HomeMy WebLinkAbout13-ATTACHMENT BATTACHMENT B
MANAGEMENT LETTER
To the Honorable Mayor and
Members of the City Council
of the City of Tustin
Tustin, California
We have audited the financial statements of the governmental activities, business -type activities, each
major fund, and aggregate remaining fund information of the City of Tustin (the City) for the year
ended June 30, 2013. Professional standards require that we provide you with information about our
responsibilities under generally accepted auditing standards as well as certain information related to
the planned scope and timing of our audit. We have communicated such information in our
engagement letter on June 17, 2013 and in our letter to you dated June 19, 2013. 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. As discussed
in Note Id to the financial statements, the City incorporated deferred outflows of resources and
deferred inflows of resources into the definitions of the required components of the residual measure of
net position due to the adoption of Governmental Accounting Standards Board's Statement No. 63,
"Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net
Position ". The adoption of this standard also provides a new statement of net position format to report
all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position.
Also discussed in Note Id to the financial statements, the City has changed its method for accounting
and reporting certain items previously reported as assets or liabilities during fiscal year 2012 -2013 due
to the early adoption of Governmental Accounting Standards Board's Statement No. 65, "Items
Previously Reported as Assets and Liabilities". Due to the early implementation of this statement,
bond issue costs, which should be recognized as an expense in the period incurred, were eliminated.
Accounting changes adopted to conform to the provisions of this statement should be applied
retrospectively. The result of the implementation of this standard decreased the net position at
July 1, 2012 of the business -type activity and Successor Agency to the Tustin Community
Redevelopment Agency Private - Purpose Trust Fund by $434,527 and $1,255,379, respectively. No
other accounting procedures were adopted and the application of other accounting policies was not
changed during the year ended June 30, 2013. 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.
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2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893
Ojfices located in 0ran'oe and San Diego Coun ies
Significant Audit Findings (Continued)
Qualitative Aspects of Accounting Practices (Continued)
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 are as follows:
a. Management's estimate of the fair market value of investments is based on
market values provided by outside sources.
b. Management's estimate of the value of capital assets (infrastructure assets) is
based on industry standards.
c. The estimated useful lives of capital assets for depreciation purposes are based
on industry standards.
d. The funded status and funding progress of the public defined benefit plan with
CalPERS which are based on actuarial valuations.
e. The annual required contribution and actuarial accrued liability for the City's
Other Post - Employment Benefit Plan is based on certain actuarial assumptions
and methods prepared by an outside consultant.
f. The claims liability for worker's compensation and general liabilities are based
on estimates by the claims administrator.
We evaluated the key factors and assumptions used to develop these estimates in determining that they
were reasonable in relation to the financial statements taken as a whole.
Certain financial statement disclosures are particularly sensitive because of their significance to
financial statement users. The most sensitive disclosures affecting the financial statements were
reported in Note 9 regarding the defined benefit pension plans, , Note 10 regarding other post -
employment benefits, Note 11 regarding claims payable, and Note 16 regarding the recent changes in
legislation affecting California Redevelopment Agencies.
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.
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Significant Audit Findings (Continued)
Corrected and Uncorrected 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 following material misstatements, detected as a result of audit procedures, were
corrected by management:
a. Adjustment to cash with fiscal agent to remove cash paid to refunding bond
agent.
b. Adjustment to receivable from Successor Agency to apply payment received
during the year.
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 auditors' 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, 2013.
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.
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Other Matters
With respect to the supplementary information accompanying the financial statements, 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.
This information is intended solely for the use of the City Council and management of the City of
Tustin and is not intended to be, and should not be, used by anyone other than these specified parties.
Irvine, California
December 18, 2013