HomeMy WebLinkAboutItem 5h. Acceptance of the Transportation Development Act and Federal Single Audits Fiscal Year 2021-22 Item 5h
Department: Finance
Cost Center: 2005
For Agenda of: 2/21/2023
Placement: Consent
Estimated Time: N/A
FROM: Emily Jackson, Finance Director
Prepared By: Debbie Malicoat, Accounting Manager/Controller
SUBJECT: ACCEPTANCE OF THE TRANSPORTATION DEVELOPMENT ACT AND
FEDERAL SINGLE AUDITS FOR FISCAL YEAR 2021-22
RECOMMENDATION
Review and accept the Transportation Development Act and Federal Single Audits for
Fiscal Year 2021-22.
POLICY CONTEXT
The City’s Charter under Section 810 requires the employment of an independent certified
public accountant to examine the City’s financial statements.
DISCUSSION
On January 17, 2023, the City Council reviewed and accepted the City’s audited financial
statements for the fiscal year that ended June 30, 2022. As discussed in that report, the
City’s independent auditors were finalizing the Single Audit Report and Transportation
Development Act (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. 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 $53,681 in TDA funding during the 2021-22 fiscal year. Of these
revenues, $45,000 was spent on curb ramp improvements and $8,681 remains
unspent at year end.
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Item 5h
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 statu tes and are legally
restricted to pay for transit operations, the development of public transportation
systems and transportation planning. The Transit Fund received $2,398,309 in
TDA operating grants during the fiscal year. Of these funds, $1,065,433 were also
unspent at fiscal year-end due to Federal 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
98% 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
This document provides several items. 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 Single Audit
Report (Attachment A). The auditor’s comments generally reflect the difficulties
encountered when implementing the new Enterprise Resource Planning/Human Capital
Management (ERP/HCM) cloud-based Oracle system. Staff have made significant
improvements over the past four years in all areas of concern. For example, in the FY
2018-19 Single Audit (the first year after implementation), the auditor’s concern regarding
the large number of adjusting entries was based on receiving 77 adjustments, in the
current period, there were 26. This is still a significant number of adjusting entries,
however it demonstrates how far the City has come in correcting the issues and staff
remain committed to continuous improvements and addressing the remaining concerns
raised by the auditors. Again, these are areas of improvement and none of them put the
City’s revenues in jeopardy or appropriate accounting of expenditures in question.
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 5h
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: 2022-23
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 CAFR, 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 2021-22. 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.
ATTACHMENTS
A - Single Audit Reports for the year ended June 30, 2022
B - Transportation Development Act Financial Statements for the years ended June 30,
2022 and 2021
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Page 62 of 463
City of San Luis
Obispo
San Luis Obispo, California
Single Audit Reports
For the year ended June 30, 2022
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City of San Luis Obispo
Single Audit Reports
For the year ended June 30, 2022
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 ..................................................................................................... 8
Notes to the Schedule of Expenditures of Federal Awards .............................................................................. 9
Schedule of Findings and Questioned Costs ..................................................................................................... 10
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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, 2022, and the related notes to the
financial statements, which collectively comprise the City’s basic financial statements and have issued our
report thereon dated January 31 , 2023.
Report on 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 identified 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 2022-001,
and 2022-002 to be material weaknesses.
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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
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
2022-003 and 2022-004 to be significant deficiencies.
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
Government Auditing Standards requires the auditor to perform limited procedures on the City’s response to
the findings identified in our engagement and 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 the response.
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, CPAs
Berkeley, California
January 31, 2023
2 Page 66 of 463
REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND 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
Opinion on 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, 2022. 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.
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, 2022.
Basis for Opinion on Each Major Federal Program
We conducted our audit of compliance in accordance with auditing standards generally accepted in the
United States of America (GAAS) ; the standards applicable to financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States(Government Auditing Standards);
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). Our
responsibilities under those standards and the Uniform Guidance are further described in the Auditor’s
Responsibilities for the Audit of Compliance section of our report.
We are required to be independent of the City and to meet our other ethical responsibilities, in accordance
with relevant ethical requirements relating to our audit. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion on compliance for each major
federal program. Our audit does not provide a legal determination of the City’s compliance with the
compliance requirements referred to above.
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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
Responsibilities of Management for Compliance
Management is responsible for compliance with the requirements referred to above and for the design,
implementation, and maintenance of effective internal control over compliance with the requirements of
laws, statutes, regulations, rules, and provisions of contracts or grant agreements applicable to the City’s
federal programs.
Auditor’s Responsibilities for the Audit of Compliance
Our objectives are to obtain reasonable assurance about whether material noncompliance with the
compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion
on the City’s compliance based on our audit. Reasonable assurance is a high level of assurance but is not
absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS,
Government Auditing Standards, and the Uniform Guidance will always detect material noncompliance when
it exists. The risk of not detecting material noncompliance resulting from fraud is higher than for that
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control. Noncompliance with the compliance requirements referred to above is
considered material if there is a substantial likelihood that, individually or in the aggregate, it would
influence the judgment made by a reasonable user of the report on compliance about the City’s compliance
with the requirements of each major federal program as a whole.
In performing an audit in accordance with GAAS, Government Auditing Standards, and the Uniform
Guidance, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material noncompliance, whether due to fraud or error, and design and
perform audit procedures responsive to those risks. Such procedures include examining, on a test basis,
evidence regarding the City’s compliance with the compliance requirements referred to above and
performing such other procedures as we considered necessary in the circumstances.
• Obtain an understanding of the City’s internal control over compliance relevant to the audit in order to
design audit procedures that are appropriate in the circumstances 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 the City’s internal control over compliance. Accordingly, no such opinion is
expressed.
We are required to communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal
control over compliance that we identified during the audit.
4 Page 68 of 463
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 3
Report on 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 a
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
Auditor’s Responsibilities for the Audit of Compliance section above and was not designed to identify all
deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies
in internal control over compliance. Given these limitations, during our audit we did not identify any
deficiencies in internal control over compliance that we consider to be material weaknesses, as defined
above. However, material weaknesses or significant deficiencies in internal control over compliance may
exist that were not identified.
Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal control
over compliance. Accordingly, no such opinion is expressed.
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.
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,
2022, and the related notes to the financial statements, which collectively comprise the City’s basic financial
statements. We issued our report thereon dated December 20, 2022, 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
5 Page 69 of 463
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 4
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.
Badawi & Associates, CPAs
Berkeley, California
January 31, 2023, except for the schedule of expenditures
of federal awards, which is as of December 20, 2022
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City of San Luis Obispo
Schedule of Expenditures of Federal Awards
For the year ended June 30, 2022
Federal State
Catalog Pass-through Program 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 STPLR-7500(291)1,061$ -$
Highway Planning and Construction 20.205 ATPL-5016(057)1,161,188 -
Subtotal Highway Planning and Construction Cluster 1,162,249 -
Federal Transit Cluster
Direct Program:
Federal Transit Formula Grants 20.507 1,877,213 -
Subtotal Federal Transit Cluster 1,877,213 -
Total U.S. Department of Transportation 3,039,462 -
U.S. Department of Justice
Direct Programs
Bulletproof Vest Partnership Program 16.607 3,428
Edward Bryne Memorial Justice Assistance Grant Program 16.738 21,135 -
Total U.S. Department of Justice 24,563 -
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-21-UC-06-0508 36,482 -
Subtotal CDBG-Entitlement Grants Cluster 36,482 -
Total U.S. Department of Housing and Urban Development 36,482 -
U.S. Department of the Treasury
Passed through California State Water Resources Control Board
Coronavirus State & Local Fiscal Recovery Funds 21.027 3940COVIDARREAR 225,016 -
Total U.S. Department of the Treasury 225,016 -
Total Expenditures of Federal Awards 3,325,523$ -$
See accompanying Notes to Schedule of Expenditures of Federal Awards.
8 Page 72 of 463
City of San Luis Obispo
Notes to the Schedule of Expenditures of Federal Awards
For the year ended June 30, 2022
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.
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City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2022
Section I - Summary of Auditor’s Results
Financial Statements
Types of auditor’s report issued: Unmodified
Internal control over financial reporting:
Material weakness(es) identified? Yes
Significant deficiency(ies) identified? Yes
Any noncompliance material to the financial statements noted? No
Federal Awards
Internal control over major programs:
Material weakness(es) identified? No
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:
Assistance Listing Number(s)Name of Federal Program or Cluster Expenditures
20.507 Federal Transit Formula Grants 1,877,213$
21.027 Coronavirus State & Local Fiscal Recovery Funds 225,016
Total Expenditures of All Major Federal Programs 2,102,229$
Total Expenditures of Federal Awards 3,325,523$
Percentage of Total Expenditures of Federal Awards 63.2%
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
10 Page 74 of 463
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2022
Section II – Current Year Findings
A. Financial Statement Audit Finding
2022-001 Journal Entries Posting (Material Weakness)
Criteria: The access to post journal entries in the general ledger should be restricted. Journal entries should
be independently prepared, reviewed before being posted to the general ledger.
Condition: During the review of the City’s journal entry approval matrix and JE testing, we noted the
posting from the subledger to GL do not require approvals at the general ledger level nor at the subledger
level. Considering the number of employees who can post entries through subledger without review and
the fact that corrections to payroll, payable, revenue/receivables, cash management, capital assets all can be
posted through subledger and do not require approval, it increased the risk of unauthorized or incorrect
journals get posted into general ledger.
Cause: The City didn’t have control in place to ensure all journal entries are properly reviewed before
posting.
Effect:. Journal entries recorded in the City’s accounting system may be inaccurate, unapproved, or
unsupported.
Recommendation: We recommend that the City limit the number of employees who can post journal entries
in the subledger and general ledger, and implement system control to ensure all journal entries are
reviewed before posting.
Management’s response:
City management concurs with the recommendation and will work with our internal IT team as well as
consultants, if necessary, to explore how the Oracle ERP system’s workflows can be adjusted to include an
approval process for posting adjusting entries, which are currently system generated and automatically
posted.
11 Page 75 of 463
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2022
Section II – Current Year Findings, continued
A. Financial Statement Audit Finding, continued
2022-002 Notes and Loans Receivable Tracking (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.
Condition: In fy2022, the City posted material prior period adjustments (over $3M) to record affordable
housing loans, which were funded through City’s funds and CDBG. The loans were omitted from the prior
years financial statements by error.
Cause: The loans were omitted due to miscommunication, or lack of communication between city
departments that left the Finance Department unaware of the existence of the loans.
Effect: The financial statements were materially misstated.
Recommendation: We recommend the City to improve communication between Finance Department and
other departments to ensure all financial transactions are captured properly.
Management’s Response:
Many of the loans were provided in prior years and included provisions for the forgiveness of the
repayment. At the time of the transactions, it was determined that forgiveness was highly likely and
therefore the transactions were treated as a grant, rather than a loan. However, more recently, the City’s
practices related to facilitating affordable housing units have changed, and there is better clarity whether
the assistance provided is in the form of a loan or a grant.
City management concurs with the recommendation and has put procedures in place in the year-end close
checklist to ensure that all affordable housing loans are properly recorded.
12 Page 76 of 463
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2022
Section II – Current Year Findings, continued
A. Financial Statement Audit Finding, continued
2022-003 Year-End Close and Audit Preparedness (Significant Deficiency)
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, the City is
responsible for the accuracy and completeness of all information provided and maintaining adequate
records for the audit.
Condition:
We received some significant adjustments after being provided the final TB. We listed below some
major post-closing entries we noted:
o Significant adjustments in recording loan receivables
o ARPA revenue was not properly recorded as unearned
o Custodial funds were not tracked properly according to GASB 84
o To correct missing AP accruals
o To correct receivables balances
The schedules initially provided for Receivables (AR, Notes Receivables, Tax Receivables) cannot be
tied to GL and do not have description of what were included in the balances but a list of debit and
credit transactions only.
We had difficulties in our revenue test as the documents the City provided cannot be easily linked to
our requests or missing information that we requested, most of which is because there is no easily
reconcilable documentation from the amounts that post to the general ledger to the original
revenues.
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. Also, some information
and documents provided to the auditor were either inaccurate or incomplete.
Effect: The City’s accounting records needed significant adjustments after the closing of the books and
during the audit. Also, the inaccurate and incomplete information provided to the auditor caused delays in
the audit and added more complexity to the audit.
Recommendation: We recommend that the City update its closing process to ensure all transactions and
adjustments are accounted for timely before the audit starts, and have the information and documents
reviewed before submitting to the auditors.
13 Page 77 of 463
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2022
Section II – Current Year Findings, continued
A. Financial Statement Audit Finding, continued
2022-003 Year-End Close and Audit Preparedness (Significant Deficiency), continued
Management’s response:
The City agrees with the auditor’s comments and acknowledges that there is still additional room for
improvement related to the year-end closing procedures and verifying the data from the Oracle ERP
system. This has been an area of struggle since going live with the Oracle ERP system and although we
have made great progress, there are areas of focus and attention that can continue to improve the accuracy
and efficiency of the auditing process. Management is committed to dedicating the resources necessary to
reduce the number of adjustments required after providing the final trial balance and improve the
schedules for receivables. In addition, the creation of additional reports and supporting documents to
substantiate the receivables balances will be undertaken.
14 Page 78 of 463
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2022
Section II – Current Year Findings, continued
A. Financial Statement Audit Finding, continued
2022-004 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:
The City has recently entered into a contract with a consultant to assist with the reconfiguration of the
payroll module to correct the overtime calculations. This work is expected to resolve the issue upon
completion.
15 Page 79 of 463
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2022
Section II – Current Year Findings, continued
B. Federal Award Program Audit Finding
No findings or questioned costs were noted in the current year.
16 Page 80 of 463
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2022
Section III – Prior 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.
Status: See current year finding 2022-003
17 Page 81 of 463
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2022
Section III – Prior 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:
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.
For 8 out of 60 testing samples, the journal entries were not appropriately approved.
For 3 out of 60 testing samples, the journal entries were not properly recorded or calculated though
they were still approved.
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.
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.
Status: Partially implemented, see current year finding 2022-001.
18 Page 82 of 463
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2022
Section III – Prior 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.
Status: Implemented
19 Page 83 of 463
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2022
Section III – Prior 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.
Status: See current year finding 2022-004
20 Page 84 of 463
City of San Luis Obispo
Single Audit Reports
Schedule of Findings and Questioned Costs
For the year ended June 30, 2022
Section III - Prior Year Findings, continued
A. Federal Award Audit Finding
No findings or questioned costs were noted in the prior year.
21 Page 85 of 463
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City of San Luis Obispo
Transportation
Development Act Funds
Financial Statements
Years Ended
June 30, 2022 and 2021
Page 87 of 463
Page 88 of 463
City of San Luis Obispo,
California
Transportation Development Act Funds
Financial Statements
Years Ended June 30, 2022 and 2021
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City of San Luis Obispo, California
Transportation Development Act
Funds Report and Financial
Statements
Year Ended June 30, 2022 and 2021
Table of Contents
Page
Independent Auditor’s Report 1
Balance Sheets – June 30, 2022 and 2021 5
Statements of Revenues, Expenditures and Changes in Fund Balance –
Years Ended June 30, 2022 and 2021 6
Statements of Fund Net Position – June 30, 2022 and 2021 7
Statements of Revenues, Expenses and Changes in Fund Net Position –
Years Ended June 30, 2022 and 2021 8
Statements of Cash Flows – Years Ended June 30, 2022 and 2021 9
Notes to Financial Statements 11
TDA Fund Supplementary Information
Schedule of Revenues and Expenditures – Budget and Actual –
Years Ended June 30, 2022 and 2021 20
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 21
Independent Auditor’s Report on Transportation Development Act Compliance 23
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INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and Members of the City Council
of the City of San Luis Obispo
San Luis Obispo, California
Report on the Audit of the Financial Statements
Opinions
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, as of and for the year ended June
30, 2022 and 2021, and the related notes to the financial statements as listed in the table of contents.
In our opinion, the accompanying financial statements present fairly, in all material respects, the
respective financial position of the TDA Fund and the Transit Fund, as of June 30, 2022 and 2021, and
the respective changes in financial position for the year then ended in accordance with accounting
principles generally accepted in the United States of America.
Basis for Opinions
We conducted our audit in accordance with auditing standards generally accepted in the United States
of America (GAAS) and the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report. We are required to be independent of the City and to meet our other
ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinions.
Responsibilities of Management for the Financial Statements
The City’s management is responsible for the preparation and fair presentation of the financial
statements in accordance with accounting principles generally accepted in the United States of
America, and for 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.
In preparing the financial statements, management is required to evaluate whether there are conditions
or events, considered in the aggregate, that raise substantial doubt about the TDA fund and the Transit
Fund’s ability to continue as a going concern for twelve months beyond the financial statement date,
including any currently known information that may raise substantial doubt shortly thereafter.
Page 93 of 463
To the Honorable Mayor and Members of the City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 2
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance
and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a
material misstatement when it exists. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control. Misstatements are considered
material if there is a substantial likelihood that, individually or in the aggregate, they would influence
the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, and design and perform audit procedures responsive to those risks. Such
procedures include examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements.
Obtain an understanding of internal control relevant to the audit 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 TDA fund and the Transit Fund’s internal control.
Accordingly, no such opinion is expressed.
Evaluate the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluate the overall presentation of the
financial statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate,
that raise substantial doubt about the TDA fund and the Transit Fund’s ability to continue as a
going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit, significant audit findings, and certain internal control–
related matters that we identified during the audit.
Emphasis of Matter
As discussed in Note 1, the financial statements present only the TDA Fund and the Transit Fund and
do not purport to, and do not, present fairly the financial position of the City, as of June 30, 2022 and
2021, and the changes in its financial position or where applicable, its cash flows for the years ended in
accordance with accounting principles generally accepted in the United States of America. Our opinion
is not modified with respect to this matter.
2
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To the Honorable Mayor and Members of the City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 3
Required Supplementary Information
Management has omitted management’s discussion and analysis that accounting principles generally
accepted in the United States of America require to be presented to supplement the basic financial
statements. Such missing information, although not a part of the basic financial statements, is required
by the Governmental Accounting Standards Board who considers it to be an essential part of financial
reporting for placing the basic financial statements in an appropriate operational, economic, or
historical context. Our opinions on the basic financial statements are not affected by this missing
information.
Supplementary 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 budgetary comparison schedule is presented for purposes of additional
analysis and is not a required part of the financial statements.
The budgetary comparison schedule on page 21 is the responsibility of management and was 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
budgetary comparison schedule is fairly stated in all material respects in relation to the financial
statements as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated January 31,
2023 on our consideration of the TDA fund and the Transit Fund’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 solely 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 the effectiveness of 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 the TDA fund and the Transit Fund’s internal control over financial
reporting and compliance.
Badawi and Associates, CPAs
Berkeley, California
January 31, 2023
3
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4
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2022 2021
Assets
Cash and investments 8,681$ 4,421$
Total assets 8,681$ 4,421$
Liabilities and Fund Balance
Liabilities
Unearned revenue -$ 4,421$
Total liabilities - 4,421
Fund balances:
Unassigned 8,681 -
Total liabilities and fund balance 8,681$ 4,421$
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund
Balance Sheets
June 30, 2022 and 2021
The accompanying notes are an integral part of these financial statements.
5
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2022 2021
Revenues - intergovernmental allocations 53,681$ 36,409$
Other financing uses - operating transfers to City of San Luis Obispo (45,000) (36,409)
Excess of revenues over other financing uses 8,681 -
Fund balance - beginning of year - -
Fund balance - end of year 8,681$ -$
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund
Statements of Revenues, Expenditures and Changes in Fund Balance
June 30, 2022 and 2021
The accompanying notes are an integral part of these financial statements.
6
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2022 2021
Assets
Current assets:
Cash and investment 5,747,671$ 3,610,074$
Accounts receivable 90 3,234
Interest receivable 10,631 8,401
Due from other governments 1,877,213 2,805,689
Total current assets 7,635,605 6,427,398
Capital assets:
Infrastructure 110,972 221,743
Buildings and improvements 5,212,278 5,101,506
Transit operating equipment 9,021,099 9,021,099
Construction in progress 83,058 2,182
Total capital assets 14,427,407 14,346,530
Less accumulated depreciation (9,928,541) (9,552,679)
Total capital assets, net of accumulated depreciation 4,498,866 4,793,851
Total assets 12,134,471 11,221,249
Deferred Outflows of Resources
Pension related 145,137 101,832
Other post‐employment benefits related 18,309 9,274
Total deferred outflows of resources 163,446 111,106
Liabilities
Current liabilities:
Accounts payable 470,446 450,885
Accrued salaries and compensated absences 20,512 25,184
Unearned revenues 4,301,164 3,235,731
Total current liabilities 4,792,122 3,711,800
Noncurrent liabilities:
Compensated absences, net of current portion 7,029 3,452
Net pension liability 555,660 753,586
Net other post‐employment benefits liability 30,808 39,427
Total noncurrent liabilities 593,497 796,465
Total liabilities 5,385,619 4,508,265
Deferred Inflows of Resources
Pension related 142,711 688
Other post‐employment benefits related 23,824 15,642
Total deferred inflows of resources 166,535 16,330
Net Position
Net investment in capital assets 4,498,866 4,793,851
Restricted 2,246,897 2,013,909
Total net position 6,745,763$ 6,807,760$
City of San Luis Obispo, California
Transit Fund
Statements of Fund Net Position
June 30, 2022 and 2021
The accompanying notes are an integral part of these financial statements.
7
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2022 2021
Operating revenues:
Passenger fares 172,957$ 178,184$
Special transit fares 537,500 150,000
Other revenue 3,320 3,168
Total operating revenues 713,777 331,352
Operating expenses:
Purchased transportation 2,076,933 2,414,328
Other transportation services 596,413 168,252
Fuel and lubricants 340,952 204,966
Other materials and supplies 5,638 43,979
Salaries and wages 186,668 212,935
Fringe benefits 42,614 121,548
General and administrative 226,183 321,727
Depreciation 375,863 535,801
Total operating expenses 3,851,264 4,023,536
Operating loss (3,137,487) (3,692,184)
Nonoperating revenues:
Transportation Development Act operating grants 1,324,557 73,655
Federal Transit Administration operating grants 1,877,213 2,805,689
SGR 8,468 278,343
Interest (134,748) 878
Total nonoperating revenues 3,075,490 3,158,565
Change in net position (61,997) (533,619)
Net position - beginning of year 6,807,760 7,341,379
Net position - beginning of year, as restated 6,807,760 7,341,379
Net position - end of year 6,745,763$ 6,807,760$
City of San Luis Obispo, California
Transit Fund
Statements of Revenues, Expenses and Changes in Net Position
Years Ended June 30, 2022 and 2021
The accompanying notes are an integral part of these financial statements.
8
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2022 2021
Cash flows from operating activities:
Cash received from customers 2,710,830$ 354,233$
Cash payments to suppliers for goods and services (3,000,375) (2,765,080)
Cash payments to General Fund for interfund services (226,183) (321,727)
Cash payments to employees for services (339,057) (322,583)
Net cash used in operating activities (854,785) (3,055,157)
Cash flows from noncapital financing activities:
Operating grants received 3,210,238 4,348,549
Net cash provided by noncapital financing activities 3,210,238 4,348,549
Cash flows from capital and related financing activities:
Acquisition and construction of capital assets (80,878) (2,180)
Net cash used in capital and related financing activities (80,878) (2,180)
Cash flows from investing activities:
Interest on investments (136,978) 969
Net cash provided by (used in) investing activities (136,978) 969
Net increase (decrease) in cash and cash equivalents and investments 2,137,597 1,292,181
Cash and cash equivalents and investments - beginning of year 3,610,074 2,317,893
Cash and cash equivalents and investments - end of year 5,747,671$ 3,610,074$
City of San Luis Obispo, California
Transit Fund
Statements of Cash Flows
Years Ended June 30, 2022 and 2021
The accompanying notes are an integral part of these financial statements.
9
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2022 2021
Reconciliation of operating loss to net cash used in operating activities:
Operating loss (3,137,487)$ (3,692,184)$
Adjustments to reconcile operating loss to net cash used in operating activities:
Depreciation 375,863 535,801
Changes in operating assets, deferred outflows, liabilities,
and deferred inflows:
Accounts receivable 931,620 22,881
Accounts payable 19,561 66,445
Unearned revenue 1,065,433 -
Accrued salaries and compensated absences (1,095) (6,394)
Pension related deferred outflows and inflows and net pension liability (99,208) 22,028
OPEB related deferred outflows and inflows and net OPEB liability (9,472) (3,734)
Net cash used in operating activities (854,785)$ (3,055,157)$
Reconciliation of cash and cash equivalents and investments to the statement
of fund net position:
Cash and investment 5,747,671$ 3,610,074$
Total cash and cash equivalents and investments 5,747,671$ 3,610,074$
Non cash transactions
Gain (loss) on sale of capital assets -$ -$
Statements of Cash Flows, Continued
Years Ended June 30, 2022 and 2021
City of San Luis Obispo, California
Transit Fund
The accompanying notes are an integral part of these financial statements.
10
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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, 2022 and 2021
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.
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.
11
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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, 2022 and 2021
Page 2
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Measurement Focus, Basis of Accounting and Basis of Presentation
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.
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.
12
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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, 2022 and 2021
Page 3
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
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, 2021 and 2019
Measurement Dates June 30, 2021 and 2020
Measurement Periods July 1, 2020 to June 30, 2021,
and July 1, 2019 to June 30, 2020
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.
13
Page 105 of 463
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2022 and 2021
Page 4
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
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.
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 measurable 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, 2022 and 2021, 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.
2022 2021
Cash and investment 5,756,352$ 3,614,495$
14
Page 106 of 463
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2022 and 2021
Page 5
NOTE 3 - CASH AND CASH EQUIVALENTS AND INVESTMENTS, Continued
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.
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:
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.
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:
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.
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.
15
Page 107 of 463
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2022 and 2021
Page 6
NOTE 3 - CASH AND CASH EQUIVALENTS AND INVESTMENTS, Continued
Concentration of Credit Risk, Continued
The City’s Investment Management Plan outlines the following criteria related to portfolio diversification:
No more than 5% of the City’s portfolio (exclusive of government agency issues or LAIF) shall be placed with any
financial institution.
No more than 25% of the City’s portfolio shall be invested in collateralized certificates of deposit issued by financial
institutions.
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 $200 million and that maintain a ratio of equity to total assets of at least 5%.
Additional Cash and Investment Disclosures
See the City of San Luis Obispo June 30, 2022 and 2021 Annual Comprehensive Financial Reports for additional cash and
investment disclosures.
NOTE 4 - Due from Other Governments
At June 30, 2022 and 2021, the amounts due from other governments were as follows:
NOTE 5 - Capital Assets
Capital Assets activity for the fiscal year ended June 30, 2022, was as follows:
2022 2021
Federal Transit Administration - capital and
operating grants 1,877,213$ 2,805,689$
Balance Deletions/Balance
June 30, 2021 Additions Transfers/Adjustment June 30, 2022
Capital assets not being depreciated:
Construction in progress 2,182$ 83,058$ (2,182)$ 83,058$
Capital assets being depreciated:
Infrastructure 221,743 - (110,771) 110,972
Buildings and improvements 5,101,506 - 110,772 5,212,278
Transit operating equipment 9,021,099 - - 9,021,099
Total capital assets being depreciated 14,344,348 - 1 14,344,349
Less accumulated depreciation (9,552,679) (375,862) - (9,928,541)
Total capital assets, net of accumulated depreciation 4,793,851$ (292,804)$ (2,181)$ 4,498,866$
16
Page 108 of 463
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2022 and 2021
Page 7
NOTE 5 - CAPITAL ASSETS, Continued
Capital Assets activity for the fiscal year ended June 30, 2021, 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, 2022 and 2021. The amounts have been and will be used for both
operating expenses and capital assets.
For the years ended June 30, 2022 and 2021, the City also directly allocated $483,071, and $501,789, 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
$256,731 to be spent toward the purchase of two electric transit vehicles. As of June 30, 2022, the City had not yet purchased the
vehicles. The LCTOP amount is part of the unearned revenue balance at June 30, 2022.
Balance Deletions/ Balance
June 30, 2020 Additions Transters June 30, 2021
Capital assets not being depreciated:
Construction in progress 1$ 2,181$ -$ 2,182$
Capital assets being depreciated:
Infrastructure 221,744 - (1) 221,743
Buildings and improvements 5,101,506 - - 5,101,506
Transit operating equipment 9,021,099 - - 9,021,099
Total capital assets being depreciated 14,344,349 - (1) 14,344,348
Less accumulated depreciation (9,016,878) (535,801) - (9,552,679)
Total capital assets, net of accumulated depreciation 5,327,472$ (533,620)$ (1)$ 4,793,851$
Article Section 2022 2021
LTF 3.0 99233.3 53,681$ 40,830$
LTF 4.0 99260 2,084,383 1,286,416
STAF 6.5 99313 257,229 189,658
STAF 6.5 99314 48,229 29,816
SGR 6.5 99314 8,468 8,481
SGR 6.5 99313 - 269,862
2,451,990$ 1,825,063$
Applicable
Allocating TDA Statute Amount
17
Page 109 of 463
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2022 and 2021
Page 8
NOTE 7 - Fare Revenue Ratios
For the years ended June 30, 2022 and 2021 the City had fare revenue ratios of 98%, and 90%, 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, 2022 and June 30, 2021.
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, 2022 and 2021 were $555,660 and $753,586, respectively. The portion of the deferred outflows of resources
allocated to the Transit Fund for the years ended June 30, 2022 and 2021 were $145,137 and $101,832, respectively. The portion
of the deferred inflows of resources allocated to the Transit Fund for the years ended June 30, 2022 and 2021 were $142,711 and
$688, respectively. The portion of the pension expense allocated to the Transit Fund for the years ended June 30, 2022 and 2021
were $(99,209) and $22,028, 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, 2022 and 2021 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, 2022 and 2021 were $30,808 and $39,427, respectively. The
portion of the deferred outflows of resources allocated to the Transit Fund for the years ended June 30, 2022 and 2021 were
$18,309 and $9,274, respectively. The portion of the deferred inflows of resources allocated to the Transit Fund for the years
ended June 30, 2022 and 2021 were $23,824 and $15,642, respectively. The portion of the OPEB expense allocated to the Transit
Fund for the years ended June 30, 2022 and 2021 were $(6,248) and $(565), respectively, and is shown as a part of total fringe
benefits in the related fiscal year.
2022 2021
Operating revenues - fares 710,457$ 328,184$
Other local support - federal grants 1,877,213 2,805,689$
(a) Net Operating revenues 2,587,670 3,133,873
(b) Net operating costs, net of depreciation and vehicle lease costs 3,475,401$ 3,487,735$
Exclude capital expenses under uniform system of accounts
for purposes of calculating fare revenue ratios but
treated as operating expenses for financial statements (830,773) -
(b) Adjusted operating costs for purposes of calculating fare revenue ratios 2,644,628$ 3,487,735$
(c) Fare revenue ratio [(a) / (b)]98%90%
18
Page 110 of 463
City of San Luis Obispo, California
Transportation Development Act (TDA) Fund and Transit Fund
Notes to the Financial Statements
June 30, 2022 and 2021
Page 9
NOTE 9 - OTHER POST-EMPLOYMENT BENEFITS (OPEB), Continued
Additional OPEB Disclosures
See the City of San Luis Obispo June 30, 2022 and 2021 Annual Comprehensive Financial Reports for additional OPEB
disclosures as well as required supplementary information.
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 10 - 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 $4 million. It is not anticipated that the City’s annual payment to the JPA will
increase to satisfy this unfunded liability.
NOTE 11 - Subsequent Events
Events subsequent to June 30, 2022 have been evaluated through January 31, 2023, which is the date the financial statements were
available to be issued. Management did not identify subsequent events that required disclosure.
19
Page 111 of 463
2022 Original Final Actal
Revenues - intergovernmental allocations 45,900$ 45,900$ 53,681$ 7,781$
Other financing uses - operating transfers
to City of San Luis Obispo (45,900) (97,129) (45,000) 52,129
Excess of revenues over other financing uses -$ (51,229)$ 8,681$ 59,910$
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 -$ -$ -$ -$
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, 2022 and 2021
Variance with
Final Budget
Positive
(Negative)
Budget
20
Page 112 of 463
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 the 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, 2022, and the related notes to the financial
statements, and have issued our report thereon dated January 31, 2023.
Report on 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) to determine the 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 or significant deficiencies may exist that were not identified.
Page 113 of 463
To the Honorable Mayor and Members of the City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page Two
Report on 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 determination of financial statement amounts. 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 and Associates, CPAs
Berkeley, California
January 31, 2023
22
Page 114 of 463
REPORT ON COMPLIANCE AND ON INTERNAL CONTROL
OVER COMPLIANCE FOR TRANSPORTATION DEVELOPMENT ACT FUNDS
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
Opinions
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, 2022 and 2021.
In our opinion, the City complied, in all material respects, with the compliance requirements referred
to above that could have a direct and material effect on its TDA Program for the year ended June 30,
2022 and 2021.
Basis for Opinion
We conducted our audit of compliance in accordance with auditing standards generally accepted in the
United States of America (GAAS); the standards applicable to financial audits contained in Government
Auditing Standards issued by the Comptroller General of the United States; and 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. Our responsibilities under those standards and the Act
are further described in the Auditor’s Responsibilities for the Audit of Compliance section of our
report.
We are required to be independent of the City and to meet our other ethical responsibilities, in
accordance with relevant ethical requirements relating to our audit. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our opinion on compliance for the
City’s TDA Program. Our audit does not provide a legal determination of the City’s compliance with
the compliance requirements referred to above.
Page 115 of 463
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 2
Responsibilities of Management for Compliance
Management is responsible for compliance with the requirements referred to above and for the design,
implementation, and maintenance of effective internal control over compliance with the requirements
of laws, statutes, regulations, rules and provisions of contracts or grant agreements applicable to the
City’s TDA Program.
Auditors’ Responsibilities for the Audit of Compliance
Our objectives are to obtain reasonable assurance about whether material noncompliance with the
compliance requirements referred to above occurred, whether due to fraud or error, and express an
opinion on the City’s compliance based on our audit. Reasonable assurance is a high level of assurance
but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance
with GAAS, Government Auditing Standards, and the 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 will always detect material noncompliance when it exists. The risk of not detecting
material noncompliance resulting from fraud is higher than for that resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Noncompliance with the compliance requirements referred to above is considered material if there is a
substantial likelihood that, individually or in the aggregate, it would influence the judgment made by a
reasonable user of the report on compliance about the City’s compliance with the requirements of the
TDA Program as a whole.
In performing an audit in accordance with GAAS, Government Auditing Standards, and the 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, we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material noncompliance, whether due to fraud or error, and
design and perform audit procedures responsive to those risks. Such procedures include
examining, on a test basis, evidence regarding the City’s compliance with the compliance
requirements referred to above and performing such other procedures as we considered
necessary in the circumstances.
Obtain an understanding of the City’s internal control over compliance relevant to the audit in
order to design audit procedures that are appropriate in the circumstances and to test and
report on internal control over compliance in accordance with the 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, but not for the purpose of expressing an
opinion on the effectiveness of City’s internal control over compliance. Accordingly, no such
opinion is expressed.
24
Page 116 of 463
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 3
We are required to communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit and any significant deficiencies and material weaknesses in
internal control over compliance that we identified during the audit.
Report on 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 the 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 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 the 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 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 the 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 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
Auditor’s Responsibilities for the Audit of Compliance section above and was not designed to identify
all deficiencies in internal control over compliance that might be material weaknesses or significant
deficiencies in internal control over compliance. Given these limitations, during our audit we did not
identify any deficiencies in internal control over compliance that we consider to be material
weaknesses, as defined below. However, material weaknesses or significant deficiencies in internal
control over compliance may exist that were not identified.
Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal
control over compliance. Accordingly, no such opinion is expressed.
25
Page 117 of 463
To the Honorable Mayor and Members of City Council
of the City of San Luis Obispo
San Luis Obispo, California
Page 4
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 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. Accordingly, this report is
not suitable for any other purpose.
Badawi and Associates, CPAs
Berkeley, California
January 31, 2023
26
Page 118 of 463