RPVCCA_CC_SR_2015_03_03_02_FY13-14_Comprehensive_Annual_Financial_ReportCITY OF RANCHO PALOS VFRDES
MEMORANDUM
TO: HONORABLE MAYOR & CITY COUNCIL MEMBERS
FROM: KATHRYN DOWNS, ACTING FINANCE DIRECTOR C(V
DATE: MARCH 3, 2015
SUBJECT: FY13-14 COMPREHENSIVE ANNUAL FINANCIAL
REPORT
REVIEWED: CAROLYNN PETRO, DEPUTY CITY MANAGER
RECOMMENDATION
Receive and file the following:
1. FY13-14 Comprehensive Annual Financial Report (CAFR) of the City of Rancho
Palos Verdes; and
2. Letter from Independent Auditors regarding Significant Audit Findings (Attachment
A).
EXECUTIVE SUMMARY
The City's FY13-14 CAFR has been available to view on the City's website and at City
Hall since December 2014. Based upon their independent audit, Vavrinek, Trine, Day &
Co., LLP (VTD) have issued an unqualified (clean) opinion of the City's FY13-14 financial
statements.
The City's General Fund Reserve at June 30, 2014 was $13,839,226 (referred to as the
Rainy Day Fund on page 55 of the CAFR, in the Notes to Financial Statements).
Per the City Council's Reserve Policy, the favorable General Fund expenditure variance
shall be transferred to the Capital Improvement Projects (CIP) Reserve. For FY13-14,
that amount is $973,078. Staff requested a budget adjustment with the Midyear Financial
Report dated March 3, 2015 to provide for the required transfer. If the City Council
approves the adjustments recommended with the Midyear Financial Report, the revised
estimate of General Fund Reserve at June 30, 2015 will be $12,732,216.
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FY13-14 Comprehensive Annual Financial Report
March 3, 2015
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DISCUSSION
Comprehensive Annual Financial Report (CAFR)
A separately bound copy of the FY13-14 CAFR has been delivered to each City Council
Member, an electronic version has been posted to the City's website, and a copy is
available for viewing at City Hall.
Staff believes that the FY13-14 CAFR meets the standards and requirements established
by the Governmental Accounting Standards Board (GASB) for presentation of financial
data, note disclosure and statistical information. The CAFR includes the audited financial
statements and accompanying notes for the fiscal year ended June 30, 2014. The scope
of the audit examination is limited to Management's Discussion & Analysis, the financial
statements and the accompanying notes, beginning on page 7 of the CAFR. Based upon
their independent audit, VTD has issued an unqualified (clean) opinion. The opinion letter
is presented on page 2 of the CAFR.
Management Letter & Significant Audit Findings
The auditors have not issued a Management Letter for FY13-14. A management letter is
intended to call attention to matters involving internal controls of the City's accounting
system, including suggestions for improving the internal controls and efficiency of the
City's financial systems.
The Auditing Standards Board of the American Institute of Certified Public Accountants
(AICPA) requires the independent auditor to communicate significant audit findings to
those charged with governance. The independent auditors have issued a letter to the
City Council dated December 18, 2014 to comply with these requirements (see
Attachment A). The letter includes the following:
• All significant transactions have been recognized in the financial statements in the
proper period;
• Management's estimates related to the City's receivable from the Successor
Agency to the Redevelopment Agency, fair value of investments, depreciation and
valuation of capital assets, and pension liabilities disclosure were reasonable;
• The financial statement disclosures are neutral, consistent and clear;
• There were no significant difficulties dealing with management during the audit;
• A schedule of corrected misstatements of the draft financial statements, which
primarily relate to the timing of one-time revenue receipts; and
• There were no disagreements with management.
Report to Audit Subcommittee
Audit partners, Kevin Pulliam and Phil White, conducted an exit interview with the City
Council's 2014 Ad -Hoc Audit Subcommittee (Campbell and Misetich) on January 15,
2015.
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FY13-14 Comprehensive Annual Financial Report
March 3, 2015
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Single Audit
A Single Audit of federal financial assistance is required when local governments spend
more than $500,000 for projects funded with federal monies. The City had $1,398,254 of
federally assisted expenditures during FY13-14, primarily related to the $1.1 million
Malaga Canyon open space purchase. The City's Single Audit was performed the week
of February 23, 2015, and Staff expects that a report will be available by March 31, 2015.
At that time, the Independent Auditors' Report on Internal Control will be available.
General Fund Variance at June 30 2014
The $2.8 million General Fund variance at June 30, 2014 is calculated below. Per the
City Council's Reserve Policy, the $973,078 expenditure variance will be transferred to
the CIP Reserve during FY14-15.
FY1�=14
Budget
: Actual
' ' Variance
Revenue
$25,684,961
$27,829,789
$2,144,828
Expenditures
19,112,263
18,139,185
973,078
Net Transfers
8,236,425 8,580,370 (343,945
Revised Estimate of General Fund Reserves as of June 30 2015
If the City Council adopts Staff's recommended budget adjustments within the Midyear
Financial Report dated March 3, 2015, the revised estimate of General Fund Reserves at
June 30, 2015 would be calculated as follows (about $2.6 million in excess of the reserve
threshold).
Significant FY13-14 General Fund Revenue Variances
A summary of significant revenue variances follows.
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FYI 3-14 Comprehensive Annual Financial Report
March 3, 2015
Page 4of7
Transient Occupancy Tax
Utility Users' Tax
Franchise Tax
Planning Permits
Plan Checks
Reverse Contingent Liability
General Liability Insurance Retrospective Refund
County Property Tax Administration Fee Settlement
$ 301,386
594,282
219,213
60,412
74,154
320,000
231,306
180,232
Other Immaterial Revenue Variances 163,843
Total Revenue Variance $2,144,828
Taxes
Once again, Transient Occupancy Tax (TOT) exceeded expectations. The City received
$4,250,086 compared to the budget amount of $3,948,700. Per City Council policy, the
full amount of TOT was transferred to the CIP Reserve for infrastructure funding.
On August 19, 2014, the City Council created a Utility Users' Tax (UUT) Claim Account,
to be funded from telecommunications UUT collected since August 2013. The FY13-14
budget was adjusted accordingly; however, the City was still required to recognize the
telecommunications UUT in the revenue ledger in order to recognize the Claim Account
balance within the General Fund. The Claim Account balance of $593,301 is listed and
described in the Notes to Financial Statements (pages 55-56 and page 62 of the CAFR),
and is the primary component of the total UUT budget variance of $594,282 noted above.
The City collects franchise tax for utilities, waste hauling services, and cable television.
Across the board, all 10 franchise tax revenue accounts had favorable variances totaling
$219,213 for FY13-14. The most significant variance was for Edco Disposal. The FY13-
14 budget was based on prior year actual receipts; however, the actual FY13-14 Edco
Disposal payment to the City was adjusted, increasing the portion deposited into the
General Fund and providing for fee increases. The Edco Disposal budget variance
comprises about $119,000 to the total franchise tax budget variance.
Licenses & Permits
Planning and building permits are difficult to predict; and fluctuate with the weather,
economy, trends in home improvement, lending rates, the turnover rate of housing stock,
and the availability of contractors. Planning & zoning permit revenue exceeded
expectations by $60,412, and plan check revenue exceeded expectations by $74,154.
Other Revenues
In FY09-10, the City accrued a contingent liability of $320,000 for litigation related to a
building moratorium in the landslide area of the City. The contingent liability no longer
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FY13-14 Comprehensive Annual Financial Report
March 3, 2015
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exists, and was reversed during FY13-14
The City received a $231,306 retrospective refund from California Joint Powers Insurance
Authority for general liability insurance. The retrospective refund is based on comparison
of prior years' deposits from the City with actual claims history.
In May 2014, the City received an $180,232 settlement from Los Angeles County for
property tax roll administration fees that were overcharged by the County in prior years.
Si nificant FY13-14 General Fund Expenditure Variances
A summary of significant expenditure variances follows.
Information Technology - Data $ 192,207
Public Safety Special Programs 42,661
Public Works Administration 124,798
Building Maintenance 174,480
Parks, Trails & Open Space Maintenance 130,438
Other Immaterial Expenditure Variances (from 28 programs) 308,494
Information Technology — Data
Due to Staffing changes, the City was not able to complete certain activities and projects
that were scheduled for FY13-14, including negotiating a new Information Technology
services contract, audio/visual upgrades at Point Vicente Interpretive Center, a kiosk
upgrade, cabling and various Graphic Information System projects, ActiveNet and Cougar
Mountain upgrades and the Internet Protocol address project. The City also did not renew
the Lynda.com training membership as planned. In addition, Staff postponed the
purchase of computer equipment to allow for additional time to ascertain the needs of City
Staff.
Public Safety — Special Programs
Each year, funds are allocated for the Sheriff's Department to conduct as -needed
targeted enforcement and outreach programs. Due to actual crime trends and the types
of incidents experienced in FY13-14, only a portion of the budgeted amount was required
to supplement regular law enforcement services. In addition, the amount budgeted for
printing and binding was unspent due to the fact that the City had an ample supply of
parking citation books and did not need to re -order during this fiscal year.
Public Works Administration
There were departmental vacancies, most notably, the Department Director, Deputy
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FYI 3-14 Comprehensive Annual Financial Report
March 3, 2015
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Director, Maintenance Superintendent, Lead Maintenance Worker and Associate
Engineer for various lengths of time during FY13-14. Furthermore, there were less
professional services required than budgeted for contracted engineering consultants to
review maps and development plans, and to perform investigations. This was due, in part,
to Engineering staffing vacancies which affected the availability of existing staff to
manage consultant contracts. There were also less printing of permit service request
forms & material for meetings (bid documents & blueprints for Public Works projects) due
to a lower level of maintenance activity driven by short staffing.
Building Maintenance
Due to staffing shortages in the Maintenance Division, there were certain building
maintenance projects and activities not undertaken during FY13-14 including: painting of
buildings, utility repairs (plumbing, lighting and electricity), heating and air conditioning
repairs and installations, and general building maintenance. Furthermore, fewer
maintenance supplies and equipment related to these projects were purchased in FY13-
14.
As the result of the street lighting audit, twenty-two street lights that the City had been
previously maintaining were removed from the City's accounts in FY13-14.
Parks, Trails & Open Space Maintenance
Staff did not undertake certain Parks, Trails & Open Space maintenance projects and
activities due to staffing shortages in the Maintenance Division. This included certain
landscape maintenance projects, minor repairs to facility parking lots, fences, signs,
drainage, and some trail maintenance work. As a result of the decrease in trail
maintenance work, fewer Parks, Trails & Open Space maintenance supplies and
equipment were purchased in FY13-14.
Other Noteworthy Items
• The City's unfunded employee pension liability at June 30, 2013 was $7,230,479
(page xi of the CAFR). The City's only other debt is $350,474 for employee
compensated absences.
• The City received a $1.9 million settlement from Southern California Edison. The
settlement is combined with the following amounts to comprise "other revenues"
of $4,145,385 listed on page 21 of the CAFR.
o The $231,306 insurance refund, the $180,232 property tax administration
fee settlement, and the $320,000 reversal of a contingent liability noted
above;
o Rent and lease revenue totaling $529,768;
o AB939 fees of $230,313 from waste haulers; and
o Fines and forfeitures of $128,747.
• The CIP Reserve totaled $18 million at June 30, 2014. Of that amount, nearly $11
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FYI 3-14 Comprehensive Annual Financial Report
March 3, 2015
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million was held for projects continued from FY13-14 to FY14-15.
FISCAL IMPACT
There is no fiscal impact associated with Staff recommendation.
Attachments
A — Independent Auditors' letter communicating Significant Audit Findings and Other
Matters dated December 18, 2014
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Attachment A
® Vavrinek, Trine, Day & Co., LLP
n, rl Certified Public Accountants
To Honorable City Council
of the City of Rancho Palos Verdes
Rancho Palos Verdes, California
We have audited the financial statements of the governmental activities, the business -type activities, each major
fund, and the aggregate remaining fund information of the City of Rancho Palos Verdes, California (City) for the
year ended June 30, 2014. Professional standards require that we provide you with information about our
responsibilities under generally accepted auditing standards, Government Auditing Standards and OMB Circular
A-133, as well as certain information related to the planned scope and timing of our audit. We have
communicated such information in our letter to you dated May 27, 2014. Professional standards also require that
we communicate to you the following information related to our audit.
Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the City are described in Note 1 to the financial statements. The City adopted
Governmental Accounting Standards Board (GASB) Statement No. 65, Items Previously Reported as Assets and
Liabilities, effective July 1, 2013. We noted no transactions entered into by the governmental unit during the year
for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized
in the financial statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are based on
management's knowledge and experience about past and current events and assumptions about future events.
Certain accounting estimates are particularly sensitive because of their significance to the financial statements and
because of the possibility that future events affecting them may differ significantly from those expected. The
most sensitive estimates affecting the City's financial statements were:
Management's estimate for the allowance related to the receivable from the Successor Agency,
fair value of investments, depreciation and valuation of capital assets, and pension liabilities and
disclosures. We evaluated the key factors and assumptions used to develop these estimates in
determining that they appeared reasonable in relation to the financial statements taken as whole.
The financial statement disclosures are neutral, consistent, and clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our audit.
8270 Aspen Street Rancho Cucamonga, CA 91730 Tel: 909.466.4410 Fax: 909.466.4431 www.vtdcpa.com
FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • RIVERSIDE • SACRA Nr T
Attachment A
Corrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the audit,
other than those that are clearly trivial, and communicate them to the appropriate level of management. The
attached schedule summarizes corrected misstatements to the financial statements. Management has corrected all
such misstatements.
Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing
matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the
auditor's report. We are pleased to report that no such disagreements arose during the course of our audit.
Management Representations
We have requested certain representations from management that are included in the management representation
letter dated December 18, 2014.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters,
similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an
accounting principle to the City's financial statements or a determination of the type of auditor's opinion that may
be expressed on those statements, our professional standards require the consulting accountant to check with us to
determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with
other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing
standards, with management each year prior to retention as the City's auditors. However, these discussions
occurred in the normal course of our professional relationship and our responses were not a condition to our
retention.
Other Matters
We applied certain limited procedures to management's discussion and analysis, which is required supplementary
information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of
management regarding the methods of preparing the information and comparing the information for consistency
with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained
during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or
provide any assurance on the RSI.
We were engaged to report on the combining and individual fund statements and schedules, which accompany the
financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries
of management and evaluated the form, content, and methods of preparing the information to determine that the
information complies with accounting principles generally accepted in the United States of America, the method
of preparing it has not changed from the prior period, and the information is appropriate and complete in relation
to our audit of the financial statements. We compared and reconciled the supplementary information to the
underlying accounting records used to prepare the financial statements or to the financial statements themselves.
We were not engaged to report on the introductory section and statistical section, which accompany the financial
statements but are not RSI. We did not audit or perform other procedures on this other information and we do not
express an opinion or provide any assurance on it.
2
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Attachment A
Restriction on Use
This information is intended solely for the use of the City Council and management of the City and is not
intended to be, and should not be, used bypanyone
eother than these specified parties.
G rr G CO, la'p
Rancho Cucamonga, California
December 18, 2014
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Attachment A
CITY OF RANCHO PALOS VERDES
Schedule of Corrected Misstatements
For the Fiscal Year Ended June 30, 2014
Income Statement Balance Sheet
Number Fund Account/Description Dr. Cr. Dr. Cr.
<1> General Fund Dr. Other Receivables $ 231,306
General Fund Cr. Other Revenue $ 231,306
To record refund due from CalJP1A for risk management activities as of June 30, 2014
<2> Water Quality Flood Protection Fund Dr. Unavailable Revenue $ 973,971
Water Quality Flood Protection Fund Cr. Other Revenue $ 973,971
To record grant revenue on the accrual basis as of June 30, 2014
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