CC 2017-02-28_09c Comprehensive Annual Financial Report
MEMORANDUM
TO: CITY COUNCIL
FROM: DEBORAH MALICOAT, DIRECTOR OF ADMINISTRATIVE SERVICES
SUBJECT: CONSIDERATION OF ACCEPTANCE OF THE COMPREHENSIVE
ANNUAL FINANCIAL REPORT
DATE: FEBRUARY 28, 2017
RECOMMENDATION:
It is recommended that the City Council receive and file the Comprehensive Annual
Financial Report (CAFR) for the fiscal year ended June 30, 2016.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
There is no financial impact from this action.
BACKGROUND:
On April 22, 2014, the City Council awarded an agreement for consultant services to Moss,
Levy & Hartzheim, LLP to audit the City’s financial records for the fiscal year ended June
30, 2016. 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 position 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. GAAP encourages government agencies to
present this information within the Comprehensive Annual Financial Report (CAFR).
The CAFR is a more detailed financial report beyond just the basic financial statements. It
is made up of three basic sections:
The introductory section: provides general information of the City which includes
the letter of transmittal, list of principal officials, and organizational chart.
The financial section: provides the overall financial information of the City which
includes the report of the independent auditor, management’s discussion and
analysis (a narrative of the City finances), the basic financial statements,
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CITY COUNCIL
ACCEPTANCE OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT
FEBRUARY 28, 2017
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required supplementary information and other supplementary schedules and
statements.
The statistical section: provides a broad range of operational, economic, and
historical data that provides a context for assessing the City’s economic
condition. 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 June 2016. 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, there were no internal control issues/events noted.
In October 2016, an audit was conducted on net position of the City at June 30, 2016.
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 net position. The result of this review is the City’s CAFR.
The City’s CAFR is in compliance with newly effective Government Accounting Standards
Board (GASB) pronouncements, as detailed in the Notes to the Financial Statements.
As presented in the CAFR, the City’s combined net position at June 30, 2016 increased by
1.9% from $83.1 million to $84.7 million. This increase is largely due to an increase in
governmental activities, which includes activities in the General Fund, and a decrease in
business-type activities, which represents water and wastewater activities.
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CITY COUNCIL
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FEBRUARY 28, 2017
PAGE 3
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Net position of all funds reflects all the assets and liabilities of the City. It includes the
City’s investment in capital assets such as parks, bridges and roads as well as the
liabilities or obligations to pay vendors, employees and debt service payments. The net
position is the mathematical difference between assets and liabilities, but it doesn’t
necessarily reflect the economic health of an organization. In the City’s case, 90% of the
total net position reflects capital assets. While these assets are important, they can’t be
used to fund the day-to-day operations of the City and, therefore, may not be the most
useful measure of the City’s liquidity. It may be more useful to compare unassigned fund
balance to get a sense of the City’s ability to pay for ongoing operations. In the General
Fund, this amount represents 39.3% of total expenditures, which exceeds the City’s
reserve goal of 20%.
For financial reporting purposes, the additional ½ percent local sales tax revenue approved
by voters in 2006 is combined with the General Fund. The combined funds, as shown in
the table on the following page, reports revenues of $16.0 million and expenditures and
other financing uses of $16.1 million. As a result, there was a decrease to the fund
balance of $114,556 during the 2015-16 fiscal year.
The General Fund’s total fund balance is $7.4 million or approximately 48% of
expenditures (including transfers out). However, some fund balances are considered
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nonspendable because it is held as inventory ($18,662) or reflects prepaid items
($976,983). Additionally, $530,460 is designated for completing capital projects or meeting
other commitments in the future. This leaves an unassigned General Fund balance of $5.8
million that is available for appropriation for City programs and projects, which equates to
approximately 38% of expenditures.
Local Sales
General FundTax Fund Total
Beginning Fund Balance, 7/1/15 $ 6,163,185$ 1,541,568 $ 7,704,753
Revenues 13,858,3942,182,738 16,041,132
Expenditures (15,195,493)(226,979) (15,422,472)
Other Financing Sources/(Uses) 2,525,924(3,259,140) (733,216)
Net Change in Fund Balance $ 1,188,825$ (1,303,381) $ (114,556)
Local Sales
General FundTax Fund Total
Fund Balance:
Nonspendable$ 995,645$ 2,390 $ 998,035
Assigned for capital projects 238,1870 238,187
Assigned for post employment
benefits $292,2730292,273
Unassigned 5,825,905235,797 6,061,702
Ending Fund Balance, 6/30/16 $ 7,352,010$ 238,187 $ 7,590,197
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 reader that
the information presented in the CAFR 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 and no reliance may be placed on the financial statements. The Administrative
Services Department staff is proud to report that for the fiscal year ended June 30, 2016,
the City of Arroyo Grande received an unqualified opinion.
ALTERNATIVES:
The following alternatives are provided for City Council consideration:
Approve staff’s recommendation to receive and file the Comprehensive Annual
-
Financial Report;
Do not approve staff’s recommendation;
-
Modify staff’s recommendation and approve;
-
Provide direction to staff.
-
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ACCEPTANCE OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT
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ADVANTAGES:
By receiving and filing the Comprehensive Annual Financial Report, the City will be
accepting the auditors’ unqualified opinion. As mentioned above, an unqualified opinion
assures the reader that the information presented in the CAFR 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 at City Hall and on the City’s website in accordance with
Government Code Section 54954.2.
Attachments:
1) 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)
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Comprehensive Annual Financial Report
For the Fiscal Year Ending June 30, 2016
City of Arroyo Grande, California
Prepared by the Department of Administrative Services
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