CC 2013-12-10_08.c. Acceptance of the CAFRMEMORANDUM
TO: CITY COUNCIL
FROM: DEBORAH MALICOAT, DIRECTOR OF ADMINISTRATIVE SERVICES
SUBJECT: CONSIDERATION OF ACCEPTANCE OF THE COMPREHENSIVE
ANNUAL FINANCIAL REPORT (CAFR)
DATE: DECEMBER 10, 2013
RECOMMENDATION:
1x1. VJ''-.
It is recommended that the City Council receive and file the Comprehensive Annual
Financial Report (CAFR) for the fiscal year ended June 30, 2013.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
There is no financial impact from this action.
BACKGROUND:
The firm of Moss, Levy & Hartzheim, LLP was hired to audit the City of Arroyo Grande's
financial records for the fiscal year ended June 30, 2013. Audit services are retained for
two reasons: first, to have an independent review of internal control; and secondly, to
ensure that the resulting financial reports fairly represent the financial positior:i of the City.
ANALYSIS OF ISSUES:
Generally accepted accounting principles (GAAP) provide the criteria for judging whether a
financial report is fairly presented. In defining the minimum standard of acceptable basic
financial reporting for state and local governments, GAAP mandate a complete set of basic
financial statements, including accompanying note disclosures, as well as the presentation
of certain required supplementary information in connection with the basic financial
statements. GAAP encourages government agencies to present this information within the
broader framework of a CAFR.
The CAFR is a more detailed financial report beyond just the basic financial statements. It
is made up of (at minimum) three basic sections:
• The introductory section, which provides general information on the
government's structure and personnel.
• The financial section, which contains the auditor's opinion regarding the financial
statements, management's discussion and analysis providing a narrative
overview of the City-wide finances, the basic financial statements,· required
supplementary information and other supplementary schedules and statements.
Item 8.c. - Page 1
CITY COUNCIL
ACCEPTANCE OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT
DECEMBER 10, 2013
PAGE2
• The statistical section provides a broad range of trend data covering key
financial indicators over the past 1 O fiscal years. This section provides
information about the City's general financial trends, revenue capacity, debt
capacity, economic and demographic trends, and operating information.
The auditors conducted testing of internal controls in July 2013. The procedures for
receiving and disbursing cash, the accounting methodology used to record transactions,
the separation of duties to avert collusion, and asset securities were reviewed. As a result
of this testing, no internal control issues/events were found.
In October of 2013, an audit was conducted on the 2012-13 financial transactions.
Documentation in support of the assets, liabilities, and fund balance of all the funds in the
City were examined and verified. This process assures an impartial review and
substantiation of the City's fund balances. The result of this review is the City's CAFR.
The Fiscal Year 2012-13 CAFR is in compliance with newly effective Government
Accounting Standards Board (GASB) pronouncements. The implementation of GASB
Statement No. 63 (GASB 63) is the only one that had an impact on the City's financial
statements this year. GASB 63 is designed to establish guidance for reporting deferred
outflows or inflows of resources. The Statement also specified how "net position," no
longer referred to as net assets, should be displayed. More information is available in the
CAFR Notes to the Basic Financial Statements section.
As presented in the Management's Discussion and Analysis section of the CAFR, the
City's combined net position at June 30, 2013 increased by 3% to $88.9 million as follows:
FY Ended FY Ended Increase/ Total%
June 30, 2013 June 30, 2012 {Decrease} Change
Assets:
Current and other assets $24,977,982 $23,207,913 $1,770,069 8%
Capital assets, net 75,216,839 74,670,392 546,447 1%
Total assets 100,194,821 97,878,305 2,316,516 2%
Liabilities:
Long-term liabilities outstanding 9,359,820 9,758,465 {398,645) -4%
Other liabilities 1,936,539 1,907,252 29,287 2%
Total liabilities 11,296,359 11,665,717 (369,358) -3%
Net Position:
Investment in capital assets 72,375,581 71,993,317 382,264 1%
Restricted 7,374,485 7,221,859 152,626 2%
Unrestricted 9,148,396 6,960,211 2,188,185 31%
Total net position $88,898,462 $86,175,387 $2,723,075 3%
Item 8.c. - Page 2
CITY COUNCIL
ACCEPTANCE OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT
DECEMBER 10, 2013
PAGE3
For financial reporting purposes, the Local Sales Tax Fund. is combined with the General
Fund. The Combined Funds, as shown in the table, reports revenues and, transfers in of
$15.8 million, expenditures of $13.5 million, and transfers out of $1.7 million. This resulted
in an. increase to the fund balance of $615,852. The combined fund balance for the
General Fund is $5.3 million or 35% of expenditures (includes transfers out). However,
some fund balance is considered nonspendable because it is held as inventory ($8,544) or
reflects prepaid items ($764,872). Additionally, $1.7 million is designated for completing
capital projects or meeting other commitments in the future. Of the remaining $2.8 million,
the City has committed $2. 7 million to reserves for economic stabilization of the General
Fund.
Activity
6/30/12 Fund Balance
Revenues (includes transfers in)
Expenses
Transfers
Excess of revenues over (under) expenditures
Fund Balances:
Nonspendable for prepaid items
Nonspendable for inventory
Committed for capital projects
Committed for economic stabilization (reserves)
Assigned fund balance
Unassigned fund balance
6/30/13 Total Fund Balance
General Fund
$ 3,305,852
$
13,874,897
(13,295,235)
(124,470)
455,192
8,544
764,872
2,721,677
116,007"
149,944
3,761,044
Local Sales
Tax Fund
$ 1,736,689
1,936,092
(189,464)
(1,585,968)
160,660
1,554,807
342,542
$ 1,897,349
Combined
Balance
$ ;_ 5,042,541
15,810,989
(13,484,699)
{1,710,438)
615,852
8,544
764,872
1,554,807
2,721,677
458,549
149,944
$ 5,658,393
Auditors may issue three different types of opinions at the conclusion of an audit, an
Unqualified, Qualified, or Adverse Opinion. An Unqualified Opinion assures the audit
reader that the information presented fairly represents the financial position of the City. A
Qualified Opinion states that the information is fairly presented except for a particular
issue. An Adverse Opinion indicates that the agency has major accounting and/or internal
control issues. The Administrative Services Department staff is proud to report that for the
fiscal year ended June 30, 2013, the City of Arroyo Grande received an Unqualified
Opinion.
ALTERNATIVES:
The following alternatives are provided for City Council consideration:
Approve staff recommendations and receive and file the Comprehensive Annual
Financial Report;
Do not approve staff recommendations;
Modi_fy staff recommendations and approve;
Provide direction to staff.
Item 8.c. - Page 3
CITY COUNCIL
ACCEPTANCE OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT
DECEMBER 10, 2013
PAGE4
ADVANTAGES:
By receiving and filing the Comprehensive Annual Financial Report, the City will be
accepting the auditors Unqualified Opinion. As mentioned before, an Unqualified Opinion
assures the audit reader that the information presented fairly represents the financial
position of the City.
DISADVANTAGES:
There are no disadvantages in relation to the recommended action.
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The Agenda was posted in front of City Hall on Thursday, December 5, 2013. The Agenda
and report were posted on the City's website on Friday, December 6, 2013. No public
comments were received.
Attachment:
City of Arroyo Grande Comprehensive Annual Financial Report (on file in the
Administrative Services and Legislative and Information Services Departments
for public review, as well as on the City's website at www.arroyogrande.org)
Item 8.c. - Page 4