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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. Packet Page 157 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 Packet Page 158 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 Packet Page 159 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. Packet Page 160 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 Is M • • 0 whom .. .. - ; _ 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. 30 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 31 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 32 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 33 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 34 35 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 36 Thank You For Allowing Us to Provide Audit Services to the City of San Luis Obispo 37