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REVIEW AND DISCUSS COST AND FEASIBILITY OF MEASURE A AUDIT
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RECOMMENDATION
Review and discuss cost and feasibility of Measure A Audit.
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Summary
The committee has requested that staff provide the cost and feasibility of Measure A financial statements prepared under Generally Accepted Accounting Principles (GAAP) and audited under Generally Accepted Audit Standards (GAAS) and Generally Accepted Government Audit Standards (GAGAS for the period of April 1, 2014, to June 30, 2024, consistent with the standards used in the Measure M financial reports and audits.
The current auditor The Pun Group LLP has provided the following information based on the request submitted by the committee:
1. Measure A is a general sales tax that is recorded in the General Fund, which undergoes regular annual independent audits.
2. Motion 2025-4-30-0403-03 - Measure A financial statements prepared under Generally Accepted Accounting Principles (GAAP) and audited under Generally Accepted Audit Standards (GAAS) and Generally Accepted Government Audit Standards.
a. An audit will be conducted in accordance with Generally Accepted Auditing Standards (GAAS). The auditors will exercise professional judgment in planning and performing the audit, including assessing risks of material misstatement and determining the extent of testing based on materiality. As such, audit procedures will involve sampling rather than testing all transactions, and the audit will provide reasonable assurance that the financial statements are free of material misstatement, not absolute assurance. An audit will not include examination of all transactions.
b. The GAGAS audit report and accompanying note disclosures will also emphasize that Measure A is accounted for within the City’s General Fund.
c. In accordance with GAGAS requirements, the audit will include an evaluation of internal controls. As such, auditors will assess the design and implementation of internal controls over significant transaction cycles.
3. Feasibility considerations
a. The City is required to provide complete general ledger (GL) detail and supporting documentation for all relevant periods beginning in 2014 through 2024, including data from both the HTE and Munis financial systems.
b. The City is required to provide supporting documentation for internal control-related requests, including wet or electronic sign-offs, for significant transaction cycles identified through the auditors’ risk assessment process.
c. The Measure M report includes a balance sheet presentation, which requires additional testing and supporting documentation for the related balance sheet accounts. Similarly, a complete trial balance for Measure A-comprising both balance sheet and income statement accounts-is needed. It must be determined whether these accounts are individually identifiable within the City’s General Fund from April 1, 2014, through June 30, 2024, and whether detailed supporting documentation and reconciliations to the General Fund are available.
d. Following the receipt and evaluation of items outlined in sections 4a through 4c, sample selections will be made for audit testing in accordance with the applicable risk assessment and materiality thresholds.
e. Any follow-up questions arising from the audit testing procedures will need to be addressed and resolved in a timely manner to ensure the audit remains on schedule.
4. Estimated timeframe
a. The focus over the past few months has been the completion of the Fiscal Year 2024 annual audit and the commencement of the FY2024 Single Audit.
b. In addition, the Fiscal Year 2025 audit is expected to commence shortly. Notably, the implementation of GASB Statement No. 101 - Compensated Absences - becomes effective for FY2025 and will require significant time and effort from the City to ensure proper adoption and compliance.
c. If the City intends to initiate a re-audit of Measure A, it will require significant time and effort as outlined in Item 4. Completion of those steps will provide a clearer basis for determining the audit timeline.
5. Fee estimated and potential for change orders
The estimated audit fee for each year is projected to range between $12,000 and $15,000. For a ten-year period, costs may range from $120,000 to $150,000. However, this amount may increase depending on the scope and complexity of the work required.
Below is a list of conditions that may trigger a change order:
a. Changes to the timing of the engagement at your request. Changes to the timing of the engagement usually require reassignment of personnel used by the “Firm in the performance of services hereunder.” However, because it is often difficult to reassign individuals to other engagements, the Firm may incur significant unanticipated costs.
b. All requested schedules are not (a) provided by the accounting personnel on the date requested, (b) completed in a format acceptable to the Firm (c) mathematically correct, or (d) in agreement with the appropriate underlying records (e.g., general ledger accounts). The Firm will provide the accounting personnel with a separate listing of required schedules and deadlines.
c. Weaknesses in the internal control structure.
d. Significant new issues or unforeseen circumstances as follows:
• New accounting issues that require an unusual amount of time to resolve.
• Changes or transactions that occur prior to the issuance of our report.
• Changes in the City’s accounting personnel, their responsibilities, or their availability.
• Changes in auditing requirements set by regulators.
• Significant delays in the accounting personnel’s assistance in the engagement or delays by them in reconciling variances as requested by the Firm. All invoices, contracts and other documents which we will identify for the City are not located by the accounting personnel or made ready for our easy access.
• A significant level of proposed audit adjustments is identified during our audit.
• Changes in audit scope caused by events that are beyond our control.