The URL can be used to link to this page

Home My WebLink AboutAgenda Report - December 2, 2020 H-01AGENDA ITEM Howl CITY OF LODI COUNCIL COMMUNICATION AGENDA TITLE: Receive and File City's Comprehensive Annual Financial Report (Fiscal Year 2019/20) by The Pun Group and Agreed-upon Procedures for the Gann Limit MEETING DATE: December 2, 2020 PREPARED BY: Accounting Manager RECOMMENDED ACTION: Receive and file the following reports and financial statements submitted by The Pun Group, LLP and the Internal Services Department for Fiscal Year 2019/20: • Comprehensive Annual Financial Report • Agreed-upon Procedures for the GANN Limit BACKGROUND INFORMATION: The annual audit was conducted to assure the City Council and other interested parties that the City's financial records and reports are prepared in accordance with generally accepted accounting principles (GAAP), that internal controls are adequate to safeguard the City against loss from unauthorized use or disposition of assets and that the City has compiled with all agreements and covenants to obtain grant funds and debt financing. The Pun Group, LLP issued an "unqualified opinion." Vanessa Burke, Managing Partner of the Pun Group, LLP and Kenneth Pun, Managing Partner of the Pun Group, LLP will be present to answer questions during the Council meeting. The reports will be provided to federal and State oversight agencies, bond trustees and insurance companies for their review and evaluation. Copies of the reports are provided to the City Council and also available to the public by contacting the Financial Services Division or the City's website at www.lodi.gov and at the Lodi Public Library. The agreed upon procedures for the above reports, were agreed upon by the City and the League of California Cities and performed solely to assist in meeting the requirements of Section 1.5 of Article XIII -B of the California Constitution. The agreed upon procedures engagements were conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. City's management is responsible for preparing each of the reports. The City received a Certificate of Achievement for Excellence in Reporting from the Government Finance Officers Association of United States and Canada (GFOA) for the 27th year. A copy of the GFOA certificate is included in the 2019/20 financial reports. FISCAL IMPACT: By law and good management practice, the City's financial records are audited by independent auditors according to Generally Accepted Auditing Standards. Well-maintained financial records are the cornerstone by which the City fulfills its fiduciary responsibilities to the public. APPROVED: IHau 19, 70701558 rSYj Stephen Schwabauer, City Manager FUNDING AVAILABLE: Not applicable. Melissa Munoz, Accounting Manager 0-'rA� )�rp Andrew Keys, Deputy City Manager THE � PUN GROUP ACCOUNTANTS & ADVISORS CITY OF LODI r, Presentation to the City Council Agenda Item: H-01 For the Fiscal Year Ended June 30, 2020 December 2, 2020 A#1 <. CONTENTS • Scope of Work • Required Communications (AU -C 260) • Audit Approach for City of Lodi • Overview of Financial Statements • Key Pension and OPEB Information • Audit Results • Thank You! PURI GROUP AC COU NTA NTS & ADVISORS 12/2/2020 2 SCOPE OF WORK ThN GROUP ACCOUNTANTS & ADVISORS 12/2/2020 SCOPE OF WORK • Financial Statement Audit • Comprehensive Annual Financial Report (Complete) • Compliance Audit • Single Audit — Federal Expenditures Audit (Finalizing) • Agreed Upon Procedures • GANN Limit (Complete) EffiNGROUP., ACCOUNTANTS&ADVISORS ThN GROUP ACCOUNTANTS & ADVISORS Required Communications (AU=C 260) F I 12/2/2020 Required Communications (AU=C 260) • Audit Responsibilities • Significant Findings from Audit • Accounting Policies, Significant Estimates and Disclosures • Management's estimates: investment fair value, depreciation on capital assets and net pension and OPEB liabilities • Other Significant Disclosures: • Note 1 — Summary of Significant Accounting Policies • Note 8 — Pension Plans • Note 9 — Post Employment Benefits Other Than Pensions (OPEB) • Note 13 — Deficit in Net Position • Note 15 — Commitments • Note 16 — Contingencies — COVID 19 Disclosures • Note 17 — Subsequent Events — Bond Rating Changes • Note 18 — Reclassification of Vehicle and Equipment Fund ThN GROUP ACCOUNTANTS & ADVISORS Required Communications (AU=C 260) (Continued) • Difficulties Encountered in Performing the Audit • Corrected / Uncorrected Audit Adjustments — Representation Letter • All proposed audit entries were posted • Immaterial unposted entries (2) • Disagreements with Management - None • Consultations with Other Independent Accountants — None • Other Audit Findings or Issues • Reportable Conditions in Internal Controls are Reported within Single Au • Other Matters —Auditors' Responsibility • Required Supplementary Information • Supplementary Information ThN GROUP ACCOUNTANTS & ADVISORS ThN GROUP ACCOUNTANTS & ADVISORS AUDIT RESPONSIBILITIES From 12/2/2020 Management Responsibilities • Responsible for preparation of the financial statements • Present the financial statements in accordance with Accounting Principles Generally Accepted in the United States of America • Adopt sound accounting policies • Establish and maintain internal controls over financial reporting and compliance Provide evidence supporting the amounts and disclosures in the � finariai statements • Fair presentation of financial statements that are free from material misstatements, whether due to error or fraud • Prevent and detect fraud ThN GROUP ACCOUNTANTS & ADVISORS Auditors' Responsibilities • Perform the audit in conformity with Auditing Standards: • Generally Accepted in the United States of America • Applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States • Communicate with "Those Charged with Governance" • Assess risk of material misstatements in financial statement and consider internal control over financial reporting • Determine fairness presentation of the financial statements • Render an opinion on the financial statements • Issue recommendations to management, if any are reportable conditic ThN GROUP ACCOUNTANTS & ADVISORS AUDIT APPROACH ThN GROUP ACCOUNTANTS & ADVISORS Audit Approach for City of Lodi Planning (May/June) - Meet with City's Management to update City policies and procedures, establish any specific requirements Management may have, identification of unique transactions, implementation of new GASB pronouncements, and develop the audit work plan for the engagement. Interim (June) Assess accounting policies adopted by the City, obtain an understanding of the City and its operating environment, review internal controls on all significant transaction classes, perform walkthroughs and/or tests of internal control, perform preliminary analytical procedures, develop initial risk assessment, evaluate Single Audit compliance (if needed), identify any audit issues, and prepare confirmation correspondence. Also establish expectations including responsibilities and assignments for the year-end audit and hold a progress status meeting at the end of the Interim phase. Year -End (October/November) Conduct audit procedures on account balances in the general ledger, finish confirmation procedures, search for unrecorded liabilities, perform substantive analytical review procedures, complete work on compliance over Federal awards, and conclude fieldwork. Exit conference held at the end of the Year -End phase and communicate audit progress to management. Reporting (December) Review and prepare audit reports and perform quality control procedures over financial statements and audit work in accordance with the Quality Control Standards issued by the AICPA and GAGAS. Audit Closeout 7 - n Reporting Audit Closeout (January/February) Written reportable conditions (prior year and current year) are presented in draft to management for review, response, and corrective action. At the City's request, the Engagement Partner and Manager will present the audit to the City's governing body. THE CROUP ACCOUNTANTS & ADVISORS Planning Year Er AUDIT RESULT ThN GROUP ACCOUNTANTS & ADVISORS 12/2/2020 13 Audit Results • Financial Statements • Unmodified opinion • Financial Statements are fairly presented in all material respects • Significant accounting policies have been consistently applied • Estimates are reasonable • Disclosures are properly reflected in the financial statements • The City complied, in all material respects, with the compliance requirements that could have a direct and material effects on its major federal program • GANN Limit • No exceptions were found • Single Audit (Finalizing) ThN GROUP ACCOUNTANTS & ADVISORS OVERVIEW OF THE FINANCIAL STATEMENTS ThN GROUP ACCOUNTANTS & ADVISORS 12/2/2020 15 Comprehensive Annual Financial Report • Introductory Section (Unaudited) • Letter of Transmittal • Certificate of Achievement for Excellence in Financial Reporting • Organization Chart • Directory of Officials and Advisory Bodies • Basic Financial Statements • Independent Auditors' Report • Management's Discussion and Analysis — RSI (Unaudited) • Basic Financial Statements • Government -Wide Financial Statements • Fund Financial Statements • Notes to Basic Financial Statements • Required Supplementary Information (Limited Procedures) • GASB 68 Schedules on Pensions • GASB 75 Schedules on OPEB • Budgetary Comparison Schedules — General Fund and Streets Fund ThN GR UP ACCOUNTANTS & ADVISORS Comprehensive Annual Financial Report (Continued) • Supplementary Information • Combining and Individual Fund Statements and Schedules — Non -major Funds • Statistical Section (Unaudited) • Financial Trends • Revenues Capacity • Debt Capacity • Demographic Information • Operating Information ThN GROUP ACCOUNTANTS & ADVISORS AA City of Lodi Government -Wide Financial Statements Summary Statement of Net Position June 30, 2020 ThN CR UP ACCOUNTANTS & ADVISORS Governmental Business -Type Activities Activities Total Assets $ 218,260,257 $ 356,073,817 $ 574,334,074 Deferred Outflows of Resources 16,721,382 9,424,449 26,145,831 Liabilities 183,737,211 178,131,928 361,869,139 Deferred Inflows of Resources 8,260,604 2,139,401 10,400,005 Net Position: Net investments in capital assets 117,009,601 137,467,657 254,477,258 Restricted 33,229,610 19,594,455 52,824,065 Unrestricted (107,255,386) 28,164,825 (79,090,561) Total Net Position $ 42,983,825 $ 185,226,937 $ 228,210,762 ThN CR UP ACCOUNTANTS & ADVISORS City of Lodi Government -Wide Financial Statements Summary Statement of Activities For the Year Ended June 30, 2020 Expenses Program Revenues Charges for Services Operating Grants and Contributions Capital Grants and Contributions Total Program Revenues Net Cost of Services General Revenues Transfers Changes in Net Position ThN CROUP ACCOUNTANTS & ADVISORS Governmental Business -Type Activities Activities Total $ 66, 779, 822 $ 109,161, 856 $ 175, 941, 678 9,555,445 3,426,206 10, 302,124 23,283,775 (43,496,047) 55, 349, 862 4,270,227 $ 16,124, 042 102,596,417 7,034,631 2,893,597 112, 524, 645 3,362,789 7,917,094 (4,270,227) $ 7,009,656 112,151, 862 10,460,837 13,195, 721 135,80(' (40,13; 63,26( $ 23,13; City of Lodi General Fund Summary Balance Sheet June 30, 2020 Assets $ Liabilities $ Deferred Inflows of Resources Fund Balance: Restricted Commited Unassigned Total Fund Balance $ ThN GROUP ACCOUNTANTS & ADVISORS 35,747,334 7,269,460 574,833 12,671,440 711,621 14,519,980 27,903,041 City of Lodi General Fund Summary Statement of Revenues, Expenditures and Changes in Fund Balance For the Year Ended June 30, 2020 Revenues: Taxes $ 30,223,587 Sales & use tax 20,083,861 Charges for services 1,992,262 Licenses, permits, fines, fees 1,128,207 Intergovernmental revenues 939,172 Other 3,345,122 Total revenues 57,712,211 Expenditures: General governments 10,411,249 Public protection 36,865,475 Public Works 2,512,089 Library 1,181,184 Total expenditures 50,969,997 Proceeds from Property Sale 345 Net Transfers In (Out) (1,291,930) Changes in Fund Balance $ 5,450,629 ThN GROUP ACCOUNTANTS & ADVISORS KEY FINANCIAL INDICATORS AND PENSION & OPI ThN GROUP ACCOUNTANTS & ADVISORS 12/2/2020 22 U) 0 z Q U) Z) O $22,000 $21,000 $20,000 $19,000 $18,000 $17,000 $16,000 $15,000 $14,000 $13,000 $12,000 $11,000 $10,000 X9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 ThN CROUP ACCOUNTANTS & ADVISORS City of Lodi Sales Tax For the Last Six Fiscal Years Ended June 30, By Fiscal Year ❑ 2015 2016 ❑ 2017 ❑ 2018 ❑ 2019 ❑ 2020 City of Lodi Governmental Activities Net Cost of Services to Tax Revenues For the Fiscal Year Ended June 30, 2020 Expenses $ 66,779,822 Less: Program Revenues (23,283,775) Net Cost of Services 43,496,047 Tax Revenues 50,307,450 Ratio ThN GROUP ACCOUNTANTS & ADVISORS City of Lodi General Fund Reserves Available Fund Balance to Annual Expenditures As of and for the Fiscal Year Ended June 30, Unassigned Fund Balance Annual Expenditures 2020 $ 14,519,980 50,969,997 2019 $ 11,172,483 42,226,306 General Fund Reserves Ratio 28.49% 26.46% ThN GROUP ACCOUNTANTS & ADVISORS Change 30.0% 20.7% 7. City of Lodi GASB 68 - The Pension Standard June 30, 2020 Miscellaneous Safety Net Pension Liablity @ 7.15% Discount Rate $ 60,469,988 $ 81,354,282 Funded Ratio 70.36% 60.19% Total $ 141,824,270 Sensitivity Analysis: Net Pension Liability @ 6.15% (-1 %) $ 86,504,962 $ 109,154,791 $ 195,6; Net Pension Liability @ 8.15% (+1%) $ 38,889,655 $ 58,564,558 $ 97,4 ThN GROUP ACCOUNTANTS & ADVISORS City of Lodi GASB 75 - The OPEB Standard June 30, 2020 Net OPEB Liablity @ 3.20% Discount Rate Funded Ratio Total $ 26,264,611 4.45% Sensitivity Analysis: Net OPEB Liability @ 2.66% (-1 %) $ 297297,986 Net OPEB Liability @ 4.66% (+1 %) $ 237723,873 ThN GROUP ACCOUNTANTS & ADVISORS Summary of Findings and Recommendations - 2020 Section II — Financial Statement Findings 2020-001 Internal Control over Financial Reporting • Pooled cash bank reconciliation for March 2020 contained significant unreconciled differences. Differences were resolved to an insignificant amount at year end for CAFR. • Payroll timecards were missing proper approvals in 3 of 40 selected for testing. • One employee selected for testing had pay increase from contractual update that was not applied correctly in the payroll system. Mistake was subsequently corrected. 2020-002 Valuation of Electric Utility Lines / Transformers Replacement cost used to value underground lines / transformers when generally accepted accounting principles requires actual cost. City to conduct an extensive study of EU capital infrastructure and valuation. ThN CROCK' ACCOUNTANTS & ADVISORS Summary of Unposted Audit Adjustments Governmental / Business -Type Activities 1) Entry to record two days of accrued payroll at end of the year which was not posted to the Fund statements ($158,000) 2) Entry to decrease accounts receivable to the supporting detail ($102,000) ThN GROUP ACCOUNTANTS & ADVISORS THF PUN GROUP ACCOUNTANTS & ADVISORS ril 1 HQ - ORANGE COUNTY SAN DIEGO BAY AREA LAS VEGAS PHOENIX 200 E. Sandpointe Avenue 4365 Executive Drive 2121 North California Blvd. 1050 Indigo Drive 4742 North 24th Street Suite 600 Suite 710 Suite 290 Suite 110 Suite 300 Santa Ana, CA 92707 San Diego, CA 92121 Walnut Creek, CA 94596 Las Vegas, NV 89145 Phoenix, AZ 85016