Report to Mayor and City Council
Tuesday, July 16, 2019
Consent
SUBJECT:
Title
COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR END JUNE 30, 2018 (CITY COUNCIL)
Body
I. SUMMARY
The Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2018 was issued on June 27, 2019. The purpose of this report is to receive the item, along with other reports from the independent auditor.
II. RECOMMENDATION
Recommendation
RECEIVE and FILE the Comprehensive Annual Financial Report for the fiscal year ended June 30, 2018.
Body
III. ALTERNATIVES
TAKE another action deemed appropriate by City Council.
IV. BACKGROUND
The City retained White Nelson Diehl Evans, LLP (WNDE), an independent Certified Public Accounting firm to perform the financial statement audit for fiscal year ended June 30, 2018. The auditor has issued a clean opinion. This means the auditor has found that the financial statements present fairly, in all material respects, the financial position and activities of the City.
The Comprehensive Annual Financial Report for the fiscal year ended June 30, 2018 was issued on June 27, 2019. The CAFR includes the audited financial statements, the independent auditor’s opinion, and detailed financial and statistical information. The report is available on the City’s website and at City Hall for viewing. Each City Council member received a bound copy of the CAFR prior to publication of this agenda report.
The independent audit firm, White Nelson Diehl Evans LLP, issued an “unqualified” or clean opinion that the financial statements are presented fairly.
The General fund is the primary operating fund of the City. The following is a summary of FY 17-18 estimates vs. actuals.
Actual revenues were $18,334,308 more than budgeted. The increase in revenues is due mainly to the reversal of the Colony Cove settlement of $7.9M, the newly passed Oil Industry tax which generated $1.5M, $2.6M received as community benefit, and additional revenues of $1M each from franchise fees and UUT.
Operating expenditures were $1,665,432 less than budgeted. The majority of this is due to positions that were budgeted for but not filled.
The actual fund balance for the General fund was better than budgeted for by $19,719,194.
Auditor Reports
Report on Internal Control and Compliance on Audit of Financial Statements (Exhibit A)
The auditor found 2 material weaknesses in internal controls.
1. Carson Reclamation Authority (CRA) - a physical inventory count was not performed at fiscal year-end, the purchase of multi-year insurance policies were not properly recorded and amortized, the estimated liability for closure and post-closure landfill costs was not reviewed and updated for events occurring during the year, and a transfer of funds was recorded as alibility instead of revenue. The CRA will conduct a fiscal year-end physical inventory, and the Finance Department will conduct a closer review of CRA transactions.
2. Year-End Closing Process - There were numerous post-close audit adjustments provided after the initial trial balance had been provided to the auditors, some of which were material adjustments. The Finance Department will create a comprehensive year-end close process checklist to ensure that all entries are posted timely and accurately.
The auditor found 1 significant deficiency in internal controls: certain projects were identified where construction was essentially completed and had been placed in service during the year however the assets had not been transferred from construction in progress to the appropriate asset class. The finance department will be notified immediately by engineering staff once a project has been completed so that the asset can be properly recorded.
Management Letter (Exhibit B)
The auditor had 3 recommendations for management.
1. The City is not correctly calculating and recording interest receivable on all City investments. However, the unrecorded interest receivable is not material to the financial statements it is still an appropriate practice to to calculate and accrue such interest.
2. The Treasurer’s monthly investment reports are to be rendered to City Council as per Article XV of the City’s investment policy. It was noted that the December 2017 investment report was not made available for review. Treasury will ensure that all monthly investment reports are made available for the auditors and are rendered to City Council.
3. The City collects deposits from developers and other various sources that may be refundable upon satisfaction of certain City terms. During the audit it was noted that the source and current status of some deposits were uncertain and required further investigation. City staff is currently reviewing all deposits balances to ensure that amounts are properly accounted for.
Final Communication letter to those Charged with Governance (Exhibit C)
This letter is addressed to the City Council and included the following comments.
• All significant transactions were recognized in the proper period, and none lacked authoritative guidance.
• Managements’ estimates were reasonable; and the auditor had no disagreements with management.
• The auditor encountered no significant difficulties in performing the audit other than the commencement of final fieldwork as a result of the City’s books not being ready due to the implementation of Tyler Munis ERP system.
• Material misstatements detected by the audit were corrected by management.
• The financial statement disclosures are neutral, consistent, and clear.
V. FISCAL IMPACT
None associated with this staff report.
VI. EXHIBITS
A. Report on Internal Control and Compliance on Audit of Financial Statements (pages 5-8)
B. Management Letter (pages 9-10)
C. Final Communication Letter to those Charged with Governance (pages 11-16)
Prepared by: Hrant Manuelian, Accounting Manager