AGENDA
ITEM
13 AGENDA STAFF REPORT
CALEXICO
DATE: May 3, 2022
TO: Mayor and City Council
APPROVED BY:
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PREPARED BY: Sandra L. Fonseca, Interim Finance Director SUBJECT: Receive and File 2021-22 Audited Financial Statements ========= ====---- ========: ===========
Recommendation:
This report transmits the City's 2021-22 audited financial statements. It is recommended that the City Council receive a presentation from the City's independent auditor with the results of their audit. This report is for information only.
Background:
Each year the City contracts with a Certified Public Accountant to conduct an independent audit of the City's financial statements. The Pun Group has conducted the 2021-22 audit. The audit is now complete and the financial statements have been published.
The City's annual financial statements meet the requirements of Muni Code Section 2.14.050 which requires the Finance Director to submit "a complete financial statement and report for the preceding year." City bond covenants and grant programs also require an annual independent audit of the City's financial statements. The City's financial report is prepared using generally accepted accounting principles established by the Government Accounting Standards Board.
Discussion & Analysis:
The City's auditors have issued the following reports which are included as attachments to this staff report:
1. Basic Financial Statements and Independent Auditor's Report, June 30, 2022 AGENDA This report includes the City's financial position as of June 2022 and the results of ITEM 2021-22 operations for the General Fund and other individual City program funds.
The report also includes City-wide financial statements which are presented on the full accrual basis of accounting and include long-term bond, pension, and retiree 13 medical obligations.
2. Transportation Development Act Article 3 and 8e (Non-Transit), June 30, 2022 and 2021 This annual report is required by the State Transportation Development Act. This document reports on the status of the City's Article 3 (pedestrian and bicycle) and Article 8e (other street/non-transit) state grant programs.
3. Single Audit, June 2022
This report provides the information about the City's Federal grant expenditures and compliance with grant requirements. The auditor references two findings in this year's Single Audit report.
First, in Finding #2022-001, the auditor references the long time-line for the City to issue its annual audited financial statements and recommends assigning additional qualified accounting personnel to help process complex accounting transactions. The City's Finance Department continues to operate with interim staff and several vacancies that fall short of best practices.
Despite delays, the City did receive an unmodified audit opinion on its financial statements without audit adjustment. The City continues to seek qualified Finance personnel to permanently fill its staff vacancies.
Second, in Finding 2022-002, the auditor identified missing quarterly grant status reports for the Airport Improvement Program. In this case, staff reported inconsistencies between written federal grant reporting requirements and informal direction from grantor personnel. The City administers a wide range of grant programs with very limited administrative staff. As reported on the Schedule of Federal Expenditures within the Single Audit report, the City was fortunate to leverage $8.9 million in city-wide federal expenditures in 2021-22 to support local services.
4. Report to Those Charged with Governance
This report provides the auditor's annual communication with the City Council about the audit process, accounting policies, use of estimates, and reports issued.
5. Appropriations Limit Schedule
This report provides information about the annual spending limit calculation required by Article XIIIB of the State Constitution (the Gann Initiative).
Fiscal Impact
General Fund
The audited General Fund/Measure H Fund Balance improved during 2021-22 to approximately $2.9 million and has reached a 60-day contingency reserve of annual expenditures. This audited General Fund balance is consistent with the information previously presented to City Council during the 2022-23 3rd quarter budget report on April 20, 2023. 2 Other Significant Long-term Liabilities
The June 30, 2022 financial statements report the following balances for several significant long- term liabilities. These liabilities have arisen over time and are not short-term budget issues but can be expected to impact future year budgets as payments become due. Each of these obligations has an annual amortization schedule to pay down the debt over time. A long-term plan to continue paying down each of these liabilities will position the City to continue to restore its financial position and build long-term sustainability over time.
It is important to note that these liabilities have significantly decreased during the 2021-22 fiscal year. The Net Pension Liability has decreased primarily due to 2021 investment gains. The OPEB Liability has decreased primarily due to updated actuarial assumptions including the discount rate for anticipated future investment earnings. The City's bond liabilities have been reduced due to scheduled, annual premium payments and also with the removal of Measure D/Local Transportation Authority bonds from the City's financial statements since these bonds are appropriately reported as bonds of the County-wide Local Transportation Authority and not the City.
Obligations for Past Service/Operating Costs
$18.4 million Net Pension Liability-Unfunded portion of earned service credit $24.0 million Retiree Medical/OPEB-Unfunded portion of earned medical benefits Obligations for Capital-related Long-Term Debt
$ 6.5 million Measure H Bond Principal (matures 2030)
$15.5 million Water Bond Principal (matures 2051)
$21.7 million Wastewater Bond Principal (matures 2051)
$19.3 million Successor Agency Bond Principal (matures 2033) Attachments:
1. Basic Financial Statements and Independent Auditor's Report, June 30, 2022
2. Transportation Development Act Article 3 and 8e (Non-Transit), June 30, 2022 and 2021
3. Single Audit, June 2022
4. Report to Those Charged with Governance, April 19, 2023
5. Appropriations Limit Schedule, June 2023
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