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HomeMy WebLinkAbout08 COMPREHENSIVE ANNUAL FIANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2016• Agenda Item 8 AGENDA REPORT Reviewed: City Manager Finance Director - MEETING DATE: JANUARY 17, 2017 TO: JEFFREY C. PARKER, CITY MANAGER FROM: JENNIFER LEISZ, FINANCE MANAGER SUBJECT: COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2016 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, 2016. 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 $45,400. Of this amount, $22,700 was charged to the Water Enterprise Fund; and $22,700 was charged to the General Fund. In addition, $4,450 was paid to CaIPERS and charged to the General Fund for required GASB 68 information related to pension liabilities and expenses. BACKGROUND: Each year state and local governments prepare a financial report on assets, liabilities, revenues and expenditures in a standardized format that must conform to the Governmental Accounting Standards Board (GASB) accounting and financial reporting standards. This financial report is called the CAFR. Most people have heard of the budget, which is the document that plans and authorizes the spending of money. The CAFR describes what actually was spent and the status of assets and liabilities at the end of the fiscal year. The CAFR is published annually as best practice for local governments and serves as evidence of transparency and full disclosure of the City's financial position to citizens and other stakeholders, including credit rating agencies, providing SEC required disclosure to investors, and other interested parties. Because the City receives federal funding exceeding $750,000, a rigorous financial and compliance audit (Single Audit) is required under OMB COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2016 Page 2 of 4 A-133. The reports that were produced for the fiscal year ending June 30, 2016 are the CAFR; the City State Controllers report; the Single Audit; and the report of the auditor's 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 is a thorough and detailed presentation of the City's financial condition. It reports on the City's activities and balances for each fiscal year in three major sections: 1. Introductory Section — includes elected and administrative officials, letter of transmittal, organizational chart and GFOA Certificate of Achievement for Excellence in Financial Reporting. 2. Financial Section — includes the independent auditor's report, management's discussion and analysis (MD & A), notes to the financial statements; required supplementary information, combining financial statements, and schedules. a. Government -wide financial statements — long-term view of City finances; includes all assets such as buildings, streets and long-term debt b. Governmental funds financial statements — more of a current activity type view; only cash and items expected to be liquidated and current liabilities to be paid 3. Statistical Section — includes additional financial, economic, and demographic information, For local govemments, the annual external financial audit provides assurance that the financial statements are not materially misstated. Whether you are an investor in bonds, a taxpayer or a Council member, you need assurance that the City's accounting reports are reliable. The audit firm is also required to provide an annual Management Letter, which highlights any weaknesses in the City's practices and procedures which might affect the financial statements, if weaknesses have come to the firm's attention in the course of the financial audit. The Management Letter also offers comments and recommendations intended to improve internal control or operating efficiency. FINANCIAL HIGHLIGHTS: General Fund financial highlights for the year ended June 30, 2016 (see page 11 of the Management's Discussion and Analysis section of the 2016 CAFR) are as follows: The City's General Fund total expenditures were $67.9 million, $1.7 million less than the prior year's expenditures. This was mostly caused by a $5.2 million decline in Public Safety, due to the payment in fiscal year 2015 of the Public Safety Side Fund pension liability of $4.3 million and a $0.5 million increase in claims paid. As a result, Public Safety is down significantly in fiscal year 2016. • General Fund revenues were $60.1 million, $60.2 million less than the prior fiscal year due to significant one-time revenues received in the prior fiscal year 2015. The primary reason for the decrease in revenues is due to the gain on sale of Land Held for Resale of $48.1 million in fiscal year 2015, resulting from the sale of land within the former Marine Corps Air Station known as the Legacy to Standard Pacific for the development of residential housing. In addition, $16.9 million was received from COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2016 Page 3 of 4 Standard Pacific for backbone infrastructure in fiscal year 2015. Contributing to the net decrease in General Fund balances is a $34 million Special Item, to transfer properties not intended for sale from Land Held for Resale to Capital Assets. This transaction is mostly for 310 acres of land at the Legacy development to be given to another governmental agency and to be used for parks and roads. These transactions resulted in a reduction in the fund balance for the governmental funds and an increase in land in the government -wide statement of net position. Total expenditures, transfers and special item of $96.6 million, exceeded total revenues of $60.1 million by $36.5 million. Therefore, the General Fund's fund balance of $223.4 million as of June 30, 2015 decreased to $186.9 million as of June 30, 2016. Of the $186.9 million, $88.6 million are nonspendable funds primarily due to a total of $88 million in Land Held for Resale; $18.6 million are legally restricted funds for backbone infrastructure at the Tustin Legacy development, and $79.7 million are unassigned and/or spendable funds not contained in other classifications. Budgeted general fund balances used in day-to-day operations which comprise a portion of the unassigned fund balance discussed above are as follows: • Of the audited $79.7 million unassigned fund balance, the general fund (fund 100) ending fund balance was $30.5 million, compared with the projected ending fund balance of $25.3 million as of the last budget update in June 2016. A large portion of the $5.2 million positive variance was due to special tax B revenue for public services totaling $3.5 million, which was budgeted at $2.4 million. Discussion of other smaller variances contributing to the overall change in fund balance will be available at the mid -year budget review planned for February. Other Financial Highlights for the year ended June 30, 2016 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, 2016, exceeded its liabilities by $723.4 million (net position). Net position gives a picture of the City's long-term financial situation. For example, net position includes receivables that may not be collected for years and liabilities for employee leave time which may not be used for years. Net position consists of $508.7 million net investment in capital assets, $95.2 million in restricted net position and $119.5 million in unrestricted net position. • The City's total net position increased by $17 million primarily due to the receipt of $26.4 million from the issuance of bonds for CFD 14-1 within the former Marine Corps Air Station known as the Legacy. This increase was partially offset by increased spending for construction costs for development at the Legacy. • The City's long-term debt decreased $2.7 million mostly due to the payment of $4.1 million reducing the liability due to the Successor Agency to the Tustin Redevelopment Agency. COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2016 Page 4 of 4 A more thorough discussion of the financial activities for the year ended June 30, 2016 is presented in the MD & A. The City did not have any audit findings and there were two material misstatements that staff corrected. One of the adjustments was the $34 million Special Item discussed previously to transfer properties not intended for sale from Land Held for Resale to Capital Assets. The other item was an adjustment for $1.8 million to recognize deposits for TSIP (Transportation System Improvement Program) Area A -B as revenue, for a mitigation agreement with Santa Ana regarding the impact of the Legacy Development. nnifer es Finance Manager Attachments: CAFR for the year ended June 30, 2016 Management Letter Governmental Auditing Standards Letter Appropriations Limit Worksheet