HomeMy WebLinkAboutItem 4 - FY 2020-21 Financial StatementsCity of San Luis Obispo, Title, Subtitle
Whale Rock Commission Report
Whale Rock Commission Meeting – April 21, 2022
Agenda Item 4 – FY 2020-21 Financial Statements
FROM: Aaron Floyd, Utilities Director
PREPARED BY: Mychal Boerman, Utilities Deputy Director - Water
SUBJECT: FY 2020-21 Financial Statements
RECOMMENDATIONS
Receive and File Fiscal Year 2020-21 Financial Statements.
DISCUSSION
Each year the City receives an independent audit of the Whale Rock Commission’s financial
statements. This audit provides an opinion as to whether the financial statements are prepared,
in all material respects, in accordance with accounting principles generally accepted in the
United States of America. For the 2020-21 fiscal year, the auditors have issued a “clean”
opinion, meaning that the financial statements are presented fairly in all material respects.
The Management’s Discussion and Analysis section includes financial and operational
highlights for the fiscal year and summary information on the Commission’s financial position
at year end.
As in prior years, the auditors have also provided a report on the internal controls over
financial reporting and, consistent with the findings for the City’s Annual Comprehensive
Financial Report, identified four areas of improvement. These findings, along with the City’s
responses are incorporated into the last section of the financial statements.
The Whale Rock Commission 2020-21 Financial Statements, as well as the auditor’s reports,
are provided in Attachment 1 – FY 2020-21 Audited Financial Statements.
ATTACHMENTS
1. FY 2020-21 Audited Financial Statements
Item 4
Whale Rock Commission
Financial Statements
For the Fiscal Years ended June 30, 2021 and 2020
Item 4 - Attachment 1
Item 4 - Attachment 1
Whale Rock Commission
Fiscal Years Ended June 30, 2021 and 2020
Table of Contents
Independent Auditors' Report 1-2
Management’s Discussion and Analysis 3-8
Basic Financial Statements
Government-wide Financial Statements:
Statements of Net Position - June 30, 2021 and 2020 13
Statements of Activities - Fiscal Years Ended June 30, 2021 and 2020 14
Fund Financial Statements
Balance Sheets - June 30, 2021 and 2020 17
Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position - June 30, 2021 18
Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position - June 30, 2020 19
Statements of Revenues, Expenditures, and Changes in Fund Balance - Fiscal Years Ended
June 30, 2021 and 2020 20
Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance
of Governmental Funds to the Statement of Activities - June 30, 2021 21
Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance
of Governmental Funds to the Statement of Activities - June 30, 2020 22
Notes to the Financial Statements 23-27
Required Supplementary Information
Budgetary Comparison Schedule - Fiscal Year Ended June 30, 2021 31
Notes to Required Supplementary Information 32
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 33-34
Schedule of Findings and Responses 35-39
Status of Prior Year Findings - 2019/2020 40-44
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Item 4 - Attachment 1
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INDEPENDENT AUDITOR’S REPORT
To the Members
of the Whale Rock Commission
San Luis Obispo, California
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities and general fund of
the Whale Rock Commission (Commission), as of and for the years ended June 30, 2021 and June 30, 2020,
and the related notes to the financial statements, which collectively comprise the Commission’s basic
financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the
design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America and the
standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinions.
Item 4 - Attachment 1
To the Members
of the Whale Rock Commission
San Luis Obispo, California
Page 2
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective financial position of the governmental activities and general fund of the Commission as of June
30, 2021 and June 30, 2020, and the respective changes in financial position for the years then ended in
accordance with accounting principles generally accepted in the United States of America.
Other Matters
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 3-8 and 31-32 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
In accordance with Government Auditing Standards, we have also issued our report dated March 21, 2022,
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 the Commission’s 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 21, 2022
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Item 4 - Attachment 1
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, 2021 and 2020. 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.
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Item 4 - Attachment 1
Management’s Discussion & Analysis
Whale Rock Commision
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:
x The assets of the Commission exceeded its liabilities at June 30, 2021 by $4.1 million (net position). The
Commission’s unrestricted net position increased by $853,000, compared with 2019-20.
x Total assets increased by $971,000 or 30% to $4.2 million. This reflects an increase primarily in cash and capital
assets net of depreciation, offset by smaller decreases in prepaid expenses and accounts recceivable. Total liabilities
also increased by $20,000 or 14% to $164,100. The changes are reflected in vendors payable, accrued salaries and
other accrued liabilities.
x Total Revenue, comprised of charges for services, other revenues, and use of money and property amounted to $2.2
million for FY 2020-21 which represents an increase of $293,000 or 16% from the prior year. The total charges for
services increase by $58,000 or 5% from the prior year. Other revenues which include capital contributions
increased to $897,000 which represents an increase of $305,000 or 51% from the prior year. This increase in capital
contributions was primarily driven by Cal Poly which increased by $205,000 based on their share of currrently
budgeted capital projects. In contrast, use of money and property, which reflects the funds allocation of investment
earnings, saw a decrease of $71,000 for the fiscal year due to fair market value adjustments.
x Water distribution revenues increased from the prior year by $19,000, from $229,000 in FY 2019-20 to nearly
$249,000 in the current year. This increase was primarily due to increases in water distribution charges for Cal Poly,
which saw an increase of $16,000, with smaller increases in pumping charges for the other members.
x Total expenses of $1.21 million were lower in FY 2020-21 from the prior year by $382,000, which represents a
decrease of 24%. This decrease was primarily caused by a reclassification of non capitalizable costs in the prior
year. In FY 2020-21, operational costs were $73,000 greater than FY 2019-20, while general government costs
were $23,000 greater than in FY 2019-20. Depreciation remained consistent with the prior year.
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Item 4 - Attachment 1
Management’s Discussion & Analysis
Operational Highlights
The following are the operational highlights for the fiscal year:
x The Spillway Underdrain repair project continues to progress. The California Division of Safety of Dams (DSOD)
has reviewed and provided comments on the repair construction plans and specifications. HDR Engineering, the
hired consultant, is addressing this. The plans will be re-submitted to the DSOD for acceptance. Once the plans are
approved by the DSOD the project will be put out to bid. Staff hopes to construct this project in 2022-23.
x Staff worked with HDR Engineering to identify a project plan and required funds to update the Whale Rock
Reservoir Emergency Action Plan. This project is State mandated and will help first responders react to an
emergency situation at Whale Rock Dam with a planned and documented course of action. The Emergency Action
Plan (EAP) has been reviewed and commented on by the Office of Emergency Services (OES). OES comments
have been addressed and the EAP has been re-submitted for final review. Once accepted by OES, staff will schedule
tabletop exercises to gain familiarity working with the EAP.
x Staff installed new pressure relief valves at Pump Station B, replacing the existing 60-year-old valves. The new
pressure relief valves will help to maintain water delivery by protecting the pipeline from high water pressure events
that can damage the pipeline.
x Staff worked to improve the public access area at Whale Rock Reservoir by installing six new bathrooms and trash
receptacles, as well as two picnic tables and one bench. Whale Rock staff planted 30 new trees in the public access
area. There are oaks, redwoods, and shrubs that will mature and improve the user experience at Whale Rock.
x Staff has contracted with an environmental firm to help acquire biological permits so that the stilling basin can be
drained, cleaned, and inspected. This inspection is a regulatory requirement.
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.
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Item 4 - Attachment 1
Management’s Discussion & Analysis
Financial Analyisis
Net position may serve, over time, as an indicator of a government’s financial position. As noted above, assets exceeded
liabilities by $4.1 million at June 30, 2021.
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:
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Item 4 - Attachment 1
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, 2021 is presented as part of the required supplementary
information. The following summarizes the original and final budget compared with actual results for 2020-21. The variance
column reflects the differences between the actual amounts realized and the final budget amounts.
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Item 4 - Attachment 1
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, 2021, the Commission’s capital assets increasesd by $98,000 from $757,000 in the prior year to
$855,000 (net of accumulated depreciation). This increase was due to the completion of several projects inclduing Whale
Rock Reservoir majoir maintenance and newly installed pressure relief valves at Pump Station B offset by annual
depreciation of approximately $61,000.
More information on the Commission’s capital assets can be found in Note 3 of these financial statements.
Request for Additional Information
This finacial report is designed to provide a general overview of the Commision’s finances for all those with an interest in
the finances. Questions concerning any of the information provided in this report or requests for additional financial
information should be addressed to the City of San Luis Obispo, Department of Finance, 990 Palm Street, San Luis Obispo,
California, 93401.
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Item 4 - Attachment 1
BASIC FINANCIAL STATEMENTS
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Item 4 - Attachment 1
GOVERNMENT-WIDE FINANCIAL STATEMENTS
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Item 4 - Attachment 1
2021 2020
ASSETS
Cash and investments 3,317,658$ 2,432,815$
Accrued interest receivable 7,825 8,900
Accounts receivables 14,528 15,875
Prepaid expense 49,971 59,091
Nondepreciable capital assets 1,577 -
Capital assets, net of accummlated depreciation 853,097 756,582
Total assets 4,244,656 3,273,263
LIABILITIES
Accounts payable 82,493 73,528
Accrued salaries 26,011 21,703
Other liabilities 55,627 48,748
Total liabilities 164,131 143,979
Net Position
Net investment in capital assets 854,674 756,582
Unrestricted 3,225,851 2,372,702
Total Net Position 4,080,525$ 3,129,284$
Whale Rock Commission
Statements of Net Position
June 30, 2021 and 2020
The accompanying notes are an integral part of these financial statements.
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Item 4 - Attachment 1
2021 2020
Expenses
Reservoir operations 959,595$ 886,612$
General government 184,494 160,747
Capital projects 9,593 485,529
Depreciation 60,809 63,523
Total expenses 1,214,491 1,596,411
Program Revenues
Charges for services:
Basic operating charges 1,015,607 976,317
Water distribution 248,469 229,018
Total program revenues 1,264,076 1,205,335
Net expense and program revenues 49,585 (391,076)
General Revenues and Transfers
Use of money and property 820 71,545
Other revenues 896,600 591,934
Total general revenues and transfers 897,420 663,479
Increase in Net Position 947,005 272,403
Net Position - beginning of year 3,129,284 2,856,881
Prior year restatement 4,236 -
Net position,beginning of year, as restated 3,133,520 2,856,881
Net Position - end of year 4,080,525$ 3,129,284$
Whale Rock Commission
Statements of Activities
June 30, 2021 and 2020
The accompanying notes are an integral part of these financial statements.14
Item 4 - Attachment 1
FUND FINANCIAL STATEMENTS
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Item 4 - Attachment 1
803--807--809
2021
Assets
Cash and investments 3,317,658$2,432,815$
Accrued interest receivable 7,825 8,900
Accounts receivables 14,528 15,875
Prepaid items 49,971 59,091
Total assets 3,389,982 2,516,681
Liabilities and Fund Balance
Liabilities
Accounts payable 82,493 73,528
Accrued salaries 26,011 21,703
Other liabilities 55,627 48,748
Total liabilities 164,131 143,979
Fund Balance
Assigned for reservoir operations 228,818 210,040
Assigned for CIP 1,587,581 892,922
Unassigned 1,409,452 1,269,740
Total fund balance 3,225,851 2,372,702
Total Liabilities and Fund balance 3,389,982$2,516,681$
2020
Whale Rock Commission
Balance Sheets
June 30, 2021 and 2020
The accompanying notes are an integral part of these financial statements.
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Item 4 - Attachment 1
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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Item 4 - Attachment 1
2020
Total Fund Balances - governmental funds 2,372,702$
Capital assets at estimated historical cost 1,718,940
Accumulated depreciation (962,358)
756,582
Total net position - governmental activities 3,129,284$
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, 2020
The accompanying notes are an integral part of these financial statements.
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Item 4 - Attachment 1
2021
REVENUES:
Use of money and property 820$ 71,545$
Other revenue 896,600 591,934
Services:
Basic operating charges 1,015,607 976,317
Water distribution 248,469 229,018
Total services 1,264,076 1,205,335
Total revenues 2,161,496 1,868,814
EXPENDITURES:
Current:
Reservoir operations 959,595 886,612
General government 184,494 160,747
Capital projects 168,494 84,590
Total curent expenditures 1,312,583 1,131,949
Total expenditures 1,312,583 1,131,949
Excess of revenues over expenditures 848,913 736,865
FUND BALANCES:
Beginning of year, as restated 2,376,938 1,635,837
End of year 3,225,851$ 2,372,702$
2020
Whale Rock Commission
Statements of Revenues, Expenditures and Changes in Fund Balances
For the years ended June 30, 2021 and 2020
803--807--809
The accompanying notes are an integral part of these financial statements.
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Item 4 - Attachment 1
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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Item 4 - Attachment 1
2020
Total excess of revenues over expenditures - governmental funds 736,865$
Expenditure for capital outlay -
Construction in progress deletion (400,939)
Depreciation expense (63,523)
(464,462)
Total increase in net position - governmental activities 272,403$
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, 2020
The accompanying notes are an integral part of these financial statements.
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Item 4 - Attachment 1
Whale Rock Commission
Notes to Financial Statements
June 30, 2021 and 2020
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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Item 4 - Attachment 1
Whale Rock Commission
Notes to Financial Statements
June 30, 2021 and 2020
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 2021, the Commission adopted new accounting standards in order to conform to the following Governmental
Accounting Standards Board Statements:
GASB Statement No. 84, Fiduciary Activities – The objective of this statement is to improve guidance regarding
the identification of fiduciary activities for accounting and financial reporting purposes and how those activities
should be reported. This Statement establishes criteria for identifying fiduciary activities of all state and local
governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the
fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are
included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary
activities. 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, 2021 and 2020
Note 1: Summary of Significant Accounting Policies (Continued)
New Pronouncements (Continued)
¾GASB Statement No. 90, Majority Equity Interests – The primary objectives of this Statement are to improve
the consistency and comparability of reporting a government’s majority equity interest in a legally separate
organization and to improve the relevance of financial statement information for certain component units. The
requirements of this statement did not apply to the Commission for the current fiscal year.
¾GASB Statement No. 93, Interbank offered rates (except LIBOR removal and lease modifications) – The
objective of this Statement is to address those and other accounting and financial reporting implications that
result from the replacement of an interbank offered rate. The requirements of this statement did not apply to the
Commission for the current fiscal year.
¾GASB 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.
¾GASB Statement No. 98, The Annual Comprehensive Financial Report – The objective of this Statement is to
address references in authoritative literature to the term comprehensive annual financial report. The requirements
of this statement did not apply to the Commission for the current fiscal year.
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.
25
Item 4 - Attachment 1
Whale Rock Commission
Notes to Financial Statements
June 30, 2021 and 2020
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, 2021 was as follows:
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$
26
Item 4 - Attachment 1
Whale Rock Commission
Notes to Financial Statements
June 30, 2021 and 2020
Note 3: Capital Assets (Continued)
Capital assets activity for the fiscal year ended June 30, 2020 was as follows:
Note 4: COVID-19 Pandemic
During December 2019, the Novel Corona Virus Disease (COVID-19) was discovered and subsequently declared a
world-wide pandemic by the World Health Organization on March 11, 2020. On March 4, 2020, California Governor
Gavin Newsom proclaimed a State of Emergency as a result of the threat of the COVID-19 in the State of California,
leading to the San Luis Obispo County Health Officer issuing a shelter-at-home order on March 18, 2020, and the City
Council declaring a health emergency on March 17, 2020. This halted all business within San Luis Obispo County,
outside of essential activities, and largely stifled economic activity in the last quarter of the 2019-20 fiscal year, which
resulted in slight impact to the Whale Rock reservoir operations.
The COVID-19 pandemic continued to impact the communities served by the Whale Rock reservoir during the 2020-21
fiscal year. In order to keep employees safe, and to continue providing essential services, the management and staff of
the reservoir continue to comply with all federal, state, and local health best practices and recommendations.
Note 5: Prior Period Adjustment
During 2021, prior period adjustments were made to correct payroll errors.
Balance Balance
June 30, 2019 Increases Decreases June 30, 2020
Capital assets not being depreciated:
Construction in progress 400,939$ -$ (400,939)$ -$
Total capital assets not
being depreciated 400,939 - (400,939) -
Capital assets being depreciated:
Infrastructure 430,782 - - 430,782
Buildings and improvements 1,092,285 - - 1,092,285
Equipment 229,518 - (33,645) 195,873
Accum. Depreciation (932,480) (63,523) 33,645 (962,358)
Total capital assets being
depreciated, net 820,105 (63,523) - 756,582
Capital assets, net 1,221,044$ (63,523)$ (400,939)$ 756,582$
Government-wide
Statements Fund Statements
Net Position/Fund Balance as previously
reported at June 30, 2020 3,129,284$ 2,372,702$
Prior Period Adjustments:
Cash (311) (311)
Accrued payroll 4,547 4,547
Net Position/Fund Balance as restated at
June 30, 2020 3,133,520$ 2,376,938$
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Item 4 - Attachment 1
REQUIRED SUPPLEMENTARY INFORMATION
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Item 4 - Attachment 1
Variance
Positive
Original Budget Final Budget Actual (Negative)
Revenues
Use of money and property 1,000$ 1,000$ 820$ (180)$
Other revenues 423,660 423,660 896,600 472,940
Services:
Basic operating charges 954,600 1,089,993 1,015,607 (74,386)
Water distribution 335,300 285,200 248,469 (36,731)
Total services 1,289,900 1,375,193 1,264,076 (111,117)
Total Revenues 1,714,560 1,799,853 2,161,496 361,643
Expenditures
Current:
Reservoir operations 1,173,597 1,168,190 959,595 208,595
General government 183,978 183,978 184,494 (516)
Capital projects 338,716 997,630 168,494 829,136
Total Expenditures 1,696,291 2,349,798 1,312,583 1,037,215
Excess (Deficiency) of Revenues and Other
Sources Over (Under) Expenditures and
Other Uses 18,269 (549,945) 848,913 1,398,858
Commission Equity - beginning of year 2,376,938 2,376,938 2,376,938 -
Commission Equity - end of year 2,395,207$ 1,826,993$ 3,225,851$ 1,398,858$
Whale Rock Commission
Budgetary Comparison Schedule
Fiscal Year Ended June 30, 2021
31
Item 4 - Attachment 1
Budgetary Comparison Schedule
Whale Rock Commission
Notes to Required Supplementary Information
June 30, 2021
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.
32
Item 4 - Attachment 1
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, 2021, 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 21, 2022.
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 items 2021-001, 2021-002
and 2021-003 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 items 2021-
004 to be significant deficiency.
Item 4 - Attachment 1
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
Certified Public Accountants
Berkeley, California
March 21, 2022
34
Item 4 - Attachment 1
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2021
Section I – Current Year Findings
A. Financial Statement Audit Finding
2021-001 Year-End Close and Balance Sheet Account Reconciliations (Material Weakness)
Criteria: The City is responsible for fair presentation of the financial statements in conformity with
accounting principles generally accepted in the United States of America. In addition, an effective internal
control system over financial closing and reporting provides reasonable assurance for the safeguarding of
assets, the reliability of financial information, and compliance with laws and regulations.
Condition: During the performance of the audit, we noted that the City had to record a large number of
adjusting entries after the closing process was complete to record transactions not previously recorded or to
correct transactions or balances previously recorded in error. Those adjusting entries should have been part
of the closing process and the timing of recording those adjusting entries have caused some delays and
added complexity in the audit.
Cause: The City’s closing process was not comprehensive enough to identify timely all the journal entries
and adjustments needed to ensure the accuracy of the various account balances. Additionally, multiple
employees were granted access to post journal entries after the City closed the book without enough
monitoring from the management.
Effect: The City’s accounting records needed significant adjustments after the closing of the books and
during the audit which caused delays in the audit and added more complexity in dealing with the large
volume of adjustments.
Recommendation: We recommend that the City update its closing process to ensure all transactions and
adjustments are accounted for timely before the audit starts. Additionally, we recommend that the City
restrict the employees access to post adjustments after the close of the book.
The City should furthermore develop formal written policies over significant accounts that include the
timely reconciling of accounts to activity reported in related subsidiary ledgers. Also, the City should
restrict journal entries posting after the closing process.
Management’s response:
This is the third year-end close utilizing the new Oracle Cloud financial system. The City has been working
with Oracle Consulting to make improvements to the system to assist with many of the control functions.
This resulted in significantly fewer post-closing adjustments than the prior fiscal years and significantly
fewer delays in finalizing the audit. Management continues to refine processes and procedures and address
deficiencies in the ERP system, including improving the year-end close process. A year-end close checklist
has been development and will continue to be utilized and refined. In addition, City staff are performing
monthly closing procedures, which will improve the timeliness of year-end closing. Integrated into the
month-end procedures will be the review and reconciliation of the City’s balance sheet accounts. This will
help to identify issues prior to closing the books and the start of the audit.
35
Item 4 - Attachment 1
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2021
Section I – Current Year Findings, continued
A. Financial Statement Audit Finding, continued
2021-002 Journal Entries Posting and Numbering (Material Weakness)
Criteria: Journal entries should be independently prepared, reviewed, and posted to the general ledger
with unique identification number. In addition, journal entries should be adequately documented to
support its accuracy and purpose.
Condition: During the performance of the audit, we noted the following regarding the City’s journal entry
process:
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.
36
Item 4 - Attachment 1
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2021
Section I – Current Year Findings, continued
A. Financial Statement Audit Finding, continued
2021-002 Journal Entries Posting and Numbering (Material Weakness), continued
Management’s Response:
Staff acknowledges that, of the 60 testing samples selected, 8 were indeed not properly approved and were
insufficiently documented. This was the result of a system clean-up for project related expenditures that
were not correctly reported. Unfortunately, the usual control flow was not adhered to for this process. This
issue should not occur going forward. One journal entry was properly approved, however insufficiently
documented and three had variances from the documentation.
Management has developed written policies over journal entries to ensure that all journal entries have
adequate and complete documentation when they are posted to the general ledger. In addition,
management has worked with Oracle Consulting to automate the journal entry approval flow in the system
and apply a numbering system. This project was finalized on December 14, 2021 and is now fully
functional. These issues should therefore no longer occur going forward. However, staff would like to
point out that even under manual conditions, the majority of journal entries followed the process
implemented which was to have a separate person prepare the journal entry and then have another person
post the journal entry. This process can be audited by running a report to show the “prepared by” and
“posted by” fields for each journal entry transaction. Before the improvements to the system, journal entries
were recorded with a system generated unique identification number; however, it was not a sequential
number, which made it challenging to identify the sequence of entries.
37
Item 4 - Attachment 1
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2021
Section I – Current Year Findings, continued
A. Financial Statement Audit Finding, continued
2021-003 Bank Reconciliation (Material Weakness)
Criteria: An effective internal control system over cash and investments includes frequent and timely
reconciling of account balances to information provided by the bank and custodians.
Condition: During the performance of the audit, we noted that the City was behind in performing the
monthly bank reconciliation, and the June 2021 bank reconciliation process were not appropriately
performed until the start of the engagement in October 2021. Also, the final June 2021 bank reconciliation
was not balanced and had an unreconciled variance of around $40,000, which was still under investigation
by the City.
Cause: The City was not able to perform the bank reconciliations timely as there was not sufficient
procedures in place to ensure completion of the process.
Effect: Errors and fraud can go undetected without frequent and timely bank reconciliation.
Recommendation: We recommend the City develop formal written policies over cash and investments that
include the timely reconciling of accounts and include cash and investment accounts reported in each fund.
Management’s Response:
Management agrees that timely bank reconciliations are an important part of the effective internal controls
over cash and investments. The Oracle financial system has functionality that assists with the reconciliation
of the City’s books and the bank statement, however that functionality was not configured during the
implementation, making bank reconciliation a complicated and time-consuming manual process.
Management had been working with Oracle Consulting and staff to configure and implement this
functionality which finally went live in June 2021. Staff can also report that the remaining imbalance was
caused by a timing issue related to recording revenue of $39,697, leaving approximately $2,500 unreconciled
at June 30, 2021. Additionally, management has implemented additional oversight and review of the
monthly reconciliation to make sure it is working properly and timely in coordination with month-end
closing.
38
Item 4 - Attachment 1
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2021
Section I – Current Year Findings, continued
A. Financial Statement Audit Finding, continued
2021-004 Payroll Module Implementation (Significant Deficiency)
Criteria: An effectively implemented payroll system should process the payroll accurately, and an effective
internal control system over payroll requires timely and accurate payroll processing.
Condition: During the performance of the audit, we noted that –
The Oracle payroll module has overtime configuration implemented incorrectly, and the City has to
manually track the payroll in a spreadsheet and correct the error as it occurs since the
implementation.
The configuration of payroll journal entries posting was implemented incorrectly which caused the
variance between the bank record and the City’s general ledger.
Cause: The Oracle payroll module has not been implemented correctly.
Effect: Errors and fraud can go undetected in payroll processing with a large volume of manual corrections
needed.
Recommendation: We recommend the City to work with the third-party vendor to correct the
implementation of payroll module.
Management’s Response:
Management is in full agreement with this finding and is currently working with Oracle Consulting to
correct payroll configurations, as recommended. During the fiscal year the payroll team performed an
internal audit of the payroll processing to identify and address issues with the system configuration. As
stated, the payroll team is currently manually tracking the overtime results of each payroll and manually
correcting any calculation errors that result. Additionally, the payroll team has corrected the costing errors
that produced incorrect journal entries which also hugely complicated the aforementioned bank
reconciliation efforts.
39
Item 4 - Attachment 1
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2021
Section II – Prior Year Findings
A. Financial Statement Audit Finding
2020-001 Year-End Close and Balance Sheet Account Reconciliations (Material Weakness)
Criteria: The Commission 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: The City of San Luis Obispo performs all accounting functions for the Commission. During the
performance of the audit, we noted that the City had to record a large number of adjusting entries after the
closing process was complete to record transactions not previously recorded or to correct transactions or
balances previously recorded in error. Those adjusting entries should have been part of the closing process
and the timing of recording those adjusting entries have caused some delays and added complexity in the
audit.
Cause: The City’s closing process was not comprehensive enough to identify timely all the journal entries
and adjustments needed to ensure the accuracy of the various account balances. Additionally, the City
implemented a new financial software, however formally written accounting policies and procedures
related to the system were not developed.
Effect: The City’s accounting records needed significant adjustments after the closing of the books and the
start of the audit which caused delays in the audit and added more complexity in dealing with the large
volume of adjustments. It was noted that one of these adjustment is material to the Whale Rock Fund.
Recommendation: We recommend that the City update its closing process to ensure all transactions and
adjustments are accounted for timely before the audit starts. The City should furthermore develop formal
written policies over significant accounts that include the timely reconciling of accounts to activity reported
in related subsidiary ledgers. Also, the City should develop a checklist for year-end closing procedures.
Status: See current year finding 2021-001.
40
Item 4 - Attachment 1
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2021
Section II – Prior Year Findings, continued
A. Financial Statement Audit Finding, continued
2020-002 Journal Entries Posting and Numbering (Material Weakness)
Criteria: Journal entries should be independently prepared, reviewed, and posted to the general ledger
with unique identification number. In addition, journal entries should be adequately documented to
support its accuracy and purpose.
Condition: The City of San Luis Obispo performs all accounting functions for the Commission. During the
performance of the audit, we noted the following regarding the City’s journal entry process:
The City was unable to provide us with documentation or documentation was insufficient for
journal entries selected for review.
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.
The City does not maintain a log of manual journal entries to document the accountability of all
journal entries, the preparer, the approver, and the purpose of why the entry was recorded.
Journal entries can be prepared and posted without system restriction, and no controls in place to
ensure the journal entries are approved before posted.
The City implemented review procedures towards the end of the fiscal year, so significant number of
journal entries we tested before the implementation have the conditions above.
Cause: The City didn’t fully implement the review procedures across the fiscal year.
Effect: Journal entries recorded in the City’s accounting system may be inaccurate, unapproved or
unsupported.
Recommendation: We recommend that the City implement formal written procedures and policies over
journal entries to ensure only accurately prepared and supported journal entries are recorded to the general
ledger.
Status: See current year finding 2021-002.
41
Item 4 - Attachment 1
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2021
Section II – Prior Year Findings, continued
A. Financial Statement Audit Finding, continued
2020-003 Bank Reconciliation (Material Weakness)
Criteria: An effective internal control system over cash and investments includes frequent and timely
reconciling of account balances to information provided by the bank and custodians.
Condition: The City of San Luis Obispo performs all accounting functions for the Commission. During the
performance of the audit, we noted that bank reconciliations were not performed until the start of the
engagement. Also, the June 2020 bank reconciliation was not balanced and had an unreconciled variance of
around $600,000, which was still under investigation by the City.
Cause: The City was not able to perform the bank reconciliations timely as there was not sufficient policy
and procedures in place to ensure completion of the process.
Effect: Errors and fraud can go undetected without frequent and timely bank reconciliation.
Recommendation: We recommend the City develop formal written policies over cash and investments that
include the timely reconciling of accounts and include cash and investment accounts reported in each fund.
Status: See current year finding 2021-003.
42
Item 4 - Attachment 1
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2021
Section II – Prior Year Findings, continued
A. Financial Statement Audit Finding, continued
2020-004 Segregation of Duties in Cash Disbursement (Significant Deficiency)
Criteria: An effective internal control system over cash disbursement requires the segregation of
incompatible duties. An effective internal control system over cash disbursement provides reasonable
assurance for the safeguarding of assets.
Condition: The City of San Luis Obispo performs all accounting functions for the Commission. During the
performance of the audit, we noted Accounts Payable Analyst was granted edit access to the vendor master
file, who also has the access to check printing and invoices data entry. Additionally, the financial system
doesn’t prevent unauthorized invoices to be processed and the Accounting Manager doesn’t review the
check register against invoices when doing the review process.
Cause: The City does not have sufficient internal controls over cash disbursement processes.
Effect: Unauthorized payments or incorrect payment can occur undetected.
Recommendation: We recommend the City to implement internal controls to prevent unauthorized or
inaccurate cash disbursement, for example, to generate a change report of vendor master file and have
management reviewed regularly.
Status: Implemented.
43
Item 4 - Attachment 1
Whale Rock Commission
Schedule of Findings and Responses
For the year ended June 30, 2021
Section II – Prior Year Findings, continued
A. Financial Statement Audit Finding, continued
2020-005 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: The City of San Luis Obispo performs all accounting functions for the Commission. During the
performance of the audit, we noted that –
• The City has not implemented Goals and Performance module in Oracle for all employees,
evaluation tracking and reporting has transitioned to a completely manual process. During the
interview of payroll employees, we learned that a significant number of employee reviews were
performed late, causing manual retroactive payroll payments to be made.
• The Oracle payroll module has overtime configuration implemented incorrectly, and the City has to
manually track the payroll in a spreadsheet and correct the error as it occurs since the
implementation.
Cause: The Oracle payroll module has not been implemented correctly.
Effect: Errors and fraud can go undetected in payroll processing with a large volume of manual corrections
needed.
Recommendation: We recommend the City to work with third-party vendor to correct the implementation
of payroll module.
Status: See current year finding 2021-004.
44
Item 4 - Attachment 1