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Home My WebLink AboutCC AG PKT 2013-02-11 #C SEAL - AGENDA STAFF REPORT DATE: February 11, 2013 TO: Honorable Mayor and City Council THRU: Jill R. Ingram, City Manager FROM: Victoria L. Beatley, Director of Finance/City Treasurer SUBJECT: CITY OF SEAL BEACH ANNUAL REPORTS FOR FISCAL YEAR ENDED JUNE 30, 2012 SUMMARY OF REQUEST: Staff recommends that the City Council receive and file the following annual report for fiscal year ended June 30, 2012: A. Audit Communication Letter; B. Report on Internal Control; and C. City of Seal Beach Comprehensive Annual Financial Report (CAFR). BACKGROUND AND ANALYSIS: The audit firm of Lance, Soil & Lunghard LLP, has completed the annual audit of the City of Seal Beach (City) for the fiscal year ended June 30, 2012. The audit was conducted in accordance with generally accepted auditing standards and included examining, on a test basis, evidence supporting the amounts and disclosures to obtain reasonable assurance that the financial statements are free of material misstatements. In the opinion of the auditors, the financial statements fairly present, in all material respects, the financial position of the City of Seal Beach at June 30, 2012. The 2012 CAFR (Attachment C) is included for your information and use. The CAFR was submitted to the Government Finance Officers Association. The purpose of the Audit Communication Letter (Attachment A) is to provide a mechanism for communication with the governing body highlighting significant issues that may arise during the audit process. The most significant issue identified during the 2012 audit was in relation to the dissolution of Redevelopment Agencies. As indicated, the City's financial statements were clearly presented. The purpose of the Report on Internal Control (Attachment B) is to help the auditor in designing audit procedures for the purpose of expressing an opinion on Agenda Item C the financial statements. During the course of the 2012 audit a weakness was identified related to how staff handles the posting of deferred revenue. Staff will implement the recommendation as noted in the Report. The Council Audit Committee, comprised of Mayor Miller and Mayor Pro Tern Deaton, reviewed and discussed these items at a meeting on February 4, 2013. ENVIRONMENTAL IMPACT: This action is exempt from the California Environmental Quality Act, because it is not defined as a "project" under CEQA. LEGAL ANALYSIS: Legal Counsel has reviewed and approved as to form. FINANCIAL IMPACT: There is no Financial Impact. RECOMMENDATION: That the City Council, receive and file the following for fiscal year ended June 30, 2012: the Audit Communication Letter, the Report on Internal Control, and the CAFR. SUBMITTED NOTED AND APPROVED: ................. Victoria L. Beatley J41 kRIngram,' C eager Director of Finance/City Treasurer Attachments: A. Audit Communication Letter B. Report on Internal Controls C. City of Seal Beach Comprehensive Annual Financial Report (CAFR) Page 2 ATTAC H M E N T "A„ Audit Communication Letter ��0 LSL �� CERTIFIED PUBLIC ACCOUNTANTS °David s Hale,CPA,up ~Donald o.Slater,CPA °Richard x.Kikuchi,CPA °Susan c Matz,CPA Shelly K.Jacmvxcm ~Bryan o,Gruber,CPA ~Deborah^��CPA Brandon Wmxroxs,CPA,Rem6d December 10. 2O12 To the Honorable Mayor and Members of the City Council City ofSeal Beach, California VVe 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 Seal Beach (the City)for the year ended June 30. 2012. and have issued our report thereon dated December 18, 2012. Professional standards require that vve provide you with the following information about our responsibilities under generally accepted auditing standards and Government Auditing 5tundur6u, 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 doted April 5, 2012. 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 the notes to the financial statements. No new accounting policies were adopted and the application cf existing policies was not changed during the year ended June 30, 2012. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. During the year ended June 30. 2012. a significant and unusual transaction was made regarding the dissolution of the former Redevelopment Agency, which transferred all related Assets and Liabilities, in accordance with AB1x2G and AB1484. to the Successor These transactions were recorded as a transfer of balance to the Successor Agency. In addition, Advances from the City to the former Redevelopment that were deemed allowable by the California Department of Finance have been removed and recorded as an extraordinary loss to the City. If the City has entered into litigation regarding these disallowed amounts it has been disclosed in the footnotes of the financial statements. If these disallowed amounts are overturned they will be recorded mt that time. Accounting estimates any 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. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were: The disclosures of the Successor Agency Trust for Assets of Former Redevelopment Agency in Note 1Gto the financial statements identify the outstanding balances as of June 3O. 2O12of the former Redevelopment Agency. These balances are dependent on the approval of the activity of transactions within the year ended June 30, 2012 by the California Department ofFinance. Lance,Sell&LunU8ard'LLP 203 North Brea Boulevard ~ Suite 203 ~ Brea,Cxncnc1 ` TEL 714.672.0022 ~ Fax 714,672.0331 www,in|npox.uom Orange County Temecula Valley Silicon Valley 01010 10 LSL �V� Honorable Mayor and Members of City Council City o[Seal Beach Page 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. Corrected and Uncorrected Misstatements Professional standards require uotn accumulate all known and likely misstatements identified during the eudit, other than those that are trivial, and communicate them to the appropriate level of management. These differences are described below. In adddion, none of the misstatements detected as e result of audit procedures by management were material, either individually or in the aggregate, tn the financial statements taken asawhole. Description Amount CJPIA Retrospective Deposit Liability-Liability Program $ 153,713 CJPIA Retrospective Deposit Liability-Workers'Compensation 171,291 Total 325004 Effect of Net Unadjusted Audit Difference prior year ' Net Audit Differences $ 325,004 Disagreements with Management For purposes of this |eber, a disagreement with management is e financial accounting, napoding, or auditing mathar, whether or not resolved to our madiuhaotion, that could be significant to the financial statements or the auditor's report. VVe are pleased horeport 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. 2D12. 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 governmental unit's financial statements or a determination my 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. Toour knowledge, there were no such consultations with other accountants. LSL �m Honorable Mayor and Members nf City Council City Vf Seal Beach Page Other Audit Findings orIssues We generally discuss a variety ofmatters, including the application of accounting principles and auditing etandmndo, with management each year prior to retention as the governmental unit's auditors. Howowar, these discussions occurred in the normal course of our professional relationship and our responses were not e condition ho our retention. Other Matters With respect tothe supplementary information accompanying the financial ata\emmnts, we made certain inquiries of management and evaluated the fonm, oontent, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America and Governmental Auditing 8tundondm` the method of preparing it has not changed from the prior period, and the information ioappropriate and complete in relation tn our audit nf the financial statements. We compared and reconciled the supplementary information tothe underlying accounting records used to prepare the financial statements or to the financial statements themselves. The following new Governmental Accounting Standards Board (GASB) pronouncements were effective for fiscal year 2O11-2O12audit: GASB Statement No. 57' OPf]B A&pauunennonta by Agent Employers and Agent Multiple- Employer Plans—The City was not affected by this pronouncement at this time. G/\SB Statement No. 64. Derivative Instruments: Application uf Hedge Accounting Termination Provisions-an amendment of GASB Sb*henne/t No 53 — The City was not affected by this pronouncement ed this time. The following Governmental Accounting Standards Board (GASB) pronouncements are effective in your next fiscal year 2012-2013 audit and should be reviewed for proper implementation by management: GASB Statement Nn. 60. Accounting and Financial Reporting for Service Concession Arrangements GASB Statement No. 81, The Financial Reporting Entity, Omnibus-an amendment ofGASB Statement Y4 and 34 GASB Statement No.62, Codification of Accounting and Financial Reporting Guidance Contained /n Pre-November 30' Y08AFAS8 and AkCPAPronouncements. GA8B Statement No. 63. Financial Reporting of Deferred Outflows of Resources, Deferred Inflows ofResources, and Net Position This information is intended solely for the use of the members of the City Council or individual(s) charged with governance and management of the City, and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours, 04 V�*_4;ft4a, vw-,�4 Brea, California ATTACHMENT "B" Report on Internal Controls hl�P,!- PIP LSL Csmmao PUBLIC ACCOUNTANTS ~David E.Hale,CPA,mp ~Donald a Slater,CPA °Richard u Kikuchi,CPA °Susan p Matz,CPA "Shelly x.Jacm,y,CPA ~Bryan n.Gruber,CPA °Deborah A,Harper,CPA Brandon W.Burrows,CPA,Retired REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED {JNANAUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and Members nfthe City Council City ofSeal Beach, California VVe have audited the financial statements ofthe governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Seal Beach, California, (the City) as of and for the year ended June 30. 2012, which collectively comprise the City's basic financial statements and have issued our report thereon dated December 18, 2012. 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 Stumdundo, issued by the Controller General cf the United States. Internal Control Over Financial Reporting Management of the City is responsible for establishing and maintaining effective 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 nfexpressing our opinions on the financial obabamentm, but not for the purpose of expressing an opinion on the effectiveness Vf the City's internal control over financial repoding. According|y, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in inbernel control over financial reporting that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant dehcienoiem, or nnsdeha| weaknesses have been identified. Hovwaver, we identified certain deficiencies in internal control over financial reporting that we consider to be material weaknesses and other deficiencies that wa consider tobe significant deficiencies. A deficiency in internal control exists when the design or operation of e control does not allow management oremployees, in the normal course of performing their assigned funobonm, to prevent or detect and correct misstatements on o timely basis. A material weakness is a deficienoy, or combination of deficiencies, in internal control such that there is reasonable possibility that a material misstatement of the City's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the following deficiencies tobe material weaknesses: Adiusting Journal Entries As e result ofour audit prooedunes, we noted material audit adjustments required to properly record deferred revenue that was mistakenly recorded on revenue. We recommend the Qty develop procedunea, specifically at period u|Pying, to ensure all closing journal entries are correctly recorded and reported. Lance,Sol[&mnVherd.|Lp uux North Brea Boulevard ^ Suite co3 ~ Brea,Cxnzoo1 - TEL 714.672.0022 ~ Fax 714.672.0331 www.|o|:pm.onm 0,unum County Temecula Valley Silicon Valley LSLIt ... CFN71FIE0 VU®lIG__. 'ACCOUNTANTS To the Honorable Mayor and Members of the City Council City of Seal Beach, California Compliance and Other Matters As part of obtaining reasonable assurance about whether the City'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 or other matters that are required to be reported under Gouernment Auditing Standards. This report is intended solely for the information and use of management, the City Council, federal awarding agencies and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. 0;;�, P__ 4 �4 Brea, California December 18, 2012 ATTACHMENT iic)) City of Seal Beach Comprehensive Annual Financial Report {CAFR) City Council Members received copies under separate cover Copies are available for public review at: City Clerk's Office Mary Wilson Library City Website http://sealbeachca.suiteonemedia.com/web/home.aspx