HomeMy WebLinkAboutCC AG PKT 2015-02-09 #G AGENDA STAFF REPORT
DATE: February 9, 2015
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, 2014
SUMMARY OF REQUEST:
That the City Council receive and file the following annual report for fiscal year
ended June 30, 2014:
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, Soll & Lunghard LLP, has completed the annual audit of
the City of Seal Beach (City) for the fiscal year ended June 30, 2014. 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,
2014. The 2014 CAFR (Attachment C) is included for your information and use.
The CAFR was submitted to the Government Finance Officers Association to,
once again, be considered for the Certificate of Achievement for Excellence in
Financial Reporting.
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. As indicated, the City's financial
statements were clearly presented.
Agenda Item G
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
the financial statements.
The Council Audit Committee reviewed and discussed these items at a meeting
on January 21, 2015.
ENVIRONMENTAL IMPACT:
This action is exempt from the California Environmental Quality Act, because it is
not defined as a "project" under CEQA.
LEGAL ANALYSIS:
The City Attorney has reviewed this staff report and approved it as to form.
FINANCIAL IMPACT:
There is no financial impact in receiving this information.
RECOMMENDATION:
That the City Council receive and file the following for fiscal year ended June 30,
2014: the Audit Communication Letter, the Report on Internal Control, and the
CAFR.
.BY NOTED AND APPROVED:
SUBMI7im
Victoria L. Beatley II Ingram, City Ma a er
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
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•Richard K.Kikuchi,CPA •Michael D.Mangold,CPA
•Susan F.Matz,CPA •David S.Myers,CPA
CERTIFIED PUBLIC ACCOUNTANTS •Bryan S.Gruber,CPA
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December 15, 2014
To the Honorable Mayor and Members of the City Council
City of Seal Beach, 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 Seal Beach, 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 June 3, 2014. Professional standards
also require that we communicate to you the following information related to our audit.
Significant Audit Findings
Qualitative Aspects of Accounting Practice
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 of existing policies was not changed during the year
ended June 30, 2014. We noted no transactions entered into by the City 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 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 us to accumulate all known and likely misstatements identified during the
audit, other than those that are trivial, and communicate them to the appropriate level of management.
Management has corrected all such misstatements. In addition, we detected misstatements as a result of
audit procedures which were material, and were subsequently corrected by management. The details of
these misstatements have been communicated to you in a separate letter.
Lance,Soil&Lunghard, LLP 203 North Brea Boulevard • Suite 203 • Brea, CA 92821 • TEL 714.672.0022 • Fax 714.672.0331 www.lslcpas.com
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To the Honorable Mayor and Members of the City Council
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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 15, 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 governmental unit'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 of Seal Beach'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, and the budgetary
comparison information as listed in the table of contents, which are 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 nonmajor fund financial 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.
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To the Honorable Mayor and Members of the City Council
City of Seal Beach, California
The following new Governmental Accounting Standards Board (GASB) pronouncements were effective
for fiscal year 2013-2014 audit:
GASB Statement No. 65, Items Previously Reported as Assets and Liabilities - The City early
implemented this pronouncement in fiscal year 2012-13.
GASB Statement No. 66, Technical Corrections — The City properly implemented this
pronouncement.
GASB Statement No. 67, Financial Reporting for Pension Plans — An Amendment of GASB of
GASB Statement No. 25-The City was not affected by this pronouncement at this time.
GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial
Guarantees-The City was not affected by this pronouncement at this time.
The following Governmental Accounting Standards Board (GASB) pronouncements are effective in your
next fiscal year 2014-2015 audit and should be reviewed for proper implementation by management:
GASB Statement No. 68, Accounting and Financial Reporting for Pensions—An Amendment of
GASB Statement no. 27.
GASB Statement No. 69, Government Combinations and Disposals of Government Operations.
GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to Measurement
Date.
Restriction on Use
This information is intended solely for the use of the City Council and management of City of Seal Beach
and is not intended to be, and should not be, used by anyone other than these specified parties.
Very truly yours,
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Brea, California
000 •David E.Hale,CPA,CFP •Deborah A.Harper,CPA
LSE 0400 •Donald G.Slater,CPA •Gary A.Cates,CPA
00 •Richard K.Kikuchi,CPA •Michael D.Mangold,CPA
•Susan F.Matz,CPA •David S.Myers,CPA
CERTIFIED PUBLIC ACCOUNTANTS •Bryan S.Gruber,CPA
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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
To the Honorable Mayor and Members of the City Council
City of Seal Beach, 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, 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, 2014, and the related
notes to the financial statements, which collectively comprise the City's basic financial statements, and
have issued our report thereon dated December 15, 2014.
Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City's internal control
over financial reporting (internal control) to determine the 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's internal control. Accordingly, we do
not express an opinion on the effectiveness of the City's 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 and therefore, material weaknesses or significant deficiencies may
exist that were not identified. 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 may exist
that have not been identified. We did identify the following deficiencies in internal control that we consider
to be significant deficiencies:
A) Deficiency: During our year end field work we noted that the City did not properly classify grant
receivables. The City classified all grant receivables as revenues when certain grants should
have been classified as unearned or unavailable revenues totaling $40,697.
City's response to the finding: The City of Seal Beach agrees with the finding. Corrective
action has been taken. Journal entry was done and emailed.
Lance,Soil&Lunghard,LLP 203 North Brea Boulevard • Suite 203 ° Brea, CA 92821 • TEL 714.672.0022 • Fax 714.672.0331 www.lslcpas.com
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To the Honorable Mayor and Members of the City Council
City of Seal Beach, California
B) Deficiency: During our year end field work we noted that the City accrued a $52,702 expenditure
in the fiscal year 2013-14 when the expenditure related to Fiscal year 2014-2015.
City's response to the finding: The City of Seal Beach agrees with the finding. Corrective
action has been taken. Journal entry was done and emailed.
C) Deficiency: During our year end field work we noted that the City did not record the $536,715
receivable from CJPIA.
City's response to the finding: The City of Seal Beach agrees with the finding. Corrective
action has been taken. Journal entry was done and emailed.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City's 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 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 Government Auditing Standards.
City's Response to Findings
The City's response to the findings identified in our audit was not subjected to the auditing procedures
applied in the audit of the financial statements and, accordingly, we express no opinion on it.
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.
Brea, California 7
December 15, 2014
Attachment C
Comprehensive Annual Financial Report
Fiscal Year ending June 30, 2014
(Copies for review are available at City Hall in the
City Clerk and Finance Departments and via the
City website at www.sealbeachca.gov)