts Payable Analyst was granted edit
access to the vendor master file, who also has the access to check printing and invoices data entry.
Additionally, the financial system doesn’t prevent unauthorized invoices to be processed and the
Accounting Manager doesn’t review the check register against invoices when doing the review process.
Cause: The City does not have sufficient internal controls over cash disbursement processes.
Effect: Unauthorized payments or incorrect payment can occur undetected.
Recommendation:We recommend the City to implement internal controls to prevent unauthorized or
inaccurate cash disbursement, for example, to generate a change report of vendor master file and have
management reviewed regularly.
Status:Implemented.
20 Page 844 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section III – Prior Year Findings, continued
A. Financial Statement Audit Finding, continued
2020-006 Payroll Module Implementation (Significant Deficiency)
Criteria: An effectively implemented payroll system should process the payroll accurately, and an effective
internal control system over payroll requires timely and accurate payroll processing.
Condition: During the performance of the audit, we noted that –
• The City has not implemented Goals and Performance module in Oracle for all employees,
evaluation tracking and reporting has transitioned to a completely manual process. During the
interview of payroll employees, we learned that a significant number of employee reviews were
performed late, causing manual retroactive payroll payments to be made.
• The Oracle payroll module has overtime configuration implemented incorrectly, and the City has to
manually track the payroll in a spreadsheet and correct the error as it occurs since the
implementation.
Cause: The Oracle payroll module has not been implemented correctly.
Effect: Errors and fraud can go undetected in payroll processing with a large volume of manual corrections
needed.
Recommendation:We recommend the City to work with third-party vendor to correct the implementation
of payroll module.
Status:See current year finding 2021-004.
21 Page 845 of 984
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2021
Section III - Prior Year Findings, continued
A. Federal Award Audit Finding
No findings or questioned costs were noted in the prior year.
22 Page 846 of 984
2020-21TDA & Single Audit Reports1
RecommendationReview and accept the TransportationDevelopment Act and Single Audits forFiscal Year 2020-212020-21 TDA &Single Audit2
Audit Requirements3Single AuditOrganization-wide financial statement and federal awards’ audit of a non-federal entity$750,000 or more in federal funds in one year To provide assurance to the Federal Government that a non-federal entity has adequate internal controls in placeGenerally, in compliance with program requirements.Transportation Development ActCalifornia Code of Regulations, Title 21, section 6662Annual audit of accounts and records within 12 months of the end of the fiscal year2020-21 TDA &Single Audit
Transportation Development ActFunding provided for two specific purposesDevelopment and construction of local streets, roads, pedestrian facilities, and bicycle facilitiesTransit Systems 42020-21 TDA &Single Audit
2020-21 TDA FundsSpecial Revenue $36,409• TDA funds are legally restricted. The City has a special revenue fund created for TDA revenues. • Revenues went unspent at the end of FY 2020-21 and will be utilized in a transportation project delayed due to COVID-19 in FY 2022 (Mid-Year Action). Transit System $351,998• The Transit Fund is an enterprise fund to account for revenues received pursuant to the TDA, the Federal Transit Authority, and revenues from transit operations. 52020-21 TDA &Single Audit
Fare Box Recovery Revenue RatioThe fare box recovery revenue ratio measures the profitability of a transit system. User Fares Operating Expenditures• Per PUC Section 99268.3 in Article 4 of the TDA requires a ration of at least 20%• For the year ended June 30, 2020, the City would have ended with 9%. Including Federal Grants as applicable due to COVID-19 = 90% (page 19 of audit report)• AB 90 - prohibits imposing a penalty on an operator that does not maintain the required ratio during 2019-20 or 2020-21. (Note 7 of TDA report)62020-21 TDA &Single Audit
7Single Audit FY 2020-21•What is a Single Audit?• An audit of both financial statements and federal awards.•What information does a single audit provide?• A report on the City’s internal control for financial reporting. • A schedule of expenditures funded by Federal Grants and the City’s compliance with Federal regulations.• A schedule of findings and questioned costs, if any. These findings are areas of improvement for the City when it comes to internal controls. No additional findings were noted. 2020-21 TDA &Single Audit
8Single Audit FY 2020-21Grant Title City Project/Department Program Expenditures Highway Planning and Construction Marsh Street Bridge $ 3,048,859Highway Planning and ConstructionHighway Planning and ConstructionHiguera WideningRRST Taft to Pepper$ 5,838$ 1,424,305Federal Transit Formula Grants Transit services $ 2,805,681 Bulletproof Vest Partnership Program Police $ 4,146Edward Byrne Memorial Justice Assistance Grant CDBG Entitlement GrantsPolicePassed through County$ 15,644$ 36,493 COVID-19 – Coronavirus Relief Fund (CARES) General $ 566,980Total Expenditure of Federal Awards $ 7,907,946 2020-21 TDA &Single Audit
Addressing Auditor’s Findings (pages 10-14 of Single Audit) 9Four Findings (2019-2020 Seven Findings)All internal control functionsYear-end closingBank ReconciliationSame findings as with the City’s Annual Comprehensive Financial ReportNo findings on revenue and expenditure accounting.Journal Entry NumberingPayroll System Configuration2020-21 TDA &Single Audit
Updates to Auditor’s Findings10Year-End ClosingExtensive Year-End ListMonthly Work efforts on audit preparednessBeginning Balances verifiedBank ReconciliationMonthly Review meeting and immediate addressing of discrepanciesContinued Review of Payroll postingsJournal Entry NumberingSystem has been configuredReport prepared for sequencing of JEs prior to system configuration. Payroll System Ongoing improvement process with manual work-arounds2020-21 TDA &Single Audit
RecommendationReview and accept the TransportationDevelopment Act and Single Audits forFiscal Year 2020-21.112020-21 TDA &Single Audit