RPVCCA_SR_2010_01_19_09_CAFRCrTYOF
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
REVIEWED:
Project Manager:
HONORABLE MAYOR &CITY COUNCIL MEMB~~S
DENNIS McLEAN,DIRECTOR OF FINANCE &~
INFORMATION TECHNOLOGY
JANUARY 19,2010
FY08-09 COMPREHENSIVE ANNUAL FINANCIAL
REPORT
CAROLYN LEHR,CITY MANAGER 09.-
Kathryn Downs,Deputy Director of Finance &Information
Technology
RECOMMENDATION
Receive and file the FY08-09 Comprehensive Annual Financial Report (CAFR)of the City
of Rancho Palos Verdes,and the Independent Auditors'Report on Internal Control.
EXECUTIVE SUMMARY
The City's FY08-09 CAFR is available to view on the City's website and at City Hall.Based
upon their independent audit,Diehl,Evans &Company,LLP have issued an unqualified
(clean)opinion of the City's FY08-09 financial statements.
The Unreserved General Fund Balance available for spending (referred to as General
Fund Reserves)at June 30,2009 was $10,440,256.This is $1,265,382 more than
budgeted FY08-09 General Fund Reserves.The overall General fund variance is
summarized as follows:
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FY08·09 Comprehensive Annual Financial Report
January 19,2010
Page 2 of6
(114,403)
992,4 78
48,450
19,030,563 18,916,160
16,789,109 15,796,631
5,175,042 5,126,592
~
!f~~$ffiPgA~~~~~~';;~diU.~~E:§,8'&'I~€-:@l"~
Revenue
Expen ditures
Net transfers out
.Ir_.'"··':~
Chang es in fu nd balance reserve amou nts
for non-o perating items (Le.prepaid amou nts
and RDAAdvance)338,857
~-~q"'1Iif~~.~gWS"~P~4V.f'~~Jif.?'.®'ji.w$P~~~~'¥A~~~.<dN~~A!YI~.J§Jr6"~~$.,W'''g~~~
DISCUSSION
Comprehensive Annual Financial Report (CAFR)
Each City Council Member has received a copy of the FY08-09 CAFR for the City of
Rancho Palos Verdes.Staff has compiled the information contained within the CAFR,
including a Letter of Transmittal or written summary of the City's accomplishments during
the past year,Management's Discussion and Analysis,the financial statements and
statistical information of the City and its component units (Redevelopment Agency and
Joint Powers Improvement Authority).A separate set of financial statements for both of
the City's component units (inclusive of a separate audit opinion for each)is expected to be
presented to their respective governing boards on February 2,2010.A copy of the CAFR
is currently available for review by the public in the reception area at City Hall and has been
posted on the Finance &Information Technology page on the City's website.
Staff believes that the FY08-09 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 30,2009.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,Diehl,Evans &Company,LLP have issued an unqualified (clean)
opinion.The opinion letter is presented on page 3 of the CAFR.
Management Letter &Audit Adjustments
The auditors have not issued a Management Letter for FY08-09,and no material auditor-
identified audit adjustments were made.
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 of the City's financial systems.Test procedures include discussions with
Staff about the internal control system and the general operating affairs of the City for the
past fiscal year,tests of the internal control system,and other audit procedures deemed
necessary to render an opinion on the City's financial statements.
In May 2006,the Auditing Standards Board of the American Institute of Certified Public
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FY08·09 Comprehensive Annual Financial Report
January 19,2010
Page 3 of6
Accountants (AICPA)issued Statement on Accounting Standards Number 112 (SAS No.
112),Communicating Internal Control Related Matters Identified in an Audit.SAS No.112
clarifies that it is not sufficient that the independent auditor determine that the financial
statements under audit are,in fact,fairly presented in accordance with generally accepted
accounting principals (GAAP).The financial statements are required to be the product of a
financial reporting system that offers reasonable assurance that management is able to
produce financial statements that comply with GAAP.SAS No.112 also makes it clear
that material auditor-identified audit adjustments typically will require that a significant
deficiency or material weakness be reported.
Independent Auditors'Report on Internal Control
The auditors expressed an opinion that the results of their tests indentified no deficiencies
in internal control over financial reporting considered to be material weaknesses.A copy of
this internal control opinion is attached (Attachment B).
Report to Audit Committee
The audit sub-committee of the City Council (Mayor Pro-Tern Long and Councilman
Misetich)conducted an exit interview with Robert Callanan,the audit partner with Diehl
Evans &Company,LLP,upon completion of the auditor's work and issuance of the audit
report.In accordance with generally accepted auditing standards,Diehl Evans issued a
written report directly to the Audit Committee.
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 received $441,072 of
federal assistance during FY08-09;therefore,a Single Audit is not required.
Actual General Fund Reserves as of June 20.2009
In conjunction with the adoption of the FY09-10 budget on June 30,2009,Staff estimated
that ending General fund reserves would be $9,174,874 as of June 30,2009.Upon the
conclusion of the fiscal year ended June 30,2009,the actual balance of General fund
reserves was $10,440,256.A comparison of estimated vs.actual General fund reserves
follows.
~~~~2£W""Alf'~~~~~~~i'J"jp~~4YT~~ff~~1*~;
Actual reserves 10,440,256
Estimated reserves 9,174,874
r.··•._··,····..··_..·····_..····.•..··.•...
~.,,''.,-...,..'.'...'''...",'..."..'..'..~':":"';';;;;"'~'"~O!',.,,"~,f'LC/::J'..',,>~".."".•~..•.•,
A comparison of actual and budgeted revenue in the General fund for FY08-09 is provided
below.
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FY08·09 Comprehensive Annual Financial Report
January 19,2010
Page 4 of6
Property taxes
Property transfer tax
Property tax in lieu of vehicle license fees
Property tax in lieu of sales tax
Sales and use tax
Transient occupancy tax
Franchise taxes
Utility user taxes
Business license tax
Golf tax
Planning,building &safety,and other permits
Fines and forfeitures
I nterest revenue
Other use of money and property (rents &leases)
Charges for services
Intergovernmental (grants &vehicle license fees)
Other revenue_.,'
$5,945,600
198,900
3,405,000
288,400
1,127,400
32,100
1,603,200
2,354,700
521,800
333,000
1,691,913
241,600
222,500
572,550
203,500
222,500
65,900
$5,855,100 $
178,813
3,388,494
301,454
1,060,220
85,245
1,709,009
2,267,431
531,982
278,343
1,754,687
213,900
266,124
603,900
202,838
152,701
65,919
(90,500)
(20,087)
(16,506)
13,054
(67,180)
53,145
105,809
(87,269)
10,182
(54,657)
62,774
(27,700)
43,624
31,350
(662)
(69,799)
19
Total actual revenues were less than budget by $114,403.A brief explanation of the
reasons for significant variances of actual vs.estimated revenue during FY08-09 in the
General fund follows:
~Based on information received from the County in December 2008,property tax
revenue was estimated to increase 5.5%in FY08-09;and the budget was adjusted
accordingly at midyear.The actual FY08-09 property tax increase was only 4.0%.
~At midyear FY08-09,the City's allocation of sales tax was tracking 17%more than
FY07-08;so no budget adjustment was proposed.However,sales tax revenue
rapidly decreased for the second half of FY08-09.The actual sales tax result for the
year was 6%less than budget.The City receives most of its sales tax from grocery
stores,service (gas)stations and restaurants.As sales tax from all business
segments was affected,Staff believes that the overall decrease in sales tax is
directly related to the current economic downturn.
~Even though the Terranea Resort &Spa opened for business on June 12,2009,
transient occupancy tax was collected for about six weeks during FY08-09 which
included pre-opening sales.The City collected a total of almost $65,000 from
T erranea that was not included in the FY08-09 budget.
~Utility users'tax (UUT)from Southern California Gas Company decreased by 26%
from FY07 -08 to FY08-09.At midyear FY08-09,this revenue was tracking even
with the first half of FY07-08;therefore,no adjustment was proposed.The dramatic
decrease in the second half of FY08-09 was due to declining gas prices in 2009.
During FY07-08 and through the end of calendar 2008,the average price of natural
gas was more than 75 cents per Therm;whereas,by June 2009,the price had
dropped to less than 34 cents per Therm.
~As approved by City Council in May 2008,Waste Management collector fees were
increased by 6.9%creating a proportionate increase in franchise fee revenue during
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FY08·09 Comprehensive Annual Financial Report
January 19,2010
Page 5 of6
FY08-09.The overall franchise tax budget was not increased in an attempt to
provide a conservative offset for other potential decreases in tax revenue.
~Trump National was the only operating golf course subject to golf tax during FY08-
09.Due to the economy,golf activity at luxury golf courses rapidly decreased
during FY08-09.At midyear,the FY08-09 budget was adjusted downward by more
than 20%;however,actual results were 34%less than originally budgeted.
~In FY07-08,the City submitted a grant application for $50,000 under the Safe
Routes to Schools program.The project application was approved in 2008,and
scheduled for funding in 2009.Although the $50,000 of grant revenue was included
in the FY08-09 budget,Staff anticipates the grant will actually be received in FY09-
10.
Before proposing adjustments to the FY09-10 budget based on FY08-09 results,Staff
would like to continue studying FY09-10 trends and available information.Staff expects to
propose adjustments to the FY09-10 revenue budget with the Midyear Financial Report
scheduled for the March 2,2010 agenda.
Actual expenditures were $992,478 less than budgeted appropriations.City Staff
continued to conservatively manage expenditures,resulting in immaterial favorable
variances in most every one.of the 30 General fund budget programs.The most notable
expenditure savings follow.
~Unfilled and under-filled employee positions resulted in about $266,000 of salary
and benefit savings (about 4%of budgeted salary and benefit expenditures)in the
General fund across all programs.
~The City Attorney's program expenditures were about $65,000 less than the
$1,065,200 budget.The timing and amount of litigation costs are very difficult to
predict.
~A total savings of about $227,000 was realized in the Building,Parks &Open Space
Maintenance programs for landscape maintenance,water and electricity utility
costs,small park projects (play surface,fencing,etc.),replacement flooring,and
office modifications.
~Technology savings of about $120,000 resulted from the deferred implementation of
document management and other minor Technology projects.
~The FY08-09 budget included $25,000 for peafowl census and trapping activities
that was deferred.The City Council initiated a peafowl trapping program with a
corresponding appropriation for FY09-1 O.
~The Sheriff's program expenditures were about $58,000 or 1.4%less than the
$4,000,150 budget.In April 2008,the Sheriff's department notified the City that the
cost of 2008-2009 services would increase by 4.8%;and the FY08-09 budget was
adjusted accordingly.The actual increase from FY07-08 to FY08-09 was only
3.5%.
~As noted above,the Safe Routes to Schools project has been postponed from
FY08-09 to FY09-10;thereby increasing the favorable FY08-09 General Fund
expenditure variance by $50,000.
~The General fund budget includes an annual $200,000 expenditure appropriation
and corresponding revenue offset for geo-technical consultant services for privately
initiated projects.Expenditures and revenue for this function were both about
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FY08·09 Comprehensive Annual Financial Report
January 19,2010
Page 6 of6
$39,000 less than budgeted for FY08-09.
The remainder of the $992,478 variance is comprised of immaterial amounts (less than
$20,000 orO.12%of the General fund expenditure budget)spread among 30 General fund
budget programs.
FY09-10 Budget Impact
Staff continues to analyze FY08-09 revenue variances and recent trends,and estimate the
impact on FY09-10 revenues.Based on FY08-09 expenditure variances,there does not
appear to be any significant impact to the FY09-10 expenditure budget.However,as part
of the Midyear Financial Review,Staff will have more information and expects to propose
both revenue and expenditure adjustments.
FISCAL IMPACT
Estimated June 30,2010 General fund reserves have been revised to include the overall
favorable FY08-09 variance of $1 ,265,382 (see Attachment A).
Attachments:
A -FY09-10 Statement of Estimated General Fund Reserves
B -Independent Auditors'Report On Internal Control Over Financial Reporting And On
Compliance And Other Matters Based On An Audit Of Financial Statements Performed
In Accordance With Government Auditing Standards
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FY09·10 Statement of Estimated General Fund Reserves Attachment A
Ad'ustments:
Evaluate Ci ide Sewer Fee
Beginning
Reserves Revenues
:,~:::;z:t:$;:",-,..i4:;..':-::·.n~:v
11/17/2009
Expenditures
.~?j.m ..r .:'..'
55,000
Net Transfers
.W··.'I
Ending
Reserves
.'»,,;,:;--,:~
Retirement Health Savings Retroactive
Contribution
Lower Hesse Park and Grandview Park
Conceptual Design
Geotechnical Review of Monks Plaintiffs'
Landslide Moratorium Exception Applications
FY08-09 Results
11/17/2009
11/17/2009
1211512009
1/19/2010 1,265,382
(24,000)
94,125
(50,000)
Net Transfers include both operating transfers from and to the General fund.Originally budgeted Net Transfers are adjusted when staff becomes aware that
an additional 0 eratin transfer is needed to satis an unantici ated shortfall within another fund;and that shortfall must be funded with General fund monies.
Ending Reserves are the estimated 6/30/10 General fund reserves at the time of budget adoption.Adjusted Ending Reserves is a calculation based on
subse uent ad'ustments to Be innin Reserves,Revenues,Ex enditures and Net Transfers.
9-7
Attachment B
~DIEHL,EVANS &:COMPANY,LLP~CERTIFIED PUBliC ACCOUNTANTS &CONSULTANTS
A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS
5 CORPORATE PARK.SUITE 100
IRVINE,CALIFORNIA 92606-5165
(949)399·0600.FAX (949)399-0610
www.diehlevans.com
December 18,2009
MICHAELR.LUDIN,CPA
CRAIG W.SPRAKER,CPA
Nf11N P.I'AWL.CPA
ROBERT J.CALLA1'lAN,CPA
'PHlLlP II.HOI.TKAMP,CPA
"THOMAS M.PERLOWSKI,CPA
"HARVEY J.SCHROEDER,CPA
KENNETH R.AMES.CPA
'WILUAM C,PENTZ,CPA
'A PROFESSION"L CORPORATION
INDEPENDENT AUDITORS'REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
To the Honorable Mayor
And Members of City Council
City ofRancho 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 as of and for the year ended June 30,2009,and have issued our report thereon dated
December 18,2009.We conducted our audit in accordance with auditing standards generally accepted
in the United States of America and the standards applicable to financial audits contained in
Government Auditing Standards,issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit,we considered the City's internal control over financial reporting
as a basis for designing our auditing procedures for the purpose of expressing our opinions on the
financial statements,but not for the purpose of expressing an opinion on the effectiveness of the City's
internal control over financial reporting.Accordingly,we do not express an opinion on the
effectiveness of the City's internal control over fmancial reporting.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees,in the normal course of performing their assigned functions,to prevent,or
detect and correct misstatements on a timely basis.A material weakness is a deficiency,or a
combination of deficiencies,in internal control such that there is a reasonable possibility that a material
misstatement of the entity's financial statements will not be prevented,or detected and corrected on a
timely basis.
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OTHER OFFICES AT:2965 ROOSEVELT STREET
CARLSBAD,CALIFORNIA 92008-2389
(160)129-2343 •FAX (760)129-2234
613 W.VALLEY PARKWAY,SUITE 330
ESCONDIDO,CAUFORNIA 92025-2598
(760)74J·3141 •FAX (160)741-9890
9-8
Attachment B
Internal Control Over Financial Reporting (Continued)
Our consideration of internal control over financial reporting was for the limited purpose described in
the first paragraph of this section and would not necessarily identify all deficiencies in internal control
that might be deficiencies,significant deficiencies or material weaknesses.We did not identify any
deficiencies in internal control over financial reporting that we consider to be material weaknesses,as
defined above.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City of Rancho Palos Verdes,California's
financial statements are free of material misstatement,we performed tests of its compliance with
certain provisions of laws,regulations,contracts and grant agreements,noncompliance with which
could have a direct and material effect on the determination of financial statement amounts.However,
providing an opinion on compliance with those provisions was not an objective of our audit and,
accordingly,we do not express such an opinion.The results of our tests disclosed no instances of
noncompliance and other matters that are required to be reported under Government Auditing
Standards.
This report is intended solely for the information and use of City Council,management,and others
within the City of Rancho Palos Verdes,California,and is not intended to be and should not be used by
anyone other than these specified parties.
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