HomeMy WebLinkAbout08-ATTACHMENT 2 (MANAGEMENT LETTER)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 activity, each
major fund, and aggregate remaining fund information of the City of Tustin, California (the City), as of
and for the year ended June 30, 2016. Professional standards require that we provide you with
information about our responsibilities under generally accepted auditing standards and Government
Auditing Standards as well as certain information related to the planned scope and timing of our audit.
We have communicated such information in our planning letter to you dated May 2, 2016. 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, in fiscal year 2015-2016, the City implemented Governmental
Accounting Standards Board (GASB) Statement No. 72, "Fair Value Measurement and Application".
GASB Statement No. 72 requires the City to use valuation techniques which are appropriate under the
circumstances and are either a market approach, a cost approach or income approach. GASB Statement
No. 72 establishes a hierarchy of inputs used to measure fair value consisting of three levels. Level 1
inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are inputs,
other than quoted prices included within Level 1, which are observable for the asset or liability, either
directly or indirectly. Level 3 inputs are unobservable inputs, and typically reflect management's
estimates of assumptions that market participants would use in pricing the asset or liability. GASB
Statement No. 72 also contains note disclosure requirements regarding the hierarchy of valuation
inputs and valuation techniques that were used for the fair value measurements. There was no material
impact on the City's financial statements as a result of the implementation of GASB Statement No. 72.
No other accounting policies were adopted and the application of other existing policies was not
changed during the year ended June 30, 2016. 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.
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Offices located in Orange and San Diego Counties
Significant Audit Findings (Continued)
Qualitative Aspects of Accounting Practices (Continued)
The most sensitive estimates affecting the City's financial statements are as follows:
a. Management's estimate of the fair 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 estimated value for the land held for resale related to Tustin Legacy was based on
fair value when donated by the United States Government.
e. The annual required contributions, pension expense, net pension liability and
corresponding deferred outflows of resources and deferred inflows of resources for the
City's public defined benefit plans with Ca1PERS are based on actuarial valuations
provided by CalPERS.
f. The annual required contribution and actuarial accrued liability for the City's Other
Post -Employment Benefit Plan are based on certain actuarial assumptions and methods
prepared by an outside consultant.
g. Management's estimate of the claims payable liabilities related to general liability and
worker's compensation claims are based on estimates by the claims administrators.
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 5 and 6 regarding land held for resale, Note 10 regarding the Ca1PERS defined benefit
plans, Note 11 regarding the City's other post -employment benefit plan, Note 13 regarding the claims
payable, and Note 19 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 land held for resale to transfer properties not intended for sale to
capital assets.
b. Adjustment to recognize deposits for TSIP Area A -B as revenue.
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 19, 2016.
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
We applied certain limited procedures to management's discussion and analysis, the safety plan
schedule of proportionate share of the net pension liability and schedule of contributions, the
miscellaneous plan schedule of changes in net pension liability and related ratios and schedule of
contributions, the other post -employment benefit plan schedule of funding progress, and the budgetary
comparison schedule for General Fund, which are required supplementary information (RSI) that
supplements the 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 non -major fund financial statements and
schedules (supplementary information), 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 basic financial
statements or to the basic 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 them.
Restriction on Use
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.
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Irvine, California
December 19, 2016