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Home My WebLink About08 COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) 6/30/14AGENDA REPORT Reviewed m 8 City Manager Finance Director MEETING DATE: JANUARY 20, 2015 TO: JEFFREY C. PARKER, CITY MANAGER FROM: PAMELA ARENDS -KING, FINANCE DIRECTOR /CITY TREASURER SUBJECT: COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30TH 2014 SUMMARY: The City engages an independent certified public accounting firm to complete an annual audit of the City's financial records. There are a number of reports such as the Comprehensive Annual Financial Report (CAFR), produced as a result of the annual audit and there are actions that are required by the City's governing board (City Council) to meet the requirements of various auditing standards, such as meeting with the auditing firm that conducted the audit to discuss the audit and internal control issues. RECOMMENDATION: 1. Receive and file the CAFR for the year ended June 30, 2014. 2. Discuss the audit and internal controls with the independent certified public accounting firm, White Nelson Diehl Evans LLP, who conducted the audit. FISCAL IMPACT: The independent certified public accounting firm that the City contracted with to complete the annual audit is White Nelson Diehl Evans LLP. Total cost of the annual audit was $49,811. Of this amount, $18,000 was charged to the Water Enterprise fund; and $31,811 was charged to the General Fund. BACKGROUND: The reports that are produced for the fiscal year ending June 30, 2014 are the CAFR; the City State Controllers report; the Single Audit; and the report of the auditors' consideration of the City's internal control over financial reporting and on their tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The CAFR consists of a transmittal letter, independent auditor's report, management's discussion and analysis (MD & A); basic financial statements; notes to the financial statements; supplementary information and a statistical section. The MD & A presents an overview of the basic financial statements and what each section consists of and discusses financial highlights for the year ended June 30, 2014. COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2014 January 20, 2015 Page 2 of 3 General Fund financial highlights for the year ended June 30, 2014 are as follows: • The City's General Fund total expenditures were $99.5 million, $44.7 million more than prior year's expenditures. Capital Outlay increased $48.6 million primarily due to construction in the former Marine Corps Air Station known as the Legacy such as the Tustin Ranch Road extension, Valencia Avenue extension from Kensington Park Drive to Tustin Ranch Road, the Park Avenue extension from Legacy Road to the Jamboree Road ramp, and fire station #37; and the recognition of the amount due to Vestar /Kimco for the completion of backbone infrastructure totaling approximately $50 million of which the City was responsible for $18.2 million. The projects which the City was responsible for were completed the later part of fiscal year ending June 30, 2014 and subsequently the City sold land held for resale in the Legacy to Standard Pacific for the development of 375 single family homes for $56 million in August 2014. With the proceeds of that sale, Vestar /Kimco was paid on September 4, 2014. • General Fund revenues were $53.4 million, $3.2 million less than prior fiscal year. The primary reason for the decrease in revenues is due to the decrease in the amount the Successor Agency for the Tustin Community Redevelopment Agency reimbursed the General Fund ($4.1 million) for an outstanding obligation for third party costs incurred for the extension of Newport Boulevard. The State Department of Finance (DOF) made the determination that the obligation to the City for the third party costs which totaled $38 million was no longer a valid obligation. Sales tax revenues were $22.3 million reflecting a $0.7 million increase from prior year due to the continuing demand for new automobiles. • Sale of property decreased $43.3 million from prior fiscal year due to the gain on sale of land held for resale in the Legacy to the Irvine company for construction of apartments and land held for resale along the 55 freeway and Edinger Avenue for the construction of two hotels and retail establishments. • The $1.4 million extraordinary item, Forgiveness of Interest on Advances is due to a settlement between the City and the DOF regarding a promissory note of $18.8 million the City entered into with the former Redevelopment Agency in December 2008 maturing December 2013. The promissory note had an interest rate of 4.25% per annum compounded semiannually. DOF agreed to lower the interest rate to the Local Agency Investment fund interest rate effective at the time the promissory note was issued which was 2.54% and agreed to a flat interest rate. The $1.4 million Forgiveness of Interest on Advances is the difference of the interest accrued and the interest amount DOF agreed would be due. The settlement with the DOF resulted in the decrease of $0.9 million of interest and fiscal charges from prior year. • Total expenditures of $99.5 million exceeded total revenues, transfers and extraordinary item of $55.7 million, by $43.8 million. Therefore, the General Fund's fund balance of $193 million as of June 30, 2013 decreased to $149.2 million as of June 30, 2014. Of the $149.2 million, $129 million are nonspendable funds COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30. 2014 January 20, 2015 Page 3 of 3 primarily due to a total of $128.8 million in land held for resale; $1.4 million are restricted funds and $18.8 million are unassigned and /or spendable funds not contained in other classifications. Other Financial Highlights for the year ended June 30, 2014 are as follows: • The City's assets, which encompass all governmental and business type activities (i.e. General Fund, Special Revenue Funds, Capital Projects Funds and the Water Enterprise Fund) and deferred out flows of resources as of June 30, 2014, exceeded its liabilities by $672 million (net position). Net position consists of $485.4 million net investment in capital assets, $36.7 million in restricted net position and $149.9 million in unrestricted net position. • The City's total net position decreased by $23 million primarily due to the recognition of the amount due of $18.2 million to Vestar /Kimco for the completion of back bone infrastructure within the Legacy. • The net increase in the City's total long -term liabilities was $13.8 million. The $13.8 million net increase is primarily due to the issuance of water revenue bonds in October 2013 to rehabilitate two wells and complete other infrastructure projects. • Business -Type activities net position increased $3.1 million due to the implementation of increase in water rates over a five year period starting June 2010. The water rates are adequate to cover the annual operating costs and build reserves. A more thorough discussion of the financial activities for the year ended June 30, 2014 is presented in the MD & A. The City did not have any audit findings and there was one material misstatement that staff corrected relating to the recognition of the $18.2 million due to Vestar /Kimco for completion of backbone infrastructure in the Legacy. The City's obligation to Vestar /Kimco was due and payable upon the sale of land within the Legacy. While the related land sales were not completed until after June 30, 2014, since the amount was paid to Vestar /Kimco prior to issuance of the City's Financial Statements, the $18.2 million payable was accrued as of June 30, 2014. Pamela Arends -King Finance Director /City Treasurer Attachments: Comprehensive Annual Financial Report for the year ended June 30, 2014 Management Letter Governmental Auditing Standards Letter Appropriations Limit Worksheet