HomeMy WebLinkAboutItem 5 - Attachment A - FY 2021-22 Audited Financial StatementsWhale Rock Commission
Financial Statements
For the Fiscal Years ended June 30, 2022 and 2021
Whale Rock Commission
Fiscal Years Ended June 30, 2022 and 2021
Table of Contents
Independent Auditors' Report 1-3
Management’s Discussion and Analysis 5-11
Basic Financial Statements
Government-wide Financial Statements:
Statements of Net Position - June 30, 2022 and 2021 17
Statements of Activities - Fiscal Years Ended June 30, 2022 and 2021 18
Fund Financial Statements
Balance Sheets - June 30, 2022 and 2021 21
Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position - June 30, 2022 22
Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position - June 30, 2021 23
Statements of Revenues, Expenditures, and Changes in Fund Balance - Fiscal Years Ended
June 30, 2022 and 2021 24
Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance
of Governmental Funds to the Statement of Activities - June 30, 2022 25
Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance
of Governmental Funds to the Statement of Activities - June 30, 2021 26
Notes to the Financial Statements 27-31
Required Supplementary Information
Budgetary Comparison Schedule - Fiscal Year Ended June 30, 2022 35
Notes to Required Supplementary Information 36
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 37-38
Schedule of Findings and Responses 39-40
Status of Prior Year Findings – 2020/2021 41-43
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INDEPENDENT AUDITOR’S REPORT
To the Members
of the Whale Rock Commission
San Luis Obispo, California
Report on the Audit of the Financial Statements
Opinion
We have audited the accompanying financial statements of the governmental activities and general fund of the
Whale Rock Commission (Commissiona), as of and for the years ended June 30, 2022 and June 30, 2021, and the
related notes to the financial statements, which collectively comprise the Commission’s basic 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 governmental activities and general fund information of the Commission, as of June 30,
2022, 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 Commission 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 Commission’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 Commission’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.
To the Members
of the Whale Rock Commission
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 Commission’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 Commission’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.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis and budgetary comparison information on pages 5-11 and 35 be presented to supplement
the basic financial statements. Such 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. We have
applied certain limited procedures to the required supplementary information in accordance with auditing
standards generally accepted in the United States of America, which consisted of inquiries of management about
the methods of preparing the information and comparing the information for consistency with management’s
responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the
basic financial statements. We do not express an opinion or provide any assurance on the information because the
limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Reporting Required by Government Auditing Standards
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To the Members
of the Whale Rock Commission
San Luis Obispo, California
Page 3
In accordance with Government Auditing Standards, we have also issued our report dated March 14, 2023 on
our consideration of the Commission’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 Commission’s internal control over financial
reporting and compliance.
Badawi & Associates, CPAs
Berkeley, California
March 14, 2023
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Management’s Discussion & Analysis
This section provides a narrative overview and analysis of the financial activities of the Whale Rock Commission for the
fiscal years ended June 30, 2022 and 2021. It should be read in conjunction with the accompanying basic financial
statements.
Overview of the Financial Statements
The financial statements are presented in accordance with Governmental Accounting Standards Board Statement No. 34.
The basic financial statements are comprosed of three components:
1. Government-wide financial statements
2. Fund financial statements and
3. Notes to the financial statements.
Government-Wide Financial Statements
This set of statements is designed to provide readers with a broad overview of the Commission’s finances, in a manner
similar to a private-sector business.
The Statement of Net Position presents information on all the Commission’s assets and liabilities, with the differnce reported
as net position. Over time, increases or decreases in net position may serve as an indicator of whether the finacial position
of the Commission is improving or declining.
The Statement of Activities presents information showing how the Commission’s net position changed during the most
recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs.
Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal
periods.
Fund Financial Statements
A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific
activites or objectives. The Commission, like other state and local governments, uses fund accounting to ensure and
demonstrate compliance with finance-related legal requirements. All of the activities of the Commission are accounted for
in one fund.
Whale Rock Commission
The Whale Rock Fiduciary (Custodial) fund is used to account for the Commission’s ongoing operating activities.
Ownership in the Reservoir is as follows: 55.05%, City of San Luis Obispo; 33.71%, California Polytechnic State
University; and 11.24%, California Men’s Colony. The City’s share of the Commission’s expenses is recorded as expenses
of the Water Fund. All receipts and disbursement of the Commission are included in the fiduciary fund.
Financial Highlights
The following outlines financial highlights for the year:
The assets of the Commission exceeded its liabilities at June 30, 2022 by $5.1 million (net position). The
Commission’s unrestricted net position increased by $1.1 million, compared with 2020-21.
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Management’s Discussion & Analysis
Total assets increased by $1,014,000 or 24% to $5.1 million. This reflects an increase in cash and receivables offset
by a decrease in capital assets net of depreciation and prepaid expenses. Total liabilities also decreased by $49,000
or 30% to $114,800. The changes are reflected in vendors payable, accrued salaries and other accrued liabilities at
year end.
Total Revenue, comprised of charges for services, other revenues, and use of money and property amounted to $2.3
million for FY 2021-22 which represents an increase of $233,000 or 11% from the prior year. The total charges for
services decreased by $171,000 or 14% from the prior year. Other revenues which include capital contributions
increased to $1.4 million which represents an increase of $513,000 or 57% from the prior year. This increase in
capital contributions was primarily driven by funding to repair the reservoir’s spillway drain. In contrast, use of
money and property, which reflects the funds allocation of investment earnings, saw a decrease of $108,000 for the
fiscal year due to a negative fair market value (FMV) adjustment at year end as a result of rising interest rates and
their effects of on the current value of treasury securities.
Water distribution revenues decreased from the prior year by $105,000 from $249,000 in FY 2020-21 to nearly
$144,000 in the current year. This decrease was primarily due to lower demand from the SLO Water Treatment
Plant, California Men’s Colony Water Treatment Plant, and the Dairy Creek Golf Course.
Total expenses of $1.3 million were higher in FY 2021-22 from the prior year by $118,000, which represents an
increase of 10%. This increase was primarily caused by increases in operational costs as well as capital project
related costs. Operational costs were $45,000 greater than FY 2020-21, while general government costs were $2,000
greater than in the prior year. Depreciation remained consistent with the prior year increasing slightly by $3,000.
Operational Highlights
The following are the operational highlights for the fiscal year:
Pipeline Repair
Staff repaired a pipeline leak near Morro Bay. During the repair process, staff identified approximately 60 feet of pipeline
that had degraded and had poor structural integrity. With assistance from contractors, staff excavated and replaced 60 feet
of a thirty-inch pipeline. Staff used Whale Rock's spare pipe inventory to replace the degraded pipeline. Later, staff
purchased an additional one hundred feet of extra thirty-inch pipe to be used for future pipeline leak repairs.
6
Management’s Discussion & Analysis
New Fuel Tank
Staff purchased a new five-hundred-gallon fuel tank to replace Pump Station B's failed emergency generator fuel tank. The
existing fuel tank had rust holes on the surface and was introducing rainwater into the fuel tank. Whale Rock staff ordered
the fuel tank, poured a concrete mounting pad, installed the fuel tank, and completed fuel plumbing from the tank to the
generator. The generator is functioning with the new fuel tank and may be used in the event of a power outage that requires
generator operations.
Check Valve Replacement
Staff purchased and replaced one of the five check valves at Pump Station B. The existing check valve had defective seals
and wasn't halting the water flow as designed. In addition, the current check valves are no longer supported by the
manufacturer, requiring a valve replacement with the latest design that the manufacturer supports. In the future, staff can
purchase spare parts for the check valves that will restore the performance of a non-functioning valve.
Fence Replacement
Staff administered a fence replacement capital project that replaced approximately two thousand feet of barbed wire fence.
Much of the fencing that was replaced is original and had served for sixty years before being replaced.
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Management’s Discussion & Analysis
Vegetation Removal
Staff removed vegetation from the east groin of the Dam. The Whale Rock team used an excavator and wheel loader to
remove the brush from approximately one-half acre of land. The Whale Rock Dam’s regulator, the Division of Safety of
Dams (DSOD), prefers dam structures to be free of vegetation to allow for surveillance of the structure. Therefore, staff will
maintain the area to be free of vegetation in the future.
Spillway Underdrain Repairs
The spillway underdrain repair project has progressed. The project plans are under final review by the DSOD. DSOD staff
has previously provided reviews and comments while the plans were being designed. Whale Rock staff expects the project
to acquire final approval this spring. The project is planned to go out to bid in the spring or summer of 2023.
CityWorks Implementation
The City Information Technology (IT) and Geographic Information Systems (GIS) teams were able to provide support for
CityWorks at Whale Rock. This successful initiative has been on the “wish list” for utilities staff for a few years. A new
CityWorks application that allows for unconnected data recording and new I-pads, as well as significant support from IT
and GIS, made this possible. CityWorks allows staff to document work performed to specific assets and will provide a better
understanding of how Whale Rock staff manages their work efforts and how we might be more effective in the future.
Emergency Action Plan Approval
The Whale Rock Reservoir Emergency Action Plan (EAP) received final approval from regulatory agencies this month.
Whale Rock was required to update the EAP to meet regulatory requirements and include updated inundation maps, (flood
maps). The EAP document lays out actions to be taken, and agencies and staff to be contacted if there is a hazardous
condition occurring at the dam. The EAP will be provided to all agencies that would be involved in an incident involving
the dam’s performance. The EAP update began in 2020 and represents a long-term accomplishment for the WRP team.
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Management’s Discussion & Analysis
The Notes to the Financial Statements provide additional information that is essential to the reader for a full understanding
of the data provided in the Commission’s financial statements.
Financial Analysis
Net position may serve, over time, as an indicator of a government’s financial position. As noted above, assets exceeded
liabilities by $5.1 million at June 30, 2022.
At the end of the current fiscal year, the Commission continues to report a positive net position.
Information about changes in net position resulting from operations is summarized below:
SUMMARY OF CHANGES IN NET POSTION
Government Wide
Whale Rock 2021-22 2020-21
Revenues:
Charges for services 1,092,827$ 1,264,076$
Other revenues 1,409,196 896,600
Use of money and property (107,364) 820
Total Revenues 2,394,659 2,161,496
Expenses:
Operations 1,004,354 959,595
Capital projects 77,602 9,593
General government 186,697 184,494
Depreciation 63,459 60,809
Total expenses 1,332,112 1,214,491
Increase (decrease) in net position 1,062,547 947,005
Net position, beginning 4,080,525 3,129,284
Prior year restatement 310 4,236
Net position, beginning of year, as restated 4,080,835 3,133,520
Net position, ending 5,143,382$ 4,080,525$
9
Management’s Discussion & Analysis
Commission Contributions
Members contribute for both operating and maintenance activities as well as capital improvement projects (CIP) which may
also include contributions toward the CIP reserve. Total contributions by member are show below.
Budgetary Highlights
A budgetary comparison schedule for the year ended June 30, 2022 is presented as part of the required supplementary
information. The following summarizes the original and final budget compared with actual results for 2021-22. The variance
column reflects the differences between the actual amounts realized and the final budget amounts.
10
Management’s Discussion & Analysis
Capital Assets
Capital assets, including infrastructure, are those assets that are used in the performance of the Commission’s functions and
reservoir. As of June 30, 2022, the Commission’s capital assets decreased by $65,000 from $855,000 in the prior year to
$790,000 (net of accumulated depreciation). The decrease was due to the annual depreciation of long term assets in service.
More information on the Commission’s capital assets can be found in Note 3 of these financial statements.
Request for Additional Information
This finacial report is designed to provide a general overview of the Commision’s finances for all those with an interest in
the finances. Questions concerning any of the information provided in this report or requests for additional financial
information should be addressed to the City of San Luis Obispo, Department of Finance, 990 Palm Street, San Luis Obispo,
California, 93401.
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BASIC FINANCIAL STATEMENTS
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GOVERNMENT-WIDE FINANCIAL STATEMENTS
15
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2022 2021
ASSETS
Cash and investments 4,443,600$ 3,317,658$
Accrued interest receivable 8,433 7,825
Accounts receivables 16,549 14,528
Prepaid expense - 49,971
Nondepreciable capital assets - 1,577
Capital assets, net of accummlated depreciation 789,639 853,097
Total assets 5,258,221 4,244,656
LIABILITIES
Accounts payable 48,122 82,493
Accrued salaries 10,631 26,011
Other liabilities 56,086 55,627
Total liabilities 114,839 164,131
Net Position
Net investment in capital assets 789,639 854,674
Unrestricted 4,353,743 3,225,851
Total Net Position 5,143,382$ 4,080,525$
Whale Rock Commission
Statements of Net Position
June 30, 2022 and 2021
The accompanying notes are an integral part of these financial statements.
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2022 2021
Expenses
Reservoir operations 1,004,354$ 959,595$
General government 186,697 184,494
Capital projects 77,602 9,593
Depreciation 63,458 60,809
Total expenses 1,332,111 1,214,491
Program Revenues
Charges for services:
Basic operating charges 949,126 1,015,607
Water distribution 143,701 248,469
Total program revenues 1,092,827 1,264,076
Net expense and program revenues (239,284) 49,585
General Revenues and Transfers
Use of money and property (107,365) 820
CIP Contributions 1,401,424 887,938
Other revenues 7,772 8,662
Total general revenues and transfers 1,301,831 897,420
Increase in Net Position 1,062,547 947,005
Net Position - beginning of year 4,080,525 3,129,284
Prior year restatement 310 4,236
Net position,beginning of year, as restated 4,080,835 3,133,520
Net Position - end of year 5,143,382$ 4,080,525$
Whale Rock Commission
Statements of Activities
For the Years Ended June 30, 2022 and 2021
The accompanying notes are an integral part of these financial statements.
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FUND FINANCIAL STATEMENTS
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803--807--809
2022
Assets
Cash and investments 4,443,600$ 3,317,658$
Accrued interest receivable 8,433 7,825
Accounts receivables 16,549 14,528
Prepaid items - 49,971
Total assets 4,468,582 3,389,982
Liabilities and Fund Balance
Liabilities
Accounts payable 48,122 82,493
Accrued salaries 10,631 26,011
Other liabilities 56,086 55,627
Total liabilities 114,839 164,131
Fund Balance
Assigned for reservoir operations 238,210 228,818
Assigned for CIP 2,912,981 1,587,581
Unassigned 1,202,552 1,409,452
Total fund balance 4,353,743 3,225,851
Total Liabilities and Fund balance 4,468,582$ 3,389,982$
2021
Whale Rock Commission
Balance Sheets
June 30, 2022 and 2021
The accompanying notes are an integral part of these financial statements.
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2022
Total Fund Balances - governmental funds 4,353,743$
Capital assets at estimated historical cost 1,876,264$
Accumulated depreciation (1,086,625)
789,639
Total net position - governmental activities 5,143,382$
Capital assets used in governmental activities are not financial resources and
therefore are not reported in the fund.
Whale Rock Commission
Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position
For the years ended June 30, 2022
The accompanying notes are an integral part of these financial statements.
22
2021
Total Fund Balances - governmental funds 3,225,851$
Capital assets at estimated historical cost 1,877,840$
Accumulated depreciation (1,023,166)
854,674
Total net position - governmental activities 4,080,525$
Capital assets used in governmental activities are not financial resources and
therefore are not reported in the fund.
Whale Rock Commission
Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position
For the years ended June 30, 2021
The accompanying notes are an integral part of these financial statements.
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2022
REVENUES:
Use of money and property (107,365)$ 820$
CIP Contributions 1,401,424 887,938
Other revenue 7,772 8,662
Services:
Basic operating charges 949,126 1,015,607
Water distribution 143,701 248,469
Total services 1,092,827 1,264,076
Total revenues 2,394,658 2,161,496
EXPENDITURES:
Current:
Reservoir operations 1,004,354 959,595
General government 186,697 184,494
Capital projects 76,025 168,494
Total curent expenditures 1,267,076 1,312,583
Total expenditures 1,267,076 1,312,583
Excess of revenues over expenditures 1,127,582 848,913
FUND BALANCES:
Beginning of year, as restated 3,226,161 2,376,938
End of year 4,353,743$ 3,225,851$
2021
Whale Rock Commission
Statements of Revenues, Expenditures and Changes in Fund Balances
For the years ended June 30, 2022 and 2021
803--807--809
The accompanying notes are an integral part of these financial statements.
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2022
Total excess of revenues over expenditures - governmental funds 1,127,582$
Expenditure for capital outlay -$
Construction in progress deletion (1,577)
Depreciation expense (63,458)
(65,035)
Total increase in net position - governmental activities 1,062,547$
Capital outlay net of depreciation expenses and disposal
Whale Rock Commission
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund
Balances of Governmental Funds to the Statement of Activities
For the years ended June 30, 2022
The accompanying notes are an integral part of these financial statements.
25
2021
Total excess of revenues over expenditures - governmental funds 848,913$
Expenditure for capital outlay 157,324$
Construction in progress deletion 1,577
Depreciation expense (60,809)
98,092
Total increase in net position - governmental activities 947,005$
Capital outlay net of depreciation expenses and disposal
Whale Rock Commission
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund
Balances of Governmental Funds to the Statement of Activities
For the years ended June 30, 2021
The accompanying notes are an integral part of these financial statements.
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Whale Rock Commission
Notes to Financial Statements
June 30, 2022 and 2021
Note 1: Summary of Significant Accounting Policies
Description of the Reporting Entity
The Whale Rock Commission (Commission) was established as a joint venture on December 12, 1960 to oversee, in a
fiduciary capacity, the operations and routine maintenance of the Whale Rock Reservoir (Reservoir). The Commission
is composed of six voting members and two non-voting members. Three voting members are appointed by the City of
San Luis Obispo (City); one by the California Polytechnic State University; one by the California Men's Colony; and
one by the Director of Finance, State of California. The two non-voting members are position appointments: the Director
of Water Resources, State of California; and the Water Superintendent, City of San Luis Obispo. The Commission is
authorized to establish policies for the operation of the Reservoir, to contract for the sale of excess water, and to approve
its annual budget.
The City, in accordance with established policies of the Commission, operates and maintains the Reservoir; prepares
and recommends the annual budget; and maintains the fiscal records and moneys of the Commission. Ownership in the
Reservoir is as follows: 55.05%, City of San Luis Obispo; 33.71%, California Polytechnic State University; and 11.24%,
California Men's Colony.
Government-Wide and Fund Financial Statements
The government-wide financial statements (i.e., the statement of net position and the statement of activities) report
information on all of the activities of the Commission.
The statement of activities demonstrates the degree to which the direct expenses are offset by program revenues. Direct
expenses are those that are clearly identifiable with a specific function or segment. Program revenues include
1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided
by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital
requirements of a particular function or segment.
Separate fund financial statements are also provided.
Measurement Focus, Basis of Accounting and Basis of Presentation
The government-wide financial statements are reported using the economic resources measurement focus and the accrual
basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred,
regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility
requirements imposed by the provider have been met.
Fund financial statements are reported using the current financial resources measurement focus and the modified accrual
basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered
to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the
current period. For this purpose, the Commission considers revenues to be available if they are collected within 60 days
of the end of the current fiscal period. The Commission considers interest earned but not received and billings to
participating agencies earned but not received as susceptible to accrual. Expenditures generally are recorded when a
liability is incurred, as under accrual accounting. The focus of financial measurement is upon available resources rather
than net income determination.
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Whale Rock Commission
Notes to Financial Statements
June 30, 2022 and 2021
Note 1: Summary of Significant Accounting Policies (Continued)
The accounting policies of the Commission conform to generally accepted accounting principles. The accounts of the
Commission are presented in the fund financial statements as a Governmental Fund. As the City maintains the accounting
records and moneys of the Commission in a fiduciary capacity, the Commission's operating activities are accounted for
in a separate fiduciary fund type (Custodial Fund) in the City's Annual Comprehensive Financial Report (ACFR). The
operations of the fund are accounted for with a set of self-balancing accounts that comprise the Commission's assets,
liabilities, fund equity, revenues, and expenditures. Commission resources are allocated to, and accounted for, as assets
of the fund and equity to the participating agencies.
Budgets and Budgetary Accounting
As provided under the Whale Rock Agreement, the Commission has the sole responsibility for the adoption of the budget
and may amend or supplement the budget at any time after its adoption. The budget is legally adopted prior to the
commencement of the fiscal year and is prepared in accordance with generally accepted accounting principles. The
Director of Finance of the City has the authority to make or approve administrative adjustments to the budget as long as
those changes will not have a significant policy impact nor affect budgeted year- end fund balances. Appropriations
lapse at year-end unless such amounts are encumbered and reappropriated in the next fiscal year.
Capital Assets
Capital assets, which include property, plant, equipment and infrastructure assets are reported as part of the Commission.
Capital assets are defined by the Commission as assets with an initial, individual cost of more than $25,000 and an
estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if
purchased or constructed. The costs of normal maintenance and repairs that do not add to the value of assets or materially
extend assets’ lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are
constructed. The Commission does not have any intangible assets. Detailed information on the Commission’s capital
assets can be found in Note 3.
City of San Luis Obispo Services
Because the City accounts for the activities of the Commission, other services such as workforce and risk management
are also provided by the City. The City’s ACFR fully discusses pooled and self-insurance and how the City manages the
risk of the Commission.
New Pronouncements
In 2022, the Commission adopted new accounting standards in order to conform to the following Governmental
Accounting Standards Board Statements:
In GASB Statement No. 87, Leases – The objective of this statement is to recognize in the financial statements
certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as
inflows of resources or outflows of resources based on the payment provisions of the contract. The requirements
of this statement did not apply to the Commission for the current fiscal year.
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Whale Rock Commission
Notes to Financial Statements
June 30, 2022 and 2021
Note 1: Summary of Significant Accounting Policies (Continued)
New Pronouncements (Continued)
GASB Statement 89, Accounting for Interest Cost Incurred before the End of a Construction Period – The
objective of this statement is to (1) to enhance the relevance and comparability of information about capital
assets and the cost of borrowing for a reporting period and (2) to simplify accounting for interest cost incurred
before the end of a construction period. This statement establishes accounting requirements for interest cost
incurred before the end of a construction period. This Statement requires that interest cost incurred before the
end of a construction period be recognized as an expense in the period in which the cost is incurred for financial
statements prepared using the economic resources measurement focus. As a result, interest cost incurred before
the end of a construction period will not be included in the historical cost of a capital asset reported in a business-
type activity or enterprise fund. The requirements of this statement did not apply to the Commission for the
current fiscal year.
GASB Statement No. 92, Omnibus 2020 - The objectives of this Statement are to enhance comparability in
accounting and financial reporting and to improve the consistency of authoritative literature by addressing
practice issues that have been identified during implementation and application of certain GASB Statements.
GASB Statement 93, Replacement of Interbank Offered Rates – The objective of this Statement is to address
the accounting and financial reporting implications that result from the elimination of the London Interbank
Offered rate (LIBOR) that is notably used in most agreements in which variable payments made or received
depend on an interbank offered rate (IBOR). As a result of global reference rate reform, LIBOR is expected to
cease to exist in its current form at the end of 2021, prompting governments to amend or replace financial
instruments for the purpose of replacing LIBOR with other reference rates, by either changing the reference rate
or adding or changing fallback provisions related to the reference rate. The requirements of this statement did
not apply to the Commission for the current fiscal year.
GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal
Revenue Code Section 457 Deferred Compensation Plans—an amendment of GASB Statements No. 14 and No.
84, and a supersession of GASB Statement No. 32 – The primary objectives of this Statement are to (1) increase
consistency and comparability related to the reporting of fiduciary component units in circumstances in which a
potential component unit does not have a governing board and the primary government performs the duties that
a governing board typically would perform; (2) mitigate costs associated with the reporting of certain defined
contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and employee
benefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduciary component
units in fiduciary fund financial statements; and (3) enhance the relevance, consistency, and comparability of
the accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred compensation
plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through those
plans. The requirements of this statement did not apply to the Commission for the current fiscal year.
GASB Statement No. 99, Omnibus 2022 – The primary objectives of this Statement are to enhance comparability
in accounting and financial reporting and to improve the consistency of authoritative literature by addressing (1)
practice issues that have been identified during implementation and application of certain GASB Statements and
(2) accounting and financial reporting for financial guarantees. The requirements of this statement did not apply
to the Commission for the current fiscal year.
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Whale Rock Commission
Notes to Financial Statements
June 30, 2022 and 2021
Note 2: Cash and Investments
The Commission's cash and investments are pooled with those of the City. As provided for by the California Government
Code, the cash balances of substantially all funds held by the City are pooled and invested by the City Treasurer for the
purpose of increasing interest earnings through investment activities. The Commission's share of the aggregate pooled
cash and investments are recorded at fair value and included in the accompanying balance sheet under the financial
statement caption cash and investments. Interest earned on pooled investments is allocated quarterly to the Commission
based upon the Commission's average cash balance during the allocation period. Refer to Note 2 of the Notes to the
Financial Statements of the City of San Luis Obispo as contained in the City's ACFR for further discussion of the nature
of the City's pooled cash and investments and all related fair value disclosures.
Note 3: Capital Assets
Governmental Accounting Standards Board (GASB) standards require that the Commission report in the government-
wide statements the value of all capital assets net of accumulated depreciation, including infrastructure assets, in
accordance with U.S. Generally Accepted Accounting Principles (GAAP). Infrastructure assets are defined as long- lived
capital assets that are stationary in nature and normally can be preserved for a significantly greater number of years than
most capital assets.
Note 3: Capital Assets (Continued)
The minimum requirement for compliance with GASB standards is to provide infrastructure valuations for all assets
constructed, acquired, or placed into service on or after July 1, 1980. Relevant assets for the Commission were valued
at one of two dates: 1) the original date of construction, if available, or 2) the incorporation date of the Commission.
Each asset was reviewed to determine the adequacy of the data to value to asset prior to July 1, 1980 using historical
cost or estimated historical cost.
Capital assets activity for the fiscal year ended June 30, 2022 was as follows:
Balance Decreases/ Balance
June 30, 2021 Increases Transfers June 30, 2022
Capital assets not being depreciated:
Construction in progress 1,577$ -$ (1,577)$ -$
Total capital assets not
being depreciated 1,577 - (1,577) -
Capital assets being depreciated:
Infrastructure 558,178 - 29,928 588,106
Buildings and improvements 1,092,285 - - 1,092,285
Equipment 225,801 - (29,928) 195,873
Accum. Depreciation (1,023,167) (63,458) - (1,086,625)
Total capital assets being
depreciated, net 853,097 (63,458) - 789,639
Capital assets, net 854,674$ (63,458)$ (1,577)$ 789,639$
30
Whale Rock Commission
Notes to Financial Statements
June 30, 2022 and 2021
Note 3: Capital Assets (Continued)
Capital assets activity for the fiscal year ended June 30, 2021 was as follows:
Note 4: Prior Period Adjustment
During 2022, prior period adjustments were made to correct payroll errors.
06
Balance Balance
June 30, 2020 Increases Decreases June 30, 2021
Capital assets not being depreciated:
Construction in progress -$ 158,901$ (157,324)$ 1,577$
Total capital assets not
being depreciated - 158,901 (157,324) 1,577
Capital assets being depreciated:
Infrastructure 430,782 127,396 - 558,178
Buildings and improvements 1,092,285 - - 1,092,285
Equipment 195,873 29,928 - 225,801
Accum. Depreciation (962,358) (60,809) - (1,023,167)
Total capital assets being
depreciated, net 756,582 96,515 - 853,097
Capital assets, net 756,582$ 255,416$ (157,324)$ 854,674$
Government-wide
Statements Fund Statements
Net Position/Fund Balance as previously
reported at June 30, 2021 4,080,525$ 3,225,851$
Prior Period Adjustments:
Cash 310 310
Net Position/Fund Balance as restated at
June 30, 2021 4,080,835$ 3,226,161$
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REQUIRED SUPPLEMENTARY INFORMATION
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Variance
Positive
Original Budget Final Budget Actual (Negative)
Revenues
Use of money and property 59,713$ 59,713$ (107,365)$ (167,078)$
CIP Contributions 1,401,425 1,401,425 1,401,424 (1)
Other revenues 6,000 6,000 7,772 1,772
Services:
Basic operating charges 949,126 949,126 949,126 -
Water distribution 299,608 299,608 143,701 (155,907)
Total services 1,248,734 1,248,734 1,092,827 (155,907)
Total Revenues 2,715,872 2,715,872 2,394,658 (321,214)
Expenditures
Current:
Reservoir operations 1,136,265 1,223,438 1,004,354 219,084
General government 186,211 186,211 186,697 (486)
Capital projects 885,888 1,237,789 76,025 1,161,764
Total Expenditures 2,208,364 2,647,438 1,267,076 1,380,362
Excess (Deficiency) of Revenues and Other
Sources Over (Under) Expenditures and
Other Uses 507,508 68,434 1,127,582 1,059,148
Commission Equity - beginning of year 3,226,161 3,226,161 3,226,161 -
Commission Equity - end of year 3,733,669$ 3,294,595$ 4,353,743$ 1,059,148$
Whale Rock Commission
Budgetary Comparison Schedule
Fiscal Year Ended June 30, 2022
35
Budgetary Comparison Schedule
Whale Rock Commission
Notes to Required Supplementary Information
June 30, 2022
1.The budget is prepared using the modified accrual basis of accounting consistent with U.S.
generally accepted accounting principles.
2.Outstanding encumbrances from the prior fiscal year are not reflected in the original budget
column but are included in the final budget amounts.
36
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 Members of the Whale Rock Commission
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 and general fund
information of the Whale Rock Commission (Commission), as of and for the year ended June 30, 2022, and the
related notes to the financial statements, which collectively comprise the Commission’s basic financial statements
and have issued our report thereon dated March 14, 2023.
Report on Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Commission’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 Commission’s internal control. Accordingly, we do not express
an opinion on the effectiveness of the Commission’s internal control.
Our consideration of internal control over financial reporting was for the limited purpose described in the
preceding paragraph and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist
that have not been identified. However, as described in the accompanying schedule of findings and responses, we
did identify certain deficiencies in internal control that we consider to be material weaknesses and significant
deficiencies.
A deficiency in internal control exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal
control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements
will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies described in the
accompanying schedule of findings and responses as item 2022-001 to be material weaknesses.
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 accompanying schedule of findings and responses as item 2022-002 to be
significant deficiency.
To the Members of the Whale Rock Commission
San Luis Obispo, California
Page 2
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Commission’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.
Whale Rock Commission’s Response to Findings
The Commission’s response to the findings identified in our audit is described in the accompanying schedule of
findings. Commission’s response was not subjected to the auditing procedures applied in the audit of the financial
statements and, accordingly, we express no opinion on it.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the
results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on
compliance. This report is an integral part of an audit performed in accordance with Government Auditing
Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not
suitable for any other purpose.
Badawi & Associates, CPAs
Berkeley, California
March 14, 2023
38
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2022
Section I – 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.
39
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2022
Section I – Current Year Findings, continued
A. Financial Statement Audit Finding, continued
2022-002 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.
40
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2022
Section II – 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: Implemented for Whale Rock Commission.
41
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2022
Section II – 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.
42
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2022
Section II – 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.
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 2022-002.
43