HomeMy WebLinkAboutItem 14 - ACCEPTANCE OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT SINGLE AUDIT REPOR, & ANNUAL AUDIT OF TRANSPORTATION DEVELOPMENT ACT FUNDS FOR 2018-19Item 14
GtT Y O fiCouncil Agenda Report
ti
Department Name: Finance
Cost Center:
2001
For Agenda of:
March 17, 2020
Placement:
Business
Estimated Time:
20 minutes
FROM: Brigitte Elke, Finance Director
Prepared By: Debbie Malicoat, Accounting Manager/Controller
SUBJECT: ACCEPTANCE OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT,
SINGLE AUDIT REPORT, AND ANNUAL AUDIT OF TRANSPORTATION
DEVELOPMENT ACT FUNDS FOR 2018-19
RECOMMENDATION
Review and accept the Comprehensive Annual Financial Report for Fiscal Year 2018-19.
(Attachment A)
DISCUSSION
The accompanying Comprehensive Annual Financial Report (CAFR) has been prepared as required
by the City of San Luis Obispo's (City) Charter and applicable State laws regarding financial
reporting for municipalities. The CAFR provides an audited representation of the City's financial
condition across all funds for the fiscal year that ended June 30, 2019. The CAFR was published on
the City's website on March 10, 2020 and distributed to the City Council through the Council
Agenda for the March 17, 2020, public meeting.
In accordance with the City Charter', the City's financial statements have been audited by
independent certified public accountants from Badawi & Associates. The objective of the financial
audit is to provide users of the financial reports with reasonable assurance from an independent
source that the financial reports are reliable and represent a fair assessment of the City's financial
condition. The independent auditor concluded that the City's financial statements present fairly, in
all material respects, the respective financial position of the governmental activities, the business -
type activities, each major fund, and the aggregate remaining fund information of the City as of
June 30, 2019, the respective changes in financial position, and, where applicable, cash flows
therefore for the year then ended in accordance with accounting principles generally accepted in the
1 Section 810. Independent Audits.
The Council shall employ, at the beginning of each fiscal year, an independent certified public accountant who, at such time or times as may be
specified by the Council, at least annually, shall examine the books, records, inventories, and reports of all officials, employees, departments, and
agencies who receive, handle, or disburse public funds. As soon as practicable after the end of the fiscal year, a final audit and report shall be
submitted by such accountant to the Council, one copy thereof to be distributed to each member, one each to the City Clerk, the City Treasurer,
the City Manager, and City Attorney respectively, and three (3) additional copies to be placed on file in the office of the City Clerk where they
shall be available for inspection by the general public for the period required by the laws of the State of California. Restricted and special
assessment district funds shall be segregated in the audit report.
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Item 14
United States of America. The independent auditors' report is presented as the first component of
the financial section of the CAFR.
Historically, the City's audited financial statements have been completed within 180 days of the
end of the fiscal year and posted by December 31St. During FY2018-19, the City implemented a
new Enterprise Resource Planning (ERP) system, which included accounting and financial
reporting functions as well as the implementation of a Human Capital Management module
including payroll. The implementation was complex and encountered substantial issues, which
delayed staff s ability to close the year and ensure all transactions were posted and reflected
appropriately. The issues encountered during 2018-19 are not expected to recur and staff does
not anticipate delayed financial statements in the future.
New Government Accounting Standard Board (GASB) Statements
Though the GASB issues new statements annually, there are two recent GASB statements that
influence government financial statements. Pursuant to GASB Statement No. 68 (GASB 68
implemented in June 2015), Accounting and Financial Reporting for Pensions and GASB
Statement No. 75 (GASB 75 implemented in June 2018), Accounting and Financial Reporting for
Postemployment Benefits Other Than Pensions (OPEB), the City reports on the unfunded pension
and OPEB liabilities on the full accrual basis of accounting in the government -wide financial
statements. Also included are note disclosures and supplementary schedules as required by GASB
68 and GASB 75. The measurement date for fiscal year 2018-19 pension and OPEB liabilities is as
of the fiscal year ended June 30, 2018. This date reflects a one-year lag and was used so that the
financial statements could be issued in an expedient manner. Activity (i.e. contributions made by the
City) occurring during fiscal year 2018-19 are reported as deferred outflows of resources in
accordance with GASB Statement No. 71.
For FY 2018-19, four new standards went into effect and the City's audit was conducted in full
compliance with those standards listed below:
GASB 83 Certain Asset Retirement Obligations
GASB 84 Fiduciary Activities
GASB 88 Certain Disclosures related to Debt incl. direct borrowings and direct placements
GASB 90 Majority Equity Interest
After discussions with the independent auditors, the financial statements for FY2018-19 include a
prior period adjustment related to recognizing the pension and OPEB liabilities connected to the
Whale Rock Fund. The key issue in determining whether these items are liabilities of the City or of
the Whale Rock Commission centers around the contractual obligations of the Whale Rock
Commission partners and the actuarially determined liability. Fundamentally, the Whale Rock
reservoir is operated and maintained by employees of the City assigned to this function. These
employees participate in the City's Ca1PERS retirement program and are included in the actuarial
valuation of the pension liability for all City employees. The Whale Rock Commission does not
have its own contract with Ca1PERS, nor do the other two partners in the commission, California
Polytechnic State University (Cal Poly) and the California Men's Colony, directly pay into the
City's plan. As the Whale Rock Commission was formed in 1959 based on agreements between the
partners, no other structure such as a JPA was formed that could hire the employees directly and be
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Item 14
a contributing Ca1PERS agency. The City has previously assigned pension costs and share of
unfunded liability based on a reasonable allocation methodology; however, this methodology does
not meet the requirements under GASB Statement Nos. 68 and 75 for recording these liabilities in
the Whale Rock Fund. The financials were therefore restated, and the liability is now reflected in the
City's Water Fund. Staff intends on addressing this issue with the Commission and amend the
agreement to reflect the liability for the two outside member agencies.
Financial Results Highlighted in the CAFR
Within the CAFR, the Transmittal Memorandum and Management's Discussion and Analysis
(MD&A) summarize the City's fiscal performance and provide an analysis of the influencing
factors. They also provide information on the City's fiscal policies, practices and financial results.
Key variances from projected ending balances for 2018-19 are highlighted in the Transmittal
Memorandum. Both documents allow the reader to gain insight into the City's audited financials
and provide context to the following statements.
Financial results for fiscal year 2018-19 compare favorably with budget estimates in virtually all
areas of the City's operations. For the General Fund, financial results for the year exceed final
estimates for revenues by $4 million or 5.6%. This is largely due to substantial increases in
Development Review related fees as private development activity remained high through 2018-
19. However, the City's top three key revenue sources, Sales Tax including the City's Half -Cent
Sales Tax Measure, Property Tax, and Transient Occupancy Tax (TOT), all fared well in 2018-
19 ending the fiscal year at above budgeted estimates. These revenue sources account for 50% of
all funding sources in the General Fund and are closely monitored through the year.
Expenditures and other uses ended slightly above budget amounts by $343,000. The net result of
the overall difference leads to the ending fund balance of 30.1 million. This compares to an
ending balance of $ 29.6 million in 2017-18. As the chart below outlines, the majority of the
ending balance is restricted or assigned and not available for spending in conformance with
GASB 54.
BUDGET' - ACTUAL COMPARISON
2018-19
2018-19
Positive
General Fund
(Negative)
Final Budget
Actual
Variance
Revenues
$ 71,332,510
$ 74,524,795
$ 3,192,285
Expenditures
74,031,470
72,462,957
1,568,513
Other sources (uses)
(2,319,511)
(1,542,736)
776,775
Beginning fund balance
29,576,440
29,576,440
-
Ending fund balance
$ 24,557,969
$ 30,095,542
$ 5,537,573
Ending fund balance
Nonspendable
51,636
51,636
Restricted
-
-
Con r&ted
-
-
Assigned
23,858,332
23,858,332
Unassigned
6,185,574
62185,574
Total ending fund balance
$ 24,557,969
1 $ 30,095,542
$ 5,537,573
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Item 14
Included in the assigned fund balance are committed expenditures (encumbrances), balances
related to the City's Local Revenue Measures, as well as the required 20% operating reserve, the
Revenue Stabilization reserve, and $1.4 million for the Section 115 Pension Trust Fund.
Previous Council action prioritized any unassigned fund balance above reserve levels to be used
to pay down the City's unfunded pension liability. This agenda item is followed by a report that
outlines the recommended payment as well as the use of remaining funds to one-time
expenditures in Fiscal Year 2019-20 and 2020-21.
Enterprise Funds
The City maintains four Enterprise Funds for its Water and Sewer utility, and the Parking and
Transit enterprises. Enterprise Funds are business -type activities within government accounting
and are reported on separately.
The primary sources of revenue for the Water, Sewer, and Parking Funds are fees for sales and
services. All funds saw an increase in revenue in 2018-19 which was largely due to substantial
increases in impact fees due to high development activities, as well as interest on investment
revenues. The Transit fund increased its income from ridership by 13%, continuing a positive
upward trend in bus use.
The Transit Fund receives revenue from fare collection but is mainly funded through federal and
state grants to offset its operating cost for the City's transit system. Therefore, the City's single
audit is mainly reporting on Transit as the largest source of Federal grant funding.
All four funds ended the fiscal year 2018-19 positively with all of them experiencing an increase
in net position at year end. (CAFR page 33).
CAFR Organization
In accordance with generally accepted accounting principles for state and local governments, the
City's CAFR is organized into three major sections: Introduction, Financial Reports and Statistical
Tables. The following is a brief summary of the contents of each of these sections.
Introduction. The Transmittal Memorandum and other information of general interest are presented
in this section, including directory of officials, advisory bodies, and organization chart.
Financial Reports. This section includes the City's primary financial statements in five major parts:
1. Auditors' opinion regarding the financial statements.
2. Management's Discussion and Analysis (MD&A) 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 2018-19.
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Item 14
Statistical Tables. This section provides demographic and financial tables showing current and
historical trend information for the City and is organized into six major parts:
1. Statistical overview. General information about the San Luis Obispo community.
2. General financial trends. Ten-year summary information on net assets, governmental revenues
and expenditures and fund balances.
3. Revenue capacity. Ten-year summary information on property and sales tax trends.
4. Debt capacity. Ten-year summary information on debt service requirements.
5. Economic and demographic trends. Ten-year summaries of taxable sales, building permits
and valuations, housing, population and other demographic trends.
6. Operating information. Ten-year trend information on operating indicators by function.
Recognition for Excellence in Financial Reporting
Beginning in fiscal year 1983-84, all of the City's CAFRs have been awarded the certificate of
achievement for excellence in financial reporting from the Government Finance Officers
Association of the United States and Canada (GFOA). This is a prestigious national award
recognizing the City's use of the highest standards in preparing its annual financial report. The City
received the award for its 2017-18 CAFR and has submitted the award application for the 2018-19
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 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 notes possible deficiencies or
suggests improvements. In response to the finding, staff will respond with improvements and
changes to address the findings.
The Transportation Development Act annual audit is also 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
Regulations, and instructions and resolutions of the San Luis Obispo Council of Government for
the period ending on June 30, 2019.
Both report and accompanying findings will be submitted to the City Council via Council
Correspondence prior to the Council meeting. The independent auditor will also present the
findings during the public meeting on March 17, 2020.
Policy Context
The City's Charter under Section 810 requires the employment of an independent certified public
account to examine the City's financials.
Public Engagement
The City's annual audit and issuance of the comprehensive annual financial report fulfills a legal
requirement and does not have a public engagement component. It will be presented to the City
Council in open session on March 17, 2020, and the public can comment prior to or during the
Packet Page 161
Item 14
meeting. The report will be made available on the City's website and in the Council Reading File
as part of this report.
ENVIRONMENTAL REVIEW
The California Environmental Quality Act does not apply to the recommended action in this
report, because the action does not constitute a "Project" under CEQA Guidelines Sec. 15378.
FISCAL IMPACT
Budgeted: Yes
Funding Identified: Yes
Fiscal Analysis:
Budget Year: 2018-19
Funding Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing Cost
General Fund
$75,000
$59,890
$15,110
State
Federal
Fees
Other:
Total
The City budgets the cost for the auditing firm annually. The cost is appropriated with the annual
budget approval. The current fiscal year contains the budget for the previous fiscal year audit.
$75,000 were approved to cover the cost. With the change in auditors, the actual cost was
reduced to $59,890 for this fiscal year.
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 2018-19. 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 clean opinion
which means that they are presented fairly and in conformity with generally accepted accounting
principles.
Attachments:
a - Council Reading File - City of San Luis Obispo CAFR 2019 - 20200310-1125-Draft
Packet Page 162
2018=1
COD
Com p re h
Fi-fla-ficial
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0
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Recommendation
Review and accept the Comprehensive
Annual Financial Report, the Single Audit
Report, and the annual audit of the
Transportation Development Act Funds for
Fiscal Year 2018-19.
Annual Audits
• Annual audits are required by the City's
Charter and State laws
• New auditing firm this year — Badawi &
Associates
• Purpose is to fairly present the financial
condition of the City in accordance with
Generally Accepted Accounting Principles
FY 18-19 Financial Statements
• Final draft documents included in packet
due to timing
• Changes in final documents
• Transit Fund/Whale Rock Fund $373K reclass —increase fare
box ratio to 22%
• Two other immaterial changes — since known, will be
corrected before posting.
Audit Highlights
• Unqualified, Clean Audit
• No substantial material findings
• Increase in Fund Balance in General Fund
and all four Enterprise Funds
Whale Rock/Water Fund
• GASB 68 & 75 — Pensions and OPEB
disclosures
• Liability reflected in Water Fund
• Need to address with Whale Rock
Commission and partners
2018=19 Financial Statements
Questions?
Recommendation
Review and accept the Comprehensive
Annual Financial Report, the Single Audit
Report, and the annual audit of the
Transportation Development Act Funds for
Fiscal Year 2018-19.
City of San Luis Obispo
Presentation to The City Council
March 17, 2020
Presented by:Ahmed Badawi, CPA
Partner
Badawi & Associates
Audit of the
City of San Luis Obispo
1
Agenda
Engagement Team
Deliverables and Scope of the Audit
Areas of Primary Emphasis
Auditors Report and Financial Statements
Required Communications
New Accounting Standards
Conclusion & Discussion/Questions
2
Engagement Team
3
Engagement Team
Engagement
Partner
Ahmed Badawi,
CPA
Quality Control
Reviewer
Staff
Samantha Michel
Manager
Mitesh Desai
CPA
Information Technology
Robert Wucher
CISA, CISM, CRISC
4
Senior
Wenwei Zhao
CPA
Staff
Yifan Wu
Staff
Saleh Yassin
CPA
Deliverables and Scope of the Audit
Report of Independent Auditors on City of San Luis Obispo Basic
Financial Statements
Independent Auditors’ Report on Internal Control Over Financial
Reporting and on Compliance and Other Matters
Independent Auditor’s Report on Compliance with Requirements
Applicable to Each Major Program and Internal Control over
Compliance in Accordance with the Uniform Guidance
Report on Compliance with TDA
Report of Independent Auditors on the Whale Rock Commission Basic
Financial Statements
Agreed-Upon Procedures Report on Appropriation Limit Schedule
Communications With Those Charged With Governance
Letter used to summarize communication of various significant
matters to those charged with governance.
5
Areas of Primary Audit Emphasis
Revenues &Receivables (Tax,Grants,Notes and Others):Improper revenue
recognitions
Governmental Funds:
Confirmed/validated property taxes,sales taxes,franchise taxes &
other significant revenues/receivables.
Proprietary Funds:
Performed analytical procedures and trends analysis.
Pension &OPEB:Complex accounting standards
Reviewed management’s journal entries for pension and OPEB.
Agreed amounts recorded to reports provided by CalPERS and CalPERS’
Auditors and performed testing of census information used by CalPERS.
Reviewed management’s allocation of pension and OPEB amounts to
enterprise fund.
6
Areas of Primary Audit Emphasis
The risk of management override of controls is addressed by the following
procedures:
Assignment of audit staff based on consideration of audit risk.
Procedures to incorporate an element of unpredictability in the audit
from period to period.
Consideration of the selection and application of significant accounting
principles.
Examination of journal entries.
Review of accounting estimates for bias.
Evaluation of business rationale for unusual transactions.
Evaluation of the appropriateness of fraud -related inquiries performed
7
8
Auditors Report
Unmodified opinion
Audit performed in accordance with Generally
Accepted Auditing Standards, and Government
Auditing Standards
Financial statements are fairly presented in all material
respects
Significant accounting policies have been consistently
applied
Estimates are reasonable
Disclosures are properly reflected in the financial
statements
9
10
Government-Wide Financial Statements
Cash &
Investments
Restricted
Cash &
Investments
with fiscal
agents
Accounts,
Taxes,
Accrued
Interest
Receivable
Other Assets Capital
Assets
Deferred
outflows of
resources
2017 $108,034 $4,524 $14,580 $10,561 $372,467 $35,180
2018 $110,461 $1,978 $15,838 $11,081 $377,458 $37,195
2019 $127,974 $922 $15,614 $8,889 $377,652 $35,016
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
Assets and Deferred Outflows of Resources (in thousands)
11
Government-Wide Financial Statements
Accounts
Payable
Other Current
Liabilities
Net Pension
Liability
OPEB
Liabilities
Long-Term
Debt
Deferred
Inflows of
Resources
2017 $5,457 $2,757 $136,127 $(495)$80,043 $8,737
2018 $5,955 $2,772 $151,273 $7,651 $72,907 $2,349
2019 $6,618 $5,426 $153,733 $7,356 $67,748 $4,796
$(20,000)
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
Liabilities and Deferred Inflows of Resources (in thousands)
12
Government-Wide Financial Statements
Net Investment in
Capital Assets Restricted Unrestricted
2017 296,250 4,545 11,924
2018 308,167 1,981 956
2019 314,091 20,959 (14,661)
(50,000)
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
Net Position (in thousands)
13
Government-Wide Financial Statements
$14,650,414
$6,364,558
$9,470,638
$8,674,138
$1,184,093
$618,977
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
Changes in Net Position
14
Government-Wide Financial Statements
2017 2018 2019
Net Cost of Service $49,387,787 $58,948,940 $64,559,739
Tax Revenue $56,767,653 $58,770,572 $60,957,748
$-
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
Net Cost of Service to Tax Revenue
15
General Fund
Expenditure Coverage
16
2017 2018 2019
Unresticted Fund Balance 23,194,804$ 25,896,243$ 30,043,906$
Total Expenditures 58,912,698$ 75,141,911$ 72,462,957$
Unrestricted Fund Balance as
a % of Total Expenditures 39.37%34.46%41.46%
Number of months 5 4 5
GFOA recommendation 2 - 4
Measure of City's ability to operate with no revenues
using available net position.
City’s Annual Pension Contributions
17
2017*2018*2019*
Safety $6,299,915 $5,910,345 $8,348,780
Miscellaneous $6,776,849 $6,698,266 $9,354,287
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
*Contributions made in 2017-2019 include additional contributions of $1,375,000, $1,400,000, and $1,625,000 to CalPERS respectiv ely.
Other Financial Information
Other Financial Information
18
Fiduciary Net Position Total Pension Liability Net Pension Liability
as of 6/30/16 $111,332,827 $176,125,587 $64,792,760
as of 6/30/17 $121,531,215 $192,895,561 $71,364,346
as of 6/30/18 $127,852,776 $199,793,309 $71,940,534
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
City’s Pension Funded Status -Safety
Other Financial Information
Fiduciary Net Position Total Pension Liability Net Pension Liability
as of 6/30/16 $117,130,354 $189,675,644 $72,545,290
as of 6/30/17 $128,465,063 $209,751,766 $81,286,703
as of 6/30/18 $136,478,311 $218,270,720 $81,792,409
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
City’s Pension Funded Status -Miscellaneous
19
Other Financial Information
20
Miscellaneous Safety Total
6.15%$109,534,233 $99,483,321 $209,017,554
7.15%$81,792,409 $71,940,534 $153,732,943
8.15%$58,718,302 $49,374,150 $108,092,452
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
City’s Pension Plan Sensitivity to Discount Rate (2018
Measurement Date)
Other Financial Information
City’s Annual OPEB Contributions
21
2017 2018 2019
Contributions $1,493,996 $1,221,000 $677,824
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
Other Financial Information
22
Plan Fiduciary Net
Position Total OPEB Liability Net OPEB Liability
as of 6/30/16 $4,345,728 $12,651,572 $8,305,844
as of 6/30/17 $5,479,720 $13,130,633 $7,650,913
as of 6/30/18 $6,365,378 $13,721,056 $7,355,678
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
City’s OPEB Funded Status
Other Financial Information
23
5.75%6.75%7.75%
Net OPEB Liability $9,214,711 $7,355,678 $5,825,382
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
City’s OPEB Plan Sensitivity to Discount Rate
(2018 Measurement Date)
Other Financial Information
24
1% Decrease Current Trend 1% Increase
Net OPEB Liability $5,559,777 $7,355,678 $9,577,917
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
City’s OPEB Plan Sensitivity to Health Care Cost Trend Rate
(2018 Measurement Date)
Adjustments Needed to the CAFR
Account/Fund
General
Fund
SB1 Road
Repair Fund Water Transit
Whale Rock
Agency Fund
Other Agency
Funds
Cash (193,882) 71,950 373,058 (373,058) 121,932
Investment in joint venture (205,360.00)
Expense 205,360.00 373,058
Revenue (193,882) 71,950 373,058 121,932
Fund Balance/Net Position (193,882) 71,950 (205,360.00) 373,058 (373,058) 121,932
25
26
Required Communications
Our Responsibility Under
U.S GAAS
•Opinion on whether financial
statements are fairly stated in
accordance with U.S GAAP
•Evaluate internal control over
financial reporting including tone
at the top
•Evaluate compliance with laws,
contract and grants
•Ensure financial statements are
clear and transparent
•Communicate with the governing
body
27
Management Responsibility
•Management is responsible for the
financial statements
•Establish and maintain internal control
over financial reporting
•Making all financial records available to
us
•Adjust the financial statements to
correct material misstatements
•Establish internal control to prevent
and detect fraud
•Inform us of all known and suspected
fraud
•Comply with laws and regulations
•Take corrective action on audit findings
Required Communications
Independence
Timing of the Audit
•It is our responsibility to
maintain independence
•We will maintain our
independence by strict
adherence to the AICPA and the
Board of Accountancy rules and
regulations
•No other services performed
that could affect our
independence
•Audit was not performed in the
time frame communicated to the
City in our engagement letter
28
Required Communications
Significant Accounting Policies
and Unusual Transactions
Management Judgment and
Accounting Estimates
The City adopted the following new
pronouncements during the year:
•GASB Statement No. 83, Certain
Asset Retirement Obligations
•GASB Statement No. 88, Certain
Disclosures Related to Debt,
including Direct Borrowings and
Direct Placements
Significant management estimates
impacting the financial statements
include the following:
•Useful lives of Capital Assets
•Pension Plans
•OPEB Plans
•Self-Insurance Liabilities
•Investment Valuations
•Allowance for uncollectable accounts
29
Required Communications
Sensitive Disclosures
Difficulties Encountered in
Performing the Audit
The most sensitive disclosures affecting the
City’s financial statements are as follow:
•Summary of Significant Accounting Policies
•Cash and Investments
•Capital Assets
•Long Term Debt
•Net Position/Fund Balances
•Employee Retirement Plans
•Other Post Employment Benefits
•Commitments and Contingencies
•Subsequent Events
Some difficulties were encountered during our
audit.
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Required Communications
Significant Audit
Adjustments and
Unadjusted Differences
Considered by Management
to be Immaterial
Potential Effect on the
Financial Statements of Any
Significant Risks and
Exposures
There were adjustments and
reclassifying entries during the
course of the audit.
Management has posted all
proposed audit adjustments.
No significant risks or exposures
were identified. Legal matters
and potential liabilities are
disclosed in the financial
statements
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Required Communications
Disagreement with
Management
Deficiencies in Internal
Control
We are pleased to report that there
were no disagreements with
management
Material weaknesses:
•Year-end closing and reconciliations•Capital assets reconciliation•Journal entries posting and
numbering•Subsidiary ledgers reconciliation
Significant Deficiencies:
•Bank reconciliations
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Required Communications
Representations
Requested of
Management
Management
Consultation with Other
Accountants
We will obtain certain
representations from
management before issuing
our reports.
We are not aware of any
significant accounting or
auditing matters for which
management consulted with
other accountants
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Required Communications
Other Material Written
Communications
Material Uncertainties
Related to Events and
Conditions
Fraud and Illegal Acts
Other than the engagement
letter and management
representation letter, there
have been no other
significant communications
There were no material
uncertainties relating to
events and conditions
We have not become aware
of any instances of fraud or
illegal acts
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New Accounting Standards
•Statement 91 –Conduit Debt Obligations
2020
•Statement 84 –Fiduciary Activities
•Statement 90 –Majority Equity Interests—an amendment of GASB Statements No.
14 and No. 61
2021
2022
•Statement 87 –Leases
•Statement 89 –Accounting for Interest Cost Incurred before the End of a
Construction Period
Questions
Ahmed M. Badawi
abadawi@b-acpa.com
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Thank You
For Allowing Us to Provide Audit Services
to the City of San Luis Obispo
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