HomeMy WebLinkAboutAgenda Report - February 21, 1990 (31)CITY COUNCILMEETING
FEBRUARY 21,1990
RECEIPT,OF,AUDITED
FINANCIAL STATEMENTS
CC-21(aThe :City
Council, on motion., of��council Member 61d,
Pinkerton
second; accepted for filing he following
documents
connected with'.' the, audit ` of the City. of "Lodi as
of ''and for
.the year ended `June. 30`1989--
0; 19891.
1.
Single AuditSuggeanagement''Letter)
2..
Finance: Director's Comments ==Single Audit
..
Suggest ar;s
Report= on_,_.Compliance with the City's
Investment,0olic Y.
4.
Single Audit Report
5.
General Purpose Financial Statements;
Further,
the City Council determined that this.:.matter
h ld be
sou
placed Agenda.
pace on a future Shirtsleeve Session gen a.
C
Peat Marwick
Certified Public Accountants
2495 Natornas Park Drive
Sacramento. CA 958332936
October 26,1989
The Honorable Members City Council
City cf Lodi, California:
We have audited the general purpose financial statements of The City of Lodi for the year ended
June 30, 1989, and have issued our report thereon dated October 26, 1989. In planning and - -- performing our audit cf the general purpose financial statements cf the City cf Lodi, California we
considered its internal control structure in order to determine our auditing procedures for the
purpose cf expressing a3r opinion on the general purpose financial statements and not to provide
assurance cn the internal control structure. We have not consideredthe internal control structure
since the date of our report.
During our audit we noted certain matters involving the internal control structure and other
operational matters that are presented for your consideration. These comments and
recommendations, all of which have been discussed with the appropriate members cf management,
are intended to improve the internal control structure or result in odw qpemtirVefficienciesand are
summarized as follows:
1 1►
Monitoring of Single Audit Grants
The City is a recipient of federal and state monies for several grant programs. Currently, different
departments are involved with the request for and subsequent monitoring of the various program
activities. An individual in the police department had been assigned responsibility for monitoring
the state programs; however, this employee no longer is employed by the City. The responsibility
of monitoring compliance has not been reassigned to another employee.
The administration of grant programs should be reevaluated, specific responsibilities assigned, and
authority delegated to ensure that one individual is aware of all monies received by City
departments under Federal grants, and state and county pass-through programs, and is responsible
for monitoring departmental efforts to comply with all general and specific administrative
requirements of the grant programs. Assigning responsibility will reduce the risk of loss of future
program awards due to inadvertent noncompliance with regulations and requirements of each grant
program. Additionally, the City may discover it is eligible for funds under other grant programs
previously overlooked due to lack of familiarity with available grant programs.
Peat Marwick
The Honorable Members cf City Council
City of Lodi, California
October 26,1989
Page 2
Establish Fixed Assets Records and Controls
Sound financial administration in safeguarding the City's investment in fixed assets is of utmost
- importance in the exerciseof stewardship responsibilities. These responsibilities can be effectively -
discharged only through adequate fb ed assets accounting.
By i I dr&g fixed assets , the City will mW J several benefits:
• Fixed assets can be inventories periodically to ensure that they are properly controlled.
• Responsibility for custody and effective use of feed assets can be clearly established.
Informationregardin& sources of supply, prices, and useful lives will be readily
available. If information regarding maintenance costs is also included in the subsidiary
ledgers, ntias of cumulativemaintenance costs to original costs can be developed.
• Records will be readily available to substantiate the amount of grants used to finance
expenditures for fixed assets. Furthermore, the determination of costs for building or
equipment use is facilitated. The latter is important to obtain reimbursement for the use
of buildings and equipment in federal and state aid programs.
• Information is readily available both to determine insurance needs and to substantiate
losses recoverable from insurance.
Establishing fixed assets record when none existed before can be a difficult and time-consuming
task. One approach is to:
1. Define clearly what constitutes the fixed assets categories (e.g., land, buildings,
improvements other than buildings, equipment); a fixed asset (i.e., minimum dollar
value and useful life); and the location "control" Inas
2. Plan and perform a complete inventory of all fixed assets. In creating the inventory
records, obtain as much of the information to be included in the individual assets
records as is possible, e,g., asset description, location, vendor or manufacturer,
acquisition date. Fixed assets identification tags should be affixed at the time the
physical inventory is taken.
4
♦ L1L1�
The Honorable Mmbers cf City Council
City cf Lodi, California
October 26,1989
Page 3
3. Assign values to each asset according to generally accepted principles. Fiord assets
should be recorded at historical cost, or estimated historical cost, if the original cost is
not available, cr, in the case cf gifts or contributions, at the fair market value at the toe
received.
Several procedures can be used tndetermine the valuation.
• Reference to the historical records, such as vendors' invoices, contracts, purchase
, capital expenditure authorizations, cancelled checks, gift acknowledgements, or
other documents on hand.
• Correspondence with vendors, donors, etc.
• the of an asset valuation reasonable reflective ofhistorical value, provided it is reliable,
if historical or fair market value is not available.
• Historical cost as reasonably estimated by employees for small items of relatively low
value, e.g., tools, office furniture, and equipment.
• Reliance on independent outside appraisals for assets which cannot be valued by one of
the above methods or some other reasonable method. It is important to emphasize,
however, that the appraisal should be based upon estimated historical cost, not on
replacement cost or some other basis.
Evaluation of fixed assets in the above manner x.71 enable the City to establish reasonably accurate
initial fixed asset values.
Once initial records are established, the City will want to concurrently implement the kinds of
controls and procedures enabling it to maintain control over the fixed assets. These procedures
should include:
• Control over the proper input into the records for all fixed asset additions, sales,
abandonments, and transfers.
• Periodic reconciliation of detail ledgers to the general ledger.
• Periodic inventory of fixed assets by location.
• Verification that any asset traded in for a new acquisition is properly removed from the
records.
MW Peat Marwick
The Honorable Mwtmo s of City Council
City of Lodi, California
October 26,1989
Page 4
Fixed Asset Disposals
At present, the City, despite the size and dispersion of its facilities, does not have a formal
procedure to ensure that disposals of fixed assets, whether by destruction, sale, scrapping, or
trade-in, are reported io the accounting department. Without such a procedure, the likelihood of an
unrecorded digmsal, even a sale v&h diversion of the related proceeds, increases. A formal policy
to ensure the reporting of fixed asset disposals should be adopted and should include: (1) the
necessary level of approval based an the value of #e asset and (2) reporting to the finance
departmenton a timely basis. A simple standardized form could be developed to provide adequate
accounting documentation and to provide evidence of adherence to City policy. - --
Covenants
Currently, no individual is responsible for monitoring compliance with debt covenants. To ensure
ongoing compliance with debt covenants, the provisions cf various bord and certificate of
participation resolutions should be monitored throughout the year viih a summary report presented
to management on a regular basis.
Calculation of Arbitrage
Certificates of participation proceeds are being invested in securities other than state and local
government securities (SLGS)which could result in an arbitrage tax. We noted that the City has
recently purchased a softwareprogram to calculate arbitrage but has not currently implemented it
due to software limitations. We commend the City in their efforts to calculate arbitrage and
recommend that the City calculate arbitrage az a quarterly basis in order to properly record their
potential liability.
On future debt issues we recommend the City assess the true financial benefit, if any, of investing
debt proceeds in other than SLGS. The assessment should include the expected interest income
reduced by all costs associated with the arbitrage issue Ox.: tax, management and staff time to
calculate the tax, software updates, etc.).
Lodi Public Improvement Corporation
Amcle V, Section of the Lodi Public Improvement Corporation (Corporation) bylaws state "The
affairs and financial condition of the Corporation shall be audited at the end of the fiscal year (June
30) commencing with fiscalyear 1988-1989by an independent public accountant selected by the
Board of Directors (members of the City Council) and a written report of such audit and
MW Peat Marwick
The Honorable Members of City Council
City cf Lodi, California
October 26,1989
Page 5
appropriate financial statements shall be submitted to the Board of Directorsp rior ID the next
regular meeting cf the Board of Directors of the Corporation following the; completion of such
audit. Additional audits may be authorized as considered necessary or desirable by the Board of
Directors." It is otr understanding t3 t management does not consider this audit ID be necessary as
theo�atLcn and the City are essentially one m the same and, as such, the audit the City's
general purpose financial statements is sufficient to comply with this bylaw. However, as the
Corporation is a separate legal entity and its bylaws do currently require an audit, we recommend
the Board of Directors consider the need for an audit of the Corporation and make a final
determination.
INVENTORY
Physical Inventory Procedures
During our observation of the physical inventory performed during the week of June 30,1989, we
noted the following deficiencies in the physical inventory procedures;
• No written inventory instructions were provided is the count teams.
• Numerous small, slow moving items were not counted until the last day of the physical
inventory.
• Obsolete items were not separated or designated to al low for count teams to easily
identify items not to be counted which caused numerous delays and erroneous counts
of obsolete items.
• Count sheets included many part numbers no longer in existence which caused delays
as the count teams were looking for items the City had not used in years
• Count sheets included the same part number in two or three different areas causing
some items to be double counted.
• Count sheets did not include some part numbers which were a part of the physical
inventory at June 30, 1989.
• Upon completion of the count in a particular area, the area was not marked as being
counted in order to avoid double counting or to allow for easy identification that all
areas had been counted.
• Numerous errors were made in the water inventory physical c c u n t s which caused the
need for the entire water department inventory to be recounted by the City and re -
observed by KPMG Peat Marwick on the following day
P14
.4�:I.r ._•i •�.
The Honorable Members of City Council
City &Udi, California
October 26, 1989
Page 6
• No test counts were performed by supervisors until we brought the numerous count
errors io the water department supervisor's attention.
Count teams consisted of only one individual with no independent verifications being
performed by a second count team.
So that future physical inventories counts may be more effective and efficient, we suggest the
Wowing;
• Comprehensive written inventory instructions should be prepared and disseminated to
participating personnel well in advance of the physical count. These instructions
should be read and understood by all personal.
All stock to be excluded from the count (such as obsolete goods) should be clearly
marked or physically segregated, where appropriate, prior to beginning the inventory
count.
• The physical count on slow-moving or immaterial items could be conducted 1 to 2
weeks in advance.
• Prior year count sheets should not be copied and brought forward to conduct the
current year count. This practice carries forward inventory numbers which may not
exist in the current year. We recommend that the city prepare new count sheets which
include only inventory numbers existing at yearend. This will result in a more efficient
physical inventory and will help prevent valuable lost time looking for inventory which
does not exist.
Counted inventory areas should be clearly marked with tape or sane other kind of
identifier in order to prevent any possible erroneous count.. as a resuIt of not or double
counting a particular area.
Inventory System
The inventory system is not computerized and is kept on a card file system. We understand that the
City has budgeted for the purchase of an inventory softwarepackage for fiscal year 1989/1990.
Also, we understand that the City has looked into purchasing the Qracom inventory software
package and has given Oracom instructions to tailor an inventory system for the City. We
commend you in your efforts to increase the efficiency and accuracy of the inventory system and
we encourage your continued efforts. We would also like to recommend that the system
purchased include a order point "flagging"system to ensure adequate stock levels.
The Honorable Members cfCity Council
City cf L c>di, California
October 26,1989
Page 7
Security Over inventory
Greater control could be exercised over the material and supply of inventories on hand and the
amount of book to physical inventory adjustments at year end could be reduced if: (1) material
requisition forms were required to be used for all issuances fmn the stockyard and (2) the
stockyard was locked at all times and access was limited to selected responsible personnel.
Review of Internal Accounting Controls over Purchases
During our compliance testing of the disbursement cycle we noted that in 8 instances (out of 30
sample items) vendor packets did not contain purchase orders. We also noted that purchase orders
were sometimes prepared after the purchase was made. To enhance internal accounting controls
over purchase activities, we recommend that all purchases be required to have a proper' approved
purchase order prior to the purchase transaction and that a copy of the purchase c -.-der be
maintained in the individual vendor packet. Th help implement this policy we recommend the
accounts payable department not accept a request for payment unless the vendor packet includes an
approved purchase order. This will minimize occurrences of unauthorized or unapproved
purchases.
Documentation of Control Over Purchases
When invoices are received the unit price on the invoice is compared to the unit price per the
purchase order and any discrepancies are investigated. If the vendor is incorrect, the invoice is
changed accordingly. This is an effective control procedure, however, it is not documented by the
person making this comparison. To establish accountability for the review process, invoices
should be initialed to signify agreement with the approved unit price per the purchase order. This
will provide the check signerassurance that payment is made at the unit price agreed to at the time
the order was placed.
Updating the Electronic Data Processing System (EDP)
We noted the City's existing EDP system is approximately fourteen years old and has become very
inefficient. We also noted that the sub -ledger system and the general ledger system do not
.. Peat Marwick
The Honorable Members of City Council
City of Lodi, California
October 26,1989
Page 8
interface. While the initial rationale behind not having two systems interface may have been
appropriate to improve internal accounting cmt mis, the number of manualjoumal entries needed
as a direct result cfthe two systems not interfacing has grown so numerous that it may no longer
be cost beneficial to maintain this aspectof the control.
Given the essentially manual nature cf present accounting operations, we believe that opportunities
continue to exist tD (a) reduce clerical effort and increase clerical accuracy, and (b) increase the
usefulness and timeliness of management reporting by mechanizing certain accounting operations.
We understand the City is exploring the possibility of replacing its current EDP system and finding
ways of reducing the current number cf manual journal entries currently need io maintain adequate
records. We encourage the City to continue their efforts to improve efficiency in this area.
Documentation of Electronic Data Processing System (EDP)
Currently, only partial documentation of the EDP system exists. We wish to emphasize the
importance cf continually updating system documentation as program and systems are added or
modified. Up-to-date documentation will enable the City to rake improvements in the system and
to correct softraaweproblems as encountered 4th a minimum of cost and effort.
Access to EDP Data Files
Computer files are accessible to many employees. Significant reliance is placed on a password
system to prevent unauthorized access to EDP programs and data. Due to the large rnmber of
employees with access to these files, we suggest that access control logs be utilized and routinely
reviewed for propriety by an individual not having other EDP responsibilities. In addition, we
suggest that current employee accesses be evaluated and a supervisor's key should be required to
access critical information. These controls would help limit unauthorized access to the EDP
system, prevent unauthorized changes to critical files, and help ensure the accurate processing of
financial information.
Use of Attorneys
The City currently uses a large i i u m ber of attorneys (approximately eleven) for various functions.
We suggest the City evaluate the responsibilities of these attorneys. Where deemed appropriate, a
reduction in the number of attorneys used by the City could reduce expenditures for attorney fees
and should enhance the City's ability to monitor the status of legal actions involving the City.
Peat Marwick
The Honorable Members cf City Cmnu il
City of Lodi, California
October 26,1989
Page 9
Investments
We were asked by the City to p e r f o r m compliance test -work on the City's investmentpolicy This
policy includes a list of investment instruments which are allowable under current legislation of the
State of California (Government Code Section 53600 et s;). We noted investmentsin stock is
not a part of this list. During our test -work we noted the City library's investment portfolio
contained common stock valued at $115,168 at a cost of $57,085 as ofJune 30,1989. The City
library obtained this stock through bequests,. stock dividends, and dividend reinvestment
tears. The dividend reinvestment program is, in effect, the acquisition of stock. Tb ensure
compliance with the City's investment policy, and State of California current legislation, we
suggestthat management assess the need to seU this stock.
Operations Letter
Additional suggestions of an operational nature were presented to management under a separate
letter also dated October 26,1989.
This report is intended solely for the information and use ofthe City Council, management, and
others within the organization.
Very truly yours,
ET Ms R o b e r t H. Holm, Finance Director
DATE: February 14, 1990
SUBJECT:, Cam ents az Auditors' Management Letter
(SingleAudit Suggestions)
It should be noted that in the auditors' "Single Audit Report," the
auditors have stated that while they are not expressing an opinion on the
system of internal accounting control of the City taken as a whole, their
study, evaluation and audit disclosed no condition that they believe to be
a material weakness.
The canments in the SINGLE AUDIT SUGGESTIONS, which in effect are the
Management Letter, are intended to irrprove the internal control system, and
the Finance Department Mid -Management staff and I wish to add our responses
to the auditors' suggestions.
Monitoring of Single Audit Grants
Peat Marwick has stated that atiministratior, cf grant programs needs to be
evaluated and responsibility assigned to one individual to see that
compliance with regulations is follcued and monies are received, sc that
future grants could not be iost because of noncompliance.
In the past, the City has received grants in more than one area, i.e., Park
Bond Grant where the Parks and Recreation Director works with the Public
Works Director regarding sprlication for- funds, design of proj�: ts,
expenditure of funds, etc. �1so, grants have been received in the Police
Department fcr criminal apprehension and crag suppression, and the
ex-p—ertise of the Police Department is needed to monitor the grant. Trying
to assign one person the responsibility of mondtoring all grants who would
have the expertise needed in all areas of grants would be difficult. Also,
state and federal grants seen! to be disappearing from the horizon. As of
this writing, the City has never been informed it has not complied with
grants nor have we beer, thxeatened with the loss of a grant for
noncomnliance .
Establish Fixed Assets Records and Control'
The irrplementation of a fixed asset. ,system has always been a goal of. le
Fiziance Department. � However,, it is a ;cost` item As - far.: back ;as. 1976--77 -
we suxmi 1 -ted bu et r
cig equests to have an appraisal 'of our fixed assets in
order : to eliminate_ the .item on each year'. s . audit., Back in those earlier
.ears, the costs were around $25,.000 .00 'for tris service, ` and {:Qday we are
looking at something in fine area of `$50,006'00-$60,000.00, for: :type of
appraisal. While in the,. earlier., years, we thought this type of a
disclaimer on our audit regarding fixed assets would give us a lower bond
rating, we, found out differently when we sold the $45 million of Sewer
Plant Expansion Certificates. The disclaimer regarding the fixed assets
did not have a measurable affect. What really counts with the rating
agencies is the ability to pay or the revenue stream to guarantee ban debt
payments.
To install and maintain as sophisticated a syst , as recaeneended by the
auditors would require an entry level Accountant I in the area of
$20,000.00 annually.
We presently have $6,300.00 budgeted in this budget to purchase a property
management system. Since we already have a m u a 1 system for small
equipment items such as V.C.R.'s, T.V.'s, personal ccmputers, data entry
terminals, etc., all of the manually maintained items would be transferred
into this computer system. This, we nope, should satisfy the auditors'
concerns for recording the most vulnerable assets (equipment) for a minimal
expenditure. Also, we feel this strikes a balance between the auditors'
recommendation and tha limited financial resources available,
CFK IFICATE—S CF PARMCIPATIM
Covenants
Peat N,axwick states that no one individual has been named as being
responsible for monito::ing ccmaliance with debt covenants.
The four most significant requirements in the bond covenant are:
i. Rate Covenant --The net sewer operating_, revenues must be 1.10 times
the aggregate annual debt pad. rient.
2. Excess Costs—The Ci ty agrees tc pay the excess constructior costs
over the amount of bond proceeds.
M/MGW,MTR/n7F. 06S
Memorandum 3 - February 14, 1990
3. Installment Payments --The City agrees to nr& all debt payments on
schedule.
4. Insurance --The City agrees '.:o provide P.L. and P.D. and fire
�insurance w it h extended crnlerage.
W mle the City has not named a specific individual to monitor ccxrpliance
with the debt covenants, it has been a team effort ever since the
certificates were sold. For example, both the Assistant City Manager and I
check to see the net sewer operating revenue estimates are 1.10 times the
annual debt at budget time. As far as excess costs are concerned, the net
proceeds from the certificates for construction purposes were $7,826,965.00,
and the contract has been awarded at $9,681,218.00 which leaves
$1,854,253.00 to be picked up as excess costs by the City. In addition to
that, the purchase of land from Cit; funds, other than Certificate
proceeds, has been $11140,360.00. So, we have met the excess cost
requirement. The installment payments are ealendared in our office, and
the trustee (Bank of America) sends a statement two weeks prior to the
installments being due. The insurance certificates are mailed to the
trustee annually by the Assistant City Managt -. The most significant bond
covenants are covered by the City as a team effort, as I stated earlier,
and I don't believe naming a carpliance officer or person is necessary.
Calculation of Arbitraae
Peat Marwick has stated that -the proceeds from certificates have been
invested in securities other than state or local government securities
(SLGS) which could result in payment of an arbitrage tax. Peat Marwick
also states we have not implei7ent&3 the software to calculate the arbit-age
tax, and we should investigate investing in state and local government
securities.
The proceeds of the sale of certificates were, or, the advice of trustee and
financial consultant, invested in a U. S. Treasury Securities Money Market
Fund. The limitations on the software were due to the fact that the U. S.
Congress passed the O nnibus Budget Reconciliation Act of 1989 and the laws
concerning calculation and rebate of arbitrage vvm not published in tine.
As reported in the Deom ber 11, 1989 Nations Cities Weekly, the National
League of Cities newspaper:
The arbitrage law leaves traditional tax eyemat bonds issued between
September 1, 1386 and the date of enactment in a twilight zone. These
bonds are subject to the 1986 arbitrage anC rebate provisions, although
the Treasun, has not corrpleted or fina'_ized its cen regulations.
M/MG�,TR/'? �4'TF . 0 6 S
4
Memorandum - 4 - February 14, 1990
Peat MazvickIs statement regarding inplementation of software was
misstated, Calculations were Trade using the software, hoynver, the laws
were not clear regarding the impact of the City's new sewer debt. The
software update will be cQ7PIeted by NU&� 1990, and we will recalculate
the arbitrage. The three main problems with investing in SLGS , are, ., one
extrerre difficulty in timing the maturities for construction mvmmnts:,two
difficulty to locate a secondary market; and, three, the rate of return on
SLGS is less than the arbitrage limit on our certificates which is 7,812
per cent. This results in less investment incar)e for construction use,
Lodi Public Ifrprovement Corporation (LPIC)
Peat Marwick states the LPIC is required to have an annual audit at the end,
of each fiscal year by an independent public accountant and a written
report submitted. Mule the articles of incorporation did state an audit
is required, I feel the Board of Directors should meet and determine the..
annual audit not necessary for the following reasons:
1, The Lodi Public improvement Corporation was formed for the sole purpose
of issuing the Certificates of Participation for the expansion of the
sewer plant and for any other future sales of certificates.
2. The proceeds (assets) and the installment payments (liabilities) were
transferred to the City of Lodi on the same day as the sale took place,
i.e., August 25, 1988. As of the next day, and, also at the end of the
fiscal year, there were no funds to report held in the LPIC, i.e. , no
finances to report.
If the Board of Directors of the :APIC wishes to have ar. audit, I would
recoamend it be included in the general audit of the City's records. The
Board would have to meet and declare this intention.
MrEN ORI,
(see nio orancun from Joel Harris, Purchasing Officer)
ET =. ROITIC DATA PPDCESSI G
(see memorandum from; Roy Todd, Data Processing MFxager)
M/V1 aU,TR./"1TX=. 06S
4
- 5 -
OTHER MATTERS
February 14, 1990
Use of Attorneys
(see n1warandum frac. Bob McNatt, City Attorney)
Investments
Peat Marwick's cament on this item is the same as last year's auditors'.
In my contact with the City Librarian last year, he indicated that unless
the City Council direct the Library Board of Trustees to sell the stock,
they were going to continue to hold on to the stock and receive stock
dividends as a reinvestment. As City Treasurer, I am not allowed, under
governanezit code, to invest in corporate stock. Since I have not purchased
the stock,II�� the efore � not 11 ist the stack a of. m investment
report to & NTy council. T10 me, it is a �e inicafityy as t the
reinvestment of dividends into additional stock that the auditors are
expressinq a cament. The City Council may want to direct the Library
Board of Trustees to sell the stock and not have the auditors' ccmTent
reappear next year.
H. Holm
Finance Director/Treasurer
RHH:ss
M/M�.TR/TA'TF . 06S
The first point made, that there were no written instructions for Randy
and Tom to follow, is correct. About three weeksprior to inventory
the three of us met to establish a schedule and plan for the count.
Slow-moving, multiple -location, and non -inventory items were
identified, and a plan for counting by area was established.
The plan for taking inventory was to count sections of the warehouse,
to begin at one end of each section and count all items therein in
order of location. Several of the sections did contain slow-moving
items, but few required a time-consuming counting process. However,
future counts will incorporate a plan to count, seal, and tag
containers of more slow-moving parts in advance of the inventory so the
overall count can be expedited
Points three and four of the review, dealing with obsolete items and
part numbers no longer in existence, is inaccurate except for the
transformers. At the time of the inventory, we had no accurate list of
transformers in stock, on hold, or otherwise held for disposition.
Point five is correct in that items are stored in more than one
location. We have a location from which stock is issued, and in many
cases one or more additional locations where full case or full pallet
quantities are stored.
I'm not aware of the parts to which they refer in point six. I do know
that during the fiscal year, several items with zero inventory on June
30, .1988, and no plan for future use, were removed from the list.
However, i f an item was counted i n 1988 atid rema i ned i n inventory
during the year, it appeared on the 1989 list and was counted.
MEMORANDUM
To: Robert Holm,
Finance Director
From: Joel Harris,
Purchasing Officer
Date: February 9, 1990
Subj: KPMG Peat Marwick ;view of Inventory Audit
These are ny views
and comments regarding the auditors' October 26,
1989 review of the 1988/89 year-end audit, as it pertains to purchasing
activites.
As in their earlier
proposal, the report contains several inaccuracies.
Generally, however,
it recommends that the purchasing and inventory
procedures be done
by the book, and that recommendation can't be
faulted.
The first point made, that there were no written instructions for Randy
and Tom to follow, is correct. About three weeksprior to inventory
the three of us met to establish a schedule and plan for the count.
Slow-moving, multiple -location, and non -inventory items were
identified, and a plan for counting by area was established.
The plan for taking inventory was to count sections of the warehouse,
to begin at one end of each section and count all items therein in
order of location. Several of the sections did contain slow-moving
items, but few required a time-consuming counting process. However,
future counts will incorporate a plan to count, seal, and tag
containers of more slow-moving parts in advance of the inventory so the
overall count can be expedited
Points three and four of the review, dealing with obsolete items and
part numbers no longer in existence, is inaccurate except for the
transformers. At the time of the inventory, we had no accurate list of
transformers in stock, on hold, or otherwise held for disposition.
Point five is correct in that items are stored in more than one
location. We have a location from which stock is issued, and in many
cases one or more additional locations where full case or full pallet
quantities are stored.
I'm not aware of the parts to which they refer in point six. I do know
that during the fiscal year, several items with zero inventory on June
30, .1988, and no plan for future use, were removed from the list.
However, i f an item was counted i n 1988 atid rema i ned i n inventory
during the year, it appeared on the 1989 list and was counted.
The next point is accurate in that areas were not marked as completed.
While the team counts the areas systematically to avoid double -counting,
it is conceivable that lack of markings could result in an area being
missed.
The suggestions offered on Page 6 of the letter are generally good, and
although there are inaccuracies in the preceding section the overall
emphasis is positive. It would be in our interest to incorporate as
many as possible of the suggestions offered.
The suggestion made in the paragraph' titled "Inventory System"
regarding an order point flagging system has been noted.
Referring to the paragraph titled "Security Over Inventory", our
department uses Materials Issued Forms or Stores Inventory Requisitions
for all items over which we have control. However, the issue of
locking the stockyard is something ve may not be able to accomplish,
since the yard must be accessible to Public Works' as well as Electric
Utility employees for reasons other than access to stock. While to
wire storage area and the warehouse have limited access, the outside
areas have no such security, unfortunately.
In the section titled "Internal Accounting Procedures", the paragraph
dealing with preparation of approved purchase orders has excellent
recommendations. (A couple of departments still prepare the purchase
orders from the invoices; one supervisor explained he doesn't have time
to get prices when he places his orders (!), and that it's easier for
the secretary 'co get the information from the invoices).
This issue
is covered clearly in LMC Section 3.20.080,
which states
"Purchases..
.shall be made only by
purchase orders",
and not that
purchase orders shall be prepared to legitimize the
purchase afte"
delivery is
made. Enforcement of
the code is a
key factor iii
implementing
this suggestion from the
auditors.
The suggestion under "Documentation" has also been noted, and will be
followed in all cases where we review the invoices.
Again, most of the suggestions are positive and gave been taken in the
spirit of improving our system. All efforts will be made to implement
as many of the recommendations as possible this year, with the overall
goad being to work to better safeguard the p;iblic materials and funds
for which we're responsible.
M E M 0 R A N D U M
To: Bob Holm, Finance Director
From: Roy Todd, Data Processing Manager
Date= February 9, 1990
Subject: Auditors Comments, Data Processing - October 26, 1989
*-----------------------------------------------------------------------*
As requested - response to Auditors Comments regarding City of Lodi Data
Processing:
A. Updating the Electronic Data Processing System (EDP)
The General Accounting System is a very old and manual System. The
General and Sub -ledgers do not interface, and manual entries are an
inherent part of the design - apparently for the purpose of
providing internal controls.
The Auditors are correct in their conclusions that:
1. We can automate this proceFs and still provide for any '.evel of
control desired.
2. We can reduce clerical effort and improve accuracy with System
enhancements.
However, this is not easily done. This is an application that has
very far reaching and complex considerations. Changes to the
Accounting process effects every other Application in the Computer,
and has direct effects on all Departments in the City.
While we are intent upon improving this System, we do not have a
specific plan. We are attempting to improve all of the Application
Systems as we are able - as priorities dictate. GA does not
currently have the top priority.
E. Documentation of Electronic Data Processing System (EDP)
The Auditors are correct in sayinc, our Documentation is partial.
They have correctly stated our Documentation needs to be continually
updated - and that up-to-date Documentatior will improve our ability
to improve and maintain existing Software.
What they have not said is:
1. Without compiete Docume:;tation, we, are at x isle -- having a,
dependance upon individuals who possess the undocumented
}cnowledge .
2. Without proper Documentation, we are dependant upon -
a. KnoY?ledaeabl Computer Users to assist and train new people.
5. Compute: Users making the correct use of the facilities
without the benefit of 4lritten instructions.
c. Informed individuals to c rrectly and completely communicate
Computer functions to Nlana_lement and others.
Complete Documentation is very costly to create and maintain: It.,s
extremely valuable in a crisis or when achange is made Uee. System
is changed, new Employee, etc.) however, it is unnecessary 4s,long
as nothing goes wrong and no changes are made.
We will continue to work at improving our Documentation -' but until"
we really acquire the upper hand in Applications and System
Maintenance, it will probably continue to be low priority.
C. Access to EDP Data Filer
Reference is made to "Access Control Logs" and a "Supervisor's Key"
to be used in controlling or recording the access to Data Files.
I am not familiar with either of these -- but I can imagine what
they are referring to. A "log" of activity will not control access
-- but it might help in identifying inappropriate access after the
fact ( i f the activity is recorded by "honest" people) . A
"Supervisor's Key" might be an extension of the password approach to
security, or it may be a real, physical key (as would unlock a door).,
Our Security is dependant upon a password. The Computer allows a
limited number of attempts to obtain access and then disallows
access until a Security person reinstates the Computer terminal.
Once a person has obtained access to the Computer, internal Security
allows access to select Files on the basis of User (i.e. General
Accounting can access GA Files, Payroll can access PR Files, etc.).
This is known as "Resource Security" - still, however, depends on a
password.
Additional Security is obtained through controlled access to the
Computer, by lock and key, and by continual monitoring of the System
and it's contents by myself and Data Processing Personnel.
We do not have a Security problem that I am aware of - as far as the
protection of Data is concerned. If.Data were tampered with, the
clerical and Accounting staff would quickly report it.
Security measures could be taken to further protect us from the most
likeiv area cf risk -- the Data Processing staff. Once again, though,
this would be very costly. I believe our intern^1 controls protect us
from this, but a clever Programmer intent upon doing a dastardly
deed could accomplish this with time and. effort. If we have a real
concern, there are steps we can take toward minimizing this risk -
but with each step comes an inconvenience and the accompanying
overhead. If we recall keys to the building, we will have to provide
ether access; if we want specific Computer controlled access, we will
have tc acquire the software, end manage the task (I am not aware of
existing Software for the Si36).
Or? larger Computer systems with increased levels of Security
concerns, Software can be purchased - this is atypical of a Data
Processing environment our size. We are growing to the point where
Security concerns may increase, however, and we may want to take
more precaution - perhaps within 5 years (or less with the
Police Department).
To: tionorable Mayor and Counci 1 Members
From: City Attorney
Date: February 9, 1990
Subj: PEAT MARWICK AUDIT LETTER IN RE "USE OF ATTORNEYS"
I am in receipt of a letter dated October 26, 1989 from the accounting
firm of Peat Marwick, which I had not seen before this week. I was
aware that the City had retained Peat Marwick for the financial audit,
but was surprised at the contents of the letter.
Specifically, a portion of the letter (page 8) addresses the City's
retention of outside law firms to represent our interests in various
courts or agencies. I think three observations are appropriate:
1) I was unaware that Peat Marwick had been retained t o do an
efficiency study and provide us with this type of recommendation. it
was my belief that they had simply been retained for a general
purpose financial audit.
2) The auditors stated ttcat the City currently uses "approximately 11
attorneys" for variois functions. This is based on the auditing
firm's apparent lack of familiarity with the facts. They apparently
included in their total of "11 attorneysn myself, 2 firms which
actually represent NCPA and not Lodi individually, bond counsel
(which State law reeuires to be from outside t1he City Attorney's
office) and firms un er retainer to insurance coT,F?nies covering the
City, as well as specialized firms handling individual matters for
the City.
3} Assuming they were correct on everything else, 1 am c: sure what
these observations would add to our ability to monitor 1�he status of
legal actions involving the Cit;;.
feel these orEtuitous rem�arf.s add nG.r.ina to the audit. However, iT the
Counci; reels it it necessary, i would be happy to respond further.
Respect~ully submitted,
Bob
Ncllatz-
City Attorney
SM, :vc
c�: City Manaaer
finance Director
Peat Marwick
The Honorable Members of City Council
City of Lodi, California:
We have applied certain agreed-upon procedures enumerated below with respect to the
Statementof Investment Policy adopted by Council Resolution 88-128. Our review was made
solely to assist you in evaluating com liance with that policy. It is understood that this report _
is solely for your information and is not to be referred to or distributed for any purpose to
anyone who is not a member cf the City Council or management of the City of Lodi, California
Our procedures and findings are summarized as follows:
I. We confirmed the City's investments as of June 30, 1989. We noted no
unreconcilable differences between the confirmed investment balances at June 30,1989
and the general ledger investment balances at June 30,1989.
2. We reviewed management's compliance with the Statement of Investment Policy. The
City was not in compliance with the Statement of Investment Policy as to allowable
investment instruments as the City Library's investment portfolio contained common
stock valued at $115,168 with a cost basis of $57,085 at June 30, 1989. The Library
obtained this stock through bequests, stock dividends, and dividend reinvestment
programs. The dividend reinvestment program is, in effect, the acquisition of stock.
The investmentpolicy does not identify stock as an allowable investment.
Because the above procedures do not constitute an audit conducted in accordance with
generally accepted auditing standards, we do not express an opinion on any of the items
referred ID above. In connection with the procedures referred to above, no inatters came to our
attention that caused us to believe that City management did not comply with the Statement of
Investment Policy adopted by Council Resolution 88-128, except as noted above. Ibd we
performed additional procedures or had we conducted an auditof the Statementof Investment
Policy in accordance with vkh generally accepted auditing standards, matters might have come
to ax attention that would have been reported to you. This reports relates only to the items
specified above and does not extend to any financial statements of the City of Lodi, California,
taken as a whole.
October 26,1989
AVWW Peat Marwick
;:;
Certified Public Accountants::
2495 Natomas Park Drive
Sacramento. CA 95833 2936
Independent Auditors' Rem
The Honorable Members of City Council
City of Lodi, California:
We have applied certain agreed-upon procedures enumerated below with respect to the
Statementof Investment Policy adopted by Council Resolution 88-128. Our review was made
solely to assist you in evaluating com liance with that policy. It is understood that this report _
is solely for your information and is not to be referred to or distributed for any purpose to
anyone who is not a member cf the City Council or management of the City of Lodi, California
Our procedures and findings are summarized as follows:
I. We confirmed the City's investments as of June 30, 1989. We noted no
unreconcilable differences between the confirmed investment balances at June 30,1989
and the general ledger investment balances at June 30,1989.
2. We reviewed management's compliance with the Statement of Investment Policy. The
City was not in compliance with the Statement of Investment Policy as to allowable
investment instruments as the City Library's investment portfolio contained common
stock valued at $115,168 with a cost basis of $57,085 at June 30, 1989. The Library
obtained this stock through bequests, stock dividends, and dividend reinvestment
programs. The dividend reinvestment program is, in effect, the acquisition of stock.
The investmentpolicy does not identify stock as an allowable investment.
Because the above procedures do not constitute an audit conducted in accordance with
generally accepted auditing standards, we do not express an opinion on any of the items
referred ID above. In connection with the procedures referred to above, no inatters came to our
attention that caused us to believe that City management did not comply with the Statement of
Investment Policy adopted by Council Resolution 88-128, except as noted above. Ibd we
performed additional procedures or had we conducted an auditof the Statementof Investment
Policy in accordance with vkh generally accepted auditing standards, matters might have come
to ax attention that would have been reported to you. This reports relates only to the items
specified above and does not extend to any financial statements of the City of Lodi, California,
taken as a whole.
October 26,1989
CITY OF IMI, CALIFORNIA
Single Audit Reports
Year Ended June 30, 1989
Marwick
Peat
CITY OF IMI, CALIFORNIA
Single Audit Reports
Year Ended June 30, 1989
CITY OF IMI , CALIFORNIA
Single Audit Reports
Year Ended June 30, 1989
PAU
Table of Contents 1
Independent Auditors' Report on Internal Accounting Controls at
the General Purpose Financial StatementLevel 2
Independent Auditors' Report on Compliance at the General Purpose
FSrs tial StatementLevel 4
Independent Auditors' Report on Supplementary Information
Schedule of Federal Financial Assistance
5
Schedule of Federal Financial Assistance
6
Notes to Schedule of Feral Financial Assistance
7
Independent Auditors' Report on Internal Accounting and. Administrative
Controls at the Federal Financial Assistance Program Level - Major
Programs Mme than 50 Percent
8
Independent Auditors' Report on Compliance mi h 4edfieRequirements
Applicable to Major Federal Financial Assistance Programs
11
IndependentAuditors' impart on Compliance -v� General Requirements
12
Schedule of Findings and Questioned Costs
13
Peat Marwick
Certified Public Accountants
2495 Natomas Park Ddw
Sacramento, CA 95833 2936
INDEPENDENT AUDITORS' REPORT ON
INTERNAL ACCOUNTING CONTROLS AT THE
GENERAL PURPOSE FINANCIAL STATEMENT LEVEL
The HxcvieMembers of City Council
City of Lodi, California:
We have audited the general purpose financial statements of the City of Lod i, California for the
year ended June 30,1989, and have issued our report thereon dated October 26,1989, which
was qualified because adequate historical cost records of general and proprietary fund fixed
assets and proprietary fund contributed capital were not available for examination and as such,
we were unable to satisfy ourselves v&h respect to these accounts. These general purpose
financial statements are the responsibility of the City's management. Our responsibility is to
express an opinion an these general purpose financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards and
Government Auditing Standards, issued by the Comptroller General of the United States.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the general purpose financial statements are free of material misstatements and
whether management has complied with laws and regulations and has established and
maintained a system of internal controls. An audit in accordance with those standards includes
examining, on a test basis, evidence supporting the amounts and disclosures in the general
purpose financial statements and compliance with laws and regulations. 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 opinions.
Under the date of October 26, 1989, we reported separately on the results of our study and
evaluation of internal accounting and administrative controls used in administering federal
financial assistance programs. The results of our study and evaluation of internal controls other
than those used in administering federal financial assistance programs are presented herein.
For the purpose of this report, we have classified the significantin ternal accounting controls in
the following category: expenditures and encumbrances. Our study and evaluation included all
the control categories listed above. The purpose ofour study and evaluation was to determine
the nature, timing, and extent of auditing procedures necessary for expressing an opinion on
the general purpose financial statements of the City of Lodi, California. Our study and
evaluation was more limited 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 control identified
above.
2
RFIPWPeat Marwick
The management of the City of Lodi, California is responsible for es.ablisiung and maintaining
a system of internal accounting accounting control. In fulfilling this responsibility, estimates
and judgments by management are required to assess the expected, benefits and related costs of
control procedures. The objectives of a system are to provide management with reasonable,
but not absolute, assurance'ahat assets are safeguarded against loss -from unauthorizeduse or
disposition, and` that transactions are executed in accordance with management's authorization
and recorded properlypermst the to mipreparation of financial statements in xcordance ;with
generally accepted accounting principles.. Because of inherent limitations in any system of =
internal accounting control, errors or irregularities may nevertheless occur And,not be; detected.
Also, projection of any, evaluation of thesystem to future periods is subject to'the" tisk" that -
procedures may become itadequate because ,of changes in conditions or that the degree of
compliance with the procedures deteriorate.
Our study and evaluation made for the limited purpose described in the fust three paragraphs
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, Calzfonva,
taken as a whole or on any of the categories of controls. identified in the third paragraph.
However, our study and evaluation and our audit disclosed no condition that wa believe to be a
material weakness., in our letter to management dated October 26, 1989,`we have separately
communicated our observations and recommendations regarding 'certain other matters,
including those perWIringIo nonmatedilinternal control findings.
This mart is intended for the information of the City Council, management, and the U.S.
Department of Housing and Udsi Development. 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.
October 26,1989
3
We have audited the general purpose financial statements of the City of Lodi, California as of
and for the year ended June 30,1989, and have issued our report thereon dated October 26,
1989, which was qualifiedbecause adequate historical cost records of general and proprietary
fund f bed assets and proprietary fund contributed capital were not available for ex ami n ati o n
and as such, we were unable to satisfy ourselves v&h respect to these accounts.
We conducted our audit in accordance with generally accepted auditing standards and
Governmental Auditing Standards, issued by the Comptroller General of the United States.
Those standards require that we plan and I - 6- ori the audit to obtain reasonable assurance
about whether the general purpose fina dd statementsare free ofmdedal misstatement
Compliancelaws, tions, contracts, and grants applicable to the City L od i; California
is the responsibility of to Cittyy of Lodi> California's management. As part cf obtaining
reasonable assurance about whet�ier the general purpose financial statementsae free cf material
misstatement, we performed tests of the City of Lodi, California's compliance with certain
provisions of laws, regulations, contracts, and grants. However, our objective was not to
provide an opinion on overall compliance with such provisions. Accordingly, we do not
express such an opinion.
The results of our tests indicate that, with respect to the items tested, the City cC Lodi,
California complied, in all material respects, with the provisions referred ID in the preceding
EWith respect to items not tested, nothing came to our attention that caused us to
believe that The City of Lodi, California had not complied, in all material respects, with those
provisions.
This report is intended for the information of the City Council, management and the U.S.
Department of Housing and Urban Development This resmction is not intended to Iimit the
distribution of this report, which, upon acceptance by the City of Lodi, California, is a matter
cf public record.
K? r1G -C� n..�,
October 26,1989
4
...�;�.,e.v........J...u.s: wPvsi�Xrs...:,.r........-:...w...:........ ... �.. ...i.t"_ .' :.'. ... .. .. .5L'i
1 6-
A,V lit
Certified Public Accountants
2495 Natomas Park Drive
Sacramento. CA 95833 2936
INDEPENDENT AUDITORS' REPORT
ON SUPPLEMENTARY INFORMATION
SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE
The Honorable Members of City O=x:i.1
City cf Lodi, California.
We have audited the general p urpose financial statements of the City cf moi. 1Wi f irm i a for the
year ended June 30,1989, and have issued our report thereon dated October 26,1989, which
was qualified because adequate historical cost records of general and proprietary fund fixed
assets and proprietary fund contributedcapital were not available for examination and as such,
we were unable to satisfy ourselves with respect to these accounts. 'T nese general purpose
financial statements are the responsibility cf the City's management, Our responsibility is to
express an opinion on these general purpose financial statements based on our aunt.
We conducted our audit in accordance with generally accepted auditing standards and
Government Auditing Standards, issued by the Comptroller General of the United States.
Those standards require that we plan and perforn; the audit to obtain reasonable assumce about
whetherthegeneral purpose finks al statements are free ofmaterialmisstatements and whether
management has complied with laws and regulations. An audit in accordance with those
standards includes examining, on a test basis, evidence supportingthe amounts and disclosures
in the general purpose financial statements and con ipliance v&h laws and regulations. An audit
also includes assessing the accounting principles used and significant estimates made by
n=agmxn t, as well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinions.
Qr audit was made for the purpose of forming an opinion cn the general purpose financial
statements of the City of Lodi, California, taken as a whole. The supplementary information
included in the accompanying schedule of federal financialassi stance is presented for purposes
cf additional analysis and is not a required part of the general purpose financial statements.
Such su lementary information has been subjected to the auditing procedures applied in the
audit of the general purpose financial statements and, in aur opinion, is fairly presented in all
material respects in relation to the generalpurpose financial statementstaken as a whoie.
October 26, 1989
See accompanying notes to schedule of federal financial assistance.
rol
MY OF LODI, CALIFORNIA
Schedule of Federal
Financial Assistance
For the. Year Ended June 30, 1989
Federal CFDA
or Grantor's
Federal Grantor EM=m Title
Pass -Through
Number Expenditures
.
U.S. DepaM=t of Housing and Urban Development:
Community Development Block Grants:
1988-1989 Program Year
14.219
39,056
1987-1988 Program Year
14.219
35,481
1985-1987 Program Years
14.219
63,392
137,929
U.S. Treasigy jkW=nt:
Federal Revenue Sharing
U.S. Department of TranM=tion( ss -through
21.300
428
State Office of Criminal Justice Pianniuh
Federal Urban Aid
20.205
5,319
U.S jkl2AM=t of Justice (Pass-th m-gh
State Office of Criminal Justice Planning);
Career Criminal Apprehension Program
CR85027235.0
50,512
Drug Suppression Program
CA86017235.0
37,245
Total Federal Financial Assistance
K11,433
See accompanying notes to schedule of federal financial assistance.
rol
CITY OF LODI, CALIFORNIA
Notes to Schedule of Federal Financial Assistance
June 30, 1989
(1) General
The accompanying Schedule of Federal Financial Assistance presents the activity of all
federal financial assistance programs of the City of Lodi, California. The City of Lodi,
reporting entity is defined in note 1 to the City's general purpose financial statements.
Federal financial assistance is received directly from federal agencies and through other
government agencies.
(2) Basis of Accounting Grant Programs
The Schedule of Federal Financial Assistance has been prepared on the modified accrual
basis of accounting which is described in note 1 to the City's general purpose financial
statements.
(3) Relationship to General Purpose Financial Statements
Federal financial assistance revenues are reported in the City's general purpose financial
statements as follows:
Intergovemmental Revenue
General Fund $ 25,739
Special Revenue Fund 186.890
Total JA2,629
Total Federal assistance revenues do not agree with expenditures reported en the Schedule
of Federal Financial Assistance due to the timing of the submission of claims for
reimbursement of expenditures.
(4) Relationship to Federal Financial Reports
Amounts reported in the accompanying schedule agree with the amounts reported in the
related federal
financial reports.
7
Certified Pubk Accountants
2495 Natomas Park Drive
Sacramento. CA 95833 2936
INDEPENDENT AUDITORS' REPORT ON
INTERNAL ACCOUNTING AND . ADMINISTRATIVE CONTROLS
AT THE FEDERAL FINANCIAL ASSISTANCE PROGRAM LEVEL
MAJOR PROGRAMS MORE THAN 50 PERCENT
The Honorable Members of City Council
City of Dodi, California:
We have audited the general purpose financial statements of the City of Lodi, California, for
the year ended June 30, 1989, and have issued our report thereon dated October. 26, 1989,
which was qualified because adequate historical cost records of general and proprietary fund
fixed assets and proprietary fund contributed capital were not available for examination and as
such, we were unable to satisfy ourselves with respect to these accounts . These general
purpose financial statements are the responsibility of the City's management. Our
responsibility is to express an opinion on these general purpose financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards, and
Government Auditing Standards, issued by the Comptroller General of the United States.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatements and whether
management has complied with laws and regulations and has established and maintained a
system of internal controls. An audit in accordance with those standards includes examining,
on a test basis, evidence supporting the amounts and disclosures in the general purpose
financial statements and compliance with laws and regulations. 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 :or our opinions.
Under the date of October 26, 1989, we reported separately on the results of our study and
evaluation of internal accounting controls performed in connection with our audit of the general
purpose financial statements. The results of our study and evaluation of internal accounting
and administrative controls used in administering federal financial assistance programs are
presented herein.
For the purpose of this report we have classified the significant internal accounting and
administrative controls used in administering the major federal financial assistance programs in
the following categories:
•
Accounting conlrols
- Expenditures and encumbrances
— wvu saguw,
- Cash management;
- Relocation assistance and real property acquisition; and
- Federal financial reports.
Specific Requirements:
Types of services;
Eligibility; _ -
- Matching, level of effort, and/or earmarking requirements;
Ring;
- Special requirements;
Cost Allocation; and
Monitoring subrecipients.
Our study and evaluation included all the control categories listed above, except that we did not.:
evaluate the accounting controls over relocation assistance and real property acquisition,
eligibility, matching, level of effort, and/or earmarking requirements, cost allocation, or
monitoring subrecipients because these requirements were not applicable to the major programs
at the City of Lodi, California for the year ended June 30, 1989.
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, estimates and judgments by management are
required to assess the expected benefits and related costs of the 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.
During the year ended June 30, 1989, the City of Lodi, California, expended 59.6 percent 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 occur, determining the internal control procedures that should prevent or detect such
9
AW Peat Marwick
errors and irregularities, determining whether necessary procedures are prescribed and are
being followed satisfactorily, and evaluating any weaknesses.
With respect to the internal control systems used solely in administering nonmsjor federal
financial assistance programs, 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. Accosdutgly, our audit would not necessarily disclose material.
weaknesses.in`the internal control systems used'solely in admuustering nonmajor federal
financial assistance programs.
Our study and evaluation described in the two preceding paragraphs was more limited than .
would be necessary to express an opinion:,.. the internal control systems used in administering
the major and nonmajor federal financial assistance programs `of the City of Lodi, California.
Accordingly, we do not express an opinion on the internal control systems used in
administering the major and nonmajor federal financial assistance pr6gcams of the City of Lodi,. x,
California. However, our study and evaluation and our audit"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. In our letter to management dated October 26, °1989, we have separately
communicated our observations and recommendations regarding certain other matters,
including those pertaining to nonmaterial internal control findings.
This report is intended solely for the use of the City Council, management, and the U.S.
Department of Housing and Urban Development and should not be used for any other purpose -
Ibis 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
October 26. 1989
i< P t A 4;:�, ^ L�
10
certified Public Accountants
2495 Natomas Park Drive
Sacramento. CA 95833 2936
INDEPENDENT AUDITORS' REPORT
ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE
TO MAJOR FEDERAL FINANCIAL ASSISTANCE PROGRAMS
The Honorable Members of City Council
City of Lodi, California:
We have audited the City of Lodi, California's compliance with the requirements governing - -
types of services allowed or unallowed; eligibility; matching. level of effort, or earmarking;
reporting, claims for advances and reimbursements; and amounts claimed or used for matching
that are applicable to its major federal financial assistance program, which is identified in the
accompanying schedule of federal financial assistance, for the year ended June 30, 1989. The
management of the City of Lodi, California is responsible for the City of Lodi, California's
compliance with those requirements. Our responsibility is to express an opinion on compliance
with those requirements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards,
Governmental Auditing Standards issued by the Comptroller General of the United States, and
OMB Circular A-128, Audits of State and Local Governments. Those standards and OMB
Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about
whether material. noncompliance with the requirements referred to above occurred. An audit
includes examining, on a test basis, evidence about the City of Lodi, California's compliance
with those requirements. We believe that our audit provides a reasonable basis for our opinion.
The results of our audit procedures disclosed immaterial instances of noncompliance with the
requirements referred to above, which are described in the accompanying schedule of findings
and questioned costs. We considered these instances of noncompliance in forming our
opinion on compliance, which is expressed in the following paragraph.
In our opinion, the City of Lodi, California, complied, in all material respects, with the
requirements governing types of services allowed or unallowed; eligibility; matching level of
effort, or earmarking; reporting; claims for advances and reimbursements; and amounts claimed
or used for matching that are applicable to its major federal financial assistance program for the
year ended June 30, 1989.
October 26, 1989
11
Certified Public Accountants
2495 Natomas Park Drive
Sacramento. CA 95833 2936
INDEPENDENT AUDITORS' REPORT ON
COMPLIANCE WITH GENERAL REQUIREMENTS
The Honorable Members of City Council
City of Lodi, California:
We have applied procedures to test the City of Lodi, California's compliance with the fotIowing
requirements applicable to its major federal financial assistance program, which is identified in
the schedule of federal financial assistance, for the year ended Jane 30,1989: political activity;
Davis -Bacon Act; civil rights; cash management; and federal financial rcports.
Our procedures were limited to the applicable procedures described in the Office of
Management and Budget's Compliance Supplement for Single Audits of State and Local
Governments. Our procedures were substantially less in scope than an audit, the objective of
which is the expression of an. opinion on the City of Lodi, California's compliance with the
requirements listed in the preceding paragraph. Accordingly, we do not express such an
opinion.
With respect to the items tested, the results of those procedures disclosed no material instances
of noncompliance with the requirements listed in the first paragraph of this report. With respect
fu
to items not tested, nothing came to our attention that caused us to believe that the City of Lodi,
California had not complied, in all material respects, with those requirements. However, the
results of our procedures disclosed immaterial instances of noncompliance with those
requirements, which are described in the accompanying schedule of findings and questioned
costs.
This report is intended for the information of the City Council, manage trtent, and the U.S.
Department of Housing and Urban Development. This restriction in not intended to limit the
distribution of this report, which is a matter of public record.
October 26, 1989
12
CITY OF LODI, CALIFORNIA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
U.S. Department of Housing and Urban Development
Community Development Block Grants
Finding: In our tests of compliance with general, regulations established by the U.S.
Department of Housing and Urban Development (HUD). we noted the City has spent; 28%
($39,000) of total expenditures on planning and administration. HUD "requires that no more
than 20% of total expenditures be related to planning and administration during the fiscal year
ending June 30, 1989. We also noted.that the City does not maintain &-schedule of total
planning and administration exDenditures; therefore, they are unable to determine if they are in
compliance with HUD regulations.
Recommendation: The .City should ensure that they are in compliance with HUD
regulations by maintaining appropriate documentation and periodically monitoring thein
compliance.
City's response: The City of Lodi is allocated 20% of its total award for administrative
costs, and this amount is budgeted and shown in the monthly expenditure reports as a separate
item. At no point has the City exceeded the allocated amount. The City's documentation of
expenditures for both project costs and administrative costs have been reviewed by both the
U.S. Department of Housing and Urban Development and by the San Joaquin County
- Planning and Building Inspection --Neighborhood Preservation Division in addition to periodic -- -
review by City staff. We have never been advised of a problem with administrative costs.
13
CITY OF LODI, CALIFORNIA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
U.S. Department of Justice
(Pass-through State Office of Criminal Justice Planning)
Career Criminal Apprehension Program
h
Finding: In our tests of compliance over, the City's administrative controls over the Career
Criminal Apprehension Program we floted`that there was no individual responsible during the
year under audit for monitoring and maintaining compliance with the regulations imposed on
z
the use of funds received under this federal program.
Recommendation: The City should appoint an individual to monitor compliance with
regulations in order to ensure compliance and avoid the possible loss of future grant monies.... _.._
City's response: In the initial grant request in 1984 and subsequent approval by the Lodi
City Council and the State Office of Criminal Justice Planning, the City of Lodi's Chief of
Police Floyd Williams was named as Project Director and Lodi's Police Captain Larry Hansen
was named as Project Manager. Ongoing monitoring of each phase eras conducted by the staff
of OCJP. Their summary and conclusions and follow up actions did not indicate a problem
with the City's compliance with the grant or needing a City appointed individual to monitor the
g=L
t
14
15
f
15
16
F
MW
Peat Marwick
Certified Public Accountants
Page
Independent Auditors' Report 1-2
Combined Balance Sheet - All Fund Types and Account Groups 3-4
Combined Statement of Revenues, Expenditures and Changes
in Fund Balances - All Governmental Fund Types and
Expendable Trust Funds 5
Combined Statement of R, -venues, Expenditures and Changes
in Fund Balances— Budget and Actual - General and
Special Revenue Funds 6
Combined Statement of Revenues, Expenses and Changes in
Retained Earnings - All Proprietary Fund Types 7
Combined Statement of Changes in Financial Position -
All Proprietary Fund Types 8-9
Notes to General Purpose Financial Statements 10-30
Additions?.- information:
Enterprise Funds:
Combining Balance Sheet
Combining Statement of Revenues, Expenses and Changes
in Retained Earnings
Combining Statement of Changes in Financial Position
31
32
33
Independent Auditors' Report
The Honorable Members of City Council
City of Lodi, California:
We have audited the general purpose financial statements of the City cf Lodi,
California, as of and for the year ended June 30, 1989, as listed, in the .
accompanying table of contents. These general .purpose financial.:_ statements _.._.
are the responsibility of the City's management Our responsibility is to
express an opinion on these general purpose -financial: statements based on our
audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable.. assurance
about whether the general purpose financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the general purpose 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.
The City does not maintain complete historical cost records of its general and
proprietary fund fixed assets and proprietary fund contributed capital.
Accordingly, we were unable to satisfy ourselves with respect to fixed asset
balances of $6,837,685 and $24,086,679 in the general fixed asset account
group and the proprietary funds, respectively, depreciation expense of
$1,709,944 in the proprietary funds, and unrecorded contributed capital.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to examine adequate
fixed assets records and proprietary contributed capital records as discussed
in the preceding paragraph, the general purpose financial statements referred
to above present fairly, in all material respects, the financial position of
the City of Lodi, California, at June 30, 1989, and the results of its
operations and the changes in financial position of its proprietary fund types
for the year then ended in conformity with generally accepted accounting
principles.
(Continued)
-1-
-2-
Peat Marwick
Our audit was made for the purpose of forming an; opinion on.,. the general
purpose" financial statements taken as a whole.: The combining""financial'
statements listed inthe accompanying table` of -."contents' are "` presented ',for
purposes of 'additional analysis and are not a.."required.. part .of .the-gene"ral"
purpose financial statements of the City of LodiCalifornia. Such'
informationhas been subjected to the auditing procedures applied.-in''the audit;
of the general purpose financial statements And,.in our opinion, except for
i
the effects of such adjustments, if any, as might have been ..determined "to be,
necessary had we been able to examine adequate
y q assets records.:. and.
proprietary contributed capital records as 'discussed in "the "secondpreceding"
paragraph, the supplementary information. referred to above, is' fairly"statedI
�.
in all material respects in relation to the general' purpose financial.
statements taken as a whole.
?'
October 26, 1989
i
l
-2-
-3-
v
CITY
OF LODI
Combined Balance Sheet - All Fund Types and Account Groups
.Tune
30, 1989
y
Governmental
Fuad Types
Special
Debt
Capital ,r
General
Revenue
Service
Pro ect84f
AssetsX
zK
Cash and investments (note 3)
$ 2,220,678
1,461,856
219161
3,822,215 H„
Restricted assets (note 3)
-
203,000
x
Receivables (net of allowances for
uncollectables):
. u
Accounts
348,479
3,940
-
490,475 V„
Property taxes (note 4)
562,745
-
8,472
u
Special assessments
Interest —----66-1197--15;829—
—48-5
X038 •,
Due from other funds or governmental
agencies (notes 5 and 7)
-
39,519
328,433
-427,600''-s.,
Inventory
97,345
-
-
Other assets
27,380
-
-
Fixed assets
Amount to be provided for retirement
of general long-term debt
-
-
-
Total assets
$ 3.322.824
1.521-144
561.551
4.741.1 2R
-3-
I
1§'i�,
�$K
Fiduciary
Proprietary
Fund Types
Fund, Type
Account,
G!:jjWs
General
General
internal
Trust and
Fixed
Long -Term
'Tota -t
Enterprise
Service
Agency
Assets
Debt
(Memorandum only)
1698759887
1,794,297
7,740,793
339936*887
8,446,350
8,649,350
2,042,148
36,505
2,921,547
47,779
53,181
672,777
-
-
315,000
315,000
257,810
18,624
28,742
388,725
hr
1,033,333
1,828,885
7 1,467,331
1.56f,,676
17,796
45,176
24,086,679
6,837,685
30,924,364
S
4,475,801
4,475,801
54.275.113
�, 12.928,174,821
6,837,685
4 4Z $Q1
85,723,188
188
(Continued)
I
CITIf OF ,` LODI
,
Combined Balance Sheet - All Fund Types and Account
Groups'- Continued
June 30,. 1989
Governmental Fuad Types
,
Special
Debt
Capital
General
Revenue
Service
Projects -n
Liabilities and Fund Equity
Liabilities:
Accoupts payable and other liabilities $
508,027"
38,144
10,098
57
265,071fi
2,900 p
Accrued salaries and .wages
182,048
-
Accrued interest
-
-
-
j
Due to other funds (note 7)
9,422
68,500
-
359,100
Accrued compensated absences.(note 6}'
903,410`:
-
8
Deferred compensation payable (note 11)
-
-
--=
-'
Deferred revenue
240
-
315,000
Self-insurance reserve
-
-
-
Capitalized lease obligations (note 6)
Certificates of participation payable,
net of discount (note 6)
-
-
-
Bonds payable, net of discount (note o)
-
-
-
Total liabilities
1,603,137
116,742
315,057
627,071'`
Fund equity:
Investment in general fixed assets
-
-
-
-
Retained earnings
-
-
-
-
Fund balance:
Reserved for encumbrances
60,357
35,007
-
199,023
Unreserved - designated
-
1,369,395
246,494
3,915,234`.
Unreserved
1,659,330
Total fund equity
1,719,687
1,404,402
246,494
4,114,257
Contingent liabilities (note 11)
Total liabilities and fund equity $
3.3
1.521.144
4 4
See accompanying notes to general purpose financial statements.
IM
t
3s
Fiduciary
proprietary
Fuad 'ljrpes
Fund Type
Account
Groups
General
General
Internal
Trust and
Fixed
Lonj=-Tezm
Total
Enter_ prise
Service
Agency
Assets
Debt
(Memorandum Only)'
841,948
63,421
580,833
-
-
2,297,501
;... 38,955
-
-
-
-
234,001
x;
355,542
-
-
-
-
355,542
1,037,354
-
315,000
-
_..':".: "'
1,789,366. .
542,345...
_
-
_
-
1,995,3I0
3,441,065
_
-
5,369,123
-
-
50369,123
"_
-
-
-
-
315,240
1,440,854
-
-
-
1,440,854
_
-
-
-
110,728
110,728
8,917,483
-
-
-
-
8,917,483
-
-
-
-
2,369,763
2,369,763
11,733,627
1,504,275
6,264,956
-
4,475,801
26,640,666
ATLY'
-
-
-
6,837,685
-
6,837,685
"42,541,486
308,646
-
-
-
42,850,132
294,387
1,909,865 - 7,440,988
- - - - 1,659,330
308,646 1,909,865 6,837,685 - 59,082,522
1.$12.921 8.174.821 6.837.685 4 4LiJ 23.188
A- CITY OF LODI'
Combined Statement of Revenues, Expenditures and ,Changes 'in Fuad Balances
All Governmental Fund Types and Expendable Trust Funds
Year Ended June
30, 1989
Fiduciary
Governmental
Fund Types
Fwd a
Special
Debt
capital
Expendable
Totals
General
Revenue
Service
Projects
Trust"
(Memorandum Only),
Revenues:
$ 8,696,973
646,180
50,326 ;
9,393,479
Taxes
Licenses and permits
469,738
2,096,697
1,164,382
-
_
r
469,738 ;
Intergovernmental revenues
3,730,341
39,451
Charges for services
Fines, forfeits and penalties
338,284
805,887
-
97,503
-
2,956
-
652,035
-
178,592
338,284
1,736,973
Interest and rental income
509,383
13,657
20.000
135,600
2,669.151
3,347,791
Miscellaneous revenue
16,647,303
1,961,173
' 73.282
787,635
2.847,743
22.317,136
Total revenue
Expenditures:
Current:_
General government
1,666.520
637,500
-
533,210
2,8379230
7,574,258
Public protection
7,523,746
2,838,813
50,512
761,877
-
-
-
844,914
-
4,445,604
Public works
3,164,290
-
-
-
-
3,164,290
Sanitation
737,673
-
737,673
Library
Parks and recreation
1,986,225
97,283
-
_
34,564
_
2,422,487
T
937,878
2,083,508
3,394,929
Capital outlay
Debt service:
-
85,434
-
-
85,434
Interest and fiscal charges
-
-
-
390,000
-
-
390,000
Principal payments
Total expenditures
17,917,26
1,547,172
509,998
3 800,611
937,878
24,712,926
Excess (deficiency) of revenues over
( 1,269,964)
414,001
(436, 716)
(3,012 976)
,
1,909,865
(2,395,790):;
(under) expenditures
Other financing sources (uses):
Operating transfers in (note 8)
1,349,036
20,118
449,794
1,166,146
-
2,985,094
Operating transfers out (note 8)
(484,941)
-
-
-
-
(484,941)
121,634
Other
121,634
-
-
-
Total other financing sources (uses)
864,095
141.752
449,794
1,166,146
-
2,621,787
Excess (deficiency) of revenues and
other financing sources over
expenditures and other financing uses
(405,869)
555,753
13,078
(1,846,830)
1•,909,865
225,997 ;
Fund balances, as restated, June 30, 1988
2.125,556
848,649
233,416
5,961,087
-
9 168,708 ,
(note 12)
,
Fund balances, June 30, 1989
$ 1.7
t 4
See accompanying notes to general purpose
financial state':nents
r' t� � : AW
4rt'` 'A'. ?`t hi* 3
iN
CITY OF LODI
Combi.:_d Statement of Revenues, Expenditures and Changes in Fund Balances "
Budget and Actual General and Special Revenue Funds
Year Ended June 30, 1989
General Fund
Variance
Favorable
Budget Actual (Unfavorable) Budget
Revenues: f
Taxes $ 8,446,445 8,696,9731 250,528 636,015
0,800 469,738
Licenses and permits 68 (211,062)
Intergovernmental revenues 1,785,780 2,096,697, 310,917 1,450,900
Charges for services 3,819,880 3;730,341 (89,539) 44;600
Fines, forfeits and penalties 334,000 338,284 4,284
Interest and rental income. 598,230 805,887 207,657 5T,000
_.
Miscellaneous revenue 309,500 509,383 199,883 T;SOQ
Total revenue 15,974,635 16,647,303 672,668 21190,075
Expenditures: '-
Current:
General government 1,760,410 1,666,520 93,890 2;036,700 x:
Public protection 6,995,536 7,523,746 (528,210) '.431"023
Public works 2,912,384 2,838,813 153,571 1,819,MO
Sanitation 3,317,260 3,164,290 152,970
Library 764,725 737,673 27,052
Parks and recreation 1,869,717 1,986,225 (116,508) 191,703
Total expenditures 17,680,032 17,917,267 (237,235) 44090,476
Excess (deficiency) of revenues over
r`.
(under) expenditures (1,705,397) (1,269,964) 435,433 (19900,401
Other financing sources (uses):
Operating transfers in 2,420,625 1,349,036 (1,071,589) -
Operating transfers out (1,076,590) (484,941) 591,649 -
Other - - - -
Total other financing sources (uses) 1,344,035 864,095 (479,940) -
44-L,� .
Excess (deficiency) of revenues and
other financing sources over -`
expenditures and other financing uses (361,362) (405,869) (44,507) (1,900,401)
Fund balances, as restated, June 30, 1988 2,125,556 2,125,556 - 8489649
Fund balances, June 30, 1989 $ 1,764.194 1.719.687(44.50Z
See accompanying notes to general purpose financial statements.
-6-
19961,173 (228,902) 18,164,710 18,608,476 (443,766)
637,500
1.399,200
3,797,110
2,304,020
1,493,090
50,512
(7,439)
7,038,559
7,574,258
(535,699)
761,877
1,057,173
4,791,434
3,600,690
1,190,744
ci&l
Revenue
Fund
Total
(Memorandum Only)
152,970
Variance
764,725
Variance
27,052
Favorable
94,420
2,061,420
Favorable
(22,088)
Actual (Unfavorable)
Budget
Actual
(Unfavorable)
19,464,439
_
6469180
10.105
9,082,520
9,343,153
(260,633)
krif
680,800
469,7108
.211.062
(855,963)
1 164*382
(286,518)
3,236,680
3,261,079,
(24,399)
39,451
(5,149)
3,864,480
3 769,792
94.688
�334,000
�338,284
(4 284)
97,503
46,503
649.230
903,390
(254,160)
13,657
6,157
317,000
523,040
(206,040)
19961,173 (228,902) 18,164,710 18,608,476 (443,766)
20,118 20,118
121,634 121,634
141,752 141,752
555,753 2,456,154
848,649
2,420,625 1,369,154 (1,051,471)
(1,076,590) (484,941) 591,649
- _121j634 121,634
1,344,035 1,005,847 (338,138)
(2,261,763) 149,884 2,411,647
2,974,205 _2j_ 974,205
712 .442 =LIZ=4
2 =,kO 8U 2,411,64Z
637,500
1.399,200
3,797,110
2,304,020
1,493,090
50,512
(7,439)
7,038,559
7,574,258
(535,699)
761,877
1,057,173
4,791,434
3,600,690
1,190,744
3,317,260
3,164,290
152,970
764,725
737,673
27,052
97,283
94,420
2,061,420
2,083,508
(22,088)
19547,172
2,543,304
21,770,508
19,464,439
2,306,069
krif
414,001
2,314,402
(3,605,798)
(855,963)
2,749,835
20,118 20,118
121,634 121,634
141,752 141,752
555,753 2,456,154
848,649
2,420,625 1,369,154 (1,051,471)
(1,076,590) (484,941) 591,649
- _121j634 121,634
1,344,035 1,005,847 (338,138)
(2,261,763) 149,884 2,411,647
2,974,205 _2j_ 974,205
712 .442 =LIZ=4
2 =,kO 8U 2,411,64Z
Operating revenues:
Charges for services $
28,937,107
965,038
29,902,145
Operating expenses:
Personal services
4,161,641
112,610
4,274,251
Supplies, materials, and
.. ..::,_...
services
574,162
269,882
844,044
Utilities and communications
20,968,194
--
20,968;194
Depreciation
1,709,944
-
1,709,944
Benefit payments
261,688
1,293,042
1,554,730
Other
383,882
-
383,882
Total operating expenses
28,059,511
1,675,534
29,735,045
Operating income (loss)
877,596 _
(710,496)
(167,100)
Nonoperating revenues (expenses):
Sewer bond taxes
300,605
-
300,605
Interest revenue
2,151,166
119,682
2,270,848
Rent
149,819
-
149,819
Other
571,921
-
571,921
Interest expense
(711,084)
-
(711,084)
Net operating transfers
in (out)(note 8)
(2,893,-343)
393,190
(2,500,153)
Total nonoperating revenues (430,916) 512,872
Net income (loss) 446,680 (197,624)
Retained earnings, as restated,
June 30, 1988 (note 12) 42,094,806 506,270
Retained earnings, June 30, 1989 $ 42.541.486 3.646
See accompanying notes to general purpose financial statements.
-7-
81,956
249,056
42,601,076
Sources of working capital:
Operations:
Net income (loss) $ 446,6SO (197,624) 249,056
Item not requiring working
capital aepreciation 1,709,944 1,709,944
Working capital provided
_ by operations
2,156,624, -
(197,624)_
Increase in certificates of
participation (net of discount)
8,917,483
-
81917,483
Total sources of
working capital
11,074,107
(197,624)
10,876,483
Uses of working capital:
Acquisition of fixed assets, net
4,773,212
_ -
__ 4,773,212
Restatement
10,000
-
10,000
Total uses of working
capital
4,783,212
-
4,783,212
Net increase (decrease)
in working capital $
6.290.895
6.0
(Continued)
am
Elements of net increase
(decrease) in working capital:
Cash and investments
$ (2,108,163)
3319759
(1,776,404)
Restricted assets
8,446,350
-
8,4469350
Accounts receivable, net
332,125
(1,080)
331,045'
Property taxes receivable
47,779
-
47,779
Interest receivable
20,489
2,318
22,807
Due from other funds or
governmentagencies1,033,333
-
19033,333
Inventory
148,145
-
148,145
Other assets
(1,178)
(32,000)
(339178)
Accounts payable and accrued
liabilities
(54,925)
(39,783)
(94,708)
Accrued salaries and wages
62,989
-
62,989
Accrued compensated absences
(243,153)
-
(243,153)
Accrued interest
(355,542)
-
(355,542)
Due to other funds
(1,037,354)
-
(1,037,354)
Accrued self insurance claims
-
(458,838)
(458,838)
Net increase (decrease)
in working capital
$ X6.290.895
( 97.624)
6.093.271
See accompanying notes to general
purpose financial
statements.
-9-
CITY OF LODI
Notes to General Purpose Financial Statements
June 30, 1989
(1) Simmry of Significant Accounting Policies
The City of Lodi (City).was incorporated December._6, 1906, as a municipal "
corporation under the general laws of the State of California. The City
operates under a Council -Manager form of government and provides ;the
following services as authorized by its charter: general government,
public works, public protection, sanitation, library, and parks and
recreation.
The accounting policies of the City of Lodi conform to generally accepted
accounting principles as applicable to governmental units. The following
is a summary of the more significant policies:
(a) Reporting Entity
The City's financial statements include the operations of all
organizations for which the City Council exercises oversight
responsibility. Oversight responsibility is demonstrated by financial
interdependency, selection of governing authority, designation of
management, ability to significantly influence operations, and
accountability for fiscal matters.
Based on the aforementioned oversight criteria, the Lodi Publzc
Improvement Corporation (LPIC) is included in the Enterprise Funds as the
City has oversight responsibility for this entity.
(b) Basis of Presentation - Fund Accounting
The accounts of the City are organized on the basis of funds and account
groups, each of which is considered a separate accounting entity. The
operations of each fund are accounted for with a separate set of
self -balancing accounts that comprise its assets, liabilities, fund
balance/retained earnings, revenues, and expenditures/expenses. The
various funds are summarized by type in the financial statements. The
following fund types and account groups are used by the City:
Governmental Fund Types
Governmental Funds are those through which most governmental functions
of the City are financed. The acquisition, use, and balances of the
City's expendable financial resources and the related liabilities
(except those accounted for in proprietary funds) are accounted for
(Continued)
-1C-
through governmental funds. The measurement focus is upon determination
of changes in financial position, rather than upon net income
determination. Thefoilowing are the City's governmental fund types:
• General Fund - The General Fund is the general operating fund of the
City. It is used to account for all financial resources except those
required to be accounted for in another fund. E
• Special` Revenue Funds - Special Revenue Funds are used to account for
the proceeds of specific revenue sources (other than special
assessments, or major capital projects) that are legally restricted
to expenditures for specified purposes.
• Debt Service Fund_- Debt_ Service Fund is usedtoaccount for -the -
accumulation of resources for and the
payment of, general long -terse
debt principal, interest, and related costs.
E
• Capital Projects Fund - Capital Projects Fund is used to account for e
financial resources to be used for the acquisition or construction of
major capital facilities -(other than those financed by proprietary �.
funds and trust funds)..
ProprietaEl Fund Types
Proprietary Funds are used to account for the City's on-going
organizations and activities which are similar to those often found in
the private sector. The measurement focus is upon determination of net
income. The following are the City's proprietary f,-md types:
•
Enterprise Funds - Enterprise Funds are used to account for
operations (a) that are financed and operated in a manner similar to
private business enterprises - where the intent of the governing body
is that the costs (expenses; including depreciation) of providing
goods or services to the general public on a continuing basis be
financed or recovered primarily through user charges; or (b) where
the governing body has decided that periodic determination of
revenues earned, expenses incurred, and/or net income is appropriate
for capital maintenance, public policy, management control,
accountability, or other purposes.
• Internal Service Funds - Internal Service Funds are used to account
for the financing of goods or services provided by one department or
agency to other departments or agencies of the City, or to otter
governmental units, on a cost -reimbursement basis.
(Continued)
-11-
CITY OF LODI
Notes to General Purpose Financial Statements
Fiduciary Fund Type
Fiduciary Funds are used toi account for assets held by the City :in a
trustee capacity or as an agent for individuals, private organizations,'
other governmental units, and/or other funds.
•
Agency Funds - Agency= funds are used principally: to account for.
collection of special assessments and payment of related bond
principal and interest. Agency funds are custodial in nature and.do
not involve measurement of results of operations.
• Expendable Trust Fund Expendable Trust Fund is used principally to
account for funds held by the governmental unit in a trustee capacity
--- - - - -- for. individuals, private organizations,
and/or other funds.
Account GroM
other governmental units, -
Account groups are used to establish accounting control and
accountability for the City's general fixed assets and general long-term
debt. The following are the City's account groups:
• General Fixed Assets Account Group This group of accounts is
established to account for fixed assets of the City, other than those
accounted for in the proprietary funds.
• General Long -Term Debt Account Group - This group of accounts is
established to account for all long-term obligations of the City
except those accounted for in the proprietary funds.
(c) Basis of Accounting
Governmental funds and Fiduciary fund types use the modified accrial b'sis
of accounting. Under this basis of accounting, revenues are recorded nen
they become both measurable and available to pay liabilities of the
current period. Revenues not considered available are recorded as
deferred revenues. Expenditures are recorded when the liability is
incurred, except for (1) interest on general long-term obligations which
is recorded when due, and (2) the noncurrent portion of accrued vacation
and sick leave, which is recorded in the general long-term debt account
group.
In applying the susceptible to accrual concept to intergovernmental
revenues, the legal and contractual requirements of the numerous
individual programs are used as guidance. There are, however, essentially
two types of revenues. In one, monies must be expended on the specific
(Continued)
-12-
purpose or project before any amounts will be paid to the City; therefore,
revenues are recognized based upon the expenditures recorded.; : In the
other, monies are virtually unrestricted as to purpose of 'expenditure and
are usually revocable 'only.for failure to comply with "prescribed
compliance requirements. These 'resources are "reflected as revenues, at the
time of receipt or earlier if the susceptible to accrual criteria are met.
Property taxes are recognized as revenue in the year for which taxes have
been levied, provided they are collected within 60 'days after year=end.
Licenses and permits, charges for services, fines and forfeitures, and
miscellaneous revenues (except investment earnings) are recorded as
revenues when received in cash because they are generally not measurable
until actually received. Investment earnings are recorded- as earned since
they are measurable and available.
The accrual basis of accounting is used by the proprietary funds.
Unbilled service revenue is accrued in proprietary funds.
(d) Encumbrances
Encumbrance accounting, tuider which purchase orders, contracts; and other
commitments for the expenditure of funds are recorded to reserve that
portion of the applicable appropriation, is employed in the governmental
funds. Open encumbrances are reported as reservations of fund balances
since the commitments will be honored through subsequent years' budget
appropriations. Encumbrances do not constitute expenditures or
liabilities.
(e) Cash and Investments
Cash for most funds is pooled, and interest income from pooled investments
is allocated to the various funds based on month-end balances. Available
cash is invested in certificates of deposit, bankers acceptances,
commercial paper, discount notes, repurchase agreements and savings
accounts. Investments are stated au cost or amortized cost, which
approximates market.
(f) Inventory
Inventory is valued at the lower of cost (weighted -average method) or
market. The cost of inventory is recorded as an expenditure/expense at
the time individual inventory items are consumed (consumption method).
(Continued)
-13-
CITY OF IADI k
Notes to General Purpose Financial Statements
(g) General Fixed Assets
General Fixed assets have been acquired for generalgovernmental
purposes. Assets purchased are recorded as expenditures in the
governmental funds and capitalized at cost_.the general_ fixed assets
account group. Capital leases for buildings, improvements, and.equipment
are recorded in the general fixed assets account group, and the capital
lease obligation payable' is recorded in the. general long-term debt accourt
group. Contributed.fixed assets are recorded in the 'general fixed assets
account group at estimated fair market value at the time received.
Certain improvements such as roads, bridges, curbs and gutters, streets
and sidewalks, drain systems, and lighting systems are not capitalized.
.Such assets normally are immovable and of value only to the City.
Therefore,- the - purpose of stewardship for capital expenditures is
satisfied without recording these assets - }
}
No depreciation has been provided on general fixed assets, nor has
interest been capitalized.
(h) Fixed Assets - Enterprise Fund
{
Fixed assets owned by the enterprise funds are stated at cost or estimated
fair market value at the time received, if donated. -
Depreciation has been provided over the estimated useful lives using the
straight-line method. The estimated useful lives are as follows:
Years
Buildings 15 - 20
Improvements 3 - 5
Machinery and equipment 2 - 20
Utility plant 30
(i) Compensated Absences/Vacation and Sick Leave
Noncurrent accumulated vacation and vested sick leave benefits for
governmental funds are recorded in the General Long -Term Debt Account
Group as a liability and also as an amount to be provided by future
operatio:.s. The amount to be provided by future operations represents the
total amount that would be required to be provided from the general
operating revenues of the City if all the benefits were to be paid. The
current portion, the amount expected to be paid in the next 12 months, is
recorded as a liability of the responsible fund type.
Enterprise funds record compensated absences/vacation and sick leave as an
expense and liability when earned.
(Continued)
-14-
LUC bVLCii %U=4uvi4Z&&'_A— VA&AY/ uala aZ= 1.uC a5grcjS46C U1 CRe tuna types anQ
account groups and are presented only to facilitate_ financial analysis.
- No consolidating or other elimination entries were made iw arriving: at the
totals, thus,°they do not represent consolidated information.
(2) Budgetary Data
The City Council follows these procedures in establishing the budgetary
data reflected in the accompanying financial statements:
• On or prior to the first regular Council meeting in June of each year,
the City Manager submits to the City Council a proposed operating budget
for the fiscal year commencing July 1. The operating budget includes
proposed expenditures and the means of financing them. The budget is
established on as accrual basis.
• Public hearings are conducted during meeting:; of the City Council to
obtain citizen comments.
• Prior to July 1, the budget is legally enacted through passage of an
ordinance.
• The City Manager or designee is authorized to transfer certain budgeted•
amounts between accounts; however, any revisions that alter the total
appropriations on functional expenditure classifications of any fund
must be approved by the City Council. The combined Statement of
Revenues, Expenditures and Changes in Fund Balance - Budget and Actual -
General and Special Revenue Funds reflect all revisions.
• Appropriations lapse at the close of the fiscal year to the extent that
they have not been expended or.encumbered.
(Continued)
-15-
CITY OF LODI
Notes to General Purpose Financial Statements
(3) Cash and Investments, and Restricted Assets
The City maintains a`cash and investment 'pooh,that: .is. available for use
by all funds.: Each fund's portion o€ this pool is displayed on the
combined balance sheet as "Cash and Investments."
The City is authorized to invest in securities of the State of
California,: U.S.: Government, or its agencies; certificates.of.deposit (or
time deposits) placed with commercial "banks and/ori`„savings and, loan
associations; negotiable certificates of deposit; banker' s' acceptances;`:
commercial_ paper; local agency_ investment fund (State,: pool) demand
deposits;repurchase agreements ,(collateralized by .,U.S. Treasury
securities); pass book savings account demand 'deposits; and other
investments that are, or may become, a legal investment as, defined by the
- State of California Government Code (with prior approval or :the Council).
Repurchase agreements entered into by the City are typically short-term
in nature and structured to return a specified yield.
Generally accepted accounting principles define three categories of
credit risk for securities:
I Securities that are insured or registered, or for which the
securities are held by the City or its agent in the City's name;
II Securities that are uninsured and unregistered and are held by the
broker's or dealer's trust department or agent in the City's name; and
III Securities that are uninsured and unregistered and held by the broker
or dealer, or by its trust department or ag-nt, but not in the City's
name.
The fallowing is a recap of cash and investments, and restricted assets
at June 30, 1989:
Cash and investments $ 33,936,887
Restricted assets 8,649,350
$ 42.5 -
-16-
(Continued)
CITY OF LODI
Notes to General
Purpose Financial
Statements
The following is a detail summary
of deposits
and investments
at June 30,
1989:
Approximate
Market
Cost
Value
Categorq
Unrestricted:
Cash and deposits
$ 466,087
-
Investments:
Certificates of,deposit
8,900,000
8,900,000
III
Commercial paper
1,189.000
1,189,000
I
Banker's acceptances
6,214,850
6,340,000_
Government National
Mortgage Association
1,940,166
1,895,000
I
U.S. Treasury Notes
1,999,286
21000,000
I
Total categorized
i
unrestricted
20,709,389
20,324,000
F:
Local agency investment fund 3,430,000
3,430,000
Various mutual funds
4,371,290
4,405,000
Various investments
57,085
115,000
I
Retirement funds held:
Various investments
5,369,123
5,369,000
II
Total unrestricted
33,936,887
33,6439000
Restricted:
Sewer funds:
Various investments
8,446,350
8,446,000
Debt service:
Various deposits and
investments
203,000
203,000
Total restricted
8,649,350
=8,649000
Total cash and
investments, and
restricted assets
(Continued)
-17-
CITY OF LODI
Notes to General Purpose Financial
(4) Property Tax
San Joaquin County is responsible for assessing, collecting and
distributing property taxes in accordance with enabling legislation. The
City's property tax is levied each' July 1 on the assessed value, 1. listed as
of the prior March ,1 for all real and personal property located in the
City. The assessed value at March 1,°1988, upon which the 1989 levy was
based, was $1,7090069,475.
Taxes are due in two equal installments on November 1 and February 1
following the levy -date, payments are delinquent after 40 and 60 days,
respectively.
Property taxes levied for the year ended June 30, 1989, are recorded as
receivables, net of estimated uncollectibles. The net receivables
collected during the year and expected to be collected by August 30, 1989
are recognized as revenues in the year ended June 30, 1989. Net
receivables estimated to be collectible subsequent to August 30, 1989 are
reflected as deferred revenues.
(5) Due from Other Governments
We from other governments of $39,519 represents amounts due from the State
of California and the federal government for expenditures made by the City
for various grant programs but not reimbursed prior to June 30, 1989.
(Continued)
Special assessment
district.bonds with
governmental commit-
ment (net of discount):
Turner Cluff 10.00%
Lodi United
Downtown (net
of $10,237
discount) 8.75-9.90%
Enterprise Funds:
659,140 - 659,140 -
_ 324,113
-_ 19,350
CITE OF
LODI
983,253
Notes to General Purpose
Financial Statements
304,763
(6) Long.. -Term Debt and Capitalized Lease
Obligations
The following is a'summary of debt
transactions of the
City for
the year.
ended June 30, 1989:
Interest
July 1,
Retire- June 309
Rates
1988 Additions
meats
1989
General long-term debt
account groups
Compensated absences - $
994,689 1,000,621
-
1,995,310
General obligation bonds:
1965 '.'Municipal
improvement bonds:
Series A 3.50% 2,055,000
-
225,000
1,830,000
Series B 4.5-5.25%
275,000 -
40,000
235,000
Series C 5.70%
105,000 -
105,000
- s
2,435,000
-
370,000
2,065,000
Capitalized lease
obligations:
FMC Corporacion 7.86%
62,312 -
16,546
45,766
Caterpillar 7.50% _
- _ 78,873
13,911
64,962
62,312 78,873
30,457
110,728
Special assessment
district.bonds with
governmental commit-
ment (net of discount):
Turner Cluff 10.00%
Lodi United
Downtown (net
of $10,237
discount) 8.75-9.90%
Enterprise Funds:
659,140 - 659,140 -
_ 324,113
-_ 19,350
304,763
983,253
- 678,490
304,763
$ 4 4 4 4 4 1.07 4.475.801
Certificates cf
participation
(net of discount) 5.25-7.80% $8.917,483
(Continued)
-19-
F'.
t
CITIf OF LODI
Notes to General Purpose Financial Statements
Long-term debt payable at June 30, 1989 is comprised of the following
individual issues: -
Certificates of Participation
r>
$9,415,000 certificates of participation (1988 Wastewater Treatment Plant
Expansion Project), annual principal payments August 2,. beginning 2989,.;in
amounts from $100,000 to $755,000 with final payment due August 1, 2003,
interest increases from 5.25% to 7.60%, payable semiannually on February 2
and August 1,'net `of $497,517 discount and issue costs.
1965 M micipal Improvement Bonds - Series A
These bonds were issued to finance the construction of sewer and drainage
facilities plus a public safety building. The bonds are secured by a -pledge
of property tax 'revenues. Principal matures -annually through -October 1,
1995, with interest of 3.50% also payable October 1.
f
1965 Municipal Improvement Bonds - Series B .
These bonds were issued on May 1, 1969 to finance the construction and
completion- of storm drainage improvements for -the City of Lodi. The bonds
are secured -by a pledge of pr4Perty tax revenues. The semiannual principal
payments, with interest of 4.50% to 5.25%, are payable on May 1 and November
I through 1994.
Special Assessment District Bonds with Governmental Comitment
The City is obligated under the terms of the Lodi United Downtown special
assessment bond indentures, in the absence of any other bidder, to be the
purchaser of property upon which any said special assessments are levied and
are delinquent.
(Continued)
M12
CITY OF LODI
Notes to General Purpose Financial Statements
Or. October 12, 1988, $485,000 Turner Road and Cluff Avenue Assessment
District No. 1 Limited Obligation Refunding Improvement Bonds (Series
1988-1 Bonds), with an interest rate of 7.5%, were issued for the purpose
of. refunding the $659,140 of outstanding :Turner Road and CluffAvenue
Assessment District" No. 1 Series 1981-1 Bonds `. (Series `1981-I ,;Bonds),.. with
a stated interest rate of '10%0 The City's obligation ;of. the Series
1988-1 Bonds is limited to the advancement of funds-' to the redemption,
fund in the event of delinquent installments which shall"not exceed the
balance in the reserve fund and therefore, the Series 1988-1 Bonds are
not included on the City's general purpose financial statements. . The
outstanding balance of the Series 1988-1 was $485,000 on June 30,`1989.
Thenewrefunding bonds were sold at 97% of par, or,$470,450 net proceeds
of sale. As part of the transaction, $436,500 of the net :proceeds
together with the funds totaling $300,100 from the reserve funds which
were established for the Series 1981-1 Bonds were used to purchase U.S.
Government securities. Those securities were deposited in an irrevocable:
trust with an escrow agent to provide for all -future debt "service
payments of the Series 1931-1 Bonds. As a result, the Series 1981-1
Bonds are considered to be defeased and the liability for those bonds has
been removed from the General Long Term Debt Account Group and the Turner
Road and Cluff Avenue Assessment District rural.
Although the advance refunding resulted in the recognition of an
accounting loss of approximately $151,000 for the year ended June 30,
1989 (recorded in the Agency funds), the District, in effect, reduced its
aggregate debt service payments by approximately $80,000 over the next
five years and obtained an economic gain (difference between the present
values of the old and new debt service payments) if approximately $25,000.
The annual principal -equirements to amortize all debt outstanding as of
June 30, 1989 are as follows:
(Continued)
-21-
General
Special
Certificates
Year Ending
Obligation
Assessment
of
,Tune 30,
Bonds
Bonds
Partici tion
Total
1990
$ 470,000
20,000
105,000
595,000
1991
245,000
25,000
110,000
380,000
1992
250,000
25,000
120,000
395,000
1993
260,00.0
25,000
125,000
410,000
1994
270,000
30,000
135,000
435,000
1995 and
Thereafter
570,000
190,000
8,820,000
9,580,000
$ 2.Q65 QQQ
L.4 5 O=
11.795�Qga
(Continued)
-21-
CITY OF LODI
Notes to General Purpose Financial Statements
The various indentures maintain significant limitations and restrictions
on annual debt service requirements, maintenance of and flow of -monies
through various restricted accounts. The City is in compliance with all
such significant limitationsand restrictions.
The present value of future minimum capital lease payments as of June 30,
1989 are as follows:
Fiscal Years
1990 $ 39,707
1991 39,707
1992 279542
1993 18,851
1994
Thereafter
Total minimum lease payments 125,807
Less amounts representing interest 15,079
Present value of minimum
capital lease payments $
(7) Due From/To Other Funds
Individual fund interfund receivable and payable balances (excluding due
from governmental agencies) by fund type at June 30, 1989, are as follows:
Due From Due To
Fund Other Funds Ocher Funds
General Fund $ - 9,412
Special Revenue Funds - 68,500
Debt Service Funds 328,433 -
Capital Projects Funds 427,600 359,100
Enterprise Funds 1,033,333 1,037,354
Trust and Agency Funds - 315,000
(Continued)
-22-
. _. .. ._ .... .... .. ........ � ,.��:.�. .... .,!,. .. Y .tea .�._,'±:..
CITY OF LODI
Notes to General Purpose Financial Statements
(8) operating Transfers
Total operating transfers by fund type at June 30, 1989, are as follows:
Operating Transfer
Fund In Out
General Fund $ 1,349,036 484,941
Special Revenue Funds 205118
Debt Service Funds 449,794 -
Capital Projects Funds 1,166,146 -
Enterprise Funds - 2,893,343
Internal Service Funds 393,190
(9) Defined Benefit Pension Plan
(a) Plan Description
The City contributes to the California Public Employees' Retirement
System (PERS or System), an agent multiple -employer public employee
retirement system that acts as a common investment and administrative
agent for participating public entities within the State of California.
The City's payroll for employees covered by the System for the year ended
June 30, 1989 was $10,320,692 which was 88% of the City's total payroll
of $11,777,666.
The System covers essentially all employees, except elected officials and
those employees compensated on an hourly basis who were hired after
May 31, 1966.
Safety employees are required to contribute nine percent of their annual
salary to the System. All other Employees are required to contribute
seven percent. The City is required to contribute the remaining amounts
necessary to fund the benefits for its members, using the actuarial basis
recommended by the PERS actuaries and actuarial consultants and adopted
by the Board of Administration.
(Continued)
CITY OF LODI
Notes to General Purpose Financial Statement-,
(b) Funding Status and Progress
The amount shown below as the "pension benefit obligation" is a
standardized disclosure measure of the present value of ;pension benefits,
adjusted for. the effects of projected salary increases -and °step -rate
benefits, 'estimated to be payable in the future as ' a result' of employee
service to date. The measure is intended to help, users assess the -
funding status of the System on a going-concernbasis, -assess -progress
made in accumulating sufficient assets 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.
The pension benefit obligation was computed as part of an actuarial
valuation performed as of June 30, 1988... S gnificant....actuarial
assumptions used in thevaluationinclude (a) a rate; of .return'on' the
investment of present and future assets of 8.5 percent a year compounded
annually, (b) ?rojected salary increases of 5 percent a year compounded
annually, attributable to inflation, (c) additional projected salary
increases of 2 percent a year, attributable to seniority/merit, and (d)
no postretirement benefit increases.
Total unfunded pension benefit obligation applicable to the City's
employees was $4,955,891 at June 30, 1989, as follows:
Pension benefit obligation:
Retirees and beneficiaries currently receiving
benefits and terminated employees not yet
receiving benefits $ 20,293,822
Current employees:
Accumulated employee contributions including
allocated investment earnings 8,015,362
Employer -financed vested 8,682,098
Employer -financed nonvested 531,530
Total pension benefit obligation 37,522,812
Net assets available for benefits, at cost
(market value approximates $36,833,000) 32,566,921
Unfunded pension benefit obligation $ 4.955,891
(Continued)
-24-
CITY OF LOBI
Notes to General Purpose Financial Statements
(c) Actuarially Determined Contribution Requirements and Contribution blade
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
uses the level percentage of payroll method to amortize any unfunded
actuarial liabilities. The amortization period of the unfunded actuarial
liability ends on JLne 30, 2000.
The significant actuarial assumptions used to compute the actuarially
determined contribution requirement are the same as those used to compute
the pension benefit obligation, as previously described.
The ccntribution to the System for 1989 of $2,041,365 was made in
accordance with actuarially determined requirements computed through an
actuarial valuation performed as of June 30, 1988. The contributions
consisted of: (a) $1,725,328 normal cost (16.7 percent of current covered
payroll) and (b) $316,037 amortization of the unfunded actuarial accrued
payroll liability (3.1 percent of current covered payroll). The City
contributed $1,233,245 of this total (11.9 percent of current covered
payroll) and the employees contributed $808,120 (7.8 percent of current
covered payroll).
(d) Trend Information
Trend information gives an indication of the progress made in
accumulating sufficient assets to pay benefits when due. System wide
ten-year trend information may be found in the California Public
Employees Retirement System Annual Reports.
For the year ended June 30, 1989 available assets were sufficient to fund
86.8 percent of the pension benefit obligation. Unfunded pension benefit
obligation represented 47.3 percent of the annual payroll for employees
covered by the PERS for 1989. 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 1989, the City's contributions to the System, all made
in accordance with actuarially determined requirements, was 12 percent of
annual covered payroll.
(Continued)
-25-
CITY OF LODI
Notes to General Purpose Financial Statements
(10) Segmeats of Enterprise Activities
There are three services provided by the City which are financed by user
charges - electric, -sewer, and water. Selected financial data for those
three services for the year ended .lune 30, 1989 are as follows:
Additions to fixed
assets
Net working capital
Total assets
Certificates of
participation.
Total equity
(11) Contingent Liabilities
$ Ik4 Z,,-4 2,235,44k �� 4,773.212
$ 14 943.93212,076,91a 51.44kQ 27,322,290
$ 20,900,595 x.876,960 54,275,13
$ - -.21,L.483 --_— .917.483
$ ZfiAjk 541 11,451,E 39Z ,_L
Deferred Compensation Plan The City offers its employees a deferred
compensation plan created in accordance with internal Revenue Code
Section 457. The Plan, available to all City employees, permits them to
defer a portion of their salary until future years. The deferred
compensation is not available to employees until termination, retirement,
death, or unforeseeable emergency.
(Continued)
-26-
Electric
Sewer
Water
Total
Operating revenues
$ 24,413,281
2,680,453
1,843,373
28,937,107
Operating expenses:
Depreciation
(967,552)
(379,426)
(362,966)
(1,709,944)
Other
(23,665,527)
(1,509,699)
(1,174,341)
(26,349,567)
Operating income
(loss)
(2199798)
191,328
306,066
8779596
Nonoperating revenue
and expenses, net
(801,492)
691007
(320,731)
(430,916.)
Net income (loss)
$ _(]2.02�1.2�90)
_1.482.635
=sem)
Additions to fixed
assets
Net working capital
Total assets
Certificates of
participation.
Total equity
(11) Contingent Liabilities
$ Ik4 Z,,-4 2,235,44k �� 4,773.212
$ 14 943.93212,076,91a 51.44kQ 27,322,290
$ 20,900,595 x.876,960 54,275,13
$ - -.21,L.483 --_— .917.483
$ ZfiAjk 541 11,451,E 39Z ,_L
Deferred Compensation Plan The City offers its employees a deferred
compensation plan created in accordance with internal Revenue Code
Section 457. The Plan, available to all City employees, permits them to
defer a portion of their salary until future years. The deferred
compensation is not available to employees until termination, retirement,
death, or unforeseeable emergency.
(Continued)
-26-
1
i.
CITY OF LODI
Notes to General Purpose Financial Statements
All amounts of compensation deferred under the Plan, all property or
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 those of general creditors of the City in an amount
equal to the fair market value of the deferred account for each
participant.
Self -Insurance - The City is self-insured tinder its existing general
liability insurance policy for the first $250,000 of claims, per
occurrence, with the California joint powers insurance agency providing
certain liability coverage for the next $750,000, per occurrence and in
the aggregate. Additional coverage is available for claims in excess of
$1,000,000 to $10,000,000 per occurrence and in the aggregate.
The City if self-insured with respect to workers' compensation, medical
benefits, unemplcyment, and long-term disability for its employees.
Self-insured transactions are accounted for in the internal service
fund. The first plan is administered by an outside agency, the latter
three are administered by the City. Claims payable under the above
policies aggregated $1,440,845 at June 30, 1989. Incurred but not
reported claims have been considered in determining the accrual for the
self-insurance reserve.
The City does not use an actuary to determine liability. Claims payable
are determined from administrators reports and the City's historical data.
Expansion of Sewage Treatment Plant - The City issued certificates of
participation to pay for the expansion of the capacity of its sewage
treatment plant. The City is committed to pay any sewage treatment plant
expansion costs in excess of the cash provided from the issuance of the
certificates of participation. At June 30, 1989, budge'ed costs exceeded
cash available from the issuance of the certificates of participation by
approximately $2,408,000.
Litigation - The City of Lodi, California is a defendant in various
lawsuits. The City Attorney estimates that the potential claims against
the City not covered by insurance resulting from such litigation would
not materially affect the financial condition of the City.
Arbitrage Earnings - The LPIC has elected to
possible arbitrage earnings (arbitrage earnings
earned on the unexpended tax exempt certificates
proceeds in excess of that which would have been
been invested in securities with a yield of the
COPS) to the anniversary date of the debt issue
arbitrage earnings, if any, crust be rebated to the
every five years.
-7-
-
defer calculation of
are defined as income
of participation (COP)
earned had the monies
effective rate of the
(August 1). Currently
United States Treasury
(Continued)
CITY OF LODI
Notes to General Purpose Financial Statements
(12) Restatement of Beginning (June 30, 1988) Fund Balance/Retained Earnings
(a) Fund Type Reclassifications
In the prior year, the City accounted for the Camp Hutchins program's
revenues and expenditures in the Special Revenue Funds. Because these
funds are not legally restricted and Camp Hutchins is not a separate
legal entity, the City, effective July 1, 1988, began accounting for this
activity in its General Fund. The effect of this change in accounting
was a $13,382 increase in the fund balance of the General Fund.
In the prior year, the City accounted for the Library's revenues and
expenditures in the Special Revenue Funds. --Because these funds are not --
legally restricted and the library is not a separate 'legal entity, the
City, effective July 1, 1988, began accounting for this activity in its
General Fund. The effect of this change in accounting was a $478,350
increase in the fund balance of the General Fund.
In the prior year, the City accounted for the Community Center program's
revenues and expenditures in the Trust Funds. As monies received for
this program are the property of the City and the City i3 not holding
these assets in a trustee capacity for individuals, private
organizations, other governmental units, and/or other funds, the City,
effective July 1, 1988, began accounting for this activity in its General
Fund. The effect of this change in accounting was an $8,640 decrease in
the fund balance of the General Fund.
In the prior year, the City accounted for its hotel and motel tax
revenues and expenditures in the Special Revenue Funds. Because these
funds are not legally restricted, the City, effective July 1, 1988, began
accounting for this activity in its General Fund. The effect of this
change in accounting was a $411,456 increase in the fund balance of the
General Fund.
In the prior year, the City accounted for its United Downtown Assessment
District activity in the Special Revenue Funds. Because this. fund
represents debt for which the City is obligated in some manner under the
terms of the bond indenture, the City, effective July 1, 1988, began
accounting for the current activity of this debt in its Debt Service
Fund. The effect of this change in accounting was a $296,421 decrease in
the fund balance of the Debt Service Fund.
(Continued)
-28-
CITY OF LODI
Notes to General Purpose Financial Statements
In the prior year, the City accounted for the long-term portion of the
united Downtown Assessment District -bonds payable' in the Debt Service
Fund. Because this is long-term debt for which the City is obligated in
some Manner under ,the terms of the bond indenture, the City,, effective
July 1, 1988, began accounting for the long-term portion of this debt in
its General Long -Term Debt Account Group. The effect of this change in
accounting was a $304,763 increase in the fund balance of the Debt
Service Fund and an increase of $304,763 in the General Long -Term Debt
Account Group as a special assessment- debt with governmental commitment
and as an amount to be provided in future years.
In the prior year, the City accounted for its construction projects in
various fund types. Because these activities are for construction
projects, the City, effective July 1, 1988, began accounting for these
activities in its Capital-. Projects Funds. The increase in fund balances ---
were as follows:
General Funds:
Equipment Fund
Capital Outlay Fund
Special Revenue Funds:
Subdivision Reserve Fund
Subdivis4on F•snd
Master Drainage Program Fund
Library Capital Outlay Fund
Trust and Agency Funds:
Hutchins Street Square Capital Fund
Increase in Capital Project Fund balance
$ 211,303
3,425,363
408,250
316,569
1,386,857
208,155
4,590
In the prior year, the City accounted for the English Oaks Common Fund
and the Turner Cluff Assessment District Funds in the Special Revenue
Funds. Because the City is acting as an agent for these funds, the City,
effective July 1, 1988, began accounting for these funds in its Agency
Funds. The effect of this accounting change was a $258,967 increase in
the fund balance of the Special Revenue Fund.
W General Fixed Assets
In the prior year, the City had general fixed assets which were not
recorded on the City's financial statements. During fiscal year ended
June 30, 1989, the City properly recorded their general fixed assets in
the General Fixed Assets Account Group. The effect of this restatement
was an increase to the General Fixed Assets Account Group as fixed assets
and investment in general fixed assets.
(Continued)
-29-
Notes to General
(G) Holding Accounts
In the prior year, the City accounted for its holding accounts within its.
fund balances and retained earnings. During fiscal year ended June 30,
1989, the City properly recorded these holding accounts as liabilities.
The effect of this change in accounting was a $33,636 increased fund
balance in the General Fund and a $10,000 decrease in the retained
earnings of the Water Fund.
(d) Enterprise Fund Fixed Assets
Through fiscal year ended June 30, 1988, the City recorded fixed asset
transactions in the subsequent year of occurrence. During the current
fiscal year, the City changed to recording these transactions in the year
of occurrence. This resulted in a restatement of the June 30, 1988
retained earnings. The effects of these restatements were as follows:
Increase in Electric, Sewer, and Water retained earnings of $1,833,492,
$27,349, and $440,564, respectively, for capitalization of prior year
fixed assets; additions and a decrease in Electric, Sewer, and Water
retained earnings of $320,083, $373,382, and $94,856, respectively, for
prior year depreciation expense.
(e) Special Revenue Fund Fixed Assets Expenditures
In the prior year, the City recorded an over -expenditure for general
fixed assets in the Special Revenue Fund. During fiscal year ended June
30, 1989, the City recorded a correction for this over -expenditure. The
effect of this restatement was a $13,251 increase to fund balance of the
Special Revenue Fund.
-30-
Y-
51
y, Wv
Cash and investments
$ 11,843,041
3,814,590
1,218,256
16,875,887
CITY OF LOBI
Restricted assets
-
8,446,350
-
8,446,350:
Enterprise Funds
Receivables (net of allowance
Combining Balance Sheet
June 30, 1989
for uncollectables):
Electric Sewer
Water Total
Accounts
Assets
Cash and investments
$ 11,843,041
3,814,590
1,218,256
16,875,887
Restricted assets
-
8,446,350
-
8,446,350:
Receivables (net of allowance
r
for uncollectables):
Accounts
1,711,045
169,088
162,015
2,042,148
Property taxes -- --' -
-
47,779
- - --
47;179
� .
Interest
136,799
106,031
14,980257,810
Due from other funds or
governmental agencies
1,033,333
-
-
1,033,333.
Inventory
1,248,085
7,494
211,752
1,467,331
Other assets
646
17,150
-
17,196;,
Fixed assets (net of
accumulated depreciation)
11,•524,609
8,292,113
4,269,957
24,086,679
Total assets
$ X7,497.558
ZQ -Mli25
5,876.960
4.275.113
Liabilities
Accounts payable and other
liabilities
Accrued salaries and wages
Accrued interest
Due to other funds
Accrued compensated absents
Certificates of participa on
payable. net of discou::
Total liabilities
Fund Equity
Retained earnings
Contingent liabilities
Total liabilities and
fund equity
743,247
22,145
263,625
1,029,017
15,487
8,406
355,542
4,021
148,108
8.917.483
9,449,047
83,214
8,404
1,033,333
130,612
1,255,563
26,468,541 11,451,548 4,621,397
See accompanying independent auditors' report.
-31-
841,948
38,955
355,542 r
1,037,354:
542,345
8,917,483
11,733,627
y
42,541,486
54,275.113
..
r c e }
'
91V
CITY OF LODI
Enterprise Funds
Combining Statement of Revenues, Expenses
and
Changes is Retained Earnings
Year Ended June 30, 1989
f
Water
Total
Electric
Sewer
Operating revenues:
Charges for services
Operating
$ 24,413,281
2.680,453
1,843,373
28,937,107
expenses:".
Personal services
2,662,618
779,990
719,033
4,161,641
Supplies, materials and
services
333,719
136,658
103,785
574,162 ;-
Utilities and communications
Depreciation
20,363,566
967,552
-257,521
379,426
347,107
362,966
20,968,194,
19709,944
Benefit payments
257,288
4,400
-
261,688
Other
48,336
331,130
4,416
383,882
Total operating expenses
24,633,079
1,889,125
1,537,307
281059,511
Operating income (loss)
(219,798)
791,328
306,066
877,596
Nonoperating revenues (expenses):
no;
Sewer bond taxes
-
300,605
-
300,605
Interest revenue
1,122,332
935,549
93,285
2,151,166
Rent
30,013
93,287
26,519
149,819
Incerest expense
-
(711,084)
-
(711,084)
Other
159,163
351,294 9
61,464
571,921
- Net operating transfers in (out)
(2,113,000)
(278,344)
(501,999)
(2,893,343)
Total nonoperating
revenues (expenses)
(801,492)
691,307
(320,731)
(430,916)
Net income (loss)
(1,021,290)
1,482,635
(14,665)
446,680
RZ
Retained earnings, as restated,
June 30, 1988
27,489,831
9,968,913
4,636.062
42,094,806
Retained earnings, June 30, 1989$
26.468,54]
1,451,548
¢t
See accompanying independent auditors'
report.
-32-
t
M
See accompanying independent auditors' report.
t' lk
—33— ti gym.
CITY OF LODI
Enterprise Funds
Combining Statement
of Changes in Financial Position
Year
Ended June 30. 1989
f .
,
Electric
Sewer
Water
Total
r€
Sources of working capital:
4,
Operations:
Net income (loss)
$ (1,021,290)
1,482,635
(14,665)
446,680
Item not requiring working capital:
Depreciation
967,552
379,426
!362,966
1.,709,944 .
Working capital provided by operations
(53,738)
1,862,061
348,301_
2,156,624
Increase in certificates of participation
payable (net of discount)
-
8,917,483
-
8,917,483
Total sources of working capital
(53,738)
10,779,544
348,301.
11,074,107
n
Uses of working capital:
Acquisition of fixed assets, net
1,447,486
2,235,446
1,090,280
4,773,212
rj.
Restacemer,c
-
-
10,000
10,000
Total uses of working capital
1,501i224 _
2,235, 46
:1_11001280
4.783.212
Net increase (decrease) in
3'
'
working capital
Elements of net increase (decrease)
in working capital:
Cash and investments
$ (2,783,131)
294,058
380,910
(2,1089163)
}
Restricted assets
-
8,446,350
-
8,446,350
Accounts receivable, net
199,900
71,443
60,782.
332,125: -
Property taxes receivable
-
47,779
Interest receivable
(49,327)
66,104
3,712
20,4894
Due from other funds or governmental
agencies
1,033,333
- ,
-
1,033,333
Inventory
135,463
(4,788)
17,470
148,145:
Other assets
(178)
(11000)
- ;.
,(11178)
.`'
Accounts payable and accrued li.abilit.es
(661)
5,965`(60;229)
(54,925)
Accrued salaries and wages
40,092
15,069
7,828
62,989
Accrued compensated absences
(76,715)
(37,319)
(129,119)
(243,153)
Accrued interest
-
(355,542)
-
(355,.542)
Due to other funds
-
4 021) J
(1033,333)
(1,037,354)
Net increase (decrease) in
working capital
$(I.50)
�� t�
(7 .97 )'
6,29Q.895
See accompanying independent auditors' report.
t' lk
—33— ti gym.