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ACCEPT BY MOTION THE INDEPENDENT AUDIT OF THE ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2024
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RECOMMENDATION
It is recommended that the Council Audit Committee accept by motion the independent audit of the Annual Comprehensive Financial Report for the year ended June 30, 2024.
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Summary
This report transmits the final audited Annual Comprehensive Financial Report (ACFR) for the year ended June 30, 2024 (Attachment A). The City received an unmodified (or “clean”) audit opinion validating the fair presentation of its financial position as of June 30, 2024. The ACFR reflects the City’s improved financial condition achieved through rigorous financial planning and use of its Long-Range Financial Plan. The City’s net position (assets compared to liabilities) improved by $168.7 million or 9.0% from the prior fiscal year. During the audit, the auditors noted three findings related to the City’s internal control over financial reporting processes.
DISCUSSION
Background
The City Charter (Section 1910) requires the City to have an annual audit conducted by an independent firm of Certified Public Accountants. The Charter further stipulates the audit is to be made in accordance with generally accepted audit standards for audits of public agencies. Federal and State grant agreements and bond indentures also require the City to have an annual audit. To ensure compliance with these requirements, the City contracts with an independent audit firm. The City’s external audit firm, The Pun Group, completed the independent audit and issued the audit report for the fiscal year ended June 30, 2024.
Present Situation
The ACFR is a comprehensive document reflecting the financial position of all City operations and its related component units. The City prepared the Fiscal Year (FY) 2023-24 ACFR in conformance with Generally Accepted Accounting Principles (GAAP) and with the additional requirements of presentation as set forth by the Government Finance Officers Association. The ACFR’s Transmittal Letter and Management’s Discussion and Analysis provide an overview and analysis of the financial activities of the year ended June 30, 2024. While the City’s focus tends to be on the General Fund, the audit includes an examination of all City funds.
General Fund Results
The General Fund continues to reflect the City’s sound management practices and prudent financial decisions as steady growth and improved financial results are evident in the audit report for FY 2023-24. The ACFR financial statements reflect on page 23 the consolidated General Fund balance of $240.1 million in accordance with GASB 34 and include the Council-approved reserves. The full $240.1 million fund balance includes available and restricted fund balances for the General Fund as well as the Library, Recreation, Boat Launch, Entertainment Venues, Emergency Communications, and Pooled Investment funds. The total fund balance as presented is split into five categories: Non-spendable, Restricted, Committed, Assigned, and Unassigned. The City’s General Fund reserve policy calls for the City to maintain a 16.66% operating reserve (approximately two months of expenditure) and establishes additional reserves for known contingencies, unforeseen revenue changes, infrastructure failures, and catastrophic events.
Deficit Fund Balances
• The Parking Authority Fund continues to report an accumulated deficit fund balance of approximately $3.4 million, primarily due to the interfund loan from the Workers’ Compensation Fund as of June 30,2024. This is due to an interfund loan borrowing from the Worker’s Compensation Fund for $8,915,000. It is in relation to the payoff of the 2006 Series A ESB bonds previously held in the City’s Debt Service Fund. The loan terms are set at 2%, biannual payments with anticipated payoff date of February 1, 2032.
• The Successor Agency to the Redevelopment Agency Private Purpose Trust Fund continues to report an accumulated deficit fund balance of approximately $54.3 million, driven by bonds payable outstanding as of June 30, 2024. This is an Agency Private Purpose Trust fund and not included in the City’s net position. The fund has a bonds payable balance that causes the fund balance deficit.
Independent Auditor’s Report on the Financial Statements
The City’s external independent audit firm, The Pun Group, completed its review of the annual Financial Statements for the fiscal year ended June 30, 2024, and has issued an unmodified (or “clean”) audit opinion validating the fair presentation of the City’s financial position as of June 30, 2024. In the Independent Auditor’s Report (page 1 of the ACFR), the auditor has opined that the balances in the financial statements are presented fairly in all material respects and are in conformity with GAAP.
Audit Adjustments
Auditing standards require reporting any adjustments to the financial statements made by the independent auditor. The external auditor did not propose any additional audit adjustments that, in their judgment, could have a significant effect on the City’s financial statements.
Audit Findings
The auditors noted three findings related to the City’s internal control over financial reporting with the following deficiencies during the FY 2023-24 audit:
1. City’s Administrative Services Department: Staff turnover and high vacancies
2. Accounting Closing and Accuracy in Financial Reporting
3. Schedule of Expenditures of Federal Awards (SEFA)
Management Response: The City acknowledges the identified deficiencies and is dedicated to improving in these areas. Since 2020, the City has experienced a significant increase in grant funding and many of the grants are prepaid rather than reimbursement based. This distinction changes how the grant revenues should be recorded. When booking these entries for the year ended June 30, 2024, the City based the entries on the individual grants at the project level, whereas the prior year entries were booked at the account level and not specific to each grant. Continuing this more detailed calculation will ensure accurate reporting of grant revenues in the future.
The City continues to demonstrate progress towards improving its internal controls by updating financial policies and procedures, resolving old audit findings, and gaining familiarity with the financial system.
Other Outstanding Audits
The City prepares a separate Single Audit in conformity with the Federal Single Audit Act and guidance from the U.S. Office of Management and Budget regarding Audits of State and Local Governments. This report is due to the federal clearinghouse on or before March 31st each year. The Single Audit for FY 2023-24 is still in progress and is not expected to be submitted on-time due to the volume of federal grant funds currently being managed by the City.
Filings with the State Controller’s Office
The City prepares a City Financial Transactions Report to be submitted to the California State Controller’s Office by January 31, 2024. An extension was requested and granted to submit the report past its filing deadline. The report was completed and submitted on July 2, 2025.
FINANCIAL SUMMARY
There is no financial impact associated with accepting this report.
Attachment A - The Annual Comprehensive Financial Report for the fiscal year ended June 30, 2024