CC SR 20240319 J - FY22-23 ACFRCITY COUNCIL MEETING DATE: 03/19/2024
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA TITLE:
Consideration and possible action to receive the Fiscal Year (FY) 2022-23 Annual
Comprehensive Financial Report (ACFR) of the City of Rancho Palos Verdes.
RECOMMENDED COUNCIL ACTION:
(1)Receive and file the FY 2022-23 ACFR of the City of Rancho Palos Verdes;
(2)Receive and file the FY 2022-23 Statements on Auditing Standards (SAS 114
Letter) from Independent Auditors to those Charged with Governance; and,
(3)Receive and file the FY 2022-23 Independent Auditors’ Report on Internal Control
over Financial Reporting, Compliance, and other Matters in accordance with
Government Audit Standards (GAS Letter).
FISCAL IMPACT: N/A
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: Vina Ramos, Director of Finance VR
REVIEWED BY: same as above
APPROVED BY: Ara Mihranian, AICP, City Manager
ATTACHED SUPPORTING DOCUMENTS:
A.FY 2022-23 ACFR
B.FY 2022-23 SAS 114 Letter from Independent Auditors to Those Charged
with Governance (page B-1)
C.FY 2022-23 GAS Letter from Independent Auditors on Internal Control and
Compliance (page C-1)
BACKGROUND:
The ACFR provides a narrative overview and analysis of the City’s financial activities for
the fiscal year that ended on June 30, 2023. The ACFR is prepared in conformity with
Generally Accepted Accounting Principles (GAAP) and Governmental Accounting Board
(GASB) requirements. In accordance with GASB’s standards, invoices for the fiscal year
must be paid and current revenues (taxes) recorded no later than August, which is 60
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days after year-end. Subsequently, the year-end process is completed by the staff, and
financial reports are prepared by October.
On November 2023, in accordance with state statutes, the City’s financials were audited
by CliftonLarsonAllen LLP (CLA), an independent firm of certified public accountants. The
goal of the independent audit was to provide reasonable assurance that the City’s
financial statements for FY 2022-23 were free of material misstatement. Originally
scheduled for completion by the end of December, the audit was delayed by two months
due to resource limitations.
On February 29, 2024, CLA completed the audit with no audit findings, confirming that
the City's financial statements are fairly presented in accordance with GAAP and are free
of material misstatement.
Pursuant to the City Council Policy No. 44, the Audit Committee is established as a
subcommittee of the City Council, consisting of two members appointed by the Mayor.
On March 12, 2024, CLA's audit partner, Robert Callanan, held a meeting to report the
audit results with the subcommittee, consisting of Mayor Pro Tem Alegria and
Councilmember Bradley.
DISCUSSION:
The following discussion provides the following high-level summary of the ACFR and final
audited results for FY 2022-23:
• ACFR Overview of Sections
• Financial Highlights
• General Fund Balance Results
• Additional Information: Single Audit, Pension, GFOA Award
ACFR Overview
The City’s ACFR includes the following major sections and information:
Financial Highlights
Introductory Section
Letter of
Transmittal
Financial Section
Independent
Auditors’
Report
Management’s Discussion & Analysis
Analytical
overview of
the City’s
financials
Basic Financial
Statements
Information
on City’s
finances
July 1, 2022 -
June 30,
2023
Statistical
Historical
financial
trends
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The City’s government-wide financial statements are designed to provide readers with a
broad overview of the City’s finances. The financial statements combine the
Governmental activities for the purpose of presenting an overall picture of the financial
position and results of operations of the government. The Governmental activities are the
City’s General Fund, Capital Improvement Fund, and Special Revenue Funds.
The following are FY 2022-23 financial highlights (page 5 of the ACFR):
• The assets and deferred outflows of resources of the City of Rancho Palos Verdes
exceeded its liabilities and deferred inflows of resources at the close of the Fiscal Year
ended June 30, 2023, by $235.7 million (Net Position). This is an increase of $11.4
million over last year’s Net Position of $224.3 million.
• Of the $235.7 million of Net Position, approximately $63.8 million (Unrestricted Net
Position) may be used to meet the City’s ongoing obligations to its citizens and
creditors. The remaining amount is invested in capital assets or is otherwise restricted,
and therefore not available to meet the City’s obligations.
• The City’s total Net Position increased by $11.4 million from the prior year’s Net
Position of $224.3 million. This is primarily due to the continued shift in the economy
that took place during FY 2022-23 and led to a favorable return toward historical
figures.
• The City’s Governmental Funds reported a combined ending Fund Balances of $85.7
million, an increase of $1.4 million compared to the prior year. This increase is a
combination of higher inflow of program revenues and grant revenues.
• The General Fund reported an increase in fund balance in the amount of $2.7 million
or 9%. The increase is primarily from higher revenues over expenditures.
• The General Fund’s unrestricted fund balance of $32.2 exceeds the minimum
requirement of $14.5 million (50% of $29 million in General Fund annual operating
expenditures).
Furthermore, the Statement of Net Position (page 16 of the ACFR) presents the City’s
investments in capital assets, restricted funds, and unrestricted funds. Of the $235.7
million of Net Position, $146.6 million or 62% is invested in capital assets (e.g. Land,
Infrastructure, Buildings, and Equipment). Approximately $23.5 million is restricted for
approved carryover projects in the Capital Improvement Fund and Special Revenue
Funds, and almost $1.8 million is restricted for the Improvement Authority, Subregion
One, and Natural Communities Conservation Plan/Habitat Conservation Plan
(NCCP/HCP). As mentioned above, the remaining $63.8 million is unrestricted, which
may be used to meet the City’s ongoing obligations to its citizens and creditors. Table 1
on the next page is a summary of the City’s Net Position.
Table 1: Summary of Net Position
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Additional details on the City’s Statement of Net Position are on page 19 and pages 53-
52 of the ACFR (Attachment A).
General Fund Balance Results
The General Fund is the chief operating fund of the City. At the end of the fiscal year, the
unassigned fund balance of the General Fund is $32.2 million, while total Fund Balance
reached $34.1 million. As a measure of the General Fund’s liquidity, it may be useful to
compare both unassigned fund balance and total fund balance to total fund uses
(expenditures and transfers out). Unassigned fund balance represents 89% of total
General Fund uses, while total fund balance represents 98% of the same amount.
As illustrated in Table 2 on the next page, the City’s General Fund balance of $34.1 million
increased by almost $2.7 million or 9% from the prior year’s balance of $31.4 million. The
increase is due to the higher inflow of revenues and expenditures ending the year lower
than anticipated.
CONTINUED NEXT PAGE
Table 2: General Fund Results FY 2021-22 vs. FY 2022-23
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The financial year-end detailed report was previously submitted to the City Council on
December 19, 2023. Relative to the report presented at that meeting, the audited fund
balance is lower by $0.4 million. This change is mainly due to the adoption of GASB
Statement No. 96, Subscription-based Information Technology (SBITAs). Accordingly,
the new required accounting standard recognizes transactions in the financial statement
in the proper period.
ADDITIONAL INFORMATION:
Single Audit
Pursuant to Title 2 of the Code of Federal Regulations 200.501, all State, local
government, and non-profit organizations that expend $750,000 or more of federal funds
in an agency’s fiscal year must complete a single audit. For the FY 2022-23, the total
expended on Federal financial assistance awards for all programs was $4.1 million. The
majority of the expenditure were from the American Rescue Plan Act (ARPA). CLA is
currently in the process of auditing the City’s federal grant programs and is estimated to
be completed by the end of March. Similar to ACFR, staff anticipates no audit findings for
these programs.
GASB 68 (Pension)
In June 2015, GASB approved Statement No. 68 with the objective to improve accounting
and financial reporting by the state and local governments with respect to pensions. State
and local agencies are required to recognize applicable pension amounts as a liability in
their financial statements (Balance Sheet), and also provide extensive footnote
disclosures and additional supplementary schedules related to their pension plan.
The City’s net pension liability for the Miscellaneous Plan is measured as the
proportionate share of the net pension liability of the CalPERS cost sharing pool. As of
FY 2021-22
Actuals
(Final)
FY 2022-23
Actuals
(Final)
Change
$$
Change
%
Revenues 35,928,153 38,731,189 2,803,036 8%
Less: Operating Expenditures (25,888,803) (29,042,690) 3,153,887 12%
Excess of Revenues Over Expenditures $10,039,350 $9,688,499 ($350,851) -3%
Other Financing Sources
Transfers In 310,000 300,000 (10,000) -3%
Transfers Out*(4,784,515) (7,301,122) 2,516,607 53%
Lease Proceeds 0 43,899 43,899 100%
Net Change in Fund Balance $5,564,835 $2,731,276 ($2,833,559) -51%
Fund Balance - Beginning of Year 25,798,773 31,363,608 5,564,835 22%
Ending Fund Balance $31,363,608 $34,094,884 $2,731,276 9%
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June 30, 2023, the City reported a liability of $15.2 million for its proportionate share of
the net pension liability, an increase of $7.4 million from the previous year. This increase
was expected due to the temporary decrease amount in FY 2021-22 from the 21.3% net
return of investments that CalPERS experienced in June 2021, along with assumptions
including discount rate, amortization, inflation, proportionate share of aggregate employer
contributions, mortality rate, and post-retirement benefits.
Additional detailed information on City’s Pension Liability is on pages 55-59 and pages
68-69 of the ACFR (Attachment A).
Employee Pension Service Fund (Fund 682)
On February 2, 2021, the City Council approved the CalPERS Pension Plan Guidelines
which provides a financial plan to address the City’s outstanding pension liability and
CalPERS’ continuous change in valuation methodology. Based on the City Council’s
discretion, the goal is to transfer funds to the Employee Pension Service Fund (EPSF) of
at least 10%, but no more than 25%, of the annual General Fund surplus (revenues minus
expenditures, including transfers). As a result, the accumulated funds in the EPSF would
then relieve the General Fund of payment more than $900,000 of the City’s Unfunded
Accrued Liability (UAL).
In accordance with the pension guidelines for transparency, during the fiscal year, Staff
maintains the separate tracking of the fund’s financial transactions in the EPSF, Fund
682. At the end of FY 2022-23, the EPSF’s fund balance is $0.8 million. In accordance
with GASB’s requirements for ACFR presentation, this amount is included in the General
Fund’s fund balance of $34.1 million, as part of the year-end closing process.
GFOA Award
On February 29, 2024 Staff submitted the application to the Government Finance Officers
Association (GFOA) for the Certificate of Achievement for Excellence in Finance
Reporting. In order to be awarded a Certificate of Achievement, a government must
publish an easily readable and efficiently organized ACFR. This report must satisfy both
generally accepted accounting principles and applicable legal requirements . If awarded,
it will be the City’s 30th consecutive year to receive the award.
CONCLUSION:
On February 29, 2024, CLA issued an unmodified (clean) opinion of the City’s FY 2022-
23 financial statements (Attachment A, pages 1-3). Additionally, the auditors are required
to issue a communication letter for all financial audits (Attachment B - SAS 114 Letter)
and a report on internal controls over financial reporting and on compliance based on the
audit in accordance with GAS (Attachment C - GAS Letter). In accordance with the
American Institute of Certified Public Accountants, the SAS 114 Letter is a required
communication letter to those charged with governance (City Council) which reports any
findings (if applicable), disagreements with management, and adjustments. The GAS
Letter’s purpose is to report any material weaknesses or significant deficiencies identified
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during the course of the audit. As stated in the reports, CLA did not identify any audit
findings or deficiencies in the City’s internal control.
As such, Staff recommends that the City Council receive the City’s FY 202 2-23 ACFR
and City’s financial audit reports.
The ACFR book is now online on the City’s Transparency webpage at:
https://www.rpvca.gov/286/21998/Annual-Comprehensive-Financial-Report-AC
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative actions are available for
the City Council’s consideration:
1. Take other action, as deemed appropriate.
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CliftonLarsonAllen LLP
CLAconnect.com
City Council Members
City of Rancho Palos Verdes
Rancho Palos Verdes, California
We have audited the financial statements of the governmental activities, each major fund, and the
aggregate remaining fund information of the City of Rancho Palos Verdes as of and for the year ended
June 30, 2023, and have issued our report thereon dated February 29, 2024. We have previously
communicated to you information about our responsibilities under auditing standards generally accepted
in the United States of America and Government Auditing Standards, as well as certain information
related to the planned scope and timing of our audit in our statement of work dated July 6, 2023.
Professional standards also require that we communicate to you the following information related to our
audit.
Significant audit findings or issues
Qualitative aspects of accounting practices
Accounting policies
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the City of Rancho Palos Verdes are described in Note 1 to the financial
statements.
As described in Note 1, the City of Rancho Palos Verdes changed accounting policies by adopting
Statement of Governmental Accounting Standards Board (GASB Statement) No. 96, Subscription-based
Information Technology Arrangements (SBITAs), effective June 15, 2022. Accordingly, the accounting
change has been applied to the beginning of the period of adoption.
We noted no transactions entered into by the entity 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
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 estimate affecting the financial statements was:
The annual required contributions, pension expense, net pension liability and corresponding
deferred outflows of resources and deferred inflows of resources for the City’s public defined
benefit plans are based on actuarial valuations provided by CalPERS and by a third-party actuary.
We evaluated the key factors and assumptions used to develop the allowance in determining that it is
reasonable in relation to the financial statements taken as a whole.
B-1
City Council Members
City of Rancho Palos Verdes
Page 2
Financial statement disclosures
Certain financial statement disclosures are particularly sensitive because of their significance to financial
statement users. The most sensitive disclosure affecting the financial statements was reported in Note 9
related to the City’s defined benefit pension plan.
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.
Uncorrected misstatements
Professional standards require us to accumulate all misstatements identified during the audit, other than
those that are clearly trivial, and communicate them to the appropriate level of management.
Management did not identify and we did not notify them of any uncorrected financial statement
misstatements.
Corrected misstatements
Management did not identify and we did not notify them of any financial statement misstatements
detected as a result of audit procedures.
Disagreements with management
For purposes of this communication, a disagreement with management is a disagreement on a financial
accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be
significant to the financial statements or the auditors’ report. No such disagreements arose during our
audit.
Circumstances that affect the form and content of the auditors’ report
As previously communicated to you, the report was modified to include a change in accounting principle
related to the City’s adoption of GASB 96, Subscription-based Information Technology Arrangements.
Management representations
We have requested certain representations from management that are included in the management
representation letter dated February 29, 2024.
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 entity’s financial statements or a determination of the type of auditors’
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.
B-2
City Council Members
City of Rancho Palos Verdes
Page 3
Significant issues discussed with management prior to engagement
We generally discuss a variety of matters, including the application of accounting principles and auditing
standards, with management each year prior to engagement as the entity’s auditors. However, these
discussions occurred in the normal course of our professional relationship and our responses were not a
condition to our engagement.
Required supplementary information
With respect to the required supplementary information (RSI) accompanying the financial statements, we
made certain inquiries of management about the methods of preparing the RSI, including whether the
RSI has been measured and presented in accordance with prescribed guidelines, whether the methods
of measurement and preparation have been changed from the prior period and the reasons for any such
changes, and whether there were any significant assumptions or interpretations underlying the
measurement or presentation of the RSI. We compared the RSI for consistency with management’s
responses to the foregoing inquiries, the basic financial statements, and other knowledge obtained during
the audit of the basic financial statements. Because these limited procedures do not provide sufficient
evidence, we did not express an opinion or provide any assurance on the RSI.
Supplementary information in relation to the financial statements as a whole
With respect to the combining and individual nonmajor fund financial statements and schedules
collectively, the supplementary information) accompanying the financial statements, on which we were
engaged to report in relation to the financial statements as a whole, 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 or the reasons for such
changes, 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 have
issued our report thereon dated February 29, 2024.
Other information included in annual reports
Other information (financial or nonfinancial information other than the financial statements and our
auditors’ report thereon) is being included in your annual report and is comprised of the introductory and
statistical sections. Our responsibility for other information included in your annual report does not extend
beyond the financial information identified in our opinion on the financial statements. We have no
responsibility for determining whether such other information is properly stated and do not have an
obligation to perform any procedures to corroborate other information contained in your annual report.
We are required by professional standards to read the other information included in your annual report
and consider whether a material inconsistency exists between the other information and the financial
statements because the credibility of the financial statements and our auditors’ report thereon may be
undermined by material inconsistencies between the audited financial statements and other information.
If, based on the work performed, we conclude that an uncorrected material misstatement of the other
information exists, we are required to describe it in our report. Our auditors’ report on the financial
statements includes a separate section, “Other Information,” which states we do not express an opinion
or any form of assurance on the other information included in the annual report. We did not identify any
material inconsistencies between the other information and the audited financial statements.
B-3
City Council Members
City of Rancho Palos Verdes
Page 4
This communication is intended solely for the information and use of the City Council and management
of the City of Rancho Palos Verdes and is not intended to be, and should not be, used by anyone other
than these specified parties.
CliftonLarsonAllen LLP
Irvine, California
February 29, 2024
B-4
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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
City Council Members
City of Rancho Palos Verdes
Rancho Palos Verdes, California
We have audited, in accordance with the 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, the financial statements of the governmental
activities, each major fund, and the aggregate remaining fund information of the City of Rancho Palos
Verdes, as of and for the year ended June 30, 2023, and the related notes to the financial statements,
which collectively comprise the City of Rancho Palos Verdes’ basic financial statements, and have
issued our report thereon dated February 29, 2024.
Report on Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City of Rancho
Palos Verdes’ internal control over financial reporting (internal control) as a basis for designing audit
procedures that are appropriate in the circumstances 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 of
Rancho Palos Verdes’ internal control. Accordingly, we do not express an opinion on the effectiveness
of the City of Rancho Palos Verdes’ internal control.
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. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control
that is less severe than a material weakness, yet important enough to merit attention by those charged
with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. However, material
weaknesses or significant deficiencies may exist that were not identified.
C-1
City Council Members
City of Rancho Palos Verdes
Page 2
Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City of Rancho Palos Verdes’ financial
statements are free from 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 financial statements. 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 or other matters that are
required to be reported under Government Auditing Standards.
Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and
compliance and the results of that testing, and not to provide an opinion on the effectiveness of the
entity’s internal control or on compliance. This report is an integral part of an audit performed in
accordance with Government Auditing Standards in considering the entity’s internal control and
compliance. Accordingly, this communication is not suitable for any other purpose.
CliftonLarsonAllen LLP
Irvine, California
February 29, 2024
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