CC 2024-01-23_09.b. ACFR Transportation Development ActItem 9.b.
MEMORANDUM
TO: City Council
FROM: Nicole Valentine, Administrative Services Director
BY: Lynda Horejsi, Accounting Manager
SUBJECT: Acceptance of the Annual Comprehensive Financial Report, Single
Audit, and Audit Report for the Transportation Development Act
Transportation Fund Reports
DATE: January 23, 2024
SUMMARY OF ACTION:
Receive and file the Annual Comprehensive Financial Report (ACFR), Single Audit, and
Audit Report for the Transportation Development Act Transportation Fund for the fiscal
year that ended June 30, 2023.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
Preparation of the City’s financial reports requires approximately 250 hours per year of
personnel resources and auditing services costing approximately $29,820 annually.
RECOMMENDATION:
1) Receive and file the Annual Comprehensive Financial Report (ACFR), Single Audit,
and Audit Report for the Transportation Development Act Transportation Fu nd for the
fiscal year ended June 30, 2023; and 2) Determine that receiving and filing the ACFR,
Single Audit and Audit Report for the Transportation Development Act Transportation
Fund is not a project subject to the California Environmental Quality Act (“CEQA”)
because it has no potential to result in either a direct, or reasonably foreseeable indirect,
physical change in the environment. (State CEQA Guidelines, §§ 15060, subd. (c)(2)-(3),
15378.)
BACKGROUND:
State law requires that every general-purpose local government publish an annual report
on its financial position and activity, and that the report be audited by an independent firm
of certified public accountants (the “ACFR”). The goal of the independent audit is to
provide a reasonable assurance that the City’s financial statements are free of material
misstatements. In addition, the auditing firm is responsible for providing an independent
review of the City’s internal financial controls. The City’s financial statements, internal
Page 19 of 56
Item 9.b.
City Council
Acceptance of the Annual Comprehensive Financial Report, Single Audit, and
Audit Report for the Transportation Development Act Transportation Fund Reports
January 23, 2024
Page 2
documents, and financial controls have been audited by the certified public accountant
firm of Moss, Levy & Hartzheim, LLP for the fiscal year ending June 30, 2023.
The Single Audit is an organization-wide audit of a non-federal entity that expends
$750,000 or more in federally-awarded funds in one year. In fiscal year 2021-22, the City
expended $844,750 in federal funds. The $844,750 was combined funding for the Bridge
Street Bridge Habitat project, Traffic Way Bridge project, and American Rescue Plan Act
(ARPA) funds. For the 2022-23 fiscal year, the City expended $916,570 in federal funds
towards the Traffic Way Bridge project and ARPA funds . As a result, the City has
completed a Single Audit for the fiscal year ending June 30, 2023, which is included with
this report as Attachment 2.
The Transportation Development Act (TDA) provides a state funding source for use by
local jurisdictions at the county level to improve existing public transportation and to
encourage regional public transportation coordination. It also p rovides some funding for
bicycle and pedestrian projects and, when certain conditions are met, streets and roads.
The main purpose and priority of TDA, however, is to provide funding for public
transportation. The Local Transportation Fund (LTF) is a local fund into which the State
deposits sales tax revenue to be used for transportation purposes defined by TDA. The
State Department of Tax and Fee Administration, based on sales tax collected in each
county, returns the general sales tax revenues to each cou nty’s LTF. The City has
completed the TDA Audit report every year and posts the reports on the City’s website.
Though not formally presented to the City Council in some prior years, this audit report
contains the results of the TDA audit for Council’s info rmation and review as Attachment
3.
ANALYSIS OF ISSUES:
Annual Comprehensive Financial Report (ACFR)
Generally accepted accounting principles (GAAP) provide the criteria for judging whether
a financial report is presented fairly. In defining the minimum standard of acceptable basic
financial reporting for state and local governments, GAAP mandates 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 ACFR.
The ACFR provides a more detailed financial report beyond the basic financial
statements. The ACFR is made up of three sections:
• The introductory section: provides general information on 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
Page 20 of 56
Item 9.b.
City Council
Acceptance of the Annual Comprehensive Financial Report, Single Audit, and
Audit Report for the Transportation Development Act Transportation Fund Reports
January 23, 2024
Page 3
analysis (a narrative of the City finances), the basic financial statements, 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 City’s external auditors at Moss, Levy & Hartzheim, LLP conducted testing of the
City’s internal financial controls in July 2023, October 2023, and November 2023. The
testing included reviewing the City’s procedures for receiving and disbursing cash, the
accounting methodology used to record transactions, the separation of duties to avert
collusion, and the City’s asset securities. As a result of this testing, there were no internal
control issues/events noted by the auditors.
An audit was also conducted on the net position of the City for the financial period ending
June 30, 2023. 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 documented in
the City’s ACFR. The City’s ACFR complies with newly effective Government Accounting
Standards Board (GASB) pronouncements, as detailed in the Notes to the Financial
Statements (see Page B-46 of Attachment 1).
Auditors may issue three different types of opinions at the conclusion of an audit; an
unmodified, modified, or adverse opinion. An unmodified opinion assures the reader that
the information presented in the ACFR fairly represents the financial position of the City.
A modified 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 sta tements. The
Administrative Services Department staff is proud to report that for the fiscal year ended
June 30, 2023, the City of Arroyo Grande received an unmodified opinion, reflecting that
the information presented in the ACFR fairly represents the financial position of the City.
As presented in the ACFR, the City’s combined net position at June 30, 202 3, increased
by $3.6 million or 3.66% from $99.3 million to $102.9 million. This overall increase is due
to an increase in governmental activities ($3.4 million) offset by a smaller decrease in
business-type activities ($146,146). The largest portion of the City’s net position, $82.3
million, reflects investments in capital assets net of depreciation (e.g. land, buildings,
infrastructure, and machinery & equipment). The City uses these capital assets to provide
services to the public; consequently, these assets are not available for future spending.
Page 21 of 56
Item 9.b.
City Council
Acceptance of the Annual Comprehensive Financial Report, Single Audit, and
Audit Report for the Transportation Development Act Transportation Fund Reports
January 23, 2024
Page 4
The description of the City’s 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 does not necessarily reflect the economic health of an organization. In the City’s
case, about 80% of the total net position reflects capital assets. While these assets are
important, they cannot 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.
For financial reporting purposes, the half percent Local Sales Tax revenue approved by
voters in 2006 and Other Post-Employee Benefits funds (OPEB) are combined with the
General Fund in the ACFR. However, the City’s quarterly and year-end reporting is based
on the General Fund exclusively and does not include the Local Sales Tax or OPEB
funds. The combined funds, as shown in the table below, reports total revenues of $25.9
million and expenditures of $23.1 million. As a result, there was an overall increase to the
fund balance of $2.8 million during the 2022-23 fiscal year.
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Item 9.b.
City Council
Acceptance of the Annual Comprehensive Financial Report, Single Audit, and
Audit Report for the Transportation Development Act Transportation Fund Reports
January 23, 2024
Page 5
The ACFR reports a General Fund total fund balance of $20.6 million. However, a small
amount of the fund balance is considered non -spendable because it is held as inventory
($37,592). Additionally, $4.7 million is designated for completing capital projects or
meeting other commitments in the future, including post -employment benefits. This
leaves an unassigned balance of $11.8 million in the General Fund and $4.1 million in the
Local Sales Tax fund. At the May 23, 2023, City Council meeting, Council assigned $3.1
million of the $11.8 million in unassigned General Fund for additional Pavement
Management Program project utilization and for the Community Service Grant Program.
The City’s Fiscal Policy establishes the maintenance of a fund balance reserve goal of
20% of expenditures with a minimum of 15% in the General Fund. At the conclusion of
Fiscal Year 2022-23, the reserve, based on available General Funds, was 55% and
exceeded the City’s reserve goal. A discussion item related to expending the excess fund
balance and a review of the fund balance policy will be brought to the Council at a future
meeting.
Single Audit
The City’s independent auditor, Moss, Levy & Hartzheim, LLP, completed the Single Audit
of federal awards for fiscal year ended June 30, 202 3. The auditors opined that the City
complied, in all material respects, with requirements that could have a direct and material
effect on each of its major federal programs for the fiscal year ended June 30, 202 3.
The City provided the following list of federal funding expenditures as of June 30, 202 3:
General Fund
Local Sales Tax
Fund OPEB Total
Beginning Fund Balance 7/1/22 10,823,192$ 5,967,140$ 1,011,630$ 17,801,962$
Revenues 22,758,054 3,004,610 122,374 25,885,038
Expenditures (21,718,987) (1,346,413) - (23,065,400)
Net Change in Fund Balance 1,039,067$ 1,658,197$ 122,374$ 2,819,638$
Fund Balance:
Nonspendable 37,592$ -$ -$ 37,592$
Assigned for capital projects - 3,522,243 - 3,522,243
Assigned for post employment benefits - - 1,134,004 1,134,004
Unassigned 11,824,667 4,103,094 - 15,927,761
Ending Fund Balance, 6/30/23 11,862,259$ 7,625,337$ 1,134,004$ 20,621,600$
Page 23 of 56
Item 9.b.
City Council
Acceptance of the Annual Comprehensive Financial Report, Single Audit, and
Audit Report for the Transportation Development Act Transportation Fund Reports
January 23, 2024
Page 6
Audit Report for the Transportation Development Act Transportation Fund
The City’s independent auditor, Moss, Levy & Hartzheim, LLP also completed the Audit
Report for the Transportation Development Act Transportation Fund Report (the “TDA
Transportation Fund Report”). The auditors opined that the City complied, in all material
respects, with requirements that could have a direct and material effect on each of its
major federal programs for the year ended June 30, 2023. There were no findings issued
or questioned costs.
The TDA Transportation Fund Report is for the Transportation Fund, which is a special
revenue fund of the City. The California Code of Regulations, Title 2 1, sections 6661 and
6751, required Local Transportation Fund and State Transit Assistance Fund recipients
such as the City to submit a fiscal audit report to the State Controller’s Office annually.
The Transportation Fund Audit reflected that the City’s allocations under Article 8, Section
99400(a), which relates to projects for local streets and other multimodal transportation,
for the fiscal year ended June 30, 2023, was $565,513. The City’s allocations under Public
Utilities Code Article 3, Section 99233.3, which relates to funding facilities for use of
pedestrians and bicycles or other local transportation projects, for the fiscal year ended
June 30, 2023, was $24,664. The City's allocation of the TDA Funds are used to support
the Streets program that maintains all city streets, rights-of-way, and sidewalks.
ALTERNATIVES:
The following alternatives are provided for the Council’s consideration:
1. Receive and file the Annual Comprehensive Financial Report , Single Audit, and
Audit Report for the Transportation Development Act Transportation Fund Report;
or
2. Provide other direction to staff.
ADVANTAGES:
By receiving and filing these reports, the City will be accepting the auditors’ unmodified
opinion. As discussed above, an unmodified opinion assures the reader that the
information presented in the reports fairly represents the financial position of the City.
DISADVANTAGES:
There are no disadvantages in relation to the recommended action.
Project Name Total Expenditures
Traffic Way Bridge 218,848.33
AMERICAN RESCUE PLAN ACT (ARPA)697,721.94
916,570.27$
As of June 30, 2023
List of Federal funding of expenditures
City of Arroyo Grande
Page 24 of 56
Item 9.b.
City Council
Acceptance of the Annual Comprehensive Financial Report, Single Audit, and
Audit Report for the Transportation Development Act Transportation Fund Reports
January 23, 2024
Page 7
ENVIRONMENTAL REVIEW:
No environmental review is required for this item. Receiving and filing the ACFR, Single
Audit, and Audit Report for the Transportation Development Act Transportation Fund
Report is not a project subject to the California Environmental Quality Act (“CEQA”)
because it has no potential to result in either a direct, or reasonably foreseeable indirect,
physical change in the environment. (State CEQA Guidelines, §§ 15060, subd. (c)(2)-(3),
15378.)
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. Annual Comprehensive Financial Report and Independent Auditors’ Report on
Internal Control over Financial Reporting and on Compliance and Other Matters
Based on an Audit of Financial Statements Performed in Accordance with
Government Auditing Standards
2. Single Audit
3. Transportation Development Act (TDA) Transportation Fund Report
Page 25 of 56
ATTACHMENTS 1 - 3
Attachment 1 is available as a link: FY 2022-23 Annual Comprehensive Financial Report (PDF)
Attachment 2 is available as a link: FY 2022-23 Single Audit Report (PDF)
Attachment 3 is available as a link: FY 2022-23 TDA Audit Report (PDF)
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