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Home My WebLink AboutAgenda Report - January 18, 1989 (50)CITY COUNCIL MEETING ,jANUARY 18, 1989 1987/88 ANNUAL AUDIT AND MANAGEMENT LETTER AS RECEIVED FROM ERNST AND WHINNEY ACCEPTED FOR FILING The City Council received for filing the 1987-88 Audit and Management Letter. CC -21(a) FINANCE DEPARTMENT MEMORANDUM To: Thanas A. Peterson, City Manager FROt, = Robert K Holm, Finance Director /Treasurer, DATE: January 10, 1989 SUBJEiCT: Ernst & Whinney Management Letter and "Investment Policy Report" MANAGEMM7.i' LETTER: Prior Year Cent --Operating Transfers Last year, Ernst & Whinney recccuiended we implement a computer program; to print twelve months' operatirr; transfer activity on a single report. This would speed up their audit work and onr staff work. My comment this year is the scare as the previous yew. That is, we have this programni.ng request listed, but it doesn't have as high a priority as other projects, such as, payroll, utility billing, canbining a-mual financial reports, etc. Self -Insurance Reserve Fsnst & Whinney is recariending a full-time "risx management" person to review the reserves set up 171 the Workers' Compensation and Liability Administrator. I believe &ds is a significant cost item, and, until we can justify adding this position to the City, 1 would reccnmend we continue to accept the reserves rs stated. Payroll Costs Ernst & Whinney has recamnended we review the actual payroll costs to budget amounts on a more frequent basis. We concur and plan to review these costs on a monthly basis and recc mend adjustments to appropriations when needed. Personnel Files Ernst & Whinney recarmended timely recording of pay rates and ether personnel information on the personnel records. I don't believe this is a major problem, however, the addition of staff approved by Council should alleviate this problem. Employee Time Cards Ernst & Whinney rectnmends more rigid enforcanent cf upprovals on time cards. We have requested all City supervisors to approve time cards, however, sane occasionally slip through without approval. We are adding a certification statement to each time card that will require each supervisor to certify the work has been performed. This statement will be printed on each new time card issued as soon as we can use up the old time cards. We hope this certification statement and closer supervision by our staff trill eliminate this problem. Memorandum - 2 - January 10, 1989 Carpensated Absences Enzst & Whinney is requestinq closer monitoring of the data and formula used to calculate these -liabilities. The Governmental Accounting Standards Board (GASB) requires this liability to be stated at the end of each fiscal year. What these figures represent is a theoretical accounting concept based upon the assumption the City would have to close its doors at June 30. This then would obligate the City to pay its employees for any unused vacation and sick leave. The sick leave calculation is based upon the existing formula that allows those employees eligible for retirement be granted paid health premiums for a percent of their mused sick leave based upon years of service with the City. In the past, Ernst & Whinney, perforrmed this calculation; however, this year, we calculated most of the figures ourselves, and sanE of the dsta came fran both their offices and ours. We shall try to fully automate this function next year, and, hopefully, eliminate this problem. Reporting Software Ernst & Whinney is recawending we prepare the "Canbined Annual Financial Reports" (CAM . For the past twelve years, the responsibility for the preparation of the CAFR has been the auditors' based upon the request for proposal and fee for services. I concur with their earment and feel it is appropriate we prepare the CAFR; the auditors would then audit the CAFR. This should save audit fees in ensuing years. We are looking into obtaining software for this, and we are contacting other California cities that may be able to assist us. This w i 11 be a major project for our Data Processing and Accounting staff. Improved Use of Idle Assets Ernst & Whinney recatanends we contact other cities who may be interested in using our heavy duty crane. At the time this purchase vms included in the 1587-88 Budget, one of the priman.), reasons was to have one readily accessible in the event it was need- 1. Other cities have the same problem we had, and that is when you need one you cannot find one, or, i f you can, the time it takes to transport it is considerable and costly. Capitalization Policy Ernst & Whinney recammends we review expenditures, for capitalization purposes, prior -to the close of the fiscal year or at least quarterly. he agree and plan to do so for the next fiscal year. "Revenue/Expenditure Reports" Ernst & Whinney recamiends the "Revenue/Expenditure Reports" (for capital construction projects) indicate budget appropriations for work that can be accnnplished in one fiscal year versus the cost of the entire capital project. VUR we prepare the CAFR on our own, we may be able to add an additional column indicating what would be a current fiscal year budget. This information may be significant for an auditor Lo use for comparison purposes. However, it may not mean that much to non -audit type persons. Memorandum - 3 - January 10, 1989 "INVES'Ir= POLICY REPOS "' : Findings 1. Frnst & Whinney states the Library reinvests stock dividends to purchase additional shares of stock which is considered speculative in nature. I have forwarded this item to the City Librarian for his conm-nt . 2. Ernst & Whinney states the "Investment Policy Report" requires all securities to be transferred to the City's designated bank, and that we are presently holding G�Z% securities in cur vault. While there is nothing unsafe or wrong with holding our awn securities, the "Investment Policy Report" does not provide for it. We are contacting several regional banks regarding safekeeping services. 3. Ernst & Whinney states we did not amortize the discount we received on the purchase of federal securities. This was an oversight, and we have taken care of this item with an adjusting journal entry. 4. Ernst & Whinney states we picked up the wrong June 30, 1988 figure on the market value of the federal securities purchased frau Midland Montague. In doing this, we understated the value of the securities. We adjusted our books to shcxa the increase of $526,131 in market value at June 30, 1988. Robert H. Holm Finance Director/Treasurer RIM: ss C IlY COU;N-C IL THOMAS A PETERSON CITY OF LODI LMCMarzg... iA^.tfl NA� PiN►,ERtON. [: \7aYOr ,,)`IN R 'Randvi SNIDER ALICE �4 RE?:tiCE?i ht.: vor Pro ler.!pore _ - CITY HALL. 221 tt'EST PIKE STREET irty Clerk DAVID M HINCHMAN CALL BOX 3006 BOB McNAT1 EVELYN PA OLSON LODI. CALIFORNIA 95241-1910 City Attornev FRED M REID (2091334-5b34 TILECOPIER -(20Q;,!33()79', January 24, 1989 Ernst and Whinney 555 Capital Mall, Suite 650 Sacramento, CA 95814 Gentlemen : This letter will confirm. the action taken by the Lodi City Council at its regular meeting of January 18, 1989 whereby the City Council, by motion action received for filing the 1987/88 Audit and Management letter as prepared by your firm. Should you have any questions regarding this matter, please do not hesitate to call this office. Very truly yours, Alice M. Reimche` City Clerk AMR: jj cc: Robert Hoim Finance Director Management Letter City of Lodi June 30, 1988 OU EM Exnst &Whinney 0 E&W Ernst &Whinney The City Council City of Lodi Lodi, California 555 Capitol Mall. Suite 650 Sacramento. California 95814 9161/447-3237 We have audited the financial statements of the City of Lodi for the year ended .Tune 30, 1988 and have issued our report thereon dated November 18, 1988. As part of our audit, we made a study and evaluation of :he system of internal accounting control only to the extent we considered necessary to determine the nature, timing, and extent of our auditing procedures. Our study and evaluation made for the limited purpose described above would not necessarily disclose all material weaknesses in the system. Accordingly, we do not express an opinion on the system of internal accounting control of the City of Lodi taken as a whole. However, our study and evaluation disclosed no condition that we believed to be a material weakness at June 30, 1988. The following suggestions are submitted to assist in improving procedures and controls. This report i!� intended solely for the use of management. This restriction is not intended to limit the distribution of this report, which, upon acceptance by the City of Lodi, is a matter of public record. November 18, 1988 W] ACCOUNTING SYSTEMS AND INTERNAL CONTROLS Prior Year Comment - Oioeratina Transfers Operating transfers during the ;-ear are dut rmined by manually searching through each fund's equity at -.:;ant in e ch month's general ledger. Year-to-date summary reports of fund balance activity would enhance the i process of identifying operating transfers for financial analysis and st4te reporting. S e 1 f- Insurance Reserve The year-end accrual of claims for the self-insurance reserve are computed by the carrier. These claims are currently reviewed only for reasonableness. A full-time "risk management" employee on staff to review the technical aspects of claims submitted would ensure that the review and monitoring of workers' Compensation claims is appropriate and cost effective. Payroll Coss A comparison of actual payroll costs to budgeted amounts should be performed consistently. We recommend that the Assistant Finance Director compsre these figures on a monthly basis and that unusual variances be investigated timely. This process should result in better control over payroll costs and more accurate information regarding budget variances. blY Personnel Files i Documentation of changes in pay rates and filing of other personnel information is an important aspect of payroll internal controls. We recommenj that the City rec)rd and file changes in a timely manner to realt.ze strengthened inter<<ai controls. 0 -1- r .Employee Time Cards A11 employee time cjrds should be approved throughout the pay period.' We suggest that the City more rigidly enforce existing policies which state that department supervisors approve time cards. We also recommend that the payroll clerk return unapproved time cards to the appropriate supervisors for approval. The enforcement of these policies should strengthen internal controls by gaining assurance that employees are not being paid for hours they have not worked. Compensated Absences Accurate data and timely computation of vacation and sick leave accruals are necessary for proper recording and monitoring of these liabilities. We recommend a formal process be documented to ensure that errors in future computations are minimized. This process should improve the accounting for the vacation and sick leave liability. ADMINISTRATIVE AND OPERATIONAL CONTROLS Reporting Software An automated system for compiling the financial records into the necessary financial statements for governmental external reporting purposes should be obtained. W recommend that the City locate the appropriate software and implement the applicable financial reporting procedures as this will result: in a more efficient year-end audit as well as provide the City with a better financial tool for internal reporting and review purposes throughout the year. -2- Ell Improved Use of Idle Assets Thi 6i,y recently purchased a twenty -ton crane which may be idle during the year. We recommend that the City contact other municipalities within 100 miles to inform them of the availability of the crane. Thus, when the crane is not being used, it could be rented out for a fee. This same process should be considered for any other potentially idle assets. talization Polic It is our understanding that the City reviews expenditures in applicable funds for capitalization several months after the end of the fiscal year in which the expenditure arose. We recommend that the City review expenditures for capitalization purposes at least quarterly and capitalize fixed asset expenditures at that time. This will result in the City's fixed asset records being more useful for internal and external reporting purposes. Revenue/Expenditure Reports The Appropriations (budget) column of the Revenue/Expenditure Reports is currently stated on a project basis only. We recommend the Report reflect the budget on a fiscal year basis so that the comparison of budget to actual becomes meaningful. This can be accomplished by either adding a column to the Report to denote actual project revenues/ expenditures on a fiscal year basis or keep manual accumulations of necessary information for accurate comparison purposes. The availability of easily accessible budget-vs.•actuai project information should facilitate better monitoring of variances from budget, -3- C] 'ILI Ernst &Whinney The City Council City of Lodi Lodi. California 5?', Capitol Mail. Suite 650 Sacramento. California 95814 916/447-3237 WE: have applied certain agreed-upon procedures enumerated below with respect to the Statement of Investment Policy adopted by Council Resolution 87-121. Our review was made solely to assist you in evaluating compliance with that policy. The procedures me performed are summarized as follows: a. W confirmed the City's investments as of June 30, 1988. b. We reviewed the monthly investment reports submitted to the City Council by the Treasurer. C. We reviewed the System of Internal Investment Controls. In connection with the procedures referred to above, except as set forth in the accompanying schedules, no matters came to our attention that caused us to believe that investment balances might require adjustmenz:. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report relates only to the Statement of Investment Policy and does not extend to any financial statements of the City of Lodi, taken as a whole. November 18, 1988 Incidents of Noncompliance with the Statement of Investment Policy City of Lodi Year Ended June 30, 1968 Findings 1. The Statement of Investment Policy states that the City may not speculate or purchase stocks. However, the City Library's investment portfolio contained common stock valued at $96,000 at June 30, 1988. The library obtained the stock through bequests, stock dividends and dividend reinvestment programs. This reinvestment is considered a purchase of stock. Furthermore, the continued holding of the stock { is speculative. 2 The Statement of Investment Policy states "All securities [willbe] transferred to the City's designated bank. Th,.! City is currently keeping the certificates of deposit and Government National Mortgage i Association (C?,I" certificates in the Cit- Hsll safe. 3 During OUT audit procedures vw noted that the City has not amortized the discount on the purchase of U.S. Treasury B i 11 s in accordance with generally accepted accounting principles. An adjustment to .14 increase the balance by $38,800 was required to properly reflect the ' current book value of the portfolio. 4 The June 30, 1988 Summary Report of Investments showed an incorrect present market value of $495,974 for the Midland/Montagu U.S. Treasury Bills. The amount should have been $526,131. 71 a Audited Financial Statements and Other Financial Information City Of Lodi June 3G, 1988 Ernst &Whinney Audited Financial Statements and Other Financial Information CITY OF LODI June 30, 1988 TABLE OF CONTENTS Audited Financial Statements Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . 1 Combined Balance Sheet - A11 Fund Types and Account Group. . . . . . . 3 Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - All Governmental Fund Types and Expendable Trust Funds . . . . . . . . . . . . . . . . . . . . . . . 5 Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - General and Special Revenue Funds . . . . . . . . . . . . . . . . . . . . . . . . E Combined Statement of Revenues, Expenses, and Changes in Retained Earnings/Fund Balances - All Proprietary Fund Types and Similar Trust Funds . . . . . . . . . . . . . . . . . 7 Combined Statement of Changes in Financial Position - All Proprietary Fund Types and Similar Trust Funds . . . . . . . . . . . 8 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . 9 Other. Financial Information Combining Balance Sheet - All General Funds . . . . . . . . . . . . . . 22 Combining Balance Sheet - All Enterprise Funds . . . . . . . . . . . . 23 Combining Statement of Revenues, Expenses, and Changes in Retained Earnings - All Enterprise Funds . . . . . . . . . . . . . 24 �1 E701 Ernst &Whinney REPORT OF INDEPENDENT AUDITORS The City Council City of Lodi Lodi. California 555 Capitol Mall, Suite 650 Sacramento. California 95814 916/447-3237 We have audited the accompanying general purppse financial statements of the City of Lodi, California, as of and for the year ended June 30, 1983, as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan 2nd perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion, Complete records are not maintained for general fixed assets and, therefore, the general purpose financial statements referred to above do not include a statement of general fixed assets, which should be included to conform with generally accepted accounting principles. The records of the enterprise funds were incomplete as to fixed assets and related depreciation. Because we were unable to satisfy ourselves as to the proper recording of the fixed assets and related depreciation by appropriate audit tests or by other means as a result of such incomplete records, Ae are unable to express an opinion on the accompanying financial statements of the enterprise funds. In our opinion, except that the omission of the statement of general fixed assets described above results in an incomplete presentation, the general purpose financial statements, other than the enterprise funds referred to above, present fairly, in all material respects, the financial position of the City of Loai, California, at June 30, 1988, and the results of its operations and the changes in financial position of its proprietary fund types an:! similar trust funds for the year then ended in conformity with generally accepted accounting principles. 1 The City Council City of Lodi Lodi, California Our audit was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The financial statements and schedules listed in the table of contents are presented for purposes of additional analysis and are not a required part of the general purpose financial statements of the City of Lodi, California. Such information has been subjected to the auditing procedures applied in our audit of the general purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole. November 18, 1988 2 I COMBINED BALANCE _.'.rFT - ALL FUND IYPES AND ACCOUNT CROUP C IN OF LODI .lune .30, 1988 Fiduciary Account Governmental Fund T y p e s Proprietary Fund Types Fund Type Group Generai Totals Special Debt Internal Trust and Long -Term (Memorandum —Gewesea— Revenue Service Enterprise Service JAkency _ Debt Only) ASSETS Cash and certificates of deposiL- Note C $3,366,517 $3,004,189 $140,116 $11,818,173 $ 910,475 $2,636,779 $21,876,250 Investments -Note C 2,041,267 1,821,571 84,958 7,165,877 552,062 1,598,796 13,264,531 Receivables (net of allowances for uncollectibles): Accounts 315,135 2,229 1,710,023 1,080 359,000 2,387,467 Special assessments 1,145.000 1,145,000 Interist 71,900 22,570 237,321 16,306 1,750 349.927 Due from (to) other funds or goverriDental agencies -Note D 427,600 (141,831) 285,769 Supplies inventory 73,940 1,319,186 1,393,126 Other assets 9,475 17,845 18,974 32,000 169 78,463 Fixed assets 31,818,318 31,810,318 Accumulated depreciation (12,307,991) (12,307,951) Amount available in Debt Service Fund $ 7.25,074 225,074 W Amount to be provided for retirement c: general lung -term debt -Note G 3,204,615 3,204,615 TOTAL ASSETS 56,305,914 5 871 573 9225 X074 41,779,881 11511 924 4 546 494 S�3 429,689 $63.720.549 .. .. .......................... i Fiduciary Account Governmental Fund Types ?xoprietary Fund Types Fund Type Croup - General Totals Special Debt Internal Trust and I-ong-Term (Memorandum General Revenue Service Enterprise Service Agency Debt- Only' _ LIABILITIES AND FUND EQUITY LIABILITIES Accounts payable and other liabilities $ 438.569 $ 117,014 $ 787.023 $ 23,638 $ 1,933 $ 1,368,177 Accrued salaries and wages 492,843 54,775 101,944 4,654 654,216 Payable from restricted assets - Note F 4,080,456 4,080,456 Due to other funds 68,500 359,100 427,600 Acc-ued compensated absences 540,465 299.192 $ 994,689 1,834,346 Deferred revenue 1,145,000 1,145,000 Accrued self-insurance claims 982,016 902,016 Special Assessment bonds payeblo. net of discount --dote G 983,252 983,252 Censral obligation bonds payable- -Note C 21435,000 2,435,000 TOTAL LIABILITIES 1,471,877 2,368,541 1,188,159 _ 1,005,654 8,446,143 3,429,689 13,910,063 FUND EQUITY Retained earnings 40,591,722 506,270 41,097,992 Fund balances: Reserved for encumbrances 307,611 277,902 137 585,650 Reserved for supplies inventory 203,301 203 ,.)01 Unrese•:vtd: Designated for debt service $225,074 225,074 Designated for subsequent years' expenditures 4,323,125 1,880,871 54,703 6,258,699 Undesignoted 1,344,259 95,511 1,439,770 TOTAL FUND EQUITY 4,834,037 3,503,032 225,074 40,591,722 506,270 150,351 49,810,486 COW41TMENTS AND CONTINGENCIES - Notes I, J and K TOTAL LIABILITIES AND FUND EQUITY6 3$ 05,914 $5,871,573 225;074 $41,779,881 1 SS 11,924 4.59b 494 $3,429,689 $b3,720,549 See notes to financial statements i COMBINED STATEMENT CF REVENUES, EXPENDITURES, AND CHP-NGES IN FUND BALANCES - ALL GOVER.YHEITAL FUND TYPES AND E UZ)AEtLE TRUST FUND 2,529,711 551,976 Public protection CITY OF L.ODI 673,160 Public works 2,056,385 Year Ended June 30, 1988 Sanitation 2,757,419 Lit •ary Fiduciary Parks and recreation Governmental Fund Types Fund Tyt e Capital outlay 825,487 2,410,002 Totals Special Debt Expendable (Memorandum Genual Revenue Service Trust Only) REVENUES TOTAL EXPENDITURES 15, 987, 606 4, 415, 102 456,057 Taxes $ 7,476,816 $1,602,337 $ 9,079,153 Licenses and permits 426,699 (456, 057) OTHER FINANCING SOURCES (USES) 426,699 Intergovernmental revenues 1,865,462 1,201,838 5,870,105 3,067,300 Charges for services 2,485,501 41,862 3.027.363 Fines, forfei,:s and penalties 268,225 48,068 316,297 Use of money and property 478,238 1,196,506 $ 10,697 1,685,441 Miscellaneous revenues !01,173 __ 39,407 440,580 TOTAL REVENUES 13,?G2,118 4,130,018 10,697 18, 042, 833 EXPENDITURES Current: General government 2,529,711 551,976 Public protection 6,123,230 673,160 Public works 2,056,385 125,425 Sanitation 2,757,419 Lit •ary 654,541 Parks and recreation 1,695,376 Capital outlay 825,487 2,410,002 Debt service: Principal retirement $355,000 Interest and fiscal charges 101.057 TOTAL EXPENDITURES 15, 987, 606 4, 415, 102 456,057 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (2. 085,488) (285, 086) (456, 057) OTHER FINANCING SOURCES (USES) Operating transfers in 5,870,105 459,850 Operating transfers out (2,239,659)80,000) TOTAL OTHER FINANCING SOURCES (USES) 3,630, 446 -_ (80, 000) 459, 850 EXCESS OF REVENUES AND OTHER SOURCES OVER (UNDER) EXPEND- ITURES AND OTHER USES 1,544,958 (365,086) 3,793 Fund balances - July 1, 1587 3,289,079 3,868,118 221,281 FUND BALANCES - JUNE 30, 1988 $ 4,834,01 $3,503,032 $225,074 See notes tr rinancial statements 5 3,081,687 6,796,390 2,181,814 2, 757,419 654,541 1,695,376 3,235,483 355,000 101,057 20,858,767 10.697 (2,815,934) 6,325,955 (2,319,659) 4,010,296 10,697 1,194,362 143,803 71522,281 $154,500 8,716,643 a COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND (UNDER) EXPENDITURES (5,046,765) CHANCES IN FUND BALANCES - BUDGET AND ACTUAT. , 2,961,277 (4,112,879) (285.086) OTHER FINANCING SOURCES (USES) GENER`.L AND SPECIAL REVENUE FUNDS Operating transfers in 2,199,810 5,870,105 3,670,295 Operating transfers out _ (405,275) (2,239,659) CITY OF LODI (100,000) (80,000) TOTAL OTHER FI`IANCING SOURCES (USES) Year Ended June 30, 1988 3,620,446 1,835-91 1 (100,000) (80,000) EXCESS OF REVENUES AND OTHER Totals SOURCES OVER (CINDER) r -r, F,,,,a Special Revenue Fund (Memorandum_ Only) EXPENDITURES AND OTHER USES (3,25",230) _ -- Variance (365,066) Fund balances -July 1, 1987 Variance 3,289,079 Variance 3,862,118 Favorable Favorable Favorable Budget _-Actual Sjlnfavorable) Budget Actual (Unfavorable) Budget Actual (Unfavcrable) REVENUES Taxes $ 7,522,145 $ 7,1,76,816 $ (45,329) $1,539,285 $1,602,337 $ 63,052 $ 9,061,430 $ 9,079,153 $ 17,723 Licenses and permits 364,270 426,699 62.429 364,270 426,699 62,429 Intergovernmental revenues 1,828,670 1,865,467. 36.792 1,385,690 1,201,638 (183,852) 3,214,360 3,067,300 (147,060) Ch..rges for services 2,535,325 2,985,501 450,176 38,000 41,862 3,062 2,573,325 3,027,363 454,038 Fines. forfeits and penalties 212,500 268,229 55,729 44,G00 48.068 4.068 256,500 316,297 59.797 Use of money end property 388,325 470,238 89.913 450,595 1,196,506 745,911 838,920 1,674,744 835,824 Miscellaneous ra w:ues -- 192,120 401 17} _ 209,053 9.000 39,407 30 40) 21.1?0 440_ 580 _ _239 460 Tt>TAI. REVENUES 13,043,355 13,902,118 858,763 3,4G6,5iU 4;130,018 6G3,448 16,509,925 18,032,136 1,522,211 EXPENDITIJRE.,� Current: General government 2,267,592 2,529,711 (262,119) 675,556 551,376 123,580 2,942,148 3,081,687 (138,533) Public protection 5,857,271 6,123,230 (265.959) 673,160 673,160 6,530,431 6,796,390 (265,959) Public works 2,150,242 2,056,389 93,853 537.915 125.425 412,440 2,588,157 2,181,814 506,343 Sanitation 2,451,864 2,757,419 (305.555) 2,451,864 2,757,417 (305,555) Library 700,880 654,541 46;339 700,830 654,541 46,339 t Parks and recreation 1,666,356 1,695,376 (29,020) 1,566,356 1,695,376 (29,020) Capital outlay 3,696,795 _ 825,481 2_,8.71314_ 4,951,938 2,410,002 2,551,936 8,688.,733 3.235,483 5,453,250 TOTAL EXPENDITURES _18,090,120 _15,98L626 2,102,514 7,579,449 4,415,104 3,164,345 25_,669;569 20,402,710 5,266,859 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (5,046,765) (2,085,4"8) 2,961,277 (4,112,879) (285.086) OTHER FINANCING SOURCES (USES) Operating transfers in 2,199,810 5,870,105 3,670,295 Operating transfers out _ (405,275) (2,239,659) (1,834,384) (100,000) (80,000) TOTAL OTHER FI`IANCING SOURCES (USES) 1,794,535 3,620,446 1,835-91 1 (100,000) (80,000) EXCESS OF REVENUES AND OTHER SOURCES OVER (CINDER) EXPENDITURES AND OTHER USES (3,25",230) 1,544,958 4,797,188 (4,212,879) (365,066) Fund balances -July 1, 1987 3,289,079 3,289,079 3,868,118 3,862,118 FUND BALANCES -JUNE 30, 1988 2 36,849 $ 4,834,037S 4,791,188(344,761)$3,503,032 See notes co financial statements 3,827,793 (9,159,644) (2,370,574) 6,789,070 2,199,810 5,870,105 3,670,295 20,000 (505,275) (2,319,659) _�l 814,384) 20,000 1,694,535 3, 550, 446 1,855,911 3,E47,793 (7,465,109) 1,179,872 8,644,981 7,157,197 7,157,197 23,847,793 L.9 (30712) � 8,337,069 9 8,641,1981 COMBINED STATMENT OF REVENUES, EXPENSES, AND CHANGES If RETAINED EARNINGS/FUND BALANCES - ALL PROPRIETARY FUND TYPES AND SIMILAR TRUST FUNDS CITY OF LODI Year Ended June 30, 1988 ReltainA�il rui%t�fiindl§gg ances 37,346,498 361,909 BALANCES (DT6jD-I/� X40,591 722 § 506,270 See notes to financial statements 7 (261,145) 37,427,262 $ (4,149) $41,093,843 Fiduciary Proprietary Fund Types Fund Type Non- Totals Internal Expendable (Memorandum Enterprise Service Trust Only) OPRATING REVENUES. arges icr services $27,907,863 $ 930,65.1 $28,838,514 TOTAL OPERATING REVENUES —27,907,863 28,838,514 OPERATING EXPENSES Personal services 2,326,241 242,609 $ 107,554 2,686,604 Supplies, materials. and services 3,804,986 266,543 348,967 4,440,476 Electric, sewer, and water 15,307,739 15,307,539 Depreciation 1,112,164 1,112,164 Benefit payments 668,985 668,985 Refunds 245,327 245,327 TOTAL OPERATING EXPENSES 22,806,457 _ 1,198,337 456.501 24,461,295 NET OPERATING INCOME (LOSS) 5,101,406 (267,686) (456,501) 4,377,219 NONOPEP.ATING REVENUES 275,234 275,234 Sewer bond taxes 1,447,859 $8,478 1,536,337 Interest revenue Rent 121,766 7,950 129,716 Ocher 3, 34 8614991 TOTAL OOPEPRATITNG INCOME (LOSS) TRANSFERS Net operating transfers in (out) (4,054,075) 323.562, 216,590 (3,513,916) NET INCOME X61 ifs3, 666,58-T ReltainA�il rui%t�fiindl§gg ances 37,346,498 361,909 BALANCES (DT6jD-I/� X40,591 722 § 506,270 See notes to financial statements 7 (261,145) 37,427,262 $ (4,149) $41,093,843 COMLBINED STATF_MENT OF CHnNGES TNN. FI;:ANCIAL POSITION - ALL PROPRIETARY TUND TYPES AND SIMILAR TRUST FUNDS CIT'Y OF LODI Year Ended June 30. 1988 See notes to financial statements 8 Fiduciary Proprietary Fund Types Fund Type Non- Totals Internal Expendable (Memorandum EnCerprise Service Trust Only) SOURCE OF WORKING CAPITAL Operations: Net income $3,245,224 $ 1•1'':,361 $ 276,996 $3,666,581 Depreciation not requiring working capital --1.-,112,164 1,112,164 TOTAL SOURCE OF w'ORKING CAPITAL 4,357,388 144,361 276,996 4,778,745 USE OF WORKING CAPITAL Acquisition of fixed assets 1,501,498 1,501,498 NET 111CREASE IN GORKI\S CAPITAL $2,855,890 $ 144,361 $ 276,996 $3,277,24-7 ELE',ENTS OF NET INCREASE (DECREASE) IN WORKING CAPITAL Cash and investments $ 568.222 $ 151,110 $(334,972) $ 384,360 Receivables 236,537 5,716 508,757 751,010 Due from other fur ' or governmental agencies (4,998) (4,998) Supplies inventory 75,452 75,402 Other assets 2,541 (1,415) (500) 626 Accounts payable and other liabilities 1,992,845 (11,275) 106,633 2,088,203 Accrued salaries and wages (21,783) (2,922) (24.705) Due to other funds 7,861 7,861 Accrued compensated absences (737) (737) hccrued self-insurance claims 275 29�) NET INCREASE IN WORKING CAPITAL $2,855,890 $ 144,361 $ 276,996 $3,277,247 See notes to financial statements 8 NOTES TO FINANCIAL STATEMENTS CITY OF LODI June 30. 1988 NOTE A --FINANCIAL REPORTING ENTITY For financial reporting purposes, in conformance with NCGA Statement 3, the City includes all funds, account groups, agencies, boards, commissions, and authorities that are controlled by or dependent on the City's executive or legislative branches (the Mayor or the Council, respectively). Control by or dependence on the City was determined on the basis of budget adoption, taxing euthority, outstanding debt secured by revenues or general obligations of the City, obligations of the City to finance any deficits that may occur, or receipt of significant subsidies from the City. Based on the foregoing criteria, all Funds and account groups of the City, except for the general fixed asset group of accounts for- which complete records are not maintained, are included in the City's financial statements. MOTE B --SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the City summarized below conform to generally accepted accounting policies for governmental entities, except that complete records are not maintained for fixed assets. Basis of Presentation: The financial transactions of the City are recorded in individual funds and an account group. The various funds and account group are reported by type in the financi�.l statements. Amounts in the "Totals (Memorandum Only)" columns in the financial statements represent a summation of tie combined financial statement line items of the fund types and account group and are presented only for analytical purposes. The summation includes fund types and the account group that use different bases of accounting, both restricted and unrestricted amounts, interfund transactions that have not been eliminated, and the caption "amount to be provided," which is not an asset in the usual sense. Consequently, amounts shown in the "Totals (Memorandum Only)" columns are not comparable to a consolidation and do not represent the total resources available or total revenues and expenditures/expenses of the City. The City uses the following fund categories, fund types, and account group: Genual Fund: To account for all financial resources except those required to be accounted for in another fund, 9 NOTES TO FINANCIAL STATEMENTS (Continued) CITY GF LODI June 30, 1988 NOTE B --SIGNIFICANT ACCOUNTING POLICIES (Continued) Special Revenue Funds: To account for the proceeds of specific revenue sources, other than expendable trusts, or capital projects, that are legally restricted to expenditures for specific purposes. Debt Service Funds: To account for the accumulation of resources for, and payment of, general long-term debt principal and interest. Enterprise Funds: To account for operations that are financed and cperated in a manner similar to private business enterprises - where the intent of the governing body is that the costs (expenses, including depreciation) of providing services to the general public on a continuing basis be finar ped or recovered primarily through user charges. Internal Service Funds: To account for the financing of services provided by one department to other departments of the governmental unit on a cost -reimbursement basis. Trust and Agency Funds: To account for assets held by a governmental unit in a trustee capacity or as an agent for individuals, private organizations, ocher governmental units, and/or other funds. These include expendable trust funds and nonexpendable trust funds. General Long -Term Debt Account Group: To account for unmatured general long-term liabilities of the City. For financial reporting purposes, the special assessment fund, which was shown separately in previous years, has been combined with the special revenue fund for the year ended June 30, 1988. The effect was to decrease the special revenue fund balance as of July 1, 1987 by $723,197. Special assessments are levied and collected by the County and are recognized as income when received. Special assessments receivable are recorded as deferred revenue since the amounts are not considered available under generally accepted accounting principles. Basis of Accounting: Governmental, expendable trust, and agency funds are accounted for on the modified accrual basis of accounting. Governmental and expendable trust fund revenues are recognized when received in cash except. those subject to accrual, which are recorded as receivables when measurable and available to pay current period liabilities. Expenditures are recognized on the accrual basis, except for principal and interest of general and special assessment lrng-term debt, which is recognized when due. 10 W NOTES TO FINANCIAL STATEMENTS (Continued) CITY OF LODI June 30, 1988 NOTE B --SIGNIFICANT ACCOUNTING POLICIES (Continued) Proprietary and nonexpendable trust funds are accounted for on the accrual basis of accounting. Their revenues are recognized in the period earned and expenses are recognized in the period incurred. Budgetary Accounting: An operating budget is adopted each fiscal year for the general and special revenue funds on the same modified accrual basis used to reflect actual revenues and expenditures. Budgetary control is exercised at the department level. The City Manager is authorized to transfer budget amounts between departments within any fund; however, any supplemental appropriations that amend the total expenditures of any fund require City Council approval. Reported budget amounts are as originally adopted or as amended by City Council resolution. Unencumbered appropriations lapse at year-end. Pooled Cash and Investments: Cash balances of most City funds are pooled and invested. Interest earned from investments purchased with pooled cash is allocated to each of the funds based on the fund's average cash balance. Investments are stated at cost. Inventories: Inventory -type items are considered expenditures at the time of issuance of supplies. Inventories of supplies are stated at the lower of cost (generally determined on a weighted average basis) or market . Fixed Assets: Complete fixed asset records for the enterprise funds are not maintained. As a result, records are also incomplete Cor depreciati^n. Compensated Absences: The City records liabilities, discounted to present value, for future compensated absences (sick leave and vacation pay) earned and vested for thu General Fund and Enterprise Funds. Vacation time vests without restriction to substantially all employees. Sick leave vests only to employees who are eligible for retirement from the City and is based on years of service. Amounts classified as current have been included in current year operations. Amounts determined to be noncurrent for the General Fund have been recorded as liabilities of the General Long -Term Debt Account Group. Encumbrances: Encumbrances are established in the general and special revenue funds to recognize future obligations of the City. They cease to be encumbrances when Laid or when the actual liability is recorded. 11 NOTES TO FINANCIAL STATEMENTS (Continued) CITY OF LODI June 30, 1988 NOTES 13 --SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Equity: Amounts reported as designated for subsequent year's expenditures in unreserved fund equity relate to unused appropriations for which there are no purchase orders or contracts, but are expected to be expended during the next fiscal year. - Property Taxes: The City receives property tax revenues based on an allocation factor calculated by the County of San Joaquin under the provisions of State of California Proposition 13. Property taxes are received from the County throughout the year and are rtcognized as income when received. There was no receivable at year-end. Collections in 1988 were $3,338,000. Sales and Use Taxes: The City receives an allocation of sales and use taxes from the State of California monthly and recognizes the revenues iahen received. The City receives 10/1of the 6% sales tax assessed within City limits. Grants and Other Governmental Revenues: On grants where expenditures of funds are the prime factor for determining earnings of grant funds, the receivable and revenue are recognized when the expenditures have been incurred. Amounts due from other governmental agencies and the related revenue thereon are recorded when earned. Interfund Transactions: During the course of normal operations the City has numerous transactions between funds, including expenditures and transfers of resources to provide services, consi.ruet assets, and service debt. The accompanying financial statements generally reflect such transactions as .operating transfers. Operating subsidies are also recorded as operating transfers. The classification of amounts recorded as subsidies, advances, o,-- equity contributions is determined by Cit), Council. Internal service funds are used to record charges for services to all City departments and funds as operating revenue. The funds so charged record these payments to the internal service funds as operating expenses. The General Fund provides administrative services to Enterprises Funds. Amounts charged to a fund for these services are based on the City's central service cost allocation plan and are treated as a reduction of expenditures in the General Fund and as operating expenses in the Enterprise Funds. 12 NOTES TO FiNelaNCIAL STATEMENTS (Continued) CITY OF LODI June 30, 1988 NOTE B --SIGNIFICANT ACCOUNTING POLICIES (Continued) Self -Insurance: The City provides workers' compensation benefits and public liability and damage benefits under self-insured plans. Estimated liabilities for benefit payments related to outstanding claims are recorded at year-end. NOTE C --CASH AND INVESTMENTS At year-end, the carrying amount of the City of Lodi cash and certificates of deposits was $21,876,250. Jf this amount, $10,216,000 was insured through the Federal Deposit Insurance Corporation or the Federal Savings & Loan Insurance Corporation, $4,080,000 was covered by collateral held in the pledging banks' trust departments and the remainder was uninsured and uncoIlateral ized, The City's investments are categorized to give an indication of the level of risk assumed by the entity at year-end. Category 1 includes investments that are insured or registered, or for which the securities are held by the City or its agent in the City's name. Category 2 includes uninsured and unregistered investments for which the securities are held by the dealer broker or dealer's trust department or agent in the City's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the broker or dea)er or by its trust department but not in the City's name. Government National Hortgage Association U.S. Treasury Notes Merrill Lynch Institutional Fund, Inc. U.S. Treasury Bills Local Agency Investment Fund (Not subject to categorization) Total investments Catectory Carrying Market 1 2 3 Amount Value $1,970,099 2,993,740 S 1,970,099 S 1,895,431 2,993,740 2,975,400 52,774,016 2,!74,016 2,774,016 526,676 526,676 526,131 55,490,515 0 $2,774,016 8,264,531 8,170,978 13 5,000,000 5,000,000 513,264,531 $13,170,978 NOTES TO FINANCIAL STATE.MEti'TS (Continued) CITY OF LODI June 30, 1988 NOTE D --GRANTS The total amount of grants made to the City was approximately $2,927,000, of which the City expended $2,142,000chroi,gh June 30, 1988. Unearned grant revenue at year-end amounted to $142,000. The amount of grants available for future use at June 30, 1988 was $785,000. NOTE E --DEFINED BENEFIT PENSION PLAN Plan Descriptioi, The City contributes to the California Public Employees' Retirement System (FERS), an agent multiple -employer public employee retirerncnt system, that acts as a common investment and administrative agent for participating public entities within the state of California. The system covers substantial!.y all employees, except elected officials and those compensated on an hourly basis who were hired after May 31, 1966. The City's. payroll for employees covered by the system for the year ended June 30, 1988 was $9,366,000. The City's total payroll for the same period was $10,827,000. Safety employees are required to contribute 9 percent of their annual salary to the system, and all other employees are required to contribute 7 percent. The City is required to contribute the remaining amounts necessary to fund the benefits for its membe-,s, using the actuarial basis recommended by the PERS actuaries and actuar,.a1 consultants and adopted by the. PERS Board. of Administration. Funding Status and Progress The amoun� shown. below as the "pe.i.sion benefit obligation'' is a standardized disclosure measure of the pcesent value of pension benefits, adjusted for the effects of projec.:ed salary increases and step -rate benefits, estimated to be payable in the future as a result of employee service to data. This measure i, intended to help users assess the funding status of the System on a going -concern basis, assess progress made in accumulating sufficient --ssets to pay benefits when due, and make comparisons among employers. The measure is the actuarial present value of credited projected benefits and is independent of the funding method used to determine contributions to the System. 14 NOTES TO FINANCIAL STATEMENTS (Continued) CITY OF LODI June 30, 1988 NOTE E --DEFINED SENT -FIT PENSION PLAN (Continued) The pension benefit obligation was computed as part of an actuarial valuation performed as of June 30, 1987. Significant actuarial assumptions used in the valuation include: (a) a rate of return on the investment of present and future assets of 8.5 percent per year compounded annually, (b) projected salary increases of 5 percent per year compounded annually, attributable to inflation, (c) additional projected salary increases of 2 percent per year, attributable to seniority/merit, and (d) no post retirement benefit increases. The total unfunded pension benefit obligation applicable to the employees 'was$5,458,537 at June 30, 1987 as follows: Pension Benefit Obligation: Retirees and beneficiaries currently receiving benefits and terminated employees not yet receiving benefits $18,356,355 Current employees: Accumulated employee contributions including allocated investment earnings 7,242,192 Employer -financed vested 8,233,537 Employer -financed non vested 410,572 Total pension benefit obligation 34,242,656 Net assets available for benefits at cost (market value of $36,037,717) 28, 784,119 UNFUNDED PENSION BENEFIT OBLIGATION $ 5,458,537 Contributions Required and Contributions Made PERS uses the Entry Age Normal Actuarial Cost Method which is a projected benefit cost method. That is, it takes into account those benefits that are expected to be earned in the future as well as those already accrued. According to this cost method, the normal cost for an employee is the level amount which would fund the projected benefit if it were paid annually from date of employment until retirement. PERS uses a modification of the Entry Age Cost Method in which the employer's total normal cost is expressed as a level percentage of payroll. PERS also 1.5 v NOTES TO FINANCIAL STATEi,ENTS (Continued) CITY OF LODI June 30, 1988 NOTE E --DEFINED BEXEFIT PENSION PIAN (Continued) uses the level percentage of payroll method to amortize any unfunded actuarial liabilities. The amortization period of the unfunded actuarial liability ends on June 30, 2000. The significant actuarial assumptions used to compute the actuarially determined contribution requirement are the same as chose used to compute the pension benefit obligation, as previously described. The contribution to the system for 1988 of $2,200,712 was made in accordance with actuarially determined requirements computed through an actuarial valuation performed as of June 30, 1987. The contribution consisted of: (a) $1,642,601 normal cost (17.5 percent of current covered payroll) and (b) $558,111 amortization of the unfunded actuarial accrued liability (appro:<imately 6.0 percent of current covered payroll); the City contributed $1,458,985 of this total (approximately 15.6 percent of current covered payroll) and the employees contributed $741,727 (approximately 7.9 percent of current covered payroll). Trend Information Trend information gives an indication of the progress made in accumulating sufficient assets to pay benefits when due. Systemwide ten-year trend information may be found in the California Public Employees' Retirement System Annual Reports. For the year ended June 30, 1988, available assets were sufficient: to fund 84 percent of the pension benefit obligation. Unfunded pension, benefit obligation represented 58 percent of the annual payroll for employees covered by the PERS for 1988. Showing unfunded pension benefit obligation as a percentage of annual covered payroll approximately adjusts for the effects of inflation for analysis purposes. In addition, for the year ended June 30, 1988, the City's contributions to the system, all made in accordance with actuarially determined requirements, were 16 percent of annual covered payroll. NOTE F --DEFERRED COMPENSATION PLAN The City offers its employees a deferred compensation plan adopted under Internal Revenue Code Section 457. The plan, availabl4 to all City employees, permits them to defer a portion of their salary until future years. Although the City has not received a ruling from the Internal Revenue Service regarding the eligibil+ty of the plan, the City is not 16 NOTES TO FINANCIAL STATMZNTS (Continued) CITY OF LGDI June 30, 1968 NOTE F—DEFERRED COMENSATUN FLA14 (Continued) aware of any events which may result in an adverse tax ruling. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. A 1 1 amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to thosa amounts, property, cr rights are (until paid or made available to the employee or other beneficiary) solely the property and rights of the City, subject only to the claims of the City's general creditors. Participants' rights under the plan are equal to the fair market value of the deferred account for each participant. It is the opinion of the City's legal counsel that the City has no liability for losses under the plan but does have the duty of due care that would be required of an ordinary prudent investor. The City believes that it is unlikely that it will be required to use the assets to satisfy the claims of general creditors in the future. The City's deferred compensation plan has as>ets and liabilities totaling $4,080,000 as of June 30, 1988 recorded in an expendable trust fund. NOTE G--LONG-TERN DEBT Bonds payable at June 30, 1988 were comprised of the following individ,.iai issues : General obligation bonds: $5,500,000 Series A serial bonds, issued in 1965, due in annual installments of $220,000 to $290,000 through October 1, 1995; interest: at 6% $740,000 Series B serial bonds, issued in 1969, due in annual installments of $40,000 to $55,000 through May 1, 1994; interest at 6% $960,000 Series C serial bonds, issued in 1.975, due November 1, 1988; interest at 6% 17 $2,055,000 275,000 — 105;000 $2,435,000 P NOTES TO FINANCIAL STATEMENTS (Continued) CITY OF LODI June 30, 1988 NOTE G --LONG-TERM DEBT (Continued) Special assessment b,:,nds: $1,588,000Turner Road/Cluff Avenue serial bonds, issued in 1981, due in annual installments of $135,000 through July 2, 1994; interest at 10%; net of discount of $150,860 resulting in an effective interest rate of 12.64% $ 659,140 $388,720United Downtown Assessment District Beautification Project, Series 1984-1, Serial Bonds, issued in 1984, due in annual installments ) of $20, 000 to $45, 00.0 through July 2, 1999; interest from 6.50% tc 9.90%; less discount of $10,888 324,112 , 983,252 The following is a summary of bond transactions of the City for the year ended June 30, 1908: IN M General Special Oblipation Assessment Total 3 Bonds payable at.,'uly 1, 1987 $2,790,000 $1,300,000 $4,090,000 Bonds retired 355,000 155,000 510,000 Bonds payable at June 30, 1988 $2,435,000 $1,145,000 43,580,006 Principal payments on debt service requirements are as follows: 1989 $ 525,000 ' 1990 430,000 1991 450,000 1992 465,000 1993-1999 1,710,000 $3,580,000 Series A bonds maturing by their terms on and after October 1, 1988 and all Series B bonds are subject to call and redemption at the option of the City. No bonds were called during the year. IN M NOTES TO FINANCIAL STATMENTS (Continued) CITY OF LODI June 30, 1988 NOTE G --LONG-TERM DEBT (Continued) The City is required to, and has set aside in operating reserve accounts of the special revenue fund, 7% and 5% of the principal of the Turner Road/Cluff Avenue and the United Downtown Assessment District Beautification Project special assessment bods, respectively, in case of any delinquent assessment levied for retirement of the bonds. '. NOTE H --SEGMENT INFORiATION FOR ENTERPRISE FUNDS The City maintains and water services. was as follows: Operating Revenues Depreciation Expense Operating Income Net Operating Transfers Out Tax Revenues Net Income Property, Plant, and Equipment Additions Net Working Capital Total Assets Total Equity three enterprise funds which provide electric, sewer, Segment information for the year ended June 30, 1988 Electric Sewer Utility Utility Fund Fund $23,768,381 $ 2,620,038 541,140 372,666 4,636,791 791 146, 399 3,631,285 2,145, 915 1,067,988 16, 445,156 26,366,155 25, 976, 422 15,195 275,234 1,034,047 113,524 3,532,820 10,470,662 10, 314, 946 Water Total Utility Enterprise Fund Fund $1,514,444 $27,907,863 198,358 1,112,164 318,216 5,101,406 407,595 4,054,075 275,224 65,262 3,245,224 319,986 1,501,493 1,103,419 21,061,395 4,341,064 41,779,681 4,300,354 40,591,722 Electricity service sales to a single customer were approximately 13% of total operating revenues of the electric utility fund in 1986. No other single customer accounted for more than 10% of total operating revenues in the electric utility fund or in any of tha other enterprise funds. NOTE I - - MEMBERSHIF IN THE NORTHERN CALIFORNIA POWER AGENCY The City, along with various ocher public agencies, is a member of the Northern California Power Agency (NCPA) which was originated for the purpose of exercising their common power to purchase, generate, sell, or interchange electric energy and capacity through the acquisition and use of electrical generation and transmission facilities. 19 NOTES TO FINAL\'CIAL STAMIENTS (Continued) CITY OF LODI June 30, 1988 NOTE I--MEMSERSHIF IN THE NORTHERN CALIFORNIA FOWER AGENCY (Continued) The City, under its contractual obligations, jointly funds the operations and construction and development programs of NCPA. The City has coruaitted, if necessary, to advance certain annual amounts to NCPA in the future for the continuance of construction and development programs. No funding of future advances is contemplated for 1989. NOTE J --.MEMBERSHIP IN THE CALIFORNIA JOINT POWERS ItiSURANCE AUTHORITY The City is a member of the California Joint Powers Insurance Authority (California JPIA). Various public agencies formed the California JPIA for the purpose of sharing the risk of catastrophic general liability, automobile liability, and public officials errors and omissions losses because adequate insurance is not available in the commercial insurance market. The ultimate cost of the program to the City will depend on the catastrophic losses of all the members, as well as the City's own loss Experience, and will be determined retrospectively five years after the end of the current program year. The City periodically pays deposits to the California JF.IA, These deposits are recorded as expenditures in the year paid as they are a reasonable estimate of the actual cost of the program. During the year ended June 30, 1988, a deposit of $218,500 was paid to the California JPIA. NOTE K--COMITMEPTTS AND CONTINGENCIES The City is involved in various litigation which arose during the normal course of operations. The ultimate amount of possible loss cannot be reasonably estimated, but management believes that any loss incurred as a result of current litigation sill not have a material effect on the City's financial statements. 20 %W NOTES TO FINANCIAL STATEMENTS (Continued) CITY OF LODI June 30, 1988 NOTE L --SUBSEQUENT EVENT Subsequent to June 30, 1988, the City issued certificates of participation for the 1988 wastewater t — atment plant expansion project in the amount of $9,415,000. These certificates were issued August 25, 1988 and were dated August 1, 1988. Installment payments are to be made f from the net revenues of the sewer system of the City. Annual maturities of $100,000 to $755,000 range from August 1, 1989 to August 1, 2018. Interest rates range from 5.25% to 7.80%. 21 OTHER FINANCIAL INFORMATION COHBININC BALANCE SHEET • GENERAL FUND CITY OF LODI June 30, 1988 ASSETS Cash and certificates of deposits Investments Receivables (net of allowances for uncol)ectlbles)' r Stores Capital Work for General._ Inventory Equipment Outlay Others Totals $1,370,092 $ 17,976 $132,891 $1,868,257 $(22,699) $3,366,517 833 747 10.899 80,578 1,132,806 (13,763) 2,041,267 Refuse 198,573 198,573 Miscellaneous bills collectlblr 87,910 28.652 116,562 Interest 71,980 71,080 Due from othor funds or goveramontal agencies 427,600 427,600 Supplies inventory 30 73,910 73,940 Other assets 7.529 6U ^-_ _ _11886 91475 TOTAL ASSETS S2y,566 ,86110$ 2,845 X213,4693$ ,428,663 L45 ;&24) $9gns oie LIABILITIES AND FUND BALANCE LIABILITIES Accounts payable and other liabilities $ 402,279 $ 2,391 $ 2,166 $ 3,350 $ 28,433 S 438.569 Accrued salaries and vages 489,602 3,241 492,843 Due to other funds r.� Accrued compensated absences 540.465 540,665 IQ TOTAL LIABILITIES 1,432,346 2.391 2,166 3.300 X1,674 1,471,877 FUND BALANCES Reserved for encumbrances 110,757 26,547 170,307 307,611 Reserved for supplies/inventory 203,301 203,301 Unreserved: Designated for subsequent years' expenditures 1,023.758 (102 647) 194,156 1,,255,n56 (a7 Soap 4-323, 125 TOTAL FUND BALANCES 1,134.515 100.654 211 3014 3.425,363 (17,599) X37 TOTAL LIABILITIES AND FUND BALANCES2 SS66 BE1 10$ 2,845 213 469 3..428.66 $4) 6_i4 10 COMBINING BALANCE SHEET - ALL ENTERPRISE FUNDS CITY OF LODI June 30, 1988 Electric Sewer Vn' er Totals ASSETS Cash and certilicatos of deposft $ '3,105,256 $ 2,191,643 $ 521,274 $11,810,173 Investments 5,520,926 1,328,889 316,072 7,165,877 Receivables (net of allowances for uncollectibles): utility 1,500,532 96,264 93,609 1,690,405 Miscellaneous bills collectible 10,613 1,391 7,624 19,618 Intcrest 186,126 39,927 11,268 237,321 Due Crom other' fund or government:al agencLos Supplies inventory 1,112,622 12,282 194,282 1,319,186 W Other asscts 824 18,150 18,974 Fixed assets 15,531,831 10,634,656 5,651,831 31,818,318 Accumulated depreciation (6,000`565) (3,852,530) X2,454,896) (12,307,991) TOTAL ASSETS $26,960,155 $ 4,341,064 )41,779,881 LIABILITIES AND RETAINED EARNINGS LIABILITIES Accounts payable and other liabilities $ 742,566 $ 21,452 $ 22,985 $ 787,023 Accrued salaries and wages 62,237 23,475 16,232 101,944 Due to other funds 299,192 Accrued compensated absences 186,910 T 110,789 1,493 TOTAL LIABILITIES 4 —0,7 -Tb 1,188,159 RETAINED EARNINGS 25,976,422 10,314,946 4,300,354 40,591,722 TOTAL LIABILITIES AND RETAINED EARNINGS .$26,968,155 $10,470, 662 4,64 t,66 141,779 , 881 FIA ......... ........... COMBINING STATEMENT OF REVENUES, EY.PENSES, AND CHANGES IN RETAINED EARNINGS - ALL ENTERPRISE FUNDS CITY OF LODI June 30, 1988 RETAINED EARNINGS 'JUNE 30, 1988 $25,976,422 $10,314,946 $4,300,354 jL0,_591,722 Electric Sewer Water OPERATING REVENUES— Charges for services $23,768,381 $ 2,620,038 $1,519,444 $27,907,862 OPERATING EXPENSES Personal sorvicos 1,405,100 560,193 370,948 2,336,241 Supplies, materials, and services 1,634,034 1,540,780 630,172 3,804,986 Electric, sewer, and Water 15,307,739 15,307,739 Depreciation 541,140 372,666 198,358 1,112,164 Refunds 743,577 1,750 245,327 TOTAL OPERATING EXPENSES 19,131,590 2473,639 —1,201,228 22,806,457 NET OPERATING INCOME 4,636,791 146,399 318,216 5,101,406 N r NONOPERATING REVENUES Sewer bond taxes 275,234 275,234 Interest revenue 1,160,202 214,562 73,095 1,447,859 Rent 22,930 77,922 20,914 121,766 Other (42, 723) 335,125 60,632 353,034 TOTAL NONOPERATING REVENUES 1,140, 409 902,843 154,641 2,197, 893 INCOME BEFORE OPERATING TRANSFERS 5,777,200 1,049,242 472,857 7,299,299 Net operating transfers out 3,631,285 15,195 407,595 4,054,075 NEI' INCOME 2,145,915 1,034,047 65,262 3,245,224 Retained earnings - July 1, 1987 23,830,507 9,280,899 4,235,092 37,346,498 RETAINED EARNINGS 'JUNE 30, 1988 $25,976,422 $10,314,946 $4,300,354 jL0,_591,722 EQ MI M Report on Grant Activity, Internal Control and Compliance for Single Audits City of Lodi June 30, 1988 E&M Ernst &'Whinney CITY OF LODI REPORT ON GRANT ACTIVITY, INTERNAL-ONTROL AND COMPLIANCE FOR SINGLE AUDITS June 30, 1988 Imo► TABLE OF CONTENTS Report on Supplementary Infomation Schedule of Financial Assistance. . . . . • . . . . . . . . • . . . . . . • . . . l Schedule of Financial Assistance . . . . . . . . . . . . . . . . . . . . 2 Compliance Report Based oz an Audit of General Purpose or Basic Financial Statements Performed in Accordance with the Standards for Audits Issued by the GAO . . . . . . . . . . . . . . . . . . . . . . . 3 Report on Cumpliance with Laws and Regulations -. Related to Mayor and Nonmajor Federal Financial Assistance Programs . . . . . . . . . . . . . . . . . . . . 4 Schedule of Findings and Questioned Costs . . . . . . . . . . . . . . . 6 Report on Internal Accounting Controls Based Solely on a Study and Evaluation Made as a Part of an Audit of the General Purpose or Basic Financialstatements . . . • . . • . . . . . . . . . . . . . . . • . . 7 Report on Internal Controls (Accounting and Administrative) - B:ised on a Study and Evaluation Made as a Part of an .Audit of the General Purpose or Basic Financial Statements and the j Y Additional Tests Required by the Single Audit Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 "0 'M Ernst &Whinney REPORT ON SUPPLEMENTARY AUDIT SCHEDULE OF FINANCIAL ASSISTANCE City Council The City of Lodi Lodi, California 5i5 Capitol Mali. Suite 650 Sacramento. California 95814 916/447-3237 We hx:,e audited the general purpose financial statements of the City of Lodi, California, for the year ended June 30, 1988, and have issued our report thereon dated November 18, 1988. Our audit of such general purpose financial statements was made in accordance with generally accepted auditing standards and the standards for financial and compliance audits contained in the Standards for Audit of Governmental Organizations, Programs, Activities, and Functions, issued by the U.S. General Accounting Office, and accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circLustances, Our audit was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The accompanying Schedule of Financial Assistance is presented for purposes of additional analysis and is not a required part of the general purpose financial statements. The information in that schedule has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole. November 18, 1988 . ►,r k14 SCHEDULE GF FINANCIAL ASSTSTANCE CITY OF LODI Year Ended June 30, 1988 State office of Criminal Justice Planning Career Criminal Apprehension Program CAS5027235.00 N/A $269,165 $9,807 $242,295 $236,743 $15,359 Community Crime Resistance Program CAWM35.00 N/A 120,U00 0 101,,717 108.703 (3,986) TOTAL OFFICE OF CRIMINAL JUSTICE PLANNING ASSISTANCE $9,807 $347,012 $345,445 $11.373 2 Cash/ Cash/ Accrued or Disburse- Accrued or Federal Grantor/ Federal Pass -Through Program or (Deferred) Receipts ur ments/ (Deferred) Pass -Through Grantor/ CFDA Grantor's Award Revenue at Revenue Expen- Revenue at Program T i t le Nuriber Number Amount July 1. 1987 Recognized di tures ,lune 3 11938 Beginning Ending Balance at Balance at July 1, 1987 June 30, 1988 Major Federat Assistpnce ProoEam Department of the Treasury Revenue Sharing 21.300 N/A $1,045,691 $ 0 $1,045,691 $1,045,691 $ 0 Nonmalor Federal Assistant: Program Department of Transportation passed thrcugh State Department of Traisportat an: Federal Aid Urban 20.205 NIA 1,031,500 6,030 622,960 632,240 (3,250) Department of Housing and Urban Develop- ment passed through San Joaquin County Comte unity Develop- ment Block Grant 14.219 B -86 -UC -05-0009 822,000 341,120 924,988 1,156,950 109,158 B -87 -UC -06-009 683,960 0 32.390 7,840 24,550 TOTAL FEDERAL ASSISTANCE $347,150626,029 52,842,721 8130,458 State office of Criminal Justice Planning Career Criminal Apprehension Program CAS5027235.00 N/A $269,165 $9,807 $242,295 $236,743 $15,359 Community Crime Resistance Program CAWM35.00 N/A 120,U00 0 101,,717 108.703 (3,986) TOTAL OFFICE OF CRIMINAL JUSTICE PLANNING ASSISTANCE $9,807 $347,012 $345,445 $11.373 2 E2 MIMIErna &Whinney 555 Capitol Mall, Suite 650 Ok Sacramento, California 95814 916/447-3237 COMPLIANCE REPORT BASED ON AN AUDIT OF GENERAL PURPOSE OR BASIC FINANCIAL STATDiENTS PERFORMED IN ACCORDANCE WITH THE STANDARDS FOR AUDITS ISSUED BY THE GAO City Council The City of Lodi Lodi, California We have audited the general purpose financial statements of the City of Lodi. California, for the year ended June 30, 1988, and have issued our ,- report thereon dated November 18, 1988. Our audit was made in accordance with generally accepted auditing standards and the standards for financial and compliance audits contained in the Standards for Audit of Governmental Organizations, Programs, Activities, and Functions. issued by the U.S. General Accounting Office, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The management of the City of Lodi is responsible for—the City's compliance with laws and regulations.. In connection with our audit referred to above, we selected and tested transactions and records to determine the City's compliance with laws and regulations, noncompliance with which could have a material effect on the general purpose financial statements of the City. The results of our tests indicate that for the items tested, the City of Lodi, California, complied with those provisions of laws and regulations, noncompliance with which could have a material effect on the general purpose financial statements. Nothing came to our attention that caused us to believe that for the items not tested the City of Lodi, California, was not in compliance with laws or regulations noncompliance with which could have a material effect on the City's general purpose financial Statements. November 18, 1988 W 3 F.ZW Ernst &Whinney City Council The City of Lodi Lodi, California 555 Capitol Mall. Suite 650 Sacramento. California 95814 916/447-32,37 REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS RELATED TO MAJOR AND NONMAJOR FEDERAL FINANCIAL ASSISTANCE.PROGRAMS We have audited the general purpose financial statements of the City of Lodi, California, for tho year ended June 30, 1985, and have issued our report thereon dated November 18, 1988. Our audit was made in accordance with generally accepted auditing standards; the standards for financial and compliance audits contained in the Sr,vndards for Audit of Governmental Organizations, Programs, Activities, and Functions, issued by the U.S. General Accounting Office; the Single Audit Act of 1984; and the provisions of OMB Circular A-128, Audits of State and Local Governments and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The management of the City of Lodi, California, is responsible for the City's co,,tpliance with laws and regulations. In connection with the audit referred to above, we selected and tested transactions and records from each major federal financial assistance program and certain nonmajor federal financial assistance programs. The purpose of our testing of transactions and records from those federal financial assistance progrsms was to obtain reasonable assurance that the City of Lodi, California, had, in all material respects, administered major programs, and executed the tested nonmajor program transactions, in compliance with laws and regulations, including those pertaining to financial reports and claims for advances and reimbursements, noncompliance with which we believe could have a material effect on the allowability of program expenditures. Our testing of transactions and records selected from major federal financial assistance programs disclosed instances of noncompliance with those laws 2nd regulations. F.11 instances of noncompliance that we found and the programs to which they relate are identified in the accompanying schedule of findings and questioned costs. In our opinion, subject to the effect of the ultimate resolution of those instances of noncompliance referred to in the preceding paragraph, for City Council The City of Lodi Page Two the year ended June 30, 1988, the City of Lodi, California, administered each of its major federal financial assistance programs in compliance, in all material respects, with laws and regulations, including those pertaining to financial reports and claims for advances and reimbursements, noncompliance with which we believe could have a material effect on the allowability of program expenditures. In connection with the audit referred to above, a representative number of transactions including the State Office of Criminal Justice Planning program were selected to det-:L'mine if State Office of Criminal Justice Planning (SOCJP) funds are being expended in accordance with the terms of applicable agreements and those provisions of state law or regclations that could have a material effect on the financial statements or on the SOCJP program testea. Our testing of transactions and records selected from the SOCJP programs disclosed instances of noncompliance with those laws and regulations. All instances of noncompliance that we found and the programs to which they relate are identified in the accompanying schedule of findings and questioned costs. With respect to the items not tested, nothing came to our attention to indicate that the City of Lodi, California, had nor complied with applicable regulations per the SOCJP handbook. All SOCJP items noted in the prior year report have been satisfactorily resolved. The results of our testing of transactions and records selected from nonmajor federal .financial assistance programs indicate that for the transactions and records tested the City of Lodi, California, complied with the laws and regulations referred to in the second paragraph of our report, except as noted in the accompanying schedule of findings and questioned costs. Our testing was wore limited than would be necessary to express an opinion on whether the City of Lodi, California, administered those programs incompliance in all material respects with those laws and regulations noncompliance with which we believe could have a material effect on the allowability of program expenditures; however, with respect to the transactions and records that were not tested by us, nothing came to our attention to indicate that the City of Lodi, California, had not complied rith laws and regulations other than those laws and regulations for which we noted violations in our testing referred to above. November 18, 1988 5 SCHEDULE OF FINDINGS AND QUESTIONED COSTS CITY OF LODI Year Ended June 30, 1988 Federal Revenue Sharing s� Finding: The Federal Revenue Sharing Regulations require recipients to publish notice of the availability for public inspection of the audit report. The City did not publish this notice. Effect: The public's participation in the Revenue Sharing program may have been impaired due to the non -publication. Recommendation: The City should publish this notice within thirty days after receipt of future audit reports. Response: The publishing of the notice was inadvertently overlooked. Office of Criminal Justice Planning Finding: The Office of Criminal Justice Planning requires participants to file Form 201 within ten days of the end of the _ reporting mxiti:. The City has not been submitting the monthly report within the stipulated time period. Effect: The City's right to participate in the program may have been impaired due to noncompliance with the report deadline. Recommendation: The City should prepare and submit the report within 4 ten days of he end of the reporting month. Response: The City's reporting system does not enable them to prepare Form 201 within ten days of the end of the reporting month. 6 M Ernst &Whinney 555 Capitol Mall. Suite 650 Sacramento, Calitornia 95814 916/447-3237 REPORT ON INTERNAL ACCOUNTING CONTROLS BASED SOLELY ON A STUDY AND EVALUATION MADE AS A PART OF AN AUDIT OF THE GENERAL PURPOSE OR BASIC FINANCIAL STATFAENTS City Council The City of Lodi Lodi. California We have audited the general purpose financial statements of the City of Lodi, California, for the year ended June 30, 1988, and have issued our report thereon dated November 18, 1988. As part of our audit, we made a study and evaluation of the system of internal accounting control of the City of Lodi, California, to the extent we considered necessary to evaluate the system as required by generally accepted auditing standards and the standards for financial and compliance audits contained in the U.S. General Accounting Office Standards for Audit of Governmental _ Organizations, Programs, Activities, and Functions. For the purpose of this report, we have classified the significant internal accounting controls in the following categories: - Financing - Revenue/receipts - Purchases/disbursements - External financial reporting - Financial statement captions Cash and cash equivalents . Receivables . Inventory . Property and equipment Payables and accrued liabilities . Debt . Fund balance Our study included all of the control categories listed above. The purpose of our study and evaluation was to determine the nature, timing, and extent of the auditing procedures necessary Cor expressing an opinion on the entity's financial statements. Our study and evaluation was more iimited than would be necessary to express an opinion on the system of internal accounting control taken as a whole or on any of the categories of controls identified above. 7 M City Council The City of Lodi Fage Two The management of the City of Lodi, California, is responsible for establishing and maintaining a system of internal accounting control. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procadures. The objectives of a system are to provide management with reasonable, but not absolutes, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any system of internal accounting eontrci, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the system to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the degree of compliance with the procedures may deteriorate. Our study and evaluation made for the limited purpose described in the first paragraph would not necessarily disclose all material weaknesses in s the system. Accordingly, we do not express an opinion on the system of t internal accounting control of the City of Lodi, California, taken as a whole or on any of the categories of controls identified in the first f F paragraph. However, our study and evaluation disclosed no condition that we believe to be a material weakness. This report is intended solely for the use of management and the cognizant agency and should not be used for any other purpose. This restriction is not intended to limit the distribution of this report which, upon acceptance by the cognizant agent, is a matter of public record. k�r November 18, 1988 %1, Mei 8 F 'M Ernst &Whinney Mk e, 555 Capitol Mali. Suite 650 Sacramento, California 95814 9161417-3237 REPORT ON INTERNAL CONTROLS (ACCOUNTING AND ADHINISTRATIVE) BASED ON A STUDY AND EVALUATION MALE AS A PART OF AN AUDIT OF THE GENERAL PURPOSE OR BASIC FINANCIAL STATEMENTS AND THE ADDITIONAL TESTS REQUIRED EY THE SINGLE AUDIT ACT City Council The City of Lodi Lodi, California We have audited the general purpose financial statements of the City of Lodi, California. for the year ended .June 30, 1988, and have issued our report thereon dated November 18, 1988. As part of our audit, we made a study and evaluation of the internal control systems, including applicable internal administrative controls, used in administering federal financial assistance programs to the extent we considered necessary to evaluate the systems as required by generally accepted auditing standards, the standards Governmental Organizations, Programs, Activities, and Functions issued by the U.S. General Accounting Office, the Single Audit Act of 1984, and the provisions of URB Circular A-128, Audits of State and Local Governments. For the purpose of this report, we have classified the significant internal accounting and administrative controls used in adminisceriig federal financial assistance programs in the following categories, - Financing - Revenue/receipts - Purchases/disbursements - External financial reporting - Grant administration and compliance General Requirements . Political activity Davis-Bacsn Act . Civil rights Cash management Relocation assistance and real property acquisition Federal financial reports Specific Requirements Types of services Eligibility Reporting Cost allocation Monitoring subrecipients 9 ow City Council The City of Lodi Page Tvw The management of the City of Lodi, California, is responsible for establishing and maintaining internal control systems used in administering federal financial assistance programs. In fulfilling that responsibility, estiniates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control systems used in administering federal financial assistance programs are to provide management with reasonable, but not absolute, assurance that, with respect to federal financial assistance programs, resource use is consistent with laws, regulations, and policies; resources are safeguarded against waste, loss, and misuse; and reliable data are obtained, maintained, and fairly disclosed in reports. Because of inherent limitations in any system of internal accounting and administrative controls used in administering federal financial assistance programs, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the systems to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the degree of compliance with the procedures may deteriorate. Our study included all of the applicable control categories listed above. During the year ended June 30, 1988, the City of Lodi, California, expended 70% of its total federal financial assistance under major federal financial assistance programs. With respect to internal control systems used in administering major federal financial assistance programs, our study and evaluation included considering the types of errors and irregularities that could occ,ir, determining the internal control procedures that should prevent or detect such errors and irregularities, determining whether the necessary procedures are prescribed and are being followed satisfactorily, and evaluating any weaknesses. With respect to the incernal control system used solely in administering the nonmajor federal financial assistance programs of the City of Lodi, California, our study and evaluation was limited to a preliminary review of the systems to obtain an understanding of the control environment and the flow of transactions through the accounting system. Our study and evaluation of the internal control systems used solely in administering the nonmajor federal financial assistance programs of the City of Lodi, California, did not extend beyond this preliminary review phase. Our studjj and evaluation was more limited than would be necessary to exp-ess an opinion on the internal control systems used in administering the federal financial assistance programs of the City of Lodi, 10 bw rcz 610 City Council The City of Lodi Page "hree California. Accordingly, we do not express an opinion on the internal control systems used in administering the major federal financial assisuance programs of the City of Lodi, California. Also, our audit, made in accordance with the standards mentioned above, would not necessarily disclose material weaknesses in the internal control systems used solely in administering nonmajor federal financial assistance programs. However, our study and evaluation and our examination disclosed no condition that we believe to be a material weakness in relation to a federal financial assistance program of the City of Lodi, California. This report is intended solely for the use of management and the cognizant agency and should not be used for any other purpose. This restriction is not intended to limit the distribution of this report, which, upon acceptance by the City of Lodi, California, is a matter of public record. November 18, 1968 11 iLwaL o, 4�--7