HomeMy WebLinkAbout02-07-2017 Item 07 - Acceptance of the Comprehensive Annual Financial Report, Single Audit Report, and Annual Audit of Transportation Development Act Funds for 2015-16 Meeting Date: 2/7/2017
FROM: Xenia Bradford, Interim Finance Director
Prepared By: Rico Pardo, Accounting Manager/Controller
SUBJECT: ACCEPTANCE OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT,
SINGLE AUDIT REPORT, AND ANNUAL AUDIT OF TRANSPORTATION
DEVELOPMENT ACT FUNDS FOR 2015-16
RECOMMENDATION
Accept the Comprehensive Annual Financial Report, Single Audit Report, and annual audit of the
Transportation Development Act Funds for Fiscal Year 2015-16.
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 for the fiscal year
that ended June 30, 2016. The CAFR was also published on the City’s website by December 31,
2016, as required by City Charter, and hard copies were provided to the City Council in January
2017.
As required by City Charter, the financial statements have been audited by independent certified
public accountants Glenn Burdette. 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 1-3 of
the CAFR).
The accompanying Single Audit Report provides information about the City’s expenditures of
federal awards for the period ended on June 30, 2016.
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, 2016. This report did not reflect any negative findings regarding the
City’s administration of the TDA monies.
During fiscal year 2014-15, the City adopted the following two Governmental Accounting
Standards Board (GASB) Statements related to pension activities:
Statement No. 68, “Accounting and Financial Reporting or Pensions – an amendment of
GASB Statement No. 27,” and
Statement No. 71, “Pension Transition for Contributions Made Subsequent to the
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Measurement Date – an amendment of GASB Statement No. 68.”
GASB Statement No. 68 establishes standards of accounting and financial reporting, but not
funding or budgetary standards, for the City’s defined benefit pension plans. This statement
replaces the requirements of prior GASB statements impacting accounting and disclosure of
pensions.
The significant impact to the City of implementing GASB Statement No. 68 is the reporting of the
City’s unfunded pension liability on the full accrual basis of accounting in the government-wide
financial statements. There are also note disclosure requirements and supplementary schedules
required by the Statement. The measurement date for the pension liabilities is a one-year lag and is
reflected as of June 30, 2015. Activity (i.e. pension contributions made by the City) occurring
during fiscal year 2015-16 are reported as deferred outflows of resources in accordance with
Statement No. 71.
A representative from Glenn Burdette, the City’s independent certified public accountants firm, will
attend the February 7, 2017 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, 2016, as well as
summaries of significant City fiscal policies, practices and financial results. Key variances from
projected ending balances for 2015-16 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 $2.8 million, or 4%. Expenditures were $5.4 million, or 9%, b elow
final estimates. The net result of the overall difference leads to the ending fund balance of $29.6
million, which is an increase of $8.8 million over the anticipated fund balance at the time the
2015-16 budget was adopted.
From the ending General Fund fund balance, the following are commitments (also known as
prepaid items, encumbrances when a contract has been executed, appropriations and funds
assigned by City fiscal policy):
$50,020 are non- expendable and represent prepaid items;
$489,056 are restricted for Debt service;
$7.1 million is committed for General government programs;
$11.5 million is assigned and includes $11.1 million for the 20% operating reserve
(Contingency Fund); and
$10.4 million is classified as unassigned at 2015-16 fiscal year-end and includes the net
balance of the Local Half Percent Sales Tax. Of this amount, $5.8 million in one-time
funds is allocated with the adopted 2016-17 Supplemental Budget. The remaining $4.6
million includes $640,000 in unassigned balance in the Local Half Percent Sales Tax
sub-fund.
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Per City Council direction and in conjunction with adopted Council policies, staff will provide a
recommendation for the use of any available fund balance for one-time allocations. This will be
based on fund balance analysis, the Five-Year forecast and Financial Plan goals and objectives.
In other words, staff may recommend at Mid-year Budget consideration that the funds in excess
of the 20% reserve be allocated and appropriated through the 2017-19 Financial Plan process
since that timing will allow the City Council to consider the range of community input and
proposed Major City Goals when allocating these funds.
Changes in 2015-16 2015-16
General Fund Balance Estimated Actual Amount %
Fund balance, beginning of year 24,566,807 23,857,187
Revenues 65,270,043$ 68,084,438$ 2,814,395$ 4%
Expenditures 60,889,578 55,463,911 5,425,667 9%
Other sources (uses)(7,361,111) (6,852,182) 508,929 -7%
Excess of revenues and sources
over (under) expenditures & uses (2,980,646) 5,768,345 8,748,991
Prior Year restatement 0 0
Fund balance, end of year 21,586,161$ 29,625,532$ 8,748,991$
Less:
Nonspendable (56,020)
Restricted/Committed (7,674,453)
Assigned (11,475,178)
Unassigned Fund Balance, end of year 10,419,881$
Variance
The City’s top three key revenue sources, Sales Tax, Property Tax, and Transient Occupancy
Tax (TOT), substantially exceed the per capita average for the County. These revenue sources
also account for 50% of all funding sources in the General Fund.
The City’s efforts to control costs have been successful and are ongoing. The Cit y also
implemented 2nd and 3rd tier retirement benefit programs and now 34% of the workforce is
enrolled in the 2nd and 3rd tiers of the retirement plans. Since fiscal year 2013-14, the City
Council has also approved lump sum prepayments against the safet y side fund retirement
liability to begin making reductions to the unfunded liability of retirement.
Of the types of proprietary funds, the City maintains enterprise funds which include the Water,
Sewer, Parking, and Transit Funds. All four funds are considered major funds and are presented as
business-type activities in the government-wide financial statements. The total operating revenue in
the Water Fund, decreased by $562,000. General water impact fees which are collected for
infrastructure to support new development also decreased by $929,000 or 38% compared to prior
year. Sewer charges within the Sewer Fund experience an overall decrease of $1.6 million
compared to prior year due to a water reduction affected by the drought. Parking fees within the
Parking Fund received $2.6 million for in-lieu payments from the Chinatown development project.
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
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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.
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 Half Percent Sales Tax Measure revenues and uses in 2015-16.
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 CAFR has 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 2014-2015 CAFR and has submitted the award application for the
2015-2016 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 a
deficiency in the recording of capital assets and in cash reconciliation. In response to both findings,
staff has already taken the steps necessary to address these issues in the future.
In the Recommendations of the Report, the auditors recommended the following:
The newly implemented capital asset software continue to be maintained and reviewed by
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management and any discrepancies be reconciled in order to accurately capture depreciation
expense and capital activity.
Bank reconciliation procedures be reviewed and revised to ensure monthly reconciliations
are complete and unreconciled items are processed timely.
FISCAL IMPACT
There is no fiscal impact associated with accepting and filing the Comprehensive Annual
Financial Report, Single Audit Report, and annual audit of the Transportation Development Act
Funds for fiscal year 2015-16.
ALTERNATIVES
The City Council could decide to revise or not accept the Comprehensive Annual Financial
Report, Single Audit Report, and annual audit of the Transportation Development Act Funds for
fiscal year 2015-16. This is not recommended as the reports have been prepared in conformance
with a variety of accounting and other reporting requirements and represent the professional
evaluation and analysis by the City’s independent auditors. They have rendered an unqualified
opinion which means that they are presented fairly and in conformity with generally accepted
accounting principles.
Attachments:
a - City of SLO TDA Funds Final FS 6-30-16
b - City of SLO Federal Awards Reports Final FS 6-30-16
c - Council Reading File - City of SLO 2016 CAFR
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City of San Luis Obispo
Tr an sportation
De velopment Act Funds
Repor t and Financial
Statements Ye ar End
June 30,2016 and 2015
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City of San Luis Obispo, California
Transportation Development Act Funds
Report and Financial Statements
Years Ended June 30, 2016 and 2015
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City of San Luis Obispo, California
Transportation Development Act Funds
Report and Financial Statements
Year Ended June 30, 2016 and 2015
Table of Contents
Page
Transit Fund
Independent Auditors’ Report 5-6
Statements of Fund Net Position –June 30, 2016 and 2015 7
Statements of Revenues, Expenses and Changes in Fund Net Position –
Years Ended June 30, 2016 and 2015 8
Statements of Cash Flows –Years Ended June 30, 2016 and 2015 9-10
Notes to Financial Statements 11-18
Transportation Development Act (TDA) Fund
Independent Auditors’ Report on Transportation Development Act Compliance
and State Bond Compliance 21-22
Independent Auditors’ Report 23-24
Balance Sheets –June 30, 2016 and 2015 25
Statements of Revenues, Other Uses and Changes in Fund Balance –
Years Ended June 30, 2016 and 2015 26
Notes to Financial Statements 27-29
Independent Auditors’ Report on Transportation Development Act Compliance 30-31
TDA Fund Supplementary Information
Schedule of Revenues and Other Uses –Budget and Actual –
Years Ended June 30, 2016 and 2015 32
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City of San Luis Obispo, California
Transit Fund
Years Ended June 30, 2016 and 2015
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The Honorable City Council of the City of San Luis Obispo, California
and San Luis Obispo Council of Governments
Page 2
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of the Transit Fund of the City of San Luis Obispo, California, as of June 30, 2016 and 2015, and the changes in financial
position and cash flows thereof for the years then ended in accordance with accounting principles generally accepted
in the United States of America.
Change in Accounting Principle
As discussed in Note 9 to the financial statements, in 2015 the City adopted new accounting guidance, GASB Statement
No. 68, Accounting and Financial Reporting for Pensions –An Amendment of GASB Statement No. 27 and GASB
Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date –An Amendment
of GASB Statement No. 68. Our opinion is not modified with respect to this matter.
Emphasis of Matter
As discussed in Note 1, the financial statements present only the Transit Fund of the City of San Luis Obispo, California
and do not purport to, and do not, present fairly the financial position of the City of San Luis Obispo, California, as of
June 30, 2016 and 2015, the changes in its financial position, or, where applicable, its cash flows for the years then
ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not
modified with respect to this matter.
Glenn Burdette Attest Corporation
San Luis Obispo, California
December 19, 2016
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City of San Luis Obispo, California
Transit Fund
Statements of Fund Net Position
June 30, 2016 and 2015
2016 2015
Assets
Current assets:
Cash and cash equivalents 7,285$ 487,957$
Investments 722,236 1,439,683
Accounts receivable 38 170
Interest receivable 1,884 3,356
Due from other governments 2,481,470 1,107,522
Total current assets 3,212,913 3,038,688
Capital assets:
Infrastructure 110,972 110,972
Buildings and improvements 4,905,259 4,905,259
Transit operating equipment 7,727,129 7,633,648
Construction in progress 67,220 60,038
Total capital assets 12,810,580 12,709,917
Less accumulated depreciation (6,680,559) (5,821,456)
Total capital assets, net of accumulated depreciation 6,130,021 6,888,461
Total assets 9,342,934 9,927,149
Deferred Outflows of Resources
Deferred pensions 96,501 42,732
Liabilities
Current liabilities:
Accounts payable 205,016 239,831
Accrued salaries and compensated absences 24,184 22,937
Total current liabilities 229,200 262,768
Noncurrent liabilities:
Compensated absences, net of current portion 4,352 4,844
Net pension liability 551,065 532,344
Total noncurrent liabilities 555,417 537,188
Total liabilities 784,617 799,956
Deferred Inflows of Resources
Deferred pensions 83,004 69,181
Net Position
Net investment in capital assets 6,130,021 6,888,461
Restricted - subsequent year expenditures 1,552,730 57,480
Unrestricted 889,063 2,154,803
Total net position 8,571,814$ 9,100,744$
The accompanying notes are an integral part of these financial statements.
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City of San Luis Obispo, California
Transit Fund
Statements of Revenues, Expenses and Changes in Fund Net Position
Years Ended June 30, 2016 and 2015
2016 2015
Operating revenues:
Passenger fares 230,948$ 234,217$
Special transit fares 427,653 415,197
Total operating revenues 658,601 649,414
Operating expenses:
Purchased transportation 1,909,992 1,842,760
Other transportation services 469,078 390,771
Fuel and lubricants 240,297 335,970
Other materials and supplies 56,090 31,673
Salaries and wages 207,741 163,525
Fringe benefits 68,793 68,104
General and administrative 277,329 290,742
Depreciation 859,103 866,670
Total operating expenses 4,088,423 3,990,215
Operating loss (3,429,822) (3,340,801)
Nonoperating revenues:
Transportation Development Act operating grants 1,475,134 2,014,541
Federal Transit Administration operating grants 1,413,686 1,134,111
Interest 11,202 7,613
Other nonoperating revenues 870 486
Total nonoperating revenues 2,900,892 3,156,751
Loss before transfers (528,930) (184,050)
Transportation Development Act capital contributions 60,063
Transfers (1,400)
- 58,663
Change in net position (528,930) (125,387)
Net position - beginning of year 9,100,744 9,783,560
Prior Year Restatement (557,429)
Net assets - beginning of year, as restated 9,100,744 9,226,131
Net position - end of year 8,571,814$ 9,100,744$
The accompanying notes are an integral part of these financial statements.
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City of San Luis Obispo, California
Transit Fund
Statements of Cash Flows
Years Ended June 30, 2016 and 2015
2016 2015
Cash flows from operating activities:
Cash received from customers 658,733$ 599,340$
Cash payments to suppliers for goods and services (2,710,272) (2,731,418)
Cash payments to General Fund for interfund services (277,329) (290,742)
Cash payments to employees for services (297,004) (214,350)
Other nonoperating cash receipts 870 486
Net cash used in operating activities (2,625,002) (2,636,684)
Cash flows from noncapital financing activities:
Operating grants received 1,514,872 2,488,902
Transfers (1,400)
Net cash provided by noncapital financing activities 1,514,872 2,487,502
Cash flows from capital and related financing activities:
Capital grants received 60,063
Acquisition and construction of capital assets (131,999) (36,190)
Disposition of capital assets 31,336
Net cash provided by (used in) capital and related financing activities (100,663) 23,873
Cash flows from investing activities:
Interest on investments 12,674 6,005
Net cash provided by investing activities 12,674 6,005
Net increase (decrease) in cash and cash equivalents and investments (1,198,119) (119,304)
Cash and cash equivalents and investments - beginning of year 1,927,640 727,444
Cash and cash equivalents and investments - end of year 729,521$ 1,927,640$
The accompanying notes are an integral part of these financial statements.
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City of San Luis Obispo, California
Transit Fund
Statements of Cash Flows, Continued
Years Ended June 30, 2016 and 2015
2016 2015
Reconciliation of operating loss to net cash used in operating activities:
Operating loss (3,429,822)$ (3,344,780)$
Adjustments to reconcile operating loss to net cash used in operating activities:
Depreciation 859,103 887,944
Other revenues 870 486
Changes in operating assets, deferred outflows, liabilities, and deferred inflows:
Accounts receivable 132 4,487
Accounts payable (34,815) (130,244)
Unearned revenue (54,561)
Accrued salaries and compensated absences 755 15,915
Deferred pensions and net pension liability (21,225) (15,931)
Net cash used in operating activities (2,625,002)$ (2,636,684)$
Reconciliation of cash and cash equivalents and investments to the statement
of fund net position:
Cash and cash equivalents 7,285$ 487,957$
Investments 722,236 1,439,683
Total cash and cash equivalents and investments 729,521$ 1,927,640$
The accompanying notes are an integral part of these financial statements.
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City of San Luis Obispo, California
Transit Fund
Notes to Financial Statements
June 30, 2016 and 2015
Note 1: The Reporting Entity
The City of San Luis Obispo (the City) operates a fixed route public transportation system within the City limits and
to the California Polytechnic State University (Cal Poly). Vehicle operations and vehicle maintenance are provided
under contract by a private transportation company. Nonvehicle-related support and administrative services are
provided by City staff.
The Transit Fund (the Fund) is an enterprise fund of the City created by resolution of the City Council to account for
the revenues received pursuant to the Transportation Development Act (TDA), Federal Transit Authority (FTA) and
the revenues received from the transit operations described above. Such revenues are allocated under specific
statutes and are legally restricted to finance expenditures made for transit operations, the development of public
transportation systems and transportation planning. When both restricted and unrestricted resources are available
for the same purpose, it is the City’s policy to use restricted funds first.
Note 2: Summary of Significant Accounting Policies
Measurement Focus, Basis of Accounting and Basis of Presentation
The Fund’s financial statements are reported using the economic resources measurement focus and the accrual
basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred regardless
of the timing of related cash flows. The Fund distinguishes operating revenues and expenses from nonoperating
items. Operating revenues and expenses generally result from providing services in connection with the Fund’s
principal ongoing operations. The principal operating revenues of the Fund are charges to customers for transit
services. Operating expenses for the Fund include cost of services, administrative expenses, and depreciation on
capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and
expenses, including non-exchange transactions such as TDA and FTA grants.
Nonexchange transactions, in which the Fund receives value without directly giving equal value in return, include
grants. Revenue from grants is recognized in the fiscal year in which all eligibility requirements have been satisfied.
Eligibility requirements include timing requirements, which specify the fiscal year when the resources are to be used
or the fiscal year when use is first permitted; matching requirements, in which the Fund must provide local resources
to be used for a specific purpose; and expenditures requirements, in which the resources are provided to the Fund
on a reimbursement basis.
Cash, Cash Equivalents and Investments
Cash and cash equivalents consist of cash on hand, cash balances in checking and money market accounts and short-
term in vestments, with an original maturity of three months or less. Investments which are in the City’s internal
investment pool are also treated as cash equivalents for the purposes of the statement of cash flows.
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City of San Luis Obispo, California
Transit Fund
Notes to Financial Statements
June 30, 2016 and 2015
Note 2: Summary of Significant Accounting Policies (Continued)
Amounts Due from Other Governments
Generally, amounts due from other governments are recorded as revenues when earned. However, when the use
of funds is the prime factor for determining eligibility for grants, revenue is accrued when the related expenses have
been made on an approved grant.
Capital Assets
Capital assets are recorded at cost and depreciated using the straight-line method over their estimated useful lives,
ranging from 5 to 20 years. Capital assets are defined by the City as assets with an initial, individual cost of more
than $25,000. Detailed capital assets can be found in Note 5.
Net Pension Liability, Deferred Outflows and Deferred Inflows
The City recognizes a net pension liability, which represents the City’s proportionate share of the excess of the total
pension liability over the fiduciary net position of the pension reflected in the actuarial reports provided by the
California Public Employees’ Retirement System (CalPERS) plans (Plans). The City has allocated a proportionate share
of the net pension liability, deferred outflows, deferred inflows and pension expense to the Transit Fund. The net
pension liability is measured as of the City’s prior fiscal year-end. Changes in the net pension liability are recorded,
in the period incurred, as pension expense or as deferred inflows of resources or deferred outflows of resources
depending on the nature of the change. The changes in the net pension liability that are recorded as deferred inflows
of resources or deferred outflows of resources (that arise from changes in actuarial assumptions or other inputs and
differences between expected or actual experience) are amortized over the weighted average remaining service life
of all participants in the respective pension plan and are recorded as a component of pension expense beginning
with the period in which they are incurred.
For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions,
and pension expense, information about the fiduciary net position of the City’s CalPERS Plans and additions
to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported
by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when
due and payable in accordance with the benefit terms. Investments are reported at fair value. Projected earnings
on pension investments are recognized as a component of pension expense.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect certain reported amounts
and disclosures. Accordingly, actual results could differ from those estimates.
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City of San Luis Obispo, California
Transit Fund
Notes to Financial Statements
June 30, 2016 and 2015
Note 2: Summary of Significant Accounting Policies (Continued)
Subsequent Events
Events subsequent to June 30, 2016 have been evaluated through December 19, 2016,which is the date the financial
statements were available to be issued. Management did not identify subsequent events that required disclosure.
Note 3: Cash and Cash Equivalents and Investments
At June 30, 2016 and 2015, cash and cash equivalents consisted of the following:
2016 2015
Deposits:
Cash in bank 7,285$ 487,957$
Custodial Credit Risk –Deposits
Custodial credit risk is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. Cash
balances held in banks are insured up to $250,000 by the Federal Depository Insurance Corporation. For custodial
credit risk associated with deposits, the City follows California Government Code, which requires California financial
institutions to secure the City’s deposits by pledging government securities as collateral. The market value of the
pledged securities must equal 110% of the City’s deposits. California law also allows financial institutions to secure
the City’s deposits by pledging first trust deed mortgage notes equal to 150% of the City’s deposits. All deposits held
by financial institutions are fully insured or collateralized with securities, held by the pledging financial institutions’
trust departments in the City’s name.
At June 30, 2016 and 2015, investments consisted of the following:
2016 2015
Pooled Investment Funds:
Local Agency Investment Fund (LAIF)722,236$ 1,439,683$
The City follows the practice of pooling cash and investments for all funds under its direct daily control. Funds held
by outside fiscal agents under provisions of bond indentures are maintained separately.
Interest earned on pooled cash and investments is allocated quarterly to the various funds based on the respective
fund’s average quarterly cash balance. Interest earned from cash and investments with fiscal agents is credited
directly to such funds.
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City of San Luis Obispo, California
Transit Fund
Notes to Financial Statements
June 30, 2016 and 2015
Note 3: Cash and Cash Equivalents and Investments (Continued)
Interest Rate Risk
This is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. In
accordance with its policies in the Investment Management Plan, the City mitigates interest rate risk by:
Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing
operations, thereby avoiding the need to sell securities on the open market before maturity.
Investing operating funds primarily in shorter-term securities.
The City’s investment policy also includes portfolio maturity targets. A minimum of 20% of the portfolio will be
invested in securities maturing in one year or less. Up to 80% of the portfolio can be invested in securities with a
maturity over one year, with no more than 10% of the portfolio invested in securities with a maturity over five years.
Credit Risk
This is the risk of loss due to the failure of the security issuer or backer. The City’s policies to mitigate credit risk
include:
Limiting investments to the safest types of securities. The California Government Code limits the investment
vehicles available to local agencies. The credit risk of these securities is measured by the assignment of a
rating by a nationally recognized statistical rating organization.
Pre-qualifying the financial institutions, broker/dealers, intermediaries and advisors with which the City will
do business.
Concentration of Credit Risk
The City’s policies contained in the Investment Management Plan provide guidelines (by type of investment that
limits either the dollar amount, the percent of the portfolio or the maturity term) for diversifying the investment
portfolio so that potential losses on individual securities will be minimized.
The City’s Investment Management Plan outlines the following criteria related to portfolio diversification:
No more than 5% of the City’s portfolio (exclusive of government agency issues or LAIF) shall be placed with
any financial institution.
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City of San Luis Obispo, California
Transit Fund
Notes to Financial Statements
June 30, 2016 and 2015
Note 3: Cash and Cash Equivalents and Investments (Continued)
No more than 25% of the City’s portfolio shall be invested in collateralized certificates of deposit issued by
financial institutions.
Certificates of deposit (negotiable and collateralized) placed by the City shall not constitute more than 15%
of the total assets of the institution; and negotiable certificates of deposit will only be placed with
institutions with total assets in excess of $200 million and that maintain a ratio of equity to total assets of
at least 5%.
Additional Cash and Investment Disclosures
See the City of San Luis Obispo June 30, 2016 Comprehensive Annual Financial Report for additional cash and
investment disclosures.
Note 4: Due from Other Governments
At June 30, 2016 and 2015, the amounts due from other governments were as follows:
2016 2015
Federal Transit Administration - capital and operating grants 2,481,470$ 1,107,522$
2,481,470$ 1,107,522$
Note 5: Capital Assets
Capital assets activity for the fiscal year ended June 30, 2016, was as follows:
Balance Balance
June 30, 2015 Additions Deletions June 30, 2016
Capital assets not being depreciated:
Construction in progress 60,038$ 67,219$ (60,037)$ 67,220$
Capital assets being depreciated:
Infrastructure 110,972 110,972
Buildings and improvements 4,905,259 4,905,259
Transit operating equipment 7,633,648 64,780 28,701 7,727,129
Total capital assets being depreciated 12,649,879 64,780 28,701 12,743,360
Less accumulated depreciation (5,821,456) (859,103) (6,680,559)
Total capital assets, net of accumulated depreciation 6,888,461$ (727,104)$ (31,336)$ 6,130,021$
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City of San Luis Obispo,California
Transit Fund
Notes to Financial Statements
June 30, 2016 and 2015
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Note 5:Capital Assets (Continued)
Capital assets activity for the fiscal year ended June 30, 2015,was as follows:
Balance Balance
June 30,2014 Additions Deletions Ju ne 30,2015
Capital assets not being depreciated:
Construction in progress 39,038$21,000$$60,038$
Capital assets being depreciated:
Infrastructure 110,972 110,972
Buildings and im provements 5,016,142 (110,883)4,905,259
Transit operating equipment 7,618,590 15,190 (132)7,633,648
Total capital assets being depreciated 12,634,732 126,162 (111,015)12,649,879
Less accumulated depreciation (4,954,829)(887,944) 21,317 (5,821,456)
Total capital assets,net of accumulated depreciation 7,718,941$(740,782)$(89,698)$6,888,461$
Note 6:Intergovernmental Allocations
The City has been allocated the following funds from the State Transit Assistance Fund (STAF)and Local
Transportation Fund (LTF)for the years ended June 30, 2016 and 2015.The amounts have been used for both
operating expenses and capital assets.
Article Section 2016 2015
LTF 4.0 99260 1,312,716$1,837,504$
STAF 6.5 99313 124,828 142,833
STAF 6.5 99314 37,590 34,204
Total Transportation Development Act revenue 1,475,134$2,014,541$
Applicable
Allocating TDA Statute Amount
The City also directly allocated for the years ended June 30,2016 and 2015,with $673,290 and $744,023,
respectively of LTF Article 4.0,Section 99260 funds to San Luis Obispo Regional Transit Authority (SLORTA),which
are not shown in the accompanying financial statements.
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City of San Luis Obispo, California
Transit Fund
Notes to Financial Statements
June 30, 2016 and 2015
Note 7: Fare Revenue Ratios
For the years ended June 30, 2016 and 2015 the City had fare revenue ratios of 22% and 23%, respectively, computed
as follows:
2016 2015
Operating revenues - fares 658,601$ 649,414$
(a) Net Operating revenues - fares 658,601 649,414
Net operating costs, net of depreciation and vehicle lease costs 3,229,320 3,106,250
Exclude capital expenses under uniform system of accounts
for purposes of calculating fare revenue ratios but
treated as operating expenses for financial statements (264,010) (234,615)
(b) Adjusted operating costs for purposes of calculating fare revenue ratios 2,965,310$ 2,871,635$
(c) Fare revenue ratio [(a) / (b)]22%23%
The City is in compliance with applicable TDA regulations pertaining to acceptable fare revenue ratios which require
a minimum ratio of 20%.
Note 8: Pensions
The City contributes to the California Public Employees’ Retirement System (CalPERS) for its employees and
participates in an agent-multiple employer plan (Miscellaneous Plan) for its miscellaneous employees.The City has
allocated a portion of the Miscellaneous Plan that relates to the Fund. The portion of the net pension liability
allocated to the Fund for the years ended June 30, 2016 and 2015 was $551,065 and $532,344, respectively. The
portion of the deferred outflows of resources allocated to the Fund for the years ended June 30, 2016 and 2015 are
$96,501 and $42,732, respectively. The portion of the deferred inflows of resources allocated to the Fund for the
years ended June 30, 2016 and 2015 are $83,004 and $69,181, respectively. The portion of the pension expense
allocated to the Fund for the years ended June 30, 2016 and 2015 is $32,832 and $15,931, respectively, and is shown
as a part of total salaries and wages in the related fiscal year.
Additional Pension Disclosures
See the City of San Luis Obispo June 30, 2016 Comprehensive Annual Financial Report for additional pension
disclosures as well as required supplementary information.
Note 9: Prior Year Restatements
In the prior year, the City implemented GASB Statement No. 68, Financial Reporting for Pensions –an amendment
of Statement No.27, and GASB Statement No. 71, Pension Transitions for Contributions Made Subsequent to the
Measurement Date –an amendment of GASB Statement No. 68, for the year ended June 30, 2015. An adjustment
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City of San Luis Obispo, California
Transit Fund
Notes to Financial Statements
June 30, 2016 and 2015
Note 9: Prior Year Restatements (Continued)
of $557,429 to reduce beginning net position was made in 2015 to reflect the cumulative impact of implementing
these standards.
During 2016, a prior year restatement was recorded to properly restate deferred inflow of resources related to
pensions that had been amortized during the year ended June 30, 2015 rather than amortized during the
measurement period ending June 30, 2015. The effect was to increase deferred inflows of resources related to
pensions and increase pension expense by $17,295 for the year ended June 30, 2015.
In the current year, the City performed a reconciliation between its capital asset software and the general ledger.
During this process, the City identified misclassifications of assets in the Transit Fund among categories as well as
excess depreciation recorded on the general ledger. The prior year has been restated to properly show capital asset
categories and related accumulated depreciation balances by decreasing prior year accumulated depreciation and
depreciation expense by $21,317 and $21,274, respectively.
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City of San Luis Obispo, California
Transportation Development Act (TDA) Fund
June 30, 2016 and 2015
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The Honorable City Council of the City of San Luis Obispo, California
and San Luis Obispo Council of Governments
Page 2
Opinion
In our opinion, the funds allocated to and received by the Transit Fund of the City of San Luis Obispo, California, pursuant
to the TDA were expended and accounted for in compliance with the applicable statutes, rules and regulations of the
TDA, the CCR and the allocation instructions and resolutions of the San Luis Obispo Council of Governments, in all
material respects,for the year ended June 30, 2016.
The purpose of this report over compliance is solely to describe the scope of our testing of compliance and the results
of that testing based on the applicable statutes, rules and regulations of the TDA, the CCR,and the allocation instructions
and resolutions of San Luis Obispo Council of Governments as required by Section 6662 of the CCR. Accordingly, this
report is not suitable for any other purpose.
Glenn Burdette Attest Corporation
San Luis Obispo, California
December 19, 2016
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The Honorable City Council of the City of San Luis Obispo, California
and San Luis Obispo Council of Governments
Page 2
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of the Transportation Development Act (TDA) Fund of the City of San Luis Obispo, California, as of June 30, 2016 and
2015, and the changes in financial position and cash flows thereof for the years then ended in accordance with
accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 1, the financial statements present only the TDA Fund of the City of San Luis Obispo, California and
do not purport to, and do not, present fairly the financial position of the City of San Luis Obispo, California, as of June 30,
2016 and 2015, the changes in its financial position, or, where applicable, its cash flows for the years then ended in
accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified
with respect to this matter.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the
Transportation Development Act (TDA) Fund of the City of San Luis Obispo, California’s basic financial statements. The
schedule of revenues and other uses –budget and actual is presented for purposes of additional analysis and is not a
required part of the financial statements. The schedule of revenues and other uses –budget and actual is the
responsibility of management and was derived from and relates directly to the underlying accounting and other records
used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied
in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling
such information directly to the underlying accounting and other records used to prepare the basic financial statements
or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards
generally accepted in the United States of America. In our opinion, the schedule of revenues and other uses –budget
and actual is fairly stated, in all material respects, in relation to the basic financial statements as a whole.
Glenn Burdette Attest Corporation
San Luis Obispo, California
December 19,2016
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City of San Luis Obispo, California
Transportation Development Act (TDA) Fund
Balance Sheets
June 30, 2016 and 2015
2016 2015
Assets
Total assets -$ -$
Liabilities
Total liabilities -$ -$
The accompanying notes are an integral part of these financial statements.
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City of San Luis Obispo, California
Transportation Development Act (TDA) Fund
Statements of Revenues, Other Uses and Changes in Fund Balance
June 30, 2016 and 2015
2016 2015
Revenues - intergovernmental allocations 40,531$ 54,808$
Other financing uses - operating transfers to City of
San Luis Obispo (40,531) (54,808)
Excess of revenues over other financing uses - -
Fund balance - beginning of year - -
Fund balance - end of year - $ - $
The accompanying notes are an integral part of these financial statements.
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City of San Luis Obispo, California
Transportation Development Act (TDA) Fund
Notes to Financial Statements
June 30, 2016 and 2015
Note 1: The Reporting Entity
The Transportation Development Act (TDA) Fund (the Fund) of the City of San Luis Obispo, California (the City) is a
special revenue fund created by resolution of the City Council to account for the revenues received pursuant to the
TDA. Such revenues allocated under specific state statutes are legally restricted to financial expenditures made of
the development and construction of local streets and roads, including pedestrian and bicycle facilities.
Note 2: Summary of Significant Accounting Policies
Measurement Focus and Basis of Accounting
The Fund’s financial statements are reported using the current financial resources measurement focus and the
modified accrual basis of accounting. Revenues are recognized when measurable and available. Revenues are
considered to be available when they are collectible within the current period or soon enough thereafter to pay the
liabilities of the current period. For this purpose, the City considers interest and grant revenues earned but not
received as susceptible to accrual under this method. Expenditures are generally recognized at the time liabilities
are incurred.
Fund Equity
The Fund’s financial statements report fund balance in classifications that comprise a hierarchy based primarily on the
extent to which the City is bound to honor constraints on the specific purpose for which amounts in the funds can be
spent. The Fund does not have a fund balance in the current fiscal year, therefore classification is not necessary.
However, GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, identifies five
components of fund balance –nonspendable, restricted, committed, assigned and unassigned.
Nonspendable. This component includes amounts that cannot be spent because they are either (a) not in spendable
form or (b) legally or contractually required to be maintained intact.
Restricted. This component consists of amounts that have constraints placed on them either externally by third-parties
(creditors, grantors, contributors, or laws or regulations of other governments) or by law through constitutional
provisions or enabling legislation. Enabling legislation authorizes the City to assess, levy, charge or otherwise mandate
payment of resources (from external resource providers) and includes legally enforceable requirements (compelled by
external parties) that those resources be used only for the specific purposes stipulated in the legislation.
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City of San Luis Obispo, California
Transportation Development Act (TDA) Fund
Notes to Financial Statements
June 30, 2016 and 2015
Note 2: Summary of Significant Accounting Policies (Continued)
Committed. This component consists of amounts that can only be used for specific purposes pursuant to constraints
imposed by minute order authorized by the City Council. Also included in this component are encumbrances which
represent legal and binding obligations for the acquisition of future goods and services. Those committed amounts
established by minute order cannot be used for any other purpose unless the City Council adopts a new minute order so
directing. With respect to encumbered amounts, the City may take steps to cancel the order for goods or services and
thereby terminate the obligation.
Assigned. This component consists of amounts that are constrained by the City’s intent to be used for specific purposes,
but are neither restricted nor committed. The City Manager or Director of Finance are authorized to assign amounts to
a specific purpose. Constraints imposed on the use of assigned amounts can be removed with no formal Council actions.
Unassigned. This classification represents amounts that have not been restricted, committed or assigned to specific
purposes.
Fund Balance Spending Policy
The City follows a practice in which restricted, committed, assigned, and unassigned fund balances are spent when
more than one amount is available for a specific purpose. When both restricted and unrestricted resources are
available for use, it is the City’s policy to use restricted resources first, then unrestricted resources (committed,
assigned and unassigned) as they are needed. When unrestricted resources (committed, assigned and unassigned)
are available for use, it is the City’s policy to use committed resources first, then assigned, and then unassigned as
they are needed.
Budgets and Budgetary Accounting
The City has received national recognition for its use of a two-year Financial Plan and budgetary process that
emphasizes long-range planning and effective program management. Significant features of the City’s two-year
Financial Plan include the integration of Council goal-setting into the budgetary process and the extensive use of
formal policies and measureable objectives. The Financial Plan includes operating budgets for two years and a
capital improvement plan (CIP) for five years.
Under this multi-year approach, appropriations continue to be made annually; however, the Financial Plan is the
foundation for preparing the budget for the second year. Additionally, unexpended operating appropriations from
the first year may be carried over for specific purposes into the second year with the approval of the City Manager.
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City of San Luis Obispo, California
Transportation Development Act (TDA) Fund
Notes to Financial Statements
June 30, 2016 and 2015
Note 2: Summary of Significant Accounting Policies (Continued)
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect certain reported amounts
and disclosures. Accordingly, actual results could differ from those estimates.
Subsequent Events
Events subsequent to June 30, 2016 have been evaluated through December 19,2016,which is the date the financial
statements were available to be issued. Management did not identify subsequent events that required disclosure.
Note 3: Intergovernmental Allocations
For the years ended June 30, 2016 and 2015, the City has been allocated the following funds from the Local
Transportation Funds (LTF):
Amount
Article Section 2016 2015
3.0 99233.3 40,531$ 54,808$
Allocating TDA Statute
Applicable
Note 4: Operating Transfers
The City expends all amounts for alternate transportation projects in its General Fund or Capital Outlay Fund. LTF
monies received by the City are initially deposited in the Fund and subsequently transferred to the General Fund,
where such funds are expended or transferred to the Capital Outlay Fund to be expended on designated
transportation projects.
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The Honorable City Council of the City of San Luis Obispo, California
and San Luis Obispo Council of Governments
Page 2
During our audit, we performed to the extent applicable the tasks contained in Section 6667 of the CCR. Such audit
tests would not necessarily disclose all instances of noncompliance because they were based on selective tests of
accounting records and related data.
Opinion
In our opinion, the funds allocated to and received by the TDA Fund of the City of San Luis Obispo, California,
pursuant to the TDA were expended and accounted for in compliance with the applicable statutes, rules and
regulations of the TDA, the CCR and the allocation instructions and resolutions of San Luis Obispo Council of
Governments, in all material respects, for the year ended June 30, 2016.
The purpose of this report over compliance is solely to describe the scope of our testing of compliance and the
results of that testing based on the applicable statutes, rules and regulations of the TDA, the CCR,and the allocation
instructions and resolutions of San Luis Obispo Council of Governments as required by Section 6662 of the CCR.
Accordingly, this report is not suitable for any other purpose.
Glenn Burdette Attest Corporation
San Luis Obispo, California
December 19, 2016
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City of San Luis Obispo, California
Transportation Development Act (TDA) Fund
Supplementary Information
Schedules of Revenues and Other Uses –Budget and Actual
June 30, 2016 and 2015
Variance with
Final Budget
2016 Original Final Actual Positive (Negative)
Revenues - intergovernmental allocations 41,100$ 41,100$ 40,531$ (569)$
Other financing uses - operating transfers
to City of San Luis Obispo (41,100) (41,100) (40,531) 569
Excess of revenues over other financing uses - $ - $ - $ - $
Variance with
Final Budget
2015 Original Final Actual Positive (Negative)
Revenues - intergovernmental allocations 54,800$ 54,800$ 54,808$ 8$
Other financing uses - operating transfers
to City of San Luis Obispo (54,800) (54,800) (54,808) (8)
Excess of revenues over other financing uses - $ - $ - $ - $
Budget
Budget
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City of San Luis Obispo, California
Federal Awards
Reports and Schedule
Year Ended June 30, 2016
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City of San Luis Obispo, California
Table of Contents
June 30, 2016
Page
Independent Auditors’ 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 3-4
Independent Auditors’ Report on Compliance for Each Major Program and on Internal
Control Over Compliance and on the Schedule of Expenditures of Federal Awards
Required by the Uniform Guidance 5-7
Schedule of Expenditures of Federal Awards 8
Notes to Schedule of Expenditures of Federal Awards 9
Findings and Recommendations Section
Schedule of Audit Findings and Questioned Costs and Status of Prior Audit Findings and
Questioned Costs 10-13
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The Honorable City Council of the
City of San Luis Obispo, California
San Luis Obispo, California
Page 2
A significant deficiency is a deficiency, or 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.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s financial statements are free of material
misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant
agreements, noncompliance with which could have a direct and material effect on the determination of financial
statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our
audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of
noncompliance or other matters that are required to be reported under Government Auditing Standards.
City of San Luis Obispo’s Responses to Findings
The City’s responses to the findings identified in our audit are described in the accompanying schedule of audit
findings and questioned costs. We did not audit the City’s responses and, accordingly, we express no opinion on
them.
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 purposes.
Glenn Burdette Attest Corporation
San Luis Obispo, California
December 19, 2016
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The Honorable City Council of the
City of San Luis Obispo, California
San Luis Obispo, California
Page 2
Opinion on Each Major Federal Program
In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to
above that could have a direct and material effect on each of its major federal programs for the year ended June 30,
2016.
Report on Internal Control Over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over compliance with
the types of compliance requirements referred to above. In planning and performing our audit of compliance,we
considered the Corporation's internal control over compliance with the types of requirements that could have a direct
and material effect on each major federal program to determine the auditing procedures that are appropriate in the
circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and
report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of
expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an
opinion on the effectiveness of the City’s internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does
not allow management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A
material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal
control over compliance, such that there is a reasonable possibility that material noncompliance with a type of
compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A
significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal
control over compliance with a type of compliance requirement of a federal program that is less severe than a
material weakness in internal control over compliance, yet important enough to merit attention by those charged with
governance.
Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of
this section and was not designed to identify all deficiencies in internal control over compliance that might be material
weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that
we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal
control over compliance and the results of that testing based on the requirements of the Uniform Guidance.
Accordingly, this report is not suitable for any other purpose.
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The Honorable City Council of the
City of San Luis Obispo, California
San Luis Obispo, California
Page 3
Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance
We have audited the financial statements of the governmental activities, the business-type activities, each major fund,
and the aggregate remaining fund information of the City as of and for the year ended June 30, 2016, and the related
notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our
report thereon dated December 19,2016, which contained unmodified opinions on the financial statements. Our
audits were conducted for the purpose of forming opinions on the financial statements that collectively comprise the
City’s financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes
of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements.
Such information is the responsibility of management and was derived from and relates directly to the underlying
accounting and other records used to prepare the basic financial statements. The information has been subjected to
the auditing procedures applied in the audit of the financial statements and certain additional procedures, including
comparing and reconciling such information directly to the underlying accounting and other records used to prepare
the basic financial statements or to the basic financial statements themselves, and other additional procedures in
accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule
of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as
a whole.
Glenn Burdette Attest Corporation
San Luis Obispo, California
December 19,2016
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City of San Luis Obispo, California
Schedule of Expenditures of Federal Awards
Year Ended June 30, 2016
Federal Pass-Through Expenditures
CFDA Grantor's Federal to
Number Number Expenditures Subrecipients
Major Programs:
U.S. Department of Transportation
Urban Mass Transportation -
Section 9 Capital and Operating
Assistance Formula Grants 20.507 N/A 1,373,948$ -$
Total Major Programs 1,373,948 -
Non-Major Programs:
U.S. Department of Transportation
Passed through the State of California
Highway and Bridges Rehabilitation
and Replacement Program 20.205 84-088-1648 57,771
U.S. Department of Justice
Edward Byrne Memorial Justice Assistance Grant Program 16.804 N/A 10,200
U.S. Department of Housing and Urban Development
Passed through the County of San Luis Obispo
Community Development Block Grant 14.218 95-6000939 304,404
U.S. Office of Emergency Services
Assistance to Firefighters Grant 97.044 N/A 100,635
Total Non-Major Programs 473,010 -
Total Expenditures of Federal Awards 1,846,958$ -$
Program Title
Federal Grantor/
Pass-Through Grantor/
See independent auditors’ report.
See the accompanying note to schedule.
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City of San Luis Obispo, California
Notes to Schedule of Expenditures of Federal Awards
Year Ended June 30, 2016
Note 1: Basis of Presentation
The purpose of the accompanying schedule of expenditures of federal awards (the schedule) is to present a summary
of those activities of the City of San Luis Obispo (the City) for the year ended June 30, 2016, which have been financed
by federal awards. For purposes of the schedule, federal awards include all federal grants received directly from the
federal government and sub-awards from nonfederal organizations made under federally sponsored agreements.
Because the schedule presents only a selected portion of the activities of the City, it is not intended to and does not
present either the financial position or changes in net position of the City.
The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal
Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal
Awards (Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented
in the basic financial statements.
Note 2: Expenditures
For new awards or modifications of existing awards after December 26, 2014, the expenditures reported in the
Schedule follow the cost principles contained in the Uniform Guidance. For existing awards prior to December 26,
2014, the expenditures follow the cost principles contained in OMB Circular A-87, Cost Principles for State, Local and
Indian Tribal Governments and Administrative Requirements for Grants and Cooperative Agreements to State and
Local Governments (OMB Common Rule). The cost principles indicate that certain types of expenditures are not
allowable and certain allowable costs are limited as to reimbursement.
Note 3: Indirect Cost Rate
The City has not elected to use the ten percent de minimis indirect cost rate as allowed under the Uniform Guidance,
but rather the rates established directly with the respective federal agencies.
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City of San Luis Obispo, California
Schedule of Audit Findings and Questioned Costs
and Status of Prior Year Findings and Questioned Costs
Year Ended June 30, 2016
Section I: Summary of Auditors’ Results
Financial Statements
(a) Type of auditors’ report issued on financial statements: Unqualified.
(b) Internal control over financial reporting:
Material weakness(es)identified: Yes. See Finding 2016.100 and 2016.200.
Significant deficiencies identified not considered to be material weaknesses: None reported.
(c)Noncompliance material to financial statements noted: No.
Federal Awards
(d) Internal control over major programs:
Material weakness(es) identified: No.
Significant deficiencies identified not considered to be material weaknesses: None reported.
(e) Type of auditors’ report issued on compliance for major programs: Unqualified.
(f) Any audit findings disclosed that are required to be reported in accordance with 2 CFR Section 200.516(a):No.
(g) Dollar threshold used to distinguish between Type A and Type B programs: $750,000.
(h) Major Programs:
Urban Mass Transportation –Section 9 Capital and Operating Assistance Formula Grants (CFDA Number 20.507)
(i) Auditee qualified as low-risk auditee: No.
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City of San Luis Obispo, California
Schedule of Audit Findings and Questioned Costs
and Status of Prior Year Findings and Questioned Costs
Year Ended June 30, 2016
Page 2
Section II: Findings Relating to the Financial Statements which are Required to be Reported in
Accordance with Government Auditing Standards
Finding 2016.100: Capital Assets (Material Weakness)
Criteria: Generally accepted accounting principles for state and local governments require governments to report
capital assets, related depreciation and depreciation expense at the fund-financial statement level for proprietary
funds and at the government-wide financial statement level for governmental funds.
Condition:The City has established and follows procedures to ensure that capital asset additions are properly
capitalized, capital asset disposals are properly released, and current year depreciation expense for capital assets are
recorded at the fund and government-wide financial statement level. During the year, the City converted to a new
module in Finance Plus in order to track their capital asset activity. As part of the conversion process, from their
previously used system (Fox Pro), a reconciliation and review was performed to verify the integrity and accuracy of
information which resulted in the identification of historical differences between the capital asset module and the
City’s general ledger.
Effect: Due to these historical errors differences, the prior year financial statements and general ledger did not
properly reflect the City's capital assets. As a result, the City recorded a prior year restatement to each of the
proprietary funds this year, as well as a prior year restatement on the government-wide level, in order to properly
reflect capital assets as of fiscal year-end.The effect was to decrease beginning net position by $399,643 for
Governmental Activities and increase beginning net position by $672,141 for Business-Type Activities for the year
ended June 30, 2015. The majority of the prior year difference was attributable to the Parking Fund. Although
considered immaterial, the remaining differences were applied to all other funds to resolve any historical differences.
Recommendation: We recommend that the capital asset software continue to be maintained and reviewed by
management on a timely basis and any discrepancies between the software and the City's general ledger are timely
reconciled in order to accurately capture depreciation expense and capital activity in the current period.
City Response: The City agrees with this finding. In 2015-16, the City implemented a new capital asset module in its
existing financial software system. This module replaced the previous method of recording capital assets, which was
done by way of a 10+ year old tracking system. In order to convert to the improved method of tracking capital assets,
a reconciliation was performed to properly reflect capital asset beginning balances in the new system. The new
capital asset module significantly improves the accuracy and efficiency of reporting the City’s capital assets. In
addition, the City will continue to monitor any differences between the capital asset module and the City’s general
ledger and adjust as necessary.
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City of San Luis Obispo, California
Schedule of Audit Findings and Questioned Costs
and Status of Prior Year Findings and Questioned Costs
Year Ended June 30, 2016
Page 3
Finding 2016.200: Cash Reconciliations (Material Weakness)
Criteria: Monthly bank reconciliations should be performed and completed, and remaining unreconciled items should
be processed in a timely manner.In addition, voided checks should be applied on or after the date the initial check is
issu ed.
Condition: Although the City performs regular monthly cash account reconciliations, during our testing of cash we
noted each month had an unreconciled balance comprising items that cleared the bank but staff were unable to
identify them and left them unrecorded.The net annual amount of unreconciled items is not material, but there were
instances of monthly net amounts being material. The potential material impact at an individual level is unknown.
In addition, several voided checks were included on the bank reconciliation at June 30, 2016 although the original
check had not been issued. One of these voided checks was material with the initial check issued after year end. The
voided amount was inaccurately added to the June bank reconciliation causing cash and accounts payable to be
overstated by $195,616.
Effect: If bank reconciliations are not properly performed, internal financial reports may not be reliable.Also, the
chance of accounting errors being caught is less likely if the reconciliations are not consistently and timely completed.
It is common for posting errors or other differences to occur in any accounting entity; however, allowing significant
periods of time to pass before identifying and resolving those differences is a fundamental tenant of internal controls.
In addition, if voided checks are recorded in a period prior to when the initial check was issued, cash and the related
accounts will be overstated.
Recommendation: We recommend bank reconciliation procedures be reviewed and revised to ensure monthly
reconciliations are complete and unreconciled items are processed in a timely manner, and to prevent voided checks
from being applied to bank reconciliations before the initial check issuance date.
City Response: The City agrees with this finding. As of June 30, 2016, the City use various systems that interface to
record cash transactions to the City’s general ledger. These systems create inherent bank reconciliation complexities,
such as transaction timing differences and tracking intricacies. This complexity has caused a delay in processing a
timely bank reconciliation. The City underwent a study in 2015-16 with the Governmental Finance Officers Association
(GFOA) to increase efficiencies in the area of bank reconciliations. As such, the Finance Department has hired a
contract accountant in November 2016 and has assigned that position, as part of their duties, to bring the bank
reconciliations current, review the existing reconciliation process, and to ultimately improve the process.
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City of San Luis Obispo, California
Schedule of Audit Findings and Questioned Costs
and Status of Prior Year Findings and Questioned Costs
Year Ended June 30, 2015
Page 4
Section III: Findings and Questioned Costs for Federal Awards
None.
Section IV: Status of Prior Year Findings and Questioned Costs –2014/15
Finding 2015.1: Improper Classification of Revenue –Material Weakness
Finding: During audit testwork it was noted that the City was recording excess development service fee revenues and
transit TDA grant revenues as unearned revenue instead of revenue when received. This resulted in a prior year
restatement to the General Fund and Transit Fund to reduce the unearned revenue liability and increase net position.
In addition, an audit adjustment was required in the General Fund to record development service revenues as current
year revenues rather than unearned revenue.
Recommendation: We recommended that the City record all development service fee revenue and transit TDA grant
revenue as revenue when received and at the point the fee becomes nonrefundable or the grant eligibility
requirements have been met. We also recommended that the City track any unspent development service and grant
revenue that is restricted for specific programs and record the remaining balance in restricted net position. As the
project costs are incurred, the restricted net position would be reduced.
Status: Implemented
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