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HomeMy WebLinkAbout05-20-2014 B5 Comprehensive Annual Financial Report FROM: Wayne Padilla, Director of Finance & Information Technology Prepared By: Vilma Warner, Interim Finance Operations Manager SUBJECT: ACCEPTANCE OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT, SINGLE AUDIT REPORT AND RELATED RECOMMENDATIONS TO MANAGEMENT FOR 2012-13; THE ANNUAL AUDIT OF TRANSPORTATION DEVELOPMENT ACT FUNDS AND THE AUDIT OF WHALE ROCK COMMISSION FINANCIAL STATEMENTS; AND THE REPORT ON AGREED UPON PROCEDURES RELATED TO THE ANNUAL APPROPRIATION LIMIT CALCULATION RECOMMENDATION Accept the following reports and recommendations: 1. The Comprehensive Annual Financial Report, Single Audit Report and related Recommendations to Management for 2012-13; and 2. The annual audit of the Transportation Development Act Funds; and 3. The Audit of the Whale Rock Commission; and 4. The Report on Agreed upon Procedures related to the annual Appropriation Limit Calculation. DISCUSSION The accompanying Comprehensive Annual Financial Report (CAFR) has been prepared as required by the City’s Charter and applicable State laws requiring financial reporting. The CAFR provides a final and audited representation of the City’s financial condition across all funds and audited results of operations for the fiscal year that ended June 30, 2013. The CAFR was also published on the City’s website on December 31, 2013, as required by City Charter, and hard copies were provided to the City Council in January 2014. The accompanying Single Audit Report, which is prepared by the City’s independent certified public accountants, Glenn, Burdette, Phillips and Bryson (GBPB), provides information about the City’s expenditures of federal awards for the period ended June 30, 2013. The Management Recommendations Letter, which is also prepared by the City’s independent certified public accountants, provides comments and recommendations which are intended to improve internal control or result in other operating efficiencies. The Transportation Development Act annual audit was prepared by the same independent certified public accounting firm and provides information on the City’s compliance with statutes, rules and regulations of the Transportation Development Act (TDA), the California Code of Relations, and instructions and resolutions of San Luis Obispo Council of Government for the period ended on June 30, 2013. This report did not reflect any negative findings regarding the City’s administration of the TDA monies. 5/20/14 B5 - 1 Comprehensive Annual Financial Report for 2012-13 Page 2 The Agreed Upon Procedures or Gann Limit report is prepared by the City’s independent certified public accountants and provides information about procedures used in the calculation of the appropriation limitation that was used in the preparation of the 2012-13 budget. The report found that the City’s calculation of the appropriation limit had been prepared correctly. The audit of the Whale Rock Commission was also prepared by the Glenn, Burdette firm. This report provides information related to the Commission’s annual financial condition as of June 30, 2013. The City operates and maintains the Whale Rock reservoir and oversees its finances. There were no negative findings related to the City’s oversight of the Commission’s finances. A representative from GBPB, the City’s independent certified public accountants, will attend the May 20, 2014 Council meeting to present the results of the audits and to respond to any questions the Council may have relating to these audits. Financial Results Highlighted in the CAFR Within the CAFR, the Transmittal Memorandum and Management’s Discussion and Analysis provide a comprehensive analysis of the City’s financial position as of June 30, 2013, as well as summaries of significant City fiscal policies, practices and financial results. Key variances from projected ending balances for 2012-13 are also highlighted in the Transmittal Memorandum. Financial results for the year compare favorably with budget estimates in virtually all areas of the City’s operations. For the General Fund, financial results for the year were better than final estimates for revenues by $1.32 million, or 2.34%. Expenditures were $2.46 million, or 4.81%, below final estimates. This results in an ending General Fund unassigned fund balance of $14 million. Part of the increase in fund balance is the result of one-time prior year correction to sales tax accruals. With this outcome the city has complied with its policy of maintaining a minimum unassigned General Fund balance that is at least 20% of operating expenditures. The audited fund balance and the operating results described above were utilized in the preparation of the Mid-Year Budget Review document that was presented to the City Council in February. Changes in 2012-132012-13 General Fund Balance EstimatedActual Amount % Fund balance, beginning of year 13,686,30013,684,400 Revenues 56,259,800$ 57,578,800$ 1,319,000$ 2% Expenditures 53,166,40048,582,9004,583,5009% Other sources (uses)(3,376,500)(5,639,500)(2,263,000)67% Excess of revenues and sources over (under) expenditures & uses (283,100)3,356,4003,639,500 Prior Year restatement 1,896,9001,896,900 Fund balance, end of year 13,403,200$ 18,937,700$ 5,536,400$ Less: Nonspendable (2,777,000) Carryover/unused Appropriations (1,768,200) Debt Service Reserve (331,600) Unassigned Fund Balance, end of year 14,060,900$ Variance B5 - 2 Comprehensive Annual Financial Report for 2012-13 Page 3 While revenues from the General Fund’s top ten sources, which account for 90% of total revenues, were on target with projections as a whole, there were variances within the individual sources as shown below. 2012-132012-13 Top Ten Revenues Budget ActualVariance % Sales Tax General 14,006,300$ 14,242,200$ 235,900$ 2% Measure Y 6,340,000 6,493,800 153,8002% Property Tax 9,003,000 9,176,600 173,6002% Transient Occupancy Tax 5,395,000 5,572,400 177,4003% Utility Users Tax 4,662,700 4,916,100 253,4005% Property tax in lieu of VLF 3,533,200 3,533,200 0 0% Franchise Fees 2,498,000 2,552,300 54,3002% Business Tax 2,050,000 2,055,300 5,3000% Development Review Fees 2,360,900 2,595,300 234,40010% Recreation Fees 1,528,000 1,747,900 219,90014% Total 51,377,100$ 52,885,100$ 1,508,000$ 2.9% As highlighted in Management’s Discussion and Analysis, the City’s assets across all funds exceed its liabilities by $342 million, which was a 4.3% increase from the prior year. This increase is primarily attributable to a decrease in noncurrent liabilities due to the paying down of debt. The General Accounting Standards Board has created new national accounting standards that go into effect in 2013-14. The City will adopt the new Government Accounting Standard pronouncement GASB 67. The pronouncement requires all public agencies to disclose their share of the CalPERS unfunded liability in their financial statements. The amount reported on the balance sheet will reflect the long-term liability and therefore the amount is not “due in full” in the next fiscal year. As required by the City Charter, the financial statements have been audited by independent certified public accountants Glenn, Burdette, Phillips and Bryson. The objective of a financial audit is to provide users of the financial reports with reasonable assurance from an independent source that the reports are reliable. The auditor issued the financial statements with an unqualified opinion which means that they are presented fairly and in conformity with generally accepted accounting principles (see pages 16-17 of the CAFR). CAFR Organization In accordance with generally accepted accounting principles for state and local governments, the City’s CAFR is organized into three major sections: Introduction, Financial Reports and Statistical Tables. The following is a brief summary of the contents of each of these sections. Introduction. The Transmittal Memorandum and other information of general interest are presented in this section, including: directory of officials, advisory bodies, and organization chart. Financial Reports. This section includes the City’s primary financial statements in five major parts: 1. Auditors’ opinion regarding the financial statements. B5 - 3 Comprehensive Annual Financial Report for 2012-13 Page 4 2. Management’s discussion and analysis providing a narrative overview of City-wide finances. 3. The basic financial statements presenting the government-wide results combining the activities of the major funds (General, Capital Outlay and all Enterprise Funds) into governmental and business-type categories; the fund financial statements; and the notes to the financial statements. 4. Required supplementary information presenting the General Fund actual results with both the original and final adjusted budgets. 5. Other supplemental schedules and financial statements providing financial information for each of the City’s non-major governmental and agency funds. This includes a financial schedule presenting Measure Y revenues and uses in 2012-13. Statistical Tables. This section provides demographic and financial tables showing current and historical trend information for the City and is organized into six major parts: 1. Statistical overview. General information about the San Luis Obispo community. 2. General financial trends. Ten-year summary information on net assets, governmental revenues and expenditures and fund balances. 3. Revenue capacity. Ten-year summary information on property and sales tax trends. 4. Debt capacity. Ten-year summary information on debt service requirements. 5. Economic and demographic trends. Ten-year summaries of taxable sales, building permits and valuations, housing, population and other demographic trends. 6. Operating information. Ten-year trend information on operating indicators by function. Recognition for Excellence in Financial Reporting Beginning in fiscal year 1983-84, all of the City’s CAFRs have been awarded the certificate of achievement for excellence in financial reporting from the Government Finance Officers Association of the United States and Canada (GFOA). This is a prestigious national award recognizing the City’s use of the highest standards in preparing our annual financial report. The City received the award for its 2011-2012 CAFR and has submitted the award application for the 2012-2013 CAFR. Additional Reporting The Federal Single Audit Act requires agencies expending $500,000 or more of Federal assistance funding to undergo organization-wide audits of their internal controls. Accordingly, the accompanying Single Audit Report provides a Report on Internal Control Over Financial Reporting and on Compliance and Other Matters. In the findings section of this report, the auditors noted that several grant reimbursement claims for capital project costs had not been filed in prior years and a recommendation was made to ensure that claims are filed each year, as necessary. One other finding was made with regard to the recording of year-end adjustments for utility fund revenues. In response to both findings, staff has already taken the steps necessary to avoid these issues in the future. In the Recommendations to Management Report, the auditors pointed out three items of concern that were identified during the audit: B5 - 4 Comprehensive Annual Financial Report for 2012-13 Page 5 • The first relates to fixed asset tracking and staff agrees with the recommendation to maintain these records on a quarterly basis and bring them into agreement with the general ledger. Staff has also begun to look for a more efficient electronic platform to maintain these records. • The auditors also noted that from the approximately 8,500 accounts payable transactions processed by the city in 2012-13, there were three instances in which invoices from the previous year were not recorded in the proper timeframe. In response, staff will be more vigilant in screening such items to ensure that they are properly recorded and will provide more training on year end procedures to the departments • The auditors noted that the process of recording and allocating investment values to each fund should be occurring more frequently to eliminate the time needed at the end of the year to provide these entries. Staff has revamped the accounting procedures to ensure that this process is handled more efficiently in the future. FISCAL IMPACT There is no fiscal impact associated with review of the financial results for the fiscal year. AVAILABLE FOR REVIEW IN THE COUNCIL READING FILE AND ON THE CITY’S WEBSITE Comprehensive Annual Financial Report for 2012-13 Single Audit Report for 2012-13 Management Recommendations Letter for 2012-13 TDA Funds Audit Report for 2012-13 Agreed-Upon Procedures Report for 2012-13 Whale Rock Audit Financial Report for 2012-13 T:\Council Agenda Reports\2013\2013-05-21\Comprehensive Annual Financial Report for 2011-12 (Padilla-Richardson)\CAFR-Single audit 2011-12.docx B5 - 5 Page intentionally left blank. B5 - 6