Title
Recommendation to Accept the Fiscal Year 2019-20 Audited Financial Statements and Compliance Reports. [City Council/SACIC] (Finance 2410)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
Annually, the City of Alameda (City) is subject to financial and compliance audits to be performed by licensed certified public accountants. Staff is presenting for acceptance ten (10) reports for Fiscal Year (FY) 2019-20 issued by the independent auditors.
BACKGROUND
The City Charter Article IV, Section 4-2, various financing covenants, and rules associated with restricted funding sources require the City to publish financial statements presented in conformance with Generally Accepted Accounting Principles (GAAP) and to be audited by a firm of licensed certified public accountants. The financial reports noted in the exhibit section of this report below include financial statements and supplemental data that summarize the results and operations of all funds and give the financial position of the City and Successor Agency to the former Community Improvement Commission (CIC) for FY 2019-20.
The audited financial statements are a comprehensive document reflecting the financial position of the City. The audited financial statements and the other reports and financial statements are attached as Exhibits 1-10.
DISCUSSION
The City’s external independent audit firm, Maze and Associates (Maze), completed its audit of the annual Financial Statements for the FY ended June 30, 2020, and has issued an unmodified (or “clean”) audit opinion validating the fair presentation of the City’s financial position as of June 30, 2020. The City’s Comprehensive Annual Financial Report shows that the City continued to hold a sound financial position for FY 2019-20. The Comprehensive Annual Financial Report contains the basic financials of the City, including Alameda Municipal Power (AMP). The Comprehensive Annual Financial Report also includes the financial statements of the Community Improvement Position (CIC) as a Private-Purpose Trust Fund. The Comprehensive Annual Financial Report is separated into the following three (3) sections:
Introductory Section: This section contains the City’s transmittal letter, which highlights accomplishments and discusses economic conditions and outlook. This section also contains a listing of principal officials, a City-wide organization chart, and a map of the City.
Financial Section: This section includes the auditor’s opinion letter, the Management Discussion and Analysis (MD&A) of the financial statements, the financial statements for each of the City’s funds and the footnotes to the financial statements. Budget to actual comparisons for many of the funds can be found within these statements.
Statistical Section: This section provides information regarding financial trends, revenues and debt capacity, demographic and economic information, as well as information relating to City operations. This section includes graphs of relevant historical data, which can be useful in analyzing the changes of the financial condition of the City over the last several fiscal years.
No new accounting policies were adopted, and the application of existing policies was not changed during the year. The City implemented the following new accounting standards to conform with Government Accounting Standard Board (GASB) Statements, as follows:
GASB 95 - Postponement of the Effective Dates of Certain Authoritative Guidance
The primary objective of this Statement is to provide temporary relief to governments and other stakeholders in light of the COVID-19 pandemic. That objective is accomplished by postponing the effective dates of certain provisions in Statements and Implementation Guides that first became effective or are scheduled to become effective for periods beginning after June 15, 2018, and later.
The effective dates of certain provisions contained in the following pronouncements are postponed by one year:
• Statement No. 92, Omnibus 2020
• Statement No. 93, Replacement of Interbank Offered Rates
• Implementation Guide No. 2017-3, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (and Certain Issues Related to OPEB Plan Reporting)
• Implementation Guide No. 2018-1, Implementation Guidance Update 2018
• Implementation Guide No. 2019-1, Implementation Guidance Update 2019
• Implementation Guide No. 2019-2, Fiduciary Activities.
The effective dates of the following pronouncements are postponed by 18 months:
• Statement No. 87, Leases
• Implementation Guide No. 2019-3, Leases.
Earlier application of the provisions addressed in this Statement is encouraged and is permitted to the extent specified in each pronouncement as originally issued. The City implemented the provisions of Statement No. 95 in FY 2020.
The Management Letter lists material weaknesses, other matters, and significant deficiencies identified by the auditors during their review and testing as noted below:
Material Weaknesses
• 2020-01- Timeliness and Accuracy of Year-End Close
Significant Deficiencies
• 2020-02 - Prior Year Recommendations Not Yet Implemented
o 2019-02 - Segregation of Duties in Major Control Areas
o 2019-03 - Timely Review of Bank Reconciliations
o 2019-04 - Timely Preparation and Review of Quarterly Investment Reports
o 2018-01 - Segregation of Duties in Major Control Areas
o 2018-03 - Purchasing Policy Compliance
Other Matters
• 2020-03 - Investment Policy and Procedures Internal Controls
Significant Deficiencies in the Alameda Municipal Power Audit
• 2020-01 - Inventory Observations
The Management Letter lists the findings by the auditors during their review and testing. Staff prepared responses to the audit findings that are included in the attached report and will work on strengthening the internal controls in FY 2021.
The General Fund is the primary unrestricted operating fund of the City. On June 30, 2020, the City’s General Fund had a fund balance of $54.6 million, which included unrestricted, available funds of approximately $35.4 million, $18.2 million assigned, available for Council priorities as part of our reserves policy process, covering such items as economic uncertainties and emergencies.
Other Funds’ Reserves as of June 30, 2020 are as follows:
• Net Position in the City’s Sewer Fund totaled $20.04 million and is restricted for sewer system replacement. Working capital in the Sewer Fund (current assets less current liabilities) is $22.2 million.
• Fund balances in the Base Reuse Fund totaled $20.3 million. These funds are governed by many covenants and restrictions and may only be used on specific projects and programs.
• The City has set up several internal service funds for the purpose of setting aside dollars for future equipment and facilities purchases or repairs. Working capital (current assets less current liabilities) in these funds were as follows:
Equipment Replacement $ 8.5 million
Technology Replacement $ 8.0 million
Facilities Replacement $ 4.5 million
Total $ 21.0 million
Liabilities
• The City’s net pension liability was $262.1 million.
• The City’s net OPEB liability was $116.9 million after considering the value of the City’s OPEB Trust, which was valued at $15.3 million.
• Several Special Revenue Funds depend on General Fund transfers to support programs, services, and operations not fully funded by their own revenue sources. These funds will face revenue constraints during the current recession, so their fund balances will be important for future General Fund budget planning.
Fund balances as of June 30, 2020 were as follows:
Community Development: $ 1.7 million
Library $ 4.2 million
Recreation $ 1.7 million
Total $ 7.6 million
FINANCIAL IMPACT
Acceptance of this report does not affect the City’s budget or its financial condition. The report simply reflects an audit of the City’s financial records for all funds at June 30, 2020.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is in conformance with the Alameda Municipal Code and all policy documents.
ENVIRONMENTAL REVIEW
This action is not subject to environmental review as the activity is not a "project" for purposes of the California Environmental Quality Act (CEQA) because it is an organizational or administrative activity of the City that will not result in direct or indirect physical changes in the environment, in accordance with CEQA guidelines, section 15378(b)(5).
CLIMATE IMPACTS
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
City Manager Recommendation
The City Manager requests acceptance of the Fiscal Year 2019-2020 Audited Financial Statements and Compliance Reports.
Respectfully submitted,
Annie To, Finance Director
Exhibits:
1. Audited Comprehensive Annual Financial Report
2. Gann Limit AUP
3. Measure B Report
4. Measure BB Report
5. Measure F (VRF) Program Report
6. Memorandum on Internal Control
7. Base Reuse Agreed Upon Procedures Report
8. Transportation Development Act Report
9. Required Communications
10. Single Audit Report
cc: Eric Levitt - City Manager
Kevin Kearney - City Auditor
Kevin Kennedy - City Treasurer