Title
Recommendation to Accept the Fiscal Year 2021-22 Audited Financial Statements and Compliance Reports. [City Council/SACIC] (Finance 10024051)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
The City of Alameda (City) is subject to annual financial and compliance audits performed by licensed certified public accountants. Staff is presenting for acceptance ten (10) reports for Fiscal Year (FY) 2021-22 issued by the City’s 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 2021-22.
The audited financial statements, known as the Annual Comprehensive Financial Report, 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 audit of the annual Financial Statements for the FY ended June 30, 2022, and issued an unmodified (or “clean”) audit opinion validating the fair presentation of the City’s financial position as of June 30, 2022. The City’s Annual Comprehensive Financial Report (ACFR) shows that the City continued to hold a sound financial position for FY 2021-22. The ACFR contains the basic financials of the City, including Alameda Municipal Power (AMP). The ACFR also includes the financial statements of the Community Improvement Commission (CIC) as a Private-Purpose Trust Fund. The ACFR is separated into the following three (3) sections:
Introductory Section: Provides a narrative summary of changes in fund balances and highlights the results of operations. This section contains the City’s transmittal letter, discusses economic conditions and outlook, the City’s mission statement, organizational profile, and a listing of key officers and personnel.
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, except as follows:
• Fund Reorganization - with the implementation of its new Enterprise Resource Planning (ERP) system during Fiscal Year 2021-22, the City analyzed its various general ledger funds and determined that reorganization and reporting changes for certain funds was necessary. The changes are disclosed in Notes 1R and 3C of the Annual Comprehensive Financial Report.
• Capitalization of Sewer Capital Projects - beginning July 1, 2021, the City capitalizes Sewer projects as costs are incurred, rather than including those costs in construction in progress until the project is complete.
The City implemented the following new accounting standards to conform with Government Accounting Standard Board (GASB) Statements, as follows:
GASB 87 - Leases
The City implemented Governmental Accounting Standards Board (GASB) Statement No. 87, Leases. This Statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities.
The Memorandum of Internal Controls (MOIC) (Exhibit 6) lists significant deficiencies and other matters identified by the auditors during their review and testing as noted below:
Significant Deficiencies
• 2022-01 - Prior Year Recommendations Not Yet Implemented
o 2019-02(b) - Segregation of Duties in Major Control Areas
o 2019-03 - Timely Review of Bank Reconciliations
o 2018-01(b) - Segregation of Duties in Major Control Areas
• 2022-02 - Purchasing Policy Compliance and Clarification of Requirements
• 2022-03 - Timely Vendor Payments
• 2022-04 - Annual Adjustment of the Sewer PILOT
The MOIC 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 and timeliness of the bank reconciliations and vendor payments in FY 2023.
The General Fund is the primary unrestricted operating fund of the City. On June 30, 2022, the City’s General Fund had a fund balance of $90.0 million, which included unrestricted, available funds of approximately $64.3 million; $13.9 million assigned, available for City Council priorities as part of our reserves policy process, covering such items as economic uncertainties and emergencies; $7.5 million committed to the Emma Hood Swim Center; and $1.2 million committed to operate interim supportive homeless housing at Dignity Village.
Other Funds’ Reserves as of June 30, 2022 are as follows:
• Net Position in the City’s Sewer Fund totaled $13.1 million and is restricted for sewer system replacement. Working capital (current assets less current liabilities) in the Sewer Fund is $13.9 million.
• Combined fund balances in the Base Reuse Special Revenue Fund and the Alameda Point Capital Projects Fund totaled $58.9 million. These funds are governed by numerous covenants and restrictions and may only be used on specific projects and programs.
• The City created 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:
Fleet Maintenance and Replacement $ 7.7 million
Technology Services $ 6.8 million
Facilities Maintenance and Replacement $ 4.2 million
Total $ 18.7 million
Liabilities
• The City’s net pension liability was $195.8 million.
• The City’s net OPEB liability was $86.8 million after considering the value of the City’s OPEB Trust, which was valued at $18.9 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 may face revenue constraints in the current environment, so their fund balances will be important for future General Fund budget planning.
Fund balances as of June 30, 2022 were as follows:
Community Development: $ 2.1 million
Library $ 5.5 million
Recreation $ 1.7 million
Total $ 9.3 million
FINANCIAL IMPACT
Acceptance of this report does not affect the City’s budget or financial condition. The report simply reflects an audit of the City’s financial records for all funds at June 30, 2022.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is in conformance with the Alameda Municipal Code and all policy documents.
ENVIRONMENTAL REVIEW
This action does not constitute a “project” as defined in California Environmental Quality Act (CEQA) Guidelines 15378 and therefore no further CEQA analysis is required.
CLIMATE IMPACTS
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
Recommendation
Accept the Fiscal Year 2021-22 Audited Financial Statements and Compliance Reports.
Respectfully submitted,
Margaret O’Brien, Finance Director
By,
Ross McCarthy, Controller
Exhibits:
1. Audited Annual Comprehensive Financial Report
2. Gann Limit Agreed Upon Procedures Report
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. Investments Agreed Upon Procedures Report
9. Required Communications
10. Single Audit Report
cc: Kevin Kearney - City Auditor
Kevin Kennedy - City Treasurer